Document:

<PAGE>

                                                                   Exhibit 10.14

PERSONAL & CONFIDENTIAL

November 21, 2002

Mr. Eric Young
Director
Capstone Turbine
21211 Nordhoff St.
Chatsworth, CA 91311

RE: INTERIM EXECUTIVE OFFICER SERVICES FOR CAPSTONE TURBINE

Dear Eric,

Under the terms of this letter Agreement (the "AGREEMENT") The Interim CEO
Network ("ICN") is pleased to offer the services of Emily M. Liggett as interim
COO of Capstone Turbine (the "COMPANY"). She will report to the Company's Board
of Directors. Ms. Liggett (the "ICN MEMBER") will start on November 21, 2002 and
will offer her time for at least six (6) months, subject to our Standard Terms
and Conditions ("STANDARD TERMS") attached to this Agreement as Exhibit A.

1.       THE SERVICES

The Services provided under this Agreement will be performed primarily by the
ICN Member, with the support of ICN. All of the following Services will be
performed for you in accordance with the Standard Terms. We will:

    -    Provide outstanding leadership to employees during a critical period.

    -    Focus on operational improvements to improve profitability

    -    Assist in recruiting employees to the Company, including a permanent
         Chief Executive Officer.

    -    Implement sound management procedures and practices appropriate to a
         small public company.

    -    Report to the board on a regular and frequent basis.

    -    Provide other services reasonably requested by the Board that are
         customarily provided by a chief operating officer.

2.       TIME AND DURATION OF ASSIGNMENT

The ICN Member is prepared to begin this engagement on November 21, 2002 and she
will continue to be available to provide Services to you for at least six (6)
months, unless her engagement is terminated earlier in accordance with the
Standard Terms.

3.       ICN FEES

The Company agrees to pay ICN the following compensation, each item of which is
considered "fees" under the Standard Terms, and must be paid in accordance
therewith. All such fees are to be paid directly to ICN.

    -    The Company shall pay a non-refundable retainer of $10,000 that is due
         immediately upon Company's signing this Agreement. This retainer is
         non-refundable for any reason, regardless of whether the ICN Member
         commences or completes her engagement.

<PAGE>

             -    On January 15, 2003, the Company shall make a payment
                  ("SERVICE FEE") to ICN in the amount of $30,000 for services
                  provided under this Agreement, for the period commencing on
                  November 21, 2002, and ending on January 1, 2003. If the ICN
                  Member is still employed by the Company as interim officer on
                  February 1, 2003, then on February 15, 2003, the Company shall
                  make a Service Fee payment to ICN in the amount of $30,000 for
                  services provided under this Agreement, for the period
                  commencing on January 2, 2003 and ending on February 1, 2003.

             -    If the ICN Member's services as an interim officer extend
                  beyond May 1, 2003, for any period of time, the Company shall
                  make final Service Fee payment of $20,000. Thereafter, the
                  Company will not be obligated to pay any further Service Fees
                  to ICN, for any reason, in connection with the ICN Member's
                  provision of services as an interim employee, unless the
                  parties agree otherwise in writing.

             -    If the ICN Member's status is changed from an interim COO to a
                  full-time, permanent CEO at any time during or after the
                  expiration or termination of this Agreement the Company agrees
                  to pay a $54,000 cash fee to ICN promptly after ICN Member's
                  status changes. The Company will not be required to pay any
                  Service Fees arising after the ICN Member's status changes.

         The Company agrees to pay the following fees and expenses of ICN Member
         (which are not "ICN Fees") directly to the ICN Member pursuant to
         agreements mutually acceptable to the ICN Member and the Company:

             -    ICN Member's salary of $40,000 per month, subject to
                  withholding taxes required by applicable law.

             -    Temporary living expenses of ICN Member consistent with
                  Company policies for relocating employees reasonably required
                  for her to establish and maintain a temporary residence in the
                  greater Los Angeles area, including the cost of coach class
                  commercial air travel once per week to and from her primary
                  residence located in Atherton, California.

4.       EQUITY

         The Company will grant the ICN Member a stock option outside the
         Company's 2000 Stock Plan ("OPTION") to purchase 3,840,000 shares of
         Common Stock which will vest in a manner allowing her to purchase
         80,000 shares of the Company's Common Stock for each month during which
         the ICN Member is employed by the Company. Vesting will be pro-rated
         for partial months of employment. The strike price for the Option shall
         be the closing price on NASDAQ of the Company's shares on the date of
         the grant. The Option will be granted on the date the ICN Member's
         employment by the Company commences. The Option shall provide for (i)
         exercisability of the option as to vested shares until the later of (A)
         30 days after termination of the ICN Member's services to the Company
         or (B) two years after its date of grant, (ii) termination as to all
         unvested shares on the date of termination of the ICN Member's services
         to the Company, (iii) only if the ICN Member has become the full-time,
         permanent CEO (and not an interim CEO), accelerated vesting after a
         change in control as provided in Sections 15(d) and 15(e) of the 2000
         Plan and (iv) no "net exercise" ability. The Company will register the
         option on Form S-8.

5.       APPROVAL

         If the terms of this Agreement are agreeable to you, please sign on the
         following page and return a copy to ICN. This Agreement will be deemed
         accepted and enforceable on the date ICN receives your signed signature
         page (the "EFFECTIVE DATE").

         Again, thank you for giving ICN the opportunity to be of service to
         Capstone Turbine. We look forward to working with you.

<PAGE>

Sincerely,                                ACCEPTED:

/s/ Michael Braun                         /s/ Eric Young
Michael A. Braun                          Eric Young, Director, Capstone Turbine
Chief Executive Officer
The Interim CEO Network Management, L.L.C.

Address:                                  Address:

P.O. Box 620109                           21211 Nordhoff Street
Woodside, CA 94062                        Chatsworth, CA 91311

11/21/02                                  11/21/02
Date                                      Date

ACCEPTED:

/s/ Emily Liggett           11/21/02
Emily M. Liggett            Date

Address:
281 Greenoaks Dr
Atherton, CA 94027

                [SIGNATURE PAGE TO ICN CLIENT ENGAGEMENT LETTER]

<PAGE>

                                    EXHIBIT A
                          STANDARD TERMS AND CONDITIONS
                   The Interim CEO Network Management, L.L.C.

NOTE:    Any capitalized words not defined herein are ascribed the meaning given
them in the Agreement between ICN and the Company, of even date to which these
Standard Terms and Conditions are attached as Exhibit A and are incorporated by
reference therein.

I.       SERVICES. ICN and the ICN Member will use commercially reasonable
efforts to perform the Services described in the Agreement. The Company will
provide all resources, including, but not limited to human resources, equipment,
technical resources, and financial resources, reasonably requested by ICN or the
ICN Member to enable them to perform the Services. The failure to provide any
such resources will be deemed a material breach by the Company. If ICN is to
receive any confidential information of the Company then ICN will sign the
Company's standard nondisclosure agreement and will observe Company's insider
trading policies.

II.      RELATIONSHIP OF THE PARTIES. It is understood by all parties that the
ICN Member will be an employee of the Company. The ICN Member will be
responsible for payment of all taxes (including, without limitation, federal and
state income taxes, state Medicare, disability, and unemployment taxes) arising
from the ICN Member's relationship with the Company. As a condition to the
Company's obligations (other than the Company's obligation to pay ICN the
$10,000 initial fee on signing the Agreement) the ICN Member would sign an
Employment Agreement in a standard form provided by the Company, including
appropriate covenants and indemnities with respect to tax matters, nondisclosure
obligations and assignment of intellectual property, and would meet all other
standard Company requirements for employment.

III.     FEES AND EXPENSES. Unless otherwise specified in the Agreement, all ICN
fees and expenses are payable directly to ICN, and will be invoiced to the
Company on the fifteenth and the last day of the month for the prior two-week
period. All expenses incurred by ICN require prior Company approval. All ICN
invoices are due and payable in full upon receipt. The ICN Member's salary,
benefits, expenses and Option will be provided directly to the ICN Member.

