Document:

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                                                                    Exhibit 10.1

                                   Quota Share
                              Reinsurance Agreement

                                     Between

                            Colony Insurance Company
                        Colony National Insurance Company
                       Colony Specialty Insurance Company

                                       And

                            Houston Casualty Company

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                                      INDEX

ARTICLE                              SUBJECT                              PAGE

I.     REINSURING CLAUSE ..................................................  1

II.    COMMENCEMENT AND TERMINATION .......................................  2

III.   SPECIAL TERMINATION ................................................  2

IV.    LIMITS OF LIABILITY ................................................  2

V.     ULTIMATE NET LOSS ..................................................  3

VI.    TERRITORY ..........................................................  3

VII.   EXCLUSIONS .........................................................  3

VIII.  REINSURANCE PREMIUM AND COMMISSION .................................  4

IX.    CURRENCY ...........................................................  4

X.     REPORTS AND REMITTANCES ............................................  5

XI.    LOSS REPORTING AND SETTLEMENTS .....................................  5

XII.   EXTRA CONTRACTUAL OBLIGATIONS ......................................  6

XIII.  EXCESS OF ORIGINAL POLICY LIMITS ...................................  7

XIV.   TAXES ..............................................................  7

XV.    ACCESS TO RECORDS ..................................................  8

XVI.   ORIGINAL CONDITIONS ................................................  8

XVII.  ENTIRE AGREEMENT ...................................................  8

XVIII. AMENDMENTS IN WRITING ..............................................  8

XIX.   OFFSET .............................................................  8

XX.    INSOLVENCY .........................................................  8

XXI.   ERRORS AND OMISSIONS ...............................................  9

                                     Page 1

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XXII.  LEGALITY ...........................................................   9

XXIII. ARBITRATION ........................................................  10

XXIV.  GOVERNING LAW ......................................................  11

XXV.   INTERMEDIARY CLAUSE ................................................  11

       SIGNING PAGE .......................................................  12

       EXHIBIT A

                                     Page 2

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                                   Quota Share
                              Reinsurance Agreement
                  (Hereinafter referred to as the "Agreement")

                                     Between

                            Colony Insurance Company
                               Richmond, Virginia
                        Colony National Insurance Company
                               Richmond, Virginia
                       Colony Specialty Insurance Company
                                 Columbus, Ohio
             (Hereinafter collectively referred to as the "Company")

                                       And

                            Houston Casualty Company
                                 Houston, Texas
                  (Hereinafter referred to as the "Reinsurer")

                          ARTICLE I. REINSURING CLAUSE

By this Agreement the Company obligates itself to cede to the Reinsurer and the
Reinsurer obligates itself to accept fifteen percent (15%) of the Company's
Ultimate Net Loss under all contracts, agreements, policies, binders and other
evidences of insurance, whether oral or written, as intended by the Company to
be covered hereunder covering business for the Company's Underwriting Divisions
currently classified as Allied Medical, Industrial Casualty, Excess Liability,
General Casualty, Errors and Omissions, Property, Inland Marine, Environmental,
Garage and Contract (hereinafter referred to as "Policies"). The list of
Underwriting Divisions is intended to include all Underwriting Divisions
operating at April 1, 2003.

The liability of the Reinsurer with respect to each cession hereunder shall
commence obligatorily and simultaneously with that of the Company, subject to
the terms, conditions and limitations hereinafter set forth.

                                  Page 1 of 12

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                    ARTICLE II. COMMENCEMENT AND TERMINATION

This Agreement shall apply to all loss occurrences on new and renewal Policies
incepting during the Agreement period and attaching hereon as of 12:01 A.M.
Local Standard Time April 1, 2003 for a five (5) year period, terminating on
April 1, 2008, 12:01 A.M. Local Standard Time. The Reinsurer may terminate this
Agreement with ninety (90) days notice of cancellation at any annual anniversary
of the Agreement effective date.

The Reinsurer shall remain liable for all Policies that incept prior to the
expiration or termination date of this Agreement and are still in-force as of
the expiration or termination date. The liability of the Reinsurer shall
continue to apply to such Policies until the earlier of the natural expiration
or cancellation of such Policies and includes any extended reporting periods on
claims made policies. The Company shall not issue any Policy for a term in
excess of twelve (12) months plus odd time to a maximum of eighteen (18) months.

                        ARTICLE III. SPECIAL TERMINATION

If at any time the Company or the Reinsurer loses in whole or part its paid-up
capital, becomes insolvent, or is placed in conservation, rehabilitation or
liquidation, or has a receiver appointed, or is acquired or controlled by,
merged with, or reinsures its entire business with any other company or
corporation, the other party shall have the right to terminate this Agreement
forthwith upon the giving of thirty (30) days notice in writing.

In addition, with thirty (30) days written notice the Company may terminate this
Agreement if the Reinsurer's A. M. Best rating drops to "A-" or below, and with
thirty (30) days written notice the Reinsurer may terminate its participation in
the Agreement if the Company's A. M. Best rating drops to "B+" or below.

                        ARTICLE IV. LIMITS OF LIABILITY

The Reinsurer's liability for Ultimate Net Loss under this Agreement shall be
limited to fifteen percent (15%) of the Company's Policy limit, subject to a
maximum Policy limit as shown in Exhibit A attached to this Agreement. In no
event will the Reinsurer's liability exceed fifteen percent 15% of $40,000,000
per occurrence.

The application of per risk, per occurrence or per claim in this Agreement has
the same meaning as in the Policies reinsured by this Agreement.

                                  Page 2 of 12

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The Reinsurer, at its option, may participate with the Company on the Company's
reinsurance protection as common account protection of the original policy limit
and inures to the benefit of this Agreement. The Reinsurer will pay its pro-rata
proportion of the premium paid for the common account reinsurance.

                          ARTICLE V. ULTIMATE NET LOSS

Ultimate Net Loss as used herein is defined as the amount of any loss payments
and settlements, awards, or judgments paid or payable by the Company, after
deduction for common account reinsurance that inures to the benefit of this
Agreement and includes interest accrued prior to final judgment.

