Document:

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                                                                  Exhibit 10.8.5

      Reference is made to the Retention and Change in Control Agreement, dated
as of May 5, 2000, between Arch Capital Group Ltd., a Delaware corporation (the
"Company"), and Robert Clements, the Change in Control Agreement, dated as of
May 5, 2000, between the Company and Peter A. Appel, and the Employment and
Change in Control Agreement, dated as of May 5, 2000, between the Company and
Louis T. Petrillo (collectively, the "Agreements").

      The Agreements provide that the Company will require any successor to all
or substantially all of the business and/or assets of the Company to assume
expressly and agree to perform the Agreements in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. For such purpose, any company that becomes directly owned by
stockholders of the Company pursuant to a merger or consolidation in which the
Company becomes a wholly owned subsidiary of such company will be deemed to be a
successor of the Company.

      The Company has entered into an agreement and plan of merger pursuant to
which it will merge (the "Merger") with and into a subsidiary of Arch Capital
Group Ltd., a Bermuda company (the "Parent"). As a result of the Merger, the
stockholders of the Company will become stockholders of the Parent, and the
Company will become a wholly owned subsidiary of the Parent.

      Effective with the consummation of the Merger, the Parent hereby assumes
all of the Company's rights and obligations under the Agreements; all references
to the "Company" in the Agreements shall be to the Parent; and the Company is
released from all of its obligations under the Agreements.

      IN WITNESS WHEREOF, the undersigned has duly executed this assumption
agreement as of November 6, 2000.

                                 ARCH CAPITAL GROUP LTD.

                                 By:/s/ Louis T. Petrillo
                                    ---------------------
                                 Name:   Louis T. Petrillo
                                 Title:  Senior Vice President, General Counsel
                                         & Secretary<PAGE>

                                                                   Exhibit 10.15

                   FIRST AMENDED AND RESTATED ESCROW AGREEMENT

                  THIS FIRST AMENDED AND RESTATED ESCROW AGREEMENT (this "FIRST
RESTATEMENT") is made and entered into as of December 28, 2000, by and among
FOLKSAMERICA HOLDING COMPANY, INC., a New York corporation ("FHC"), FOLKSAMERICA
REINSURANCE COMPANY, a New York domiciled insurance company ("FRC," and,
together with FHC, "BUYER") and a wholly owned subsidiary of FHC, ARCH CAPITAL
GROUP LTD., a corporation organized under the laws of Bermuda ("ACGL"), and
Citibank, N.A., as Escrow Agent (the "ESCROW AGENT"). Certain capitalized terms
have the meanings given to them in Annex A hereto.

                              W I T N E S S E T H :
                               - - - - - - - - - -

                  WHEREAS, Buyer, Arch Reinsurance Company, a Nebraska domiciled
insurance company and wholly owned subsidiary of ACGL ("ARCH RE") and Arch
Capital Group (U.S.) Inc., a Delaware corporation and wholly owned subsidiary of
ACGL, are parties to an Asset Purchase Agreement, dated as of January 10, 2000
(the "PURCHASE AGREEMENT");

                  WHEREAS, pursuant to the Purchase Agreement, on May 5, 2000
(the "CLOSING DATE") Buyer purchased all of the reinsurance operations of Arch
Re, and contemporaneously therewith, entered into an escrow agreement dated of
the Closing Date with Arch Re and the Escrow Agent (the "ORIGINAL ESCROW
AGREEMENT");

                  WHEREAS, upon the execution and delivery of this First
Restatement, this First Restatement shall replace the Original Escrow Agreement
in its entirety and all references to the Escrow Agreement in the Purchase
Agreement shall hereinafter be deemed to refer to this First Restatement;

                  NOW, THEREFORE, in consideration of the mutual promises and
agreements set forth in this First Restatement, the parties hereto hereby agree
as follows:

                  1.       APPOINTMENT OF ESCROW AGENT.  Each of Buyer and ACGL
hereby designates and appoints the Escrow Agent as escrow agent, and the Escrow
Agent hereby accepts such appointment, on the terms and subject to the
conditions of this First Restatement.

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                                      -2-

                  2.       DEPOSITED AMOUNT; ESCROWED FUNDS; ESCROW ACCOUNT.

                  (a) Concurrently with the execution and delivery of this First
Restatement, ACGL hereby delivers to the Escrow Agent, as custodian, the
Deposited Amount, the receipt of which the Escrow Agent hereby acknowledges. The
securities constituting the Deposited Amount are listed and described on
Schedule 1 hereto. The Deposited Amount constitutes a portion of the purchase
price received by ACGL from Buyer under the Purchase Agreement.

                  (b) The Escrow Agent shall establish a segregated account (the
"ESCROW ACCOUNT") at its office located at its address set forth in Section 11
in which to hold the Escrowed Funds and any securities in which the Escrowed
Funds may, from time to time, be invested. The Escrow Agent shall keep
appropriate books and records for the Escrow Account, including a list of
securities in which the Escrowed Funds are invested, any interest, dividends or
other distributions on or proceeds from any investment of Escrowed Funds and any
amounts released from the Escrow Account in accordance with Section 6. At the
written request of Buyer or ACGL from time to time, the Escrow Agent shall allow
representatives of such party to inspect and make copies of such books and
records upon reasonable notice during normal business hours. In any event,
within 30 days of the end of each calendar quarter, the Escrow Agent shall, upon
request, provide to Buyer and ACGL a statement of the list of securities in
which the Escrowed Funds are invested, the amount of any interest, dividends or
other distributions on or proceeds from any investment of Escrowed Funds and any
amounts released from the Escrow Account in accordance with Section 6. Escrowed
Funds shall not be available to, and shall not be used by, the Escrow Agent to
set off any obligations of either Buyer or ACGL owing to the Escrow Agent in any
capacity, except as set forth in Sections 8(e) and 8(f).

                  3.       INVESTMENT OF ESCROWED FUNDS.

                  (a) Except as provided in Section 3(d), all investments and
reinvestments of the Escrowed Funds shall be made exclusively in Permitted
Investments that are mutually selected by Buyer and ACGL.

                  (b) From time to time, Buyer and ACGL shall designate an
entity with the appropriate capacity to act as broker (the "BROKER") with
respect to the securities that constitute the Escrowed Funds. Broker will
perform such acts as requested by Buyer and ACGL which are customarily performed
by securities brokers. The fees and expenses of Broker shall be borne one-half
by ACGL and one-half by Buyer. If at any time or from time to time during the
term of this First Restatement, Buyer or ACGL determines that the Broker
appointed pursuant to the first sentence of this Section 3(b) should terminate
acting in such capacity, Buyer and ACGL agree to cooperate with each other to
jointly select and appoint an entity which is capable of conducting the duties
performed by Broker to replace Broker. Upon any such re-

<PAGE>

                                      -3-

placement, all references to Broker in this First Restatement shall be deemed
references to such entity. Broker shall not be deemed the beneficial holder of
any securities which may be in its possession as a result of its activities
pursuant to this Section 3(b), and Broker shall hold any such securities as
agent and may only act with respect to such securities pursuant to the joint
written instructions of Buyer and ACGL.

