Document:

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                                                                  EXHIBIT 10(g)

                                                                   No. 2521-0031

                        PROPERTY PER RISK EXCESS OF LOSS
                              REINSURANCE AGREEMENT

                                     between

                       MERCHANTS MUTUAL INSURANCE COMPANY
               MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE, INC.

                                       and

                          AMERICAN RE-INSURANCE COMPANY

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                                                                   No. 2521-0031

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
   ARTICLE                                                              PAGE
<S>                                                                     <C>
     I       BUSINESS COVERED                                            1

     II      TERRITORY                                                   1

     III     RETENTION AND LIMIT                                         2

     IV      REINSTATEMENT                                               2

     V       EXCLUSIONS                                                  2

     VI      DEFINITIONS                                                 6

     VII     ULTIMATE NET LOSS                                          10

     VIII    EXTRA CONTRACTUAL OBLIGATIONS
             AND EXCESS JUDGMENTS                                       10

     IX      DECLARATORY JUDGMENT
             EXPENSES                                                   12

     X       CLAIMS 12

     XI      SALVAGE AND SUBROGATION                                    13

     XII     ACCESS TO RECORDS                                          13

     XIII    REINSURANCE PREMIUM                                        14

     XIV     COMMISSION                                                 14

     XV      REPORTS AND REMITTANCES                                    15

     XVI     ERRORS AND OMISSIONS                                       15

     XVII    RESERVES AND TAXES                                         16

     XVIII   INSOLVENCY CLAUSE                                          16

     XIX     OFFSET AND SECURITY CLAUSE                                 17

     XX      COMMENCEMENT AND TERMINATION                               18
</TABLE>

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                                                                   No. 2521-0031

                        PROPERTY PER RISK EXCESS OF LOSS
                              REINSURANCE AGREEMENT

THIS AGREEMENT made and entered into by and between MERCHANTS MUTUAL INSURANCE
COMPANY, Buffalo, New York and MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE,
INC., Concord, New Hampshire (hereinafter collectively referred to as "Company")
and the AMERICAN RE-INSURANCE COMPANY, a Delaware Corporation with
Administrative Offices in Princeton, New Jersey (hereinafter referred to as the
"Reinsurer").

WITNESSETH:

The Reinsurer hereby reinsures the Company to the extent and on the terms and
conditions and subject to the exceptions, exclusions and limitations hereinafter
set forth and nothing hereinafter shall in any manner create any obligations or
establish any rights against the Reinsurer in favor of any third parties or any
persons not parties to this Agreement.

                                    ARTICLE I

BUSINESS COVERED

The Reinsurer agrees to indemnify the Company, on an excess of loss basis, for
Ultimate Net Loss paid by the Company as a result of losses occurring under the
Company's Policies on or after 12:01 a.m., January 1, 2002, as respects the
Company's Policies in force at 12:01 a.m., January 1, 2002, or new and renewal
Policies of the Company becoming effective on and after said time and date,
covering business underwritten and classified by the Company as Property
business, as hereinafter defined. However, the reinsurance provided herein shall
be subject to the terms, conditions, exclusions and limitations set forth in
this Agreement.

                                   ARTICLE II

TERRITORY

This Agreement applies only to Risks located in the United States of America,
its territories and possessions, the District of Columbia and the Commonwealth
of Puerto Rico, and Canada, except as respects Automobile Physical Damage,
Inland Marine and Multiple Peril Package business covered hereunder where the
territorial limits shall be those of the Policies reinsured.

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                                                                   No. 2521-0031

                                   ARTICLE III

RETENTION AND LIMIT

A.    The Reinsurer shall be liable for that amount of Ultimate Net Loss each
      Risk, each loss in excess of the Company's retention of $500,000 Ultimate
      Net Loss, each Risk, each loss. However, the Reinsurer's liability shall
      never exceed $1,500,000 Ultimate Net Loss, each Risk, each loss, nor
      $3,000,000 as respects all Risks in any one Loss Occurrence.

B.    Notwithstanding the aforementioned, the following limits shall apply as
      respects all loss, cost or expense arising from or related to, either
      directly or indirectly, any Terrorist Activity, as defined in the
      DEFINITIONS Article:

      $3,000,000 Ultimate Net Loss each Loss Occurrence, and $6,000,000 Ultimate
      Net Loss in the aggregate as respects all such Loss Occurrences for each
      Agreement Year.

C.    If a Loss Occurrence takes place (1) which involves one Risk reinsured
      under this Agreement and the classes of business reinsured under the 1st
      Casualty Excess Cover of Casualty Excess of Loss Agreement No. 2521-0027
      (the "First Casualty Excess") in combination and (2) for which the
      combined Ultimate Net Loss under this Agreement and the First Casualty
      Excess exceeds $750,000, then the provisions of the "Combined Retention"
      paragraph of the Retention and Limit section of the First Casualty Excess
      shall apply.

                                   ARTICLE IV

REINSTATEMENT

A.    Except as provided in Paragraph B. below, in the event of any portion of
      the liability under this Agreement being exhausted by loss, the amount so
      exhausted is automatically reinstated from the time of the occurrence of
      the loss without payment of additional premium; but nevertheless, the
      Reinsurer's liability shall not exceed $1,500,000 Ultimate Net Loss each
      Risk, each loss or $3,000,000 for all Risks in any one Loss Occurrence.

B.    With respect to any loss, cost or expense arising from or related to,
      either directly or indirectly, any Terrorist Activity, as defined in the
      DEFINITIONS Article, the limit of liability of the Reinsurer under this
      Agreement with respect to each Loss Occurrence shall be reduced by an
      amount equal to the amount of liability incurred by the Reinsurer
      hereunder with respect to said Loss Occurrence; but that part of the
      Reinsurer's liability that is so reduced shall be automatically reinstated
      from the time of the Loss Occurrence, subject to payment of an additional
      premium, due at the time of reinstatement and calculated as set forth
      below for each amount so reinstated:

REVISED: 10/4/02

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                                                                   No. 2521-0031

      Amount Reinstated  x  Annual Reinsurance Premium
      -----------------
           $3,000,000

      Said additional premium is subject to a minimum additional premium of
      $375,000 and a maximum additional premium of $750,000 for each amount so
      reinstated.

      Nevertheless, the Reinsurer's limit of liability hereunder with respect to
      any loss, cost or expense arising out of or related to, either directly or
      indirectly, any Terrorist Activity shall in no event exceed $3,000,000
      Ultimate Net Loss each Loss Occurrence and $6,000,000 Ultimate Net Loss in
      the aggregate for all such Loss Occurrences for each Agreement Year.

                                    ARTICLE V

EXCLUSIONS

A.    The reinsurance provided under this Agreement is subject to the exclusions
      set forth below and shall not cover the excluded coverages, risks or
      exposures unless individually submitted by the Company to the Reinsurer
      for inclusion hereunder, and if specially accepted in writing by the
      Reinsurer, such business shall then be covered under the terms of this
      Agreement, except to the extent the terms of this Agreement are modified
      by the special acceptance.

B.    This Agreement shall not apply to:

      1.    Reinsurance accepted by the Company other than:

            a.    Facultative reinsurance on a share basis of Risks accepted
                  individually and not forming part of any agreement, or

            b.    Local agency reinsurance on a share basis accepted in the
                  normal course of business, or

            c.    From its affiliates;

      2.    Nuclear incident per the Nuclear Incident Exclusion - Physical
            Damage - Reinsurance attached hereto;

      3.    Any loss or liability accruing to the Company directly or indirectly
            from any insurance written by or through any pool or association
            including pools or associations in which membership by the Company
            is required under any statutes or regulations; however, this
            exclusion shall not apply to individual Risks under this Agreement
            which are assigned to the Company as a result of the business
            reinsured hereunder;

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                                                                   No. 2521-0031

      4.    Any liability of the Company arising from its participation or
            membership in any insolvency fund;

      5.    Any loss or damage which is occasioned by war, invasion,
            hostilities, acts of foreign enemies, civil war, rebellion,
            insurrection, military or usurped power, or martial law or
            confiscation by order of any government or public authority;
            however, this exclusion shall not apply to any policy which contains
            a standard war exclusion;

      6.    Policies written to apply in excess of underlying insurance or
            Policies written with a deductible or franchise of more than
            $25,000; however, this exclusion shall not apply to Policies which
            provide a percentage of deductibles or franchise in connection with
            windstorm;

      7.    Insurance against earthquake, except when written in conjunction
            with fire and otherwise eligible perils;

      8.    Insurance on growing crops;

      9.    Insurance against flood, surface water, waves, tidal water or tidal
            wave, overflow of streams or other bodies of water or spray from any
            of the foregoing, all whether driven by wind or not, except when
            written in conjunction with fire and otherwise eligible perils;

