CAPSURE HOLDINGS CORP, 10-K, 1995-07-13

CAPSURE HOLDINGS CORP
10-K, 1995-07-13
FIRE, MARINE & CASUALTY INSURANCE

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<PAGE> 1

THIS DOCUMENT IS A COPY OF THE ANNUAL REPORT ON FORM 10-K FILED ON MARCH 30,
1995 PURSUANT TO A RULE 202 CONTINUING HARDSHIP EXEMPTION

FORM 10-K

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 0-3565

CAPSURE HOLDINGS CORP.
(Exact name of registrant as specified in its charter)

DELAWARE 34-1010356
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)

(312) 879-1900
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, $0.05 PAR VALUE
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of voting stock held by nonaffiliates was $132.8
million based upon the closing price of $12.63 on March 24, 1995, using
beneficial ownership of stock rules adopted pursuant to Section 13 of the
Securities Exchange Act of 1934 to exclude voting stock owned by Directors and
Officers, some of whom may not be held to be affiliates upon judicial
determination.

At March 24, 1995, 15,394,149 shares of the Registrant's Common Stock
were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:
Part III incorporates by reference the Registrant's Proxy Statement relating
to the Annual Meeting of Shareholders to be held May 24, 1995.
<PAGE> 2

CAPSURE HOLDINGS CORP. AND SUBSIDIARIES

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
PART I.
<S> <C> <C>
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Summary of Insurance Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
A.M. Best Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Surety and Fidelity Bond Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Excess and Surplus Lines Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Unpaid Losses and Loss Adjustment Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 13
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Net Operating Tax Loss Carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . 17

PART II.

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . 18
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . 27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

PART III.

Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . 29
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . 29
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 29

PART IV.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . 30

</TABLE>

-2-
<PAGE> 3

CAPSURE HOLDINGS CORP. AND SUBSIDIARIES

PART I

ITEM 1. BUSINESS

GENERAL
Capsure Holdings Corp. and its subsidiaries ("Capsure" or the "Company")
are engaged in the property and casualty insurance business. Capsure's
principal property and casualty insurance entities are Western Surety Company
("Western Surety"), acquired in August 1992, United Capitol Insurance Company
("United Capitol"), acquired in February 1990, and Universal Surety of America
("Universal Surety"), acquired on September 22, 1994. Western Surety writes
small fidelity and noncontract surety bonds, referred to as "miscellaneous"
bonds, and errors and omissions ("E&O") liability insurance, as a licensed
insurer in all 50 states and the District of Columbia. United Capitol writes
specialty property and casualty insurance, primarily as an excess and surplus
("E&S") lines insurer. United Capitol is licensed in Wisconsin and Arizona and
conducts business on a nonadmitted basis in all other states, the District of
Columbia, Puerto Rico and the U.S. Virgin Islands. Universal Surety
specializes in the underwriting of small contract and miscellaneous surety
bonds. Universal Surety is licensed in 16 states with most of its business
generated in Texas.

The Company's business strategy with respect to its existing insurance
operations is to emphasize the underwriting of risks where reasonable
expectations of underwriting profits exist. At Western Surety, whose business
is relatively low risk and relatively insensitive to industry pricing cycles,
delivery of excellent service to its vast network of agents is emphasized. At
Universal Surety, whose business includes both miscellaneous surety and the
comparatively more risky contract surety, responsiveness to agents coupled with
sound conservative underwriting are the guiding principles. Contract bonds are
more affected by prevailing market and general economic conditions than are
noncontract bonds. At United Capitol, whose business is relatively high risk
and extremely cyclical, strict underwriting discipline is the critical factor
in effecting underwriting profitability during soft market periods.

The Company's primary growth strategy is to expand its operations in the
specialty insurance and financial services industries by capitalizing on
Western Surety's licenses, distribution system and A+ rating by A.M. Best
Company, Inc. ("A.M. Best") and United Capitol's underwriting expertise and
management resources, and by acquiring profitable, well-managed businesses with
established market positions in the insurance or financial services industry.
The September 22, 1994 acquisition of Universal Surety is an example of this
philosophy. Universal Surety has been a highly successful regional underwriter
of miscellaneous and small- to medium-sized contract surety bonds in Texas (75%
of 1994 gross written premiums) and adjacent southern states. Universal
Surety's preacquisition financial results have been exceptional. Gross written
premiums have grown from $5.1 million for the year ended December 31, 1990 to
$15.3 million for the year ended December 31, 1994 (including results prior to
acquisition). A weighted average combined ratio below 80% was maintained over
this same period. These results compare favorably to national contract surety
bond insurers. Universal Surety's overall growth in gross written premiums and
underwriting income during this period was attributable to its product
specialization, underwriting expertise and the strong economy in its geographic
region. Such growth was restricted by Universal Surety's ability to attract
qualified underwriting and claims personnel and maintain distinctive service to
its agents. The planned expansion of Universal Surety's contract surety
business through Western Surety's broad distribution network will be similarly
controlled. There can be no assurance, however, that Universal Surety's
preacquisition results will be indicative of future operating results under the
ownership and management of Capsure.

In addition, in 1993 the Company acquired Fischer Underwriting Group,
Incorporated ("Fischer"), a managing general agency engaged in producing and
underwriting specialty directors' and officers' ("D&O") and miscellaneous
professional liability insurance. Formerly acting on behalf of Lloyds' of
London and other insurers, Fischer commenced producing and underwriting on
behalf of United Capitol in December 1993.

-3-
<PAGE> 4

SUMMARY OF INSURANCE OPERATIONS
Capsure's insurance companies operate in two principal markets within the
property and casualty insurance industry - surety and fidelity and excess and
surplus lines. The principal lines of business of Western Surety and Universal
Surety are surety and fidelity. United Capitol underwrites principally other
liability, product liability and commercial property, primarily on an E&S
basis.

On August 14, 1992, the Company acquired Western Surety. Founded in 1900,
Western Surety is one of the largest writers of miscellaneous bonds in the
United States. Bonds underwritten by Western Surety are relatively low-risk,
low-premium products where prompt service, easy-to-use forms and availability
of an extensive array of bond products are emphasized. Western Surety's
success is attributable to its product specialization, underwriting expertise
and broad distribution network. Substantially all of Western Surety's bonds
are mandated by various state statutes and local ordinances.

On September 22, 1994, the Company acquired Universal Surety. Founded in
1984, Universal Surety specializes in writing miscellaneous and small- to
medium-sized contract surety bonds in the southern United States. Contract
bonds underwritten by Universal Surety are primarily contractor performance and
payment bonds in amounts under $3.0 million for which underwriting expertise
and distinctive service to agents are emphasized. Universal Surety underwrites
primarily standard and some specialty accounts for which it will utilize
supplemental collateral arrangements and excess rates for contractors not
qualified for standard surety rates. Universal Surety also reduces its
exposure through participation in the Small Business Administration ("SBA")
Surety Bond Guarantee Program. Under this program, the SBA will generally
reimburse Universal Surety for 80% of losses and loss adjustment expenses
incurred on any SBA guaranteed bond in exchange for 20% of the premium. In
addition, a significant portion of the Company's premiums consist of
miscellaneous bonds underwritten in the same geographic area.

On February 20, 1990, the Company acquired United Capitol, a specialty
property and casualty insurer. United Capitol provides principally general
liability insurance, including D&O liability, product liability and other
liability, to businesses which have hazardous, unique or unusual risk
characteristics and which require individual risk underwriting and pricing
expertise. Policies underwritten by United Capitol are relatively high- risk,
high-premium products. Since its founding in 1986, United Capitol has been
able to consistently achieve its primary objective of generating underwriting
profits by adhering to a strategy of strict underwriting discipline. The
Company believes this strategy is a critical factor affecting underwriting
profitability during soft market conditions, which have prevailed in the
property and casualty industry since 1987. United Capitol has experienced
significant declines in premium volume since 1987 as it has exercised
underwriting discipline and has declined to write what it believes to be
underpriced business.

A.M. BEST RATINGS
Western Surety, Universal Surety and United Capitol are currently rated A+
(Superior), A (Excellent) and A (Excellent), respectively, by A.M. Best. A.M.
Best's letter ratings range from A++ (Superior) to C- (Fair) with A++ being
highest. An A+ (Superior) rating is assigned to those companies which A.M.
Best believes have achieved superior overall performance when compared to the
norms of the property and casualty insurance industry. A+ (Superior) rated
insurers have been shown to be among the strongest in ability to meet
policyholder and other contractual obligations. A rating of A (Excellent) is
assigned to those companies which A.M. Best believes have achieved excellent
overall performance when compared to the norms of the property and casualty
insurance industry and generally have demonstrated a strong ability to meet
their respective policyholder and other contractual obligations. A.M. Best
reviews its ratings at least annually and reaffirmed each company's rating in
June 1994. There can be no assurance that these ratings will continue to be
reaffirmed.

SURETY AND FIDELITY BOND OPERATIONS
According to 1993 statistics published by the Surety Association of America
("SAA"), the surety and fidelity bond market had direct written premiums of
approximately $2.7 billion, of which the miscellaneous bond segment accounted
for approximately $724 million. Western Surety targets a subset of the
miscellaneous bond segment of the surety and fidelity market because of its
favorable risk characteristics. Universal Surety targets both the
miscellaneous bond and small contract surety bond segments of the market.

-4-
<PAGE> 5

PRODUCTS AND POLICIES
Surety and fidelity bonds differ in some respects from conventional
insurance policies. A surety bond is a three-party arrangement wherein the
issuer of the bond (the surety) guarantees to a third party (the obligee)
an obligation made by another entity (the principal). The surety is the
party who guarantees fulfillment of the principal's obligation to the
obligee. In addition, sureties are generally entitled to recover from the
principal any losses and expenses paid to third parties. The surety's
responsibility is to evaluate the risk and determine if the principal meets
the underwriting requirements for the bond. Accordingly, surety bond
premiums primarily reflect the type and class of risk and related costs
associated with both processing the bond transaction and investigating the
applicant including, if necessary, an analysis of the applicant's
creditworthiness and ability to perform.

Western Surety issues thousands of different noncontract bond forms
representing the many types of bonds available in each of the jurisdictions
in which it operates. Universal Surety issues both contract and
noncontract surety bonds. The terms of such bonds in many cases are
prescribed by federal, state and local laws or regulations. The principal
types of surety and fidelity bonds underwritten are as follows:

License and Permit - Bonds required by statutes or ordinances for a
number of purposes including guaranteeing the payment of certain taxes and
fees and providing consumer protection as a condition to granting licenses
related to selling real estate or motor vehicles and contracting services.

Judicial and Fiduciary - Bonds required by statutes, courts or legal
documents for the protection of those on whose behalf a fiduciary acts.
Examples of such fiduciaries include executors and administrators of
estates, and guardians of minors and incompetents.

Fidelity - Bonds which cover losses arising from employee dishonesty.
Examples of purchasers of fidelity bonds are law firms, insurance agencies
and janitorial service companies.

Public Official - Bonds required by statutes and ordinances to
guarantee the lawful and faithful performance of the duties of office by
public officials.

Notary Public - Bonds required by statutes to protect against losses
resulting from the improper actions of notaries public.

Contract - Bonds which secure the payment and/or performance of an
obligation under a written contract.

Each company also writes E&O policies for two classes of insureds:
notaries public and tax preparers. The notary public E&O policy is
marketed as a companion product to the notary public bond and the tax
preparer E&O policy is marketed to small tax return preparation firms. In
addition, Western Surety introduced an Insurance Agents & Brokers E&O
Insurance product in 1994.

The following tables set forth, for each principal class of bonds,
combined Western Surety and Universal Surety gross written premiums, net
written premiums, net earned premiums and number of bonds and policies in
force in 1994, 1993 and 1992 and the respective percentages of the total.
All tables in this section contain information reflecting the operations of
both Western Surety and Universal Surety prior to their respective
acquisitions by Capsure. As such, the financial information is not
necessarily indicative of the financial results that would have occurred
under the ownership and management of Capsure (amounts in thousands, except
percentages and average bond amounts):

-5-
<PAGE> 6

<TABLE>
<CAPTION>
GROSS WRITTEN PREMIUMS
-------------------------------------------------------------------------------
% of % of % of
1994 Total 1993 Total 1992 Total
----------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Surety and fidelity bonds:
License and permit . . . . . . $ 28,160 32.5% $ 27,934 32.5% $ 26,906 33.8%
Judicial and fiduciary . . . . 13,116 15.2 13,493 15.7 13,263 16.7
Fidelity . . . . . . . . . . . 13,821 16.0 13,111 15.3 12,364 15.6
Public official . . . . . . . . 6,874 7.9 7,628 8.9 7,003 8.8
Notary public . . . . . . . . . 7,989 9.2 8,804 10.3 8,203 10.3
Contract . . . . . . . . . . . 10,393 12.0 9,111 10.6 6,914 8.7
Other . . . . . . . . . . . . . 1,935 2.3 1,723 2.0 1,124 1.4
---------- ------ ---------- ------ ---------- ------
82,288 95.1 81,804 95.3 75,777 95.3
E&O policies . . . . . . . . . . 4,261 4.9 4,031 4.7 3,763 4.7
---------- ------ ---------- ------ ---------- ------
$ 86,549 100.0% $ 85,835 100.0% $ 79,540 100.0%
========== ====== ========== ====== ========== ======
Premiums by company:
Western Surety . . . . . . . . $ 71,286 82.4% $ 72,064 84.0% $ 68,552 86.2%
Universal Surety . . . . . . . 15,263 17.6 13,771 16.0 10,988 13.8
---------- ------ ---------- ------ ---------- ------
$ 86,549 100.0% $ 85,835 100.0% $ 79,540 100.0%
========== ====== ========== ====== ========== ======
Premiums generated by
largest agency:
Western Surety . . . . . . . . 1.2% 1.3% 1.6%
========== ========== ==========
Universal Surety . . . . . . . 4.0% 6.0% 6.0%
========== ========== ==========

Percentage of premiums
in the top five states:
Western Surety . . . . . . . . 26.5% 26.9% 25.9%
========== ========== ==========
Universal Surety . . . . . . . 92.0% 95.0% 97.0%
========== ========== ==========

</TABLE>

<TABLE>
<CAPTION>
NET WRITTEN PREMIUMS
-------------------------------------------------------------------------------
% of % of % of
1994 Total 1993 Total 1992 Total
----------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Surety and fidelity bonds:
License and permit . . . . . . $ 28,003 33.3% $ 27,796 33.3% $ 26,757 34.5%
Judicial and fiduciary . . . . 12,379 14.7 12,715 15.2 12,428 16.0
Fidelity . . . . . . . . . . . 13,786 16.4 13,061 15.7 12,306 15.9
Public official . . . . . . . . 6,731 8.0 7,422 8.9 6,776 8.7
Notary public . . . . . . . . . 7,922 9.4 8,718 10.4 8,117 10.5
Contract . . . . . . . . . . . 9,623 11.5 8,382 10.0 6,352 8.2
Other . . . . . . . . . . . . . 1,421 1.7 1,343 1.6 1,093 1.4
----------- -------- ---------- --------- ---------- ---------
79,865 95.0 79,437 95.1 73,829 95.2
E&O policies . . . . . . . . . . 4,186 5.0 4,031 4.9 3,764 4.8
----------- -------- ---------- -------- ---------- --------
$ 84,051 100.0% $ 83,468 100.0% $ 77,593 100.0%
=========== ======== ========== ======== ========== ========
Premiums by company:
Western Surety . . . . . . . . $ 69,738 83.0% $ 70,598 85.0% $ 67,333 86.9%
Universal Surety . . . . . . . 14,313 17.0 12,870 15.0 10,260 13.1
----------- -------- ---------- -------- ---------- --------
$ 84,051 100.0% $ 83,468 100.0% $ 77,593 100.0%
=========== ======== ========== ======== ========== ========
</TABLE>

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<PAGE> 7

<TABLE>
<CAPTION>
NET EARNED PREMIUMS
-------------------------------------------------------------------------------
% of % of % of
1994 Total 1993 Total 1992 Total
----------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Surety and fidelity bonds:
License and permit . . . . . . $ 27,692 33.4% $ 26,941 34.2% $ 26,117 35.3%
Judicial and fiduciary . . . . 12,476 15.1 12,603 16.0 12,274 16.6
Fidelity . . . . . . . . . . . 13,402 16.2 12,618 16.0 11,892 16.0
Public official . . . . . . . . 7,017 8.5 7,059 9.0 6,797 9.2
Notary public . . . . . . . . . 7,561 9.1 6,949 8.8 6,523 8.8
Contract . . . . . . . . . . . 9,331 11.3 7,720 9.8 5,831 7.9
Other . . . . . . . . . . . . . 1,426 1.7 1,218 1.5 1,056 1.4
----------- -------- ---------- -------- ---------- --------
78,905 95.3 75,108 95.3 70,490 95.2
E&O policies . . . . . . . . . . 3,917 4.7 3,733 4.7 3,547 4.8
----------- -------- ---------- -------- ---------- --------
$ 82,822 100.0% $ 78,841 100.0% $ 74,037 100.0%
=========== ======== ========== ======== ========== ========
Premiums by company:
Western Surety . . . . . . . . $ 69,212 83.6% $ 67,941 86.2% $ 65,540 88.5%
Universal Surety . . . . . . . 13,610 16.4 10,900 13.8 8,497 11.5
----------- -------- ---------- -------- ---------- --------
$ 82,822 100.0% $ 78,841 100.0% $ 74,037 100.0%
=========== ======== ========== ======== ========== ========

</TABLE>

<TABLE>
<CAPTION>
BONDS AND POLICIES IN FORCE
-------------------------------------------------------------------------------
% of % of % of
1994 Total 1993 Total 1992 Total
----------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Surety and fidelity bonds:
License and permit . . . . . . 460 29.4% 460 30.5% 436 30.7%
Judicial and fiduciary . . . . 64 4.1 67 4.4 67 4.7
Fidelity . . . . . . . . . . . 88 5.6 86 5.7 84 5.9
Public official . . . . . . . . 64 4.1 63 4.2 62 4.4
Notary public . . . . . . . . . 762 48.6 717 47.5 663 46.7
Contract . . . . . . . . . . . 6 0.4 5 0.3 5 0.3
Other . . . . . . . . . . . . . 11 0.7 12 0.8 11 0.8
----------- -------- ---------- -------- ---------- --------
1,455 92.9 1,410 93.4 1,328 93.5
E&O policies . . . . . . . . . . 112 7.1 100 6.6 93 6.5
----------- -------- ---------- -------- ---------- --------
1,567 100.0% 1,510 100.0% 1,421 100.0%
=========== ======== ========== ======== ========== ========
Bonds/policies in force by company:
Western Surety . . . . . . . . 1,389 88.6% 1,367 90.5% 1,323 93.1%
Universal Surety . . . . . . . 178 11.4 143 9.5 98 6.9
----------- -------- ---------- -------- ---------- --------
1,567 100.0% 1,510 100.0% 1,421 100.0%
=========== ======== ========== ======== ========== ========
Average bond/policy limit:
Western Surety . . . . . . . . $ 9,470 $ 9,186 $ 8,937
=========== ========== ==========
Universal Surety . . . . . . . $ 5,330 $ 5,281 $ 5,647
=========== ========== ==========
</TABLE>

MARKETING
Western Surety enjoys broad national distribution of its products,
which are marketed through approximately 37,000 of the approximately 45,000
independent property and casualty insurance agencies in the United States.
These independent agencies are paid an average commission of approximately
30% of a miscellaneous bond's premium. Western Surety also employs
approximately 60 full-time salaried marketing representatives whose
principal duties are to continually service their producer network on a
local basis.

Since miscellaneous fidelity and surety bonds typically account for a
small portion of an independent agency's revenues and are generally applied
for under rush circumstances, Western Surety emphasizes one-day response
service, easy-to-use forms and an extensive array of miscellaneous bond
products. In addition, independent agents are provided pre-executed bond
forms and powers of attorney that allow them to issue many standard bonds in
their offices.

-7-
<PAGE> 8

Western Surety's marketing strategy is concentrated on increasing its
share of the miscellaneous bond market. In addition, Western Surety devotes
considerable time and effort educating legislators as to the need for and
value of miscellaneous bonds and challenging attempts to repeal certain
bonding requirements.

Universal Surety markets its products through approximately 1,000
independent property and casualty insurance agencies through its
headquarters in Houston, Texas and branch offices in Austin, Dallas, Kansas
City and San Antonio. Universal Surety emphasizes innovative, flexible
underwriting, product specialization and distinctive agent service backed by
highly qualified, experienced employees.

Universal Surety's preacquisition results have been exceptional as
gross written premiums grew from $5.1 million in 1990 to $15.3 million in
1994, while maintaining a combined ratio below 80%. In addition, according
to 1993 SAA statistics, Universal Surety ranked number one in volume of
bonds written in Texas and number three in terms of direct written premiums.
Of Universal Surety's gross written premiums in 1994, 68% related to
contract bonds, including 12% that qualified for the SBA guarantee. The
remaining 32% related to noncontract bonds, including 11% for notary public
bonds.

Universal Surety has concentrated its marketing efforts in expanding
its share of the small contract bond market. Contract bonds underwritten by
Universal Surety are primarily contractor performance and payment bonds in
amounts under $3.0 million. Universal Surety underwrites principally
standard accounts and some specialty accounts for which it will utilize
supplemental collateral arrangements and excess rates or SBA guarantees for
contractors not generally considered standard risks. The Company intends to
utilize Western Surety's existing diverse agency relationships to expand the
geographic and agency distribution of Universal Surety's contract surety
business. The Company has initially targeted marketing activities towards
Western Surety agents in 13 southern states, including Texas. Western
Surety will generally cede 100% of each such contract surety bond written on
Western paper to Universal Surety pursuant to a Surety Bond Quota
Reinsurance Agreement. In 1994, these activities were not material.

In addition, Western Surety is gradually expanding its product line by
offering Insurance Agents & Brokers E&O Insurance directly to a majority of
its vast agency force. Western Surety cedes 90% of each policy to a
reinsurer pursuant to a treaty reinsurance arrangement. In 1994, these
activities were not material.

UNDERWRITING
Western Surety and Universal Surety target various products in the
surety and fidelity bond market which are characterized by relatively
low-risk exposure and small bond amounts. Its underwriting criteria,
including the extent of bonding authority granted to independent agents,
vary depending on the class of business and the type of bond. For example,
relatively little underwriting information is required of certain
low-exposure risks such as notary bonds. Other bonds, such as fiduciary or
probate bonds, are subjected to greater individual risk scrutiny, including
verification of the credit history and financial resources of an applicant.
Contract bonds underwritten by Universal Surety, which have higher bond
amounts and inherent risk, are subject to stringent financial analysis and
credit review. Both companies grant authority to independent agents to
issue certain low-risk bonds subject to underwriting guidelines.

COMPETITION
The surety and fidelity market is highly competitive. The largest
market shares are held by large diversified insurance companies; however,
the single largest writer nationally in 1993, according to the SAA,
controlled only 6% of the $2.7 billion market. The small fidelity and
noncontract surety or miscellaneous segment of this market is competitive
on the basis of service, price, and commissions paid to producers. No
single competitor has a significant market position in the broad geographic
range and lines of business in which Western Surety conducts its
operations. Certain of Western Surety's existing and potential competitors
are larger and have greater financial and other resources than Western
Surety. The Company believes that Western Surety's principal competitive
strengths include its expertise in writing miscellaneous bonds,
distribution network of independent agencies, timely customer response and
service, and admitted status in every state and the District of Columbia.

-8-
<PAGE> 9

The market in which Universal Surety competes, primarily small
contract bonds, has seen additional competition as both large and small
insurance companies are competing and expanding in this area. Certain of
Universal Surety's existing and potential competitors are larger and have
greater financial resources than Universal Surety. Universal Surety
believes that its principal competitive strengths include its underwriting
expertise in both contract and miscellaneous bonds, its distinctive service
and its strong relationship with its agents.

EXCESS AND SURPLUS LINES OPERATIONS
For regulatory purposes, the commercial property and casualty insurance
market is essentially divided into three segments: the admitted or licensed
market, commonly referred to as the "standard" market; the alternate risk
mechanism market, which includes captive insurance companies, risk retention
groups and risk purchasing groups; and, the E&S market. The largest provider
group is the licensed or admitted insurers. The alternate risk market may
operate on an admitted or E&S basis.

The E&S segment was created to provide a source of insurance to those
insureds who are unable to purchase coverage in the standard market. Admitted
insurers are subject to extensive state regulation of rates, policy forms and
operational conduct, are required to participate in assigned risk pools and
must pay premium taxes and other state assessments. These companies, however,
exert a dominant influence over pricing in the commercial market. By contrast,
E&S insurers are subject to comparatively less state regulation, affording them
more pricing and form flexibility and lower operating expenses. E&S insurers
may only insure those risks which the standard market cannot or chooses not to
insure.

The commercial property and casualty insurance market is highly cyclical
and intensely competitive as to price and terms. The size and composition of
the E&S market historically have fluctuated with industry cycles. The cycles
have been characterized by conditions known as hard markets and soft markets.
Hard markets have been characterized by varying periods of relatively higher
premiums and more restrictive coverages. As more insurers have been attracted
to those conditions, competition has intensified. Over time, this has resulted
in depressed premiums, broader coverages and underwriting losses in the
industry, which are referred to as soft markets, and have been characterized by
an oversupply of underwriting capacity. E&S insurers are generally more
vulnerable to these cycles, which is reflected by their volatile writings,
since E&S insurers typically only underwrite classes of risks which standard
market insurers cannot or choose not to insure. The commercial property and
casualty insurance market has been operating under soft market conditions since
1987 and there can be no assurance as to the timing or extent of hard market
conditions returning to the property and casualty insurance industry.

PRODUCTS AND POLICIES
The following tables set forth for each of United Capitol's principal
lines of business, gross written premiums, net written premiums and net
earned premiums in 1994, 1993 and 1992 (dollars in thousands):

-9-
<PAGE> 10

</TABLE>

PRODUCT LIABILITY AND OTHER PRIMARY GENERAL LIABILITY
United Capitol provides primary general liability insurance, including
product liability coverage, on both a claims-made and an occurrence basis
to hazardous, unique or unusual classes of commercial insureds that require
specialized underwriting. These policies provide coverage to the insured
against third-party claims of bodily injury or property damage arising from
negligent acts of the insured. Except as discussed below, claims for
bodily injury or property damage caused by exposure to asbestos are
excluded from product liability and other primary general liability
policies sold by United Capitol.

Many of United Capitol's general liability policies specifically
provide product liability coverage for liabilities arising from the
manufacture and/or distribution of goods by an insured. Classes of
insureds include manufacturers and distributors of industrial machinery,
equipment and chemicals, sporting goods, toys and trailers; bridge
building, pile driving and other artisan contractors; operators of
carnivals, circuses, water and amusement parks; and fireworks exhibitors.

Most of United Capitol's non-asbestos primary general liability
policies have been issued on the occurrence form (63% in 1994, 66% in 1993
and 71% in 1992); however, classes considered to be particularly
susceptible to late reporting ("long tail" classes) are generally written
on a claims-made form. Examples of these classes include pharmaceuticals
and chemicals manufacturers and distributors, and hazardous waste
remediation contractors.

In 1992, United Capitol commenced offering pollution liability
coverage, on a claims-made only basis, to contractors involved in the
remediation of preexisting pollution. United Capitol does not provide
pollution coverage to those parties who are likely to create or be the
source of pollution. United Capitol's gross limit of liability for this
coverage is generally $1.0 million, but higher limits are available through
the use of reinsurance. Total gross written premiums for this coverage
were $0.5 million, $0.6 million and $0.2 million in 1994, 1993 and 1992,
respectively.

For the primary general liability insurance line of business, United
Capitol generally offers gross limits of liability of approximately $1.0
million to $3.0 million. United Capitol's average gross annual premium per
policy

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<PAGE> 11

in 1994, 1993 and 1992 was approximately $116,000, $98,000 and $105,000,
respectively, and the average gross limits of liability were $2.0 million,
$1.8 million and $1.8 million, respectively.

D&O AND MISCELLANEOUS PROFESSIONAL LIABILITY
In December 1993, United Capitol commenced writing specialty D&O and
miscellaneous professional liability insurance on a claims-made basis
through Fischer. D&O insurance is designed to protect directors and
officers from liabilities arising while acting in their official capacities
and typically covers both liabilities of the officer or director and
reimbursement of a corporation that has lawfully agreed to indemnify their
officers or directors. Miscellaneous professional liability insurance,
also known as E&O, covers claims by third parties who allege damage as a
result of negligent actions by insured professionals. The gross limit of
liability for these policies is generally $1.0 million, though gross limits
up to $5.0 million are available through the use of reinsurance. The
average gross annual premium per policy for these classes of business was
$11,000 in 1994 and $9,000 in 1993. United Capitol targets businesses with
hard-to-place D&O risks such as new companies, research and development
companies, and companies with past bankruptcies as well as not-for-profit
businesses. Types of entities considered for professional liability
coverage by United Capitol include insurance agents, real estate brokers,
title agents, and collection agents and certain legal professionals.
Fischer, to a lesser degree, also places certain D&O and E&O insurance with
insurers other than United Capitol and receives commissions for such
services. This business placed with other insurers was not material to the
Company.

ASBESTOS ABATEMENT
United Capitol provides general liability insurance for asbestos
abatement contractors, as well as professional liability insurance for
architects, engineers and others in their capacity as asbestos abatement or
environmental consultants. Asbestos abatement generally involves removal
or containment of asbestos and asbestos-containing materials from buildings
and other structures. United Capitol's asbestos abatement policy forms
exclude coverage for employees of an insured and others required to be in
the area during the asbestos abatement process.

United Capitol generally provides gross limits of liability of $1.0
million to $3.0 million to asbestos abatement contractors and professional
liability coverage to asbestos abatement and environmental consultants.
Higher gross limits can be provided through the use of reinsurance. In
1994, 1993 and 1992, the average gross annual premium per policy for this
class of business was approximately $76,000, $76,000 and $67,000,
respectively. The average gross limit of liability was $2.8 million in
1994, $2.5 million in 1993 and $2.0 million in 1992.

From 1986 through 1990, substantially all of United Capitol's general
liability policies for asbestos abatement contractors and environmental
consultants were written on a claims-made basis. Because of highly
favorable loss experience with the product, and in response to changing
market conditions as more insurers have entered the market, United Capitol
commenced writing these policies on an occurrence basis in late 1990. In
1994, 1993 and 1992, asbestos abatement general liability policies written
on an occurrence basis increased to approximately 79%, 69% and 60% of the
total, respectively. Since 1989, United Capitol has experienced a
significant decline in asbestos abatement-related insurance premiums in
absolute terms as well as relative to its total business because of intense
competition for this product. Management anticipates a continuing decline
in this business.

PROPERTY, SURETY AND OTHER BUSINESS
United Capitol writes commercial property and inland marine insurance,
generally offering up to $5.0 million of gross limits per location or per
policy. The average gross annual premium per policy was $18,000 in 1994,
$25,000 in 1993 and $23,000 in 1992. In 1993, United Capitol's agency
subsidiary, United Capitol Managers, Inc. ("Managers"), entered into an
agreement under which it acts as commercial property underwriting manager
for Westport Insurance Corporation ("Westport"), a member company of the
Employers Reinsurance Group. Westport is rated A++ (Superior) by A.M. Best
and is an admitted insurer in the majority of jurisdictions. Managers
earns a commission for business underwritten on behalf of Westport and
United Capitol assumes up to $500,000 net per risk on business produced by
Managers. In 1994, Managers produced $4.3 million of gross premiums for
Westport of which $0.3 million was retroceded to United Capitol.

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<PAGE> 12

United Capitol also writes a small amount of surety bonds for asbestos
abatement and hazardous waste remediation contractors.