                  (c) Promptly after the Escrow Agent receives written notice
from the issuer thereof (or any representative of such issuer) that any security
that is a component of the Escrowed Funds is to be redeemed or otherwise
liquidated by such issuer, the Escrow Agent shall deliver written notice thereof
to Buyer and ACGL. Promptly after receipt of such notice, Buyer and ACGL shall
deliver to the Escrow Agent joint written instructions as to whether the cash
proceeds from any such redemption, liquidation or maturation are (i) to be
delivered to Broker for the purpose of promptly reinvesting such proceeds or
(ii) to be held in the Escrow Account in the form of cash (which cash may be
invested pursuant to the provisions of Section 3(f)). In the case of clause (i),
the Escrow Agent shall promptly deliver to Broker such proceeds in accordance
with such written instructions, and promptly upon consummation of such
reinvestment, Broker shall deliver to the Escrow Agent the security or
securities that Buyer and ACGL have elected to so purchase. In the event that
Buyer and ACGL do not provide the Escrow Agent with written instructions
pursuant to the provisions of this Section 3(c), the proceeds from any such
maturation, redemption or liquidation shall remain in the Escrow Account in the
form of cash (which cash may be invested pursuant to the provisions of Section
3(f)).

                  (d) At any time that there is cash in the Escrow Account, the
Escrow Agent is hereby directed to invest such cash promptly in the Citibank
Money Market Deposit Account (the "CITIBANK MMDA") fund. All references to the
term "cash" in this First Restatement shall be deemed to refer to cash as well
as any portion of the Escrowed Funds that are invested in the Citibank MMDA
fund.

                  (e) The Escrow Agent shall have no obligation to invest or
reinvest any cash portion of Escrowed Funds (pursuant to Section 3(d)) if such
funds are deposited or delivered to the Escrow Agent after 11 a.m. (E.S.T.) on
such day of deposit or delivery until the following business day. Requests or
instructions of Buyer and ACGL to deliver securities to the Broker, whether
pursuant to Section 3 or Section 6(g), received after 11 a.m. (E.S.T.) by the
Escrow Agent shall be treated as if received on the following business day, and
Escrow Agent will carry out such requests or instructions on such day.

                  (f) At any time and from time to time, Buyer and ACGL may
jointly determine that any security that is a component of the Escrowed Funds is
to be liquidated or reinvested in a replacement security, or that any cash
(whether such cash constitutes investment income or otherwise) that is a
component of the Escrowed Funds is to be invested. Buyer and

<PAGE>

                                      -4-

ACGL shall provide the Escrow Agent with joint written notice of such
determination, which shall identify such security or specify the dollar amount
of such cash and direct the Escrow Agent to deliver such security or dollar
amount of such cash to Broker for the purpose of the liquidation or reinvestment
of such security or the investment of such cash. Promptly upon the receipt of
such notice, the Escrow Agent shall promptly deliver such security or such cash
to Broker and Broker shall promptly effect such reinvestment or liquidation of
such security or investment of such cash, as the case may be. Promptly upon
consummation of such reinvestment, investment or liquidation, as the case may
be, Broker shall deliver to the Escrow Agent the security or securities that
Buyer and ACGL have elected to so purchase or cash proceeds from such
liquidation, as the case may be. Any cash produced by the operation of this
Section 3(f) may be invested pursuant to the provisions hereof.

                  (g) In the event that the Escrow Agent receives written notice
from the issuer thereof (or any representative of the issuer) that a security
that is a component of the Escrowed Funds is to be exchanged for a new security,
the Escrow Agent shall promptly notify Buyer and ACGL thereof in writing. Unless
otherwise directed in writing by Buyer and ACGL (pursuant to the provisions of
Section 3(f)), such new security shall become a component of the Escrowed Funds
upon consummation of such exchange.

                  (h) The Escrow Agent shall have no responsibility for any
investment losses resulting from the investment, reinvestment or liquidation of
the Escrowed Funds. Any interest or other income received on such investment and
reinvestment of the Escrowed Funds shall become part of the Escrowed Funds.

                  (i) In the event that any decisions concerning voting,
redemption or other similar matters relating to the securities constituting the
Escrowed Funds are required to be made, the Escrow Agent shall promptly notify
ACGL thereof in writing. Upon receipt of such notice, ACGL shall instruct the
Escrow Agent in writing with respect to the making of such decision.

                  (j) Any securities that are delivered to any party pursuant to
the terms of this First Restatement shall be accompanied by duly executed
instruments of transfer or assignment, or if such securities are held in
book-entry form, other appropriate action shall be taken by the entity
delivering such securities to effect the valid transfer of the title of such
securities to the recipient of such securities.

                  4. REPORTS ON PAID LOSSES, ENDING RESERVES AND RESERVE
DEFICIENCY/REDUNDANCY CALCULATION. As soon as practicable (but not later than
ninety (90) days) after the Valuation Date, Buyer shall deliver to ACGL and the
Escrow Agent each of the following (it being understood that the Escrow Agent
shall have no duty to solicit the items listed below or verify their content):

<PAGE>

                                      -5-

                  (i) A report of independent public accountants designated in
         writing by Buyer (who may also be the independent public accountants of
         ACGL or Buyer) setting forth the amount of Paid Losses and showing in
         reasonable detail the calculation thereof.

                  (ii) A report by an independent actuary designated in writing
         by Buyer (who may also be the independent actuary of ACGL or Buyer, but
         not an employee of either) setting forth the amount of Ending Reserves
         and showing in reasonable detail the calculation thereof.

                  (iii) A report of independent public accountants designated in
         writing by Buyer (who may also be the independent public accountants of
         ACGL or Buyer) setting forth the difference of (1) the Beginning
         Reserves over (2) the sum of Paid Losses plus Ending Reserves. Such
         difference shall be called "RESERVE DEFICIENCY" if it is negative and
         "RESERVE REDUNDANCY" if it is zero or positive. The Reserve Deficiency
         shall not exceed the Deposited Amount. Such report shall show such
         calculation in reasonable detail.

