Document:

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                                                                    EXHIBIT 10.5

[AXIS LOGO]

                       AXIS SPECIALTY U.S. SERVICES, INC.
                           430 PARK AVENUE, 15th FLOOR
                            NEW YORK, NEW YORK 10022

February 6, 2003

Michael E. Morrill
AXIS Specialty U.S. Services, Inc.
430 Park Avenue, 15th floor
New York, New York 10022

Dear Michael:

           We are delighted that you have decided to join AXIS Specialty U.S.
Services, Inc., a Delaware corporation (the "COMPANY" and wholly owned, indirect
subsidiary of AXIS Capital Holdings Limited, a Bermuda company (the "PARENT").
We thought it would be useful to lay out the terms and conditions of our
agreement in this letter agreement (this "AGREEMENT").

1. EMPLOYMENT.

           The Company hereby agrees to employ you as Senior Vice President. The
Company also agrees that you will have same the title in its affiliate AXIS
Specialty U.S. Holdings, Inc. and the titles of President and Chief Executive
Officer in its subsidiary reinsurance company AXIS Reinsurance Company. You will
report to the President and Chief Executive Officer of the Parent or any other
appropriate designee as may be directed by him. You will be expected to devote
your full business time and energy, attention, skills and ability to the
performance of your duties and responsibilities to the Company on an exclusive
basis, including service to subsidiaries and other affiliates of the Company as
requested by the Board of Directors of the Parent, and shall faithfully and
diligently endeavor to promote the business and best interests of the Company
and its affiliates.

2. COMPENSATION AND BENEFITS.

     (a)   During your employment with the Company, your annual base salary
shall be $450,000.00 ("BASE SALARY") and shall be paid pursuant to the Company's
customary payroll practices. The Base Salary will be reviewed annually and may
be increased in the sole discretion of the Company.

     (b)   In addition to the Base Salary, in each fiscal year during your
employment with the Company, you will have the opportunity to earn an annual
cash bonus ("ANNUAL BONUS") if the Company achieves certain performance
objectives and subject to your individual

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performance (each of which will be determined by the Company for each such
fiscal year); PROVIDED that the Annual Bonus for the period of August 17, 2002
to December 31, 2002 shall be $225,000.00 and for the period of January 1, 2003
to December 31, 2003 will not be less than $225,000.00. The Annual Bonus will be
paid only if you are actively employed with the Company and are not in breach of
this Agreement on the date of disbursement. In addition to the Annual Bonus, you
also will be paid a signing bonus of $200,000.00 at the beginning of your
employment with the Company.

     (c)   Following the execution of this Agreement, Parent will grant to you
an option to purchase five thousand (5,000) shares of Common Stock of Parent at
an exercise price of one hundred dollars ($100.00) per share pursuant to the
AXIS Specialty Limited Long-Term Equity Compensation Plan, effective as of
January 1, 2002, as the same has been or may be amended from time to time (the
"PARENT EQUITY PLAN"). These options will vest and become exercisable on the
following schedule: (i) one third (1/3) on August 17, 2003, (ii) one third (1/3)
on August 17, 2004 and (iii) one third (1/3) on August 17, 2005. All other terms
and conditions shall be provided in the Parent Equity Plan.

     (d)   Following the execution of this Agreement, Parent will you give you
the right to purchase up to five thousand (5,000) shares of Common Stock of
Parent at a price of one hundred dollars ($100.00) per share (or up to
$500,000.00 in the aggregate) pursuant to the AXIS Specialty Limited Employee
Share Purchase Plan. You must exercise this right on or prior to November 28,
2002 or such right shall terminate.

     (e)   Following the execution of this Agreement, Parent shall grant you
five thousand (5,000) restricted shares of the Common Stock ("Restricted
Shares") of Parent at par value of one hundred dollars ($100) per share, in
accordance with the terms and subject to the conditions of the Parent Equity
Plan. The Restricted Shares shall vest on the first to occur of (1) August 17,
2005, provided you have remained employed by the Company until such date or (2)
a Change in Control as defined in Section 7 of this Agreement. Prior to vesting,
the Restricted Shares shall be non-transferable, and if your employment
terminates prior to vesting of the Restricted Shares, the Restricted Shares
shall be forfeited.

     (f)   During your employment with the Company, you will be entitled to
participate generally in the benefit plans made available to employees of the
Company in accordance with the terms of those plans and the Company will
reimburse you for all reasonable business expenses upon presentation of
statements of such expenses in accordance with the Company's policies and
procedures now in force or as such policies and procedures may be modified with
respect to the senior executives of the Company.

     (g)   During your employment with the Company, you will be paid by the
Company an automobile allowance of $900 per month; PROVIDED, however, that the
Company shall have no other obligations to you relating to any of your
automobile(s), including, but not limited to, the costs to insure or garage any
of your automobile(s).

     (h)   During your employment with the Company, and subject to the Company's
prior review and approval, you will be reimbursed by the Company for the annual
membership fees of one private club; PROVIDED, however, that the Company shall
have no other obligations to you

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relating to any other costs of your membership in that private club, including,
but not limited to, any initiation fee to that private club.

3. TERM OF EMPLOYMENT

     (a)   The employment period shall commence on August 17, 2002 or other date
mutually agreed by you and the Company, and shall terminate on the day preceding
the second anniversary of the date first set forth above; PROVIDED that the term
of employment shall automatically be extended for successive one-year periods
unless either party shall give at least one hundred and twenty (120) days' prior
written notice of non-renewal. Notwithstanding the foregoing, your employment
hereunder will be terminated upon the earliest to occur of the following events:

     (i)   DEATH. Your employment shall automatically terminate upon your death.

     (ii)  DISABILITY. The Company shall be entitled to terminate your
           employment if, as a result of your incapacity due to physical or
           mental illness or injury, you shall have been unable to perform your
           duties hereunder for a period of 180 days in any twelve-month period.