Allocated Loss Adjustment Expenses are payable by the Reinsurer in proportion to
the Reinsurer's share of the Ultimate Net Loss in addition to the Ultimate Net
Loss. Allocated Loss Adjustment Expenses mean the costs attributable to the
investigation, appraisal, adjustment, settlement, litigation, defense and/or
appeal of specific claims, including but not limited to post-judgment interest,
expenses of outside adjusters, and legal expenses, but shall not include office
expenses or salaries of the Company's regular employees or its designated
representative referred to as Unallocated Loss Adjustment Expenses. Any
Allocated Loss Adjustment Expenses that are included within the limits of the
Policy limit are considered part of Ultimate Net Loss.

                             ARTICLE VI. TERRITORY

The territorial limits of this Agreement shall be those of the Policies.

                            ARTICLE VII. EXCLUSIONS

This Agreement does not apply to:

A.   Business accepted by the Company as reinsurance from other Insurers or
     Reinsurers.

B.   Injury caused directly or indirectly by hostile or warlike action in time
     of peace or war, including

     1)  Any discharge, explosion or use of any weapon of war employing atomic
         fission, fusion, or radioactive force; and

                                  Page 3 of 12

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     2)  Insurrection, rebellion, revolution, civil war, usurped power, or
         action taken by a governmental authority in hindering, combating, or
         defending against such occurrence.

C.   Any business written by Underwriting Divisions not listed in Article I,
     Reinsuring Clause without approval by the Reinsurer.

D.   Surety Business

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

F.   Nuclear Energy Risk Exclusion Clauses as attached

G.   Nuclear Incident Exclusion Clauses as attached

                ARTICLE VIII. REINSURANCE PREMIUM AND COMMISSION

The Company will cede to the Reinsurer its fifteen percent (15%) share of the
Gross Net Written Premium on all Policies subject to this Agreement. The Company
may deduct from the premium ceded to the Reinsurer the Reinsurer's share of the
cost of common account reinsurance protection which inures to the benefit of
this Agreement.

The Reinsurer shall allow the Company a ceding commission equal to the Company's
actual acquisition expenses. The Company shall allow the Reinsurer return
commission on return premiums at the same rate. The Gross Net Written Premium as
used in this Agreement means the total premium charged to the original Insureds
under the Policies plus additional premium or return premium, less return
premium for cancellation.

                              ARTICLE IX. CURRENCY

Whenever the word "Dollars" or the "$" sign 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.

                                  Page 4 of 12

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                       ARTICLE X. REPORTS AND REMITTANCES

Monthly Reports and Remittances

Within forty-five (45) days after the close of each month, the Company shall
furnish the Reinsurer with the following reports:

For each month being reported, segregated by accounting period and Underwriting
Division on each policy:

         Gross Written Premium, including all endorsement, audit and
         cancellation transactions;
         Acquisition Expenses;
         Cost of Common Account Reinsurance;
         Losses and Allocated Loss Adjustment Expenses paid during the month;
         Common Account Reinsurance Losses and Allocated Loss Adjustment
         Expenses recovered during the month;
         Subrogation and Salvage Recoveries;
         Reserves for Losses and Allocated Loss Adjustment Expenses outstanding;
         Common Account Reinsurance Reserves for Losses and Allocated Loss
         Adjustment Expense outstanding; and
         Net Unearned premium reserves as of the end of the month being
         reported.

Amounts due the Reinsurer will be remitted with the monthly report. Amounts due
the Company will be remitted within fifteen (15) days following receipt of the
report by the Reinsurer.

Quarterly Reports

Reserves for losses incurred but not reported (IBNR) as of the end of the fiscal
or calendar year being reported, segregated by accounting period and
Underwriting Division.

In addition to the reports required above, the Company shall furnish such other
information as may be reasonably required by the Reinsurer for the completion of
the Reinsurer's monthly, quarterly or annual statements and internal records.
All reports shall be rendered on forms acceptable to the Company and the
Reinsurer.

                   ARTICLE XI. LOSS REPORTING AND SETTLEMENTS

The Company or its designated representatives shall investigate and settle or
defend all claims and losses. All loss settlements made by the Company, provided
they are within the terms of this Agreement, shall be binding upon the
Reinsurer, who agrees to pay the Ultimate Net Loss for which it may be liable
under this Agreement. When requested by the Reinsurer, the Company

                                  Page 5 of 12

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shall permit the Reinsurer, at the expense of the Reinsurer, to be associated
with the Company in the defense or control of any claim, loss, or legal
proceeding which involves or is likely to involve the Reinsurer. Nothing in this
Article shall be construed as meaning that loss settlements are not recoverable
hereunder until the final loss to the Company has been ascertained.

The Reinsurer shall be credited with its proportionate share of salvage or
subrogation recoveries (i.e., reimbursement obtained or recovery made by the
Company, less the actual cost, excluding salaries of officials and employees of
the Company, of obtaining such reimbursement or making such recovery) on account
of claims and settlements involving reinsurance hereunder.

Any reimbursement received by the Company pursuant to the Terrorism Risk
Insurance Act of 2002 (Act) will reduce the Company's ultimate net loss under
this Agreement for reinsured losses subject to the Act. The allocation of the
reimbursement will be among all insured losses of the Company subject to the
Act, and the reduction of any ultimate net loss under this Agreement will be
proportional.

The Company deductible under the Act and any reimbursement received by the
Company under the Act is based on the Act's definition of Program Year. The
allocation of the amounts recovered for purposes of reducing any ultimate net
loss is also based on the Act's definition of Program Year.

The Company will reduce any one ultimate net loss in a Program Year by the
amount recovered under the Act in that Program Year in the same percent that the
loss reinsured by this Agreement bears to the Company's total insured losses
subject to the Act in a Program Year. No ultimate net loss will be reduced until
such time as the Company has actually received funds as reimbursement for its
insured losses subject to the Act.

