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                                                                    Exhibit 10.1

                             ARCH CAPITAL GROUP LTD.

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                  2002 LONG TERM INCENTIVE AND SHARE AWARD PLAN

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                             ARCH CAPITAL GROUP LTD.
                  2002 LONG TERM INCENTIVE AND SHARE AWARD PLAN

          1.   PURPOSES. The purposes of the 2002 Long Term Incentive and Share
Award Plan are to advance the interests of Arch Capital Group Ltd. and its
shareholders by providing a means to attract, retain, and motivate employees and
directors of the Company upon whose judgment, initiative and efforts the
continued success, growth and development of the Company is dependent.

          2.   DEFINITIONS. For purposes of the Plan, the following terms shall
be defined as set forth below:

               "Affiliate" means any entity other than the Company and its
          Subsidiaries that is designated by the Board or the Committee as a
          participating employer under the Plan, provided that the Company
          directly or indirectly owns at least 20% of the combined voting power
          of all classes of stock of such entity or at least 20% of the
          ownership interests in such entity.

               "Award" means any Option, SAR, Restricted Share, Restricted Share
          Unit, Performance Share, Performance Unit, Dividend Equivalent, Other
          Share-Based Award, Director's Option or Director's Share granted to an
          Eligible Employee under the Plan.

               "Award Agreement" means any written agreement, contract, or other
          instrument or document evidencing an Award.

               "Beneficiary" means the person, persons, trust or trusts which
          have been designated by such Eligible Employee in his or her most
          recent written beneficiary designation filed with the Company to
          receive the benefits specified under this Plan upon the death of the
          Eligible Employee, or, if there is no designated Beneficiary or
          surviving designated Beneficiary, then the person, persons, trust or
          trusts entitled by will or the laws of descent and distribution to
          receive such benefits.

               "Board" means the Board of Directors of the Company.

               "Code" means the Internal Revenue Code of 1986, as amended from
          time to time. References to any provision of the Code shall be deemed
          to include successor provisions thereto and regulations thereunder.

               "Committee" means the Compensation Committee of the Board, or
          such other Board committee or subcommittee (or the entire Board) as
          may be designated by the Board to administer the Plan.

               "Company" means Arch Capital Group Ltd., a corporation organized
          under the laws of Bermuda, or any successor corporation.

               "Director" means a non-employee member of the Board.

               "Director's Option" means a NQSO granted to a Director under
          Section 7.

               "Director's Shares" means Shares granted to a Director as payment
          of the Director's annual retainer fee pursuant to the Director's
          election under Section 8 of the Plan.

               "Dividend Equivalent" means a right, granted under Section 5(g),
          to receive cash, Shares, or other property equal in value to dividends
          paid with respect to a specified number of Shares. Dividend

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          Equivalents may be awarded on a free-standing basis or in connection
          with another Award, and may be paid currently or on a deferred basis.

               "Eligible Employee" means (i) an employee of the Company or its
          Subsidiaries and Affiliates, including any director who is an
          employee, who is responsible for or contributes to the management,
          growth and/or profitability of the business of the Company, its
          Subsidiaries or Affiliates, and (ii) any Director. Notwithstanding any
          provisions of this Plan to the contrary, an Award may be granted to an
          employee or consultant, in connection with his or her hiring or
          retention prior to the date the employee or consultant first performs
          services for the Company, a Subsidiary or an Affiliate; PROVIDED,
          HOWEVER, that any such Award shall not become vested prior to the date
          the employee or consultant first performs such services.

               "Exchange Act" means the Securities Exchange Act of 1934, as
          amended from time to time. References to any provision of the Exchange
          Act shall be deemed to include successor provisions thereto and
          regulations thereunder.

               "Fair Market Value" means, with respect to Shares or other
          property, the fair market value of such Shares or other property
          determined by such methods or procedures as shall be established from
          time to time by the Committee. Unless otherwise determined by the
          Committee in good faith, the Fair Market Value of Shares as of any
          given date prior to the existence of a public market for the Company's
          Shares shall mean the Company's book value. Thereafter, unless
          otherwise determined by the Committee in good faith, the Fair Market
          Value of Shares shall mean the mean between the high and low selling
          prices per Share on the immediately preceding date (or, if the Shares
          were not traded on that day, the next preceding day that the Shares
          were traded) on the principal exchange on which the Shares are traded,
          as such prices are officially quoted on such exchange.

               "ISO" means any Option intended to be and designated as an
          incentive stock option within the meaning of Section 422 of the Code.

               "NQSO" means any Option that is not an ISO.

               "Option" means a right, granted under Section 5(b) or Section 7,
          to purchase Shares.

               "Other Share-Based Award" means a right, granted under Section
          5(h), that relates to or is valued by reference to Shares.

               "Participant" means an Eligible Employee or Director who has been
          granted an Award or Director's Option under the Plan.

               "Performance Share" means a performance share granted under
          Section 5(f).

               "Performance Unit" means a performance unit granted under Section
          5(f).

               "Plan" means this 2002 Long Term Incentive and Share Award Plan.

               "Restricted Shares" means an Award of Shares under Section 5(d)
          that may be subject to certain restrictions and to a risk of
          forfeiture.

               "Restricted Share Unit" means a right, granted under Section
          5(e), to receive Shares or cash at the end of a specified deferral
          period.

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               "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
          applicable to the Plan and Participants, promulgated by the Securities
          and Exchange Commission under Section 16 of the Exchange Act.

               "SAR" or "Share Appreciation Right" means the right, granted
          under Section 5(c), to be paid an amount measured by the difference
          between the exercise price of the right and the Fair Market Value of
          Shares on the date of exercise of the right, with payment to be made
          in cash, Shares, or property as specified in the Award or determined
          by the Committee.

               "Shares" means common shares, $.01 par value per share, of the
          Company.

               "Subsidiary" means any corporation (other than the Company) in an
          unbroken chain of corporations beginning with the Company if each of
          the corporations (other than the last corporation in the unbroken
          chain) owns shares possessing 50% or more of the total combined voting
          power of all classes of stock in one of the other corporations in the
          chain.

          3.   ADMINISTRATION.

               (a)  AUTHORITY OF THE COMMITTEE. The Plan shall be administered
by the Committee, and the Committee shall have full and final authority to take
the following actions, in each case subject to and consistent with the
provisions of the Plan:

                    (i)     to select Eligible Employees to whom Awards may be
                            granted;

                    (ii)    to designate Affiliates;

                    (iii)   to determine the type or types of Awards to be
          granted to each Eligible Employee;

                    (iv)    to determine the type and number of Awards to be
          granted, the number of Shares to which an Award may relate, the terms
          and conditions of any Award granted under the Plan (including, but not
          limited to, any exercise price, grant price, or purchase price, and
          any bases for adjusting such exercise, grant or purchase price, any
          restriction or condition, any schedule for lapse of restrictions or
          conditions relating to transferability or forfeiture, exercisability,
          or settlement of an Award, and waiver or accelerations thereof, and
          waivers of performance conditions relating to an Award, based in each
          case on such considerations as the Committee shall determine), and all
          other matters to be determined in connection with an Award;

                    (v)     to determine whether, to what extent, and under what
          circumstances an Award may be settled, or the exercise price of an
          Award may be paid, in cash, Shares, other Awards, or other property,
          or an Award may be cancelled, forfeited, exchanged, or surrendered;

                    (vi)    to determine whether, to what extent, and under what
          circumstances cash, Shares, other Awards, or other property payable
          with respect to an Award will be deferred either automatically, at the
          election of the Committee, or at the election of the Eligible
          Employee;

                    (vii)   to prescribe the form of each Award Agreement, which
          need not be identical for each Eligible Employee;

                    (viii)  to adopt, amend, suspend, waive, and rescind such
          rules and regulations and appoint such agents as the Committee may
          deem necessary or advisable to administer the Plan;

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                    (ix)    to correct any defect or supply any omission or
          reconcile any inconsistency in the Plan and to construe and interpret
          the Plan and any Award, rules and regulations, Award Agreement, or
          other instrument hereunder;

                    (x)     to accelerate the exercisability or vesting of all
          or any portion of any Award or to extend the period during which an
          Award is exercisable; and

                    (xi)    to make all other decisions and determinations as
          may be required under the terms of the Plan or as the Committee may
          deem necessary or advisable for the administration of the Plan.

               (b)  MANNER OF EXERCISE OF COMMITTEE AUTHORITY. The Committee
shall have sole discretion in exercising its authority under the Plan. Any
action of the Committee with respect to the Plan shall be final, conclusive, and
binding on all persons, including the Company, Subsidiaries, Affiliates,
Eligible Employees, any person claiming any rights under the Plan from or
through any Eligible Employee, and shareholders. The express grant of any
specific power to the Committee, and the taking of any action by the Committee,
shall not be construed as limiting any power or authority of the Committee. The
Committee may delegate to officers or managers of the Company or any Subsidiary
or Affiliate the authority, subject to such terms as the Committee shall
determine, to perform administrative functions and, with respect to Awards
granted to persons not subject to Section 16 of the Exchange Act, to perform
such other functions as the Committee may determine, to the extent permitted
under Rule 16b-3 (if applicable) and applicable law. Notwithstanding any
provision of this Plan to the contrary, the Committee may grant Awards which are
subject to the approval of the Board; provided that an Award shall be subject to
Board approval only if the Committee expressly so states.

               (c)  LIMITATION OF LIABILITY. Each member of the Committee shall
be entitled to, in good faith, rely or act upon any report or other information
furnished to him or her by any officer or other employee of the Company or any
Subsidiary or Affiliate, the Company's independent certified public accountants,
or other professional retained by the Company to assist in the administration of
the Plan. No member of the Committee, nor any officer or employee of the Company
acting on behalf of the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and all members of the Committee and any officer or employee of the
Company acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action,
determination, or interpretation.

               (d)  LIMITATION ON COMMITTEE'S DISCRETION. Anything in this Plan
to the contrary notwithstanding, in the case of any Award which is intended to
qualify as "performance-based compensation" within the meaning of Section
162(m)(4)(C) of the Code, if the Award Agreement so provides, the Committee
shall have no discretion to increase the amount of compensation payable under
the Award to the extent such an increase would cause the Award to lose its
qualification as such performance-based compensation.

          4.   SHARES SUBJECT TO THE PLAN.

               (a)  Subject to adjustment as provided in Section 4(c) hereof,
the total number of Shares reserved for issuance under the Plan shall be
3,165,830. No Award may be granted if the number of Shares to which such Award
relates, when added to the number of Shares previously issued under the Plan,
exceeds the number of Shares reserved under the preceding sentence. If any
Awards are forfeited, cancelled, terminated, exchanged or surrendered or such
Award is settled in cash or otherwise terminates without a distribution of
Shares to the Participant, any Shares counted against the number of Shares
reserved and available under the Plan with respect to such Award shall, to the
extent of any such forfeiture, settlement, termination, cancellation, exchange
or surrender, again be available for Awards under the Plan. Upon the exercise of
any Award granted in tandem with any other Awards, such related Awards shall be
cancelled to the extent of the number of Shares as to which the Award is
exercised. Subject to adjustment as provided in Section 4(c) hereof, the maximum
number

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of Shares (i) with respect to which Options and SARs may be granted during a
calendar year to any Eligible Employee under this Plan shall be 1,000,000 Shares
and (ii) with respect to Performance Shares, Performance Units, Restricted
Shares and Restricted Share Units intended to qualify as performance-based
compensation within the meaning of Section 162(m)(4)(C) of the Code shall be the
equivalent of 500,000 Shares during a calendar year to any Eligible Employee
under this Plan.

               (b)  Any Shares distributed pursuant to an Award may consist, in
whole or in part, of authorized and unissued Shares or treasury Shares including
Shares acquired by purchase in the open market or in private transactions.

               (c)  In the event that the Committee shall determine that any
dividend in Shares, recapitalization, Share split, reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other similar corporate transaction or event, affects the
Shares such that an adjustment is appropriate in order to prevent dilution or
enlargement of the rights of Eligible Employees under the Plan, then the
Committee shall make such equitable changes or adjustments as it deems
appropriate and, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares which may thereafter be issued under the Plan,
(ii) the number and kind of shares, other securities or other consideration
issued or issuable in respect of outstanding Awards, and (iii) the exercise
price, grant price, or purchase price relating to any Award; PROVIDED, HOWEVER,
in each case that, with respect to ISOs, such adjustment shall be made in
accordance with Section 424(a) of the Code, unless the Committee determines
otherwise. In addition, the Committee is authorized to make adjustments in the
terms and conditions of, and the criteria and performance objectives included
in, Awards in recognition of unusual or non-recurring events (including, without
limitation, events described in the preceding sentence) affecting the Company or
any Subsidiary or Affiliate or the financial statements of the Company or any
Subsidiary or Affiliate, or in response to changes in applicable laws,
regulations, or accounting principles; PROVIDED, HOWEVER, that, if an Award
Agreement specifically so provides, the Committee shall not have discretion to
increase the amount of compensation payable under the Award to the extent such
an increase would cause the Award to lose its qualification as performance-based
compensation for purposes of Section 162(m)(4)(C) of the Code and the
regulations thereunder.

          5.   SPECIFIC TERMS OF AWARDS.

               (a)  GENERAL. Awards may be granted on the terms and conditions
set forth in this Section 5. In addition, the Committee may impose on any Award
or the exercise thereof, at the date of grant or thereafter (subject to Section
9(d)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
regarding forfeiture of Awards or continued exercisability of Awards in the
event of termination of employment by the Eligible Employee.

               (b)  OPTIONS. The Committee is authorized to grant Options, which
may be NQSOs or ISOs, to Eligible Employees on the following terms and
conditions:

                    (i)     EXERCISE PRICE. The exercise price per Share
          purchasable under an Option shall be determined by the Committee, and
          the Committee may, without limitation, set an exercise price that is
          based upon achievement of performance criteria if deemed appropriate
          by the Committee.

                    (ii)    OPTION TERM. The term of each Option shall be
          determined by the Committee, but such term shall not exceed ten years.

                    (iii)   TIME AND METHOD OF EXERCISE. The Committee shall
          determine at the date of grant or thereafter the time or times at
          which an Option may be exercised in whole or in part (including,
          without limitation, upon achievement of performance criteria if deemed
          appropriate by the Committee), the methods by which such exercise
          price may be paid or deemed to be paid (including, without

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          limitation, broker-assisted exercise arrangements), the form of such
          payment (including, without limitation, cash, Shares, notes or other
          property), and the methods by which Shares will be delivered or deemed
          to be delivered to Eligible Employees; PROVIDED, HOWEVER, that in no
          event may any portion of the exercise price be paid with Shares
          acquired either under an Award granted pursuant to this Plan, upon
          exercise of a stock option granted under another Company plan or as a
          stock bonus or other stock award granted under another Company plan
          unless, in any such case, the Shares were acquired and vested more
          than six months in advance of the date of exercise.

                    (iv)    ISOs. The terms of any ISO granted under the Plan
          shall comply in all respects with the provisions of Section 422 of the
          Code, including but not limited to the requirement that no ISO shall
          be granted more than ten years after the earlier of the date of
          adoption or shareholder approval of the Plan. ISOs may only be granted
          to employees of the Company or a Subsidiary.

               (c)  SARs. The Committee is authorized to grant SARs (Share
Appreciation Rights) to Eligible Employees on the following terms and
conditions:

                    (i)     RIGHT TO PAYMENT. A SAR shall confer on the Eligible
          Employee to whom it is granted a right to receive with respect to each
          Share subject thereto, upon exercise thereof, the excess of (1) the
          Fair Market Value of one Share on the date of exercise (or, if the
          Committee shall so determine in the case of any such right, the Fair
          Market Value of one Share at any time during a specified period before
          or after the date of exercise) over (2) the exercise price of the SAR
          as determined by the Committee as of the date of grant of the SAR
          (which, in the case of a SAR granted in tandem with an Option, shall
          be equal to the exercise price of the underlying Option).

                    (ii)    OTHER TERMS. The Committee shall determine, at the
          time of grant or thereafter, the time or times at which a SAR may be
          exercised in whole or in part (which shall not be more than ten years
          after the date of grant of the SAR), the method of exercise, method of
          settlement, form of consideration payable in settlement, method by
          which Shares will be delivered or deemed to be delivered to Eligible
          Employees, whether or not a SAR shall be in tandem with any other
          Award, and any other terms and conditions of any SAR. Unless the
          Committee determines otherwise, a SAR (1) granted in tandem with a
          NQSO may be granted at the time of grant of the related NQSO or at any
          time thereafter or (2) granted in tandem with an ISO may only be
          granted at the time of grant of the related ISO.

               (d)  RESTRICTED SHARES. The Committee is authorized to grant
Restricted Shares to Eligible Employees on the following terms and
conditions:

                    (i)     ISSUANCE AND RESTRICTIONS. Restricted Shares shall
          be subject to such restrictions on transferability and other
          restrictions, if any, as the Committee may impose at the date of grant
          or thereafter, which restrictions, if any, may lapse separately or in
          combination at such times, under such circumstances (including,
          without limitation, upon achievement of performance criteria if deemed
          appropriate by the Committee), in such installments or otherwise, as
          the Committee may determine. Except to the extent restricted under the
          Award Agreement relating to the Restricted Shares, an Eligible
          Employee granted Restricted Shares shall have all of the rights of a
          shareholder including, without limitation, the right to vote
          Restricted Shares and the right to receive dividends thereon. If the
          lapse of restrictions is conditioned on the achievement of performance
          criteria, the Committee shall select the criterion or criteria from
          the list of criteria set forth in Section 5(f)(i). The Committee must
          certify in writing prior to the lapse of restrictions conditioned on
          the achievement of performance criteria that such performance criteria
          were in fact satisfied.

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                    (ii)    FORFEITURE. Except as otherwise determined by the
          Committee, at the date of grant or thereafter, upon termination of
          employment during any applicable restriction period, Restricted Shares
          and any accrued but unpaid dividends or Dividend Equivalents that are
          at that time subject to restrictions shall be forfeited; PROVIDED,
          HOWEVER, that the Committee may provide, by rule or regulation or in
          any Award Agreement, or may determine in any individual case, that
          restrictions or forfeiture conditions relating to Restricted Shares
          will be waived in whole or in part in the event of terminations
          resulting from specified causes, and the Committee may in other cases
          waive in whole or in part the forfeiture of Restricted Shares.

                    (iii)   CERTIFICATES FOR SHARES. Restricted Shares granted
          under the Plan may be evidenced in such manner as the Committee shall
          determine. If certificates representing Restricted Shares are
          registered in the name of the Eligible Employee, such certificates
          shall bear an appropriate legend referring to the terms, conditions,
          and restrictions applicable to such Restricted Shares, and the Company
          shall retain physical possession of the certificate.

                    (iv)    DIVIDENDS. Dividends paid on Restricted Shares shall
          be either paid at the dividend payment date, or deferred for payment
          to such date as determined by the Committee, in cash or in
          unrestricted Shares having a Fair Market Value equal to the amount of
          such dividends. Shares distributed in connection with a Share split or
          dividend in Shares, and other property distributed as a dividend,
          shall be subject to restrictions and a risk of forfeiture to the same
          extent as the Restricted Shares with respect to which such Shares or
          other property has been distributed.

               (e)  RESTRICTED SHARE UNITS. The Committee is authorized
to grant Restricted Share Units to Eligible Employees, subject to the following
terms and conditions:

                    (i)     AWARD AND RESTRICTIONS. Delivery of Shares or cash,
          as the case may be, will occur upon expiration of the deferral period
          specified for Restricted Share Units by the Committee (or, if
          permitted by the Committee, as elected by the Eligible Employee). In
          addition, Restricted Share Units shall be subject to such restrictions
          as the Committee may impose, if any (including, without limitation,
          the achievement of performance criteria if deemed appropriate by the
          Committee), at the date of grant or thereafter, which restrictions may
          lapse at the expiration of the deferral period or at earlier or later
          specified times, separately or in combination, in installments or
          otherwise, as the Committee may determine. If the lapse of
          restrictions is conditioned on the achievement of performance
          criteria, the Committee shall select the criterion or criteria from
          the list of criteria set forth in Section 5(f)(i). The Committee must
          certify in writing prior to the lapse of restrictions conditioned on
          the achievement of performance criteria that such criteria were in
          fact satisfied.

                    (ii)    FORFEITURE. Except as otherwise determined by the
          Committee at date of grant or thereafter, upon termination of
          employment (as determined under criteria established by the Committee)
          during the applicable deferral period or portion thereof to which
          forfeiture conditions apply (as provided in the Award Agreement
          evidencing the Restricted Share Units), or upon failure to satisfy any
          other conditions precedent to the delivery of Shares or cash to which
          such Restricted Share Units relate, all Restricted Share Units that
          are at that time subject to deferral or restriction shall be
          forfeited; PROVIDED, HOWEVER, that the Committee may provide, by rule
          or regulation or in any Award Agreement, or may determine in any
          individual case, that restrictions or forfeiture conditions relating
          to Restricted Share Units will be waived in whole or in part in the
          event of termination resulting from specified causes, and the
          Committee may in other cases waive in whole or in part the forfeiture
          of Restricted Share Units.

               (f)  PERFORMANCE SHARES AND PERFORMANCE UNITS. The Committee is
authorized to grant Performance Shares or Performance Units or both to Eligible
Employees on the following terms and conditions:

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                    (i)     PERFORMANCE PERIOD. The Committee shall determine a
          performance period (the "Performance Period") of one or more years and
          shall determine the performance objectives for grants of Performance
          Shares and Performance Units. Performance objectives may vary from
          Eligible Employee to Eligible Employee and shall be based upon such
          one or more of the following performance criteria as the Committee may
          deem appropriate: growth in book, economic book and/or intrinsic book
          value; appreciation in value of the Shares; total shareholder return;
          earnings per share; comprehensive income; operating income; net
          income; pretax earnings; pretax earnings before interest, depreciation
          and amortization; pro forma net income; return on equity; return on
          designated assets; return on capital; economic value added; earnings;
          revenues; expenses; operating profit margin; operating cash flow; free
          cash flow; cash flow return on investment; operating margin; net
          profit margin; or any of the above criteria as compared to the
          performance of a published or special index deemed applicable by the
          Committee, including, but not limited to, the Standard & Poor's 500
          Stock Index. The performance objectives may be determined by reference
          to the performance of the Company, or of a Subsidiary or Affiliate, or
          of a division or unit of any of the foregoing. Performance Periods may
          overlap and Eligible Employees may participate simultaneously with
          respect to Performance Shares and Performance Units for which
          different Performance Periods are prescribed.

                    (ii)    AWARD VALUE. At the beginning of a Performance
          Period, the Committee shall determine for each Eligible Employee or
          group of Eligible Employees with respect to that Performance Period
          the range of number of Shares, if any, in the case of Performance
          Shares, and the range of dollar values, if any, in the case of
          Performance Units, which may be fixed or may vary in accordance with
          such performance or other criteria specified by the Committee, which
          shall be paid to an Eligible Employee as an Award if the relevant
          measure of Company performance for the Performance Period is met. The
          Committee must certify in writing that the applicable performance
          criteria were satisfied prior to payment under any Performance Shares
          or Performance Units.

                    (iii)   SIGNIFICANT EVENTS. If during the course of a
          Performance Period there shall occur significant events as determined
          by the Committee which the Committee expects to have a substantial
          effect on a performance objective during such period, the Committee
          may revise such objective; PROVIDED, HOWEVER, that, if an Award
          Agreement so provides, the Committee shall not have any discretion to
          increase the amount of compensation payable under the Award to the
          extent such an increase would cause the Award to lose its
          qualification as performance-based compensation for purposes of
          Section 162(m)(4)(C) of the Code and the regulations thereunder.

                    (iv)    FORFEITURE. Except as otherwise determined by the
          Committee, at the date of grant or thereafter, upon termination of
          employment during the applicable Performance Period, Performance
          Shares and Performance Units for which the Performance Period was
          prescribed shall be forfeited; PROVIDED, HOWEVER, that the Committee
          may provide, by rule or regulation or in any Award Agreement, or may
          determine in an individual case, that restrictions or forfeiture
          conditions relating to Performance Shares and Performance Units will
          be waived in whole or in part in the event of terminations resulting
          from specified causes, and the Committee may in other cases waive in
          whole or in part the forfeiture of Performance Shares and Performance
          Units.

                    (v)     PAYMENT. Each Performance Share or Performance Unit
          may be paid in whole Shares, or cash, or a combination of Shares and
          cash either as a lump sum payment or in installments, all as the
          Committee shall determine, at the time of grant of the Performance
          Share or Performance Unit or otherwise, commencing as soon as
          practicable after the end of the relevant Performance Period. The
          Committee must certify in writing prior to the payment of any
          Performance Share or Performance Unit that the performance objectives
          and any other material terms were in fact satisfied.

               (g)  DIVIDEND EQUIVALENTS. The Committee is authorized to grant
Dividend Equivalents to Eligible Employees. The Committee may provide, at the
date of grant or thereafter, that Dividend Equivalents

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shall be paid or distributed when accrued or shall be deemed to have been
reinvested in additional Shares, or other investment vehicles as the Committee
may specify, provided that Dividend Equivalents (other than freestanding
Dividend Equivalents) shall be subject to all conditions and restrictions of the
underlying Awards to which they relate.

               (h)  OTHER SHARE-BASED AWARDS. The Committee is authorized,
subject to limitations under applicable law, to grant to Eligible Employees such
other Awards that may be denominated or payable in, valued in whole or in part
by reference to, or otherwise based on, or related to, Shares, as deemed by the
Committee to be consistent with the purposes of the Plan, including, without
limitation, unrestricted shares awarded purely as a "bonus" and not subject to
any restrictions or conditions, other rights convertible or exchangeable into
Shares, purchase rights for Shares, Awards with value and payment contingent
upon performance of the Company or any other factors designated by the
Committee, and Awards valued by reference to the performance of specified
Subsidiaries or Affiliates. The Committee shall determine the terms and
conditions of such Awards at date of grant or thereafter. Shares delivered
pursuant to an Award in the nature of a purchase right granted under this
Section 5(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Shares,
notes or other property, as the Committee shall determine. Cash awards, as an
element of or supplement to any other Award under the Plan, shall also be
authorized pursuant to this Section 5(h).

          6.   CERTAIN PROVISIONS APPLICABLE TO AWARDS.

               (a)  STAND-ALONE, ADDITIONAL, TANDEM AND SUBSTITUTE AWARDS.
Awards granted under the Plan may, in the discretion of the Committee, be
granted to Eligible Employees either alone or in addition to, in tandem with, or
in exchange or substitution for, any other Award granted under the Plan or any
award granted under any other plan or agreement of the Company, any Subsidiary
or Affiliate, or any business entity to be acquired by the Company or a
Subsidiary or Affiliate, or any other right of an Eligible Employee to receive
payment from the Company or any Subsidiary or Affiliate. Awards may be granted
in addition to or in tandem with such other Awards or awards, and may be granted
either as of the same time as or a different time from the grant of such other
Awards or awards. The per Share exercise price of any Option, grant price of any
SAR, or purchase price of any other Award conferring a right to purchase Shares
which is granted, in connection with the substitution of awards granted under
any other plan or agreement of the Company or any Subsidiary or Affiliate or any
business entity to be acquired by the Company or any Subsidiary or Affiliate,
shall be determined by the Committee, in its discretion. Notwithstanding the
foregoing, the exercise price of any Option, grant price of any SAR or purchase
price of any other Award conferring a right to purchase Shares which is granted
in exchange or substitution for an option, SAR or other award granted by the
Company (other than in connection with a transaction described in Section 4(c)
hereof) shall not be less than the exercise price, grant price or purchase price
of the exchanged or substituted option, SAR or other award, and outstanding
Awards shall not be amended (other than in connection with a transaction
described in Section 4(c) hereof) to reduce the exercise price, grant price or
purchase price of any such Award.

               (b)  TERMS OF AWARDS. The term of each Award granted to an
Eligible Employee shall be for such period as may be determined by the
Committee; PROVIDED, HOWEVER, that in no event shall the term of any ISO or a
SAR granted in tandem therewith exceed a period of ten years from the date of
its grant (or such shorter period as may be applicable under Section 422 of the
Code).

               (c)  FORM OF PAYMENT UNDER AWARDS. Subject to the terms of the
Plan and any applicable Award Agreement, payments to be made by the Company or a
Subsidiary or Affiliate upon the grant, maturation, or exercise of an Award may
be made in such forms as the Committee shall determine at the date of grant or
thereafter, including, without limitation, cash, Shares, or other property, and
may be made in a single payment or transfer, in installments, or on a deferred
basis. The Committee may make rules relating to installment or deferred payments
with respect to Awards, including the rate of interest to be credited with
respect to such payments.

                                       C-9
<Page>

               (d)  NONTRANSFERABILITY. Except as set forth below and except for
vested Shares, Awards shall not be transferable by an Eligible Employee except
by will or the laws of descent and distribution (except pursuant to a
Beneficiary designation) and shall be exercisable during the lifetime of an
Eligible Employee only by such Eligible Employee or his guardian or legal
representative. Notwithstanding the foregoing, if the Committee expressly so
provides in the applicable Award agreement (at the time of grant or at any time
thereafter), an Award (other than an ISO) granted hereunder may be transferred
by a Participant to members of his or her "immediate family" or to a trust
established for the exclusive benefit of solely one or more members of the
Participant's "immediate family." Any Award held by the transferee will continue
to be subject to the same terms and conditions that were applicable to the Award
immediately prior to the transfer, except that the Award will be transferable by
the transferee only by will or the laws of descent and distribution. For
purposes hereof, "immediate family." means the Participant's children,
stepchildren, grandchildren, parents, stepparents, grandparents, spouse,
siblings (including half brothers and sisters), in-laws, and relationships
arising because of legal adoption. An Eligible Employee's rights under the Plan
may not be pledged, mortgaged, hypothecated, or otherwise encumbered, and shall
not be subject to claims of the Eligible Employee's creditors.

               (e)  NONCOMPETITION. The Committee may, by way of the Award
Agreements or otherwise, establish such other terms, conditions, restrictions
and/or limitations, if any, of any Award, provided they are not inconsistent
with the Plan, including, without limitation, the requirement that the
Participant not engage in competition with the Company.

          7.   DIRECTOR'S OPTIONS.

               (a)  ANNUAL GRANT. On January 1 of each year, each Director in
office on such date shall automatically be granted a NQSO to purchase 1500
Shares with an exercise price per Share equal to 100% of the Market Value of one
Share on the date of grant; provided, however, that such price shall be at least
equal to the par value of a Share. Each Option granted to a Director under this
paragraph (a) shall become fully exercisable on the first anniversary of the
date the Option is granted, and shall expire (unless terminated earlier under
paragraph (d) below) on the tenth anniversary of the date of grant.

               (b)  INITIAL GRANTS. Each Director will automatically be granted
a NQSO on the date he or she is first elected to the Board to purchase 300
Shares with an exercise price per Share equal to 100% of the Market Value of one
Share on the date of grant; PROVIDED, HOWEVER, that such price shall be at least
equal to the par value of a Share. Each Option granted to a Director under this
paragraph (b) shall become exercisable in three equal installments, commencing
on the date of grant and annually thereafter. Each Option granted under this
paragraph (b) shall expire (unless terminated earlier under paragraph (d) below)
on the tenth anniversary of the date of grant.

               (c)  MARKET VALUE. For purposes of this Section 7, Market Value
shall mean the mean between the high and low selling prices per Share on the
immediately preceding date (or, if the Shares were not traded on that day, the
next preceding day that the Shares were traded) on the principal exchange on
which the Shares are traded, as such prices are officially quoted on such
exchange.

               (d)  TERMINATION OF SERVICE. If a person ceases to be a Director,
(i) due to retirement after attainment of age 65, or (ii) due to death or
disability, all of his or her outstanding Options, to the extent not already
exercisable in full, shall become immediately and fully exercisable at the time
of termination of service, and all of such Director's Options may be exercised
at any time prior to the expiration dates of such Options. If the Director's
service terminates for any other reason, all Options which are not then
exercisable shall be cancelled on the date service terminates, and Options which
are then exercisable may be exercised at any time within six months after the
date of such termination, but not later than the expiration date of the Options.