                  5.       DISPUTES.

                  (a) If at any time within the Objection Period ACGL gives an
Objection Notice, Appointed Experts shall be engaged to separately determine the
Reserve Deficiency/Reserve Redundancy, and/or Ending Reserves and confirm the
calculation of Paid Losses. The identity of such Appointed Experts shall be
disclosed to the Escrow Agent by Buyer and ACGL in writing, and Buyer and ACGL
shall arrange for the Escrow Agent to obtain an incumbency certificate or other
instrument satisfactory to the Escrow Agent for the purpose of verifying the
genuineness of signatures on any written instructions received from the
Appointed Experts. The Appointed Experts shall determine the Reserve
Deficiency/Reserve Redundancy, and/or Ending Reserves and confirm the
calculation of Paid Losses within forty-five (45) days of the date ACGL gives
such notice. The determination by an actuary that is an Appointed Expert shall
be conducted (x) using its independent judgment based on prevailing facts,
circumstances and trends, (y) in accordance with generally accepted actuarial
standards and principles, and (z) to the extent not inconsistent with the
foregoing, in a manner and applying a method consistent with the determination
of the Beginning Reserves. It is understood that such actuary shall in no way be
inhibited in the use of its independent judgment. Except as provided in Section
5(c), the Appointed Experts' determinations and confirmations shall be final and
binding on all parties. Fees and expenses of the Appointed Experts shall be paid
equally by Buyer and ACGL.

                  (b) Buyer and ACGL agree to cooperate with and use all
commercially reasonable efforts to assist the Appointed Experts, including by
furnishing all information rea-

<PAGE>

                                      -6-

sonably requested by them, in performing the services specified hereby, and to
negotiate in good faith to resolve the disputes under Section 5(a).

                  (c) ACGL shall be entitled to dispute Paid Losses the
calculation of which shall have been confirmed by the Appointed Experts only to
the extent that ACGL can show Paid Losses shall not have been incurred by Buyer
in its exercise of the reasonable business judgment of a reasonable reinsurer
under similar circumstances without regard to the availability of the Escrow
Funds (it being recognized that Buyer's rights to control payment of losses by
cedents are limited).

                  6.       RELEASE OF ESCROWED FUNDS. Escrowed Funds shall be
released from the Escrow Account only in accordance with this Section 6 to those
accounts designated in Annex B.

                  (a) TAX DISTRIBUTIONS. Within two business days after the end
of each calendar quarter (beginning with December 31, 2000), the Escrow Agent
shall, upon its receipt of a written request from ACGL, release from the Escrow
Account and deliver to ACGL Escrowed Funds in an amount equal to the tax that
ACGL notifies Buyer and the Escrow Agent in writing is actually payable (after
giving effect to ACGL's net operating losses) by ACGL in respect of earnings on
the Escrowed Funds since the end of the immediately preceding calendar quarter
(or, in the case of the first such calendar quarter, since the date hereof)
(such amounts, collectively, the "TAX DISTRIBUTIONS"). The parties agree that no
release of any Escrowed Funds shall be made by the Escrow Agent pursuant to this
Section 6(a) in respect of any taxes which may be payable by either ACGL or
Buyer as a result of the parties entering into this First Restatement. Buyer
shall have no right to dispute the amount of taxes so notified by ACGL.

                  (b) BY MUTUAL INSTRUCTIONS. The Escrow Agent shall release
Escrowed Funds from the Escrow Account in accordance with any joint written
instruction of both Buyer and ACGL.

                  (c) INSURANCE ON RESERVE DEFICIENCY. The Escrow Agent shall
release to ACGL all of the Escrowed Funds from the Escrow Account upon the
Escrow Agent's receipt of written confirmation and instructions from ACGL and
Buyer (which Buyer shall not unreasonably withhold) that ACGL has delivered to
Buyer an insurance policy for the benefit of Buyer from an insurance company
(which insurance company shall have a claims paying ability rating from Standard
& Poor's at such time at least as high as Buyer (but no less than "AA-") and a
combined capital and surplus at such time of at least as much as Buyer (but no
less than $500 million)) or other similar arrangement guaranteeing payment to
Buyer on the Settlement Date of the Reserve Deficiency plus interest on the
Reserve Deficiency from the Closing Date to the Settlement Date at the average
rate of return on the Escrow Funds from

<PAGE>

                                      -7-

the date hereof to the date of such release. Such insurance policy or other
similar arrangement shall not detract from or adversely affect the rights of
Buyer or ACGL provided for in this First Restatement and shall incorporate the
relevant terms of this First Restatement, which shall under the terms of such
insurance policy apply to such insurance policy rather than to the Escrowed
Funds.

                  (d)      PAID LOSSES IN EXCESS OF BEGINNING RESERVES.

                  (i) At the end of the first calendar quarter in which Paid
         Losses (calculated with the references to "Valuation Date" in the
         definition thereof being to such quarter-end and subject to Section
         5(c)) exceed the Beginning Reserves (such excess, the "EXCESS"), Buyer
         may give written notice of the Excess to ACGL. Such notice shall be
         accompanied by a report of independent public accountants designated by
         Buyer (who may also be the independent public accountants of ACGL or
         Buyer) setting forth the amount of Paid Losses and showing in
         reasonable detail the calculation thereof. If at any time within thirty
         (30) days of the receipt of such notice, ACGL gives written notice to
         Buyer that it disputes the Paid Losses or any component thereof,
         Appointed Experts shall be engaged to confirm the calculation of Paid
         Losses. The Appointed Experts shall confirm the calculation of the Paid
         Losses within forty-five (45) days of the date ACGL gives such notice,
         and give written notice and instructions to the Escrow Agent with
         respect to the amount of the Excess. Except as provided in Section
         5(c), the Appointed Experts' confirmation of the calculation shall be
         final and binding on all parties. On the later of (A) the end of the
         30-day period referred to in this Section 6(d)(i) and (B) the delivery
         by the Appointed Experts of their confirmation of the calculation of
         the Excess, the Escrow Agent shall, upon its receipt of written
         instructions from the Appointed Experts, release from the Escrow
         Account and deliver to Buyer Escrowed Funds in an amount equal to any
         Excess.

                  (ii) Following the release of Escrowed Funds pursuant to
         Section 6(d)(i), from time to time, Buyer shall give written notice to
         ACGL of Paid Losses since the last such release to the end of any
         subsequent calendar quarter ("ADDITIONAL PAID LOSSES"), accompanied by
         a reasonably detailed report of Buyer's calculation of such Additional
         Paid Losses, at the end of such calendar quarter. Upon the receipt of
         such report and written instructions of Buyer, the Escrow Agent shall
         release from the Escrow Account and deliver to Buyer Escrowed Funds in
         an amount equal to such Additional Paid Losses.

         (iii) The release of Escrowed Funds pursuant to Section 6(d) shall not
         affect the right of ACGL to dispute the amount of Paid Losses included
         in any Reserve Deficiency or Reserve Redundancy submitted by or on
         behalf of Buyer.

<PAGE>

                                      -8-

                  (e) RESERVE DEFICIENCY/REDUNDANCY. On the Settlement Date:

                  (i) if there is a Reserve Deficiency, (x) the Escrow Agent
         shall, upon its receipt of joint written instructions of Buyer and ACGL
         or written instructions from the Appointed Experts, release from the
         Escrow Account and deliver to Buyer the Buyer Portion in accordance
         with the written instructions received by it and (y) the Escrow Agent
         shall, upon its receipt of joint written instructions of Buyer and ACGL
         or written instructions from the Appointed Experts, release from the
         Escrow Account and deliver to ACGL the ACGL Portion in accordance with
         the written instructions received by it.