                   ARTICLE XII. EXTRA CONTRACTUAL OBLIGATIONS

This Agreement shall protect the Company in addition to the Ultimate Net Loss
for Extra Contractual Obligations described in this Article and not covered by
any other reinsurance for fifteen percent 15% of one additional policy limit.
"Extra Contractual Obligations" means those liabilities not covered under any
other provision of this Agreement and which arise from the handling of any claim
on Policies covered hereunder, such liabilities arising because of, but not
limited to, the following: failure by the Company to settle within the policy
limit, or by reason of alleged or actual negligence, fraud, or bad faith in
rejecting an offer of settlement or in the preparation of the defense or in the
trial of any action against its Insured or in the preparation or prosecution of
an appeal consequent upon such action. The date on which the Company incurs any
Extra Contractual Obligation shall be deemed, in all circumstances, to be the
date of the original accident or disaster.

                                  Page 6 of 12

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The Company will notify the Reinsurer of the pendency of any claims for Extra
Contractual Obligations, and the Reinsurer at its own expense may associate with
the Company in the defense or control of Extra Contractual Obligation claims.

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 any other employee with claims settlement authority 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 XIII. EXCESS OF ORIGINAL POLICY LIMITS

This Agreement shall protect the Company in addition to the Ultimate Net Loss
for Excess of Original Policy Limits described in this Article and not covered
by any other reinsurance for fifteen percent 15% of one additional policy limit.
"Excess of Original Policy Limits" means those amounts the Company incurs in
excess of the limit of its original policy, such loss in excess of the limit
having been incurred because of failure by the Company to settle within the
policy limit or by reason of alleged or actual negligence, fraud, or bad faith
in rejecting an offer of settlement or in the preparation of the defense or in
the trial of any action against its Insured or in the preparation or prosecution
of an appeal consequent upon such action. For the purpose of this Article, the
word "loss" shall mean any amounts for which the Company would have been
contractually liable had it not been for the limit of the original policy.

The Company will notify the Reinsurer of any claims likely to incur a loss for
Excess of Original Policy Limits, and the Reinsurer at its own expense may
associate with the Company in the defense or control of Excess of Original
Policy Limits losses.

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 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.

                               ARTICLE XIV. TAXES

The Company shall pay all taxes on premiums reported to the Reinsurer. The
Company undertakes not to claim any deduction of the premium hereon when making
tax returns, other than income or profits tax returns, to any state or territory
of the United States of America or to the District of Columbia.

                                  Page 7 of 12

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                          ARTICLE XV. ACCESS TO RECORDS

The Reinsurer or its designated representatives shall have access to the books
and records of the Company at all reasonable times for the purpose of obtaining
information concerning this Agreement or the business hereunder.

                        ARTICLE XVI. ORIGINAL CONDITIONS

All reinsurance under this Agreement shall be subject to the same rates, terms,
conditions and waivers and to the same modifications, alterations and
interpretations as the respective Policies of the Company, except as amended by
the Articles contained herein.

                         ARTICLE XVII. ENTIRE AGREEMENT

This Agreement constitutes the entire agreement and supercedes prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof.

                      ARTICLE XVIII. AMENDMENTS IN WRITING

No amendment, modification or discharge of this Agreement, and no waiver
hereunder, shall be valid or binding unless set forth in writing and duly
executed by both parties.

                               ARTICLE XIX. OFFSET

The Company and the Reinsurer may offset any balance or amount due from one
party to the other under this Agreement or any other reinsurance agreements
between the parties whether as an assuming company or a ceding company. This
provision shall not be affected by the insolvency of either party to this
Agreement.

                             ARTICLE XX. INSOLVENCY

In the event of the insolvency of the Company, reinsurance under this Agreement
shall be payable on demand, with reasonable provision for verification, on the
basis of claims allowed against the insolvent Company by any court of competent
jurisdiction or by any liquidator, receiver, conservator, or statutory successor
of the Company having authority to allow such

                                  Page 8 of 12

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claims, without diminution because of such insolvency or because such
liquidator, receiver, conservator, or statutory successor has failed to pay all
or a portion of any claims. Such payments by the Reinsurer shall be made
directly to the Company or its liquidator, receiver, conservator, or statutory
successor, except as provided by Section 4118(a) of the New York Insurance Law
or except (a) where the Agreement specifically provides another payee of such
reinsurance in the event of the insolvency of the Company, or (b) where the
Reinsurer with the consent of the direct Insured or Insureds has assumed such
policy obligations of the Company as direct obligations of the Reinsurer to the
payees under such Policies and in substitution for the obligations of the
Company to such payees.

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

                        ARTICLE XXI. ERRORS AND OMISSIONS

Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, provided such omission or error is
rectified upon discovery.

                             ARTICLE XXII. LEGALITY

If any law or regulation of the federal, state, or local government of the
United States or the rulings of officials having supervision over insurance
companies should render illegal the undertaking of this Agreement, then with
regard to business within the jurisdiction of such authority, the Company may
upon written notice to the Reinsurer suspend, abrogate, or amend this Agreement
insofar as it relates to business within the jurisdiction of such authority, to
the extent as may be necessary to comply with such law, regulation or ruling.
Such suspension, abrogation, or amendment of a portion of this Agreement shall
in no way affect any other portion thereof.

                                  Page 9 of 12

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                           ARTICLE XXIII. ARBITRATION

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 Contract, whether such dispute arises before or after termination
of this Contract, 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. This
demand will state in particulars all issues to be resolved in the party's view
and will name the arbitrator appointed by it.

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
Contract from several to joint.

Within sixty (60) days of receipt of the arbitration demand, the opposing party
shall notify the claimant of its appointed arbitrator and any other issues it
believes needs to be resolved. The two appointed arbitrators shall then appoint
a third arbitrator. If respondents refuse or neglect to appoint an arbitrator
within sixty (60) days, the other party may appoint the second arbitrator. If
the two arbitrators do not agree on a third arbitrator within sixty (60) days of
their appointment, the Company shall petition the American Arbitration
Association to appoint the third arbitrator. If the American Arbitration
Association fails to appoint the third arbitrator within thirty (30) days after
it has been requested to do so, either party may request a justice of a Court of
general jurisdiction of the state in which the arbitration is to be held to
appoint the third arbitrator. The arbitrators shall be active or retired
officers of insurance or reinsurance companies or Lloyd's London Underwriters;
the arbitrators shall not have a personal or financial interest in the result of
the arbitration. In the event of the resignation or death of any arbitrator, a
replacement will be appointed in the same manner as the resigning or deceased
member was originally appointed.