IV.      TERM AND TERMINATION. Unless otherwise specified in the Agreement, for
purposes of ICN Service Fees, the ICN Member's cash compensation and the vesting
of the ICN Member's Option, ICN Member's engagement will be deemed to continue
for 90 days after the Effective Date. In all other respects this Agreement can
be terminated by the Company on notice to ICN. Nothing in this Agreement alters
the at-will nature of the ICN Member's employment by the Company. This Agreement
will automatically be extended at the end of the initial 90 day term, unless it
is terminated in writing by any one party. Furthermore, unless all parties
otherwise agree in writing, the provisions of this Agreement and these Standard
Terms and Conditions will apply to any such extension.

V.       NO GUARANTEES. The Company acknowledges and understands that ICN cannot
and does not guarantee that the Company will achieve any specific results due to
the efforts of ICN or the ICN Member.

VI.      INDEMNIFICATION. The Company will indemnify ICN and hold ICN harmless
from all claims threatened or made against ICN by any third party in connection
with performance of the Services to the fullest extent permitted under
applicable law, provided that ICN has acted with respect to the matter that is
the subject of the claim in good faith and in accordance with applicable law.
The Company will sign its standard directors and officers indemnification
agreement with the ICN Member. The Company represents and warrants to the
Indemnitees that its Certificate of Incorporation (or Charter) and Bylaws
contain provisions authorizing such indemnification of ICN and the ICN Member to
the maximum extent permitted by law.

VII.     NON-SOLICITATION. Except as otherwise expressly set forth herein, the
Company and ICN each agree not to solicit the other's employees without the
other party's prior written consent. If an employee should resign from one party
and become employed by the other party within the 120-day period following such
employee's effective date of resignation, then the hiring party will be deemed
to have committed a material breach of its obligations hereunder. The Company
and ICN agree that, in such event, the hiring party will pay the other party for
such breach an amount equal to one-third (1/3) of the terminated employee's
first year's targeted cash compensation, including base salary and bonus,
offered by the hiring party. For the purposes of this paragraph, "employee" will
include the statutory definition of "employee", as well as any independent
contractors working for ICN under a written agreement. The foregoing does not
apply to Company's ability to recruit and hire the ICN Member as its CEO so long
as the Company makes the $54,000 payment specified in Section 3 of the
Agreement, which replaces the payment for deemed breach described in the third
sentence of this paragraph.

VIII.    DISPUTE RESOLUTION. If a dispute between any of the parties arises in
connection with the Agreement, the parties shall first

<PAGE>

attempt to resolve the dispute through good faith negotiation. If the dispute
cannot be resolved through good faith negotiation, the parties shall refer the
dispute to the American Arbitration Association ("AAA") for resolution through
binding arbitration by a single arbitrator pursuant to the AAA's rules
applicable to commercial disputes, under California law, without reference to
conflicts of laws principles. The arbitration shall be held in Santa Clara
County, California, and the decision reached by the arbitrator shall be entered
as a judgment in any court of competent jurisdiction. THE PARTIES SPECIFICALLY
WAIVE THEIR RIGHTS TO A JURY TRIAL IN LIEU OF FINAL AND BINDING ARBITRATION.
Nothing in this paragraph is intended to limit the ICN Member's rights to
enforce her rights by filing a claim with the California Labor Board.

IX.      GENERAL PROVISIONS.

         (1)   WAIVER. The waiver by any party of any breach by any other shall
not waive subsequent breaches of the same or different kind.

         (2)   NOTICES. Any notice required or permitted to be given under this
Agreement shall be given in writing and shall be hand delivered or sent by
express delivery to the address of the parties listed on the signature page of
the Agreement.

         (3)   CONTROLLING LAW. The Agreement shall be governed by and construed
in accordance with the laws of the State of California, without reference to
conflicts of laws principles.

         (4)   SEVERABILITY. In the event that any of the provisions of this
Agreement shall be held by a court or other tribunal of competent jurisdiction
to be unenforceable, such provision will be enforced to the maximum extent
permissible and the remaining portions of this Agreement shall remain in full
force and effect.

         (5)   HEADINGS; SURVIVAL. All headings are for information purposes
only, and are not to be construed as part of the provision that they describe.
The following provisions shall survive the termination of the Agreement: Section
3 (ICN Fees); Section 4 (Equity); as well as the following sections from
Exhibit A: Section III (Fees and Expenses); Section V (No Guarantees); Section
VI (Indemnification); Section VII (Non-Solicitation); Section VIII (Dispute
Resolution); Section IX (General Provisions).

         (6)   ENTIRE AGREEMENT. The Agreement, which includes all exhibits,
constitutes the complete and exclusive agreement between the parties pertaining
to the subject matter hereof, and supersedes in their entirety any and all
written or oral agreements previously existing between the parties with respect
to such subject matter herein. Each party acknowledges that it is not entering
into this Agreement on the basis of any representations not expressly contained
herein. Each party represents that its legal counsel has reviewed the Agreement,
and therefore agrees that any ambiguities will not be construed against any
party hereto. Any modifications of this Agreement must be in writing and signed
by all parties.

         (7)   ASSIGNMENT. Neither this Agreement nor any right or obligation
hereunder may be assigned by any party without the express prior written consent
of the other parties or their successors (which consent will not be unreasonably
withheld), except for an assignment by any party to another entity acquiring
such party through direct acquisition, merger or similar transaction, and which
entity has expressly agreed in writing to assume all rights and obligations of
such acquired party hereunder, and any purported assignment in derogation of the
foregoing shall be without any effect.

         (8)   COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which will be considered an original, but all
of which together will constitute one and the same instrument.<PAGE>
                                                                   EXHIBIT 10(f)

                                                                   No. 2521-0027

                  CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT

                                     between

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

                                       and

                          AMERICAN RE-INSURANCE COMPANY

<PAGE>

                                                                   No. 2521-0027

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
ARTICLE                                                            PAGE
-------                                                            ----
<S>                                                                <C>
   I         EXHIBITS COVERED                                        1

   II        TERRITORY                                               1

   III       EXCLUSIONS                                              1

   IV        COMPANY POLICY LIMITS                                   8

   V         DEFINITIONS                                             9

   VI        ULTIMATE NET LOSS                                      13

   VII       EXTRA CONTRACTUAL OBLIGATIONS
             AND EXCESS JUDGMENTS                                   14

   VIII      DECLARATORY JUDGMENT EXPENSES                          15

   IX        CLAIMS                                                 16

   X         SUBROGATION AND SALVAGE                                17

   XI        ACCESS TO RECORDS                                      17

   XII       RESERVES AND TAXES                                     18

   XIII      INSOLVENCY CLAUSE                                      18

   XIV       OFFSET AND SECURITY CLAUSE                             19

   XV        COMMENCEMENT AND
             TERMINATION                                            19
</TABLE>

<PAGE>

                                                                   No. 2521-0027

                  CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT

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

WITNESSETH:

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

                                    ARTICLE I

EXHIBITS COVERED

The Company will reinsure with the Reinsurer and the Reinsurer will accept
reinsurance from the Company as set forth in Exhibits A, B, C, and D, which are
attached hereto and made a part of this Agreement, such Exhibits being entitled
for purposes of identification as follows:

      EXHIBIT A: FIRST CASUALTY EXCESS OF LOSS REINSURANCE COVER
      EXHIBIT B: SECOND CASUALTY EXCESS OF LOSS REINSURANCE COVER
      EXHIBIT C: THIRD CASUALTY EXCESS OF LOSS REINSURANCE COVER
      EXHIBIT D: WORKERS' COMPENSATION EXCESS OF LOSS REINSURANCE COVER

                                   ARTICLE II

TERRITORY

This Agreement applies only to Policies issued to insureds domiciled in the
United States of America, its territories or possessions, the Commonwealth of
Puerto Rico, the District of Columbia, and Canada; but shall also cover
incidental exposures elsewhere.

                                   ARTICLE III

EXCLUSIONS

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

                                      -1-
<PAGE>

                                                                   No. 2521-0027

      covered under the terms of this Agreement, except to the extent the terms
      of this Agreement are modified by the special acceptance.

