Document:

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                              AMENDED AND RESTATED
                              EMPLOYMENT AGREEMENT

      This  AMENDED AND  RESTATED  EMPLOYMENT  AGREEMENT  (the  "Agreement")  is
entered  into  effective as of the 10th day of  November,  2004 (the  "Effective
Date"), between HCC INSURANCE HOLDINGS, INC. ("HCC" or "Company") and STEPHEN L.
WAY ("Executive"), sometimes collectively referred to herein as the "Parties."

                                R E C I T A L S:

      WHEREAS,  Executive is to be employed as Chief  Executive  Officer ("CEO")
and Executive Chairman of the Board of HCC;

      WHEREAS,  it is the desire of the Board of Directors of HCC (the  "Board")
to (i) directly engage Executive as an officer of HCC and its subsidiaries;  and
(ii) directly engage, if elected, the services of Executive as a director of HCC
and its subsidiaries;

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

      WHEREAS,  this  Agreement  amends and  restates  that  certain  Employment
Agreement  dated effective as of January 1, 2003 as supplemented by that certain
Employment  Agreement Addendum 3(a)(2) entered into effective as of December 31,
2003; and

      WHEREAS,  Executive  and HCC have  previously  entered into an  Employment
Agreement  effective  as of  January  1, 2000  which is deemed to be  cancelled,
terminated and of no further force or effect, as of January 1, 2003.

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

      1. TERMINATION OF 2000 CONTRACT AND TERM. Effective as of January 1, 2003,
the 2000  Contract  shall be  cancelled,  terminated  and of no further force or
effect.  The Company  hereby agrees to employ  Executive as its Chief  Executive
Officer and  Executive  Chairman of the Board,  and  Executive  hereby agrees to
accept such  employment,  on the terms and conditions set forth herein,  for the
period  commencing  on the  January 1, 2003 and  expiring  as of 11:59  p.m.  on
December 31, 2007 (unless sooner terminated or unless renewed as hereinafter set
forth).

      Unless Executive or the Company has given written notice of termination at
least 120 days before the end of any calendar  year,  at the end of each year of
the  term  and  any  extension   thereof,   this  Agreement  shall  be  extended
automatically  and without  any  further  action on the part of any party for an
additional one year so that unless so terminated,  Executive shall always have a
five-year term remaining on this Agreement. As used herein the "Term" shall mean
the initial five-year term and any subsequent  renewal or renewals  thereof.  In
addition,  at Executive's sole election,  at any time during the Term, Executive
shall have the right to terminate his position as CEO, but continue

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as  Executive  Chairman of the Board,  provided,  in such event the Term of this
Agreement  shall continue for a period of five (5) years from the date Executive
no longer serves as CEO, with no right to further extensions.

      2. DUTIES.

            (a) DUTIES AS EMPLOYEE OF THE COMPANY.  Executive shall,  subject to
the supervision of the Board of Directors,  have general  management and control
of HCC in the ordinary  course of its business with all such powers with respect
to  such  management  and  control  as  may  be  reasonably   incident  to  such
responsibilities.   During  normal  business   hours,   Executive  shall  devote
substantially  all of his time and  attention  to  diligently  attending  to the
business of the Company. During the Term, and except as shall exist prior to the
date of this Agreement,  Executive  shall not directly or indirectly  render any
services of a business,  commercial, or professional nature to any other person,
firm,  corporation,  or  organization,  whether for  compensation  or otherwise,
without the prior consent of the Board of Directors of HCC.  However,  Executive
shall have the right to engage in such activities as may be appropriate in order
to manage his personal  investments so long as such  activities do not interfere
or conflict with the  performance  of his duties to the Company  hereunder.  The
conduct of such activity shall not be deemed to materially interfere or conflict
with Executive's  performance of his duties until Executive has been notified in
writing thereof and given a reasonable period in which to cure same.

            (b) OTHER  DUTIES.  At all times during the Term,  the Company shall
use its best efforts to cause Executive to be elected a director and to serve as
Executive Chairman of the Board of HCC. Any such failure to use its best efforts
prior to a Change of Control  shall be a material  breach of this  Agreement for
purposes  of Section  (4)(a)(iv).  Executive  agrees to serve as a director  and
member  of HCC  and of any of  its  subsidiaries  and in one or  more  executive
offices of any of HCC's  subsidiaries,  provided  Executive is  indemnified  for
serving in any and all such capacities in a manner acceptable to the Company and
Executive.  Executive  agrees  that while a full time  employee  he shall not be
entitled to receive any compensation for serving as a director of HCC, or in any
capacities  of HCC's  subsidiaries  other  than the  compensation  to be paid to
Executive by the Company pursuant to this Agreement.  If Executive is not a full
time employee, he shall be compensated as an outside director.