POLICY FORMS
United Capitol uses both claims-made and occurrence forms for its
liability lines of business, both of which are generally more restrictive
than standard industry policy forms. Since inception, approximately 90% of
United Capitol's claims-made and occurrence liability policies have
provided for an aggregate limit for all claims in a policy year. Further,
all liability policies issued since early 1987 have provided for an
aggregate limit for all claims in a policy year. In approximately 98% of
United Capitol's liability policies, defense costs and other loss
adjustment expenses are either included within the policy limits or subject
to a dollar cap. Virtually all of United Capitol's liability policies are
written subject to a self-insured retention or deductible. These
underwriting standards and percentages have remained essentially unchanged
since 1986. Except as described above, United Capitol's liability policies
exclude coverage for the insured's liability for claims related to
pollution. United Capitol's liability policies generally exclude coverage
for the insured's liability for punitive or exemplary damages.

For its property and surety lines of business, United Capitol
generally uses standard industry policy forms which it may modify in some
respects.

MARKETING
United Capitol principally markets its insurance through approximately
250 wholesale and retail insurance brokerage firms throughout the country
whose employees are specially licensed by insurance regulatory authorities
as E&S insurance brokers. These brokers submit risk proposals to United
Capitol for its review and underwriting analysis. No brokers have the
authority to bind United Capitol and United Capitol does not delegate
underwriting or claims management authority to nonaffiliated managing
general agents or other independent agents or brokers. Due to the
specialized nature of United Capitol's business, policy writings tend to be
concentrated among a small group of brokerage firms committed to United
Capitol's products. For the years ended December 31, 1994, 1993 and 1992,
United Capitol's top ten brokerage firms generated approximately 42%, 49%
and 45%, respectively, of gross written premiums in those periods. In
1994, 1993 and 1992, United Capitol's top brokerage firm produced 12%, 14%
and 12%, respectively, of its gross written premiums.

UNDERWRITING
All underwriting and pricing decisions are made by United Capitol or
its subsidiaries' employees and reviewed by senior management. Given the
hazardous, unique or unusual nature of the risks United Capitol insures,
its underwriters carefully analyze the risks associated with each
application for insurance. United Capitol's underwriters evaluate the
prior loss history, the inherent risk characteristics and the financial
condition of the applicant where appropriate. For asbestos abatement
contractors, the underwriting process also includes evaluation of the
contractor's qualifications, experience and operating procedures. For all
liability coverages, and particularly when determining whether liability
coverage will be offered on an occurrence form, United Capitol's
underwriting analysis includes evaluation of the likely "tail" period
between an insured occurrence and the time a claim is likely to be made.

COMPETITION
The excess and surplus lines market is significantly affected
by conditions in the commercial property and casualty market, which are
highly cyclical and intensely competitive as to price and terms. Many of
United Capitol's existing or potential competitors are larger, have
considerably greater financial and other resources, have greater
experience in the insurance industry, have longer relationships with
their brokers and insureds and offer a broader line of insurance products
than United Capitol. United Capitol competes with other excess and
surplus lines insurers, other forms of insurance organizations such as
risk retention groups and other alternative risk mechanisms. United
Capitol also competes with admitted insurers since a risk may not be
offered to an excess and surplus lines insurer if an admitted insurer is
willing to insure the risk. The property and casualty industry is
particularly competitive with respect to price and terms, and United Capitol
will compete on that basis only when there remains reasonable expectation of
underwriting profits. United Capitol believes its competitive strengths are
its underwriting discipline, quality service and effective claims
administration.

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<PAGE> 13

REINSURANCE
The Company's insurance subsidiaries, in the ordinary course of business,
cede reinsurance to other insurance companies to limit their exposure to loss
and to provide greater diversification of risk. The reinsurance coverages and
terms are tailored to the specific risk characteristics of the underlying
product line. Reinsurance contracts do not relieve the Company of its primary
obligations to claimants. A contingent liability exists with respect to
reinsurance ceded to the extent that any reinsurer is unable to meet the
obligations assumed under the reinsurance agreements. Capsure places
reinsurance with other carriers only after careful review of the nature of the
contract and a thorough assessment of the reinsurers' credit quality and claim
settlement performance. At December 31, 1994, Capsure's largest reinsurance
receivable, including prepaid reinsurance premiums of $1.3 million and
estimated ceded incurred but not reported ("IBNR") losses of $12.0 million, was
approximately $18.9 million with Generali - U.S. Branch. Generali - U.S.
Branch is rated A (Excellent), XV by A.M. Best. No other receivable from a
single reinsurer exceeded 10% of total reinsurance receivables.

UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
The liability for unpaid losses and loss adjustment expenses ("LAE") is
based on estimates of (a) the ultimate settlement value of reported claims, (b)
IBNR claims, (c) future expenses to be incurred in the settlement of claims and
(d) claim recoveries. These estimates are determined based on Company and
industry loss experience as well as consideration of current trends and
conditions. The liability for unpaid losses and LAE is an accounting estimate
and, similar to other accounting estimates, there is the potential that actual
future loss payments will differ from the initial estimate. The methods of
determining such estimates and the resulting estimated liability are
continually reviewed and updated. Changes in the estimated liability are
reflected in operating income in the year in which such changes are determined.

Each of Capsure's insurance subsidiaries employs prudent reserving
approaches in establishing the estimated liability for unpaid loss and LAE due
to the inherent difficulty and variability in the estimation process. In
addition, Capsure utilizes independent actuarial firms of national standing to
conduct periodic reviews of claim procedures and loss reserving practices, and
annually obtains actuarial certification as to the reasonableness of actuarial
assumptions used and the sufficiency of year-end reserves for each of its
principal insurance subsidiaries.

A table is included in both Management's Discussion and Analysis and Note 7
to the Consolidated Financial Statements which presents a reconciliation of
beginning and ending consolidated loss reserve balances for the three years
ended December 31, 1994. Such tables highlight the impact of favorable
revisions to the estimated liability established in prior years.

A reconciliation of the consolidated loss reserves reported in accordance
with generally accepted accounting principles ("GAAP"), and the reserves
reported to state insurance regulatory authorities in accordance with statutory
accounting principles ("SAP") follows (dollars in thousands):

<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1994 1993 1992
---------- ---------- ----------
(Restated)
<S> <C> <C> <C>
Reserves at end of year, GAAP basis . . . . . . . . . . . . . . . . . . $ 149,041 $ 135,825 $ 128,122
Estimated salvage and subrogation recoverable,
not anticipated under SAP . . . . . . . . . . . . . . . . . . . . . 6,881 6,465 6,479
Estimated reinsurance recoverable netted against
gross reserves for SAP . . . . . . . . . . . . . . . . . . . . . . . (38,606) (33,829) (30,977)
---------- ---------- ----------
Reserves at end of year, SAP basis . . . . . . . . . . . . . . . . . . $ 117,316 $ 108,461 $ 103,624
========== ========== ==========
</TABLE>

The following table presents the development under GAAP of combined balance
sheet reserves for 1985 through 1994, including periods prior to Capsure's
ownership. The top line of the table shows the combined reserves at the
balance sheet date for each of the indicated periods. The amount of the
reserves represents the estimated amount of losses and LAE arising in all prior
years that are unpaid at the balance sheet date, including IBNR reserves. The
upper portion of the table shows the reestimated amount of the previously
recorded reserves based on experience as of the end of each succeeding year.
The estimates change as more information becomes known about the frequency and
severity of claims

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<PAGE> 14

for individual periods. The cumulative redundancy (deficiency) represents the
aggregate change in the estimates over all prior years. It should be noted
that the table presents a "run off" of balance sheet reserves rather than
accident or policy year loss development. Therefore, each amount in the table
includes the effects of changes in reserves for all prior years (dollars in
thousands):

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Reserves for unpaid
losses and LAE . . . . . . $149,041 $138,347 $130,435 $130,596 $124,708
Reserves re-estimated as of:
One year later . . . . . -- 122,657 113,941 120,481 126,544
Two years later . . . . . -- -- 100,088 103,560 115,759
Three years later . . . . -- -- -- 89,984 101,381
Four years later . . . . -- -- -- -- 90,377
Five years later . . . . -- -- -- -- --
Six years later . . . . . -- -- -- -- --
Seven years later . . . . -- -- -- -- --
Eight years later . . . . -- -- -- -- --
Nine years later . . . . . -- -- -- -- --
Cumulative redundancy
(deficiency) . . . . . . . $ -- $ 15,690 $ 30,347 $ 40,612 $ 34,331
======== ======= ======== ======== ========

Cumulative redundancy
(deficiency) as a percentage
of original estimate . . . -- 11.3% 23.3% 31.1% 27.5%
======== ======= ======== ======== ========

Cumulative amount of
liability paid through:
One year later . . . . . $ -- $ 19,084 $ 16,201 $ 21,280 $ 20,982
Two years later . . . . . -- -- 30,370 34,650 37,279
Three years later . . . . -- -- -- 44,610 47,676
Four years later . . . . -- -- -- -- 55,701
Five years later . . . . -- -- -- -- --
Six years later . . . . . -- -- -- -- --
Seven years later . . . . -- -- -- -- --
Eight years later . . . . -- -- -- -- --
Nine years later . . . . . -- -- -- -- --

<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------
1989 1988 1987 1986 1985
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Reserves for unpaid
losses and LAE . . . . . . $116,565 $83,733 $63,537 $22,483 $14,906
Reserves re-estimated as of:
One year later . . . . . 114,911 89,453 54,856 19,796 17,184
Two years later . . . . . 117,260 89,513 55,991 19,697 16,152
Three years later . . . . 107,322 89,728 54,011 18,352 15,950
Four years later . . . . 97,016 81,957 54,329 18,230 14,958
Five years later . . . . 89,067 75,375 47,991 17,072 15,362
Six years later . . . . . -- 70,944 46,629 16,825 14,813
Seven years later . . . . -- -- 43,991 17,057 15,181
Eight years later . . . . -- -- -- 16,742 16,092
Nine years later . . . . . -- -- -- -- 15,629
Cumulative redundancy
(deficiency) . . . . . . . $ 27,498 $12,789 $19,546 $ 5,741 $ (723)
======== ======= ======= ======= =======

Cumulative redundancy
(deficiency) as a percentag
of original estimate . . . 23.6% 15.3% 30.8% 25.5% (4.9)%
======== ======= ======= ======= =======

Cumulative amount of
liability paid through:
One year later . . . . . $ 19,737 $15,787 $10,398 $ 5,379 $ 5,800
Two years later . . . . . 35,736 25,446 18,079 9,487 8,831
Three years later . . . . 48,580 37,387 23,232 11,916 10,905
Four years later . . . . 56,648 44,973 27,772 12,872 12,507
Five years later . . . . 63,911 49,070 32,905 13,687 12,983
Six years later . . . . . -- 55,183 34,281 15,129 13,479
Seven years later . . . . -- -- 36,841 15,406 14,750
Eight years later . . . . -- -- -- 15,874 14,898
Nine years later . . . . . -- -- -- -- 15,293
</TABLE>

REGULATION
Capsure's insurance subsidiaries are subject to varying degrees of
regulation and supervision in the jurisdictions in which they transact business
under statutes which delegate regulatory, supervisory and administrative powers
to state insurance regulators. In general, an insurer's state of domicile has
principal responsibility for such regulation which is designed generally to
protect policyholders rather than investors and relates to matters such as the
standards of solvency which must be maintained; the licensing of insurers and
their agents; the examination of the affairs of insurance companies, including
periodic financial and market conduct examinations; the filing of annual and
other reports, prepared on a statutory basis, on the financial condition of
insurers or for other purposes; establishment and maintenance of reserves for
unearned premiums and losses; and requirements regarding numerous other
matters. Licensed or admitted insurers generally must file with the insurance
regulators of such states, or have filed on its behalf, the premium rates and
bond and policy forms used within each state. In some states, approval of such
rates and forms must be received from the insurance regulators in advance of
their use.

Western Surety is domiciled in South Dakota and licensed in all other
states and the District of Columbia. Universal Surety is domiciled in Texas
and licensed in 15 other states. United Capitol is domiciled in Wisconsin,
licensed in Arizona and approved, or not disapproved, as a nonadmitted insurer
in all other states, the District of Columbia, Puerto Rico and the U.S. Virgin
Islands. Nonadmitted insurers are generally permitted to operate with a
greater degree of freedom from various regulations. In the future, it is
likely that more extensive regulatory requirements or restrictions may be
imposed upon nonadmitted insurers, which may increase operating costs
associated with compliance.

Insurance regulations generally also require registration and periodic
disclosure of certain information concerning ownership, financial condition,
capital structure, general business operations and any material transactions or
agreements by or among affiliates. Such regulation also typically restricts
the ability of any one person to acquire 10% or more,

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<PAGE> 15

either directly or indirectly, of a company's stock without prior approval of
the applicable insurance regulatory authority. In addition, dividends and
other distributions to stockholders generally may be paid only out of
unreserved and unrestricted statutory earned surplus. Such distributions may
be subject to prior regulatory approval, including a review of the implication
on Risk-Based Capital requirements. A discussion of Risk-Based Capital
requirements for property/casualty insurance companies is included in both
Management's Discussion and Analysis and Note 10 to the Consolidated Financial
Statements. Without prior regulatory approval in 1995, Capsure's insurance
subsidiaries may pay stockholder dividends of $19.3 million in the aggregate.
In 1994, 1993 and 1992, Capsure received $21.0 million (including $5.0 million
of dividends requiring prior approval), $11.8 million, and $29.0 million
(including $15.1 million of dividends requiring prior approval), respectively,
in dividends from its insurance subsidiaries.

Capsure's insurance subsidiaries are subject to periodic financial and
market conduct examinations. These examinations are generally performed by the
domiciliary state insurance regulatory authorities. The South Dakota
Department of Commerce and Regulation - Division of Insurance conducted its
last triennial examination of Western Surety as of December 31, 1991. This
examination covered both financial and market conduct procedures. The Texas
Department of Insurance conducted its triennial examination of Universal Surety
as of September 30, 1992. This examination included both financial and market
conduct procedures. The Insurance Department of the State of Wisconsin
conducted a financial examination of United Capitol as of December 31, 1992.
There were no significant issues noted which required corrective action by any
of Capsure's insurance companies.

Certain states in which Capsure conducts its business require insurers to
join a guaranty association. Guaranty associations provide protection to
policyholders of insurers licensed in such states against the insolvency of
those insurers. In order to provide the associations with funds to pay certain
claims under policies issued by insolvent insurers, the guaranty associations
charge members assessments based on the amount of direct premiums written in
that state. To date, such assessments have not been material to Capsure's
results of operations.

Western Surety, United Capitol and Universal Surety each qualifies as an
acceptable surety for federal and other public works project bonds pursuant to
U.S. Department of Treasury regulations. The underwriting limitations of
Western Surety, Universal Surety and United Capitol, based on each insurer's
statutory surplus, are currently $3.5 million, $0.6 million and $6.7 million,
respectively.

Management believes that, going forward, regulation of its business will
increase rather than decrease both on a federal and state level, thereby
increasing the costs associated with compliance.

INVESTMENTS
Insurance company investment practices must comply with insurance laws and
regulations and must also comply with certain covenants under Capsure's $135
million revolving credit facility. Generally, insurance laws and regulations
prescribe the nature and quality of and set limits on the various types of
investments which may be made by Capsure's insurance companies. Capsure's
insurance companies invest funds provided by operations predominantly in
high-quality, taxable, fixed income securities.

Management believes that its investment strategy is conservative, with
preservation of capital being the foremost objective. Its investment strategy
is also influenced by the terms of the insurance coverages written, its
expectations as to the timing of claim payments, debt service requirements, and
tax considerations, in particular the existence of the Company's net operating
tax loss carryforwards ("NOLs"), as described below.

A separate investment committee of the Board of Directors of each insurance
company establishes investment policy and oversees the management of each
portfolio. A professional independent investment adviser is engaged to assist
in the management of each company's investment portfolio pursuant to
established investment committee guidelines. The insurance companies pay an
advisory fee based on the net asset value of the assets under management.

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<PAGE> 16

NET OPERATING TAX LOSS CARRYFORWARDS
In July 1986, the Company emerged from voluntary bankruptcy proceedings
under Chapter 11 of the United States Bankruptcy Code. Prior to its emergence,
the Company was primarily involved in oil and gas exploration and development
and providing supplies to the oil and gas industry. Due to a significant
downturn in the oil and gas industry in the early 1980s, the Company generated
significant losses and was unable to meet its obligations, resulting in its
voluntary bankruptcy filing. Upon the emergence from bankruptcy, the Company
had oil and gas interests and approximately $300 million in NOLs.
Approximately $226 million of these NOLs are available at December 31, 1994 to
reduce the Company's future federal taxable income.

EMPLOYEES
As of December 31, 1994, the Company employed approximately 600 persons.
Since its emergence from bankruptcy in 1986, the Company has not experienced
any work stoppages and believes its relations with its employees are good. The
Company's current operations are in newly acquired businesses unrelated to its
pre-1986 oil and gas operations.

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<PAGE> 17

ITEM 2. PROPERTIES

The Company subleases its executive offices for an annual rent of
approximately $0.1 million from Equity Group Investments, Inc. ("EGI"), a
company affiliated with certain directors, officers, and stockholders of the
Company. The executive offices are located at Two North Riverside Plaza,
Chicago, Illinois 60606. Western Surety leases office space for its executive
offices at 101 South Phillips Avenue, Sioux Falls, South Dakota 57102, under a
lease expiring in 2002. Western Surety's office space, consisting of
approximately 81,600 square feet, is leased from a partnership in which Western
Surety owns a 50% interest. The annual rent, which is subject to annual
adjustments, was $1.5 million as of December 31, 1994. Western Surety also
leases a 14,760 square foot branch office in Dallas, Texas. Annual rent for
the branch office was $0.2 million and the lease expires in 1996. United
Capitol leases office space for its executive offices at 1400 Lake Hearn Drive,
Atlanta, Georgia 30319, under a lease terminating June 30, 1997 with an annual
rent of $0.2 million. Universal Surety leases office space for its executive
offices at 950 Echo Lane, Suite 250, Houston, Texas 77478, under a lease
terminating October 31, 1997 with an annual rent of $0.1 million. Universal
Surety also leases space for branch offices in Austin, Dallas and San Antonio,
Texas and Overland Park, Kansas for an additional annual rent of approximately
$0.1 million.

ITEM 3. LEGAL PROCEEDINGS

The Company and its subsidiaries are parties to numerous lawsuits arising
in the normal course of business, some seeking material damages. The Company
believes the resolution of these lawsuits will not have a material adverse
effect on its financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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<PAGE> 18

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's common stock ("Common Stock") trades on the New York Stock
Exchange under the symbol CSH. Prior to June 16, 1993, the stock traded on the
over-the-counter market through NASDAQ under the symbol NUCO. Such
over-the-counter market quotations reflected inter-dealer prices, without
retail mark-up, mark-down or commission, and may not necessarily represent
actual transactions. On March 24, 1995, the last reported sale price for the
Common Stock was $12.63 per share. The following table shows the range of
high and low sales prices for shares of the Common Stock as reported on the New
York Stock Exchange (or as reported on NASDAQ for the periods presented prior
to June 16, 1993) for each calendar quarter from the first quarter of 1993
through the fourth quarter of 1994:

<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
1994
4th Quarter . . . . . . . . . . . . . . . . . . . . . . . . . $14.75 $12.13
3rd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . 15.38 12.25
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . 16.00 12.88
1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . 15.25 13.00

1993
4th Quarter . . . . . . . . . . . . . . . . . . . . . . . . . 17.25 12.75
3rd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . 19.38 14.75
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . 15.38 13.25
1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . 15.63 12.25
</TABLE>

The number of stockholders of record of Common Stock on March 24, 1995 was
approximately 2,400.

The Company has not paid dividends on its Common Stock and does not
anticipate declaring any dividends on its Common Stock in the near future. The
Company's intention is to utilize its available cash to fund acquisitions to
meet its growth objectives.

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<PAGE> 19

ITEM 6. SELECTED FINANCIAL DATA

The following financial information has been derived from the audited
Consolidated Financial Statements and notes thereto which appear elsewhere in
this or previously issued Annual Reports on Form 10-K and should be read in
conjunction with such financial statements and related notes thereto.

The Company acquired United Capitol in February 1990, Western Surety in
August 1992 and Universal Surety in September 1994. The inclusion of the
results of United Capitol, Western Surety and Universal Surety from their
respective dates of acquisition affects the comparability of financial
information. Such results are not necessarily indicative of future results.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 115. In 1993, the Company adopted SFAS No.
109 and No. 113 and has restated prior years' financial information. For a
more detailed description of these transactions and their effects on the
Company's financial data, see the audited Consolidated Financial Statements and
related notes thereto and Management's Discussion and Analysis of Financial
Condition and Results of Operations appearing in this or previously issued
Annual Reports on Form 10-K.

The following information for the Company is as of and for the years ended
December 31, 1994, 1993, 1992, 1991 and 1990 (amounts in thousands, except per
share data):

<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
(Restated) (Restated) (Restated)
Total revenues . . . . . . . . . . . . . . . . $ 112,662 $ 108,445 $ 59,519 $ 34,890 $ 39,034
========== ========== ========== ========= ==========

Gross written premiums . . . . . . . . . . . . $ 102,356 $ 100,775 $ 50,105 $ 23,144 $ 24,292
========== ========== ========== ========= ==========
Net written premiums . . . . . . . . . . . . . $ 90,578 $ 88,306 $ 40,310 $ 15,729 $ 17,571
========== ========== ========== ========= ==========
Net earned premiums . . . . . . . . . . . . . . $ 92,481 $ 86,029 $ 41,249 $ 15,826 $ 20,720
========== ========== ========== ========= ==========

Underwriting income . . . . . . . . . . . . . . $ 15,233 $ 15,224 $ 9,932 $ 2,484 $ 3,265
Net investment income . . . . . . . . . . . . 19,129 19,815 15,504 13,823 11,318
Net investment gains . . . . . . . . . . . . 945 2,071 380 1,119 257
Interest expense . . . . . . . . . . . . . . . (4,726) (6,280) (4,838) (4,998) (5,951)
Write-off of unamortized deferred loan fees . . (1,556) -- -- -- --
Amortization of goodwill and intangibles . . . (3,365) (3,407) (1,592) (852) (2,035)
Other (expenses) income . . . . . . . . . . . . (1,881) (1,905) (1,914) (868) 1,946
---------- ---------- ---------- --------- ----------
Income before income taxes . . . . . . . . . . 23,779 25,518 17,472 10,708 8,800
Income taxes . . . . . . . . . . . . . . . . . 9,401 9,234 6,777 3,500 3,527
---------- ---------- ---------- --------- ----------
Net income . . . . . . . . . . . . . . . . . . $ 14,378 $ 16,284 $ 10,695 $ 7,208 $ 5,273
========== ========== ========== ========= ==========

Weighted average common shares outstanding . . 15,160 15,036 12,214 10,606 10,420
========== ========== ========== ========= ==========
Earnings per common share . . . . . . . . . . . $ .95 $ 1.08 $ .88 $ .79 $ .62
========== ========== ========== ========= ==========
Book value per share . . . . . . . . . . . . . $ 14.61 $ 13.80 $ 12.25 $ 7.68 $ 6.25
========== ========== ========== ========= ==========

Loss ratio . . . . . . . . . . . . . . . . . . 25.2% 23.2% 25.8% 58.5% 59.3%
Expense ratio . . . . . . . . . . . . . . . . . 58.3% 59.1% 50.1% 25.8% 24.9%
---------- ---------- ---------- --------- ----------
Combined ratio . . . . . . . . . . . . . . . . 83.5% 82.3% 75.9% 84.3% 84.2%
========== ========== ========== ========= ==========

Invested assets and cash . . . . . . . . . . . $ 305,898 $ 317,077 $ 297,974 $ 163,027 $ 160,603
Intangible assets and goodwill, net of
amortization . . . . . . . . . . . . . . . 102,130 85,566 94,006 22,842 23,694
Total assets . . . . . . . . . . . . . . . . . 553,370 530,075 507,574 226,536 217,583

Insurance reserves . . . . . . . . . . . . . . 225,671 205,188 194,357 112,745 108,085
Long-term debt . . . . . . . . . . . . . . . . 71,000 85,214 103,214 46,352 53,352
Total liabilities . . . . . . . . . . . . . . . 328,505 322,450 323,653 169,404 171,713
Stockholders' equity . . . . . . . . . . . . . 224,865 207,625 183,921 57,132 45,870
</TABLE>

19
<PAGE> 20

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL
The following is a discussion and analysis of Capsure Holdings Corp. and
its subsidiaries' ("Capsure" or the "Company") operating results, financial
condition, liquidity and capital resources. This discussion should be read in
conjunction with the consolidated financial statements and related notes
thereto, which contain additional information regarding the Company's operating
results and financial condition.

On July 31, 1986, the Company emerged from voluntary bankruptcy proceedings
under Chapter 11 of the United States Bankruptcy Code. As a result of
operating losses from oil and gas operations prior to the Company's bankruptcy,
the Company emerged from bankruptcy with approximately $300 million in net
operating tax loss carryforwards ("NOLs"). Approximately $226 million of these
NOLs are available at December 31, 1994 to reduce the Company's future federal
taxable income. The Company believes that an analysis of results of operation
and financial condition should include an analysis of the Company's ability to
reduce its income tax payments through the utilization of NOLs.

The Company's operations have been focused in the property and casualty
insurance business since 1990. Capsure's principal property and casualty
insurance entities are Western Surety Company ("Western Surety"), acquired in
August 1992, United Capitol Insurance Company ("United Capitol"), acquired in
February 1990, and Universal Surety of America ("Universal Surety"), acquired
on September 22, 1994.

Since 1987, soft market conditions characterized by intense competition on
rate and contract terms have prevailed in the property and casualty insurance
industry. The industry continues to be relatively well-capitalized and
underleveraged on an operating basis which exerts continued pressure on rates
and terms. Although the industry has sustained unprecedented losses from
catastrophes in 1992 through 1994, as well as the adverse impact of rising
interest rates in 1994, there has not been a meaningful improvement in market
conditions. Due to the nature of its business, these market conditions have
had little impact on Western Surety; however, United Capitol has been
significantly affected by prevailing market conditions. United Capitol has
responded to these difficult market conditions by maintaining a disciplined
underwriting approach and electing to decline business that may result in
unacceptable or inadequately compensated risk. Management believes prevailing
market conditions are likely to persist for the near and possibly long-term.
Capsure will continue to focus its resources in lines of business where it has
or can acquire the requisite underwriting and business processing experience
and for which consistent long-term underwriting profits can reasonably be
expected. The September 22, 1994 acquisition of Universal Surety, as described
below, is an example of this philosophy.

Western Surety specializes in writing small fidelity and noncontract surety
bonds, referred to as "miscellaneous" bonds, and errors and omissions ("E&O")
liability insurance and is licensed to write fidelity, surety and casualty
insurance in all 50 states and the District of Columbia. Western Surety is
rated A+ (Superior) by A.M. Best Company, Inc. ("A.M. Best"). Bonds
underwritten by Western Surety are relatively low-risk, low-premium products
where prompt service, easy-to-use forms and availability of an extensive array
of bond products are emphasized. One of the largest writers of miscellaneous
bonds in the United States, Western Surety has experienced overall growth in
gross written premiums since 1990 in spite of the soft market. This growth is
attributable to its product specialization, underwriting expertise and broad
distribution network as well as to legislatively mandated bond limit increases,
and to bonding requirements legislated by various states and municipalities.
Substantially all of Western Surety's bonds are mandated by various state
statutes and local ordinances. Such factors have largely insulated Western
Surety from the effects of prevailing market conditions in the broader
commercial property and casualty insurance industry. Management believes, with
respect to Western Surety's products, that the Company's results of operations
will not be significantly affected by new miscellaneous bond requirements or by
the repeal of any existing legislated bonding requirements.

Universal Surety specializes in the underwriting of small contract and
miscellaneous surety bonds. Universal Surety is rated A (Excellent) by A.M.
Best and is licensed in 16 southern states with most of its business generated
in Texas (75% of 1994 gross written premiums). Contract bonds underwritten by
Universal Surety are primarily contractor performance and payment bonds in
amounts under $3.0 million for which underwriting expertise and distinctive
service to agents are emphasized. Universal Surety underwrites primarily
standard accounts and some specialty accounts for

20
<PAGE> 21

which it will utilize supplemental collateral arrangements and excess rates for
contractors not qualified for standard surety rates. Universal Surety also
reduces its exposure through participation in the Small Business Administration
("SBA") Surety Bond Guarantee Program. Under this program, the SBA will
generally reimburse Universal Surety for 80% of losses and loss adjustment
expenses incurred on any SBA guaranteed bond in exchange for 20% of the
premium. Contract bonds are more affected by prevailing market and general
economic conditions than noncontract bonds.

Universal Surety's preacquisition financial results have been exceptional.
Gross written premiums have grown from $5.1 million for the year ended December
31, 1990 to $15.3 million for the twelve months (including results prior to
acquisition) ended December 31, 1994. A weighted average combined ratio below
80.0% was maintained over this same period. These results compare favorably
to national contract surety bond insurers. Universal Surety's overall growth
in gross written premiums and underwriting income during this period was
attributable to its product specialization, underwriting expertise and the
strong economy in its geographic region. Such growth was also characterized by
measured expansion restricted by its ability to attract qualified underwriting
and claims personnel and maintain distinctive service to its agents. The
planned expansion of Universal Surety's small contract surety products through
Western Surety's broad distribution network will be similarly controlled.
However, there can be no assurance that Universal Surety's preacquisition
results will be indicative of future operating results under the ownership and
management of Capsure.

United Capitol writes specialty property and casualty insurance primarily
as an excess and surplus lines insurer. United Capitol is rated A (Excellent)
by A.M. Best. United Capitol provides principally general liability insurance,
including directors' and officers' liability ("D&O"), product liability and
other liability coverages, to businesses which have hazardous, unique or
unusual risks. Policies underwritten by United Capitol are relatively
high-risk, high-premium products which require individual risk underwriting and
pricing expertise. United Capitol has experienced significant declines in
gross written premiums as it has adhered to its strategy of strict underwriting
discipline and has declined to write what it believes to be underpriced
business.

RESULTS OF OPERATIONS
The components of income for each of the past three years are summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1994 1993 1992
----------- ----------- ------------
<S> <C> <C> <C>

Underwriting income . . . . . . . . . . . . . . . . $ 15,233 $ 15,224 $ 9,932
Net investment income . . . . . . . . . . . . . . . 19,129 19,815 15,504
Net investment gains . . . . . . . . . . . . . . . . 945 2,071 380
Interest expense . . . . . . . . . . . . . . . . . . (4,726) (6,280) (4,838)
Write-off of unamortized deferred loan fees . . . . (1,556) -- --
Amortization of goodwill and intangibles . . . . . . (3,365) (3,407) (1,592)
Other expenses . . . . . . . . . . . . . . . . . . . (1,881) (1,905) (1,914)
------------ ----------- ------------
Income before income taxes . . . . . . . . . . . . . 23,779 25,518 17,472
Income taxes . . . . . . . . . . . . . . . . . . . . 9,401 9,234 6,777
------------ ----------- ------------
Net income . . . . . . . . . . . . . . . . . $ 14,378 $ 16,284 $ 10,695
============ =========== ============

</TABLE>

21
<PAGE> 22

INSURANCE UNDERWRITING
Underwriting results for the past three years are summarized in the
following table (dollars in thousands):

<TABLE>
<CAPTION>
Surety and Fidelity Excess and Surplus Lines Consolidated
------------------------------ ----------------------------- --------------------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
--------- --------- --------- --------- --------- --------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Gross written premiums.. $ 75,324 $ 72,064 $ 23,039 $ 27,032 $ 28,711 $ 27,066 $ 102,356 $ 100,775 $ 50,105
========= ======== ========= ======== ======== ========== ============ =========== ========

Net written premiums.... $ 73,527 $ 70,598 $ 22,670 $ 17,051 $ 17,708 $ 17,640 $ 90,578 $ 88,306 $ 40,310
========== ========= ========= ======== ======== ========== ============ =========== ========

Net earned premiums..... $ 73,255 $ 67,941 $ 25,101 $ 19,226 $ 18,088 $ 16,148 $ 92,481 $ 86,029 $ 41,249
---------- --------- --------- -------- -------- ---------- ------------ ---------- --------
Net losses and
loss adjustment..... 11,592 11,367 3,651 11,752 8,590 7,010 23,344 19,957 10,661
Underwriting expenses... 49,583 46,933 17,346 4,321 3,915 3,310 53,904 50,848 20,656
---------- --------- --------- -------- -------- ---------- ------------ ---------- --------
Total losses and
expenses............. 61,175 58,300 20,997 16,073 12,505 10,320 77,248 70,805 31,317
---------- --------- --------- -------- -------- ---------- ------------ ---------- --------

Underwriting income..... $ 12,080 $ 9,641 $ 4,104 $ 3,153 $ 5,583 $ 5,828 $ 15,233 $ 15,224 $ 9,932
========== ========= ========= ======== ======== ========== ============ ========== ========

Loss ratio ............. 15.8% 16.7% 14.6% 61.1% 47.5% 43.4% 25.2% 23.2% 25.8%
Expense ratio........... 67.7% 69.1% 69.1% 22.5% 21.6% 20.5% 58.3% 59.1% 50.1%
---------- --------- --------- -------- -------- ---------- ------------ ---------- --------
Combined ratio.......... 83.5% 85.8% 83.7% 83.6% 69.1% 63.9% 83.5% 82.3% 75.9%
========== ========= ========= ======== ======== ========== ============ ========== ========
</TABLE>

Surety and fidelity represents the combined results of Western Surety,
since its acquisition in August 1992, and Universal Surety, since its September
22, 1994 acquisition. Surety and fidelity are the principal lines of business
of Western Surety and Universal Surety. Excess and surplus lines represents
the results of United Capitol. United Capitol's principal lines of business
are other liability, product liability and commercial property primarily
written on an excess and surplus lines basis.

