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                        INCENTIVE STOCK OPTION AGREEMENT
                     UNDER THE HCC INSURANCE HOLDINGS, INC.
                          2001 FLEXIBLE INCENTIVE PLAN

         This STOCK OPTION AGREEMENT (the "Agreement") is made and entered into
effective as of the date of grant as set forth on the signature page below by
and between HCC INSURANCE HOLDINGS, INC., a Delaware corporation (the
"Company"), and the undersigned employee (the "Employee").

                                   WITNESSETH:

         WHEREAS, the Board of Directors of the Company, with the approval and
authorization of the shareholders thereof, has resolved that the interests of
the Company will be advanced by encouraging and enabling certain of its
employees, directors and consultants and certain employees of its Subsidiaries
(as such term is defined in the Plan) to acquire proprietary shares in the
Company, thus providing them with a more direct concern in the welfare of the
Company and the Subsidiaries and assuring a closer identification of their
interests with those of the Company and the Subsidiaries; and

         WHEREAS, the Board of Directors believes that the acquisition of such
an interest in the Company will stimulate the endeavors of such employees,
directors and consultants on behalf of the Company and the Subsidiaries and
strengthen their desire to remain with the Company and the Subsidiaries; and

         WHEREAS, the Employee above referenced is one of such individuals.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and other good and valuable consideration, the
parties hereto agree as follows:

         1. Option to Purchase. The Company hereby grants to the Employee as a
matter of separate inducement and agreement in connection with such Employee's
employment by the Company or the Subsidiaries, and not in lieu of any salary or
other compensation for such Employee's services, the right and option to
purchase, at the time and on the terms and conditions hereinafter set forth,
that number of shares of the presently authorized Common Stock of the Company at
the per-share purchase price set forth on the signature page of this Agreement.

         2. The Plan. The option provided for in this Agreement is granted
pursuant to the HCC Insurance Holdings, Inc. 2001 Flexible Incentive Plan (the
"Plan") as of the date of grant specified on the signature page of this
Agreement (the "Date of Grant"). The terms and provisions of such Plan are
incorporated herein by reference and, except to the extent expressly provided by
the Plan, in the event of any conflict between the terms and provisions of this
Agreement and those of the Plan, the terms and provisions of the Plan, including
without limitation, those with respect to the powers of the administrative
committee appointed thereunder (hereinafter referred to as the "Committee"),
shall prevail and be controlling. All capitalized terms not otherwise defined
herein shall have the meaning set forth in the Plan.

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         3. Term of Option. This option shall continue until 11:59 p.m. Houston
time on the date of expiration specified on the signature page of this Agreement
(the "Date of Expiration"), except and to the extent that such term may be
reduced as provided in Paragraphs 6 and 11 hereof; provided, however, that if
any termination date provided for herein shall fall on a Saturday, Sunday, or
legal holiday, then such termination date shall be deemed to be the first normal
business day of the Company, at its office specified in Paragraph 18 hereof,
before such Saturday, Sunday, or legal holiday.

         4. Vesting. Except as otherwise provided herein, this option shall be
exercisable on or prior to the Date of Expiration, and only to the extent of
shares that have vested in accordance with the vesting schedule set forth on the
signature page of this Agreement. The Employee's right to exercise the option
granted hereunder accrues only in accordance with the preceding sentence and,
except as otherwise provided herein, only to the extent that the Employee
remains in the continuous employ of the Company or the Subsidiaries. This option
shall be exercisable during the lifetime of the Employee only by the Employee.
In the event of the Employee's death during the Employee's employment with the
Company or its Subsidiaries and the unexpired term of this option, this option
shall vest in full and become exercisable to the full extent of this option as
of the date of the Employee's death. In no event may the Employee or any person
exercising this option pursuant to Paragraph 6(e) hereof exercise this option
(before or after any adjustment or substitution pursuant to Paragraph 10, 11, or
12 hereof) for a fraction of a share.

         5. Manner of Exercise.

            (a) Subject to the terms hereof, the option granted hereby may be
         exercised by delivering to the Treasurer of the Company or his designee
         at any time prior to the Date of Expiration a written notice specifying
         the number of vested shares the Employee then desires to purchase.

            (b) The Employee shall deliver to the Treasurer of the Company or
         his designee a cashier's check payable in United States currency
         (unless a personal check shall be acceptable to such officer) to the
         order of the Company for an amount equal to the purchase price for such
         number of shares; or, certificates for Common Stock of the Company
         (provided such Common Stock has been held by the Employee for such
         period of time, if any, as is required by the Committee), valued at the
         Fair Market Value of such Common Stock on the date of exercise of this
         option or a combination of both, as payment of all or any portion of
         the option price for such number of shares. The check or, if
         applicable, the certificates, shall be accompanied by such other
         instruments or agreements duly signed by the Employee as in the opinion
         of counsel for the Company may be necessary or advisable in order that
         the issuance of such number of shares comply with applicable rules and
         regulations under the Securities Act of 1933, as amended (the "Act"),
         any appropriate state securities laws, or any requirement of any
         national securities exchange on which such stock may be traded. As soon
         as practicable after any such exercise of the option in whole or in
         part by the Employee, the Company will deliver to the Employee a
         certificate for the number of shares with respect to which the option
         shall have been so exercised, issued in the Employee's name. Such stock
         certificate shall carry such restrictive legend, and such written
         instructions shall be given to the Company's transfer agent, as the
         Company may deem necessary or advisable for any purpose,

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         including, without limitation, compliance with the requirements of the
         Act or any state securities laws.

         6. Termination of Employment.

            (a) In the event the employment of the Employee is terminated
         for any reason other than death, Disability, Retirement, voluntary
         termination Without Good Reason (as hereinafter defined), or for cause
         (as determined by the Committee in its sole and absolute discretion),
         then the Employee shall have the right at any time within ninety (90)
         days after the termination of such employment or, if shorter, during
         the unexpired term of this option, to exercise this option for the full
         number of shares or any portion thereof, except as to the issuance of
         fractional shares, but only to the extent this option was otherwise
         exercisable in accordance with Paragraph 4 hereof on the date of such
         cessation of employment.

            (b) In the event the employment of the Employee is terminated for
         cause (which determination shall be made in the sole and absolute
         discretion of the Committee), the Employee shall have the right at any
         time within ten (10) days after the termination of such employment or,
         if shorter, during the unexpired term of this option, to exercise this
         option for the full number of shares not previously exercised or any
         portion thereof, except as to the issuance of fractional shares, but
         only to the extent this option was otherwise exercisable in accordance
         with Paragraph 4 hereof as of the date of such termination of
         employment for cause.

            (c) In the event the employment of the Employee is terminated by
         reason of Disability, then the Employee shall have the right at any
         time within one year after the termination of such employment or, if
         shorter, during the unexpired term of this option, to exercise this
         option for the full number of shares not previously exercised or any
         portion thereof, except as to the issuance of fractional shares, to the
         full extent of this option.

