Document:

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                                                                    EXHIBIT 10.4

                                  $15,000,000

                                   InCapS(SM)

                               APCAPITAL TRUST II

                               PLACEMENT AGREEMENT

                                                              New York, New York
                                                                    May 13, 2003

SANDLER O'NEILL & PARTNERS, L.P.
919 Third Avenue
6th Floor
New York, New York 10022

Ladies and Gentlemen:

                  APCapital Trust II (the "Trust"), a statutory trust organized
under the Delaware Statutory Trust Act, 12 Del. C. Section 3801 et seq. (the
"Delaware Act") and American Physicians Capital, Inc., a Michigan corporation
(the "Company" and together with the Trust, the "Offerors"), confirm their
agreement (the "Agreement") with Sandler O'Neill & Partners, L.P., as agent of
the Offerors (the "Placement Agent"), with respect to the issue and sale by the
Trust and the placement by the Placement Agent of 15,000 InCapSSM (liquidation
amount of $1,000 per security) of the Trust (the "Capital Securities"). The
Capital Securities will be guaranteed by the Company to the extent provided in
the Guarantee Agreement, to be dated as of the Closing Date (as defined in
Section 2(a) hereof) (the "Guarantee Agreement"), between the Company, as
guarantor, and Wilmington Trust Company, as guarantee trustee (the "Guarantee
Trustee"), with respect to distributions and payments upon liquidation,
redemption and otherwise.

                  The entire proceeds from the sale of the Capital Securities
will be combined with the entire proceeds from the sale by the Trust to the
Company of its common securities (the "Common Securities"), and will be used by
the Trust to purchase $15,464,000 aggregate principal amount of Floating Rate
Junior Subordinated Debt Securities due 2033 (the "Subordinated Debt
Securities") issued by the Company. The Capital Securities and the Common
Securities will be issued pursuant to the Amended and Restated Declaration of
Trust, to be dated as of the Closing Date (the "Declaration"), among the
Company, as sponsor, the Administrators named therein (the "Administrators"),
Wilmington Trust Company, as institutional trustee (the "Institutional
Trustee"), Wilmington Trust Company, as Delaware trustee (the "Delaware
Trustee"), and the holders, from time to time, of undivided beneficial interests
in the assets of the Trust. The Subordinated Debt Securities will be issued
pursuant to the Indenture, to be dated as of the Closing Date (the "Indenture"),
between the Company and Wilmington Trust Company, as indenture trustee (the
"Indenture Trustee"). The Indenture, the Guarantee Agreement, the Declaration,
this Agreement and the Subscription Agreement (as defined in Section 2(a)
hereof) are hereinafter referred to collectively as the "Operative Documents."

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                  SECTION 1. Representations and Warranties.

                  (a) The Trust and the Company, jointly and severally,
represent and warrant to the Placement Agent and the Purchaser (as defined in
Section 2(a) hereof) of Capital Securities as of the date hereof and as of the
Closing Date, and agree with the Placement Agent and the Purchaser, as follows:

                           (i) Similar Offerings. Within a period of six months
before or after the date hereof, the Offerors have not, directly or indirectly,
solicited any offer to buy or offered to sell, and will not, directly or
indirectly, solicit any offer to buy or offer to sell, in the United States or
to any United States citizen or resident, any security which is or would be
integrated with the sale of the Capital Securities (including any securities of
the same or a similar class as the Capital Securities, other than the Capital
Securities) in a manner that would require the Capital Securities to be
registered under the Securities Act of 1933, as amended (the "1933 Act").

                           (ii) Incorporated Documents. The documents of the
Company filed with the Securities and Exchange Commission (the "Commission") in
accordance with the Securities Exchange Act of 1934, as amended (the "1934
Act"), from and including the commencement of the fiscal year covered by the
Company's most recent Annual Report on Form 10-K, at the time they were or
hereafter are filed by the Company with the Commission (collectively, the "1934
Act Reports"), complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations of the Commission
thereunder (the "1934 Act Regulations"), and, at the date of this Agreement and
on the Closing Date, do not and will not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and other than such instruments,
agreements, contracts and other documents as are filed as exhibits to the
Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q or Current
Reports on Form 8-K, there are no instruments, agreements, contracts or
documents of a character described in Item 601 of Regulation S-K promulgated by
the Commission to which the Company or any of its subsidiaries is a party.

                           (iii) Independent Accountants. The accountants of the
Company who certified the financial statements included in the 1934 Act Reports
(the "Independent Accountants") are independent public accountants of the
Company and its subsidiaries within the meaning of the 1933 Act and the rules
and regulations of the Commission thereunder (the "1933 Act Regulations").

                           (iv) Financial Statements and Information. The
consolidated historical financial statements of the Company, together with the
related schedules and notes, included in the 1934 Act Reports present fairly, in
all material respects, the respective consolidated financial positions of the
Company and its consolidated subsidiaries at the respective dates indicated, and
the consolidated statements of income, changes in stockholders' equity and cash
flows of the Company and its consolidated subsidiaries for the respective
periods specified; said financial statements have been prepared in conformity
with generally accepted accounting principles in the United States applied on a
consistent basis throughout the periods involved, except as

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disclosed in the notes to such financial statements; the supporting schedules,
if any, included in the 1934 Act Reports present fairly, in all material
respects, the information required to be stated therein and any pro forma
financial statements and the related notes thereto included in the 1934 Act
Reports present fairly the information shown therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to pro forma
financial statements and have been properly compiled on the bases described
therein, and the assumptions used in the preparation thereof are reasonable and
the adjustments used therein are appropriate to give effect to the transactions
and circumstances referred to therein; the statutory financial statements of
each of its insurance subsidiaries (the "Insurance Subsidiaries") as filed with
the applicable insurance regulatory authorities in the jurisdiction in which
each such Insurance Subsidiary is organized (each such regulatory authority, a
"State Regulatory Authority") for the years ended December 31, 2002, 2001 and
2000 and for any quarters ended subsequent to December 31, 2002, including all
supporting documents filed therewith (collectively, the "Insurance Subsidiary
Financial Statements"): (i) have been prepared in accordance with statutory
accounting principles promulgated by the National Association of Insurance
Commissioners, as applied, with respect to each Insurance Subsidiary, by the
applicable State Regulatory Authority of such entity, consistently applied for
the periods covered thereby and present fairly the statutory financial position
of such Insurance Subsidiaries as at the respective dates thereof and the
results of operations of such Insurance Subsidiaries for the respective periods
then ended; and (ii) complied in all material respects with all applicable laws,
rules and regulations when filed, and, to the knowledge of the Company, no
material deficiency has been asserted with respect to any Insurance Subsidiary
Financial Statements by any applicable Regulatory Agency. As used herein, the
term "Regulatory Agency" means any federal or state agency charged with the
supervision or regulation of insurance companies, or any court, administrative
agency or commission or other governmental agency, authority or instrumentality
having supervisory or regulatory authority with respect to the Company or any of
its subsidiaries.

                           (v) No Material Adverse Change. Since the respective
dates as of which information is given in the 1934 Act Reports, there has not
been (A) any material adverse change in the condition, financial, regulatory or
otherwise, or in the earnings, business affairs or business prospects of the
Trust or of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business (a "Material Adverse
Effect") or (B) any dividend or distribution of any kind declared, paid or made
by the Company on any class of its capital stock other than regular dividends on
the Company's common stock declared and paid consistent with past practice.

                           (vi) Internal Controls. Each of the Company and its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with the management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with the
management's general or specific authorization, (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences, (v) material
information relating to the Company and its subsidiaries is made known to
management, (vi) management has evaluated the effectiveness of such internal
accounting controls and (vii) management has disclosed to the Independent
Accountants and the audit

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committee (A) all significant deficiencies in the design or operation of
internal controls which could adversely affect the ability of the Company and
its subsidiaries to record, process, summarize, and report financial data, and
have identified for the Independent Accountants any material weaknesses in
internal controls and (B) any fraud, whether or not material, that involves
management or other employees who have a significant role in the internal
controls of the Company and its subsidiaries, and any such deficiencies or fraud
would not, singularly or in the aggregate, be expected to result in a Material
Adverse Effect.

                           (vii) Regulatory Matters. Neither the Company nor any
of its subsidiaries is subject or is party to, or has received any notice or
advice that any of them may become subject or party to any investigation with
respect to, any corrective, suspension or cease-and-desist order, agreement,
consent agreement or other regulatory enforcement action, proceeding or order
with or by, or is a party to any commitment letter or similar undertaking to, or
is subject to any directive by, or has been a recipient of any supervisory
letter from, or has adopted any board resolutions at the request of, any
Regulatory Agency that currently relates to or restricts in any material respect
their business or that in any manner relates to their capital and surplus
adequacy or their management (each, a "Regulatory Agreement"), nor has the
Company or any of its subsidiaries been advised by any Regulatory Agency that it
is considering issuing or requesting any such Regulatory Agreement; there is no
unresolved violation, criticism or exception by any Regulatory Agency with
respect to any report or statement relating to any examinations of the Company
or any of its subsidiaries which, in the reasonable judgment of the Company, is
expected to result in a Material Adverse Effect; and without limiting the
generality of the foregoing, there are no restrictions or limitations on the
authority of any Insurance Subsidiary to pay dividends, other than general
restrictions and limitations applicable to all insurance companies domiciled in
the state of organization of such Insurance Subsidiary pursuant to applicable
law.

                           (viii) No Undisclosed Liabilities. Neither the
Company nor any of its subsidiaries has any material liability, whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, and whether due or to
become due, including any liability for taxes (and there is no past or present
fact, situation, circumstance, condition or other basis for any present or
future action, suit, proceeding, hearing, charge, complaint, claim or demand
against the Company or its subsidiaries giving rise to any such liability),
except (i) for liabilities set forth in the financial statements referred to in
Section 1(a)(iv) above and (ii) normal fluctuations in the amount of the
liabilities referred to in clause (i) above occurring in the ordinary course of
business of the Company and all of its subsidiaries since the date of the most
recent balance sheet included in such financial statements.

                           (ix) Insurance Reserving Practices. The Company and
its have made no material change in their insurance reserving practices since
the respective dates as of which information is given in the 1934 Act Reports.

                           (x) Reinsurance Treaties. All reinsurance and
retrocessional treaties, contracts, agreements and arrangements to which any
Insurance Subsidiary is a party are in full force and effect and no Insurance
Subsidiary is in violation of, or in default in the performance, observance or
fulfillment of, any obligation, agreement, covenant or condition contained
therein,

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with such exceptions that would not, singularly or in the aggregate, have a
Material Adverse Effect; no Insurance Subsidiary has received any notice from
any of the other parties to such treaties, contracts, agreements or arrangements
that such other party intends not to perform thereunder; and, to the best
knowledge of the Company and the Insurance Subsidiaries, none of the other
parties to such treaties, contracts, agreements or arrangements will be unable
to perform thereunder except to the extent adequately and properly reserved for
in the consolidated financial statements of the Company, with such exceptions
that would not, singularly or in the aggregate, have a Material Adverse Effect.

                           (xi) Good Standing of the Company. The Company has
been duly organized and is validly existing as a corporation in good standing
under the laws of the State of Michigan and has full power and authority under
such laws to own, lease and operate its properties and to conduct its business,
to enter into and perform its obligations under each of the Operative Documents
to which it is a party, and to issue the Subordinated Debt Securities.

                           (xii) Good Standing of the Subsidiaries. Each
"significant subsidiary" (as defined in Rule 1-02 of Regulation S-X) of the
Company (a "Significant Subsidiary") and each Insurance Subsidiary has been duly
organized and is validly existing as an entity in good standing under the laws
of the jurisdiction in which it is chartered and has full power and authority
under such laws to own, lease and operate its properties and to conduct its
current and contemplated business.

                           (xiii) Foreign Qualifications. Each of the Company
and its subsidiaries is duly qualified as a foreign entity to transact business
and is each in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure to be so qualified would not
singularly, or in the aggregate, in the reasonable judgment of the Company, be
expected to result in a Material Adverse Effect.

                           (xiv) Capital Stock Duly Authorized and Validly
Issued. All of the issued and outstanding capital stock of the Company has been
duly authorized and validly issued and is fully paid and nonassessable; all of
the issued and outstanding capital stock of each subsidiary of the Company has
been duly authorized and validly issued, is fully paid and nonassessable and is
owned by the Company, directly or through subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equitable
right; and none of the issued and outstanding capital stock of the Company or
its Significant Subsidiaries was issued in violation of any preemptive or
similar rights arising by operation of law, under the charter, by-laws or code
of regulations of the Company or any of its Significant Subsidiaries or under
any agreement to which the Company or any of its Significant Subsidiaries is a
party.

