Document:

<PAGE>

                                                              EXHIBIT 10.6.1.1

                               ADVERSE DEVELOPMENT
                        AGREEMENT OF REINSURANCE NO. 8888

                                     between

                            POTOMAC INSURANCE COMPANY
                                One Beacon Street
                           Boston, Massachusetts 02108
                     (herein referred to as the "Reinsurer")

                                       and

                         GENERAL REINSURANCE CORPORATION
                             a Delaware corporation
                         having its principal offices at
                                Financial Centre
                       695 East Main Street P.O. Box 10350
                        Stamford, Connecticut 06904-2350
                 (herein referred to as the "Retrocessionaire")
    ------------------------------------------------------------------------

In consideration of the promises set forth in this Agreement, the parties agree
as follows:

ARTICLE I  -  CONDITIONS PRECEDENT

The following are conditions precedent to the Retrocessionaire's obligations
under this Agreement:

         (1)    Acquisition of CGU INSURANCE COMPANY and its affiliated
                companies by White Mountains Insurance Group, Ltd. by no later
                than July 1, 2001;

         (2)    Execution of the Original Contract; and

         (3)    Payment by the Reinsurer to the Retrocessionaire on the Closing
                Date of 100% of the reinsurance premium due to the Reinsurer on
                the Closing Date.

ARTICLE II  -  SCOPE OF AGREEMENT

The Reinsurer shall retrocede to the Retrocessionaire the business described in
this Agreement, and the Retrocessionaire shall accept such business as a
retrocession from the Reinsurer. The terms of this Agreement shall determine the
rights and obligations of the Reinsurer and the Retrocessionaire.

<PAGE>

ARTICLE III  -  PARTIES TO THE AGREEMENT

This Agreement is solely between the Reinsurer and the Retrocessionaire.
Performance of the obligations of each party under this Agreement shall be
rendered solely to the other party. However, if the Reinsurer becomes insolvent,
the liability of the Retrocessionaire shall be modified to the extent set forth
in the article entitled INSOLVENCY OF THE REINSURER. In no instance shall any
insured or reinsured of the Reinsurer or any claimant against an insured or
reinsured of the Reinsurer have any rights under this Agreement.

ARTICLE IV  -  BUSINESS COVERED

This Agreement shall apply to Ultimate Net Loss assumed by the Reinsurer under
the Adverse Development Agreement of Reinsurance (hereinafter referred to as the
"Original Contract") between the Reinsurer and the Company, as defined in the
Original Contract. Capitalized terms used in this Agreement which are not
defined in this Agreement shall have the meanings defined in the Original
Contract.

A copy of the Original Contract and Endorsements, if any, thereto are attached
to and made a part of this Agreement.

The Reinsurer warrants that it shall enforce all of the terms and conditions of
the Original Contract.

Further, the Reinsurer shall obtain the Retrocessionaire's approval:

         (a)    Of any change in, or waiver of, the terms and conditions of the
                Original Contract;

         (b)    Before giving its approval with respect to (i) any one
                settlement in excess of $10,000,000 and (ii) every settlement in
                excess of $3,000,000, once the aggregate of all settlements in
                excess of $10,000,000 made after the Closing Date reaches
                $40,000,000, as required under Article XI - MANAGEMENT OF CLAIMS
                AND LOSSES of the Original Contract;

         (c)    Before giving its approval to the modification or purchase of
                any reinsurance as described in Article XIII - OTHER REINSURANCE
                of the Original Contract, and

         (d)    Before giving its approval to the form of release to be
                delivered in connection with a commutation pursuant to Article
                XVII - COMMUTATION of the Original Contract.

ARTICLE V  -  TERM

This Agreement will be effective on the Closing Date, as defined in the Original
Contract, and continue in full force until all obligations and liabilities
incurred by each party under the Agreement are fully performed and discharged,
unless sooner terminated by commutation or by mutual agreement.

                                      -2-
<PAGE>

ARTICLE VI  -  LIABILITY OF THE RETROCESSIONAIRE

The Retrocessionaire shall pay to the Reinsurer 100% of the amount of Ultimate
Net Loss, as defined in the Original Contract, paid by the Reinsurer under the
terms and conditions of the Original Contract.

The liability of the Retrocessionaire shall follow that of the Reinsurer and
shall be subject to all of the general and specific terms and conditions,
including all definitions and exclusions, of the Original Contract, except
insofar as they are inconsistent with the express terms of this Agreement.

ARTICLE VII  -  MANAGEMENT OF CLAIMS AND LOSSES

When requested by the Retrocessionaire, the Reinsurer shall permit the
Retrocessionaire, at the expense of the Retrocessionaire, to be associated with
the Reinsurer in the defense or control of any claim, loss, or legal proceeding
which involves or is likely to involve the Retrocessionaire. All payments of
claims or losses by the Reinsurer within the terms and limits of the Original
Contract shall be binding on the Retrocessionaire, subject to the terms of this
Agreement.

ARTICLE VIII  -  RECOVERIES

The Reinsurer shall pay to or credit the Retrocessionaire with the
Retrocessionaire's portion of any recovery obtained from salvage, subrogation,
or other insurance.

The Retrocessionaire shall be subrogated to the rights of the Reinsurer to the
extent of its loss payments to the Reinsurer.

ARTICLE IX  -  RETROCESSIONAL PREMIUM

On the Closing Date, the Reinsurer shall pay to the Retrocessionaire 100% of the
reinsurance premium due to the Reinsurer on the Closing Date.

In addition, within 95 days after the close of each calendar quarter after the
Closing Date, the Reinsurer shall pay to the Retrocessionaire 100% of the
Optional Retrospective Premium received during the quarter.