     (iii) CAUSE. The Company may terminate your employment for Cause, which,
           for purposes of this Agreement, shall mean (A) the commission of a
           felony, (B) willful misconduct or gross negligence in connection with
           the performance of your duties as an employee of the Company, (C) a
           material breach of this Agreement, or (D) a fraudulent act or
           omission by you adverse to the reputation of the Company or any
           affiliate.

     (iv)  WITHOUT CAUSE. The Company may terminate your employment at any time
           without Cause. Termination without Cause shall include the Company's
           non-renewal of a successive one-year period of your employment with
           the Company as provided for in this Section 3(a).

     (v)   VOLUNTARY RESIGNATION. You may voluntarily terminate your employment
           hereunder, provided that you provide the Company with notice of your
           intent to terminate at least sixty days in advance of the date of
           termination.

     (b)   In the event that your employment with the Company shall terminate
for any reason, the Company's sole obligation under the Agreement shall be to
(i) pay to you any accrued and unpaid base salary through the date of
termination of employment and an amount equal to such reasonable and necessary
unreimbursed business expenses incurred by you on behalf of Company on or prior
to the date of termination of employment and (ii) afford you all the benefits to
which you may be entitled under, and in accordance with the terms of, all
employee benefit plans in which you participate. In addition, in the event that
the Company terminates your employment without Cause in accordance with the
provisions of Section 3(a)(iv) hereof, including any termination without Cause
within six months immediately following the consummation of a Change in Control
(as defined below in Section 7(b)), you shall be entitled to continuation of
your Base Salary for a period of twelve (12) months immediately following the
date of such termination, provided that you comply with your obligations under
Section 3(c)

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hereof. Except as provided in this Section 3(b), the Company shall have no
further obligations related to your termination of employment.

     (c)   Upon termination of your employment with the Company for any reason,
you agree (i) to resign from all directorships and other offices that you hold
in connection with your employment with the Company (including any directorships
with subsidiaries or other affiliates of the Company) and (ii) to execute a
general release and waiver, waiving all claims you may have against the Company,
its affiliates (including Parent) and their respective successors, assigns,
employees, officers, directors, consultants, partners and shareholders.

4. ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS

     (a)   ASSIGNMENT. You hereby assign all of your rights, title and interest
to and in all Intellectual Property Rights (as defined below) conceived,
developed, invented, made by you or otherwise owned by you and directly or
indirectly relating to the Business (defined in Section 7(a)) and you agree and
acknowledge that, on the date hereof, such rights to and in such Intellectual
Property Rights shall become the sole property of, and belong to, the Company.

     (b)   INTELLECTUAL PROPERTY RIGHTS. For the purposes of this Agreement, the
term "INTELLECTUAL PROPERTY RIGHT" shall mean all proprietary and other rights
in and to: (i) trademarks, service marks, brand names, certification marks,
trade dress, assumed names, trade names and other indications of origin; (ii)
patents, inventors' certificates and invention disclosures; (iii) trade secrets
and other confidential or non-public business information, including ideas,
formulae, compositions, inventions, discoveries and improvements, know-how,
manufacturing and production processes and techniques, and research and
development information (whether patentable or not); drawings, specifications,
designs, plans, proposals and technical data; and financial, marketing and
business data, pricing and cost information, business and marketing plans and
customer and supplier lists and information; (iv) writings and other works of
authorship, whether copyrightable or not, including computer programs, data
bases and documentation therefor, and all copyrights to any of the foregoing;
(v) mask works; (vi) rights, title and interest in know-how, technical
information, processes, practices and systems, whether or not protectable by
patent, copyright or trade secret law; (vii) moral rights; (viii) rights to
limit the use or disclosure of confidential information by any person; (ix) any
similar tangible or intangible intellectual property or proprietary rights,
information and technology; (x) registrations of, and applications to register,
any of the foregoing with any governmental agency or authority and any renewals
or extensions thereof; (xi) the goodwill associated with each of the foregoing
and (xii) any claims or causes of action arising out of or related to any
infringement or misappropriation of any of the foregoing; in each case in any
jurisdiction.

5. NON-DISCLOSURE

     (a)   In view of the fact that your work for the Company will bring you
into close contact with many confidential affairs of the Company not readily
available to the public, as well as plans for future developments, you agree
during your employment with the Company and thereafter:

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     (i)   to keep secret and retain in the strictest confidence all proprietary
           or confidential matters or trade secrets of the Company or any of its
           subsidiaries and affiliates (which information will be deemed
           confidential notwithstanding any prior unauthorized disclosures),
           including, but not limited to, data, know-how, formulae, practices,
           processes, methodologies, designs, sketches, photographs, plans,
           drawings, specifications, samples, reports, member or customer lists,
           price lists, business strategies or arrangements, studies, findings,
           inventions, ideas, software, source code, business plans and other
           technical, business or financial information relating to the
           Company's business, whether existing on the date hereof or hereafter
           (such material collectively, "RESTRICTED MATERIAL"), and not to
           disclose such Restricted Material except with the Company's
           permission to such third parties as may be necessary in the
           furtherance of the Company's interests and in the discharge of your
           duties; and

     (ii)  to deliver promptly to the Company upon the termination of your
           employment or at any other time as the Company may so request, all
           documents (and all copies thereof), in whatever form, containing
           Restricted Material, and all property associated therewith, which you
           may then possess or have under your control; provided that Restricted
           Material shall not be subject to the confidentiality restrictions of
           this Section 5 where you can show that such information is, at the
           time of disclosure, generally known to the public.

     (b)   In the event that you are requested or required (by oral questions,
interrogatories, requests for information or documents, subpoena or similar
process) to disclose any Restricted Material, you agree to provide the Company
with prompt notice of such request(s) so that the Company may seek an
appropriate protective order or other appropriate remedy and/or waive your
compliance with the provisions of this Agreement. In the event that such
protective order or other remedy is not obtained, or that the Company grants a
waiver hereunder, you may furnish that portion (and only that portion) of the
Restricted Material which you are legally compelled to disclose and will
exercise your reasonable best efforts to obtain reliable assurance that
confidential treatment will be accorded any Restricted Material so furnished.