The arbitration hearings shall be held in Houston, Texas or such other place as
may be mutually agreed. Each party shall submit its case to the arbitrators
within sixty (60) 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. Judgement upon the award
rendered may be entered in any court having jurisdiction thereof.

                                 Page 10 of 12

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

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

                           ARTICLE XXIV. GOVERNING LAW

This Agreement shall be governed by and construed in accordance with the laws of
the State of Texas.

                        ARTICLE XXV. INTERMEDIARY CLAUSE

Rattner Mackenzie (Bermuda) Limited is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All communications
(including but not limited to notices, statements, premium, return premium,
commissions, taxes, losses, loss adjustment expense, salvages and loss
settlements relating thereto shall be transmitted to the Company or the
Reinsurers through Rattner Mackenzie (Bermuda) Limited, 10 Queen Street,
Hamilton, Bermuda HM EX. Payments by the Company to the Intermediary shall be
deemed to constitute payment to the Reinsurers. Payments by the Reinsurers to
the Intermediary shall be deemed to constitute payment to the Company only to
the extent that such payments are actually received by the Company.

                                 Page 11 of 12

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IN WITNESS WHEREOF, the parties hereto, have executed this Agreement in
duplicate as of the following date:

In Richmond, Virginia                       In Houston, Texas

COLONY INSURANCE COMPANY                    HOUSTON CASUALTY COMPANY
COLONY NATIONAL INSURANCE
COMPANY
COLONY SPECIALTY INSURANCE                        By:   /s/ Michael J. Schell
COMPANY                                             ----------------------------
                                                              President

By:      /s/ Mark E.Watson III                           Date:  March 31, 2003
         ------------------------------                         ----------------

Title:   Chairman
         ------------------------------

Date:    March 31, 2003
         ------------------------------

                                 Page 12 of 12

<PAGE>

                                    EXHIBIT A

                                 Attached to the

                        Quota Share Reinsurance Agreement
                             Effective April 1, 2003

                                     Between

                            Colony Insurance Company
                        Colony National Insurance Company
                       Colony Specialty Insurance Company

                                       And

                            Houston Casualty Company

For purposes of this Agreement, the maximum policy limits issued by the Company
are as follows or so deemed:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Line of Business                   Maximum
                                   Policy Limit
--------------------------------------------------------------------------------
<S>                                <C>              <C>
Property & Allied Lines            $10,000,000      Per Risk
Inland Marine                      $40,000,000      Per Occurrence/Event
--------------------------------------------------------------------------------
Other Liability
Professional Liability
Pollution Liability                $ 6,000,000      Per Insured, Each Occurrence
Product Liability
Automobile Liability
Excess/Umbrella Liability
--------------------------------------------------------------------------------
</TABLE>

                                  Page 1 of 1<PAGE>

                                                                    Exhibit 10.2

                             SUBSCRIPTION AGREEMENT

                              Argonaut Group, Inc.
                 Series A Mandatory Convertible Preferred Stock
                           (Par value $0.10 per share)

Argonaut Group, Inc.
10101 Reunion Place, Suite 500
San Antonio, TX 78216

Ladies and Gentlemen:

     HCC Insurance Holdings, Inc., the undersigned investor or its designated
subsidiary (the "Investor") is executing this Subscription Agreement (the
"Agreement") in connection with its subscription for Shares (as defined below)
of Argonaut Group, Inc. (the "Corporation"), a Delaware corporation. This
Agreement is entered into in connection with the Corporation's private placement
of an aggregate of $58,000,000 of shares of Series A Mandatory Convertible
Preferred Stock, par value $.10 per share, of the Corporation (the "Series A
Preferred"). The Investor understands that the Corporation is relying upon the
accuracy and completeness of the information contained herein in complying with
its obligations under federal and state securities and other applicable laws.

     The Investor hereby irrevocably agrees with, and represents and warrants to
and for the benefit of, the Corporation and the stockholders of the Corporation,
as follows:

     1. Subscription.

          a. Subscription. On the terms and subject to the conditions of this
Agreement, the Investor hereby irrevocably subscribes for and the Corporation
hereby irrevocably agrees to sell to Investor 2,564,164 shares of Series A
Mandatory Convertible Preferred Stock (the "Shares") of the Corporation (the
terms of which are described in the form of Certificate of Designations,
Preferences and Rights of the Series A Mandatory Convertible Preferred Stock of
the Corporation, attached hereto as Exhibit A (the "Certificate of
Designations") for a purchase price of $13.50 per share for an aggregate
purchase price of Thirty-Four Million Six Hundred Sixteen Thousand, Two Hundred
Fourteen Dollars ($34,616,214) payable in cash at the Closing. At any time prior
to Closing, the Corporation shall have the right to require Investor, subject to
Investor's receiving any necessary regulatory approvals, to increase its
investment to $49.9 million and to acquire additional Shares at the per share
purchase price provided herein. If Investor is unable to obtain all necessary
regulatory approvals, Investor will not be required to purchase more than
2,564,164 Shares. Nothing contained in this Section 1(a) shall be deemed to
modify, amend, waive or alter the Investor's conditions to Closing set forth in
Section 4.

          b. Subsidiaries. The Investor may assign its subscription rights
hereunder to one or more of its direct or indirect subsidiaries; provided,
however, that the Investor shall remain fully liable for all of its obligations
hereunder, including, without limitation, the payment of the purchase price for
all of the Shares. As a condition to such subscription, each direct or

                                       1

<PAGE>

indirect subsidiary of the Investor purchasing Shares shall execute and deliver
to the Corporation a counterpart of this Agreement, and shall be bound by the
terms and conditions of this Agreement (but with its obligations limited to the
Shares being purchased by it) as if such person was the original signatory
hereto.

          c. Closing. The consummation of the transactions contemplated hereby
(the "Closing") shall occur at 10 a.m. Houston time within five (5) business
days following satisfaction or waiver by the applicable party of all conditions
to Closing, or at such other time or place as the parties shall mutually agree
in writing (the "Closing Date"), at the offices of Haynes and Boone, LLP,
located at 1000 Louisiana, Suite 4300, Houston, Texas 77002. Closing may be by
exchange of facsimile signatures with original signatures to follow by overnight
mail. This Agreement may be terminated by either party if the Closing shall not
have occurred by May 31, 2003.