Any amounts due the Retrocessionaire may be remitted by wire transfer to:

                                  Bankers Trust
                                  ABA 021001033
                         For Credit to Acct #50-205-426
                        Account Name: General Reinsurance

                                      -3-
<PAGE>

ARTICLE X  -  REPORTS AND REMITTANCES

         (a)    CLAIMS AND LOSSES

                Within 35 days after the close of each calendar quarter, the
                Reinsurer shall render to the Retrocessionaire a report of the
                Ultimate Net Loss payable by the Reinsurer at the end of the
                quarter under the Original Contract and the Retrocessionaire's
                portion, if any, thereof. Any amount payable by the
                Retrocessionaire to the Reinsurer shall be paid within 5
                business days after receipt of such report.

         (b)    GENERAL

                The Reinsurer shall provide the Retrocessionaire with copies of
                all reports received by the Reinsurer from the Company under the
                Original Contract, if requested by the Reinsurer.

                In addition to the reports required by (a) above, the Reinsurer
                shall furnish such other information as may be required by the
                Retrocessionaire for the completion of the Retrocessionaire's
                quarterly and annual statements and internal records.

                All reports shall be rendered on forms or in format acceptable
                to the Reinsurer and the Retrocessionaire.

ARTICLE XI  -  ASSIGNEE

The Reinsurer designates the Retrocessionaire as its "assignee" with respect to
Article XVI - OPTION FOR ADDITIONAL CEDED BUSINESS of the Original Contract.
Therefore, if there are Significant Negative Results, the Retrocessionaire has
the option, but not the obligation, to cause the Company to enter into a first
dollar quota share reinsurance agreement, as described in said Article XVI of
the Original Contract, with the Retrocessionaire, subject to the terms and
conditions of said Article XVI.

The Reinsurer also designates the Retrocessionaire as its "assignee" with
respect to Article XXIII - INSPECTION OF RECORDS of the Original Contract.
Therefore, the Retrocessionaire shall have the right to inspect the records of
the Company relevant to the business reinsured under the Original Agreement in
accordance with the provisions of said Article XXIII.

The Reinsurer also designates the Retrocessionaire as its "assignee" with
respect to Article XXIV - ARBITRATION of the Original Contract. Therefore, if
there is an unresolved difference of opinion between the Company and the
Retrocessionaire relating to the Original Contract, the Reinsurer shall cause
the Company to arbitrate with the Retrocessionaire in accordance with the
provisions of said Article XXIV.

                                      -4-
<PAGE>

ARTICLE XII  -  COMMUTATION

This Agreement shall automatically commute upon commutation of the Original
Contract, subject to:

         (1)    Payment of the Experience Balance, as defined in the Original
                Contract, by the Retrocessionaire to the Reinsurer on or before
                the Commutation Date, as defined in the Original Contract, and

         (2)    Delivery by the Reinsurer to the Retrocessionaire of a signed
                release in a form satisfactory to the Retrocessionaire, on or
                before the Commutation Date.

ARTICLE XIII  -  ERRORS AND OMISSIONS

The Retrocessionaire shall not be relieved of liability because of an error or
accidental omission of the Reinsurer in reporting any claim or loss or any
business reinsured under this Agreement, provided that the error or omission is
rectified promptly after discovery.

ARTICLE XIV  -  RESERVES

The Retrocessionaire shall maintain the required reserves as to the
Retrocessionaire's portion of unearned premium, if any, claims, losses, and
allocated and unallocated loss adjustment expense.

ARTICLE XV  -  OFFSET

The Reinsurer or the Retrocessionaire may offset any balance, whether on account
of premium, commission, claims or losses, allocated and unallocated loss
adjustment expense, salvage, or otherwise, due from one party to the other under
this Agreement or under any other agreement heretofore or hereafter entered into
between the Reinsurer and the Retrocessionaire.

ARTICLE XVI  -  INSPECTION OF RECORDS

The Reinsurer shall allow the Retrocessionaire to inspect, at reasonable times,
the records of the Reinsurer relevant to the business reinsured under this
Agreement, including the Reinsurer's files concerning claims, losses, or legal
proceedings which involve or are likely to involve the Retrocessionaire.

ARTICLE XVII  -  ARBITRATION

All unresolved differences of opinion between the Reinsurer and the
Retrocessionaire relating to this Agreement, including its formation and
validity, shall be submitted to arbitration consisting of one arbitrator chosen
by the Reinsurer, one arbitrator chosen by the Retrocessionaire, and a third
arbitrator chosen by the first two arbitrators.

                                      -5-

<PAGE>

The party demanding arbitration shall communicate its demand for arbitration to
the other party by registered or certified mail, identifying the nature of the
dispute and the name of its arbitrator, and the other party shall then be bound
to name its arbitrator within 30 days after receipt of the demand.

Failure or refusal of the other party to so name its arbitrator shall empower
the demanding party to name the second arbitrator. If the first two arbitrators
are unable to agree upon a third arbitrator after the second arbitrator is
named, each arbitrator shall name three candidates, two of whom shall be
declined by the other arbitrator, and the choice shall be made between the two
remaining candidates by drawing lots. The arbitrators shall be impartial and
shall be active or retired officers of property or casualty insurance or
reinsurance companies.

The arbitrators shall adopt their own rules and procedures and are relieved from
judicial formalities. In addition to considering the rules of law and the
customs and practices of the insurance and reinsurance business, the arbitrators
shall make their award with a view to effecting the intent of this Agreement.

The decision of the majority of the arbitrators shall be in writing and shall be
final and binding upon the parties.

Each party shall bear the cost of its own arbitrator and shall jointly and
equally bear with the other party the expense of the third arbitrator and other
costs of the arbitration. In the event both arbitrators are chosen by one party,
the fees of all arbitrators shall be equally divided between the parties.

The arbitration shall be held at the times and places agreed upon by the
arbitrators.

ARTICLE XVIII  -  INSOLVENCY OF THE REINSURER

In the event of the insolvency of the Reinsurer, the reinsurance proceeds will
be paid to the Reinsurer or the liquidator, with reasonable provision for
verification, on the basis of the claim allowed in the insolvency proceeding
without diminution by reason of the inability of the Reinsurer to pay all or
part of the claim, except as otherwise specified in the statutes of any state
having jurisdiction of the insolvency proceedings or except where the Agreement,
or other written agreement, specifically provides another payee of such
reinsurance in the event of insolvency.