            (d) In the event of the death of the Employee while in the employ of
         the Company or the Subsidiaries or within ninety (90) days after the
         date Employee ceases to be an employee of the Company or the Subsidiary
         (or within such lesser period as may be specified in Paragraphs 6(b)
         and 6(e) hereof, as applicable), this option may be exercised for the
         full number of shares not previously exercised, or any portion thereof,
         except as to the issuance of fractional shares, but only to the extent
         this option was otherwise exercisable in accordance with Paragraph 4
         hereof as of the date of Employee's death, at any time within one year
         from the date of death of the Employee or within the unexpired term of
         this option, whichever is shorter, by the person or persons to whom the
         Employee's rights under this option shall pass by the Employee's will
         or by the laws of descent and distribution, whichever is applicable.

            (e) In the event the Employee voluntarily terminates employment
         Without Good Reason (as hereinafter defined), the Employee shall have
         the right at any time within ten (10) days after the termination of
         such employment or, if shorter, during the unexpired term of this
         option, to exercise this option for the full number of shares not
         previously exercised or any portion thereof, except as to the issuance
         of fractional shares,

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         but only to the extent this option was otherwise exercisable in
         accordance with Paragraph 4 hereof as of the date of such voluntary
         termination of employment. For purposes of this Section, "Without Good
         Reason" means the Employee's voluntary termination of employment for
         any reason and in any circumstance other than (x) the Employee's
         termination of employment for Good Reason (as defined in Paragraph
         11(b)(ii)(B)) after a Change of Control or (y) the Employee's voluntary
         termination of employment within sixty (60) days after the occurrence
         of any of the following events:

                  (i) A reduction in excess of 20% in any one calendar year of
            the Employee's total base salary;

                  (ii) A significant reduction in the Employee's entitlement to
            any employee benefits (other than a reduction in benefits which is
            required by applicable law or that applies in substantially the same
            manner to all similarly situated employees);

                  (iii) A relocation of the Employee to any place exceeding the
            distance of one hundred (100) miles from the place to which the
            Employee customarily reported prior to such relocation (other than
            reasonably required, temporary business travel); or

                  (iv) The failure by the Company to obtain the assumption of
            this Agreement by any successor or assign of the Company (unless
            this Agreement would otherwise terminate prior to or in connection
            with the event resulting in such succession or assignment).

            (f) In the event the Employee voluntarily terminates employment
         within sixty (60) days after the occurrence of any of the events set
         forth in Paragraph 6 (e) (y) hereof, then the Employee shall have the
         right at any time within ninety (90) days after the termination of such
         employment, or if shorter, during the unexpired term of this option, to
         exercise this option for the full number of shares not previously
         exercised or any portion thereof, except as to the issuance of
         fractional shares, but only to the extent this option was otherwise
         exercisable in accordance with Paragraph 4 hereof on the date of such
         cessation of employment.

            (g) In the event of the termination of the Employee's employment on
         or after the attainment of age 65 (or such other age as is permitted
         for the Employee by the Committee in its sole discretion) and provided
         Employee does not engage in full time employment with any other entity
         ("Retirement"), the Employee shall have the right at any time within
         one year after such Retirement or, if shorter, during the unexpired
         term of this option, to exercise this option for the full number of
         shares not previously exercised or any portion thereof, except as to
         the issuance of fractional shares, but only to the extent this option
         was otherwise exercisable in accordance with Paragraph 4 hereof as of
         the date of exercise.

         7. Shares Issued. Shares to be issued on the exercise of this option
may, at the election of the Company, be either authorized and unissued shares,
or shares previously issued and reacquired by the Company.

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         8. Delivery of Certificates. The Company shall not be required to issue
or deliver any certificates for shares purchased upon the exercise of this
option prior to: (i) the obtaining of any approval from any governmental agency
which the Company shall, in its sole discretion, determine to be necessary or
advisable; (ii) the completion of any registration or other qualification of
such shares under any state or federal law or ruling or regulation of any
governmental body which the Company shall, in its sole discretion, determine to
be necessary or advisable; and (iii) the determination by the Committee that the
Employee has tendered to the Company any federal, state or local tax owed by
Employee as a result of exercising this option when the Company has a legal
liability to satisfy such tax. In addition, if shares reserved for issuance upon
the exercise of this option shall not then be registered under the Act, the
Company may, upon Employee's exercise of this option, require Employee or his
permitted transferee to represent in writing that the shares being acquired are
for investment and not with a view to distribution, and may mark the certificate
for the shares with a legend restricting transfer and may issue stop transfer
orders relating to such certificate to the Company's transfer agent.

         9. Taxes. In connection with the exercise of the option by the Employee
and, as a condition to the Company's obligation to deliver shares upon exercise
of the option, the Employee shall make arrangements satisfactory to the
Committee to insure that the amount of the federal withholding tax, if any,
required to be withheld with respect to delivery of the shares is made available
by the Employee for timely payment of the tax by the Company to the United
States Government.

         10. Certain Adjustments. In the event that, prior to the delivery of
all of the shares in respect to which this option is granted, there shall be any
change in the outstanding Common Stock of the Company, through recapitalization,
reclassification, stock dividend, stock split, amendment to the Company's
Certificate of Incorporation or reverse stock split, an appropriate and
proportionate adjustment shall be made in the number and/or kind of securities
allocated to the option hereby granted, without change in the aggregate purchase
price applicable to the unexercised portion of the option, but with a
corresponding adjustment in the number and price for each share covered by the
option. Such adjustments shall be made by the Committee, whose determination in
the matter shall be conclusive and binding on the Company, the Employee and the
Employee's legal representative.

         11. Reorganization.

             (a) In the event that, prior to the delivery of all the shares in
         respect of which this option is granted, a Reorganization of the
         Company shall occur, as defined in Section 2.3 of the Plan:

                  (i) If provision be made in writing in connection with the
             Reorganization for the assumption and continuance of the option
             hereby granted, or the substitution for such option of a new option
             covering the shares of the successor employer corporation, with
             appropriate adjustment as to the number and kind of shares and
             prices, the option hereby granted, or the new option substituted
             therefor, as the case may be, shall continue in the manner and
             under the terms provided.

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                  (ii) In the event provision is not made in connection with a
             Reorganization for the continuance and assumption of the option
             granted under the Plan or for the substitution of an option
             covering the shares of the successor employer corporation, then the
             Employee shall be entitled, prior to the effective date of any such
             reorganization and notwithstanding the provisions of Paragraph 4
             hereof (except as to the issuance of fractional shares), to
             purchase the full number of shares not previously exercised under
             such option, without regard to the determination as to the periods
             and installments of exercisability made pursuant to the Plan if
             (and only if) such option has not at that time expired or been
             terminated.