     (c)   Nothing in this Section 5 shall be construed as granting or implying
any right to you under any patent or unpatented intellectual property right of
the Company, or your right to use any invention covered thereby.

6. NON-SOLICITATION

     Except with prior written permission of the Company, you shall not,
directly or indirectly (individually or on behalf of other persons), during your
employment with the Company or any of its affiliates and for a period of one (1)
year following the termination of your employment with the Company for any
reason, hire, offer to hire, entice away or in any manner persuade or attempt to
persuade any officer, employee or agent of Parent or any of its affiliates
(including the Company and any subsidiary) or any then current or prospective
customer, client or broker of Parent or any of its affiliates (including the
Company and any subsidiary), to discontinue his or her relationship with Parent
or any of its affiliates (including the Company and any subsidiary)

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or to otherwise do business with any competing business of Parent or any of its
affiliates (including the Company and any subsidiary).

7. NON-COMPETITION

     (a)   Except with prior written permission of the Company, you shall not,
during your employment with the Company or any of its affiliates and for a
period of one (1) year thereafter, directly or indirectly (individually or on
behalf of other persons): (i) enter the employ of, or render services to, any
person, firm or corporation engaged in the insurance or reinsurance business or
any other business in which the Company is, or has in any way indicated an
intention to become, engaged in at any time during your employment with the
Company and in each case within Bermuda, the United Kingdom, the Republic of
Ireland or the United States in which Parent or any of its affiliates (including
the Company and any subsidiary) does business (hereinafter collectively referred
to as the "BUSINESS"); (ii) engage in such Business on your own account; or
(iii) become interested in any such Business, directly or indirectly, as an
individual, partner, shareholder, director, officer, principal, agent, employee,
trustee, consultant, or in any other relationship or capacity; provided,
however, that nothing contained in this Section 7 shall be deemed to prohibit
you from acquiring, solely as a passive investment, no more than 5% of the total
outstanding securities of any publicly-held corporation.

     (b)   For purposes of this Agreement, the term "CHANGE IN CONTROL" will be
deemed to have occurred as of the first day any of the following events occurs:

     (1)   Any Person is or becomes the "beneficial owner" (as defined in Rule
     13d-3 under the Exchange Act), directly or indirectly, of securities of the
     Parent representing 50% or more of the combined voting power of the
     Parent's then outstanding voting securities entitled to vote generally in
     the election of directors (the "Outstanding Parent Voting Securities");
     provided however, that for purposes of this subsection (b), the following
     acquisitions shall not constitute a Change of Control: (i) any acquisition
     directly from the Parent, (ii) any acquisition by the Parent, (iii) any
     acquisition by any employee benefit plan (or related trust) sponsored or
     maintained by the Parent or any corporation controlled by the Parent, or
     (iv) any acquisition by any corporation pursuant to a transaction which
     complies with clauses (i), (ii) and (iii) of paragraph (iii) below;

     (2)   Individuals, who, as of the Effective Date, constitute the Board
     (hereinafter referred to as the "Incumbent Board") cease for any reason to
     constitute at least a majority of the Board; PROVIDED HOWEVER, that any
     individual becoming a director subsequent to the date hereof whose
     election, or nomination for election by the Parent's stockholders, was
     approved by a vote of at least a majority of the directors then comprising
     the Incumbent Board shall be considered a member of the Incumbent Board,
     excluding any individual whose initial assumption of office occurs as a
     result of an actual or threatened election contest with respect to the
     election or removal of directors or other actual or threatened solicitation
     of proxies or consents by or on behalf of a Person other than the Board;

     (3)   Consummation of a reorganization, merger, share exchange,
     amalgamation, consolidation or similar transaction by and among the Parent
     and another Person (a

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     "Business Combination"), in each case, unless, following such Business
     Combination, (i) all or substantially all of the individuals and entities
     who were the beneficial owners, respectively, of the Outstanding Parent
     Voting Securities immediately prior to such Business Combination
     beneficially own, directly or indirectly, more than 50% or the combined
     voting power of the then outstanding voting securities entitled to vote
     generally in the election of directors of the corporation resulting from
     such Business Combination (including, without limitation, a corporation
     which as a result of such transaction owns the Parent or all or
     substantially all of the Parent's assets either directly or through one or
     more subsidiaries) in substantially the same proportions as their ownership
     of the Outstanding Parent Voting Securities immediately prior to such
     Business Combination, (ii) no Person (excluding any corporation resulting
     from such Business Combination or any employee benefit plan (or related
     trust) of the Parent or such corporation resulting from such Business
     Combination) beneficially owns, directly or indirectly, 50% or more of, the
     then outstanding shares of common stock of the corporation resulting from
     such Business Combination or the combined voting power of the then
     outstanding voting securities of such corporation except to the extent that
     such ownership existed prior to the Business Combination and (iii) at least
     a majority of the members of the board of directors of the corporation
     resulting from such Business Combination were members of the Incumbent
     Board at the time of the execution of the initial agreement, or of the
     action of the board, pursuant to which such Business Combination is
     effected or approved; or

     (4)   Approval by the shareholders of the Parent of a complete liquidation
     or dissolution of the Parent or the sale or other disposition of all or
     substantially all of the Parent's assets.

8. ENFORCEMENT

     (a)   The parties hereto hereby declare that it is impossible to measure in
money the damages that will accrue to the Company by reason of your failure to
perform any of your obligations under Sections 4, 5, 6 and 7. Accordingly, if
the Company institutes any action or proceeding to enforce the provisions
hereof, to the extent permitted by applicable law, you hereby waive the claim or
defense that the Company has an adequate remedy at law, and you shall not urge
in any such action or proceeding the defense that any such remedy exists at law.
The foregoing rights shall be in addition to any other rights and remedies
available to the Company under law or in equity.