Gross written premiums increased $1.6 million for the year ended December
31, 1994. Western Surety experienced a 1.1% decrease in gross written
premiums, mainly due to a decline in public official bond premiums as compared
to 1993. This decline, which was expected, was caused by the cyclical nature
of these bonds. Writings for this product typically increase every other year,
following the November elections. Universal Surety contributed $4.0 million of
gross written premiums since its acquisition in September 1994. United
Capitol's gross written premiums decreased 5.8%, or $1.7 million in 1994.
Significant declines in the asbestos abatement and other primary casualty
business were partially offset by the addition of $5.7 million in gross written
premiums of D&O business produced by the Company's Fischer Underwriting Group,
Incorporated ("Fischer") which was acquired in November 1993 by a subsidiary of
United Capitol. United Capitol's premium volume, particularly in the
increasingly competitive asbestos abatement line, continued to be significantly
affected by prolonged soft market conditions.

Net earned premiums increased $6.5 million for the year ended December 31,
1994. Western Surety's net earned premiums increased 1.9% in 1994 compared to
1993. Universal Surety contributed net earned premiums of $4.0 million in
1994. United Capitol's net earned premiums increased 6.3%, or $1.1 million in
1994, primarily as a result of the recognition of $2.5 million of contingent
reinsurance premiums related to an excess of loss reinsurance treaty.
Excluding the recognition of the contingent premiums, net earned premiums
decreased 7.5% at United Capitol.

Gross written premiums increased $50.7 million for the year ended December
31, 1993, principally due to the inclusion of Western Surety results for a full
year. United Capitol's gross written premiums increased $1.6 million, or 6.1%,
primarily due to increases in the property and non-asbestos general liability
insurance lines of business combined with the addition of D&O insurance more
than offsetting the decline in the asbestos abatement liability business.

Net earned premiums increased $44.8 million for the year ended December 31,
1993, primarily due to the inclusion of a full year of operating results of
Western Surety. United Capitol's net earned premiums increased 12.0%, or $1.9
million in 1993, reflecting the increase in net written premiums in prior
years.

Underwriting income for the year ended December 31, 1994 was virtually
unchanged as compared to the prior year despite increased net earned premiums.
The consolidated combined ratio increased to 83.5% in 1994 from 82.3% in 1993.
The consolidated loss ratio increased to 25.2% in 1994 from 23.2% in 1993,
reflecting less favorable development of prior years' loss reserves at United
Capitol than was experienced in 1993. United Capitol's loss ratio increased to
61.1% in 1994 from 47.5% in 1993. Excluding the effects of favorable
development, United Capitol would have reported loss ratios of 98.3% and 110.3%
in 1994 and 1993, respectively. The surety and fidelity loss ratio decreased
to 15.8% in 1994 from 16.7% in 1993, primarily due to favorable development of
prior years' loss reserves and increased salvage recoveries at Western Surety.

22
<PAGE> 23

The consolidated expense ratio decreased to 58.3% in 1994, compared to
59.1% in 1993. The surety and fidelity expense ratio decreased to 67.7% in
1994 from 69.1% in 1993. Net commissions, brokerage and other underwriting
expenses incurred at Western Surety were effectively controlled during 1994,
offsetting increased costs associated with enhancing Western Surety's computer
systems. United Capitol's expense ratio increased to 22.5% in 1994 compared to
21.6% in 1993.

Underwriting income for the year ended December 31, 1993 increased $5.3
million as compared to the prior year, principally due to the inclusion of
Western Surety results for a full year. The consolidated combined ratio
increased to 82.3% in 1993 from 75.9% in 1992. The consolidated loss ratio
decreased to 23.2% in 1993 from 25.8% in 1992, largely due to the inclusion of
Western Surety for a full year partially offset by increased losses at United
Capitol. The surety and fidelity loss ratio increased to 16.7% in 1993 from
14.6% in 1992, mainly due to increased losses on certain motor vehicle dealer
bonds. United Capitol's loss ratio increased to 47.5% in 1993 from 43.4% in
1992, reflecting the impact of competitive market conditions. Excluding the
effects of favorable development, United Capitol would have reported loss
ratios of 110.3% and 86.2% in 1993 and 1992, respectively.

The consolidated expense ratio increased to 59.1% in 1993 from 50.1% in
1992, reflecting the inclusion of full year results of operations for Western
Surety. The surety and fidelity expense ratio was 69.1% in both 1993 and 1992.
United Capitol's expense ratio increased slightly to 21.6% in 1993 from 20.5%
in 1992.

INVESTMENT INCOME
Net investment income for the years ended December 31, 1994, 1993 and 1992
was $19.1 million, $19.8 million and $15.5 million, respectively. Investment
results for each year were negatively impacted by declining interest rates
through the end of 1993. The $4.3 million increase in net investment income in
1993 over 1992 reflects the inclusion of a full year of Western Surety's
investing activity which more than offset the impact of declining investment
yields. The average pretax yields of the portfolio for the years ended
December 31, 1994, 1993 and 1992 were 6.5%, 6.8% and 7.6%, respectively.

Capsure's insurance companies invest funds provided by operations
predominantly in high-quality, short-duration, taxable fixed income securities.
Beginning in 1994, the Investment Committees of the Board of Directors of the
Company and its insurance subsidiaries have approved the investment of up to
$26 million in the aggregate by the insurance subsidiaries and at the parent
company level in publicly traded nonaffiliated real estate investment trust
("REIT") equity securities. At December 31, 1994, the carrying value of the
Company's REIT portfolio was approximately $24.3 million. The preservation of
capital and utilization of the Company's available NOLs are Capsure's principal
investment objectives.

ANALYSIS OF OTHER OPERATIONS
Net investment gains were $0.9 million, $2.1 million and $0.4 million for
the years ended December 31, 1994, 1993 and 1992, respectively. Net investment
gains of $1.9 million in 1994 and $3.1 million in 1993 resulted from the sale
of equity securities in the investment portfolio at the parent company level
which more than offset net investment losses of $0.4 million and $1.0 million,
respectively, from the insurance operations. There were no parent company
level net investment gains recognized in 1992. Included in 1994 net investment
gains were $0.5 million of net unrealized investment losses on the trading
securities portfolio held at the parent company level. The net investment
losses from the insurance operations in 1993 were primarily due to a $2.5
million write-down to fair value of two interest-only securities reflecting
lower future expected cash flows of these securities as a result of an
accelerated level of mortgage prepayments, partially offset by $1.5 million of
net investment gains from the sale of other securities.

Amortization expense was $3.4 million for the years ended December 31, 1994
and 1993 and $1.6 million in 1992. Amortization expense in 1994, 1993 and 1992
included $1.3 million, $1.8 million and $0.6 million, respectively, of
amortization of intangible assets and $2.1 million, $1.6 million and $1.0
million, respectively, of amortization of excess cost over net assets acquired
related to the acquisitions of Western Surety, Universal Surety, United Capitol
and Fischer. Excess cost over net assets acquired is amortized substantially
over 40 years. Other intangible assets are amortized over periods ranging from
three to 20 years.

Interest expense decreased 24.7%, or $1.6 million for the year ended
December 31, 1994, reflecting the effect of reduced debt. The Company's
average debt outstanding for the twelve months ended December 31, 1994 was
approximately $74.0 million compared to $96.0 million in 1993. In connection
with the early retirement of the Company's bank term loans, the Company
incurred a $1.6 million write-off of unamortized deferred loan fees in the year
ended December 31, 1994. Interest expense increased 29.8%, or $1.4 million for
the year ended December 31, 1993. The increase was attributable to increased
borrowings in connection with the acquisition of Western Surety which more than
offset the effects of lower average interest rates.

INCOME TAXES
Income taxes were $9.4 million, $9.2 million and $6.8 million for the years
ended December 31, 1994, 1993 and 1992, respectively. The effective income tax
rates were 39.5%, 36.2% and 38.8%, respectively. The increase in the 1994
effective tax rate over prior years was attributable to an increased level of
nondeductible goodwill amortization in connection with the acquisitions of
Universal Surety and Fischer as well as certain delayed provisions of the
Revenue Reconciliation Act of 1993. The Company's income tax expense does not
approximate

23
<PAGE> 24

actual taxes paid, primarily due to the utilization of the Company's NOLs.
Actual income taxes paid were $0.6 million for the years ended December 31,
1994 and 1993, respectively, and $0.7 million for the year ended December 31,
1992.

LIQUIDITY AND CAPITAL RESOURCES
The Company's insurance subsidiaries are highly liquid. The insurance
operations derive liquidity from net premium collections, reinsurance
recoveries and investment earnings and use these funds to pay claims and
operating expenses. The operations of an insurance company generally result in
cash being collected from customers in the form of premiums in advance of cash
outlays for claims. Each insurance company invests its collected premiums,
generating investment income, until such time cash is needed to pay claims and
associated expenses.

The Company believes total invested assets, including cash and short-term
investments, are sufficient in the aggregate and have suitably scheduled
maturities to satisfy all policy claims and other operating liabilities,
including anticipated income tax sharing payments of its insurance operations.
Management believes the duration of each insurance subsidiary's portfolio is
properly matched with the expected duration of its liabilities. At December
31, 1994, the carrying value of the Company's invested assets of the insurance
operations was comprised of $246.6 million of fixed maturities (at fair value),
$20.6 million of equity securities, $17.5 million of short-term investments,
$4.1 million of other investments and $3.8 million of cash. At December 31,
1993, the carrying value of the Company's invested assets of the insurance
operations was comprised of $229.5 million of fixed maturities (at amortized
cost), $48.4 million of short-term investments, $5.5 million of other
investments and $2.2 million of cash and $0.8 million of equity securities.

Cash flow at the parent company level is derived principally from dividend
and tax sharing payments from its insurance subsidiaries. The principal
obligations at the parent company level are to service debt and pay operating
expenses. At December 31, 1994, the carrying value of the Company's invested
assets of the non-insurance operations, principally at the parent company
level, was comprised of $7.6 million of equity securities, $4.6 million of
short-term investments, $0.8 million of other investments and $0.3 million of
cash. At December 31, 1993, the carrying value of the Company's non-insurance
operations invested assets, principally at the parent company level, was
comprised of $20.8 million of short-term investments, $8.7 million of equity
securities and $1.1 million of cash.

The Company's consolidated net cash flow provided by operating activities
was $29.3 million, $32.1 million and $18.7 million for the years ended December
31, 1994, 1993 and 1992, respectively. Consolidated operating cash flow
(pretax income excluding the write-off of deferred loan fees, net investment
gains and amortization of goodwill and intangibles) for the year ended December
31, 1994, was $27.8 million as compared to $26.9 million in 1993 and $18.7
million in 1992.

On March 29, 1994, the Company formed a direct, wholly owned subsidiary,
Capsure Financial Group, Inc. ("CFG"), to which Capsure contributed
substantially all its assets and liabilities. Concurrently, CFG entered into a
senior reducing revolving credit agreement with a syndicate of banks for $135
million (the "Credit Facility"). At closing, $68 million of funds drawn under
the Credit Facility, together with a portion of the Company's cash, were used
to repay $84.6 million of previously existing bank term debt. Paydowns of $25
million and borrowings of $28 million for the acquisition of Universal Surety
have occurred since then. The remaining availability under the Credit Facility
of $64 million may be used to finance future acquisitions and for general
corporate purposes.

Principal and interest payments required under the Credit Facility are
funded principally by dividend and intercompany tax sharing payments received
from Capsure's insurance subsidiaries.

Capsure's insurance subsidiaries are subject to regulation and supervision
by the various state insurance regulatory authorities in which they conduct
business, including regulations with respect to the payment of dividends.
Without prior regulatory approval in 1995, Capsure's insurance subsidiaries may
pay stockholder dividends of $19.3 million in the aggregate. In 1994, 1993 and
1992 Capsure received $21.0 million (including $5.0 million of dividends
requiring prior approval), $11.8 million, and $29.0 million (including $15.1
million of dividends requiring prior approval), respectively, in dividends from
its insurance subsidiaries.

Intercompany tax sharing agreements between Capsure and its subsidiaries
provide that income taxes shall be allocated based upon separate return
calculations in accordance with the Internal Revenue Code of 1986, as amended.
Intercompany tax payments are remitted at such times as estimated tax payments
would be required to be made to the Internal Revenue Service. Capsure received
tax sharing payments from its subsidiaries of $12.3 million, $13.0 million and
$9.0 million in 1994, 1993 and 1992, respectively.

On September 22, 1994, Capsure, through its wholly owned subsidiary, CFG,
acquired all of the outstanding common stock of Universal Surety Holding Corp.
("USHC"). USHC is the holding company of Universal Surety. Capsure paid $28
million in cash and $4 million in Capsure stock for USHC, pursuant to a Stock
Purchase Agreement dated as of July 26, 1994. The cash portion of the purchase
price was financed with borrowings under Capsure's $135 million Credit
Facility.

24
<PAGE> 25

The Company continues to pursue acquisitions of financial services
businesses with a particular focus on the insurance industry. Although the
emphasis is on financial services and insurance, the Company may consider other
investments that would further enhance the Company's value.

FINANCIAL CONDITION
A significant factor affecting the Company's financial condition is the
Company's policy with respect to investing insurance-related funds. The
Company's policy is to invest a substantial portion of such funds in
high-quality, short-duration mortgage pass-through instruments, collateralized
mortgage obligations ("CMOs") and other asset-backed securities. CMOs differ
from traditional fixed maturities in that they may expose the investor to yield
variability and even principal risk due to such factors as high mortgage
prepayment rates and defaults and delinquencies in the underlying asset pool.
Management believes it has reduced prepayment variability by investing only in
short tranches and by owning a substantial amount of planned amortization class
("PAC") tranches which are structured largely to insulate the investor from
prepayment risk. A PAC tranche is structured to amortize in a predictable
manner and, therefore, the risk of prepayment of the underlying collateral is
shifted to other tranches, whose owners are willing to accept such risk.
Further, management believes it has minimized credit risk primarily by
purchasing only securities rated A or better on the date of acquisition and
which are collateralized or guaranteed by U.S. Government agencies or have
substantial credit enhancement in the form of financial guarantees, mortgage
insurance, letters of credit, over- collateralization, subordinated structures
and excess servicing spreads. Management monitors the investment portfolio of
the insurance subsidiaries and the current rating of each security owned on a
monthly basis. Beginning in 1994, the Investment Committees of the Board of
Directors of the Company and its insurance subsidiaries have approved the
investment of up to $26 million in the aggregate by the insurance subsidiaries
and at the parent company level in publicly traded nonaffiliated REIT equity
securities. At December 31, 1994, the carrying value of the Company's REIT
portfolio was approximately $24.3 million.

The following table sets forth the composition by ratings assigned by The
Standard & Poors Corporation ("S&P") or Moody's Investor Services, Inc.
("Moody's") of the fixed income portfolio of the Company as of December 31,
1994 (dollars in thousands):
<TABLE>
<CAPTION>
Amortized
Cost Percent
----------- -------
<S> <C> <C>
Credit Rating
-------------
AAA/Aaa . . . . . . . . . . . . . . . . . . . $ 227,751 87.5%
AA/Aa . . . . . . . . . . . . . . . . . . . . 9,291 3.6
A/A . . . . . . . . . . . . . . . . . . . . . 18,666 7.2
BBB/Baa or lower . . . . . . . . . . . . . . . 4,514 1.7
Not rated . . . . . . . . . . . . . . . . . . 74 --
------------ -------
Total . . . . . . . . . . . . . . . . . $ 260,296 100.0%
============ =======
</TABLE>

Another critical factor affecting the Company's financial condition is the
Company's policies with respect to loss and loss adjustment expense reserves.
Each of Capsure's insurance subsidiaries employs prudent reserving approaches
in establishing the estimated liability for unpaid loss and loss adjustment
expenses due to the inherent difficulty and variability in the estimation
process. The liability for unpaid losses and loss adjustment expenses is based
on estimates of (a) the ultimate settlement value of reported claims, (b)
incurred but not reported ("IBNR") claims, (c) future expenses to be incurred
in the settlement of claims and (d) claim recoveries. The liability for unpaid
losses and loss adjustment expenses is an accounting estimate and, similar to
other accounting estimates, there is the potential that actual future loss
payments will differ from the initial estimate. The methods of determining
such estimates and the resulting estimated liability are continually reviewed
and updated. Changes in the estimated liability are reflected in operating
income in the year in which such changes are determined.

The following table presents selected loss and loss adjustment expense
information (gross of reinsurance) and highlights the impact of revisions to
the estimated liability established in prior years (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- ------------
<S> <C> <C> <C>
Gross balance at January 1 . . . . . . . . . . . . . $ 135,825 $ 128,122 $ 101,542

Balance at date of acquisition . . . . . . . . . . . 2,738 -- 28,516

Incurred related to:
Current year . . . . . . . . . . . . . . . . . . . . 46,206 41,398 24,428
Prior years . . . . . . . . . . . . . . . . . . . . (14,522) (14,991) (9,862)
----------- ----------- ------------
Total incurred . . . . . . . . . . . . . . . . . . . 31,684 26,407 14,566
----------- ----------- ------------

Paid related to:
Current year . . . . . . . . . . . . . . . . . . . . 3,003 2,266 1,665
Prior years . . . . . . . . . . . . . . . . . . . . 18,203 16,438 14,837
----------- ----------- ------------
Total paid . . . . . . . . . . . . . . . . . . . . . 21,206 18,704 16,502
----------- ----------- ------------

Gross balance at December 31 . . . . . . . . . . . . $ 149,041 $ 135,825 $ 128,122
=========== =========== ============
</TABLE>

25
<PAGE> 26

As a result of favorable claim settlements and changes in estimates of
insured events in prior years, the provision for losses and loss adjustment
expenses decreased by $14.5 million ($8.3 million, net of reinsurance) in 1994,
$15.0 million ($11.3 million, net of reinsurance) in 1993 and $9.9 million
($7.5 million, net of reinsurance) in 1992.

The National Association of Insurance Commissioners ("NAIC") has
promulgated Risk-Based Capital ("RBC") requirements for property/casualty
insurance companies to evaluate the adequacy of statutory capital and surplus
in relation to investment and insurance risks such as asset quality, asset and
liability matching, loss reserve adequacy, and other business factors. The RBC
information will be used by state insurance regulators as an early warning tool
to identify, for the purpose of initiating regulatory action, insurance
companies that potentially are inadequately capitalized. In addition, the
formula defines new minimum capital standards that will supplement the current
system of fixed minimum capital and surplus requirements on a state-by-state
basis. Regulatory compliance is determined by a ratio (the "Ratio") of the
enterprise's regulatory total adjusted capital, as defined by the NAIC, to its
authorized control level RBC, as defined by the NAIC. Generally, a Ratio in
excess of 200% of authorized control level RBC requires no corrective actions
on the behalf of the company or regulators. As of December 31, 1994, each of
Capsure's insurance subsidiaries had a Ratio that was substantially in excess
of the minimum RBC requirements.

Capsure's insurance subsidiaries require capital to support premium
writings. In accordance with industry and regulatory guidelines, the net
written premiums to surplus ratio of a property and casualty insurer should not
exceed 3 to 1 (the terms of the Credit Facility limit this ratio further to
2.75 to 1 for Western Surety and Universal Surety and 2 to 1 for United
Capitol). On December 31, 1994, Western Surety's statutory surplus was $37.1
million and its net written premiums to surplus ratio was 2 to 1. On December
31, 1994, Universal Surety's statutory surplus was $7.6 million and its net
written premiums to surplus ratio was 1.9 to 1. On December 31, 1994, United
Capitol's statutory surplus was $61.8 million and its net written premiums to
surplus ratio was 0.3 to 1. The Company believes that each insurance company's
statutory surplus is sufficient to support its current and anticipated premium
levels.

The Internal Revenue Service has not examined the Company's tax returns for
the years in which the Company reported net operating losses. Under Section
382 of the Internal Revenue Code, certain restrictions on the utilization of
NOLs will apply if there is an ownership change of a corporation entitled to
use such carryovers. The Company believes that there is currently no
restriction on the ability of the Company to utilize its NOLs. It is possible
that future transactions involving the common stock or rights to acquire such
stock could cause an ownership change of the Company resulting in restrictions
of the Company's ability to utilize the NOLs during all taxable periods after
the date of such ownership change. The Company has adopted provisions in its
Certificate of Incorporation designed to facilitate the Company's ability to
preserve and utilize its NOLs.

ENVIRONMENTAL LIABILITIES
The Company was engaged in oil and gas production, exploration and
development until mid-1993. In connection with the sale of substantially all
of the Company's oil and gas properties, the buyers assumed all material
environmental liabilities.

United Capitol, in the ordinary course of business, chooses to underwrite
accounts which have hazardous, unique or unusual risk characteristics and
applies a strict and specialized underwriting discipline to such risks. Since
United Capitol's organization in 1986, its liability policies have included an
absolute pollution coverage exclusion (except for policies offering pollution
liability coverage to contractors involved in the remediation of preexisting
pollution). In addition, except as discussed below, United Capitol's product
liability and other primary general liability policies contain exclusions,
which management believes are enforceable, for coverage of claims for bodily
injury or property damage caused by exposure to asbestos.

United Capitol provides coverage to asbestos abatement contractors against
third parties who have alleged bodily injury or property damage as a result of
exposure to asbestos. Employees of the insured contractor and others required
to be in the abatement area are not intended to be covered by United Capitol's
policies and management believes such coverage exclusions are enforceable.
Through the date hereof, there have been no valid claims against United
Capitol's asbestos abatement liability policies alleging bodily injury arising
from exposure to asbestos. Management believes that none of the other
insurance products offered by Capsure's insurance subsidiaries creates any
potential material environmental exposure.

Management believes that Capsure is adequately reserved for risks
associated with environmental liabilities although there can be no assurance
that legal or other developments will not increase the Company's exposure to
environmental liabilities.

IMPACT OF ADOPTING STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS ("SFAS")
As discussed in Note 2 to the consolidated financial statements, the
Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" effective January 1, 1994 and SFAS No. 109, "Accounting for
Income Taxes" and SFAS No. 113, "Accounting and Reporting for Reinsurance of
Short-duration and Long-duration Contracts" effective January 1, 1993.

26
<PAGE> 27

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FINANCIAL:

Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Consolidated Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Consolidated Statements of Income for the Years Ended December 31, 1994,
1993 and 1992 (Restated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1994, 1993 and 1992 (Restated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Consolidated Statements of Cash Flows for the Years Ended December 31, 1994,
1993 and 1992 (Restated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

FINANCIAL STATEMENT SCHEDULES:

Schedule I -- Summary of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Schedule III -- Condensed Financial Information of Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Schedule V -- Supplemental Insurance Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Schedule VI -- Reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Schedule VIII -- Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Schedule X -- Supplemental Information Concerning Property - Casualty
Insurance Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
</TABLE>

All other schedules and historical information are omitted because they are not
applicable or the required information is shown in the financial statements or
the notes thereto.

27
<PAGE> 28

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

28
<PAGE> 29

PART III

ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT, EXECUTIVE COMPENSATION, SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS

The Company will file a definitive proxy statement with the Securities and
Exchange Commission pursuant to Regulation 14A under the Securities Exchange
Act of 1934 (the "Proxy Statement") relating to the Company's Annual Meeting of
Stockholders to be held on May 24, 1995, not later than 120 days after the end
of the fiscal year covered by this Annual Report on Form 10-K. Information
required by Items 10 through 13 will appear in the Proxy Statement and is
incorporated herein by reference.

29
<PAGE> 30

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a)(1) Financial:

Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Consolidated Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Consolidated Statements of Income for the Years Ended December 31, 1994,
1993 and 1992 (Restated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1994, 1993 and 1992 (Restated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994,
1993 and 1992 (Restated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

(a)(2) Financial Statement Schedules:

Schedule I -- Summary of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Schedule III -- Condensed Financial Information of Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Schedule V -- Supplemental Insurance Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Schedule VI -- Reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Schedule VIII - Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Schedule X -- Supplemental Information Concerning Property - Casualty
Insurance Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
</TABLE>

All other schedules and historical information are omitted because they are
not applicable or the required information is shown in the financial statements
or the notes thereto.

<TABLE>
<S> <C>
(a)(3) Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

(b) Reports on Form 8-K

Report on Form 8-K dated October 6, 1994, announcing the acquisition of Universal Surety Holding Corp. including its
subsidiary, Universal Surety of America, by Capsure Financial Group, Inc., a wholly owned subsidiary of Capsure Holdings Corp.

Report on Form 8-K/A dated October 17, 1994, submitting financial statements of Universal Surety Holding Corp. and
Subsidiaries including Audited Consolidated Financial Statements as of December 31, 1993 and 1992 and Unaudited Interim
Condensed Consolidated Financial Statements as of June 30, 1994.

Report on Form 8-K/A-1 dated November 10, 1994, submitting financial statements of Capsure Holdings Corp. and Subsidiaries
including Unaudited Pro Forma Condensed Consolidated Statements of Income for the Year Ended December 31, 1993 and Six Months
Ended June 30, 1994, Balance Sheet as of June 30, 1994 and the Notes thereto.
</TABLE>

30
<PAGE> 31

REPORT OF INDEPENDENT ACCOUNTANTS

We have audited the accompanying consolidated financial statements and
financial statement schedules of Capsure Holdings Corp. and Subsidiaries listed
in the index on page 27 of this Form 10-K. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Capsure Holdings
Corp. and Subsidiaries as of December 31, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedules referred to above, when considered in relations to the basic
financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.

As discussed in Note 2 to the Consolidated Financial Statements, the Company
has changed its methods of accounting for investments in 1994, and income taxes
and reinsurance in 1993.

COOPERS & LYBRAND L.L.P.
Chicago, Illinois
February 24, 1995

31
<PAGE> 32

CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
December 31,
---------------------------
1994 1993
----------- ------------
<S> <C> <C>
ASSETS
Invested assets and cash:
Fixed maturities:
At fair value (amortized cost: $249,328) . . . . . . . . . . . . . . . . . . . . $ 235,625 $ --
At amortized cost (fair value: 1994 - $10,326; 1993 - $234,675) . . . . . . . . . 10,968 229,501
Equity securities, at fair value (cost: 1994 - $29,774; 1993 - $7,426) . . . . . . . . 28,205 9,533
Short-term investments, at cost which approximates fair value . . . . . . . . . . . . 22,079 69,215
Other investments, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,890 5,548
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,131 3,280
----------- ------------
305,898 317,077

Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,150 18,421
Reinsurance receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,582 34,780
Intangible assets, net of amortization . . . . . . . . . . . . . . . . . . . . . . . . . 18,031 21,907
Excess cost over net assets acquired, net of amortization . . . . . . . . . . . . . . . . 84,099 63,659
Deferred income taxes, net of valuation allowance . . . . . . . . . . . . . . . . . . . . 54,205 48,350
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,405 25,881
----------- ------------
$ 553,370 $ 530,075
=========== ============

LIABILITIES
Reserves:
Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . $ 149,041 $ 135,825
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,630 69,363
----------- ------------
225,671 205,188

Reinsurance payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,373 6,139
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,000 85,214
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,461 25,909
----------- ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328,505 322,450
----------- ------------
Commitments and contingencies
STOCKHOLDERS' EQUITY

Preferred stock, par value $.01 per share, 5,000,000 shares authorized;
none issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, par value $.05 per share, 20,000,000 shares authorized;
15,407,815 shares issued at December 31, 1994;
15,055,231 shares issued at December 31, 1993 . . . . . . . . . . . . . . . . . . . . 770 753
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179,250 165,257
Retained earnings from August 1, 1986 (date of reorganization) . . . . . . . . . . . . . 54,756 40,378
Unrealized (loss) gain on securities, net of deferred income taxes . . . . . . . . . . . (9,830) 1,318
Treasury stock, at cost (13,666 shares in 1994 and 1993) . . . . . . . . . . . . . . . . (81) (81)
----------- -----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 224,865 207,625
----------- ------------
$ 553,370 $ 530,075
=========== ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

-32-
<PAGE> 33

CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
(Restated)
<S> <C> <C> <C>
Revenues:
Net earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,481 $ 86,029 $ 41,249
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . 19,129 19,815 15,504
Net investment gains . . . . . . . . . . . . . . . . . . . . . . . . . . 945 2,071 380
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 530 2,386
----------- ----------- -----------
112,662 108,445 59,519
----------- ----------- -----------
Expenses:
Net losses and loss adjustment expenses . . . . . . . . . . . . . . . . 23,344 19,957 10,661
Net commissions, brokerage and other underwriting . . . . . . . . . . . 53,904 50,848 20,656
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,726 6,280 4,838
Write-off of unamortized deferred loan fees . . . . . . . . . . . . . . 1,556 -- --
Amortization of goodwill and intangibles . . . . . . . . . . . . . . . . 3,365 3,407 1,592
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,988 2,435 4,300
----------- ----------- -----------
88,883 82,927 42,047
----------- ----------- -----------

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . 23,779 25,518 17,472
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,401 9,234 6,777
----------- ----------- -----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,378 $ 16,284 $ 10,695
=========== =========== ===========

Weighted average common and common equivalent
shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,160 15,036 11,733
=========== =========== ===========

Weighted average common and common equivalent shares
outstanding - assuming full dilution . . . . . . . . . . . . . . . . . . 15,160 15,036 12,214
=========== =========== ===========

Earnings per common and common equivalent share . . . . . . . . . . . . . . $ .95 $ 1.08 $ .91
=========== =========== ===========

Earnings per common share - assuming full dilution . . . . . . . . . . . . $ .95 $ 1.08 $ .88
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

-33-
<PAGE> 34

CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1994 1993 1992
------------- ------------ ------------
(Restated)
<S> <C> <C> <C>
Common Stock:
Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . $ 753 $ 753 $ 374
Common stock issued . . . . . . . . . . . . . . . . . . . . . . . . 15 -- 176
Common stock issued through exercise of warrants and options . . . 2 -- 203
------------- ------------ -------------
Balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . $ 770 $ 753 $ 753
============= ============ =============

Additional Paid-In Capital:
Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . $ 165,257 $ 159,263 $ 43,543
Common stock issued . . . . . . . . . . . . . . . . . . . . . . . . 3,985 -- 29,638
Common stock issued through exercise of warrants and options . . . 8 47 26,750
Repurchase of outstanding warrants . . . . . . . . . . . . . . . . -- (42) --
Recognition of deferred tax asset, net of valuation allowance . . . 10,000 6,000 60,160
Deferred issuance and offering costs . . . . . . . . . . . . . . . -- (11) (828)
------------- ------------ -------------
Balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . $ 179,250 $ 165,257 $ 159,263
============= ============ =============

Retained Earnings:
Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . $ 40,378 $ 24,094 $ 13,399
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,378 16,284 10,695
------------- ------------ -------------
Balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . $ 54,756 $ 40,378 $ 24,094
============= ============ =============

Unrealized (Loss) Gain on Securities, Net of Deferred Income Taxes:
Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . $ 1,318 $ 32 $ 51
Impact of adopting SFAS No. 115 . . . . . . . . . . . . . . . . . . 3,203 -- --
Change for the year . . . . . . . . . . . . . . . . . . . . . . . . (14,351) 1,286 (19)
------------ ------------ -------------
Balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . $ (9,830) $ 1,318 $ 32
============= ============ =============

Treasury Stock:
Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . $ (81) $ (221) $ (235)
Common stock reissued through exercise of warrants and options . . -- 140 14
------------- ------------ -------------
Balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . $ (81) $ (81) $ (221)
============= ============ =============

</TABLE>

<TABLE>
<CAPTION>
Common Stock
------------------------------
Issued In Treasury
------------- ------------
<S> <C> <C>
Shares:
Balance, January 1, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,480,338 (39,751)
Common stock issued through exercise of warrants and options . . . . . . . . . . 4,056,064 --
Common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,407,719 --
Common stock issued in connection with Surewest Financial Corp. acquisition . . . 111,110 --
Common stock reissued from treasury through exercise of warrants and options . . -- 2,250
------------- -------------
Balance, December 31, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,055,231 (37,501)
Common stock reissued from treasury through exercise of warrants and options . . -- 23,835
------------- -------------
Balance, December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,055,231 (13,666)
Common stock issued through exercise of warrants and options . . . . . . . . . . 45,481 --
Common stock issued in connection with Universal Surety
Holding Corp. acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . 307,103 --
------------- -------------
Balance, December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,407,815 (13,666)
============= =============
</TABLE>

The accompanying notes are an integral part of these financial statements.