         (b) In the event that, prior to the delivery of all the shares in
      respect of which this option is granted, a Change of Control of the
      Company shall occur, as defined in Section 2.3 of the Plan, other than a
      Change of Control which is a Reorganization described in Paragraph
      11(a)(ii) hereof, then, notwithstanding the provisions of Paragraph 4
      hereof (except as to the issuance of fractional shares), the Employee
      shall be entitled to purchase the full number of shares not previously
      exercised under this option, without regard to the determination as to the
      period and installments of exercisability made pursuant to the Plan if
      (and only if):

                  (i) such option has not at that time expired or been
             terminated; and

                  (ii) the employment of the Employee is terminated (x) by the
             Company Without Cause (as hereafter defined) within one year after
             the Change of Control or (y) by the Employee for Good Reason (as
             hereafter defined) within six months after the Change of Control.
             The term of this option shall not be affected by a Change of
             Control, provided, however, that upon termination of employment,
             including a termination of employment following a Change of
             Control, the period for exercising this option shall be as provided
             in Paragraph 6 hereof. For purposes of this Paragraph:

                       (A) "Without Cause" means the termination of the
                  Employee's employment for any reason other than:

                            (I) material dishonesty which is not the result of
                       an inadvertent or innocent mistake of the Employee with
                       respect to the Company or any of its Subsidiaries;

                            (II) willful misfeasance or nonfeasance of duty by
                       the Employee intended to injure or have the effect of
                       injuring in a material fashion the reputation, business,
                       or business relationships of the Company or any of its
                       Subsidiaries; or

                            (III) the Employee's conviction of any felony, any
                       crime involving moral turpitude, or any crime other than
                       a vehicular offense which has a material adverse effect
                       on the Company or any of its Subsidiaries.

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                       (B) "Good Reason" means the termination of the Employee's
                  employment within sixty (60) days after the occurrence of any
                  of the following events:

                            (I) a material alteration in the nature or status of
                       the Employee's title, duties or responsibilities, or the
                       assignment of duties or responsibilities inconsistent
                       with the Employee's status, title, or other duties and
                       responsibilities;

                            (II) a reduction in excess of 20% in any one
                       calendar year of the Employee's total base salary;

                            (III) a significant reduction in the Employee's
                       entitlement to any employee benefits (other than a
                       reduction in benefits which is required by applicable
                       law);

                            (IV) the relocation of the Employee to any place
                       exceeding a distance of one hundred (100) miles from the
                       place to which the Employee customarily reported prior to
                       the Change of Control (other than reasonably required,
                       temporary business travel); or

                            (V) the failure by the Company to obtain the
                       assumption of this Agreement by any successor or assign
                       of the Company (unless this Agreement would otherwise
                       terminate prior to or in connection with the event
                       resulting in such succession or assignment).

              (c) All adjustments under this Section shall be made by the
      Committee, whose determination as to what adjustments shall be made and
      the extent thereof, shall be final, binding and conclusive on the Company,
      the Employee and the Employee's legal representatives.

      12. Merger or Consolidation. In the event that, prior to the delivery of
all of the shares in respect to which this option is granted, there shall be a
merger or consolidation of the Company in which the Company is the surviving
corporation and, if as a result thereof, outstanding shares of Common Stock of
the Company are changed, converted or exchanged, then there shall be substituted
for each share of stock subject to the option granted hereby the number, kind or
amount of shares of stock or other securities or cash, property, rights or
obligations into which the outstanding shares of Common Stock of the Company
shall be so changed, converted or exchanged as a result of such merger or
consolidation. In the case of any such substitution or adjustment as provided in
this paragraph, the option price referred to in this Agreement for the shares
covered hereby shall be the option price for the shares or other securities or
cash, property, rights or obligations which shall have been substituted for the
shares covered hereby or to which such shares shall have been adjusted. Any
adjustment or substitutions pursuant to this paragraph shall be made by the
Committee, whose determination in the matter shall be conclusive and binding on
the Company, the Employee and his legal representatives.

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         13. Forfeiture of Option Gain. The purpose of the Plan is to attract,
retain and reward employees; to increase stock ownership and identification with
the Company's interests; and to provide incentive for remaining with and
enhancing the value of the Company and its Subsidiaries over the long-term. The
Employee hereby acknowledges that in the course of employment with the Company,
the Employee will be provided access to certain confidential and proprietary
information and knowledge relating to the operation, products, and services of
the Company and the Subsidiaries and will be trained and instructed in the
unique business methods of the Company and the Subsidiaries. The Employee
further acknowledges that in the course of employment with the Company, the
Employee will be entrusted with customer lists, financial information, and other
confidential information regarding the Company's and the Subsidiaries' financial
performance, shareholders, business plans, product development, product and
system configurations, and other business methods and functions considered
proprietary by the Company. As consideration for the above described training
and access to confidential information and for the grant of this option, the
Employee hereby agrees to the following:

                  (a) If, at any time within (x) the term of the Option or (y)
         within one year after termination of the Employee's employment with the
         Company and all Subsidiaries or (z) within one year after the Employee
         exercises any portion of the Option, whichever is the latest to occur,
         the Employee engages in any activity IN COMPETITION WITH ANY ACTIVITY
         OF THE COMPANY (OR ITS SUBSIDIARIES), or inimical, contrary or harmful
         to the interests of the Company (or its Subsidiaries), including, but
         not limited to:

                  (i) conduct related to the Employee's employment for which
              either criminal or civil penalties may be sought against the
              Employee;

                  (ii) violation of the policies of the Company, including,
              without limitation, the Company's insider trading policy;

                  (iii) disclosing or misusing any confidential information or
              material concerning the Company;

                  (iv) participating in a hostile takeover attempt;

                  (V) DIRECTLY OR INDIRECTLY OWNING, MANAGING, OPERATING,
              CONTROLLING, INVESTING, OR ACQUIRING AN INTEREST IN, OR OTHERWISE
              ENGAGING OR PARTICIPATING (WHETHER ALONE OR WITH ANY OTHER PERSON
              OR ENTITY AS A PROPRIETOR, PARTNER, STOCKHOLDER, MEMBER, DIRECTOR,
              OFFICER, EMPLOYEE, JOINT VENTURER, INVESTOR, CONSULTANT, AGENT,
              SALES REPRESENTATIVE, BROKER OR OTHER PARTICIPANT) IN ANY
              COMPETITIVE BUSINESS (AS HEREAFTER DEFINED) OPERATING IN, OR
              SOLICITING BUSINESS FROM, THE COMPANY'S MARKET (AS HEREAFTER
              DEFINED), WITHOUT REGARD TO WHETHER (A) THE COMPETITIVE BUSINESS
              HAS ITS OFFICE OR OTHER BUSINESS FACILITIES WITHIN THE COMPANY'S
              MARKET, (B) ANY OF THE ACTIVITIES OF THE EMPLOYEE REFERRED TO
              ABOVE OCCUR OR ARE PERFORMED WITHIN THE COMPANY'S MARKET, OR (C)
              THE EMPLOYEE RESIDES, OR REPORTS TO AN OFFICE OR OTHER PLACE OF
              BUSINESS, WITHIN THE COMPANY'S MARKET;

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                  (vi) (A) directly or indirectly diverting or attempting to
              divert business with respect to which the Employee had contact or
              special knowledge from the Company and/or the Subsidiaries; (B)
              calling on, soliciting, or attempting to solicit any business with
              respect to which the Employee had contact or special knowledge
              away from the Company and/or the Subsidiaries; or (C) otherwise
              dealing with any account or customer of the Company and/or the
              Subsidiaries with respect to any products or services provided by
              the Company and/or the Subsidiaries during the period when the
              Employee was employed by the Company or the Subsidiaries if the
              Employee had contact or special knowledge with respect to the
              account or customer and the product or service;