B.    This Agreement shall not apply to:

      1.    Business accepted by the Company as reinsurance from other insurers
            other than its affiliates;

      2.    Nuclear incident per the Nuclear Incident Exclusion Clause -
            Liability - Reinsurance attached hereto;

      3.    Policies covering liability of any insurer or reinsurer for its acts
            or omissions in the negotiation, settlement, or defense of claims or
            any act or omission in dealings with its policyholders;

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

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

      6.    Any loss or damage which is occasioned by war, invasion,
            hostilities, acts of foreign enemies, civil war, rebellion,
            insurrection, military or usurped power, or martial law or
            confiscation by order of any government or public authority;
            however, this exclusion shall not apply to workers' compensation and
            employers liability nor to any Policy which contains a standard war
            exclusion;

      7.    Terrorist Activity, as defined in the DEFINITIONS Article, shall be
            excluded as set forth in each of the attached Exhibits;

      8.    Business written on a co-indemnity basis not controlled by the
            Company;

      9.    Business written to apply in excess of a deductible or self insured
            amount of more than $25,000 or business written to apply
            specifically in excess over underlying insurance;

      10.   Automobile liability insurance relating to the ownership,
            maintenance (but this shall not apply to Garage Liability or
            Garagekeepers Liability), or use of:

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                                                                   No. 2521-0027

            a,    Emergency vehicles including police and fire department
                  vehicles; however, this exclusion shall not apply to renewal
                  business;

            b.    Automobiles used in organized speed contests;

            c.    Vehicles leased or rented to others, except customer rental
                  exposures for garage risks;

            d.    Commercial automobiles, as defined in the manuals of the
                  Insurance Services Office, which customarily operate beyond a
                  500 mile radius;

            e.    Public automobiles, other than school or church buses or
                  funeral home vehicles, as defined in the manuals of the
                  Insurance Services Office;

            f.    Motor vehicles used for transporting explosives, munitions,
                  corrosives, flammable and non-flammable gas, flammable liquid,
                  poison, radioactive materials and hazardous waste;

      11.   Liability insurance written by the aviation underwriting unit of the
            Company, howsoever styled;

      12.   Liability insurance issued to any state or governmental agency or
            any political subdivision whatsoever; however, this exclusion shall
            not apply to school districts and school boards nor to renewal
            business. This exclusion shall also not apply to Owners and
            Contractors Protective Policies issued to any such entities;

      13.   Liability insurance relating to premises or operations involving:

            a.    Aircraft or airports, as respects coverage for all liability
                  arising out of the ownership, maintenance, or use of any
                  aircraft or flight operations;

            b.    Amusement parks or devices, carnivals or circuses, sports or
                  other entertainment events, arenas, grandstands, or stadiums;
                  however, this exclusion shall not apply to coverage for
                  locations or events with daily admissions of 1,000 or less or
                  seating capacity of 1,000 or less;

            c.    Manufacturing, packing, handling, shipping, or storage of
                  explosives, ammunitions, fuses, arms, magnesium, fireworks,
                  nitroglycerine, celluloid, pyroxylin or explosive substances
                  intended for use as an explosive; however, this exclusion
                  shall not apply to incidental handling and storage in
                  connection with the sale of such substances;

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                                                                   No. 2521-0027

            d.    Gas or public utility companies, gas or public utility works,
                  or gas lease operations;

            e.    Production, refining, handling, shipping, or storage of
                  natural or artificial fuel gasses, synthetic or coal or shale
                  based fuel, butane, propane, gasoline, or liquefied petroleum
                  gas; however this exclusion shall not apply to gasoline
                  service stations, convenience stores, fuel oil dealers,
                  hardware stores, and garden/nursery shops;

            f.    Oil or gas pipelines, wells, or drilling operations;

            g.    Railroad operations; however, this exclusion shall not apply
                  to Railroad Protective Policies;

            h.    Ship building, boat manufacturing, ship repair yards, dry
                  docks, stevedoring, or watercraft; however, this exclusion
                  shall not apply to watercraft commonly insured under
                  homeowners polices, nor to non-owned watercraft up to 51 feet
                  in length for commercial Policies;

            i.    Underground work, including underground mining and quarrying,
                  tunneling, and subway construction; however, this exclusion
                  shall not apply to underground work up to a depth of 12 feet;

            j.    Off-shore and subaqueous work;

            k.    Wrecking or demolition of structures over 3 stories in height,
                  or marine wrecking;

            l.    Chemical manufacturing; however, this exclusion shall not
                  apply to operations with annual gross receipts from chemical
                  manufacturing of $500,000 or less;

      14.   Liability insurance relating to products or completed operations
            involving the manufacture or importation of:

            a.    Cosmetics, hair, and skin products, but this exclusion shall
                  not apply if the total annual receipts from this exposure are
                  $250,000 or less;

            b.    Drugs, pharmaceuticals, and agricultural chemicals;

            c.    Aircraft, aircraft parts, or aircraft engines, all motorized
                  vehicles, or mobile equipment (critical parts only).

            REVISED: 10/4/02

                                      -4-
<PAGE>

                                                                   No. 2521-0027

                  "Critical parts" shall mean

                  i.    Safety equipment, including but not limited to airbags,
                        and seat belts; but "critical parts" shall not include
                        mirrors or other such items;

                  ii.   Operating parts, including but not limited to brakes,
                        tires, suspension, engines, head lights, and steering
                        columns; but "critical parts" shall not include steering
                        wheel, gearshift knobs, seat upholstery or similar
                        items;

            d.    Heavy machinery and equipment, home power tools, or oil
                  drilling equipment:

      15.   Insurance covering damages claimed for the withdrawal, inspection,
            repair, replacement, or loss of use of the insured's products or of
            any property of which such products form a part, or if such products
            or property are withdrawn from the market or from use because of any
            known or suspected defect or deficiency therein;

      16.   Malpractice insurance, directors and officers liability insurance,
            or any other form of errors and omissions or professional liability
            insurance; however, this exclusion shall not apply to druggists
            operating outside the State of Florida, funeral directors,
            veterinarians', beauty and barber shops', hearing aid service
            specialists', cemetery operators' liability, opticians' or printers'
            liability business, nor to employee benefits liability business;

      17.   Insurance written for governmental bodies to afford protection
            against liability arising out of riot, civil commotion, or mob
            action or out of any act or omission in connection with the
            prevention or suppression of any riot, civil commotion, or mob
            action;

      18.   Liability insurance relating to or involving satellites, spacecraft,
            and launch vehicles, including cargo and freight carried therein, in
            all phases of operation (including but not limited to manufacturing,
            transit, pre-launch, launch and in-orbit);

      19.   Pollution liability insurance or environmental impairment liability,
            howsoever styled; however, this exclusion shall not apply to
            herbicide or pesticide use by landscapers and/or gardeners in
            commercial landscaping or gardening operations;

      20.   Pollution under any commercial multiple peril policy, farmowners
            multiple peril policy, farm liability policy or any other commercial
            other liability policy written by the Company which does not contain
            the pollution exclusion set forth in ISO Commercial General
            Liability Form CG 00 01 (Ed. 11/88) or as subsequently amended or
            under any garage liability policy written by the Company which does
            not contain the

                                      -5-
<PAGE>

                                                                   No. 2521-0027

            pollution  exclusion set forth in ISO Garage  Coverage Form CA 00 05
            (Ed. 1/87) or as subsequently amended.  However, this exclusion does
            not apply to:

            a.    pollution coverage under the Motor Carriers Act of 1980 as
                  contained within the MCS-90 endorsement attached to the
                  Company's commercial automobile liability Policies, or

            b.    any risk located in a jurisdiction which has not approved the
                  Insurance Services Office exclusion or where other regulatory
                  constraints prohibit the Company from attaching such
                  endorsement. If the Company elects to file an endorsement
                  independent of ISO, such endorsement will be deemed a suitable
                  substitute provided the Company has submitted the wording to
                  the Reinsurer and received the Reinsurer's prior approval.

