Document:

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                                                                   EXHIBIT 10.38

                                   QUOTA SHARE
                              REINSURANCE AGREEMENT

                  (HEREINAFTER REFERRED TO AS THE "AGREEMENT")

                                     BETWEEN

                       TOWER INSURANCE COMPANY OF NEW YORK
                               NEW YORK, NEW YORK

                   (HEREINAFTER REFERRED TO AS THE "COMPANY")

                                       AND

      THE REINSURERS SUBSCRIBING THEIR RESPECTIVE INTERESTS AND LIABILITES
                           AGREEMENTS ATTACHED HERETO

                  (HEREINAFTER REFERRED TO AS THE "REINSURERS")

                                    ARTICLE 1

BUSINESS COVERED

This Agreement shall indemnify the Company in respect of the net excess
liability as herein provided and specified which may accrue to the Company as a
result of Ultimate Net Loss and Loss Adjustment Expenses subject to this
Agreement, under Policies written by the Company and classified as Property or
Liability, following the Company's original Policies, including: Fire and Allied
Lines, Commercial Multiple Peril, Homeowners Multiple Peril and Liability,
Workers' Compensation, Inland Marine and Automobile Liability and Physical
Damage, all subject to the terms, conditions and exclusions of this Agreement.

                                    ARTICLE 2

FOLLOW THE FORTUNES

The Reinsurers' liability shall attach simultaneously with that of the Company
and shall be subject in all respects to the same risks, terms, conditions,
interpretations, waivers and to the same modifications, alterations, and
cancellations as the respective Policies issued by the Company, the true intent
of this Agreement being that the Reinsurers shall, in every case to which this
Agreement applies, follow the fortunes of the Company, subject always to the
limits, terms, conditions and exclusions set forth in this Agreement.

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                                    ARTICLE 3

TERM

A.       This Agreement shall take effect 12:01 a.m., Eastern Standard Time,
         January 1, 2005 and shall apply to all losses occurring on or after
         12:01 a.m., Eastern Standard Time, January 1, 2005 in respect of all
         new and renewal Policies written on and after 12:01 a.m., Eastern
         Standard Time, January 1, 2005 until 12:01 a.m., Eastern Standard Time,
         January 1, 2006.

         At 12:01 a.m., Eastern Standard Time, January 1, 2006, the Reinsurers
         shall be liable for all losses occurring in respect of all inforce
         Policies until the earlier of the expiration or the anniversary date of
         the Company's Policies, but not to exceed 12 (twelve) months plus odd
         time. In the event that any Policy is required by statute or regulation
         or order to be continued in force, the Reinsurers will continue to
         remain liable with respect to each such Policy until the Company may
         legally cancel, non-renew or otherwise eliminate liability under such
         Policy.

B.       The Company and the Reinsurers may agree to terminate this Agreement or
         some portion of the Business Covered on a cut-off basis. Upon such
         termination, the Reinsurers shall incur no liability for losses
         occurring subsequent to the effective date of termination and the
         Reinsurers shall return to the Company the Reinsurers' portion of the
         unearned premium reserve for all inforce Policies less previously paid
         Ceding Commissions on such unearned premium reserve.

                                    ARTICLE 4

TERRITORY

In respect of Business Covered by the Company, this Agreement shall apply to New
York, New Jersey, Pennsylvania and Connecticut.

To the extent that the Company becomes authorized to transact insurance in any
jurisdiction in addition to those set forth above, the Company may request that
the Reinsurers amend this Agreement to include Policies issued in such
jurisdictions.

                                    ARTICLE 5

EXCLUSIONS

This Agreement shall not apply to and specifically excludes:

A.       Nuclear Incident, in accordance with the following clauses attached
         hereto:

         1.       Nuclear Incident Exclusion Clause - Physical Damage -
                  Reinsurance - U.S.A. - NMA 1119;

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         2.       Nuclear Incident Exclusion Clause - Liability - Reinsurance -
                  U.S.A. - NMA 1590;

B.       War Risks, in accordance with the War Risks Exclusion Clause attached
         hereto;

C.       Insolvency, in accordance with the Insolvency Funds Exclusion Clause
         attached hereto;

D.       Liability assumed by the Company as a member of any pool, association
         or syndicate, in accordance with the Pools, Associations and Syndicates
         Exclusion Clause attached hereto;

E.       Earthquake, when written as such;

F.       Liability arising out of ownership, maintenance or use of any aircraft
         or flight operations;

G.       Professional Liability, when written as such, however not to exclude
         when written as part of a package Policy or when written in conjunction
         with other Policies issued by the Company;

H.       Insolvency and Financial Guarantee;

I.       Any acquisitions of companies or books of business outside of the
         normal course of business ("agent rollovers") without the prior written
         consent of the Reinsurers hereon;

J.       Asbestos liabilities of any nature;

K.       Pollution liabilities of any nature;

L.       Assumed reinsurance with the exception of inter-affiliate reinsurance;

M.       Ex gratia payments in excess of $5,000 (five thousand dollars).

                                    ARTICLE 6

COVERAGE, RETENTION, PER RISK-PER LOSS OCCURRENCE LIMITS AND AGGREGATE LIMIT

A.       Coverage - The Reinsurers shall indemnify the Company for the Cession
         Percentage of the net retained liability of the Company for all
         Ultimate Net Loss and Loss Adjustment Expenses billed by in-house
         adjusters, defense attorneys, and other claims personnel of Tower
         Insurance Company of New York/Tower Risk Management who bill the
         Company for their services on an hourly basis, subject to the terms,
         conditions, and exclusions of this Agreement, the Retention, Per Risk -
         Per Loss Occurrence Limits and the Aggregate Limit hereon. The
         Reinsurers shall only be obligated to indemnify the Company for
         underlying Policies where the Reinsurers has been paid respective
         premiums for such underlying Policies by the Company.

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B.       Retention - The Company shall retain net and unreinsured such portion
         of all Ultimate Net Loss in respect of the first 95.0% (ninety five
         point zero percent) of Ultimate Net Loss Ratio as shall equal 100% (one
         hundred percent) less the Cession Percentage and shall retain 100% (one
         hundred percent) of Ultimate Net Loss in excess of the first 95.0%
         (ninety five point zero percent) of Ultimate Net Loss Ratio.

C.       Per Risk - Per Loss Occurrence Limits - In no event shall the
         Reinsurers' limit of liability exceed its pro rata share of $1,000,000
         (one million dollars) per risk, per Loss Occurrence in respect of
         property business and $1,000,000 (one million dollars) per Loss
         Occurrence for liability business. In addition, in no event shall the
         Reinsurers' aggregate limit of liability exceed 10% (ten percent) of
         Reinsurance Premium earned for the Term in respect of any one Loss
         Occurrence in respect of ceded property catastrophe Ultimate Net Loss
         plus associated Loss Adjustment Expenses. Furthermore, in no event
         shall the Reinsurers' aggregate limit of liability exceed 10% (ten
         percent) of Reinsurance Premium earned for the Term in respect of the
         combined amounts of property and casualty Ultimate Net Loss plus
         associated Loss Adjustment Expenses emanating from Terrorist Acts
         whether one or multiple Terrorist Acts.

D.       Aggregate Limit- The Reinsurers' maximum overall aggregate Ultimate Net
         Loss and Loss Adjustment Expense liability under this Agreement shall
         be 95.0% (ninety five point zero percent) of ultimate Reinsurance
         Premium earned by the Reinsurers.

                                    ARTICLE 7

DEFINITIONS

A.       A. "Cession Percentage" as used in this Agreement shall be 25% (twenty
         five percent) for the new and renewal Business Covered written during
         the period January 1, 2005 through December 31, 2005, both days
         inclusive.

B.       "Declaratory Judgment Expenses" as used in this Agreement shall mean
         legal expenses paid by the Company in the investigation, analysis,
         evaluation or litigation of a coverage action between the Company and
         any other party to determine if there is coverage under a Policy or
         Policies issued by the Company for a specific claim or specific claims
         reinsured under this Agreement or which would be reinsured under this
         Agreement had the Company not been successful in the coverage action.

C.       "Loss Adjustment Expenses" as used in this Agreement shall mean all
         costs and expenses allocable to a specific claim that are incurred by
         the Company in the investigation, appraisal, adjustment, settlement,
         litigation, defense or appeal of a specific claim, including court
         costs and costs of supersedeas and appeal bonds and including a)
         pre-judgment interest, unless included as part of the award or
         judgment; b) post-judgment interest and c) legal expenses and costs
         incurred in connection with coverage questions and legal actions
         connected thereto, including pro rata Declaratory Judgment Expenses.

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         Loss Adjustment Expenses shall include in-house adjusters, defense
         attorneys, and other claims personnel of Tower Insurance Company of New
         York/Tower Risk Management who bill the Company for their services on
         an hourly basis.

D. "Loss Occurrence" shall have the following meanings:

1.       As respects property losses, "Loss Occurrence" shall mean the sum of
         all individual losses directly occasioned by any one disaster, accident
         or loss or series of disasters, accidents or losses arising out of one
         event which occurs within the area of one state of the United States or
         province of Canada and states or provinces contiguous thereto and to
         one another. However, the duration and extent of any one "Loss
         Occurrence" shall be limited to all individual losses sustained by the
         Company occurring during any period of 168 (one hundred sixty eight)
         consecutive hours arising out of and directly occasioned by the same
         event except that the term "Loss Occurrence" shall be further defined
         as follows:

         a.       As regards windstorm, hail, tornado, hurricane, cyclone,
                  including ensuing collapse and water damage, all individual
                  losses sustained by the Company occurring during any period of
                  72 (seventy two) consecutive hours arising out of and directly
                  occasioned by the same event. However, the event need not be
                  limited to one state or province or states or provinces
                  contiguous thereto.

         b.       As regards riot, riot attending a strike, civil commotion,
                  vandalism and malicious mischief, all individual losses
                  sustained by the Company occurring during any period of 72
                  (seventy two) consecutive hours within the area of one
                  municipality or county and the municipalities or counties
                  contiguous thereto arising out of and directly occasioned by
                  the same event. The maximum duration of 72 (seventy two)
                  consecutive hours may be extended in respect of individual
                  losses which occur beyond such 72 (seventy two) consecutive
                  hours during the continued occupation of an assured's premises
                  by strikers, provided such occupation commenced during the
                  aforesaid period.

         c.       As regards earthquake (the epicenter of which need not
                  necessarily be within the territorial confines referred to in
                  the opening paragraph of this article) and fire following
                  directly occasioned by the earthquake, only those individual
                  fire losses which commence during the period of 168 (one
                  hundred sixty eight) consecutive hours may be included in the
                  Company's "Loss Occurrence".

         d.       As regards "Freeze", only individual losses directly
                  occasioned by collapse, breakage of glass and water damage
                  (caused by bursting of frozen pipes and tanks) may be included
                  in the Company's "Loss Occurrence".

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         For all "Loss Occurrences" the Company may choose the date and time
         when any such period of consecutive hours commences provided that it is
         not earlier than the date and time of the occurrence of the first
         recorded individual loss sustained by the Company arising out of that
         disaster, accident or loss and provided that only one such period of
         168 (one hundred sixty eight) consecutive hours shall apply with
         respect to one event except for those "Loss Occurrences" referred to in
         sub-paragraphs 1 and 2 of this Article where only one such period of 72
         (seventy two) consecutive hours shall apply with respect to one event.

         No individual losses occasioned by an event that would be covered by 72
         (seventy two) hours clauses may be included in any "Loss Occurrence"
         claimed under the 168 (one hundred sixty eight) hours provision.

2.       As respects casualty losses, "Loss Occurrence" shall mean any one
         accident, disaster, casualty or happening, or series of accidents,
         disasters, casualties or happenings arising out of or following on one
         event, regardless of the number of interests insured or the number of
         Policies responding.

         Except where specifically provided otherwise in this Agreement, each
         Loss Occurrence shall be deemed to take place as of the earliest date
         of loss as determined by any original Policy responding to the Loss
         Occurrence.

3.       As respects liability losses (bodily injury and property damage) other
         than Automobile and Products, and at the option of the Company, "Loss
         Occurrence" shall mean the sum of all damages sustained by each insured
         during a period of twelve consecutive months arising out of a
         continuous or repeated injurious exposure to substantially the same
         general conditions. For purposes of this definition, the date of loss
         shall be deemed to be the inception or renewal date of the original
         Policy of insurance to which payment is charged.

         As respects occupational disease and cumulative trauma:

         a.       In case the Company shall, within one original Policy year,
                  sustain several losses arising out of such and occupational or
                  other disease or cumulative trauma of a specific kind or
                  class, suffered by several employees of one original insured,
                  all such losses shall be deemed to arise out of one
                  'occurrence' and the date of the occurrence for reinsurance
                  purposes shall be deemed to be the inception, anniversary or
                  renewal date of the Company's original Policy.

         b.       With respect to an occupational disease or other disease
                  suffered by more than one employee of one or more employers,
                  such occupational disease or other disease shall be covered
                  under this Agreement if resulting from a sudden and accidental
                  event not exceeding 48 (forty eight) hours in duration. For
                  purposes of this Agreement, a 48 (forty eight) hour event will
                  be deemed as one Loss Occurrence. All such losses subsequently
                  arising out of such event and not otherwise classified except
                  as occupational disease or other disease shall be considered
                  as one Loss Occurrence or may be combined with losses
                  classified as other than occupational disease or other disease
                  which arise out of the same event, and the combination of such
                  losses shall be considered as one Loss Occurrence within the
                  meaning hereof.

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E.       "Net Earned Premium" shall mean the Net Written Premium of the
         Company's Business Covered less the unearned premium reserve at the
         respective date of calculation.

F.       "Net Written Premium" shall mean gross premium of the Company's
         Business Covered less cancellations and returns and less premium paid
         for specific excess of loss reinsurance above $1,000,000 (one million
         dollars) and facultative reinsurances, if any.

G.       "Policy" or "Policies" shall mean all policies, binders, contracts,
         certificates, or agreements of insurance, whether written or oral, in
         accordance with Business Covered hereunder.

H.       "Terrorist Acts" shall mean any act, or preparation in respect of
         action, or threat of action designed to influence the government de
         jure or de facto of any nation or any political division thereof, or in
         pursuit of political, religious, ideological, or similar purposes to
         intimidate the public or a section of the public of any nation by any
         person or group(s) of persons whether acting alone or on behalf of or
         in connection with any organization(s) or government(s) de jure or de
         facto, and which:

         (i)    involves violence against one or more persons; or

         (ii)   involves damage to property; or

         (iii)  endangers life other than that of the person committing the
                action; or

         (iv)   creates a risk to health or safety of the public or a section
                of the public; or

         (v)    is designed to interfere with or to disrupt an electronic
                system.

         Loss, damage, cost or expense arising out of or in connection with any
         action in controlling, preventing, suppressing, retaliating against, or
         responding to any act of terrorism shall be considered part of
         terrorism Ultimate Net Loss.