                  (vii) requesting, inducing, or attempting to induce anywhere
              in the world any customer, distributor, broker, agent, or supplier
              of the Company and/or any of the Subsidiaries or any other person
              or entity doing business with the Company and/or any of the
              Subsidiaries, to limit, curtail, or cancel its business with the
              Company and/or the Subsidiaries or not to do business with the
              Company and/or the Subsidiaries; provided the Employee had contact
              with or special knowledge of such customer, distributor, broker,
              agent, supplier, or other person or entity during the period when
              the Employee was employed by the Company and/or the Subsidiaries;

                  (viii) requesting, inducing, or attempting to induce anywhere
              in the world any employee, consultant, advisor, or agent of the
              Company and/or any of the Subsidiaries to terminate or limit his
              or her relationship with the Company and/or the Subsidiaries or
              not to enter into any such relationship; and

                  (ix) making any statement (orally or in writing) about the
              Company and/or any Subsidiary or any service or product of the
              Company and/or the Subsidiaries which statement is false and may
              reasonably be expected to be detrimental to the Company and/or the
              Subsidiaries;

then (xx) this option shall terminate effective as of the date on which the
Employee engages in such activity, unless terminated sooner by operation of
another term or condition of this Agreement or the Plan and (yy) any option gain
realized by the Employee from exercising all or a portion of the option, or such
lesser amount as shall be determined to be the maximum reasonable and
enforceable amount by a court or arbitrator, shall be paid by the Employee to
the Company. FOR PURPOSES OF THIS AGREEMENT, "COMPETITIVE BUSINESS" MEANS ANY
PERSON OR ENTITY ENGAGED IN A BUSINESS THAT PRODUCES ANY OF THE PRODUCTS OR
PERFORMS ANY OF THE SERVICES COMPRISING, IN WHOLE OR IN PART, THE BUSINESS OF
THE COMPANY AND THE SUBSIDIARIES AND ANY PREDECESSORS OR SUCCESSORS OF EITHER
BEING CONDUCTED DURING THE TERM OF THIS AGREEMENT AND/OR ON THE DATE OF THE
EMPLOYEE'S TERMINATION OF EMPLOYMENT WITH THE COMPANY AND THE SUBSIDIARIES. FOR
PURPOSES OF THIS AGREEMENT, "COMPANY'S MARKET" MEANS ANY GEOGRAPHIC REGION IN
WHICH THE EMPLOYEE CONDUCTED OR DEVELOPED ANY BUSINESS ON BEHALF OF THE COMPANY
AND/OR THE SUBSIDIARIES WHILE THE EMPLOYEE WAS EMPLOYED BY THE COMPANY AND/OR
THE SUBSIDIARIES.

              (b) By accepting this Agreement, the Employee consents to a
      deduction from any amounts the Company (and the Subsidiaries) owe the
      Employee from time to time

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      (including amounts owed to the Employee as wages or other compensation,
      fringe benefits, or vacation pay) to the extent of the amounts the
      Employee owes the Company under this Paragraph. Without regard to whether
      the Company elects to make any set-off in whole or in part, if the Company
      does not recover by means of set-off the full amount owed to it by the
      Employee, calculated as set forth above, the Employee agrees to pay
      immediately the unpaid balance to the Company.

              (c) The Employee may be released in whole or in part from the
      obligations under this Paragraph only if the Board of Directors or the
      Compensation Committee thereof (or its duly appointed agent) determines in
      its sole discretion that such action is in the best interests of the
      Company.

      14. No Shareholder Rights. Neither the Employee nor his legal
representative shall be or have any of the rights or privileges of a shareholder
of the Company in respect to any of the shares issuable upon the exercise of
this option unless and until certificates representing such shares shall have
been issued and delivered to the Employee.

      15. No Employment Obligation. Neither the granting of this option, the
exercise of any part hereof, nor any provision of this Agreement shall
constitute or be evidence of any understanding, express or implied, on the part
of the Company to employ the Employee for any specified period.

      16. Non-Transferability. This option shall, by its terms, be
nontransferable by the Employee other than by will or the laws of descent and
distribution. During the Employee's lifetime, the option shall be exercisable
only by the Employee or by the Employee's duly appointed guardian or personal
representative.

      17. Construction. The Committee shall have authority to make reasonable
constructions of this option and to correct any defect or supply any omission or
reconcile any inconsistency in this option, and to prescribe reasonable rules
and regulations relating to the administration of this option and other similar
options granted under the Plan.

      18. Notices. Any notice relating to this Agreement shall be in writing and
delivered in person or by registered mail to the Company at the Company's
principal office, 13403 Northwest Freeway, Houston, Texas 77040-6094, or to such
other address as may be hereafter specified by the Company, to the attention of
its Treasurer. All notices to the Employee or other person or persons then
entitled to exercise the option shall be delivered to the Employee or such other
person or persons at the Employee's address specified on the signature page of
this Agreement.

      19. Confidentiality. The Employee agrees that, as partial consideration
for the granting of this option, the Employee will keep confidential all
information and knowledge which the Employee has relating to the manner and
amount of the Employee's participation in the Plan; provided, however, that such
information may be given in confidence to the Employee's spouse or to a
financial institution to the extent that such information is necessary in order
to secure a loan.

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      20. Effect of Payment. Any payment or any issuance or transfer of shares
of the Common Stock to the Employee or the Employee's legal representative,
heir, legatee or distributee, in accordance with the provisions hereof, shall,
to the extent thereof, be in full satisfaction of all claims of such person
hereunder. The Committee may require the Employee, legal representative, heir,
legatee or distributee, as a condition precedent to such payment, to execute a
release and receipt therefor in such form as it shall determine.

      21. Incentive Stock Option. This option is intended to qualify as an
"incentive stock option" within the meaning of Section 422 of the Code, and
shall be so construed; provided, however, that nothing in this Agreement shall
be interpreted as a representation, guarantee, or other understanding on the
part of the Company that this option is or will be determined to be an
"incentive stock option" within the meaning of that or any other section of the
Code.

      22. Miscellaneous. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any applicable laws, the legality,
validity, and enforceability of the remaining provisions of this Agreement shall
not be affected thereby, and in lieu of such illegal, invalid, or unenforceable
provision, there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid and enforceable. This Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof and no provision hereof may be amended, modified or waived except
by a written agreement signed by the parties. This Agreement may be executed in
any number of counterparts, all of which shall be considered one and the same
instrument. This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas, without regard to the conflicts of laws
principles thereof, to the maximum extent practicable calls for performance and
shall be performable at the offices of the Company in Houston, Harris County,
Texas and venue for any dispute arising hereunder shall lie exclusively in the
state and/or federal courts of Harris County, Texas and the Southern District of
Texas, Houston Division, respectively.

      23. EXPIRATION OF AGREEMENT. IF THIS AGREEMENT IS NOT SIGNED AND RETURNED
TO OUR OFFICES WITHIN 30 DAYS OF THE DATE OF EMPLOYEE'S RECEIPT OF THIS
AGREEMENT, THIS AGREEMENT AND THE OPTION PROVIDED FOR HEREIN IS NULL AND VOID.