-34-
<PAGE> 35

CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1994 1993 1992
----------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES: (Restated)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,378 $ 16,284 $ 10,695
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 4,617 4,476 2,009
Accretion of bond discount, net . . . . . . . . . . . . . . . . . . . . . (3,933) (3,024) (1,785)
Net investment gains . . . . . . . . . . . . . . . . . . . . . . . . . . (945) (2,071) (380)
Gain on sale of oil and gas assets, net . . . . . . . . . . . . . . . . . -- (258) (243)
Changes in:
Reserve for unpaid losses and loss adjustment expenses . . . . . . . . . 10,477 7,703 (2,439)
Reserve for unearned premiums . . . . . . . . . . . . . . . . . . . . . . (1,160) 3,128 484
Deferred income taxes, net . . . . . . . . . . . . . . . . . . . . . . . 3,412 9,184 9,800
Other assets and liabilities . . . . . . . . . . . . . . . . . . . . . . 2,438 (3,309) 561
----------- ----------- ------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . 29,284 32,113 18,702
----------- ----------- ------------

INVESTING ACTIVITIES:
Securities available-for-sale:
Purchases - fixed maturities . . . . . . . . . . . . . . . . . . . . . . (92,342) (181,486) (124,215)
Sales - fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . 43,762 17,503 44,265
Maturities - fixed maturities . . . . . . . . . . . . . . . . . . . . . . 35,020 126,781 61,197
Purchases - equity securities . . . . . . . . . . . . . . . . . . . . . . (28,350) (534) (10,673)
Sales - equity securities . . . . . . . . . . . . . . . . . . . . . . . . 8,091 3,310 18,168
Securities held-to-maturity:
Purchases - fixed maturities . . . . . . . . . . . . . . . . . . . . . . (1,110) -- --
Change in short-term investments . . . . . . . . . . . . . . . . . . . . . 47,881 24,533 (5,282)
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . (26,175) (1,375) (115,828)
Proceeds from sale of other invested assets . . . . . . . . . . . . . . . 1,733 1,159 5,017
Capital expenditures, net . . . . . . . . . . . . . . . . . . . . . . . . (1,679) (2,802) (766)
---------- ---------- -----------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . (13,169) (12,911) (128,117)
---------- ---------- -----------

FINANCING ACTIVITIES:
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . . . . 96,000 -- 65,000
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . (110,214) (18,000) (8,138)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 29,814
Exercise of warrants and options . . . . . . . . . . . . . . . . . . . . . 10 47 26,953
Repurchase of outstanding warrants . . . . . . . . . . . . . . . . . . . . -- (42) --
Issuance of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . -- 140 14
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,060) -- (1,724)
Stock issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (11) (828)
----------- ----------- ------------
Net cash (used in) provided by financing activities . . . . . . . . . . . . . (15,264) (17,866) 111,091
---------- ---------- ------------
Increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 851 1,336 1,676
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . 3,280 1,944 268
----------- ----------- ------------
Cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,131 $ 3,280 $ 1,944
=========== =========== ============

Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,121 $ 5,761 $ 4,403
Income taxes, net of refunds . . . . . . . . . . . . . . . . . . . . . . $ 642 $ 597 $ 687

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Common stock issued in connection with acquisitions . . . . . . . . . . . $ 4,000 $ -- $ 1,000

</TABLE>

The accompanying notes are an integral part of these financial statements.

-35-
<PAGE> 36

CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Capsure
Holdings Corp. and all significant majority-owned subsidiaries ("Capsure" or
the "Company"). Capsure is engaged principally in the property and casualty
insurance business. The Company's principal insurance operating entities are
Western Surety Company ("Western Surety"), United Capitol Insurance Company
("United Capitol") and Universal Surety of America ("Universal Surety"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.

BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Certain balances in the prior years'
financial statements have been reclassified to conform to current presentation.

INVESTMENTS
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Company has the ability to hold all debt
securities to maturity. However, the Company may dispose of securities prior
to their scheduled maturity due to changes in interest rates, prepayments, tax
and credit considerations, liquidity or regulatory capital requirements, or
other similar factors. As a result, the Company considers substantially all of
its debt (bonds and redeemable preferred stocks) and equity securities as
available-for-sale. Certain equity securities at the parent company level that
are held principally for the purpose of selling them in the near term are
considered trading securities. Certain debt securities, principally deposited
with state insurance regulatory authorities, are considered held to maturity
since the Company has both the positive intent and ability to hold these
securities to maturity. The accounting policies for each category are as
follows:

Available-for-Sale Securities -- These securities are reported at fair
value, with unrealized gains and losses, net of deferred income taxes, reported
as a separate component of stockholders' equity until realized. Cash flows
from purchases, sales and maturities are reported gross in the investing
activities section of the cash flow statement.

Trading Securities -- These securities are reported on the balance sheet
at fair value, with any unrealized gains and losses included in earnings. Cash
flows from purchases, sales and maturities are included in the operating
activities section of the cash flow statement.

Held-to-Maturity Securities -- These securities are reported at
amortized cost on the balance sheet. Cash flows from purchases, sales and
maturities are reported gross in the investing activities section of the cash
flow statement.

Previously, all debt securities were carried at amortized cost and all
equity securities reported at fair value, with unrealized gains and losses, net
of deferred income taxes, reflected in stockholders' equity.

The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in investment income. For mortgage-backed and certain asset-backed securities,
Capsure recognizes income using a constant effective yield based on estimated
cash flows including anticipated prepayments. Significant variances in actual
cash flows from expected cash flows are accounted for prospectively. Any
related adjustment is reflected in investment income. Investment gains or
losses are determined using the specific

-36-
<PAGE> 37

identification method. Investments with an other than temporary decline in
value are written down to fair value, resulting in losses that are included in
investment gains and losses.

Short-term investments are carried at amortized cost which approximates
fair value.

DEFERRED POLICY ACQUISITION COSTS
Policy acquisition costs, consisting of commissions and other
underwriting expenses which vary with, and are directly related to, the
production of business, net of reinsurance commission income, are deferred and
amortized to income as the related premiums are earned. Deferred policy
acquisition costs are subject to a limitation representing the excess of
anticipated net earned premiums over anticipated losses, loss adjustment
expenses and maintenance costs. The ultimate recoverability of policy
acquisition costs is determined without regard to investment income.

EXCESS COST OVER NET ASSETS ACQUIRED AND INTANGIBLE ASSETS
The excess cost over the fair value of the net assets acquired is
amortized substantially over 40 years. Other intangible assets are amortized
over periods ranging from three to 20 years, a substantial portion of which is
amortized over three years. Other intangible assets primarily relate to the
estimated value of the acquired insurance in force and the producing agency
force as of the acquisition date. Excess cost over net assets acquired is
reported net of accumulated amortization of $5.4 million and $3.4 million at
December 31, 1994 and 1993, respectively. Intangible assets are reported net
of accumulated amortization of $23.3 million and $19.5 million at December 31,
1994 and 1993, respectively.

UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
The liability for unpaid losses and loss adjustment expenses is based on
estimates of (a) the ultimate settlement value of reported claims, (b) incurred
but not reported ("IBNR") claims, (c) future expenses to be incurred in the
settlement of claims and (d) claim recoveries. These estimates are determined
based on Company and industry loss experience as well as consideration of
current trends and conditions. The liability for unpaid losses and loss
adjustment expenses is an accounting estimate and, similar to other accounting
estimates, there is the potential that actual future loss payments will differ
from the initial estimate. The methods of determining such estimates and the
resulting estimated liability are continually reviewed and updated. Changes in
the estimated liability are reflected in operating income in the year in which
such changes are determined.

INSURANCE PREMIUMS
Insurance premiums are recognized as revenue ratably over the terms of
the related policies. Unearned premiums represent the portion of premiums
written applicable to the unexpired terms of policies in force calculated on a
daily pro rata basis. Premium revenues are reported net of amounts ceded to
reinsurers.

REINSURANCE
Amounts recoverable from reinsurers are estimated in a manner consistent
with the claim liability associated with the reinsured policy and are reported
as reinsurance receivable rather than netted against the liability for unpaid
losses and loss adjustment expenses. Losses and loss adjustment expenses
incurred are reported net of estimated recoveries under reinsurance contracts.

INCOME TAXES
The provision for income taxes includes deferred taxes resulting from
temporary differences between the financial reporting and tax bases of assets
and liabilities, using the asset and liability method required by SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method, deferred
income taxes are established for the future tax effects of temporary
differences between the tax and financial reporting bases of assets and
liabilities using currently enacted tax rates. Such temporary differences
primarily relate to net operating loss carryforwards ("NOLs"), loss reserve
discounting, deferred policy acquisition costs and intangible assets. The
measurement of deferred tax assets is subject to a valuation allowance based
upon the expectation of future realization. Under SFAS No. 109, the effect on
deferred taxes of a change in tax rates is recognized in income in the period
of enactment.

-37-
<PAGE> 38

REORGANIZATION PROCEEDINGS
On July 31, 1986, the Company emerged from voluntary bankruptcy
proceedings under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code"). After the requisite acceptances were obtained and the
Bankruptcy Court determined that the Second Amended Joint Plan of
Reorganization, as amended (the "Plan of Reorganization"), satisfied applicable
requirements of the Bankruptcy Code, the Bankruptcy Court confirmed the Plan of
Reorganization on December 20, 1985, and the Plan of Reorganization was
consummated on July 31, 1986 (the "Reorganization Date"). The Company emerged
from bankruptcy with approximately $300 million of NOLs resulting from oil and
gas operations prior to the reorganization.

In accordance with accounting principles applicable to reorganizations,
the net assets of the Company were adjusted to fair value, the accumulated
deficit in retained earnings at the date of reorganization was eliminated and
the excess of the fair values of the net assets over the stated value of
outstanding capital stock was assigned to additional paid-in capital. In the
1992 financial statements as restated under SFAS No. 109, the Company
established a deferred tax asset, net of a valuation allowance, with a
corresponding credit to additional paid-in capital equal to the amount of
available NOLs for which future realization is expected. Tax benefits
resulting from the future utilization of such NOLs will reduce the net deferred
tax asset established in accordance with SFAS No. 109.

EARNINGS PER SHARE
Earnings per share of common and common equivalent shares outstanding
are computed using the treasury stock method. Weighted average shares
outstanding including additive common equivalent shares (assuming full
dilution) for 1994, 1993 and 1992 were 15.2 million, 15.0 million and 12.2
million, respectively.

2. ADOPTION OF NEW ACCOUNTING STANDARDS

INVESTMENTS
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Although Capsure has
the ability to hold all debt securities to maturity, the Company may dispose of
securities prior to their scheduled maturity. Accordingly, the Company has
classified substantially all of its debt and equity securities as securities
available-for-sale. These securities are reported at fair value, with
unrealized gains and losses, net of deferred income taxes, reported as a
separate component of stockholders' equity until realized. In addition,
certain equity securities at the parent company level were classified as
trading securities in accordance with SFAS No. 115. Previously all debt
securities were considered held-to-maturity and carried at amortized cost, and
all equity securities were reported at fair value, with unrealized gains and
losses, net of deferred income taxes, reflected in stockholders' equity.

At January 1, 1994, net unrealized gains on investments which were
classified as securities available-for-sale were approximately $7.0 million
($4.6 million, net of deferred income taxes). Approximately $4.9 million of
the $7.0 million net unrealized gains on available-for-sale securities related
to fixed maturities which were carried at amortized cost at December 31, 1993.
At January 1, 1994, unrealized gains and losses on the trading securities were
not material to the Company's results of operations.

INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes." SFAS No. 109 requires the asset and liability method of
accounting for income taxes rather than the deferred method, as specified by
Accounting Principles Board ("APB") No. 11. The adoption of SFAS No. 109
permitted the Company to recognize as a deferred tax asset the benefits of
certain NOLs that were previously prohibited under APB No. 11. Under the new
standard, deferred tax assets are valued based upon the expectation of future
realization on a "more likely than not" basis. Upon adoption of SFAS No. 109,
the Company restated its 1992 financial statements. As of January 1, 1992, a
deferred tax asset of $60.2 million, net of a valuation allowance of $45.2
million, with a corresponding credit to additional paid-in capital was recorded
related to available NOLs for which future realization is expected. Such
restatement did not have a material effect on the Company's 1992 results of
operations.

-38-
<PAGE> 39

In addition, the adoption of SFAS No. 109 also resulted in: (i) certain
assets and liabilities previously recorded net of tax in connection with
purchase accounting to be recorded on a gross basis, resulting in increases in
the balance of certain assets and liabilities with a corresponding increase in
deferred tax assets and liabilities; (ii) an increase in certain revenues and
expenses (primarily the amortization of intangible assets) which were
previously recorded net of tax; and (iii) a more normalized effective tax rate,
reflecting the tax-effecting of certain revenues and expenses which had
previously been shown net of tax.

REINSURANCE
Effective January 1, 1993, the Company adopted SFAS No. 113, "Accounting
and Reporting for Reinsurance of Short-duration and Long-duration Contracts"
and restated its prior years' balance sheets in accordance with SFAS No. 113.
SFAS No. 113 requires reinsurance receivables on paid and unpaid losses and
loss adjustment expenses and prepaid reinsurance premiums to be reported as
assets rather than netted against the corresponding liability for such items on
the balance sheet.

3. ACQUISITIONS

On September 22, 1994, Capsure, through its wholly owned subsidiary,
Capsure Financial Group, Inc. ("CFG"), acquired all of the outstanding common
stock of Universal Surety Holding Corp. ("USHC"). USHC is the holding company
of Universal Surety. Universal Surety specializes in the underwriting of small
contract and miscellaneous surety bonds and is licensed to write fidelity,
surety and casualty insurance in 16 states. Capsure paid $28 million in cash
and $4 million in Capsure common stock for USHC, pursuant to a Stock Purchase
Agreement dated as of July 26, 1994. The cash portion of the purchase price
was financed with borrowings under Capsure's $135 million revolving credit
facility.

On August 14, 1992, Capsure acquired all of the outstanding common stock
of Surewest Financial Corp. ("Surewest"). Surewest is the holding company for
Western Surety. Western Surety specializes in writing small fidelity and
noncontract surety bonds and is licensed to write fidelity, surety and casualty
insurance in all 50 states and the District of Columbia. The aggregate
purchase price for the stock of Surewest was approximately $103.5 million,
consisting of $99 million in cash and $1 million in Capsure common stock, plus
$3.5 million of acquisition costs and $14.4 million of additional capital
contributed to pay down Surewest's existing indebtedness. Funding for the
acquisition was derived in part from a $65.0 million bank term loan. The
remaining funds were derived from available cash of the Company obtained
principally through the offering of 3.4 million shares of Capsure common stock,
dividends paid by United Capitol and through the exercise of warrants.

Each acquisition has been accounted for as a purchase and, accordingly,
the acquired assets and liabilities have been recorded at their estimated fair
values. The operating results of USHC are included in the consolidated
statements of income and cash flows from the September 22, 1994 acquisition
date. The operating results of Surewest are included in the consolidated
statements of income and cash flows from the August 14, 1992 acquisition date.
The excess of the purchase price over the fair value of net assets acquired is
recorded as excess cost over net assets acquired in the consolidated balance
sheets.

The USHC Stock Purchase Agreement provides for a contingent payment to
certain of the selling shareholders. Such payment shall be in cash or an
equivalent amount of Capsure common stock, at the Company's option, in the year
2000, equal to twenty percent of the excess of the after-tax fair market value
of Universal Surety at December 31, 1999, over an assumed fifteen percent
return, compounded annually, on Capsure's invested capital. The contingent
consideration, if any, shall be allocated to excess cost over net assets
acquired when the additional consideration is payable and amortized
prospectively over its remaining useful life.

The following table of unaudited pro forma information has been prepared
as if the acquisition of USHC had been consummated on January 1, 1993 and the
acquisition of Surewest had been consummated on January 1, 1991, at the same
purchase price, with adjustments to the consolidated results of operations for
the effects of the acquisition in the same manner as subsequent to the
acquisition. Such adjustments include: (i) decreased net investment income
and realized investment gains at USHC and Surewest; (ii) decreased corporate
investment income; (iii) decreased operating

-39-
<PAGE> 40

expenses at USHC and Surewest; and (iv) increased interest and amortization
expense. In management's opinion, the pro forma financial information is not
indicative of consolidated results of operations that may have occurred had the
acquisitions taken place on January 1 of each respective year, or of future
results of operations of the combined companies under the ownership and
operation of Capsure. In the following table, the dollars are in thousands,
except per share amounts:

<TABLE>
<CAPTION>
Pro Forma (Unaudited)
for the Years Ended December 31,
-----------------------------------------------------
1994 1993 1992
------------ ------------- ------------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . $ 122,967 $ 120,141 $ 107,054
Net income . . . . . . . . . . . . . . . . . . . $ 15,086 $ 17,339 $ 15,153
Net income per common share . . . . . . . . . . $ .98 $ 1.13 $ .99
</TABLE>

On November 10, 1993, the Company acquired all of the outstanding common
stock of Fischer Underwriting Group, Incorporated ("Fischer") for an aggregate
purchase price of $3.5 million. Fischer is a managing general agency engaged
in producing and underwriting specialty directors' and officers' and
miscellaneous professional liability insurance. The acquisition of Fischer was
not material to the Company's financial condition or results of operations for
the year ended December 31, 1993 and, therefore, is not included in the 1993
and 1992 pro forma financial information above.

4. INVESTMENTS

The cost and estimated fair values of investments in debt and equity
securities as of December 31, 1994 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Fair
or Cost Gains Losses Value
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Available-For-Sale Securities
- -----------------------------
Fixed maturities:
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies:
U.S. Treasury notes . . . . . . . . . . . . . . . $ 1,990 $ -- $ (10) $ 1,980
Collateralized mortgage obligations . . . . . . . 116,408 7 (8,572) 107,843
Mortgage pass-through securities . . . . . . . . . 44,832 62 (2,168) 42,726
Debt securities of foreign governments . . . . . . . . 5 -- -- 5
Obligations of states and political subdivisions . . . 16,019 6 (424) 15,601
Corporate bonds . . . . . . . . . . . . . . . . . . . . 1,865 25 (88) 1,802
Non-agency collateralized mortgage obligations . . . . 6,159 -- (159) 6,000
Asset-backed securities:
Second mortgages/home equity loans . . . . . . . . 37,927 38 (969) 36,996
Credit card receivables . . . . . . . . . . . . . 4,000 44 -- 4,044
Automobile loans . . . . . . . . . . . . . . . . . 8,020 25 (1,058) 6,987
Other underlying assets . . . . . . . . . . . . . 12,103 -- (462) 11,641
----------- ---------- ----------- -----------
Total fixed maturities . . . . . . . . . . . . 249,328 207 (13,910) 235,625
Equity securities . . . . . . . . . . . . . . . . . . . 27,476 208 (1,403) 26,281
----------- ---------- ----------- -----------
Total available-for-sale securities . . . . . . $ 276,804 $ 415 $ (15,313) $ 261,906
=========== ========== =========== ===========

Held-To-Maturity Securities
- ---------------------------
Fixed maturities - U.S. Government treasury
securities . . . . . . . . . . . . . . . . . . . . . $ 10,968 $ 19 $ (661) $ 10,326
=========== ========== =========== ===========

Trading Securities
- ------------------
Equity securities . . . . . . . . . . . . . . . . . . . $ 2,298 $ 59 $ (433) $ 1,924
=========== ========== =========== ===========
</TABLE>

-40-
<PAGE> 41

The cost and estimated fair values of investments in debt and equity
securities as of December 31, 1993 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Fair
or Cost Gains Losses Value
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies:
U.S. Treasury notes . . . . . . . . . . . . . . . $ 9,310 $ 247 $ (1) $ 9,556
Collateralized mortgage obligations . . . . . . . 95,086 1,353 (195) 96,244
Mortgage pass-through securities . . . . . . . . . 52,881 1,881 (3) 54,759
Debt securities of foreign governments . . . . . . . . 5 -- -- 5
Obligations of states and political subdivisions . . . 9,601 41 (39) 9,603
Non-agency collateralized mortgage obligations . . . . 3,798 58 -- 3,856
Asset-backed securities:
Second mortgages/home equity loans . . . . . . . . 36,234 1,148 (31) 37,351
Credit card receivables . . . . . . . . . . . . . 7,020 389 -- 7,409
Automobile loans . . . . . . . . . . . . . . . . . 6,242 120 -- 6,362
Other underlying assets . . . . . . . . . . . . . 9,324 220 (14) 9,530
----------- ---------- ----------- -----------
Total fixed maturities . . . . . . . . . . . . 229,501 5,457 (283) 234,675
Equity securities . . . . . . . . . . . . . . . . . . . 7,426 2,416 (309) 9,533
----------- ---------- ----------- -----------
Total debt and equity securities . . . . . . . $ 236,927 $ 7,873 $ (592) $ 244,208
=========== ========== =========== ===========
</TABLE>

As of December 31, 1994, 99% of the Company's debt securities were
considered investment grade by The Standard & Poors Corporation or Moody's
Investor Services, Inc., and 91% were rated at least AA by those agencies. In
addition, the Company's investments in debt securities did not contain any
significant geographic or industry concentration of credit risk.

The U.S. Treasury notes and mortgage pass-through securities are backed by
the full faith and credit of the U.S. Government. The U.S. Government
collateralized mortgage obligations consist of securities collateralized by
first mortgages issued by the Federal National Mortgage Association, and the
Federal Home Loan Mortgage Corporation, or guaranteed by the Government
National Mortgage Association.

The Company's insurance subsidiaries, as required by state law, deposit
certain securities with state insurance regulatory authorities. At December
31, 1994, fixed maturities on deposit had an aggregate carrying value of $11.0
million.

During 1994, the Company shifted a portion of its available-for-sale
portfolio to equity securities, principally higher yielding nonaffiliated real
estate investment trusts ("REITs"). At December 31, 1994, the carrying value
of the Company's REIT portfolio was $24.3 million.

Short-term investments are comprised of U.S. Treasury notes, maturing
corporate notes, money market and mutual funds, and investment grade
commercial paper equivalents.

-41-
<PAGE> 42

The amortized cost and estimated fair value of debt securities at December
31, 1994, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities as borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties (dollars in
thousands):

<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Available-For-Sale Securities
- -----------------------------
Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,890 $ 2,887
Due after one year but within five years . . . . . . . . . . . . . . . 11,326 11,060
Due after five years but within ten years . . . . . . . . . . . . . . . 1,343 1,298
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . 4,320 4,143
------------ ------------
19,879 19,388
Mortgage pass-through securities, collateralized
mortgage obligations and asset-backed securities . . . . . . . . . . 229,449 216,237
------------ ------------
$ 249,328 $ 235,625
============ ============
Held-To-Maturity Securities
- ---------------------------
Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,212 $ 4,231
Due after one year but within five years . . . . . . . . . . . . . . . 746 727
Due after five years but within ten years . . . . . . . . . . . . . . . 6,010 5,368
------------ ------------
$ 10,968 $ 10,326
============ ============
</TABLE>

Major categories of net investment income and net investment gains were as
follows (dollars in thousands):

<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Investment income:
Fixed maturities . . . . . . . . . . . . . . $ 16,405 $ 16,282 $ 13,346
Equity securities . . . . . . . . . . . . . 915 143 185
Short-term investments . . . . . . . . . . . 1,722 2,820 2,058
Other . . . . . . . . . . . . . . . . . . . 532 990 218
---------- ---------- ----------
Total investment income . . . . . . . . . . 19,574 20,235 15,807
Investment expenses . . . . . . . . . . . . . . 445 420 303
---------- ---------- ----------
Net investment income . . . . . . . . . . . . . $ 19,129 $ 19,815 $ 15,504
========== ========== ==========

Gross investment gains:
Fixed maturities . . . . . . . . . . . . . . $ 88 $ 1,821 $ 1,015
Equity securities . . . . . . . . . . . . . 3,762 3,430 --
Unrealized gains on trading securities . . . 59 -- --
Gross investment losses:
Fixed maturities . . . . . . . . . . . . . . (625) (2,911) (635)
Equity securities . . . . . . . . . . . . . (1,802) (269) --
Unrealized losses on trading securities . . (433) -- --
Other . . . . . . . . . . . . . . . . . . . (104) -- --
---------- ---------- ----------
Net investment gains . . . . . . . . . . . . . . $ 945 $ 2,071 $ 380
========== ========== ==========

</TABLE>

-42-
<PAGE> 43

Net unrealized gain (loss) on securities included in stockholders' equity
for December 31, 1994 and 1993 was as follows (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993
-------------------------------------- -------------------------------------
Gains Losses Net Gains Losses Net
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities . . . . . . . . . . . $ 207 $ (13,910) $ (13,703) $ -- $ -- $ --
Equity securities . . . . . . . . . . . 208 (1,403) (1,195) 2,416 (309) 2,107
Other . . . . . . . . . . . . . . . . . -- (225) (225) -- (79) (79)
----------- ----------- ----------- ----------- ----------- -----------
$ 415 $ (15,538) (15,123) $ 2,416 $ (388) 2,028
=========== =========== =========== ===========
Deferred income taxes . . . . . . . . . 5,293 (710)
----------- -----------
Net unrealized gain (loss) on securities $ (9,830) $ 1,318
=========== ===========
</TABLE>

At December 31, 1994 and 1993, the carrying value of debt securities on
non-accrual status was $1.9 million and $2.6 million, respectively, related to
two interest-only U.S. Government collateralized mortgage obligations. The
gross realized investment losses on fixed maturities in 1993 were primarily due
to a $2.5 million write-down to fair value on these two interest-only
securities, reflecting lower future expected cash flows of these securities as
a result of an accelerated level of mortgage prepayments.

A majority of the realized investment gains and losses on equity
securities resulted from sales of securities held at the parent company level.
For 1994, investment activity for the equity trading portfolio held at the
parent company level included gross realized investment gains of $1.5 million
and gross realized investment losses of $1.0 million.

5. DEFERRED POLICY ACQUISITION COSTS

Policy acquisition costs deferred and the related amortization charged to
income were as follows (dollars in thousands):

<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- -----------
(Restated)
<S> <C> <C> <C>
Balance, beginning of year . . . . . . . . . . . . . . $ 18,421 $ 9,428 $ 948
Balance at date of acquisition . . . . . . . . . . . . 4,369 -- --
Costs deferred during year . . . . . . . . . . . . . . 31,750 30,157 10,635
Amortization during year . . . . . . . . . . . . . . . (29,390) (21,164) (2,155)
---------- ---------- -----------
Balance, end of year . . . . . . . . . . . . . . . . . $ 25,150 $ 18,421 $ 9,428
========== ========== ===========
</TABLE>

6. REINSURANCE

The Company's insurance subsidiaries, in the ordinary course of business,
cede reinsurance to other insurance companies to limit their exposure to loss
and to provide greater diversification of risk. Reinsurance contracts do not
relieve the Company of its primary obligations to claimants. A contingent
liability exists with respect to reinsurance ceded to the extent that any
reinsurer is unable to meet the obligations assumed under the reinsurance
agreements. The Company evaluates the financial condition of its reinsurers,
establishes allowances for uncollectible amounts and monitors concentrations of
credit risk. At December 31, 1994, Capsure's largest reinsurance receivable,
including prepaid reinsurance premiums of $1.3 million and estimated ceded IBNR
of $12.0 million, was approximately $18.9 million with Generali - U.S. Branch.
Generali - U.S. Branch is rated A (Excellent), XV by A.M. Best Company, Inc.
No other receivable from a single reinsurer exceeded 10% of total reinsurance
receivables.

-43-
<PAGE> 44
The effect of reinsurance on premiums written and earned for the years
ended December 31, 1994, 1993 and 1992 was as follows (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------- -------------------------- ---------------------------
Written Earned Written Earned Written Earned
---------- ----------- ---------- ----------- ---------- -----------

<S> <C> <C> <C> <C> <C> <C>
Direct . . . . . . $ 102,062 $ 103,346 $ 100,355 $ 97,359 $ 50,008 $ 50,015
Assumed . . . . . . 294 668 420 639 97 39
Ceded . . . . . . . (11,778) (11,533) (12,469) (11,969) (9,795) (8,805)
---------- ----------- ---------- ----------- ----------- -----------
Net premiums . . . $ 90,578 $ 92,481 $ 88,306 $ 86,029 $ 40,310 $ 41,249
========== =========== ========== =========== ========== ===========
</TABLE>

The effect of reinsurance on losses and loss adjustment expenses incurred
for the years ended December 31, 1994, 1993 and 1992 was as follows (dollars in
thousands):

<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Gross losses and loss adjustment expenses . . . . . . $ 31,684 $ 26,407 $ 14,566
Reinsurance recoveries . . . . . . . . . . . . . . . . (8,340) (6,450) (3,905)
----------- ----------- -----------
Net losses and loss adjustment expenses . . . . . . . $ 23,344 $ 19,957 $ 10,661
=========== =========== ===========
</TABLE>

7. LIABILITY FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

Activity in the liability for unpaid losses and loss adjustment expenses
was as follows (dollars in thousands):

<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Gross balance at January 1 . . . . . . . . . . . . . . . . $ 135,825 $ 128,122 $ 101,542

Balance at date of acquisition . . . . . . . . . . . . . . 2,738 -- 28,516

Incurred related to:
Current year . . . . . . . . . . . . . . . . . . . . . . . 46,206 41,398 24,428
Prior years . . . . . . . . . . . . . . . . . . . . . . . . (14,522) (14,991) (9,862)
------------ ------------ ------------
Total incurred . . . . . . . . . . . . . . . . . . . . . . 31,684 26,407 14,566
------------ ------------ ------------

Paid related to:
Current year . . . . . . . . . . . . . . . . . . . . . . . 3,003 2,266 1,665
Prior years . . . . . . . . . . . . . . . . . . . . . . . . 18,203 16,438 14,837
------------ ------------ ------------
Total paid . . . . . . . . . . . . . . . . . . . . . . . . 21,206 18,704 16,502
------------ ------------ ------------
Gross balance at December 31 . . . . . . . . . . . . . . . $ 149,041 $ 135,825 $ 128,122
============ ============ ============
</TABLE>

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table summarizes disclosure of fair value information of
financial instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values may be based on estimates using present
value or other valuation techniques. These techniques are significantly
affected by the assumptions used, including the discount rates and estimates of
future cash flows. Accordingly, the estimates presented herein are subjective
in nature and are not necessarily indicative of the amounts that Capsure could
realize in a current market exchange. This information excludes certain
financial instruments and all nonfinancial instruments such as insurance
contracts from fair value disclosure. Thus, the following fair value amounts
cannot be aggregated to determine the underlying economic value of Capsure.