     (b)   If any of the covenants contained in Sections 4, 5, 6 and 7 or any
part thereof, is construed to be invalid or unenforceable, the same shall not
affect the remainder of the covenant or covenants, which shall be given full
effect, without regard to the invalid portion(s). In addition, if any of the
covenants contained in Sections 4, 5, 6 and 7 hereof, or any part thereof, is
held by any person or entity with jurisdiction over the matter to be invalid or
unenforceable because of duration of such provision or the geographical area
covered thereby, the parties agree that such person or entity shall have the
power to reduce the duration and/or geographical area of such provision and, in
its reduced form, said provisions shall then be enforceable.

     (c)   It is understood and agreed that no failure or delay by the Company
in exercising any right, power or privilege contained in Sections 4, 5, 6 and 7
shall operate as a waiver thereof,

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nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any right, power or privilege contained in
Sections 4, 5, 6 and 7.

9. DISPUTE RESOLUTION

           In the event of any dispute or difference between you and the Company
with respect to either the enforcement or interpretation of this Agreement, both
you and the Company agree to resolve any such dispute or difference by the terms
and conditions set forth in the Company's Dispute Resolution Guidelines. By
executing this Agreement, you acknowledge receiving and reviewing both the
Company's Dispute Resolution Agreement and the Company's Dispute Resolution
Guidelines. You further acknowledge executing the Company's Dispute Resolution
Agreement.

10. MISCELLANEOUS

     (a)   Any notice or other communication required or permitted under this
Agreement shall be effective only if it is in writing and shall be deemed to be
given when delivered personally or three days after it is mailed by registered
or certified mail, postage prepaid, return receipt requested or one day after it
is sent by a reputable overnight courier service and, in each case, addressed to
the relevant party at the address provided for such party on the first page
hereof, or to such other address as any party hereto may designate by notice to
the other in accordance with the foregoing.

     (b)   This Agreement constitutes the entire agreement among you and the
Company with respect to your employment by the Company, and supersedes and is in
full substitution for any and all prior understanding or agreements with respect
to your employment.

     (c)   This Agreement may be amended only by an instrument in writing signed
by the parties hereto, and any provision hereof may be waived only by an
instrument in writing signed by the party against whom or which enforcement of
such waiver is sought.

     (d)   This Agreement and all rights and obligations hereunder, including,
without limitation, matters of construction, validity and performance, shall be
governed by and construed and interpreted in accordance with the laws of New
York without regard to principles of conflict of laws.

     (e)   In the event of any contest or dispute between you and the Company
with respect to this Agreement, each of the parties shall be responsible for
their respective legal fees and expenses in accordance with the Company's
Dispute Resolution Guidelines.

     (f)   This Agreement shall inure for the benefit of and be an obligation of
the Company's assigns and successors; however you may not assign your duties and
obligations hereunder to any other party.

     (g)   The headings in this Agreement are inserted for convenience of
reference only and shall not be a part of or control or affect the meaning of
any provision hereof.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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           If the terms of this Agreement meet with your approval, please sign
and return one copy to the Company.

                                        Sincerely,

                                        AXIS SPECIALTY U.S. SERVICES, INC.

                                        By: /s/ RICHARD H. BLUM
                                           -----------------------
                                        Name: RICHARD H. BLUM
                                        Title: CHAIRMAN

Accepted and Agreed
as of the date first set forth above:

/s/ Michael E. Morrill
----------------------
Michael E. Morrill

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                             AXIS SPECIALTY LIMITED
                       LONG-TERM EQUITY COMPENSATION PLAN

                        NOTICE OF RESTRICTED STOCK AWARD

     Pursuant to the Axis Specialty Limited Long-Term Equity Compensation Plan
(the "Plan"), Axis Specialty Limited (the "Company") has awarded you (the
"Participant") the following restricted stock grant (the "Award"):

<Table>
<S>                                          <C>
Name of Participant:                         Michael Morrill

Total Number of Shares Subject to Award:     5,000 at $100.00 per share

Effective Date of Grant:                     24th August, 2002

Period of Restriction:                       The Period of Restriction shall
                                             expire upon the first to occur of
                                             (1) August 24, 2005, provided the
                                             Participant has remained employed
                                             by the Company or an Affiliate
                                             until such date, (2) the
                                             Participant's Retirement, or (3) a
                                             Change in Control.
</Table>

By your signature and the signature of the Company's representative below, you
and the Company agree that this Award is granted under and governed by the terms
and conditions of the Plan and the restricted stock agreement, both of which are
attached to and made a part of this document.

PARTICIPANT:                         AXIS SPECIALTY LIMITED:

/s/ Michael E. Morrill               BY: /s/ Robert J. Newhouse Jr.
-------------------------------          --------------------------------------
Date: Jan 13, 2003                   Title: Chairman of the Executive Committee
      -------------------------             -----------------------------------
Address: 25 Sound Ave                Date:  Dec 19, 2002
         ----------------------             -----------------------------------
         Stanford, ct 06902
         ----------------------

<Page>

                             AXIS SPECIALTY LIMITED
                       LONG-TERM EQUITY COMPENSATION PLAN

                          NOTICE OF STOCK OPTION GRANT

     You (the "Optionee") have been granted the following option to purchase
ordinary shares of Axis Specialty Limited (the "Company"), par value $0.10 per
share ("Share"), pursuant to the Axis Specialty Limited Long-Term Equity
Compensation Plan (the "Plan"):

<Table>
<S>                                          <C>
Name of Optionee:                            Michael Morrill

Total Number of Shares Subject to Option:    5,000

Type of Option:                              Nonqualified Stock Option ("NQSO")

Option Exercise Price Per Share:             $100.00

Effective Date of Grant:                     24 August 2002

Vesting Schedule:                            Subject to earlier vesting pursuant
                                             to the terms of the Plan and the
                                             attached stock option agreement,
                                             provided you are still an employee
                                             on such dates, the right to
                                             exercise this option shall vest as
                                             follows:
                                             1/3 vests on August 24, 2003
                                             1/3 vests on August 24, 2004
                                             1/3 vests on August 24, 2005

Expiration Date:                             24 August, 2012

                                             The Option may expire earlier if
                                             employment is terminated.
</Table>

By your signature and the signature of the Company's representative below, you
and the Company agree that this option is granted under and governed by the
terms and conditions of the Plan and the stock option agreement, both of which
are attached to and made a part of this document.