                                      C-10
<Page>

               (e)  TIME AND METHOD OF EXERCISE. The exercise price of a
Director's Option shall be paid to the Company (including, without limitation,
through broker-assisted exercise arrangements) at the time of exercise either in
cash, or in Shares already owned by the optionee and having a total Market Value
equal to the exercise price, or in a combination of cash and such Shares.

               (f)  NONTRANSFERABILITY. No Director's Option granted under the
Plan shall be transferable other than by will or by the laws of descent and
distribution. During the lifetime of the optionee, a Director's Option shall be
exercisable only by him or her or by his or her guardian or legal
representative. Notwithstanding the foregoing, if the Committee expressly so
provides in the applicable Award agreement (at the time of grant or at any time
thereafter), a Director's Option granted hereunder may be transferred by an
optionee to members of his or her "immediate family" or to a trust established
for the exclusive benefit of solely one or more members of his or her "immediate
family." Any Director's Option held by the transferee will continue to be
subject to the same terms and conditions that were applicable to the Director's
Option immediately prior to the transfer, except that the Director's Option will
be transferable by the transferee only by will or the laws of descent and
distribution. For purposes hereof, "immediate family" means the Director's
children, stepchildren, grandchildren, parents, stepparents, grandparents,
spouse, siblings (including half brothers and sisters), in-laws, and
relationships arising because of legal adoption.

               (g)  ADJUSTMENTS. In the event that subsequent to the Effective
Date any dividend in Shares, recapitalization, Share split, reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other such change, affects the Shares such that they are
increased or decreased or changed into or exchanged for a different number or
kind of shares, other securities of the Company or of another corporation or
other consideration, then in order to maintain the proportionate interest of the
Director and preserve the value of the Director's Option, (i) there shall
automatically be substituted for each Share subject to an unexercised Director's
Option and each Share to be issued under Section 7(a) or 7(b) subsequent to such
event the number and kind of shares, other securities or other consideration
into which each outstanding Share shall be changed or for which each such Share
shall be exchanged, and (ii) the exercise price shall be increased or decreased
proportionately so that the aggregate purchase price for the Shares subject to
any unexercised Director's Option shall remain the same as immediately prior to
such event.

               (h)  EXCLUSIVE SOURCE OF FORMULA GRANTS. Unless otherwise
determined by the Board, automatic grants of stock options shall be made to
Directors only pursuant to this Plan, and the automatic stock option grant
provisions of any plan of the Company adopted prior to the Effective Date shall
be terminated upon approval of this Plan by the shareholders of the Company.

          8.   DIRECTOR'S SHARES. Each Director may make an election in writing
on or prior to each August 1 to receive the Director's annual retainer fees
payable thereafter in the form of Shares instead of cash. Any Shares elected
shall be payable at the time cash retainer fees are otherwise payable, and the
number of Shares distributed shall be equal to 120 percent of the amount of the
annual retainer fee otherwise payable on such payment date divided by the Fair
Market Value of a Share on such date. Notwithstanding the foregoing, a Director
who is first elected or appointed to the Board may make an election under this
Section 8 within 30 days of such election or appointment in respect of annual
retainer fees payable after the date of the election. Any election made under
this Section 8 shall remain in effect unless and until a new election is made in
accordance with the provisions of this Section 8.

          9.   GENERAL PROVISIONS.

               (a)  COMPLIANCE WITH LEGAL AND TRADING REQUIREMENTS. The Plan,
the granting and exercising of Awards thereunder, and the other obligations of
the Company under the Plan and any Award Agreement, shall be subject to all
applicable federal, state and foreign laws, rules and regulations, and to such
approvals by any regulatory or governmental agency as may be required. The
Company, in its discretion, may postpone the issuance or delivery of Shares
under any Award until completion of such stock exchange or market

                                      C-11
<Page>

system listing or registration or qualification of such Shares or other required
action under any state or federal law, rule or regulation as the Company may
consider appropriate, and may require any Participant to make such
representations and furnish such information as it may consider appropriate in
connection with the issuance or delivery of Shares in compliance with applicable
laws, rules and regulations. No provisions of the Plan shall be interpreted or
construed to obligate the Company to register any Shares under federal, state or
foreign law.

               (b)  NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Neither the
Plan nor any action taken thereunder shall be construed as giving any employee
or director the right to be retained in the employ or service of the Company or
any of its Subsidiaries or Affiliates, nor shall it interfere in any way with
the right of the Company or any of its Subsidiaries or Affiliates to terminate
any employee's or director's employment or service at any time.

               (c)  TAXES. The Company or any Subsidiary or Affiliate is
authorized to withhold from any Award granted, any payment relating to an Award
under the Plan, including from a distribution of Shares, or any payroll or other
payment to an Eligible Employee, amounts of withholding and other taxes due in
connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and Eligible
Employees to satisfy obligations for the payment of withholding taxes and other
tax obligations relating to any Award. This authority shall include authority to
withhold or receive Shares or other property and to make cash payments in
respect thereof in satisfaction of an Eligible Employee's tax obligations;
PROVIDED, HOWEVER, that the amount of tax withholding to be satisfied by
withholding Shares shall be limited to the minimum amount of taxes, including
employment taxes, required to be withheld under applicable Federal, state and
local law.

               (d)  CHANGES TO THE PLAN AND AWARDS. The Board may amend, alter,
suspend, discontinue, or terminate the Plan or the Committee's authority to
grant Awards under the Plan without the consent of shareholders of the Company
or Participants, except that any such amendment, alteration, suspension,
discontinuation, or termination shall be subject to the approval of the
Company's shareholders to the extent such shareholder approval is required under
Section 422 of the Code; PROVIDED, HOWEVER, that, without the consent of an
affected Participant, no amendment, alteration, suspension, discontinuation, or
termination of the Plan may impair the rights or, in any other manner, adversely
affect the rights of such Participant under any Award theretofore granted to him
or her. The Committee may waive any conditions or rights under, amend any terms
of, or amend, alter, suspend, discontinue or terminate, any Award theretofore
granted, prospectively or retrospectively; PROVIDED, HOWEVER, that, without the
consent of a Participant, no amendment, alteration, suspension, discontinuation
or termination of any Award may materially and adversely affect the rights of
such Participant under any Award theretofore granted to him or her.

               (e)  NO RIGHTS TO AWARDS; NO SHAREHOLDER RIGHTS. No Eligible
Employee or employee shall have any claim to be granted any Award under the
Plan, and there is no obligation for uniformity of treatment of Eligible
Employees and employees. No Award shall confer on any Eligible Employee any of
the rights of a shareholder of the Company unless and until Shares are duly
issued or transferred to the Eligible Employee in accordance with the terms of
the Award.

               (f)  UNFUNDED STATUS OF AWARDS. The Plan is intended to
constitute an "unfunded" plan for incentive compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company; PROVIDED, HOWEVER, that
the Committee may authorize the creation of trusts or make other arrangements to
meet the Company's obligations under the Plan to deliver cash, Shares, other
Awards, or other property pursuant to any Award, which trusts or other
arrangements shall be consistent with the "unfunded" status of the Plan unless
the Committee otherwise determines with the consent of each affected
Participant.

                                      C-12
<Page>

               (g)  NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan
by the Board nor its submission to the shareholders of the Company for approval
shall be construed as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of options and other awards otherwise than
under the Plan, and such arrangements may be either applicable generally or only
in specific cases.

               (h)  NOT COMPENSATION FOR BENEFIT PLANS. No Award payable under
this Plan shall be deemed salary or compensation for the purpose of computing
benefits under any benefit plan or other arrangement of the Company for the
benefit of its employees or directors unless the Company shall determine
otherwise.

               (i)  NO FRACTIONAL SHARES. No fractional Shares shall be issued
or delivered pursuant to the Plan or any Award. In the case of Awards to
Eligible Employees, the Committee shall determine whether cash, other Awards, or
other property shall be issued or paid in lieu of such fractional Shares or
whether such fractional Shares or any rights thereto shall be forfeited or
otherwise eliminated. In the case of Director's Options, cash shall be paid in
lieu of such fractional shares.

               (j)  GOVERNING LAW. The validity, construction, and effect of the
Plan, any rules and regulations relating to the Plan, and any Award Agreement
shall be determined in accordance with the laws of New York without giving
effect to principles of conflict of laws.

               (k)  EFFECTIVE DATE; PLAN TERMINATION. The Plan, as amended and
restated, shall become effective as of January 1, 2002 (the "Effective Date"),
subject to approval by the shareholders of the Company. The Plan shall terminate
as to future awards on the date which is 10 years after the Effective Date.

               (l)  TITLES AND HEADINGS. The titles and headings of the sections
in the Plan are for convenience of reference only. In the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.

                                      C-13<Page>

                                                                    Exhibit 10.2

                                LETTER OF CREDIT

                                       AND

                             REIMBURSEMENT AGREEMENT

                                      among

                        ARCH REINSURANCE LTD., as Obligor

                      ARCH REINSURANCE COMPANY, as Obligor

                       ALTERNATIVE RE LIMITED, as Obligor

                  FIRST AMERICAN INSURANCE COMPANY, as Obligor

                                       and

                         FLEET NATIONAL BANK, as Lender

                           Dated as of April 17, 2002

<Page>

<Table>
<S>                                                                                                             <C>
ARTICLE I      DEFINITIONS AND INTERPRETATION....................................................................1

         Section 1.1       Definitions...........................................................................1

         Section 1.2       Interpretation........................................................................6

ARTICLE II     TERMS OF THE LETTER OF CREDIT FACILITY............................................................6

         Section 2.1       The Letters of Credit.................................................................6

         Section 2.2       Reimbursement; Lender's Responsibility................................................7

         Section 2.3       Obligations of Lender.................................................................7

         Section 2.4       Unconditional Obligations of the Obligors.............................................7

         Section 2.5       Regulatory Requirements; Additional Costs.............................................9

         Section 2.6       Fees..................................................................................9

         Section 2.7       Payments and Computations............................................................10

         Section 2.8       Collateral Security..................................................................10

ARTICLE III    CONDITIONS OF ISSUANCE OF LETTERS OF CREDIT......................................................10

         Section 3.1       Conditions Precedent to Closing and Issuance of Initial Letters of Credit............10

         Section 3.2       Additional Conditions Precedent to the Issuance of Letters of Credit.................11

ARTICLE IV     REPRESENTATIONS AND WARRANTIES...................................................................12

         Section 4.1       Corporate Existence and Power........................................................12

         Section 4.2       Authority............................................................................12

         Section 4.3       Binding Effect of Agreement and Other Fundamental Documents..........................13

         Section 4.4       Financial Information................................................................13

         Section 4.5       Material Adverse Change; No Default..................................................13

         Section 4.6       Litigation...........................................................................13

         Section 4.7       Compliance with laws and Agreements..................................................14

ARTICLE V      COVENANTS........................................................................................14

         Section 5.1       Affirmative Covenants................................................................14

         Section 5.2       Negative Covenants...................................................................16

ARTICLE VI     EVENTS OF DEFAULT AND REMEDIES...................................................................17

         Section 6.1       Events of Default Defined............................................................17

         Section 6.2       Remedies.............................................................................18
</Table>

                                       -i-
<Page>

<Table>
<S>                                                                                                             <C>
ARTICLE VII    Reserved.........................................................................................19

ARTICLE VIII   MISCELLANEOUS....................................................................................19

         Section 8.1       Amendments, Etc......................................................................19

         Section 8.2       Addresses for Notices................................................................19

         Section 8.3       No Waiver; Remedies..................................................................20

         Section 8.4       Successors and Assigns...............................................................20

         Section 8.5       Payment of Expenses and Taxes........................................................20

         Section 8.6       Right of Set-Off.....................................................................21

         Section 8.7       Governing Law........................................................................21

         Section 8.8       Consent to Jurisdiction..............................................................21

         Section 8.9       Waiver of Jury Trial.................................................................22

         Section 8.10      Table of Contents and Captions.......................................................22

         Section 8.11      Counterparts.........................................................................22
</Table>

Exhibit A      --          Form of Letters of Credit
Exhibit B      --          Form of Security Agreement
Exhibit C      --          Form of Standby Letter of Credit Application

                                      -ii-
<Page>

                  LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT

     Letter of Credit and Reimbursement Agreement dated as of April 17, 2002 (as
amended and supplemented from time to time, this "Agreement") among Arch
Reinsurance Ltd. ("Reinsurance"), Arch Reinsurance Company ("Arch Company"),
Alternative Re Limited ("Alternative") and First American Insurance Company
("First American," each of Reinsurance, Arch Company, Alternative and First
American, individually, an "Obligor" and collectively, the "Obligors") and Fleet
National Bank ("Fleet" or the "Lender").

     Intending to be legally bound hereby, the parties agree as follows:

                                    ARTICLE I

                         DEFINITIONS AND INTERPRETATION

     Section 1.1 DEFINITIONS.

     Unless the context clearly otherwise requires, the following terms shall
have the following respective meanings:

     ADJUSTED COLLATERAL VALUE means, with respect to any Obligor and at any
date of determination, an amount equal to the sum of (A) (i) to the extent that
such Investments are comprised solely of U.S. Government Securities, 90% of the
market value of Investments in the Custodial Account established in the name of
such Obligor, or (ii) to the extent that such Investments are not comprised
solely of U.S. Government Securities, 86.96% of the market value of Investments
in the Custodial Account established in the name of such Obligor and (B) 100% of
the amount of cash deposits in the Custodial Account established in the name of
such Obligor. The Investments shall be "marked to market" by the Custodian on a
daily basis but the Custodian shall provide only monthly reporting.

     ALTERNATIVE means Alternative Re Limited, a Bermuda corporation.

     APPLICABLE INSURANCE REGULATORY AUTHORITY means the insurance department or
similar administrative authority or agency that has the principal regulatory
jurisdiction over an Obligor.

     ARCH COMPANY means Arch Reinsurance Company, a Nebraska corporation.

     BENEFICIARY means any Person designated a beneficiary of a Letter of Credit
issued pursuant to this Agreement.

     BUSINESS DAY means any day other than a Saturday, Sunday or any other day
on which commercial banks in Hartford, Connecticut are authorized or required to
close.

     CAPITAL LEASE means any lease which has been or should be capitalized on
the books of the lessee in accordance with GAAP.

<Page>

     CAPITAL LEASE OBLIGATIONS means, for any Person, all obligations of such
Person to pay rent or other amounts under a Capital Lease. For purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.

     CLOSING means the delivery of the executed Fundamental Documents by the
parties thereto on the Closing Date.

     CLOSING DATE means April 17, 2002.

     COLLATERAL has the definition set forth in Section 2.8.

     CONSTITUENT DOCUMENTS means, with respect to any Corporation, such
Corporation's certificate of incorporation, memorandum of association or other
similar document concerning the formation, organization and existence of such
Corporation required under the laws of the jurisdiction of organization of such
Corporation, and such Corporation's by-laws or other similar document required
under the laws of such jurisdiction of organization.

     CORPORATION includes companies, associations, corporations, partnerships,
limited liability companies and other legal entities of all kinds.

     CUSTODIAL ACCOUNT shall have, with respect to any Obligor, the meaning set
forth in the Security Agreement executed and delivered by such Obligor.

     CUSTODIAN shall have the meaning set forth in the Custodian Agreement.

     CUSTODIAN AGREEMENT means, any of the Custody Agreements dated on or about
the date hereof between Fleet National Bank, as Custodian, and each of
Alternative, Reinsurance, Arch Company and First American, a copy of which has
been or will be delivered to the Lender, as the same may be amended,
supplemented, restated or otherwise modified from time to time.

     DEFAULT means any event or condition specified in Section 6.1, which, upon
the giving of notice, the lapse of time, or the happening of any further
condition, would become an Event of Default.

     ELIGIBLE ASSIGNEE means any commercial bank having total assets in excess
of $3,000,000,000 as determined by the Lender based on the most recent publicly
available financial statements of such bank.

     EVENT OF DEFAULT has the definition set forth in Section 6.1.

     EXPIRY DATE means the date set forth in a Letter of Credit as the
expiration date of such Letter of Credit, which is up to one year from the date
of issuance of such Letter of Credit; provided with respect to a Five-Year
Letter of Credit, such date may be up to five years from the date of issuance of
such Five-Year Letter of Credit.

     FACILITY means the Letters of Credit that the Lender is willing to issue
under this Agreement as determined in its sole and absolute discretion in an
amount (including all Letter of

                                       -2-
<Page>

Credit Obligations and Reimbursement Obligations for each Obligor) not to exceed
$200,000,000 in the aggregate.

     FACILITY TERMINATION DATE means April 16, 2003.

     FEES means, collectively, the fees set forth or referred to in Section 2.6.

     FIRST AMERICAN means First American Insurance Company, a Missouri
corporation.

     FIVE-YEAR LETTER OF CREDIT means any Letter of Credit issued for the
benefit of Lloyds of London or its affiliates under this Agreement having an
expiry date five years from the date of issue.

     FLEET means Fleet National Bank.

     FUNDAMENTAL DOCUMENTS means and includes each of the following for the time
being in force:

          (a)    this Agreement;

          (b)    the Letters of Credit;

          (c)    the Security Agreement;

          (d)    the Custodian Agreement; and

          (e)    any other Security Documents.

     GAAP shall mean U.S. generally accepted accounting principles in effect
from time to time.

     GUARANTEE means a guarantee, an endorsement, a contingent agreement to
purchase or to furnish funds for the payment or maintenance of, or otherwise to
be or become contingently liable under or with respect to, the Indebtedness,
other obligations, net worth, working capital or earnings of any Person, or a
guarantee of the payment of dividends or other distributions upon the stock or
equity interests of any Person, or an agreement to purchase, sell or lease (as
lessee or lessor) Property, products, materials, supplies or services primarily
for the purpose of enabling a debtor to make payment of such debtor's
obligations or an agreement to assure a creditor against loss, and including,
without limitation, causing a bank or other financial institution to issue a
letter of credit or other similar instrument for the benefit of another Person,
but excluding endorsements for collection or deposit in the ordinary course of
business. The terms "Guarantee" and "Guaranteed" used as a verb shall have a
correlative meaning.

     INDEBTEDNESS means, for any Person: (a) obligations created, issued or
incurred by such Person for borrowed money (whether by loan, the issuance and
sale of debt securities or the sale of Property to another Person subject to an
understanding or agreement, contingent or otherwise, to repurchase such Property
from such Person); (b) obligations of such Person to pay the

                                       -3-
<Page>

deferred purchase or acquisition price of Property or services, other than trade
accounts payable (other than for borrowed money) arising, and accrued expenses
incurred, in the ordinary course of business; (c) indebtedness of others secured
by a Lien on the Property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) obligations of such
Person in respect of letters of credit or similar instruments issued or accepted
by banks and other financial institutions for account of such Person; (e)
Capital Lease Obligations of such Person; (f) Guarantees by such Person of
Indebtedness of others; (g) Rate Hedging Obligations of such Person; and (h) any
other obligation for borrowed money or other financial accommodation which in
accordance with GAAP or SAP, as applicable, would be shown as a liability on the
consolidated balance sheet of such Person.

     INTEREST RATE means the rate of interest per annum equal to two percentage
points (2%) above the Prime Rate from time to time in effect, not to exceed the
maximum rate of interest permitted by applicable law.

     INVESTMENT means (i) U.S. Government Securities and (ii) debt securities of
corporate issuers which (x) in the aggregate have an average weighted minimum
rating of not less than AA- by S&P and Aa3 by Moody's and (y) individually have
a minimum rating of not less than BBB by S&P and Baa2 by Moody's.

     ISP means the International Standby Practices (ISP 1998), International
Chamber of Commerce Publication No. 590.

     LENDER means Fleet and each of its respective successors in title and
permitted assigns.

     LETTER(S) OF CREDIT means the irrevocable standby letters of credit issued
under this Agreement.

     LETTER OF CREDIT OBLIGATIONS means, with respect to any Obligor, as at any
date of determination thereof, on an aggregate basis for all Letters of Credit
issued at the request of such Obligor, the maximum amount that could be drawn by
the Beneficiaries of such Letters of Credit (assuming, notwithstanding any
provision of a Letter of Credit to the contrary, that such Beneficiary was then
entitled to draw the full amount remaining available thereunder) but which has
not been drawn as of that date.

     LIEN means, with respect to any Property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
Property. For purposes of this Agreement, a Person shall be deemed to own
subject to a Lien any Property that it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement (other than an operating lease)
relating to such Property.

     MOODY'S means Moody's Investor Service, Inc. or any successor thereto.

     NET WORTH means the excess of total assets over total liabilities of any
Person which shall be determined on a consolidated basis in accordance with
GAAP.

                                       -4-
<Page>

     OBLIGOR means, individually, each of Alternative, Reinsurance, Arch Company
and First American.

     PARENT means Arch Capital Group Ltd., a Bermuda corporation.

     PERSON means and includes an individual, a partnership, trust, estate,
corporation, company, unincorporated organization, limited liability company and
a government or any agency, instrumentality or political subdivision thereof.

     PRIME RATE means the variable per annum rate of interest so designated from
time to time by the Lender as its prime rate. The Prime Rate is a reference rate
and does not necessarily represent the lowest or best rate being charged to any
customer. Changes in the rate of interest resulting from changes in the Prime
Rate shall take place immediately without notice or demand of any kind.

     PROPERTY means any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible.

     RATE HEDGING OBLIGATIONS means, for any Person, any and all net obligations
of such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (a) any agreements,
devices or arrangements designed to protect at least one of the parties thereto
from the fluctuations of interest rates, exchange rates or forward rates
applicable to such party's assets, liabilities or exchange transactions,
including but not limited to, dollar-denominated or cross-currency interest rate
exchange agreements, forward currency exchange agreements, interest rate cap or
collar protection agreements, forward rate currency or interest rate options,
puts and warrants, or any similar derivative transactions, and (b) any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.

     REIMBURSEMENT OBLIGATIONS means, with respect to any Obligor, all
obligations of such Obligor pursuant to Section 2.2 to reimburse the Lender for
payments made by the Lender upon any drawings under any Letter of Credit issued
at the request of such Obligor and to pay to the Lender all other amounts that
are payable by such Obligor to the Lender pursuant to this Agreement and the
other Fundamental Documents.

     REINSURANCE means Arch Reinsurance Ltd., a Bermuda corporation.

     RESPONSIBLE OFFICER means, with respect to the Lender, the Person or
Persons to whom for the time being communications are required to be addressed
pursuant to the provisions of any relevant document, and with respect to any
Corporation other than a Lender, any director, chairman of the Board of
Directors, the managing director, any deputy managing director, the president,
any vice president, the secretary, any assistant secretary, the treasurer, any
assistant treasurer or any attorney-in-fact authorized to perform functions
similar to those performed by any of the above-mentioned officers.

                                       -5-
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     SAP means the accounting procedures and practices prescribed or permitted
by the Applicable Insurance Regulatory Authority, applied on a basis consistent
with those that are to be used in making the calculations for purposes of
determining compliance with this Agreement.

     SAP FINANCIAL STATEMENTS means the financial statements of an Obligor which
have been submitted or are required to be submitted to the Applicable Insurance
Regulatory Authority.

     S&P shall mean Standard & Poor's Rating Services, a division of The McGraw
Hill Companies, Inc. or any successor thereto.

     SECURITY AGREEMENT means, collectively, each of the Security Agreements,
substantially in the form of Exhibit B hereto, between the Lender and each
Obligor, as the same may be amended, supplemented, restated or otherwise
modified from time to time securing its obligations under this Agreement and the
Letters of Credit.

     SECURITY DOCUMENTS means, collectively, the Security Agreement and each
other instrument or agreement that secures or guarantees the Reimbursement
Obligations.

     TAX means any present or future tax, rate, duty, impost, governmental
charge or levy, including, without limitation thereto, any corporation, income
(other than any taxes imposed on or measured by the gross income or profits of
the Lender), value added, capital gains, sales, transfer, use, excise,
occupation, franchise, property, stamp or other tax or duty and any license,
registration and recording fee and all penalties, fines, interest imposed,
assessed or otherwise payable in respect of any of the foregoing and all
deductions or withholdings required to be made in respect of any of the
foregoing levied, assessed, charged or required by any government or taxing
authority in any country.

     U.S. GOVERNMENT SECURITIES means securities that are direct obligations of,
and obligations the timely payment of principal and interest on which is fully
guaranteed by, the United States, or any agency or instrumentality of the United
States the obligations of which are backed by the full faith and credit of the
United States and in the form of conventional bills, bonds, and notes. In no
event shall U.S. Government Securities include any security providing for the
payment of interest only.

     Section 1.2. INTERPRETATION.

     (a)  The terms "hereof," "hereunder" and "herein" refer to this Agreement
as a whole.

     (b)  References by number to Sections, Schedules and Exhibits refer to the
Sections, Schedules and Exhibits of this Agreement unless otherwise stated.

     (c)  The singular form of any word also refers to the plural form of such
word, and VICE VERSA, and any word of any particular gender includes the
correlative words of the other genders.

                                       -6-
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     (d)  Any references in this Agreement to one or more items preceded by the
word "including" shall not be deemed limited to the stated items but shall be
deemed without limitation.

                                   ARTICLE II

                     TERMS OF THE LETTER OF CREDIT FACILITY

     Section 2.1  THE LETTERS OF CREDIT.

     (a)  On the terms and subject to the further conditions hereinafter set
forth and upon satisfaction of the conditions set forth in Article III, the
Lender hereby agrees to issue on and after the Closing Date Letters of Credit,
each dated the date of its issuance, substantially in the form of Exhibit A
hereto and in the aggregate issued at any one time in a face amount not to
exceed $200,000,000 (provided that the face amount of any Five-Year Letters of
Credit issued at any one time in the aggregate shall not exceed $40,000,000) and
so long as (after giving effect to the issuance of the requested Letter of
Credit) the Adjusted Collateral Value for any Obligor is not less than the sum
of all amounts then outstanding with respect to the Letter of Credit Obligations
and Reimbursement Obligations for such Obligor, as more specifically set forth
below in Section 2.1(b). Each such Letter of Credit shall be irrevocable and,
unless its terms provide otherwise, shall expire on the Expiry Date. Each such
Letter of Credit shall contain language substantially as follows: "This Letter
of Credit shall be deemed automatically extended without amendment for one year
from the expiration date or any future expiration date, unless thirty (30) days
prior to any expiration date, we notify you by registered mail that this Letter
of Credit will not be renewed for any such additional period." So long as any
Letter of Credit (including any Five-Year Letter of Credit) is outstanding and
has not expired, this Agreement shall continue to be in full force and effect.

     (b)  An Obligor may, from time to time, request that the Lender issue
Letters of Credit during the period from the date hereof to but not including
the Facility Termination Date in an aggregate face amount (together with the
Letter of Credit Obligations and Reimbursement Obligations for such Obligor) at
any time issued up to but not exceeding the Facility; provided however, (i) the
aggregate amount of Letter of Credit Obligations and Reimbursement Obligations
for such Obligor at any time issued shall not exceed the Adjusted Collateral
Value for such Obligor and (ii) the aggregate face amount of all Letters of
Credit issued under this Agreement at any time issued shall not exceed
$200,000,000. The Obligor shall make such request by executing and delivering
the Lender's then standard form standby letter of credit application and related
documentation. The current standard form standby letter of credit application is
attached as Exhibit C hereto. If there shall exist any inconsistency between the
terms of this Agreement (and the Security Documents) and any such documentation
relating to a Letter of Credit issued under this Section 2.1(b), the terms of
this Agreement (and the Security Documents) shall control.

                                       -7-
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     Section 2.2  REIMBURSEMENT; LENDER'S RESPONSIBILITY.

     (a)  The Lender shall notify the applicable Obligor of a drawing under
any Letter of Credit issued at the request of such Obligor on or prior to the
date of payment of such drawing. Reimbursement by such Obligor of the amount of
each such drawing is due and payable in full (i) on the same day that the Lender
honors such drawing, if the foregoing notice is received before 1:00 p.m.
(Connecticut time) on the date of such drawing or (ii) on the Business Day
immediately following the date of such drawing, if the foregoing notice is
received after 1:00 p.m. (Connecticut time) on the date of such drawing, and
each Obligor absolutely and unconditionally agrees to pay or cause to be paid to
the Lender on such date, without demand, the amount of any drawing under a
Letter of Credit issued at the request of such Obligor.

     (b)  Each Obligor, absolutely and unconditionally, agrees to pay, or
cause to be paid, to the Lender, on demand, interest at the Interest Rate on any
amount (including on overdue interest to the extent permitted by law) due by
such Obligor hereunder that is not paid when due, for each day such amount is
unpaid.

     (c)  Except as set forth in Section 2.6 and Section 8.5(a), each Obligor
shall be liable to the Lender only for those amounts that are incurred by it
hereunder or under the Security Agreement executed by such Obligor and shall
have no liability for the obligations of any other Obligor, it being
acknowledged and agreed by the Lender that the execution and delivery of this
Agreement by more than one Obligor is for purposes of convenience only and that
each Obligor is deemed to have entered into a completely separate reimbursement
and security arrangement with the Lender and with no other parties.

     Section 2.3  OBLIGATIONS OF LENDER.

     Whenever the Lender receives a demand for payment under a Letter of Credit,
it will promptly examine the demand to determine whether or not it is in
conformity with such Letter of Credit under which it is presented.

     Section 2.4  UNCONDITIONAL OBLIGATIONS OF THE OBLIGORS.

     Each Obligor agrees with the Lender that the following provisions shall
apply with respect to each Letter of Credit issued for its account:

     (a)  Except as otherwise expressly stated in any Letter of Credit, but
          without limiting any provision of this Agreement or any Letter of
          Credit, there may be accepted or honored as complying with such Letter
          of Credit any documents of any character that comply with the
          provisions and interpretations contained in the ISP.

     (b)  Neither the Lender nor any of its correspondents or agents shall be
          responsible for: (i) the truth or accuracy of any statement contained
          in any document received under the Letters of Credit; (ii) the
          validity, sufficiency or genuineness of any such document believed by
          the Lender in good faith and in the exercise of ordinary care to be
          valid, even if wholly fraudulent or forged; (iii) any breach of
          contract between an Obligor or any other Person and the beneficiary of
          any Letter

                                       -8-
<Page>

          of Credit; (iv) interruptions or delays in the transmission or
          delivery of messages, by mail, courier service or electronic means,
          whether in cipher or not; (v) any errors or omissions in the
          translation of any document; (vi) failure or delay in giving any
          notice or in complying with any other formality; (vii) delay in
          arrival or failure to arrive of any property or required instrument or
          document; (viii) failure of any document to bear adequate reference to
          a Letter of Credit, or failure of any Person to note the amount of any
          payment on the reverse side of a Letter of Credit or to surrender or
          to take up a Letter of Credit or to send forward documents as required
          by the terms of a Letter of Credit, each of which provisions, if
          contained in a Letter of Credit itself, it is agreed may be waived by
          the Lender; (ix) the fact that any instructions, oral or written,
          given to the Lender purporting to have been given by or on behalf of
          any Obligor and believed by the Lender in good faith and in the
          exercise of ordinary care to be valid which pertain to the issuance of
          any Letter of Credit, any extension, increase or other modification of
          any Letter of Credit or other action to be taken or omitted with
          reference thereto, were wholly or partly insufficient, erroneous,
          unauthorized or fraudulent; or (x) any other act or omission as to
          which banks are relieved from responsibility under the terms of the
          ISP, PROVIDED that none of the contingencies referred to in
          subparagraphs (i) through (x) of this paragraph (b) is attributable to
          the gross negligence or willful misconduct of the Lender or any of its
          correspondents or agents; but the happening of any one or more of such
          contingencies shall not affect, impair or prevent the vesting of any
          of the rights or powers of the Lender hereunder.