      3.    COMPENSATION AND RELATED MATTERS.

            (a) BASE SALARY AND DEFERRED COMPENSATION

                  (1) Executive  shall receive a base salary (the "Base Salary")
paid by the Company at the annual rate of $800,000,  during the period beginning
on the Effective Date and for each year of the Term, payable not less frequently
than in  substantially  equal monthly  installments (or such other more frequent
times as executives of HCC normally are paid).

                  (2) In addition to the Base Salary,  Executive  shall  receive
deferred compensation (the "Deferred  Compensation") of $400,000 or such greater
amount as is approved by the  Compensation  Committee in its discretion for each
calendar year or portion thereof of the Term.

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      Deferred  Compensation  under this Agreement shall be accrued under one or
more of the Company's  deferred  compensation  plans as determined  from time to
time by the Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee"). Notwithstanding anything herein to the contrary, such
accruals of Deferred  Compensation  shall be subject to and shall be governed by
the terms of the plan under which accrued (including,  without limitation,  plan
terms  regarding  the  crediting  of income  and the  timing of  distributions).
Deferred  Compensation  accruals  for a year shall be credited on December 31 of
the year, unless an earlier date is specified by the Compensation Committee.

                  (3) If Executive  elects to terminate  his position as CEO but
remain as  Executive  Chairman  of the Board,  the Base  Salary set forth in (i)
above shall be reduced from  $800,000 to $500,000 per annum (and all other terms
of this Agreement shall continue to apply).

            (b) BONUS PAYMENTS.  During the Term, Executive shall be entitled to
receive, in addition to the Base Salary, an annual cash bonus payment in amounts
to be determined at the sole discretion of the Compensation Committee.

            (c) EXPENSES.  During the Term of this  Agreement and the Consulting
Period,  defined  hereunder,  Executive  shall be  entitled  to  receive  prompt
reimbursement  for all reasonable  expenses  incurred by him (in accordance with
the policies and procedures  established  by the Board for the Company's  senior
executive officers) in performing  services  hereunder,  provided that Executive
properly accounts  therefor in accordance with Company policy. In addition,  the
Company shall  reimburse  Executive  pursuant to the arrangement in effect as of
the date of this Agreement for all use of the  Executive's  aircraft  during the
Term and the Consulting Period.

            (d) OTHER BENEFITS. Executive shall be entitled to participate in or
receive  benefits  under  any  compensation   employee  benefit  plan  or  other
arrangement  made  available  by the  Company now or in the future to its senior
executive  officers  and key  management  employees,  subject  to and on a basis
consistent with the terms,  conditions,  and overall administration of such plan
or  arrangement.  Nothing  paid to  Executive  under  any  plan  or  arrangement
presently  in effect or made  available  in the future  shall be deemed to be in
lieu of the Base Salary or Defined Compensation payable to Executive pursuant to
subsection  (a) of this  Section.  The Company shall not make any changes in any
employee  benefit  plans or other  arrangements  in effect on the date hereof or
subsequently  in  effect  in  which   Executive   currently  or  in  the  future
participates (including,  without limitation,  each pension and retirement plan,
supplemental pension and retirement plan, savings and profit sharing plan, stock
or unit ownership plan,  stock or unit purchase plan, stock or unit option plan,
life insurance plan,  medical  insurance  plan,  disability  plan,  dental plan,
health and accident plan, or any other similar plan or  arrangement)  that would
adversely affect Executive's rights or benefits  thereunder,  unless such change
occurs pursuant to a program  applicable to substantially  all executives of the
Company and does not result in a proportionately greater reduction in the rights
of or benefits to Executive as compared with any other executive of the Company.

            (e)  VACATIONS.  Executive  shall be  entitled  to forty  (40)  paid
vacation  days per year  during the Term,  or such  additional  number as may be
determined by the Board from time to time. There shall be indefinite  carryovers
of unused  vacation from year to year.  For purposes of this

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Section,  weekends shall not count as vacation days, and Executive shall also be
entitled  to all paid  holidays  given by the  Company to its  senior  executive
officers.

            (f) PERQUISITES.