I.       "Ultimate Net Loss" shall mean, subject to all limitations in this
         Agreement including the Per Risk - Per Loss Occurrence Limits in
         Article 6, Coverage, Retention, Per Risk-Per Loss Occurrence Limits and
         Aggregate Limit, section C, actual loss or losses, arising out of
         Business Covered hereunder sustained by the Company in respect of
         losses occurring during the Term, including 100% (one hundred percent)
         of Extra Contractual Obligations and 100% (one hundred percent) of
         Excess Policy Limits, subject to the limitations in Article 19, Excess
         Policy Limits and Article 20, Extra Contractual Obligations, after
         making deductions for all recoveries and salvages and inuring specific
         and facultative reinsurance, whether collectible or not. The Reinsurers
         shall not be liable for more than $1,000,000 (one million dollars)
         additional subject Ultimate Net Loss for any one claim in respect of
         Excess of Policy Limits/Extra Contractual Obligations liability and
         $5,000,000 (five million dollars) in the aggregate for all Excess of
         Policy Limits/Extra Contractual Obligations liability.

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J.       "Ultimate Net Loss Ratio" shall mean the ratio of aggregate Ultimate
         Net Losses incurred plus aggregate Loss Adjustment Expenses divided by
         Net Earned Premium as of the date of calculation.

                                    ARTICLE 8

NET RETAINED LINES

This Agreement applies only to that portion of Business Covered which the
Company retains net for its own account, and in calculating the amount of any
Ultimate Net Loss and Loss Adjustment Expenses hereunder and also in computing
the amounts in Article 6, Coverage, Retention, Per Risk-Per Loss Occurrence
Limits and Aggregate Limit, to which this Agreement applies, only Ultimate Net
Loss and Loss Adjustment Expenses in respect of that portion of Business Covered
which the Company retains net for its own account shall be included. The Company
warrants that it will have a maximum net retained line in accordance with
Article 6, Coverage, Per Risk-Per Loss Occurrence Limits and Aggregate Limit for
any one risk.

Recoveries from any form of insurance or reinsurance that protects the Company
against claims which are Subject Business shall inure to the benefit of the
Reinsurers and shall be deducted to arrive at the amount of the Company's
Ultimate Net Loss and Loss Adjustment Expenses.

The amount of the Reinsurers' liability hereunder in respect of any Ultimate Net
Loss and Loss Adjustment Expenses shall not be increased by reason of the
inability of the Company to collect from any other reinsurer, whether specific
or general, any amounts which may have become due from such reinsurer, whether
such inability arises from the insolvency of such reinsurer or otherwise.

                                    ARTICLE 9

REINSURANCE PREMIUM AND REINSURERS' MARGIN

A.       Reinsurance Premium - The Company shall pay to the Reinsurers the
         Cession Percentage of the Net Written Premium as collected for the Term
         of the Agreement (the "Reinsurance Premium"). The Company shall retain
         any and all Reinsurance Premium on a funds withheld basis. A notional
         Funds Withheld Account/Profit Sharing Account shall be calculated by
         the Company and maintained until there is a complete and final release
         of all the Reinsurers' past, present and future obligations and
         liabilities to the Company of any nature whatsoever arising under or
         related to this Agreement. The Company shall credit Net Written Premium
         to the Funds Withheld Account/Profit Sharing Account on a monthly
         basis, and settlements shall be made in accordance with Article 13,
         Accounts, Remittances and Loss Settlements.

         Notwithstanding any provision in this Agreement to the contrary, the
         Company shall assume 100% of the credit risk associated with all
         Reinsurance Premium amounts that it fails to collect from its insureds
         ("Delinquent Premium Amounts"). The Company shall include all
         Delinquent Premium Amounts in the Reinsurance Premium amounts that it
         pays the Reinsurers (or credits to the Funds Withheld Account/Profit
         Sharing Account, as applicable) on a monthly basis pursuant to Article
         13, Accounts, Remittances and Loss Settlements, section C.

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         The Company shall have the option, subject to the Reinsurers' consent,
         to terminate this Agreement on a cut-off basis. If the Company elects,
         and the Reinsurers consents, to terminate this Agreement on a cut-off
         basis, in accordance with Article 3, Term, then the Reinsurers shall
         return to the Company the respective unearned premium less previously
         paid Reinsurers' Margin and Ceding Commissions on such unearned
         premium.

         The maximum overall Net Written Premium for this Agreement shall be
         $325,000,000 (three hundred twenty five million dollars) or so deemed.
         The maximum overall ceded Net Written Premium shall be $81,250,000
         (eighty one million, two hundred fifty thousand dollars) (the
         "Aggregate Premium Cap"). To the extent the Company's overall ceded Net
         Written Premium exceeds the Aggregate Premium Cap, the Cession
         Percentage shall be reduced by dividing $325,000,000 (three hundred
         twenty five million dollars) by the actual Net Written Premium and
         multiplying that result by the Cession Percentage elected in Article 6,
         Coverage, Retention, Per Risk-Per Occurrence Limits and Aggregate
         Limit.

B.       Reinsurers' Margin - The Company shall pay to the Reinsurers a
         Reinsurers' Margin equal to 8.0% (eight point zero percent) of
         Reinsurance Premium.

         The Company shall pay the Reinsurers the full amount of the Reinsurers'
         Margin due each month on the date when Reinsurance Premium is reported
         each month. The Company shall effect payment of the Reinsurers' Margin
         due each month by direct wire transfer to the Intermediary to pay the
         Reinsurers.

         In the event the Company fails to pay the full amount of any
         Reinsurers' Margin due within 30 (thirty) business days of the payment
         due date, the Reinsurers shall provide the Company with a written
         demand for such outstanding Reinsurers' Margin. The Company shall have
         an additional 45 (forty five) days from the date the Reinsurers
         provides the written demand in which to pay to the Reinsurers the
         outstanding Reinsurers' Margin (the "Cure Period"). If the Company
         fails to pay the full amount of any Reinsurers' Margin by the end of
         the Cure Period, this Agreement shall be cancelled retroactively for
         nonpayment of premium, effective as of the date of the last day of the
         month preceding for which the Reinsurers received actual payment of its
         Reinsurers' Margin and the Reinsurers shall incur no liability for
         losses occurring subsequent to the effective date of cancellation.

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                                   ARTICLE 10

CEDING COMMISSION

The Reinsurers shall allow the Company a provisional Ceding Commission equal to
39.1% (thirty nine point one percent) of the Reinsurance Premium hereon. The
provisional Ceding Commission shall be debited/credited, as applicable, to/from
the Funds Withheld Account/Profit Sharing Account as Reinsurance Premiums are
settled monthly and adjusted as the Ultimate Net Loss Ratio is re-determined
quarterly.

The first adjustment of Actual Ceding Commission for purposes of crediting the
interest due and owing to the Funds Withheld Account/Profit Sharing Account
shall be calculated no later than February 28, 2006 for the quarter ended
December 31, 2005. Thereafter the Actual Ceding Commission shall be recalculated
each quarter and based upon the Ultimate Net Loss Ratio re-determined each
quarter, in accordance with the following table which Ceding Commission may be
reduced by the provisions in Article 12, Trust Account:

                      Ceding Commission Rate         Ultimate Net Loss Ratio
                      ----------------------         -----------------------

         Maximum            48.1%                              47.0% or Lower
                                              .9 for 1
         Provisional        39.1%                              57.0%
                                              .9 for 1
         Minimum            29.2%                              68.0% or Higher

         If the Ultimate Net Loss Ratio exceeds 47.0% (forty seven point zero
         percent), the Ceding Commission shall be reduced .9% (point nine
         percent) and any portion thereof for each 1% (one percent) and any
         portion thereof that the Ultimate Net Loss Ratio exceeds 47.0% (forty
         seven point zero percent), down to a Ceding Commission of 39.1% (thirty
         nine point one percent) at a 57% (fifty seven percent) Ultimate Net
         Loss Ratio. If the Ultimate Net Loss Ratio exceeds 57% (fifty seven
         percent), the Ceding Commission shall be reduced .9% (point nine
         percent) and any portion thereof for each 1% (one percent) and any
         portion thereof that the Ultimate Net Loss Ratio exceeds 57% (fifty
         five percent), subject to a minimum Ceding Commission of 29.2% (twenty
         nine point two percent) at a 68.0% (sixty eight point zero percent) or
         higher Ultimate Net Loss Ratio.

         Beginning with the calendar quarter ending March 31, 2006, any
         adjustments to Ceding Commission shall result in a special interest
         credit calculation from the time of adjustment back to December 31,
         2005 at the annual Interest Credit of 3.0% (three point zero percent).
         Such special interest credit shall be debited or credited, as
         applicable, to or from the Funds Withheld Account/Profit Sharing
         Account at the time of calculation.

The Reinsurers shall remain liable for payment of Ceding Commission whether or
not the Funds Withheld Account/Profit Sharing Account becomes depleted.

<PAGE>

                                   ARTICLE 11

FUNDS WITHHELD ACCOUNT/PROFIT SHARING ACCOUNT AND INTEREST CREDIT

A.       Funds Withheld Account/Profit Sharing Account - For purposes of this
         Agreement, the Company shall establish on its books and maintain a
         cumulative Funds Withheld Account/Profit Sharing Account comprised of
         the following:

         1.       The Funds Withheld Account/Profit Sharing Account at December
                  31, 2004 shall be equal to $0 (zero dollars);

         2.       The Funds Withheld Account/Profit Sharing Account at each
                  subsequent month end shall be comprised of the following
                  cumulative amounts:

                  a)       The Funds Withheld Account/Profit Sharing Account at
                           the end of the prior month; plus

                  b)       Reinsurance Premium paid by the Company for such
                           month; less

                  c)       Ceding Commission for such month, when paid by the
                           Reinsurers, excluding the Return Ceding Commission as
                           per Article 12, Trust Account; plus or less (as
                           applicable)

                  d)       Special interest credit adjustments on Ceding
                           Commission Adjustments for such month; less

                  e)       Reinsurers' Margin for such month; less

                  f)       Ceded Ultimate Net Losses and Loss Adjustment
                           Expenses paid by the Reinsurers for such month; plus

                  g).      Interest Credit for such month.

         The Company shall determine and report the balance and activity of the
         Funds Withheld Account/Profit Sharing Account monthly within 45 (forty
         five) days of the month end.

B.       Interest Credit - The Funds Withheld Account/Profit Sharing Account
         shall be credited monthly, as of the end of the each month, with an
         Interest Credit rate equal to .2466% (point two four six six percent)
         multiplied by the beginning monthly balance of the Funds Withheld
         Account/Profit Sharing Account for the respective month, to achieve an
         annual effective yield of 3.0% (three point zero percent). In
         calculating the beginning monthly balance, all amounts due to either
         party shall be deemed settled, effective as of the actual date when
         such items were due pursuant to the terms of this Agreement in
         accordance with Article 13, Accounts, Remittances and Loss Settlements.

<PAGE>

         Interest Credit shall continue even in the event of the Company's
insolvency.

                                   ARTICLE 12

TRUST ACCOUNT

The Company shall establish a segregated account (the "Segregated Account")
pursuant to a Segregated Account Trust Agreement acceptable to the Reinsurers
and maintain in such account assets with a market value equal to the balance of
the Funds Withheld Account/Profit Sharing Account. The Company shall deposit to
the Segregated Account Reinsurance Premium less provisional Ceding Commission,
plus downward adjustments of the provisional ceding commission, less Reinsurers'
Margin, all as contractually due hereunder. The Company shall be permitted to
withdraw assets from the Segregated Account for the following purposes only:
payment of Ceding Commission adjustments and ceded paid portion of Ultimate Net
Loss and Loss Adjustment Expense amounts when contractually due from the
Reinsurers. The Company shall be liable for all of the expenses arising out of
the Trust Account, including but not limited to, all expenses incurred by the
Trustee in administering the Trust Account and all compensation payable to the
Trustee (collectively, the "Trust Expenses").

If the market value of the assets in the Segregated Account at any calendar
quarter end is less than the Funds Withheld Account/Profit Sharing Account
balance at such calendar quarter end, the Company shall deposit assets to
achieve the required Funds Withheld Account/Profit Sharing Account balance at
such quarter end. If the market value of assets in the Segregated Account at any
calendar quarter end exceeds the balance of the Funds Withheld Account/Profit
Sharing Account at such calendar quarter end, such excess amount shall remain in
the Funds Withheld Account/Profit Sharing Account.

Within 60 (sixty) days of each calendar quarter end, beginning with the quarter
ending March 31, 2005, if the Company fails to maintain the Segregated Account
equal to the Funds Withheld Account/Profit Sharing Account required level, then
the cumulative amount of the shortfall shall be deemed "Return Ceding
Commission" due the Reinsurers. Such actual amount shall be paid in cash by the
Company to the Reinsurers within 60 (sixty) days of the respective calendar
quarter end to reduce the Ceding Commission that otherwise would have been due
at the respective Ultimate Net Loss Ratio as per the Ceding Commission table in
Article 10, Ceding Commission. The Company shall calculate the cumulative
shortfall, if any, and re-determine the Return Ceding Commission due, within 60
(sixty) days of each subsequent calendar quarter end until all liability under
this Agreement is finalized. The Company shall pay to the Reinsurers any
additional Return Ceding Commission due in excess of any previously paid Return
Ceding Commission and the Reinsurers shall pay to the Company any reduction of
Return Ceding Commission due over the previously paid Return Ceding Commission
within 60 (sixty) days of the calendar quarter end.

Upon the occurrence of a Triggering Event, the Company shall, at the Reinsurers'
sole option, withdraw all assets from the Segregated Account and transfer such
assets to a New York Regulation No. 114 compliant Trust Account established by
the Reinsurers. Notwithstanding the above, the Company is required to deposit
additional assets into such Trust Account to guarantee an investment return
equivalent to the .2466% (point two four six six percent) monthly yield.

A "Triggering Event" is any of the following:

         1.       A.M. Best Rating of the Company falls below B+; or

         2.       a reduction of more than 20% (twenty percent) of the Company's
                  statutory surplus from the Company's statutory surplus level
                  at December 31, 2004; or

         3.       Insolvency, Rehabilitation, or Regulatory Supervision of the
                  Company; or

         4.       Company ceases underwriting new property and casualty
                  business;

         5.       Company fails to maintain the Trust Account at the minimum
                  balance required by this Agreement for a period of 75 (seventy
                  five) days;

         6.       Company sells 50% (fifty percent) or more of its assets or
                  reinsures 50% (fifty percent) or more of its Net Written
                  Premium or net liabilities (all as of January 1, 2005) to an
                  unaffiliated third party; or

         7.       An insurance regulatory authority or governmental entity in
                  any United States jurisdiction revokes, suspends or forces the
                  Company to withdraw its certificate of authority in such
                  jurisdiction

         8.       Company fails to pay Reinsurers' Margin in accordance with
                  Article 9, Reinsurance Premium and Reinsurers' Margin, section
                  B.