                  (ii) if there is a Reserve Redundancy, (x) the Escrow Agent
         shall, upon its receipt of joint written instructions of Buyer and ACGL
         or written instructions from the Appointed Experts, release from the
         Escrow Account and deliver to ACGL all of the Escrowed Funds and (y)
         Buyer shall deliver to ACGL cash equal to the amount of Reserve
         Redundancy, plus interest on such amount at the average rate of return
         on the Escrowed Funds from the Closing Date to the Settlement Date.

                  (f) INDEMNIFICATION. Upon the final determination of any
Covered Claim, the Escrow Agent shall, upon receipt of written instructions from
Buyer and ACGL, release from the Escrow Account and deliver to Buyer Escrowed
Funds in an amount up to the amount payable to Buyer by ACGL in respect of such
claim. If the amount so payable to Buyer by ACGL in respect of the Covered Claim
exceeds the amount of Escrowed Funds, ACGL shall deliver to Buyer cash equal to
the lesser of (A) the amount of such excess and (B) the total amount of Tax
Distributions released from the Escrow Account to ACGL pursuant to Section 6(a),
plus an amount of interest on such Tax Distributions from the release date at a
rate equal to the weighted average return on the Deposited Amount to the
Settlement Date, less any amounts paid to Buyer pursuant to clause (iii) of the
definition of Buyer's Portion. In such event, Buyer shall cooperate in any of
ACGL's efforts to seek a refund of or tax benefit with respect to income taxes
paid or tax benefits used by ACGL in respect of earnings on Escrowed Funds.

                  (g) PAYMENTS. All payments shall be made by wire transfer of
immediately available funds to the account specified by such payee; PROVIDED,
that the payee receiving such immediately available funds may (i) extend in
writing any payment period provided for in Section 6 in order to avoid any loss
of income or principal from a premature liquidation of any of the securities
constituting the Escrowed Funds and/or (ii) opt in writing to receive securities
from the Escrow Account rather than immediately available funds. If securities
are to be delivered to any payee, then appropriate delivery instructions shall
be delivered to the Escrow Agent by such payee not less than three business days
before such payment is made. In the event that it is necessary for the Escrow
Agent to liquidate securities in the Escrow Ac-

<PAGE>

                                      -9-

count in order to make a payment pursuant to this Section 6, the Escrow Agent
shall notify Buyer and ACGL thereof in writing. Promptly upon receipt of such
written notice, Buyer and ACGL shall mutually select the requisite amount of
securities to be liquidated and notify the Escrow Agent of the identity of such
securities in writing. Upon receipt of such notice, the Escrow Agent shall
deliver such security or securities to Broker, and Broker shall liquidate such
security or securities and promptly deliver the cash proceeds therefrom to the
Escrow Agent. Any cash resulting from such liquidation which exceeds the amount
of the payment to be made pursuant to this Section 6(g) may be invested pursuant
to the provisions of Section 3(f). All wire transfers of immediately available
funds shall be made to the accounts specified by Buyer and ACGL in Annex B
hereto or to such other accounts specified by Buyer or ACGL, as the case may be,
in accordance with Section 11. For the avoidance of doubt, unless otherwise
indicated in writing, all releases of Escrowed Funds will be made in accordance
with the wire instructions appearing on Annex B.

                  (h) Upon payment of any amount to Buyer by (1) ACGL pursuant
to the ACGL Guarantee or (2) by Arch Re pursuant to the Arch Re Agreement, the
Escrow Agent shall, in each case, upon written notification thereof from ACGL or
Arch Re, immediately release Escrowed Funds in an amount equal to any such
payment to ACGL, in the manner and to an account designated by ACGL.

                  (i) The Escrow Agent, in making a release of Escrowed Funds
pursuant to this Section 6, shall be entitled (and shall incur no liability in
relying upon) to rely on the written instructions given to it either jointly by
Buyer and ACGL or the Appointed Experts. Neither Buyer nor ACGL shall direct a
release of the Escrowed Funds in a manner inconsistent with the terms of this
First Restatement.

                  7.       REPORTS; INSPECTION RIGHTS.

                  (a) Within 45 days of the end of each of the first three
fiscal quarters of Buyer of each year prior to the Valuation Date, Buyer shall
deliver to ACGL a report setting forth (i) the Paid Losses (for such purposes,
the references to Valuation Date and financial statements in the definition
thereof being to such quarter-end and interim financial statements,
respectively), (ii) the Reserves as of such quarter-end, (iii) the calculation
of each of the foregoing in reasonable detail (including in the case of Paid
Losses, a list of all individual losses, if available from the ceding company),
and (iv) such other related matters as ACGL reasonably requests, to the extent
reasonably available.

                  (b) Within 90 days of the end of each fiscal year of Buyer
prior to the Valuation Date, Buyer shall deliver to ACGL a report setting forth
(i) the Paid Losses (for such purposes, the references to Valuation Date and
financial statements in the definition thereof being to such year-end and
year-end financial statements), (ii) the Reserves as of such

<PAGE>

                                      -10-

year-end, (iii) the difference of (1) the Beginning Reserves over (2) the sum of
Paid Losses (calculated with the references to "Valuation Date" in the
definition thereof being to such year-end) plus the Reserves as of such
year-end, (iv) the calculation of each of the foregoing in reasonable detail
(including in the case of Paid Losses, a list of all individual losses, if
available from the ceding company) and (v) such other related matters as ACGL
reasonably requests, to the extent reasonably available.

                  (c) From time to time as Buyer and ACGL may reasonably agree
(but not less frequently than once per year) upon reasonable notice during
normal business hours, representatives of ACGL (including its independent public
accountants and actuary) shall be permitted to inspect Buyer's books and records
involving the CPIS Business, including those relating to settlement and payment
of claims and work papers of Buyer's independent public accountants and actuary,
and, at ACGL's expense, to make copies of them, and to discuss them with Buyer's
representatives (including its independent public accountants and actuaries).

                  (d) The parties agree that ACGL's receipt of reports or
information pursuant to this Section 7 shall not affect ACGL's rights under
Section 5 or 6.

                  (e) Buyer agrees that, without the prior approval of ACGL
(which approval is not to be unreasonably withheld or unreasonably delayed), it
will not commute any reinsurance, retrocession or similar contracts, treaties,
agreements or arrangements covering the CPIS Business (it being understood that,
with respect to commutations of up to $500,000, ACGL's failure to respond within
30 Business Days to a request by Buyer for such approval shall be deemed an
unreasonable delay). Buyer shall not otherwise take any action which is other
than in the ordinary course of business of Buyer with respect to the Reserves.
This Section 7(e) shall not limit a ceding company's ability to settle claims in
the ordinary course of business.