                  (1) Executive shall be entitled to receive the perquisites and
fringe benefits  applicable to a senior  executive  officer of HCC in accordance
with any practice  established by the Compensation  Committee.  Notwithstanding,
and in addition to, any perquisites to which  Executive is entitled  pursuant to
the  preceding  sentence,  Executive  shall:  (i)  have  the use of two  company
vehicles  similar to those Executive has been provided prior to the date of this
Agreement and the Company shall pay all expenses  related to Executive's  use of
such  automobiles,  including  gasoline,  insurance,  and  maintenance.  At  the
beginning of each calendar year of the Term and the Consulting Period, HCC shall
replace the older vehicle (or if both are the same age -- one of such  vehicles)
with a new vehicle. Executive shall receive ownership to both such vehicles upon
termination  of this  Agreement;  (ii) be allowed  to travel  with his spouse on
business utilizing First Class passage under the Company's corporate account, as
Executive  determines;  (iii) receive  reimbursement of annual country club dues
for Executive's  membership in Lochinvar  Country Club, Shadow Hawk Country Club
plus one  additional  country club to be determined  by Executive.  In addition,
Executive  shall  have the  right to change  membership  in any such club and to
obtain  membership to any other club (at Company's sole cost) so long as Company
is not required to hold membership in, or pay dues for, more than three (3) such
country  clubs  at any  one  time.  Following  termination  of  this  Agreement,
Executive  shall be bonused  such  ownership;  (iv)  receive all  existing  life
insurance  plus  an  additional  term or  life  policy  in an  amount  equal  to
$5,000,000. Upon termination of Executive's position as Executive Chairman., all
such life insurance shall be converted to ordinary life insurance to be owned by
Executive or Executive's  designee;  (v) be entitled to utilize an office at the
Company's  executive offices or, at Executive's  election,  to be reimbursed for
the  utilization of an office at Executive's  home;  (vi) be entitled to utilize
the services of Company employees and contract  employees at an aggregate annual
wage cost,  including  bonuses of $600,000  (which shall be added to Executive's
taxable income) during the Term and the Consulting  Period  (applicable  payroll
taxes and the cost of employee  fringe  benefits,  including  medical and dental
insurance,   retirement   plans   including  401k  plans  and  any  stock  based
compensation  expense,  including stock options or restricted shares shall be in
addition to the $600,000 wage limitation; (vii) have the right to utilize during
the Term  and the  Consulting  Period  at no cost to  Executive,  the use of the
Company's airplanes or to be reimbursed for the use of the Executive's  aircraft
(subject  to being taxed on the basis of the  appropriate  IRS  regulations  for
transportation  for personal use) and the pilots and  engineers  employed by the
Company pursuant to the contractual arrangement in existence as of the Effective
Date  hereof;   (viii)  be  entitled  to  be  reimbursed   for  all  methods  of
communications   used  by  Executive   (including,   without   limitation,   the
installation  cost and use of software,  telephone,  facsimile  machines,  etc.,
other  similar  equipment,  and all  upgrades  thereof)  in  Executive's  house,
aircraft  and boat which  shall  continue  through  the Term and the  Consulting
Period and (ix) be  entitled to  incidental  miscellaneous  expenditures  not to
exceed  $10,000 per year for postage,  delivery,  stationery  and other personal
items at the Executive's discretion.

                  (2) In addition  to all other  benefits  provided  for in this
Agreement, Executive shall be entitled to receive medical insurance as currently
provided under the Company's

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group  program,  as such may be  changed  from time to time in the  future,  and
Executive shall be entitled to continue to be covered by such group program, or,
if not permitted  under the terms of the group  program,  then the Company shall
provide  Executive  with a  medical  insurance  policy  providing  substantially
similar  benefits as to the group program for the period ending on the later of:
(i) the date of Executive's  death;  (ii) if Executive is married on the date of
his  death,  the date of the death of  Executive's  spouse;  or (iii) as to each
minor  dependent of  Executive,  the later of the date that each such  dependent
reaches the age of twenty-five or completes college (as defined in the Company's
group  program).  Executive  shall be entitled  to receive the medical  benefits
defined herein at no cost to the Executive.

                  (3) The  Company  shall  pay for  Executive's  preparation  of
estate  planning  and wealth  preservation  documents  during the course of this
Agreement  with the  Company.  Such  estate  planning  and  wealth  preservation
documents may be changed from time to time,  at the Company's  cost and expense,
pursuant to Executive's changing circumstances.

                  (4) During Executive's  employment he has been instrumental in
designing and utilizing the Company's Logo,  Executive shall, during the Term of
this  Agreement be entitled to utilize such Logo in such manner as Executive may
determine and, in the event of a Change of Control,  as defined below, such Logo
shall belong exclusively to Executive.

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

      4. TERMINATION.

            (a) DEFINITIONS.

                  (1) "CAUSE" shall mean:

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

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

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

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

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

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

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

                        (ii)  At  any  time  during  the  period  of  three  (3)
            consecutive  years  (not  including  any  period  prior  to the date
            hereof), individuals who at the beginning of such period constituted
            the Board (and any new director whose election by the Board or whose
            nomination for election by the Company's  shareholders were approved
            by a vote of at least  two-thirds  of the  directors  then  still in
            office who either were  directors at the beginning of such period or
            whose   election  or  nomination  for  election  was  previously  so
            approved) cease for any reason to constitute a majority thereof; or

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

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

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

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

                        (i) A  material  alteration  in the  nature or status of
            Executive's title, duties or responsibilities,  or the assignment of
            duties or  responsibilities  inconsistent  with Executive's  status,
            title, duties and responsibilities;

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

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

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

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

However,  Good Reason shall exist with respect to an above specified matter only
if such matter is not  corrected by the Company  within  thirty (30) days of its
receipt of written notice of such matter from Executive, and in no event shall a
termination by Executive occurring more than ninety (90) days following the date
of the event described above be a termination for Good Reason due to such event.