                           (xv) Good Standing of the Trust. The Trust has been
duly created and is validly existing in good standing as a statutory trust under
the Delaware Act with the power and authority to own property and to conduct its
business as provided in the Declaration, to enter into and perform its
obligations under the Operative Documents to which it is a party, and to issue
the Capital Securities and the Common Securities; the Trust is not a party to or
otherwise bound by any agreement other than the Operative Documents to which it
is a party; and the Trust

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is, and will be, under current law, classified for United States federal income
tax purposes as a grantor trust and not as an association taxable as a
corporation.

                           (xvi) Authorization of Common Securities. On the
Closing Date, the Common Securities will have been duly authorized for issuance
by the Trust pursuant to the Declaration and, when duly issued and executed in
accordance with the Declaration and delivered by the Trust to the Company
against payment therefor in accordance with the subscription agreement therefor,
will be validly issued and fully paid and nonassessable undivided common
beneficial ownership interests in the assets of the Trust; the issuance of the
Common Securities is not subject to preemptive or other similar rights; and on
the Closing Date, all of the issued and outstanding Common Securities of the
Trust will be owned directly by the Company, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equitable right.

                           (xvii) Authorization of Capital Securities. On the
Closing Date, the Capital Securities will have been duly authorized for issuance
by the Trust pursuant to the Declaration and, when duly issued, executed and
authenticated in accordance with the Declaration and delivered by the Trust
against payment therefor as provided herein and in the Subscription Agreement,
will be validly issued and fully paid and nonassessable undivided preferred
beneficial ownership interests in the assets of the Trust; the issuance of the
Capital Securities will not be subject to preemptive or other similar rights;
and the Capital Securities will be in the form contemplated by, and entitled to
the benefits of, the Declaration.

                           (xviii) Authorization of this Agreement. This
Agreement has been duly authorized, executed and delivered by each of the
Offerors.

                           (xix) Authorization of Declaration. The Declaration
has been duly authorized by the Company and, on the Closing Date, will have been
duly executed and delivered by the Company and the Administrators, and assuming
due authorization, execution and delivery of the Declaration by the
Institutional Trustee and the Delaware Trustee, the Declaration will constitute
a valid, legal and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except to the extent that enforceability
may be limited by (a) bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect relating
to creditors' rights generally and (b) general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in equity)
(collectively, the "Enforceability Exceptions").

                           (xx) Authorization of Guarantee Agreement. The
Guarantee Agreement has been duly authorized by the Company and, on the Closing
Date, will have been duly executed and delivered by the Company, and assuming
due authorization, execution and delivery of the Guarantee Agreement by the
Guarantee Trustee, the Guarantee Agreement will constitute a valid, legal and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except to the extent that enforceability may be limited by the
Enforceability Exceptions.

                           (xxi) Authorization of Indenture. The Indenture has
been duly authorized by the Company and, on the Closing Date, will have been
duly executed and

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delivered by the Company, and assuming due authorization, execution and delivery
of the Indenture by the Indenture Trustee, the Indenture will constitute a
valid, legal and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except to the extent that enforceability
may be limited by the Enforceability Exceptions.

                           (xxii) Authorization of Subordinated Debt Securities.
The Subordinated Debt Securities have been duly authorized by the Company; on
the Closing Date, the Subordinated Debt Securities will have been duly executed
by the Company and, when authenticated in the manner provided for in the
Indenture and delivered by the Company to the Trust against payment therefor as
contemplated in the subscription agreement therefor, will constitute valid,
legal and binding obligations of the Company, enforceable against the Company in
accordance with their terms, except to the extent that enforceability may be
limited by the Enforceability Exceptions; the Subordinated Debt Securities will
be in the form contemplated by, and entitled to the benefits of, the Indenture;
and the Company has no present intention to exercise its option to defer
payments of interest on the Subordinated Debt Securities as provided in the
Indenture.

                           (xxiii) Authorization of Administrators. Each of the
Administrators of the Trust is an officer or employee of the Company and has
been duly authorized by the Company to execute and deliver the Declaration.

                           (xxiv) Not an Investment Company. Neither the Trust
nor the Company is, and immediately following consummation of the transactions
contemplated hereby and the application of the net proceeds therefrom neither
the Trust nor the Company will be, an "investment company" or an entity
"controlled" by an "investment company", in each case within the meaning of
Section 3(a) of the Investment Company Act of 1940, as amended (the "1940 Act"),
without regard to Section 3(c) of the 1940 Act.

                           (xxv) Absence of Defaults and Conflicts. The Trust is
not in violation of the trust certificate of the Trust filed with the State of
Delaware (the "Trust Certificate") or the Declaration, and neither the Company
nor any of its Significant Subsidiaries or Insurance Subsidiaries is in
violation of its charter, by-laws or code of regulations; none of the Trust, the
Company or any subsidiary of the Company is in default in the performance or
observance of any obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or other agreement or instrument to which it is a party or by which it or
any of them may be bound or to which any of its properties or assets is subject
(collectively, "Agreements and Instruments"), except for such defaults under
Agreements and Instruments that, in the reasonable judgment of the Company, are
not expected to result in a Material Adverse Effect; and the execution, delivery
and performance of the Operative Documents by the Trust or the Company, as the
case may be, the issuance, sale and delivery of the Capital Securities and the
Subordinated Debt Securities, the consummation of the transactions contemplated
by the Operative Documents, and compliance by the Trust and the Company with the
terms of the Operative Documents to which they are a party have been duly
authorized by all necessary corporate action on the part of the Company and, on
the Closing Date, will have been duly authorized by all necessary action on the
part of the Trust and do not and will not, whether with or without the giving of
notice or passage of time or both, violate, conflict with or constitute a breach
of, or default or Repayment Event (as defined below) under,

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or result in the creation or imposition of any, security interest, mortgage,
pledge, lien, charge, encumbrance, claim or equitable right upon any properties
or assets of the Trust or the Company or any of its Significant Subsidiaries or
Insurance Subsidiaries pursuant to any of the Agreements and Instruments, nor
will such action result in any violation of the provisions of the charter,
by-laws or code of regulations of the Company or any of its Significant
Subsidiaries or Insurance Subsidiaries or the Declaration or the Trust
Certificate, or violation by the Company or any of its Significant Subsidiaries
or Insurance Subsidiaries of any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government authority, agency
(including, without limitation, each applicable Regulatory Agency) or
instrumentality or court, domestic or foreign, having jurisdiction over the
Trust or the Company or any of its Significant Subsidiaries or Insurance
Subsidiaries or their respective properties or assets (collectively,
"Governmental Entities"). As used herein, a "Repayment Event" means any event or
condition which gives the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right to require
the repurchase, redemption or repayment of all or a portion of such indebtedness
by the Trust or the Company or any of its Significant Subsidiaries or Insurance
Subsidiaries prior to its scheduled maturity.

                           (xxvi) Absence of Labor Dispute. No labor dispute
with the employees of the Company or any of its subsidiaries exists or, to the
knowledge of the executive officers of the Company, is imminent, which, in the
reasonable judgment of the Company, is expected to result in a Material Adverse
Effect.

                           (xxvii) Absence of Proceedings. There is no action,
suit, proceeding, inquiry or investigation (including, without limitation, any
action to revoke or deny renewal of any Insurance License (as defined in
paragraph (xxix) below)) before or brought by any Governmental Entity, now
pending, or, to the knowledge of the Trust or the Company, threatened, against
or affecting the Trust or the Company or any of its subsidiaries, which, in the
reasonable judgment of the Trust or the Company is expected to result in a
Material Adverse Effect or materially and adversely affect the consummation of
the transactions contemplated by the Operative Documents or the performance by
the Trust, the Company or any Insurance Subsidiary of its obligations hereunder
or thereunder; and the aggregate of all pending legal or governmental
proceedings to which the Trust or the Company or any of its subsidiaries is a
party or of which any of their respective properties or assets is the subject,
including ordinary routine litigation incidental to the business, are not, in
the reasonable judgment of the Company or the Trust, expected to result in a
Material Adverse Effect.

                           (xxviii) Absence of Further Requirements. No filing
with, or authorization, approval, consent, license, order, registration,
qualification or decree of, any Governmental Entity, other than those that have
been made or obtained, is necessary or required for the authorization,
execution, delivery or performance by the Trust or the Company of their
respective obligations under the Operative Documents, the Subordinated Debt
Securities or the Capital Securities, as applicable, or the consummation by the
Trust or the Company of the transactions contemplated by the Operative
Documents.

                           (xxix) Possession of Licenses and Permits. Each of
the Trust, the Company and the subsidiaries of the Company, other than any
Insurance Subsidiary, possesses such permits, orders, certificates, licenses,
approvals, consents and other authorizations

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(collectively, "Governmental Licenses") issued by the appropriate Governmental
Entities necessary to conduct the business now operated by it, with such
exceptions that would not, in the reasonable judgment of the Company, be
expected to, singularly or in the aggregate, have a Material Adverse Effect;
each Insurance Subsidiary is duly licensed or authorized (including, without
limitation, from its applicable State Regulatory Authority) as an insurer in
each jurisdiction where it is required to be so licensed or authorized to
conduct its business (collectively "Insurance Licenses"), with such exceptions
that would not, in the reasonable judgment of the Company, be expected to,
singularly or in the aggregate, have a Material Adverse Effect; each of the
Trust, the Company and the subsidiaries of the Company is in compliance with the
terms and conditions of all of its Governmental Licenses and Insurance Licenses,
as applicable, except where the failure so to comply, in the reasonable judgment
of the Company, is not expected to, singularly or in the aggregate, have a
Material Adverse Effect; all of the Governmental Licenses and Insurance Licenses
are valid and in full force and effect, except when the invalidity of such
Governmental Licenses or Insurance Licenses or the failure of such Governmental
Licenses or Insurance Licenses to be in full force and effect, in the reasonable
judgment of the Company, is not expected to have a Material Adverse Effect; and
none of the Trust, the Company or any subsidiary of the Company has received any
notice of proceedings, and to the knowledge of the Trust, the Company or any
subsidiary of the Company, there has been no threatened action, suit, proceeding
or investigation, relating to the revocation, termination, suspension or
modification of any such Governmental Licenses or Insurance Licenses which,
singularly or in the aggregate, in the reasonable judgment of the Company or the
Trust, is expected to result in a Material Adverse Effect.

                           (xxx) Title to Property. Each of the Trust, the
Company and the subsidiaries of the Company has good and marketable title to all
of its respective real and personal properties, in each case free and clear of
all liens, encumbrances and defects, except such as, in the reasonable judgment
of the Trust or the Company, singularly or in the aggregate, are not expected to
result in a Material Adverse Effect; and all of the leases and subleases under
which the Trust, the Company or any subsidiary of the Company holds properties
are in full force and effect, except when the failure of such leases and
subleases to be in full force and effect, in the reasonable judgment of the
Company, singularly or in the aggregate, is not expected to have a Material
Adverse Effect, and none of the Trust, the Company or any subsidiary of the
Company has any notice of any claim of any sort that has been asserted by anyone
adverse to the rights of the Trust, the Company or any subsidiary of the Company
under any of the leases or subleases under which the Trust, the Company or any
subsidiary of the Company holds properties, or affecting or questioning the
rights of such entity to the continued possession of the leased or subleased
premises under any such lease or sublease, except when such claim, in the
reasonable judgment of the Company, singularly or in the aggregate, is not
expected to have a Material Adverse Effect.

                           (xxxi) Stabilization. The Company has not taken and
will not take, directly or indirectly, any action designed to, or that might be
reasonably expected to, cause or result in stabilization or manipulation of the
price of the Capital Securities.

                           (xxxii) No General Solicitation. Neither the Trust or
the Company nor any of their Affiliates (as defined in Rule 501(b) under the
1933 Act) or any person acting on its or any of their behalf (other than the
Placement Agent, as to whom the Offerors make no

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representation) has engaged or will engage, in connection with the offering of
the Capital Securities, in any form of general solicitation or general
advertising within the meaning of Rule 502(c) under the 1933 Act.

                           (xxxiii) No Directed Selling Efforts. Neither the
Trust or the Company nor any of their Affiliates or any person acting on its or
any of their behalf (other than the Placement Agent, as to whom the Offerors
make no representation) has engaged or will engage in any directed selling
efforts within the meaning of Regulation S under the 1933 Act ("Regulation S")
with respect to the offering of the Capital Securities.

                           (xxxiv) No Registration. Subject to compliance by the
Placement Agent with the relevant provisions of Section 6 hereof, it is not
necessary in connection with the offer, sale and delivery of the Capital
Securities by the Trust in the manner contemplated by this Agreement to register
the Capital Securities, the guarantee as described in the Guarantee Agreement or
the Subordinated Debt Securities under the 1933 Act or to qualify the
Declaration, the Guarantee Agreement or the Indenture under the Trust Indenture
Act of 1939, as amended.