-44-
<PAGE> 45

The carrying amounts and estimated fair values of financial instruments
for the years ended December 31, 1994 and 1993 were as follows (dollars in
thousands):

<TABLE>
<CAPTION>
1994 1993
------------------------------ -------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------- ---------- ----------- ----------

<S> <C> <C> <C> <C>
Fixed maturities . . . . . . . . . . . . $ 246,593 $ 245,951 $ 229,501 $ 234,675
Equity securities . . . . . . . . . . . . 28,205 28,205 9,533 9,533
Short-term investments . . . . . . . . . 22,079 22,079 69,215 69,215
Other investments . . . . . . . . . . . . 4,890 4,890 5,548 5,548
Cash . . . . . . . . . . . . . . . . . . 4,131 4,131 3,280 3,280
Long-term debt . . . . . . . . . . . . . 71,000 71,000 85,214 85,214
</TABLE>

The following methods and assumptions were used by Capsure in estimating
fair values of financial instruments:

Investment Securities -- The estimated fair values for debt securities
(including redeemable preferred stock) are based upon quoted market prices,
where available. For debt securities not actively traded, the estimated fair
values are determined using values obtained from independent pricing services
or, in the case of private placements, by discounting expected future cash
flows using a current market rate applicable to the yield, credit quality and
maturity of the investments. The estimated fair values for equity securities
are based on quoted market prices.

Cash, Short-Term Investments and Other Investments -- The carrying amount
for these instruments approximates their estimated fair value.

Long-Term Debt -- The estimated fair value of Capsure's long-term debt is
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining maturities.

9. LONG-TERM DEBT

On March 29, 1994, the Company formed a direct, wholly owned subsidiary,
CFG, to which Capsure contributed substantially all its assets and liabilities.
Concurrently, CFG entered into a senior reducing revolving credit agreement
with a syndicate of banks for $135 million (the "Credit Facility"). The common
stock of substantially all of Capsure's subsidiaries and substantially all
assets of Capsure's non-insurance operations have been pledged under the Credit
Facility. As of December 31, 1994, $71 million was outstanding under the
Credit Facility. The remaining availability under the Credit Facility may be
used to finance future acquisitions and for general corporate purposes.

The interest rate on borrowings under the Credit Facility may be fixed, at
the Company's option, for a period of one to six months and is based on a
margin over either the London Interbank Offered Rate ("LIBOR") or the greatest
of the agent bank's prime rate, certificate of deposit rate plus 1.0% and the
Federal Funds Effective Rate plus 0.5%. The margin varies based on a leverage
ratio and ranges from 0.75% to 1.75% on LIBOR borrowings and 0.0% to 0.75% on
non-LIBOR borrowings. The Credit Facility provides for a commitment fee on the
unused availability which also varies based on leverage. At December 31, 1994,
the weighted average interest rate on outstanding borrowings was 7.125% and the
applicable commitment fee was 0.375%.

The Credit Facility limits the Company with respect to the incurrence of
additional indebtedness and the payment of dividends, imposes certain
restrictions on investments and requires the maintenance of certain financial
ratios and levels of Risk-Based Capital ("RBC"). As of December 31, 1994, the
Company was in compliance with all material restrictions or covenants contained
in the Credit Facility agreement. The use of the Credit Facility for
acquisition purposes is subject to certain conditions with respect to the
business and historical financial results of the target company, the
maintenance of certain financial ratios on a prospective and pro forma basis,
and the structure of the acquisition transaction.

-45-
<PAGE> 46

Total borrowings available under the Credit Facility reduce semi-annually
commencing March 31, 1996 by the following amounts (dollars in thousands):

<TABLE>
<S> <C>
March 31, 1996 $ 12,500
September 30, 1996 12,500
March 31, 1997 12,500
September 30, 1997 12,500
March 31, 1998 15,000
September 30, 1998 15,000
March 31, 1999 17,500
September 30, 1999 17,500
March 31, 2000 20,000
------------
$ 135,000
============
</TABLE>

Principal and interest payments required under the Credit Facility are
funded principally by dividend and intercompany tax sharing payments received
from Capsure's insurance subsidiaries.

10. STATUTORY FINANCIAL DATA

Capsure's insurance subsidiaries file annual financial statements prepared
in accordance with statutory accounting practices prescribed or permitted by
applicable insurance regulatory authorities. Prescribed statutory accounting
practices include state laws, regulations and general administrative rules, as
well as guidance provided in a variety of publications of the National
Association of Insurance Commissioners ("NAIC"). Permitted statutory
accounting practices encompass all accounting practices that are not
prescribed. Such practices may differ from state to state, may differ from
company to company within a state, and may change in the future. The permitted
statutory accounting practices of Capsure's insurance subsidiaries did not have
a material effect on reported statutory surplus. The principal differences
between statutory financial statements and financial statements prepared in
accordance with generally accepted accounting principles are that statutory
financial statements do not reflect deferred policy acquisition costs and
deferred income taxes and debt securities are generally carried at amortized
cost in statutory financial statements.

The NAIC has promulgated RBC requirements for property/casualty insurance
companies to evaluate the adequacy of statutory capital and surplus in relation
to investment and insurance risks such as asset quality, asset and liability
matching, loss reserve adequacy, and other business factors. The RBC
information will be used by state insurance regulators as an early warning tool
to identify, for the purpose of initiating regulatory action, insurance
companies that potentially are inadequately capitalized. In addition, the
formula defines new minimum capital standards that will supplement the current
system of fixed minimum capital and surplus requirements on a state-by-state
basis. Regulatory compliance is determined by a ratio (the "Ratio") of the
enterprise's regulatory total adjusted capital, as defined by the NAIC, to its
authorized control level RBC, as defined by the NAIC. Generally, a Ratio in
excess of 200% of authorized control level RBC requires no corrective actions
on the behalf of the company or regulators. As of December 31, 1994, each of
Capsure's insurance subsidiaries had a Ratio that was substantially in excess
of the minimum RBC requirements.

Capsure's insurance subsidiaries are subject to regulation and supervision
by the various state insurance regulatory authorities in which they conduct
business. Such regulation is generally designed to protect policyholders and
includes such matters as maintenance of minimum statutory surplus and
restrictions on the payments of dividends. Generally, statutory surplus of
each insurance subsidiary in excess of statutorily prescribed minimum is
available for transfer to the parent company. However, such distributions as
dividends may be subject to prior regulatory approval, including a review of
the implication on RBC. Without prior regulatory approval in 1995, Capsure's
insurance subsidiaries may pay stockholder dividends of $19.3 million in the
aggregate. In 1994, 1993 and 1992, Capsure received $21.0 million (including
$5.0 million of dividends requiring prior approval), $11.8 million, and $29.0
million (including $15.1 million of dividends requiring prior approval),
respectively, in dividends from its insurance subsidiaries.

-46-
<PAGE> 47

Combined statutory surplus and net income for insurance operations,
including preacquisition results, as reported to regulatory authorities were as
follows (dollars in thousands):

<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- ------------
<S> <C> <C> <C>
Statutory surplus . . . . . . . . . . . . $ 109,750 $ 104,343 $ 94,080
Statutory net income . . . . . . . . . . . $ 23,796 $ 19,308 $ 23,934
</TABLE>

11. INCOME TAXES

The components of deferred income taxes as of December 31, 1994 and 1993
were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating losses . . . . . . . . . . . . . . . . . . . . . . . . $ 79,100 $ 86,500
Loss and loss adjustment expense reserves . . . . . . . . . . . . . 7,913 7,606
Unearned premium reserves . . . . . . . . . . . . . . . . . . . . . 5,302 4,856
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 3,755 3,750
Unrealized loss on securities . . . . . . . . . . . . . . . . . . . 5,293 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,537 3,984
------------- -------------
Total gross deferred tax assets . . . . . . . . . . . . . . . . 102,900 106,696
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . 30,800 40.800
------------- -------------
Deferred tax asset, net of valuation allowance . . . . . . . . . . . . . 72,100 65,896
------------- -------------

Deferred tax liabilities:
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . 6,278 7,625
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . 8,803 6,447
Unrealized gain on securities . . . . . . . . . . . . . . . . . . . -- 710
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,814 2,764
------------- -------------
Total deferred tax liabilities . . . . . . . . . . . . . . . . 17,895 17,546
------------- -------------

Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,205 $ 48,350
============= =============
</TABLE>

Capsure and its subsidiaries file a consolidated federal income tax
return. As of December 31, 1994, based upon the Company's consolidated federal
income tax returns, approximately $226.0 million of consolidated NOLs were
available to offset future taxable income of the Company and its subsidiaries.
The majority of such carryforwards expire in 1997, 1998 and 1999. Although
realization is not assured, management believes that it is more likely than not
that Capsure will generate sufficient taxable income to utilize at least $48.3
million of tax benefits from its available NOLs at December 31, 1994. Such
estimate is based upon the earnings history of each of its insurance
subsidiaries and projections of future taxable income. The reduction in the
valuation allowance for deferred tax assets of $10.0 million in 1994 related
primarily to the September 22, 1994, acquisition of Universal Surety and
projections of future taxable income of this newly acquired entity.

The income tax provisions consisted of the following (dollars in
thousands):

<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(Restated)
<S> <C> <C> <C>
Federal deferred . . . . . . $ 8,820 $ 8,696 $ 6,457
Federal current . . . . . . . 305 338 208
State . . . . . . . . . . . . 276 200 112
--------- --------- ----------
Total income tax expense . . $ 9,401 $ 9,234 $ 6,777
========= ========= ==========
</TABLE>

-47-
<PAGE> 48

Reconciliations from the federal statutory tax rate to the effective tax
rate are as follows:

<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- --------
<S> <C> <C> <C>
Federal statutory rate . . . . . . . . . . . . . . . . . . . . . . 35.0% 35.0% 34.0%
Excess of cost over net assets acquired and other
purchase accounting adjustments . . . . . . . . . . . . . . . . 3.0 2.2 2.0
State income and environmental tax, net of federal
income tax benefit . . . . . . . . . . . . . . . . . . . . . . . .8 .6 .9
Tax exempt interest . . . . . . . . . . . . . . . . . . . . . . . . (.3) (.2) (.8)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0 (1.4) 2.7
--------- --------- ---------
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . 39.5% 36.2% 38.8%
========= ========= =========
</TABLE>

Intercompany tax sharing agreements between Capsure and its subsidiaries
provide that income taxes shall be allocated based upon separate return
calculations in accordance with the Internal Revenue Code of 1986, as amended
(the "Code"). Intercompany tax payments are remitted at such times as
estimated tax payments would be required to be made to the Internal Revenue
Service. Capsure received tax sharing payments from its subsidiaries of $12.3
million, $13.0 million and $9.0 million in 1994, 1993 and 1992, respectively.

The Internal Revenue Service has not examined the Company's tax returns
for the years in which the Company reported net operating losses. Under
Section 382 of the Code, certain restrictions on the utilization of NOLs will
apply if there is an ownership change of a corporation entitled to use such
carryovers. The Company believes that there is currently no restriction on the
ability of the Company to utilize its NOLs. It is possible that future
transactions involving the Company's common stock or rights to acquire such
stock could cause an ownership change of the Company resulting in restrictions
of the Company's ability to utilize the NOLs during all taxable periods after
the date of such ownership change. The Company has adopted provisions in its
Certificate of Incorporation designed to facilitate the Company's ability to
preserve and utilize its NOLs.

12. COMMITMENTS AND CONTINGENCIES

On November 8, 1988, California voters enacted Proposition 103, an
initiative which required a rollback in insurance rates for products written or
renewed after November 8, 1988, and provided that rate changes must thereafter
be submitted for approval to the Department of Insurance prior to
implementation. While the proposition had the most significant impact on
automobile insurance, its provisions were written broadly and may also apply to
other property and casualty insurance, including surety bonds. The
applicability of Proposition 103 to surety bonds has been litigated in the
California courts and is currently under review by the California Supreme
Court. Management believes that an unfavorable resolution of this matter would
not have a material adverse impact on the Company's results of operations or
financial position.

The Company was engaged in oil and gas production, exploration and
development until mid-1993. In connection with the sale of substantially all
of the Company's oil and gas properties, the buyers assumed all material
environmental liabilities.

United Capitol, in the ordinary course of business, chooses to underwrite
accounts which have hazardous, unique or unusual risk characteristics and
applies a strict and specialized underwriting discipline to such risks. Since
United Capitol's organization in 1986, its liability policies have included an
absolute pollution coverage exclusion (except for policies offering pollution
liability coverage to contractors involved in the remediation of preexisting
pollution). In addition, except as discussed below, United Capitol's product
liability and other general liability policies contain exclusions, which
management believes are enforceable, for coverage of claims for bodily injury
or property damage caused by exposure to asbestos.

-48-
<PAGE> 49
asbestos abatement liability policies alleging bodily injury arising from
exposure to asbestos. Management believes that none of the other insurance
products offered by Capsure's insurance subsidiaries creates any potential
material environmental exposure.

Capsure and its subsidiaries are subject to litigation in the ordinary
course of business. In the opinion of management, the outcome of such
litigation will not have a material effect on the results of operations or
financial position of Capsure.

13. WARRANTS

In January 1989, the Company distributed warrants to purchase shares of
its common stock to its stockholders of record on January 9, 1989, whereby for
each share of common stock held on such date, one Series A Warrant, one Series
B Warrant and one Series C Warrant ("ABC Warrants") were distributed. Each
Series A Warrant, each Series B Warrant and each two Series C Warrants entitled
the holder to purchase one share of the Company's common stock. In the
aggregate, 9,825,378 ABC Warrants were distributed to purchase 8,187,815 shares
of the Company's common stock. The original exercise price per share of common
stock, issuable upon exercise of any ABC Warrant, was $5.50 per share. The
Company utilized substantially all of the proceeds received from the exercise
of ABC Warrants in 1992 to purchase the capital stock of Surewest. The Company
also issued 8,580 warrants to directors of the Company to purchase a like
number of shares of common stock for $5.60 per share ("Other Warrants"). In
conjunction with the financing of the 1990 acquisition of United Capitol, the
Company issued 44,444 warrants to a bank to purchase a like number of shares of
Common Stock at $0.05 per share ("Bank Warrants"). All warrants had stated
exercise and expiration periods. As of December 31, 1994, there were no
warrants of any series outstanding.

Warrant activity for the years ended December 31, 1994, 1993 and 1992 was
as follows (dollars in thousands):
<TABLE>
<CAPTION>
Number of
Warrants
Exercised Proceeds
---------- ----------
<S> <C> <C>
1994
----
Bank Warrants . . . . . . . . . . . . . 44,444 $ 2
=========== ===========
1993
----
Other Warrants . . . . . . . . . . . . . 2,860 $ 16
=========== ===========
1992
----
Series B Warrants . . . . . . . . . . . 2,500,323 $ 17,126
Series C Warrants . . . . . . . . . . . 1,555,741 9,823
----------- ----------
4,056,064 $ 26,949
=========== ==========
</TABLE>

14. STOCK OPTIONS

The Company has reserved 1,500,000 shares of its common stock for issuance
to directors, officers, key employees and consultants of the Company through
incentive stock options, nonqualified stock options and stock appreciation
rights to be granted under the Company's 1990 Stock Option Plan (the "Plan").
On March 2, 1994, the Board of Directors of the Company approved an amendment
to the Plan to increase by 500,000 the aggregate number of shares available for
which options may be granted under the Plan to 1,500,000 shares. This
amendment was approved by the stockholders at the Annual Meeting held on May
19, 1994. The Plan is administered by the Compensation Committee (the
"Committee"), consisting of certain members of the Board of Directors. The
option price is determined by the Committee, but cannot be less than the fair
market value of the common stock of the Company at the date of grant for
incentive stock options, and cannot be less than the par value of the common
stock of the Company for non-qualified stock options.

-49-
<PAGE> 50

The Plan provides for the granting of incentive options as defined under
the Code. Under the Plan, all nonqualified stock options and incentive stock
options expire ten years after the date of grant. All options in 1993 and 1994
were granted at an option price equal to fair market value at the date of
grant. In 1992, all options were granted at an option price equal to fair
market value, except for 2,500 nonqualified stock options which were granted at
$8.50.

Stock option activity for the three years ended December 31, 1994 was as
follows:

<TABLE>
<CAPTION>
Shares Subject Average Option
to Option Price Per Share
----------- --------------------
<S> <C> <C>
Balance at January 1, 1992 . . . . . . . . . . . . . . . 547,500 $ 6.75 to $ 8.50
Options granted . . . . . . . . . . . . . . . . . . . 168,500 $ 8.50 to $ 9.75
Options cancelled . . . . . . . . . . . . . . . . . . (2,250) $ 6.75
Options exercised . . . . . . . . . . . . . . . . . . . (2,750) $ 6.75
--------- -------------------
Balance at December 31, 1992 . . . . . . . . . . . . . . 711,000 $ 6.75 to $ 9.75
Options granted . . . . . . . . . . . . . . . . . . . 222,500 $ 12.25 to $ 14.88
Options cancelled . . . . . . . . . . . . . . . . . . (6,750) $ 12.25 to $ 13.50
Options exercised . . . . . . . . . . . . . . . . . . (20,975) $ 6.75 to $ 9.75
--------- -------------------
Balance at December 31, 1993 . . . . . . . . . . . . . . 905,775 $ 6.75 to $ 14.88
Options granted . . . . . . . . . . . . . . . . . . 295,250 $ 12.88 to $ 14.75
Options cancelled . . . . . . . . . . . . . . . . . (1,876) $ 12.25
Options exercised . . . . . . . . . . . . . . . . . (1,037) $ 6.75 to $ 12.25
--------- -------------------
Balance at December 31, 1994 . . . . . . . . . . . . . . 1,198,112 $ 6.75 to $ 14.88
========== ===================
</TABLE>

As of December 31, 1994, 858,973 shares were exercisable under the Plan.
The number of shares available for granting of options under the Plan were
277,126 and 67,500 at December 31, 1994 and 1993, respectively.

15. RELATED PARTY TRANSACTIONS

Equity Group Investments, Inc. ("EGI"), a company affiliated with certain
directors, officers and stockholders of the Company; other affiliated entities;
and individuals affiliated with certain directors and officers of the Company
perform or provide services to the Company and its subsidiaries. These
services relate to acquisition consulting, financial planning, legal and tax
advice, and investor relations, as well as leasing office space and providing
certain computer equipment, operations and maintenance services to the Company.
Related party agreements are generally for a term of one year and are approved
by the independent members of the Board of Directors. The Company's corporate
office space is leased pursuant to a facilities sharing agreement with EGI.

The Company paid rent, administrative services, and office facility
services to EGI or its affiliates of $0.1 million in 1994, 1993 and 1992. The
Company paid $0.2 million in 1994 and 1993 and $0.1 million in 1992 for
financial planning, tax, accounting, investor relations and computer support
and maintenance to EGI or its affiliates. The Company paid $0.2 million, $0.1
million and $0.4 million in fees for legal services to a law firm affiliated
with EGI in 1994, 1993 and 1992, respectively. The Company received
reimbursement from affiliates of EGI for financial management services provided
by employees of the Company amounting to $0.1 million in 1994 and 1993 and $0.2
million in 1992.

16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of the unaudited results of operations for the
years ended December 31, 1994 and 1993. The Company acquired Universal Surety
in September 1994 and the consolidated results of operations shown below
include the operating results of Universal Surety from the date of acquisition,
which affects the comparability of the financial information (dollars in
thousands, except per share data):

-50-
<PAGE> 51

<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
1994
- ----
Revenues . . . . . . . . . . . . . . . . . . . . $ 27,167 $ 27,809 $ 27,176 $ 30,510
============ ============ =========== ===========
Income before income taxes . . . . . . . . . . . $ 4,607 $ 6,872 $ 5,903 $ 6,397
Income taxes . . . . . . . . . . . . . . . . . . 1,778 2,774 2,191 2,658
------------ ------------ ----------- -----------
Net income . . . . . . . . . . . . . . . . . . . $ 2,829 $ 4,098 $ 3,712 $ 3,739
============ ============ =========== ===========
Earnings per common and common
equivalent share . . . . . . . . . . . . . . $ .19 $ .27 $ .25 $ .24
============ ============ =========== ===========

1993
- ----
Revenues . . . . . . . . . . . . . . . . . . . . $ 26,540 $ 27,419 $ 27,761 $ 26,725
============ ============ =========== ===========
Income before income taxes . . . . . . . . . . . $ 5,531 $ 6,311 $ 7,756 $ 5,920
Income taxes . . . . . . . . . . . . . . . . . . 2,117 2,263 3,126 1,728
------------ ------------ ----------- -----------
Net income . . . . . . . . . . . . . . . . . . . $ 3,414 $ 4,048 $ 4,630 $ 4,192
============ ============ =========== ===========
Earnings per common and common
equivalent share . . . . . . . . . . . . . . $ .22 $ .27 $ .29 $ .30
============ ============ =========== ===========

</TABLE>

-51-
<PAGE> 52
<PAGE>

SCHEDULE I

CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
Fair Carrying
Cost Value Value
----------- ----------- -----------
<S> <C> <C> <C>
FIXED MATURITIES:
Bonds:
U.S. government and government agencies and authorities . . . . . . $ 163,230 $ 152,549 $ 152,549
Foreign governments . . . . . . . . . . . . . . . . . . . . . . . . 5 5 5
All other corporate bonds . . . . . . . . . . . . . . . . . . . . . 97,061 93,397 94,039
----------- ----------- -----------
Total fixed maturities. . . . . . . . . . . . . . . . . . . . . . . 260,296 245,951 246,593
----------- ----------- -----------

EQUITY SECURITIES:
Common stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,683 27,173 27,173
Non-redeemable preferred stocks . . . . . . . . . . . . . . . . . . . . 1,091 1,032 1,032
----------- ----------- -----------
Total equity securities . . . . . . . . . . . . . . . . . . . . . . 29,774 28,205 28,205
----------- ----------- -----------

Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . 22,079 22,079
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,123 4,890
----------- -----------
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . $ 317,272 $ 301,767
=========== ===========
</TABLE>

-52-
<PAGE> 53

SCHEDULE III

CAPSURE HOLDINGS CORP.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
BALANCE SHEETS
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 481
Short-term investments, at cost which approximates fair value . . . . . . . . . -- 5,451
Equity securities, at fair value (cost: $6,453) . . . . . . . . . . . . . . . -- 8,703
Investment in and advances to Capsure Financial Group, Inc. . . . . . . . . . . 170,772 --
Investment in and advances to SI Acquisition Corp. . . . . . . . . . . . . . . -- 71,009
Investment in and advances to NI Acquisition Corp. . . . . . . . . . . . . . . -- 60,429
Investment in and advances to Pin Oak Petroleum, Inc. . . . . . . . . . . . . . -- 8,569
Deferred income taxes, net of valuation allowance . . . . . . . . . . . . . . . 55,616 56,833
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 257
----------- -----------
$ 226,388 $ 211,732
=========== ===========

LIABILITIES
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,523 $ 4,107
----------- -----------

STOCKHOLDERS' EQUITY
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 770 753
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 179,250 165,257
Retained earnings from August 1, 1986 (date of reorganization) . . . . . . . . 54,756 40,378
Unrealized (loss) gain on securities, net of deferred income taxes . . . . . . (9,830) 1,318
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . (81) (81)
----------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 224,865 207,625
----------- -----------
$ 226,388 $ 211,732
=========== ===========
</TABLE>

See Notes to Condensed Financial Information and Notes to Consolidated
Financial Statements

-53-
<PAGE> 54

SCHEDULE III

CAPSURE HOLDINGS CORP.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) - (CONTINUED)
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1994 1993 1992
--------- --------- ----------
(Restated)
<S> <C> <C> <C>
Revenues:
Net investment income . . . . . . . . . . . . . . . . . . . $ 17 $ 1,897 $ 1,705
Net investment gains . . . . . . . . . . . . . . . . . . . . 444 3,103 --
Other income . . . . . . . . . . . . . . . . . . . . . . . . -- 10 40
--------- --------- ----------
461 5,010 1,745
Expenses:
Corporate expense . . . . . . . . . . . . . . . . . . . . . 355 2,251 2,011
--------- --------- ----------

Income (loss) from operations before income taxes
and equity in net income of subsidiaries . . . . . . . . . . 106 2,759 (266)

Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 37 690 (90)
--------- --------- --------
Income (loss) before equity in net income
of subsidiaries . . . . . . . . . . . . . . . . . . . . . . 69 2,069 (176)

Cash dividends from subsidiaries . . . . . . . . . . . . . . . . -- 1,500 10,000
Equity in net income of subsidiaries, less cash dividends . . . . 14,309 12,715 871
--------- --------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,378 $ 16,284 $ 10,695
========= ========= ==========
</TABLE>

See Notes to Condensed Financial Information and Notes to Consolidated
Financial Statements

-54-
<PAGE> 55

SCHEDULE III

CAPSURE HOLDINGS CORP.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) - (CONTINUED)
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1994 1993 1992
--------- --------- ----------
(Restated)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,378 $ 16,284 $ 10,695
Adjustments to reconcile net income to net cash provided
by operating activities:
Depletion, depreciation, and amortization . . . . . . . . . . . . . . -- 3 3
Equity in net income of subsidiaries, less cash dividends . . . . . . (14,309) (12,715) (871)
Net investment gains. . . . . . . . . . . . . . . . . . . . . . . . . (444) (3,103) --
Changes in:
Other assets and liabilities. . . . . . . . . . . . . . . . . . . . . 3,623 680 (2,796)
-------- -------- --------
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . 3,248 1,149 7,031
-------- -------- --------

INVESTING ACTIVITIES:
Available-for-sale equity securities purchased . . . . . . . . . . . . . . . (209) (30,512) (3,885)
Available-for-sale equity securities sold. . . . . . . . . . . . . . . . . . -- 31,048 --
Change in short-term investments . . . . . . . . . . . . . . . . . . . . . . 5,451 2,846 (7,492)
Change in investments in and advances to subsidiaries. . . . . . . . . . . . (8,981) (4,389) (51,537)
Capital expenditures, net. . . . . . . . . . . . . . . . . . . . . . . . . . -- (13) --
-------- -------- --------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . (3,739) (1,020) (62,914)
-------- -------- --------
FINANCING ACTIVITIES:
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 29,814
Exercise of warrants and options . . . . . . . . . . . . . . . . . . . . . . 10 47 26,953
Repurchase of outstanding warrants . . . . . . . . . . . . . . . . . . . . . -- (42) --
Issuance of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . -- 140 14
Stock issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (11) (828)
-------- --------- --------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . 10 134 55,953
-------- --------- --------

Increase (decrease) in cash. . . . . . . . . . . . . . . . . . . . . . . . . . (481) 263 70
Cash at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . 481 218 148
-------- --------- --------
Cash at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 481 $ 218
======== ========= ========
</TABLE>

See Notes to Condensed Financial Information and Notes to Consolidated
Financial Statements

-55-
<PAGE> 56

SCHEDULE III

CAPSURE HOLDINGS CORP.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) - (CONTINUED)
NOTES TO CONDENSED FINANCIAL INFORMATION

1. BASIS OF PRESENTATION

The condensed financial information of the parent company includes the
accounts of Capsure Holdings Corp. ("Capsure"). On March 29, 1994, Capsure
formed Capsure Financial Group, Inc., a direct wholly owned subsidiary, to
which Capsure contributed substantially all its assets and liabilities,
including its investments in SI Acquisition Corp., NI Acquisition Corp. and Pin
Oak Petroleum, Inc.

-56-
<PAGE> 57

SCHEDULE V

CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
SUPPLEMENTAL INSURANCE INFORMATION
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
Property and Casualty Insurance
--------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
(Restated)
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . . $ 25,150 $ 18,421 $ 9,428
=========== =========== ===========

Future policy benefits, losses, claims and loss expenses . . . . . . . $ 149,041 $ 135,825 $ 128,122
=========== =========== ===========

Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 76,630 $ 69,363 $ 66,235
=========== =========== ===========

Other policy claims and benefits payable . . . . . . . . . . . . . . . $ -- $ -- $ --
=========== =========== ===========

Net premium revenue . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,481 $ 86,029 $ 41,249
=========== =========== ===========

Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,597 $ 18,753 $ 14,636
=========== =========== ===========

Benefits, claims, losses and settlement expenses . . . . . . . . . . . $ 23,344 $ 19,957 $ 10,661
=========== =========== ===========

Amortization of deferred policy acquisition costs . . . . . . . . . . . $ 29,390 $ 21,164 $ 2,155
=========== =========== ===========

Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . $ 24,514 $ 29,684 $ 18,501
=========== =========== ===========

Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . $ 90,578 $ 88,306 $ 40,310
=========== =========== ===========

</TABLE>

-57-
<PAGE> 58

SCHEDULE VI

CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of Amount
Gross Other from Other Net Assumed
Amount Companies Companies Amount To Net
------------ ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>

1994
- ----
Premiums:
Property and casualty insurance . . . $ 103,346 $ 11,533 $ 668 $ 92,481 0.7%
------------ ------------ ----------- ------------ ------------
Total premiums. . . . . . . . . . . $ 103,346 $ 11,533 $ 668 $ 92,481 0.7%
============ ============ =========== ============ ============

1993
- ----
Premiums:
Property and casualty insurance . . . $ 97,359 $ 11,969 $ 639 $ 86,029 0.7%
------------ ------------ ----------- ------------ ------------
Total premiums. . . . . . . . . . . $ 97,359 $ 11,969 $ 639 $ 86,029 0.7%
============ ============ =========== ============ ============

1992
- ----
Premiums:
Property and casualty insurance . . . $ 50,015 $ 8,805 $ 39 $ 41,249 0.1%
------------ ------------ ----------- ------------ ------------
Total premiums. . . . . . . . . . . $ 50,015 $ 8,805 $ 39 $ 41,249 0.1%
============ ============ =========== ============ ============

</TABLE>

-58-
<PAGE> 59

SCHEDULE VIII

CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
Additions
-------------------------
Balance at Charged to Charged to Balance
Beginning of Costs and Other at End of
Period Expenses Accounts Deductions(1) Period
---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Allowance for possible losses
on premiums receivable(2). . . . . . . . $ 1,276 $ 190 $ -- $ 568 $ 898
========== ========== ========== ========== ==========

Allowance for possible losses
on reinsurance recoverable . . . . . . . $ 2 $ 3 $ -- $ -- $ 5
========== ========== ========== ========== ==========

Year ended December 31, 1993
Allowance for possible losses
on premiums receivable . . . . . . . . . $ 951 $ 690 $ -- $ 417 $ 1,224
========== ========== ========== ========== ==========

Allowance for possible losses
on reinsurance recoverable . . . . . . . $ -- $ 2 $ -- $ -- $ 2
========== ========== ========== ========== ==========

Year ended December 31, 1992
Allowance for possible losses
on premiums receivable . . . . . . . . . $ 937 $ 372 $ -- $ 358 $ 951
========== ========== ========== ========== ==========

Allowance for possible losses
on reinsurance recoverable . . . . . . . $ -- $ -- $ -- $ -- $ --
========== ========== ========== ========== ==========

</TABLE>
- ---------------
(1) Accounts charged against allowance.
(2) Includes balance at acquisition date of Universal Surety of $52.