                                       11
<PAGE>

                          2001 FLEXIBLE INCENTIVE PLAN
                                 TERMS OF OPTION

1.    Date of Grant:
                                               --------------------------
2.    Date of Expiration:
                                               --------------------------
3.    Number of shares subject to option:
                                               --------------------------
4.    Per share purchase price of option:
                                               --------------------------
5.    Vesting schedule of option:

<Table>
<Caption>
---------------------------------------------------------------------------------------------------------------------------
                                                   Cumulative Portion of Shares       Cumulative Number of Shares Subject
                                               Subject to Option that is Vested On      to Option that is Vested On and
                                                  and After Such Anniversary and       After Such Anniversary and Before
        Anniversary of Date of Grant                 Before Next Anniversary                   Next Anniversary
---------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                                    <C>
                    First                                      20%                                    20%
---------------------------------------------------------------------------------------------------------------------------
                   Second                                      40%                                    40%
---------------------------------------------------------------------------------------------------------------------------
                    Third                                      60%                                    60%
---------------------------------------------------------------------------------------------------------------------------
                   Fourth                                      80%                                    80%
---------------------------------------------------------------------------------------------------------------------------
                    Fifth                                      100%                                  100%
---------------------------------------------------------------------------------------------------------------------------
</Table>

         IN WITNESS WHEREOF, the parties have duly executed this Agreement
effective as of the Date of Grant set forth above.

COMPANY:                                   EMPLOYEE:

HCC INSURANCE HOLDINGS, INC.,
a Delaware corporation
                                           -------------------------------------
                                           Printed Name
By:
   -------------------------------
Name:                                      -------------------------------------
     -----------------------------         Street Address (No P.O. Box please)
Title:
      ----------------------------
                                           -------------------------------------
                                           City, State and Zip Code

              [SIGNATURE PAGE TO INCENTIVE STOCK OPTION AGREEMENT]

                                       12<PAGE>

                              EMPLOYMENT AGREEMENT

         This EMPLOYMENT AGREEMENT ("Agreement") is entered into effective as of
the 1st day of January, 2002 (the "Effective Date"), between HCC INSURANCE
HOLDINGS, INC. ("HCC" or the "Company"), and Edward H. Ellis, Jr.

("Executive"), sometimes collectively referred to herein as the "Parties."

                                    RECITALS:

         WHEREAS, Executive is to be employed as Executive Vice President and
Chief Financial Officer;

         WHEREAS, it is the desire of the Board of Directors of HCC (the
"Board") to directly engage Executive as an officer of HCC and its subsidiaries;

         WHEREAS, Executive is desirous of committing himself to serve HCC on
the terms herein provided; and

         WHEREAS, Executive and HCC have previously entered into an Employment
Agreement dated effective January 5, 2000 (the "2000 Contract") which is to be
cancelled, terminated and be of no further force or effect;

         NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the Parties agree as follows:

         1. TERMINATION OF 2000 CONTRACT AND TERM. Effective as of the Effective
Date, the 2000 Contract shall be cancelled, terminated and be of no further
force or effect. The Company hereby agrees to employ Executive as Executive Vice
President and Chief Financial Officer, and Executive hereby agrees to accept
such employment, on the terms and conditions set forth herein, for the period
commencing on the Effective Date and expiring as of 11:59 p.m. on December 31,
2006 (the "Basic Term") (unless sooner terminated as hereinafter set forth).

         2. DUTIES.

          (a) DUTIES AS EMPLOYEE OF THE COMPANY. Executive shall, subject to the
supervision of the President of the Company, act as Executive Vice President and
Chief Financial Officer of HCC in the ordinary course of its business with all
such powers with respect to such management and control as may be reasonably
incident to such responsibilities. During normal business hours, Executive shall
devote his full time and attention to diligently attending to the business of
the Company during the Basic Term. During the Basic Term, Executive shall not
directly or indirectly render any services of a business, commercial, or
professional nature to any other person, firm, corporation, or organization,
whether for compensation or otherwise, without the

<PAGE>

prior written consent of the President of HCC. However, Executive shall have the
right to engage in such activities as may be appropriate in order to manage his
personal investments so long as such activities do not materially interfere or
conflict with the performance of his duties to the Company hereunder. The
conduct of such activity shall not be deemed to materially interfere or conflict
with Executive's performance of his duties until Executive has been notified in
writing thereof and given a reasonable period in which to cure the same.

          (b) OTHER DUTIES. If elected, Executive agrees to serve as a member of
such managerial Committees of HCC and of any of its subsidiaries and in one or
more executive offices of any of HCC's subsidiaries, provided Executive is
indemnified for serving in any and all such capacities in a manner acceptable to
the Company and Executive. If elected, Executive agrees that he shall not be
entitled to receive any compensation for serving as a director of HCC, or in any
capacities of HCC's subsidiaries other than the compensation to be paid to
Executive by the Company pursuant to this Agreement.

         3. COMPENSATION AND RELATED MATTERS.

          (a) BASE SALARY. Executive shall receive a base salary paid by the
Company as follows: $325,000 in the year 2002 and increasing by $25,000 per year
in each calendar year thereafter for the Basic Term in substantially equal
monthly installments. For purposes of this Agreement, "Base Salary" shall mean
the Executive's initial base salary or, if increased, then the increased base
salary.

          (b) BONUS PAYMENTS AND OPTIONS.

               (i) Bonus Payments. Executive shall be eligible to receive, in
addition to the Base Salary, an annual cash and/or stock bonus payment in
amount, which may be zero, to be determined at the sole discretion of the
Compensation Committee.

               (ii) Options: Executive shall receive options to acquire 100,000
shares of the Company's common stock. Such options shall vest in five (5) equal
annual installments commencing on the first anniversary of the Effective Date.
Such options shall expire on the sixth anniversary of the Effective Date. The
options shall be granted pursuant to the Company's existing Stock Option Plans.

          (c) EXPENSES. During the Basic Term, Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by him (in
accordance with the policies and procedures established by the Board for the
Company's senior executive officers) in performing services hereunder, provided
that Executive properly accounts therefor in accordance with Company policy.

          (d) OTHER BENEFITS. Executive shall be entitled to participate in or
receive benefits under any compensation, employee benefit plan, or other
arrangement made generally available by the Company now or in the future to its
senior executive officers, subject to and on a basis consistent with the terms,
conditions, and overall administration of such plan or arrangement. Nothing paid
to Executive under any plan or arrangement presently in effect or made available
in the future shall be deemed to be in lieu of the Base Salary payable to
Executive pursuant to Paragraph (a) of this

                                       2

<PAGE>

Section. The Company shall not make any changes in any employee benefit plans or
other arrangements in effect on the date hereof or subsequently in effect in
which Executive currently or in the future participates (including, without
limitation, each pension and retirement plan, supplemental pension and
retirement plan, savings and profit sharing plan, stock or unit ownership plan,
stock or unit purchase plan, stock or unit option plan, life insurance plan,
medical insurance plan, disability plan, dental plan, health and accident plan,
or any other similar plan or arrangement) that would adversely affect
Executive's rights or benefits thereunder, unless such change occurs pursuant to
a program applicable to executives of the Company and does not result in a
proportionately greater reduction in the rights of or benefits to Executive as
compared with any other executive of the Company.

          (e) VACATIONS. Executive shall be entitled to twenty (20) paid
vacation days per year during the Basic Term. There shall be no carryover of
unused vacation from year to year. For purposes of this Paragraph, weekends
shall not count as vacation days, and Executive shall also be entitled to all
paid holidays given by the Company to its senior executive officers.