      10.   Business classified as fidelity;

      11.   Liability under coverage afforded for loss or damage resulting from
            failure to account or pay for any goods or merchandise sold on
            credit, delivered under deferred payment agreements, consigned for
            sale, or delivered under any trust or floor plan agreements, except
            under standard accounts receivable policies;

      12.   Any loss or damage caused by or resulting from explosion, rupture,
            or bursting of steam boilers, steam pipes, steam turbines, steam
            engines, or rotating parts of machinery caused by centrifugal force;
            if owned by, leased by, or actually operated under the control of
            the insured. This exclusion shall not apply to ensuing loss by fire
            not otherwise excluded;

      13.   Mortgage impairment insurance and similar kinds of insurance,
            howsoever styled, providing coverage to an insured with respect to
            its mortgagee interest in property or its owner interest in
            foreclosed property;

      14.   Difference in conditions insurance and similar kinds of insurance,
            howsoever styled, except when written in conjunction with fire and
            otherwise eligible perils;

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                                                                   No. 2521-0031

      15.   Risks which have a total insurable value of more than $250,000,000;

      16.   Any collection of fine arts with an insurable value of $5,000,000 or
            more;

      17.   Mobile homes; however, this exclusion shall not apply to dealers'
            physical damage renewal business;

      18.   Inland marine business with respect to the following:

            a.    All bridges and tunnels;

            b.    Cargo insurance when written as such with respect to ocean,
                  lake, or inland waterways vessels, except transit insurance
                  with a limit of $100,000 each or less;

            c.    Commercial negative film insurance and cast insurance;

            d.    Oil drilling rigs;

            e.    Furriers' customers policies;

            f.    Garment contractors policies;

            g.    Insurance on livestock under so-called "mortality policies";

            h.    Jewelers block policies and furriers' block policies;

            i.    Mining equipment while underground;

            j.    Motor truck cargo insurance written for common carriers
                  operating beyond a radius of 300 miles;

            k.    Radio and television broadcasting towers in excess of 100 feet
                  in height;

            l.    Registered mail insurance when the limit of any one addressee
                  on any one day is more than $50,000;

            m.    Watercraft, other than watercraft insured under a standard
                  homeowners policy and non-owned watercraft up to 51 feet in
                  length for commercial policies;

      19.   Loss of, damage to, or failure of, or consequential loss resulting
            therewith (including but not limited to earnings and extra expense)
            of satellites,

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                                                                   No. 2521-0031

            spacecraft, and launch vehicles, including cargo and freight carried
            therein, in all phases of operation (including but not limited to
            manufacturing, transit, pre-launch, launch, and in orbit);

      20.   Coverage afforded by ISO Pollutant Clean Up and Removal Additional
            Aggregate Limit of Insurance Endorsement CP 04 07 (Ed. 4/86) or as
            subsequently amended or by any similar endorsement affording such
            coverage;

      21.   Pollutant clean up or removal under any commercial property policy
            or any inland marine policy written by the Company which does not
            contain ISO Changes-Pollutants Endorsement CP 01 86 (Ed. 4/86) or as
            subsequently amended; however, this exclusion does not apply to any
            Risk located in a jurisdiction which has not approved the Insurance
            Services Office exclusion or where other regulatory constraints
            prohibit the Company from attaching such endorsement. If the Company
            elects to file an endorsement independent of ISO, such endorsement
            will be deemed a suitable substitute provided the Company has
            submitted the wording to the Reinsurer and received the Reinsurer's
            prior approval.

      22.   Any loss, cost or expense arising out of or related to, either
            directly or indirectly, any Terrorist Activity, as defined in the
            DEFINITIONS Article, with respect to Risks with a Total Insured
            Value at the time of loss greater than or equal to $50,000,000. This
            exclusion applies regardless of any other cause or event that in any
            way contributes concurrently or in any sequence to loss, cost, or
            expense.

C.    If the Company is bound, without the knowledge of and contrary to the
      instructions of the Company's supervisory underwriting personnel, on any
      business falling within the scope of one or more of the exclusions set
      forth in Paragraph B. above, these exclusions, except 1. through 6., 10.,
      11., 16., 19., 20., 21., and 22., shall be suspended with respect to such
      business until 30 days after an underwriting supervisor of the Company
      acquires knowledge of such business.

                                   ARTICLE VI

DEFINITIONS

A.    Property Business

      The term "Property business" shall mean insurance which is classified in
      the NAIC form of annual statement as Fire, Allied Lines, Farmowners
      Multiple Peril (Section I), Homeowners Multiple Peril (Section I),
      Commercial Multiple Peril (Section I including Section I of Business
      Owners and the Property section of Contractors Coverall), Inland Marine,
      and Automobile Physical Damage (including collision, water damage, fleet
      dealers'                                               REVISED: 10/4/02

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                                                                   No. 2521-0031

      and garagekeepers' legal liability) except those lines specifically
      excluded in the EXCLUSIONS Article.

B.    Company Retention

      The term "Company Retention" shall mean the amount the Company shall
      retain for its own account; however, this requirement shall be satisfied
      if this amount is retained by the Company or its affiliated companies
      under common management or common ownership.

C.    Risk

      The Company shall establish what constitutes one Risk, provided:

      (1)   a building and its contents, including time element coverages, shall
            never be considered more than one Risk:

      (2)   when two or more buildings and their contents are situated at the
            same general location, the Company shall identify on its records at
            the time of acceptance by the Company those individual buildings and
            their contents that are considered to constitute each Risk; if such
            identification is not made, each Building and its contents shall be
            considered to be a separate Risk.

D.    Building

      The term "Building" shall mean each structure that is considered by the
      local fire insurance rating organization to be a separate building for
      rate making purposes. With reference to structures not rated specifically
      by the local fire insurance rating organization, the term "Building" shall
      mean each separately roofed structure enclosed within exterior walls.

E.    Automobile Physical Damage Risk

      The Company shall establish what constitutes one Automobile Physical
      Damage Risk, provided:

      (1)   a tractor and trailer(s) or a tractor and semi-trailer(s) shall
            never be considered more than one Risk;

      (2)   with respect to fleet dealers' business and garage keepers legal
            liability business, all vehicles housed in one Building shall never
            be considered more than one Risk;

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                                                                   No. 2521-0031

      (3)   with respect to fleet dealers' business and garage keepers legal
            liability business, any location where all vehicles are situated
            out-of-doors shall never be considered more than one Risk.

F.    Loss Occurrence

      The term "Loss Occurrence" shall mean each occurrence or series of
      occurrences arising out of one event.

G.    Terrorist Activity

      The term "Terrorist Activity" shall mean any deliberate, unlawful act
      that:

      1.    is declared by any authorized governmental official to be or to
            involve terrorism, terrorist activity or acts of terrorism; or

      2.    includes, involves, or is associated with the use or threatened use
            of force, violence or harm against any person, tangible or
            intangible property, the environment, or any natural resources,
            where the act or threatened act is intended, in whole or in part, to

            a.    promote or further any political, ideological, philosophical,
                  racial, ethnic, social or religious cause or objective of the
                  perpetrator or any organization, association or group
                  affiliated with the perpetrator;

            b.    influence, disrupt or interfere with any government related
                  operations, activities or policies;

            c.    intimidate, coerce or frighten the general public or any
                  segment of the general public; or

            d.    disrupt or interfere with a national economy or any segment of
                  a national economy; or

      3.    includes, involves, or is associated with, in whole or in part, any
            of the following activities, or the threat thereof:

            a.    hijacking or sabotage of any form of transportation or
                  conveyance, including but not limited to spacecraft,
                  satellite, aircraft, train, vessel, or motor vehicle;

            b.    hostage taking or kidnapping;

            c.    the use of any biological, chemical, radioactive, or nuclear
                  agent, material, device or weapon;

            d.    the use of any bomb, incendiary device, explosive or firearm;

            e.    the interference with or disruption of basic public or
                  commercial services and systems, including but not limited to
                  the following services or systems: electricity, natural gas,
                  power, postal,

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                  communications, telecommunications, information, public
                  transportation, water, fuel, sewer or waste disposal;

            f.    the injuring or assassination of any elected or appointed
                  government official or any government employee;

            g.    the seizure, blockage, interference with, disruption of, or
                  damage to any government buildings, institutions, functions,
                  events, tangible or intangible property or other assets; or

            h.    the seizure, blockage, interference with, disruption of, or
                  damage to tunnels, roads, streets, highways, or other places
                  of public transportation or conveyance.

      4.    Any of the activities listed in Section 3 above shall be considered
            Terrorist Activity except where the Company can conclusively
            demonstrate to the Reinsurer that the foregoing activities or
            threats thereof were motivated solely by personal objectives of the
            perpetrator that are unrelated, in whole or in part, to any
            intention to

            a.    promote or further any political, ideological, philosophical,
                  racial, ethnic, social or religious cause or objective of the
                  perpetrator or any organization, association or group
                  affiliated with the perpetrator;

            b.    influence, disrupt or interfere with any government related
                  operations, activities or policies;

            c.    intimidate, coerce or frighten the general public or any
                  segment of the general public; or

            d.    disrupt or interfere with a national economy or any segment of
                  a national economy.