      21.   Workers' compensation and employers' liability insurance with
            respect to operations principally involving:

            a.    Aircraft flight and ground operations or operations in which
                  the flying hazard is a major part;

            b.    Amusement parks or devices, exhibitions (including fireworks),
                  carnivals or circuses, sports events and/or participants;
                  however, this exclusion shall not apply to coverage for
                  locations or events with daily admissions of 1,000 or less or
                  seating capacity of 1,000 or less;

            c.    Manufacturing, packing, handling, shipping, or storage of
                  explosives, substances intended for use as an explosive,
                  ammunitions, fuses, arms, magnesium, propellant charges,
                  detonating devices, fireworks, nitroglycerine, celluloid, or
                  pyroxylin; however, this exclusion shall not apply to the
                  incidental packing, handling or storage of same in connection
                  with the sale of such substances;

            d.    Gas companies, dealers, or distributors, except those in the
                  gasoline service station, convenience store or fuel oil dealer
                  business; oil or gas operators, lease operators or
                  contractors; oil or gas well works; oil or gas pipeline
                  construction or operations; oil rig and derrick work; onshore
                  or offshore gas or oil drilling operations;

            e.    Manufacturing, packing, handling, shipping or storage of
                  natural gas or artificial fuel gasses, butane, propane,
                  gasoline, or liquified petroleum gas; however, this exclusion
                  shall not apply to the

                                      -6-
<PAGE>

                                                                   No. 2521-0027

                  incidental packing, handling or storage of same in connection
                  with the sale of such substances:

            f.    Railroad operation or construction, except this exclusion
                  shall not apply if the excluded exposure is not normally
                  associated with the insured's operation and does not present a
                  larger exposure than the overall unexcluded portion of the
                  risk;

            g.    Maritime or federal employments; steamship lines, agencies, or
                  stevedoring, navigation or operation of vessels; operation of
                  drydocks; and including all United States Longshoremen's and
                  Harbor Workers' exposures, except this exclusion shall not
                  apply if the excluded exposure (a) is endorsed on an "if any"
                  basis or (b) is not normally associated with the insured's
                  operation and does not present a larger exposure than the
                  overall unexcluded portion of the risk;

            h.    Subway construction, shaft sinking, or tunneling;

            i.    Wrecking or demolition of vessels or buildings or structures
                  of more than three stories in height;

            j.    Underground mining, strip mining, or quarrying;

            k.    Subaqueous work;

            l.    Caisson or coffer dam work; dam, dike, lock, or revetment
                  construction:

            m.    Chemical manufacturing; however, this exclusion shall not
                  apply to operations with annual gross receipts from chemical
                  manufacturing of $500,000 or less;

            n.    Nuclear Regulatory Commission projects or operations conducted
                  under license from the Nuclear Regulatory Commission;

            o.    Asbestos removal contractors;

            p.    Firefighters and police officers.

C.    If the Company provides insurance for an insured with respect to the
      ownership, maintenance, or use of items listed in exclusions 10.a. through
      10.f., and if such ownership maintenance, or use constitutes only a minor
      and incidental part of the total ownership, maintenance, or use of such
      items of the insured, such exclusion(s) shall not apply.

                                      -7-
<PAGE>

                                                                   No. 2521-0027

D.    If the Company provides insurance for an insured with respect to any
      premises, operations, products, or completed operations listed in
      exclusions 13. and 14., except exclusions 13.c. and 14.d., and if such
      premises, operations, products, or completed operations constitute only a
      minor incidental part of the total premises, operations, products, or
      completed operations of the insured, such exclusion(s) shall not apply.

E.    If the Company is bound, without the knowledge of and contrary to the
      instructions of the Company's supervisory underwriting personnel, on any
      business falling within the scope of one or more of the exclusions set
      forth in this Section, these exclusions, except 1. through 8., 13.c.
      13.d., 15. through 19., 21.c. and 21.d. shall be suspended with respect to
      such business until the greater of 30 days or the minimum period of time
      required by statute after an underwriting supervisor of the Company
      acquires knowledge of such business.

                                   ARTICLE IV

COMPANY POLICY LIMITS

For the purpose of determining the Company Retention and the Reinsurer's limit
of liability with respect to each Exhibit of this Agreement, the limits of
liability of the Company with respect to any one Policy shall be deemed not to
exceed:

<TABLE>
<S>                                                                       <C>
Automobile Bodily Injury Liability                                        $1,000,000 each person
                                                                          $1,000,000 each occurrence

Automobile Property Damage Liability                                      $1,000,000 each occurrence

Automobile Liability Combined Single Limit                                $1,000,000 each occurrence

Uninsured/Underinsured Motorists Coverage                                 $1,000,000 each person
                                                                          $1,000,000 each occurrence

Personal Injury Protection Coverage                                       $1,000,000 each occurrence

Other Bodily Injury Liability                                             $2,000,000 each occurrence

Other Property Damage Liability                                           $2,000,000 each occurrence

Other Liability Combined Single Limit                                     $2,000,000 each occurrence

Section II Liability under Commercial Multiple Peril                      $2,000,000 each occurrence

Section II Liability under Businessowners                                 $1,000,000 each occurrence

Section II Liability under Homeowners Multiple      Peril                 $1,000,000 each occurrence
</TABLE>

                                      -8-
<PAGE>

                                                                   No. 2521-0027
<TABLE>
<S>                                                                       <C>
Section II Liability under Farmowners Multiple Peril                      $1,000,000 each occurrence
</TABLE>

Employers' Liability

<TABLE>
<S>                                                                       <C>
(1)   In all states with Statutory Limits                                 Statutory Limits
(2)   In All Other States

            (i)   Bodily Injury by Accident                               $1,000,000 each accident
            (ii)  Bodily Injury by Disease                                $1,000,000 policy limit
            (iii) Bodily Injury by Disease                                $1,000,000 each employee
</TABLE>

                                    ARTICLE V

DEFINITIONS

A.    Agreement Year

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

B.    Casualty Business

      The term "Casualty business" shall mean insurance which is classified in
      the NAIC form of annual statement as Farmowners Multiple Peril (Section
      II), Homeowners Multiple Peril (Section II), Commercial Multiple Peril
      (Sections II and III, including Section II of Business Owners and the
      Liability Section of Contractors Coverall), Workers' Compensation, Other
      Liability, Automobile Liability, and Automobile Personal Injury
      Protection, and described in the manuals of the Insurance Services Office,
      or the standard workers' compensation form of Policy, subject to the
      EXCLUSIONS Article.

C.    Claims Made

      The term "Claims Made" shall mean all claims as insured under Policies
      classified by the Company as claims-made Policies.

D.    Company Retention

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

REVISED:  10/4/02

                                      -9-
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                                                                   No. 2521-0027

E.    Gross Net Written Premium

      The term "Gross Net Written Premium" shall mean gross premiums written
      including additional premiums, less return premiums and less premiums for
      reinsurance that inures to the benefit of the Reinsurer under this
      Agreement.

F.    Occurrence

      The term "Occurrence" shall mean each accident or occurrence or series of
      accidents or occurrences arising out of one event regardless of the number
      of Policies involved, and as respects workers' compensation and employers'
      liability Policies, regardless of the number of employees or employers
      involved, except as modified below:

      1.    As respects exposures reinsured hereunder other than occupational
            and other disease or cumulative injury under workers' compensation
            Policies, all bodily injury or property damage arising out of
            continuous or repeated exposure to substantially the same general
            conditions shall be considered as arising out of one occurrence. The
            date of occurrence shall be deemed to be the following:

            a.    As respects a loss involving one or more Policies written on
                  an occurrence basis, the date on which bodily injury or
                  property damage occurs.

            b.    As respects a loss involving one or more Policies written on a
                  claims-made basis, the date when notice of claim is received
                  and recorded by the Company or the insured, whichever comes
                  first, and any related claims reported subsequent to such date
                  shall be included in such loss. However, if notice of claim is
                  received and recorded by the Company or the insured during an
                  Extended Reporting Period, the date of occurrence shall be
                  deemed to be the last day of the policy period.

            c.    As respects a loss involving one or more Policies written on
                  an occurrence basis and one or more Policies written on a
                  claims-made basis, the date on which bodily injury or property
                  damage occurs, and any related claims reported subsequent to
                  such date shall be included in such loss whether they are
                  covered under occurrence or claims-made Policies.