  OPTIONEE:                                  AXIS SPECIALTY LIMITED:

  /s/ Michael E. Morrill                     By: /s/ John Charman
  --------------------------------              -------------------------------
  Date: Jan. 13, 2003                        Title:
        --------------------------                 ----------------------------
  Address: 25 Sound Ave                      Date:  9 JANUARY 2003
           -----------------------                -----------------------------
           Stanford ct, 06902
           -----------------------

<Page>

                             AXIS SPECIALTY LIMITED
                       LONG-TERM EQUITY COMPENSATION PLAN

                          NOTICE OF STOCK OPTION GRANT

     You (the "Optionee") have been granted the following option to purchase
ordinary shares of Axis Specialty Limited (the "Company"), par value $0.10 per
share ("Share"), pursuant to the Axis Specialty Limited Long-Term Equity
Compensation Plan (the "Plan"):

<Table>
<S>                                         <C>
Name of Optionee:                           Michael Morrill

Total Number of Shares Subject to Option:   3,750

Type of Option:                             Nonqualified Stock Option ("NQSO")

Option Exercise Price Per Share:            $116

Effective Date of Grant:                    12 December 2002

Vesting Schedule:                           Subject to earlier vesting
                                            pursuant to the terms of the Plan
                                            and the attached stock option
                                            agreement, provided you are still
                                            an employee on such dates, the
                                            right to exercise this option
                                            shall vest as follows:
                                            1/3 vests on December 12, 2003
                                            1/3 vests on December 12, 2004
                                            1/3 vests on December 12, 2005

Expiration Date:                            12 December, 2012

                                            The Option may expire earlier if
                                            employment is terminated.
</Table>

By your signature and the signature of the Company's representative below, you
and the Company agree that this option is granted under and governed by the
terms and conditions of the Plan and the stock option agreement, both of which
are attached to and made a part of this document.

 OPTIONEE:                               AXIS SPECIALTY LIMITED:

 /s/ Michael E. Morrill                  By: /s/ Robert J. Newhouse Jr.
 -----------------------------               ----------------------------------
 Date: Jan. 13, 2003                     Title: Chairman of Executive Committee
       -----------------------                  -------------------------------
 Address: 25 Sound Ave                   Date:  Dec. 19, 2002
          --------------------                  -------------------------------
          Stanford ct, 06902
          --------------------<Page>

                                                                    EXHIBIT 10.6

                        AXIS SPECIALTY U.S. SERVICES, INC.
                           430 PARK AVENUE, 15TH FLOOR
                            NEW YORK, NEW YORK 10022

February 6, 2003

Mr. Dennis B. Reding
AXIS Specialty U.S. Services, Inc.
430 Park Avenue, 15th Floor
New York, New York 10022

Dear Dennis:

            We are delighted that you have decided to join AXIS Specialty U.S.
Services, Inc., a Delaware corporation (the "COMPANY") and wholly owned,
indirect subsidiary of AXIS Capital Holdings Limited, a Bermuda company (the
"PARENT"). We thought it would be useful to lay out the terms and conditions of
our agreement in this letter agreement (this "AGREEMENT").

1. EMPLOYMENT.

            The Company hereby agrees to employ you as Senior Vice President.
The Company also agrees that you will have the same title in its affiliate AXIS
Specialty U.S. Holdings, Inc. and the titles of President and Chief Executive
Officer in its affiliates Axis Specialty Limited Insurance Company, Sheffield
Insurance Company and all other operational insurance companies acquired by AXIS
Specialty U.S. Holdings, Inc. You will report to the President and Chief
Executive Officer of the Parent or any other appropriate designee as may be
directed by him. You will be expected to devote your full business time and
energy, attention, skills and ability to the performance of your duties and
responsibilities to the Company on an exclusive basis, including service to
subsidiaries and other affiliates of the Company as requested by the Board of
Directors of the Parent, and shall faithfully and diligently endeavor to promote
the business and best interests of the Company and its affiliates.

2. COMPENSATION AND BENEFITS.

     (a)    During your employment with the Company, your annual base salary
shall be $500,000.00 ("BASE SALARY") and shall be paid pursuant to the Company's
customary payroll practices. The Base Salary will be reviewed annually and may
be increased in the sole discretion of the Company.

<Page>

     (b)    In addition to the Base Salary, in each fiscal year during your
employment with the Company, you will have the opportunity to earn an annual
cash bonus ("ANNUAL BONUS") if the Company achieves certain performance
objectives and subject to your individual performance (each of which will be
determined by the Company for each such fiscal year); PROVIDED that the Annual
Bonus for the period of January 1, 2003 to December 31, 2003 will not be less
than $250,000.00. The Annual Bonus will be paid only if you are actively
employed with the Company and are not in breach of this Agreement on the date of
disbursement.

     (c)    Following the execution of this Agreement, Parent will grant to you
an option to purchase seven thousand five hundred (7,500) shares of Common Stock
of Parent at an exercise price of $107.60 per share pursuant to the AXIS
Specialty Limited Long-Term Equity Compensation Plan, as the same has been or
may be amended from time to time (the "PARENT EQUITY PLAN"). These options will
vest and become exercisable on the following schedule: (i) one third (1/3) on
January 1, 2004, (ii) one third (1/3) on January 1, 2005 and (iii) one third
(1/3) on January 1, 2006. All other terms and conditions shall be provided in
the Parent Equity Plan.

     (d)    Following the execution of this Agreement, Parent will give you the
right to purchase up to 10,000 shares of Common Stock of Parent at a price of
one hundred seven dollars and sixty cents ($107.60) per share (or up to
$1,076,000.00 in the aggregate) pursuant to the AXIS Specialty Limited Employee
Share Purchase Plan. You must exercise this right on or prior to January 31,
2003 or such right shall terminate.