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

            (b)  TERMINATION  WITHOUT  CAUSE,  OR  TERMINATION  FOR GOOD REASON:
BENEFITS.  In the event there is a termination by the Company  without Cause, or
if Executive  terminates for Good Reason,  or if there is a Change of Control (a
"Termination  Event"),  this  Agreement shall

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terminate  except as provided in Section 6, and  Executive  shall be entitled to
the following severance benefits:

                  (1) Base  Salary  and  Deferred  Compensation  (as  defined in
Section 3(a)),  at the rate and payable at Executive's  option (or the option of
Executive's  estate) within sixty (60) days in a lump sum payment or such longer
period of time as Executive shall determine.

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

                  (3) If Executive receives any payments whether or not pursuant
to this Agreement  which are subject to an excise tax imposed under Section 4999
of the  Internal  Revenue Code of 1986,  as amended,  or any similar tax imposed
under federal,  state, or local law (collectively,  "Excise Taxes"), the Company
shall pay to  Executive  (on or before the date on which the Company is required
to withhold  such Excise  Taxes),  1) an  additional  amount equal to all Excise
Taxes then due and payable,  and 2) the amount  necessary to defray  Executive's
increased  (federal,  state, and local) tax liability  arising due to payment of
the amount  specified in this  Subsection  (4) which shall include any costs and
expenses,  including  penalties and interest incurred by Executive in connection
with any audit, proceedings, etc. related to the payment of such Excise Taxes or
this payment.  For purposes of calculating the amount payable to Executive under
this  Section,  the federal and state income tax rates used shall be the highest
marginal  federal and state rates  applicable to ordinary  income in Executive's
state of  residence,  taking into account any federal  income tax  deductions or
credits  available to Executive for state income taxes.  The Company shall cause
its independent  auditors to calculate such amount and provide  Executive a copy
of such calculation at least ten (10) days prior to the date specified above for
payment of such amount. It is the intent of the Parties that this Subsection (4)
shall place  Executive in the same net after-tax  position  Executive would have
been in had no  payment  been  subject  to an  Excise  Tax and,  notwithstanding
anything to the contrary, it shall be construed to effectuate said result;

                  (4) All accrued compensation and unreimbursed expenses through
the  Termination  Date. Such amounts shall be paid to Executive in a lump sum in
cash within thirty (30) days after the Termination Date; and
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                  (5) Executive shall be free to accept other employment during
such period, and there shall be no offset of any employment compensation earned
by Executive in such other employment during such period against payments due
Executive under this Section 4, and there shall be no offset in any compensation
received from such other employment against the Base Salary set forth above.

                  (6) In addition to all amounts otherwise paid to Executive
pursuant to this Agreement, all amounts that Executive would otherwise have
received during the Consulting Period, including, without limitation, all
perquisites, as set forth in subsection 3(f).

            (c) TERMINATION IN EVENT OF DEATH: BENEFITS. If Executive's
employment is terminated by reason of Executive's death during the Term of this
Agreement, this Agreement shall terminate except as provided in Section 6
without further obligation to Executive's legal representatives under this
Agreement, other than for payment of all compensation and unreimbursed expenses,
as Executive would have been entitled to during the remaining portion of the
Term and the Consulting Period, the timely payment or provision of Other
Benefits through the date of death, and, if such death occurs on or after
October 1 of any year, such cash or stock bonus as Executive would otherwise
have been awarded in such year if Executive's death had not occurred. Such
amounts shall be paid to Executive's estate or beneficiary, as applicable, in a
lump sum in cash within ninety (90) days after the date of death.

            (d) TERMINATION IN EVENT OF DISABILITY: BENEFITS. If Executive's
employment is terminated by reason of Executive's Disability during the Term,
except as provided for in Section 6, this Agreement shall terminate and
Executive shall receive payment of all compensation for the Term plus the
Consulting Period, and if such Disability occurs on or after October 1 of any
year, Executive shall be entitled to the same cash or stock bonus in such year
that Executive would have been awarded if such Disability had not occurred.
Executive's compensation shall not be reduced by any long-term disability
coverage Executive actually receives.