                                   ARTICLE 13

ACCOUNTS, REMITTANCES AND LOSS SETTLEMENTS

A.       Within 45 (forty five) days following the end of each month, the
         Company shall report to the Reinsurers the amount of the following with
         regards to such month and on a cumulative basis:

         1.       Net Written Premium and ceded Net Written Premium by line of
                  business;

         2.       Net Earned Premium and ceded Net Earned Premium by line of
                  business; 3. Ceding Commissions paid and unpaid;

         4.       Ceded Ultimate Net Loss and Loss Adjustment Expenses paid by
                  line of business;

         5.       Ceded Ultimate Net Loss and Loss Adjustment Expenses
                  outstanding by line of business (including IBNR);

<PAGE>

         6.       Salvage recovered and ceded Salvage recovered by line of
                  business;

         7.       Premium amounts calculated in accordance with Article 9,
                  Reinsurance Premium and Reinsurers' Margin, including
                  applicable Reinsurers' Margin;

         8.       The balance of the Funds Withheld Account/Profit Sharing
                  Account as of that month end and activity in the Funds
                  Withheld Account/Profit Sharing Account during the month.

         9.       Ceded Net Written Premium and Ceded Net Earned Premium, Ceded
                  Ultimate Net Loss and Loss Adjustment Expenses paid and Ceded
                  Ultimate Net Loss and Loss Adjustment Expenses outstanding
                  (including IBNR) specifically allocable to Non-New York
                  Policies.

         Reports shall continue until the earlier of final settlement of all
         Ultimate Net Loss hereunder, or upon Commutation in accordance with
         Article 14, Commutation.

B.       The Company shall credit or debit the Funds Withheld Account/Profit
         Sharing Account by the amount of the balance of the monthly account.
         Such monthly account shall equal the Cession Percentage of Net Written
         Premiums collected for new and renewal business for the month, less
         Reinsurer's Margin due for the month, less applicable Ceding Commission
         due for the month (including all Delinquent Premium Amounts), less all
         reinsurance premiums due from the Company in respect of the inuring
         reinsurances, less the Cession Percentage of Ultimate Net Loss and Loss
         Adjustment Expenses paid for the month, plus the Cession Percentage of
         Salvage Recovered for the month. Such remittances shall be deemed
         settled by the debtor party to the creditor party 60 (sixty) days in
         arrears from the month end, except that amounts owed by the Reinsurer
         to the Company shall be paid the later of 60 (sixty) days in arrears
         from the month end or 15 (fifteen) days following the Reinsurer's
         receipt of the monthly report.

C.       Notwithstanding the above, the Company shall advise the Reinsurer
         promptly of all Ultimate Net Losses and Loss Adjustment Expenses, which
         in the opinion of the Company, may result in a claim hereunder and of
         all subsequent developments thereto which, in the opinion of the
         Company, may materially affect the position of the Reinsurer.
         Inadvertent omission or oversight in dispatching such advises shall in
         no way affect the liability of the Reinsurer. However, the Company
         shall notify the Reinsurer of such omission or oversight promptly upon
         its discovery.

D.       All Ultimate Net Loss settlements made by the Company on Business
         Covered, with exception of ex gratia payments, whether under Policy
         terms and conditions or by way of compromise, shall be in the sole
         discretion of the Company and shall be unconditionally binding on the
         Reinsurer, subject always to the terms conditions and exclusions of
         this Agreement. Upon satisfactory proof of loss, the Reinsurer shall
         pay or allow, as applicable, its proportional share of each such
         settlement in accordance with this Agreement. All Ultimate Net Loss and
         Loss Adjustment Expense amounts due to the Company from the Reinsurer
         under this Agreement shall first be paid by way of offset against the
         Funds Withheld Account/Profit Sharing Account consistent with Article
         13, Accounts, Remittances, and Loss Payments, section C. and such
         offset shall constitute payment under this Agreement. Only upon the
         exhaustion of the Funds Withheld Account/Profit Sharing Account shall
         the Company be entitled to receive cash payment from the Reinsurer.

<PAGE>

                                   ARTICLE 14

COMMUTATION

The Company shall have the option effective at any calendar quarter end on or
after the calendar quarter of termination of this Agreement, to commute all
ceded Ultimate Net Loss and ceded Loss Adjustment Expenses outstanding
hereunder. The date that the Company and the Reinsurers mutually elect to
commute shall be deemed the commutation date.

Upon Commutation, the Company shall retain 100% (one hundred percent) of the
balance of the Funds Withheld Account/Profit Sharing Account and shall be
entitled to the balance of the Segregated Account or such funds transferred into
a New York Regulation 114 complaint trust account, as applicable. Upon
Commutation, the Reinsurers shall be released from all past, current and future
liability under this Agreement.

                                   ARTICLE 15

SPECIAL TERMINATION CLAUSE

A.       Upon the occurrence of any of the events set forth below (each, the
         "Triggering Event") at any time until the liability of the Reinsurer is
         fully extinguished under this Agreement, the party not suffering the
         Triggering Event may (i) terminate this Agreement on a cut-off basis;
         or (ii) may commute this Agreement in accordance with Article 14,
         Commutation; or (iii) may novate this Agreement, by the giving of 60
         (sixty) days prior written notice to the party which suffers the
         Triggering Event. If either the Reinsurer or the Company incur a
         Triggering Event, either party may elect option (i), (ii) or (iii)
         above with 60 (sixty) days prior written notice to the other party.

         A Triggering Event shall be any one of the following:

         1.       The Company or the Reinsurer ceases to maintain active
                  underwriting operations;

         2.       The Company or the Reinsurer is the subject of an order of
                  regulatory supervision, rehabilitation, insolvency, or
                  liquidation by a court having supervisory authority over the
                  respective party.

<PAGE>

         3.       The Reinsurer has or has attempted to transfer its entire
                  liability under this Agreement by written agreement without
                  the Company's prior written consent.

         4.       There is a "Change of Control" of either the Company or the
                  Reinsurer. Change of Control shall mean the transfer of more
                  than 50% (fifty percent) of its assets or net liabilities.

         5.       There is a "Significant Change in Management" of either the
                  Company or the Reinsurer. For purposes herein, the term
                  "Significant Change in Management" shall be defined as the
                  departure, in any continuous 12 (twelve) month period, of the
                  personnel holding 3 (three) of the following 4 (four)
                  positions: Chief Executive Officer, President, Chief Financial
                  Officer or Chief Underwriting Officer (or the equivalent).

         6.       Reduction in either the Company's or Reinsurer's Policyholders
                  Surplus of 25% (twenty five percent) or more in any calendar
                  year from the preceding year as evidenced in the respective
                  parties' Annual Statement or a reduction in the Risk Based
                  Capital Ratio, as defined below, to less than 250% (two
                  hundred fifty percent). The respective party shall have 90
                  (ninety) days to replenish the Policyholders Surplus to cure
                  the Triggering Event (i.e. a reduction of 24% (twenty four
                  percent)).

         7.       The Company does not maintain an A.M. Best Co. financial
                  strength rating of "B+" or better.

         8.       The Reinsurer does not maintain an A.M. Best Co. financial
                  strength rating of "A-" or better.

                  For purposes herein, the term "Risk Based Capital Ratio" shall
                  refer to the quotient of Adjusted Capital divided by
                  Authorized Control Level. The terms "Adjusted Capital" and
                  "Authorized Control Level" shall be as defined by the National
                  Association of Insurance Commissioners in the Overview and
                  Instructions to the Property and Casualty Risk-Based Capital
                  Report.

B.                In the event the Company elects termination on a cut-off
                  basis, the liability of the Reinsurer shall be terminated in
                  accordance with the termination provisions of this Agreement,
                  provided, however, that the Company shall have the right, by
                  giving of 60 (sixty) days prior written notice, to relieve the
                  Reinsurer of liability for Ultimate Net Loss occurring
                  subsequent to the date of termination of this Agreement. In
                  such event, the Reinsurer shall return the unearned portion of
                  any Reinsurance Premiums paid hereunder (less any applicable
                  Ceding Commission allowed thereon) and the minimum premium
                  provisions, if any, shall be waived.

<PAGE>

C.       In the event the Company or the Reinsurer elects to commute, this
         Agreement will commute as of such date in accordance with the terms of
         Article 14, Commutation.

D.       If the Reinsurer suffers a Triggering Event, and the Company elects
         novation by written notice to the Reinsurer, the Reinsurer shall have
         the right to novate this Agreement to an affiliate (provided such
         affiliate has at least an A.M. Best financial strength rating of "A")
         or to a non-affiliated reinsurer with an A.M. Best financial strength
         rating of "A" or higher at the Reinsurer's sole election. If the
         Reinsurer does not novate the coverage hereunder within 30 (thirty)
         days after receipt of the Company's written request therefor, the
         Company may novate this Agreement to a reinsurer of its choosing (the
         "novatee reinsurer"). The original Reinsurer shall remit the balance of
         the Funds Withheld Account/Profit Sharing Account and 75 (seventy five
         percent) of the Reinsurers' Margin, net of brokerage paid to the
         Intermediary hereunder, received through the novation date to the
         novatee reinsurer within 30 (thirty) days of the Company's written
         notification to the Reinsurer of a novatee reinsurer.

                                   ARTICLE 16

CURRENCY

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

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

<PAGE>

                                   ARTICLE 17

TAXES AND FEDERAL EXCISE TAX

A.       Taxes - In consideration of the terms under which this Agreement is
         issued, the Company 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 to the District of
         Columbia.

B.       Federal Excise Tax - (Applicable to those reinsurers, excepting
         Underwriters at Lloyd's London and other reinsurers exempt from Federal
         Excise Tax, who are domiciled outside the United States of America.)

         The Reinsurers has agreed to allow for the purpose of paying the
         Federal Excise Tax the applicable percentage of the Premium payable
         hereon (as imposed under Section 4371 of the Internal Revenue Code)
         from Reinsurers' Margin to the extent such Premium is subject to the
         Federal Excise Tax.

         In the event of any return of Premium becoming due hereunder, the
         Reinsurers shall deduct the applicable percentage from the return
         Premium payable hereon and the Company or its agent should take steps
         to recover the tax from the United States Government.

                                   ARTICLE 18

RESERVES

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

A.       If a jurisdiction of the United States shall not permit the Company, in
         the statements required to be filed with its regulatory authority(ies),
         to receive full credit as admitted reinsurance for any Reinsurers'
         share of obligations, the Company shall forward to such Reinsurers a
         statement of the Reinsurers' share of such obligations. Upon receipt of
         such statement, the Reinsurers shall promptly apply for and provide the
         Company with a "clean", unconditional and irrevocable Letter of Credit
         or alternative Trust Account pursuant to the trust agreement meeting
         the requirements of New York Regulation 114, in either event in the
         amount specified in the statement submitted in excess of the Funds
         Withheld Account/Profit Sharing Account, with terms and bank acceptable
         to the regulatory authority(ies) having jurisdiction over the Company.
         The form of collateral to be provided under this clause in excess of
         the Funds Withheld Account/Profit Sharing Account shall be solely at
         the option of the Reinsurers.

B.       "Obligations" as used in this Article, shall mean the sum of losses
         paid and Loss Adjustment Expenses paid by the Company but not yet
         recovered from the Reinsurers, plus reserves for reported losses, Loss
         Adjustment Expenses, losses incurred but not reported and premiums
         unearned, if any.

C.       If the Reinsurers choose to provide a Letter of Credit, the following
         shall be applicable:

         1.       The Reinsurers hereby agrees that the Letter of Credit shall
                  provide for automatic extension of the Letter of Credit
                  without amendment for one year from the date of expiration of
                  said Letter or any future expiration date unless 30 (thirty)
                  days prior to any expiration the issuing bank shall notify the
                  Company by registered mail that the issuing bank elects not to
                  consider the Letter of Credit renewed for any additional
                  period. An issuing bank, not a "qualified bank" as defined by
                  Regulation 133 promulgated by the Insurance Department of the
                  State of New York, shall provide 60 (sixty) days notice to the
                  Company prior to any expiration.

<PAGE>

2.       Notwithstanding any other provision of this Agreement, the Company or
         any successor by operation of law of the Company including, without
         limitation, any liquidator, rehabilitator, receiver or conservator of
         the Company may draw upon such credit, without diminution because of
         the insolvency of any party hereto, at any time and undertakes to use
         and apply such credit for one or more of the following purposes only:

         i.       to pay the Reinsurers' share or to reimburse the Company for
                  the Reinsurers' share of any obligations, as stipulated in the
                  statement submitted by the Company to the Reinsurers, which is
                  due to the Company and not otherwise paid by the Reinsurers;

         ii.      in the event the Company has received effective notice of
                  non-renewal of the Letter of Credit and the Reinsurers'
                  liability remains unliquidated and undischarged 30 (thirty)
                  days prior to the expiry date of the Letter of Credit to
                  withdraw the balance of the Letter of Credit and place such
                  sums in an interest bearing trust account (separate and apart
                  from any assets of the Company) to secure the continuing
                  liabilities of the Reinsurers under this Agreement until a
                  renewal Letter of Credit acceptable to the regulatory
                  authority(ies) having jurisdiction over the Company, or a
                  substitute in lieu thereof acceptable to the regulatory
                  authority(ies) having jurisdiction over the Company, has been
                  received by the Company. The Company shall provide to the
                  Reinsurers payment of any interest thereon accruing from such
                  account.

         iii.     to make refund of any sum which is in excess of the actual
                  amount required for sections 1 and 2 of this paragraph

         In the event that any amounts drawn down (and any interest or other
         earnings thereon) on the Letter of Credit are either in excess of the
         actual amounts required under subparagraphs (i) and (ii) above or
         subsequently determined not to be due under this Agreement, such
         amounts shall constitute assets of the Reinsurer for all purposes and
         shall be held by the Company in trust (separate and apart from any
         assets of the Company). The Company shall return all such amounts to
         the Reinsurer, including interest accrued from the date drawn and
         calculated at a rate not in excess of the prime rate of interest on the
         amounts held pursuant to subparagraphs (i) and (ii) above.

3.       At annual intervals or more frequently as determined by the Company,
         but never more frequently than quarterly, the Company shall prepare a
         specific statement, for the sole purpose of amending the Letter of
         Credit, of the Reinsurers' share of any Obligations. If the statement
         shows that the Reinsurers' share of Obligations exceeds the balance of
         credit as of the statement date, the Reinsurers shall, within 30
         (thirty) days after receipt of notice of such excess, secure delivery
         to the Company of an amendment of the Letter of Credit increasing the
         amount of credit by the amount of such difference. If the statement
         shows, however, that the Reinsurers' share of Obligations is less than
         the balance of credit as of the statement date, the Company shall,
         within 30 (thirty) days after receipt of written request from the
         Reinsurers, release such excess credit by agreeing to secure an
         amendment to the Letter of Credit reducing the amount of credit
         available by the amount of such excess credit.