                           (xxxv) Authorization of Subscription Agreement. The
Subscription Agreement has been duly authorized, executed and delivered by each
of the Offerors, and assuming due authorization, execution and delivery of the
Subscription Agreement by the Purchaser, the Subscription Agreement will
constitute a valid, legal and binding agreement of each of the Offerors,
enforceable against each of the Offerors in accordance with its terms, except to
the extent that enforceability may be limited by the Enforceability Exceptions.

                  (b) Any certificate signed by any Trustee of the Trust or any
duly authorized officer of the Company or any of its subsidiaries and delivered
to the Placement Agent or to counsel for the Placement Agent shall be deemed a
representation and warranty by the Trust or the Company, as the case may be, to
the Placement Agent as to the matters covered thereby.

                  SECTION 2. Sale and Delivery through Placement Agent; Closing.

                  (a) The Offerors propose to issue and sell the Capital
Securities on May 22, 2003 (or such other date mutually agreed to by the
Offerors and the Placement Agent) (the "Closing Date") to InCapS Funding I,
Ltd., a newly formed company with limited liability incorporated under the laws
of the Cayman Islands (the "Purchaser"), pursuant to the terms of the Capital
Securities Subscription Agreement, entered into on the date hereof (the
"Subscription Agreement"), between the Offerors and the Purchaser. In addition,
the Offerors agree that the Purchaser shall be entitled to the benefit of, and
to rely on, the provisions of this Agreement to the extent such provisions
address or relate to the Purchaser or the Capital Securities to be purchased by
the Purchaser.

                  (b) The Offerors hereby grant to the Placement Agent the
exclusive right to arrange the placement of the Capital Securities with the
Purchaser on their behalf. The Placement Agent accepts such right and agrees to
use its best efforts, on and prior to the Closing Date, to effect such
placement.

                  (c) Deliveries of certificates for the Capital Securities
shall be made by the Trust to or on behalf of the Purchaser at the offices of
Sidley Austin Brown & Wood LLP in The

                                       10
<PAGE>

City of New York, and payment of the purchase price for the Capital Securities
shall be made by the Purchaser to the Trust by wire transfer of immediately
available funds to a bank designated by the Company contemporaneous with closing
on the Closing Date.

                  Certificates for the Capital Securities in the aggregate
liquidation amount thereof shall be registered in the name of the Purchaser.

                  (d) As compensation to the Placement Agent for its placement
of the Capital Securities and in view of the fact that the proceeds of the sale
of the Capital Securities will be used to purchase the Subordinated Debt
Securities of the Company, the Company hereby agrees to pay on the Closing Date
to the Placement Agent in immediately available funds a commission of $30.00 per
Capital Security to be delivered by the Trust hereunder on the Closing Date.

                  (e) In performing its duties under this Agreement, the
Placement Agent shall be entitled to rely upon any notice, signature or writing
which the Placement Agent shall in good faith believe to be genuine and to be
signed or presented by a proper party or parties. The Placement Agent may rely
upon any opinions or certificates or other documents delivered by the Offerors
or their counsel or designees either to it or the Purchaser. In addition, in
connection with the performance of its duties under this Agreement, the
Placement Agent shall not be liable for any error of judgment or any action
taken or omitted to be taken unless it was grossly negligent or engaged in
willful misconduct in connection with such performance or non-performance. No
provision of this Agreement shall require the Placement Agent to expend or risk
its own funds or otherwise incur any financial liability on behalf of the
Purchaser in connection with the performance of any of its duties hereunder. The
Placement Agent shall be under no obligation to exercise any of the rights or
powers vested in it by this Agreement.

                  SECTION 3. Notice of Material Events. The Offerors covenant
with the Placement Agent and the Purchaser that, prior to the completion of the
initial placement of the Capital Securities through the Placement Agent, the
Offerors will immediately notify the Placement Agent, and confirm such notice in
writing, of any event or development that, in the reasonable judgment of the
Company, is expected to result in a Material Adverse Effect.

                  SECTION 4. Payment of Expenses. Whether or not this Agreement
or the Subscription Agreement is terminated or the sale of the Capital
Securities is consummated, the Company, as borrower under the Subordinated Debt
Securities, will pay all expenses incident to the performance of its obligations
under this Agreement, including (i) the preparation, issuance and delivery of
the certificates for the Capital Securities and Subordinated Debt Securities,
(ii) the fees and disbursements of the Company's counsel, accountants and other
advisors, and (iii) the fees and disbursements of counsel for any trustee
appointed under any of the Operative Documents incurred on or prior to the
Closing Date.

                  SECTION 5. Conditions of Placement Agent's Obligations. The
obligations of the Placement Agent and the Purchaser on the Closing Date are
subject to the accuracy of the representations and warranties of the Offerors
contained in Section 1 hereof or in certificates of any Administrator of the
Trust or any officer of the Company or any of its subsidiaries delivered
pursuant to the provisions hereof, to the performance by the Offerors of their
obligations hereunder, and to the following further conditions:

                                       11
<PAGE>

                  (a) Opinion of Counsel for the Offerors. On the Closing Date,
the Placement Agent and the Purchaser shall have received the favorable opinion,
dated as of the Closing Date, of Dykema Gossett PLLC, special counsel for the
Offerors, in substantially the form set out in Annex A hereto, in form and
substance reasonably satisfactory to counsel for the Placement Agent. Such
counsel may state that, insofar as such opinion involves factual matters, they
have relied, to the extent they deem proper, upon certificates of Administrators
of the Trust, officers of the Company or any of its subsidiaries and public
officials.

                  (b) Opinion of Special Delaware Counsel for the Trust. On the
Closing Date, the Placement Agent and the Purchaser shall have received the
favorable opinion, dated as of the Closing Date, of Morris, James, Hitchens &
Williams LLP, special Delaware counsel for the Trust, in substantially the form
set out in Annex B hereto, in form and substance reasonably satisfactory to
counsel for the Placement Agent.

                  (c) Opinion of Special Tax Counsel for the Offerors. On the
Closing Date, the Placement Agent and the Purchaser shall have received an
opinion, dated as of the Closing Date, of Dykema Gossett PLLC, special tax
counsel for the Offerors, that (i) the Trust will be classified for United
States federal income tax purposes as a grantor trust and not as an association
taxable as a corporation and (ii) the Subordinated Debt Securities will
constitute indebtedness of the Company for United States federal income tax
purposes, in substantially the form set out in Annex C hereto. Such opinion may
be conditioned on, among other things, the initial and continuing accuracy of
the facts, financial and other information, covenants and representations set
forth in certificates of officers of the Company and other documents deemed
necessary for such opinion.

                  (d) Opinion of Counsel to the Guarantee Trustee, the
Institutional Trustee, the Delaware Trustee and the Indenture Trustee. On the
Closing Date, the Placement Agent and the Purchaser shall have received the
favorable opinion, dated as of the Closing Date, of Morris, James, Hitchens &
Williams LLP, counsel for the Guarantee Trustee, the Institutional Trustee, the
Delaware Trustee and the Indenture Trustee, in substantially the form set out in
Annex D hereto, in form and substance reasonably satisfactory to counsel for the
Placement Agent.

                  (e) Certificates. On the Closing Date, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the 1934 Act Reports, any Material Adverse Effect, and
the Placement Agent shall have received a certificate of the Chairman, the Chief
Executive Officer, the President, any Executive Vice President or any Vice
President of the Company and of the Chief Financial Officer or Chief Accounting
Officer of the Company and a certificate of an Administrator of the Trust, dated
as of the Closing Date, to the effect that (i) there has been no such Material
Adverse Effect, (ii) the representations and warranties in Section 1 hereof were
true and correct when made and are true and correct with the same force and
effect as though expressly made on and as of the Closing Date, and (iii) the
Offerors have complied with all agreements and satisfied all conditions on their
part to be performed or satisfied on or prior to the Closing Date.

                  (f) Maintenance of Ratings. From the date of this Agreement
through the Closing Date, (i) there shall not have occurred a downgrading in or
withdrawal of the rating assigned to the debt securities or preferred stock of
the Trust, the Company or any Insurance

                                       12
<PAGE>

Subsidiary or the financial strength or claims paying ability of the Trust, the
Company or any Insurance Subsidiary, in each case by A.M. Best & Co. or any
"nationally recognized statistical rating organization," as that term is defined
by the Commission for the purposes of Rule 436(g)(2) under the 1933 Act, and
(ii) neither A.M. Best & Co. nor any such organization shall have publicly
announced that it has under surveillance or review its rating of any debt
security, preferred stock or the financial strength or the claims paying ability
of the Trust, the Company or any Insurance Subsidiary.

                  (g) Purchaser's Sale of Securities. The Purchaser shall have
sold securities issued by it in such an amount that the net proceeds therefrom
shall be available on the Closing Date and shall be sufficient to purchase the
Capital Securities and all other capital securities, surplus notes and senior
notes contemplated in agreements similar to this Agreement and the Subscription
Agreement.

                  (h) Additional Documents. On the Closing Date, the Placement
Agent and the Purchaser shall have been furnished such documents and opinions as
they may reasonably request in connection with the issue, sale and placement of
the Capital Securities; and all proceedings taken by the Offerors in connection
with the issuance, sale and placement of the Capital Securities shall be
satisfactory in form and substance to the Placement Agent and the Purchaser.

                  (i) Termination of Agreement. If any condition specified in
this Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement may be terminated by the Placement Agent by notice to the
Offerors at any time on or prior to the Closing Date. If the sale of the Capital
Securities provided for herein is not consummated because any condition set
forth in Section 5(a), (b), (c), (d), (e), (f) or (h) is not satisfied, because
of any termination pursuant to Section 10(a) hereof or because of any refusal,
inability or failure on the part of the Offerors to perform any agreement herein
or comply with any provision hereof, the Company will reimburse the Placement
Agent upon demand for all documented out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
the Placement Agent in connection with the proposed offering of the Capital
Securities. In addition, such termination shall be subject to Section 4 hereof,
and Sections 7 and 8 hereof shall survive any such termination and remain in
full force and effect.

                  SECTION 6. Offers and Sales of the Capital Securities.

                  (a) Offer and Sale Procedures. The Placement Agent and the
Offerors hereby establish and agree to observe the following provisions with
respect to the offer, issue, sale and placement of the Capital Securities:

                           (i) Offers and Sales only to the Purchaser. Offers
and sales of the Capital Securities will be made only to the Purchaser in a
transaction not requiring registration under the 1933 Act.

                           (ii) No General Solicitation. No general solicitation
or general advertising (within the meaning of Rule 502(c) under the 1933 Act)
has been or will be used in connection with the offering of the Capital
Securities.

                                       13
<PAGE>

                           (iii) No Directed Selling Efforts. No directed
selling efforts (within the meaning of Regulation S) has been or will be used
with respect to the offering of the Capital Securities.

                           (iv) Purchaser Notification. Prior to or
contemporaneously with the purchase of the Capital Securities by the Purchaser,
the Placement Agent will take reasonable steps to inform the Purchaser that the
Capital Securities (A) have not been and will not be registered under the 1933
Act, (B) are being sold to them without registration under the 1933 Act in
accordance with an exemption from registration under the 1933 Act and (C) may
not be offered, sold or otherwise transferred except in accordance with the
legend set forth in the Declaration.

                  (b) Covenants of the Offerors. Each of the Offerors, jointly
and severally, covenant with the Placement Agent and the Purchaser as follows:

                           (i) Due Diligence. In connection with the initial
placement of the Capital Securities, the Offerors agree that, prior to any offer
or sale of the Capital Securities through the Placement Agent, the Placement
Agent and the Purchaser shall have the right to make reasonable inquiries into
the business of the Trust, the Company and the subsidiaries of the Company. The
Offerors also agree to provide answers to the Placement Agent and the Purchaser,
if requested, concerning the Trust, the Company and the subsidiaries of the
Company (to the extent that such information is available or can be acquired and
made available without unreasonable effort or expense and to the extent the
provision thereof is not prohibited by applicable law) and the terms and
conditions of the offering of the Capital Securities and the Subordinated Debt
Securities.

                           (ii) Integration. The Offerors agree that they will
not, and will cause their Affiliates not to, make any offer or sale of
securities of the Offerors of any class if, as a result of the doctrine of
"integration" referred to in Rule 502 under the 1933 Act, such offer or sale
would render invalid the exemption from the registration requirements of the
1933 Act provided by Section 4(2) thereof or by Rule 144A or otherwise.