            (e) VOLUNTARY TERMINATION BY EXECUTIVE AND TERMINATION FOR CAUSE:
BENEFITS. Executive may terminate his employment with the Company without Good
Reason by giving written notice of his intent and stating an effective
Termination Date at least ninety (90) days after the date of such notice;
provided, however, that the Company may accelerate such effective date by paying
Executive through the proposed Termination Date and also vesting awards that
would have vested but for this acceleration of the proposed Termination Date.
Upon such a termination by Executive, except as provided in Section 6, or upon
termination for Cause by the Company, this Agreement shall terminate, and the
Company shall pay to Executive all accrued compensation, unreimbursed expenses
and the Other Benefits through the Termination Date. Such amounts shall be paid
to Executive in a lump sum in cash within thirty (30) days after the date of
termination.

            (f) DIRECTOR POSITIONS. Upon termination of employment or
Termination of Executive's position of Executive Chairman, for any reason,
Executive shall remain on any and all Board positions held with the Company
and/or any of its subsidiaries and affiliates. At such time, Executive shall be
paid as an outside director.

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      5. NON-COMPETITION, NON-SOLICITATION AND CONFIDENTIALITY. At the inception
of this employment relationship, and continuing on an ongoing basis, the Company
agrees to give Executive access to Confidential Information (including, without
limitation, Confidential Information, as defined below, of the Company's
Affiliates) which the Executive has not had access to or knowledge of before the
execution of this Agreement. At the time this Agreement is made, the Company
agrees to provide Executive with initial and ongoing Specialized Training, which
Executive has not had access to or knowledge of before the execution of this
Agreement. "Specialized Training" includes the training the Company provides to
its employees that is unique to its business and enhances Executive's ability to
perform Executive's job duties effectively. Specialized Training includes,
without limitation, orientation training; sales methods/techniques training;
operation methods training; and computer and systems training.

      In consideration of all of the foregoing, Executive agrees as follows:

            (a) NON-COMPETITION DURING EMPLOYMENT. Executive agrees that, in
consideration for the Company's promise to provide Executive with Confidential
Information and Specialized Training, during the Term he will not compete with
the Company by engaging in the conception, design, development, production,
marketing, or servicing of any product or service that is substantially similar
to the products or services which the Company provides, and that he will not
work for, in any capacity, assist, or become affiliated with as an owner,
partner, etc., either directly or indirectly, any individual or business which
offers or performs services, or offers or provides products substantially
similar to the services and products provided by Company.

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

            (c) NON-COMPETITION AFTER TERMINATION. Executive agrees that
Executive shall not, at any time during the period of two (2) years after the
termination of the Term for any reason, within any of the markets in which the
Company has sold products or services or formulated a plan to sell products or
services into a market during the last twelve (12) months of Executive's employ;
engage in or contribute Executive's knowledge to any work which is competitive
with or similar to a product, process, apparatus, service, or development on
which Executive worked or with respect to which Executive had access to
Confidential Information while employed by the Company; provided, however, this
subsection (c) shall not operate to prevent Executive from engaging in retail
insurance or re-insurance activities during such two-year period to the extent
such activities do not compete or permit any other person or entity to compete
with any business the Company or any of its

<PAGE>

subsidiaries or affiliated companies were engaged in at the time of such
termination. Following the expiration of said two (2) year period, Executive
shall continue to be obligated under the Confidential Information Section of
this Agreement not to use or to disclose Confidential Information of the Company
so long as it shall not be publicly available. It is understood that the
geographical area set forth in this covenant is divisible so that if this clause
is invalid or unenforceable in an included geographic area, that area is
severable and the clause remains in effect for the remaining included geographic
areas in which the clause is valid.

            (d) NON-SOLICITATION OF CUSTOMERS. Executive further agrees that for
a period of two (2) years after the termination of the Term, he will not solicit
or accept any business from any customer or client or prospective customer or
client with whom Executive dealt or solicited while employed by Company during
the last twelve (12) months of his employment.

            (e) NON-SOLICITATION OF EMPLOYEES. Executive agrees that for the
duration of the Term, and for a period of two (2) years after the termination of
the Term except for Frank J. Bramanti, L. Edward Tuffly, L. Byron Way and
Rosemary P. Ghelardi, and Executive's personal service employees, he will not
either directly or indirectly, on his own behalf or on behalf of others,
solicit, attempt to hire, or hire any person employed by Company to work for
Executive or for another entity, firm, corporation, or individual.

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

            (g) RETURN OF DOCUMENTS, EQUIPMENT, ETC. All writings, records, and
other documents and things comprising, containing, describing, discussing,
explaining, or evidencing any Confidential Information, and all equipment,
components, parts, tools, and the like in Executive's custody or possession that
have been obtained or prepared in the course of Executive's employment

<PAGE>

with the Company shall be the exclusive property of the Company, shall not be
copied and/or removed from the premises of the Company, except in pursuit of the
business of the Company, and shall be delivered to the Company, without
Executive retaining any copies, upon notification of the termination of
Executive's employment or at any other time requested by the Company. The
Company shall have the right to retain, access, and inspect all property of
Executive of any kind in the office, work area, and on the premises of the
Company upon termination of Executive's employment and at any time during
employment by the Company to ensure compliance with the terms of this Agreement.