-59-
<PAGE> 60

SCHEDULE X

CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY
INSURANCE OPERATIONS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
(Restated)
<S> <C> <C> <C>
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . $ 25,150 $ 18,421 $ 9,428
============ ============ ============

Reserves for unpaid claims and claim adjustment expenses . . . . . $ 149,041 $ 135,825 $ 128,122
============ ============ ============

Discount (if any) deducted . . . . . . . . . . . . . . . . . . . . $ -- $ -- $ --
============ ============ ============

Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . $ 76,630 $ 69,363 $ 66,235
============ ============ ============

Net earned premiums . . . . . . . . . . . . . . . . . . . . . . . . $ 92,481 $ 86,029 $ 41,249
============ ============ ============

Net investment income . . . . . . . . . . . . . . . . . . . . . . . $ 18,597 $ 18,753 $ 14,636
============ ============ ============

Net claims and claim adjustment expenses incurred related to:
Current year . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,688 $ 31,250 $ 18,141
============ ============ ============

Prior years . . . . . . . . . . . . . . . . . . . . . . . . . . $ (8,344) $ (11,293) $ (7,480)
============ ============ ============

Amortization of deferred policy acquisition costs . . . . . . . . . $ 29,390 $ 21,164 $ 2,155
============ ============ ============

Paid claims and claim adjustment expenses . . . . . . . . . . . . . $ 16,719 $ 15,455 $ 13,215
============ ============ ============

Net premiums written . . . . . . . . . . . . . . . . . . . . . . . $ 90,578 $ 88,306 $ 40,310
============ ============ ============
</TABLE>

-60-
<PAGE> 61

(A)(3) EXHIBITS

Exhibit
Number Description

2 Not applicable.

3(i) The Certificate of Incorporation of Nucorp, Inc. dated May 6, 1988
together with the Certificate of Merger of Nucorp Energy, Inc. with
and into Nucorp, Inc. dated August 12, 1988 (filed on August 15, 1988
as Exhibit 3.1 to Nucorp, Inc.'s Quarterly Report on Form 10-Q for
the Period March 31, 1988 through June 30, 1988, and incorporated
herein by reference).

3(ii) Bylaws of Nucorp, Inc. (filed on August 15, 1988 as Exhibit 3.2 to
Nucorp, Inc.'s Quarterly Report on Form 10-Q for the Period March 31,
1988 through June 30, 1988, and incorporated herein by reference).

4 Specimen of Capsure Holdings Corp. Common Stock Certificate.

9 Not applicable.

10(1) Employment Agreement dated as of February 20, 1990 among Nucorp,
Inc., United Capitol Holding Company, United Capitol Insurance
Company, Equity Holdings and Bruce A. Esselborn (filed on August 2,
1990 as Exhibit 10.7 to Post-Effective Amendment No. 1 to Nucorp,
Inc.'s Registration Statement on Form S-1, and incorporated herein by
reference).

10(2) Employment Agreement dated as of February 20, 1990 among Nucorp,
Inc., United Capitol Holding Company, United Capitol Insurance
Company and Mary Jane Robertson (filed on July 16, 1992 as Exhibit
10(iii)(A)(2) to Amendment No. 1 to Nucorp, Inc.'s Registration
Statement on Form S-2, and incorporated herein by reference).

10(3) Employment Agreement dated as of February 20, 1990 among Nucorp,
Inc., United Capitol Holding Company, United Capitol Insurance
Company and Steven S. Zeitman (filed on July 16, 1992 as Exhibit
10(iii)(A)(3) to Amendment No. 1 to Nucorp, Inc.'s Registration
Statement on Form S-2, and incorporated herein by reference).

10(4) Employment Agreement dated as of February 20, 1995 by and between
Capsure Holdings Corp., a Delaware corporation, and Bruce A.
Esselborn, an individual.

10(6) Employment Agreement dated as of February 20, 1995 by and between
Capsure Holdings Corp., a Delaware corporation, and Steven S.
Zeitman, an individual.

10(7) Executive Employment Agreement dated as of August 14, 1992 by and
among Nucorp, Inc., a Delaware corporation, Surewest Financial
Corp., a South Dakota corporation, SI Acquisition Corp., a Texas
corporation, Western Surety Company, a South Dakota corporation,
Equity Holdings, an Illinois partnership, and Dan L. Kirby.

10(8) Executive Employment Agreement dated as of August 14, 1992 by and
among Nucorp, Inc., a Delaware corporation, SI Acquisition Corp., a
Texas corporation, Surewest Financial Corp., a South Dakota
corporation, Western Surety Company, a South Dakota corporation,
Equity Holdings, an Illinois partnership, and Joe P. Kirby.

-61-
<PAGE> 62

Exhibit
Number Description

10(9) Purchase Agreement dated as of December 21, 1989 among Nucorp, Inc.
and Bruce A. Esselborn (filed on August 2, 1990 as Exhibit 10.8 to
Post-Effective Amendment No. 1 to Nucorp's Registration Statement on
Form S-1, and incorporated herein by reference).

10(10) Purchase Agreement dated as of December 22, 1989 among Nucorp, Inc.
and CIP Limited Partnership (filed on September 26, 1990 as Exhibit
10.10 to Amendment No. 1 to Nucorp's Registration Statement on Form
S-1, and incorporated herein by reference).

10(11) Common Stock Purchase Warrant dated as of February 20, 1990, of
Nucorp, Inc. to Continental Bank N.A. (filed on March 2, 1993 as
Exhibit 28(e) to Nucorp, Inc.'s Registration Statement on Form S-3,
and incorporated herein by reference).

10(12) Registration Agreement dated as of February 20, 1990, between Nucorp,
Inc. and Continental Bank N.A. (filed on March 2, 1993 as Exhibit
28(f) to Nucorp, Inc.'s Registration Statement on Form S-3, and
incorporated herein by reference).

10(13) Purchase Agreement dated as of March 25, 1992 among Nucorp, Inc., SI
Acquisition Corp. and Surewest Financial Corp. (filed on March 27,
1992, as Exhibit 2 on Form 8-K, and incorporated herein by
reference).

10(14) Stock Purchase Agreement between Nucorp, Inc.; SI Acquisition Corp.;
Surewest Financial Corp.; Joe P. Kirby; Dan L. Kirby; Kevin T.
Kirby; Steven T. Kirby; First Bank of South Dakota, N.A., as Trustee
of the Dan L. Kirby Trust; First Bank of South Dakota, N.A., as
Trustee of the Kevin T. Kirby Trust; Norwest Bank South Dakota, N.A.,
as Trustee of the Joe P. Kirby Trust; and Norwest Bank South Dakota,
N.A., as Trustee of the Steven T. Kirby Trust, dated March 25, 1992
and schedules thereto (filed on March 25, 1992 as Exhibit 2 on
Nucorp, Inc.'s Form 8-K, and incorporated herein by reference).

10(15) Credit Agreement dated August 14, 1992, among SI Acquisition Corp.,
and Continental Bank N.A. (filed on March 2, 1993 as Exhibit 28(c) to
Nucorp, Inc.'s Registration Statement on Form S-3, and incorporated
herein by reference).

10(16) Compensation Agreement dated August 14, 1992 among SI Acquisition
Corp. and Continental Bank N.A. (filed on March 26, 1993 as Exhibit
10.15 on Nucorp, Inc.'s Form 10-K, and incorporated herein by
reference).

10(17) Credit Agreement dated as of March 29, 1994 among Capsure Financial
Group, Inc., Capsure Holdings Corp., the Lenders named therein and
Chemical Bank, as Administrative Agent.

10(18) Stock Purchase Agreement among John Knox, Jr., Universal Surety
Holding Corp., Capsure Financial Group, Inc. and Capsure Holdings
Corp. dated July 26, 1994 (filed on October 6, 1994 as Exhibit 2 to
Capsure Holdings Corp. Current Report on Form 8-K, and incorporated
herein by reference).

10(19) 1990 Stock Option Plan of Nucorp, Inc. (filed on April 19, 1990 as
Exhibit A to Nucorp, Inc.'s Proxy Statement for the Annual Meeting of
Shareholders on May 9, 1990, and incorporated herein by reference).

10(20) First Amendment to the Nucorp, Inc. 1990 Stock Option Plan (filed on
April 27, 1992 as part of Nucorp, Inc.'s Proxy Statement for the
Annual Meeting of Shareholders on June 9, 1992, and incorporated
herein by reference).

10(21) Managing General Agency Agreement between Western Surety Company and
United Capitol Managers, Inc. (filed on March 2, 1993 as Exhibit
28(a) to Nucorp, Inc.'s Registration Statement on Form S-3, and
incorporated herein by reference).

-62-
<PAGE> 63

Exhibit
Number Description

10(22) Surety Bond Quota Share Reinsurance Agreement between Western Surety
Company and United Capitol Insurance Company (filed on March 2, 1993
as Exhibit 28(b) to Nucorp, Inc.'s Registration Statement on Form
S-3, and incorporated herein by reference).

10(23) Contract Surety Bond Reinsurance Agreement dated as of September 22,
1994 between Western Surety Company, a South Dakota corporation, and
Universal Surety of America, a Texas corporation.

10(24) Co-Employee Agreement dated as of September 22, 1994 between Western
Surety Company and Universal Surety of America.

11 Earnings per share computation.

12 Not applicable.

13 Not applicable.

16 Not applicable.

18 Not applicable.

21 Subsidiaries of the Registrant.

22 Not applicable.

23 Consent of Coopers & Lybrand dated March 29, 1995.

24(1) Power of Attorney for Herbert A. Denton dated March 27, 1995.

24(2) Power of Attorney for Bradbury Dyer, III dated March 17, 1995.

24(3) Power of Attorney for Talton R. Embry dated March 17, 1995.

24(4) Power of Attorney for Dan L. Kirby dated March 21, 1995.

24(5) Power of Attorney for Joe P. Kirby dated March 22, 1995.

24(6) Power of Attorney for L.G. Schafran dated March 20, 1995.

27 Financial Data Schedule.

28 Information from reports furnished to state insurance regulatory
authorities - Schedule P from 1994 Combined Annual Statement of
Capsure Holdings Corp.

-63-
<PAGE> 64

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

CAPSURE HOLDINGS CORP.

/s/ Bruce A. Esselborn
Bruce A. Esselborn
President
(Principal Executive Officer)

/s/ Mary Jane Robertson
Mary Jane Robertson
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)

/s/ John S. Heneghan
John S. Heneghan
Controller
(Principal Accounting Officer)

Dated: March 29, 1995

(CONTINUED)

-64-
<PAGE> 65

CAPSURE HOLDINGS CORP. - SIGNATURES - (CONTINUED)

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Title
<S> <C> <C>
March 21, 1995 Chairman of the Board and /s/ Samuel Zell
Chief Executive Officer --------------------------------------
Samuel Zell

March 15, 1995 Director /s/ Rod F. Dammeyer
--------------------------------------
Rod F. Dammeyer

March 28, 1995 Director * Herbert A. Denton
--------------------------------------
* Herbert A. Denton

March 28, 1995 Director * Bradbury Dyer, III
--------------------------------------
* Bradbury Dyer, III

March 28, 1995 Director * Talton R. Embry
--------------------------------------
* Talton R. Embry

March 8, 1995 Director /s/ Bruce A. Esselborn
--------------------------------------
Bruce A. Esselborn

March 28, 1995 Director * Dan L. Kirby
--------------------------------------
* Dan L. Kirby

March 28, 1995 Director * Joe P. Kirby
--------------------------------------
* Joe P. Kirby

March 20, 1995 Director /s/ Donald W. Phillips
--------------------------------------
Donald W. Phillips

March 28, 1995 Director and /s/ Sheli Z. Rosenberg
*Attorney-in-Fact --------------------------------------
Sheli Z. Rosenberg

March 28, 1995 Director * L.G. Schafran
--------------------------------------
* L.G. Schafran

March 15, 1995 Director /s/ Richard Weingarten
--------------------------------------
Richard Weingarten

</TABLE>

-65-

<PAGE> 66

CAPSURE HOLDINGS CORP. AND SUBSIDIARIES

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit Page
Number Description No.
<S> <C> <C>
4 Specimen of Capsure Holdings Corp. Common Stock Certificate . . . . . . . . . . . . . . . . . . . . . . . . .

10(4) Employment Agreement dated as of February 20, 1995 by and between
Capsure Holdings Corp., a Delaware corporation, and Bruce A.
Esselborn, an individual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10(5) Employment Agreement dated as of February 20, 1995 by and among
Capsure Holdings Corp., a Delaware corporation, United Capitol
Insurance Company, a Wisconsin corporation, and Mary Jane Robertson,
an individual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10(6) Employment Agreement dated as of February 20, 1995 by and between
Capsure Holdings Corp., a Delaware corporation, and Steven S. Zeitman,
an individual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10(7) Executive Employment Agreement dated as of August 14, 1992 by and
among Nucorp, Inc., a Delaware corporation, Surewest Financial Corp.,
a South Dakota corporation, SI Acquisition Corp., a Texas corporation,
Western Surety Company, a South Dakota corporation, Equity Holdings,
an Illinois partnership, and Dan L. Kirby . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10(17) Credit Agreement dated as of March 29, 1994 among Capsure Financial
Group, Inc., Capsure Holdings Corp., the Lenders named therein and
Chemical Bank, as Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10(23) Contract Surety Bond Reinsurance Agreement dated as of September 22,
1994 between Western Surety Company, a South Dakota corporation, and
Universal Surety of America, a Texas corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10(24) Co-Employee Agreement dated as of September 22, 1994 between Western
Surety Company and Universal Surety of America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11 Earnings per share computation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21 Subsidiaries of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23 Consent of Coopers & Lybrand dated March 29, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24(1) Power of Attorney for Herbert A. Denton dated March 27, 1995 . . . . . . . . . . . . . . . . . . . . . . . .

24(2) Power of Attorney for Bradbury Dyer, III dated March 17, 1995 . . . . . . . . . . . . . . . . . . . . . . . .

24(3) Power of Attorney for Talton R. Embry dated March 17, 1995 . . . . . . . . . . . . . . . . . . . . . . . . .

24(4) Power of Attorney for Dan L. Kirby dated March 21, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . .

24(5) Power of Attorney for Joe P. Kirby dated March 22, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . .

24(6) Power of Attorney for L.G. Schafran dated March 20, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . .

</TABLE>

-66-
<PAGE> 67

EXHIBIT INDEX (CONTINUED)

<TABLE>
<CAPTION>
Exhibit Page
Number Description No.
<S> <C> <C>

27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28 Information from reports furnished to state insurance regulatory authorities
- Schedule P from 1994 Combined Annual Statement of Capsure Holdings Corp. . . . . . . . . . . . . . . . . .

</TABLE>

-67-

<PAGE> 1
EXHIBIT 4

COMMON STOCK COMMON STOCK

THIS CERTIFICATE IS TRANSFERABLE IN
THE CITIES OF BOSTON OR NEW YORK
CUSIP 140673 10 4

INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE AND RESTRICTIONS

CAPSURE HOLDINGS CORP.

THIS CERTIFIES THAT

IS THE OWNER OF

FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.05 PAR VALUE, OF

Capsure Holdings Corp. transferable on the books of the Corporation in person
or by duly authorized Attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.

Witness the seal of the Corporation and the signatures of its duly
authorized officers.

Dated:

COUNTERSIGNED AND REGISTERED:

THE FIRST NATIONAL BANK OF BOSTON
TRANSFER AGENT
AND REGISTRAR

BY
[SIG] [SIG]
AUTHORIZED OFFICER SECRETARY PRESIDENT

<PAGE> 1
EXHIBIT 10(4)
EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT entered into as of the 20th day of February, 1995,
by and between Capsure Holdings Corp. ("Capsure"), a Delaware corporation, and
Bruce A. Esselborn (the "Employee"), an individual.

W I T N E S S E T H:

WHEREAS, Capsure or various of its current subsidiaries have employed
the Employee since April 1, 1986 pursuant to Employment Agreements dated March
11, 1986 and February 20, 1990 (the "Prior Agreements"); and

WHEREAS, Capsure wishes to continue to employ the Employee for the
period provided in this Employment Agreement (the "New Agreement") and the
Employee is willing to continue to serve in the employ of Capsure and of any
direct or indirect subsidiary of it (collectively the "Companies");

NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties agree as follows:

Article One: Prior Agreements

Capsure and the Employee mutually agree that the Prior Agreements have
terminated in accordance with their terms.

Article Two: Employment

A. Capsure will continue to employ the Employee for the period (the
"Employment Period") commencing on February 20, 1995 and ending February 19,
1997. The Employee accepts such employment and agrees to serve in the
capacities set forth in this New Agreement and to perform such services of a
chief executive officer nature commensurate with his position and offices and
agrees diligently and competently to devote his entire business time and
attention to such services, excepting disabilities, illness, vacation, paid
holidays given by the Companies, and reasonable activities having a charitable,
educational or other public interest purpose.

B. (1) During the Employment Period, the Employee shall serve as
President of Capsure, and Chairman of the Board of Directors, President, and
Chief Executive Officer of United Capitol Holding Company ("UCHC") and United
Capitol Insurance Company ("UCIC"). In that capacity, the Employee shall
perform such duties as are commensurate with such office and as are consistent
with past practice.

1
<PAGE> 2

C. During the Employment Period, the Employee's office shall be
customary to his position and shall be located in the principal executive
offices of UCHC and UCIC, which shall be located in northern DeKalb County,
Georgia. In connection with his employment by Capsure, the Employee shall not
be required to relocate or transfer his principal residence from its present
location in northern DeKalb County, Georgia, and the Employee shall not be
required to perform services which would make the continuance of either his
normal homelife or his principal residence in its existing location
unreasonably difficult or inconvenient for him. A violation of any of these
conditions shall be construed as an attempt by Capsure to terminate the
Employee's service without cause.

Article Three: Compensation During the Employment Period

A. The Companies will make available to the Employee, to the extent he
satisfies the eligibility requirements thereof and to the extent permitted by
law, any fringe or employee benefit program introduced generally to senior
corporate officers. These benefits include, but are not limited to, pension,
profit sharing, stock purchase, stock option, stock appreciation, savings,
deferred compensation, bonus, life insurance, disability insurance, health
insurance, major medical and hospitalization insurance, and other plans and
policies authorized now or in the future which in any event shall provide
benefits to the Employee at a level that, in the aggregate, are not
significantly less than those currently in effect with respect to the Employee.

B. During the Employment Period, Capsure shall pay to the Employee
and the Employee shall accept for his services a minimum annual aggregate
salary of $387,500, payable in accordance with the Companies' customary payroll
policy as in effect from time to time. At Capsure's option, the salary
described herein may be paid through one of the Companies. The Companies
reserve the right at any time and from time to time to increase the minimum
annual salary of the Employee and shall review at least each year such minimum
annual salary in relationship to the goals and performance of the Companies and
prevailing competitive conditions. To the extent that the Employee's minimum
annual salary is increased, the new amount will become known as his new minimum
annual salary and such new minimum annual salary shall not thereafter be
reduced.

The minimum or new minimum annual salary due the Employee excludes any
bonus or any other employee benefit or perquisite to which the Employee is
entitled and, when adjusting the Employee's salary, the Board of Directors or
any other body or group of persons responsible for setting the Employee's
salary shall not take into consideration any bonuses, employee benefits or
perquisites due the Employee.

C. The Employee shall be entitled to, but not obligated to take, the
number of paid vacation days in each calendar year determined by the Companies
from time to time for its senior executive officers, but not less than four
weeks in any calendar year. The Employee shall also be entitled to all paid
holidays given by the Companies to its senior executive officers.

D. The Companies' obligation to pay the Employee the minimum annual
salary

2
<PAGE> 3

during the Employment Period may be extinguished only upon a termination of the
Employee's employment pursuant to the provisions of Articles Eight and Nine.

E. The Employee shall be entitled to an annual bonus, which shall
range from 0 to $200,000. The amount of such bonus shall be determined and
paid in February of each year, and the amount of such bonus shall be mutually
agreed upon between the Employee and the Compensation Committee of Capsure.

F. In addition to any other benefits provided to the Employee, the
Companies shall provide the Employee with the following during the term of this
New Agreement:

(i) continuance of use on an exclusive basis of the luxury
automobile currently assigned to the Employee, and all related
insurance, operating and maintenance expenses. The Employee has the
right to continue this arrangement as long as he desires, however, the
Employee agrees that if and when he relinquishes this right, the
Companies are no longer obligated to furnish this benefit. In
consideration of the Employee relinquishing this right, the Companies
will increase the Employee's minimum or new minimum annual salary in an
amount approximating the annual dollar equivalent for the Employee to
obtain a similar benefit on his own;

(ii) the right to first class air travel and first class hotel
accommodations;

(iii) all reasonable club dues and membership fees for clubs and
other similar organizations which are important to the conduct of the
business of the Companies and which he uses for business purposes;

(iv) reasonable consultations with financial and tax advisors or
counselors;

(v) legal expenses in connection with the negotiation of this
New Agreement; and

(vi) an annual physical examination.

H. In addition to any other benefits to be provided to the Employee
by the Companies, the Companies shall pay the premiums on a term life insurance
policy of the Employee's choice, insuring the life of the Employee in the face
amount of not less than two million ($2,000,000.00) dollars during the term of
this New Agreement, unless the Employee's employment is terminated pursuant to
the provisions of Articles Eight and Nine, in which event the obligation
hereunder shall immediately terminate. The Employee shall be the owner of the
policy and shall have the right to designate the beneficiary thereunder and
upon termination of his employment, he shall retain all rights to said policy.
This policy shall be in addition to any group life policy provided by the
Companies to the Employee.

I. The Companies shall reimburse the Employee for all out-of-pocket
expenses

3
<PAGE> 4

incurred by him in connection with the performance of his duties hereunder,
including professional activities, upon the presentation of appropriate
documentation therefore in accordance with the then customary procedures of the
Companies.

Article Four: Deleted.

Article Five: Deleted.

Article Six: Deleted.

Article Seven: Notice of Breach

Capsure and the Employee agree that, prior to the termination of the
Employment Period by reason of any breach of any provisions of this New
Agreement, the injured party will give the party or parties in breach written
notice specifying such breach and permitting the party in breach to cure such
breach within the period of thirty (30) days after receipt of such notice.

Article Eight: Inability to Perform

If, during the Employment Period, the Employee shall be unable to
substantially perform the duties required of him pursuant to his employment due
to any disability preventing him from performing such services for a period of
six (6) cumulative months in a twelve consecutive month period, Capsure shall
have the right to terminate the Employee's employment pursuant to this New
Agreement on thirty (30) day's written notice, at the end of which time the
Employee's employment shall be terminated. As used in this New Agreement, the
term "disability" shall mean the substantial inability of the Employee to
perform his essential duties under this New Agreement as determined by an
independent physician selected by Capsure with the approval of the Employee.
Any disability of less than six consecutive months duration shall not be cause
for interruption, suspension or withholding of the salary due the Employee by
Capsure.

Article Nine: Termination

This New Agreement:

(i) may be terminated at any time by mutual agreement between the
Employee and Capsure;

(ii) shall terminate immediately upon the death of the Employee,
but the Employee's estate shall be entitled to receive the salary due
the Employee for a period of six (6) months following the day the death
of the Employee occurred. As a condition for the aforesaid payments,
Capsure shall have the right to require submission of proof of the
Employee's death;

4
<PAGE> 5

(iii) may be terminated due to the disability of the Employee pursuant
to Article Eight;

(iv) may be terminated upon a good faith determination by a majority
vote of the Board members of Capsure that the termination of this New Agreement
is necessary by reason of a determination by the insurance department of any
state having jurisdiction over Capsure or any subsidiary or affiliate, that the
Employee must be removed or disqualified from acting as an officer of Capsure
or any of its company subsidiaries; or

(v) may be terminated by the Capsure at any time for "cause" upon the
giving of thirty (30) days prior written notice to the Employee, setting forth
the basis of such termination. For the purpose of this New Agreement, the term
"cause" shall be limited to:

(a) the willful engaging of the Employee in conduct materially
injurious to the Companies;

(b) continued and willful inattention and neglect by the Employee
of the material duties to be performed by him, which inattention and
neglect is not the result of illness or disability by the Employee and
which inattention and neglect, after compliance with the provisions of
Article Seven hereof, does not cease within thirty (30) days after
written notice thereof specifying the details of such conduct is given
to the Employee; and

(c) the conviction of the Employee of a felony under state or
federal law, unless in any such case the Employee performed such act
in good faith and in a manner Capsure reasonably believed to be in or
not opposed to the best interests of the Companies.

Article Ten: Effective Termination

A. The Employee's obligation to render services hereunder may be
terminated by the Employee without any reduction of the amounts payable to him
hereunder if the Employee's circumstances of employment shall have changed (as
hereinafter defined). In such event the Employee shall specify by written
notice to Capsure the event relied on for such termination, and if such event
shall not have been cured within 30 days thereafter, the Employee's employment
hereunder shall be deemed terminated. In the event of any termination by the
Employee pursuant to this Article Ten, or in the event Capsure shall terminate
the Employee's employment, this New Agreement or the Employment Period, other
than pursuant to Articles Eight or Nine, the Employee shall continue to be
entitled to receive all payments and other benefits provided for in this New
Agreement.

B. The Employee's "circumstances of employment shall have changed"
shall mean

5
<PAGE> 6

and include any of the following:

(i) notice by Capsure to the Employee of termination of his
employment, this New Agreement or the Employment Period for any reason
whatsoever, other than pursuant to Articles Eight or Nine;

(ii) reduction in the minimum annual salary then being paid to the
Employee by Capsure, or reduction in his minimum or new minimum annual
salary, or withdrawal from him of substantial fringe benefits (including
participation in current or future stock option or stock appreciation
plans) available to other senior corporate officers of the Companies;

(iii) a change in the Employee's place of employment without his
written consent, other than to UCIC's or UCHC's executive offices at a
location in northern DeKalb County, Georgia, or requirements or demands
of the Employee to perform services which would make the continuance of
his principal residence and home life in DeKalb County, Georgia
unreasonably difficult or inconvenient for him; or

(iv) other substantial, material and adverse changes in the
Employee's conditions of employment imposed on him by the Companies or
any material breach by Capsure of the provisions of this New Agreement,
after compliance with the provisions of Article Seven hereof.

Article Eleven: Indemnification

Capsure will indemnify the Employee (and his legal representatives or
other successors) to the fullest extent permitted by the laws of their
respective states of their existing certificates of incorporation and by-laws,
and the Employee shall be entitled to the protection of any insurance policies
the Companies may elect to maintain generally for the benefit of their
directors and officers, against all costs, charges and expenses whatsoever
incurred or sustained by the Employee or his legal representatives in
connection with any action, suit or proceeding to which he (or his legal
representatives or other successors) may be made a party by reason of his being
or having been a director or officer of any of the Companies. If the existing
certificates of incorporation and by-laws of the Companies do not provide for
indemnity of the Employee to the fullest extent permitted by the laws of their
respective states of domicile, Capsure will use its diligent best efforts to
cause the amendment of such certificates of incorporation and/or by-laws so as
to provide maximum indemnification.

Article Twelve: Certain Additional Payments: No Duty to Mitigate

The parties agree that the Employee shall not be under any duty to
mitigate damages under this New Agreement. In furtherance thereof, it is
expressly agreed that if the Employee's

6
<PAGE> 7

employment is terminated pursuant to this New Agreement in a manner which
results in the Employee being entitled to additional payments or benefits
hereunder, such additional payments or benefits shall not be reduced by all or
any portion of any payments or benefits received from parties other than the
Companies.

Article Thirteen: Non-Solicitation

A. The Employee shall not at any time during the period of his
employment by the Companies or within five years after termination of his
employment by the Companies (regardless of the reason for termination),
directly or indirectly, solicit any employee of the Companies to leave its
employ or join the employ of another, then or at a later time, or solicit the
employment of, or permit any business of which he is an owner, partner,
substantial shareholder or principal executive to solicit the employment of,
any person who was employed by the Companies, within one year prior to the time
of such solicitation.

B. The Employee acknowledges that the provisions of this Article are
reasonable and necessary for the protection of the Companies, and that the
Companies will be materially damaged if such covenants are not specifically
enforced. Accordingly, the Employee agrees that the Companies will be entitled
to injunctive relief for the purpose of restraining the Employee from violating
such covenants in addition to any other relief to which the Companies may be
entitled under this New Agreement.

Article Fourteen: Jurisdiction and Venue

The parties hereby irrevocably consent to the personal jurisdiction of
and the propriety of venue in the courts of the State of Georgia and of any
federal court located in such state in connection with any action or proceeding
arising out of or relating to this New Agreement, any document or instrument
delivered pursuant to, in connection with, or simultaneously with this New
Agreement, or a breach of this New Agreement or any such document or
instrument.

Article Fifteen: Law

This New Agreement shall be governed by and construed in accordance
with the laws of the State of Georgia.

Article Sixteen: Notices

7
<PAGE> 8

address for its executive offices, or at such other address of which Capsure
shall have given notice to the Employee in the manner herein provided; and if
intended for the Employee, shall be addressed to him at ____________________
_______________________________________________________________________
__________________________________________, or at such other address of which
the Employee shall have given notice to Capsure in the manner herein provided.
Personal service of notices may be substituted for mailing provided a written
receipt of such service is provided by the recipient party. For purposes of
this section, notice shall be deemed received upon actual receipt.

Article Seventeen: Entire Agreement

This New Agreement constitutes the entire understanding among the
parties with respect to the matters referred to herein and no waiver or
modification to the terms hereof shall be valid unless in writing signed by the
party to be charged and only to the extent therein set forth. All prior and
contemporaneous agreements and understandings between the parties with respect
to the subject matter of this New Agreement are superseded by this New
Agreement.

Article Eighteen: Counterparts

This New Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and each of which shall be
deemed an original.

Article Nineteen: Severability

If any provision in this New Agreement is invalid, illegal or
unenforceable, the balance of this New Agreement shall remain in effect, and if
any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.

Article Twenty: Binding Effect

This New Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and any successor of Capsure whether by merger,
liquidation, sale of assets, reorganization or otherwise and to the heirs,
administrators and personal representative of the Employee, excepting, however,
the elective rights of the Employee pursuant to Article Ten.

Article Twenty-One: Withholding

The Companies shall be entitled to withhold from amounts payable to the
Employee hereunder such amounts as may be required by applicable law.

8
<PAGE> 9

Article Twenty-Two: Assignment

Neither this New Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by either of the parties hereto, other
than in accordance with the provisions hereof, without the prior written
consent of the other party.

Article Twenty-Three: Effect of Waiver

The waiver by either party of a breach of any provisions of this New
Agreement shall not operate as or be construed as a waiver of any subsequent
breach thereof.

Article Twenty-Four: Headings

The headings contained in this New Agreement are inserted for
convenience only and do not constitute a part of this New Agreement.

IN WITNESS WHEREOF, the parties have executed this New Agreement
effective February 20, 1995.

"Capsure" "The Employee"
Capsure Holdings Corp. Bruce A. Esselborn

By: Arthur A. Greenberg By: Bruce A. Esselborn
- ------------------------------- ----------------------
Its: Vice President Bruce A. Esselborn

<PAGE> 1
EXHIBIT 10(5)
EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT entered into as of the 20th day of February, 1995
by and between Capsure Holdings Corp. ("Capsure"), a Delaware corporation,
United Capitol Insurance Company, a Wisconsin corporation, and Mary Jane
Robertson (the "Employee"), an individual.

W I T N E S S E T H:

WHEREAS, Capsure or various of its current subsidiaries have employed
the Employee since July 14, 1986, and since February 20, 1990, pursuant to an
Employment Agreement dated as of February 20, 1990 (the "Prior Agreement");

WHEREAS, Capsure wishes to continue to employ the Employee for the
period provided in this Employment Agreement (the "Agreement") and the Employee
is willing to continue to serve in the employ of Capsure and of any direct or
indirect subsidiary of it (collectively the "Companies");

NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties agree as follows:

Article One: Employment

A. Capsure will continue to employ the Employee for the period (the
"Employment Period") commencing on February 20, 1995 and ending February 19,
1997. The Employee accepts such employment and agrees to serve in the
capacities set forth in this Agreement and to perform such services of a senior
vice president nature commensurate with her position and offices and agrees
diligently and competently to devote her entire business time and attention to
such services, excepting disabilities, illness, vacation, paid holidays given
by the Companies, and reasonable activities having a charitable, educational or
other public interest purpose.