H.    Policy

      The term "Policy" shall mean each of the Company's binders, policies and
      contracts providing insurance on the Property business covered under this
      Agreement.

I.    Agreement Year

      The term "Agreement Year" shall refer to the period beginning January 1,
      2002 and ending December 31, 2002. Each Agreement Year thereafter shall be
      defined as each successive 12-month period.

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                                                                   No. 2521-0031

                                   ARTICLE VII

ULTIMATE NET LOSS

A.    The term "Ultimate Net Loss" as used herein shall be understood to mean
      the sum actually paid by the Company in settlement of losses for which it
      is held liable, including 90% of any Extra Contractual Obligations and/or
      Excess Judgments and/or Declaratory Judgment Expenses, in accordance with
      their respective articles, after making proper deductions for all
      recoveries, salvages, and claims upon other reinsurance which inures to
      the benefit of the Reinsurer under this Agreement whether collectible or
      not; provided, however, that in the event of the insolvency of the
      Company, "Ultimate Net Loss" shall mean the amount of loss which the
      Company has incurred or for which it is liable, and payment by the
      Reinsurer shall be made to the liquidator, receiver or statutory successor
      of the Company in accordance with the provisions of the INSOLVENCY CLAUSE
      Article.

B.    All expenses incurred by the Company which are included as part of the
      policy limit under the Company's Policies reinsured hereunder shall be
      included in "Ultimate Net Loss" as defined above.

C.    All office expenses of the Company and all salaries and expenses of its
      officials and employees shall be excluded under this Agreement, except
      that the Company may include the costs and expenses of its in-house
      counsel as provided in D. below.

D.    All expenses other than as provided in B. and C. above, including taxed
      court costs, prejudgment and postjudgment interest, and loss expenses
      incurred in investigation, adjustment and litigation, defense and
      settlement of claims made against the Company under its Policies reinsured
      hereunder, including the costs and expenses of the Company's in-house
      counsel while engaged in the litigation of claims covered hereunder, shall
      be apportioned in proportion to the respective interests of the parties
      hereto in the Ultimate Net Loss.

E.    Recoveries from catastrophe reinsurance shall be deemed not to reduce the
      amount required with respect to the Company Retention.

                                  ARTICLE VIII

EXTRA CONTRACTUAL OBLIGATIONS AND/OR EXCESS JUDGMENTS

A.    This Agreement shall indemnify the Company, within the limits of this
      Agreement, for Extra Contractual Obligations and/or Excess Judgments
      awarded by a court of competent jurisdiction against the Company that
      arise from Policies that are reinsured hereunder. Such Extra Contractual
      Obligation and/or Excess

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                                                                   No. 2521-0031

      Judgment shall be added to the amount of the loss within the Company's
      policy limit and the sum thereof shall be considered one loss subject to
      the exclusions and limitations set forth in this Agreement.

B.    "Extra Contractual Obligations" are defined as damages paid by the Company
      that are not covered under any other provision of this Agreement,
      including legal costs and expenses in connection therewith, that arise as
      a result of the Company's handling of any claim on the Policy reinsured
      hereunder, such liabilities arising because of, but not limited to, the
      following: failure by the Company to settle within the policy limit, or by
      reason of alleged or actual negligence or bad faith or alleged fraud in
      rejecting an offer of settlement or in the preparation of the defense or
      in the trial of any action against its insured or in the preparation or
      prosecution of an appeal consequent upon such action.

C.    "Excess Judgments" are defined as those damages paid by the Company which
      amounts are in excess of its policy limits, but otherwise within the
      coverage terms of the Policy reinsured hereunder, including legal costs
      and expenses in connection therewith, as a result of an action against it
      by its insured or its insured's assignee to recover damages awarded by a
      court of competent jurisdiction to a third party claimant, arising out of,
      but not limited to, the Company's alleged or actual negligence or bad
      faith or alleged fraud in rejecting a settlement, in discharging its duty
      to defend, in preparing the defense in an action against its insured or
      discharging its duty to prepare or prosecute an appeal consequent upon
      such action.

D.    The date on which an Extra Contractual Obligation and/or an Excess
      Judgment award is incurred by the Company shall be deemed, in all
      circumstances, to have arisen on the same date as the original loss
      occurrence that gave rise to the Extra Contractual Obligation and/or an
      Excess Judgment.

E.    However, this Article shall not apply where the loss has been incurred due
      to the fraud of a member of the Board of Directors or a corporate officer
      of the Company or any other employee of the Company with claims settlement
      authority acting individually or collectively or in collusion with any
      individual or corporation or any other organization or party involved in
      the presentation, defense or settlement of any claim covered hereunder.

F.    Recoveries, collectibles or retentions from any form of insurance and/or
      reinsurance, including but not limited to, deductibles or self-insured
      retentions, that protect the Company against claims the subject matter of
      this clause, will inure to the benefit of the Reinsurer and shall be
      deducted from the total amount of Extra Contractual Obligation and/or
      Excess Judgment award for purposes of determining the amount recoverable
      hereunder, whether collectible or not.

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                                                                   No. 2521-0031

G.    If any provision of this Article shall be rendered illegal or
      unenforceable by the laws, regulations or public policy of any state, such
      provision shall be considered void in such state, but this shall not
      affect the validity or enforceability of any other provision of this
      Agreement or the enforceability of such provision in any other
      jurisdiction.

                                   ARTICLE IX

DECLARATORY JUDGMENT EXPENSES

A.    This Agreement shall indemnify the Company, within the limits of this
      Agreement, for Declaratory Judgment Expenses paid by the Company, as
      provided in this Agreement, under Policies reinsured hereunder.

B.    "Declaratory Judgment Expenses" as used herein shall mean legal expenses
      paid by the Company for the investigation, analysis, evaluation, and/or
      resolution of litigation of coverage by the Company and any other party to
      determine if there is coverage to indemnify and/or pay to its insured(s)
      under the Policies issued by the Company and reinsured hereunder for a
      specific loss which loss is not specifically excluded under this
      Agreement.

C.    Recoveries from any form of insurance and/or reinsurance that protect the
      Company against claims the subject matter of this clause will inure to the
      benefit of the Reinsurer and shall be deducted from the total amount of
      Declaratory Judgment Expenses for purposes of determining the amount
      recoverable hereunder.

                                   ARTICLE X

CLAIMS

A.    The Company shall advise the Reinsurer promptly in writing of all claims
      which may develop into losses involving reinsurance hereunder and any
      subsequent developments pertaining thereto.

B.    The Company has the obligation to investigate and, to the extent that may
      be required by the Policies reinsured hereunder, defend any claim
      affecting this reinsurance and to pursue such claim to final
      determination.

C.    It is understood that when so requested the Company will afford the
      Reinsurer an opportunity to be associated with the Company, at the expense
      of the Reinsurer, in the defense or control of any claim, suit or
      proceeding involving this reinsurance, and the Company and the Reinsurer
      shall cooperate in every respect in the defense or control of such claim,
      suit, or proceeding.

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                                                                   No. 2521-0031

D.    Payment by the Reinsurer of its portion of Ultimate Net Loss and loss
      expense paid by the Company will be made by the Reinsurer to the Company
      promptly after proof of payment by the Company and coverage hereunder is
      received by the Reinsurer.

                                   ARTICLE XI

SALVAGE AND SUBROGATION

A.    The Reinsurer shall be subrogated, as respects any loss for which the
      Reinsurer shall actually pay or become liable, but only to the extent of
      the amount of payment by or the amount of liability to the Reinsurer, to
      all the rights of the Company against any person or other entity who may
      be legally responsible in damages for said loss. The Company hereby agrees
      to enforce such rights, but in case the Company shall refuse or neglect to
      do so the Reinsurer is hereby authorized and empowered to bring any
      appropriate action in the name of the Company or its policyholders, or
      otherwise to enforce such rights.

B.    Any subrogation, salvage or other amounts recovered applying to Risks
      covered under this Agreement shall always be used to reimburse the excess
      carriers (from the last to the first, beginning with the carrier of the
      last excess), according to their participation, before being used in any
      way to reimburse the Company for its primary loss.

C.    In the event there is any subrogation, salvage or other amounts recovered
      subsequent to a loss settlement, it is agreed that if the expenses
      incurred in obtaining such amounts are less than the amount recovered,
      such expenses shall be borne by each party in the proportion that each
      party benefits from the amount recovered, otherwise, the amount recovered
      shall first be applied to the reimbursement of the expense of recovery and
      the remaining expense shall be borne by the Company and the Reinsurer in
      proportion to the liability of each party for the loss before such
      recovery had been obtained. Expenses hereunder shall exclude all office
      expenses of the Company and all salaries and expenses of its officials and
      employees, except the costs and expenses of the Company's in-house counsel
      while engaged in obtaining such subrogation or salvage amounts.