<PAGE>

4.       The bank shall have no responsibility whatsoever in connection with the
         propriety of withdrawals made by the Company or the disposition of
         funds withdrawn, except to assure that withdrawals are made only upon
         the order of properly authorized representatives of the Company. The
         Company shall incur no obligation to the bank in acting upon the
         credit, other than as appears in the express terms thereof.

D.       If the Reinsurers choose to provide a Trust Account the following shall
         be applicable:

         1.       The Reinsurers shall enter into a trust agreement and
                  establish a trust account (the "Trust Account") for the
                  benefit of the Company with respect to the Reinsurers' share
                  of Obligations with a bank (the "Trustee") acceptable to the
                  Superintendent of Insurance of the State of New York and the
                  Company.

         2.       The Reinsurers agree to deposit, and maintain in the Trust
                  Account, assets to be held in trust by the Trustee for the
                  benefit of the Company as security for the payment of the
                  Reinsurers' Obligations to the Company under this Agreement.

         3.       The parties agree that the assets so deposited 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 other admitted assets of a
                  character, maturity, and value to fulfill the intent of this
                  Agreement; provided that such investments are issued by an
                  institution that is not the parent, subsidiary or affiliate of
                  either the Company or the Reinsurers; and provided, further
                  that such assets are of the type specified in paragraphs (1),
                  (2), (3), (8) and (10) of Section 1404(a) of the New York
                  Insurance Law ("Eligible Securities").

         4.       The Reinsurers, prior to depositing assets with the Trustee,
                  shall execute all assignments and 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 direction of the Company, may
                  whenever necessary negotiate any such assets without consent
                  or signature from the Reinsurers or any other entity.

         5.       All settlements of account under the trust agreement between
                  the Company and the Reinsurers shall be made in cash or its
                  equivalent.

<PAGE>

         6.       The aggregate fair market value of the assets held in the
                  Trust Account (the "Market Value") shall at all times be at
                  least equal to the Reinsurers' share of Obligations. The
                  amount of the Trust Account shall be adjusted on a quarterly
                  basis so as to equal the Reinsurer's share of Obligations. On
                  a quarterly basis, the Reinsurer shall prepare a specific
                  statement of the Reinsurer's share of Obligations and deliver
                  such report to the Company. If the statement shows that the
                  Reinsurer's share of Obligations exceed 100% (one hundred
                  percent) of the balance of the Trust Account as of the
                  statement date, the Reinsurer shall, within 10 (ten) days
                  after delivery of such notice of excess, secure delivery to
                  the Trustee of additional cash or Eligible Securities having a
                  current fair market value equal to such difference. If the
                  statement shows that the Reinsurers' share of Obligations are
                  less than 102% (one hundred two percent) of the balance of the
                  Trust Account as of the statement date, the Company shall,
                  within 10 (ten) days after receipt of such statement from the
                  Reinsurers, deliver a notice of withdrawal to the Trustee
                  directing the Trustee to withdraw from the Trust Account and
                  deliver to the Reinsurers assets from the Trust Account having
                  a current fair market value equal to such excess amount.

                                   ARTICLE 19

EXCESS OF POLICY LIMITS

This Agreement shall protect the Company, within the limits hereof, for 100%
(one hundred percent) of loss in excess of the limit of its original Policies of
insurance, such loss in excess of the limit having been incurred because of
failure by the Company or Tower Risk Management to settle within the Policies of
insurance limit or by reason of alleged or actual negligence 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 reinsured or in the preparation or
prosecution of an appeal consequent upon such action. The Reinsurers shall not
be liable for more than $1,000,000 (one million dollars) additional subject
Ultimate Net Loss for any one claim in respect of Excess of Policy Limits/Extra
Contractual Obligations liability and $5,000,000 (five million dollars) in the
aggregate for all Excess of Policy Limits/Extra Contractual Obligations
liability.

However, this Article shall not apply where the loss has been incurred due to a
fraud by a member of the board of directors or a corporate officer of the
Company or Tower Risk Management 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.

For the purpose of this Article, 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.

<PAGE>

                                   ARTICLE 20

EXTRA CONTRACTUAL OBLIGATIONS

This Agreement shall protect the Company for 100% (one hundred percent) of any
Extra Contractual Obligations. The term "Extra Contractual Obligations" is
defined as those liabilities not covered under any other provision of the
Company's original Policies of insurance and which arise from the handling of
any claim on Business Covered hereunder, such liabilities arising because of,
but not limited to, the following: failure by the Company or Tower Risk
Management to settle within the Policies of insurance limit, or by reason of
alleged or actual negligence 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 reinsured or in the preparation or prosecution of an appeal
consequent upon such action. The Reinsurers shall not be liable for more than
$1,000,000 (one million dollars) additional subject Ultimate Net Loss for any
one claim in respect of Excess of Policy Limits/Extra Contractual Obligations
liability and $5,000,000 (five million dollars) in the aggregate for all Excess
of Policy Limits/Extra Contractual Obligations liability.

The date on which any Extra Contractual Obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original loss
event. However, this Article shall not apply where the loss has been incurred
due to fraud by a member of the board of directors or a corporate officer of the
Company or Tower Risk Management 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.

                                   ARTICLE 21

OFFSET

The Company and the Reinsurers shall have the right to offset any balance or
amounts due from one party to the other under the terms of this Agreement or any
other agreement between the Company and the Reinsurers. The party asserting the
right of offset may exercise such right any time whether the balances due are on
account of Reinsurance Premiums, Ceding Commissions, Return Ceding Commissions,
Ultimate Net Losses, Interest Credit or any other balances due or owed between
the Company and the Reinsurers. In the event of insolvency of either party to
this agreement, then offsets shall only be allowed to the extent permitted by
the provisions of New York Insurance Law Section 7427.

                                   ARTICLE 22

ERRORS AND OMISSIONS

Inadvertent delays, errors or omissions made by the Company in connection with
this Agreement shall not relieve the Reinsurers from any liability which would
have attached had such delay, error or omission not occurred, provided always
that such delay, error or omission shall be rectified as soon as possible after
discovery by the Company's home office.

<PAGE>

                                   ARTICLE 23

ACCESS TO RECORDS

The Company shall place at the disposal of the Reinsurers at all reasonable
times, and the Reinsurers shall have the right to inspect through its designated
representatives, during the Term of this Agreement and thereafter, all books,
records and papers of the Company in connection with any reinsurance hereunder,
or the subject matter hereof. Such right shall continue to exist as long as one
party has a claim against the other party arising out of this Agreement.

                                   ARTICLE 24

INSOLVENCY

A.       In the event of the insolvency of the Company, this reinsurance shall
         be payable directly to the Company, or to its liquidator, receiver,
         conservator, or statutory successor on the basis of the liability of
         the Company without diminution because of the insolvency of the Company
         or because the liquidator, receiver, conservator or statutory successor
         of the Company has failed to pay all or a portion of any claim. It is
         agreed, however, that the liquidator, receiver, conservator, or
         statutory successor of the Company shall give written notice to the
         Reinsurers of the pendency of a claim against the Company indicating
         the Policy insured which claim would involve a possible liability on
         the part of the Reinsurers with a reasonable time after such claims is
         filed in the conservation or liquidation proceeding or in the
         receivership, and that during the pendency of such claim, the
         Reinsurers may investigate such claim and interpose, at its own
         expense, in the proceeding where such claim is to be adjudicated, any
         defense or defenses that they may deem available to the Company or its
         liquidator, receiver, conservator or statutory successor. The expense
         thus incurred by the Reinsurers shall be chargeable, subject to the
         approval of the court, against the Company as part of the expense of
         conservation or liquidation to the extent of a pro rata share of the
         benefit which may accrue to the Company solely as a result of the
         defense undertaken by the Reinsurers.

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

<PAGE>

                                   ARTICLE 25

CONFIDENTIALITY

The parties acknowledge there may be portions of this Agreement, the Reinsurance
Agreement submission or the marketing package that may contain confidential,
proprietary information of the Company. The Reinsurers shall maintain the
confidentiality of such information concerning the Company and its business and
shall not disclose it to any third person without prior approval; provided,
however, that the Reinsurers may be required and are permitted under this
Agreement to disclose such information in answers to interrogatories, subpoenas
or other legal/arbitration processes as well as to the Company's Intermediaries,
to the Reinsurers' retrocessionaire, the Reinsurers' affiliates, and applicable
intermediaries, or in response to requests by governmental and regulatory
agencies. In addition, the Reinsurers may disclose such information to its
rating agencies, auditors, advisors and to its outside legal counsel as may be
necessary.

                                   ARTICLE 26

ARBITRATION

A.       Any dispute or other matter in question between the Company and the
         Reinsurers arising out of, or relating to, the formation,
         interpretation, performance or breach of this Agreement, whether such
         dispute arises before or after termination of this Agreement, shall be
         settled by arbitration. Arbitration shall be initiated by the delivery
         of a written notice of demand for arbitration by one party to the other
         within a reasonable time after the dispute has arisen.

B.       If more than one reinsurer is involved in the same dispute, all such
         reinsurers shall constitute and act as one party for the purposes of
         this Article, provided, however, that nothing herein shall impair the
         rights of such reinsurers to assert several, rather than joint,
         defenses or claims, nor be construed as changing the liability of the
         reinsurers under the terms of this Agreement from several to joint.

C.       Each party shall appoint an individual as arbitrator and the two so
         appointed shall then appoint a third arbitrator. If either party
         refuses or neglects to appoint an arbitrator within 60 (sixty) days,
         the other party may appoint the second arbitrator. If the two
         arbitrators do not agree on a third arbitrator within 60 (sixty) days
         of their appointment, each of the arbitrators shall nominate 3 (three)
         individuals. Each arbitrator shall then decline two of the nominations
         presented by the other arbitrator. The third arbitrator shall then be
         chosen form the remaining two nominations by drawing lots. The
         arbitrators shall be active or former officers of insurance or
         reinsurance companies or Lloyd's Underwriters; the arbitrators shall
         not have a personal or financial interest in the result of the
         arbitration.

D.       The arbitration hearings shall be held in New York, New York or such
         other place as may be mutually agreed. Each party shall submit its case
         to the arbitrators within 60 (sixty) days of the selection of the third
         arbitrator or within such longer period as may be agreed by the
         arbitrators. The arbitrators shall not be obliged to follow judicial
         formalities or the rules of evidence except to the extent required by
         governing law, that is, the state law of the situs of the arbitration
         as herein agreed; they shall make their decisions according to the
         practice of the reinsurance business. The decision rendered by a
         majority of the arbitrators shall be final and binding on both parties.
         Such decision shall be a condition precedent to any right of legal
         action arising out of the arbitrated dispute which either party may
         have against the other. Judgment upon the award rendered may be entered
         in any court having jurisdiction thereof.

<PAGE>

E.       Each party shall pay the fee and expenses of its own arbitrator and
         one-half of the fee and expenses of the third arbitrator. All other
         expenses of the arbitration shall be equally divided between the
         parties.

F.       Except as provided above, arbitration shall be based, insofar as
         applicable, upon the procedures of the American Arbitration
         Association.

                                   ARTICLE 27

SERVICE OF SUIT

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

A.       It is agreed that in the event of the failure of the Reinsurers hereon
         to pay any amount claimed to be due hereunder, the Reinsurers hereon,
         at the request of the Company, shall submit to the jurisdiction of a
         court of competent jurisdiction within the United States. Nothing in
         this Article constitutes or should be understood to constitute a waiver
         of the Reinsurers' right 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 Lovells, 900 Third Avenue New
         York, New York 10022, and that in any suit instituted, the Reinsurers
         shall abide by the final decision of such court or of any Appellate
         Court in the event of an appeal.

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

C.       Further, pursuant to any statute of any state, territory or district of
         the United States which makes provision therefor, the Reinsurers hereon
         hereby designate 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 their true and lawful
         attorney upon whom may be served any lawful process in any action, suit
         or proceeding instituted by or on behalf of the Company or any
         beneficiary hereunder arising out of this 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.

<PAGE>

                                   ARTICLE 28

INTERMEDIARY

Tower Risk Management Corporation and Pegasus Advisors - Towers Perrin
Reinsurance are hereby recognized as the Intermediaries negotiating this
Agreement for all business hereunder and through whom all communications
relating hereto (including but not limited to notices, statements and reports)
shall be transmitted to both parties. It is understood, as regards remittances
due either party hereunder, that payment by the Company to the Intermediaries,
shall constitute payment to the Reinsurers but payment by the Reinsurers to the
Intermediaries shall only constitute payment to the Company to the extend such
payments are actually received by the Company.

<PAGE>

                        NUCLEAR INCIDENT EXCLUSION CLAUSE
                       PHYSICAL DAMAGE - REINSURANCE - USA

         1. This Contract does not cover any loss or liability accruing to the
Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any
Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.

         2. Without in any way restricting the operation of paragraph (1) of
this Clause, this Contract does not cover any loss or liability accruing to the
Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any
insurance against Physical Damage (including business interruption or
consequential loss arising out of such Physical Damage) to:

         I.       Nuclear reactor power plants including all auxiliary property
                  on the site, or

         II.      Any other nuclear reactor installation, including laboratories
                  handling radioactive materials in connection with reactor
                  installations, and "critical facilities" as such, or

         III.     Installations for fabricating complete fuel elements or for
                  processing substantial quantities of "special nuclear
                  material", and for reprocessing, salvaging, chemically
                  separating, storing or disposing of "spent" nuclear fuel or
                  waste materials, or

         IV.      Installations other than those listed in paragraph (2) III
                  above using substantial quantities of radioactive isotopes or
                  other products of nuclear fission.

         3. Without in any way restricting the operations of paragraphs (1) and
(2) hereof, this Contract does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph (3) shall not
operate

                  (a)      where the Reassured does not have knowledge of such
                           nuclear reactor power plant or nuclear installation,
                           or

                  (b)      where said insurance contains a provision excluding
                           coverage for damage to property caused by or
                           resulting from radioactive contamination, however
                           caused. However on and after 1st January 1960, this
                           sub-paragraph (b) shall only apply provided the said
                           radioactive contamination exclusion provision has
                           been approved by the Governmental Authority having
                           jurisdiction thereof.

         4.       Without in any way restricting the operations of paragraphs
                  (1), (2) and (3) hereof, this Contract does not cover any loss
                  or liability by radioactive contamination accruing to the
                  Reassured, directly or indirectly, and whether as Insurer or
                  Reinsurer, when such radioactive contamination is a named
                  hazard specifically insured against.

<PAGE>

         5.       It is understood and agreed that this Clause shall not extend
                  to risks using radioactive isotopes in any form where the
                  nuclear exposure is not considered by the Reassured to be the
                  primary hazard.