      2.    As respects an occupational or other disease or cumulative injury
            under workers' compensation or employers' liability policies for
            which the employer is liable:

            a.    Which arises from a specific sudden and accidental event
                  limited in time and place, such occupational or other disease
                  suffered by

                                      -10-
<PAGE>

                                                                   No. 2521-0027

                  one or more employees of one or more employers shall be deemed
                  to be an occurrence within the meaning of this Exhibit and the
                  date of occurrence shall be deemed to be the date of the
                  sudden and accidental event.

            b.    Which does not arise from a specific sudden and accidental
                  event limited in time and place, such occupational or other
                  disease or cumulative injury shall be deemed to be an
                  occurrence within the meaning of this Exhibit, and the date of
                  occurrence shall be deemed to be the date of the beginning of
                  the disability for which compensation is payable if the case
                  is compensable under the Workers' Compensation law; or the
                  date that disability due to said disease actually began if the
                  case is not compensable under the Workers' Compensation law.
                  Each case of an employee contracting such occupational or
                  other disease or cumulative injury for which the employer
                  insured by the Company is held liable shall be considered a
                  separate occurrence regardless of the date of loss.

      For the purpose of this Agreement, when claims-made and/or occurrence
      and/or accident policies are involved in the same Occurrence in the same
      Agreement Year, the date of loss for the Occurrence shall be determined as
      follows:

      1.    If an occurrence or accident policy is identified as being involved,
            then the date of loss shall be the date as determined under the
            occurrence or accident policy;

      2.    If no occurrence or accident policy is identified as being involved,
            then the date of loss will be the date the first claim is made under
            a claims-made policy. If the first claim from an Occurrence is made
            under an Extended Reporting Period Endorsement, the date of loss for
            the Occurrence under such claims-made policy shall be the date the
            first claim is deemed to be made under the terms of the Company's
            policy. If the Company identifies an occurrence or accident policy
            after expiration of the Agreement Year, the date of loss for all
            policies shall remain as first established.

      It is agreed that only one date of loss may be determined for any one
      Occurrence.

G.    Policy

      The term "Policy" shall mean each of the Company's binders, policies and
      contracts providing insurance on the classes of business covered
      hereunder.

                                      -11-
<PAGE>

                                                                   No. 2521-0027

H.    Terrorist Activity

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

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

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

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

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

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

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

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

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

            b.    hostage taking or kidnapping;

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

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

            e.    the interference with or disruption of basic public or
                  commercial services and systems, including but not limited to
                  the following services or systems: electricity, natural gas,
                  power, postal, communications, telecommunications,
                  information, public transportation, water, fuel, sewer or
                  waste disposal;

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

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

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

                                      -12-
<PAGE>

                                                                   No. 2521-0027

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

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

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

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

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

I.    Workers' Compensation Business

      The term "Workers' Compensation business" shall mean insurance afforded by
      Parts One and Three of the Company's Workers' Compensation and Employers'
      Liability Policy and any endorsements included therein or attached
      thereto, subject to the EXCLUSIONS Article.

                                   ARTICLE VI

ULTIMATE NET LOSS

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

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

C.    All office expenses of the Company and all salaries and expenses of its
      officials and employees shall be excluded under this Agreement, except
      that the Company

                                      -13-
<PAGE>

                                                                   No. 2521-0027

      may include the costs and expenses of its in-house counsel as provided in
      D. below.

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

E.    In the event a verdict or judgment is reduced by an appeal or a
      settlement, subsequent to the entry of a judgment, resulting in an
      ultimate saving on such verdict or judgment, or a judgment is reversed
      outright, the expense incurred in securing such final reduction or
      reversal shall (1) be prorated between the Reinsurer and the Company in
      proportion that each benefits from such reduction or reversal and the
      expense incurred up to the time of the original verdict or judgment shall
      be prorated in proportion to each party's interest in such verdict or
      judgment; or (2) when the terms and conditions of the Company's original
      Policies reinsured hereunder include expenses as part of the policy limit,
      be added to the Company's Ultimate Net Loss.

                                   ARTICLE VII

EXTRA CONTRACTUAL OBLIGATIONS AND/OR EXCESS JUDGMENTS

A.    This Agreement shall indemnify the Company, within the limits of this
      Agreement, for Extra Contractual Obligations and/or Excess Judgments
      awarded by a court of competent jurisdiction against the Company that
      arise from Policies that are reinsured hereunder. Such Extra Contractual
      Obligation and/or Excess Judgment shall be added to the amount of the loss
      within the Company's policy limit and the sum thereof shall be considered
      one loss subject to the exclusions and limitations set forth in this
      Agreement and its Exhibits.

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

C.    "Excess Judgments" are defined as those damages paid by the Company which
      amounts are in excess of its policy limits, but otherwise within the
      coverage terms of the Policy reinsured hereunder, including legal costs
      and expenses in

                                      -14-
<PAGE>

                                                                   No. 2521-0027

      connection therewith, as a result of an action against it by its insured
      or its insured's assignee to recover damages awarded by a court of
      competent jurisdiction to a third party claimant, arising out of, but not
      limited to, the Company's alleged or actual negligence or bad faith or
      alleged fraud in rejecting a settlement, in discharging its duty to
      defend, in preparing the defense in an action against its insured or
      discharging its duty to prepare or prosecute an appeal consequent upon
      such action.

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

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

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

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

                                  ARTICLE VIII

DECLARATORY JUDGMENT EXPENSES

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

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

                                      -15-
<PAGE>

                                                                   No. 2521-0027

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

                                   ARTICLE IX

CLAIMS

A.    The Company shall advise the Reinsurer promptly in writing of all claims
      upon which a reserve of fifty percent or more of the applicable retention
      hereunder has been posted by the Company and shall promptly advise the
      Reinsurer of any subsequent developments pertaining thereto.

B.    In addition to the foregoing, the following categories of claims shall be
      reported in writing to the Reinsurer immediately, regardless of the
      liability of the insured or coverage under the Policy:

      1.    Cord injury - paraplegia, quadriplegia;

      2.    Amputations - requiring a prosthesis;

      3.    Brain damage affecting mentality or central nervous system - such as
            permanent disorientation, behavior disorder, personality change,
            seizures, motor deficit, inability to speak (aphasia), hemiplegia or
            unconsciousness (comatose);

      4.    Blindness;

      5.    Burns - involving over 10% of body with third degree or 30% of body
            with second degree;

      6.    Multiple fractures - involving more than one member or non-union;

      7.    Fracture of both heel bones (fractured bilateral or calcis);

      8.    Nerve damage causing paralysis and loss of sensation in arm and hand
            (brachial plexus nerve damage);

      9.    Massive internal injuries affecting body organs;

      10.   Injury to nerves at base of spinal canal (Cauda Equina) or any other
            back injury resulting in incontinence of bowel and/or bladder;

      11.   Fatalities

      12.   Any other serious injury which, in the judgment of the Company,
            might involve the Reinsurer.

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

D.    It is understood that when so requested, the Company will afford the
      Reinsurer an opportunity to be associated with the Company, at the expense
      of the Reinsurer, in the defense or control of any claim, suit or
      proceeding involving this

                                      -16-
<PAGE>

                                                                   No. 2521-0027

      reinsurance; and the Company and the Reinsurer shall cooperate in every
      respect in the defense of such claim, suit or proceeding.

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

                                    ARTICLE X

SUBROGATION AND SALVAGE

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

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

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

                                   ARTICLE XI

ACCESS TO RECORDS

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

                                      -17-
<PAGE>

                                                                   No. 2521-0027

                                   ARTICLE XII

RESERVES AND TAXES

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

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

                                  ARTICLE XIII

INSOLVENCY CLAUSE

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

In the event of the insolvency of the Company and the appointment of a
conservator, liquidator or statutory successor, the reinsurance provided by this
Agreement shall be payable by the Reinsurer directly to the Company or to its
liquidator, receiver or statutory successor on the basis of the liability of the
Company under the contract or contracts reinsured. Subject to the right of
offset and the verification of coverage, the Reinsurer shall pay its share of
the loss without diminution because of the insolvency of the Company. The
liquidator, receiver or statutory successor of the Company shall give written
notice of the pendency of each claim against the Company on a Policy or bond
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding. During the pendency of such claim, the Reinsurer may, at its own
expense, investigate such claim and interpose in the proceeding where such claim
is to be adjudicated any defense or defenses which it may deem available to the
Company, its liquidator or receiver or statutory successor. Subject to court
approval, any expense thus incurred by the Reinsurer shall be chargeable against
the Company as part of the expense of liquidation to the extent of such
proportionate share of the benefit as shall accrue to the Company solely as a
result of the defense undertaken by the Reinsurer. The reinsurance shall be
payable as set forth above except where (i) the Agreement specifies another
payee of such reinsurance in the event of the insolvency of the Company and (ii)
the Reinsurer with the consent of the direct insureds has assumed such policy
obligations of the Company as its direct obligations to the payees under such
Policies, in substitution for the obligations of the Company to such payees; or
where the Reinsurer has guaranteed performance of a contract insuring against
physical damage to property for the benefit of mortgagees or other loss payees
named in this Agreement in accordance with Section 1114(c) of the New York
Insurance Law.