B. During the Employment Period, the Employee shall serve as Senior
Vice President and Chief Financial Officer of Capsure, and Executive Vice
President and Chief Financial Officer of United Capitol Holding Company
("UCHC") and United Capitol Insurance Company ("UCIC"). In that capacity the
Employee shall perform such duties as are commensurate with such office and as
are consistent with past practice.

C. In connection with her employment, the Employee shall not be
required to relocate or transfer her principal residence from its present
location in Atlanta, Georgia, and the Employee shall not be required to perform
services which would make the continuance of either her normal homelife or her
principal residence in its existing location unreasonably difficult or

<PAGE> 2

inconvenient for her. A violation of any of these conditions shall be
construed as an attempt by Capsure to terminate the Employee's service without
cause.

D. Capsure and the Employee mutually agree that the Prior Agreement
has expired in accordance with its terms.

Article Two: Compensation During the Employment Period

A. The Companies will make available to the Employee, to the extent
she satisfies the eligibility requirements thereof and to the extent permitted
by law, any fringe or employee benefit program introduced generally to senior
corporate officers. These benefits include, but are not limited to, pension,
profit sharing, stock purchase, stock option, stock appreciation, savings
deferred compensation, bonus, life insurance, disability insurance, health
insurance, major medical and hospitalization insurance, and other plans and
policies authorized now or in the future which in any event shall provide
benefits to the Employee at a level that, in the aggregate, are not
significantly less than those currently in effect with respect to the Employee.

B. During the Employment Period, Capsure shall pay to the Employee
and the Employee shall accept for her services a minimum annual aggregate
salary of $225,000, payable in accordance with the Companies' customary payroll
policy as in effect from time to time. At Capsure's option, the salary
described herein may be paid through one of the Companies. The Companies
reserve the right at any time and from time to time to increase the minimum
annual salary of the Employee and shall review at least each year such minimum
annual salary in relationship to the goals and performance of the Companies and
prevailing competitive conditions. To the extent that the Employee's minimum
annual salary is increased, the new amount will become known as her new minimum
annual salary and such new minimum annual salary shall not thereafter be
reduced.

C. The Employee shall be entitled to, but not obligated to take, the
number of paid vacation days in each calendar year determined by the Companies
from time to time for its senior executive officers, but not less than three
weeks in any calendar year. At the Employee's fifth anniversary with Capsure,
the Employee shall then be entitled to four weeks vacation in that calendar
year and each ensuing year. The Employee shall also be entitled to all paid
holidays given by the Companies to its senior executive officers.

2
<PAGE> 3

D. The Companies' obligation to pay the Employee the minimum annual
salary during the Employment Period may be extinguished only upon a termination
of the Employee's employment pursuant to the provisions of Articles Five and
Six.

E. The Employee shall be entitled to an annual bonus. The amount of
such bonus shall be determined and paid in December of each year, and the
amount of such bonus shall be determined by the Chief Executive Officer of
Capsure, but subject to the final approval of the Compensation Committee of
Capsure.

F. The Companies shall reimburse the Employee for all out-of-pocket
expenses incurred by her in connection with the performance of her duties
hereunder, including professional activities, upon the presentation of
appropriate documentation therefore in accordance with the then customary
procedures of the Companies.

Article Three: Deleted.

Article Four: Notice of Breach

Capsure and the Employee agree that, prior to the termination of the
Employment Period by reason of any breach of any provisions of this Agreement,
the injured party will give the party or parties in breach written notice
specifying such breach and permitting the party in breach to cure such breach
within the period of thirty (30) days after receipt of such notice.

Article Five: Inability to Perform

If, during the Employment Period, the Employee shall be unable to
substantially perform the duties required of her pursuant to her employment due
to any disability preventing her from performing such services for a period of
six (6) cumulative months in a twelve consecutive month period, Capsure shall
have the right to terminate the Employee's employment pursuant to this
Agreement on thirty (30) days written notice, at the end of which time the
Employee's employment shall be terminated. As used in this Agreement, the term
"disability" shall mean the substantial inability of the Employee to perform
her essential duties under this Agreement as determined by an independent
physician selected by Capsure with the approval of the Employee. Any
disability of less than six consecutive months duration shall not be cause for
interruption, suspension or withholding of the salary due the Employee by
Capsure.

Article Six: Termination

This New Agreement:

(i) may be terminated at any time by mutual agreement between the
Employee and Capsure;

3
<PAGE> 4

(ii) shall terminate immediately upon the death of the Employee, but
the Employee's estate shall be entitled to receive the salary due the
Employee for a period of three (3) months following the day the death of the
Employee occurred. As a condition for the aforesaid payments, Capsure
shall have the right to require submission of proof of the Employee's
death;

(iii) may be terminated due to the disability of the Employee pursuant
to Article Five;

(iv) may be terminated upon a good faith determination by a majority
vote of the Board members of Capsure that the termination of this
Agreement is necessary by reason of a determination by any insurance
department of a state having jurisdiction over Capsure or any subsidiary or
affiliate, that the Employee must be removed or disqualified from acting as
an officer of Capsure or any of its subsidiaries; or

(v) may be terminated by Capsure at any time for "cause" upon the
giving of thirty (30) days prior written notice to the Employee,
setting forth the basis of such termination. For the purpose of this
Agreement, the term "cause" shall be limited to:

(a) the willful engaging of the Employee in conduct materially
injurious to the Companies;

(b) continued and willful inattention and neglect by the Employee
of the material duties to be performed by her, which inattention and
neglect is not the result of illness or disability by the Employee and
which inattention and neglect, after compliance with the provisions of
Article Four hereof, does not cease within thirty (30) days after
written notice thereof specifying the details of such conduct is given
to the Employee; and

(c) the conviction of the Employee of a felony under state or
federal law, unless in any such case the Employee performed
such act in good faith and in a manner Capsure reasonably believed to
be in or not opposed to the best interests of the Companies.

Article Seven: Effective Termination

A. The Employee's obligation to render services hereunder may be
terminated by the Employee without any reduction of the amounts payable to her
hereunder if the Employee's circumstances of employment shall have changed (as
hereinafter defined). In such event the Employee shall specify by written
notice to Capsure the event relied on for such termination, and if such event
shall not have been cured within 30 days thereafter, the Employee's employment
hereunder shall be deemed terminated. In the event of any termination by the

4
<PAGE> 5

Employee pursuant to this Article Seven, or in the event Capsure shall
terminate the Employee's employment, this Agreement or the Employment Period,
other than pursuant to Articles Five or Six, the Employee shall continue to be
entitled to receive all payments and other benefits provided for in this
Agreement.

B. The Employee's "circumstances of employment shall have changed"
shall mean and include any of the following:

(i) notice by Capsure to the Employee of termination of her
employment, this Agreement or the Employment Period for any
reason whatsoever, other than pursuant to Articles Five or Six;

(ii) reduction in the minimum annual salary then being paid to the
Employee by Capsure, or reduction in her minimum or new minimum
annual salary, or withdrawal from her of substantial fringe benefits
(including participation in current or future stock option or stock
appreciation plans) available to other senior corporate officers of
the Companies:

(iii) a change in the Employee's place of employment without her
written consent, other than to UCHC's or UCIC's executive offices
at a location in Atlanta, Georgia, or requirements or demands of the
Employee to perform services which would make the continuance of her
principal; residence and home life in Atlanta, Georgia unreasonably
difficult or inconvenient for her; or

(iv) other substantial, material and adverse changes in the
Employee's conditions of employment imposed on her by the
Companies or any material breach by Capsure of the provisions of this
Agreement, after compliance with the provisions of Article Seven
hereof.

Article Eight: Indemnification

Capsure will indemnify the Employee (and her legal representatives or
other successors) to the fullest extent permitted by the laws of their
respective states of their existing certificates of incorporation and by-laws,
and the Employee shall be entitled to the protection of any insurance policies
the Companies may elect to maintain generally for the benefit of their
directors and officers, against all costs, charges and expenses whatsoever
incurred or sustained by the Employee or her legal representatives in
connection with any action, suit or proceeding to which he (or her legal
representatives or other successors) may be made a party by reason of her being
or having been a director or officer of any of the Companies. If the existing
certificates of incorporation and by-laws of the Companies do not provide for
indemnity of the Employee to the fullest extent permitted by the laws of their
respective states of domicile, the Companies will use their diligent best
efforts to cause the amendment of such certificates of incorporation and/or
by-laws so as to provide maximum indemnification.

5
<PAGE> 6

Article Nine: Duty to Mitigate

Notwithstanding anything above to the contrary, after the termination
of Employee's employment hereunder to the extent Employee is otherwise
employed, any amounts received in consideration thereof shall be used to reduce
amounts payable hereunder on a dollar for dollar basis.

Article Ten: Non-Solicitation

A. The Employee shall not at any time during the period of her
employment by the Companies or within five years after termination of her
employment by the Companies (regardless of the reason for termination),
directly or indirectly, solicit any employee of the Companies to leave its
employ or join the employ of another, then or at a later time, or solicit the
employment of, or permit any business of which he is an owner, partner,
substantial shareholder or principal executive to solicit the employment of,
any person who was employed by the Companies, within one year prior to the time
of such solicitation.

Article Eleven: Jurisdiction and Venue

The parties hereby irrevocably consent to the personal jurisdiction of
and the propriety of venue in the courts of the State of Georgia and of any
federal court located in such state in connection with any action or proceeding
arising out of or relating to this Agreement, any document or instrument
delivered pursuant to, in connection with, or simultaneously with this
Agreement, or a breach of this Agreement or any such document or instrument.

Article Twelve: Law

This New Agreement shall be governed by and construed in accordance
with the laws of the State of Georgia.

Article Thirteen: Notices

6
<PAGE> 7

current address for its executive offices, or at such other address of which
Capsure shall have given notice to the Employee in the manner herein provided;
and if intended for the Employee, shall be addressed to her at 60 Standish
Avenue NW, Atlanta, GA 30309, or such other address of which the Employee
shall have given notice to Capsure in the manner herein provided. Personal
service of notices may be substituted for mailing provided a written receipt
of such service is provided by the recipient party. For purposes of this
section, notice shall be deemed received upon actual receipt.

Article Fourteen: Entire Agreement

This Agreement constitutes the entire understanding among the parties
with respect to the matters referred to herein and no waiver or modification to
the terms hereof shall be valid unless in writing signed by the party to be
charged and only to the extent therein set forth. All prior and
contemporaneous agreements and understandings between the parties with respect
to the subject matter of this Agreement are superseded by this New Agreement.

Article Fifteen: Counterparts

This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and each of which shall be
deemed an original.

Article Sixteen: Severability

If any provision in this Agreement is invalid, illegal or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.

Article Seventeen: Binding Effect

This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and any successor of Capsure whether by merger, liquidation,
sale of assets, reorganization or otherwise and to the heirs, administrators
and personal representative of the Employee excepting, however, the elective
rights of the Employee pursuant to Article Seven.

Article Eighteen: Withholding

The Companies shall be entitled to withhold from amounts payable to the
Employee hereunder such amounts as may be required by applicable law.

Article Nineteen: Assignment

Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be

7
<PAGE> 8

assigned by either of the parties hereto, other than in accordance with the
provisions hereof, without the prior written consent of the other party.

Article Twenty: Effect of Waiver

The waiver by either party of a breach of any provisions of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach thereof.

Article Twenty-One: Headings

The headings contained in this Agreement are inserted for convenience
only and do not constitute a part of this Agreement.

IN WITNESS WHEREOF, the parties have executed this New Agreement
effective February 20, 1995.

"Capsure" "The Employee"
Capsure Holdings Corp. Mary Jane Robertson

By: /s/ Arthur A. Greenberg By: Mary Jane Robertson
- ----------------------------- ----------------------------
Its: Vice President Mary Jane Robertson

<PAGE> 1
EXHIBIT 10(6)
EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT entered into as of the 20th day of February, 1995
by and between Capsure Holdings Corp. ("Capsure"), a Delaware corporation, and
Steven S. Zeitman (the "Employee"), an individual.

W I T N E S S E T H:

NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties agree as follows:

Article One: Employment

A. Capsure will continue to employ the Employee for the period (the
"Employment Period") commencing on February 20, 1995 and ending February 19,
1997. The Employee accepts such employment and agrees to serve in the
capacities set forth in this Agreement and to perform such services of an
executive vice president nature commensurate with his position and offices and
agrees diligently and competently to devote his entire business time and
attention to such services, excepting disabilities, illness, vacation, paid
holidays given by the Companies, and reasonable activities having a charitable,
educational or other public interest purpose.

B. During the Employment Period, the Employee shall serve as
Executive Vice President of United Capitol Holding Company ("UCHC") and United
Capitol Insurance Company ("UCIC"). In that capacity the Employee shall have
such duties and responsibilities as may be assigned to him by the President and
Chief Executive Officer of UCHC and UCIC, commensurate with the position of
Executive Vice President. It is contemplated that the Employee's primary
responsibility shall be to maintain and to further develop efficient
underwriting operations for the UCHC and UCIC.

C. In connection with his employment, the Employee shall not be
required to relocate or transfer his principal residence from its present
location in Marietta, Georgia, and the Employee shall not be required to
perform services which would make the continuance of either

<PAGE> 2

his normal homelife or his principal residence in its existing location
unreasonably difficult or inconvenient for him. A violation of any of these
conditions shall be construed as an attempt by Capsure to terminate the
Employee's service without cause.

D. Capsure and the Employee mutually agree that the Prior Agreement
has expired in accordance with its terms.

Article Two: Compensation During the Employment Period

A. The Companies will make available to the Employee, to the extent he
satisfies the eligibility requirements thereof and to the extent permitted by
law, any fringe or employee benefit program introduced generally to senior
corporate officers. These benefits include, but are not limited to, pension,
profit sharing, stock purchase, stock option, stock appreciation, savings
deferred compensation, bonus, life insurance, disability insurance, health
insurance, major medical and hospitalization insurance, and other plans and
policies authorized now or in the future which in any event shall provide
benefits to the Employee at a level that, in the aggregate, are not
significantly less than those currently in effect with respect to the Employee.

B. During the Employment Period, Capsure shall pay to the Employee
and the Employee shall accept for his services a minimum annual aggregate
salary of $167,000, payable in accordance with the Companies' customary payroll
policy as in effect from time to time. At Capsure's option, the salary
described herein may be paid through one of the Companies. The Companies
reserve the right at any time and from time to time to increase the minimum
annual salary of the Employee and shall review at least each year such minimum
annual salary in relationship to the goals and performance of the Companies and
prevailing competitive conditions. To the extent that the Employee's minimum
annual salary is increased, the new amount will become known as his new minimum
annual salary and such new minimum annual salary shall not thereafter be
reduced.

C. The Employee shall be entitled to, but not obligated to take, the
number of paid vacation days in each calendar year determined by the Companies
from time to time for its senior executive officers, but not less than three
weeks in any calendar year. At the Employee's fifth anniversary with UCIC, the
Employee shall then be entitled to four weeks vacation in that calendar year
and each ensuing year. The Employee shall also be entitled to all paid
holidays given by the Companies to its senior executive officers.

2
<PAGE> 3

F. The Companies shall reimburse the Employee for all out-of-pocket
expenses incurred by him in connection with the performance of his duties
hereunder, including professional activities, upon the presentation of
appropriate documentation therefore in accordance with the then customary
procedures of the Companies.

Article Three: Deleted

Article Four: Notice of Breach

Article Five: Inability to Perform

If, during the Employment Period, the Employee shall be unable to
substantially perform the duties required of him pursuant to his employment due
to any disability preventing him from performing such services for a period of
six (6) cumulative months in a twelve consecutive month period, Capsure shall
have the right to terminate the Employee's employment pursuant to this
Agreement on thirty (30) days written notice, at the end of which time the
Employee's employment shall be terminated. As used in this Agreement, the term
"disability" shall mean the substantial inability of the Employee to perform
his essential duties under this Agreement as determined by an independent
physician selected by Capsure with the approval of the Employee. Any
disability of less than six consecutive months duration shall not be cause for
interruption, suspension or withholding of the salary due the Employee by
Capsure.

Article Six: Termination

This New Agreement:

(i) may be terminated at any time by mutual agreement between
the Employee and Capsure;

3
<PAGE> 4

(ii) shall terminate immediately upon the death of the
Employee, but the Employee's estate shall be entitled to receive the
salary due the Employee for a period of three (3) months following the
day the death of the Employee occurred. As a condition for the
aforesaid payments, Capsure shall have the right to require submission
of proof of the Employee's death;

(iii) may be terminated due to the disability of the Employee
pursuant to Article Five;

(iv) may be terminated upon a good faith determination by a
majority vote of the Board members of Capsure that the termination of
this Agreement is necessary by reason of a determination by any
insurance department of a state having jurisdiction over Capsure or any
subsidiary or affiliate, that the Employee must be removed or
disqualified from acting as an officer of Capsure or any of its
subsidiaries; or

(v) may be terminated by Capsure at any time for "cause" upon
the giving of thirty (30) days prior written notice to the Employee,
setting forth the basis of such termination. For the purpose of this
Agreement, the term "cause" shall be limited to:

(a) the willful engaging of the Employee in conduct
materially injurious to the Companies;

(b) continued and willful inattention and neglect by
the Employee of the material duties to be performed by him,
which inattention and neglect is not the result of illness or
disability by the Employee and which inattention and neglect,
after compliance with the provisions of Article Four hereof,
does not cease within thirty (30) days after written notice
thereof specifying the details of such conduct is given to the
Employee; and

(c) the conviction of the Employee of a felony under
state or federal law, unless in any such case the Employee
performed such act in good faith and in a manner Capsure
reasonably believed to be in or not opposed to the best
interests of the Companies.

Article Seven: Effective Termination

A. The Employee's obligation to render services hereunder may be
terminated by the Employee without any reduction of the amounts payable to him
hereunder if the Employee's circumstances of employment shall have changed (as
hereinafter defined). In such event the Employee shall specify by written
notice to Capsure the event relied on for such termination, and if such event
shall not have been cured within 30 days thereafter, the Employee's employment
hereunder shall be deemed terminated. In the event of any termination by the
Employee pursuant to this Article Seven, or in the event Capsure shall
terminate the Employee's

4
<PAGE> 5

employment, this Agreement or the Employment Period, other than pursuant to
Articles Five or Six, the Employee shall continue to be entitled to receive all
payments and other benefits provided for in this Agreement.

B. The Employee's "circumstances of employment shall have changed"
shall mean and include any of the following:

(i) notice by Capsure to the Employee of termination of his
employment, this Agreement or the Employment Period for any reason
whatsoever, other than pursuant to Articles Five or Six;

(ii) reduction in the minimum annual salary then being paid to
the Employee by Capsure, or reduction in his minimum or new minimum
annual salary, or withdrawal from him of substantial fringe benefits
(including participation in current or future stock option or stock
appreciation plans) available to other senior corporate officers of the
Companies:

(iii) a change in the Employee's place of employment without
his written consent, other than to UCIC's or UCHC's executive offices
at a location in Atlanta, Georgia, or requirements or demands of the
Employee to perform services which would make the continuance of his
principal; residence and home life in Marietta, Georgia unreasonably
difficult or inconvenient for him; or

(iv) other substantial, material and adverse changes in the
Employee's conditions of employment imposed on him by the Companies or
any material breach by Capsure of the provisions of this Agreement,
after compliance with the provisions of Article Seven hereof.

Article Eight: Indemnification

Capsure will indemnify the Employee (and his legal representatives or
other successors) to the fullest extent permitted by the laws of their
respective states of their existing certificates of incorporation and by-laws,
and the Employee shall be entitled to the protection of any insurance policies
the Companies may elect to maintain generally for the benefit of their
directors and officers, against all costs, charges and expenses whatsoever
incurred or sustained by the Employee or his legal representatives in
connection with any action, suit or proceeding to which he (or his legal
representatives or other successors) may be made a party by reason of his being
or having been a director or officer of any of the Companies. If the existing
certificates of incorporation and by-laws of the Companies do not provide for
indemnity of the Employee to the fullest extent permitted by the laws of their
respective states of domicile, the Companies will use their diligent best
efforts to cause the amendment of such certificates of incorporation and/or
by-laws so as to provide maximum indemnification.

Article Nine: Duty to Mitigate

5
<PAGE> 6

Article Ten: Non-Solicitation

Article Eleven: Jurisdiction and Venue

The parties hereby irrevocably consent to the personal jurisdiction of
and the propriety of venue in the courts of the State of Georgia and of any
federal court located in such state in connection with any action or proceeding
arising out of or relating to this Agreement, any document or instrument
delivered pursuant to, in connection with, or simultaneously with this
Agreement, or a breach of this Agreement or any such document or instrument.

Article Twelve: Law

This New Agreement shall be governed by and construed in accordance
with the laws of the State of Georgia.

Article Thirteen: Notices

All notices hereunder shall be in writing and shall be, (1) sent by
registered or certified mail, return receipt requested, or (2) served by
personal service. If intended for Capsure, such notices shall be addressed to
it, attention of its Chairman of the Board at Capsure's most current address
for its executive offices, or at such other address of which Capsure shall have
given notice to the Employee in the manner herein provided; and if intended for
the Employee, shall be addressed to him at 1783 Charles Lake Dr., Masisha, GA.

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<PAGE> 7

30068, or such other address of which the Employee shall have given notice to
Capsure in the manner herein provided. Personal service of notices may be
substituted for mailing provided a written receipt of such service is provided
by the recipient party. For purposes of this section, notice shall be deemed
received upon actual receipt.

Article Fourteen: Entire Agreement

Article Fifteen: Counterparts

This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and each of which shall be
deemed an original.

Article Sixteen: Severability

Article Seventeen: Binding Effect

Article Eighteen: Withholding

The Companies shall be entitled to withhold from amounts payable to the
Employee hereunder such amounts as may be required by applicable law.

Article Nineteen: Assignment

Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by either of the parties hereto, other than in
accordance with the provisions hereof, without the prior written consent of the
other party.

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<PAGE> 8

Article Twenty: Effect of Waiver

The waiver by either party of a breach of any provisions of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach thereof.

Article Twenty-One: Headings

The headings contained in this Agreement are inserted for convenience
only and do not constitute a part of this Agreement.

IN WITNESS WHEREOF, the parties have executed this New Agreement
effective February 20, 1995.

"Capsure" "The Employee"
Capsure Holdings Corp. Steven S. Zeitman

By: Arthur A. Greenberg By: Stevan S. Zeitman
-------------------------- -------------------------------
Its: Vice-President Steven S. Zeitman

<PAGE> 1

EXHIBIT 10(7)

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is entered into as of
the 14th day of August, 1992 by and among NUCORP, INC., a Delaware corporation
("NUC"), SUREWEST FINANCIAL CORP., a South Dakota corporation ("SFC"), SI
ACQUISITION CORP., a Texas corporation ("SI"), WESTERN SURETY COMPANY, a South
Dakota corporation ("WSC"), EQUITY HOLDINGS ("EH"), an Illinois partnership,
and DAN L. KIRBY (the "Executive").

W I T N E S S E T H:

WHEREAS, the Executive has been employed as the Senior Vice President
and General Counsel of WSC since 1974 and has been a member of its Board of
Directors since 1972, and a member of its Executive Committee since its
inception in 1982, and has also been an officer and Director of, and has
performed services for, SFC which owns 100% of the shares of stock of WSC, and
serves as a member of the Board of Directors of each subsidiary of WSC. The
Executive's employment by WSC was confirmed in an Employment Agreement dated
January 1, 1992 (the "Prior Agreement"); and

WHEREAS, on or about the date hereof, through a merger transaction,
NUC acquired 100% of the shares of SFC and in connection thereof, SI, NUC, SFC
and WSC desire that SFC and WSC continue to employ the Executive for the period
provided in this Agreement and the Executive is willing to continue to serve in
the employ of both SFC and WSC and of any direct or indirect subsidiary of
either of them (sometimes each a "Company" or collectively called "Companies")
on the terms and conditions hereinafter set forth.
<PAGE> 2

NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties agree as follows:

ARTICLE I: CANCELLATION OF THE PRIOR AGREEMENT.

WSC and the Executive mutually agree to terminate the Prior Agreement
effective and concurrent with the effective date of this Agreement. In
addition, all other employment agreements or arrangements existing between the
Executive, SFC and WSC, whether oral or in writing, shall be deemed terminated
concurrent with the effective date of this Agreement.

ARTICLE II: EMPLOYMENT.

A. Direction. SFC and WSC will continue to employ the Executive for
a three (3) year period (the "Employment Period") commencing on August 14, 1992
and ending August 14, 1995 ("Expiration Date") unless such employment shall
have been sooner terminated, as hereinafter set forth. The Executive accepts
such employment and agrees to serve in the capacity set forth in this Agreement
and to perform such services of a Senior Vice President and General Counsel
commensurate with his position and offices and agrees diligently and
competently to devote the necessary business time and attention to such
services (subject to the provisions of Article II, Section C below) excepting
during disabilities, illness, vacation and paid holidays given by the
Companies.

B. Positions and Duties. During the Employment Period, the Executive
shall continue to serve as Senior Vice President, Secretary and General Counsel
of each of the Companies and as Co-Chairman of its Board of Directors ("Board")
with Joe P. Kirby. In such capacity, and subject to the direction, approval
and control of the Boards of the Companies, the Executive shall continue to
perform the duties for the Companies that he has previously performed as set
forth below.

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<PAGE> 3

1. Basic Duties - In general, the Executive shall continue to
perform the duties previously performed by him for the Companies and
continue to expend such of his working time for philanthropic,
political, civic, and promotional activities as is commensurate with
the past practices of the Executive and the Companies. In this
connection the Executive's responsibilities, duties and powers shall
include, but are not necessarily limited to:

(a) Supervising, monitoring and directing all legal
activities of the Companies;

(b) Providing legal direction to all areas of
corporate activities for each of the Companies;

(d) Supervising outside legal counsel;

(e) Maintaining current knowledge of developments in
the insurance industry;

(f) Representing the Companies periodically at select
industry gatherings (e.g. NAIS, SAA and NASBP) and in Company
and community activities. In this connection, in consultation
with Joe P. Kirby, the Companies' President, the Executive
will supervise and determine the Companies' contributions in
the name of the Companies to Sioux Falls and South Dakota
local charities and related causes in accordance with the past
practice of the Companies and shall regularly report such
contribution activities to the Board of Directors of the
Companies; and

(g) Cooperating and assisting with the duties and
powers set forth in the Executive Employment Agreement among
Joe P. Kirby and

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<PAGE> 4

the Companies of even date herewith and to assume primary
responsibility for said duties and powers in the event Joe P.
Kirby is no longer employed by the Companies.

2. Committees. Should an Executive Committee of either SFC
and/or WSC be formed, the Executive shall serve as Co-Chairman of the
Executive Committee with Joe P. Kirby. The Executive shall have the
right, but not the obligation, to serve as a member of all other SFC or
WSC Committees with management or oversight responsibilities for the
Companies.

3. Directorships; Voting.

(a) Each of NUC, SFC, and WSC agree that, so long as
the Executive is employed under this New Agreement, all voting
rights held, directly or indirectly, by them, their nominees
or assignees, shall all be voted in favor of the Executive to
be nominated to the respective Boards of SFC and WSC (and any
subsidiaries of either), to be elected to such Boards at each
meeting of their respective stockholders at which the class of
Directors to which the Executive is assigned is to be elected,
and further, to favorably vote the respective shares towards
the election of the Executive or Joe P. Kirby to serve as
Chairman of the Boards and Chairman of the Executive
Committees, if any, of the Boards of SFC and WSC.

(b) NUC and the Executive agree that the Board of
Directors of the Companies shall consist of at least seven (7)
members each to have the same individuals for both Companies.
NUC shall have the right to nominate and elect five (5) of the
seven (7) Directors for both Companies and the Executive shall
have the right to be a Director of

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<PAGE> 5

both Companies; another Director shall be Joe P. Kirby. NUC
agrees to vote all its shares of SFC in favor of the election
of the Executive to the SFC Board and SFC agrees to vote all
its shares of WSC in favor of the election of the Executive to
the WSC Board, and the Executive agrees to vote favorably for
each of the NUC nominees.

(c) It is further agreed that all NUC, SFC or WSC
shares, directly or indirectly, owned or controlled by EH or
principals of EH or their respective affiliates (of which EH
has control) shall vote in favor of the Executive in
accordance with Article II, Sections B.3(a) and (b) above.

(d) Notwithstanding the foregoing provisions of this
Article II, Section B.3, it shall not be considered a breach
of this Agreement by any party if (1) the Executive is removed
as a Director of either SFC, WSC or NUC, if applicable, as a
result of the determination by the Director of Insurance of
South Dakota (or by any other Insurance Department having
jurisdiction over the Companies or any subsidiary or
affiliate) that the Executive must be removed or disqualified
from acting as a director of the Companies or NUC or (2) if
the Executive is terminated for "cause" as defined in Article
VII, Section E. below.

C. Location of Services; Continuing Activities.

1. Location of Services. During the Employment Period, the
Executive's office shall be customary to a position and shall be
located in the principal Executive offices of SFC and WSC, both of
which shall be located in Sioux Falls, South Dakota. In connection
with his employment by

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<PAGE> 6

the Companies, the Executive shall not be required to directly or
indirectly relocate or transfer his principal residence from Sioux
Falls, South Dakota.

2. Continuing Activities. NUC and the Companies acknowledge
that the Executive will continue to expend such employment and working
time in such civic, political, philanthropic, recreational, social and
promotional activities as is commensurate with the past practice
between the Executive and the Companies ("Continuing Activities"). The
Executive shall continue to devote such time to his duties hereunder,
other than Continuing Activities, as he now devotes to such duties and
as is commensurate with the past practice between the Executive and the
Companies.

ARTICLE III: COMPENSATION AND OTHER BENEFITS DURING THE EMPLOYMENT
PERIOD.

A. Basic Salary; Annual Review. During the Employment Period, the
Company shall pay to the Executive, and the Executive shall accept for his
services, a minimum basic annual aggregate salary of Two Hundred Fifty Thousand
Dollars ($250,000) ("Basic Salary") payable in accordance with the Company's
customary payroll policy in effect from time to time. The Company, through its
Board of Directors, reserves the right at any time, from time to time, to
increase the Basic Salary and agrees that it shall annually confer with the
Executive in good faith and review the Basic Salary to be paid to the Executive
for the then fiscal year and yearly thereafter with a view to increasing (but
not decreasing) the Basic Salary based upon the performance of the Executive in
relationship to the goals and performance of the Companies and prevailing
business and competitive conditions. To the extent that the Executive's Basic
Salary is increased, the new amount will become known as such New Basic Salary
and shall not thereafter be reduced.

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<PAGE> 7

The Basic Salary and New Basic Salary to the Executive exclude any
bonus or other employee benefits or perquisites to which the Executive is
entitled and, when adjusting the Executive's salary, the Board or any other
body or group of persons responsible for setting the Executive's salary shall
not take into consideration the value of any bonuses, Incentive Bonus
Compensation, employee benefits or other perquisites to the Executive. The
Companies' obligation to pay the Executive the Basic Salary or any New Basic
Salary during the Employment Period may be extinguished only upon a termination
of the Executive's employment pursuant and subject to the provisions of
Articles VI and VII below.

B. Incentive Bonus Compensation. In addition to Basic Salary or New
Basic Salary, the Company agrees to pay to the Executive an amount determined
pursuant to the following formula based upon the Premiums Earned for each of
fiscal year of the Companies while this Agreement is in effect, or in the event
this Agreement is terminated prior to the end of any fiscal year, an amount
determined pursuant to the following formula based upon the Premiums Earned for
such year multiplied by a fraction, the numerator of which is the number of
days during such fiscal year in which this Agreement was in force and effect
and the denominator of which is 365 ("Incentive Bonus Compensation"), as
follows:

If Premiums Earned are equal to or exceed $50,000,000, the
Incentive Bonus Compensation shall be two and one half percent (2 1/2%)
of total Premiums Earned in excess of $50,000,000 provided that
Incentive Bonus Compensation payable hereunder shall not exceed the
total amount of Two Hundred Fifty Thousand Dollars ($250,000) or
prorata portion thereof in any fiscal year unless otherwise increased
by the Board of Directors of the applicable Company or Companies.