     2. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Corporation as follows:

          a. Organization. The Investor is duly organized or formed, validly
existing and in good standing under the laws of the state of its organization or
formation.

          b. Authority. The Investor has the requisite power and authority to
enter into this Agreement, a Registration Rights Agreement, to be dated as of
the Closing Date, in the form substantially as set forth in Exhibit B hereto
(the "Registration Rights Agreement"), and an Escrow Agreement, to be dated as
of the Closing Date, in form and substance as shall be reasonably agreed upon by
the parties hereto (the "Escrow Agreement" and together with the Registration
Rights Agreement, the "Transaction Documents"), to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance of this Agreement and the
Transaction Documents and the consummation by the Investor of the transactions
contemplated hereby and thereby have been duly and validly approved by all
necessary action, and no other proceedings on the part of the Investor are
necessary to authorize the execution, delivery and performance of this Agreement
or the Transaction Documents by the Investor and the consummation by the
Investor of the transactions contemplated hereby and thereby. This Agreement and
the Transaction Documents have each been duly and validly executed and delivered
by the Investor and, assuming the due authorization, execution and delivery of
this Agreement and the Transaction Documents by the Corporation, each
constitutes a legal, valid and binding obligation of the Investor enforceable
against the Investor in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

          c. Approvals and Consents; Non-Contravention. Except for consents,
approvals and/or authorizations that have been obtained and filings that have
been made, the execution, delivery and performance of this Agreement and the
Transaction Documents by the Investor and the consummation by the Investor of
the transactions contemplated hereby and thereby do not require any consent,
approval or authorization of, or filing, registration or qualification with, any
governmental authority on the part of the Investor, or the vote, consent or

                                       2

<PAGE>

approval in any manner of the holders of any capital stock or other security of
the Investor as a condition to the execution and delivery of this Agreement and
the Transaction Documents or the consummation by the Investor of the
transactions contemplated hereby and thereby. The execution and delivery by the
Investor of this Agreement and the Transaction Documents and the performance by
the Investor of its obligations hereunder and thereunder will not violate (i)
the terms and conditions of the certificate of incorporation, or other
applicable formation document, or the bylaws of the Investor, or any material
agreement to which the Investor is a party or by which it is bound or (ii) any
federal or state law.

          d. Residence. The principal place of business address set forth on the
signature page hereof is the Investor's true and correct principal place of
business and is the only jurisdiction in which an offer to sell the Shares was
made to the Investor, and the Investor has no present intention of moving its
principal place of business to any other state or jurisdiction.

          e. No Registration. The Investor understands that neither the Shares
nor the shares of the Company's common stock, par value $0.10 per share (the
"Common Stock") issuable on conversion of the Shares have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), or under the laws
of any other jurisdiction, and that the Corporation does not contemplate and is
under no obligation to so register the Shares, except as set forth in the
Registration Rights Agreement. The Investor understands and agrees that the
Shares must be held indefinitely unless they are subsequently transferred (i)
pursuant to an effective registration statement under the Securities Act and,
where required, under the laws of other jurisdictions or (ii) pursuant to an
exemption from applicable registration requirements. The Investor will not
offer, sell, transfer or assign its Shares or any interest therein in
contravention of this Agreement, the Securities Act or any state or federal law.

          f. Purchase for Investment. The Shares for which the Investor hereby
subscribes are being acquired solely for the Investor's own account for
investment and are not being purchased with a view to or for resale,
distribution or other disposition, and the Investor has no present plans to
enter into any contract, undertaking, agreement or arrangement for any such
resale, distribution or other disposition. Investor agrees that the Shares may
bear an appropriate legend to that effect.

          g. Information. The Investor has been granted the opportunity to ask
questions of, and receive answers from, the Corporation and the officers of the
Corporation concerning the terms and conditions of the sale of the Shares and to
obtain any additional information that the Investor deems necessary to make an
informed investment decision. The Investor has received or has had access to
other documents requested from the Corporation relating to the Shares and the
purchase thereof, and the Corporation has afforded the Investor the opportunity
to discuss the Investor's investment in the Corporation and to ask and receive
answers to any questions relating to the investment in the Shares. The Investor
understands and has evaluated the risks of a purchase of the Shares.

          h. Accredited Investor. The Investor has read the text of Rule
501(a)(1)-(8) of Regulation D under the Securities Act and confirms that it is
an "accredited investor" as described thereby.

                                       3

<PAGE>

          i. Assignment. The Investor will only assign its subscription rights
hereunder to one or more of its subsidiaries who are capable of making the
representations and warranties contained in this Section 2 and of performing the
obligations they undertake hereunder.

          j. Legend. The Investor acknowledges and understands that the
certificates evidencing the Series A Preferred will bear the following legend:

          THIS SECURITY AND THE COMMON STOCK ISSUED ON CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR ANY APPLICABLE EXEMPTION THEREFROM. THE
HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, REPRESENTS, ACKNOWLEDGES, AND
AGREES FOR THE BENEFIT OF ARGONAUT GROUP, INC. (THE "COMPANY") THAT: (I) IT HAS
ACQUIRED A "RESTRICTED SECURITY" THAT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT; AND (II) IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER SUCH
SECURITY EXCEPT PURSUANT TO (A) A REGISTRATION STATEMENT THAT HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT OR (B) AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE
WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
APPLICABLE JURISDICTION. ANY OFFER, SALE OR OTHER DISPOSITION PURSUANT TO THE
FOREGOING CLAUSE (B) IS SUBJECT TO THE RIGHT OF THE ISSUER OF THIS SECURITY (I)
TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION OR OTHER
INFORMATION REASONABLY SATISFACTORY TO IT IN FORM AND SUBSTANCE, AND (II) IN
EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE TRANSFER AGENT.

          k. Broker's Fees. Neither the Investor nor anyone acting on its behalf
or at the request thereof has any liability to any broker, finder, investment
banker or agent, or has agreed to pay any brokerage fees, finder's fees or
commissions, or to reimburse any expenses of any broker, finder, investment
banker or agent in connection with this Agreement.

          l. Regulatory Approvals. Investor shall make all filings within thirty
(30) days of the date hereof required to be made by it in connection with
obtaining the approvals described in Section 4.d. and shall use its reasonable
efforts to obtain such approvals as promptly as practicable. Investor will make
available to the Corporation copies of all filings made by Investor required by
this Agreement. The Corporation shall reasonably cooperate with Investor in
connection with the foregoing.