          (f) PERQUISITES. Executive shall be entitled to receive the
perquisites and fringe benefits provided generally to an executive officer of
HCC in accordance with any practice established by the Board.

          (g) PRORATION. Any payments or benefits payable to Executive hereunder
in respect of any calendar year during which Executive is employed by the
Company for less than the entire year, unless otherwise provided in the
applicable plan or arrangement, shall be prorated in accordance with the number
of days in such calendar year during which he is so employed. Notwithstanding
the foregoing, any payments pursuant to Paragraph 4(c) or 4(d) this Agreement
shall not be subject to proration.

         4. TERMINATION.

          (a) DEFINITIONS.

               (1) "CAUSE" shall mean:

                    (i) Material dishonesty which is not the result of an
          inadvertent or innocent mistake of Executive with respect to the
          Company or any of its subsidiaries;

                    (ii) Willful misfeasance or nonfeasance of duty by Executive
          intended to injure or having the effect of injuring in some material
          fashion the reputation, business, or business relationships of the
          Company or any of its subsidiaries or any of their respective
          officers, directors, or employees;

                    (iii) Material violation by Executive of any material term
          of this Agreement;

                                       3

<PAGE>

                    (iv) Conviction of Executive of any felony, any crime
          involving moral turpitude or any crime other than a vehicular offense
          which could reflect in some material fashion unfavorably upon the
          Company or any of its subsidiaries.

          Executive may not be terminated for Cause unless and until there has
          been delivered to Executive written notice from the Board supplying
          the particulars of his acts or omissions that the Board believes
          constitute Cause, a reasonable period of time (not less than 30 days)
          has been given to Executive after such notice to either cure the same
          or to meet with the Board with his attorney if so desired by
          Executive, and following which the Board furnishes to Executive a
          written resolution specifying in detail its findings that Executive
          has been terminated for Cause as of the date set forth in the notice
          to Executive.

               (2) A "CHANGE OF CONTROL" shall be deemed to have
occurred if:

                         (i) Any "person" or "group" (within the meaning of
          Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934)
          other than a trustee or other fiduciary holding securities under an
          employee benefit plan of the Company becomes the "beneficial owner"
          (as defined in Rule 13d-3 under the Securities Exchange Act of 1934),
          directly or indirectly, of 50% or more of the Company's then
          outstanding voting common stock; or

                         (ii) The shareholders of the Company approve a merger
          or consolidation of the Company with any other corporation, other than
          a merger or consolidation (a) in which a majority of the directors of
          the surviving entity were directors of the Company prior to such
          consolidation or merger, or (b) which would result in the voting
          securities of the Company outstanding immediately prior thereto
          continuing to represent (either by remaining outstanding or by being
          changed into voting securities of the surviving entity) more than 50%
          of the combined voting power of the voting securities of the surviving
          entity outstanding immediately after such merger or consolidation; or

                         (iii) The shareholders approve a plan of complete
          liquidation of the Company or an agreement for the sale or disposition
          by the Company of all or substantially all of the Company's assets.

               (3) A "DISABILITY" shall mean the absence of Executive from
Executive's duties with the Company on a full-time basis for 180 consecutive
days, or 180 days in a 365-day period, as a result of incapacity due to mental
or physical illness which results in the Executive being unable to perform the
essential functions of his position, with or without reasonable accommodation.

               (4) A "GOOD REASON" shall mean any of the following (without
Executive's express written consent):

                    (i) Within six (6) months following a Change of Control,
          there is a material alteration in the nature or status of Executive's
          duties or responsibilities, or the

                                       4

<PAGE>

          assignment of duties or responsibilities inconsistent with,
          Executive's status, duties or responsibilities (a "Material
          Alteration");

                    (ii) A failure by the Company to continue in effect any
          employee benefit plan in which Executive was participating, or the
          taking of any action by the Company that would adversely affect
          Executive's participation in, or materially reduce Executive's
          benefits under, any such employee benefit plan, unless such failure or
          such taking of any action adversely affects the management of the
          Company generally;

                    (iii) Executive's relocation to any place, other than the
          executive offices as a result of the Company relocating its executive
          offices, exceeding a distance of fifty (50) miles from the Company's
          current executive office located in Houston, Texas, except for
          reasonably required travel by Executive on the Company's business;

                    (iv) Any material breach by the Company of any material
          provision of this Agreement; or

                    (v) Any failure by the Company to obtain the assumption and
          performance of this Agreement by any successor (by merger,
          consolidation, or otherwise) or assign of the Company.

However, Good Reason shall exist with respect to an above specified matter only
if (i) such matter relates to subparagraphs (ii), (iii), (iv) or (v) hereof, and
it is not corrected by the Company within thirty (30) days after the Company's
receipt of written notice of such matter from Executive or (ii) if there is a
Material Alteration and it relates to subparagraph (i) hereof, such matter is
not corrected after receipt of written notice by the later of thirty (30)days
following receipt of the written notice, or six months following the Change of
Control; and in no event shall a termination by Executive occurring more than
the later of ninety (90) days following the date of the event described above or
sixty (60) days after the end of the six months following a Change of Control be
a termination for Good Reason due to such event.

               (5) "TERMINATION DATE" shall mean the date Executive terminates
or is terminated for any reason pursuant to this Agreement.

          (b) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON: BENEFITS. In the
event there is a termination by the Company without Cause, or if Executive
terminates for Good Reason (a "Termination Event"), this Agreement shall
terminate and Executive shall be entitled to the following severance benefits:

               (1) For the remainder of the Basic Term after the Termination
     Date, Base Salary (as defined in Paragraph 3(a)), payable in a lump sum,
     appropriately discounted to take into consideration the lump sum early
     payment;

               (2) If there is a Termination Event, any stock options ("Stock
     Awards") which Executive has received under this Agreement or otherwise
     shall vest immediately and

                                       5

<PAGE>

     all such Stock Awards shall be exercisable for thirty (30) days from the
     date of such Termination Event or the remainder of their term, whichever is
     less;

               (3) To the extent not theretofore paid or provided, the Company
     shall timely pay or provide to Executive any other amounts or benefits
     required to be paid or provided or which Executive is eligible to receive
     under any plan, program, policy or practice, or contract or agreement of
     the Company and its affiliated companies for the period of time equal to
     the lesser of six months following Executive's Termination or the date
     Executive begins new employment. The Company, at its sole expense, shall
     continue to provide (through its own plan and/or individual policies)
     Executive (and Executive's dependents) with health benefits no less
     favorable than the group health plan benefits provided generally during
     such period to the senior executive officers of the Company or any
     affiliated company (to the extent any such coverage or benefits are taxable
     to Executive by reason of being provided under a self-insured health plan
     of the Company or an affiliate, the Company shall make Executive "whole"
     for the same on an after-tax basis), provided, however, such coverage shall
     be secondary to any group health plan coverage Executive (or his
     dependents) receive from another employer, (such other amounts and benefits
     shall be hereinafter referred to as the "Other Benefits");

               (4) All accrued compensation and unreimbursed expenses through
     the Termination Date. Such amounts shall be paid to Executive in a lump sum
     in cash within thirty (30) days after the Termination Date; and

               (5) Executive shall be free to accept other employment during
     such period, and there shall be no offset of any employment compensation
     earned by Executive in such other employment during such period against
     payments due Executive under this Paragraph (4), and there shall be no
     offset in any compensation received from such other employment against the
     Base Salary set forth above.