The Retrocessionaire shall be given written notice of the pendency of each claim
against the Reinsurer on the Original Contract within a reasonable time after
such claim is filed in the insolvency proceedings. The Retrocessionaire shall
have the right to investigate each such claim and to interpose, at its own
expense, in the proceeding where such claim is to be adjudicated, any defenses
which it may deem available to the Reinsurer or its liquidator. The expense thus
incurred by the Retrocessionaire shall be chargeable, subject to court approval,
against the insolvent Reinsurer as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the Reinsurer
solely as a result of the defense undertaken by the Retrocessionaire.

                                      -6-
<PAGE>

ARTICLE XIX  -  NOTICES

All notices and communications hereunder shall be in writing and shall become
effective when received. Any written notice shall be by either certified or
registered mail, return receipt requested, or overnight delivery service
(providing for delivery receipt) or delivered by hand. All notices or
communications under this Agreement shall be addressed as follows:

If to the Reinsurer:

c/o CGU Corporation
One Beacon Street
Boston, MA   02108
Attention:  General Counsel

If to the Retrocessionaire:

c/o General Reinsurance Corporation
Financial Centre
695 East Main Street
P.O. Box 10350
Stamford, CT   06904-2350
Attention:  General Counsel

or in each case at such other address as either party shall provide to the other
within the provisions of this article.

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

this               day of                                     , 200__,
     -------------        ------------------------------------

                                    POTOMAC INSURANCE COMPANY

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

Attest:
         -----------------------------------

and this           day of                                     , 200__.
         ---------        ------------------------------------

                                    GENERAL REINSURANCE CORPORATION

                                    --------------------------------------
                                               Vice President
Attest:
         -----------------------------------

                                      -7-

                               Agreement No. 8888
<PAGE>

                                TABLE OF CONTENTS

                                       to
                               ADVERSE DEVELOPMENT
                        AGREEMENT OF REINSURANCE NO. 8888
                                     between
                            POTOMAC INSURANCE COMPANY
                                       and
                         GENERAL REINSURANCE CORPORATION

<TABLE>
<CAPTION>
                                                                                                      PAGE
<S>                                                                                                   <C>

Article I         CONDITIONS PRECEDENT..................................................................1
Article II        SCOPE OF AGREEMENT....................................................................1
Article III       PARTIES TO THE AGREEMENT..............................................................2
Article IV        BUSINESS COVERED......................................................................2
Article V         TERM..................................................................................2
Article VI        LIABILITY OF THE RETROCESSIONAIRE.....................................................3
Article VII       MANAGEMENT OF CLAIMS AND LOSSES.......................................................3
Article VIII      RECOVERIES............................................................................3
Article IX        RETROCESSIONAL PREMIUM................................................................3
Article X         REPORTS AND REMITTANCES...............................................................4
Article XI        ASSIGNEE..............................................................................4
Article XII       COMMUTATION...........................................................................5
Article XIII      ERRORS AND OMISSIONS..................................................................5
Article XIV       RESERVES..............................................................................5
Article XV        OFFSET................................................................................5
Article XVI       INSPECTION OF RECORDS.................................................................5
Article XVII      ARBITRATION...........................................................................5
Article XVIII     INSOLVENCY OF THE REINSURER...........................................................6
Article XIX       NOTICES...............................................................................7
</TABLE>

                                      -8-
                               Agreement No. 8888<PAGE>

                                                          EXHIBIT 10.6.1.2

                               ADVERSE DEVELOPMENT
                            AGREEMENT OF REINSURANCE

                                     between

                          CGU INSURANCE COMPANY and the
                         following affiliated companies:
                       AMERICAN CENTRAL INSURANCE COMPANY
                      AMERICAN EMPLOYERS' INSURANCE COMPANY
                        CGU INSURANCE COMPANY OF ILLINOIS
                       CGU INSURANCE COMPANY OF NEW JERSEY
                        CGU INSURANCE COMPANY OF NEW YORK
                       COMMERCIAL UNION INSURANCE COMPANY
                   COMMERCIAL UNION MIDWEST INSURANCE COMPANY
                     COMMERCIAL UNION YORK INSURANCE COMPANY
                          CU HOMELAND INSURANCE COMPANY
                               CU LLOYD'S OF TEXAS
                      THE EMPLOYERS' FIRE INSURANCE COMPANY
                     FARMERS AND MERCHANTS INSURANCE COMPANY
                        GA INSURANCE COMPANY OF NEW YORK
                       GENERAL ACCIDENT INSURANCE COMPANY
                 GENERAL ACCIDENT REINSURANCE COMPANY OF AMERICA
                            GENERAL ASSURANCE COMPANY
                       HAWKEYE-SECURITY INSURANCE COMPANY
                          MIDWESTERN INSURANCE COMPANY
              NATIONAL FARMERS UNION PROPERTY AND CASUALTY COMPANY
                NATIONAL FARMERS UNION STANDARD INSURANCE COMPANY
                         NORTH PACIFIC INSURANCE COMPANY
                    THE NORTHERN ASSURANCE COMPANY OF AMERICA
                       OREGON AUTOMOBILE INSURANCE COMPANY
                      POTOMAC INSURANCE COMPANY OF ILLINOIS
                           TRI-STATE INSURANCE COMPANY
                        UNITED SECURITY INSURANCE COMPANY
                                One Beacon Street
                           Boston, Massachusetts 02108
               (herein collectively referred to as the "Company")

                                       and

                            POTOMAC INSURANCE COMPANY
                                One Beacon Street
                           Boston, Massachusetts 02108
                     (herein referred to as the "Reinsurer")
    ------------------------------------------------------------------------

In consideration of the promises set forth in this Agreement, the parties agree
as follows:

<PAGE>

ARTICLE I  -  CONDITIONS PRECEDENT

The following are conditions precedent to the Reinsurer's obligations under this
Agreement:

         (1)    The payment of the Layer One and Layer Two reinsurance premiums
                by the Closing Date;

         (2)    The Stop Loss and Adverse Development Covers on Accident Year
                2000 that the Company entered into with CUREPOOL Ltd., Bermuda,
                are commuted by the Closing Date; and

         (3)    The Reference Document is in effect on the Closing Date.