                                      -18-
<PAGE>

                                                                   No. 2521-0027

                                   ARTICLE XIV

OFFSET AND SECURITY CLAUSE

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

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

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

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

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

                                   ARTICLE XV

COMMENCEMENT AND TERMINATION

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

                                      -19-
<PAGE>

                                                                   No. 2521-0027

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

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

      1.    Run-Off Basis

            Upon cancellation of this Agreement, the Reinsurer shall remain
            liable, with respect to Policies in force at the time and date of
            cancellation (the "Cancellation Date"), for Occurrences taking place
            until the expiration, cancellation, or next anniversary date, not to
            exceed 12 months, of each such Policy of the Company, whichever
            occurs first; provided that with respect to Policies written on a
            claims-made basis, the claim is received and recorded by the Company
            or the insured before such expiration, cancellation, or next
            anniversary date. However, if the Company provides an Extended
            Reporting Period within 12 months after the Cancellation Date on any
            claims-made Policy which is in force at such Cancellation Date or if
            an Extended Reporting Period is in force at the Cancellation Date,
            the Reinsurer shall continue to be liable for claims received and
            recorded by the Company or the insured during such Extended
            Reporting Period, provided always that the Occurrence which results
            in any such claim takes place prior to the expiration or
            cancellation date of the Policy.

      2.    Cut-Off Basis

            Upon cancellation of this Agreement, the Reinsurer shall pay to the
            Company the unearned premiums on the business in force hereunder as
            of the date of cancellation, less any commission allowed herein. The
            Reinsurer shall be discharged and released of all liability as of
            the Cancellation Date for any losses occurring under the Company's
            Policies subsequent to the Cancellation Date. As respects Policies
            written on a claims-made basis, the Reinsurer shall not be liable
            for claims received and recorded by the Company or the insured at
            and after the Cancellation Date, unless such claim is received and
            recorded by the Company or the insured during an Extended Reporting
            Period in force or provided under policy conditions in effect at the
            Cancellation Date.

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

F.    Notwithstanding the cancellation of this Agreement as hereinabove
      provided, the provisions of this Agreement shall continue to apply to all
      unfinished business

                                      -20-
<PAGE>

                                                                   No. 2521-0027

      hereunder respecting all losses occurring under the Company's Policies
      prior to the Cancellation Date to the end that all the obligations and
      liabilities incurred by each party hereunder prior to the Cancellation
      Date shall be fully performed and discharged.

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

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

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

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

                                            AMERICAN RE-INSURANCE COMPANY

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

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

plh

                                      -21-
<PAGE>

                                                                   No. 2521-0027

                                    EXHIBIT A

                          FIRST CASUALTY EXCESS OF LOSS
                                REINSURANCE COVER

                                    Section 1

BUSINESS COVERED

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

                                    Section 2

TERRORIST ACTIVITY EXCLUSION

A.    The reinsurance provided under this Exhibit shall not apply to any loss,
      cost or expense arising out of or related to, either directly or
      indirectly, any Terrorist Activity, as defined in the DEFINITIONS Article,
      with respect to the following risks, classes of business, or accounts
      applicable to Policies reinsured hereunder:

      (1)   Airports and Aircraft
      (2)   Apartments/Condos/Co-Ops > 25 stories
      (3)   Automobile Mfrs.
      (4)   Bridges
      (5)   Casinos and Casino Hotels
      (6)   Chemical Mfg. and Distribution Cos.
      (7)   Convention/Exhibition Centers
      (8)   Cruise Lines
      (9)   Dams
      (10)  Defense/Aerospace Industries
      (11)  Entertainment Industry, e.g. TV and motion picture studios, Broadway
            theaters
      (12)  Financial Institutions with more than 10 branch locations
      (13)  Flight Schools
      (14)  Government Buildings (Fed/State) and National Landmarks
      (15)  High Tech Mfg. Cos.
      (16)  Hospitals
      (17)  Hotels > 25 stories
      (18)  Internet Cos.
      (19)  Major Media Cos.

                                      -1-
<PAGE>

                                                                   No. 2521-0027

      (20)  Nuclear Facility exposures
      (21)  Office Buildings > 25 stories
      (22)  Petrochemical/Oil and Gas Cos.
      (23)  Pharmaceutical Mfg. and Distribution Cos.
      (24)  Pipelines (oil and gas)
      (25)  Port/Transit Authorities
      (26)  Professional Sports Teams
      (27)  Property Management Cos - High Rise exposure > 25 stories
      (28)  Railroads
      (29)  Security Services
      (30)  Enclosed Shopping Malls - property owner only
      (31)  Stadiums
      (32)  Telecommunication companies
      (33)  Theme/Amusement Parks
      (34)  Truck Rental Cos.
      (35)  Tunnels
      (36)  Trucking Companies - deriving 100% of their revenue from hauling
            goods for others
      (37)  Universities
      (38)  Utility Cos. - electric, gas, water and sewer

B.    This exclusion applies regardless of any other cause or event that in any
      way contributes concurrently or in any sequence to loss, cost, or expense.

                                    Section 3

RETENTION AND LIMIT

A.    The Reinsurer shall be liable for that amount of Ultimate Net Loss each
      Occurrence in excess of the Company's retention of $750,000 Ultimate Net
      Loss each Occurrence. However, the Reinsurer's liability shall never
      exceed $1,250,000 Ultimate Net Loss each Occurrence.

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

            $1,250,000 Ultimate Net Loss each Occurrence and $2,500,000 Ultimate
            Net Loss in the aggregate as respects all such Occurrences for each
            Agreement Year.

C.    If an Occurrence takes place (1) which involves the Casualty business
      reinsured under this Exhibit and one Risk reinsured under Property Per
      Risk Excess of Loss Agreement No. 2521-0031 (the "Property Excess") in
      combination and (2) for which the combined Ultimate Net Loss under this
      Agreement and the Property Excess exceeds $750,000, then the Reinsurer
      shall pay to the Company the amount of combined Ultimate Net Loss in
      excess of a Company retention of $750,000 with

REVISED: 10/4/02

                                      -2-
<PAGE>

                                                                   No. 2521-0027

      respect to such Occurrence, but not exceeding a limit of liability to the
      Reinsurer of $500,000. The Reinsurer's Limit of Liability is specified in
      this paragraph shall be in addition to the Reinsurer's limits of liability
      set forth for this Exhibit and the Property Excess.

                                    Section 4

REINSURANCE PREMIUM

A.    With respect to business in force at the effective time and date of this
      Exhibit, the Company shall pay to the Reinsurer a reinsurance premium
      equal to the product of the applicable gross rate set forth in the
      Schedule of Rates below times the Company's unearned premium for each
      class of Casualty business reinsured hereunder, calculated on the monthly
      pro rata basis as of the effective time and date of this Exhibit.

B.    With respect to business becoming effective at and after the effective
      time and date of this Agreement, the Company shall pay to the Reinsurer a
      reinsurance premium equal to the product of the applicable gross rate set
      forth in the Schedule of Rates below times the Company's Gross Net Written
      Premium for each class of Casualty business covered under this Exhibit.

                                SCHEDULE OF RATES

<TABLE>
<CAPTION>
      Class of Business                                                         Gross Rate

<S>                                                                             <C>
      Private Passenger Automobile Liability (including PIP)                       x.xx%

      Commercial Automobile Liability (including PIP)                              x.xx%

      Workers' Compensation and Employers' Liability                               x.xx%

      Commercial Multiple Peril (Section II), Business Owners
      (Section II), General Liability and the Liability Section of
      Contractors Coverall                                                         x.xx%

      Homeowners Multiple Peril (Section II) and Farmowners
      Multiple Peril (Section II)                                                No Charge
</TABLE>

                                    Section 5

COMMISSION

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

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

REVISED: 10/4/02

                                      -3-
<PAGE>

                                                                   No. 2521-0027

                                    Section 6

REPORTS AND REMITTANCES

A.    Reinsurance Premium

      1.    In Force Premium:

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

      2.    New and Renewal Premium:

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

B.    Unearned Premium

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

C.    General

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

                                    Section 7

REINSTATEMENTS

A.    Except as provided in B. below, in the event of any portion of the
      liability under this Exhibit being exhausted by loss, the amount so
      exhausted is automatically reinstated from the time of the Occurrence of
      the loss without payment of

                                      -4-
<PAGE>

                                                                   No. 2521-0027

      additional premium; but nevertheless, the Reinsurer's liability shall not
      exceed $1,250,000 Ultimate Net Loss each Occurrence.