                                       4

<PAGE>

     3. Representations and Warranties and Covenants of the Corporation. The
Corporation hereby represents and warrants to the Investor that, except as
specifically set forth on the Schedule of Exceptions furnished to Investor and
attached hereto as Schedule I:

          a. Accuracy of Reports. All reports required to be filed by the
Corporation pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act") since and including the filing of the Corporation's Form 10-K
for the fiscal year ended December 31, 2001 to and including the Closing Date
(collectively, the "SEC Reports") have been filed with the Securities and
Exchange Commission. As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Exchange Act, and the rules
and regulations of the Securities and Exchange Commission promulgated thereunder
applicable to the SEC Reports. None of the SEC Reports contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Corporation included in the SEC Reports complied as of their
respective dates of filing in all material respects with applicable accounting
requirements and the published rules and regulations of the Securities and
Exchange Commission with respect thereto, have been prepared in accordance with
generally accepted accounting principles (except, in the case of unaudited
statements, as permitted by Regulation S-X promulgated by the Securities and
Exchange Commission) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto), and fairly present in all
material respects the financial position of the Corporation and its consolidated
subsidiaries as of the dates thereof and the results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). The Corporation has on a
timely basis made all filings required to be made by the Corporation with the
Securities and Exchange Commission pursuant to the Exchange Act. Since December
31, 2001, there has been no material adverse change in the condition (financial
or otherwise), business, operations, assets, liabilities or prospects of the
Corporation, except as set forth in the SEC Reports or as set forth in Schedule
I.

          b. Organization and Qualification. Each of the Corporation and each of
its Significant Subsidiaries (as defined in Rule 1-02(w) of Regulation S-X under
the Securities Act) is duly organized, validly existing and in good standing
under the laws of the state of its organization. Each of the Corporation and its
subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary,
except where the failure to be so qualified would not have a material adverse
effect on the business or results of operations of the Corporation and its
subsidiaries, taken as a whole (a "Material Adverse Effect). Each of the
Corporation's insurance company subsidiaries is duly licensed by the insurance
agency, board or department in each state where such license is required.

          c. Authority. The Corporation has the requisite power and authority to
enter into this Agreement and the Transaction Documents, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of this
Agreement and the Transaction Documents by the Corporation and the consummation
by the Corporation of the transactions contemplated hereby and thereby have been
duly and validly approved by all necessary action, and no other proceedings on
the

                                       5

<PAGE>

part of the Corporation are necessary to authorize the execution, delivery and
performance of this Agreement and the Transaction Documents by the Corporation
and the consummation by the Corporation of the transactions contemplated hereby
and thereby. This Agreement and, as appropriate, the Transaction Documents have
been duly and validly executed and delivered by the Corporation and, assuming
the due authorization, execution and delivery of this Agreement and, as
appropriate, the Transaction Documents by the Investor, constitute a legal,
valid and binding obligation of the Corporation enforceable against the
Corporation in accordance with their terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).

          d. Capitalization.

               i. As of the date of this Agreement, the authorized capital stock
     of the Corporation consists of 35,000,000 shares of common stock, par value
     $.10 per share, 21,604,351 shares of which are issued and outstanding, and
     5,000,000 shares of preferred stock, par value $.10 per share, none of
     which are outstanding.

               ii. All outstanding shares of the Corporation have been duly
     authorized and validly issued and are fully paid and nonassessable and free
     from any preemptive rights. Except as set forth in Schedule I or as
     otherwise contemplated by this Agreement, there are outstanding (i) no
     shares of capital stock or other voting securities, (ii) no securities
     convertible into or exchangeable for shares of its capital stock or voting
     securities, (iii) no options or other rights to acquire, and no obligation
     to issue, any capital stock, voting securities or securities convertible
     into or exchangeable for its capital stock or other voting securities (the
     items in clauses (i), (ii) and (iii) of this subsection being referred to
     collectively as the "Corporation Securities"), (iv) no obligations to
     repurchase, redeem or otherwise acquire any Corporation Securities, and (v)
     no contractual rights of any person or entity to include any Corporation
     Securities in any registration statement filed under the Securities Act.

          e. Issuance of Shares. The Shares to be issued and sold by the
Corporation pursuant to this Agreement, when issued in accordance with the
provisions hereof, will be validly issued, fully paid and nonassessable stock of
the Corporation, and no holder of stock of the Corporation will have any
preemptive rights to subscribe for any such Shares.

          f. Approvals and Consents; Non-Contravention. The creation,
authorization, issuance, offer and sale of the Shares do not require any
consent, approval or authorization of, or filing, registration or qualification
with, any governmental authority (other than state blue sky filings, if any, and
filings with the State of California Department of Insurance and the department
of insurance of every other state in which any insurance subsidiary of the
Corporation is domiciled) on the part of the Corporation, the consent of any
third party, or the vote, consent or approval in any manner of the holders of
any capital stock or other security of the Corporation as a condition to the
execution and delivery of this Agreement or the creation, authorization,
issuance, offer and sale of the Shares. The execution and delivery by the
Corporation of this Agreement and the performance by the Corporation of its
obligations

                                       6

<PAGE>

hereunder will not violate (i) the terms and conditions of the Certificate of
Incorporation or the Bylaws of the Corporation, or any material agreement to
which the Corporation is a party or by which it is bound or (ii) subject to the
accuracy of the representations and warranties of the Investor contained in
Section 2 hereof, any federal or state law.

          g. Use of Proceeds. The Corporation acknowledges and agrees that it
shall be required under the terms of the Escrow Agreement to fund an escrow
account for the payment of dividends on the Series A Preferred in the amount of
Eight Million Dollars ($8,000,000), which will be funded with the proceeds from
the sale of Series A Preferred, including the Shares. The Corporation further
acknowledges and agrees that the remainder of the proceeds will be used to
capitalize the Corporation's insurance company subsidiaries and to pay expenses
related to the transactions contemplated hereby.