ARTICLE II  -  SCOPE OF AGREEMENT

The Company shall cede to the Reinsurer the business described in this
Agreement, and the Reinsurer shall accept such business as reinsurance from the
Company. The terms of this Agreement shall determine the rights and obligations
of the Company and the Reinsurer.

ARTICLE III  -  PARTIES TO THE AGREEMENT

This Agreement is solely between the Company and the Reinsurer. When more than
one Company is named as a party to this Agreement, the first Company named shall
be the agent of the other companies as to all matters pertaining to this
Agreement. Performance of the obligations of each party under this Agreement
shall be rendered solely to the other party. However, if the Company becomes
insolvent, the liability of the Reinsurer shall be modified to the extent set
forth in the article entitled INSOLVENCY OF THE COMPANY. In no instance shall
any insured or reinsured of the Company or any claimant against an insured or
reinsured of the Company have any rights under this Agreement.

ARTICLE IV  -  BUSINESS COVERED

This Agreement shall apply to Ultimate Net Loss on all classes of business
written by the Company on or before December 31, 2000, with respect to claims
with accident dates December 31, 2000 and prior which are paid on or after the
Closing Date, other than business excluded by the article entitled EXCLUSIONS.

ARTICLE V  -  TERM

This Agreement will be effective on the Closing Date, and continue in full force
until all obligations and liabilities incurred by each party under the Agreement
are fully performed and discharged, unless sooner terminated by commutation or
by mutual agreement.

                                      -2-
<PAGE>

ARTICLE VI  -  COMPANY RETENTION

The Company Retention will be the amount of Ultimate Net Loss equal to:

         (1)    The sum of:

                (a)   The amount of the Company's nominal (undiscounted) loss
                      and Allocated and Unallocated Loss Adjustment Expense
                      reserves on the Business Covered recorded on the books of
                      the Company at the Closing Date, net of any other
                      reinsurance, deductibles, or self-insured retentions (all
                      three preceding items, whether collectible or not); and

                (b)   Any nominal (undiscounted) loss and Allocated and
                      Unallocated Loss Adjustment Expense reserves on the
                      Business Covered recorded by White Mountains Insurance
                      Group, Ltd. in excess of those on the Company's books at
                      the Closing Date.

         Less

         (2)    $170,000,000.

ARTICLE VII  -  LIABILITY OF THE REINSURER

(A)      Subject to the provisions of paragraph (B) and the article entitled
         LAYER TWO SUNSET PROVISION, the Reinsurer's limit of liability for
         Ultimate Net Loss on the Business Covered shall in no event exceed:

         (1)    LAYER ONE

                $570,000,000 of Ultimate Net Loss in excess of the Company
                Retention.

         (2)    LAYER TWO

                $80,000,000 of Ultimate Net Loss in excess of the sum of (1) the
                Company Retention; (2) $570,000,000; and (3) the Corridor Layer.

(B) In addition, subject to the Layer Two sunset provision:

         (1)    If there are no Significant Negative Results then,
                notwithstanding the Layer One Reinsurer's limit of liability of
                $570,000,000 as stipulated above, the Reinsurer's limit of
                liability for Layer One will in no event exceed that amount of
                Layer One liability that will result in an Economic Loss to the
                Reinsurer of $28,000,000; and

         (2)    If there are Significant Negative Results then:

                (a)   Notwithstanding the Layer One Reinsurer's limit of
                      liability of $570,000,000, the Reinsurer's limit of
                      liability for Layer One will

                                      -3-
<PAGE>

                      in no event exceed that amount of Layer One liability that
                      will result in an Economic Loss to the Reinsurer of
                      $24,000,000, and

                (b)   Notwithstanding the Layer Two Reinsurer's limit of
                      liability of $80,000,000, the Reinsurer's limit of
                      liability for Layer Two will in no event exceed that
                      amount of Layer Two liability that will result in an
                      Economic Loss to the Reinsurer of $4,000,000.

ARTICLE VIII  -  LAYER TWO SUNSET PROVISION

The maximum amount of Reinsurer's Layer Two liability under the Agreement shall
not exceed the amount of the Company's ceded payments and/or reserves for Layer
Two losses on the Business Covered recorded in its December 31, 2001 financial
statements and reported to the Reinsurer by certified or registered mail on or
before February 15, 2002. The Company may elect to permanently waive in writing
all or a portion of its Layer Two recoveries from the Reinsurer at any time.

ARTICLE IX  -  DEFINITIONS

         (1)    COMPANY RETENTION

                This term shall mean the amount the Company shall retain for its
                own account pursuant to the article entitled COMPANY RETENTION.

         (2)    CLOSING DATE

                This term shall mean the date on which the acquisition of the
                Company by White Mountains Insurance Group, Ltd. closes.

         (3)    REFERENCE DOCUMENT

                This term shall mean the reinsurance agreement between the
                Reinsurer and National Indemnity Company to cover discontinued
                operations and other exposures of the Company and the Reinsurer
                signed and dated on March 15, 2001 and attached hereto as
                Attachment A.

         (4)    CORRIDOR LAYER

                This term shall mean the additional layer of $550,000,000 of
                Ultimate Net Loss in excess of the sum of (1) the Company
                Retention and (2) $570,000,000, which the Company shall also
                retain net for its own account.