     (e)    Following the execution of this Agreement, Parent shall grant you
seven thousand five hundred (7,500) restricted shares of the Common Stock
("Restricted Shares") of Parent at par value of one hundred seven dollars and
sixty cents ($107.60) per share, in accordance with the terms and subject to the
conditions of the Parent Equity Plan. The Restricted Shares shall vest on the
first to occur of (1) January 1, 2006, provided you have remained employed by
the Company until such date or (2) a Change in Control as defined in Section 7
of this Agreement. Prior to vesting, the Restricted Shares shall be
non-transferable, and if your employment terminates prior to vesting of the
Restricted Shares, the Restricted Shares shall be forfeited.

     (f)    During your employment with the Company, you will be entitled to
participate generally in the benefit plans made available to employees of the
Company in accordance with the terms of those plans and the Company will
reimburse you for all reasonable business expenses upon presentation of
statements of such expenses in accordance with the Company's policies and
procedures now in force or as such policies and procedures may be modified with
respect to the senior executives of the Company.

     (g)    During your employment with the Company, you will be paid by the
Company an automobile allowance of $1,000 per month; PROVIDED, however, that the
Company shall have no other obligations to you relating to any of your
automobile(s), including, but not limited to, the costs to insure or garage any
of your automobile(s).

     (h)    During your employment with the Company, and subject to the
Company's prior review and approval, you will be reimbursed by the Company for
the annual membership fees of one private club; PROVIDED, however, that the
Company shall have no other obligations to you

<Page>

relating to any other costs of your membership in that private club, including,
but not limited to, any initiation fee to that private club.

3. TERM OF EMPLOYMENT

     (a)    The employment period shall commence on January 1, 2003 or other
date mutually agreed by you and the Company, and shall terminate on the day
preceding the third anniversary of the date first set forth above; PROVIDED that
the term of employment shall automatically be extended for successive one-year
periods unless either party shall give at least one hundred twenty (120) days'
prior written notice of non-renewal. Notwithstanding the foregoing, your
employment hereunder will be terminated upon the earliest to occur of the
following events:

     (i)    DEATH. Your employment shall automatically terminate upon your
            death.

     (ii)   DISABILITY. The Company shall be entitled to terminate your
            employment if, as a result of your incapacity due to physical or
            mental illness or injury, you shall have been unable to perform your
            duties hereunder for a period of 180 days in any twelve-month
            period.

     (iii)  CAUSE. The Company may terminate your employment for Cause, which,
            for purposes of this Agreement, shall mean (A) the commission of a
            felony, (B) willful misconduct or gross negligence in connection
            with the performance of your duties as an employee of the Company,
            (C) a material breach of this Agreement, or (D) a fraudulent act or
            omission by you adverse to the reputation of the Company or any
            affiliate.

     (iv)   WITHOUT CAUSE. The Company may terminate your employment at any time
            without Cause. Termination without Cause shall include the Company's
            non-renewal of a successive one-year period of your employment with
            the Company as provided for in this Section 3(a).

     (v)    VOLUNTARY RESIGNATION. You may voluntarily terminate your employment
            hereunder, provided that you provide the Company with notice of your
            intent to terminate at least sixty days in advance of the date of
            termination.

     (b)    In the event that your employment with the Company shall terminate
for any reason, the Company's sole obligation under the Agreement shall be to
(i) pay to you any accrued and unpaid base salary through the date of
termination of employment and an amount equal to such reasonable and necessary
unreimbursed business expenses incurred by you on behalf of Company on or prior
to the date of termination of employment and (ii) afford you all the benefits to
which you may be entitled under, and in accordance with the terms of, all
employee benefit plans in which you participate. In addition, in the event that
the Company terminates your employment without Cause in accordance with the
provisions of Section 3(a)(iv) hereof, including any termination without Cause
within six months immediately following the consummation of a Change in Control
(as defined below in Section 7(b)), you shall be entitled to continuation of
your Base Salary for a period of twelve (12) months immediately following the
date of such termination, provided that you comply with your obligations under
Section 3(c)

<Page>

hereof. Except as provided in this Section 3(b), the Company shall have no
further obligations related to your termination of employment.

     (c)    Upon termination of your employment with the Company for any reason,
you agree (i) to resign from all directorships and other offices that you hold
in connection with your employment with the Company (including any directorships
with subsidiaries or other affiliates of the Company) and (ii) to execute a
general release and waiver, waiving all claims you may have against the Company,
its affiliates (including Parent) and their respective successors, assigns,
employees, officers, directors, consultants, partners and shareholders.

4. ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS

     (a)    ASSIGNMENT. You hereby assign all of your rights, title and interest
to and in all Intellectual Property Rights (as defined below) conceived,
developed, invented, made by you or otherwise owned by you and directly or
indirectly relating to the Business (defined in Section 7(a)) and you agree and
acknowledge that, on the date hereof, such rights to and in such Intellectual
Property Rights shall become the sole property of, and belong to, the Company.

     (b)    INTELLECTUAL PROPERTY RIGHTS. For the purposes of this Agreement,
the term "INTELLECTUAL PROPERTY RIGHT" shall mean all proprietary and other
rights in and to: (i) trademarks, service marks, brand names, certification
marks, trade dress, assumed names, trade names and other indications of origin;
(ii) patents, inventors' certificates and invention disclosures; (iii) trade
secrets and other confidential or non-public business information, including
ideas, formulae, compositions, inventions, discoveries and improvements,
know-how, manufacturing and production processes and techniques, and research
and development information (whether patentable or not); drawings,
specifications, designs, plans, proposals and technical data; and financial,
marketing and business data, pricing and cost information, business and
marketing plans and customer and supplier lists and information; (iv) writings
and other works of authorship, whether copyrightable or not, including computer
programs, data bases and documentation therefore, and all copyrights to any of
the foregoing; (v) mask works; (vi) rights, title and interest in know-how,
technical information, processes, practices and systems, whether or not
protectable by patent, copyright or trade secret law; (vii) moral rights; (viii)
rights to limit the use or disclosure of confidential information by any person;
(ix) any similar tangible or intangible intellectual property or proprietary
rights, information and technology; (x) registrations of, and applications to
register, any of the foregoing with any governmental agency or authority and any
renewals or extensions thereof; (xi) the goodwill associated with each of the
foregoing and (xii) any claims or causes of action arising out of or related to
any infringement or misappropriation of any of the foregoing; in each case in
any jurisdiction.