                           (iii) Restriction on Repurchases. Until the
expiration of two (2) years (or such shorter period as may hereafter be referred
to in Rule 144(k) (or similar successor rule)) after the original issuance of
the Capital Securities, the Offerors will not, and will cause their Affiliates
not to, purchase or agree to purchase or otherwise acquire any Capital
Securities which are "restricted securities" (as such term is defined under Rule
144(a)(3) under the 1933 Act), whether as beneficial owner or otherwise, unless,
immediately upon any such purchase, the Offerors or any Affiliate shall submit
such Capital Securities to the Institutional Trustee for cancellation.

                  SECTION 7. Indemnification.

                  (a) Indemnification of the Placement Agent and the Purchaser.
Each of the Offerors agrees, jointly and severally, to indemnify and hold
harmless: (x) the Placement Agent and the Purchaser, (y) each person, if any,
who controls (within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act) the Placement Agent or the Purchaser (each such

                                       14
<PAGE>

person, a "controlling person") and (z) the respective partners, directors,
officers, employees and agents of the Placement Agent and the Purchaser or any
such controlling person, as follows:

                           (i) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, relating to or arising out of, or
based upon, in whole or in part, (A) any untrue statement or alleged untrue
statement of a material fact included in the 1934 Act Reports, or the omission
or alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; (B) any untrue statement or alleged untrue statement of
material fact contained in any information (whether written or oral) or
documents executed in favor of or furnished or made available to the Placement
Agent or the Purchaser by the Offerors; (C) any omission or alleged omission to
state in any information (whether written or oral) or documents executed in
favor of or furnished or made available to the Placement Agent or the Purchaser
by the Offerors a material fact necessary to make the statements therein not
misleading; or (D) the breach or alleged breach of any representation, warranty
and agreement of any Offeror contained herein or in the Subscription Agreement;

                           (ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such alleged
untrue statement or omission, or breach or alleged breach of any such
representation, warranty or agreement; provided, that (subject to Section 7(c)
hereof) any such settlement is effected with the written consent of the
Offerors; and

                           (iii) against any and all expense whatsoever, as
incurred (including the fees and disbursements of counsel chosen by the
Placement Agent), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, or breach or alleged breach of any such representation, warranty or
agreement, to the extent that any such expense is not paid under (i) or (ii)
above;

provided, however, that the Company agrees, jointly and severally, to indemnify
and hold harmless the Trust against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, which is due from the Trust pursuant to the
foregoing.

                  (b) Actions against Parties; Notification. Each indemnified
party shall give notice as promptly as reasonably practicable to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve such indemnifying party from any liability hereunder to
the extent it is not materially prejudiced as a result thereof, and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. Counsel to the indemnified parties shall be
selected by the Placement Agent. An indemnifying party may participate at its
own expense in the defense of any such action; provided, however, that counsel
to the indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the

                                       15
<PAGE>

indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 7 or Section 8 hereof (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.

                  (c) Settlement without Consent if Failure to Reimburse. If at
any time an indemnified party shall have validly requested an indemnifying party
to reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 7(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement, provided, however, that an indemnifying party shall
not be liable for any such settlement effected without its consent if such
indemnifying party (1) reimburses such indemnified party with respect to those
fees and expenses of counsel that it determines in good faith are reasonable and
(2) provides written notice within 10 days after receipt of the request for
reimbursement to the indemnified party substantiating the unpaid balance as
unreasonable, in each case prior to the date of such settlement.

                  SECTION 8. Contribution. In order to provide for just and
equitable contribution in circumstances under which the indemnification provided
for in Section 7 hereof is for any reason held to be unenforceable for the
benefit of an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Offerors, on the one hand, and the Placement Agent, on the other hand, from the
offering of the Capital Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Offerors, on the one
hand, and the Placement Agent, on the other hand, in connection with the
statements, omissions or breaches which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations.

                  The relative benefits received by the Offerors, on the one
hand, and the Placement Agent, on the other hand, in connection with the
offering of the Capital Securities pursuant to this Agreement shall be deemed to
be in the same respective proportions as the total net proceeds

                                       16
<PAGE>

from the offering of the Capital Securities pursuant to this Agreement (before
deducting expenses) received by the Offerors and the total commission received
by the Placement Agent bear to the aggregate of such net proceeds and
commissions.

                  The Offerors and the Placement Agent agree that it would not
be just and equitable if contribution pursuant to this Section 8 were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 8. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 8 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement, omission or alleged omission or breach or alleged breach.

                  Notwithstanding the provisions of this Section 8, the
Placement Agent shall not be required to contribute any amount in excess of the
total commissions received by it.

                  No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.

                  For purposes of this Section 8, the Purchaser, each person, if
any, who controls the Placement Agent or the Purchaser within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act and the respective
partners, directors, officers, employees and agents of the Placement Agent, the
Purchaser or any such controlling person shall have the same rights to
contribution as the Placement Agent, while each officer and director of the
Company, each Trustee of the Trust and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Offerors.

                  SECTION 9. Representations, Warranties and Agreements to
Survive Delivery. All representations, warranties and agreements contained in
this Agreement or in certificates of officers of the Company or Trustees of the
Trust submitted pursuant hereto shall remain operative and in full force and
effect, and shall survive delivery of the Capital Securities by the Trust.

                  SECTION 10. Termination of Agreement.

                  (a) Termination; General. The Placement Agent may terminate
this Agreement, by notice to the Offerors, at any time on or prior to the
Closing Date if, since the time of execution of this Agreement or, in the case
of (i), since the respective dates as of which information is given in the 1934
Act Reports, (i) there has occurred any Material Adverse Effect, or (ii) there
has occurred any material adverse change in the financial markets in the United
States, any outbreak of hostilities or escalation thereof or any other calamity
or crisis, or any change or development involving political, financial or
economic conditions, in each case the effect of which is such as to make it, in
the judgment of the Placement Agent, impracticable to

                                       17
<PAGE>

market the Capital Securities or to enforce contracts for the sale of the
Capital Securities, or (iii) trading in any securities of the Company has been
suspended or limited by the Commission or any national stock exchange or market
on or in which such securities are traded or quoted, or if trading generally on
the American Stock Exchange, the New York Stock Exchange or the Nasdaq National
Market has been suspended or limited, or minimum or maximum prices for trading
have been fixed, or maximum ranges for prices have been required, by any of said
exchanges or by such system or by order of the Commission, the National
Association of Securities Dealers or any other governmental authority, or (iv) a
banking moratorium has been declared by United States federal, Delaware or New
York authorities.

                  (b) Liabilities. If this Agreement is terminated pursuant to
this Section, such termination shall be without liability of any party to any
other party except as provided in Section 4 and Section 5 hereof, and provided
further that Sections 1, 7 and 8 hereof shall survive such termination and
remain in full force and effect.

Notices. All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if mailed or transmitted by any standard
form of telecommunication. Notices to the Placement Agent shall be directed to
Sandler O'Neill & Partners, L.P., as follows: 919 Third Avenue, 6th Floor, New
York, New York 10022, Attention: Thomas W. Killian, Principal, with a copy to
Sidley Austin Brown & Wood LLP, 787 Seventh Avenue, New York, New York 10019,
Attention: Edward F. Petrosky; and notices to the Offerors shall be directed to
American Physicians Capital, Inc., 1301 N. Hagadorn Road, East Lansing, Michigan
48823, Attention: Frank H. Freund, with a copy to Dykema Gossett PLLC, 400
Renaissance Center, Detroit, Michigan 48243, Attention: Mark A. Metz.

                  SECTION 11. Parties. This Agreement shall inure to the benefit
of and be binding upon each of the Placement Agent and the Offerors and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Placement Agent, the Purchaser and the Offerors, and their respective
successors and the controlling persons and other persons referred to in Sections
1, 7 and 8 hereof and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. This Agreement and all conditions and provisions
hereof are intended to be for the sole and exclusive benefit of the Placement
Agent, the Purchaser and the Offerors and their respective successors, and said
controlling persons and other persons and their heirs and legal representatives,
and for the benefit of no other person, firm or corporation.

                  SECTION 12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES OF SAID STATE OTHER THAN SECTION 5-1401 OF
THE NEW YORK GENERAL OBLIGATIONS LAW.

                  EACH OF THE TRUST AND THE COMPANY, ON BEHALF OF ITSELF AND ITS
SUBSIDIARIES (INCLUDING, WITHOUT LIMITATION, THE TRUST), HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS
LOCATED IN THE CITY OF NEW YORK

                                       18
<PAGE>

IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR
ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK
OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT.
EACH OF THE TRUST AND THE COMPANY, ON BEHALF OF ITSELF AND ITS SUBSIDIARIES
(INCLUDING, WITHOUT LIMITATION, THE TRUST), IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

                  SECTION 13. Disclosure of Tax Treatment and Tax Structure.
Notwithstanding anything herein to the contrary, any party to this Agreement
(and each employee, representative or other agent of any party to this
Agreement) may disclose to any and all persons, without limitation of any kind,
the tax treatment and tax structure of the offering and all materials of any
kind (including opinions or other tax analyses) that are provided to it relating
to such tax treatment and tax structure. However, such information relating to
the tax treatment or tax structure is required to be kept confidential to the
extent necessary to comply with any applicable federal or state securities laws.
For this purpose, "tax structure" means any facts relevant to the federal income
tax treatment of the offering contemplated by this Agreement but does not
include information relating to the identity of the Offeror.

                  SECTION 14. Effect of Headings. The Section headings herein
are for convenience only and shall not affect the construction hereof.

                                       19
<PAGE>

                  If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement among the Placement Agent and the Offerors in accordance with its
terms.

                                         Very truly yours,

                                         AMERICAN PHYSICIANS CAPITAL, INC.

                                         By:    /s/ Frank H. Freund
                                                ------------------------------
                                                Name: Frank H. Freund
                                                Title: Chief Financial Officer

                                         APCAPITAL TRUST II

                                         By:    /s/ James A. Pratt
                                                ------------------------------
                                                Name: James A. Pratt
                                                Title: Administrator

CONFIRMED AND ACCEPTED,
as of the date first above written:

SANDLER O'NEILL & PARTNERS, L.P.

By:      Sandler O'Neill & Partners Corp.,
         the sole general partner

         By:   /s/ Katherine A. Lawton
               --------------------------
               Name: Katherine A. Lawton
               Title: Vice President

<PAGE>

                                                                         ANNEX A

Pursuant to Section 5(a) of the Placement Agreement, special counsel for the
Offerors shall deliver an opinion in substantially the following form:

                  1. The Company is incorporated and is validly existing as a
corporation in good standing under the laws of the State of Michigan.

                  2. The Company has corporate power and authority to (i)
execute and deliver, and to perform its obligations under, the Operative
Documents to which it is a party and (ii) issue and perform its obligations
under the Subordinated Debt Securities.

                  3. (i) Each Significant Subsidiary is validly existing and in
good standing under the laws of the jurisdiction of its organization; and (ii)
to the best of our knowledge, all of the issued and outstanding shares of
capital stock of each Significant Subsidiary are owned of record by the Company,
directly or through other subsidiaries.

                  4. To our knowledge, there are no restrictions or limitations
on the authority of any of the Insurance Subsidiaries to pay dividends, other
than general restrictions and limitations applicable to all insurance companies
domiciled in the state of organization of such Insurance Subsidiary pursuant to
applicable law.

                  5. To our knowledge, no Insurance License of any of the
Insurance Subsidiaries has been suspended, revoked, withdrawn, surrendered or
limited in anyway.

                  6. No consent, approval, authorization or order of or filing,
registration or qualification with any Governmental Entity is required under any
law or regulation of the United States or the states in which the Company is
organized in connection with the authorization, execution, delivery or
performance by the Company of the Operative Documents or the Subordinated Debt
Securities and the consummation of the transactions contemplated thereby except
as have already been obtained or made.

                  7. Each of the Placement Agreement and the Subscription
Agreement has been duly authorized, executed and delivered by the Company and,
assuming due authorization, execution and delivery by the Placement Agent and
the Purchaser, respectively, constitutes a valid and binding instrument of the
Company enforceable against the Company in accordance with its terms, except as
rights to indemnity and contribution thereunder may be limited under applicable
law or public policy, and subject to the qualifications that (i) enforcement
thereof may be limited by bankruptcy, insolvency, receivership, reorganization,
liquidation, voidable preference, moratorium or other laws (including the laws
of fraudulent conveyance and transfer) or judicial decisions affecting the
enforcement of creditors' rights generally or the reorganization of financial
institutions and (ii) the enforceability of the obligations of the Company
thereunder is subject to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law) and to
the effect of certain laws and judicial decisions upon the availability and
enforceability of certain remedies, including the remedies of specific
performance and self-help.