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

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

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

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

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

            (m) EXTENSION OF POST-EMPLOYMENT RESTRICTIONS. In the event
Executive breaches Sections 5(b), (d), or (e) above, the restrictive time
periods contained in those provisions will be extended by the period of time
Executive was in violation of such provisions.

            (n) ENFORCEABILITY. The agreements contained in Section 5 are
independent of the other agreements contained herein. Accordingly, failure of
the Company to comply with any of its obligations outside of this Section do not
excuse Executive from complying with the agreements contained herein.

<PAGE>

            (o) SURVIVABILITY. The agreements contained in Sections 5 shall
survive the termination of this Agreement for any reason.

      6. CONSULTING AGREEMENT. Effective upon Executive's termination of
employment for any reason other than Executive's termination by the Company for
Cause, HCC hereby retains Executive as a consultant (an independent contractor
and not as an employee) for a period of five (5) years (the "Consulting
Period"). During the Consulting Period, Executive shall serve as Non-Executive
Chairman of the Board. Termination of the Term shall not effect the Parties'
rights and obligations under this Section 6, subject to the following: Executive
agrees to provide, if requested, 1,000 hours of service (the "Consulting
Services") per year, as required by the Company. Prior to a Change of Control,
the Company shall use its best effort to cause Executive to continue as a
Director and Chairman of the Board during the term of the Consulting Period. HCC
shall pay Executive $450,000 per year of the Consulting Period, payable
quarterly, in advance. Executive may elect to delay payment for services, but
not the services themselves. During such Consulting Period, Executive shall
receive, to the extent permitted by law and the terms of any existing plan, all
of the Company's benefits as if Executive was a full time employee. In addition,
the terms of this Section 6 shall remain in full force and effect whether or not
Executive dies or suffers a Disability pursuant to the terms hereof during the
Consulting Period. Further, if at any time during the Term of this Agreement
Executive shall elect, at his sole option, to cease being a full time employee,
then and in that event, Executive shall become a consultant pursuant to the
terms of this Section. During the Consulting Period, Executive shall have the
right to the same benefits for the same purposes and to the same extent as were
in effect during the term of this Agreement, provided, however, if Executive
ceases to be the Executive Chairman, Executive shall no longer receive Deferred
Compensation. The Consulting Services to be provided shall be commensurate with
Executive's training, background, experience and prior duties with the Company.
Executive shall receive such stock options or cash bonuses as the Compensation
Committee, in its sole discretion shall determine. Executive agrees to make
himself reasonably available to provide such Consulting Services during the
Consulting Period; provided, however, the Company agrees that it shall provide
reasonable advance notice to Executive of its expected consulting needs and any
request for Consulting Services hereunder shall not unreasonably interfere with
Executive's other business activities and personal affairs as determined in good
faith by Executive. In addition, Executive shall not be required to perform any
requested Consulting Services which, in Executive's good faith opinion, would
cause Executive to breach any fiduciary duty or contractual obligation Executive
may have to another employer. Further, during the Consulting Period, Executive
shall not be subject to any non-competition provisions except for the two-year
period provided for in Section 5(c). Unless waived by Executive, Executive shall
not be required to perform Consulting Services for more than four (4) days
during any week or for more than eight (8) hours during any day. Executive's
travel time shall constitute hours of Consulting Services for purposes of this
Section 6. The Parties contemplate that, when appropriate, the Consulting
Services shall be performed at Executive's office or residence and at the
Company's executive offices in Houston, Texas and may be performed at such other
locations only as they may mutually agree upon. Executive shall be properly
reimbursed for all travel and other expenses reasonably incurred by Executive in
rendering the Consulting Services.

      7. ASSIGNMENT. This Agreement cannot be assigned by Executive. The Company
may assign this Agreement only to a successor (whether direct or indirect, by
purchase, merger,

<PAGE>

consolidation or otherwise) to all or substantially all of the business and
assets of the Company provided such successor expressly agrees in writing
reasonably satisfactory to Executive to assume and perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession and assignment had taken place. Failure of the Company
to obtain such written agreement prior to the effectiveness of any such
succession shall be a material breach of this Agreement.