                  8.       RESPONSIBILITY OF ESCROW AGENT.

                  (a) In the event of any ambiguity or uncertainty hereunder or
in any notice, instruction or other communication received by the Escrow Agent
hereunder, the Escrow Agent may, in its reasonable discretion, refrain from
taking any action, unless the Escrow Agent receives written instructions, signed
by both Buyer and ACGL, which eliminates such ambiguity or uncertainty.

                  (b) The Escrow Agent shall be entitled to retain counsel both
to advise it and in connection with any court action, and such counsel's
reasonable attorneys' fees shall be borne by Buyer and ACGL, jointly and
severally, pursuant to Section 9. The Escrow Agent shall be entitled to act in
reliance upon the advice of counsel in all matters pertaining to this First
Restatement, and shall not be liable for any action taken, suffered or omitted
by it in ac-

<PAGE>

                                      -11-

cordance with such advice and in the absence of gross negligence or willful
misconduct by the Escrow Agent.

                  (c) In the event of any dispute between or conflicting claims
by or between Buyer and ACGL and/or any other person or entity with respect to
any Escrowed Funds, the Escrow Agent shall be entitled, in its reasonable
discretion, to refuse to comply with any and all claims, demands or instructions
with respect to such Escrowed Funds so long as such dispute or conflict shall
continue, and the Escrow Agent shall not be or become liable in any way to Buyer
or ACGL for failure or refusal to comply with such conflicting claims, demands
or instructions. The Escrow Agent shall be entitled to refuse to act until, in
its reasonable discretion, either (i) such conflicting or adverse claims or
demands shall have been determined by a final order, judgment or decree of a
court of competent jurisdiction, which order, judgment or decree is not subject
to appeal, or settled by agreement between the conflicting parties as evidenced
in a writing reasonably satisfactory to the Escrow Agent or (ii) the Escrow
Agent shall have received security or an indemnity reasonably satisfactory to it
sufficient to hold it harmless from and against any and all losses which it may
incur by reason of so acting. Any court order, judgment or decree shall be
accompanied by a legal opinion by counsel for the presenting party, reasonably
satisfactory to the Escrow Agent, to the effect that said order, judgment or
decree represents a final adjudication of the rights of the parties by a court
of competent jurisdiction, and that the time for appeal from such order,
judgment or decree has expired without an appeal having been perfected. The
Escrow Agent shall act on such court order and legal opinions without further
question. The Escrow Agent may, in addition, elect, in its reasonable
discretion, to commence an interpleader action or seek other judicial relief or
orders as it may deem, in its reasonable discretion, necessary. The costs and
expenses (including reasonable attorneys' fees and expenses) incurred in
connection with such proceeding shall be borne equally by, and shall be deemed a
joint and several obligation of, Buyer and ACGL.

                  (d) If at any time the Escrow Agent is served with any
judicial or administrative order, judgment, decree, writ or other form of
judicial or administrative process which in any way affects the Escrowed Funds
(including but not limited to orders of attachment or garnishment or other forms
of levies or injunctions or stays relating to the transfer of the Escrowed
Funds), the Escrow Agent shall promptly provide written notice thereof to Buyer
and ACGL and the Escrow Agent is authorized to comply therewith in any manner it
or legal counsel of its own choosing deems appropriate; and if the Escrow Agent
complies with any such judicial or administrative order, judgment, decree, writ
or other form of judicial or administrative process, the Escrow Agent shall not
be liable to any of the parties hereto or to any other person or entity even
though such order, judgment, decree, writ or process may be subsequently
modified or vacated or otherwise determined to have been without legal force or
effect.

<PAGE>

                                      -12-

                  (e) If any fees under Section 10 hereof or obligations under
Section 9 hereof (which indemnification obligations are (i) determined by a
final order, judgment or decree of a court of competent jurisdiction, which
order, judgment or decree is not subject to appeal or (ii) settled by written
agreement among the parties) owed to Escrow Agent or its counsel hereunder are
not promptly paid when due, Escrow Agent may, upon 10 business days' written
notice to both Buyer and ACGL, reimburse itself therefor from the Escrowed Funds
and may sell, convey or otherwise dispose of any Escrowed Funds for such
purpose. The Escrow Agent may in its sole discretion withhold from any
distribution of Escrowed Funds an amount of Escrowed Funds it believes would,
upon sale or liquidation, produce proceeds equal to any unpaid amounts to which
Escrow Agent is entitled hereunder.

                  (f) As security for the rights of the Escrow Agent under this
First Restatement, Buyer and ACGL, individually and collectively, hereby pledge,
assign and grant to Escrow Agent a continuing security interest in, and a lien
on, the Escrowed Funds. The security interest of Escrow Agent shall at all times
be valid, perfected and enforceable by Escrow Agent against Buyer and ACGL and
all third parties in accordance with the terms of this First Restatement.

                  (g) The duties and obligations of the Escrow Agent hereunder
shall be governed solely by the provisions of this First Restatement, and the
Escrow Agent shall have no duties other than the duties expressly imposed herein
and shall not be required to take any action other than in accordance with the
terms hereof. The Escrow Agent shall not be bound by any notice of, or demand
with respect to, any waiver, modification, amendment, termination, cancellation,
rescission or supersession of this First Restatement, unless in writing and
signed by Buyer, ACGL and the Escrow Agent. The Escrow Agent shall not be
required to expend or risk any of its own funds or otherwise incur any financial
or other liability in the performance of any of its duties hereunder.

                  (h) The Escrow Agent shall not be liable for any action taken
or omitted or for any loss or injury resulting from its actions or its
performance or lack of performance of its duties hereunder in the absence of
gross negligence or willful misconduct on its part. In no event shall the Escrow
Agent be liable (i) for acting in accordance with or relying upon any mutual
written instruction, notice, demand, certificate or document jointly from Buyer
and ACGL or entities acting on their behalf, (ii) for any indirect,
consequential, punitive or special damages, regardless of the form of action and
whether or not any such damages were foreseeable or contemplated, (iii) for the
acts or omissions of its nominees, correspondents, designees, agents, subagents
or subcustodians, (iv) for the investment or reinvestment of any cash held by it
hereunder, in each case in good faith, in accordance with the terms hereof,
including without limitation any liability for any delays (not resulting from
its gross negligence or willful misconduct) in the investment or reinvestment of
the Escrowed Funds, or any loss of inter-

<PAGE>

                                      -13-

est incident to any such delays, or (v) for an amount in excess of the value of
the Escrowed Funds, valued as of the date of deposit, but only to the extent of
direct money damages.