                                      A-1
<PAGE>

                  8. The Declaration has been duly authorized, executed and
delivered by the Company and the Administrators.

                  9. Each of the Guarantee Agreement and the Indenture has been
duly authorized, executed, and delivered by the Company and, assuming due
authorization, execution and delivery by the Guarantee Trustee and the Indenture
Trustee, respectively, constitutes a valid and binding instrument of the
Company, enforceable against the Company in accordance with its terms, except as
rights to indemnity and contribution thereunder may be limited under applicable
law or public policy, and subject to the qualifications that (i) enforcement
thereof may be limited by bankruptcy, insolvency, receivership, reorganization,
liquidation, voidable preference, moratorium or other laws (including the laws
of fraudulent conveyance and transfer) or judicial decisions affecting the
enforcement of creditors' rights generally or the reorganization of financial
institutions and (ii) the enforceability of the Company's obligations thereunder
is subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and to the
effect of certain laws and judicial decisions upon the availability and
enforceability of certain remedies, including the remedies of specific
performance and self-help.

                  10. The Subordinated Debt Securities have been duly authorized
for issuance by the Company pursuant to the Indenture and, when executed,
authenticated and delivered in the manner provided for in the Indenture and paid
for in accordance with the subscription agreement therefor, will constitute
valid and binding obligations of the Company and will entitle the holders
thereof to the benefits of the Indenture, enforceable against the Company in
accordance with their terms, except as rights to indemnity and contribution
thereunder may be limited under applicable law or public policy, and subject to
the qualifications that (i) enforcement thereof may be limited by bankruptcy,
insolvency, receivership, reorganization, liquidation, voidable preference,
moratorium or other laws (including the laws of fraudulent conveyance and
transfer) or judicial decisions affecting the enforcement of creditors' rights
generally or the reorganization of financial institutions and (ii) the
enforceability of the Company's obligations thereunder is subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law) and to the effect of certain laws and judicial
decisions upon the availability and enforceability of certain remedies,
including the remedies of specific performance and self-help.

                  11. The execution, delivery and performance of the Operative
Documents, the Subordinated Debt Securities and the Capital Securities, as
applicable, by the Company and the Trust and the consummation by the Company and
the Trust of the transactions contemplated by the Operative Documents, as
applicable, will not result in any violation of the charter or bylaws of the
Company, any Significant Subsidiary or any Insurance Subsidiary, the Declaration
or the Trust Certificate.

                  12. Assuming (i) the accuracy of the representations and
warranties, and compliance with the agreements, contained in the Placement
Agreement and the Subscription Agreement and (ii) that the Capital Securities
are sold in the manner contemplated by, and in accordance with, the Placement
Agreement, the Subscription Agreement and the Declaration, it is not necessary
in connection with the offer, sale and delivery of the Capital Securities by the
Trust to the Purchaser to register the Capital Securities, the Guarantee
Agreement or the

                                      A-2
<PAGE>

Subordinated Debt Securities under the 1933 Act or to qualify an indenture under
the Trust Indenture Act of 1939, as amended.

                  13. Neither the Company nor the Trust is, and, following the
issuance of the Capital Securities and the consummation of the transactions
contemplated by the Operative Documents and the application of the proceeds
therefrom, neither the Company nor the Trust will be, an "investment company" or
entity "controlled" by an "investment company", in each case within the meaning
of Section 3(a) of the 1940 Act, without regard to Section 3(c) of such Act.

In rendering such opinions, such counsel may (A) state that its opinion is
limited to the laws of New York, the laws of the State of Michigan and the
Federal laws of the United States and (B) rely as to matters involving the
application of laws of any jurisdiction other than New York, Michigan or the
United States, to the extent deemed proper and specified in such opinion, upon
the opinion of other counsel of good standing believed to be reliable and who
are satisfactory to you and as to matters of fact, to the extent deemed proper,
on certificates of responsible officers of the Company, the Insurance
Subsidiaries and public officials.

                                      A-3
<PAGE>

                                                                         ANNEX B

                  Pursuant to Section 5(b) of the Placement Agreement, special
Delaware counsel for the Trust shall deliver an opinion in substantially the
following form:

                  1. The Trust has been duly formed and is validly existing in
good standing as a statutory trust under the Delaware Act.

                  2. The Declaration constitutes a valid and binding obligation
of the Sponsor and Trustees party thereto, enforceable against such Sponsor and
Trustees in accordance with its terms.

                  3. Under the Delaware Act and the Declaration, the Trust has
the requisite trust power and authority (i) to own its properties and conduct
its business, all as described in the Declaration, (ii) to execute and deliver,
and perform its obligations under, the Operative Documents to which it is a
party, (iii) to authorize, issue, sell and perform its obligations under its
Capital Securities and Common Securities, and (iv) to purchase and hold the
Subordinated Debt Securities.

                  4. The Capital Securities have been duly authorized for
issuance by the Trust and, when issued, executed and authenticated in accordance
with the Declaration and delivered against payment therefor in accordance with
the Declaration and the Subscription Agreement, will be validly issued and,
subject to the qualifications set forth in paragraph 5 below, fully paid and
nonassessable undivided beneficial interests in the assets of the Trust and the
holders of the Capital Securities will be entitled to the benefits provided by
the Declaration.

                  5. Each holder of Capital Securities, in such capacity, will
be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note, however, that the holders of
the Capital Securities may be required to make payment or provide indemnity or
security as set forth in the Declaration.

                  6. Under the Declaration and the Delaware Act, the issuance of
the Capital Securities and Common Securities is not subject to preemptive
rights.

                  7. The Common Securities have been duly authorized for
issuance by the Trust and, when issued and executed in accordance with the
Declaration and delivered against payment therefor in accordance with the
Declaration and the subscription agreement therefor, will be validly issued
undivided beneficial interests in the assets of the Trust and the holders of the
Common Securities will be entitled to the benefits provided by the Declaration.

                  8. Under the Declaration and the Delaware Act, the execution
and delivery by the Trust of the Operative Documents to which it is a party, and
the performance by the Trust of its obligations thereunder, have been duly
authorized by the requisite trust action on the part of the Trust.

                  9. The issuance and sale by the Trust of its Capital
Securities and Common Securities, the execution, delivery and performance by the
Trust of the Operative Documents to

                                      B-1
<PAGE>

which it is a party, the consummation by the Trust of the transactions
contemplated by the Operative Documents to which it is party, and the compliance
by the Trust with its obligations thereunder are not prohibited by (i) the
Declaration or the Trust Certificate, or (ii) any law or administrative
regulation of the State of Delaware applicable to the Trust.

                  10. No authorization, approval, consent or order of any
Delaware court or Delaware governmental authority or Delaware agency is required
to be obtained by the Trust solely in connection with the issuance and sale by
the Trust of its Capital Securities and Common Securities, the due
authorization, execution and delivery by the Trust of the Operative Documents to
which it is a party or the performance by the Trust of its obligations under the
Operative Documents to which it is a party.

                  11. The holders of the Capital Securities (other than those
holders who reside or are domiciled in the State of Delaware) will have no
liability for income taxes imposed by the State of Delaware solely as a result
of their participation in the Trust, and the Trust will not be liable for any
income tax imposed by the State of Delaware.

                                      B-2
<PAGE>

                                                                         ANNEX C

                  Pursuant to Section 5(c) of the Placement Agreement, special
tax counsel for the Offerors shall deliver an opinion in substantially the
following form:

                  1. Under current law and assuming the performance of the
Operative Documents in accordance with the terms described therein, the
Subordinated Debt Securities will be treated for United States federal income
tax purposes as indebtedness of the Company.

                  2. The Trust will be classified for United States federal
income tax purposes as a grantor trust and not as an association taxable as a
corporation.

                                      C-1
<PAGE>

                                                                         ANNEX D

                  Pursuant to Section 5(d) of the Placement Agreement, counsel
to the Guarantee Trustee, the Institutional Trustee, the Delaware Trustee and
the Indenture Trustee shall deliver an opinion in substantially the following
form:

                  1. Wilmington Trust Company ("WTC") is a Delaware banking
corporation with trust powers, duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, with requisite corporate power
and authority to execute and deliver, and to perform its obligations under, the
Declaration, the Guarantee Agreement and the Indenture (collectively, the
"Transaction Documents").

                  2. The execution, delivery, and performance by WTC of the
Transaction Documents have been duly authorized by all necessary corporate
action on the part of WTC, and the Transaction Documents have been duly executed
and delivered by WTC.

                  3. The execution, delivery and performance of the Transaction
Documents by WTC and the consummation of any of the transactions by WTC
contemplated thereby are not prohibited by (i) the charter or bylaws of WTC,
(ii) any law or administrative regulation of the State of Delaware or the United
States of America governing the banking and trust powers of WTC, or (iii) to our
knowledge (based and relying solely on the Officer Certificates), any agreements
or instruments to which WTC is a party or by which WTC is bound or any judgments
or order applicable to WTC.

                  4. The Subordinated Debt Securities delivered on the date
hereof have been authenticated by due execution thereof and delivered by WTC, as
Indenture Trustee, in accordance with the Indenture. The Capital Securities
delivered on the date hereof have been authenticated by due execution thereof
and delivered by WTC, as Institutional Trustee, in accordance with the
Declaration.

                  5. None of the execution, delivery and performance by WTC of
the Transaction Documents and the consummation of any of the transactions by WTC
contemplated thereby requires the consent, authorization, order or approval of,
the withholding of objection on the part of, the giving of notice to, the
registration with or the taking of any other action in respect of, any
governmental authority or agency, under any law or administrative regulation of
the State of Delaware or the United States of America governing the banking and
trust powers of WTC, except for the filing of the Trust Certificate with the
Office of the Secretary of State of the State of Delaware pursuant to the
Delaware Act (which filing has been duly made).

                                      D-1<PAGE>
                                                                    EXHIBIT 10.5

================================================================================

                               GUARANTEE AGREEMENT

                                 BY AND BETWEEN

                        AMERICAN PHYSICIANS CAPITAL, INC.

                                       AND

                         U.S. BANK NATIONAL ASSOCIATION

                            DATED AS OF MAY 15, 2003

================================================================================

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                               Page

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

    Section 1.1       Definitions and Interpretation..............................................................1

ARTICLE II         POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE.................................................5

    Section 2.1       Powers and Duties of the Guarantee Trustee..................................................5
    Section 2.2       Certain Rights of Guarantee Trustee.........................................................6
    Section 2.3       Not Responsible for Recitals or Issuance of Guarantee.......................................8
    Section 2.4       Events of Default; Waiver...................................................................8
    Section 2.5       Events of Default; Notice...................................................................8

ARTICLE III        GUARANTEE TRUSTEE..............................................................................9

    Section 3.1       Guarantee Trustee; Eligibility..............................................................9
    Section 3.2       Appointment, Removal and Resignation of Guarantee Trustee...................................9

ARTICLE IV         GUARANTEE.....................................................................................10

    Section 4.1       Guarantee..................................................................................10
    Section 4.2       Waiver of Notice and Demand................................................................10
    Section 4.3       Obligations Not Affected...................................................................10
    Section 4.4       Rights of Holders..........................................................................11
    Section 4.5       Guarantee of Payment.......................................................................12
    Section 4.6       Subrogation................................................................................12
    Section 4.7       Independent Obligations....................................................................12
    Section 4.8       Enforcement by a Beneficiary...............................................................12

ARTICLE V          LIMITATION OF TRANSACTIONS; SUBORDINATION.....................................................13

    Section 5.1       Limitation of Transactions.................................................................13
    Section 5.2       Ranking....................................................................................13

ARTICLE VI         TERMINATION...................................................................................14

    Section 6.1       Termination................................................................................14

ARTICLE VII        INDEMNIFICATION...............................................................................14

    Section 7.1       Exculpation................................................................................14
    Section 7.2       Indemnification............................................................................15
    Section 7.3       Compensation; Reimbursement of Expenses....................................................16

ARTICLE VIII       MISCELLANEOUS.................................................................................16

</TABLE>

                                        i

<PAGE>

<TABLE>
<S>                                                                                                             <C>

    Section 8.1       Successors and Assigns.....................................................................16
    Section 8.2       Amendments.................................................................................16
    Section 8.3       Notices....................................................................................17
    Section 8.4       Benefit....................................................................................17
    Section 8.5       Governing Law..............................................................................18
    Section 8.6       Counterparts...............................................................................18
    Section 8.7       Separability...............................................................................18

</TABLE>

                                       ii

<PAGE>
                               GUARANTEE AGREEMENT

                 This GUARANTEE AGREEMENT (this "Guarantee"), dated as of May
15, 2003, is executed and delivered by American Physicians Capital, Inc., a
Michigan corporation (the "Guarantor"), and U.S. Bank National Association, a
national banking association, organized under the laws of the United States of
America, as trustee (the "Guarantee Trustee"), for the benefit of the Holders
(as defined herein) from time to time of the Capital Securities (as defined
herein) of American Physicians Capital Statutory Trust I, a Connecticut
statutory trust (the "Issuer").

         WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the
"Declaration"), dated as of the date hereof among U.S. Bank National
Association, not in its individual capacity but solely as institutional trustee,
the administrators of the Issuer named therein, the Guarantor, as sponsor, and
the holders from time to time of undivided beneficial interests in the assets of
the Issuer, the Issuer is issuing on the date hereof those undivided beneficial
interests, having an aggregate liquidation amount of $15,000,000.00 (the
"Capital Securities"); and

         WHEREAS, as incentive for the Holders to purchase the Capital
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Guarantee, to pay to the Holders of Capital
Securities the Guarantee Payments (as defined herein) and to make certain other
payments on the terms and conditions set forth herein;

         NOW, THEREFORE, in consideration of the purchase by each Holder of the
Capital Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Guarantee for the benefit of
the Holders.

                                    ARTICLE I

                         DEFINITIONS AND INTERPRETATION

         SECTION 1.1 DEFINITIONS AND INTERPRETATION.

         In this Guarantee, unless the context otherwise requires:

         (a) capitalized terms used in this Guarantee but not defined in the
preamble above have the respective meanings assigned to them in this Section
1.1;

         (b) a term defined anywhere in this Guarantee has the same meaning
throughout;

         (c) all references to "the Guarantee" or "this Guarantee" are to this
Guarantee as modified, supplemented or amended from time to time;

         (d) all references in this Guarantee to "Articles" or "Sections" are to
Articles or Sections of this Guarantee, unless otherwise specified;

<PAGE>

         (e) terms defined in the Declaration as at the date of execution of
this Guarantee have the same meanings when used in this Guarantee, unless
otherwise defined in this Guarantee or unless the context otherwise requires;
and

         (f) a reference to the singular includes the plural and vice versa.

         "Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act of 1933, as amended, or any successor rule thereunder.

         "Beneficiaries" means any Person to whom the Issuer is or hereafter
becomes indebted or liable.

         "Capital Securities" has the meaning set forth in the recitals to this
Guarantee.

         "Common Securities" means the common securities issued by the Issuer to
the Guarantor pursuant to the Declaration.

         "Corporate Trust Office" means the office of the Guarantee Trustee at
which the corporate trust business of the Guarantee Trustee shall, at any
particular time, be principally administered, which office at the date of
execution of this Guarantee is located at 225 Asylum Street, Goodwin Square,
Hartford, Connecticut 06103.

         "Covered Person" means any Holder of Capital Securities.

         "Debentures" means the debt securities of the Guarantor designated the
Floating Rate Junior Subordinated Deferrable Interest Debentures due 2033 held
by the Institutional Trustee (as defined in the Declaration) of the Issuer.

         "Declaration Event of Default" means an "Event of Default" as defined
in the Declaration.

         "Event of Default" has the meaning set forth in Section 2.4(a).

         "Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Capital Securities, to the extent not
paid or made by the Issuer: (i) any accrued and unpaid Distributions (as defined
in the Declaration) which are required to be paid on such Capital Securities to
the extent the Issuer shall have funds available therefor, (ii) the Optional
Redemption Price to the extent the Issuer has funds available therefor, with
respect to any Capital Securities called for redemption by the Issuer, (iii) the
Special Redemption Price to the extent the Issuer has funds available therefor,
with respect to Capital Securities redeemed upon the occurrence of a Special
Event, and (iv) upon a voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Issuer (other than in connection with the
distribution of Debentures to the Holders of the Capital Securities in exchange
therefor as provided in the Declaration), the lesser of (a) the aggregate of the
liquidation amount and all accrued and unpaid Distributions on the Capital
Securities to the date of payment, to the extent the Issuer shall have funds
available therefor, and (b) the amount of assets of the Issuer remaining
available for distribution to Holders in liquidation of the Issuer (in either
case, the "Liquidation Distribution").

                                       2
<PAGE>

         "Guarantee Trustee" means U.S. Bank National Association, until a
Successor Guarantee Trustee has been appointed and has accepted such appointment
pursuant to the terms of this Guarantee and thereafter means each such Successor
Guarantee Trustee.

         "Guarantor" means American Physicians Capital, Inc. and each of its
successors and assigns.

         "Holder" means any holder, as registered on the books and records of
the Issuer, of any Capital Securities; provided, however, that, in determining
whether the Holders of the requisite percentage of Capital Securities have given
any request, notice, consent or waiver hereunder, "Holder" shall not include the
Guarantor or any Affiliate of the Guarantor.

         "Indemnified Person" means the Guarantee Trustee, any Affiliate of the
Guarantee Trustee, or any officers, directors, shareholders, members, partners,
employees, representatives, nominees, custodians or agents of the Guarantee
Trustee.

         "Indenture" means the Indenture dated as of the date hereof between the
Guarantor and U.S. Bank National Association, not in its individual capacity but
solely as trustee, and any indenture supplemental thereto pursuant to which the
Debentures are to be issued to the institutional trustee of the Issuer.

         "Issuer" has the meaning set forth in the opening paragraph to this
Guarantee.

         "Liquidation Distribution" has the meaning set forth in the definition
of "Guarantee Payments" herein.

         "Majority in liquidation amount of the Capital Securities" means
Holder(s) of outstanding Capital Securities, voting together as a class, but
separately from the holders of Common Securities, of more than 50% of the
aggregate liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all Capital
Securities then outstanding.

         "Obligations" means any costs, expenses or liabilities (but not
including liabilities related to taxes) of the Issuer other than obligations of
the Issuer to pay to holders of any Trust Securities the amounts due such
holders pursuant to the terms of the Trust Securities.

         "Officer's Certificate" means, with respect to any Person, a
certificate signed by one authorized officer of such Person. Any Officer's
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Guarantee shall include:

                  (a) a statement that the officer signing the Officer's
         Certificate has read the covenant or condition and the definitions
         relating thereto;

                  (b) a brief statement of the nature and scope of the
         examination or investigation undertaken by the officer in rendering the
         Officer's Certificate;

                                       3
<PAGE>

                  (c) a statement that the officer has made such examination or
         investigation as, in such officer's opinion, is necessary to enable
         such officer to express an informed opinion as to whether or not such
         covenant or condition has been complied with; and

                  (d) a statement as to whether, in the opinion of the officer,
         such condition or covenant has been complied with.

         "Optional Redemption Price" has the meaning set forth in the Indenture.

         "Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.

         "Responsible Officer" means, with respect to the Guarantee Trustee, any
officer within the Corporate Trust Office of the Guarantee Trustee including any
Vice President, Assistant Vice President, Secretary, Assistant Secretary or any
other officer of the Guarantee Trustee customarily performing functions similar
to those performed by any of the above designated officers and also, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.

         "Special Event" has the meaning set forth in the Indenture.

         "Special Redemption Price" has the meaning set forth in the Indenture.

         "Subsidiary" means with respect to any Person, (i) any corporation at
least a majority of the outstanding voting stock of which is owned, directly or
indirectly, by such Person or by one or more of its Subsidiaries, or by such
Person and one or more of its Subsidiaries, (ii) any general partnership, joint
venture or similar entity, at least a majority of the outstanding partnership or
similar interests of which shall at the time be owned by such Person, or by one
or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries and (iii) any limited partnership of which such Person or any of
its Subsidiaries is a general partner. For the purposes of this definition,
"voting stock" means shares, interests, participations or other equivalents in
the equity interest (however designated) in such Person having ordinary voting
power for the election of a majority of the directors (or the equivalent) of
such Person, other than shares, interests, participations or other equivalents
having such power only by reason of the occurrence of a contingency.

         "Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 3.1.

         "Trust Securities" means the Common Securities and the Capital
Securities.

                                       4
<PAGE>

                                   ARTICLE II

                          POWERS, DUTIES AND RIGHTS OF
                                GUARANTEE TRUSTEE

         SECTION 2.1 POWERS AND DUTIES OF THE GUARANTEE TRUSTEE.

         (a) This Guarantee shall be held by the Guarantee Trustee for the
benefit of the Holders of the Capital Securities, and the Guarantee Trustee
shall not transfer this Guarantee to any Person except a Holder of Capital
Securities exercising his or her rights pursuant to Section 4.4(b) or to a
Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of
its appointment to act as Successor Guarantee Trustee. The right, title and
interest of the Guarantee Trustee shall automatically vest in any Successor
Guarantee Trustee, and such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered pursuant
to the appointment of such Successor Guarantee Trustee.

         (b) If an Event of Default actually known to a Responsible Officer of
the Guarantee Trustee has occurred and is continuing, the Guarantee Trustee
shall enforce this Guarantee for the benefit of the Holders of the Capital
Securities.

         (c) The Guarantee Trustee, before the occurrence of any Event of
Default and after curing all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Guarantee, and no implied covenants shall be read into this Guarantee against
the Guarantee Trustee. In case an Event of Default has occurred (that has not
been waived pursuant to Section 2.4) and is actually known to a Responsible
Officer of the Guarantee Trustee, the Guarantee Trustee shall exercise such of
the rights and powers vested in it by this Guarantee, and use the same degree of
care and skill in its exercise thereof, as a prudent person would exercise or
use under the circumstances in the conduct of his or her own affairs.

         (d) No provision of this Guarantee shall be construed to relieve the
Guarantee Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:

                  (i) prior to the occurrence of any Event of Default and after
         the curing or waiving of all such Events of Default that may have
         occurred:

                           (A) the duties and obligations of the Guarantee
                  Trustee shall be determined solely by the express provisions
                  of this Guarantee, and the Guarantee Trustee shall not be
                  liable except for the performance of such duties and
                  obligations as are specifically set forth in this Guarantee,
                  and no implied covenants or obligations shall be read into
                  this Guarantee against the Guarantee Trustee; and

                  (B) in the absence of bad faith on the part of the Guarantee
                  Trustee, the Guarantee Trustee may conclusively rely, as to
                  the truth of the statements and the correctness of the
                  opinions expressed therein, upon any certificates or opinions
                  furnished to the Guarantee Trustee and conforming to the
                  requirements of this Guarantee; but in the case of any such
                  certificates or opinions that by any

                                       5
<PAGE>

                  provision hereof are specifically required to be furnished to
                  the Guarantee Trustee, the Guarantee Trustee shall be under a
                  duty to examine the same to determine whether or not they
                  conform to the requirements of this Guarantee;

                  (ii) the Guarantee Trustee shall not be liable for any error
         of judgment made in good faith by a Responsible Officer of the
         Guarantee Trustee, unless it shall be proved that such Responsible
         Officer of the Guarantee Trustee or the Guarantee Trustee was negligent
         in ascertaining the pertinent facts upon which such judgment was made;

                  (iii) the Guarantee Trustee shall not be liable with respect
         to any action taken or omitted to be taken by it in good faith in
         accordance with the written direction of the Holders of not less than a
         Majority in liquidation amount of the Capital Securities relating to
         the time, method and place of conducting any proceeding for any remedy
         available to the Guarantee Trustee, or relating to the exercise of any
         trust or power conferred upon the Guarantee Trustee under this
         Guarantee; and

                  (iv) no provision of this Guarantee shall require the
         Guarantee Trustee to expend or risk its own funds or otherwise incur
         personal financial liability in the performance of any of its duties or
         in the exercise of any of its rights or powers, if the Guarantee
         Trustee shall have reasonable grounds for believing that the repayment
         of such funds is not reasonably assured to it under the terms of this
         Guarantee or security and indemnity, reasonably satisfactory to the
         Guarantee Trustee, against such risk or liability is not reasonably
         assured to it.

         SECTION 2.2 CERTAIN RIGHTS OF GUARANTEE TRUSTEE.

         (a) Subject to the provisions of Section 2.1:

                  (i) The Guarantee Trustee may conclusively rely, and shall be
         fully protected in acting or refraining from acting upon, any
         resolution, certificate, statement, instrument, opinion, report,
         notice, request, direction, consent, order, bond, debenture, note,
         other evidence of indebtedness or other paper or document believed by
         it to be genuine and to have been signed, sent or presented by the
         proper party or parties.

                  (ii) Any direction or act of the Guarantor contemplated by
         this Guarantee shall be sufficiently evidenced by an Officer's
         Certificate.

                  (iii) Whenever, in the administration of this Guarantee, the
         Guarantee Trustee shall deem it desirable that a matter be proved or
         established before taking, suffering or omitting any action hereunder,
         the Guarantee Trustee (unless other evidence is herein specifically
         prescribed) may, in the absence of bad faith on its part, request and
         conclusively rely upon an Officer's Certificate of the Guarantor which,
         upon receipt of such request, shall be promptly delivered by the
         Guarantor.

                  (iv) The Guarantee Trustee shall have no duty to see to any
         recording, filing or registration of any instrument (or any
         re-recording, refiling or re-registration thereof).