                                      -4-

<PAGE>

         (5)    ULTIMATE NET LOSS

                Subject to the Loss Limitation, this term shall mean all
                payments by the Company in settlement of claims or losses,
                payment of benefits, or satisfaction of judgments or awards,
                including Allocated Loss Adjustment Expense, prejudgment
                interest which erodes the policy limit, and Unallocated Loss
                Adjustment Expense, net of other reinsurance, deductibles, or
                self-insured retentions (all three preceding items, whether
                collectible or not), salvage, subrogation and all other
                recoveries. If the Company becomes insolvent, this definition
                shall be modified to the extent set forth in the article
                entitled INSOLVENCY OF THE COMPANY.

                Notwithstanding the provisions of the article entitled
                MANAGEMENT OF CLAIMS AND LOSSES, this term shall also include
                100% of Losses in Excess of Policy Limits and 100% of Extra
                Contractual Obligations within the constraints of the Loss
                Limitation.

         (6)    ALLOCATED LOSS ADJUSTMENT EXPENSE

                This term shall mean expenditures by the Company within the
                terms of its policies in the direct defense of claims and in
                connection with Losses in Excess of Policy Limits and Extra
                Contractual Obligations and as allocated to an individual claim
                or loss (other than for office expenses and for the salaries and
                expenses of employees of the Company or of any subsidiary or
                related or wholly owned company of the Company) made in
                connection with the disposition of a claim, loss, or legal
                proceeding including investigation, negotiation, and legal
                expenses; court costs; prejudgment interest which does not erode
                the policy limit; and prejudgment interest.

                This term shall also be deemed to include any Declaratory
                Judgment Expenses incurred by the Company. The date on which a
                Declaratory Judgment Expense is incurred by the Company shall be
                deemed, in all circumstances, to be the date of the original
                occurrence.

         (7)    DECLARATORY JUDGMENT EXPENSE

                This term shall mean expense incurred by the Company in bringing
                or in defending a declaratory judgment action brought to
                determine the Company's obligations to its insured with respect
                to a specific claim under a policy (or coverage part thereof)
                reinsured hereunder.

         (8)    UNALLOCATED LOSS ADJUSTMENT EXPENSE

                This term shall mean any loss adjustment expenses which are not
                Allocated Loss Adjustment Expenses. Coverage of Unallocated Loss
                Adjustment Expenses hereunder is limited to 5% of the sum of (1)
                loss and (2) Allocated Loss Adjustment Expense, net of other
                reinsurance, deductibles, or self-insured retentions (all three
                preceding items, whether collectible or not), salvage,
                subrogation and all other recoveries, paid under this Agreement.

                                      -5-
<PAGE>

         (9)    LOSS IN EXCESS OF POLICY LIMITS AND EXTRA CONTRACTUAL
                OBLIGATIONS

                (a)   The term "Loss in Excess of Policy Limits" shall mean a
                      payment made to a third party claimant in excess of the
                      policy limit resulting from an action taken by the insured
                      or assignee arising from a third party claimant being
                      awarded an amount in excess of the Company's policy limit
                      as a result of the Company's failure to settle within the
                      policy limit or of the Company's alleged or actual
                      negligence or bad faith 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.

                (b)   The term "Extra Contractual Obligation" shall mean a loss
                      which is not covered under any other provision of this
                      Agreement and which arises from the Company's handling of
                      any claim on the Business Covered.

                The date on which a Loss in Excess of Policy Limits or an Extra
                Contractual Obligation is incurred by the Company shall be
                deemed, in all circumstances, to be the date of the original
                occurrence.

                There shall be no coverage hereunder where the Loss in Excess of
                the Policy Limit or the Extra Contractual Obligation has been
                incurred due to the fraud or criminal conduct of a member of the
                Board of Directors, a corporate officer of the Company, or any
                other employee of the Company, acting individually or
                collectively or in collusion with any individual or corporation
                or any other organization or party involved in the
                investigation, defense or settlement of any claim covered
                hereunder.

                Any insurance or reinsurance, whether collectible or not, which
                indemnifies or protects the Company against claims which are the
                subject matter of this definition and any contribution,
                subrogation, or recovery shall inure to the benefit of the
                Reinsurer and shall be deducted to arrive at the amount of the
                Company's Ultimate Net Loss.

         (10)   LOSS LIMITATION

                If there are Significant Negative Results, then for purposes of
                calculating Ultimate Net Loss utilized in determining the
                Company Retention, the Corridor Layer and the Reinsurer's
                liability, the maximum amount of loss, Allocated Loss Adjustment
                Expense and Unallocated Loss Adjustment Expense includable with
                respect to Non-Reviewed Lines and Losses shall not exceed the
                sum of (1) nominal (undiscounted) reserves carried net of
                reinsurance (whether collectible or not) on such Non-Reviewed
                Lines and Losses at the Closing Date, and (2) $200,000,000.

                                      -6-
<PAGE>

                However, this Loss Limitation will be waived if the Company has
                paid Optional Retrospective Premium of $40,000,000 or greater as
                stipulated in the article entitled REINSURANCE PREMIUM.

         (11)   NON-REVIEWED LINES AND LOSSES

                This term shall mean the aggregate liability arising from (i)
                reserve lines (as distinguished from accident years) not
                reviewed by Tillinghast in its draft report dated January 18,
                2001 on Loss and Allocated Loss Adjustment Expenses as of
                6/30/00 for the CGU Insurance Group; plus (ii) the following
                reserve lines or types of losses: umbrella, Extra Contractual
                Obligations, Loss in Excess of Policy Limits, Declaratory
                Judgment Expense, pools and associations, asbestos, lead,
                environmental and pollution losses, Ohio uninsured motorist
                losses, financial guarantees, data damage losses, and
                construction defect losses; plus (iii) all losses specifically
                listed on Schedule 3 of the Reference Document.

         (12)   SIGNIFICANT NEGATIVE RESULTS

                This term shall mean that the Company records ceded payments
                and/or reserves for Layer Two losses on the Business Covered in
                its December 31, 2001 financial statements, regardless of
                whether the Company subsequently elects to waive all or a
                portion of Layer Two recoveries from the Reinsurer.