     (c)  Each Obligor will, without expense to the Lender, procure or cause to
          be procured promptly all necessary licenses which are required with
          respect to the transaction(s) which is/are the subject of any Letter
          of Credit issued for such Obligor or to which any such Letter of
          Credit relates, will comply with or cause to be complied with all
          applicable governmental regulations in regard thereto, and will
          furnish or cause to be furnished to the Lender such documents and
          certificates in respect thereof as the Lender may reasonably require.

     (d)  Each Obligor hereby agrees to indemnify and hold harmless the Lender
          from and against all liability, loss or expense (including reasonable
          legal fees, court costs and other expenses which the Lender may incur
          in enforcing its rights hereunder) incurred as a consequence of
          (i) any failure on the part of such Obligor duly to perform its
          agreements contained in this Section 2.4, (ii) any action taken or
          omitted by the Lender or any of its correspondents in relation to any
          Letter of Credit issued at the request of or on behalf of such
          Obligor, or (iii) any claims asserted by any party to any transaction
          in connection with which such Letters of Credit are issued, except
          such liability, loss or expense, if any, as is incurred as a result of
          the gross negligence or willful misconduct on the part of the Lender
          or of any of its correspondents.

                                       -9-
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     Section 2.5  REGULATORY REQUIREMENTS; ADDITIONAL COSTS.

     Each Obligor shall pay to the Lender from time to time upon demand such
amounts as the Lender determines in its sole discretion is necessary to
compensate the Lender for any costs attributable to the Lender's issuing or
having outstanding or making payment under any Letter of Credit issued at the
request of such Obligor resulting from the application of any domestic or
foreign law or regulation or the interpretation or administration thereof
applicable to the Lender regarding any reserve, assessment, capitalization
(including the cost of maintaining capital sufficient to permit issuance of the
Letters of Credit, provided the cost attributed to the Letters of Credit is
determined in good faith by any reasonable method) or similar requirement
whether existing at the time of issuance of any such Letter of Credit or adopted
thereafter, including, without limitation, any reduction in amounts receivable
hereunder as a result of any change in applicable law, treaty, regulation,
policy or directive, or the imposition of any Tax or increase in any existing
Tax, applicable to the transactions contemplated hereunder or the commitments of
the Lender hereunder.

     Section 2.6  FEES.

     (a)  Each Obligor agrees to pay the following fees with respect to Letters
of Credit issued at the request of such Obligor:

          (i)    a Letter of Credit issuance fee to be paid to the Lender upon
the issuance of each Letter of Credit equal to .50% of the maximum face amount
of such Letter of Credit, except that with respect to Alternative and First
American such Letter of Credit issuance fee shall equal .30% of the maximum face
amount of the Letter of Credit if the Collateral consists solely of U.S.
Government Securities;

          (ii)   a Five-Year Letter of Credit issuance fee to be paid to the
Lender upon the issuance of each Five-Year Letter of Credit equal to .65% of the
maximum face amount of such Five-Year Letter of Credit;

          (iii)  if the entire amount of any Reimbursement Obligation or any
Letter of Credit issuance fee is not paid in full within ten (10) days after the
same is due, a late fee equal to five percent (5%) of the required payment; and

          (iv)   all other charges, costs and fees customarily imposed by the
Lender in connection with the issuance of letters of credit.

     (b)  Reinsurance agrees to pay the following fees:

          (i)    a Letter of Credit unused fee to be paid to the Lender, payable
quarterly in arrears (and calculated based upon a 360-day year and actual days
elapsed) on the last Business Day of each March, June, September and December,
commencing on June 30, 2002 equal to .15% per annum of an amount equal to
$200,000,000 minus the total Letter of Credit Obligations from time to time
outstanding; and

                                      -10-
<Page>

          (ii)   a Letter of Credit upfront fee to be paid to the Lender prior
to or on the Closing Date equal to .075% of the Facility.

     Section 2.7  PAYMENTS AND COMPUTATIONS.

     (a)  All payments to be made by or on behalf of an Obligor under this
Agreement shall be made to the Lender, not later than 3:00 p.m. Connecticut
time, on the date when due, in United States Dollars, in immediately available
funds, without counterclaim or setoff and free and clear of, and without any
deduction or withholding for, any taxes or other payments, by federal funds wire
to the Lender at:

ABA No.                    011900571

For Credit to Account No.  151035110055
                           Fleet Bank Connecticut
                           Commercial Loan Services
                           Bank/Obligor #: 20/0000274563
                           Reference: Arch Capital Group Ltd.

or to such other address or account, or to the attention of such other Person as
the Lender shall notify the applicable Obligor.

     (b)  All payments made by or on behalf of an Obligor hereunder shall be
applied first to the payment of all fees, expenses and other amounts due to the
Lender (excluding principal and interest) by such Obligor, then to accrued
interest with respect to the Reimbursement Obligations of such Obligor, and the
balance on account of outstanding principal with respect to the Reimbursement
Obligations of such Obligor; provided, however, that upon the occurrence and
during the continuation of an Event of Default, payments will be applied to the
obligations of such Obligor to the Lender as the Lender determines in its sole
discretion (but not to the obligations of any other Obligor).

     (c)  All payments which shall be due hereunder on a day that is not a
Business Day shall be extended to the next succeeding Business Day, and interest
shall accrue during such extension.

     (d)  Computations of interest hereunder and computations of fees stated
to be on an annual basis shall be made on the basis of a year of 360 days for
the actual number of days elapsed (including the first day but excluding the
last day).

     Section 2.8  COLLATERAL SECURITY.

     All of the obligations of each Obligor to the Lender under this Agreement
and the other Fundamental Documents shall be secured by a security interest and
pledge granted by such Obligor, as security for such Obligor's obligations under
this Agreement and the Letters of Credit issued at the request of such Obligor,
in favor of the Lender in the securities and other collateral described in the
applicable Security Agreement (together with all property or interests therein
and all income therefrom and proceeds thereof, collectively, the "Collateral").

                                      -11-
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                                   ARTICLE III

                   CONDITIONS OF ISSUANCE OF LETTERS OF CREDIT

     Section 3.1  CONDITIONS PRECEDENT TO CLOSING AND ISSUANCE OF INITIAL
LETTERS OF CREDIT.

     The obligations of the Lender (in its sole and absolute discretion) to
issue any Letter of Credit under this Agreement on or after the Closing Date are
subject to the satisfaction, prior to or concurrently with the issuance of any
such Letter of Credit, of the following conditions precedent:

     (a)  FUNDAMENTAL DOCUMENTS. Each of the Obligors shall have executed and
delivered to the Lender each Fundamental Document required hereunder, which
shall be in full force and effect.

     (b)  PROOF OF CORPORATE ACTION. The Lender shall have received a
certificate of the Secretary or an Assistant Secretary, or the equivalent
thereof, of each Obligor, dated the date hereof, setting forth resolutions of
the Board of Directors, or the equivalent thereof, of such Obligor approving the
transactions contemplated by this Agreement and the other Fundamental Documents
and authorizing the execution, delivery and performance by such Person of this
Agreement and the other Fundamental Documents to which such Person is a party,
which certificates shall state that such resolutions are in full force and
effect without amendment.

     (c)  INCUMBENCY CERTIFICATES. The Lender shall have received a certificate
of the Secretary or Assistant Secretary, or the equivalent thereof, of each
Obligor, dated the date hereof, setting forth the names and containing a
specimen signature of each officer and director of such Person authorized to
sign this Agreement and the other Fundamental Documents to which such Person is
a party and to give notices and to take other action on behalf of such Obligor
hereunder and in relation to the Collateral.

     (d)  BERMUDA REQUIREMENTS. The Lender shall have received a certificate
of compliance issued by the Bermuda Regulatory Authority (Registrar of Companies
and the Bermuda Monetary Authority) for each of the Parent, Alternative and
Reinsurance, in form and substance satisfactory to the Lender.

     (e)  LEGAL OPINIONS. The Lender shall have received signed legal opinions
of counsel for each Obligor, each in form and substance satisfactory to the
Lender.

     (f)  PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings and
all other matters in connection with the transactions contemplated by this
Agreement (including, without limitation, all regulatory and third party
approvals), the other Fundamental Documents and all other documents incidental
hereto and thereto, including all opinions of counsel, shall be reasonably
satisfactory in form and substance to the Lender.

                                      -12-
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     Section 3.2  ADDITIONAL CONDITIONS PRECEDENT TO THE ISSUANCE OF LETTERS OF
CREDIT.

     The obligations of the Lender to issue any Letter of Credit under this
Agreement on or after the Closing Date (including pursuant to Section 2.1(a))
are subject to the further conditions precedent that, both immediately prior to
the issuance of such Letter of Credit and also after giving effect thereto:

     (a)  no Default shall have occurred and be continuing;

     (b)  the representations and warranties made by each Obligor in this
Agreement and each of the Fundamental Documents shall be true and complete on
and as of the date of the issuance of such Letter of Credit with the same force
and effect as if made on and as of such date (or, if any such representation or
warranty is expressly stated to have been made as of a specific date, as of such
specific date);

     (c)  there has been no material adverse change in the financial
condition, operations, properties, business or prospects of the Parent or any
Obligor since the date of this Agreement;

     (d)  the Lender shall have received a request for a Letter of Credit as
provided in Section 2.1(b);

     (e)  the Lender shall have received evidence satisfactory to it (i) that
the Adjusted Collateral Value of the Obligor requesting the issuance of the
Letter of Credit is not less than the sum of all amounts then outstanding with
respect to Letter of Credit Obligations and Reimbursement Obligations of such
Obligor, taking into account the amount of the requested Letter of Credit, (ii)
that each of the Investments utilized in the calculation of such Obligor's
Adjusted Collateral Value has been deposited into the Custodial Account
maintained by such Obligor, and (iii) that the aggregate face amount of all
Letters of Credit issued under this Agreement (taking into account the requested
Letter of Credit) does not exceed $200,000,000;

     (f)  the Net Worth of the Parent shall be no less than $750,000,000; and

     (g)  with respect to any Letter of Credit requested by First American,
such Letter of Credit shall be used solely for reinsurance purposes.

Each request for a Letter of Credit by an Obligor hereunder shall constitute a
certification by the Obligor to the effect set forth in the preceding sentence
(both as of the date of such notice and, unless the Obligor otherwise notifies
the Lender prior to the date of such Letter of Credit issuance, as of the date
of such issuance).

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

     In order to induce the Lender to enter into this Agreement and to issue the
Letters of Credit, each Obligor for itself hereby represents and warrants that:

                                      -13-
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     Section 4.1  CORPORATE EXISTENCE AND POWER.

     Such Obligor (a) is a company or corporation duly organized, validly
existing without limitation of its corporate existence and in good standing
under the laws of its jurisdiction of organization and (b) has adequate power
and authority and legal right to own or hold under lease the properties it
purports to own or to hold under lease and to carry on the business in which it
is engaged or presently proposes to engage. Such Obligor has adequate power and
authority to enter into this Agreement and each of the other Fundamental
Documents to which it is a party, to borrow hereunder, to create the Collateral
for the Reimbursement Obligations contemplated by this Agreement and the
Security Documents and to perform its obligations under this Agreement and each
of the other Fundamental Documents to which it is or is to become a party as
contemplated by this Agreement.

     Section 4.2. AUTHORITY.

     The execution and delivery by such Obligor of this Agreement and each other
Fundamental Document to which it is or is to become a party as contemplated
hereby, the obtaining of Letters of Credit hereunder, the pledging of the
Collateral for the Reimbursement Obligations contemplated by this Agreement and
the Security Documents and the performance by such Obligor of its obligations in
respect of this Agreement and the other Fundamental Documents in accordance with
their respective terms, have been duly authorized by all necessary corporate
action on the part of such Obligor and do not and will not (a) contravene any
provision of the Constituent Documents of such Obligor, (b) conflict with, or
result in a breach of the terms, conditions or provisions of, or constitute a
default under or, except as contemplated by this Agreement, result in the
creation or imposition of any Lien pursuant to the terms of any, mortgage,
indenture, deed of trust, security agreement, pledge agreement, charge or other
instrument to which such Obligor or any of its respective property is bound, (c)
violate any law, governmental rule, regulation, order or decree of any court or
administrative agency or governmental officer applicable to and binding upon
such Obligor, (d) require any waiver, consent or other action by any
governmental or regulatory authority or by any trustee or holder of any
Indebtedness or obligations of such Obligor or (e) require the approval of the
shareholders of such Obligor.

     Section 4.3  BINDING EFFECT OF AGREEMENT AND OTHER FUNDAMENTAL DOCUMENTS.

     (a)  This Agreement has been duly executed and delivered by such Obligor
and the agreements contained herein constitute, and the agreements contained in
each other Fundamental Document to which such Obligor is or is to become a party
will, when each such other Fundamental Document is executed and delivered,
constitute valid and legally binding obligations for such Obligor enforceable in
accordance with their respective terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, or
other similar laws affecting the enforcement of creditors' rights generally, and
(ii) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

                                      -14-
<Page>

     (b)  Each Security Document executed and delivered on or after the date
hereof will effectively create the Liens purported to be created thereby and
such liens will be first-priority liens on the Collateral covered thereby,
subject to no other liens (except Liens in favor of the Custodian).

     Section 4.4  FINANCIAL INFORMATION.

     The Parent and such Obligor have heretofore furnished to the Lender
accurate and complete financial data and other information based on its
operations in previous years, and said financial data furnished to the Lender is
accurate and complete and fairly presents the financial position and the results
of operations for the period indicated therein.

     Section 4.5  MATERIAL ADVERSE CHANGE; NO DEFAULT.

     There has been no material adverse change in the condition, financial or
otherwise, of the Parent or such Obligor since the date of the most recent
financial statement and no Default or Event of Default exists with respect to
such Obligor.

     Section 4.6  LITIGATION.

     There are no legal or arbitral proceedings, or any proceedings by or before
any governmental or regulatory authority or agency, now pending or (to the
knowledge of such Obligor) threatened against the Parent or such Obligor that
are reasonably likely (either individually or in the aggregate) to have a
material adverse effect on the condition, financial or otherwise, of the Parent
or such Obligor.

     Section 4.7  COMPLIANCE WITH LAWS AND AGREEMENTS.

     Such Obligor is in compliance with laws, regulations and orders of any
governmental agency or authority applicable to it or its Properties and all
indentures, agreements and other instruments binding upon it or its Property,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to have a material adverse effect on its condition,
financial or otherwise.

                                    ARTICLE V

                                    COVENANTS

     Section 5.1  AFFIRMATIVE COVENANTS.

     Each Obligor for itself covenants and agrees that so long as any Letter of
Credit is outstanding:

     (a)  MAINTENANCE OF CORPORATE EXISTENCE. Such Obligor shall maintain its
corporate existence, rights and franchises.

                                      -15-
<Page>

     (b)  REPORTING REQUIREMENTS.(1) Such Obligor shall furnish to the Lender:

          (i)    ANNUAL GAAP FINANCIAL STATEMENTS. Within one hundred twenty
(120) days following the end of the Parent's and such Obligor's fiscal year (or,
if a registered company, such earlier date as the Parent's and such Obligor's
Form 10-K is filed with the Securities and Exchange Commission) copies of:

                 (x)  the consolidated and consolidating balance sheet of the
          Parent as at the close of such fiscal year, and

                 (y)  the consolidated and consolidating statements of income,
          changes in surplus and cash flows of the Parent for such fiscal year,

     in each case setting forth in comparative form the figures for the
     preceding fiscal year and prepared in accordance with GAAP, all in
     reasonable detail and accompanied by an opinion thereon of
     PriceWaterhouseCoopers or other firm of independent public accountants of
     recognized national standing selected by the Parent and reasonably
     acceptable to the Lender, to the effect that the financial statements have
     been prepared in accordance with GAAP (except for changes in application in
     which such accountants concur) and present fairly in all material respects
     in accordance with GAAP the financial condition of the Parent as of the end
     of such fiscal year and the results of operations of the Parent for the
     fiscal year then ended and that the examination of such accountants in
     connection with such financial statements has been made in accordance with
     generally accepted auditing standards and, accordingly, included such tests
     of the accounting records and such other auditing procedures as were
     considered necessary under the circumstances.

          (ii)   QUARTERLY GAAP FINANCIAL STATEMENTS. As soon as available, and
     in any event within sixty (60) days after the end of each quarterly fiscal
     period of the Parent and each Obligor (other than the fourth fiscal quarter
     of any fiscal year), copies of:

                 (x)  the balance sheet of the Parent and each Obligor as at the
          end of such fiscal quarter, and

                 (y)  the statements of income, changes in surplus and cash
          flows of the Parent and each Obligor for such fiscal quarter and the
          portion of such fiscal year ended with such fiscal quarter,

     in each case setting forth in comparative form the figures for the
     preceding fiscal year and prepared in accordance with GAAP, all in
     reasonable detail and certified as presenting fairly in accordance with
     GAAP the financial condition of the Parent and each Obligor as of the end
     of such period and the results of operations for such period by a senior
     officer of the Parent or the Obligor, as applicable, subject only to normal
     year-end accruals and audit adjustments and the absence of footnotes.

                                      -16-
<Page>

          (iii)  ANNUAL/QUARTERLY REPORTS. Concurrently with the delivery of
     the financial statements required pursuant to subsections (i), (ii), (vi)
     and (vii) of this Section, copies of all reports required to be filed with
     any Applicable Insurance Regulatory Authority in connection with the filing
     of such financial statements.

          (iv)   MANAGEMENT LETTERS. Promptly upon receipt thereof, copies of
     any reports or management letters relating to the internal financial
     controls and procedures delivered to the Parent and such Obligor by any
     independent certified public accountant in connection with an examination
     of the financial statements of the Parent or such Obligor, as applicable.

          (v)    ADDITIONAL INFORMATION. Such additional information as the
     Lender, may reasonably request concerning the Parent or such Obligor and
     for that purpose all pertinent books and other documents relating to its
     business, affairs and Properties, including Investments as shall from time
     to time be designated by the Lender.

          (vi)   ANNUAL SAP FINANCIAL STATEMENTS. As soon as available, and in
     any event within fifteen (15) days following the filing of such with the
     Applicable Insurance Regulatory Authority, copies of the (if required to be
     filed with a regulatory authority) SAP Financial Statements for such
     Obligor, in each case setting forth in comparative form the figures for the
     preceding fiscal year and prepared in accordance with SAP, all in
     reasonable detail and certified as presenting fairly in accordance with SAP
     the financial condition of such Obligor by a senior officer of such
     Obligor. Such Annual SAP Financial Statements shall be accompanied by a
     summary of the applicable fiscal year prepared by the management of the
     Obligor.

          (vii)  QUARTERLY SAP STATEMENTS. As soon as available, and in any
     event within sixty (60) days after the end of each quarterly fiscal period,
     copies of the unaudited SAP Financial Statements for such quarterly period
     of such Obligor setting forth in comparative form the figures for the
     preceding fiscal year and prepared in accordance with SAP, all in
     reasonable detail and certified as presenting fairly in accordance with SAP
     the financial condition of such Obligor, as applicable, as of the end of
     such period and results of operations for such period by a senior officer
     of such Obligor, as applicable, subject to normal year-end accruals and
     audit adjustments.

     (c)  MAINTENANCE OF ADJUSTED COLLATERAL VALUE. Such Obligor shall at all
times maintain Collateral in the Custodial Account maintained in its name in an
amount such that the Adjusted Collateral Value is not less than the sum of all
amounts then outstanding with respect to the sum of the Letter of Credit
Obligations and Reimbursement Obligations of such Obligor. Each Obligor agrees
that if the Adjusted Collateral Value of the Collateral in the applicable
Custodial Account is less than the sum of the Letter of Credit Obligations and
the Reimbursement Obligations of such Obligor, the Lender shall have the right
to require such Obligor to pay to the Custodian the amount of any such
deficiency, which amount shall be payable by no later than 3:00 p.m.
(Connecticut time) (i) on the date of notice by the Lender, if such notice is
received before 12:00 p.m. (Connecticut time) or (ii) on the Business Day
immediately following the date of notice by the Lender, if such notice is
received after 12:00

                                      -17-
<Page>

p.m. (Connecticut time), and which payment shall be deposited by the Custodian
into the applicable Custodial Account in the form of cash or Investments. At any
time, other than after the occurrence and during the continuation of a Default
or an Event of Default, an Obligor may substitute Collateral to the extent such
substitution arises from normal trade activities within the Custodial Account in
accordance with the provisions of Section 1 of the Security Agreement between
the Obligor and the Lender.

                                   ARTICLE VI

                         EVENTS OF DEFAULT AND REMEDIES

     Section 6.1  EVENTS OF DEFAULT DEFINED.

With respect to each Obligor, each of the following is an "Event of Default:"

     (a)  failure by such Obligor to pay any amount payable by it hereunder on
the date due;

     (b)  if the validity or enforceability of any Security Document to which
such Obligor is a party shall be contested by any Person;

     (c)  if any representation or warranty made by or on behalf of such
Obligor in this Agreement, in any other Fundamental Document or in any
certificate, report or financial or other statement furnished to the Lender at
any time under or in connection with this Agreement, any other Fundamental
Document or any other such document or agreement shall have been untrue in any
material respect when made or deemed to have been made;

     (d)  default by such Obligor in the observance or performance of its
covenants set forth in (i) Article V; or (ii) default by such Obligor in the
observance or performance of its obligation to maintain the value of the
Custodial Account maintained in its name in accordance with Section 1 of the
Security Agreement between it and the Lender;

     (e)  default by such Obligor in the observance or performance of any
other covenant or agreement contained in this Agreement or any other Fundamental
Document and the continuance thereof unremedied for 10 days after receipt by
such Obligor of written notice of such default from the Lender;

     (f)  an order shall be made by a competent court or a resolution shall be
passed for the winding up or dissolution or rehabilitation of the Parent or such
Obligor save for the purposes of amalgamation, merger, consolidation,
reorganization or other similar arrangement on terms approved by the Lender (not
involving the insolvency of the Parent or such Obligor) and save that if any
such order or resolution is sought in an involuntary proceeding against any such
Person, such Person shall have thirty (30) days from the commencement of such
proceeding to obtain an order staying, vacating or dismissing such proceedings,
or a petition shall be presented to, or an order shall be made by a competent
court for the appointment of, an administrator of the Parent or such Obligor and
such petition or order shall not have been stayed, vacated or

                                      -18-
<Page>

dismissed within thirty (30) days after the presentation of such petition or the
making of such order;

     (g)  the Parent or such Obligor shall cease to carry on the whole or
substantially the whole of its business, save for the purposes of amalgamation,
merger, consolidation, reorganization or other similar arrangement (not
involving or arising out of the insolvency of the Parent or such Obligor) which
is permitted hereunder, or the Parent or such Obligor shall suspend payment of
its debts generally or shall be unable to, or shall admit inability to, pay its
debts as they fall due, or shall be adjudicated or found bankrupt or insolvent
by any competent court in a voluntary or involuntary bankruptcy or insolvency
proceeding and, in the case of an involuntary proceeding, such adjudication or
finding is not stayed, vacated or dismissed for thirty (30) days, or shall enter
into any composition or other similar arrangement with its creditors generally;

     (h)  a receiver, administrator, liquidator or other similar official
shall be appointed in relation to the Parent or such Obligor or in relation to
the whole or a substantial part of its assets or to the Collateral or a
distress, execution or other process shall be levied or enforced upon or out
against, or any encumbrancer shall take possession of, the whole or a
substantial part of its assets or the Collateral and in any of the foregoing
cases, such action or person shall not be discharged, dismissed, vacated, stayed
or bonded within thirty (30) days;

     (i)  any seizure, vesting or intervention by or under authority of a
government occurs, by which the Parent's or such Obligor's management is
displaced or its authority in the conduct of its business is curtailed;

     (j)  default by the Parent or such Obligor in (i) any payment of
principal of or interest of any Indebtedness beyond the period of grace, if any,
provided in the instrument or agreement under which such Indebtedness was
created; or (ii) default in the observance or performance of any other agreement
or condition relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such Indebtedness
(or a trustee or agent on behalf of such holder or holders) to cause, with the
giving of notice if required, such Indebtedness to become due prior to its
stated maturity, PROVIDED that the aggregate principal amount of all such
Indebtedness which would then become due and payable would equal or exceed, in
the case of the Parent, Arch Company, Alternative or Reinsurance, $15,000,000,
or in the case of First American, $5,000,000; or

     (k)  One or more judgments or decrees shall be entered against the Parent
or such Obligor involving in the aggregate a liability (to the extent not paid
or covered by insurance) of, in the case of the Parent, Arch Company,
Alternative or Reinsurance, $15,000,000 or more, and in the case of First
American, $5,000,000 or more, and all such judgments or decrees shall not have
been vacated, discharged, stayed or bonded pending appeal within 60 days after
the entry thereof.

                                      -19-
<Page>

     (l)  The Net Worth of the Parent shall be less than $750,000,000 as of
the end of any fiscal quarter.

     Section 6.2  REMEDIES.

     (a)  Without limiting any other rights or remedies of the Lender provided
for elsewhere in this Agreement or any other Fundamental Document, or by
applicable law, or in equity, or otherwise, (i) if any Event of Default shall
occur and be continuing with respect to any Obligor, the Lender, may by notice
to such Obligor, declare all amounts owing under this Agreement from such
Obligor and any Letters of Credit (whether or not such Letter of Credit
Obligations be contingent or unmatured) issued at the request of such Obligor to
be forthwith due and payable, whereupon all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by such Obligor,
and (ii) if any Event of Default shall occur and be continuing with respect to
the Parent, the Lender, may by notice to each Obligor, declare all amounts owing
under this Agreement from each Obligor and any Letters of Credit (whether or not
such Letter of Credit Obligations be contingent or unmatured) issued at the
request of such Obligor to be forthwith due and payable, whereupon all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by each Obligor. The Lender may immediately take any and all remedies
with respect to the Collateral permitted by the Security Documents.

     (b)  Upon declaration as provided for above, the defaulting Obligor
shall, as specified in written notice by the Lender, either (i) immediately
deliver to the Lender, any amounts required to be paid in accordance with
Section 5.1(c) hereof (the "Letter of Credit Amount"), or (ii) with the consent
of the Beneficiary or Beneficiaries thereof, cause any Letters of Credit to be
canceled forthwith in a manner satisfactory to the Lender. In addition to
providing the Letter of Credit Amount, the defaulting Obligor shall provide the
Lender with any documentation as the Lender may from time to time request to
perfect its rights in the Letter of Credit Amount, including, without
limitation, pledge agreements and financing statements in form and substance
satisfactory to the Lender. The Lender shall hold the Letter of Credit Amount in
its own name for the exclusive purpose of applying such Letter of Credit Amount
toward the immediate payment of amounts which are thereafter drawn under any
Letter of Credit, and, to the extent of such payment, the Reimbursement
Obligations shall be deemed to be satisfied. Upon the expiry date of all Letters
of Credit, any Letter of Credit Amount remaining after satisfaction of all
Reimbursement Obligations shall be remitted to the order of the applicable
Obligor. Each Obligor shall remain liable for the relevant amount of any
deficiency in respect of its Letter of Credit Obligations and Reimbursement
Obligations.

     (c)  Upon the occurrence and during the continuation of any Default or
Event of Default under this Agreement, no Letter of Credit shall be issued,
renewed or extended under this Agreement except in the sole discretion of the
Lender.

                                      -20-
<Page>

                                  ARTICLE VII

                                    Reserved.

                                  ARTICLE VIII

                                  MISCELLANEOUS

     Section 8.1 AMENDMENTS, ETC.

     Neither this Agreement nor any other Fundamental Document, nor any terms
hereof or thereof may be amended, supplemented or modified except in accordance
with the provisions of this subsection. No amendment of, or supplement or
modification to any provision of this Agreement or any other Fundamental
Document to which any Obligor is a party shall in any event be effective unless
the same shall be in writing and signed by such Obligor and the Lender.

     Section 8.2 ADDRESSES FOR NOTICES.

     All notices and other communications provided for hereunder shall be in
writing unless otherwise stated herein and shall be delivered by fax, hand
delivery, or recognized courier service that provides delivery within two
Business Days:

if to Reinsurance, at

                 Wessex House
                 45 Reid Street
                 Hamilton HM12
                 Bermuda
                 Attn: Chief Financial Officer
                 Facsimile: (441) 278-9230

if to Arch Company, at

                 55 Madison Avenue
                 P.O. Box 1988
                 Morristown, New Jersey 07962
                 Attn: Chief Financial Officer
                 Facsimile: (973) 898-9570

if to First American, at

                 100 First Stamford Place
                 Suite 325
                 Stamford, Connecticut 06902

                                      -21-
<Page>

                 Attn:  Chief Financial Officer
                 Facsimile: (203) 975-5691

if to Alternative, at

                 Clarendon House
                 2 Church Street
                 Hamilton HM11
                 Bermuda
                 Attn: Chief Financial Officer
                 Facsimile: (441) 292-4720

if to Fleet, at

                 777 Main Street
                 Hartford, CT 06115
                 Attn: Lawrence Davis
                 Fax: (860) 986-1264

or to such other address as such party may specify to the other party, and shall
be effective when delivered at the address specified in or pursuant to this
Section.

     Section 8.3  NO WAIVER; REMEDIES.

     No failure on the part of the Lender to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any other further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.

     Section 8.4  SUCCESSORS AND ASSIGNS.

     (a)  This Agreement is a continuing obligation of each Obligor and shall,
until the date on which all amounts due and owing hereunder are paid in full (i)
be binding upon each Obligor, its successors and assigns, and (ii) inure to the
benefit of and be enforceable by the Lender and its successors and assigns,
PROVIDED, that any assignment of this Agreement or any part hereof by any
Obligor shall be void. The Lender may assign or transfer to one or more Eligible
Assignees all or a portion of the interests, rights and obligations under this
Agreement and the other Fundamental Documents. The Lender and any Eligible
Assignee may sell participations in all or a portion of its interests, rights
and obligations under this Agreement and the other Fundamental Documents,
PROVIDED that the Lender or the Eligible Assignee shall remain solely
responsible for the performance of its obligations under this Agreement.

                                      -22-
<Page>

     (b)  Anything in this Section 8.4 to the contrary notwithstanding, the
Lender may at any time pledge or assign all or any portion of its interest and
rights under this Agreement to any of the twelve Federal Reserve Banks organized
under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such
pledge or assignment or enforcement thereof shall release the Lender from its
obligations hereunder or under any of the other Fundamental Documents.

     Section 8.5  PAYMENT OF EXPENSES AND TAXES.

     (a)  Reinsurance hereby agrees to pay or reimburse the Lender for all its
out-of-pocket costs and expenses incurred in connection with the development,
preparation and attention to the execution of the Fundamental Documents, and of
documents embodying or relating to amendments, waivers or consents with respect
to any of the foregoing, including the reasonable fees and out-of-pocket costs
and expenses of counsel to the Lender, (b) Reinsurance agrees to pay and to save
the Lender from all registration, recording and filing fees and all liabilities
with respect to, or resulting from, any delay by any Obligor in paying stamp and
other Taxes, if any, which may be payable or determined to be payable in
connection with the execution and delivery of, any of the Fundamental Documents
or any amendment, waiver or consent with respect thereto or the consummation of
any of the transactions contemplated thereby, (c) each Obligor agrees to pay or
reimburse the Lender for all its out-of-pocket costs and expenses incurred in
connection with the preparation and attention to the execution and issuance of
Letters of Credit issued at the request of such Obligor and (d) each Obligor
agrees to pay or reimburse the Lender for all out-of-pocket costs and expenses
incurred by it in connection with the enforcement or preservation of any rights
against such Obligor under or in respect of this Agreement and the other
Fundamental Documents (including the fees and expenses of lawyers retained by
the Lender, including the allocated costs of internal counsel, and remuneration
paid to agents and experts not in the full-time employ of the Lender for
services rendered on behalf of the Lender) on a full indemnity basis. All such
amounts will be paid by Reinsurance or the Obligors, as applicable, on demand.