         6. The term "special nuclear material" shall have the meaning given it
in the Atomic Energy Act of 1954 or by any law amendatory thereof.

         7.       The Reassured to be sole judge of what constitutes:

                  (a)      substantial quantities, and

                  (b)      the extent of installation, plant or site

NOTE: - Without in any way restricting the operation of paragraph (1) hereof, it
is understood and agreed that

                  (a)      all Policies issued by the Reassured on or before
                           31st December 1957 shall be free from the application
                           of the other provisions of this Clause until expiry
                           date or 31st December 1960 whichever first occurs
                           whereupon all the provisions of this Clause shall
                           apply.

                  (b)      with respect to any risk located in Canada Policies
                           issued by the Reassured on or before 31st December
                           1958 shall be free from the application of the other
                           provisions of this Clause until expiry date or 31st
                           December 1960 whichever first occurs whereupon all
                           the provisions of this Clause shall apply.

<PAGE>

                        NUCLEAR INCIDENT EXCLUSION CLAUSE
                        LIABILITY - REINSURANCE - U.S.A.

1.       This Agreement does not cover any loss or liability accruing to the
         Cedent as a member of, or subscriber to, any association of insurers or
         reinsurers formed for the purpose of covering nuclear energy risks or
         as a direct or indirect reinsurer of any such member, subscriber or
         association.

2.       Without in any way restricting the operation of paragraph (1) of this
         Clause it is understood and agreed that for all purposes of this
         Agreement all the original Policies of the Cedent (new, renewal and
         replacement) of the classes specified in Clause II of this paragraph
         (2) from the time specified in Clause III of this paragraph (2) shall
         be deemed to include the following provision (specified as the Limited
         Exclusion Provision):

Limited Exclusion Provision*

         I.       It is agreed that the Policy does not apply under any
                  liability coverage, to (injury, sickness, disease, death or
                  destruction (bodily injury or property damage with respect to
                  which an insured under the Policy is also an insured under a
                  nuclear energy liability Policy issued by Nuclear Energy
                  Liability Insurance Association, Mutual Atomic Energy
                  Liability Underwriters or Nuclear Insurance Association of
                  Canada, or would be an insured under any such Policy but for
                  its termination upon exhaustion of its limits of liability.

         II.      Family Automobile Policies (liability only), Special
                  Automobile Policies (private passenger automobiles, liability
                  only), Farmers Comprehensive Personal Liability Policies
                  (liability only), Comprehensive Personal Liability Policies
                  (liability only) or Policies of a similar nature; and the
                  liability portion of combination forms related to the four
                  classes of Policies stated above, such as the Comprehensive
                  Dwelling Policy and the applicable types of Homeowners
                  Policies.

         III.     The inception dates and thereafter of all original Policies as
                  described in II above, whether new, renewal or replacement,
                  being Policies which either

         (a) become effective on or after 1st May, 1960, or

(b)      become effective before that date and contain the Limited Exclusion
         Provision set out above; provided this paragraph (2) shall not be
         applicable to Family Automobile Policies, Special Automobile Policies
         or Policies or combination Policies of a similar nature, issued by the
         Cedent on New York risks, until 90 days following approval of the
         Limited Exclusion Provision by the Governmental Authority having
         jurisdiction thereof.

3.       Except for those classes of Policies specified in Clause II of
         paragraph (2) and without in any way restricting the operation of
         paragraph (1) of this Clause, it is understood and agreed that for all
         purposes of this Agreement the original liability Policies of the
         Cedent (new, renewal and replacement) affording the following
         coverages:

<PAGE>

         Owners, Landlords and Tenants Liability, Contractual Liability,
         Elevator Liability, Owners or Contractors (including railroad),
         Protective Liability, Manufacturers and Contractors Liability, Product
         Liability, Professional and Malpractice Liability, Storekeepers
         Liability, Garage Liability, Automobile Liability (including
         Massachusetts Motor Vehicle or Garage Liability)

         shall be deemed to include, with respect to such coverages, from the
time specified in Clause V of this paragraph (3), the following provision
(specified as the Broad Exclusion Provision):

Broad Exclusion Provision*

It is agreed that the Policy does not apply:

         I.       Under any Liability Coverage, to
                  (injury, sickness, disease, death or destruction
                  (bodily injury or property damage

                  (a)      with respect to which an insured under the Policy is
                           also an insured under a nuclear energy liability
                           Policy issued by Nuclear Energy Liability Insurance
                           Association, Mutual Atomic Energy Liability
                           Underwriters or Nuclear Insurance Association of
                           Canada, or would be an insured under any such Policy
                           but for its termination upon exhaustion of its limit
                           of liability; or

                  (b)      resulting from the hazardous properties of nuclear
                           material and with respect to which (1) any person or
                           organization is required to maintain financial
                           protection pursuant to the Atomic Energy Act of 1954,
                           or any law amendatory thereof, or (2) the insured is,
                           or had this Policy not been issued would be, entitled
                           to indemnity from the United States of America, or
                           any agency thereof, under any agreement entered into
                           by the United States of America, or any agency
                           thereof, with any person or organization.

         II.      Under any Medical Payments Coverage, or under any
                  Supplementary Payments Provision relating to
                  (immediate medical or surgical relief,
                  (first aid,
                  to expenses incurred with respect to
                  (bodily injury, sickness, disease or death
                  (bodily injury
                  resulting from the hazardous properties of nuclear material
                  and arising out of the operation of a nuclear
                  facility by any person or organization.

         III.     Under any Liability Coverage, to
                  (injury, sickness, disease, death or destruction
                  (bodily injury or property damage
                  resulting from the hazardous properties of nuclear material if

                  (a)      the nuclear material (1) is at any nuclear facility
                           owned by, or operated by or on behalf of, an insured
                           or (2) has been discharged or dispersed therefrom;

<PAGE>

                  (b)      the nuclear material is contained in spent fuel or
                           waste at any time possessed, handled, used,
                           processed, stored, transported or disposed or by or
                           on behalf of an insured; or

                  (c)      (the injury, sickness, disease, death or destruction
                           (the bodily injury or property damage

         arises out of the furnishing by an insured of services, materials,
         parts or equipment in connection with the planning, construction,
         maintenance, operation or use of any nuclear facility, but if such
         facility is located within the United States of America, its
         territories, or possessions or Canada, this exclusion (c) applies only
         to (injury to or destruction of property at such nuclear facility
         (property damage to such nuclear facility and any property thereat.

IV. As used in this endorsement:

                  "hazardous properties" include radioactive, toxic or explosive
                  properties; "nuclear material" means source material, special
                  nuclear material or by-product material; "source material",
                  "special nuclear material" and "by-product material" have the
                  meanings given to them in the Atomic Energy Act of 1954 or in
                  any law amendatory thereof; "spent fuel" means any fuel
                  element or fuel component, solid or liquid, which has been
                  used or exposed to radiation in a nuclear reactor; "waste"
                  means any waste material (1) containing by-product material
                  and (2) resulting from the operation by any person or
                  organization of any nuclear facility included within the
                  definition of nuclear facility under paragraph (a) or (b)
                  thereof; "nuclear facility" means

                  (a)      any nuclear reactor,

                  (b)      any equipment or device designed or used for (1)
                           separating the isotopes of uranium or plutonium, (2)
                           processing or utilizing spent fuel, or (3) handling,
                           processing or packaging waste,

                  (c)      any equipment or device used for the processing,
                           fabricating or alloying of special nuclear material
                           if at any time the total amount of such material in
                           the custody of the Insured at the premises where such
                           equipment or device is located consists of or
                           contains more than 25 grams of plutonium or uranium
                           233 or any combination thereof, or more than 250
                           grams of uranium 235,

                  (d)      any structure, basin, excavation, premises or place
                           prepared or used for the storage or disposal of
                           waste,

                  and includes the site on which any of the foregoing is
                  located, all operations conducted on such site and all
                  premises used for such operations; "nuclear reactor" means any
                  apparatus designed or used to sustain nuclear fission in a
                  self-supporting chain reaction or to contain a critical mass
                  of fissionable material; (with respect to injury to or
                  destruction of property, the word "injury" or "destruction"
                  ("property damage" includes all forms of radioactive
                  contamination of property. (includes all forms of radioactive
                  contamination of property.

         V.       The inception dates and thereafter of all original Policies
                  affording coverages specified in this paragraph (3), whether
                  new, renewal or replacement, being Policies which become
                  effective on or after 1st May, 1960, provided this paragraph
                  (3) shall not be applicable to

                  (i)      Garage and Automobile Policies issued by the Cedent
                           on New York risks, or

<PAGE>

                  (ii)     Statutory liability insurance required under Chapter
                           90, General Laws of Massachusetts, until 90 days
                           following approval of the Board Exclusion Provision
                           by the Governmental Authority having jurisdiction
                           thereof.

4.       Without in any way restricting the operation of paragraph (1) of this
         Clause, it is understood and agreed that paragraphs (2) and (3) above
         are not applicable to original liability Policies of the Cedent in
         Canada and that with respect of such Policies this Clause shall be
         deemed to include the Nuclear Energy Liability Exclusion Provisions
         adopted by the Canadian Underwriters' Association or the Independent
         Insurance Conference of Canada.

                            ------------------------

*Note    The words printed in italics in the Limited Exclusion Provision and in
         the Broad Exclusion Provision shall apply only in relation to original
         liability Policies which include a Limited Exclusion Provision or a
         Broad Exclusion Provision containing those words.

<PAGE>

                     WAR RISK EXCLUSION CLAUSE (REINSURANCE)

         As regards interests which at time of loss or damage are on shore, no
liability shall attach hereto in respect of any loss or damage which is
occasioned by war, invasion, hostilities, acts of foreign enemies, civil war,
rebellion, insurrection, military or usurped power, or martial law or
confiscation by order of any government or public authority.

         This War Exclusion Clause shall not, however, apply to interest which
at time of loss or damage are within the territorial limits of the United States
of America (comprising the fifty States of the Union and the District of
Columbia, its territories and possessions, including the Panama Canal Zone and
the Commonwealth of Puerto Rico and including Bridges between the United States
of America and Mexico provided they are under United States ownership), Canada,
St. Pierre and Miquelon, provided such interests are insured under original
Policies, endorsements or binders containing a standard war or hostilities or
warlike operations exclusion clause.

         Nevertheless, this clause shall not be construed to apply to loss or
damage occasioned by riots, strikes, civil commotion, vandalism, malicious
damage, including acts committed by agents of any government, party or faction
engaged in war, hostilities or other warlike operation, provided such agents are
acting secretly and not in connection with any operations of military or naval
armed forces in the country where the interests insured are situated.

<PAGE>

                        INSOLVENCY FUND EXCLUSION CLAUSE

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

<PAGE>

              POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE

Section A:

Excluding:

         (a)    All business derived directly or indirectly from any Pool,
                Association, or Syndicate which maintains its own reinsurance
                facilities.

         (b)    Any Pool or Scheme (whether voluntary or mandatory) formed
                after March 1, 1968 for the purpose of insurance property
                whether on a country-wide basis or in respect of designated
                areas. This exclusion shall not apply to so-called Automobile
                Insurance Plans or other Pools formed to provide coverage for
                Automobile Physical Damage.

Section B:

It is agreed that business written by the Company for the same perils, which is
known at the time to be insured by, or in excess of underlying amounts placed in
the following Pools, Associations or Syndicates, whether by way of insurance or
reinsurance, is excluded hereunder:

         Industrial Risk Insurers,
         Associated Factory Mutuals Improved Risk Mutuals Any Pool, Association
         or Syndicate formed for the purpose of writing Oil, Gas or
         Petro-Chemical Plants and/or Oil or Gas Drilling Rigs, United States
         Aircraft Insurance Group, Canadian Aircraft Insurance Group, Associated
         Aviation Underwriters, American Aviation Underwriters

Section B does not apply:

         (a)      Where the Total Insured Value over all interests of the risk
                  in question is less than $250,000,000.

         (b)      To interests traditionally underwritten as Inland Marine or
                  stock and/or contents written on a blanket basis.

         (c)      To Contingent Business Interruption, except when the Company
                  is aware that the key location is known at the time to be
                  insured in any Pool, Association, or Syndicate named above
                  other than as provided for under Section B(a).

<PAGE>

(d)      To risks as follows:

         Offices, Hotels, Apartments, Hospitals, Educational Establishments,
         Public Utilities, (other than railroad schedules) and builder's risks
         on the classes of risks specified in this subsection (d) only. Where
         this clause attaches to Catastrophe Excesses, the following Section C
         is added:

Section C:

Nevertheless the Reinsurer specifically agrees that liability accruing to the
Company from its participation in:

         (1)      The following so-called "Coastal Pools":

                  Alabama Insurance Underwriting Association Florida Windstorm
                  Underwriting Association Louisiana Insurance Underwriting
                  Association Mississippi Windstorm Underwriting Association
                  North Carolina Insurance Underwriting Association South
                  Carolina Windstorm and Hail Underwriting Association Texas
                  Catastrophe Property Insurance Association

                                            AND

         (2)      All "Fair Plan" and "Rural Risk Plan" business for all perils
                  otherwise protected hereunder shall not be excluded, except,
                  however, that this reinsurance does not include any increase
                  in such liability resulting from:

                  (i)      The inability of any other participant in such
                           "Coastal Pool" and/or "Fair Plan" and/or "Rural Risk
                           Plan" to meet its liability.