                                   ARTICLE XII

ACCESS TO RECORDS

The Company shall place at the disposal of the Reinsurer and the Reinsurer shall
have the right to inspect, through its authorized representatives, at all
reasonable times during the currency of this Agreement and thereafter, the
books, records, and papers of the Company pertaining to the reinsurance provided
hereunder.

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                                                                   No. 2521-0031

                                  ARTICLE XIII

REINSURANCE PREMIUM

A.    With respect to business in force at the effective time and date of this
      Agreement:

      1.    x.xx% of the Company's unearned premium on Homeowners Multiple Peril
            (Section I) after deducting that portion, if any, paid for share
            reinsurance, calculated on the monthly pro rata basis as of the
            effective time and date of this Agreement; and

      2.    xx.xx% of the Company's unearned premium on all other classes of
            business reinsured hereunder (except Automobile Physical Damage),
            after deducting that portion, if any, paid for share reinsurance,
            calculated on the monthly pro rata basis as of the effective time
            and date of this Agreement.

B.    With respect to business becoming effective at and after the effective
      time and date of this Agreement:

      1.    x.xx% of the Company's written premium on Homeowners Multiple Peril
            (Section I) after deducting that portion, if any, paid for share
            reinsurance; and

      2.    xx.xx% of the Company's written premium on all other classes of
            business reinsured hereunder (except Automobile Physical Damage),
            after deducting that portion, if any, paid for share reinsurance.

                                   ARTICLE XIV

COMMISSION

A.    The Reinsurer shall allow the Company a 40% commission on the reinsurance
      premium ceded hereunder. The Company shall allow the Reinsurer return
      commission on return premiums at the same rate.

B.    It is expressly agreed that the ceding commission allowed the Company
      includes provision for all dividends, commissions, taxes, assessments and
      all other expenses of whatever nature, except loss expense.

                                      -14-
<PAGE>

                                                                   No. 2521-0031

                                   ARTICLE XV

REPORTS AND REMITTANCES

A.    Reinsurance Premium

      1.    In Force Premium:

            Within 25 days after the commencement of this Agreement, the Company
            shall report and pay to the Reinsurer the reinsurance premium with
            respect to the business of the Company in force at the effective
            time and date of this Agreement. The Company's report shall
            summarize the reinsurance premium by line of insurance, by term, and
            by month and year of expiration.

      2.    New and Renewal Premium:

            Within 25 days after the close of each month, the Company shall
            render to the Reinsurer a report of the reinsurance premium for the
            month with respect to business of the Company written during the
            month, summarizing the reinsurance premium by line of insurance; and
            the amount due either party shall be remitted within 60 days after
            the close of the month.

B.    Unearned Premium

      Within 25 days after the close of each calendar quarter, the Company shall
      render to the Reinsurer a report of the reinsurance premium unearned by
      line of insurance and the contribution for the quarter to the reinsurance
      premium in force by line of insurance, by term, and by month and year of
      expiration.

C.    General

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

                                   ARTICLE XVI

ERRORS AND OMISSIONS

Errors or omissions on the part of the Company shall not invalidate the
reinsurance under this Agreement, provided such errors or omissions are
corrected promptly after discovery

                                      -15-
<PAGE>

                                                                   No. 2521-0031

thereof, but the liability of the Reinsurer under this Agreement or any exhibits
or endorsements attached thereto shall in no event exceed the limits specified
therein, nor be extended to cover any risks, perils or classes of insurance
generally or specifically excluded therein.

                                  ARTICLE XVII

RESERVES AND TAXES

A.    The Reinsurer shall maintain legal reserves with respect to unearned
      premiums and claims hereunder.

B.    The Company will be liable for all taxes on premiums reported to the
      Reinsurer hereunder and will reimburse the Reinsurer for such taxes where
      the Reinsurer is required to pay the same.

                                  ARTICLE XVIII

INSOLVENCY CLAUSE

(If more than one reinsured company is included in the designation of "Company"
this Article shall apply only to the insolvent company or companies)

In the event of the insolvency of the Company and the appointment of a
conservator, liquidator or statutory successor, the reinsurance provided by this
Agreement shall be payable by the Reinsurer directly to the Company or to its
liquidator, receiver or statutory successor on the basis of the liability of the
Company under the contract or contracts reinsured. Subject to the right of
offset and the verification of coverage, the Reinsurer shall pay its share of
the loss without diminution because of the insolvency of the Company. The
liquidator, receiver or statutory successor of the Company shall give written
notice of the pendency of each claim against the Company on a Policy or bond
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding. During the pendency of such claim, the Reinsurer may, at its own
expense, investigate such claim and interpose in the proceeding where such claim
is to be adjudicated any defense or defenses which it may deem available to the
Company, its liquidator or receiver or statutory successor. Subject to court
approval, any expense thus incurred by the Reinsurer shall be chargeable against
the Company as part of the expense of liquidation to the extent of such
proportionate share of the benefit as shall accrue to the Company solely as a
result of the defense undertaken by the Reinsurer. The reinsurance shall be
payable as set forth above except where (i) the Agreement specifies another
payee of such reinsurance in the event of the insolvency of the Company and (ii)
the Reinsurer with the consent of the direct insureds has assumed such policy
obligations of the Company as its direct obligations to the payees under such
Policies, in substitution for the obligations of the Company to such payees; or
where the Reinsurer has guaranteed performance of a contract insuring against
physical damage to property for the benefit of

                                      -16-
<PAGE>

                                                                   No. 2521-0031

mortgagees or other loss payees named in this Agreement in accordance with
Section 1114(c) of the New York Insurance Law.

                                   ARTICLE XIX

OFFSET AND SECURITY CLAUSE

A.    Each party hereto has the right, which may be exercised at any time, to
      offset any amounts, whether on account of premiums or losses or otherwise,
      due from such party to another party under this Agreement or any other
      reinsurance agreement heretofore or hereafter entered into between them,
      against any amounts, whether on account of premiums or losses or otherwise
      due from the latter party to the former party. The party asserting the
      right of offset may exercise this right, whether as assuming or ceding
      insurer or in both roles in the relevant agreement or agreements.

B.    Each party hereby assigns and pledges to the other party (or to each other
      party, if more than one) all of its rights under this Agreement to receive
      premium or loss payments at any time from such other party ("Collateral"),
      to secure its premium or loss obligations to such other party at any time
      under this Agreement and any other reinsurance agreement heretofore or
      hereafter entered into by and between them ("Secured Obligations"). If at
      any time a party is in default under any Secured Obligation or shall be
      subject to any liquidation, rehabilitation, reorganization or conservation
      proceeding, each other party shall be entitled in its discretion, to
      apply, or to withhold for the purpose of applying in due course, any
      Collateral assigned and pledged to it by the former party and otherwise to
      realize upon such Collateral as security for such Secured Obligations.

C.    The security interest described herein, and the term "Collateral," shall
      apply to all payments and other proceeds in respect of the rights assigned
      and pledged. A party's security interest in Collateral shall be deemed
      evidenced only by the counterpart of this Agreement delivered to such
      party.

D.    Each right under this Article is a separate and independent right,
      exercisable, without notice or demand, alone or together with other
      rights, in the sole election of the party entitled thereto, and no waiver,
      delay, or failure to exercise, in respect of any right, shall constitute a
      waiver of any other right. The provisions of this Article shall survive
      any cancellation or other termination of this Agreement.

E.    In the event of the insolvency of a party hereto, offsets shall only be
      allowed in accordance with the laws of the insolvent party's state of
      domicile.

                                      -17-
<PAGE>

                                                                   No. 2521-0031

                                   ARTICLE XX

COMMENCEMENT AND TERMINATION

A.    This Agreement shall take effect as of 12:01 a.m. January 1, 2002 and
      shall remain in force on a continuous basis until cancelled, as
      hereinafter provided.

B.    Either party shall have the right to cancel this Agreement by giving not
      less than 90 days prior written notice.

C.    Upon cancellation of this Agreement, the Reinsurer's liability hereunder
      will terminate on a run-off basis. However, the Company may elect to have
      the Reinsurer's liability terminate on a cut-off basis. The phrases
      "run-off basis" and "cut-off basis" shall have the meanings set forth
      below:

      1.    Run-Off Basis

            Upon cancellation of this Agreement, the Reinsurer shall remain
            liable for losses occurring under the Company's Policies on Policies
            in force at the cancellation date of this Agreement, until the
            Policies' scheduled anniversary, expiration, cancellation, or
            non-renewal, whichever shall occur first, provided however, that in
            no event shall the Reinsurer be liable for more than 12 months from
            the date of cancellation of this Agreement.