     Section 8.6  RIGHT OF SET-OFF.

     Each Obligor agrees that, in addition to (and without limitation of) any
right of setoff, banker's lien or counterclaim the Lender may otherwise have,
the Lender shall be entitled, at its option, to offset balances (general or
special, time or demand, provisional or final, and regardless of whether such
balances are then due to such Obligor) held by it for the account of such
Obligor at any of the Lender' offices, in Dollars or in any other currency,
against any amount payable by such Obligor under this Agreement or any Letter of
Credit that is not paid when due, taking into account any applicable grace
period, in which case it shall promptly notify such Obligors thereof, PROVIDED
that the Lender's failure to give such notice shall not affect the validity
thereof. In furtherance thereof, each Obligor hereby grants to the Lender, a
continuing lien, security interest and right of setoff as security for all
liabilities and obligations to the Lender, whether now existing or hereafter
arising, upon and against all deposits, credits, collateral and property of such
Obligor, now or hereafter in the possession, custody, safekeeping or control of
the Lender or any entity under the control of FleetBoston Financial Corporation
and its successors and assigns or in transit to any of them. At any time after
the occurrence of an Event of Default, without demand or notice (any such notice
being expressly waived by each Obligor), the Lender may setoff the

                                      -23-
<Page>

same or any part thereof and apply the same to any liability or obligation of
such Obligor even though unmatured and regardless of the adequacy of any other
collateral securing such Obligor's obligations hereunder. ANY AND ALL RIGHTS TO
REQUIRE THE LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER
COLLATERAL WHICH SECURES AN OBLIGOR'S OBLIGATIONS HEREUNDER, PRIOR TO EXERCISING
ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF
SUCH OBLIGOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. At the
option of the Lender, if there is a separate revolving line of credit, line of
credit, or other credit facility existing between the Lender and such Obligor,
the Lender is irrevocably authorized to satisfy such Obligor's reimbursement
obligation to the Lender, in whole or in part, by making an advance under such
facility.

     Section 8.7 GOVERNING LAW.

     This Agreement, and the rights and obligations of the parties hereunder,
shall be governed by, and construed in accordance with the laws of the State of
Connecticut without giving effect to the choice of law or conflicts of law
principles thereof.

     Section 8.8 CONSENT TO JURISDICTION.

     Each Obligor hereby expressly submits to the non-exclusive jurisdiction of
all federal and state courts sitting in the State of Connecticut, and agrees
that any process or notice of motion or other application to any of said courts
or a judge thereof may be served upon such Obligor within or without such
court's jurisdiction by registered or certified mail, return receipt requested,
or by personal service, at such Obligor's address (or at such other address as
the Obligor shall specify by a prior notice in writing to the Lender), provided
reasonable time for appearance is allowed. Each Obligor hereby irrevocably
waives any objection which it may now or hereafter have to the laying of venue
to any suit, action or proceeding arising out or relating to this Agreement
brought in any federal or state courts sitting in the State of Connecticut and
hereby further irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
Notwithstanding the foregoing, the Lender may sue any Obligor in any
jurisdiction where such Obligor or any of its assets may be found and may serve
legal process upon such Obligor in any other manner permitted by law.

     Section 8.9  WAIVER OF JURY TRIAL.

     EACH OBLIGOR AND THE LENDER MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED
HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
FUNDAMENTAL DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY
COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY, INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT,
COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF THE LENDER RELATING TO THE
ADMINISTRATION OF THIS

                                      -24-
<Page>

AGREEMENT OR ENFORCEMENT OF THE FUNDAMENTAL DOCUMENTS, AND AGREE THAT NEITHER
PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY LAW, EACH
OBLIGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. EACH OBLIGOR CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK TO ENFORCE THE FOREGOING WAIVER. THIS WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR THE LENDER TO ENTER INTO THIS AGREEMENT AND THE OTHER FUNDAMENTAL
DOCUMENTS.

     Section 8.10 INTEREST.

     All agreements between the Lender and the Obligors are hereby expressly
limited so that in no contingency or event whatsoever shall the amount paid or
agreed to be paid to the Lender for the use or the forebearance of the
indebtedness evidenced hereby exceed the maximum permissible under applicable
law. As used herein, the term "applicable law" shall mean the law in effect as
of the date hereof; provided, however, that in the event there is a change in
the law which results in a higher permissible rate of interest, then this
Agreement shall be governed by such new law as of its effective date. In this
regard, it is expressly agreed that it is the intent of the Lender and the
Obligors in the execution, delivery and acceptance of this Agreement to contract
in strict compliance with the laws of the State of Connecticut from time to time
in effect. If, under or from any circumstances whatsoever, fulfillment of any
provision hereof or of any of the agreements executed herewith at the time of
performance of such provision shall be due, shall involve transcending the limit
of such validity prescribed by applicable law, then the obligation to be
fulfilled shall automatically be reduced to the limits of such validity, and if
under or from circumstances whatsoever the Lender should ever receive as
interest an amount which would exceed the highest lawful rate, such amount which
would be excessive interest shall be applied to the reduction of the principal
balance evidenced hereby and not to the payment of interest. This provision
shall control every other provision of all agreements between the Obligors and
the Lender.

     Section 8.11 TABLE OF CONTENTS AND CAPTIONS.

     The Table of Contents hereof and captions herein are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.

     Section 8.12 INTEGRATION.

     This Agreement is intended by the parties as the final, complete and
exclusive statement of the transactions evidenced by this Letter of Credit and
Reimbursement Agreement. All prior or contemporaneous promises, agreements and
understandings, whether oral or written, are

                                      -25-
<Page>

deemed to be superceded by this Agreement, and no party is relying on any
promise, agreement or understanding not set forth in this Agreement.

     Section 8.13 COUNTERPARTS.

     This Agreement may be executed in multiple counterparts each of which shall
be an original and all of which when taken together shall constitute but one and
the same Agreement.

                [Remainder of the Page Intentionally Left Blank]

                                      -26-
<Page>

     In Witness Whereof, the parties have caused this Agreement to be duly
executed and delivered by their respective officers, as an instrument under
seal, as of the date first above written.

<Page>

ARCH REINSURANCE LTD.

By:  /s/ Dwight R.Evans
   ---------------------------------
     Name: Dwight R. Evans
     Title: President

By:
   ---------------------------------
     Name:
     Title:
ARCH REINSURANCE COMPANY

By:  /s/ John F. Rathgeber
   ---------------------------------
     Name: John F. Rathgeber
     Title: Managing Director

FIRST AMERICAN INSURANCE COMPANY

By:  /s/ John M. Tetro
   ---------------------------------
     Name: John M. Tetro
     Title: SVP and CFO

FLEET NATIONAL BANK

By:  /s/ Lawrence Davis
   ---------------------------------
   Name: Lawrence Davis
   Title: Portfolio Manager

<Page>

ALTERNATIVE RE LIMITED

By:  /s/ Graham B.R. Collis
   ---------------------------------
   Name: Graham B.R. Collis
   Title: Director

<Page>

                                                                       EXHIBIT A

                           [FORM OF LETTERS OF CREDIT]

<Page>

FLEET NATIONAL BANK
C/O FLEET PENNSYLVANIA SERVICES, INC.
1 FLEET WAY
SCRANTON, PA 18507-1999

                                      DATE:

IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER_______________

BENEFICIARY:                             APPLICANT:

AMOUNT:  USD
EXPIRY DATE:
EXPIRE PLACE: OUR COUNTERS

GENTLEMEN:

WE HEREBY ISSUE THIS IRREVOCABLE LETTER OF CREDIT NO. ___________ IN
YOUR FAVOR, FOR THE ACCOUNT OF APPLICANT ,FOR UP TO AN AGGREGATE AMOUNT OF USD
__________AVAILABLE BY YOUR DRAFT(S) DRAWN ON US AT SIGHT, ACCOMPANIED BY THE
FOLLOWING:

1. BENEFICIARY'S WRITTEN, DATED STATEMENT ON BENEFICIARY LETTERHEAD SIGNED BY A
PURPORTED OFFICER READING:
QUOTE

UNQUOTE

2. THE ORIGINAL OF THIS LETTER OF CREDIT AND AMENDMENT(S), IF ANY.

DATA CONTENT OF ANY REQUIRED DOCUMENTS PRESENTED UNDER THIS LETTER OF CREDIT
MUST BE CONSISTENT WITH THE DATA CONTENT OF ANY OTHER REQUIRED DOCUMENT(S)
PRESENTED UNDER THIS LETTER OF CREDIT.

PARTIAL DRAWINGS ARE PERMITTED.

IT IS A CONDITION OF THIS LETTER OF CREDIT THAT IT SHALL BE AUTOMATICALLY
EXTENDED WITHOUT AMENDMENT FOR PERIOD(S) OF ONE YEAR EACH FROM THE CURRENT OR
ANY FUTURE EXPIRATION DATE UNLESS AT LEAST THIRTY (30) DAYS PRIOR TO THE THEN
CURRENT EXPIRATION DATE WE SHALL NOTIFY THE BENEFICIARY IN WRITING, VIA
REGISTERED MAIL, AT THE ABOVE LISTED ADDRESS OF OUR INTENTION NOT TO RENEW THIS
LETTER OF CREDIT.

<Page>

ANY SUCH NOTICE SHALL BE EFFECTIVE WHEN SENT BY US AND UPON SUCH NOTICE TO YOU
YOU MAY DRAW HEREUNDER, UP TO THE FULL AMOUNT THEN AVAILABLE, BY PRESENTATION OF
YOUR SIGHT DRAFT DRAWN ON US ACCOMPANIED BY THE ORIGINAL OF THIS LETTER OF
CREDIT, AND ALL AMENDMENTS THERETO, AND YOUR STATEMENT, ON YOUR LETTERHEAD
PURPORTEDLY SIGNED BY AN AUTHORIZED REPRESENTATIVE, STATING THAT YOU ARE IN
RECEIPT OF FLEET NATIONAL BANK'S NOTICE OF NONRENEWAL UNDER LETTER OF CREDIT NO.
_____________ AND APPLICANT HAS FAILED TO EXTEND SAID LETTER OF CREDIT OR
PROVIDE A REPLACEMENT LETTER OF CREDIT IN A FORM ACCEPTABLE TO YOU.

DRAFT(S) MUST STATE: "DRAWN UNDER FLEET NATIONAL BANK STANDBY L/C NO.
____________ DATED _____________________."

THIS LETTER OF CREDIT IS TRANSFERABLE IN FULL AND NOT IN PART. ANY TRANSFER MADE
HEREUNDER MUST CONFORM STRICTLY TO THE TERMS HEREOF AND TO THE CONDITIONS OF
RULE 6 OF THE INTERNATIONAL STANDBY PRACTICES (ISP98) FIXED BY THE INTERNATIONAL
CHAMBER OF COMMERCE, PUBLICATION NO. 590.

SHOULD YOU WISH TO EFFECT A TRANSFER UNDER THIS CREDIT, SUCH TRANSFER WILL BE
SUBJECT TO THE RETURN TO US OF THE ORIGINAL CREDIT INSTRUMENT, ACCOMPANIED BY
OUR FORM OF TRANSFER, PROPERLY COMPLETED AND SIGNED BY AN AUTHORIZED SIGNATORY
OF YOUR FIRM, BEARING YOUR BANKERS STAMP AND SIGNATURE AUTHENTICATION AND
SUBJECT TO YOUR PAYMENT OF OUR CUSTOMARY TRANSFER CHARGES OF 1/4 OF 1% MINIMUM
$ 200.00.

DRAFTS AND DOCUMENTS MUST BE PRESENTED AT OUR OFFICE ADDRESSED: FLEET NATIONAL
BANK, C/O FLEET PENNSYLVANIA SERVICES INC., 1 FLEET WAY, SCRANTON, PA
18507-1999, ATTN: TRADE SERVICES DEPT. - STANDBY UNIT.

WE HEREBY AGREE WITH YOU THAT DRAFT(S) DRAWN UNDER AND IN COMPLIANCE WITH THE
TERMS OF THIS LETTER OF CREDIT SHALL BE DULY HONORED UPON DUE PRESENTATION TO
US.

THIS LETTER OF CREDIT IS SUBJECT TO THE INTERNATIONAL STANDBY PRACTICES (ISP98),
THE INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 590.

FORM AND CONTENTS ACCEPTED BY:

(SIGNATURE -MUST BE THE SAME AS THAT ON LETTER OF CREDIT APPLICATION)
AUTHORIZED SIGNATURE FOR

-----------------------------
APPLICANT

<Page>

                                                                       EXHIBIT B

                          [FORM OF SECURITY AGREEMENT]

<Page>

                               SECURITY AGREEMENT

                           Dated as of April 17, 2002

                                     between

                            ARCH REINSURANCE COMPANY

                                       and

                               FLEET NATIONAL BANK

<Page>

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                               PAGE
<S>     <C>                                                                                                     <C>
SECTION 1.        Grant of Security..............................................................................1

SECTION 2.        Security for Obligations.......................................................................3

SECTION 3.        Delivery of Collateral.........................................................................3

SECTION 4.        Debtor Remains Liable..........................................................................3

SECTION 5.        Representations and Warranties.................................................................3

SECTION 6.        Further Assurances: Supplements................................................................4

SECTION 7.        Additional Covenants...........................................................................5

SECTION 8.        Lender Appointed Attorney-in-Fact..............................................................7

SECTION 9.        Lender May Perform.............................................................................7

SECTION 10.       The Lender.....................................................................................7

SECTION 11.       Remedies Upon Default; Application of Collateral...............................................8

SECTION 12.       Amendments, Etc................................................................................8

SECTION 13.       Indemnity and Expenses.........................................................................8

SECTION 14.       Reserved.......................................................................................9

SECTION 15.       Addresses for Notices..........................................................................9

SECTION 16.       No Waiver; Cumulative Remedies.................................................................9

SECTION 17.       Continuing Security Interest...................................................................9

SECTION 18.       Further Indemnification.......................................................................10

SECTION 19.       Governing Law; Terms..........................................................................10

SECTION 20.       No Petition in Bankruptcy.....................................................................10

SECTION 21.       Waiver of Jury Trial..........................................................................10

SECTION 22.       Jurisdiction; Consent to Service of Process...................................................11

SECTION 23.       Headings......................................................................................11

SECTION 24.       Severability..................................................................................11

SECTION 25.       Counterparts..................................................................................12
</Table>

SCHEDULES

Schedule 1        Definitions
Schedule 2        Trade Names

                                       -i-
<Page>

                               SECURITY AGREEMENT

     SECURITY AGREEMENT (the "Agreement") dated as of April 17, 2002 between
ARCH REINSURANCE COMPANY, a corporation organized and existing under the laws of
Nebraska, ("Arch Company" or "Debtor") and FLEET NATIONAL BANK, as the Lender
under the below referenced Letter of Credit Agreement (the "Lender").

                              W I T N E S S E T H:

     WHEREAS, the Lender as the issuer of Letters of Credit has entered into a
Letter of Credit and Reimbursement Agreement dated as of April 17, 2002 (as such
agreement may hereafter be amended or otherwise modified from time to time,
being the "Letter of Credit Agreement") with Arch Reinsurance Ltd., Arch
Company, Alternative Re Limited and First American Insurance Company;

     WHEREAS, it is a condition precedent to the issuance of Letters of Credit
by the Lender under the Letter of Credit Agreement that the Debtor shall have
executed and delivered to the Lender this Agreement and pledged and granted a
security interest in the Collateral, as such term is defined below, held by or
on behalf of the Debtor from time to time and other rights and interests
contemplated by this Agreement; and

     WHEREAS, pursuant to the terms of the Custodian Agreement, the Custodian
has established a Custodial Account, account #0010409270 (the "Custodial
Account"), in the name of the Debtor and the Company hereby grants to the Lender
a security interest in the Collateral, including the Custodial Account.

     NOW, THEREFORE, in consideration of the premises and in order to induce the
Lender to issue Letters of Credit for the account of the Debtor under the Letter
of Credit Agreement, Arch Company hereby agrees with the Lender as follows (all
capitalized terms used herein shall have the meanings set forth in SCHEDULE 1
hereto or, if not defined therein, in the Letter of Credit Agreement):

     1.           GRANT OF SECURITY. The Debtor hereby pledges to the Lender and
grants to the Lender for its benefit a security interest in and lien upon, all
of the Debtor's right, title and interest in and to the following, in each case
whether now or hereafter existing or in which the Debtor now has or hereafter
acquires an interest and wherever the same may be located (collectively, the
"Collateral"):

          (i)     The Custodial Account, including all cash held therein or
     credited thereto from time to time, and all securities, instruments and
     investments, including Investments, and other "investment property" and
     "financial assets," as each such term is defined in the UCC, of any kind
     held therein or credited thereto from time to time) (the "Pledged
     Investments"); and

<Page>

          (ii)    All proceeds of, accessions to, substitutions for, and
     earnings on, any and all of the foregoing Collateral (including, without
     limitation, proceeds that constitute property of the types described in
     clauses (i) and (ii) above) and, to the extent not otherwise included, all
     payments under insurance (whether or not the Lender is the loss payee
     thereof), or any indemnity, warranty or guaranty, payable by reason of loss
     or damage to or otherwise with respect to any of the foregoing Collateral.
     For purposes hereof, the term "proceeds" includes whatever is receivable or
     received when Collateral or proceeds are sold, collected, exchanged or
     otherwise disposed of, whether such disposition is voluntary or
     involuntary, and includes, without limitation, all rights to payment,
     including returned premiums, with respect to any insurance relating
     thereto.

     Notwithstanding the foregoing, at any time, other than after the occurrence
and during the continuation of a Default or an Event of Default, the Debtor may
request that the Lender release its Lien on so much of the Collateral as equals
the excess, if any, of the Adjusted Collateral Value of the Collateral over the
sum of all amounts then outstanding with respect to (x) Letter of Credit
Obligations of the Debtor and (y) Reimbursement Obligations of the Debtor;
provided that such excess shall be released from the Custodial Account only with
the consent of the Lender, which consent may be given or withheld by the Lender
in its sole discretion. Should the Adjusted Collateral Value of the Collateral
be less than the sum of all amounts then outstanding with respect to (x) Letter
of Credit Obligations of the Debtor and (y) Reimbursement Obligations of the
Debtor, the Lender shall have the right to require the Debtor to pay to the
Custodian by no later than 3:00 p.m. (Connecticut time) (i) on the date of such
notice, if such notice is received before 12:00 p.m. (Connecticut time) or (ii)
on the Business Day immediately following the date of notice by the Lender, if
such notice is received after 12:00 p.m. (Connecticut time), the difference
between (A) the then-current Adjusted Collateral Value of the Collateral and (B)
the sum of all amounts then outstanding with respect to (x) Letter of Credit
Obligations of the Debtor and (y) Reimbursement Obligations of the Debtor, which
payment shall be deposited by the Custodian into the Custodial Account in the
form of cash or Investments. Any failure by the Debtor to make such payment
shall constitute an Event of Default hereunder and under the Fundamental
Documents.

     In addition, the Debtor shall have the right, other than after the
occurrence and during the continuation of a Default or an Event of Default, to
substitute Collateral to the extent such substitution arises from normal trade
activities within the Custodial Account hereunder so long as (i) the Debtor
maintains the value of the Custodial Account in accordance with this Section 1,
(ii) such substituted Collateral shall be in the form of Investments, and (iii)
if requested by the Lender, the Debtor shall deliver to the Lender a Supplement
to Security Agreement in a form satisfactory to the Lender. The Collateral which
is removed from the Custodial Account in full compliance with this paragraph
shall no longer be subject to the Lien hereof without any further action on the
part of the Debtor or the Lender; the Collateral which is added to the Custodial
Account pursuant to such Supplement to Security Agreement shall immediately be
subject to the Lien hereof without any further action on the part of the Debtor
or the Lender. The Debtor agrees to pay any costs and expenses of the Lender
(and its counsel) in connection with any substitution of Collateral.

                                       -2-
<Page>

     2.           SECURITY FOR OBLIGATIONS. The grant in Section 1 secures and
the Collateral is collateral security for the prompt payment or performance in
full when due, whether at stated maturity, by acceleration or otherwise of all
obligations of every nature now or hereafter existing of the Debtor under the
Letter of Credit Agreement and any Letter of Credit application and
reimbursement agreement or other document or instrument delivered pursuant
thereto, and all amendments, extensions or renewals thereof or hereof, whether
for principal, interest, fees, expenses or otherwise, whether now existing or
hereafter arising, voluntary or involuntary, whether or not jointly owed with
others, direct or indirect, absolute or contingent, liquidated or unliquidated,
and whether or not from time to time decreased or extinguished and later
increased, created or incurred and all or any portion of such obligations that
are paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly as a preference, fraudulent transfer or otherwise, and
all obligations of every nature of the Debtor now or hereafter existing under
this Agreement (all such obligations being the "Secured Obligations").

     3.           DELIVERY OF COLLATERAL. All certificates or instruments, if
any, representing or evidencing the Collateral shall be delivered to and held by
the Custodian for the benefit of the Lender. At any time at which an Event of
Default has occurred and is continuing under the Letter of Credit Agreement, the
Lender shall have the right, subject at all times to Section 11 hereof, in its
discretion and without notice to the Debtor, to transfer to or to register in
the name of any of its nominees any or all of the Collateral, and may receive
the income and any distributions thereon and hold the same as Collateral for the
Secured Obligations, or apply the same to any of the Secured Obligations.

     4.           DEBTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) the Debtor shall remain liable under the contracts and
agreements included or relating to the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Lender of any of the rights hereunder shall not release the Debtor from any of
its duties or obligations under the contracts and agreements included in or
relating to the Collateral, and (c) the Lender shall not have any obligation or
liability under the contracts and agreements included in or relating to the
Collateral by reason of this Agreement, nor shall the Lender be obligated to
perform any of the obligations or duties of the Debtor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.

     5.           REPRESENTATIONS AND WARRANTIES. The Debtor hereby represents
and warrants as follows:

            (a)   The Debtor is duly organized and validly exists under the laws
of Nebraska.

            (b)   The Debtor is the legal and beneficial owner of the Collateral
free and clear of any liens, security interest, option or other charge or
encumbrance (except liens in favor of the Custodian). No effective financing
statement or other instrument similar in effect covering all or any part of the
Collateral is on file in any recording

                                       -3-
<Page>

office, except such as may have been filed in favor of the Lender relating to
this Agreement. Except as set forth on Schedule 2 attached hereto, the Debtor
has no trade names and does not do business under any fictitious business name.

            (c)   The pledge and the grant of the security interest in the
Collateral pursuant to this Agreement creates a valid and perfected first
priority security interest in the Collateral, and all filings and other actions
necessary to perfect and protect such security interest have been duly taken.

            (d)   No authorization, consent, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body (other
than authorizations, consents, approvals already obtained, actions already
taken, notices already provided and filings already made) is required (i) for
the grant by the Debtor of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by the Debtor, (ii) for the
perfection of or the exercise by the Lender of its rights and remedies provided
for in this Agreement or (iii) to ensure the legality, validity, enforceability
or admissibility in evidence of this Agreement in any jurisdiction in which any
of the Collateral is located.

            (e)   Each of this Agreement and the other Fundamental Documents to
which the Debtor is a party constitutes the legal, valid and binding obligation
of the Debtor, enforceable against the Debtor in accordance with its terms,
except as such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting the
enforcement of creditors' rights generally, and (ii) general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law). To the knowledge of the Debtor, each Pledged Investment
constitutes the legally valid and binding obligation of the party obligated to
pay the same.

            (f)   The Debtor is deriving substantial direct and indirect
benefits from the issuance of the Letters of Credit for its account under the
Letter of Letter of Credit Agreement and has received good and adequate
consideration for the pledge of the Collateral effected under this Agreement.

     6.           FURTHER ASSURANCES: SUPPLEMENTS. (a) The Debtor agrees that at
any time and from time to time, at its expense, it will promptly execute and
deliver all further instruments and documents, and take all further action that
may be reasonably necessary or desirable, or that the Lender may request, to
perfect and protect the pledges and security interests granted or purported to
be granted hereby or to enable the Lender to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, the Debtor will (i) if any Collateral shall be
evidenced by a promissory note or other instrument, or if any of the Collateral
shall constitute chattel paper, deliver to the Lender (or to the Custodian to
hold on behalf of the Lender) such note, instrument and all original
counterparts of chattel paper duly endorsed and accompanied by duly executed
instruments of transfer, all in form satisfactory to the Lender and (ii) execute
and file such financing or continuation statements, or amendments thereto, and
such other instruments or notices, as may be necessary or

                                       -4-
<Page>

desirable, or that the Lender may reasonably request, to protect and preserve
the pledges and security interests granted or purported to be granted hereby.

            (b)   The Debtor hereby authorizes the Lender to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral. A carbon, photographic or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law. The Lender
will promptly send the Debtor any financing or continuation statements thereto
which it files without the signature of the Debtor and, except in the case of
filings of copies of this Agreement as financing statements, the Lender will
promptly send the Debtor the filing or recordation information with respect
thereto.

            (c)   The Debtor will furnish to the Lender from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Lender may
reasonably request, all in reasonable detail.

            (d)   The Debtor agrees that it will not create or permit to exist
any lien, security interest or other charge or encumbrance upon or with respect
to any of the Collateral except in favor of the Lender hereunder or the
Custodian.

     7.           ADDITIONAL COVENANTS. (a) The Debtor shall maintain its
organization and existence in the jurisdiction specified in Section 5(a) and
shall not reincorporate or otherwise reorganize in any other jurisdiction
without the prior written consent of the Lender. The Debtor shall, from the date
on which each Pledged Investment was purchased, maintain (i) complete records of
each Pledged Investment, including records of all payments received, interest or
fees accruing or credits granted and (ii) all documentation relating thereto. In
connection therewith, the Lender may (subject to the confidentiality
restrictions contained in any agreement) institute procedures to permit it to
confirm the balances owing in respect of any Pledged Investment. The Debtor
agrees to render to the Lender such clerical and other assistance as may be
reasonably requested with regard to the foregoing. If an Event of Default under
the Letter of Credit Agreement shall have occurred and be continuing, promptly
upon request therefor, the Debtor shall (subject to the confidentiality
restrictions contained in any agreement) deliver to the Lender complete and
correct copies of all documentation relating to the Pledged Investments.

            (b)   The Debtor shall duly fulfill in all material respects all
obligations on its part to be fulfilled under or in connection with the Pledged
Investments and shall do nothing to impair in any material respect the rights of
the Lender therein.

            (c)   Following an Event of Default under the Letter of Credit
Agreement (subject to Section 11 hereof), any proceeds of Collateral when first
received by or on behalf of the Debtor shall be deposited by or on behalf of the
Debtor in the form so received in the Custodial Account, and until so deposited
shall be held in trust for and

                                       -5-
<Page>

as the Lender's property and shall not be commingled with the Debtor's or any
other Person's other funds or properties.

            (d)   The Debtor, at its own cost and expense, will, and will cause
the Custodian to, maintain satisfactory and complete records of the Collateral,
including, without limitation, a record of all payments received with respect to
the Collateral and all other dealings with the Collateral. Upon the occurrence
and during the continuation of an Event of Default under the Letter of Credit
Agreement, the Debtor will (subject to the confidentiality restrictions
contained in any agreement and any applicable law) deliver and turn over to the
Lender or to its representatives, or at the option of the Lender shall (subject
to the confidentiality restrictions contained in any agreement) provide the
Lender or its representatives with access to, at any time on demand of the
Lender, copies of all the Debtor's books and records pertaining to the
Collateral including, without limitation, all credit files and computer
software, programs, tapes or disks relating to Pledged Investments or otherwise
necessary to the collection thereof.

            (e)   The Debtor will comply in all material respects with all
applicable statutes, rules, and regulations with respect to the Collateral or
any part thereof.

            (f)   The Debtor will pay promptly when due all taxes, assessments
and governmental charges or levies imposed upon the Collateral or in respect of
its income or profits therefrom and all claims of any kind (including, without
limitation, claims for labor, materials and supplies), except that no such
amount need be paid if (i) such non-payment does not involve any danger of the
sale, forfeiture or loss of any of the Collateral or any interest therein, (ii)
the charge or levy is being contested in good faith and by proper proceedings,
and (iii) the obligation to pay such amount is adequately reserved against in
accordance with and to the extent required by GAAP.

            (g)   The Debtor will in all material respects perform and observe
all the terms and provisions of the documentation relating to the Pledged
Investments to be performed or observed by it, maintain the documentation
relating to the Pledged Investments in full force and effect in accordance with
their terms, and take all action to such end as may be from time reasonably
requested by the Lender.

            (h)   The Debtor will advise the Lender promptly, in reasonable
detail, (i) of any lien, security interest, encumbrance or claim made or
asserted against any of the Collateral by any Person, other than the Custodian,
and (ii) of the occurrence of any event which would have a material adverse
effect on the aggregate value of the Collateral or on the pledges and security
interests granted hereby.

            (i)   The Debtor will not sell, assign (by operation of law or
otherwise), or otherwise dispose of, or grant any option with respect to, any of
the Collateral, except sales not restricted by the terms of the Letter of Credit
Agreement or this Agreement.

            (j)   The Debtor shall at all times retain Fleet National Bank as
the Custodian pursuant to the Custodian Agreement.

                                       -6-
<Page>

     8.           LENDER APPOINTED ATTORNEY-IN-FACT. The Debtor appoints the
Lender its attorney-in-fact with full authority in the place and stead of the
Debtor and in the name of the Debtor or otherwise, from time to time in the
Lender's discretion, after an Event of Default under the Letter of Credit
Agreement has occurred and is continuing (but in all instances subject to
Section 11 hereof), to take any action and to execute any instrument that the
Lender may deem necessary or advisable to accomplish the purposes of this
Agreement (subject to the provisions of any applicable law), including, without
limitation, to (i) ask, demand, collect, sue for, recover, compromise, receive
and give acquittances and receipts for moneys due and to become due under or in
connection with the Collateral, (ii) receive, endorse and collect all drafts or
other instruments and documents made payable to the Debtor in connection
therewith or representing any payment, dividend or other distribution in respect
of the Collateral or any part thereof and to give full discharge for the same,
(iii) file any claims or take any action or institute any proceedings which the
Lender may deem to be necessary or desirable for the collection of any of the
Collateral, (iv) enforce the rights of the Lender with respect to any of the
Collateral and compliance with the terms and conditions of this Agreement, the
Letter of Credit Agreement and the other Fundamental Documents, (v) pay or
discharge taxes or Liens levied or placed upon or threatened against the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by the Lender in its sole discretion, and
such payments made by the Lender to become obligations of the Debtor to the
Lender, due and payable in accordance with the Letter of Credit Agreement, (vi)
generally sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though the
Lender were the absolute owner thereof for all purposes, and (vii) do, at the
Lender's option and the Debtor's expense, at any time, or from time to time, all
acts and things that the Lender deems necessary to protect, preserve or realize
upon the Collateral and the Lender's security interest therein, in order to
effect the intent of this Agreement, all as fully and effectively as the Debtor
might do.

     9.           LENDER MAY PERFORM. If the Debtor fails to perform any
agreement contained herein or if a Default or an Event of Default under the
Letter of Credit Agreement shall have occurred and be continuing, the Lender may
at any time (but in all instances subject to Section 11 hereof) itself perform,
or cause performance of, such agreement.

     10.    THE LENDER. (a) Neither the Lender nor any of its respective
affiliates, directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them under or in connection with
this Agreement or for errors in judgment, except for its or their own gross
negligence, willful misconduct or bad faith.

                  (b)  The powers conferred on the Lender hereunder are solely
to protect its interest in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. Except for the exercise of reasonable care
in the custody and preservation of any Collateral in its possession and
accounting for moneys actually received by it hereunder, the Lender shall have
no duty as to any Collateral or as to any rights pertaining thereto.

                                       -7-
<Page>

                  (c)  The Lender shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which the Lender
accords its own property.