         (13)   ECONOMIC LOSS

                (a)   As respects Layer One:

                      If there are no Significant Negative Results, this term
                      shall mean the Net Present Value of Ultimate Net Loss
                      payments made by Reinsurer in Layer One less the sum of
                      (i) the Net Present Value of Layer One reinsurance premium
                      paid and (ii) the Net Present Value of Optional
                      Retrospective Premium actually paid to the Reinsurer as
                      stipulated in the article entitled REINSURANCE PREMIUM.

                      If there are Significant Negative Results at any time
                      after the Closing Date, this term shall mean the Net
                      Present Value of Ultimate Net Loss payments made by the
                      Reinsurer in Layer One less the sum of (i) the Net Present
                      Value of Layer One reinsurance premium paid and (ii) if
                      positive, the difference between the Net Present Value of
                      Optional Retrospective Premium actually paid to the
                      Reinsurer and $40,000,000.

                (b)   As respects Layer Two, this term shall mean the Net
                      Present Value of Ultimate Net Loss payments made by
                      Reinsurer in Layer Two less the Net Present Value of Layer
                      Two reinsurance premium paid.

         (14)   NET PRESENT VALUE

                                      -7-
<PAGE>

                For purposes of calculating Economic Loss, any payments made by
                either the Reinsurer or the Company will be discounted back to
                the Closing Date, using the five-year United States Treasury
                Bill effective yield at the Closing Date.

ARTICLE X  -  EXCLUSIONS

This Agreement shall not apply to:

         (1)    Business covered in the Reference Document;

         (2)    All liability of the Company arising, by contract, operation of
                law, or otherwise, from its participation or membership, whether
                voluntary or involuntary, in any insolvency fund. "Insolvency
                fund" includes any guaranty fund, insolvency fund, plan, pool,
                association, fund, or other arrangement, howsoever denominated,
                established, or governed, which provides for any assessment of
                or payment or assumption by the Company of part or all of any
                claim, debt, charge, fee, or other obligation of an insurer, or
                its successors or assigns, which has been declared by any
                competent authority to be insolvent, or which is otherwise
                deemed unable to meet any claim, debt, charge, fee, or other
                obligation in whole or in part;

         (3)    Nuclear risks, as defined in the "Nuclear Incident Exclusion
                Clauses - Liability - Reinsurance - U.S.A. and Canada", "Nuclear
                Incident Exclusion Clause - Physical Damage - Reinsurance -
                U.S.A. and Canada", "Nuclear Incident Exclusion Clauses -
                Physical Damage and Liability (Boiler and Machinery) -
                Reinsurance - U.S.A., and Canada", and the "Nuclear Energy Risks
                Exclusions Clause - Reinsurance - Worldwide excluding U.S.A. and
                Canada", attached hereto; and

         (4)    War risks as follows:

                As regards interests which at time of loss or damage are on
                shore, no liability shall attach hereto in respect of 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.

                This War Exclusion Clause shall not, however, apply to interests
                which at time of loss or damage are within the territorial
                limits of the United States of America (comprising the fifty
                States of the Union and the District of Columbia, its
                territories and possessions including the Commonwealth of Puerto
                Rico and including Bridges between the U.S.A. and Mexico
                provided they are under United States ownership), Canada, St.
                Pierre and Miquelon, provided such interests are insured under
                policies endorsements or binders containing a standard war or
                hostilities or warlike operations exclusion clause.

                                      -8-
<PAGE>

                Nevertheless, this clause shall not be construed to apply to
                riots, strikes, civil commotion, vandalism, malicious damage
                including acts committed by the agent of any government, party
                or faction engaged in war, hostilities, or other warlike
                operation, providing such agent is acting secretly and not in
                connection with any operations of military or naval armed forces
                in the country where the interest insured is situated.

ARTICLE XI  -  MANAGEMENT OF CLAIMS AND LOSSES

The Company shall investigate and settle or defend all claims and losses. When
requested by the Reinsurer, the Company shall permit the Reinsurer, at the
expense of the Reinsurer, to be associated with the Company in the defense or
control of any claim, loss, or legal proceeding which involves or is likely to
involve the Reinsurer. All payments of claims or losses by the Company within
the terms and limits of its policies which are within the limits set forth
herein shall be binding on the Reinsurer, subject to the terms of this
Agreement.

However, the Company shall obtain the Reinsurer's prior approval with respect to
(i) any one settlement in excess of $10,000,000 and (ii) every settlement in
excess of $3,000,000, once the aggregate of all settlements in excess of
$10,000,000 made after the Closing Date reaches $40,000,000. In determining
whether the Reinsurer's prior approval is required hereunder, settlements are
calculated net of any other reinsurance, deductibles, or self-insured retentions
(all three preceding items, whether collectible or not). If the Company
permanently waives all of its Layer Two recoveries from the Reinsurer in writing
then no such prior approval of settlements is required.

ARTICLE XII  -  RECOVERIES

The Company shall pay to or credit the Reinsurer with the Reinsurer's portion of
any recovery obtained from salvage, subrogation, or other insurance.

The Reinsurer shall be subrogated to the rights of the Company to the extent of
its loss payments to the Company. The Company agrees to enforce its rights of
salvage, subrogation, and its rights against insurers.

ARTICLE XIII  -  OTHER REINSURANCE

Except for any reinsurance on business covered in the Reference Document, the
Company will not enter into or modify reinsurance arrangements on or after
December 31, 2000, which cover accident years 2000 and prior without the
Reinsurer's approval, which shall not be unreasonably withheld. However, the
Reinsurer's approval shall not be necessary for any modification to reinsurance
arrangements covering accident years 2000 and prior, as long as such
modification has absolutely no impact on the Reinsurer's liability and the
Reinsurer's Economic Loss in this Agreement. Further, if there are no
Significant Negative Results, the Reinsurer's approval on reinsurance
arrangements covering accident years 2000 and prior, shall not be required after
December 31, 2007.