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

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

         If to Executive:            Stephen L. Way
                                     10 East Bend Lane
                                     Houston, Texas 77007
                                     Fax: (713) 864-2822

         If to Company:              HCC Insurance Holdings, Inc.
                                     13403 Northwest Freeway
                                     Houston, Texas 77040
                                     Fax: (713) 462-2401
                                     Attention: General Counsel

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

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

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

<PAGE>

      12. ARBITRATION. In the event any dispute arises out of Executive's
employment with or by the Company, or separation/termination therefrom, whether
as an employee or as a consultant which cannot be resolved by the Parties to
this Agreement, such dispute shall be submitted to final and binding
arbitration. The arbitration shall be conducted in accordance with the National
Rules for the resolution of Employment Disputes of the American Arbitration
Association ("AAA"). If the Parties cannot agree on an arbitrator, a list of
seven (7) arbitrators will be requested from AAA, and the arbitrator will be
selected using alternate strikes with Executive striking first. The cost of the
arbitration will be shared equally by Executive and Company; provided, however,
the Company shall promptly reimburse Executive for all costs and expenses
incurred in connection with any dispute in an amount up to, but not exceeding
twenty percent (20%) of Executive's Base Salary (or, if the dispute arises
during the Consulting Period, Executive's Base Salary as in effect immediately
prior to the beginning of the Consulting Period) unless such termination was for
Cause in which event Executive shall not be entitled to reimbursement unless and
until it is determined he was terminated other than for Cause. Arbitration of
such disputes is mandatory and in lieu of any and all civil causes of action and
lawsuits either party may have against the other arising out of Executive's
employment with Company, or separation therefrom. Such arbitration shall be held
in Houston, Texas.

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

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

      15. EFFECTIVE DATE. It is understood by Executive that this Agreement
shall be effective when signed by both Company and Executive.

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

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

                [REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]

<PAGE>

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

EXECUTIVE                              COMPANY

                                       HCC INSURANCE HOLDINGS, INC.

/s/ Stephen L. Way                     By: /s/ Walter J. Lack
-----------------------------          -----------------------------------------
STEPHEN L. WAY                         WALTER J. LACK,
                                       Chairman of the Compensation Committee

Date: January 13, 2005                 Date: January 13, 2005
      -----------------------                -----------------------------------

                  [SIGNATURE PAGE OF WAY EMPLOYMENT AGREEMENT]<PAGE>

                        INCENTIVE STOCK OPTION AGREEMENT
                     UNDER THE HCC INSURANCE HOLDINGS, INC.
                          2004 FLEXIBLE INCENTIVE PLAN

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

                                   WITNESSETH:

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

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

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

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

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

         2. The Plan. The option provided for in this Agreement is granted
pursuant to the HCC Insurance Holdings, Inc. 2004 Flexible Incentive Plan (the
"Plan") as of the date of grant specified on the signature page of this
Agreement (the "Date of Grant"). The terms and provisions of such Plan are
incorporated herein by reference and, except to the extent expressly provided by
the Plan, in the event of any conflict between the terms and provisions of this
Agreement and those of the Plan, the terms and provisions of the Plan, including
without limitation, those with respect to the powers of the administrative
committee appointed thereunder

                                       1
<PAGE>

(hereinafter referred to as the "Committee"), shall prevail and be controlling.
All capitalized terms not otherwise defined herein shall have the meaning set
forth in the Plan.

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

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

         5. Manner of Exercise.

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

                  (b) The Employee shall deliver to the Treasurer of the Company
         or his designee a cashier's check payable in United States currency
         (unless a personal check shall be acceptable to such officer) to the
         order of the Company for an amount equal to the purchase price for such
         number of shares; or, certificates for Common Stock of the Company
         (provided such Common Stock has been held by the Employee for such
         period of time, if any, as is required by the Committee), valued at the
         Fair Market Value of such Common Stock on the date of exercise of this
         option or a combination of both, as payment of all or any portion of
         the option price for such number of shares. The check or, if
         applicable, the certificates, shall be accompanied by such other
         instruments or agreements duly signed by the Employee as in the opinion
         of counsel for the Company may be necessary or advisable in order that
         the issuance of such number of shares comply with applicable rules and
         regulations under the Securities Act of 1933, as amended (the "Act"),
         any appropriate state securities laws, or any requirement of any
         national securities exchange on which such stock may be traded. As soon
         as practicable after any such exercise of the option in whole or in
         part by the Employee, the Company will deliver to the Employee a
         certificate for the number of shares with respect to which the option
         shall have been so exercised, issued in the Employee's name. Such stock
         certificate shall carry such restrictive legend, and such written
         instructions shall be given to the Company's transfer agent, as the
         Company may deem necessary or advisable for any purpose, including,
         without limitation, compliance with the requirements of the Act or any
         state securities laws.

                                       2
<PAGE>

         6. Termination of Employment.

                  (a) In the event the employment of the Employee is terminated
         for any reason other than death, Disability, voluntary termination by
         the Employee, or for cause (as determined by the Committee in its sole
         and absolute discretion), then the Employee shall have the right at any
         time within sixty (60) days after the termination of such employment
         or, if shorter, during the unexpired term of this option, to exercise
         this option for the full number of shares not previously exercised or
         any portion thereof, except as to the issuance of fractional shares,
         but only to the extent this option was otherwise exercisable in
         accordance with Paragraph 4 hereof on the date of such cessation of
         employment.