          (c) TERMINATION IN EVENT OF DEATH: BENEFITS. If Executive's employment
is terminated by reason of Executive's death during the Basic Term, this
Agreement shall terminate without further obligation to Executive's legal
representatives under this Agreement, other than for payment of all accrued
compensation, unreimbursed expenses, the timely payment or provision of Other
Benefits through the date of death. Such amounts shall be paid to Executive's
estate or beneficiary, as applicable, in a lump sum in cash within ninety (90)
days after the date of death. In addition, Executive's legal representatives
shall receive, at the same time as if Executive were still an employee,
Executive's Base Salary for the lesser of one (1) year or the date this
Agreement would otherwise have terminated. With respect to the provision of
Other Benefits, the term Other Benefits as used in this Paragraph 4(c) shall
include, without limitation, and Executive's estate and/or beneficiaries shall
be entitled to receive, benefits at least equal to the most favorable benefits
provided by the Company to the estates and beneficiaries of other executive
level employees of the Company under such plans, programs, practices, and
policies relating to death benefits, if any, as in effect with respect to other
executives and their beneficiaries at any time during the 120-day period
immediately preceding the date of death. Additionally, all Stock Awards shall be
vested immediately

                                       6

<PAGE>

and shall be exercisable for the later of one year after the date of such
vesting or the remaining term of such option.

          (d) TERMINATION IN EVENT OF DISABILITY: BENEFITS. If Executive's
employment is terminated by reason of Executive's Disability during the Basic
Term, this Agreement shall terminate but the Company shall continue to pay the
Base Salary for a period of three (3) months and thereafter shall make such
additional payment for the Term so that the after tax effect of Executive's
compensation is the same as before the Disability. Executive shall, not be
entitled to any subsequent cash or stock bonuses. In addition, all outstanding
Stock Awards shall vest immediately upon such termination due to Disability and
shall be exercisable for one year after the date of such vesting. Executive's
Benefits shall continue to the end of the Basic Term.

          (e) VOLUNTARY TERMINATION BY EMPLOYEE AND TERMINATION FOR CAUSE:
BENEFITS. Executive may terminate his employment with the Company without Good
Reason by giving written notice of his intent and stating an effective
Termination Date at least ninety (90) days after the date of such notice;
provided, however, that the Company may accelerate such effective date by paying
Executive through the proposed Termination Date and also vesting awards that
would have vested but for this acceleration of the proposed Termination Date.
Upon such a termination by Executive or upon termination for Cause by the
Company, this Agreement shall terminate and the Company shall pay to Executive
all accrued compensation, unreimbursed expenses and the Other Benefits through
the Termination Date. Such amounts shall be paid to Executive in a lump sum in
cash within thirty (30) days after the date of termination. In addition, all
unvested stock options shall terminate and all vested options will terminate
fifteen (15) days after the Termination Date.

          (f) DIRECTOR POSITIONS. Executive agrees that upon termination of
employment, for any reason, at the request of the Chairman of the Board,
Executive will immediately tender his resignation from any and all Board
positions held with the Company and/or any of its subsidiaries and affiliates.

         5. NON-COMPETITION, NON-SOLICITATION, AND CONFIDENTIALITY. Executive
recognizes and agrees that the benefit of not being employed at-will, is
provided in consideration for, among other things, the agreements contained in
this Section, as well as the Stock Awards granted to Executive pursuant to this
Agreement. The Company agrees that while employed pursuant to this Agreement,
Executive will be provided with confidential information of Company; specialized
training on how to perform his duties; and contact with the Company's customers
and potential customers.

          (a) NON-COMPETITION DURING EMPLOYMENT. Executive agrees that during
the Basic Term, he will not compete with the Company by engaging in the
conception, design, development, production, marketing, or servicing of any
product or service that is substantially similar to the products or services
which the Company provides, and that he will not work for, in any capacity,
assist, or become affiliated with as an owner, partner, etc., either directly or
indirectly, any individual or business which offers or performs services, or
offers or provides products substantially similar to the services and products
provided by Company, provided, Executive shall not be prevented from owning no
more than 2% of any Company whose stock is publicly traded.

                                       7

<PAGE>

          (b) CONFLICTS OF INTEREST. Executive agrees that during the Basic
Term, he will not engage, either directly or indirectly, in any activity (a
"Conflict of Interest") which might adversely affect the Company or its
affiliates, including ownership of a material interest in any supplier,
contractor, distributor, subcontractor, customer or other entity with which the
Company does business or accepting any material payment, service, loan, gift,
trip, entertainment, or other favor from a supplier, contractor, distributor,
subcontractor, customer or other entity with which the Company does business,
and that Executive will promptly inform the President of the Company as to each
offer received by Executive to engage in any such activity. Executive further
agrees to disclose to the Company any other facts of which Executive becomes
aware which in Executive's good faith judgment could reasonably be expected to
involve or give rise to a Conflict of Interest or potential Conflict of
Interest.

          (c) NON-COMPETITION AFTER TERMINATION. Executive agrees that Executive
shall not, at any time during the period of two (2) years after the later of
termination of the Basic Term for any reason, within any of the markets in which
the Company has sold products or services or formulated a plan to sell products
or services into a market during the last twelve (12) months of Executive's
employ or which the Company enters into within three (3) months thereafter,
engage in or contribute Executive's knowledge to any work which is competitive
with or similar to a product, process, apparatus, service, or development on
which Executive worked or with respect to which Executive had access to
Confidential Information while employed by the Company. Following the expiration
of said two (2) year period, Executive shall continue to be obligated under the
Confidential Information Paragraph of this Agreement not to use or to disclose
Confidential Information of the Company so long as it shall not be publicly
available. It is understood that the geographical area set forth in this
covenant is divisible so that if this clause is invalid or unenforceable in an
included geographic area, that area is severable and the clause remains in
effect for the remaining included geographic areas in which the clause is valid.

          (d) CONFIDENTIAL INFORMATION. Executive further agrees that he will
not, except as the Company may otherwise consent or direct in writing, reveal or
disclose, sell, use, lecture upon, publish or otherwise disclose to any third
party any Confidential Information or proprietary information of the Company, or
authorize anyone else to do these things at any time either during or subsequent
to his employment with the Company. This Section shall continue in full force
and effect after termination of Executive's employment and after the termination
of this Agreement. Executive's obligations under this Paragraph with respect to
any specific Confidential Information and proprietary information shall cease
when that specific portion of the Confidential Information and proprietary
information becomes publicly known, in its entirety and without combining
portions of such information obtained separately. It is understood that such
Confidential Information and proprietary information of the Company include
matters that Executive conceives or develops, as well as matters Executive
learns from other employees of Company. Confidential Information is defined to
include information: (1) disclosed to or known by the Executive as a consequence
of or through his employment with the Company; (2) not generally known outside
the Company; and (3) which relates to any aspect of the Company or its business,
finances, operation plans, budgets, research, or strategic development.
"Confidential Information" includes, but is not limited to the Company's trade
secrets, proprietary information, financial documents, long range plans,
customer lists, employer compensation, marketing strategy, data bases, costing
data, computer software

                                       8

<PAGE>

developed by the Company, investments made by the Company, and any information
provided to the Company by a third party under restrictions against disclosure
or use by the Company or others.