                                       6
<PAGE>

                  (v) The Guarantee Trustee may consult with counsel of its
         selection, and the advice or opinion of such counsel with respect to
         legal matters shall be full and complete authorization and protection
         in respect of any action taken, suffered or omitted by it hereunder in
         good faith and in accordance with such advice or opinion. Such counsel
         may be counsel to the Guarantor or any of its Affiliates and may
         include any of its employees. The Guarantee Trustee shall have the
         right at any time to seek instructions concerning the administration of
         this Guarantee from any court of competent jurisdiction.

                  (vi) The Guarantee Trustee shall be under no obligation to
         exercise any of the rights or powers vested in it by this Guarantee at
         the request or direction of any Holder, unless such Holder shall have
         provided to the Guarantee Trustee such security and indemnity,
         reasonably satisfactory to the Guarantee Trustee, against the costs,
         expenses (including attorneys' fees and expenses and the expenses of
         the Guarantee Trustee's agents, nominees or custodians) and liabilities
         that might be incurred by it in complying with such request or
         direction, including such reasonable advances as may be requested by
         the Guarantee Trustee; provided, however, that nothing contained in
         this Section 2.2(a)(vi) shall relieve the Guarantee Trustee, upon the
         occurrence of an Event of Default, of its obligation to exercise the
         rights and powers vested in it by this Guarantee.

                  (vii) The Guarantee Trustee shall not be bound to make any
         investigation into the facts or matters stated in any resolution,
         certificate, statement, instrument, opinion, report, notice, request,
         direction, consent, order, bond, debenture, note, other evidence of
         indebtedness or other paper or document, but the Guarantee Trustee, in
         its discretion, may make such further inquiry or investigation into
         such facts or matters as it may see fit.

                  (viii) The Guarantee Trustee may execute any of the trusts or
         powers hereunder or perform any duties hereunder either directly or by
         or through agents, nominees, custodians or attorneys, and the Guarantee
         Trustee shall not be responsible for any misconduct or negligence on
         the part of any agent or attorney appointed with due care by it
         hereunder.

                  (ix) Any action taken by the Guarantee Trustee or its agents
         hereunder shall bind the Holders of the Capital Securities, and the
         signature of the Guarantee Trustee or its agents alone shall be
         sufficient and effective to perform any such action. No third party
         shall be required to inquire as to the authority of the Guarantee
         Trustee to so act or as to its compliance with any of the terms and
         provisions of this Guarantee, both of which shall be conclusively
         evidenced by the Guarantee Trustee's or its agent's taking such action.

                  (x) Whenever in the administration of this Guarantee the
         Guarantee Trustee shall deem it desirable to receive instructions with
         respect to enforcing any remedy or right or taking any other action
         hereunder, the Guarantee Trustee (i) may request instructions from the
         Holders of a Majority in liquidation amount of the Capital Securities,
         (ii) may refrain from enforcing such remedy or right or taking such
         other action until such instructions are received, and (iii) shall be
         protected in conclusively relying on or acting in accordance with such
         instructions.

                                       7
<PAGE>

                  (xi) The Guarantee Trustee shall not be liable for any action
         taken, suffered, or omitted to be taken by it in good faith, without
         negligence, and reasonably believed by it to be authorized or within
         the discretion or rights or powers conferred upon it by this Guarantee.

         (b) No provision of this Guarantee shall be deemed to impose any duty
or obligation on the Guarantee Trustee to perform any act or acts or exercise
any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal or in which the Guarantee Trustee
shall be unqualified or incompetent in accordance with applicable law to perform
any such act or acts or to exercise any such right, power, duty or obligation.
No permissive power or authority available to the Guarantee Trustee shall be
construed to be a duty.

         SECTION 2.3 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE.

         The recitals contained in this Guarantee shall be taken as the
statements of the Guarantor, and the Guarantee Trustee does not assume any
responsibility for their correctness. The Guarantee Trustee makes no
representation as to the validity or sufficiency of this Guarantee.

         SECTION 2.4 EVENTS OF DEFAULT; WAIVER.

         (a) An Event of Default under this Guarantee will occur upon the
failure of the Guarantor to perform any of its payment or other obligations
hereunder.

         (b) The Holders of a Majority in liquidation amount of the Capital
Securities may, voting or consenting as a class, on behalf of the Holders of all
of the Capital Securities, waive any past Event of Default and its consequences.
Upon such waiver, any such Event of Default shall cease to exist, and shall be
deemed to have been cured, for every purpose of this Guarantee, but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent thereon.

         SECTION 2.5 EVENTS OF DEFAULT; NOTICE.

         (a) The Guarantee Trustee shall, within 90 days after the occurrence of
an Event of Default, transmit by mail, first class postage prepaid, to the
Holders of the Capital Securities and the Guarantor, notices of all Events of
Default actually known to a Responsible Officer of the Guarantee Trustee, unless
such defaults have been cured before the giving of such notice, provided,
however, that the Guarantee Trustee shall be protected in withholding such
notice if and so long as a Responsible Officer of the Guarantee Trustee in good
faith determines that the withholding of such notice is in the interests of the
Holders of the Capital Securities.

         (b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless the Guarantee Trustee shall have received written notice
from the Guarantor or a Holder of the Capital Securities (except in the case of
a payment default), or a Responsible Officer of the Guarantee Trustee charged
with the administration of this Guarantee shall have obtained actual knowledge
thereof.

                                       8
<PAGE>

                                   ARTICLE III

                                GUARANTEE TRUSTEE

         SECTION 3.1 GUARANTEE TRUSTEE; ELIGIBILITY.

         (a) There shall at all times be a Guarantee Trustee which shall:

                  (i) not be an Affiliate of the Guarantor, and

                  (ii) be a corporation organized and doing business under the
         laws of the United States of America or any State or Territory thereof
         or of the District of Columbia, or Person authorized under such laws to
         exercise corporate trust powers, having a combined capital and surplus
         of at least 50 million U.S. dollars ($50,000,000), and subject to
         supervision or examination by Federal, State, Territorial or District
         of Columbia authority. If such corporation publishes reports of
         condition at least annually, pursuant to law or to the requirements of
         the supervising or examining authority referred to above, then, for the
         purposes of this Section 3.1(a)(ii), the combined capital and surplus
         of such corporation shall be deemed to be its combined capital and
         surplus as set forth in its most recent report of condition so
         published.

         (b) If at any time the Guarantee Trustee shall cease to be eligible to
so act under Section 3.1(a), the Guarantee Trustee shall immediately resign in
the manner and with the effect set out in Section 3.2(c).

         (c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee shall either eliminate such interest or resign to the extent
and in the manner provided by, and subject to this Guarantee.

         SECTION 3.2 APPOINTMENT, REMOVAL AND RESIGNATION OF GUARANTEE TRUSTEE.

         (a) Subject to Section 3.2(b), the Guarantee Trustee may be appointed
or removed without cause at any time by the Guarantor except during an Event of
Default.

         (b) The Guarantee Trustee shall not be removed in accordance with
Section 3.2(a) until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by written instrument executed by such Successor
Guarantee Trustee and delivered to the Guarantor.

         (c) The Guarantee Trustee appointed to office shall hold office until a
Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by an instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.

                                       9
<PAGE>

         (d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 3.2 within 60 days after
delivery of an instrument of removal or resignation, the Guarantee Trustee
resigning or being removed may petition any court of competent jurisdiction for
appointment of a Successor Guarantee Trustee. Such court may thereupon, after
prescribing such notice, if any, as it may deem proper, appoint a Successor
Guarantee Trustee.

         (e) No Guarantee Trustee shall be liable for the acts or omissions
to act of any Successor Guarantee Trustee.

         (f) Upon termination of this Guarantee or removal or resignation of the
Guarantee Trustee pursuant to this Section 3.2, the Guarantor shall pay to the
Guarantee Trustee all amounts owing to the Guarantee Trustee under Sections 7.2
and 7.3 accrued to the date of such termination, removal or resignation.

                                   ARTICLE IV

                                    GUARANTEE

         SECTION 4.1 GUARANTEE.

         (a) The Guarantor irrevocably and unconditionally agrees to pay in full
to the Holders the Guarantee Payments (without duplication of amounts
theretofore paid by the Issuer), as and when due, regardless of any defense
(except the defense of payment by the Issuer), right of set-off or counterclaim
that the Issuer may have or assert. The Guarantor's obligation to make a
Guarantee Payment may be satisfied by direct payment of the required amounts by
the Guarantor to the Holders or by causing the Issuer to pay such amounts to the
Holders.

         (b) The Guarantor hereby also agrees to assume any and all Obligations
of the Issuer and in the event any such Obligation is not so assumed, subject to
the terms and conditions hereof, the Guarantor hereby irrevocably and
unconditionally guarantees to each Beneficiary the full payment, when and as
due, of any and all Obligations to such Beneficiaries. This Guarantee is
intended to be for the benefit of, and to be enforceable by, all such
Beneficiaries, whether or not such Beneficiaries have received notice hereof.

         SECTION 4.2 WAIVER OF NOTICE AND DEMAND.

         The Guarantor hereby waives notice of acceptance of this Guarantee and
of any liability to which it applies or may apply, presentment, demand for
payment, any right to require a proceeding first against the Issuer or any other
Person before proceeding against the Guarantor, protest, notice of nonpayment,
notice of dishonor, notice of redemption and all other notices and demands.

         SECTION 4.3 OBLIGATIONS NOT AFFECTED.

         The obligations, covenants, agreements and duties of the Guarantor
under this Guarantee shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:

                                       10
<PAGE>

         (a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Capital Securities to be performed
or observed by the Issuer;

         (b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions, Optional Redemption Price, Special Redemption
Price, Liquidation Distribution or any other sums payable under the terms of the
Capital Securities or the extension of time for the performance of any other
obligation under, arising out of or in connection with, the Capital Securities
(other than an extension of time for payment of Distributions, Optional
Redemption Price, Special Redemption Price, Liquidation Distribution or other
sum payable that results from the extension of any interest payment period on
the Debentures or any extension of the maturity date of the Debentures permitted
by the Indenture);

         (c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Capital Securities, or any
action on the part of the Issuer granting indulgence or extension of any kind;

         (d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;

         (e) any invalidity of, or defect or deficiency in, the Capital
Securities;

         (f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or

         (g) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 4.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.

         There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.

         SECTION 4.4 RIGHTS OF HOLDERS.

         (a) The Holders of a Majority in liquidation amount of the Capital
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of this
Guarantee or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under this Guarantee; provided, however, that (subject to
Section 2.1) the Guarantee Trustee shall have the right to decline to follow any
such direction if the Guarantee Trustee being advised by counsel determines that
the action or proceeding so directed may not lawfully be taken or if the
Guarantee Trustee in good faith by its board of directors or trustees, executive
committees or a trust committee of directors or trustees and/or Responsible
Officers shall determine that the action or proceedings so directed would
involve the Guarantee Trustee in personal liability.

                                       11
<PAGE>

         (b) Any Holder of Capital Securities may institute a legal proceeding
directly against the Guarantor to enforce the Guarantee Trustee's rights under
this Guarantee, without first instituting a legal proceeding against the Issuer,
the Guarantee Trustee or any other Person. The Guarantor waives any right or
remedy to require that any such action be brought first against the Issuer, the
Guarantee Trustee or any other Person before so proceeding directly against the
Guarantor.

         SECTION 4.5 GUARANTEE OF PAYMENT.

         This Guarantee creates a guarantee of payment and not of collection.

         SECTION 4.6 SUBROGATION.

         The Guarantor shall be subrogated to all (if any) rights of the Holders
of Capital Securities against the Issuer in respect of any amounts paid to such
Holders by the Guarantor under this Guarantee; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any right that it may acquire by way of
subrogation or any indemnity, reimbursement or other agreement, in all cases as
a result of payment under this Guarantee, if, after giving effect to any such
payment, any amounts are due and unpaid under this Guarantee. If any amount
shall be paid to the Guarantor in violation of the preceding sentence, the
Guarantor agrees to hold such amount in trust for the Holders and to pay over
such amount to the Holders.

         SECTION 4.7 INDEPENDENT OBLIGATIONS.

         The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Capital
Securities and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Guarantee
notwithstanding the occurrence of any event referred to in subsections (a)
through (g), inclusive, of Section 4.3 hereof.

         SECTION 4.8 ENFORCEMENT BY A BENEFICIARY.