     11.          REMEDIES UPON DEFAULT; APPLICATION OF COLLATERAL. (a) If an
Event of Default under the Letter of Credit Agreement shall have occurred and be
continuing, then any cash held by the Lender and all cash proceeds received by
the Lender in respect of any sale of, collection from, or other realization upon
all or any part of the Collateral shall be applied to the obligations of the
Debtor to the Lender as the Lender determines in its sole discretion. Any
surplus of such cash or cash proceeds held by the Lender and remaining after the
payment in full of all the Secured Obligations shall be paid over to the Debtor
or to whomsoever may be lawfully entitled thereto.

            (a)   Any foreclosure upon, sale of, or exercise of rights with
respect to the Collateral shall be conducted in compliance with all contractual
provisions applicable to such Collateral, including but not limited to any
provisions of any agreement pursuant to which any Investment arises that govern
the sale or assignment thereof.

            (b)   Any sale of the Collateral or any part thereof shall be made
in a commercially reasonable manner and in accordance with applicable law and
may be made in one or more lots at public or private sale, for cash, on credit
or for future delivery. The Lender and/or any of its affiliates may be a
purchaser at any such sale. The Lender shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given. The Lender may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. The Debtor shall cooperate with
the Lender in all reasonable ways in order to assist the Lender in the sale and
other disposition of the Collateral.

     12.          AMENDMENTS, ETC. No amendment of any provision of this
Agreement shall in any event be effective unless the same shall be in writing
and signed by the Debtor and the Lender, no waiver of any provision of this
Agreement, nor consent to any departure by the Debtor therefrom, shall in any
event be effective unless the same shall be in writing and signed by the Lender,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No failure to exercise nor any
delay in exercising on the part of the Lender of any right, power or privilege
under this Agreement, shall operate as a waiver thereof; further, no single or
partial exercise of any right, power or privilege under this Agreement shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.

     13.          INDEMNITY AND EXPENSES. (a) The Debtor agrees to indemnify the
Lender and each of its directors, officers, employees and agents (each an
"Indemnified Person") from and against any and all claims, damages, losses,
liabilities and expenses (excluding any present or future taxes, now or
hereafter imposed, levied, collected, withheld or assessed), arising out of or
in connection with or resulting from the Debtor's performance under this
Agreement (including, without limitation, enforcement

                                       -8-
<Page>

of this Agreement against the Debtor), unless and to the extent such claim,
damage, loss, liability or expense was attributable to the gross negligence,
willful misconduct or bad faith of any of the Indemnified Persons.

            (b)   The Debtor agrees to pay to the Lender from time to time, upon
demand, the amount of any and all costs and expenses (excluding any present or
future taxes, now or hereafter imposed, levied, collected, withheld or
assessed), including the reasonable fees and expenses of its counsel and of any
experts and agents, that the Lender may incur in connection with (i) the
administration of this Agreement, (ii) the custody (including custody by a
third-party on behalf of the Lender) or preservation of, or the sale of,
collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Lender against the Debtor,
(iv) the failure by the Debtor to perform or observe any of the provisions
hereof or (v) any action taken by the Lender pursuant to Section 6 or 9 hereof.

            (c)   The foregoing provisions of this Section 13 are in furtherance
and not in limitation of the Debtor's obligations under the Letter of Credit
Agreement.

     14.          RESERVED.

     15.          ADDRESSES FOR NOTICES. All notices and other communications
provided for hereunder shall be in writing (including telecopier) and, if to the
Debtor, mailed, telecopied, delivered by nationally recognized overnight courier
or hand delivered to it, addressed to it at the address of such party specified
in the Letter of Credit Agreement, if to the Lender, mailed, telecopied,
delivered by nationally recognized overnight courier or hand delivered to it at
Fleet National Bank, Attention: Lawrence Davis, 777 Main Street, Hartford,
Connecticut 06115, Telephone No. (860) 986-3443, Telecopier No. (860) 986-1264,
or as to any party, at such other address as shall be designated by such party
in a written notice to each other party complying as to delivery with the terms
of this Section. All such notices and other communications shall be effective
when mailed, telecopied (with telephone confirmation of receipt received), or
delivered to the courier service, addressed as aforesaid.

     16.          NO WAIVER; CUMULATIVE REMEDIES. The Lender shall not by any
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing and signed by
the Lender. A waiver by the Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the Lender
would otherwise have on any future occasion.

     17.          CONTINUING SECURITY INTEREST. This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until the payment in full of the other Secured Obligations,
(ii) be binding upon the Debtor and its successors and assigns, including but
not limited to any trustee or examiner for the Debtor under the Bankruptcy Code
or receiver for the assets of the Debtor under any rehabilitation or insolvency
law, and (iii) inure, together with the rights and remedies of the Lender
hereunder, to the benefit of the Lender and its respective successors,

                                       -9-
<Page>

transferees and assigns. Upon the payment in full of the Secured Obligations,
the Debtor shall be entitled to the return, upon its request and at its expense,
of such of the Collateral as shall not have been sold or otherwise applied
pursuant to the terms hereof, at which time the Lender shall, at the expense and
request of the Debtor, reassign and deliver to the Debtor, or to such Person or
Persons as may be lawfully entitled thereto, against receipt, such of the
Collateral (if any) as shall not have been sold or otherwise applied by the
Lender pursuant to the terms hereof, together with appropriate instruments of
reassignment and release.

     18.          FURTHER INDEMNIFICATION. Without limiting the obligations of
the Debtor under Section 13 above, the Debtor agrees to pay, and to save the
Lender harmless from, any and all liabilities with respect to, or resulting from
any delay in paying, any and all excise, sales or other similar taxes which may
be payable or determined to be payable with respect to any of the Collateral or
in connection with any of the transactions contemplated by this Agreement.

     19.          GOVERNING LAW: TERMS. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Connecticut, except to
the extent that the validity or perfection of the security interest hereunder,
or remedies hereunder, in respect of any particular Collateral are mandatorily
governed by the law of a jurisdiction other than the State of Connecticut.
Unless otherwise defined herein or in the Letter of Credit Agreement, terms used
in Article 8 and/or 9 of the Uniform Commercial Code in the State of Connecticut
are used herein as therein defined.

     20.          NO PETITION IN BANKRUPTCY. Each of the parties to this
Agreement severally and not jointly, hereby covenants and agrees that, prior to
the date which is one year and one day after the payment or expiration in full
of all outstanding Letters of Credit, it will not institute against, or join any
other Person in instituting against, the Debtor any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other similar proceeding.

     21.          WAIVER OF JURY TRIAL. THE DEBTOR AND THE LENDER MUTUALLY
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY
JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER FUNDAMENTAL DOCUMENTS CONTEMPLATED
TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY,
INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENTS OR ACTIONS OF THE LENDER RELATING TO THE ADMINISTRATION OF THIS
AGREEMENT OR ENFORCEMENT OF THE FUNDAMENTAL DOCUMENTS, AND AGREE THAT NEITHER
PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY LAW, EACH
OBLIGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
LITIGATION ANY SPECIAL,

                                      -10-
<Page>

EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES. EACH OBLIGOR CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
THE LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE LENDER TO ENTER
INTO THIS AGREEMENT AND THE OTHER FUNDAMENTAL DOCUMENTS. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT.

     22.          JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) The Debtor
hereby irrevocably and unconditionally submits, for itself and its property, to
the non-exclusive jurisdiction of any Connecticut State court or Federal court
of the United States of America sitting in Connecticut; and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, the Letter of Credit Agreement, the other Fundamental Documents, or
for recognition of enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such Connecticut State
or, to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that the Lender may otherwise have to bring any action or proceeding
relating to this Agreement, the Letter of Credit Agreement or the other
Fundamental Documents against the Debtor or its properties in the courts of any
jurisdiction.

            (b)   The Debtor hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement, the Letter of Credit Agreement or
the other Fundamental Documents in any Connecticut State or Federal court. Each
of the parties hereto hereby irrevocably waives, to the fullest extent permitted
by law, the defense of an inconvenient forum to the maintenance of such action
or proceeding in any such court.

            (c)   Nothing in this Agreement will affect the right of any party
to this Agreement to serve process in any other manner permitted by law.

     23.          HEADINGS. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement or be given any substantive effect.

     24.          SEVERABILITY. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such

                                      -11-
<Page>

provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.

     25.          COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same Agreement.

                                      -12-
<Page>

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

                                            ARCH REINSURANCE COMPANY,
                                            as the Debtor

                                            By
                                              ----------------------------------
                                              Title:

                                            FLEET NATIONAL BANK, as the Lender

                                            By
                                              ----------------------------------
                                              Title:

                              [SECURITY AGREEMENT]

<Page>

                                                                      SCHEDULE 1

                                   DEFINITIONS

     "ADJUSTED COLLATERAL VALUE" shall have the meaning set forth in the Letter
of Credit Agreement.

     "AFFILIATE" shall mean any Person that directly or indirectly controls, or
is under common control with, or is controlled by, the Debtor. As used in this
definition, "control" (including, with its correlative meanings, "controlled by"
and "under common control with") shall mean possession, directly or indirectly,
of the power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise), PROVIDED that, in any event, any Person that owns
directly or indirectly securities having 20% or more of the voting power for the
election of directors or other governing body of a corporation or 20% or more of
the partnership or other ownership interests of any other Person (other than as
a limited partner of such other Person) will be deemed to control such
corporation or other Person. Notwithstanding the foregoing, (a) no individual
shall be an Affiliate solely by reason of being, nor considered to have the
power to direct or cause the direction of management or policies solely by
reason of being or actions taken as, a director, officer or employee of the
Debtor or any of its Subsidiaries and (b) none of the Subsidiaries of the Debtor
shall be Affiliates.

     "AGREEMENT" shall have the meaning set forth in the preamble.

     "BANKRUPTCY CODE" shall mean Title 11 of the United States Code, as in
effect from time to time, and any successor statute.

     "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any
other day on which commercial banks in Hartford, Connecticut are authorized or
required to close.

     "COLLATERAL" shall have the meaning set forth in Section 1.

     "CUSTODIAL ACCOUNT" shall have the meaning set forth in the third "Whereas"
clause.

     "CUSTODIAN" shall mean Fleet National Bank, as custodian under the
Custodian Agreement.

     "DEBTOR" shall have the meaning set forth in the preamble.

     "EVENT OF DEFAULT" shall have the meaning set forth in the Letter of Credit
Agreement.

<Page>

     "FUNDAMENTAL DOCUMENTS" shall have the meaning set forth in the Letter of
Credit Agreement.

     "GAAP" shall mean generally accepted accounting principles in the United
States from time to time.

     "INDEMNIFIED PERSON" shall have the meaning set forth in Section 13(a).

     "INVESTMENTS" shall have the meaning set forth in the Letter of Credit
Agreement.

     "LENDER" shall have the meaning set forth in the preamble.

     "LETTER OF CREDIT AGREEMENT" shall have the meaning set forth in the first
"Whereas" clause.

     "LETTER(S) OF CREDIT" shall have the meaning set forth in the Letter of
Credit Agreement.

     "PERSON" shall mean an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.

     "PLEDGED INVESTMENTS" shall have the meaning set forth in Section 1(i).

     "SECURED OBLIGATIONS" shall have the meaning set forth in Section 2.

     "UCC" shall mean the Uniform Commercial Code as in effect from time to time
in the State of Connecticut.

                                      -ii-
<Page>

                                                                      SCHEDULE 2

                                  TRADE NAMES
<Page>

                               SECURITY AGREEMENT

                           Dated as of April 17, 2002

                                     between

                        FIRST AMERICAN INSURANCE COMPANY

                                       and

                               FLEET NATIONAL BANK

<Page>

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                        PAGE
<S>         <C>                                                                                           <C>
SECTION 1.  Grant of Security..............................................................................1

SECTION 2.  Security for Obligations.......................................................................3

SECTION 3.  Delivery of Collateral.........................................................................3

SECTION 4.  Debtor Remains Liable..........................................................................3

SECTION 5.  Representations and Warranties.................................................................3

SECTION 6.  Further Assurances: Supplements................................................................4

SECTION 7.  Additional Covenants...........................................................................5

SECTION 8.  Lender Appointed Attorney-in-Fact..............................................................7

SECTION 9.  Lender May Perform.............................................................................7

SECTION 10. The Lender.....................................................................................7

SECTION 11. Remedies Upon Default; Application of Collateral...............................................8

SECTION 12. Amendments, Etc................................................................................8

SECTION 13. Indemnity and Expenses.........................................................................8

SECTION 14. Reserved.......................................................................................9

SECTION 15. Addresses for Notices..........................................................................9

SECTION 16. No Waiver; Cumulative Remedies.................................................................9

SECTION 17. Continuing Security Interest...................................................................9

SECTION 18. Further Indemnification.......................................................................10

SECTION 19. Governing Law; Terms..........................................................................10

SECTION 20. No Petition in Bankruptcy.....................................................................10

SECTION 21. Waiver of Jury Trial..........................................................................10

SECTION 22. Jurisdiction; Consent to Service of Process...................................................11

SECTION 23. Headings......................................................................................11

SECTION 24. Severability..................................................................................11

SECTION 25. Counterparts..................................................................................12
</Table>

SCHEDULES

Schedule 1  Definitions
Schedule 2  Trade Names

                                       -i-
<Page>

                               SECURITY AGREEMENT

     SECURITY AGREEMENT (the "Agreement") dated as of April 17, 2002 between
FIRST AMERICAN INSURANCE COMPANY, a corporation organized and existing under the
laws of Missouri, ("First American" or "Debtor") and FLEET NATIONAL BANK, as the
Lender under the below referenced Letter of Credit Agreement (the "Lender").

                              W I T N E S S E T H:

     WHEREAS, the Lender as the issuer of Letters of Credit has entered into a
Letter of Credit and Reimbursement Agreement dated as of April 17, 2002 (as such
agreement may hereafter be amended or otherwise modified from time to time,
being the "Letter of Credit Agreement") with Arch Reinsurance Ltd., Arch
Reinsurance Company, Alternative Re Limited and First American;

     WHEREAS, it is a condition precedent to the issuance of Letters of Credit
by the Lender under the Letter of Credit Agreement that the Debtor shall have
executed and delivered to the Lender this Agreement and pledged and granted a
security interest in the Collateral, as such term is defined below, held by or
on behalf of the Debtor from time to time and other rights and interests
contemplated by this Agreement; and

     WHEREAS, pursuant to the terms of the Custodian Agreement, the Custodian
has established a Custodial Account, account #0010407670 (the "Custodial
Account"), in the name of the Debtor and the Company hereby grants to the Lender
a security interest in the Collateral, including the Custodial Account.

     NOW, THEREFORE, in consideration of the premises and in order to induce the
Lender to issue Letters of Credit for the account of the Debtor under the Letter
of Credit Agreement, First American hereby agrees with the Lender as follows
(all capitalized terms used herein shall have the meanings set forth in SCHEDULE
1 hereto or, if not defined therein, in the Letter of Credit Agreement):

     1.          GRANT OF SECURITY. The Debtor hereby pledges to the Lender and
grants to the Lender for its benefit a security interest in and lien upon, all
of the Debtor's right, title and interest in and to the following, in each case
whether now or hereafter existing or in which the Debtor now has or hereafter
acquires an interest and wherever the same may be located (collectively, the
"Collateral"):

            (i)   The Custodial Account, including all cash held therein or
     credited thereto from time to time, and all securities, instruments and
     investments, including Investments, and other "investment property" and
     "financial assets," as each such term is defined in the UCC, of any kind
     held therein or credited thereto from time to time) (the "Pledged
     Investments"); and

<Page>

            (ii)  All proceeds of, accessions to, substitutions for, and
     earnings on, any and all of the foregoing Collateral (including, without
     limitation, proceeds that constitute property of the types described in
     clauses (i) and (ii) above) and, to the extent not otherwise included, all
     payments under insurance (whether or not the Lender is the loss payee
     thereof), or any indemnity, warranty or guaranty, payable by reason of loss
     or damage to or otherwise with respect to any of the foregoing Collateral.
     For purposes hereof, the term "proceeds" includes whatever is receivable or
     received when Collateral or proceeds are sold, collected, exchanged or
     otherwise disposed of, whether such disposition is voluntary or
     involuntary, and includes, without limitation, all rights to payment,
     including returned premiums, with respect to any insurance relating
     thereto.

     Notwithstanding the foregoing, at any time, other than after the occurrence
and during the continuation of a Default or an Event of Default, the Debtor may
request that the Lender release its Lien on so much of the Collateral as equals
the excess, if any, of the Adjusted Collateral Value of the Collateral over the
sum of all amounts then outstanding with respect to (x) Letter of Credit
Obligations of the Debtor and (y) Reimbursement Obligations of the Debtor;
provided that such excess shall be released from the Custodial Account only with
the consent of the Lender, which consent may be given or withheld by the Lender
in its sole discretion. Should the Adjusted Collateral Value of the Collateral
be less than the sum of all amounts then outstanding with respect to (x) Letter
of Credit Obligations of the Debtor and (y) Reimbursement Obligations of the
Debtor, the Lender shall have the right to require the Debtor to pay to the
Custodian by no later than 3:00 p.m. (Connecticut time) (i) on the date of such
notice, if such notice is received before 12:00 p.m. (Connecticut time) or (ii)
on the Business Day immediately following notice by the Lender, if such notice
is received after 12:00 p.m. (Connecticut time), the difference between the
then-current Adjusted Collateral Value of the Collateral and (B) the sum of all
amounts then outstanding with respect to (x) Letter of Credit Obligations of the
Debtor and (y) Reimbursement Obligations of the Debtor, which payment shall be
deposited by the Custodian into the Custodial Account in the form of cash or
Investments. Any failure by the Debtor to make such payment shall constitute an
Event of Default hereunder and under the Fundamental Documents.

     In addition, the Debtor shall have the right, other than after the
occurrence and during the continuation of a Default or an Event of Default, to
substitute Collateral to the extent such substitution arises from normal trade
activities within the Custodial Account hereunder so long as (i) the Debtor
maintains the value of the Custodial Account in accordance with this Section 1,
(ii) such substituted Collateral shall be in the form of Investments, and (iii)
if requested by the Lender, the Debtor shall deliver to the Lender a Supplement
to Security Agreement in a form satisfactory to the Lender. The Collateral which
is removed from the Custodial Account in full compliance with this paragraph
shall no longer be subject to the Lien hereof without any further action on the
part of the Debtor or the Lender; the Collateral which is added to the Custodial
Account pursuant to such Supplement to Security Agreement shall immediately be
subject to the Lien hereof without any further action on the part of the Debtor
or the Lender. The Debtor agrees to pay any costs and expenses of Lender (and
its counsel) in connection with any substitution of Collateral.

                                       -2-
<Page>

     2.          SECURITY FOR OBLIGATIONS. The grant in Section 1 secures and
the Collateral is collateral security for the prompt payment or performance in
full when due, whether at stated maturity, by acceleration or otherwise of all
obligations of every nature now or hereafter existing of the Debtor under the
Letter of Credit Agreement and any Letter of Credit application and
reimbursement agreement or other document or instrument delivered pursuant
thereto, and all amendments, extensions or renewals thereof or hereof, whether
for principal, interest, fees, expenses or otherwise, whether now existing or
hereafter arising, voluntary or involuntary, whether or not jointly owed with
others, direct or indirect, absolute or contingent, liquidated or unliquidated,
and whether or not from time to time decreased or extinguished and later
increased, created or incurred and all or any portion of such obligations that
are paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly as a preference, fraudulent transfer or otherwise, and
all obligations of every nature of the Debtor now or hereafter existing under
this Agreement (all such obligations being the "Secured Obligations").

     3.          DELIVERY OF COLLATERAL. All certificates or instruments, if
any, representing or evidencing the Collateral shall be delivered to and held by
the Custodian for the benefit of the Lender. At any time at which an Event of
Default has occurred and is continuing under the Letter of Credit Agreement, the
Lender shall have the right, subject at all times to Section 11 hereof, in its
discretion and without notice to the Debtor, to transfer to or to register in
the name of any of its nominees any or all of the Collateral, and may receive
the income and any distributions thereon and hold the same as Collateral for the
Secured Obligations, or apply the same to any of the Secured Obligations.

     4.          DEBTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) the Debtor shall remain liable under the contracts and
agreements included or relating to the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Lender of any of the rights hereunder shall not release the Debtor from any of
its duties or obligations under the contracts and agreements included in or
relating to the Collateral, and (c) the Lender shall not have any obligation or
liability under the contracts and agreements included in or relating to the
Collateral by reason of this Agreement, nor shall the Lender be obligated to
perform any of the obligations or duties of the Debtor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.

     5.          REPRESENTATIONS AND WARRANTIES. The Debtor hereby represents
and warrants as follows:

            (a)   The Debtor is duly organized and validly exists under the laws
of Missouri.

            (b)   The Debtor is the legal and beneficial owner of the Collateral
free and clear of any liens, security interest, option or other charge or
encumbrance (except liens in favor of the Custodian). No effective financing
statement or other instrument similar in effect covering all or any part of the
Collateral is on file in any recording office, except

                                       -3-
<Page>

such as may have been filed in favor of the Lender relating to this Agreement.
Except as set forth on Schedule 2 attached hereto, the Debtor has no trade names
and does not do business under any fictitious business name.

            (c)   The pledge and the grant of the security interest in the
Collateral pursuant to this Agreement creates a valid and perfected first
priority security interest in the Collateral, and all filings and other actions
necessary to perfect and protect such security interest have been duly taken.

            (d)   No authorization, consent, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body (other
than authorizations, consents, approvals already obtained, actions already
taken, notices already provided and filings already made) is required (i) for
the grant by the Debtor of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by the Debtor, (ii) for the
perfection of or the exercise by the Lender of its rights and remedies provided
for in this Agreement or (iii) to ensure the legality, validity, enforceability
or admissibility in evidence of this Agreement in any jurisdiction in which any
of the Collateral is located.

            (e)   Each of this Agreement and the other Fundamental Documents to
which the Debtor is a party constitutes the legal, valid and binding obligation
of the Debtor, enforceable against the Debtor in accordance with its terms,
except as such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting the
enforcement of creditors' rights generally, and (ii) general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law). To the knowledge of the Debtor, each Pledged Investment
constitutes the legally valid and binding obligation of the party obligated to
pay the same.

            (f)   The Debtor is deriving substantial direct and indirect
benefits from the issuance of the Letters of Credit for its account under the
Letter of Letter of Credit Agreement and has received good and adequate
consideration for the pledge of the Collateral effected under this Agreement.

     6.          FURTHER ASSURANCES: SUPPLEMENTS. (a) The Debtor agrees that at
any time and from time to time, at its expense, it will promptly execute and
deliver all further instruments and documents, and take all further action that
may be reasonably necessary or desirable, or that the Lender may request, to
perfect and protect the pledges and security interests granted or purported to
be granted hereby or to enable the Lender to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, the Debtor will (i) if any Collateral shall be
evidenced by a promissory note or other instrument, or if any of the Collateral
shall constitute chattel paper, deliver to the Lender (or to the Custodian to
hold on behalf of the Lender) such note, instrument and all original
counterparts of chattel paper duly endorsed and accompanied by duly executed
instruments of transfer, all in form satisfactory to the Lender and (ii) execute
and file such financing or continuation statements, or amendments thereto, and
such other instruments or notices, as may be necessary or

                                       -4-
<Page>

desirable, or that the Lender may reasonably request, to protect and preserve
the pledges and security interests granted or purported to be granted hereby.

            (a)   The Debtor hereby authorizes the Lender to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral. A carbon, photographic or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law. The Lender
will promptly send the Debtor any financing or continuation statements thereto
which it files without the signature of the Debtor and, except in the case of
filings of copies of this Agreement as financing statements, the Lender will
promptly send the Debtor the filing or recordation information with respect
thereto.

            (b)   The Debtor will furnish to the Lender from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Lender may
reasonably request, all in reasonable detail.

          (c) The Debtor agrees that it will not create or permit to exist any
lien, security interest or other charge or encumbrance upon or with respect to
any of the Collateral except in favor of the Lender hereunder or the Custodian.

     7.          ADDITIONAL COVENANTS. (a) The Debtor shall maintain its
organization and existence in the jurisdiction specified in Section 5(a) and
shall not reincorporate or otherwise reorganize in any other jurisdiction
without the prior written consent of the Lender. The Debtor shall, from the date
on which each Pledged Investment was purchased, maintain (i) complete records of
each Pledged Investment, including records of all payments received, interest or
fees accruing or credits granted and (ii) all documentation relating thereto. In
connection therewith, the Lender may (subject to the confidentiality
restrictions contained in any agreement) institute procedures to permit it to
confirm the balances owing in respect of any Pledged Investment. The Debtor
agrees to render to the Lender such clerical and other assistance as may be
reasonably requested with regard to the foregoing. If an Event of Default under
the Letter of Credit Agreement shall have occurred and be continuing, promptly
upon request therefor, the Debtor shall (subject to the confidentiality
restrictions contained in any agreement) deliver to the Lender complete and
correct copies of all documentation relating to the Pledged Investments.

            (a)   The Debtor shall duly fulfill in all material respects all
obligations on its part to be fulfilled under or in connection with the Pledged
Investments and shall do nothing to impair in any material respect the rights of
the Lender therein.

            (b)   Following an Event of Default under the Letter of Credit
Agreement (subject to Section 11 hereof), any proceeds of Collateral when first
received by or on behalf of the Debtor shall be deposited by or on behalf of the
Debtor in the form so received in the Custodial Account, and until so deposited
shall be held in trust for and as

                                       -5-
<Page>

the Lender's property and shall not be commingled with the Debtor's or any other
Person's other funds or properties.

            (c)   The Debtor, at its own cost and expense, will, and will cause
the Custodian to, maintain satisfactory and complete records of the Collateral,
including, without limitation, a record of all payments received with respect to
the Collateral and all other dealings with the Collateral. Upon the occurrence
and during the continuation of an Event of Default under the Letter of Credit
Agreement, the Debtor will (subject to the confidentiality restrictions
contained in any agreement and any applicable law) deliver and turn over to the
Lender or to its representatives, or at the option of the Lender shall (subject
to the confidentiality restrictions contained in any agreement) provide the
Lender or its representatives with access to, at any time on demand of the
Lender, copies of all the Debtor's books and records pertaining to the
Collateral including, without limitation, all credit files and computer
software, programs, tapes or disks relating to Pledged Investments or otherwise
necessary to the collection thereof.

            (d)   The Debtor will comply in all material respects with all
applicable statutes, rules, and regulations with respect to the Collateral or
any part thereof.

            (e)   The Debtor will pay promptly when due all taxes, assessments
and governmental charges or levies imposed upon the Collateral or in respect of
its income or profits therefrom and all claims of any kind (including, without
limitation, claims for labor, materials and supplies), except that no such
amount need be paid if (i) such non-payment does not involve any danger of the
sale, forfeiture or loss of any of the Collateral or any interest therein, (ii)
the charge or levy is being contested in good faith and by proper proceedings,
and (iii) the obligation to pay such amount is adequately reserved against in
accordance with and to the extent required by GAAP.

            (f)   The Debtor will in all material respects perform and observe
all the terms and provisions of the documentation relating to the Pledged
Investments to be performed or observed by it, maintain the documentation
relating to the Pledged Investments in full force and effect in accordance with
their terms, and take all action to such end as may be from time reasonably
requested by the Lender.

            (g)   The Debtor will advise the Lender promptly, in reasonable
detail, (i) of any lien, security interest, encumbrance or claim made or
asserted against any of the Collateral by any Person, other than the Custodian,
and (ii) of the occurrence of any event which would have a material adverse
effect on the aggregate value of the Collateral or on the pledges and security
interests granted hereby.

            (h)   The Debtor will not sell, assign (by operation of law or
otherwise), or otherwise dispose of, or grant any option with respect to, any of
the Collateral, except sales not restricted by the terms of the Letter of Credit
Agreement or this Agreement.

            (i)   The Debtor shall at all times retain Fleet National Bank as
the Custodian pursuant to the Custodian Agreement.

                                       -6-
<Page>

     8.          LENDER APPOINTED ATTORNEY-IN-FACT. The Debtor appoints the
Lender its attorney-in-fact with full authority in the place and stead of the
Debtor and in the name of the Debtor or otherwise, from time to time in the
Lender's discretion, after an Event of Default under the Letter of Credit
Agreement has occurred and is continuing (but in all instances subject to
Section 11 hereof), to take any action and to execute any instrument that the
Lender may deem necessary or advisable to accomplish the purposes of this
Agreement (subject to the provisions of any applicable law), including, without
limitation, to (i) ask, demand, collect, sue for, recover, compromise, receive
and give acquittances and receipts for moneys due and to become due under or in
connection with the Collateral, (ii) receive, endorse and collect all drafts or
other instruments and documents made payable to the Debtor in connection
therewith or representing any payment, dividend or other distribution in respect
of the Collateral or any part thereof and to give full discharge for the same,
(iii) file any claims or take any action or institute any proceedings which the
Lender may deem to be necessary or desirable for the collection of any of the
Collateral, (iv) enforce the rights of the Lender with respect to any of the
Collateral and compliance with the terms and conditions of this Agreement, the
Letter of Credit Agreement and the other Fundamental Documents, (v) pay or
discharge taxes or Liens levied or placed upon or threatened against the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by the Lender in its sole discretion, and
such payments made by the Lender to become obligations of the Debtor to the
Lender, due and payable in accordance with the Letter of Credit Agreement, (vi)
generally sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though the
Lender were the absolute owner thereof for all purposes, and (vii) do, at the
Lender's option and the Debtor's expense, at any time, or from time to time, all
acts and things that the Lender deems necessary to protect, preserve or realize
upon the Collateral and the Lender's security interest therein, in order to
effect the intent of this Agreement, all as fully and effectively as the Debtor
might do.

     9.          LENDER MAY PERFORM. If the Debtor fails to perform any
agreement contained herein or if a Default or an Event of Default under the
Letter of Credit Agreement shall have occurred and be continuing, the Lender may
at any time (but in all instances subject to Section 11 hereof) itself perform,
or cause performance of, such agreement.

     10.          THE LENDER. (a) Neither the Lender nor any of its respective
affiliates, directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them under or in connection with
this Agreement or for errors in judgment, except for its or their own gross
negligence, willful misconduct or bad faith.

                  (b)  The powers conferred on the Lender hereunder are solely
to protect its interest in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. Except for the exercise of reasonable care
in the custody and preservation of any Collateral in its possession and
accounting for moneys actually received by it hereunder, the Lender shall have
no duty as to any Collateral or as to any rights pertaining thereto.

                                       -7-
<Page>

                  (c)  The Lender shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which the Lender
accords its own property.

     11.          REMEDIES UPON DEFAULT; APPLICATION OF COLLATERAL. (a) If an
Event of Default under the Letter of Credit Agreement shall have occurred and be
continuing, then any cash held by the Lender and all cash proceeds received by
the Lender in respect of any sale of, collection from, or other realization upon
all or any part of the Collateral shall be applied to the obligations of the
Debtor to the Lender as the Lender determines in its sole discretion. Any
surplus of such cash or cash proceeds held by the Lender and remaining after the
payment in full of all the Secured Obligations shall be paid over to the Debtor
or to whomsoever may be lawfully entitled thereto.

            (a)   Any foreclosure upon, sale of, or exercise of rights with
respect to the Collateral shall be conducted in compliance with all contractual
provisions applicable to such Collateral, including but not limited to any
provisions of any agreement pursuant to which any Investment arises that govern
the sale or assignment thereof.

            (b)   Any sale of the Collateral or any part thereof shall be made
in a commercially reasonable manner and in accordance with applicable law and
may be made in one or more lots at public or private sale, for cash, on credit
or for future delivery. The Lender and/or any of its affiliates may be a
purchaser at any such sale. The Lender shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given. The Lender may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. The Debtor shall cooperate with
the Lender in all reasonable ways in order to assist the Lender in the sale and
other disposition of the Collateral.