      2.    Cut-Off Basis

            Upon cancellation of this Agreement, the Reinsurer shall pay to the
            Company the unearned premiums on the business in force hereunder as
            of the date of cancellation, less any commission allowed herein. The
            Reinsurer shall be discharged and released of all liability as of
            the date of cancellation of this Agreement for any losses occurring
            under the Company's Policies subsequent to the date of cancellation
            of this Agreement.

D.    Every notice of cancellation shall be given by certified or registered
      mail addressed to the other party stating when thereafter cancellation
      shall be effective. In determining whether the requisite number of days
      notice has been given in any case, the date of cancellation shall be
      counted but the date of mailing shall not.

E.    Notwithstanding the cancellation of this Agreement as hereinabove
      provided, the provisions of this Agreement shall continue to apply to all
      unfinished business hereunder respecting all losses occurring, under the
      Company's Policies prior to the cancellation date to the end that all the
      obligations and liabilities incurred by each party hereunder prior to such
      cancellation shall be fully performed and discharged.

                                      -18-
<PAGE>

                                                                   No. 2521-0031

IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed
in duplicate this             day of           , 2002.

ACCEPTED:
MERCHANTS MUTUAL INSURANCE COMPANY
MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE, INC.

---------------------------------------

---------------------------------------
Attested by:

                                            AMERICAN RE-INSURANCE COMPANY

                                            -----------------------------

                                            -----------------------------
                                            Attested by:

Plh

                                      -19-
<PAGE>

                                                                   No. 2521-0031

                       NUCLEAR INCIDENT EXCLUSION CLAUSE--
                       PHYSICAL DAMAGE--REINSURANCE--NO. 2

      (1) This Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any
Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.

      (2) Without in any way restricting the operation of paragraph (1) of this
Clause, this Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any
insurance against Physical Damage (including business interruption or
consequential loss arising out of such Physical Damage) to:

      I.    Nuclear reactor power plants including all auxiliary property on the
            site, or

      II.   Any other nuclear reactor installation, including laboratories
            handling radioactive materials in connection with reactor
            installations, and "critical facilities" as such, or

      III.  Installations for fabricating complete fuel elements or for
            processing substantial quantities of "special nuclear material," and
            for reprocessing, salvaging, chemically separating, storing or
            disposing of "spent" nuclear fuel or waste materials, or

      IV.   Installations other than those listed in paragraph (2) III above
            using substantial quantities of radioactive isotopes or other
            products of nuclear fission.

      (3) Without in any way restricting the operations of paragraphs (1) and
(2) hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph (3) shall not
operate:

      (a) where Reassured does not have knowledge of such nuclear reactor power
      plant or nuclear installation, or

      (b) where said insurance contains a provision excluding coverage for
      damage to property caused by or resulting from radioactive contamination,
      however caused. However on and after 1st January 1960 this sub-paragraph
      (b) shall only apply provided the said radioactive contamination exclusion
      provision has been approved by the Governmental Authority having
      jurisdiction thereof.

      (4) Without in any way restricting the operations of paragraphs (1), (2)
and (3) hereof, this Reinsurance does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or indirectly, and
whether as Insurer or Reinsurer, when such radioactive contamination is a named
hazard specifically insured against.

      (5) It is understood and agreed that this Clause shall not extend to risks
using radioactive isotopes in any form where the nuclear exposure is not
considered by the Reassured to be the primary hazard.

      (6) The term "special nuclear material" shall have the meaning given it in
the Atomic Energy Act of 1954 or by any law amendatory thereof.

      (7) Reassured to be sole judge of what constitutes:

      (a) substantial quantities, and

      (b) the extent of installation, plant or site.

      Note.--Without in any way restricting the operation of paragraph (1)
hereof, it is understood and agreed that:

      (a) all policies issued by the Reassured on or before 31st December 1957
      shall be free from the application of the other provisions of this Clause
      until expiry date or 31st December 1960 whichever first occurs whereupon
      all the provisions of this Clause shall apply,

<PAGE>

                                                                   No. 2521-0031

      (b) With respect to any risk located in Canada policies issued by the
      Reassured on or before 31st December 1958 shall be free from the
      application of the other provisions of this Clause until expiry date or
      31st December 1960 whichever first occurs whereupon all the provisions of
      this Clause shall apply.<PAGE>
                                                                   EXHIBIT 10(s)

                                 AMENDMENT NO. 1

                                       TO

                          EMPLOYEE RETENTION AGREEMENT

                         ORIGINALLY DATED: MAY 31, 1999

                                     BETWEEN

                                  ROBERT M. ZAK

                                       AND

                       MERCHANTS MUTUAL INSURANCE COMPANY

                          DATED: AS OF FEBRUARY 6, 2002

<PAGE>

                                 AMENDMENT NO. 1

                                       TO

                          EMPLOYEE RETENTION AGREEMENT

            This AMENDMENT No. 1 to EMPLOYEE RETENTION AGREEMENT ("Agreement"),
dated as of February 6, 2002, is by and between ROBERT M. ZAK, residing at 242
Doncaster Road, Kenmore, New York 14217 (the "Executive") and MERCHANTS MUTUAL
INSURANCE COMPANY, a New York mutual insurance company with its principal office
at 250 Main Street, Buffalo, New York 14202 (the "Company").

                                    RECITALS:

            WHEREAS, the Company is responsible for managing the business of
Merchants Group, Inc. ("MGI") and MGI's wholly-owned subsidiary, Merchants
Insurance Company of New Hampshire, Inc. ("MNH"), under a Management Agreement
dated September 29, 1986 by and among the Company, MGI and MNH (the "Management
Agreement"); and

            WHEREAS, MGI has given notice to the Company that it will terminate
the Management Agreement at the end of the required five-year notice period
(i.e. July 23, 2003); and

            WHEREAS, the Executive is a key employee of the Company; and

            WHEREAS, the Executive and the Company are parties to an Employee
Retention Agreement dated as of May 31, 1999 (the "1999 Agreement"); and

            WHEREAS, the 1999 Agreement expires according to its terms on
December 31, 2003; and

            WHEREAS, the Company believes that it is in its best interest to
secure the Executive's continued employment with the Company beyond the
expiration date of the 1999 Agreement in order to enhance the Company's ability
to continue to manage the business of the Company, MGI and MNH throughout the
period prior

<PAGE>

to the effective date of the termination of the Management Agreement; and

            WHEREAS, the Company believes that the Executive's continued
employment with the Company will be in the collective best interests of the
Company, MGI and MNH; and

            WHEREAS, the Executive and the Company desire to amend the 1999
Agreement to change the definition of "Protection Period," as that term is
defined in the 1999 Agreement, and in certain other respects; and

            WHEREAS, the Company believes that by so amending the 1999 Agreement
it will assist the Company in retaining the services of the Executive throughout
the period prior to the effective date of the termination of the Management
Agreement; and

            WHEREAS, the Executive and the Company desire to enter into this
Agreement in order to amend the 1999 Agreement as indicated, and to restate the
1999 Agreement as amended.

            NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein contained, the adequacy and sufficiency of which are hereby
acknowledged, the Company and the Executive agree as follows:

            1. Amendment of Definition of "Protection Period."

                  Paragraph 3 of the 1999 Agreement is amended in its entirety
to read as follows:

                  (b)   The "Protection Period" shall be that period of time
                        from the date of this Agreement through and including
                        December 31, 2003, and thereafter shall automatically be
                        extended for an additional twelve (12) months if not
                        terminated by the Company prior to January 1 of the year
                        during which it would otherwise expire. For example, if
                        not terminated prior to January 1, 2003, the Protection
                        Period will be extended through December 31, 2004; if
                        not terminated prior to January 1, 2004, the Protection
                        Period will be extended through December 31, 2005; and
                        so forth.

                                       2
<PAGE>

            2. Amendment and Restatement of the 1999 Agreement.

                  The 1999 Agreement is hereby further amended to reflect the
amendment set forth in paragraph 1 above, and certain other amendments to which
the parties agree, and, as so amended, is hereby restated in full, and as
restated shall supercede and replace the 1999 Agreement in its entirety:

                              AMENDED AND RESTATED
                          EMPLOYEE RETENTION AGREEMENT

            This AMENDED AND RESTATED EMPLOYEE RETENTION AGREEMENT
("Agreement"), dated as of February 6, 2002, is by and between MERCHANTS MUTUAL
INSURANCE COMPANY, a New York mutual insurance company with its principal office
at 250 Main Street, Buffalo, New York 14202 (the "Company") and ROBERT M. ZAK
residing at 242 Doncaster Road, Kenmore, New York 14217 (the "Executive").

                                 R E C I T A L S

            WHEREAS, the Company and the Executive were parties to an Employee
Retention Agreement dated as of May 31, 1999 ("1999 Agreement"), and have
amended and restated that agreement the date hereof; and

            WHEREAS, this Agreement embodies that amendment and restatement.

            NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein contained, the adequacy and sufficiency of which are hereby
acknowledged, the Company and the Executive agree as follows:

            1. TERMINATION OF 1999 AGREEMENT.

                  The 1999 Agreement is hereby terminated and superceded in its
entirety by this Agreement.

            2. EMPLOYMENT.

                                       3
<PAGE>

                  During the Protection Period, as such term is defined in
paragraph 3 below, the Company shall continue to employ the Executive as its
President and Chief Executive Officer, as such positions may be defined from
time to time in the Company's By-Laws or, if not so defined, as such positions
may be defined by the Company's Board of Directors. In return, the Executive
shall devote all of his business time, attention, skill and efforts to the
faithful performance of his duties as President and Chief Executive Officer. In
connection with his employment hereunder, the Executive shall be based at the
principal office of the Company in Buffalo, New York.

            3. PROTECTION PERIOD.

                  The "Protection Period" shall be that period of time from the
date of this Agreement through and including December 31, 2003, and thereafter
shall automatically be extended for an additional twelve (12) months if not
terminated by the Company prior to January 1 of the year during which it would
otherwise expire. For example, if not terminated prior to January 1, 2003, the
Protection Period will be extended through December 31, 2004; if not terminated
prior to January 1, 2004, the Protection Period will be extended through
December 31, 2005; and so forth.

            4. REGULAR COMPENSATION.

                  For the performance of his duties under this Agreement during
the Protection Period the Company shall pay the Executive a fixed annual salary
of at least $260,000 ("Initial Annual Salary"). The Executive's annual salary
shall be subject to annual review by the Compensation Committee of the Board of
Directors of the Company, subject to approval by the Company's Board of
Directors, but shall not be reduced without his written consent below the
Initial Annual Salary during the Protection Period. The Executive's salary shall
be payable semi-monthly or otherwise in accordance with the Company's customary
practice for its other executives. Notwithstanding the foregoing, the Executive
shall be entitled to defer the receipt of his salary and/or bonus pursuant to
procedures adopted or plans maintained by the Company.

                                       4
<PAGE>

            5. ADDITIONAL BENEFITS.

                  (a) The Executive shall be eligible to participate in and
receive benefits under any incentive compensation plan or arrangement, any stock
option or other stock-based plan, any defined benefit retirement plan, defined
contribution retirement plan, supplemental retirement plan, health and dental
plan, disability plan, survivor income plan, and life insurance plan or other
employee benefit or compensation plan or arrangement (collectively, "Benefit
Plans"), made available by the Company to all of its senior executives from time
to time, subject to and on a basis consistent with the terms, conditions and
overall administration of such Benefit Plans.

                  (b) The Executive shall be entitled to paid vacations in
accordance with the Company's customary vacation practice (provided that the
Executive shall receive at least four (4) weeks vacation per year) and all paid
holidays given by the Company to its other senior executives.

                  (c) In addition to his annual salary, the Executive shall be
entitled to receive fringe benefits and perquisites given by the Company to its
senior executives.

                  (d) The Company shall promptly pay (or reimburse the Executive
for) all reasonable expenses incurred by him in the performance of his duties
hereunder, including business travel and entertainment expenses. The Executive
shall furnish to the Company such receipts and records as the Company may
require to verify the foregoing expenses.

            6. TERMINATION BENEFITS.

                  (a) The purpose of this paragraph 6 is to provide the
Executive with certain benefits in the event it is necessary or advisable for
the Company, through no fault of the Executive, to either terminate the
Executive's employment or eliminate his position. In order to give effect to
this purpose, the Executive shall receive certain payments and benefits from the
Company if there is a "Termination of Employment," as that term is defined
below, during the Protection Period subject to the following terms and
conditions.

                                       5
<PAGE>

                  (b) "Termination of Employment" is defined to mean the
termination of the Executive's full-time employment with the Company for any
reason other than (i) the Executive's death, (ii) the Executive's "total
disability" (as defined in paragraph 7(e) below), (iii) the Executive's
voluntary termination of employment with the Company, (iv) the termination of
the Executive's employment by the Company for "good cause" (as defined in
paragraph 7(b) below), or (v) the termination of the Executive's employment by
the Company as a result of the Company's determination in its sole judgment that
the Executive has either (A) repeatedly failed to perform the duties and
assignments given to him or (B) consistently failed to perform the duties and
assignments given to him in a manner that is acceptable to the Company, based on
the level and quality of performance expected from an experienced executive at
the Executive's level in the Company.

                  (c) If there is a Termination of Employment during the
Protection Period, the Executive or his duly designated beneficiary will
continue to receive his gross bi-weekly salary in effect on the date of
Termination of Employment, subject to all required withholding taxes, in the
form of salary continuation ("Salary Continuation"), during each of the
thirty-four (34) months following the date of Termination of Employment (the
"Salary Continuation Period").

                                       6
<PAGE>

                  (d) In addition to the Salary Continuation provided under
paragraph 6(c) above, during the Salary Continuation Period the Company shall
maintain in full force for the Executive's and his family's benefit, all life
insurance, health and accident insurance, and disability and medical
reimbursement plans in which the Executive and his family were entitled to
participate immediately prior to the date of Termination of Employment, under
the same terms as are made available during the Salary Continuation Period to
other executive employees of the Company from time to time, if the continued
participation of the Executive and his family in such plans is possible under
the general terms and provisions of such plans, programs and arrangements. The
costs of the Executive's and his family's continued participation in such
insurance and reimbursement plans shall be allocated between the Company and the
Executive in the same proportion as such costs were allocated prior to the date
of Termination of Employment. If the Executive's or his family's continued
participation is not possible, the Company shall reimburse the Executive for his
cost in obtaining comparable coverage, subject to a maximum reimbursement during
the Salary Continuation Period equal to 10% of the Executive's base annual
salary for the calendar year preceding the date of Termination of Employment.
For purposes of the Consolidated Omnibus Budget Reconciliation Act ("COBRA"),
the qualifying event that begins the Executive's period of coverage shall be
considered to occur on the last day for which health coverage is provided during
the Salary Continuation Period and for which the Company contributes to the
costs of such coverage pursuant to this paragraph 6(d).

                  (e) This paragraph 6 shall not be applicable to any
Termination of Employment following a "change in control" as defined in
paragraph 7(c) of this Agreement.

                  (f) The payments and benefits provided for in paragraphs 6(c)
and (d) shall be in lieu of any other severance payments the Executive might
otherwise be entitled to from the Company whether in this Agreement, under any
employment agreement, or under a severance plan or policy maintained by the
Company for employees of Executive's rank and seniority.

                                       7
<PAGE>

                  (g) The Executive shall not be considered to be an employee of
the Company during the Salary Continuation Period for purposes of accruing any
benefits under the Company's 401(k) retirement plan, or any other retirement,
pension, profit sharing, savings or incentive or bonus plan maintained,
sponsored or administered by the Company ("Retirement or Bonus Plans") or under
the Company's vacation policy. During the Salary Continuation Period the
Executive shall not be entitled to any contribution by the Company on his behalf
or to his account under any Retirement or Bonus Plans nor shall he be entitled
to accrue any benefits under the Company's vacation policy.

            7. CHANGE IN CONTROL PAYMENTS.

                  (a) If during the Protection Period there is a "change in
control" and within two (2) years thereafter (i) the employment of the Executive
is terminated by the Company for other than "good cause" or the death or "total
disability" of the Executive or (ii) the Executive shall declare his employment
terminated for "good reason," then the Executive shall be entitled to the
following:

                        A. All unpaid salary through the date of termination of
                        employment plus credit for any vacation earned but not
                        taken through the date of termination of employment (as
                        permitted by the Company's policy on vacations) together
                        with reimbursement for expenses not previously
                        reimbursed through the date of termination, all of which
                        will be paid immediately subject to all required
                        withholding taxes.

                        B. As a severance benefit, the Executive shall be
                        entitled to an amount equal to his then current base
                        annual salary ("X") plus the average of the last three
                        (3) annual incentive or bonus compensation awards paid
                        to the Executive by the Company prior to the date of
                        termination ("Y"), multiplied by two and nine-tenths
                        [2.9] ("Severance Benefit"). The Severance Benefit will
                        equal (X + Y) multiplied by 2.9.

                        C. This Severance Benefit, less all proper

                                       8
<PAGE>

                        payroll deductions, shall be paid immediately to the
                        Executive in a lump sum.