5. NON-DISCLOSURE

     (a)    In view of the fact that your work for the Company will bring you
into close contact with many confidential affairs of the Company not readily
available to the public, as well as plans for future developments, you agree
during your employment with the Company and thereafter:

<Page>

     (i)    to keep secret and retain in the strictest confidence all
            proprietary or confidential matters or trade secrets of the Company
            or any of its subsidiaries and affiliates (which information will be
            deemed confidential notwithstanding any prior unauthorized
            disclosures), including, but not limited to, data, know-how,
            formulae, practices, processes, methodologies, designs, sketches,
            photographs, plans, drawings, specifications, samples, reports,
            member or customer lists, price lists, business strategies or
            arrangements, studies, findings, inventions, ideas, software, source
            code, business plans and other technical, business or financial
            information relating to the Company's business, whether existing on
            the date hereof or hereafter (such material collectively,
            "RESTRICTED MATERIAL"), and not to disclose such Restricted Material
            except with the Company's permission to such third parties as may be
            necessary in the furtherance of the Company's interests and in the
            discharge of your duties; and

     (ii)   to deliver promptly to the Company upon the termination of your
            employment or at any other time as the Company may so request, all
            documents (and all copies thereof), in whatever form, containing
            Restricted Material, and all property associated therewith, which
            you may then possess or have under your control; provided that
            Restricted Material shall not be subject to the confidentiality
            restrictions of this Section 5 where you can show that such
            information is, at the time of disclosure, generally known to the
            public.

     (b)    In the event that you are requested or required (by oral questions,
interrogatories, requests for information or documents, subpoena or similar
process) to disclose any Restricted Material, you agree to provide the Company
with prompt notice of such request(s) so that the Company may seek an
appropriate protective order or other appropriate remedy and/or waive your
compliance with the provisions of this Agreement. In the event that such
protective order or other remedy is not obtained, or that the Company grants a
waiver hereunder, you may furnish that portion (and only that portion) of the
Restricted Material which you are legally compelled to disclose and will
exercise your reasonable best efforts to obtain reliable assurance that
confidential treatment will be accorded any Restricted Material so furnished.

     (c)    Nothing in this Section 5 shall be construed as granting or implying
any right to you under any patent or unpatented intellectual property right of
the Company, or your right to use any invention covered thereby.

6. NON-SOLICITATION

     Except with prior written permission of the Company, you shall not,
directly or indirectly (individually or on behalf of other persons), during your
employment with the Company or any of its affiliates and for a period of one (1)
year following the termination of your employment with the Company for any
reason, hire, offer to hire, entice away or in any manner persuade or attempt to
persuade any officer, employee or agent of Parent or any of its affiliates
(including the Company and any subsidiary) or any then current or prospective
customer, client or broker of Parent or any of its affiliates (including the
Company and any subsidiary), to discontinue his or her relationship with Parent
or any of its affiliates (including the Company and any subsidiary)

<Page>

or to otherwise do business with any competing business of Parent or any of its
affiliates (including the Company and any subsidiary).

7. NON-COMPETITION

     (a)    Except with prior written permission of the Company, you shall not,
during your employment with the Company or any of its affiliates and for a
period of one (1) year thereafter, directly or indirectly (individually or on
behalf of other persons): (i) enter the employ of, or render services to, any
person, firm or corporation engaged in the insurance or reinsurance business or
any other business in which the Company is, or has in any way indicated an
intention to become, engaged in at any time during your employment with the
Company and in each case within Bermuda, the United Kingdom, the Republic of
Ireland or the United States in which Parent or any of its affiliates (including
the Company and any subsidiary) does business (hereinafter collectively referred
to as the "BUSINESS"); (ii) engage in such Business on your own account; or
(iii) become interested in any such Business, directly or indirectly, as an
individual, partner, shareholder, director, officer, principal, agent, employee,
trustee, consultant, or in any other relationship or capacity; provided,
however, that nothing contained in this Section 7 shall be deemed to prohibit
you from acquiring, solely as a passive investment, no more than 5% of the total
outstanding securities of any publicly-held corporation.

     (b)    For purposes of this Agreement, the term "CHANGE IN CONTROL" will be
deemed to have occurred as of the first day any of the following events occurs:

     (1)    Any Person is or becomes the "beneficial owner" (as defined in Rule
     13d-3 under the Exchange Act), directly or indirectly, of securities of the
     Parent representing 50% or more of the combined voting power of the
     Parent's then outstanding voting securities entitled to vote generally in
     the election of directors (the "Outstanding Parent Voting Securities");
     provided however, that for purposes of this subsection (b), the following
     acquisitions shall not constitute a Change of Control: (i) any acquisition
     directly from the Parent, (ii) any acquisition by the Parent, (iii) any
     acquisition by any employee benefit plan (or related trust) sponsored or
     maintained by the Parent or any corporation controlled by the Parent, or
     (iv) any acquisition by any corporation pursuant to a transaction which
     complies with clauses (i), (ii) and (iii) of paragraph (iii) below;

     (2)    Individuals, who, as of the Effective Date, constitute the Board
     (hereinafter referred to as the "Incumbent Board") cease for any reason to
     constitute at least a majority of the Board; PROVIDED HOWEVER, that any
     individual becoming a director subsequent to the date hereof whose
     election, or nomination for election by the Parent's stockholders, was
     approved by a vote of at least a majority of the directors then comprising
     the Incumbent Board shall be considered a member of the Incumbent Board,
     excluding any individual whose initial assumption of office occurs as a
     result of an actual or threatened election contest with respect to the
     election or removal of directors or other actual or threatened solicitation
     of proxies or consents by or on behalf of a Person other than the Board;