     12.          AMENDMENTS, ETC. No amendment of any provision of this
Agreement shall in any event be effective unless the same shall be in writing
and signed by the Debtor and the Lender, no waiver of any provision of this
Agreement, nor consent to any departure by the Debtor therefrom, shall in any
event be effective unless the same shall be in writing and signed by the Lender,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No failure to exercise nor any
delay in exercising on the part of the Lender of any right, power or privilege
under this Agreement, shall operate as a waiver thereof; further, no single or
partial exercise of any right, power or privilege under this Agreement shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.

     13.          INDEMNITY AND EXPENSES. (a) The Debtor agrees to indemnify the
Lender and each of its directors, officers, employees and agents (each an
"Indemnified Person") from and against any and all claims, damages, losses,
liabilities and expenses (excluding any present or future taxes, now or
hereafter imposed, levied, collected, withheld or assessed), arising out of or
in connection with or resulting from the Debtor's performance under this
Agreement (including, without limitation, enforcement

                                       -8-
<Page>

of this Agreement against the Debtor), unless and to the extent such claim,
damage, loss, liability or expense was attributable to the gross negligence,
willful misconduct or bad faith of any of the Indemnified Persons.

            (a)   The Debtor agrees to pay to the Lender from time to time, upon
demand, the amount of any and all costs and expenses (excluding any present or
future taxes, now or hereafter imposed, levied, collected, withheld or
assessed), including the reasonable fees and expenses of its counsel and of any
experts and agents, that the Lender may incur in connection with (i) the
administration of this Agreement, (ii) the custody (including custody by a
third-party on behalf of the Lender) or preservation of, or the sale of,
collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Lender against the Debtor,
(iv) the failure by the Debtor to perform or observe any of the provisions
hereof or (v) any action taken by the Lender pursuant to Section 6 or 9 hereof.

            (b)   The foregoing provisions of this Section 13 are in furtherance
and not in limitation of the Debtor's obligations under the Letter of Credit
Agreement.

     14.          RESERVED.

     15.          ADDRESSES FOR NOTICES. All notices and other communications
provided for hereunder shall be in writing (including telecopier) and, if to the
Debtor, mailed, telecopied, delivered by nationally recognized overnight courier
or hand delivered to it, addressed to it at the address of such party specified
in the Letter of Credit Agreement, if to the Lender, mailed, telecopied,
delivered by nationally recognized overnight courier or hand delivered to it at
Fleet National Bank, Attention: Lawrence Davis, 777 Main Street, Hartford,
Connecticut 06115, Telephone No. (860) 986-3443, Telecopier No. (860) 986-1264,
or as to any party, at such other address as shall be designated by such party
in a written notice to each other party complying as to delivery with the terms
of this Section. All such notices and other communications shall be effective
when mailed, telecopied (with telephone confirmation of receipt received), or
delivered to the courier service, addressed as aforesaid.

     16.          NO WAIVER; CUMULATIVE REMEDIES. The Lender shall not by any
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing and signed by
the Lender. A waiver by the Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the Lender
would otherwise have on any future occasion.

     17.          CONTINUING SECURITY INTEREST. This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until the payment in full of the other Secured Obligations,
(ii) be binding upon the Debtor and its successors and assigns, including but
not limited to any trustee or examiner for the Debtor under the Bankruptcy Code
or receiver for the assets of the Debtor under any rehabilitation or insolvency
law, and (iii) inure, together with the rights and remedies of the Lender
hereunder, to the benefit of the Lender and its respective successors,

                                       -9-
<Page>

transferees and assigns. Upon the payment in full of the Secured Obligations,
the Debtor shall be entitled to the return, upon its request and at its expense,
of such of the Collateral as shall not have been sold or otherwise applied
pursuant to the terms hereof, at which time the Lender shall, at the expense and
request of the Debtor, reassign and deliver to the Debtor, or to such Person or
Persons as may be lawfully entitled thereto, against receipt, such of the
Collateral (if any) as shall not have been sold or otherwise applied by the
Lender pursuant to the terms hereof, together with appropriate instruments of
reassignment and release.

     18.          FURTHER INDEMNIFICATION. Without limiting the obligations of
the Debtor under Section 13 above, the Debtor agrees to pay, and to save the
Lender harmless from, any and all liabilities with respect to, or resulting from
any delay in paying, any and all excise, sales or other similar taxes which may
be payable or determined to be payable with respect to any of the Collateral or
in connection with any of the transactions contemplated by this Agreement.

     19.          GOVERNING LAW; TERMS. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Connecticut, except to
the extent that the validity or perfection of the security interest hereunder,
or remedies hereunder, in respect of any particular Collateral are mandatorily
governed by the law of a jurisdiction other than the State of Connecticut.
Unless otherwise defined herein or in the Letter of Credit Agreement, terms used
in Article 8 and/or 9 of the Uniform Commercial Code in the State of Connecticut
are used herein as therein defined.

     20.          NO PETITION IN BANKRUPTCY. Each of the parties to this
Agreement severally and not jointly, hereby covenants and agrees that, prior to
the date which is one year and one day after the payment or expiration in full
of all outstanding Letters of Credit, it will not institute against, or join any
other Person in instituting against, the Debtor any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other similar proceeding.

     21.          WAIVER OF JURY TRIAL. THE DEBTOR AND THE LENDER MUTUALLY
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY
JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER FUNDAMENTAL DOCUMENTS CONTEMPLATED
TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY,
INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENTS OR ACTIONS OF THE LENDER RELATING TO THE ADMINISTRATION OF THIS
AGREEMENT OR ENFORCEMENT OF THE FUNDAMENTAL DOCUMENTS, AND AGREE THAT NEITHER
PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY LAW, EACH
OBLIGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
LITIGATION ANY SPECIAL,

                                      -10-
<Page>

EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES. EACH OBLIGOR CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
THE LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE LENDER TO ENTER
INTO THIS AGREEMENT AND THE OTHER FUNDAMENTAL DOCUMENTS. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT.

     22.          JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) The Debtor
hereby irrevocably and unconditionally submits, for itself and its property, to
the non-exclusive jurisdiction of any Connecticut State court or Federal court
of the United States of America sitting in Connecticut; and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, the Letter of Credit Agreement, the other Fundamental Documents, or
for recognition of enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such Connecticut State
or, to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that the Lender may otherwise have to bring any action or proceeding
relating to this Agreement, the Letter of Credit Agreement or the other
Fundamental Documents against the Debtor or its properties in the courts of any
jurisdiction.

            (a)   The Debtor hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement, the Letter of Credit Agreement or
the other Fundamental Documents in any Connecticut State or Federal court. Each
of the parties hereto hereby irrevocably waives, to the fullest extent permitted
by law, the defense of an inconvenient forum to the maintenance of such action
or proceeding in any such court.

            (b)   Nothing in this Agreement will affect the right of any party
to this Agreement to serve process in any other manner permitted by law.

     23.          HEADINGS. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement or be given any substantive effect.

     24.          SEVERABILITY. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such

                                      -11-
<Page>

provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.

     25.          COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same Agreement.

                                      -12-
<Page>

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

                                        FIRST AMERICAN INSURANCE COMPANY,
                                        as the Debtor

                                        By
                                          --------------------------------------
                                          Title:

                                        FLEET NATIONAL BANK, as the Lender

                                        By
                                          --------------------------------------
                                          Title:

                              [SECURITY AGREEMENT]

<Page>

                                                                      SCHEDULE 1

                                   DEFINITIONS

     "ADJUSTED COLLATERAL VALUE" shall have the meaning set forth in the Letter
of Credit Agreement.

     "AFFILIATE" shall mean any Person that directly or indirectly controls, or
is under common control with, or is controlled by, the Debtor. As used in this
definition, "control" (including, with its correlative meanings, "controlled by"
and "under common control with") shall mean possession, directly or indirectly,
of the power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise), PROVIDED that, in any event, any Person that owns
directly or indirectly securities having 20% or more of the voting power for the
election of directors or other governing body of a corporation or 20% or more of
the partnership or other ownership interests of any other Person (other than as
a limited partner of such other Person) will be deemed to control such
corporation or other Person. Notwithstanding the foregoing, (a) no individual
shall be an Affiliate solely by reason of being, nor considered to have the
power to direct or cause the direction of management or policies solely by
reason of being or actions taken as, a director, officer or employee of the
Debtor or any of its Subsidiaries and (b) none of the Subsidiaries of the Debtor
shall be Affiliates.

     "AGREEMENT" shall have the meaning set forth in the preamble.

     "BANKRUPTCY CODE" shall mean Title 11 of the United States Code, as in
effect from time to time, and any successor statute.

     "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any
other day on which commercial banks in Hartford, Connecticut are authorized or
required to close.

     "COLLATERAL" shall have the meaning set forth in Section 1.

     "CUSTODIAL ACCOUNT" shall have the meaning set forth in the third "Whereas"
clause.

     "CUSTODIAN" shall mean Fleet National Bank, as custodian under the
Custodian Agreement.

     "DEBTOR" shall have the meaning set forth in the preamble.

     "EVENT OF DEFAULT" shall have the meaning set forth in the Letter of Credit
Agreement.

     "FUNDAMENTAL DOCUMENTS" shall have the meaning set forth in the Letter of
Credit Agreement.

<Page>

     "GAAP" shall mean generally accepted accounting principles in the United
States from time to time.

     "INDEMNIFIED PERSON" shall have the meaning set forth in Section 13(a).

     "INVESTMENTS" shall have the meaning set forth in the Letter of Credit
Agreement.

     "LENDER" shall have the meaning set forth in the preamble.

     "LETTER OF CREDIT AGREEMENT" shall have the meaning set forth in the first
"Whereas" clause.

     "LETTER(S) OF CREDIT" shall have the meaning set forth in the Letter of
Credit Agreement.

     "PERSON" shall mean an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.

     "PLEDGED INVESTMENTS" shall have the meaning set forth in Section 1(i).

     "SECURED OBLIGATIONS" shall have the meaning set forth in Section 2.

     "UCC" shall mean the Uniform Commercial Code as in effect from time to time
in the State of Connecticut.

                                      -ii-
<Page>

                                                                      SCHEDULE 2

                                   TRADE NAMES

<Page>

                               SECURITY AGREEMENT

                           Dated as of April 17, 2002

                                     between

                              ARCH REINSURANCE LTD.

                                       and

                               FLEET NATIONAL BANK

<Page>

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                            PAGE
<S>            <C>                                                                                           <C>
SECTION 1.     Grant of Security..............................................................................1

SECTION 2.     Security for Obligations.......................................................................3

SECTION 3.     Delivery of Collateral.........................................................................3

SECTION 4.     Debtor Remains Liable..........................................................................3

SECTION 5.     Representations and Warranties.................................................................3

SECTION 6.     Further Assurances: Supplements................................................................4

SECTION 7.     Additional Covenants...........................................................................5

SECTION 8.     Lender Appointed Attorney-in-Fact..............................................................7

SECTION 9.     Lender May Perform.............................................................................7

SECTION 10.    The Lender.....................................................................................7

SECTION 11.    Remedies Upon Default; Application of Collateral...............................................8

SECTION 12.    Amendments, Etc................................................................................8

SECTION 13.    Indemnity and Expenses.........................................................................8

SECTION 14.    Reserved.......................................................................................9

SECTION 15.    Addresses for Notices..........................................................................9

SECTION 16.    No Waiver; Cumulative Remedies.................................................................9

SECTION 17.    Continuing Security Interest...................................................................9

SECTION 18.    Further Indemnification.......................................................................10

SECTION 19.    Governing Law; Terms..........................................................................10

SECTION 20.    No Petition in Bankruptcy.....................................................................10

SECTION 21.    Waiver of Jury Trial..........................................................................10

SECTION 22.    Jurisdiction; Consent to Service of Process...................................................11

SECTION 23.    Headings......................................................................................11

SECTION 24.    Severability..................................................................................11

SECTION 25.    Counterparts..................................................................................12
</Table>

SCHEDULES

Schedule 1     Definitions
Schedule 2     Trade Names

                                       -i-
<Page>

                               SECURITY AGREEMENT

     SECURITY AGREEMENT (the "Agreement") dated as of April 17, 2002 between
ARCH REINSURANCE LTD., a corporation organized and existing under the laws of
Bermuda, ("Reinsurance" or "Debtor") and FLEET NATIONAL BANK, as the Lender
under the below referenced Letter of Credit Agreement (the "Lender").

                              W I T N E S S E T H:

     WHEREAS, the Lender as the issuer of Letters of Credit has entered into a
Letter of Credit and Reimbursement Agreement dated as of April 17, 2002 (as such
agreement may hereafter be amended or otherwise modified from time to time,
being the "Letter of Credit Agreement") with Alternative Re Limited,
Reinsurance, Arch Reinsurance Company and First American Insurance Company;

     WHEREAS, it is a condition precedent to the issuance of Letters of Credit
by the Lender under the Letter of Credit Agreement that the Debtor shall have
executed and delivered to the Lender this Agreement and pledged and granted a
security interest in the Collateral, as such term is defined below, held by or
on behalf of the Debtor from time to time and other rights and interests
contemplated by this Agreement; and

     WHEREAS, pursuant to the terms of the Custodian Agreement, the Custodian
has established a Custodial Account, account #0010406870 (the "Custodial
Account"), in the name of the Debtor and the Company hereby grants to the Lender
a security interest in the Collateral, including the Custodial Account.

     NOW, THEREFORE, in consideration of the premises and in order to induce the
Lender to issue Letters of Credit for the account of the Debtor under the Letter
of Credit Agreement, Reinsurance hereby agrees with the Lender as follows (all
capitalized terms used herein shall have the meanings set forth in SCHEDULE 1
hereto or, if not defined therein, in the Letter of Credit Agreement):

     1.          GRANT OF SECURITY. The Debtor hereby pledges and charges to
the Lender and grants to the Lender for its benefit a security interest in and
lien upon, all of the Debtor's right, title and interest in and to the
following, in each case whether now or hereafter existing or in which the Debtor
now has or hereafter acquires an interest and wherever the same may be located
(collectively, the "Collateral"):

            (i)   The Custodial Account, including all cash held therein or
     credited thereto from time to time, and all securities, instruments and
     investments, including Investments, and other "investment property" and
     "financial assets," as each such term is defined in the UCC, of any kind
     held therein or credited thereto from time to time) (the "Pledged
     Investments");

            (ii)  All proceeds of, accessions to, substitutions for, and
     earnings on, any and all of the foregoing Collateral (including, without
     limitation, proceeds that constitute property of the types described in
     clauses (i) and (ii) above) and, to

<Page>

     the extent not otherwise included, all payments under insurance (whether or
     not the Lender is the loss payee thereof), or any indemnity, warranty or
     guaranty, payable by reason of loss or damage to or otherwise with respect
     to any of the foregoing Collateral. For purposes hereof, the term
     "proceeds" includes whatever is receivable or received when Collateral or
     proceeds are sold, collected, exchanged or otherwise disposed of, whether
     such disposition is voluntary or involuntary, and includes, without
     limitation, all rights to payment, including returned premiums, with
     respect to any insurance relating thereto.

     Notwithstanding the foregoing, at any time, other than after the occurrence
and during the continuation of a Default or an Event of Default, the Debtor may
request that the Lender release its Lien on so much of the Collateral as equals
the excess, if any, of the Adjusted Collateral Value of the Collateral over the
sum of all amounts then outstanding with respect to (x) Letter of Credit
Obligations of the Debtor and (y) Reimbursement Obligations of the Debtor;
provided that such excess shall be released from the Custodial Account only with
the consent of the Lender, which consent may be given or withheld by the Lender
in its sole discretion. Should the Adjusted Collateral Value of the Collateral
be less than the sum of all amounts then outstanding with respect to (x) Letter
of Credit Obligations of the Debtor and (y) Reimbursement Obligations of the
Debtor, the Lender shall have the right to require the Debtor to pay to the
Custodian by no later than 3:00 p.m. (Connecticut time) (i) on the date of such
notice, if such notice is received before 12:00 p.m. (Connecticut time) or (ii)
on the Business Day immediately following notice by the Lender, if such notice
is received after 12:00 p.m. (Connecticut time), the difference between the
then-current Adjusted Collateral Value of the Collateral and (B) the sum of all
amounts then outstanding with respect to (x) Letter of Credit Obligations of the
Debtor and (y) Reimbursement Obligations of the Debtor, which payment shall be
deposited by the Custodian into the Custodial Account in the form of cash or
Investments. Any failure by the Debtor to make such payment shall constitute an
Event of Default hereunder and under the Fundamental Documents.

     In addition, the Debtor shall have the right, other than after the
occurrence and during the continuation of a Default or an Event of Default, to
substitute Collateral to the extent such substitution arises from normal trade
activities within the Custodial Account hereunder so long as (i) the Debtor
maintains the value of the Custodial Account in accordance with this Section 1,
(ii) such substituted Collateral shall be in the form of Investments, and (iii)
if requested by the Lender, the Debtor shall deliver to the Lender a Supplement
to Security Agreement in a form satisfactory to the Lender. The Collateral which
is removed from the Custodial Account in full compliance with this paragraph
shall no longer be subject to the Lien hereof without any further action on the
part of the Debtor or the Lender; the Collateral which is added to the Custodial
Account pursuant to such Supplement to Security Agreement shall immediately be
subject to the Lien hereof without any further action on the part of the Debtor
or the Lender. The Debtor agrees to pay any costs and expenses of the Lender
(and its counsel) in connection with any substitution of Collateral.

     2.          SECURITY FOR OBLIGATIONS. The grant in Section 1 secures and
the Collateral is collateral security for the prompt payment or performance in
full when

                                       -2-
<Page>

due, whether at stated maturity, by acceleration or otherwise of all obligations
of every nature now or hereafter existing of the Debtor under the Letter of
Credit Agreement and any Letter of Credit application and reimbursement
agreement or other document or instrument delivered pursuant thereto, and all
amendments, extensions or renewals thereof or hereof, whether for principal,
interest, fees, expenses or otherwise, whether now existing or hereafter
arising, voluntary or involuntary, whether or not jointly owed with others,
direct or indirect, absolute or contingent, liquidated or unliquidated, and
whether or not from time to time decreased or extinguished and later increased,
created or incurred and all or any portion of such obligations that are paid, to
the extent all or any part of such payment is avoided or recovered directly or
indirectly as a preference, fraudulent transfer or otherwise, and all
obligations of every nature of the Debtor now or hereafter existing under this
Agreement (all such obligations being the "Secured Obligations").

     3.          DELIVERY OF COLLATERAL. All certificates or instruments, if
any, representing or evidencing the Collateral shall be delivered to and held by
the Custodian for the benefit of the Lender. At any time at which an Event of
Default has occurred and is continuing under the Letter of Credit Agreement, the
Lender shall have the right, subject at all times to Section 11 hereof, in its
discretion and without notice to the Debtor, to transfer to or to register in
the name of any of its nominees any or all of the Collateral, and may receive
the income and any distributions thereon and hold the same as Collateral for the
Secured Obligations, or apply the same to any of the Secured Obligations.

     4.          DEBTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) the Debtor shall remain liable under the contracts and
agreements included or relating to the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Lender of any of the rights hereunder shall not release the Debtor from any of
its duties or obligations under the contracts and agreements included in or
relating to the Collateral, and (c) the Lender shall not have any obligation or
liability under the contracts and agreements included in or relating to the
Collateral by reason of this Agreement, nor shall the Lender be obligated to
perform any of the obligations or duties of the Debtor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.

     5.          REPRESENTATIONS AND WARRANTIES. The Debtor hereby represents
and warrants as follows:

            (a)   The Debtor is duly organized and validly exists under the laws
of Bermuda.

            (b)   The Debtor is the legal and beneficial owner of the Collateral
free and clear of any liens, security interest, option or other charge or
encumbrance (except liens in favor of the Custodian). No effective financing
statement or other instrument similar in effect covering all or any part of the
Collateral is on file in any recording office, except such as may have been
filed in favor of the Lender relating to this

                                       -3-
<Page>

Agreement. Except as set forth on Schedule 2 attached hereto, the Debtor has no
trade names and does not do business under any fictitious business name.

            (c)   The pledge and the grant of the security interest in the
Collateral pursuant to this Agreement creates a valid and perfected first
priority security interest in the Collateral, and all filings and other actions
necessary to perfect and protect such security interest have been duly taken.

           (d)    No authorization, consent, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body (other
than authorizations, consents, approvals already obtained, actions already
taken, notices already provided and filings already made) is required (i) for
the grant by the Debtor of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by the Debtor, (ii) for the
perfection of or the exercise by the Lender of its rights and remedies provided
for in this Agreement or (iii) to ensure the legality, validity, enforceability
or admissibility in evidence of this Agreement in any jurisdiction in which any
of the Collateral is located.

            (e)   Each of this Agreement and the other Fundamental Documents to
which the Debtor is a party constitutes the legal, valid and binding obligation
of the Debtor, enforceable against the Debtor in accordance with its terms,
except as such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting the
enforcement of creditors' rights generally, and (ii) general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law). To the knowledge of the Debtor, each Pledged Investment
constitutes the legally valid and binding obligation of the party obligated to
pay the same.

            (f)   The Debtor is deriving substantial direct and indirect
benefits from the issuance of the Letters of Credit for its account under the
Letter of Letter of Credit Agreement and has received good and adequate
consideration for the pledge of the Collateral effected under this Agreement.

     6.          FURTHER ASSURANCES: SUPPLEMENTS. (a) The Debtor agrees that at
any time and from time to time, at its expense, it will promptly execute and
deliver all further instruments and documents, and take all further action that
may be reasonably necessary or desirable, or that the Lender may request, to
perfect and protect the pledges and charges and security interests granted or
purported to be granted hereby or to enable the Lender to exercise and enforce
its rights and remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, the Debtor will (i) if any Collateral
shall be evidenced by a promissory note or other instrument, or if any of the
Collateral shall constitute chattel paper, deliver to the Lender (or to the
Custodian to hold on behalf of the Lender) such note, instrument and all
original counterparts of chattel paper duly endorsed and accompanied by duly
executed instruments of transfer, all in form satisfactory to the Lender and
(ii) execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be

                                       -4-
<Page>

necessary or desirable, or that the Lender may reasonably request, to protect
and preserve the pledges and charges and security interests granted or purported
to be granted hereby.

            (a)   The Debtor hereby authorizes the Lender to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral. A carbon, photographic or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law. The Lender
will promptly send the Debtor any financing or continuation statements thereto
which it files without the signature of the Debtor and, except in the case of
filings of copies of this Agreement as financing statements, the Lender will
promptly send the Debtor the filing or recordation information with respect
thereto.

           (b)    The Debtor will furnish to the Lender from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Lender may
reasonably request, all in reasonable detail.

            (c)   The Debtor agrees that it will not create or permit to exist
any lien, security interest or other charge or encumbrance upon or with respect
to any of the Collateral except in favor of the Lender hereunder or the
Custodian.

     7.          ADDITIONAL COVENANTS. (a) The Debtor shall maintain its
organization and existence in the jurisdiction specified in Section 5(a) and
shall not reincorporate or otherwise reorganize in any other jurisdiction
without the prior written consent of the Lender. The Debtor shall, from the date
on which each Pledged Investment was purchased, maintain (i) complete records of
each Pledged Investment, including records of all payments received, interest or
fees accruing or credits granted and (ii) all documentation relating thereto. In
connection therewith, the Lender may (subject to the confidentiality
restrictions contained in any agreement) institute procedures to permit it to
confirm the balances owing in respect of any Pledged Investment. The Debtor
agrees to render to the Lender such clerical and other assistance as may be
reasonably requested with regard to the foregoing. If an Event of Default under
the Letter of Credit Agreement shall have occurred and be continuing, promptly
upon request therefor, the Debtor shall (subject to the confidentiality
restrictions contained in any agreement) deliver to the Lender complete and
correct copies of all documentation relating to the Pledged Investments.

            (a)   The Debtor shall duly fulfill in all material respects all
obligations on its part to be fulfilled under or in connection with the Pledged
Investments and shall do nothing to impair in any material respect the rights of
the Lender therein.

            (b)   Following an Event of Default under the Letter of Credit
Agreement (subject to Section 11 hereof), any proceeds of Collateral when first
received by or on behalf of the Debtor shall be deposited by or on behalf of the
Debtor in the form so received in the Custodial Account, and until so deposited
shall be held in trust for and

                                       -5-
<Page>

as the Lender's property and shall not be commingled with the Debtor's or any
other Person's other funds or properties.

            (c)   The Debtor, at its own cost and expense, will, and will cause
the Custodian to, maintain satisfactory and complete records of the Collateral,
including, without limitation, a record of all payments received with respect to
the Collateral and all other dealings with the Collateral. Upon the occurrence
and during the continuation of an Event of Default under the Letter of Credit
Agreement, the Debtor will (subject to the confidentiality restrictions
contained in any agreement and any applicable law) deliver and turn over to the
Lender or to its representatives, or at the option of the Lender shall (subject
to the confidentiality restrictions contained in any agreement) provide the
Lender or its representatives with access to, at any time on demand of the
Lender, copies of all the Debtor's books and records pertaining to the
Collateral including, without limitation, all credit files and computer
software, programs, tapes or disks relating to Pledged Investments or otherwise
necessary to the collection thereof.

            (d)   The Debtor will comply in all material respects with all
applicable statutes, rules, and regulations with respect to the Collateral or
any part thereof.

            (e)   The Debtor will pay promptly when due all taxes, assessments
and governmental charges or levies imposed upon the Collateral or in respect of
its income or profits therefrom and all claims of any kind (including, without
limitation, claims for labor, materials and supplies), except that no such
amount need be paid if (i) such non-payment does not involve any danger of the
sale, forfeiture or loss of any of the Collateral or any interest therein, (ii)
the charge or levy is being contested in good faith and by proper proceedings,
and (iii) the obligation to pay such amount is adequately reserved against in
accordance with and to the extent required by GAAP.

            (f)   The Debtor will in all material respects perform and observe
all the terms and provisions of the documentation relating to the Pledged
Investments to be performed or observed by it, maintain the documentation
relating to the Pledged Investments in full force and effect in accordance with
their terms, and take all action to such end as may be from time reasonably
requested by the Lender.

            (g)   The Debtor will advise the Lender promptly, in reasonable
detail, (i) of any lien, security interest, encumbrance or claim made or
asserted against any of the Collateral by any Person, other than the Custodian,
and (ii) of the occurrence of any event which would have a material adverse
effect on the aggregate value of the Collateral or on the pledges and security
interests granted hereby.

            (h)   The Debtor will not sell, assign (by operation of law or
otherwise), or otherwise dispose of, or grant any option with respect to, any of
the Collateral, except sales not restricted by the terms of the Letter of Credit
Agreement or this Agreement.

            (i)   The Debtor shall at all times retain Fleet National Bank as
the Custodian pursuant to the Custodian Agreement.

                                       -6-
<Page>

     8.          LENDER APPOINTED ATTORNEY-IN-FACT. The Debtor appoints the
Lender its attorney-in-fact with full authority in the place and stead of the
Debtor and in the name of the Debtor or otherwise, from time to time in the
Lender's discretion, after an Event of Default under the Letter of Credit
Agreement has occurred and is continuing (but in all instances subject to
Section 11 hereof), to take any action and to execute any instrument that the
Lender may deem necessary or advisable to accomplish the purposes of this
Agreement (subject to the provisions of any applicable law), including, without
limitation, to (i) ask, demand, collect, sue for, recover, compromise, receive
and give acquittances and receipts for moneys due and to become due under or in
connection with the Collateral, (ii) receive, endorse and collect all drafts or
other instruments and documents made payable to the Debtor in connection
therewith or representing any payment, dividend or other distribution in respect
of the Collateral or any part thereof and to give full discharge for the same,
(iii) file any claims or take any action or institute any proceedings which the
Lender may deem to be necessary or desirable for the collection of any of the
Collateral, (iv) enforce the rights of the Lender with respect to any of the
Collateral and compliance with the terms and conditions of this Agreement, the
Letter of Credit Agreement and the other Fundamental Documents, (v) pay or
discharge taxes or Liens levied or placed upon or threatened against the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by the Lender in its sole discretion, and
such payments made by the Lender to become obligations of the Debtor to the
Lender, due and payable in accordance with the Letter of Credit Agreement, (vi)
generally sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though the
Lender were the absolute owner thereof for all purposes, and (vii) do, at the
Lender's option and the Debtor's expense, at any time, or from time to time, all
acts and things that the Lender deems necessary to protect, preserve or realize
upon the Collateral and the Lender's security interest therein, in order to
effect the intent of this Agreement, all as fully and effectively as the Debtor
might do.

     9.          LENDER MAY PERFORM. If the Debtor fails to perform any
agreement contained herein or if a Default or an Event of Default under the
Letter of Credit Agreement shall have occurred and be continuing, the Lender may
at any time (but in all instances subject to Section 11 hereof) itself perform,
or cause performance of, such agreement.

     10.          THE LENDER. (a) Neither the Lender nor any of its respective
affiliates, directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them under or in connection with
this Agreement or for errors in judgment, except for its or their own gross
negligence, willful misconduct or bad faith.

                  (b)  The powers conferred on the Lender hereunder are solely
to protect its interest in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. Except for the exercise of reasonable care
in the custody and preservation of any Collateral in its possession and
accounting for moneys actually received by it hereunder, the Lender shall have
no duty as to any Collateral or as to any rights pertaining thereto.

                                       -7-
<Page>

                  (c)  The Lender shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which the Lender
accords its own property.

     11.          REMEDIES UPON DEFAULT; APPLICATION OF COLLATERAL. (a) If an
Event of Default under the Letter of Credit Agreement shall have occurred and be
continuing, then any cash held by the Lender and all cash proceeds received by
the Lender in respect of any sale of, collection from, or other realization upon
all or any part of the Collateral shall be applied to the obligations of the
Debtor to the Lender as the Lender determines in its sole discretion. Any
surplus of such cash or cash proceeds held by the Lender and remaining after the
payment in full of all the Secured Obligations shall be paid over to the Debtor
or to whomsoever may be lawfully entitled thereto.

            (a)   Any foreclosure upon, sale of, or exercise of rights with
respect to the Collateral shall be conducted in compliance with all contractual
provisions applicable to such Collateral, including but not limited to any
provisions of any agreement pursuant to which any Investment arises that govern
the sale or assignment thereof.

            (b)   Any sale of the Collateral or any part thereof shall be made
in a commercially reasonable manner and in accordance with applicable law and
may be made in one or more lots at public or private sale, for cash, on credit
or for future delivery. The Lender and/or any of its affiliates may be a
purchaser at any such sale. The Lender shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given. The Lender may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. The Debtor shall cooperate with
the Lender in all reasonable ways in order to assist the Lender in the sale and
other disposition of the Collateral.

     12.          AMENDMENTS, ETC. No amendment of any provision of this
Agreement shall in any event be effective unless the same shall be in writing
and signed by the Debtor and the Lender, no waiver of any provision of this
Agreement, nor consent to any departure by the Debtor therefrom, shall in any
event be effective unless the same shall be in writing and signed by the Lender,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No failure to exercise nor any
delay in exercising on the part of the Lender of any right, power or privilege
under this Agreement, shall operate as a waiver thereof; further, no single or
partial exercise of any right, power or privilege under this Agreement shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.

     13.          INDEMNITY AND EXPENSES. (a) The Debtor agrees to indemnify the
Lender and each of its directors, officers, employees and agents (each an
"Indemnified Person") from and against any and all claims, damages, losses,
liabilities and expenses (excluding any present or future taxes, now or
hereafter imposed, levied, collected, withheld or assessed), arising out of or
in connection with or resulting from the Debtor's performance under this
Agreement (including, without limitation, enforcement

                                       -8-
<Page>

of this Agreement against the Debtor), unless and to the extent such claim,
damage, loss, liability or expense was attributable to the gross negligence,
willful misconduct or bad faith of any of the Indemnified Persons.