                  (i) The Escrow Agent shall not incur any liability for not
performing any act or fulfilling any duty, obligation or responsibility
hereunder by reason of any occurrence beyond the control of the Escrow Agent
(including but not limited to any act or provision of any present or future law
or regulation or governmental authority, any act of God or war, or the
unavailability of the Federal Reserve Bank wire or facsimile or other wire or
communication facility).

                  (j) The Escrow Agent shall be entitled to rely upon any order,
judgment, certification, demand, notice, instrument or other writing delivered
to it hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity or the
service thereof. The Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume that any person purporting
to give receipt or advice to make any statement or execute any document in
connection with the provisions hereof has been duly authorized to do so by the
party giving such receipt or advice.

                  (k) The Escrow Agent shall not be responsible in any respect
for the form, execution, validity, value or genuineness of documents or
securities deposited hereunder, or for any description therein, or for the
identity, authority or rights of persons executing or delivering or purporting
to execute or deliver any such document, security or endorsement. The Escrow
Agent shall not be called upon to advise any party as to the wisdom in selling
or retaining or taking or refraining from any action with respect to any
securities or other property deposited hereunder.

                  (l) The Escrow Agent does not have any interest in the
Escrowed Funds deposited hereunder but is serving as escrow holder only and
having only possession thereof. Buyer and ACGL shall pay or reimburse, jointly
and severally, the Escrow Agent upon request for any transfer taxes and shall
divide the cost of such transfer taxes equally. ACGL shall pay all income taxes
relating to the Escrowed Funds incurred in connection herewith (from the
distributions made to it pursuant to Section 6(a)) and Buyer and ACGL, jointly
and severally, shall indemnify and hold harmless the Escrow Agent from any
amounts that it is obligated to pay in the way of such taxes. Any payments of
taxable income from this Escrow Account shall be subject to withholding
regulations then in force with respect to United States taxes. ACGL will provide
the Escrow Agent with appropriate W-9 forms for tax I.D. number certifications,
or W-8 forms for non-resident alien certifications. This paragraph shall survive
notwithstanding any termination of this First Restatement or the resignation or
removal of the Escrow Agent.

<PAGE>

                                      -14-

                  (m) The Escrow Agent shall not be under any duty to give the
Escrowed Funds held by it hereunder any greater degree of care than it gives its
own similar property and shall not be required to invest any funds held
hereunder except as directed in this First Restatement. Uninvested funds held
hereunder shall not earn or accrue interest.

                  9. INDEMNIFICATION OF ESCROW AGENT. Buyer and ACGL, jointly
and severally, shall be liable for and shall reimburse and indemnify Escrow
Agent (and any predecessor Escrow Agent) and hold Escrow Agent harmless from and
against any and all claims, losses, actions, liabilities, costs, damages or
expenses (including reasonable attorneys' fees and expenses) (collectively
"LOSSES") arising from or in connection with its administration of this First
Restatement, provided, however, that nothing contained herein shall require
Escrow Agent to be indemnified for Losses caused by its own gross negligence or
own willful misconduct. In addition, when the Escrow Agent acts on any
information, instructions, communications, (including, but not limited to,
communications with respect to the delivery of securities or the wire transfer
of funds) sent by telex or facsimile, the Escrow Agent, absent gross negligence,
shall not be responsible or liable in the event such communication is not an
authorized or authentic communication of Buyer and ACGL or is not in the form
Buyer and ACGL sent or intended to send (whether due to fraud, distortion or
otherwise). Buyer and ACGL shall jointly and severally indemnify the Escrow
Agent against any loss, liability, claim or expense (including legal fees and
expenses) it may incur with its acting in accordance with any such
communication. This paragraph shall survive the resignation or termination of
this First Restatement or the removal of the Escrow Agent.

                  10. FEES OF ESCROW AGENT. Buyer and ACGL shall pay the Escrow
Agent a fee of $12,500 per annum, which amount was paid upon execution of the
Original Escrow Agreement and thereafter will be payable on each anniversary
date of the Original Escrow Agreement and Buyer and ACGL agree to reimburse the
Escrow Agent for all reasonable expenses, disbursements and advances incurred or
made by the Escrow Agent in performance of its duties hereunder (including
reasonable attorneys' fees and expenses). It is understood that the Escrow
Agent's fees may be adjusted from time to time to conform to its then current
guidelines. The fees and expenses of the Escrow Agent (including the cost of any
taxes referred to in Section 8(i) and any indemnification obligations under
Section 9) shall be paid one-half by Buyer and one-half by ACGL, but shall be
joint and several obligations of Buyer and ACGL.

                  11. NOTICES AND COMMUNICATIONS. All notices, demands and other
communications hereunder shall be in writing, and shall be deemed to have been
duly given (1) if delivered by hand to a party at the address specified below,
upon delivery to a person authorized to receive mail for such party at such
address, (2) if sent by overnight courier to the address specified below, on the
next business day, (3) if mailed to the address specified below by certified
mail, return receipt requested, postage prepaid, on the fifth business day
following de-

<PAGE>

                                      -15-

posit in the mails, or (4) if sent by facsimile, upon receipt of confirmation by
the facsimile machine:

                  If to Buyer, to:

                        Folksamerica Holding Company, Inc.
                        One Liberty Plaza
                        New York, New York  10006
                        Facsimile No.: (212) 385-3678
                        Attention:  Steven E. Fass

                  with a copy to:

                        Morgan Lewis & Bockius, LLP
                        101 Park Avenue
                        New York, New York  10178
                        Facsimile No: (212) 309-6273
                        Attention:  F. Sedgwick Browne

                  If to ACGL, to:

                        Arch Capital Group Ltd.
                        20 Horseneck Lane
                        Greenwich, Connecticut  06830
                        Facsimile No.: (203) 861-7240
                        Attention:  Chief Operating Officer or General Counsel

                  with a copy sent contemporaneously to:

                        Cahill Gordon & Reindel
                        80 Pine Street
                        New York, New York  10005
                        Facsimile No.: (212) 269-5420
                        Attention:  Immanuel Kohn

<PAGE>

                                      -16-

                  If to the Escrow Agent, to:

                        Citibank, N.A.
                        Citibank Agency & Trust Services Department
                        111 Wall Street, 5th Floor
                        New York, New York  10005
                        Facsimile No.: (212) 657-2762
                        Attention:  Estelle Lawrence,
                                    re: Folksamerica/Arch Escrow # 794995

or to such other address as such party shall designate by written notice to the
other parties hereto.

                  12. TERM; AMENDMENT; ASSIGNMENT. This First Restatement shall
continue until the earlier of the date on which (a) all of the Escrowed Funds
have been released from the Escrow Account in accordance with Section 6 or (b)
the Escrow Agent receives a written notice of termination from Buyer and ACGL;
provided that, as between Buyer and ACGL, Section 6(e)(ii)(y) shall survive the
termination of this First Restatement pursuant to the foregoing clause (a). This
First Restatement may be amended only by a written instrument signed by all of
the parties hereto and shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
Notwithstanding anything to the contrary in the foregoing, ACGL shall be
permitted to assign its right to receive Escrowed Funds in accordance with
Section 6.