To be covered under Layer Two, the Company may not enter any reinsurance
agreement(s) structured to potentially generate individually or in the aggregate
more than $200,000,000 of before-tax 2001 income (under either GAAP or SAP),
without the Reinsurer's approval,

                                      -9-

<PAGE>

which shall not be unreasonably withheld. Such agreement(s) include but would
not be limited to loss portfolio transfers, stop loss agreements, and finite
quota share agreements.

If changes are made in the Reference Document, this Agreement shall continue to
apply as if such changes had not been made.

ARTICLE XIV  -  REINSURANCE PREMIUM

The Company shall pay the following reinsurance premiums to the Reinsurer on the
Closing Date:

         (1)    A Layer One reinsurance premium of $235,000,000;

         (2)    A Layer Two reinsurance premium of $40,000,000.

In addition, within 90 days after the close of each calendar quarter after the
Closing Date until the quarter ending December 31, 2002, the Company shall pay
to the Reinsurer additional reinsurance premiums equal to net premiums received
during the quarter for retrospectively rated insurance policies written on the
Business Covered and which is incurred on or after the Closing Date. However,
the Company may elect not to pay any such additional reinsurance premium
("Optional Retrospective Premium") and such election shall affect the
calculation of Economic Loss.

ARTICLE XV  -  REPORTS AND REMITTANCES

         (a)    CLAIMS AND LOSSES

                Within 30 days after the close of each calendar quarter, the
                Company shall render to the Reinsurer a report of the Ultimate
                Net Loss paid by the Company during the quarter on the Business
                Covered and the Reinsurer's portion, if any, thereof. Any amount
                payable by the Reinsurer to the Company shall be paid within 15
                business days after receipt of such report.

         (b)    GENERAL

                In addition to the reports required by (a) above, 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 on forms or in format acceptable
                to the Company and the Reinsurer.

ARTICLE XVI  -  OPTION FOR ADDITIONAL CEDED BUSINESS

If there are Significant Negative Results, the Reinsurer or its assignee has the
option, but not the obligation, (the "Reinsurer's Option") to require any or all
of the insurers comprising the Company to enter into a first dollar quota share
reinsurance agreement with the Reinsurer

                                      -10-

<PAGE>

or its assignee (the "Quota Share Agreement") of up to 25% covering one or more
of the following lines of business in territories selected by the Reinsurer or
its assignee: Auto Liability, Auto Physical Damage, Homeowners, Other Liability,
Commercial Multiple Peril, Property, Inland Marine, and Umbrella. Such Quota
Share Agreement shall pass risk transfer tests under GAAP and SAP risk transfer
guidelines.

The ceding commission shall equal the ratio of prior year acquisition cost to
written premium corresponding to the included lines of business, territories and
selected companies, but shall be no more than 16% in the aggregate. The
Reinsurer or its assignee has the sole discretion to select the lines of
business, territories, companies and the quota share percentages to assume which
it may prospectively modify on an annual basis, within the parameters of this
provision. The Quota Share Agreement shall terminate on January 1, 2007.

The Reinsurer's Option will expire when and if the Company has paid Optional
Retrospective Premium of $40,000,000 or greater.

ARTICLE XVII  -  COMMUTATION

The Company may commute this Agreement at December 31, 2007, or any subsequent
December 31 (the date selected being the "Commutation Date"), provided that
there are no Significant Negative Results, by giving 60 days written notice to
the Reinsurer by certified or registered mail. The commutation shall be
effective upon:

         (1)    Payment of the Experience Balance, as defined below, by the
                Reinsurer to the Company on or before the Commutation Date, and

         (2)    Delivery by the Company to the Reinsurer of a signed release in
                a form satisfactory to the Reinsurer, on or before the
                Commutation Date.

For purposes of this Article, the Experience Balance shall equal:

         (a)    The reinsurance premium (including Optional Retrospective
                Premium) paid under the Agreement by the Company through the
                date of evaluation; less

         (b)    The Reinsurer's fee of $8,000,000, plus 5% of the highest loss
                and Allocated and Unallocated Loss Adjustment Expense ceded at
                any point in time in excess of $490,000,000; less

         (c)    The Reinsurer's payments of Ultimate Net Loss to the Company
                under this Agreement through the date of evaluation; plus

         (d)    The investment income on the amount, if any, by which (a) above
                and previous investment income credits exceeds the sum of (b)
                and (c) above, based on an effective yield equivalent to one
                year United States Treasury bills on the Closing Date, and
                annually thereafter.

ARTICLE XVIII  -  WARRANTY

                                      -11-
<PAGE>

The Company warrants that it applies consistent accounting practices for carried
reserves with those carried at the Closing Date.

ARTICLE XIX  -  ERRORS AND OMISSIONS

The Reinsurer shall not be relieved of liability because of an error or
accidental omission of the Company in reporting any claim or loss or any
business reinsured under this Agreement, provided that the error or omission is
rectified promptly after discovery. If the error or omission relates to the
proper amount of reserves intended to have been recorded at the Closing Date, as
a result of an arithmetic error, the Company Retention shall be recalculated
accordingly.

ARTICLE XX  -  SPECIAL ACCEPTANCES

Business not within the terms of this Agreement may be submitted to the
Reinsurer for special acceptance and, if accepted by the Reinsurer, shall be
subject to all of the terms of this Agreement except as modified by the special
acceptance.

ARTICLE XXI  -  RESERVES AND TAXES

The Reinsurer shall maintain the required reserves as to the Reinsurer's portion
of unearned premium, if any, claims, losses, and Allocated and Unallocated Loss
Adjustment Expense.

The Company shall be liable for all premium taxes on premium ceded to the
Reinsurer under this Agreement. If the Reinsurer is obligated to pay any premium
taxes on this premium, the Company shall reimburse the Reinsurer; however, the
Company shall not be required to pay taxes twice on the same premium.