            (a)   The Debtor agrees to pay to the Lender from time to time, upon
demand, the amount of any and all costs and expenses (excluding any present or
future taxes, now or hereafter imposed, levied, collected, withheld or
assessed), including the reasonable fees and expenses of its counsel and of any
experts and agents, that the Lender may incur in connection with (i) the
administration of this Agreement, (ii) the custody (including custody by a
third-party on behalf of the Lender) or preservation of, or the sale of,
collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Lender against the Debtor,
(iv) the failure by the Debtor to perform or observe any of the provisions
hereof or (v) any action taken by the Lender pursuant to Section 6 or 9 hereof.

            (b)   The foregoing provisions of this Section 13 are in furtherance
and not in limitation of the Debtor's obligations under the Letter of Credit
Agreement.

     14.          RESERVED.

     15.          ADDRESSES FOR NOTICES. All notices and other communications
provided for hereunder shall be in writing (including telecopier) and, if to the
Debtor, mailed, telecopied, delivered by nationally recognized overnight courier
or hand delivered to it, addressed to it at the address of such party specified
in the Letter of Credit Agreement, if to the Lender, mailed, telecopied,
delivered by nationally recognized overnight courier or hand delivered to it at
Fleet National Bank, Attention: Lawrence Davis, 777 Main Street, Hartford,
Connecticut 06115, Telephone No. (860) 986-3443, Telecopier No. (860) 986-1264,
or as to any party, at such other address as shall be designated by such party
in a written notice to each other party complying as to delivery with the terms
of this Section. All such notices and other communications shall be effective
when mailed, telecopied (with telephone confirmation of receipt received), or
delivered to the courier service, addressed as aforesaid.

     16.          NO WAIVER; CUMULATIVE REMEDIES. The Lender shall not by any
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing and signed by
the Lender. A waiver by the Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the Lender
would otherwise have on any future occasion.

     17.          CONTINUING SECURITY INTEREST. This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until the payment in full of the other Secured Obligations,
(ii) be binding upon the Debtor and its successors and assigns, including but
not limited to any trustee or examiner for the Debtor under the Bankruptcy Code
or receiver for the assets of the Debtor under any rehabilitation or insolvency
law, and (iii) inure, together with the rights and remedies of the Lender
hereunder, to the benefit of the Lender and its respective successors,

                                       -9-
<Page>

transferees and assigns. Upon the payment in full of the Secured Obligations,
the Debtor shall be entitled to the return, upon its request and at its expense,
of such of the Collateral as shall not have been sold or otherwise applied
pursuant to the terms hereof, at which time the Lender shall, at the expense and
request of the Debtor, reassign and deliver to the Debtor, or to such Person or
Persons as may be lawfully entitled thereto, against receipt, such of the
Collateral (if any) as shall not have been sold or otherwise applied by the
Lender pursuant to the terms hereof, together with appropriate instruments of
reassignment and release.

     18.          FURTHER INDEMNIFICATION. Without limiting the obligations of
the Debtor under Section 13 above, the Debtor agrees to pay, and to save the
Lender harmless from, any and all liabilities with respect to, or resulting from
any delay in paying, any and all excise, sales or other similar taxes which may
be payable or determined to be payable with respect to any of the Collateral or
in connection with any of the transactions contemplated by this Agreement.

     19.          GOVERNING LAW; TERMS. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Connecticut, except to
the extent that the validity or perfection of the security interest hereunder,
or remedies hereunder, in respect of any particular Collateral are mandatorily
governed by the law of a jurisdiction other than the State of Connecticut.
Unless otherwise defined herein or in the Letter of Credit Agreement, terms used
in Article 8 and/or 9 of the Uniform Commercial Code in the State of Connecticut
are used herein as therein defined.

     20.          NO PETITION IN BANKRUPTCY. Each of the parties to this
Agreement severally and not jointly, hereby covenants and agrees that, prior to
the date which is one year and one day after the payment or expiration in full
of all outstanding Letters of Credit, it will not institute against, or join any
other Person in instituting against, the Debtor any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other similar proceeding.

     21.          WAIVER OF JURY TRIAL. THE DEBTOR AND THE LENDER MUTUALLY
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY
JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER FUNDAMENTAL DOCUMENTS CONTEMPLATED
TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY,
INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENTS OR ACTIONS OF THE LENDER RELATING TO THE ADMINISTRATION OF THIS
AGREEMENT OR ENFORCEMENT OF THE FUNDAMENTAL DOCUMENTS, AND AGREE THAT NEITHER
PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY LAW, EACH
OBLIGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
LITIGATION ANY SPECIAL,

                                      -10-
<Page>

EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES. EACH OBLIGOR CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
THE LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE LENDER TO ENTER
INTO THIS AGREEMENT AND THE OTHER FUNDAMENTAL DOCUMENTS. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT.

     22.          JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) The Debtor
hereby irrevocably and unconditionally submits, for itself and its property, to
the non-exclusive jurisdiction of any Connecticut State court or Federal court
of the United States of America sitting in Connecticut; and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, the Letter of Credit Agreement, the other Fundamental Documents, or
for recognition of enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such Connecticut State
or, to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that the Lender may otherwise have to bring any action or proceeding
relating to this Agreement, the Letter of Credit Agreement or the other
Fundamental Documents against the Debtor or its properties in the courts of any
jurisdiction.

            (a)   The Debtor hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement, the Letter of Credit Agreement or
the other Fundamental Documents in any Connecticut State or Federal court. Each
of the parties hereto hereby irrevocably waives, to the fullest extent permitted
by law, the defense of an inconvenient forum to the maintenance of such action
or proceeding in any such court.

            (b)   Nothing in this Agreement will affect the right of any party
to this Agreement to serve process in any other manner permitted by law.

     23.          HEADINGS. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement or be given any substantive effect.

     24.          SEVERABILITY. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such

                                      -11-
<Page>

provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.

     25.          COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same Agreement.

                                      -12-
<Page>

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

                                        ARCH REINSURANCE LTD.,
                                        as the Debtor

                                        By
                                          --------------------------------------
                                          Title:

                                        By
                                          --------------------------------------
                                          Title:

                                        FLEET NATIONAL BANK, as the Lender

                                        By
                                          --------------------------------------
                                          Title:

                              [SECURITY AGREEMENT]

<Page>

                                                                      SCHEDULE 1

                                   DEFINITIONS

     "ADJUSTED COLLATERAL VALUE" shall have the meaning set forth in the Letter
of Credit Agreement.

     "AFFILIATE" shall mean any Person that directly or indirectly controls, or
is under common control with, or is controlled by, the Debtor. As used in this
definition, "control" (including, with its correlative meanings, "controlled by"
and "under common control with") shall mean possession, directly or indirectly,
of the power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise), PROVIDED that, in any event, any Person that owns
directly or indirectly securities having 20% or more of the voting power for the
election of directors or other governing body of a corporation or 20% or more of
the partnership or other ownership interests of any other Person (other than as
a limited partner of such other Person) will be deemed to control such
corporation or other Person. Notwithstanding the foregoing, (a) no individual
shall be an Affiliate solely by reason of being, nor considered to have the
power to direct or cause the direction of management or policies solely by
reason of being or actions taken as, a director, officer or employee of the
Debtor or any of its Subsidiaries and (b) none of the Subsidiaries of the Debtor
shall be Affiliates.

     "AGREEMENT" shall have the meaning set forth in the preamble.

     "BANKRUPTCY CODE" shall mean Title 11 of the United States Code, as in
effect from time to time, and any successor statute.

     "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any
other day on which commercial banks in Hartford, Connecticut are authorized or
required to close.

     "COLLATERAL" shall have the meaning set forth in Section 1.

     "CUSTODIAL ACCOUNT" shall have the meaning set forth in the third "Whereas"
clause.

     "CUSTODIAN" shall mean Fleet National Bank, as custodian under the
Custodian Agreement.

     "DEBTOR" shall have the meaning set forth in the preamble.

     "EVENT OF DEFAULT" shall have the meaning set forth in the Letter of Credit
Agreement.

     "FUNDAMENTAL DOCUMENTS" shall have the meaning set forth in the Letter of
Credit Agreement.

<Page>

     "GAAP" shall mean generally accepted accounting principles in the United
States from time to time.

     "INDEMNIFIED PERSON" shall have the meaning set forth in Section 13(a).

     "INVESTMENTS" shall have the meaning set forth in the Letter of Credit
Agreement.

     "LENDER" shall have the meaning set forth in the preamble.

     "LETTER OF CREDIT AGREEMENT" shall have the meaning set forth in the first
"Whereas" clause.

     "LETTER(S) OF CREDIT" shall have the meaning set forth in the Letter of
Credit Agreement.

     "PERSON" shall mean an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.

     "PLEDGED INVESTMENTS" shall have the meaning set forth in Section 1(i).

     "SECURED OBLIGATIONS" shall have the meaning set forth in Section 2.

     "UCC" shall mean the Uniform Commercial Code as in effect from time to time
in the State of Connecticut.

                                      -ii-
<Page>

                                                                      SCHEDULE 2

                                   TRADE NAMES
<Page>

                               SECURITY AGREEMENT

                           Dated as of April 17, 2002

                                     between

                             ALTERNATIVE RE LIMITED

                                       and

                               FLEET NATIONAL BANK

<Page>

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                        PAGE
<S>         <C>                                                                                           <C>
SECTION 1.  Grant of Security..............................................................................1

SECTION 2.  Security for Obligations.......................................................................3

SECTION 3.  Delivery of Collateral.........................................................................3

SECTION 4.  Debtor Remains Liable..........................................................................3

SECTION 5.  Representations and Warranties.................................................................3

SECTION 6.  Further Assurances: Supplements................................................................4

SECTION 7.  Additional Covenants...........................................................................5

SECTION 8.  Lender Appointed Attorney-in-Fact..............................................................7

SECTION 9.  Lender May Perform.............................................................................7

SECTION 10. The Lender....................................................................................7

SECTION 11. Remedies Upon Default; Application of Collateral...............................................8

SECTION 12. Amendments, Etc................................................................................8

SECTION 13. Indemnity and Expenses.........................................................................8

SECTION 14. Reserved ......................................................................................9

SECTION 15. Addresses for Notices..........................................................................9

SECTION 16. No Waiver; Cumulative Remedies.................................................................9

SECTION 17. Continuing Security Interest...................................................................9

SECTION 18. Further Indemnification.......................................................................10

SECTION 19. Governing Law; Terms..........................................................................10

SECTION 20. No Petition in Bankruptcy.....................................................................10

SECTION 21. Waiver of Jury Trial..........................................................................10

SECTION 22. Jurisdiction; Consent to Service of Process...................................................11

SECTION 23. Headings......................................................................................11

SECTION 24. Severability..................................................................................11

SECTION 25. Counterparts..................................................................................12
</Table>

SCHEDULES

Schedule 1  Definitions
Schedule 2  Trade Names

                                       -i-
<Page>

                               SECURITY AGREEMENT

     SECURITY AGREEMENT (the "Agreement") dated as of April 17, 2002 between
ALTERNATIVE RE LIMITED, a corporation organized and existing under the laws of
Bermuda, ("Alternative" or "Debtor") and FLEET NATIONAL BANK, as the Lender
under the below referenced Letter of Credit Agreement (the "Lender").

                              W I T N E S S E T H:

     WHEREAS, the Lender as the issuer of Letters of Credit has entered into a
Letter of Credit and Reimbursement Agreement dated as of April 17, 2002 (as such
agreement may hereafter be amended or otherwise modified from time to time,
being the "Letter of Credit Agreement") with Arch Reinsurance, Ltd., Arch
Reinsurance Company, Alternative and First American Insurance Company;

     WHEREAS, it is a condition precedent to the issuance of Letters of Credit
by the Lender under the Letter of Credit Agreement that the Debtor shall have
executed and delivered to the Lender this Agreement and pledged and granted a
security interest in the Collateral, as such term is defined below, held by or
on behalf of the Debtor from time to time and other rights and interests
contemplated by this Agreement; and

     WHEREAS, pursuant to the terms of the Custodian Agreement, the Custodian
has established a Custodial Account, account #0010405070 (the "Custodial
Account"), in the name of the Debtor and the Company hereby grants to the Lender
a security interest in the Collateral, including the Custodial Account.

     NOW, THEREFORE, in consideration of the premises and in order to induce the
Lender to issue Letters of Credit for the account of the Debtor under the Letter
of Credit Agreement, Reinsurance hereby agrees with the Lender as follows (all
capitalized terms used herein shall have the meanings set forth in SCHEDULE 1
hereto or, if not defined therein, in the Letter of Credit Agreement):

     1.          GRANT OF SECURITY. The Debtor hereby pledges and charges to
the Lender and grants to the Lender for its benefit a security interest in and
lien upon, all of the Debtor's right, title and interest in and to the
following, in each case whether now or hereafter existing or in which the Debtor
now has or hereafter acquires an interest and wherever the same may be located
(collectively, the "Collateral"):

            (i)   The Custodial Account, including all cash held therein or
     credited thereto from time to time, and all securities, instruments and
     investments, including Investments, and other "investment property" and
     "financial assets," as each such term is defined in the UCC, of any kind
     held therein or credited thereto from time to time) (the "Pledged
     Investments");

            (ii)  All proceeds of, accessions to, substitutions for, and
     earnings on, any and all of the foregoing Collateral (including, without
     limitation, proceeds

<Page>

     that constitute property of the types described in clauses (i) and (ii)
     above) and, to the extent not otherwise included, all payments under
     insurance (whether or not the Lender is the loss payee thereof), or any
     indemnity, warranty or guaranty, payable by reason of loss or damage to or
     otherwise with respect to any of the foregoing Collateral. For purposes
     hereof, the term "proceeds" includes whatever is receivable or received
     when Collateral or proceeds are sold, collected, exchanged or otherwise
     disposed of, whether such disposition is voluntary or involuntary, and
     includes, without limitation, all rights to payment, including returned
     premiums, with respect to any insurance relating thereto.

     Notwithstanding the foregoing, at any time, other than after the occurrence
and during the continuation of a Default or an Event of Default, the Debtor may
request that the Lender release its Lien on so much of the Collateral as equals
the excess, if any, of the Adjusted Collateral Value of the Collateral over the
sum of all amounts then outstanding with respect to (x) Letter of Credit
Obligations of the Debtor and (y) Reimbursement Obligations of the Debtor;
provided that such excess shall be released from the Custodial Account only with
the consent of the Lender, which consent may be given or withheld by the Lender
in its sole discretion. Should the Adjusted Collateral Value of the Collateral
be less than the sum of all amounts then outstanding with respect to (x) Letter
of Credit Obligations of the Debtor and (y) Reimbursement Obligations of the
Debtor, the Lender shall have the right to require the Debtor to pay to the
Custodian by no later than 3:00 p.m. (Connecticut time) (i) on the date of such
notice, if such notice is received before 12:00 p.m. (Connecticut time) or (ii)
on the Business Day immediately following notice by the Lender, if such notice
is received after 12:00 p.m. (Connecticut time), the difference between the
then-current Adjusted Collateral Value of the Collateral and (B) the sum of all
amounts then outstanding with respect to (x) Letter of Credit Obligations of the
Debtor and (y) Reimbursement Obligations of the Debtor, which payment shall be
deposited by the Custodian into the Custodial Account in the form of cash or
Investments. Any failure by the Debtor to make such payment shall constitute an
Event of Default hereunder and under the Fundamental Documents.

     In addition, the Debtor shall have the right, other than after the
occurrence and during the continuation of a Default or an Event of Default, to
substitute Collateral to the extent such substitution arises from normal trade
activities within the Custodial Account hereunder so long as (i) the Debtor
maintains the value of the Custodial Account in accordance with this Section 1,
(ii) such substituted Collateral shall be in the form of Investments, and (iii)
if requested by the Lender, the Debtor shall deliver to the Lender a Supplement
to Security Agreement in a form satisfactory to the Lender. The Collateral which
is removed from the Custodial Account in full compliance with this paragraph
shall no longer be subject to the Lien hereof without any further action on the
part of the Debtor or the Lender; the Collateral which is added to the Custodial
Account pursuant to such Supplement to Security Agreement shall immediately be
subject to the Lien hereof without any further action on the part of the Debtor
or the Lender. The Debtor agrees to pay any costs and expenses of the Lender
(and its counsel) in connection with any substitution of Collateral.

                                       -2-
<Page>

     2.          SECURITY FOR OBLIGATIONS. The grant in Section 1 secures and
the Collateral is collateral security for the prompt payment or performance in
full when due, whether at stated maturity, by acceleration or otherwise of all
obligations of every nature now or hereafter existing of the Debtor under the
Letter of Credit Agreement and any Letter of Credit application and
reimbursement agreement or other document or instrument delivered pursuant
thereto, and all amendments, extensions or renewals thereof or hereof, whether
for principal, interest, fees, expenses or otherwise, whether now existing or
hereafter arising, voluntary or involuntary, whether or not jointly owed with
others, direct or indirect, absolute or contingent, liquidated or unliquidated,
and whether or not from time to time decreased or extinguished and later
increased, created or incurred and all or any portion of such obligations that
are paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly as a preference, fraudulent transfer or otherwise, and
all obligations of every nature of the Debtor now or hereafter existing under
this Agreement (all such obligations being the "Secured Obligations").

     3.          DELIVERY OF COLLATERAL. All certificates or instruments, if
any, representing or evidencing the Collateral shall be delivered to and held by
the Custodian for the benefit of the Lender. At any time at which an Event of
Default has occurred and is continuing under the Letter of Credit Agreement, the
Lender shall have the right, subject at all times to Section 11 hereof, in its
discretion and without notice to the Debtor, to transfer to or to register in
the name of any of its nominees any or all of the Collateral, and may receive
the income and any distributions thereon and hold the same as Collateral for the
Secured Obligations, or apply the same to any of the Secured Obligations.

     4.          DEBTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) the Debtor shall remain liable under the contracts and
agreements included or relating to the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Lender of any of the rights hereunder shall not release the Debtor from any of
its duties or obligations under the contracts and agreements included in or
relating to the Collateral, and (c) the Lender shall not have any obligation or
liability under the contracts and agreements included in or relating to the
Collateral by reason of this Agreement, nor shall the Lender be obligated to
perform any of the obligations or duties of the Debtor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.

     5.          REPRESENTATIONS AND WARRANTIES. The Debtor hereby represents
and warrants as follows:

            (a)   The Debtor is duly organized and validly exists under the laws
of Bermuda.

            (b)   The Debtor is the legal and beneficial owner of the Collateral
free and clear of any liens, security interest, option or other charge or
encumbrance (except liens in favor of the Custodian). No effective financing
statement or other instrument similar in effect covering all or any part of the
Collateral is on file in any recording

                                       -3-
<Page>

office, except such as may have been filed in favor of the Lender relating to
this Agreement. Except as set forth on Schedule 2 attached hereto, the Debtor
has no trade names and does not do business under any fictitious business name.

            (c)   The pledge and the grant of the security interest in the
Collateral pursuant to this Agreement creates a valid and perfected first
priority security interest in the Collateral, and all filings and other actions
necessary to perfect and protect such security interest have been duly taken.

            (d)   No authorization, consent, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body (other
than authorizations, consents, approvals already obtained, actions already
taken, notices already provided and filings already made) is required (i) for
the grant by the Debtor of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by the Debtor, (ii) for the
perfection of or the exercise by the Lender of its rights and remedies provided
for in this Agreement or (iii) to ensure the legality, validity, enforceability
or admissibility in evidence of this Agreement in any jurisdiction in which any
of the Collateral is located.

            (e)   Each of this Agreement and the other Fundamental Documents to
which the Debtor is a party constitutes the legal, valid and binding obligation
of the Debtor, enforceable against the Debtor in accordance with its terms,
except as such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting the
enforcement of creditors' rights generally, and (ii) general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law). To the knowledge of the Debtor, each Pledged Investment
constitutes the legally valid and binding obligation of the party obligated to
pay the same.

            (f)   The Debtor is deriving substantial direct and indirect
benefits from the issuance of the Letters of Credit for its account under the
Letter of Letter of Credit Agreement and has received good and adequate
consideration for the pledge of the Collateral effected under this Agreement.

     6.          FURTHER ASSURANCES: SUPPLEMENTS. (a) The Debtor agrees that at
any time and from time to time, at its expense, it will promptly execute and
deliver all further instruments and documents, and take all further action that
may be reasonably necessary or desirable, or that the Lender may request, to
perfect and protect the pledges and charges and security interests granted or
purported to be granted hereby or to enable the Lender to exercise and enforce
its rights and remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, the Debtor will (i) if any Collateral
shall be evidenced by a promissory note or other instrument, or if any of the
Collateral shall constitute chattel paper, deliver to the Lender (or to the
Custodian to hold on behalf of the Lender) such note, instrument and all
original counterparts of chattel paper duly endorsed and accompanied by duly
executed instruments of transfer, all in form satisfactory to the Lender and
(ii) execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be

                                       -4-
<Page>

necessary or desirable, or that the Lender may reasonably request, to protect
and preserve the pledges and charges and security interests granted or purported
to be granted hereby.

            (a)   The Debtor hereby authorizes the Lender to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral. A carbon, photographic or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law. The Lender
will promptly send the Debtor any financing or continuation statements thereto
which it files without the signature of the Debtor and, except in the case of
filings of copies of this Agreement as financing statements, the Lender will
promptly send the Debtor the filing or recordation information with respect
thereto.

            (b)   The Debtor will furnish to the Lender from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Lender may
reasonably request, all in reasonable detail.

            (c)   The Debtor agrees that it will not create or permit to exist
any lien, security interest or other charge or encumbrance upon or with respect
to any of the Collateral except in favor of the Lender hereunder or the
Custodian.

     7.          ADDITIONAL COVENANTS. (a) The Debtor shall maintain its
organization and existence in the jurisdiction specified in Section 5(a) and
shall not reincorporate or otherwise reorganize in any other jurisdiction
without the prior written consent of the Lender. The Debtor shall, from the date
on which each Pledged Investment was purchased, maintain (i) complete records of
each Pledged Investment, including records of all payments received, interest or
fees accruing or credits granted and (ii) all documentation relating thereto. In
connection therewith, the Lender may (subject to the confidentiality
restrictions contained in any agreement) institute procedures to permit it to
confirm the balances owing in respect of any Pledged Investment. The Debtor
agrees to render to the Lender such clerical and other assistance as may be
reasonably requested with regard to the foregoing. If an Event of Default under
the Letter of Credit Agreement shall have occurred and be continuing, promptly
upon request therefor, the Debtor shall (subject to the confidentiality
restrictions contained in any agreement) deliver to the Lender complete and
correct copies of all documentation relating to the Pledged Investments.

            (a)   The Debtor shall duly fulfill in all material respects all
obligations on its part to be fulfilled under or in connection with the Pledged
Investments and shall do nothing to impair in any material respect the rights of
the Lender therein.

            (b)   Following an Event of Default under the Letter of Credit
Agreement (subject to Section 11 hereof), any proceeds of Collateral when first
received by or on behalf of the Debtor shall be deposited by or on behalf of the
Debtor in the form so received in the Custodial Account, and until so deposited
shall be held in trust for and

                                       -5-
<Page>

as the Lender's property and shall not be commingled with the Debtor's or any
other Person's other funds or properties.

            (c)   The Debtor, at its own cost and expense, will, and will cause
the Custodian to, maintain satisfactory and complete records of the Collateral,
including, without limitation, a record of all payments received with respect to
the Collateral and all other dealings with the Collateral. Upon the occurrence
and during the continuation of an Event of Default under the Letter of Credit
Agreement, the Debtor will (subject to the confidentiality restrictions
contained in any agreement and any applicable law) deliver and turn over to the
Lender or to its representatives, or at the option of the Lender shall (subject
to the confidentiality restrictions contained in any agreement) provide the
Lender or its representatives with access to, at any time on demand of the
Lender, copies of all the Debtor's books and records pertaining to the
Collateral including, without limitation, all credit files and computer
software, programs, tapes or disks relating to Pledged Investments or otherwise
necessary to the collection thereof.

            (d)   The Debtor will comply in all material respects with all
applicable statutes, rules, and regulations with respect to the Collateral or
any part thereof.

            (e)   The Debtor will pay promptly when due all taxes, assessments
and governmental charges or levies imposed upon the Collateral or in respect of
its income or profits therefrom and all claims of any kind (including, without
limitation, claims for labor, materials and supplies), except that no such
amount need be paid if (i) such non-payment does not involve any danger of the
sale, forfeiture or loss of any of the Collateral or any interest therein, (ii)
the charge or levy is being contested in good faith and by proper proceedings,
and (iii) the obligation to pay such amount is adequately reserved against in
accordance with and to the extent required by GAAP.

            (f)   The Debtor will in all material respects perform and observe
all the terms and provisions of the documentation relating to the Pledged
Investments to be performed or observed by it, maintain the documentation
relating to the Pledged Investments in full force and effect in accordance with
their terms, and take all action to such end as may be from time reasonably
requested by the Lender.

            (g)   The Debtor will advise the Lender promptly, in reasonable
detail, (i) of any lien, security interest, encumbrance or claim made or
asserted against any of the Collateral by any Person, other than the Custodian,
and (ii) of the occurrence of any event which would have a material adverse
effect on the aggregate value of the Collateral or on the pledges and security
interests granted hereby.

            (h)  The Debtor will not sell, assign (by operation of law or
otherwise), or otherwise dispose of, or grant any option with respect to, any of
the Collateral, except sales not restricted by the terms of the Letter of Credit
Agreement or this Agreement.

            (i)  The Debtor shall at all times retain Fleet National Bank as the
Custodian pursuant to the Custodian Agreement.

                                       -6-
<Page>

     8.          LENDER APPOINTED ATTORNEY-IN-FACT. The Debtor appoints the
Lender its attorney-in-fact with full authority in the place and stead of the
Debtor and in the name of the Debtor or otherwise, from time to time in the
Lender's discretion, after an Event of Default under the Letter of Credit
Agreement has occurred and is continuing (but in all instances subject to
Section 11 hereof), to take any action and to execute any instrument that the
Lender may deem necessary or advisable to accomplish the purposes of this
Agreement (subject to the provisions of any applicable law), including, without
limitation, to (i) ask, demand, collect, sue for, recover, compromise, receive
and give acquittances and receipts for moneys due and to become due under or in
connection with the Collateral, (ii) receive, endorse and collect all drafts or
other instruments and documents made payable to the Debtor in connection
therewith or representing any payment, dividend or other distribution in respect
of the Collateral or any part thereof and to give full discharge for the same,
(iii) file any claims or take any action or institute any proceedings which the
Lender may deem to be necessary or desirable for the collection of any of the
Collateral, (iv) enforce the rights of the Lender with respect to any of the
Collateral and compliance with the terms and conditions of this Agreement, the
Letter of Credit Agreement and the other Fundamental Documents, (v) pay or
discharge taxes or Liens levied or placed upon or threatened against the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by the Lender in its sole discretion, and
such payments made by the Lender to become obligations of the Debtor to the
Lender, due and payable in accordance with the Letter of Credit Agreement, (vi)
generally sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though the
Lender were the absolute owner thereof for all purposes, and (vii) do, at the
Lender's option and the Debtor's expense, at any time, or from time to time, all
acts and things that the Lender deems necessary to protect, preserve or realize
upon the Collateral and the Lender's security interest therein, in order to
effect the intent of this Agreement, all as fully and effectively as the Debtor
might do.

     9.          LENDER MAY PERFORM. If the Debtor fails to perform any
agreement contained herein or if a Default or an Event of Default under the
Letter of Credit Agreement shall have occurred and be continuing, the Lender may
at any time (but in all instances subject to Section 11 hereof) itself perform,
or cause performance of, such agreement.

     10.          THE LENDER. (a) Neither the Lender nor any of its respective
affiliates, directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them under or in connection with
this Agreement or for errors in judgment, except for its or their own gross
negligence, willful misconduct or bad faith.

                  (b)  The powers conferred on the Lender hereunder are solely
to protect its interest in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. Except for the exercise of reasonable care
in the custody and preservation of any Collateral in its possession and
accounting for moneys actually received by it hereunder, the Lender shall have
no duty as to any Collateral or as to any rights pertaining thereto.

                                       -7-
<Page>

                  (c)  The Lender shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which the Lender
accords its own property.

     11.          REMEDIES UPON DEFAULT; APPLICATION OF COLLATERAL. (a) If an
Event of Default under the Letter of Credit Agreement shall have occurred and be
continuing, then any cash held by the Lender and all cash proceeds received by
the Lender in respect of any sale of, collection from, or other realization upon
all or any part of the Collateral shall be applied to the obligations of the
Debtor to the Lender as the Lender determines in its sole discretion. Any
surplus of such cash or cash proceeds held by the Lender and remaining after the
payment in full of all the Secured Obligations shall be paid over to the Debtor
or to whomsoever may be lawfully entitled thereto.

            (a)   Any foreclosure upon, sale of, or exercise of rights with
respect to the Collateral shall be conducted in compliance with all contractual
provisions applicable to such Collateral, including but not limited to any
provisions of any agreement pursuant to which any Investment arises that govern
the sale or assignment thereof.

            (b)   Any sale of the Collateral or any part thereof shall be made
in a commercially reasonable manner and in accordance with applicable law and
may be made in one or more lots at public or private sale, for cash, on credit
or for future delivery. The Lender and/or any of its affiliates may be a
purchaser at any such sale. The Lender shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given. The Lender may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. The Debtor shall cooperate with
the Lender in all reasonable ways in order to assist the Lender in the sale and
other disposition of the Collateral.

     12.          AMENDMENTS, ETC. No amendment of any provision of this
Agreement shall in any event be effective unless the same shall be in writing
and signed by the Debtor and the Lender, no waiver of any provision of this
Agreement, nor consent to any departure by the Debtor therefrom, shall in any
event be effective unless the same shall be in writing and signed by the Lender,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No failure to exercise nor any
delay in exercising on the part of the Lender of any right, power or privilege
under this Agreement, shall operate as a waiver thereof; further, no single or
partial exercise of any right, power or privilege under this Agreement shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.

     13.          INDEMNITY AND EXPENSES. (a) The Debtor agrees to indemnify the
Lender and each of its directors, officers, employees and agents (each an
"Indemnified Person") from and against any and all claims, damages, losses,
liabilities and expenses (excluding any present or future taxes, now or
hereafter imposed, levied, collected, withheld or assessed), arising out of or
in connection with or resulting from the Debtor's performance under this
Agreement (including, without limitation, enforcement

                                       -8-
<Page>

of this Agreement against the Debtor), unless and to the extent such claim,
damage, loss, liability or expense was attributable to the gross negligence,
willful misconduct or bad faith of any of the Indemnified Persons.

            (a)   The Debtor agrees to pay to the Lender from time to time, upon
demand, the amount of any and all costs and expenses (excluding any present or
future taxes, now or hereafter imposed, levied, collected, withheld or
assessed), including the reasonable fees and expenses of its counsel and of any
experts and agents, that the Lender may incur in connection with (i) the
administration of this Agreement, (ii) the custody (including custody by a
third-party on behalf of the Lender) or preservation of, or the sale of,
collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Lender against the Debtor,
(iv) the failure by the Debtor to perform or observe any of the provisions
hereof or (v) any action taken by the Lender pursuant to Section 6 or 9 hereof.

            (b)   The foregoing provisions of this Section 13 are in furtherance
and not in limitation of the Debtor's obligations under the Letter of Credit
Agreement.