                  13. COUNTERPARTS. This First Restatement may be executed in
any number of counterparts, each of which shall be an original and all of which
taken together shall constitute one and the same instrument. In making proof of
this First Restatement it shall be necessary to produce or account for only one
such counterpart signed by or on behalf of the party sought to be charged
herewith.

                  14. SUCCESSOR ESCROW AGENT. (a) Buyer and ACGL may remove
Escrow Agent at any time by giving to Escrow Agent thirty (30) calendar days'
prior notice in writing signed by both Buyer and ACGL. Escrow Agent may resign
at any time by giving Buyer and ACGL thirty (30) calendar days' prior written
notice thereof. Such resignation shall be effective upon appointment of a
successor escrow agent pursuant to this Section 14.

                  (b) Within thirty (30) calendar days after giving the
foregoing notice of removal to Escrow Agent or receiving the foregoing notice of
resignation from Escrow Agent, Buyer and ACGL shall jointly agree on and appoint
a successor Escrow Agent, and provide written notice of such to the resigning
Escrow Agent. If a successor Escrow Agent has not accepted such appointment by
the end of such 30-day period, Escrow Agent may apply to a court of competent
jurisdiction for the appointment of a successor Escrow Agent or for other

<PAGE>

                                      -17-

appropriate relief. The costs and expenses (including reasonable attorneys' fees
and expenses) incurred by Escrow Agent in connection with such proceeding shall
be paid by, and be deemed a joint and several obligation of, Buyer and ACGL. In
the event of any such resignation or removal, the Escrow Agent shall have no
further obligation with respect to the Escrowed Funds.

                  15. ENTIRE AGREEMENT. This First Restatement and, in the case
of Buyer and ACGL but not the Escrow Agent, together with the Purchase Agreement
(including the attachments thereto) and the Transfer and Assumption Agreement
(as defined in the Purchase Agreement), contains the entire agreement and
understanding of the parties with respect to the transactions contemplated
hereby. No prior agreement, either written or oral, shall be construed to
change, amend, alter, repeal or invalidate this First Restatement.

                  16. REPRESENTATIONS OF BUYER AND ACGL. Each of Buyer and ACGL
hereby represents and warrants (a) that this First Restatement has been duly
authorized, executed and delivered on its behalf and constitutes its legal,
valid and binding obligation and (b) that the execution, delivery and
performance of this First Restatement by it does not and will not violate any
applicable law or regulation.

                  17. GOVERNING LAW. This First Restatement shall be
interpreted, construed, enforced and administered in accordance with the
internal substantive laws (and not the choice of law rules) of the State of New
York. Each of Buyer and ACGL hereby submits to the personal jurisdiction of, and
each agrees that all proceedings relating hereto shall be brought in, courts
located within the City and State of New York. Each of Buyer and ACGL hereby
waives the right to trial by jury and to assert counterclaims in any such
proceedings. To the extent that in any jurisdiction that Buyer or ACGL may be
entitled to claim, for itself or its assets, immunity from suit, execution,
attachment (whether before or after judgment) or other legal process, each
hereby irrevocably agrees not to claim, and hereby waives, such immunity. Each
of Buyer and ACGL waives personal service of process and consents to service of
process by certified or registered mail, return receipt requested, directed to
it at the address last specified for notices hereunder, and such service shall
be deemed completed ten (10) calendar days after the same is so mailed. Any
court order shall be accompanied by a legal opinion by counsel for the
presenting party satisfactory to the Escrow Agent to the effect that said
opinion is final and non-appealeable. The Escrow Agent shall act on such court
order and legal opinions without further question.

<PAGE>

                                      -18-

                  IN WITNESS WHEREOF, the parties hereto have executed this
First Restatement as of the date first above written.

                                    BUYER:

                                    FOLKSAMERICA HOLDING COMPANY, INC.

                                    By:    /S/ DONALD A. EMEIGH, JR.
                                           -----------------------------------
                                           Name: Donald A. Emeigh, Jr.
                                           Title: Senior Vice President,
                                                  General Counsel and Secretary

                                    FOLKSAMERICA REINSURANCE COMPANY

                                    By:    /S/ DONALD A. EMEIGH, JR.
                                           -----------------------------------
                                           Name: Donald A. Emeigh, Jr.
                                           Title: Senior Vice President,
                                                  General Counsel and Secretary

                                    ACGL:

                                    ARCH CAPITAL GROUP LTD.

                                    By:    /S/ DEBRA M. O'CONNOR
                                           -----------------------------------
                                           Name: Debra M. O'Connor
                                           Title: Senior Vice President,
                                                  Controller and Treasurer

                                    ESCROW AGENT:

                                    CITIBANK, N.A.

<PAGE>

                                      -19-

                                    By:    /S/ KERRY MONAGHAN MCDONOUGH
                                           ----------------------------------
                                           Name: Kerry Monaghan McDonough
                                           Title: Vice President

<PAGE>

                       Schedule 1 to the First Restatement

              SECURITIES DELIVERED TO ESCROW AGENT ON CLOSING DATE

<PAGE>

                        Annex A to the First Restatement

                                   DEFINITIONS

                  "ACGL GUARANTEE" means that certain guarantee, dated as of the
date of this First Restatement, issued by ACGL in favor of Buyer.

                  "APPOINTED EXPERTS" means (i) an independent actuary and/or
(ii) a firm of independent public accountants, which shall be one of the "Big
Five" firms of public accountants, each of which shall be satisfactory to Buyer
and ACGL.

                  "ARCH RE AGREEMENT" means that certain agreement, dated as of
the date of this First Restatement, between Arch Re and Buyer.

                  "BALANCE SHEET" means the Closing Date Balance Sheet of ACGL
delivered to Buyer pursuant to Section 2.04(a) of the Purchase Agreement.

                  "BEGINNING DATE" means the Closing Date.
                   --------------

                  "BEGINNING RESERVES" means the Reserves as set forth on the
Balance Sheet.

                  "BUYER PORTION" means, subject to the last sentence of this
paragraph, all or a part of the (i) the Deposited Amount multiplied by a
fraction of which (x) the numerator is the Reserve Deficiency and (y) the
denominator is the Deposited Amount, plus (ii) the same fractional proportion of
interest, dividends and other distributions earned on the Deposited Amount to
the Settlement Date, plus (iii) to the extent that Buyer has not been fully
compensated for principal and interest on the Reserve Deficiency as calculated
pursuant to (i) and (ii) above, an amount equal to any Tax Distributions the
Escrow Agent has released to ACGL for Tax Distributions including an amount of
interest on such Tax Distributions from the release date at a rate equal to the
average rate of return on the Deposited Amount to the Settlement Date. The final
amount paid to Buyer shall be reduced by amounts paid to Buyer pursuant to
Section 6(d) and the amount of interest in the Escrow Account shall be equitably
allocated to Buyer with the recognition that Buyer may have received all or a
part of Buyer Portion under clause (i) above prior to the Settlement Date. If
clause (iii) is applicable, Buyer shall cooperate in any of ACGL's efforts to
seek a refund of or tax benefit with respect to income taxes paid or tax
benefits used by ACGL in respect of earnings on Escrowed Funds.