         A Beneficiary may enforce the obligations of the Guarantor contained in
Section 4.1(b) directly against the Guarantor and the Guarantor waives any right
or remedy to require that any action be brought against the Issuer or any other
person or entity before proceeding against the Guarantor. The Guarantor shall be
subrogated to all rights (if any) of any Beneficiary against the Issuer in
respect of any amounts paid to the Beneficiaries by the Guarantor under this
Guarantee; provided, however, that the Guarantor shall not (except to the extent
required by mandatory provisions of law) be entitled to enforce or exercise any
rights that it may acquire by way of subrogation or any indemnity, reimbursement
or other agreement, in all cases as a result of payment under this Guarantee, if
at the time of any such payment, and after giving effect to such payment, any
amounts are due and unpaid under this Guarantee.

                                       12
<PAGE>

                                    ARTICLE V

                    LIMITATION OF TRANSACTIONS; SUBORDINATION

         SECTION 5.1 LIMITATION OF TRANSACTIONS.

         So long as any Capital Securities remain outstanding, if (a) there
shall have occurred and be continuing an Event of Default or a Declaration Event
of Default or (b) the Guarantor shall have selected an Extension Period as
provided in the Declaration and such period, or any extension thereof, shall
have commenced and be continuing, then the Guarantor shall not and shall not
permit any Affiliate of the Guarantor controlled by the Guarantor to (x) declare
or pay any dividends or distributions on, or redeem, purchase, acquire, or make
a liquidation payment with respect to, any of the Guarantor's or such
Affiliate's capital stock (other than payments of dividends or distributions to
the Guarantor or a Subsidiary of the Guarantor) or make any guarantee payments
with respect to the foregoing; or (y) make any payment of principal of or
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Guarantor or any Affiliate of the Guarantor controlled by the
Guarantor that rank pari passu in all respects with or junior in interest to the
Debentures (other than, with respect to clauses (x) and (y) above, (i)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Guarantor or any Subsidiary of the Guarantor in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
one or more employees, officers, directors or consultants, in connection with a
dividend reinvestment or stockholder stock purchase plan or in connection with
the issuance of capital stock of the Guarantor or of such Subsidiary (or
securities convertible into or exercisable for such capital stock) as
consideration in an acquisition transaction entered into prior to the occurrence
of the Event of Default, Declaration Event of Default or Extension Period, as
applicable, (ii) as a result of any exchange or conversion of any class or
series of the Guarantor's capital stock (or any capital stock of a Subsidiary of
the Guarantor) for any class or series of the Guarantor's capital stock (or in
the case of a Subsidiary of the Guarantor, any class or series of such
Subsidiary's capital stock) or of any class or series of the Guarantor's
indebtedness for any class or series of the Guarantor's capital stock (or in the
case of indebtedness of a Subsidiary of the Guarantor, of any class or series of
such Subsidiary's indebtedness for any class or series of such Subsidiary's
capital stock), (iii) the purchase of fractional interests in shares of the
Guarantor's capital stock (or the capital stock of a Subsidiary of the
Guarantor) pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (iv) any declaration of a
dividend in connection with any stockholders' rights plan, or the issuance of
rights, stock or other property under any stockholders' rights plan, or the
redemption or repurchase of rights pursuant thereto, (v) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock and any cash payments in lieu of fractional shares
issued in connection therewith, or (vi) payments under this Guarantee).

         SECTION 5.2 RANKING.

         This Guarantee will constitute an unsecured obligation of the Guarantor
and will rank subordinate and junior in right of payment to all present and
future Senior Indebtedness (as

                                       13
<PAGE>

defined in the Indenture) of the Guarantor. By their acceptance thereof, each
Holder of Capital Securities agrees to the foregoing provisions of this
Guarantee and the other terms set forth herein.

         The right of the Guarantor to participate in any distribution of assets
of any of its Subsidiaries upon any such Subsidiary's liquidation or
reorganization or otherwise is subject to the prior claims of creditors of that
Subsidiary, except to the extent the Guarantor may itself be recognized as a
creditor of that Subsidiary. Accordingly, the Guarantor's obligations under this
Guarantee will be effectively subordinated to all existing and future
liabilities of the Guarantor's Subsidiaries, and claimants should look only to
the assets of the Guarantor for payments hereunder. This Guarantee does not
limit the incurrence or issuance of other secured or unsecured debt of the
Guarantor, including Senior Indebtedness of the Guarantor, under any indenture
that the Guarantor may enter into in the future or otherwise.

                                   ARTICLE VI

                                   TERMINATION

         SECTION 6.1 TERMINATION.

         This Guarantee shall terminate as to the Capital Securities (i) upon
full payment of the Optional Redemption Price or Special Redemption Price of all
Capital Securities then outstanding, (ii) upon the distribution of all of the
Debentures to the Holders of all of the Capital Securities or (iii) upon full
payment of the amounts payable in accordance with the Declaration upon
dissolution of the Issuer. This Guarantee will continue to be effective or will
be reinstated, as the case may be, if at any time any Holder of Capital
Securities must restore payment of any sums paid under the Capital Securities or
under this Guarantee.

                                   ARTICLE VII

                                 INDEMNIFICATION

         SECTION 7.1 EXCULPATION.

         (a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Guarantor or any Covered Person for any loss,
damage or claim incurred by reason of any act or omission performed or omitted
by such Indemnified Person in good faith in accordance with this Guarantee and
in a manner that such Indemnified Person reasonably believed to be within the
scope of the authority conferred on such Indemnified Person by this Guarantee or
by law, except that an Indemnified Person shall be liable for any such loss,
damage or claim incurred by reason of such Indemnified Person's negligence or
willful misconduct with respect to such acts or omissions.

         (b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Issuer or the Guarantor and upon such information,
opinions, reports or statements presented to the Issuer or the Guarantor by any
Person as to matters the Indemnified Person reasonably believes are within such
other Person's professional or expert competence and who, if selected by such
Indemnified Person, has been selected with reasonable care by such

                                       14
<PAGE>

Indemnified Person, including information, opinions, reports or statements as to
the value and amount of the assets, liabilities, profits, losses, or any other
facts pertinent to the existence and amount of assets from which Distributions
to Holders of Capital Securities might properly be paid.

         SECTION 7.2 INDEMNIFICATION.

         (a) The Guarantor agrees to indemnify each Indemnified Person for, and
to hold each Indemnified Person harmless against, any and all loss, liability,
damage, claim or expense incurred without negligence or willful misconduct on
the part of the Indemnified Person, arising out of or in connection with the
acceptance or administration of the trust or trusts hereunder, including, but
not limited to, the costs and expenses (including reasonable legal fees and
expenses) of the Indemnified Person defending itself against, or investigating,
any claim or liability in connection with the exercise or performance of any of
the Indemnified Person's powers or duties hereunder. The obligation to indemnify
as set forth in this Section 7.2 shall survive the resignation or removal of the
Guarantee Trustee and the termination of this Guarantee.

         (b) Promptly after receipt by an Indemnified Person under this Section
7.2 of notice of the commencement of any action, such Indemnified Person will,
if a claim in respect thereof is to be made against the Guarantor under this
Section 7.2, notify the Guarantor in writing of the commencement thereof; but
the failure so to notify the Guarantor (i) will not relieve the Guarantor from
liability under paragraph (a) above unless and to the extent that the Guarantor
did not otherwise learn of such action and such failure results in the
forfeiture by the Guarantor of substantial rights and defenses and (ii) will
not, in any event, relieve the Guarantor from any obligations to any Indemnified
Person other than the indemnification obligation provided in paragraph (a)
above. The Guarantor shall be entitled to appoint counsel of the Guarantor's
choice at the Guarantor's expense to represent the Indemnified Person in any
action for which indemnification is sought (in which case the Guarantor shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the Indemnified Person or Persons except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
Indemnified Person. Notwithstanding the Guarantor's election to appoint counsel
to represent the Guarantor in an action, the Indemnified Person shall have the
right to employ separate counsel (including local counsel), and the Guarantor
shall bear the reasonable fees, costs and expenses of such separate counsel if
(i) the use of counsel chosen by the Guarantor to represent the Indemnified
Person would present such counsel with a conflict of interest, (ii) the actual
or potential defendants in, or targets of, any such action include both the
Indemnified Person and the Guarantor and the Indemnified Person shall have
reasonably concluded that there may be legal defenses available to it and/or
other Indemnified Person(s) which are different from or additional to those
available to the Guarantor, (iii) the Guarantor shall not have employed counsel
satisfactory to the Indemnified Person to represent the Indemnified Person
within a reasonable time after notice of the institution of such action or (iv)
the Guarantor shall authorize the Indemnified Person to employ separate counsel
at the expense of the Guarantor. The Guarantor will not, without the prior
written consent of the Indemnified Persons, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the Indemnified Persons are actual or
potential parties to such

                                       15
<PAGE>

claim or action) unless such settlement, compromise or consent includes an
unconditional release of each Indemnified Person from all liability arising out
of such claim, action, suit or proceeding.

         SECTION 7.3 COMPENSATION; REIMBURSEMENT OF EXPENSES.

         The Guarantor agrees:

         (a) to pay to the Guarantee Trustee from time to time such compensation
for all services rendered by it hereunder as the parties shall agree to from
time to time (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust); and

         (b) except as otherwise expressly provided herein, to reimburse the
Guarantee Trustee upon request for all reasonable expenses, disbursements and
advances incurred or made by it in accordance with any provision of this
Guarantee (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or willful misconduct.

         The provisions of this Section 7.3 shall survive the resignation or
removal of the Guarantee Trustee and the termination of this Guarantee.

                                  ARTICLE VIII

                                  MISCELLANEOUS

         SECTION 8.1 SUCCESSORS AND ASSIGNS.

         All guarantees and agreements contained in this Guarantee shall bind
the successors, assigns, receivers, trustees and representatives of the
Guarantor and shall inure to the benefit of the Holders of the Capital
Securities then outstanding. Except in connection with any merger or
consolidation of the Guarantor with or into another entity or any sale, transfer
or lease of the Guarantor's assets to another entity, in each case, to the
extent permitted under the Indenture, the Guarantor may not assign its rights or
delegate its obligations under this Guarantee without the prior approval of the
Holders of at least a Majority in liquidation amount of the Capital Securities.

         SECTION 8.2 AMENDMENTS.

         Except with respect to any changes that do not adversely affect the
rights of Holders of the Capital Securities in any material respect (in which
case no consent of Holders will be required), this Guarantee may be amended only
with the prior approval of the Holders of not less than a Majority in
liquidation amount of the Capital Securities and the Guarantor. The provisions
of the Declaration with respect to amendments thereof apply to the giving of
such approval.

                                       16
<PAGE>

         SECTION 8.3 NOTICES.

         All notices provided for in this Guarantee shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by first class mail, as follows:

         (a) If given to the Guarantee Trustee, at the Guarantee Trustee's
mailing address set forth below (or such other address as the Guarantee Trustee
may give notice of to the Holders of the Capital Securities and the Guarantor):

                  U.S. Bank National Association
                  225 Asylum Street, Goodwin Square
                  Hartford, Connecticut  06103
                  Attention: Corporate Trust Services
                  Telecopy:  860-244-1889

                  With a copy to:

                  U.S. Bank National Association
                  1 Federal Street
                  Boston, Massachusetts  02110
                  Attention: Paul D. Allen, Corporate Trust Services
                  Telecopy:  617-603-6665

         (b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders of the Capital Securities and to the Guarantee Trustee):

                  American Physicians Capital, Inc.
                  1301 N. Hagadorn Road
                  East Lansing, Michigan 48823
                  Attention: Frank H. Freund
                  Telecopy:  517-351-7866

         (c) If given to any Holder of the Capital Securities, at the address
set forth on the books and records of the Issuer.

         All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.

         SECTION 8.4 BENEFIT.

         This Guarantee is solely for the benefit of the Beneficiaries and,
subject to Section 2.1(a), is not separately transferable from the Capital
Securities.

                                       17
<PAGE>

         SECTION 8.5 GOVERNING LAW.

         THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW).

         SECTION 8.6 COUNTERPARTS.

         This Guarantee may be executed in one or more counterparts, each of
which shall be an original, but all of which taken together shall constitute one
and the same instrument.

         SECTION 8.7 SEPARABILITY.

         In case one or more of the provisions contained in this Guarantee shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provisions of this Guarantee, but this Guarantee shall be construed as if such
invalid or illegal or unenforceable provision had never been contained herein.

                     Signatures appear on the following page

                                       18
<PAGE>

         THIS GUARANTEE is executed as of the day and year first above written.

                                 AMERICAN PHYSICIANS CAPITAL, INC., AS
                                 GUARANTOR

                                 By:      /s/ Frank H. Freund
                                          ------------------------------------
                                          Name: Frank H. Freund
                                          Title: Chief Financial Officer

                                 U.S. BANK NATIONAL ASSOCIATION, AS
                                 GUARANTEE TRUSTEE

                                 By:      /s/ Donald F. MacKelcan
                                          ------------------------------------
                                          Name: Donald F. MacKelcan
                                          Title: Vice President

                                       19

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