          h. Litigation. Other than actions, suits, proceedings, claims or
investigations occurring in the ordinary course of business or other than as
disclosed in the SEC Reports, there is no action, suit, proceeding, claim or
investigation pending against, nor has the Corporation received notice of a
claim threatened against it or any of its assets or against or involving any of
its officers, directors or employees in connection with the business or affairs
of the Corporation, including, without limitation, any such claims for
indemnification arising under any agreement to which the Corporation is a party,
which action, suit, proceeding, claim or investigation, if determined adversely
against the Corporation, would have a Material Adverse Effect. The Corporation
has not received notice that it is subject, or in default with respect, to any
writ, order, judgment, injunction or decree which could, individually or in the
aggregate, have a Material Adverse Effect.

          i. Compliance with Laws. The Corporation is not in material violation
of any applicable provisions of any laws, statutes, ordinances or regulations or
any term of any judgment, decree, injunction or order binding against it that
could reasonably be expected to have a material adverse effect on the
Corporation's business or results of operations.

          j. Broker's Fees. Except for fees due and owing to Merrill Lynch &
Co., neither the Corporation nor anyone acting on its behalf or at the request
thereof has any liability to any broker, finder, investment banker or agent, or
has agreed to pay any brokerage fees, finder's fees or commissions, or to
reimburse any expenses of any broker, finder, investment banker or agent in
connection with this Agreement.

          k. Securities Filings. For so long as Investor holds the Shares, the
Corporation will deliver to Investor a complete copy of all documents that the
Corporation furnishes to or files with the Securities and Exchange Commission.

          l. Right of Participation. If the Corporation, authorizes or creates a
new class or series of capital stock (which for the avoidance of doubt, shall
not include additional shares of its current outstanding class of common stock
in a capital-raising transaction) ("New Stock Offering"), then the Corporation
shall provide as much advance notice as reasonably practicable (without
jeopardizing the Corporation's ability to reasonably conduct the offering on
advantageous terms, but in no event less than ten business days) to Investor so
as to enable Investor the opportunity to purchase all or any portion of such New
Stock Offering on a priority

                                       7

<PAGE>

basis. If the Corporation proposes to issue debt securities (other than bank
debt) in a capital raising transaction, the Corporation shall provide as much
advance notice as reasonably practicable (without jeopardizing the Corporation's
ability to reasonably conduct the offering on advantageous terms, but in no
event less than three (3) business days) to Investor of such issuance so as to
enable Investor the opportunity to purchase all or any portion of such debt
securities in connection with such issuance on a priority basis. The
Corporation's obligations in this section shall remain in effect as long as
Investor holds 30% or more of the originally issued Shares (and ownership of
Common Stock into which such Shares were converted shall not be considered for
purpose of such calculation). The rights set forth in this section shall only
apply to a successor to Investor, or a purchaser or other owner of a portion of
Investor's Shares, if at the time of such successor's, owner's or purchaser's
acquisition, Investor disposed of, and the successor, owner or purchaser
acquired, all of Investor's then remaining Shares.

     4. Conditions of the Investor to Closing. The Investor's obligation to
purchase the Shares at the Closing is subject to the fulfillment to the
Investor's reasonable satisfaction or waiver by the Investor, prior to or at the
Closing, of the following conditions:

          a. Registration Rights Agreement. The Registration Rights Agreement
shall have been executed and delivered by all parties thereto.

          b. Escrow Agreement. The Escrow Agreement shall have been executed and
delivered by all parties thereto.

          c. Sale of Torrence, CA Property. The Corporation shall have sold that
certain tract or parcel of real property situated in Torrence, California
according to the terms of the current contract of sale between the Corporation
and a third party.

          d. Third Party Approvals. The approvals of the State of California
Department of Insurance and the department of insurance of every other state in
which any insurance company subsidiary of the Corporation is domiciled and the
consent or approval of any other governmental authority or third party which is
necessary for the consummation of the transactions contemplated hereby shall
have been received.

          e. Certificate of Designations. The Certificate of Designations shall
have been filed with the Delaware Secretary of State.

          f. Representations and Warranties. The representations and warranties
of the Corporation contained in Section 3 shall be true and correct in all
material respects on and as of the Closing Date, with the same force and effect
as though such representations and warranties had been made on and as of the
Closing Date.

          g. Performance. The Corporation shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing Date.

                                       8

<PAGE>

          h. Certificate. The Corporation shall execute and deliver to the
Investor a certificate of a duly authorized officer of the Corporation, dated as
of the Closing Date, certifying as to the matters set forth in Sections 4(f) and
4(g).

          i. Opinion of Counsel. The Corporation shall deliver to the Investor
an opinion of counsel for the Corporation, dated as of the Closing Date, in form
and substance reasonably satisfactory to Investor and its counsel.

          j. No Court Order. No order of any court or administrative agency
shall be in effect that enjoins, restrains, conditions or prohibits consummation
of this Agreement or any Transaction Document. No litigation, investigation or
administrative proceeding shall be pending or threatened that would enjoin,
restrain, condition or prevent consummation of this Agreement or any Transaction
Document.

          k. Complete Subscription. On or prior to the Closing Date, the
Corporation shall have received subscriptions for an aggregate Fifty-Eight
Million Dollars ($58,000,000) of Series A Preferred, including the Shares.

          l. Rating Agencies. A. M. Best and Standard & Poor's shall have agreed
that they will not lower the rating of Investor. A. M Best shall have verbally
reaffirmed the Corporation's financial rating of "A."

          m. Auditor's Opinion. The Corporation's auditors shall have issued an
unqualified opinion with respect to the Corporation's audited financial
statements for the year ending December 31, 2002.

          n. Amendment to Corporation's Bylaws. The Corporation shall have
amended its bylaws to increase the maximum number of directors to 10 but shall
agree to not increase the size of its Board of Directors except in accordance
with the election right of holders of Series A Preferred pursuant to the
Certificate of Designations.

          o. Annual Report on Form 10-K. The Corporation shall have completed
and provided to Investor a final draft, subject to no material changes of its
Annual Report on Form 10-K for the year ended December 31, 2002.