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

                  (c) In the event the employment of the Employee is terminated
         voluntarily by the Employee, the Employee shall have the right at any
         time within thirty (30) days after the termination of such employment
         or, if shorter, during the unexpired term of this option, to exercise
         this option for the full number of shares not previously exercised or
         any portion thereof, except as to the issuance of fractional shares,
         but only to the extent this option was otherwise exercisable in
         accordance with Paragraph 4 hereof as of the date of such termination
         of employment.

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

                  (e) In the event of the death of the Employee while in the
         employ of the Company or the Subsidiaries, this option may be exercised
         for the full number of shares not previously exercised, or any portion
         thereof, except as to the issuance of fractional shares, to the full
         extent of this option at any time within one year from the date of
         death of the Employee or within the unexpired term of this option,
         whichever is shorter, by the person or persons to whom the Employee's
         rights under this option shall pass by the Employee's will or by the
         laws of descent and distribution, whichever is applicable.

                                       3
<PAGE>

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

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

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

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

         11. Reorganization.

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

                           (i) If provision be made in writing in connection
                  with the Reorganization for the assumption and continuance of
                  the option hereby granted, or the substitution for such option
                  of a new option covering the shares of the successor employer
                  corporation, with appropriate adjustment as to the number and

                                       4
<PAGE>

                  kind of shares and prices, the option hereby granted, or the
                  new option substituted therefor, as the case may be, shall
                  continue in the manner and under the terms provided.

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

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

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

         13. Forfeiture of Option Gain.

                  (a) The purpose of the Plan is to attract, retain and reward
         employees; to increase stock ownership and identification with the
         Company's interests; and to provide incentive for remaining with and
         enhancing the value of the Company and its Subsidiaries over the
         long-term. The Employee hereby acknowledges that in the course of
         employment with the Company, the Employee has been and will continue to
         be provided access to certain confidential and proprietary information
         and knowledge relating to the operation, products, and services of the
         Company and the Subsidiaries and has been and will continue to be
         trained and instructed in the unique business methods of the Company
         and the Subsidiaries. The Employee further acknowledges that in the

                                       5
<PAGE>

         course of employment with the Company, the Employee has been and will
         continue to be entrusted with customer lists, financial information,
         and other confidential information regarding the Company's and the
         Subsidiaries' financial performance, shareholders, business plans,
         product development, product and system configurations, and other
         business methods and functions considered proprietary by the Company.
         As consideration for the above described training and access to
         confidential information and for the grant of this option, the Employee
         hereby agrees that if at any time within the term of the Option the
         Employee engages in any activity in competition with any activity of
         the Company (or its Subsidiaries), or inimical, contrary or harmful to
         the interests of the Company (or its Subsidiaries), including, but not
         limited to:

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

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

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

                           (iv) participating in a hostile takeover attempt;

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

         then (xx) this option shall terminate effective as of the date on which
         the Employee engages in such activity, unless terminated sooner by
         operation of another term or condition of this Agreement or the Plan
         and (yy) any option gain realized by the Employee from exercising all
         or a portion of the option, or such lesser amount as shall be
         determined to be the maximum reasonable and enforceable amount by a
         court or arbitrator, shall be paid by the Employee to the Company.

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

                  (c) The Employee may be released in whole or in part from the
         obligations under this Paragraph 13 only if the Board of Directors or
         the Compensation Committee thereof (or its duly appointed agent)
         determines in its sole discretion that such action is in the best
         interests of the Company.

                                       6
<PAGE>

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

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

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

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

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

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

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

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

                                       7
<PAGE>

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

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

                                       8
<PAGE>

              [SIGNATURE PAGE TO INCENTIVE STOCK OPTION AGREEMENT]

                                 TERMS OF OPTION

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

 <Table>
 <Caption>
                              CUMULATIVE PORTION OF SHARES         CUMULATIVE NUMBER OF
                                SUBJECT TO OPTION THAT IS        SHARES SUBJECT TO OPTION
                                VESTED ON AND AFTER SUCH        THAT IS VESTED ON AND AFTER
                                VEST DATE AND BEFORE NEXT       SUCH VEST DATE AND BEFORE
          VEST DATE                     VEST DATE                     NEXT VEST DATE

<S>                           <C>                               <C>

</Table>

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

COMPANY:                                     EMPLOYEE:

HCC INSURANCE HOLDINGS, INC.,
a Delaware corporation

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

By:
   --------------------------------          --------------------------------
Name:
     ------------------------------          --------------------------------
Title:
      -----------------------------

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