                  It is the intention of the above calculations that Buyer
receive all or a part of the Deposited Amount equal to the Reserve Deficiency
and that Buyer (and ACGL, if applicable) receive on the Settlement Date an
equitable apportionment of interest on the amount of the Deposited Amount
(taking into consideration any distributions from the Escrowed Funds) to which
they are entitled pursuant to this First Restatement.

<PAGE>

                  "COVERED CLAIM" means a claim for indemnification pursuant to
Section 9.03 of the Purchase Agreement (a) for a breach of a representation or
warranty contained in Section 3.06 or Section 3.17 of the Purchase Agreement or,
to the extent related to CPIS or the CPIS Business, any other section of the
Purchase Agreement, subject to (i) in each case (other than Section 3.17 of the
Purchase Agreement to the extent relating to Retrocession Agreements covering
the CPIS Business, the one-year survival period contained in Section 9.01 of the
Purchase Agreement, (ii) in each case (other than Section 3.17 of the Purchase
Agreement), subject to the $500,000 deductible and $5,000,000 cap contained in
Section 9.03 of the Purchase Agreement, and (iii) in each case, subject to the
other restrictions on indemnification contained in Section 9.03 of the Purchase
Agreement or (b) with respect to Excluded Liabilities arising out of or relating
to CPIS referred to in Section 3.21(b) of the Purchase Agreement.

                  "CPIS BUSINESS" means all business produced by Capital
Protection Insurance Services, LLC for the account of ACGL.

                  "DEPOSITED AMOUNT" means securities, valued as of their fair
market value as of the Closing Date, in an amount equal to $20,000,000.

                  "ENDING RESERVES" means the Reserves as of the Valuation Date.
The determination of Ending Reserves shall be (i) conducted by the independent
actuary making such determination (x) using its independent judgment based on
prevailing facts, circumstances and trends, (y) in accordance with generally
accepted actuarial standards and principles and (z) to the extent not
inconsistent with the foregoing, in a manner and applying a method consistent
with the determination of the Beginning Reserves and (ii) consistent with
Buyer's audited financial statements for the fiscal year that includes the
Valuation Date. It is understood that such actuary shall in no way be inhibited
in the use of its independent judgment.

                  "ESCROWED FUNDS" means the Deposited Amount, together with any
interest, dividends or other distributions on or proceeds from any investment
thereof under this First Restatement, less the aggregate amount of Tax
Distributions.

                  "GAAP" means United States generally accepted accounting
principles applied on a basis consistent with those applied in preparing the
Balance Sheet.

                  "OBJECTION NOTICE" means a written notice to Buyer and the
Escrow Agent that ACGL disputes the Reserve Deficiency/Reserve Redundancy, Paid
Losses, Ending Reserves and/or any component of any of the foregoing, and
specifying in reasonable detail ACGL's reasons for such dispute.

                  "OBJECTION PERIOD" means the period of sixty (60) days
following ACGL's receipt of the latest of the reports referred to in Section 4.

                                      B-2

<PAGE>

                  "PAID LOSSES" means losses and loss adjustment expenses of the
CPIS Business actually paid by or on behalf of FRC from (but excluding) the
Beginning Date to (and including) the Valuation Date, less (x) any amounts
actually received as of the Valuation Date in respect of such losses and loss
adjustment expenses pursuant to insurance, reinsurance, retrocession or similar
contracts, treaties, agreements or arrangements and (y) salvage and subrogation
actually received as of the Valuation Date in respect of such losses and loss
adjustment expenses; PROVIDED that the portion of unallocated loss adjustment
expenses included in such loss adjustment expenses shall not exceed the amount
of unallocated loss adjustment expenses included in the Beginning Reserves
except as the result of the recharacterization as unallocated loss adjustment
expenses, pursuant to a change prescribed by the National Association of
Insurance Commissioners or the New York Insurance Department, of an item that at
the date hereof would constitute allocated loss adjustment expenses. For
purposes of this provision, unallocated loss adjustment expenses shall mean
internal expenses for compensation of FRC's officers and employees and related
overhead expenses. The calculation of Paid Losses shall be (x) made in
accordance with GAAP and (y) consistent with Buyer's financial statements for
the fiscal period ending with the Valuation Date.

                  "PERMITTED INVESTMENTS" means (a) securities issued, fully
guaranteed or fully insured by the government of the United States, any State
thereof or any governmental authority of the United States or any State thereof,
(b) certificates of deposit and eurodollar time deposits issued by a bank in the
United States having a combined capital and surplus of at least $25,000,000,000,
(c) commercial paper with a rating of at least "Prime-1" by Moody's Investors
Services, Inc., (d) securities rated "AA" or higher by Standard & Poor's Ratings
Group or "Aa" or higher by Moody's Investors Services, Inc. and (e) money market
funds substantially all of whose assets consist of the foregoing, which, in the
case of clauses (a) through (d) shall not mature later than the Settlement Date.

                  "RESERVES" means, as of any date, (1) the reserve for unpaid
losses, including the case reserve and reserve for incurred but not reported
(IBNR) losses (including the reserve for unearned premium deficiency), plus (2)
the reserve for loss adjustment expenses; PROVIDED that the portion of
unallocated loss adjustment expenses included in such reserve shall not exceed
the amount of unallocated loss adjustment expenses included in the Beginning
Reserves, plus (3) unearned premium reserves, minus (4) anticipated salvage and
subrogation, minus (5) collectible reinsurance recoverables, in each case, on
such date with respect to the CPIS Business.

                  "RESERVE DEFICIENCY" has the meaning given to such term in
Section 4(iii).

                  "RESERVE REDUNDANCY" has the meaning given to such term in
Section 4(iii).

                  "ACGL PORTION" means all of the Escrowed Funds less Buyer
Portion.

                  "SETTLEMENT DATE" means (a) if ACGL does not give an Objection
Notice within the Objection Period, the second business day following the end of
the Objection Pe-

                                      B-3

<PAGE>

riod, and (b) if ACGL gives an Objection Notice within the Objection Period, the
second business day following the later of (x) the determinations and
confirmations by the Appointed Experts pursuant to Section 5(a) or (y) the
resolution of any dispute regarding Paid Losses.

                  "VALUATION DATE" means the fifth anniversary of the Closing
Date.

                                      B-4

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