                  (ii)     Any claim against such "Coastal Pool" and/or "Fair
                           Plan" and/or "Rural Risk Plan" or any participant
                           therein, including the Company, whether by way of
                           subrogation or otherwise, brought by or on behalf of
                           any insolvency fund (as defined in the Insolvency
                           Fund Exclusion Clause incorporated in this Contract).<PAGE>

                                                                   EXHIBIT 10.39

                            GENERAL AGENCY AGREEMENT

         THIS GENERAL AGENCY AGREEMENT (this "Agreement") is made and entered
into as of January 1, 2005, by and among STATE NATIONAL INSURANCE COMPANY, INC.,
an insurance company organized under the laws of the State of Texas ("Company"),
TOWER INSURANCE COMPANY OF NEW YORK, an insurance company organized under the
laws of the State of New York ("Reinsurer"), and TOWER RISK MANAGEMENT CORP., a
company organized under the laws of the State of New York ("General Agent");

                              W I T N E S S E T H:

         THAT, in consideration of the mutual covenants hereinafter contained
and upon the terms and conditions hereinbelow set forth, the parties hereto
agree as follows:

                                    PREAMBLE

         The Company and HANNOVER REINSURANCE (IRELAND) LIMITED and E+S
REINSURANCE (IRELAND) LIMITED, and TOKIO MILLENNIUM RE LTD. (collectively the
"2005 State National Quota Share Reinsurers") have entered into Quota Share
Reinsurance Agreements dated as of January 1, 2005 (collectively the "2005 State
National Quota Share Reinsurance Agreements"), and the Company, General Agent
and Reinsurer have entered into an Excess of Liability Reinsurance Agreement
dated as of January 1, 2005 (the "2005 Excess of Liability Reinsurance
Agreement"), true and complete copies of which are attached hereto as Exhibits A
and B respectively, and fully incorporated herein by this reference (the 2005
State National Quota Share Reinsurance Agreements and the 2005 Excess of
Liability Reinsurance Agreement shall be referred to collectively as the
"Reinsurance Agreements"), which Reinsurance Agreements require the appointment
of the General Agent to perform certain specified acts on behalf of the Company
and the respective reinsurers as set forth in the Reinsurance Agreements. The
General Agent desires to perform the functions and duties necessary under the
Reinsurance Agreements. It is therefore mutually agreed by the parties that the
General Agent will perform all functions necessary for the production, service
and management of policies issued under the Reinsurance Agreements in accordance
with the terms and conditions set forth therein and herein. To the extent that
there is any conflict between the terms of this Agreement and the Reinsurance
Agreements, the Reinsurance Agreements shall govern. Notwithstanding any
provisions to the contrary contained elsewhere herein or in any other document,
it is expressly understood that the execution and delivery of this Agreement and
the Company's performance hereunder shall not under any circumstances be
interpreted to affect, weaken or modify the Reinsurer's obligation to indemnify
and hold the Company harmless from and against the business, credit and
insurance risks as set forth in the 2005 Excess of Liability Reinsurance
Agreement. The contractual assumption by the Reinsurer of these risks in the
2005 Excess of Liability Reinsurance Agreement is a condition precedent to the
Company's entering into this Agreement with the General Agent.

                                    ARTICLE I
                             APPOINTMENT AND DUTIES

1.01 The Company, at the direction of the Reinsurer, hereby appoints the General
Agent as its managing general agent for the purpose of producing and handling
the business, which is the subject of the Reinsurance Agreements, issued or
renewed on or after the effective date of this Agreement. The Company, at the
request of the Reinsurer, hereby grants authority to the General Agent to
solicit, accept and receive applications for such classes of coverage as are
specified in the Reinsurance Agreements; to secure, at its own expense,
reasonable underwriting information through reporting agencies or other
appropriate sources relating to each risk insured; to issue, renew and
countersign policies, certificates, endorsements and binders which the Company
may, from time to time, authorize to be issued, delivered, renewed and
countersigned; and to collect and receipt for the premiums thereon and therefor.

                                       1
<PAGE>

1.02 All activities of the General Agent pursuant to this Agreement shall be in
strict compliance with the terms of the Reinsurance Agreements and all rules,
regulations and instructions of the Company, including, but not limited to, all
rules, instructions and specifications included in the Company's rate manuals,
rate brochures and rate schedules.

1.03 The Company, at the Reinsurer's request, further authorizes the General
Agent to perform all acts and duties under policies of insurance issued by the
Company as would otherwise be performed by the Company, including, but not
limited to, properly sending and/or receiving reports and notices and remitting
and/or receiving monies due from or to the Company, and adjusting and paying
losses or other claims. The Company grants to the General Agent the authority to
settle claims on behalf of the Company. However, the maximum dollar amount of
such authority per claim shall not exceed $100,000. For claims settlement in
excess of $100,000, the General Agent may only settle such claims with prior
approval of the Company and the 2005 State National Quota Share Reinsurers. The
Company retains final authority to determine any disputes relating to claims
settlement and setting of loss reserves. In performing each of the acts
mentioned above, the General Agent shall be under the direct supervision and
control of the Reinsurer, and the Reinsurer shall be solely responsible for the
acts of the General Agent. While there are acts of the General Agent which may
be required by applicable law to be performed on behalf of the Company, the
Reinsurer shall remain ultimately responsible for such acts and will indemnify
and hold the Company completely harmless for any damage, cost, liability,
expense and/or loss (including attorneys' fees and expenses) incurred by the
Company as respects such acts of the General Agent. The General Agent must send
to the Company a report, as soon as it becomes known, that a claim (i) involves
a coverage dispute; (ii) involves a demand in excess of policy limits; (iii)
alleges bad faith; (iv) exceeds General Agent's claims settlement authority; (v)
is open for more than six months; or (vi) alleges a violation of any applicable
unfair practices and unfair competition statutes. The Company may suspend or
terminate the settlement authority of the General Agent during the pendency of
any dispute regarding any event of default by the General Agent.

1.04 Claims handling shall be accomplished by the General Agent through its
designated representative ("Claims Administrator"), which designation is subject
to the Company's and Reinsurer's continuing approval. The agreement between the
General Agent and the Claims Administrator shall be subject to the approval of
the Reinsurer and the Company and shall not be inconsistent with the terms and
conditions of this Agreement. Payment to the Claims Administrator shall be made
by the General Agent, on behalf of the Company, directly to the Claims
Administrator. The Claims Administrator shall accept notice of and investigate
any claim arising under any of the Policies, and pay, adjust, settle, resist, or
compromise any such claim, unless the Company specifically directs to the
contrary with respect to any individual claim. All such loss settlements,
whether under strict policy conditions or by way of compromise, shall be
unconditionally binding upon the Company and the Reinsurer. However, should the
Company be ordered or instructed by the Texas Department of Insurance or any
other regulatory agency of competent jurisdiction to take any action or refrain
from taking any action with regard to any claim, the Reinsurer and the General
Agent shall be bound by and shall follow the order or instructions of such
regulatory agency as though the General Agent were the object of such order or
instruction. The General Agent will exercise the authority granted hereunder in
good faith and toward the end of paying any and all valid claims. The General
Agent is authorized to have claims adjusted through independent claims
adjusters, subject to the supervision of the Reinsurer. The selection of
independent claims adjusters shall be subject to prior written approval of the
Reinsurer and Company. Such independent claims adjusters are not the agents of
the Company and the Company shall be held harmless and indemnified by the
Reinsurer for any liability, claim, demand, expense and/or cost of whatever kind
or character as a result of, related to or connected with any action or inaction
of such claims adjusters.

                                       2
<PAGE>

1.05 The Company shall not be responsible for the General Agent's expenses and
costs, including, but not limited to, salaries, bonuses, rentals, transportation
facilities, clerk hire, solicitors' fees, postage, advertising, exchange,
personal license fees, adjustment by the General Agent of losses under policies
issued by the General Agent, or any other agency expenses whatsoever. The
General Agent's sole compensation shall be the amounts payable to the General
Agent in Article III of this Agreement.

1.06 The General Agent understands and agrees that it has no power or authority
granted to it by the Company independent of this Agreement and the 2005 Excess
of Liability Reinsurance Agreement, and that this Agreement and the General
Agent's authority hereunder shall cease immediately upon the termination, for
any reason, of this Agreement or any of the Reinsurance Agreements (excepting
only the General Agent's responsibilities with regard to run-off and other
matters as set forth herein or in the Reinsurance Agreements).

1.07 The General Agent shall not have the power to accept or bind risk other
than as set forth herein, as set forth in the 2005 Excess of Liability
Reinsurance Agreement or as may be subsequently authorized by the Company and
Reinsurer in writing. The General Agent may not bind or cede reinsurance or
retrocession on behalf of the Company, may not commit the Company to
participation in insurance or reinsurance syndicates, and may not commit the
Company to a claim settlement with a reinsurer without the prior written
approval of the Company. If such prior written approval is given, the General
Agent shall forward promptly a report to the Company concerning such transaction
and/or payment. The Company hereby authorizes the General Agent to collect
payments for losses and loss adjustment expenses from a reinsurer. The General
Agent shall send a report to the Company concerning such transactions promptly.

1.08 The General Agent acknowledges that, with respect to any state in which
business is permitted to be written under the Reinsurance Agreements, this
Agreement shall not become effective until the General Agent is first duly
appointed by the Company with the applicable regulatory authority. The General
Agent agrees that any producing agent receiving commission pursuant to this
Agreement shall first be duly registered by the Company and said appointment on
file with any applicable state insurance department. The General Agent further
agrees to be responsible for the payment of any penalty assessed to the Company
for any violation by the General Agent or any producing agent or broker
registered by the General Agent pursuant to the provisions of Article IV hereof
of any license or appointment provision of the Texas Insurance Code, or other
applicable state statutes, and the rules and regulations promulgated thereunder.
If the General Agent fails to pay such penalty, the Reinsurer shall in
accordance with the 2005 Excess of Liability Reinsurance Agreement pay it
immediately upon written notification by the Company of the General Agent's
failure to pay such penalty.

1.09 It is understood that the Reinsurer has acknowledged that the Company shall
not be required to monitor the General Agent's compliance with the terms of
either the Reinsurance Agreements or this Agreement and the Reinsurer shall be
responsible for monitoring the General Agent's compliance with the Reinsurance
Agreements and this Agreement.

                                       3
<PAGE>

1.10 The authority and limitations of the General Agent to issue policies are as
follows:

         (a) the maximum annual premium volume the General Agent may produce
         under this Agreement is $50,000,000 (fifty million dollars);

         (b) the basis of the rates charged are as provided in the Company's
         rate manuals, rate brochures and rate schedules which the General Agent
         shall follow, and the General Agent shall not decrease rates or
         increase discounts without the prior approval of the Company and
         Reinsurer;

         (c) the only classes of business the General Agent is authorized to
         produce and handle under this Agreement are the classes of business
         specified in the Reinsurance Agreements;

         (d) the General Agent may issue policies under this Agreement only to
         insured residents in the states in which business is permitted to be
         produced under the Reinsurance Agreements; but this limitation shall
         not apply to losses if said policies provide coverage outside the
         aforesaid territorial limit;

         (e) the General Agent shall only cancel policies as set forth in the
         policy form for the policies produced hereunder or as otherwise
         permitted by applicable law;

         (f) the maximum term for any policy issued hereunder shall be twelve
         (12) months;

         (g) the General Agent shall employ all reasonable and appropriate
         measures to control and keep a record of the issuance of the Company's
         insurance policies hereunder, including, but not limited to, keeping
         records of policy numbers issued and maintaining policy inventories;

         (h) the excluded risks are those set forth in the 2005 State National
         Quota Share Reinsurance Agreements.

         (i) the maximum limits of liability for policies to be produced are as
         follows:

            1.    General Liability - $1,000,000 (one million dollars) per
                  occurrence; $2,000,000 (two million dollars) aggregate;

            2.    Automobile Liability - $1,000,000 (one million dollars)
                  combined single limit or $1,000,000 (one million
                  dollars)/$1,000,000 (one million dollars) split limit;

            3.    Property - $10,000,000 (ten million dollars) per risk

            The above limits apply to all segments for General Liability. These
            limits also apply to the Small Market and Middle Market for Property
            and Automobile policies only.

In underwriting policies, the General Agent shall follow the underwriting
guidelines developed by the General Agent, the Reinsurer and the Company, and
these guidelines are herein incorporated by reference.

                                       4
<PAGE>

                                   ARTICLE II
                                    PREMIUMS

2.01 It is expressly agreed and understood that all premiums collected by the
General Agent are collected on behalf of the Company; that such premiums are the
property of the Company, the 2005 State National Quota Share Reinsurers and the
Reinsurer as their respective interests may appear pursuant to the Reinsurance
Agreements, less such commissions and fees as are due the General Agent as
specified herein. All premiums on policies issued hereunder shall be collected
within seventy-five (75) days of the effective date of the policy or the General
Agent shall cancel such policy. All premiums collected by the General Agent on
the business produced under the Reinsurance Agreements shall be held in trust by
the General Agent in a fiduciary capacity on behalf of the Company and shall be
deposited immediately in a segregated trust account that is maintained separate
and apart from all other bank accounts of the General Agent and which reflects
the ownership of the account by the Company (the "Operating Fund"). The General
Agent shall not commingle any funds deposited in the Operating Fund with its
general assets. The General Agent shall have no legal or beneficial right, title
or interest in the Operating Fund. The General Agent is responsible for full
compliance with all applicable laws, regulations, rules and requirements
regarding fiduciary trust accounts.

         (a) All premiums collected by the General Agent shall be deposited
         immediately in the Operating Fund. The only disbursements from the
         Operating Fund shall be the payment of claims, claims expenses, return
         premiums, commission due the General Agent as authorized herein, Ceding
         Fee (as defined in Article 3.02 of this Agreement) due the Company and
         remittances in accordance with Article 12, Accounts, Remittances and
         Loss Settlements of the 2005 State National Quota Share Reinsurance
         Agreements. Within ten (10) days after the end of each month, the
         General Agent will furnish an accounting of the cash transactions
         reported in the Operating Fund. Such accounting will include: (i) a
         summary of premiums, net of cancellations and returns, deposited in the
         account; (ii) losses and loss adjustment expenses paid, net of any
         salvage and subrogation; (iii) commissions paid or received; (iv)
         interest or other investment income received; (v) any bank charges
         deducted; (vi) Ceding Fees and premium taxes paid; (vii) detail of all
         such other amounts that increased or decreased the reported cash
         balance in a level of detail sufficient to enable the Company to meet
         its Statutory financial reporting requirements; and (viii) copies of
         bank statements and of the reconciliation of same to the reported
         financial amounts.

         (b) The General Agent, via an investment manager, shall have the power
         to direct the investment of the funds held in the Operating Fund. The
         General Agent shall satisfy any financial obligation of the Company to
         the 2005 State National Quota Share Reinsurers by remitting funds
         deposited in the Operating Fund to such 2005 State National Quota Share
         Reinsurers. In addition, any interest earned on funds deposited in the
         Operating Fund shall inure to the benefit of the General Agent. The
         Operating Fund shall be established so that the Company will receive on
         a monthly basis a detailed report on all investment transactions,
         copied on all executed trade tickets, and receive monthly account
         reporting directly from the Custodian so that all disbursements and
         transactions can be reconciled.

         (c) The bank costs incurred for the Operating Fund shall be deducted
         from interest income earned on the Operating Fund balance. The General
         Agent shall be responsible for any bank costs that exceed the interest
         income earned on the Operating Fund.

The General Agent shall not make personal use of any funds in this account. The
commissions payable to the General Agent are debts due to the General Agent by
the Reinsurer and the privilege herein granted of deducting commissions from
said premiums should not be taken as a waiver by the Company of its exclusive
ownership rights of premiums as provided herein. Should any dispute arise
between the Company, the Reinsurer and/or the General Agent regarding payment of
premium, the General Agent shall remit immediately all money and property,
without deductions for commissions, to the Operating Fund with full reservation
of any and all rights reserved by the parties.