B.    With respect to any loss, cost or expense arising from or related to,
      either directly or indirectly, any "Terrorist Activity", as defined in
      this Agreement, the limit of liability of the Reinsurer under this Exhibit
      with respect to each Occurrence shall be reduced by an amount equal to the
      amount of liability incurred by the Reinsurer hereunder with respect to
      said Occurrence; but that part of the Reinsurer's liability that is so
      reduced shall be automatically reinstated from the time of the Occurrence,
      subject to payment of a flat additional premium of $312,500, due at the
      time of reinstatement for each amount so reinstated. Nevertheless, the
      Reinsurer's limit of liability under this Exhibit with respect to any
      loss, cost or expense arising from or related to, either directly or
      indirectly, any "Terrorist Activity" shall in no event exceed $1,250,000
      Ultimate Net Loss each Occurrence and $2,500,000 Ultimate Net Loss in the
      aggregate for all such Occurrences for each Agreement Year.

                                      -5-
<PAGE>

                                                                   No. 2521-0027

                                    EXHIBIT B

                         SECOND CASUALTY EXCESS OF LOSS
                                REINSURANCE COVER

                                    Section 1

BUSINESS COVERED

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

                                    Section 2

TERRORIST ACTIVITY EXCLUSION

A.    The reinsurance provided under this Exhibit shall not apply to any loss,
      cost or expense arising out of or related to, either directly or
      indirectly, any Terrorist Activity, as defined in the DEFINITIONS Article,
      with respect to the following risks, classes of business, or accounts
      applicable to Policies reinsured hereunder:

      (2)   Airports and Aircraft
      (2)   Apartments/Condos/Co-Ops > 25 stories
      (3)   Automobile Mfrs.
      (4)   Bridges
      (5)   Casinos and Casino Hotels
      (6)   Chemical Mfg. and Distribution Cos.
      (7)   Convention/Exhibition Centers
      (8)   Cruise Lines
      (9)   Dams
      (10)  Defense/Aerospace Industries
      (11)  Entertainment Industry, e.g. TV and motion picture studios, Broadway
            theaters
      (12)  Financial Institutions with more than 10 branch locations
      (13)  Flight Schools
      (14)  Government Buildings (Fed/State) and National Landmarks
      (15)  High Tech Mfg. Cos.
      (16)  Hospitals
      (17)  Hotels > 25 stories
      (18)  Internet Cos.
      (19)  Major Media Cos.

                                      -1-
<PAGE>

                                                                   No. 2521-0027

      (20)  Nuclear Facility exposures
      (21)  Office Buildings > 25 stories
      (22)  Petrochemical/Oil and Gas Cos.
      (23)  Pharmaceutical Mfg. and Distribution Cos.
      (24)  Pipelines (oil and gas)
      (25)  Port/Transit Authorities
      (26)  Professional Sports Teams
      (27)  Property Management Cos - High Rise exposure > 25 stories
      (28)  Railroads
      (29)  Security Services
      (30)  Enclosed Shopping Malls - property owner only
      (31)  Stadiums
      (32)  Telecommunication companies
      (33)  Theme/Amusement Parks
      (34)  Truck Rental Cos.
      (35)  Tunnels
      (36)  Trucking Companies - deriving 100% of their revenue from hauling
            goods for others
      (37)  Universities
      (38)  Utility Cos. - electric, gas, water and sewer

B.    This exclusion applies regardless of any other cause or event that in any
      way contributes concurrently or in any sequence to loss, cost, or expense.

                                    Section 3

RETENTION AND LIMIT

A.    The Reinsurer shall be liable for that amount of Ultimate Net Loss each
      Occurrence in excess of the Company's retention of $2,000,000 Ultimate Net
      Loss each Occurrence. However, the Reinsurer's liability shall never
      exceed $3,000,000 Ultimate Net Loss each Occurrence.

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

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

C.    Reinsurance recoveries under Exhibit A of this Agreement shall inure to
      the sole benefit of the Company in determining the Company's Ultimate Net
      Loss under this Exhibit.

                                      -2-
<PAGE>

                                                                   No. 2521-0027

                                    Section 4

REINSURANCE PREMIUM

A.    With respect to business in force at the effective time and date of this
      Exhibit, the Company shall pay to the Reinsurer a reinsurance premium
      equal to x.xx% times the Company's unearned premium for the Casualty
      business reinsured hereunder, calculated on the monthly pro rata basis as
      of the effective time and date of this Exhibit.

B.    With respect to business becoming effective at and after the effective
      time and date of this Exhibit, the Company shall pay to the Reinsurer a
      reinsurance premium equal to x.xx% times the Company's Gross Net Written
      Premium for the Casualty business reinsured hereunder for each Agreement
      Year under this Exhibit.

C.    The annual minimum premium for the reinsurance provided for each Agreement
      Year hereunder is $xxx,xxx.

D.    The annual deposit premium for the reinsurance provided for each Agreement
      Year hereunder is $xxx,xxx.

                                    Section 5

REPORTS AND REMITTANCES

A.    Reinsurance Premium

      1.    In Force Premium:

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

      2.    New and Renewal Premium:

            The annual deposit premium stipulated in the REINSURANCE PREMIUM
            Section shall be paid in advance by the Company to the Reinsurer in
            equal installments on January 1, April 1, July 1, and October 1 of
            each Agreement Year.

            Within 15 days after the end of each Agreement Year and upon
            cancellation or termination, at the end of each calendar year
            thereafter, until all premiums are accounted for, the Company shall
            render to the

                                      -3-
<PAGE>

                                                                   No. 2521-0027

            Reinsurer a statement of the Company's Gross Net Written Premium
            during the year and a calculation of the annual premium computed by
            the application of the rate set forth in the REINSURANCE PREMIUM
            Section to the Company's Gross Net Written Premium. If the actual
            annual premium owed to the Reinsurer under this Exhibit is more than
            the annual minimum premium previously paid under this Exhibit, the
            additional premium shall be forwarded to the Reinsurer with the
            statement.

B.    Unearned Premium

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

C.    General

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

                                    Section 6

REINSTATEMENTS

A.    Except as provided in B. below, in the event of any portion of the
      liability under this Exhibit being exhausted by loss, the amount so
      exhausted is automatically reinstated from the time of the Occurrence of
      the loss in consideration of the payment by the Company of an additional
      premium calculated by applying to the annual reinsurance premium for this
      Exhibit:

      1.    For the first $6,000,000 reinstated, there shall be no additional
            premium charge;

      2.    For the next $3,000,000 reinstated, the percentage of the face
            amount of this Exhibit so reinstated.

      Nevertheless, the Reinsurer's liability shall not exceed $3,000,000
      Ultimate Net Loss each Occurrence or $12,000,000 for all Occurrences
      during each Agreement Year, subject further to B. below.

B.    With respect to any loss, cost or expense arising from or related to,
      either directly or indirectly, any Terrorist Activity, as defined in the
      Agreement, the limit of liability of the Reinsurer under this Exhibit with
      respect to each Occurrence shall

                                      -4-
<PAGE>

                                                                   No. 2521-0027

      be reduced by an amount equal to the amount of liability incurred by the
      Reinsurer hereunder with respect to said Occurrence; but that part of the
      Reinsurer's liability that is so reduced shall be automatically reinstated
      from the time of the Occurrence, subject to payment of a flat additional
      premium of $500,000, due at the time of reinstatement for each amount so
      reinstated. Nevertheless, the Reinsurer's limit of liability under this
      Exhibit with respect to any loss, cost or expense arising from or related
      to, either directly or indirectly, any "Terrorist Activity" shall in no
      event exceed $3,000,000 Ultimate Net Loss each Occurrence and $6,000,000
      Ultimate Net Loss in the aggregate for all such Occurrences for each
      Agreement Year.