          (e) RETURN OF DOCUMENTS, EQUIPMENT, ETC. All writings, records, and
other documents and things comprising, containing, describing, discussing,
explaining, or evidencing any Confidential Information, and all equipment,
components, parts, tools, and the like in Executive's custody or possession that
have been obtained or prepared in the course of Executive's employment with the
Company shall be the exclusive property of the Company, shall not be copied
and/or removed from the premises of the Company, except in pursuit of the
business of the Company, and shall be delivered to the Company, without
Executive retaining any copies, upon notification of the termination of
Executive's employment or at any other time requested by the Company. The
Company shall have the right to retain, access, and inspect all property of
Executive of any kind in the office, work area, and on the premises of the
Company upon termination of Executive's employment and at any time during
employment by the Company to ensure compliance with the terms of this Agreement.

          (f) REAFFIRM OBLIGATIONS. Upon termination of his employment with the
Company, Executive, if requested by Company, shall reaffirm in writing
Executive's recognition of the importance of maintaining the confidentiality of
the Company's Confidential Information and proprietary information, and reaffirm
any other obligations set forth in this Agreement.

          (g) PRIOR DISCLOSURE. Executive represents and warrants that he has
not used or disclosed any Confidential Information he may have obtained from
Company prior to signing this Agreement, in any way inconsistent with the
provisions of this Agreement.

          (h) CONFIDENTIAL INFORMATION OF PRIOR COMPANIES. Executive will not
disclose or use during the period of his employment with the Company any
proprietary or Confidential Information or Copyright Works which Executive may
have acquired because of employment with an employer other than the Company or
acquired from any other third party, whether such information is in Executive's
memory or embodied in a writing or other physical form.

          (i) BREACH. Executive agrees that any breach of Paragraphs 5(a) or (c)
above cannot be remedied solely by money damages, and that in addition to any
other remedies Company may have, Company is entitled to obtain injunctive relief
against Executive. Nothing herein, however, shall be construed as limiting
Company's right to pursue any other available remedy at law or in equity,
including recovery of damages and termination of this Agreement and/or any
payments that may be due pursuant to this Agreement.

          (j) RIGHT TO ENTER AGREEMENT. Executive represents and covenants to
Company that he has full power and authority to enter into this Agreement and
that the execution of this Agreement will not breach or constitute a default of
any other agreement or contract to which he is a party or by which he is bound.

          (k) ENFORCEABILITY. The agreements contained in this Section 5 are
independent of the other agreements contained herein. Accordingly, failure of
the Company to comply with any

                                       9

<PAGE>

of its obligations outside of this Paragraph do not excuse Executive from
complying with the agreements contained herein.

               (l) SURVIVABILITY. The agreements contained in Paragraphs
..A.5(c)-(d) shall survive the termination of this Agreement for any reason.

         6. ASSIGNMENT. This Agreement cannot be assigned by Executive. The
Company may assign this Agreement only to a successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and assets of the Company provided such
successor expressly agrees in writing reasonably satisfactory to Executive to
assume and perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession and assignment
had taken place. Failure of the Company to obtain such written agreement prior
to the effectiveness of any such succession shall be a material breach of this
Agreement.

         7. BINDING AGREEMENT. Executive understands that his obligations under
this Agreement are binding upon Executive's heirs, successors, personal
representatives, and legal representatives.

         8. NOTICES. All notices pursuant to this Agreement shall be in writing
and sent certified mail, return receipt requested, addressed as set forth below,
or by delivering the same in person to such party, or by transmission by
facsimile to the number set forth below (which shall not constitute notice).
Notice deposited in the United States Mail, mailed in the manner described
hereinabove, shall be effective upon deposit. Notice given in any other manner
shall be effective only if and when received:

                  If to Executive:            Edward H. Ellis, Jr.
                                              182 Castlerock
                                              Houston, Texas  77090
                                              Fax:  (281) 397-6440

                  If to Company:              HCC Insurance Holdings, Inc.
                                              13403 Northwest Freeway
                                              Houston, Texas  77040
                                              Attn:  General Counsel
                                              Fax:  (713) 744-9648

                  with a copy (which shall    Arthur S. Berner, Esq.
                  not constitute notice) to:  Haynes and Boone, LLP
                                              1000 Louisiana Street,
                                              Suite 4300
                                              Houston, Texas  77002-5012
                                              Fax:  (713) 236-5652

                                       10

<PAGE>

         9. WAIVER. No waiver by either party to this Agreement of any right to
enforce any term or condition of this Agreement, or of any breach hereof, shall
be deemed a waiver of such right in the future or of any other right or remedy
available under this Agreement.

         10. SEVERABILITY. If any provision of this Agreement is determined to
be void, invalid, unenforceable, or against public policy, such provisions shall
be deemed severable from the Agreement, and the remaining provisions of the
Agreement will remain unaffected and in full force and effect.

         11.  ENTIRE AGREEMENT. The terms and provisions contained herein
shall constitute the entire agreement between the parties with respect to
Executive's employment with Company during the time period covered by this
Agreement. This Agreement replaces and supersedes any and all existing
Agreements entered into between Executive and the Company relating generally to
the same subject matter, if any, and shall be binding upon Executive's heirs,
executors, administrators, or other legal representatives or assigns.

         12. MODIFICATION OF AGREEMENT. This Agreement may not be changed or
modified or released or discharged or abandoned or otherwise terminated, in
whole or in part, except by an instrument in writing signed by the Executive and
an officer or other authorized executive of Company.

         13.  UNDERSTAND AGREEMENT. Executive represents and warrants that
he has read and understood each and every provision of this Agreement, and
Executive understands that he has the right to obtain advice from legal counsel
of choice, if necessary and desired, in order to interpret any and all
provisions of this Agreement, and that Executive has freely and voluntarily
entered into this Agreement.

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

         15. JURISDICTION AND VENUE. With respect to any litigation regarding
this Agreement, Executive agrees to venue in the state or federal courts in
Harris County, Texas, and agrees to waive and does hereby waive any defenses
and/or arguments based upon improper venue and/or lack of personal jurisdiction.
By entering into this Agreement, Executive agrees to personal jurisdiction in
the state and federal courts in Harris County, Texas.

                [REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]

                                       11

<PAGE>

         IN WITNESS WHEREOF, the Parties have executed this Agreement in
multiple copies, effective as of the date first written above.

EXECUTIVE                                         COMPANY

                                                  HCC INSURANCE HOLDINGS, INC.

/s/ EDWARD H. ELLIS, JR.                          By: /s/ JOHN N. MOLBECK, JR.
-----------------------------                        ---------------------------
Edward H. Ellis, Jr.                                  John N. Molbeck,
                                                      President

Dated:     2/02/02                                Dated:  1/21/02
      -----------------------                           ------------------------

                    [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]

                                       12

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