2.02 The General Agent shall furnish to the Company and the Reinsurer all
necessary premium and loss data (in a form acceptable to the Reinsurer and the
Company) no later than thirty (30) days following the end of the month during
which the business is written or losses are incurred to enable the Company to
record statistics required by statutes, regulation or upon call by authorities
having competent jurisdiction. Such data shall include, but is not limited to,
premiums written and unearned premium. Said data shall be segregated by lines of
insurance and location of risk.

                                       5
<PAGE>

2.03 The keeping of an account with the General Agent on the Company's books as
a creditor and debtor account is declared a record memorandum of business
transacted and neither such keeping of an account, nor alteration in commission
rate, nor failure to enforce prompt remittance or compromise or settlement or
declaration of balance of account, shall be held to waive assertion of the trust
relation as to premiums collected by the General Agent.

2.04 The General Agent shall be liable for the payment of all premiums upon all
policies of insurance written through the General Agent or any sub-agents of the
General Agent.

2.05 The General Agent shall remit to the Reinsurer, or Company as applicable,
any funds of or due to the Company under this Agreement at the earlier of the
following: (1) forty-five (45) days from the end of the month in which premium
is recorded; or (2) forty-five (45) days from the end of the month in which the
coverage under this Agreement became effective.

2.06 The General Agent shall hold all funds of or due the Company in a fiduciary
capacity.

                                   ARTICLE III
                        COMPENSATION TO THE GENERAL AGENT

3.01 In partial consideration for the services rendered hereunder and under the
Reinsurance Agreements, the General Agent is entitled to the commission payable
by the Reinsurer as specified herein. In addition, the Company shall allow the
General Agent a provisional commission as specified in Article 10, Section A and
B of the 2005 State National Quota Share Reinsurance Agreements less 2.0% (two
point zero percent) on all subject collected net written premiums, as defined in
the 2005 State National Quota Share Reinsurance Agreements with such amounts to
be paid to the General Agent on all subject collected net written premiums
produced under this Agreement. The Company shall not pay the General Agent any
commission amounts in respect of net written premiums which are not received by
the Company. The General Agent shall assume the credit risk associated with the
underlying insureds and shall pay to the Company a Ceding Fee in respect of the
net written premiums whether collected or not by the General Agent.

3.02 The General Agent shall pay direct to the Company 6.0% (six point zero
percent) of all net written premiums produced under this agreement ("Ceding
Fee"), and to the 2005 State National Quota Share Reinsurers and 2005 Excess of
Liability Reinsurer their premiums, as specified in the respective Reinsurance
Agreements, and the amounts for assignments, assessments, premium taxes, fines
and penalties as specified in such Reinsurance Agreements. This above Ceding Fee
due the Company shall not be reduced by any payments due by the General Agent to
third parties except for return net written premiums. The General Agent shall
allow the Company to return commission on return net written premiums and policy
fees at the same rates as received by the General Agent.

3.03 The General Agent's commission on premiums ceded to the various Reinsurers
is subject to adjustment as specified in Article 10, Section A. and B. of the
2005 State National Quota Share Reinsurance Agreements less 2.0% (two point zero
percent).

3.04 The Company shall not be liable for or responsible for any commissions or
other monies payable by the 2005 State National Quota Share Reinsurers to the
General Agent. The General Agent shall not sue or seek arbitration against the
Company for any actions by, or debts owing from, the 2005 State National Quota
Share Reinsurers.

                                       6
<PAGE>

3.05 In the event the Company or the 2005 State National Quota Share Reinsurers,
during the continuance of this Agreement or after its termination, refunds
premiums under any policy of insurance by reasons of cancellation or otherwise,
the General Agent agrees immediately to return to the Company or the 2005 State
National Quota Share Reinsurers, as applicable, the commission previously
received by it on the portion of the premium refunded. The General Agent shall
not be required to return, as commission or return commission, monies greater
than the total commission paid or otherwise payable to the General Agent.

                                   ARTICLE IV
                                   SUB-AGENTS

4.01 The General Agent shall comply with, and shall be responsible to insure the
compliance by, all such producing agents with the terms of this Agreement and
the Reinsurance Agreements and all other written rules and regulations of the
Company, and treat as confidential and use only in the interest of the Company
all instructions, information and materials received from the Company.

4.02 The General Agent shall be solely responsible for the performances of any
producing agents under all of the terms and provisions hereof, including, but
not limited to, the collections of premiums and refunds of premiums.

4.03 Each such producing agent must be registered or appointed, as required, as
an agent of the Company through the appropriate regulatory body before any
application shall be accepted from him or other insurance performances on behalf
of the Company are performed. The General Agent shall be ultimately responsible
for the obligation of the producing agent to obtain an appointment as provided
herein.

4.04 It is also specified that the General Agent shall be responsible for all
commissions payable to any producing agents. The General Agent and any producing
agent shall not seek to hold the Company or Reinsurer liable through litigation,
arbitration or otherwise for commissions payable to such producing agents.

4.05 The Company, in its sole discretion with or without cause, and without
prior written notice, may terminate the appointment of any producing agent.

4.06 The General Agent shall not permit its subagents or subproducers to serve
on its Board of Directors.

4.07 The General Agent shall not appoint sub-managing general agents.

4.08 The General Agent shall not employ an individual who is employed with the
Company.

                                       7
<PAGE>

                                    ARTICLE V
                           ADDITIONAL DUTIES OF AGENT

5.01 The General Agent shall, at all times during the period of this Agreement,
comply with all applicable laws and all orders, policy decisions or other
requirements of the Texas Department of Insurance or other applicable state
insurance department.

5.02 All books, records, accounts, documents and correspondence of the General
Agent and any producing agent pertaining to the Company's and Reinsurer's
business shall, at all times, be open to examination by any authorized
representative of the Company, Reinsurer or any of the 2005 State National Quota
Share Reinsurers. The General Agent shall make copies of records available upon
request by the Company or Reinsurer any of the 2005 State National Quota Share
Reinsurers, whether such request is before or after termination of this
Agreement or the Reinsurance Agreements. The General Agent must maintain
separate records of business, including, but not limited to, underwriting files
for each insurer for whom it acts as a general agent. Such records must be
maintained for five (5) years or until the completion of a financial examination
by the insurance department of the state in which the Company is domiciled,
whichever is longer.

5.03 The General Agent shall maintain adequate accounting procedures and
systems, at no cost or expense to the Company, and shall provide statistics in a
timely manner for all reporting requirements under the Reinsurance Agreements or
as shall be required from time to time by the regulatory authorities of the
State of Texas or any other applicable governmental agency or authority. Such
statistical information shall be provided to the Company by the General Agent at
the General Agent's sole cost and expense.

5.04 The General Agent shall forward to the Company, no later than the 30th day
of the month following the month being accounted for, a report in detail of all
policies of insurance written or placed, or liability increased or decreased, or
policies continued or renewed or canceled by or through the General Agent during
the month being accounted for, which shall include all premiums due thereon
whether collected or not. Such report shall show the net amount due to the
Company and Reinsurer on all such business on the lines of business authorized
to be written by the General Agent and the amounts paid in losses, loss
adjustment expenses and commissions. Such report shall also include, to the
extent not already included, both insurance and reinsurance transactions,
including:

         (i)    statement of written, earned and unearned premiums;

         (ii)   losses and loss expenses outstanding;

         (iii)  losses incurred but not reported; and

         (iv)   any management fees.

The report shall be received by or confirmed to the Company no later than thirty
(30) days from the close of the month for which business is reported. The
Company shall maintain such account reports on file for at least five (5) years
and shall make the account reports available to the Commissioner of Insurance of
the State of Texas (the "Commissioner"), or other applicable state department of
insurance, for review upon request.

5.05 The General Agent shall account for and furnish to the Company, upon
request with reasonable notice, complete copies of all policies issued, copies
of all spoiled, voided or otherwise unissued policies, and copies of all claim
files created with respect to all loss occurrences under any policy issued under
this Agreement.

                                       8
<PAGE>

5.06 The title of all undelivered policies, books, supplies, or other property
related to the reinsured business is in the Company, and these shall be
delivered to the Company by the General Agent immediately upon the termination
of this Agreement. The General Agent agrees to surrender peaceably the same
without compelling the Company to resort to any legal proceedings whatsoever.

5.07 The General Agent shall not insert any advertisement respecting the Company
in any publication or issue any circular or paper referring to the Company
without first obtaining the written consent of the Company. The General Agent
shall comply with all statutes and regulations pertaining to advertising, and
establish and maintain records of any such advertising as required by the
applicable laws of the states in which it is doing business.

5.08 The General Agent shall maintain on behalf of the Company and Reinsurer
complete copies of all policies issued hereunder and copies of all claim files
created with respect to all loss occurrences thereunder. Any or all policies
and/or claim files required to be maintained by General Agent pursuant to this
Section 5.08 may be maintained in electronic data storage form accessible by
computer and if so stored in this fashion, no physical copy of such items need
be maintained. Where electronic claims files are maintained by the General
Agent, any data from such files requested or required by the Company shall be
provided within thirty (30) days or less if so requested by the Company.

5.09 The General Agent shall pay to the account specified in Section 2.01 hereof
the positive balance, if any, no later than forty-five (45) days following the
end of the month during which the business was written net collected premiums
hereunder (being defined as premiums collected less return premiums) less the
General Agent's commissions and less loss adjustment expenses and loss payments.
Should such balance be a negative amount, the Reinsurer shall promptly pay the
General Agent upon receipt and verification of the amount due as reported by the
General Agent.

5.10 The General Agent shall be solely responsible for procuring any renewal,
extension, or new policy of insurance that may be required by any state or rule
or regulation of any state insurance department with respect to policies
originally written directly for the Company. The General Agent and Reinsurer, in
accordance with the Reinsurance Agreements, shall indemnify the Company and hold
it harmless from any loss, damage, cost, claim or expense whatsoever that the
Company may incur, or for which it may become liable, as a result of the said
General Agent's failure, refusal or neglect to fulfill said responsibility.

5.11 The General Agent agrees that its duties and obligations under this
Agreement shall be due and owing also to the Company's and Reinsurer's
successors and assigns.

5.12 Nothing in this Article V shall be construed as requiring the Company to
monitor the book of business which is the subject of the Reinsurance Agreements
for the benefit of the Reinsurer.

5.13 The Company shall conduct or cause to be conducted a semi-annual
examination of the General Agent, in accordance with the Company's audit
guidelines. Furthermore, if the Company's aggregate premium volume increases by
thirty (30) percent in any thirty (30) day period, the Reinsurer at no expense
to the Company, and on behalf of the Company, shall examine or cause to be
examined within ninety (90) days the General Agent if it writes more than twenty
(20) percent of the Company's volume and has also experienced a twenty (20)
percent increase in premium volume during that same thirty (30) day period.

                                       9
<PAGE>

The examinations required under the preceding paragraph shall adequately provide
the Commissioner with the information outlined in (a) through (e) below, shall
be made available to the Commissioner for review, shall remain on file with the
Company for a minimum of three (3) years and shall, at a minimum, contain
information concerning the following:

         (a)   claims procedures of the General Agent;

         (b)   timeliness of claims payments by the General Agent (i.e., lag
               time between date claim is reported and date claim is paid);

         (c)   timeliness of premium reporting and collection by the General
               Agent;

         (d)   compliance by the General Agent with underwriting guidelines
               under Section 1.10 hereof; and

         (e)   reconciliation of policy inventory.

5.14 The General Agent shall return any unearned premium due insureds or other
persons on the business which is the subject of the Reinsurance Agreements; if
for any reason, the General Agent does not return such unearned premium, then
the Reinsurer shall pay such amount and/or amounts.

5.15 The General Agent shall be duly licensed as a managing general agent or as
otherwise required under applicable law to perform its duties hereunder.

5.16 Should any state insurance department make a request to the Company for any
data required to comply with a statistical data call, the General Agent shall be
solely responsible to provide the Company with such data. Should the request
from such state insurance department require the Company to contract the
services of an outside source, such as an actuarial firm, to compile the data
required, the General Agent shall be responsible for its proportionate share of
the total cost for services rendered.

5.17 General Agent, when placing business under this Agreement, may not charge a
per-policy fee in excess any fees allowed by the applicable insurance regulatory
authority.

5.18 The General Agent shall provide Company, at General Agent's expense, an
independent financial examination in a form acceptable to the applicable state
departments of insurance, or other regulatory body, if required.

5.19 The General Agent shall provide annually to Company, at General Agent's
expense, an independent actuary opinion attesting to the adequacy of loss
reserves established for losses incurred and outstanding on business produced
hereunder if General Agent establishes total loss reserves including IBNR, if
required by the applicable insurance regulatory authority.

5.20 The General Agent acknowledges receipt of the Company's Statistical
Reporting Policy and Procedure Manual, and will act in accordance therewith. The
General Agent will act, at its sole cost and expense, on behalf of the Company
to produce, prepare, and file statistical information with the designated
statistical reporting bureau. The General Agent will also furnish the Company,
and other parties as designated by the Company, with monthly, quarterly and
annual reports showing statistical data in respect of the business written as
required.

                                       10
<PAGE>

5.21 Company will provide to the General Agent the percentage of written premium
to remit directly to Company on a monthly basis for bureau fees related to
statistical reporting, and boards and bureaus participation ("Bureau Fees"). In
addition to the Bureau Fees, should the Company be charged any fines or
penalties for incomplete, inaccurate, or delinquent reporting, the General Agent
shall pay such fines or penalties immediately upon written notice. The General
Agent will remit Bureau Fees as designated by the Company until notified of any
necessary adjustments to the amount of the Bureau Fees. Should the General Agent
fail to remit any amounts due to Company under this Section 5.21, then the
Reinsurer shall pay such amounts within 60 days written notice from the Company.
The initial Bureau Fees shall be .25% of written premium. The Bureau Fees are in
addition to other fees and expenses expressly enumerated herein.

5.22 General Agent shall at all times during the term of this Agreement maintain
Errors and Omissions insurance coverage in an amount not less than $2,000,000
(two million dollars) per occurrence and $2,000,000 (two million dollars) annual
aggregate. General Agent shall provide the Company and the 2005 State National
Quota Share Reinsurers with evidence of such coverage prior to execution of this
Agreement. General Agent shall provide the Company and the 2005 State National
Quota Share Reinsurers with written notice of any change to, or amendment of,
such insurance coverage or any receipt by General Agent of any notice of
cancellation of such insurance coverage within ten (10) calendar days of any
such change, amendment or its receipt of notice of cancellation.

                                   ARTICLE VI
                              TERM AND TERMINATION

6.01 The effective date of this Agency Agreement is 12:01 a.m., Eastern Standard
Time, on January 1, 2005, and shall remain continuously in force unless canceled
as follows:

         (a)      This Agreement may be canceled by either party by giving at
                  least ninety (90) days prior written notice to the other
                  party. Notice shall be provided by registered mail, return
                  receipt requested, and notice shall be deemed to have been
                  provided on the date of mailing.

         (b)      Immediately by mutual consent of the Company and General
                  Agent.