     (3)    Consummation of a reorganization, merger, share exchange,
     amalgamation, consolidation or similar transaction by and among the Parent
     and another Person (a

<Page>

     "Business Combination"), in each case, unless, following such Business
     Combination, (i) all or substantially all of the individuals and entities
     who were the beneficial owners, respectively, of the Outstanding Parent
     Voting Securities immediately prior to such Business Combination
     beneficially own, directly or indirectly, more than 50% or the combined
     voting power of the then outstanding voting securities entitled to vote
     generally in the election of directors of the corporation resulting from
     such Business Combination (including, without limitation, a corporation
     which as a result of such transaction owns the Parent or all or
     substantially all of the Parent's assets either directly or through one or
     more subsidiaries) in substantially the same proportions as their ownership
     of the Outstanding Parent Voting Securities immediately prior to such
     Business Combination, (ii) no Person (excluding any corporation resulting
     from such Business Combination or any employee benefit plan (or related
     trust) of the Parent or such corporation resulting from such Business
     Combination) beneficially owns, directly or indirectly, 50% or more of, the
     then outstanding shares of common stock of the corporation resulting from
     such Business Combination or the combined voting power of the then
     outstanding voting securities of such corporation except to the extent that
     such ownership existed prior to the Business Combination and (iii) at least
     a majority of the members of the board of directors of the corporation
     resulting from such Business Combination were members of the Incumbent
     Board at the time of the execution of the initial agreement, or of the
     action of the board, pursuant to which such Business Combination is
     effected or approved; or

     (4)    Approval by the shareholders of the Parent of a complete liquidation
     or dissolution of the Parent or the sale or other disposition of all or
     substantially all of the Parent's assets.

8. ENFORCEMENT

     (a)    The parties hereto hereby declare that it is impossible to measure
in money the damages that will accrue to the Company by reason of your failure
to perform any of your obligations under Sections 4, 5, 6 and 7. Accordingly, if
the Company institutes any action or proceeding to enforce the provisions
hereof, to the extent permitted by applicable law, you hereby waive the claim or
defense that the Company has an adequate remedy at law, and you shall not urge
in any such action or proceeding the defense that any such remedy exists at law.
The foregoing rights shall be in addition to any other rights and remedies
available to the Company under law or in equity.

     (b)    If any of the covenants contained in Sections 4, 5, 6 and 7 or any
part thereof, is construed to be invalid or unenforceable, the same shall not
affect the remainder of the covenant or covenants, which shall be given full
effect, without regard to the invalid portion(s). In addition, if any of the
covenants contained in Sections 4, 5, 6 and 7 hereof, or any part thereof, is
held by any person or entity with jurisdiction over the matter to be invalid or
unenforceable because of duration of such provision or the geographical area
covered thereby, the parties agree that such person or entity shall have the
power to reduce the duration and/or geographical area of such provision and, in
its reduced form, said provisions shall then be enforceable.

     (c)    It is understood and agreed that no failure or delay by the Company
in exercising any right, power or privilege contained in Sections 4, 5, 6 and 7
shall operate as a waiver thereof,

<Page>

nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any right, power or privilege contained in
Sections 4, 5, 6 and 7.

9. DISPUTE RESOLUTION

            In the event of any dispute or difference between you and the
Company with respect to either the enforcement or interpretation of this
Agreement, both you and the Company agree to resolve any such dispute or
difference by the terms and conditions set forth in the Company's Dispute
Resolution Guidelines. By executing this Agreement, you acknowledge receiving
and reviewing both the Company's Dispute Resolution Agreement and the Company's
Dispute Resolution Guidelines. You further acknowledge executing the Company's
Dispute Resolution Agreement.

10. MISCELLANEOUS

     (a)    Any notice or other communication required or permitted under this
Agreement shall be effective only if it is in writing and shall be deemed to be
given when delivered personally or three days after it is mailed by registered
or certified mail, postage prepaid, return receipt requested or one day after it
is sent by a reputable overnight courier service and, in each case, addressed to
the relevant party at the address provided for such party on the first page
hereof, or to such other address as any party hereto may designate by notice to
the other in accordance with the foregoing.

     (b)    This Agreement constitutes the entire agreement among you and the
Company with respect to your employment by the Company, and supersedes and is in
full substitution for any and all prior understanding or agreements with respect
to your employment.

     (c)    This Agreement may be amended only by an instrument in writing
signed by the parties hereto, and any provision hereof may be waived only by an
instrument in writing signed by the party against whom or which enforcement of
such waiver is sought.

     (d)    This Agreement and all rights and obligations hereunder, including,
without limitation, matters of construction, validity and performance, shall be
governed by and construed and interpreted in accordance with the laws of New
York without regard to principles of conflict of laws.

     (e)    In the event of any contest or dispute between you and the Company
with respect to this Agreement, each of the parties shall be responsible for
their respective legal fees and expenses in accordance with the Company's
Dispute Resolution Guidelines.

     (f)    This Agreement shall inure for the benefit of and be an obligation
of the Company's assigns and successors; however you may not assign your duties
and obligations hereunder to any other party.

     (g)    The headings in this Agreement are inserted for convenience of
reference only and shall not be a part of or control or affect the meaning of
any provision hereof.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

<Page>

            If the terms of this Agreement meet with your approval, please sign
and return one copy to the Company.

                                              Sincerely,

                                              AXIS SPECIALTY U.S. SERVICES, INC.

                                              By: /s/ Richard H. Blum
                                                 -----------------------
                                              Name: RICHARD H. BLUM
                                              Title: CHAIRMAN

Accepted and Agreed
as of the date first set forth above:

/s/ Dennis B. Reding
----------------------------
Dennis B. Reding

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