                        D. In addition to the Severance Benefit, the Executive
                        shall be entitled to continued participation for
                        thirty-four (34) months following the date of the
                        termination of his employment, in all life insurance,
                        health and accident insurance, disability and medical
                        reimbursement plans, programs and arrangements in which
                        the Executive and his family were entitled to
                        participate immediately prior to the date of a "change
                        in control," if the continued participation of the
                        Executive and his family in such plans, programs and
                        arrangements is possible under the general terms and
                        provisions of such plans, programs and arrangements. The
                        costs of the Executive's and his family's continued
                        participation in such plans, programs and arrangements
                        shall be allocated between the Company and the Executive
                        in the same proportion as such costs were allocated
                        prior to the date of the termination of his employment.
                        If the Executive's or his family's continued
                        participation is not possible, the Company shall
                        reimburse the Executive at the end of each month during
                        the thirty-four (34) month period for his cost in
                        obtaining comparable coverage, subject to a maximum
                        reimbursement during each month equal to 2% of the
                        Executive's base annual salary for the calendar year
                        preceding the date of the termination of his employment.
                        For purposes of COBRA, the qualifying event that begins
                        the Executive's period of coverage shall be considered
                        to occur on the last day for which health coverage is
                        provided and for which the Company contributes to the
                        costs of such coverage pursuant to this paragraph 7(a)D.
                        The Company's obligations under this paragraph 7(a)D.
                        with respect to life, health, accident and disability
                        coverage shall be suspended with respect to any such
                        coverage at any time that the Executive is

                                       9
<PAGE>

                        eligible for comparable coverage from another employer.

            The parties agree that the payments provided for in this paragraph
7(a) shall be liquidated damages which are in lieu of any other severance
payments that the Executive would otherwise be entitled to under this Agreement
or under any severance plan or policy that would apply to him but for this
Agreement, and the Company agrees that the Executive shall not be required to
mitigate his damages by seeking other employment or otherwise.

                  (b) "Good cause" shall mean (i) the Executive's dishonesty,
fraud or breach of trust, or substantial misconduct in the performance of or
substantial nonperformance of his duties as an employee of the Company, (ii) any
act or omission by the Executive that results in a felony conviction or in a
regulatory body with jurisdiction over the Company removing the Executive from
office or requesting or recommending the suspension or removal of the Executive
or taking punitive action against the Executive, or (iii) a material breach by
the Executive of paragraphs 8 or 9 of this Agreement.

                  (c) For purposes of this Agreement, a "change in control"
shall have occurred if, after the date of this Agreement:

                        A. Any person (as such term is used in Section 13(d) or
                        Section 14(d)(2) of the Securities Exchange Act of 1934,
                        as amended, and the rules and regulations thereunder and
                        including any affiliate or associate of such person, as
                        defined in Rule 12b-2 under said Act, and any person
                        acting in concert with such person), directly or
                        indirectly acquires or becomes the beneficial owner of
                        (within the meaning of Rule 13d-3 under said Act), or
                        otherwise becomes entitled to vote, stock of the Company
                        or Merchants Group, Inc. ("MGI") or its subsidiary
                        Merchants Insurance Company of New Hampshire, Inc.
                        ("MNH")(hereinafter referred to individually as a
                        "Merchants Company" and collectively as the "Merchants
                        Companies") with 25% or more of the voting

                                       10
<PAGE>

                        power entitled to be cast at elections for directors
                        (excluding any acquisition of stock in one Merchants
                        Company by another Merchants Company or the voting of
                        stock in one Merchants Company by another Merchants
                        Company); or

                        B. There occurs any merger or consolidation of a
                        Merchants Company (excluding any merger or consolidation
                        of one Merchants Company with another) or any sale,
                        lease or exchange of all or any substantial part of the
                        assets of any of the Merchants Companies and their
                        subsidiaries to any other person, excluding any of the
                        Merchants Companies, and (i) in the case of a merger or
                        consolidation, the holders of the outstanding stock of
                        any of the Merchants Companies entitled to vote in
                        elections of directors ("voting stock") immediately
                        before such merger or consolidation hold less than 50%
                        of the voting stock of the survivor of such merger or
                        consolidation or its parent; or (ii) in the case of any
                        such sale, lease or exchange, neither the Company nor
                        either of the other Merchants Companies or the Merchants
                        Companies as a group owns at least 50% of the voting
                        stock of the other person; or

                        C. During any period of two (2) consecutive years,
                        individuals who at the beginning of such period
                        constitute the entire Board of Directors of any of the
                        Merchants Companies shall cease for any reason to
                        constitute a majority thereof, unless the election or
                        the nomination for the election by that company's
                        shareholders or policyholders of each new Director was
                        approved by a vote of at least two-thirds of the
                        Directors then still in office who were Directors at the
                        beginning of the period;

            Provided, however, that a "change in control" shall not be deemed to
have occurred if any of the events described in paragraphs 7 (c), A, B or C
above occur with respect to MGI or

                                       11
<PAGE>

MNH at such time that they are not parties with the Company to the Management
Agreement dated September 29, 1986, or an extension or modification of that
agreement, or are not parties with the Company to another management or expense
sharing or pooling, quota share or reinsurance agreement.

                  (d) "Good reason" shall mean any of the following subsequent
to a "change in control" (i) the requirement that the Executive relocate his
principal place of business to a location that is more than 25 miles from the
Executive's principal place of business immediately prior to the date of a
"change in control," (ii) any assignment to the Executive without his express
written consent of any material duties, functions, authority or responsibilities
with respect to any of the Merchants Companies other than those duties,
functions, authority and responsibilities assigned to the Executive by the
Company prior to the "change in control," or any material limitation or
expansion without the Executive's express written consent of the material
duties, functions, authority and responsibilities assigned to the Executive by
the Company prior to the "change in control," any such assignment, limitation or
expansion being deemed a continuing breach of this Agreement, (iii) a reduction
in the Executive's then annual salary paid by any of the Merchants Companies or
(iv) failure by the Company to obtain the assumption of, and the agreement to
perform, this Agreement by any successor or assign as contemplated in paragraph
13 hereof, and such relocation described in the foregoing clause (i), such
assignment, limitation or expansion described in the foregoing clause (ii),
reduction described in the foregoing clause (iii) or failure described in the
foregoing clause (iv) is not cured within thirty (30) days after receipt by the
Company of written notice from the Executive describing such event, or (v) any
removal of the Executive from, or any failure to re-designate or re-elect the
Executive to the position he held immediately prior to the "change in control";
provided that in any event set forth above in this subparagraph 7(d), the
Executive shall have elected to terminate his employment under this Agreement
upon not less than sixty (60) days' advance written notice to the Company,
given, except in the case of a continuing breach, within three calendar months
after (A) failure to be so elected or re-elected, or such removal, or (B)
expiration of the thirty-day cure period with respect to such event. An election
by the Executive to terminate his employment given under the provisions of this
paragraph 7(d) shall not be deemed a voluntary termination of employment by the
Executive for the purpose of this Agreement or

                                       12
<PAGE>

any plan or practice of the Company.

                  (e) "Total disability," as used herein, shall mean total
disability as defined in any long-term disability plan sponsored by the Company
in which the Executive participates, or, if there is no such plan or it does not
define such term, then it shall mean the physical or mental incapacity of the
Executive which prevents him from substantially performing his duties as an
employee of the Company for a period of at least 180 days and the incapacity is
expected to be permanent and continues for the remainder of the Executive's
life.

                  (f) The payments provided for in this paragraph 7 are in lieu
of any payments provided for in the 1999 Agreement or in any severance agreement
or similar agreement between the Executive and the Company which is dated prior
to the date of this Agreement ("Severance Agreement"). This Agreement hereby
voids, terminates and supersedes the 1999 Agreement and any such Severance
Agreement and the Executive hereby acknowledges that the 1999 Agreement and any
such Severance Agreement are hereby terminated and he no longer has any rights
or benefits thereunder.

            8. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.

                  The Executive will not at any time use or disclose to any
third party any confidential information or trade secrets relating to the
business of any of the Merchants Companies, including business methods and
techniques, research data, marketing and sales information, agent lists,
underwriting and claims procedures, investment strategies, reinsurance
arrangements, agent compensation plans, pricing data, and any other information
concerning the business of any of the Merchants Companies, their manner of
operation, their plans, or other information not disclosed to the general public
or known in the insurance industry, except for disclosure in the course of the
Executive's duties hereunder, or disclosure required by any law, rule,
regulation or court order, or disclosure which the Executive reasonably believes
would subject him or any of the Merchants Companies to liability if not made.
This covenant will survive the termination of this Agreement.

            9. COVENANT NOT TO COMPETE.

                  (a) The Executive shall not "compete," as that

                                       13
<PAGE>

term is defined in paragraph 9(c) below, while employed by the Company with the
Company or any Affiliated Companies, as defined below in paragraph 9(b).

                  (b) If the Executive is receiving Salary Continuation payments
under paragraph 6(c) of this Agreement, he shall not compete during the first
ninety (90) days of the Salary Continuation Period with the Company, or any
subsidiary of the Company, or any other insurance company that is a party with
the Company to any management, expense sharing or pooling, quota share or
reinsurance agreement (collectively, "Affiliated Companies"), nor shall he
"solicit," as that term is defined in paragraph 9(d) below, any employee of the
Company for a period of six (6) months after his last day of employment with the
Company, unless he shall have received prior written approval from the Company.