ARTICLE XXII  -  OFFSET

The Company or the Reinsurer may offset any balance, whether on account of
premium, commission, claims or losses, Allocated and Unallocated Loss Adjustment
Expense, salvage, or otherwise, due from one party to the other under this
Agreement or under any other agreement heretofore or hereafter entered into
between the Company and the Reinsurer.
ARTICLE XXIII  -  INSPECTION OF RECORDS

The Company shall allow the Reinsurer or its assignee to inspect, at reasonable
times, the records of the Company relevant to the business reinsured under this
Agreement, including the Company's files concerning claims, losses, or legal
proceedings which involve or are likely to involve the Reinsurer.

ARTICLE XXIV  -  ARBITRATION

All unresolved differences of opinion between the Company and the Reinsurer or
its assignee relating to this Agreement, including its formation and validity,
shall be submitted

                                      -12-

<PAGE>

to arbitration consisting of one arbitrator chosen by the Company, one
arbitrator chosen by the Reinsurer or its assignee, and a third arbitrator
chosen by the first two arbitrators.

The party demanding arbitration shall communicate its demand for arbitration to
the other party by registered or certified mail, identifying the nature of the
dispute and the name of its arbitrator, and the other party shall then be bound
to name its arbitrator within 30 days after receipt of the demand.

Failure or refusal of the other party to so name its arbitrator shall empower
the demanding party to name the second arbitrator. If the first two arbitrators
are unable to agree upon a third arbitrator after the second arbitrator is
named, each arbitrator shall name three candidates, two of whom shall be
declined by the other arbitrator, and the choice shall be made between the two
remaining candidates by drawing lots. The arbitrators shall be impartial and
shall be active or retired officers of property or casualty insurance or
reinsurance companies.

The arbitrators shall adopt their own rules and procedures and are relieved from
judicial formalities. In addition to considering the rules of law and the
customs and practices of the insurance and reinsurance business, the arbitrators
shall make their award with a view to effecting the intent of this Agreement.

The decision of the majority of the arbitrators shall be in writing and shall be
final and binding upon the parties.

Each party shall bear the cost of its own arbitrator and shall jointly and
equally bear with the other party the expense of the third arbitrator and other
costs of the arbitration. In the event both arbitrators are chosen by one party,
the fees of all arbitrators shall be equally divided between the parties.

The arbitration shall be held at the times and places agreed upon by the
arbitrators.

ARTICLE XXV  -  INSOLVENCY OF THE COMPANY

In the event of the insolvency of the Company, the reinsurance proceeds will be
paid to the Company or the liquidator, with reasonable provision for
verification, on the basis of the claim allowed in the insolvency proceeding
without diminution by reason of the inability of the Company to pay all or part
of the claim, except as otherwise specified in the statutes of any state having
jurisdiction of the insolvency proceedings or except where the Agreement, or
other written agreement, specifically provides another payee of such reinsurance
in the event of insolvency.

The Reinsurer shall be given written notice of the pendency of each claim
against the Company on the policy(ies) reinsured hereunder within a reasonable
time after such claim is filed in the insolvency proceedings. The Reinsurer
shall have the right to investigate each such claim and to interpose, at its own
expense, in the proceeding where such claim is to be adjudicated, any defenses
which it may deem available to the Company or its liquidator. The expense thus
incurred by the Reinsurer shall be chargeable, subject to court approval,
against the insolvent Company as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the Company
solely as a result of the defense undertaken by the Reinsurer.

                                      -13-
<PAGE>

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

this               day of                                     , 200__,
     -------------        ------------------------------------

                                    CGU INSURANCE COMPANY
                                    and its affiliated companies

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

Attest:
         -----------------------------------

and this           day of                                     , 200__.
         ---------        ------------------------------------

                                    POTOMAC INSURANCE COMPANY

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

Attest:
         -----------------------------------

                                      -14-

<PAGE>

                                TABLE OF CONTENTS

                                       to
                               ADVERSE DEVELOPMENT
                            AGREEMENT OF REINSURANCE
                                     between
                              CGU INSURANCE COMPANY
                                       and
                            POTOMAC INSURANCE COMPANY

<TABLE>
<CAPTION>
                                                                                                      PAGE
<S>                                                                                                   <C>

Article I         CONDITIONS PRECEDENT..................................................................2
Article II        SCOPE OF AGREEMENT....................................................................2
Article III       PARTIES TO THE AGREEMENT..............................................................2
Article IV        BUSINESS COVERED......................................................................2
Article V         TERM..................................................................................2
Article VI        COMPANY RETENTION.....................................................................3
Article VII       LIABILITY OF THE REINSURER............................................................3
Article VIII      LAYER TWO SUNSET PROVISION............................................................4
Article IX        DEFINITIONS...........................................................................4
Article X         EXCLUSIONS............................................................................8
Article XI        MANAGEMENT OF CLAIMS AND LOSSES.......................................................9
Article XII       RECOVERIES............................................................................9
Article XIII      OTHER REINSURANCE.....................................................................9
Article XIV       REINSURANCE PREMIUM..................................................................10
Article XV        REPORTS AND REMITTANCES..............................................................10
Article XVI       OPTION FOR ADDITIONAL CEDED BUSINESS.................................................11
Article XVII      COMMUTATION..........................................................................11
Article XVIII     WARRANTY.............................................................................12
Article XIX       ERRORS AND OMISSIONS.................................................................12
Article XX        SPECIAL ACCEPTANCES..................................................................12
Article XXI       RESERVES AND TAXES...................................................................12
Article XXII      OFFSET...............................................................................12
Article XXIII     INSPECTION OF RECORDS................................................................13
Article XXIV      ARBITRATION..........................................................................13
Article XXV       INSOLVENCY OF THE COMPANY............................................................13
</TABLE>

                                      -15-

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