          p. Certificate for the Shares. The Corporation shall have delivered to
the Investor, in exchange for the cash consideration set forth in Section 1.a, a
certificate or certificates representing the Shares.

          q. Reinsurance Advisory Agreement. The Corporation and Rattner
Mackenzie Bermuda Limited shall have entered into a Reinsurance Advisory
Agreement in form and substance as shall be reasonably agreed upon by the
parties thereto ("Reinsurance Agreement");

          r. Quota Share Treaty Agreement. Investor and Colony Insurance
Company, a subsidiary of the Corporation, shall have entered into a Quota Share
Treaty Agreement in form and substance as shall be reasonably agreed upon by the
parties thereto ("Quota Share Agreement");

                                       9

<PAGE>

          s. No Material Adverse Change. Since the date of this Agreement no
material adverse change in the business, operations, assets, results of
operations or financial condition of the Corporation and its subsidiaries has
occurred and no event has occurred or circumstance exists that may result in
such a material adverse change.

     5. Conditions of the Corporation to Closing. The Corporation's obligation
to sell the Shares at the Closing is subject to the fulfillment to the
Corporation's reasonable satisfaction or waiver by the Corporation, prior to or
at the Closing of the following conditions:

          a. Representations and Warranties. The representations and warranties
of the Investor contained in Section 2 shall be true and correct in all material
respects on and as of the Closing Date, with the same force and effect as though
such representations and warranties had been made on and as of the Closing Date.

          b. Performance. The Investor shall have performed and complied with in
all material respects all agreements, obligation and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the Closing Date.

          c. Certificate. The Investor shall execute and deliver to the
Corporation a certificate of a duly authorized officer for Investor, dated as of
the Closing Date, certifying as to the matters set forth in Sections 5(a) and
(b).

          d. No Court Order. No order of any court or administrative agency
shall be in effect that enjoins, restrains, conditions or prohibits consummation
of this Agreement or any Transaction Document. No litigation, investigation or
administrative proceeding shall be pending or threatened that would enjoin,
restrain, condition or prevent consummation of this Agreement or any Transaction
Document.

          e. Registration Rights Agreement. The Registration Rights Agreement
shall have been executed and delivered by all parties thereto.

          f. Escrow Agreement. The Escrow Agreement shall have been executed and
delivered by all parties thereto.

          g. Third Party Approvals. The approvals of the State of California
Department of Insurance and the department of insurance of every other state in
which any insurance company subsidiary of the Corporation is domiciled and the
consent or approval of any other governmental authority or third party which is
necessary for the consummation of the transactions contemplated hereby shall
have been received.

     6. Indemnification. Each of the Investor and the Corporation acknowledges
and understands the meaning and legal consequences of the representations,
warranties and covenants contained herein, and each of the Investor and the
Corporation hereby agrees to indemnify and hold harmless the Investor or the
Corporation, as the case may be, and each of their respective shareholders,
officers, directors, employees, agents and representatives from and against any
and all claims, expenses (including attorneys' fees), loss, damage or actions
resulting from (i) breach of any of the representations, warranties or covenants
of the Investor or the

                                       10

<PAGE>

Corporation, as the case may be, contained herein, (ii) the falsity of any of
the representations or warranties of the Investor or the Corporation, as the
case may be, contained herein, or (iii) a sale or transfer of the Shares by the
Investor resulting in violation of any applicable securities laws.

     7. Survival. The representations, warranties and covenants made by the
Investor and the Corporation shall survive the Closing for a period of three (3)
years.

     8. Miscellaneous.

          a. Governing Law. This Agreement shall be governed by and construed in
accordance with the substantive laws of Delaware notwithstanding principles of
conflicts of laws, and such laws shall govern the interpretation, validity and
effect of this Agreement without regard to the place of execution or the place
for performance thereof.

          b. Entire Agreement. This Agreement, together with the Registration
Rights Agreement, the Escrow Agreement, the Reinsurance Agreement, the Quota
Share Agreement and that certain Confidentiality Agreement dated as of February
14, 2003 by and between Investor and the Corporation, constitute the entire
agreement among the parties hereto with respect to the subject matter hereof.
This Agreement may be amended only by a writing executed by all parties hereto.

          c. Successors and Assigns. This Agreement and the representations and
warranties contained herein shall be binding upon the heirs, executors, legal
representatives, administrators, successors and assigns of the Investor.

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

          e. Notices. All notices or other communications given or made
hereunder shall be in writing and shall be delivered or mailed, postage prepaid,
or sent by facsimile with return acknowledgment or hand delivered to the
Corporation at 10101 Reunion Place, Suite 500, San Antonio, Texas 78216,
Attention: Byron LeFlore, Facsimile: (210) 377-2637 or to the Investor at the
address set forth on the signature page hereto.

          f. Severability. Each provision of this Agreement is intended to be
severable, and, if for any reason any provision or provisions hereof are
determined to be invalid or contrary to applicable law, such invalidity shall
not impair the operation of or affect the remaining provisions of this
Agreement.

          g. Section Headings. All section headings, subheadings and captions
have been inserted for convenience of reference only and shall not be used to
determine the meaning or intent of any provision hereof.

                                       11

<PAGE>

          h. Expenses. Each party shall bear its own fees and expenses,
including counsel fees and fees of brokers and investment bankers contracted by
such party, in connection with the transaction contemplated hereby.

                            [signature page follows]

                                       12

<PAGE>

     IN WITNESS WHEREOF, this Subscription Agreement has been executed this 12th
day of March, 2003.

                                                THE INVESTOR:
                                                HCC Insurance Holdings, Inc.

                                                By: /s/ Stephen L. Way
                                                    ----------------------------
                                                Name: Stephen L. Way
                                                Title: Chief Executive Officer

                                                Address: 13403 Northwest Freeway
                                                         Houston, Texas  77040

                                                Attention: Christopher L. Martin
                                                           (713) 744-9648

                                                THE CORPORATION:
                                                Argonaut Group, Inc.

                                                By: /s/ Mark Watson
                                                    ----------------------------
                                                Name: Mark Watson
                                                Title: Chief Executive Officer

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