     14.          RESERVED.

     15.          ADDRESSES FOR NOTICES. All notices and other communications
provided for hereunder shall be in writing (including telecopier) and, if to the
Debtor, mailed, telecopied, delivered by nationally recognized overnight courier
or hand delivered to it, addressed to it at the address of such party specified
in the Letter of Credit Agreement, if to the Lender, mailed, telecopied,
delivered by nationally recognized overnight courier or hand delivered to it at
Fleet National Bank, Attention: Lawrence Davis, 777 Main Street, Hartford,
Connecticut 06115, Telephone No. (860) 986-3443, Telecopier No. (860) 986-1264,
or as to any party, at such other address as shall be designated by such party
in a written notice to each other party complying as to delivery with the terms
of this Section. All such notices and other communications shall be effective
when mailed, telecopied (with telephone confirmation of receipt received), or
delivered to the courier service, addressed as aforesaid.

     16.          NO WAIVER; CUMULATIVE REMEDIES. The Lender shall not by any
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing and signed by
the Lender. A waiver by the Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the Lender
would otherwise have on any future occasion.

     17.          CONTINUING SECURITY INTEREST. This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until the payment in full of the other Secured Obligations,
(ii) be binding upon the Debtor and its successors and assigns, including but
not limited to any trustee or examiner for the Debtor under the Bankruptcy Code
or receiver for the assets of the Debtor under any rehabilitation or insolvency
law, and (iii) inure, together with the rights and remedies of the Lender
hereunder, to the benefit of the Lender and its respective successors,

                                       -9-
<Page>

transferees and assigns. Upon the payment in full of the Secured Obligations,
the Debtor shall be entitled to the return, upon its request and at its expense,
of such of the Collateral as shall not have been sold or otherwise applied
pursuant to the terms hereof, at which time the Lender shall, at the expense and
request of the Debtor, reassign and deliver to the Debtor, or to such Person or
Persons as may be lawfully entitled thereto, against receipt, such of the
Collateral (if any) as shall not have been sold or otherwise applied by the
Lender pursuant to the terms hereof, together with appropriate instruments of
reassignment and release.

     18.          FURTHER INDEMNIFICATION. Without limiting the obligations of
the Debtor under Section 13 above, the Debtor agrees to pay, and to save the
Lender harmless from, any and all liabilities with respect to, or resulting from
any delay in paying, any and all excise, sales or other similar taxes which may
be payable or determined to be payable with respect to any of the Collateral or
in connection with any of the transactions contemplated by this Agreement.

     19.          GOVERNING LAW; TERMS. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Connecticut, except to
the extent that the validity or perfection of the security interest hereunder,
or remedies hereunder, in respect of any particular Collateral are mandatorily
governed by the law of a jurisdiction other than the State of Connecticut.
Unless otherwise defined herein or in the Letter of Credit Agreement, terms used
in Article 8 and/or 9 of the Uniform Commercial Code in the State of Connecticut
are used herein as therein defined.

     20.          NO PETITION IN BANKRUPTCY. Each of the parties to this
Agreement severally and not jointly, hereby covenants and agrees that, prior to
the date which is one year and one day after the payment or expiration in full
of all outstanding Letters of Credit, it will not institute against, or join any
other Person in instituting against, the Debtor any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other similar proceeding.

     21.          WAIVER OF JURY TRIAL. THE DEBTOR AND THE LENDER MUTUALLY
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY
JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER FUNDAMENTAL DOCUMENTS CONTEMPLATED
TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY,
INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENTS OR ACTIONS OF THE LENDER RELATING TO THE ADMINISTRATION OF THIS
AGREEMENT OR ENFORCEMENT OF THE FUNDAMENTAL DOCUMENTS, AND AGREE THAT NEITHER
PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY LAW, EACH
OBLIGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
LITIGATION ANY SPECIAL,

                                      -10-
<Page>

EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES. EACH OBLIGOR CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
THE LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE LENDER TO ENTER
INTO THIS AGREEMENT AND THE OTHER FUNDAMENTAL DOCUMENTS. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT.

     22.          JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) The Debtor
hereby irrevocably and unconditionally submits, for itself and its property, to
the non-exclusive jurisdiction of any Connecticut State court or Federal court
of the United States of America sitting in Connecticut; and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, the Letter of Credit Agreement, the other Fundamental Documents, or
for recognition of enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such Connecticut State
or, to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that the Lender may otherwise have to bring any action or proceeding
relating to this Agreement, the Letter of Credit Agreement or the other
Fundamental Documents against the Debtor or its properties in the courts of any
jurisdiction.

            (a)   The Debtor hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement, the Letter of Credit Agreement or
the other Fundamental Documents in any Connecticut State or Federal court. Each
of the parties hereto hereby irrevocably waives, to the fullest extent permitted
by law, the defense of an inconvenient forum to the maintenance of such action
or proceeding in any such court.

            (b)   Nothing in this Agreement will affect the right of any party
to this Agreement to serve process in any other manner permitted by law.

     23.          HEADINGS. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement or be given any substantive effect.

     24.          SEVERABILITY. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such

                                      -11-
<Page>

provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.

     25         COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same Agreement.

                                      -12-
<Page>

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

                                          ALTERNATIVE RE LIMITED,
                                          as the Debtor

                                          By
                                            ------------------------------------
                                            Title:

                                          By
                                            ------------------------------------
                                            Title:

                                          FLEET NATIONAL BANK, as the Lender

                                          By
                                            ------------------------------------
                                            Title:

                              [SECURITY AGREEMENT]

<Page>

                                                                      SCHEDULE 1

                                   DEFINITIONS

     "ADJUSTED COLLATERAL VALUE" shall have the meaning set forth in the Letter
of Credit Agreement.

     "AFFILIATE" shall mean any Person that directly or indirectly controls, or
is under common control with, or is controlled by, the Debtor. As used in this
definition, "control" (including, with its correlative meanings, "controlled by"
and "under common control with") shall mean possession, directly or indirectly,
of the power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise), PROVIDED that, in any event, any Person that owns
directly or indirectly securities having 20% or more of the voting power for the
election of directors or other governing body of a corporation or 20% or more of
the partnership or other ownership interests of any other Person (other than as
a limited partner of such other Person) will be deemed to control such
corporation or other Person. Notwithstanding the foregoing, (a) no individual
shall be an Affiliate solely by reason of being, nor considered to have the
power to direct or cause the direction of management or policies solely by
reason of being or actions taken as, a director, officer or employee of the
Debtor or any of its Subsidiaries and (b) none of the Subsidiaries of the Debtor
shall be Affiliates.

     "AGREEMENT" shall have the meaning set forth in the preamble.

     "BANKRUPTCY CODE" shall mean Title 11 of the United States Code, as in
effect from time to time, and any successor statute.

     "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any
other day on which commercial banks in Hartford, Connecticut are authorized or
required to close.

     "COLLATERAL" shall have the meaning set forth in Section 1.

     "CUSTODIAL ACCOUNT" shall have the meaning set forth in the third "Whereas"
clause.

     "CUSTODIAN" shall mean Fleet National Bank, as custodian under the
Custodian Agreement.

     "DEBTOR" shall have the meaning set forth in the preamble.

     "EVENT OF DEFAULT" shall have the meaning set forth in the Letter of Credit
Agreement.

     "FUNDAMENTAL DOCUMENTS" shall have the meaning set forth in the Letter of
Credit Agreement.

<Page>

     "GAAP" shall mean generally accepted accounting principles in the United
States from time to time.

     "INDEMNIFIED PERSON" shall have the meaning set forth in Section 13(a).

     "INVESTMENTS" shall have the meaning set forth in the Letter of Credit
Agreement.

     "LENDER" shall have the meaning set forth in the preamble.

     "LETTER OF CREDIT AGREEMENT" shall have the meaning set forth in the first
"Whereas" clause.

     "LETTER(S) OF CREDIT" shall have the meaning set forth in the Letter of
Credit Agreement.

     "PERSON" shall mean an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.

     "PLEDGED INVESTMENTS" shall have the meaning set forth in Section 1(i).

     "SECURED OBLIGATIONS" shall have the meaning set forth in Section 2.

     "UCC" shall mean the Uniform Commercial Code as in effect from time to time
in the State of Connecticut.

                                      -ii-
<Page>

                                                                      SCHEDULE 2

                                   TRADE NAMES
<Page>

                                                                       EXHIBIT C

                 [FORM OF STANDBY LETTER OF CREDIT APPLICATION]

                                                                    [FLEET LOGO]

INSTRUCTIONS FOR COMPLETING THE APPLICATION AND AGREEMENT FOR STANDBY LETTER OF
CREDIT

GENERAL        Please type and provide any additional instructions in the space
INSTRUCTIONS   provided.
               If you have any questions, please phone the Letter of Credit
               Department: (570) 330-4214 or 1-800-370-7519, ext. 4214.

HOW TO         Follow the instructions below to complete the application form,
COMPLETE THE   for issuance subject to Uniform Customs and
FORM           Practice for Documentary Credits (UCP). IMPORTANT: Should you
               wish the LC issued subject to the International
               Standby Practices (ISP), you must also complete the attached
               rider to Application and Agreement for Standby LC.

<Table>
<Caption>
                         WHERE                                               DO THIS

               <S>                          <C>
               To:                          Check the box for the Fleet Bank where you will submit this application.

               Deliver the letter           Select how you wish Fleet to deliver the letter of credit (LC).
               of credit:

               Advising Bank                - If the beneficiary has specified the name and address of their bank,
                                              enter it here (please include the city and country).
                                            - Otherwise, leave the box blank

               Applicant                    Enter the complete legal name and address of the company or individual
                                            applying for the LC.

               Beneficiary                  - Enter the beneficiary's complete legal name and full address (P.O. Box
                                              is not acceptable).
                                            - If available, provide the name of a contact.

               Amount                       Enter the currency of the LC and the amount in both figures and words.

               This letter of credit        If you have agreed to allow the LC to be transferred in party as
               is transferable.             beneficiary, check this box; otherwise, leave it blank.

               Partial Drawings             If you have agreed to allow for partial drawings, check
                                            PERMITTED; otherwise check PROHIBITED.

               All bank charges             Check this box unless you agree to pay charges assessed by banks other
               other than Fleet             than fleet.
               Bank's ...

               Expiry Date:                 Enter the last date on which this LC will be available for payment.
                                            This must be a valid business day.

               Statement                    Enter the wording of a quoted statement which the beneficiary must present
                                            when drawing on the LC.

               Attached is a format         Check this box if you are attaching a sample format for the LC.

               Special Instructions:        Use this space to indicate additional instructions regarding the LC.

               Signature                    - Enter the complete legal name of the company or individual applying for
                                              the LC.
                                            - The application must be signed by an individual who is authorized
                                              to request the bank to issue the LC.
</Table>

UPON           Once you have completed the application, please submit it to your
COMPLETION     Relationship Manager or Branch Manager for approval.

                                       -1-
<Page>

[FLEET LOGO]

APPLICATION AND AGREEMENT FOR STANDBY LETTER OF CREDIT

To: (Please Check One) Issuing "Bank".

/ / Fleet National Bank   / / Fleet Bank, N.A.   / / Fleet Bank of Maine
/ / Fleet Bank - NH

Please issue an irrevocable Standby Letter of Credit substantially in accordance
with this application.

--------------------------------------------------------------------------------
Deliver the Letter of Credit:                              (For Bank use only)

/ / Directly to the beneficiary by
courier, Attn:______________________________         L/C No.____________________

/ / Through your correspondent by / / courier,
/ / Swift/Telex for delivery to the beneficiary.     D/T No.____________________
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Advising Bank (Name and Address)        Applicant (Name and Address)

--------------------------------------------------------------------------------
Beneficiary (Name and Address)
                                        Amount______________________________
                                        INCLUDE CURRENCY IF NOT U.S. DOLLARS

                                        Amount in Words:____________________
                                        ____________________________________

--------------------------------------------------------------------------------
/ / This Letter of Credit is            Partial drawings are / / Permitted
transferable.                           / / Prohibited
--------------------------------------------------------------------------------
                                        Expiry Date:
/ / All bank charges, other than Fleet
Bank's, are for beneficiary's account.
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Available by beneficiary's drafts at sight accompanied by the following:
  / / A statement purportedly signed by an authorized officer of the beneficiary
      reading as follows: (Please use concise terms.)

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

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

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

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

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

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

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

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

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

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

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

/ /  Attached is a format which is an integral part of this application.

/ /  Special Instructions:______________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

We hereby certify that the transactions covered by this Application and
Agreement are not prohibited under any existing Laws and regulations of the
United States, including the foreign Assets control Regulations of the United
States Treasury Department and that any transaction covered by this Application
and Agreement complies in every respect with all existing United States
Government Laws and Regulations.

Reference to any document, instrument oragreement is for identification purposes
only and such document, instrument or agreement will not be incorporated into
the terms of the Letter of Credit.

This credit will be subject to the Uniform Customs and Practice for Documentary
Credits of the International Chamber of Commerce currently in effect.

--------------------------------------------------------------------------------
           (FOR BANK USE ONLY)                WE AGREE TO ALL THE TERMS AND
      Relationship Manager approval              CONDITIONS OF THE FACE
        (also indicates approval                   AND REVERSE HEREOF.
        of applicant's authority)

-------------------------------------   COMPANY/
          AUTHORIZED SIGNATURE          BANK NAME:_____________________________

-------------------------
            DATE

Internal Form #13429 "Standby LC        BY:
Set-Up/Change" is required with each       ---------------------------   -------
application.                               AUTHORIZED SIGNATURE - TITLE   DATE

<Page>

                     AGREEMENT FOR STANDBY LETTER OF CREDIT

     For good and valuable consideration, the receipt and adequacy of which is
hereby acknowl-edged, the Bank and the Customer agree as follows:

     1. Each reference hereinafter contained to: (a) "Bank", "Bank's Address",
"Customer", "Customer's Address", and "Expiry Date" shall be deemed to refer to
the defined terms on Page 1 of this Agreement; (b) "Agreement" shall be deemed
to refer to this Application and Agreement for Standby Letter of Credit,
including without limitation the application portion on Page 1 hereof; (c)
"Business Day" shall be deemed to refer to any day on which commercial banks
located in the state of the Bank's Address are not required or authorized to
remain closed and which is not a Saturday, Sunday or legal holiday; (d) "Credit"
shall be deemed to refer to the letter of credit to be issued by the Bank
substantially in the form set forth in the application portion of this
Agreement, all amendements thereto, and any substitutions or replacements
thereof; (e) "Events of Default" shall be deemed to refer to one or more of the
events of default or defaults specified in Paragraph 6 of this Agreement; (f)
"Prime Rate" shall be deemed to refer to the rate of interest designated by the
Bank from time to time as being its prime rate of interest.

     2.As to instruments payable in U.S. Dollars, the Customer will: (a) pay the
Bank in U.S. Dollars the amount paid on any sight draft on demand or, at the
Bank's option, pay the Bank in advance the amount required to pay such draft;
and (b) pay the Bank in U.S. Dollars the amount of each acceptance on demand,
but in any event not later than one Business Day prior to maturity.

     3. As to instruments payable in a foreign currency, the Customer will: (a)
pay the Bank in U.S. Dollars, the equivalent of the amount paid on any sight
draft, immediately upon such payment being made, at the Bank's then selling rate
for cable transfers to the place of payment in the currency in which the draft
is drawn; and (b) in the case of each acceptance pay the Bank in U.S. Dollars,
on demand, but in any event in time to reach the place of payment by mail not
later than one Business Day prior to maturity, the equivalent thereof at the
Bank's then selling rate for the currency in which the acceptance is payable, or
at the Bank's option pay the Bank on demand the equivalent of the acceptance in
U.S. Dollars at the Bank's then selling rate for cable transfers to the place of
payment in such currency. If for any reason there should exist at the time in
question no rate of exchange generally current in the state of the Bank's
Address for effective cable transfers of the sort provided for, the Customer
will pay the Bank on demand an amount in U.S. Dollars equivalent to the actual
cost to the Bank of settlement of the Bank's obligations to the payor of the
draft or acceptance or any holder thereof, as the case may be, however and
whenever such settlement is made by the Bank.

     4. The Customer will pay the Bank on demand a commission at such rate as
the Bank may determine, plus interest where chargeable, and all fees, charges
and expenses, including reason-able counsel fees, incurred or paid by the Bank
in protecting or enforcing its rights under this Agreement, or in connection
with the Credit issued pursuant hereto and any confirmation thereof, or arising
or caused in any manner whatsoever in connection therewith, including without
limitation reasonable counsel fees and expenses incurred in connection with the
defense of all actions seeking to restrain or enjoin payment of the Credit or
any draft accepted under the Credit or attachment or garnishment proceedings
involving any of the proceeds of the Credit or any such draft. In addition to
commissions, fees, charges, expenses and amounts otherwise payable with respect
to the issuance of the Credit, the Customer shall pay to the Bank on demand such
amounts as the Bank in its sole discretion determines are necessary to
compensate the Bank for any costs attributable to the Bank's issuing or having
outstanding or making payment under the Credit resulting from the application of
any domestic or foreign law or regulation or the interpretation or
administration thereof applicable to the Bank regarding any reserve, assessment,
capitalization (including the cost of maintaining capital sufficient to permit
issuance of the Credit, provided the cost attributed to the Credit is determined
in good faith by any reasonable method) or similar requirement whether existing
at the time of issuance of the Credit or adopted thereafter. All amounts not
paid when due in accordance with this Agreement (including without limitation
those set forth in paragraph 2, 3 and 4 hereof) shall bear interest until paid
in full at a rate per annum equal to six percent (6%) above the Prime Rate, not
to exceed the maximum rate of interest permitted by applicable law. Each change
in such interest rate shall take effect simultaneously with the corresponding
change in the Prime Rate. The Bank is hereby irrevocably authorized to charge
any one or more of the Customer's accounts with the Bank for payment in full or
in part of any of the Customer's obligations to the Bank under this Agreement.
At the option of the Bank, if there is a separate revolving line of credit, line
of credit, or other credit facility existing between the Bank and the Customer,
the Bank is irrevocably authorized to satisfy the Customer's reimbursement
obligation to the Bank, in whole or in part, by making an advance under such
facility.

     5. The users of the Credit shall be deemed the Customer's agents, and the
Customer assumes all risks of their acts or omissions. The Customer's obligation
to pay the Bank for all amounts due under this Agreement is absolute and
unconditional. Such obligation of the Customer shall not be affected by, and the
Bank shall not be responsible for, the validity, sufficiency, correctness or
genuineness of documents, even if such documents should in fact prove to be in
any or all respects incorrect, defective, invalid, insufficient, fradulent or
forged; any breach of contract or disputes between any beneificiary of the
Credit and the Customer; the existence of any claim, setoff, defense or other
right which the Customer may have at any time against the beneficiary or any
other person or entity, whether in connection with this Agreement, the
transaction contemplated herein or any unrelated transaction; the failure of any
draft or certificate to bear reference or adequate reference to the Credit;
errors, omissions, interruptions or delays in transmission or delivery of any
messages by mail, telex, telecopy, or otherwise; the exchange, release or
non-perfection of any collateral or the release of any guarantor; or any
consequences arising from causes beyond the Bank's control; and none of the
above shall affect, impair or prevent the fixing of any of the Bank's rights or
powers hereunder. Any provision with respect to any of the foregoing matters
which is contained in the Credit itself may be waived by the Bank. The Customer
will hold the Bank harmless from all loss or damage in respect of any of the
foregoing matters, and from any and all damage and loss whatsoever suffered by
the Bank by reason of any and all action taken by the Bank in good faith.

     6. The Customer will deliver to the Bank on demand such additional security
(including cash) as the Bank may from time to time require, to be held as
general collateral for all the Customer's liabilities to the Bank hereunder and
for all other liabilities, absolute or contingent due or to become due, which
may be at any time owing to Bank by the Customer. All property belonging to the
Customer, including any collection items, now or hereafter handed to the Bank or
for any purpose left in the Bank's possession by the Customer or for the
Customer's account, or in transit to or from the Bank, by mail or carriers, and
all balances of any deposit accounts the Customer may have with the Bank, are
hereby made security, and the Bank is hereby granted a security interest
therein, for all such liabilities and may be held or disposed of as the Bank may
see fit, and applied toward any payment of any and all such liabilities, all of
which shall become immediately due and payable upon an Event of Default. Each of
the following events or actions by or affecting the Customer shall constitute an
Event of Default; default in the performance of any undertaking to the Bank
under this Agreement, any trust receipt, or under any other obligation to the
Bank or agreement with the Bank; insolvency, or the filing by or against the
Customer of any petition under the Bankruptcy Code or any similar Federal or
state statute; the filing by or against the Customer of a petition for the
appointment of a receiver; the making of an assignment for the benefit of
creditors; the Customer's death, failure in business, dissolution, suspension or
termination of existence; any seizure, vesting or intervention by or under
authority of a government, by which the Customer's management is displaced or
its authority in the conduct of its business is curtailed; or the attachment or
distraint of any of the Customer's funds or other property which may be in, or
come into, the Bank's possession or under the Bank's control, or that of any
third party acting for the Bank, or of the same becoming subject at any time to
any mandatory order of court or other legal process. The Bank may at any time
transfer into the Bank's or its nominee's name all or any part of such security,
before or after maturity of any of the Customer's obligations and without any
notice to the Customer or any other person. Whenever the Bank deems it necessary
for the Bank's or the Customer's protection, or after an Event of Default
specified herein, or other default, the Bank shall have the right to accelerate
and make immediately due and payable all of the Customer's obligations to the
Bank under the Credit and this Agreement and under any other document or
agreement (including without limitation the obligations evidenced by the
outstanding (but undrawn upon) Credit and/or by accpetances which have not
matured). The Bank shall have, in addition to all other rights and remedies
under applicable law, the rights and remedies of a secured party under the
Uniform Commercial Code, and the Bank may, without regard to such maturity,
realize upon (by sale, assignment, setoff, application or otherwise) all or any
part of such security, in each case without advertisement, notice to, tender,
deamnd or call of any kind upon the Customer or any other person, except that,
unless such security is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, the Bank shall give the
Customer three Business Days' prior written notice of the time and place of any
public sale thereof or of the time after which any private sale or other
intended disposition thereof is to be made. Any such sale or assignment may be
public, private or upon any broker's board or exchange, for cash, on credit or
for future delivery, and at such price and upon such terms and conditions, as
the Bank deems appropriate. For this purpose, the Bank may, so far as the
Customer can give authority therefor, enter upon any premises on which such
security or any proceeds thereof may be situated and remove the same therefrom,
or require that such security or proceeds be made available to the bank at a
place or places reasonably convenient to both the Bank and the Customer. The
Bank may acquire all or any part of such security and any purchaser shall hold
same free from any equity of redemption or other claim or right on the
Customer's part, which are hereby specifically waived and released. The Bank may
discount, settle, comprise, or extend any obligations constituting such
security, and sue thereon in the Bank's or the Customer's name. However, the
Bank shall not be liable for failure to collect or demand payment of, or protest
or give notice of non-payment of, any obligation included in such security or
part thereof, or for any delay in so doing, nor shall the Bank be under any
obligation to take any action whatever in respect to such security or any part
thereof. No advertising, notice, tender, demand, or call at any time given or
made shall be a waiver of the Bank's right to proceed in the same or other
instances without any further action.

     7. The receipt by the Bank at any time of other collateral shall not be
deemed a waiver of any of the Bank's rights or powers relating to any collateral
which the Bank may hold at the time of such receipt.

     8. No failure on the part of the Bank to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any other further
exercise thereof or the exercise of any right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law. No amendment or
waiver of any provision of this Agreement nor consent to any departure by the
parties hereto shall in any event be effective unless the same shall be in
writing and signed by such party, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

     9. This Agreement shall continue in force notwithstanding any change in the
composition of firm or firms parties hereto, or drawers of drafts hereunder, or
in the incorporation of any such firm.

     10. The Customer authorizes the Bank, without reference to or approval by
the Customer, to set forth the terms of this Agreement in the Credit in such
language as the Bank may deem appropriate with such variations from such terms
as the Bank may in its discretion determine (which determination shall be
conclusive and binding upon the Customer) are necessary and are not materially
inconsistent with this Agreement.

     11. All rights under the Credit and this Agreement (whether or not the
Credit is documentary or non-documentary in nature) shall be determined by the
Uniform Customs and Practice for Documentary Credits of the International
Chamber of Commerce in effect (International Chamber of Commerce Publication No.
500 or the most recent revision or successor thereto which shall be in effect
from time to time), the terms of which are known to the Customer and which are
incorporated by reference herein, and all rights under the Credit and this
Agreement, to the extent not inconsistent with said Uniform Customs and
Practices, shall be construed in accordance with the local laws of the State of
the Bank's Address.

     12. The Customer represents, warrants and covenants to the Bank that (a) if
a partnership or a corporation, it is duly organized, validly existing and in
good standing; (b) it has the power to execute, deliver and perform this
Agreement; (c) the execution, delivery and performance of this Agreement have
been duly authorized by all requisite action; (d) the execution, delivery and
performance of this Agreement and the issuance of the Credit will not violate
any provision of law, any order of any court or other agency of government, the
Articles of Incorporation or By-Laws of a corporate Customer or the Partnership
Agreement of a partnership Customer, or any indenture, agreement or other
instrument to which it is a party, or by which it is bound, or be in conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the property or assets of the Customer (other than
in favor of the Bank) or the acceleration of any of the Customer's outstanding
indebtedness; (e) the Customer has heretofore furnished to the Bank accurate and
complete financial data and other information based on its operations in
previous years, and said financial data furnished to the Bank is accurate and
complete and fairly presents the financial position and the results of
operations for the periods indicated therein; (f) there has been no material
adverse change in the condition, financial or otherwise, of the Customer since
the date of the most recent financial statement; and (g) the Customer shall
furnish to the Bank periodically such financial statements, balance sheets and
profit and loss statements, together with supporting schedules, tax returns, and
such other information regarding the operations, assets, business, affairs and
financial condition of the Customer, as the Bank shall from time to time
request.

     13. If this Agreement is signed by two or more Customers, it shall be the
joint and several agreement and obligation of such Customers.

     14. The Customer agrees that in the event of any extension of the maturity
or time for presentation of drafts, acceptances or documents, or any other
amendments or modification of the terms of the Credit, at the request of any
single Customer, with or without notification to the others, or in the event of
any increase in the amount of the Credit at any single Customer's request, with
or without notification to the others, this amount shall be binding upon the
Customer with regard to the Credit so increased or otherwise amended or
modified, to drafts, documents and property covered thereby, and to any action
taken by the Bank or any of its correspondents in accordance with such
extension, increase or other modification.

     15. The Bank is authorized to interpret the Credit in accordance with
rules, regulations, and customs prevailing at the place and time during which
the Credit is available or the drafts are drawn or negotiated.

     16. The Bank is authorized to pay conforming drawings submitted by an
administrator, trustee in bankruptcy, debtor-in-possession, assignee for the
benefit of creditors, liquidator, receiver or other legal representative of the
party who is authorized to draw.

     17. The available amount of the Credit shall be reduced by the amount of
any conforming drawing made thereunder.

     18. All notices and other communications provided for hereunder shall be in
writing and shall be personally delivered or sent by certified first class mail,
return receipt requested, or by telex or telecopy. Unless otherwise specified in
this Agreement, all such notices and other communications to the Bank shall be
mailed, telexed, telecopied or delivered to it, addressed to the Bank, c/o Fleet
Services, One Fleet Way, Scranton, PA 18507, Attn: Trader Services Dept.,
Standby Unit. Notices and other communications to the Customer shall be mailed,
telexed, telecopied or delivered to the Customer, at the Customer's Address. The
Bank and the Customer reserve the right to change such address, telex number
and/or telecopy number in a written notice to the other party. All such notices
and other communications shall, when mailed certified or registered mail, be
effective three days after the date of deposit in the mails, addressed as
aforesaid; when personally delivered, when received at the address as aforesaid;
and, when sent by telex or telecopy, when received at the then current telex or
telecopy number.

     19. Any provision of this Agreement which is prohibited, unenforceable or
not authorized in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition unenforceability or
non-authorization without invalidating the remaining provisions hereof or
affecting the validity, enforceability or legality of such provision in any
other jurisdiction.

     20. This Agreement may be executed in two or more counterparts, each of
which shall constitute an original, but both or all of which, when taken
together, shall constitute but one instrument, and shall become effective when
copies hereof which, when taken together, bear the signatures of each of the
parties, hereto shall be delivered to the Bank.

     21. The Customer hereby expressly submits to the non-exclusive jurisdiction
of all federal and state courts sitting in the state of the Bank's Address, and
agrees that any process or notice of motion or other application to any of said
courts or a judge thereof may be served upon the Customer within or without such
court's jurisdiction by registered or certified mail, return receipt requested,
or by personal service, at the Customer's Address (or at such other address as
the Customer shall specify by a prior notice in writing to the Bank), provided
reasonable time for appearance is allowed. The Customer hereby irrevocably
waives any objection in which it may now or hereafter have to the laying of
venue to any suit, action or proceeding arising out of or relating to this
Agreement brought in any federal or state courts sitting in the Bank's location
and hereby further irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
Notwithstanding the foregoing, the Bank may sue the Customer in any jurisdiction
where the Customer or any of its assets may be found and may serve legal process
upon the Customer in any other manner permitted by law.

     22. THE CUSTOMER HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY OF
ANY DISPUTE ARISING UNDER OR RELATING TO THIS AGREEMENT OR THE CREDIT, AND
AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A
JURY.

     23. The Bank reserves the right to sell or assign all or any portion of the
Bank's right, title and interest in and to the Agreement and all related
documents, and to participate all or any portion of the aforesaid. In connection
therewith, the Customer authorizes the Bank to deliver to any such purchaser or
participant and any prospective purchaser or participant the originals and/or
copies of the Agreement, financial statements relative to the Customer and any
guarantors, and any and all other credit or other information from time to time
in the Bank's possession.

     24. The issuance of the Credit by the Bank constitutes the Bank's adoption,
authentication, signature, and agreement to be bound by the terms and provisions
of this Agreement.

     25. This Agreement shall be binding upon the Customer's respective
executors, administrators, successors and assigns and shall inure to the benefit
of the Bank and its successors and assigns.

<Page>

RIDER TO APPLICATION AND AGREEMENT FOR STANDBY LETTER OF CREDIT

This rider to Application and Agreement for Standby Letter of Credit is made
this _______day of ___________, _____, and is incorporated into and shall be
deemed to amend that certain Application and Agreement for Standby Letter of
Credit, dated __________ ____, ____ by and between
__________________________________, a ___________________, with an address at
_______________________________ (the "Customer") and Fleet National Bank., a
national banking association created and existing under the laws of the United
States of America with usual place of business located at_______________________
______________________.

1. The Customer and the Bank agree that the Application is hereby amended as
   follows:

     The last sentence of the Application is deleted in its entirety and the
     following sentence is substituted therefor:

     "This credit will be subject to the International Standby Practices 1998
     currently in effect."

2. The Customer and the bank agree that the Agreement for Standby Letter of
   Credit (the "Agreement") is hereby amended as follows:

     Paragraph 11 of the Agreement is deleted in its entirety and the following
     is substituted therefor:

     "11. All rights under the Credit and this Agreement (whether or not the
     credit is documentary or non-documentary in nature) shall be subject to the
     International Standby Practices 1998, in effect, or the most recent
     revision or successor thereto which shall be in effect from time to time
     ("ISP98"), the terms of which are known to the Customer and which are
     incorporated by reference herein, and all rights under the Credit and this
     Agreement, to the extent not inconsistent with said ISP98 shall be
     construed in accordance with the local laws of the State of the Bank's
     Address."

     This rider shall amend the Application and Agreement. The bank and the
customer agree that this Rider shall be annexed to the Application and Agreement
to evidence the modification of its terms as set forth herein. The Customer
further acknowledges and agrees that all of the terms and conditions of the
Application and Agreement shall remain in full force and effect, except as
expressly modified herein.

     IN WITNESS WHEREOF, this rider is executed as of the date and year first
above written.

     WITNESS:
                                            ------------------------
                                            Type Name of Customer

                                            By:

                                            --------------------------
                                            Name and Title:

                                            --------------------------
                                            Type Name of Bank

                                            By:

                                            --------------------------
                                            Name and Title:

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