                  (c) As used in this paragraph 9, the term "compete" means the
direct or indirect ownership, management, operation or control of, or
participation in the ownership, management, operation, or control of, or the
holding of the position of an officer, employee, partner, director, consultant
or similar positions, or the holding of any financial interest in, or the giving
of any aid or assistance to anyone else in the conduct of, any business that is
engaged in a property-casualty insurance business that offers substantially any
of the same lines of insurance and coverages offered, or proposed to be offered,
by the Company or any Affiliated Company at the time of the Executive's
withdrawal from or termination of employment with the Company, in any of the
geographic markets in which the Company or any Affiliated Company is then
conducting business. Ownership of stock of MGI or of one percent (1%) or less of
the voting stock of any other publicly held corporation shall not constitute a
violation of this paragraph 9.

                  (d) As used in paragraph 9(b) above, the term "solicit" shall
mean the solicitation of any employee of the Company for the purpose of hiring
or engaging such employee to work for or otherwise assist any person who does or
intends to compete with the Company or any Affiliated Company

                  (e) In addition to any other remedies that the Company may
have in law or in equity for a breach of the Executive's covenants set forth in
this paragraph 9, the Company may also cancel its obligations to pay to the
Executive any

                                       14
<PAGE>

monies and other benefits otherwise due to the Executive under this Agreement.

            10. ENTIRE AGREEMENT.

                  The terms and provisions of this Agreement constitute the
entire agreement between the parties and supersede any previous oral or written
communications, representations, or agreements with respect to the subject
matter hereof, including without limitation the 1999 Agreement.

            11. NOTICE.

                  Any notices given hereunder shall be in writing and shall be
given by personal delivery or by certified or registered mail, return receipt
requested, addressed to the addressee at the address set forth at the head of
this Agreement or such other address that such addressee has duly notified the
other party to forward notices to hereunder.

            12. SEVERABILITY.

                  The invalidity or unenforceability of any particular provision
of this Agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if the invalid or unenforceable
provision had been omitted.

                                       15
<PAGE>

            13. COMPANY ASSIGNMENT.

                  The Company may not assign this Agreement, except that the
Company's obligations hereunder shall be binding legal obligations of any
successor to all or substantially all of the Company's business by purchase,
merger, consolidation, conversion, or otherwise. The Company shall require any
successor or assign (whether direct or indirect, by purchase, merger,
consolidation, conversion, or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, expressly, absolutely and unconditionally to
assume and agree to 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 or
assignment had taken place. Any failure of the Company to obtain such agreement
prior to the effectiveness of any such succession or assignment shall be a
material breach of this Agreement. As used in this Agreement, the term "Company"
shall mean the Company as hereinbefore defined and any successor or assign to
its business and/or assets as aforesaid which executes and delivers the
agreement provided for in this paragraph 13 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.

            14. NO ASSIGNMENT BY EXECUTIVE.

                  No interest of the Executive or the Executive's spouse or any
other beneficiary under this Agreement, or any right to receive any payments or
distributions hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, the Executive or the Executive's spouse or
other beneficiary, including claims for alimony, support, separate maintenance,
and claims in bankruptcy proceedings.

                                       16
<PAGE>

            15. BENEFITS UNFUNDED.

                  All rights of the Executive and the Executive's spouse or
other beneficiary under this Agreement shall at all times be entirely unfunded,
and no provision shall at any time be made with respect to segregating any
assets of the Company for payment of any amounts due hereunder. Neither the
Executive nor the Executive's spouse or other beneficiary shall have any
interest in or rights against any specific assets of the Company, and the
Executive and the Executive's spouse or other beneficiary shall have only the
rights of a general unsecured creditor of the Company.

            16. WAIVER.

                  No waiver by any party at any time of any breach by another
party of, or compliance with, any condition or provision of this Agreement to be
performed by the other party shall be deemed a waiver of any other provisions or
conditions at the same time or at any prior or subsequent time.

            17. PAYMENTS IN EVENT OF DEATH.

                  Upon the death of the Executive all amounts due and payable to
the Executive pursuant to this Agreement shall be paid to the person or persons
designated by him as his beneficiary or beneficiaries on the Form of Designation
of Beneficiary attached hereto as Exhibit A, or if no such person is designated
then to his devisee, legatee or other designee, or in their absence to his
estate.

                                       17
<PAGE>

            18. REDUCTION OF PARACHUTE PAYMENTS AND EXCESSIVE EMPLOYEE
REMUNERATION.

                  (a) In the event that a determination is made by legal counsel
for the Company that (i) the Executive would, except for this paragraph 18, be
subject to the excise tax provisions of Section 4999 of the Internal Revenue
Code of 1986 (the "Code"), or any successor sections thereof, as a result of a
"parachute payment" (as defined in Section 280G(b)(2)(A) of the Code) made by
the Company to the Executive pursuant to this Agreement or any other agreement,
plan or arrangement, or (ii) a federal income tax deduction would not be allowed
to the Company for all or a part of such payments by reason of Section 280G(a)
of the Code (or any successor provision), the payments to which the Executive
would otherwise be entitled hereunder shall be reduced, eliminated, or postponed
in such amounts as are required to reduce the aggregate "present value" (as
defined in Section 280G(d)(4) of the Code) of such payments to one dollar less
than an amount equal to three times the Executive's "base amount" (as defined in
Sections 280G(b)(3)(A) and 280G(d)(1) and (2) of the Code), to the end that the
Executive is not subject to tax pursuant to such Section 4999 and no deduction
is disallowed by reason of such Section 280G(a). To achieve such reduction in
aggregate present value, the Executive shall determine which item or items
payable hereunder shall be reduced, eliminated, or postponed, the amount of each
such reduction, elimination, or postponement, and the period of each
postponement. The Company shall direct its legal counsel to review the payments
made to the Executive and shall provide to the Executive such information as is
reasonably necessary for the Executive to make the determinations contemplated
in this paragraph.

                  (b) In the event that a determination is made by legal counsel
for the Company that the Company would not be allowed to deduct remuneration
payable to the Executive as a result of the limits imposed by Section 162(m) of
the Code, or any successor sections thereof, the payments to which the Executive
would otherwise be entitled hereunder shall be reduced, eliminated, or postponed
in such amounts as are required to avoid the limits imposed by Section 162(m).
The procedures set forth in paragraph 18(a) to accomplish such reduction,
elimination or postponement shall apply to this paragraph 18(b).

                                       18
<PAGE>

            19. APPLICABLE LAW.

                  This Agreement shall be construed and interpreted in
accordance with the internal substantive laws of the State of New York without
taking into account its laws on the conflict of law.

            20. ARBITRATION.

                  The Company and the Executive shall attempt to resolve between
them any dispute which arises hereunder. If they cannot agree within ten (10)
days after either party submits a demand for arbitration to the other party,
then the issue shall be submitted to arbitration with each party having the
right to appoint one (1) arbitrator and those two (2) arbitrators mutually
selecting a third arbitrator. The rules of the American Arbitration Association
for the arbitration of commercial disputes shall apply and the decision of 2 of
the 3 arbitrators shall be final. The arbitrators must reach a decision within
ninety (90) days after the selection of the third arbitrator. The arbitration
shall take place in Buffalo, New York. The arbitrators shall apply New York law.

            21. AMENDMENT.

                  This Agreement shall be amended only by a written document
signed by each party hereto.

            22. EMPLOYEE-AT-WILL.

            Notwithstanding any provision in this Agreement, the Executive will
remain an at-will employee of the Company, whose employment may be terminated by
the Company at any time subject to the Executive's rights to receive the
benefits specifically provided in this Agreement, as applicable.

                                       19
<PAGE>

            IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the day and year first above written.

                                           THE EXECUTIVE:

                                           -------------------------------------
                                           ROBERT M. ZAK

                                           MERCHANTS MUTUAL INSURANCE COMPANY

                                           By
                                             -----------------------------------
                                                    BRIAN J. LIPKE
                                                    CHAIRMAN OF THE
                                                    COMPENSATION COMMITTEE

650260v2

                                       20
<PAGE>

                                    EXHIBIT A

                       FORM OF DESIGNATION OF BENEFICIARY

            In the event of the death of the undersigned, the undersigned hereby
designates the following person or persons as his beneficiary or beneficiaries
for the receipt of any payments due to the undersigned under the Amended and
Restated Employee Retention Agreement between the undersigned and Merchants
Mutual Insurance Company dated as of February 6, 2002:

  Primary Beneficiary
   or Beneficiaries:

                              _________________________________________

                              _________________________________________

Contingent Beneficiary
   or Beneficiaries:

                              _________________________________________

                              _________________________________________

Dated:_______________________                    _______________________________
                                                         ROBERT M. ZAK

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