                                      -5-
<PAGE>

                                                                   No. 2521-0027

                                    EXHIBIT C

                          THIRD CASUALTY EXCESS OF LOSS
                                REINSURANCE COVER

                                    Section 1

BUSINESS COVERED

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

                                    Section 2

TERRORIST ACTIVITY EXCLUSION

The reinsurance provided under this Exhibit shall not apply to any loss, cost or
expense arising out of or related to, either directly or indirectly, any
Terrorist Activity, as defined in the DEFINITIONS Article. This exclusion
applies regardless of any other cause or event that in any way contributes
concurrently or in any sequence to loss, cost, or expense.

                                    Section 3

RETENTION AND LIMIT

A.    The Reinsurer shall be liable for that amount of Ultimate Net Loss each
      Occurrence in excess of the Company's retention of $5,000,000 Ultimate Net
      Loss each Occurrence. However, the Reinsurer's liability shall never
      exceed $5,000,000 Ultimate Net Loss each Occurrence.

B.    Reinsurance recoveries under Exhibits A and B of this Agreement shall
      inure to the sole benefit of the Company in determining the Company's
      Ultimate Net Loss under this Exhibit.

                                    Section 4

REINSURANCE PREMIUM

A.    With respect to business in force at the effective time and date of this
      Exhibit, the Company shall pay to the Reinsurer a reinsurance premium
      equal to x.xx% times

                                      -1-
<PAGE>

                                                                   No. 2521-0027

      the Company's unearned premium for the Casualty business reinsured
      hereunder, calculated on the monthly pro rata basis as of the effective
      time and date of this Exhibit.

B.    With respect to business becoming effective at and after the effective
      time and date of this Exhibit, the Company shall pay to the Reinsurer a
      reinsurance premium equal to x.xx% times the Company's Gross Net Written
      Premium for the Casualty business reinsured hereunder for each Agreement
      Year under this Exhibit.

C.    The annual minimum premium for the reinsurance provided for each Agreement
      Year hereunder is $xxx,xxx.

D.    The annual deposit premium for the reinsurance provided for each Agreement
      Year hereunder is $xxx,xxx.

                                    Section 5

REPORTS AND REMITTANCES

A.    Reinsurance Premium

      1.    In Force Premium:

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

      2.    New and Renewal Premium:

            The annual deposit premium stipulated in the REINSURANCE PREMIUM
            Section shall be paid in advance by the Company to the Reinsurer in
            equal installments on January 1, April 1, July 1, and October 1 of
            each Agreement Year.

            Within 45 days after the end of each Agreement Year and upon
            cancellation or termination, at the end of each calendar year
            thereafter, until all premiums are accounted for, the Company shall
            render to the Reinsurer a statement of the Company's Gross Net
            Written Premium during the year and a calculation of the annual
            premium computed by the application of the rate set forth in the
            REINSURANCE PREMIUM Section to the Company's Gross Net Written
            Premium. If the actual annual premium owed to the Reinsurer under
            this Exhibit is more than the annual minimum premium previously paid
            under this Exhibit, the

                                      -2-
<PAGE>

                                                                   No. 2521-0027

            additional premium shall be forwarded to the Reinsurer with the
            statement.

B.    Unearned Premium

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

C.    General

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

                                    Section 6

REINSTATEMENTS

A.    In the event of any portion of the liability under this Exhibit being
      exhausted by loss, the amount so exhausted is automatically reinstated
      from the time of the Occurrence of the loss in consideration of the
      payment by the Company of an additional premium calculated by applying to
      the annual reinsurance premium for this Exhibit:

      1.    For the first $5,000,000 reinstated, there shall be no additional
            premium charge;

      2.    For the next $5,000,000 reinstated, the percentage of the face
            amount of this Exhibit so reinstated.

B.    Nevertheless, the Reinsurer's liability shall not exceed $5,000,000
      Ultimate Net Loss each Occurrence or $15,000,000 for all Occurrences
      during each Agreement Year.

                                      -3-
<PAGE>

                                                                   No. 2521-0027

                                    EXHIBIT D

                      WORKERS' COMPENSATION EXCESS OF LOSS
                                REINSURANCE COVER

                                    Section 1

BUSINESS COVERED

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

                                    Section 2

TERRORIST ACTIVITY EXCLUSION

The reinsurance provided under this Exhibit shall not apply to any loss, cost or
expense arising out of or related to, either directly or indirectly, any
Terrorist Activity, as defined in the DEFINITIONS Article. This exclusion
applies regardless of any other cause or event that in any way contributes
concurrently or in any sequence to loss, cost, or expense.

                                    Section 3

RETENTION AND LIMIT

A.    The Reinsurer shall be liable for that amount of Ultimate Net Loss each
      Occurrence in excess of the Company's retention of $10,000,000 Ultimate
      Net Loss each Occurrence. However, the Reinsurer's liability shall never
      exceed $5,000,000 Ultimate Net Loss each Occurrence.

B.    Reinsurance recoveries under Exhibits A, B, and C of this Agreement shall
      inure to the sole benefit of the Company in determining the Company's
      Ultimate Net Loss under this Exhibit.

                                    Section 4

MAXIMUM ANY ONE LIFE

As respects Workers' Compensation and Employers' Liability coverage reinsured
hereunder (including Occupational Disease and Cumulative Injury, both as
hereinafter

                                      -1-
<PAGE>

defined), it is warranted by the Company or so deemed that the maximum per
person, per Occurrence loss recoverable under an Ultimate Net Loss, as defined
in this Agreement, shall be limited to $10,000,000.

                                    Section 5

REINSURANCE PREMIUM

A.    With respect to business in force at the effective time and date of this
      Exhibit, the Company shall pay to the Reinsurer a reinsurance premium
      equal to 0.83% times the Company's unearned premium for the Workers'
      Compensation business reinsured hereunder, calculated on the monthly pro
      rata basis as of the effective time and date of this Exhibit.

B.    With respect to business becoming effective at and after the effective
      time and date of this Exhibit, the Company shall pay to the Reinsurer a
      reinsurance premium equal to 0.83% times the Company's Gross Net Written
      Premium for the Workers' Compensation business reinsured hereunder for
      each Agreement Year under this Exhibit.

C.    The annual minimum premium for the reinsurance provided for each Agreement
      Year hereunder is $80,000.

D.    The annual deposit premium for the reinsurance provided for each Agreement
      Year hereunder is $100,000.

                                    Section 6

REPORTS AND REMITTANCES

A.    Reinsurance Premium

      1.    In Force Premium:

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

      2.    New and Renewal Premium:

            The annual deposit premium stipulated in the REINSURANCE PREMIUM
            Section shall be paid in advance by the Company to the Reinsurer in
            equal installments on January 1, April 1, July 1, and October 1 of
            each Agreement Year.

                                      -2-
<PAGE>

                                                                   No. 2521-0027

            Within 45 days after the end of each Agreement Year and upon
            cancellation or termination, at the end of each calendar year
            thereafter, until all premiums are accounted for, the Company shall
            render to the Reinsurer a statement of the Company's Gross Net
            Written Premium during the year and a calculation of the annual
            premium computed by the application of the rate set forth in the
            REINSURANCE PREMIUM Section to the Company's Gross Net Written
            Premium. If the actual annual premium owed to the Reinsurer under
            this Exhibit is more than the annual minimum premium previously paid
            under this Exhibit, the additional premium shall be forwarded to the
            Reinsurer with the statement.

B.    Unearned Premium

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

C.    General

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

                                    Section 7

REINSTATEMENTS

A.    In the event of any portion of the liability under this Exhibit being
      exhausted by loss, the amount so exhausted is automatically reinstated
      from the time of the Occurrence of the loss in consideration of the
      payment by the Company of an additional premium calculated by applying to
      the annual reinsurance premium for this Exhibit the percentage of the face
      amount of this Exhibit so reinstated.

B.    Nevertheless, the Reinsurer's liability under this Exhibit shall not
      exceed $5,000,000 Ultimate Net Loss each Occurrence and $10,000,000 for
      all Occurrences during each Agreement Year.

                                      -3-

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