         (c)      At any time, by the Company, without prior notice in the event
                  of the General Agent declaring bankruptcy or being declared or
                  found bankrupt or insolvent, or being the subject of a cease
                  and desist order, corrective order, or being placed in, or
                  subject to, a proceeding of supervision, conservation,
                  rehabilitation or liquidation.

         (d)      Immediately upon written notice by the Company in the event of
                  the cancellation or non-renewal of the General Agent's
                  license, as it relates to the business produced in that state,
                  by the New York Department of Insurance or other applicable
                  state insurance department.

         (e)      Immediately upon written notice by the General Agent in the
                  event any action against the Company is commenced by Texas
                  Department of Insurance or other applicable state insurance
                  department pursuant to rehabilitation or liquidation. The
                  Company agrees to furnish notice of such action immediately to
                  the General Agent.

         (f)      If the General Agent shall fail to make any remittances due
                  from the Company to any of the 2005 State National Quota Share
                  Reinsurers in accordance with Article 12, Accounts,
                  Remittances and Loss Settlements of the 2005 State National
                  Quota Share Reinsurance Agreements, then the Company may at
                  its sole discretion cancel this contract by giving the General
                  Agent written notice of cancellation served personally or by
                  mail, which shall be effective immediately.

                                       11
<PAGE>

         (g)      If the General Agent shall defraud or attempt to defraud the
                  Company; or any policyholder, then the Company may at its sole
                  discretion cancel this contract by giving the General Agent
                  written notice of cancellation served personally or by mail,
                  which shall be effective immediately.

         (h)      As provided in Section 8.11 of this Agreement.

         (i)      Automatically and immediately, without notice, upon the
                  cancellation or termination of the 2005 State National Quota
                  Share Reinsurance Agreements, including any special
                  termination invoked by any of the 2005 State National Quota
                  Share Reinsurers pursuant to Article 14, Special Termination
                  of the 2005 State National Quota Share Reinsurance Agreements.

         (j)      If the Reinsurer's A.M. Best rating drops below a "B+" then
                  the Company may at its sole discretion cancel this contract by
                  giving the General Agent written notice of cancellation served
                  personally or by mail, which shall be effective immediately.

         (k)      In the event of a reduction of more than 20% (twenty percent)
                  of the Reinsurer's statutory surplus from the Reinsurer's
                  Statutory Surplus Level at December 31, 2004 then the Company
                  may at its sole discretion cancel this contract by giving the
                  General Agent written notice of cancellation served personally
                  or by mail, which shall be effective immediately.

         (l)      If there is a change in the office of President or CEO of the
                  Reinsurer then the Company may at its sole discretion cancel
                  this contract by giving the General Agent written notice of
                  cancellation served personally or by mail, which shall be
                  effective immediately.

         (m)      In the event of the Insolvency, Rehabilitation, or Regulatory
                  Supervision of the Reinsurer then the Company may at its sole
                  discretion cancel this contract by giving the General Agent
                  written notice of cancellation served personally or by mail,
                  which shall be effective immediately.

         (n)      If the Reinsurer ceases underwriting new property and casualty
                  business then the Company may at its sole discretion cancel
                  this contract by giving the General Agent written notice of
                  cancellation served personally or by mail, which shall be
                  effective immediately.

         (o)      If the Reinsurer sells 50% or more of its assets or reinsures
                  50% or more of its Net Written Premium or net liabilities (all
                  as of January 1, 2005) to an unaffiliated third party then the
                  Company may at its sole discretion cancel this contract by
                  giving the General Agent written notice of cancellation served
                  personally or by mail, which shall be effective immediately.

         (p)      If an insurance regulatory authority or governmental entity in
                  any United States jurisdiction revokes, suspends or forces the
                  Reinsurer to withdraw its certificate of authority in such
                  jurisdiction then the Company may at its sole discretion
                  cancel this contract by giving the General Agent written
                  notice of cancellation served personally or by mail, which
                  shall be effective immediately.

6.02 This Agreement shall automatically become renewed from year to year upon
the renewal of the license or certificate of authority granted to the Company by
the New York Department of Insurance and other applicable state insurance
department, provided this Agreement shall not be otherwise canceled.

                                       12
<PAGE>

6.03 It is expressly agreed and understood that nothing in this Article VI
authorizes the General Agent to write any new business under this Agreement
should the 2005 State National Quota Share Reinsurance Agreements terminate,
except the business that is required to be renewed or issued because of
applicable law or regulation, as provided in Article 3, A. of the 2005 State
National Quota Share Reinsurance Agreements. The General Agent also agrees, that
upon termination of the 2005 State National Quota Share Reinsurance Agreements,
to terminate and/or non-renew, as soon as allowable under the applicable law
and/or regulation, all business written under this Agreement.

6.04 The Company shall have no liability to the General Agent by virtue of the
Company's termination of this Agreement as set forth in this Article; it being
expressly understood that partial consideration for the Company's grant of
agency authority to the General Agent is the General Agent's promise that the
Company shall not be responsible for any damages which might arise by virtue of
any termination of this Agreement.

6.05 In the event of termination of this Agreement, after the General Agent
having promptly accounted for and paid over premiums for which it may be liable,
the General Agent's records, use and control of expirations shall remain the
property of the General Agent and left in its undisputed possession.

6.06 In the event that this Agreement is terminated, the General Agent, for no
additional fee, shall have the authority (unless revoked by the Company at its
sole discretion in which case the Reinsurer shall appoint a successor at no cost
to the Company) as provided in this Agreement to continue to perform all of its
duties under this Agreement on the remaining policies during the run-off period.
The General Agent's duties during the run-off period shall include handling and
servicing of all policies through their natural expiration, together with any
policy renewals required to be made by the provisions of applicable law, whether
or not the effective date of such renewal is subsequent to the effective date of
cancellation of this Agreement. Further, upon termination of this Agreement, the
General Agent shall not be relieved of or released from any obligation created
by or under this Agreement in relation to payment, expenses, reports, accounting
or handling, which relate to the outstanding insurance business under this
Agreement existing on the date of such termination. The Company and the General
Agent will cooperate in handling all such business until the business has
expired either by cancellation or by the terms of the policies and all
outstanding losses and loss adjustment expenses have been settled.

6.07 As the 2005 Excess of Liability Reinsurance Agreement provides for
termination on a run-off basis, the relevant provisions of this Agreement shall
apply to business being run-off. It is also expressly agreed that the terms,
conditions and obligations of the Preamble and Articles II, IV and V, Sections
6.04, 6.05, 6.06, 6.07 and 6.08, Article VII, Section 8.11 and Article IX herein
shall survive termination of this Agreement.

6.08 The Company may suspend the authority of the General Agent during the
pendency of any dispute regarding any event of default by the General Agent.

                                       13
<PAGE>

                                   ARTICLE VII
                        HOLD HARMLESS AND INDEMNIFICATION

         The General Agent agrees to and does hereby indemnify and hold the
Company harmless from and against any and all actions, causes of actions, suits,
arbitrations, or proceedings of any kind, liabilities, losses, claims, damages,
costs, or expenses (including attorneys' fees and expenses), incurred by the
Company by reason of, arising out of, or relating in any way to this Agreement
or any action taken or inaction by the General Agent. In addition, if the
Reinsurer does not indemnify and hold the Company harmless as required by the
Reinsurance Agreements, the General Agent shall fulfill the obligations of the
Reinsurer and make the payments required pursuant to the Reinsurance Agreements.

                                  ARTICLE VIII
                                  MISCELLANEOUS

8.01 This Agreement has been made and entered into in the State of Texas and
shall be governed by and construed in accordance with the laws of the State of
Texas.

8.02 This Agreement is not exclusive and the Company reserves the right to
appoint other agents in the territory covered by this Agreement and the General
Agent reserves the right to act as General Agent for other insurers or
reinsurers.

8.03 This Agreement shall be binding upon the parties hereto, together with
their respective successors and permitted assigns.

8.04 The Company shall have no right of control over the General Agent as to
time, means or manner of the General Agent's conduct within the terms of the
Agreement and the Reinsurance Agreements and the authority herein granted and
nothing herein is intended or shall be deemed to constitute the General Agent an
employee or servant of the Company. The General Agent shall at all times be an
independent contractor.

8.05 This Agreement shall be deemed performable at the Company's administrative
office in Fort Worth, Texas, and it is agreed that the venue of any controversy
arising out of this Agreement, or for the breach thereof, shall be in Tarrant
County, Texas.

8.06 The General Agent shall not assign any of its rights or obligations under
this Agreement without the prior written consent of the Company. No verbal
modification will be recognized by any party hereto and this Agreement cannot be
modified by any subsequent practices or course of dealing by the parties
inconsistent herewith. If the Company or the General Agent shall fail to take
advantage of a breach, if any, by another party of the terms, conditions,
covenants, or any of them herein contained, such failure shall not be deemed to
constitute, or be construed as, a waiver of any rights on the part of the
General Agent or Company to thereafter enforce any of the said terms, conditions
or covenants.

8.07 This Agreement may be amended, modified or supplemented only by a written
instrument executed by all parties hereto. All such amendments or changes shall
specify the effective date of such amendments or changes.

8.08 This Agreement supersedes any and all provisions, terms and/or conditions
of any other general agency agreements, whether oral or written, by between and
among the parties with respect to the subject matter hereof.

8.09 The General Agent shall notify the Company in writing within thirty (30)
days when there is a change in the ownership of 10% or more of the outstanding
stock in the General Agent or when there is any change in the General Agent's
principal officers or directors.

8.10 The General Agent shall not offset balances due under this Agreement
against balances due or owing under any other contract.

                                       14
<PAGE>

8.11 This Agreement shall be interpreted in conformance with applicable Texas
law and regulation. If it is found or ordered by a court or regulatory body that
any provision or term of this Agreement does not conform to such law or
regulation then this Agreement shall be deemed to be amended, and modified to be
in accordance with such law. However, where this Agreement is found not to
comply with applicable law or regulations, the Company may in its sole
discretion terminate this Agreement immediately and without prior notice.

                                   ARTICLE IX
                                   ARBITRATION

9.01 As a condition precedent to any right of action hereunder, in the event of
any dispute or difference of opinion hereafter arising between the Company, on
the one hand, and the General Agent, on the other hand, with respect to this
Agreement or with respect to the General Agent's and/or the Company's
obligations hereunder, it is hereby mutually agreed that such dispute or
difference of opinion shall be submitted to arbitration.

9.02 The Company shall choose one arbiter (an "Arbiter") and the General Agent
shall choose one Arbiter. An umpire (an "Umpire") shall be chosen by the two
Arbiters, all of whom shall be active or retired disinterested executive
officers of property and casualty insurance or reinsurance companies.

9.03 Both the General Agent and the Company shall choose an Arbiter within 30
days following a written request by one party to the other to name an Arbiter.
In the event either the Company or the General Agent fails to choose an Arbiter
within this time period, the party who has chosen its Arbiter may choose the
unchosen Arbiter. Thereafter, the Arbiters shall choose an Umpire before
entering upon arbitration. If the Arbiters fail to agree upon the selection for
the Umpire within 30 days following their appointment, each Arbiter shall name
three nominees, of whom the other shall decline two and the decision shall be
made by drawing lots.

9.04 Each side shall present its case to the Arbiters and Umpire, in a hearing
in Dallas, Texas. The Arbiters and Umpire shall consider this Agreement as an
honorable engagement, as well as a legal obligation, and they are relieved of
all judicial formalities and may abstain from following the strict rules of law
regarding entering of evidence. The decision in writing by a majority of the
Arbiters and Umpire when filed with the Company and the General Agent shall be
final and binding. Judgment upon the final decision of the Arbiters and Umpire
may be entered in any court of competent jurisdiction.

9.05 In the event of a dispute between the Company and the General Agent
concerning this Agreement and the Quota Share Reinsurance Agreement between the
Company and the Reinsurer, regardless of whether either party has claims against
the Reinsurer, the entire dispute between the Company and the General Agent
shall be subject to arbitration as provided under this Article IX.

9.06 The costs of the arbitration, including the fees of the Arbiters and the
Umpire, shall be borne equally by the sides unless the Arbiters and Umpire shall
decide otherwise.

9.07 This Agreement shall be interpreted under the laws of Texas and the
arbitration shall be governed by the Texas Arbitration Code.

                                       15
<PAGE>

                                    ARTICLE X
                                     PRIVACY

10.01 The General Agent shall provide to each new policyholder, prior to or upon
the issuance of any Policies written under this Agreement, and in accordance
with applicable state and federal laws, an initial notice of the Company's
privacy policies and practices. Not less than annually thereafter, the General
Agent, upon the request of the Company, distribute a copy of the Company's
annual privacy notice, as may be amended from time to time, to each existing
policyholder. In addition, the General Agent shall, upon the request of the
Company, distribute revised privacy notices and opt-out notices as applicable to
each policyholder to reflect any revisions which may be made to the Company's
privacy policies and practices. In each case, the Company shall be responsible
for providing the Agency with a copy of the form for its privacy policies and
practices notice, which forms the General Agent shall use to create and deliver
the notices described herein, at the Agency's sole cost and expense. These
notices shall be created and delivered independent of any separate legal
obligation the General Agent may have to create and deliver its own such
notices.

10.02 The General Agent shall not disclose or use any nonpublic personal
financial information or nonpublic personal health information related to any
policyholder, or to any consumer or customer (as such terms are defined under
applicable state and federal privacy laws), except as necessary to carry out its
duties and obligations under this Agreement or as otherwise permitted under
applicable state or federal law.

10.03 The General Agent shall develop and implement, in accordance with
applicable state and federal laws, a comprehensive written information security
program designed to (i) ensure the security and confidentiality of nonpublic
personal financial information and nonpublic personal health information related
to any policyholder, or to any consumer or customer (as such terms are defined
under applicable state and federal privacy laws), (ii) protect against any
anticipated threats or hazards to the security or integrity of such information,
and (iii) protect against unauthorized access to or use of such information that
could result in substantial harm or inconvenience to any customer.

                                       16
<PAGE>

         IN WITNESS WHEREOF, the Parties hereto by their respective duly
authorized representatives have executed this Agreement as of the date first
above written.

STATE NATIONAL INSURANCE COMPANY, INC.

BY:       /s/ Terry Ledbetter
   --------------------------------------------------

ITS:      President
    -------------------------------------------------

DATE:     January 20, 2005
     ------------------------------------------------

TOWER RISK MANAGEMENT CORP.

BY:       /s/ Marina Contiero
   --------------------------------------------------

ITS:      Vice President
    -------------------------------------------------

DATE:     December 29, 2004
     ------------------------------------------------

TOWER INSURANCE COMPANY OF NEW YORK

BY:       /s/ Marina Contiero
    -------------------------------------------------

ITS:      Vice President
     ------------------------------------------------

DATE:     December 29, 2004
     ------------------------------------------------

                                       17

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