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<PAGE> 8

employed by the Company consistent with the accounting principals used in
preparing such Financial Statements of the Company for the year ended December
31, 1991 plus the premiums earned by any corporation or other entity controlled
by, or under direct or indirect common control of NUC ("Affiliate(s)") or the
Companies from the sale of the types of insurance policies, bonds or other
insurance products for which any Company received premium payments in the
fiscal year ending December 31, 1991.

The Company shall furnish to the Executive the Financial Statements for
each fiscal year of the Company and each Affiliate during which this Agreement
is in effect (in whole or in part) within 120 days following the end of each
such fiscal year.

Any Incentive Bonus Compensation for each fiscal year of the Company
shall be determined in the last month of the fiscal year (December) and paid to
the Executive in a lump sum as the Board of Directors determines, but no later
than the thirtieth (30th) day after the close of the fiscal year.

C. Vacations, Etc. The Executive shall be entitled to paid annual
vacation time commensurate with the past practices of the Executive and the
Companies. The Executive shall also be entitled to all paid holidays and sick
days given or allowed by the Companies to its senior executive officers.

D. Perquisites and Other Fringe Benefits. In addition to any and all
other benefits, vacation, Basic Salary, New Basic Salary, and Incentive Bonus
Compensation provided to the Executive hereunder, in accordance with the past
practices between the Executive and the Companies the Companies shall continue
to provide the Executive with such additional benefits and perquisites
previously provided to him by the Companies (including, without limitation,
participation in any fringe or

8
<PAGE> 9

employee benefit program provided generally to senior executive officers of the
Companies, or otherwise presently provided to the Executive, and medical, life
and disability insurance, first class travel and accommodations, sick pay
plans, and payment or reimbursement for monthly membership dues and other
expenses in the furtherance of the Company's business).

E. General Expenses. The Companies shall reimburse the Executive for
all out-of-pocket expenses incurred by him in connection with the performance
of his duties hereunder upon the presentation of appropriate documentation
therefor in accordance with the past practice between the Companies and the
Executive.

ARTICLE IV: STOCK OPTIONS.

NUC, in accordance with the terms and provisions of the Nucorp, Inc.
1990 Stock Option Plan (the "1990 Plan") which is incorporated by reference
herein, hereby grants to the Executive options to purchase 50,000 shares of NUC
common stock under the terms of the Non-qualified Stock Option Plan referred to
in the 1990 Plan at a base price equal to the lower of (a) the average trading
price of NUC common stock on the date hereof, and (b) the average trading price
of NUC common stock for the 17-week immediately following the date hereof.

The stock option period shall be for a period of ten (10) years and may
be exercisable in whole or in part from time to time on or before the tenth
(10th) anniversary of the effective date of the stock option. NUC, at its sole
expense, agrees to register, in accordance with the Securities Act of 1933, as
amended (the "Act"), or any similar Federal statute and any applicable states
securities laws, all shares subject to the 1990 plan within two years of the
effective date of the 1990 plan. NUC further agrees that should it cause to
register any of its shares for any

9
<PAGE> 10

reason whatsoever during this two-year period, NUC, in a simultaneous manner,
will also register shares subject to the 1990 plan.

ARTICLE V: NOTICE OF BREACH.

The Companies and the Executive agree that, prior to the termination of
the Employment Period by reason of "cause" (as hereinafter defined) or any
breach of any provisions of this Agreement, the injured party will give the
other party or parties written notice ("Notified Party") specifying such breach
or cause and permitting the Notified Party to cure such breach or cause within
the period of thirty (30) days after receipt of such notice.

ARTICLE VI: INABILITY TO PERFORM (DISABILITY).

If, during the Employment Period, the Executive shall be unable to
substantially perform the duties required of him pursuant to his employment due
to any disability preventing him from performing such services for a period of
six (6) cumulative months in a twelve consecutive month period, the Companies
shall have the right to terminate the Executive's employment pursuant to this
Agreement on thirty (30) days' advance written notice, at the end of which time
the Executive's employment shall be terminated. As used in this Agreement, the
term "disability" shall mean the substantial inability of the Executive to
perform his duties as described under this Agreement as determined by an
independent physician selected by the Companies with the approval of the
Executive. Any disability of less than six cumulative months duration shall
not be cause for interruption, suspension or withholding of the salary or other
remuneration or benefits due the Executive by the Companies. Until the
employment of the Executive is actually terminated, the Executive shall be
entitled to receive his Basic Salary or New Basic Salary and any

10
<PAGE> 11

other remuneration and benefits as provided for herein including, but not
limited to, a prorated portion of his Incentive Bonus Compensation, if any.

ARTICLE VII: TERMINATION.

This Agreement:

A. may be terminated at any time by mutual agreement between the
Executive and the Companies;

B. shall terminate immediately upon the death of the Executive,
provided however, notwithstanding any provision to the contrary in this
Agreement, the Executive's estate shall be entitled to receive the prorated
portion of his Incentive Bonus Compensation, if any, and the Basic Salary or
New Basic Salary due the Executive for a period of six (6) months following the
date the death of the Executive occurred;

C. may be terminated by either the Companies or the Executive due to
the disability of the Executive pursuant to Article VI hereof;

D. may be terminated upon a good faith determination by a majority
vote of the Board of SFC or WSC that the termination of this Agreement is
necessary by reason of a final determination by the Director of Insurance of
the State of South Dakota (or by any other insurance department having
jurisdiction over SFC or WSC or any subsidiary or affiliate) that the Executive
must be removed or disqualified from acting as an officer of SFC or WSC; or

E. may be terminated by the Companies at any time for "cause
determined by a majority vote of the Boards of SFC or WSC upon the giving of
notice to the Executive in accordance with Article V of this Agreement setting
forth the basis of such termination. For the purposes of this Agreement, the
term "cause" shall be limited to:

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<PAGE> 12

(a) the engaging of the Executive in conduct materially
injurious to the Companies unless the Executive engaged in such conduct
(i) in good faith and reasonably believed such conduct to be in or not
opposed to the best interests of the Company(s) or (ii) at the request
or direction of the Board of Directors of the Company(s);

(b) continued and wilful inattention and neglect by the
Executive of the material duties to be performed by him, (other than by
reason of illness or engaging in activities otherwise permitted or
required under this Agreement) and which inattention and neglect, after
compliance with the provisions of Article V hereof, does not cease
within thirty (30) days after written notice thereof specifying the
details of such conduct is given to the Executive; and

Notwithstanding the foregoing, no termination of this Agreement shall
diminish or effect in any way NUC's obligation to repurchase and/or register
shares of common stock (and any other securities of the Companies received with
respect thereto) pursuant to Article IV hereof.

ARTICLE VIII: EFFECTIVE OR DEEMED TERMINATION.

A. Termination by Executive for Good Reason. The Executive's
obligation to render services hereunder may be terminated by the Executive if
the Executive's "circumstances of employment shall have changed" (as
hereinafter defined), such termination to be known also as "termination for
good reason". In such event the Executive shall specify by written notice to
NUC and/or the Companies the event or reason relied on for such termination,
and if such event or reason shall not have

12
<PAGE> 13

been cured within 30 days thereafter, the Executive's employment hereunder
shall be deemed terminated ("Effective Termination Date").

B. The Executive's "circumstances of employment shall have changed"
shall mean and include, but shall not necessarily be limited to, any of the
following:

1. Notice by the Board of Directors of the Companies to the
Executive of termination of his employment, this Agreement or the
Employment Period for any reason whatsoever, other than pursuant to
Articles VI or VII;

2. failure of NUC and/or the Companies to nominate and vote
for the Executive and his designee in the positions all as provided in
Article II, Section B above;

3. reduction in the Basic Salary or New Basic Salary then
being paid to the Executive by the Companies, or withdrawal from him of
fringe benefits or perquisites (including participation in current or
future stock option or stock appreciation plans) provided to him under
this Agreement or otherwise available to other senior corporate
officers of the Companies;

4. a change in the Executive's place of employment without
written consent as above described in Article II, Section C.1 above, or
requirements or demands of the Executive to perform services which
would make the continuance of his principal residence and home life in
Sioux Falls, South Dakota unreasonably difficult or inconvenient for
him, and/or which would materially restrict or reduce the Executive's
participation in Continuing Activities;

5. (i) termination or discharge of a material number of
employees. (5% of the employees located in the Sioux Falls, S.C. office
of the Companies

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<PAGE> 14

in any calendar year) of the Companies if (a) the positions of such
terminated or discharged employees are to be filled by persons who are
employed by any of NUC, EH or any of their affiliates, or (b) such
terminations are due to the relocation of the employees' positions
outside of the Sioux Falls, South Dakota area, or (c) such terminations
are not in connection with a general reduction of the number of
employees of WSC or SFC due to a significant economic downturn in the
Business of WSC and SFC; or (ii) the relocation of a significant
portion of the operations of the Business of the Companies which are
currently conducted in Sioux Falls, South Dakota to another location,
provided, however, the foregoing shall not be deemed to prevent the
termination of an employee for cause due to such employee's lack of
performance;

6. a material increase in the time the Executive is required
to spend in travel for the Companies which requires overnight stays
away from Sioux Falls, South Dakota, other than quarterly meetings of
the Board of Directors of NUC;

7. failure of the Companies to make charitable donations of at
least $200,000 in each year of the term hereof to donees with offices,
facilities or programs located in South Dakota in accordance with the
past practice of the Companies; and

8. other material and adverse changes in the Executive's
conditions of employment imposed on him by NUC or the Companies or any
material breach by the Companies of the provisions of the Agreement,
after compliance with the provisions of Article V hereof.

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<PAGE> 15

C. Obligations on Termination. In the event Executive's employment
under this Agreement terminates on or before 1994, for any reason other than
"cause", death, or the passing of the applicable Expiration Date, the Executive
shall be entitled to receive all payments and other benefits provided to him
under this Agreement (including, without limitation, Basic or New Basic Salary
and Incentive Bonus Compensation and amounts pursuant to Article VI) for a
period equal to the remaining term of the Agreement up to 1994. Executive
shall also be entitled to remove from his personal office all computer
equipment, all personal computer files not essential to the business, all other
personal files, books, memorabilia related to Company/Kirby family history, and
all other personal items.

ARTICLE IX: INDEMNIFICATION.

Each of NUC, SFC and WSC will indemnify, defend and hold harmless the
Executive (and his personal or legal representatives or other successors) to
the fullest extent permitted by the laws of their respective states and their
existing certificates of incorporation and by-laws, and the Executive shall be
entitled to the protection of all insurance policies which NUC and the
Companies may acquire and maintain generally for the benefit of their directors
and officers, against all costs, charges and expenses (including, but not
limited to, attorneys' fees and other legal expenses) whatsoever incurred or
sustained by the Executive or the personal or legal representatives in
connection with any action, suit or proceeding to which he (or personal or
legal representatives or other successors) may be made a party by reason of his
being or having been a director, employee or officer of NUC, SFC or WSC and
their respective subsidiaries and affiliates. If the existing certificates of
incorporation and by-laws of NUC and the Companies do not provide for indemnity

15
<PAGE> 16

of the Executive to the fullest extent, permitted by the laws of their
respective states of domicile, NUC and the Companies will use their Diligent
best efforts to amend such certificates of incorporation and/or by-laws so as
to provide maximum indemnification.

ARTICLE X: NO DUTY TO MITIGATE/NO REDUCTIONS.

A. The parties agree that the Executive shall not be under any duty
to mitigate damages under this Agreement and such defense shall not be
interposed in any legal proceedings among the parties. In furtherance thereof,
it is expressly agreed that if the Executive's employment is terminated
pursuant to this Agreement in a manner which results in the Executive being
entitled to additional payments or benefits hereunder, such additional payments
or benefits shall not be reduced by any amounts or benefits he could have
earned or by any payments or benefits actually earned or received from parties
other than the Companies.

ARTICLE XI: JURISDICTION AND VENUE.

Without limitation of the arbitration rights specified in Article XXII
below, the parties hereby irrevocably consent to the personal jurisdiction of
and the propriety of venue of arbitrators and in the courts located in the City
of Chicago, State of Illinois and of any federal court located in Chicago in
connection with any permitted action or proceeding arising out of or relating
to this Agreement, any document or instrument delivered pursuant to, in
connection with, or simultaneously with this Agreement, or a breach of this
Agreement or any such document or instrument.

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<PAGE> 17

ARTICLE XII: LAW.

Subject to and without limitation of the provisions of Articles XI and
XXII hereof, this Agreement shall be governed by and construed in accordance
with the conflicts laws of the State of Illinois.

ARTICLE XIII: NOTICES.

All notices hereunder shall be in writing and shall be either (A) sent
by registered or certified mail, return receipt requested, or (B) overnight
delivery or courier, or (C) by "Fax", telex, telecopier or other
telecommunication device capable of creating a legible written record (and
promptly confirmed in writing), or (D) served by personal service. If intended
for NUC or the Companies, such notices shall be addressed to such party,
attention of its Chairman of the Board at either NUC's or the Companies' most
current address for their respective executive offices, or at such other
address of which NUC or the Companies shall have given notice to the Executive
in the manner herein provided with a copy to: Sheli Z. Rosenberg, Rosenberg &
Liebentritt P.C., 2 North Riverside Plaza, Chicago, Illinois; and if intended
for the Executive, shall be addressed him at 2021 Austin Drive, Sioux Falls,
South Dakota 57105, with a copy to L. Robins and J. Marks, Rudnick & Wolfe, 203
North LaSalle Street, Chicago, Illinois, or at such other address of which the
Executive shall have given notice to NUC or the Companies in the manner herein
provided. Personal service of notices may be substituted for mailing provided
a written acknowledgement of such service is provided by the recipient. For
purposes of this Article XIII, notice shall be deemed received upon actual
receipt.

ARTICLE XIV: ENTIRE AGREEMENT.

This Agreement constitutes the entire understanding among the parties
with respect to the matters referred to herein and no waiver or modification to
the

17
<PAGE> 18

terms hereof shall be valid unless in writing signed by the party to be charged
and only to the extent therein set forth. All prior and contemporaneous
agreements and understandings between the parties with respect to the subject
matter of this Agreement are superseded by this Agreement, unless otherwise
provided in any separate writing signed by the parties hereto.

ARTICLE XV: COUNTERPARTS.

This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and each of which shall be
deemed an original.

ARTICLE XVI: SEVERABILITY.

ARTICLE XVII: BINDING EFFECT.

This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and any successor to NUC or the Companies whether by merger,
liquidation, sale of assets, reorganization or otherwise and to the heirs, and
personal or legal representative(s) of the Executive.

ARTICLE XVIII: WITHHOLDING.

NUC and the Companies shall be entitled to withhold from amounts
payable to the Executive hereunder such amount as may be required by applicable
law.

ARTICLE XIX: ASSIGNMENT.

Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by either of the parties hereto, other than in

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<PAGE> 19

accordance with the provisions hereof, without the prior written consent of the
other applicable parties.

ARTICLE XX: EFFECT OF WAIVER.

The waiver of either party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach thereof.

ARTICLE XXI: HEADINGS.

The headings contained in this Agreement are inserted for convenience
only and do not constitute a part of this Agreement.

ARTICLE XXII: ARBITRATION.

If any dispute, claim or controversy shall arise between the parties
hereto as to any issue whatsoever, other than the determination of disability,
the same shall be referred to and settled by the following "arbitration"
procedure which may be requested upon the application of any interested party:
It is agreed the arbitration hearings, if any, shall be held solely in Chicago,
Illinois, and any such dispute, claim or controversy shall be referred to and
settled by such arbitration in accordance with the Commercial Arbitration Rules
("Rules") of the American Arbitration Association ("AAA") then in effect (which
Rules are incorporated herein by reference as through set forth at length
herein) and any decision or order or finding rendered by the arbitrator or
arbitrators ("arbitrators") appointed in accordance with such Rules shall be
final and conclusive upon the parties hereto and judgment upon the award,
finding or decision rendered may be entered in the Court of the forum, state
or federal, having jurisdiction, as provided in Article XI above. It is
expressly agreed between the parties hereto that whether or not the Rules of
the AAA shall provide for a discovery procedure, such discovery procedure is
hereby granted and permitted in the said arbitration proceedings and the
parties may apply to the

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<PAGE> 20

arbitrators for the enforcement of any form of discovery which would be
permitted by the laws of the State of Illinois and their award or decision in
respect of such discovery shall be final and binding.

The arbitrators, if they deem that the matter requires it, are
authorized to award to the party whose contention is sustained such sums as
they or a majority of them shall deem proper to compensate it or him for the
time and expense incident to the proceedings and, if the arbitration was
demanded without reasonable cause, then they may also award damages for delay,
if any. The arbitrators shall determine their own reasonable compensation in
accordance with such AAA Rules, and, unless otherwise provided by agreement,
shall assess the cost and charges of the proceedings equally to both parties
unless the arbitrators shall find an issue raised by either party was
unreasonable or frivolous and that therefore the costs of the arbitration or
any portion thereof shall be borne by the said party.

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<PAGE> 21

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

NUCORP., INC. a Delaware corporation

___________________________ By: Arthur A. Greenberg
Witness ------------------------------------------
Its Senior Vice President

("NUC")

SUREWEST FINANCIAL CORP., a South Dakota
corporation

___________________________ By: Joe P. Kirby
Witness ------------------------------------------
Its _____ President

("SFC")

WESTERN SURETY COMPANY, a South Dakota
corporation

___________________________ By: Joe P. Kirby
Witness ------------------------------------------
Its _____ President

("WSC")

EQUITY HOLDINGS, an Illinois partnership

___________________________ By: Arthur A. Greenberg, Trustee
Witness ------------------------------------------
A duly authorized Partner or other
representative solely as to the obligations
under Article II B3

("EH")

___________________________ Dan L. Kirby
Witness ------------------------------------------------
DAN L. KIRBY
(the "Executive")

SI ACQUISITION CORP., a Texas corporation

___________________________ By: Arthur A. Greenberg
Witness ------------------------------------------
Its Senior Vice President

<PAGE> 1

EXHIBIT 10(8)

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is entered into as of
the 14th day of August, 1992 by and among NUCORP, INC., a Delaware corporation
("NUC"), SI ACQUISITION CORP., a Texas corporation ("SI"), SUREWEST FINANCIAL
CORP., a South Dakota corporation ("SFC"), WESTERN SURETY COMPANY, a South
Dakota corporation ("WSC"), EQUITY HOLDINGS ("EHI"), an Illinois partnership,
and JOE P. KIRBY (the "Executive").

W I T N E S S E T H:

WHEREAS, the Executive has been employed as the President and Chief
Executive Officer of WSC since 1979 and has been a member of its Board of
Directors since 1972, and a member of its Executive Committee since its
inception in 1982, and has also been an officer and Director of, and has
performed services for, SFC which owns 100% of the shares of stock of WSC, and
serves as a member of the Board of Directors of each subsidiary of WSC. The
Executive's employment by WSC was confirmed in an Employment Agreement dated
January 1, 1992 (the "Prior Agreement"); and

WHEREAS, on or about the date hereof, through a merger transaction, NUC
acquired 100% of the shares of SFC and in connection thereof, SI, NUC, SFC and
WSC desire that SFC and WSC continue to employ the Executive for the period
provided in this Agreement and the Executive is willing to continue to serve in
the employ of both SFC and WSC and of any direct or indirect subsidiary of
either of them (sometimes each a "Company" or collectively called "Companies")
on the terms and conditions hereinafter set forth.

<PAGE> 2

NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties agree as follows:

ARTICLE I: CANCELLATION OF THE PRIOR AGREEMENT.

ARTICLE II: EMPLOYMENT.

A. Direction. SFC and WSC will continue to employ the Executive
for a three (3) year period (the "Employment Period") commencing on August 14,
1992, and ending August 14, 1995 ("Expiration Date") unless such employment
shall have been sooner terminated, as hereinafter set forth. The Executive
accepts such employment and agrees to serve in the capacity set forth in this
Agreement and to perform such services of a Chief Executive Officer
commensurate with his position and offices and agrees diligently and
competently to devote the necessary business time and attention to such
services (subject to the provisions of Article II, Section C below) excepting
during disabilities, illness, vacation and paid holidays given by the
Companies.

B. Positions and Duties. During the Employment Period, the
Executive shall continue to serve as President and Chief Executive Officer of
each of the Companies and as Co-Chairman of its Board of Directors ("Board")
with Dan L. Kirby. In such capacity, subject to the direction, approval and
control of the Boards of the Companies, the Executive shall be in complete
charge of all the operations and management of both SFC and WSC and any of
their direct or

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indirect subsidiaries and shall have full authority and responsibility, for
setting strategic direction, formulating policies and administering the
Companies in all respects.

1. Basic Duties - In general, the Executive shall continue to
perform the duties previously performed by him for the Companies and
continue to expend such of his working time for philanthropic, political,
civic, and promotional activities as is commensurate with the past
practices of the Executive and the Companies. In this connection, the
Executive's responsibilities, duties and powers shall include, but are
not-necessarily limited to:

(a) Developing and establishing strategic plans and
policies;

(b) Maintaining an effective organization for the Companies
and in this connection, he shall approve the hiring and termination of
(i) employees who report directly to the Chief Operating Officer of WSC
and (ii) the top twenty officers of the Companies except as otherwise
directed by the Board of Directors.

(d) Maintaining the underwriting and marketing philosophies
of the Companies;

(e) Maintaining current knowledge of developments in the
miscellaneous fidelity and surety bond industry and, with Dan L. Kirby,
liaison with reinsurers; and

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Companies' Senior Vice-President, the Executive will supervise and
determine the Companies' contributions in the name of the Company to
Sioux Falls and South Dakota local charities and related causes in
accordance with the past practice of the Companies and shall
regularly report such contribution activity to the Board of the
Directors of the Companies.

2. Committees. Should an Executive Committee of either SFC
and/or WSC be formed, the Executive shall serve as Co-Chairman of the
Executive Committee with Dan L. Kirby. The Executive shall have the right, but
not the obligation, to serve as a member of all other SFC or WSC Committees
with management or oversight responsibilities for the Companies.

3. Directorships; Voting.

(a) Each of NUC, SFC, and WSC agree that, so long
as the Executive is employed under this New Agreement, all
voting rights held, directly or indirectly, by them, their nominees or
assignees, shall all be voted in favor of the Executive to be nominated
to the respective Boards of SFC and WSC (and any subsidiaries of
either), to be elected to such Boards at each meeting of their
respective stockholders at which the class of Directors to which the
Executive is assigned is to be elected, and further, to favorably vote
the respective shares towards the election of the Executive to serve as
Chairman of the Boards and Chairman of the Executive Committees, if
any, of the Boards of SFC and WSC.

(b) NUC and the Executive agree that the Board of
Directors of the Companies shall consist of at least seven (7) members
each to

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have the same individuals for both Companies. NUC shall have
the right to nominate and elect five (5) of the seven (7) Directors for
both Companies and the Executive shall have the right to be a Director
of both Companies; another Director shall be Dan L. Kirby. NUC agrees
to vote all its shares of SFC in favor of the election of the Executive
to the SFC Board and SFC agrees to vote all its shares of WSC in favor
of the election of the Executive to the WSC Board, and the Executive
agrees to vote favorably for each of the NUC nominees.

(c) It is further-agreed that all NUC, SFC or WSC shares, directly
or indirectly, owned or controlled by EH or principals of EH or
their respective affiliates (of which EH has control) shall vote in
favor of the Executive in accordance with Article II, Sections B.3(a)
and (b) above.

(d) Notwithstanding the foregoing provisions of this Article II,
Section B.3, it shall not be considered a breach of this
Agreement by any party if (1) the Executive is removed as a Director of
either SFC, WSC or NUC, if applicable, as a result of the determination
by the Director of Insurance of South Dakota (or by any other Insurance
Department having jurisdiction over the Companies or any subsidiary or
affiliate) that the Executive must be removed or disqualified from
acting as a director of the Companies or NUC or (2) if the Executive is
terminated for "cause" as defined in Article VII, Section E. below.

C. Location of Services; Continuing Activities.

1. Location of Services. During the Employment Period, the
Executive's office shall be customary to his position and shall be located in

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the principal Executive offices of SFC and WSC, both of which
shall be located in Sioux Falls, South Dakota. In connection with his
employment by the Companies, the Executive shall not be required to
directly or indirectly relocate or transfer his principal residence
from Sioux Falls, South Dakota.

2. Continuing Activities. NUC and the Companies acknowledge that
the Executive will continue to expend such employment and working time
in such civic, political, philanthropic, recreational, social and
promotional activities as is commensurate with the past practice
between the Executive and the Companies ("Continuing Activities").
The Executive shall continue to devote such time to duties hereunder,
other than Continuing Activities, as he now devotes to such duties and
as is commensurate with the past practice between the Executive and the
Companies.

ARTICLE III: COMPENSATION AND OTHER BENEFITS DURING THE EMPLOYMENT
PERIOD.

A. Basic Salary; Annual Review. During the Employment Period,
the Company shall pay to the Executive, and the Executive shall accept for his
services, a minimum basic annual aggregate salary of Two Hundred Fifty Thousand
Dollars ($250,000) ("Basic Salary") payable in accordance with the Company's
customary payroll policy in effect from time to time. The Company, through its
Board of Directors, reserves the right at any time, from time to time, to
increase the Basic Salary and agrees that it shall annually confer with the
Executive in good faith and review the Basic Salary to be paid to the Executive
for the then fiscal year and yearly thereafter with a view to increasing (but
not decreasing) the Basic Salary based upon the performance of the Executive in
relationship to the goals and performance of the Companies and prevailing
business and competitive conditions.

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To the extent that the Executive's Basic Salary is increased, the new amount
will become known as such New Basic Salary and shall not thereafter be reduced.

B. Incentive Bonus Compensation. In addition to Basic Salary or
New Basic Salary, the Company agrees to pay to the Executive an amount
determined pursuant to the following formula based upon the Premiums Earned for
each of fiscal year of the Companies while this Agreement is in effect, or in
the event this Agreement is terminated prior to the end of any fiscal year, an
amount determined pursuant to the following formula based upon the Premiums
Earned for such year multiplied by a fraction, the numerator of which is the
number of days during such fiscal year in which this Agreement was in force and
effect and the denominator of which is 365 ("Incentive Bonus Compensation"), as
follows:

If Premiums Earned are equal to or exceed $50,000,000, the Incentive
Bonus Compensation shall be two and one half percent (2 1/2%) of total
Premiums Earned in excess of $50,000,000 provided that Incentive Bonus
Compensation payable hereunder shall not exceed the total amount of Two
Hundred Fifty Thousand Dollars ($250,000) or pro-rata portion thereof in any
fiscal year unless otherwise increased by the Board of Directors of the
applicable Company or Companies.

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<PAGE> 8

As used herein "Premiums Earned" shall have the meaning given those
terms in the Company's (WSC) Statutory Financial Statements ("Financial
Statements") audited by the firm of Independent Certified Public Accountants
then regularly employed by the Company consistent with the accounting
principals used in preparing such Financial Statements of the Company for the
year ended December 31, 1991 plus the premiums earned by any corporation or
other entity controlled by, or under direct or indirect common control of NUC
("Affiliate(s)") or the Companies from the sale of the types of insurance
policies, bonds or other insurance products for which any Company received
premium payments in the fiscal year ending December 31, 1991.

The Company shall furnish to the Executive the Financial Statements
for each fiscal year of the Company and each Affiliate during which this
Agreement is in effect (in whole or in part) within 120 days following the end
of each such fiscal year.

Any Incentive Bonus Compensation for each fiscal year of the Company
shall be determined in the last month of the fiscal year (December) and paid to
the Executive in a lump sum as the Board of Directors determine but no later
than the thirtieth (30th) day after the close of the fiscal year.

C. Vacations, Etc. The Executive shall be entitled to paid
annual vacation time commensurate with the past practices of the Executive and
the Companies. The Executive shall also be entitled to be paid holidays and
sick days given or allowed by the Companies to its senior executive officers.

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<PAGE> 9

the Executive and the Companies the Companies shall continue to provide the
Executive with such additional benefits and perquisites previously provided to
him by the Companies (including, without limitation, participation in any
fringe or employee benefit program provided generally to senior executive
officers of the Companies, or otherwise presently provided to the Executive,
and medical, life and disability insurance, first class travel and
accommodations, sick pay plans, and payment or reimbursement for monthly
membership dues and other expenses in furtherance of the Company's business).

E. General Expenses. The Companies shall reimburse the Executive
for all out-of-pocket expenses incurred by him in connection with the
performance of his duties hereunder upon the presentation of appropriate
documentation therefor in accordance with the past practice between the
Companies and the Executive.

ARTICLE IV: STOCK OPTIONS.

The stock option period shall be for a period of ten (10) years and
may be exercisable in whole or in part from time to time on or before the tenth
(10th) anniversary of the effective date of the stock option. NUC, at its sole
expense, agrees to register, in accordance with the Securities Act of 1933, as
amended (the "Act"), or any similar Federal statute and any applicable states
securities laws, all

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shares subject to the 1990 plan within two years of the effective date of the
1990 plan. NUC further agrees that should it cause to register any of its
shares for any reason whatsoever during this two-year period, NUC, in a
simultaneous manner, will also register shares subject to the 1990 plan.

ARTICLE V: NOTICE OF BREACH.

The Companies and the Executive agree that, prior to the termination
of the Employment Period by reason of "cause" (as hereinafter defined) or any
breach of any provisions of the Agreement, the injured party will give the
other party or parties written notice ("Notified Party") specifying such breach
or cause and permitting the Notified Party to cure such breach or cause within
the period of thirty (30) days after receipt of such notice.

ARTICLE VI: INABILITY TO PERFORM (DISABILITY).

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Executive shall be entitled to receive his Basic Salary or New Basic Salary and
any other remuneration and benefits as provided for herein including, but not
limited to, a prorated portion of Incentive Bonus Compensation, if any.

ARTICLE VII: TERMINATION.

This Agreement:

A. may be terminated at any time by mutual agreement between the
Executive and the Companies;

B. shall terminate immediately upon the death of the Executive,
provided however, notwithstanding any provision to the contrary in this
Agreement, the Executive's estate shall be entitled to receive the prorated
portion of Incentive Bonus Compensation, if any, and the Basic Salary or New
Basic Salary due the Executive for a period of six (6) months following the
date the death of the Executive occurred;

C. may be terminated by either the Companies or the Executive due
to the disability of the Executive pursuant to Article VI hereof;

D. may be terminated upon a good faith determination by a
majority vote of the Board of SFC or WSC that the termination of this Agreement
is necessary by reason of a final determination by the Director of Insurance of
the State of South Dakota (or by any other insurance department having
jurisdiction over SFC or WSC or any subsidiary or affiliate) that the Executive
must be removed or disqualified from acting as an officer of SFC or WSC; or

E. may be terminated by the Companies at any time for "cause"
determined by a majority vote of the Boards of SFC or WSC upon the giving of
notice to the Executive in accordance with Article V of this Agreement setting

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forth the basis of such termination. For the purposes of this Agreement, the
term "cause" shall be limited to:

(a) the engaging of the Executive in conduct materially injurious
to the Companies unless the Executive engaged in such conduct (i) in
good faith and reasonably believed such conduct to be in or not opposed to
the best interests of the Company(s) or (ii) at the request or direction of
the Board of Directors of the Company(s);

(b) continued and wilful inattention and neglect by the Executive
of the material duties to be performed by him, (other than by reason of
illness or engaging in activities otherwise permitted or required under
this Agreement) and which inattention and neglect, after compliance with
the provisions of Article V hereof, does not cease within thirty (30) days
after written notice thereof specifying the details of such conduct is
given to the Executive; and

ARTICLE VIII: EFFECTIVE OR DEEMED TERMINATION.

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<PAGE> 13

Executive shall specify by written notice to NUC and/or the Companies the event
or reason relied on for such termination, and if such event or reason shall not
have been cured within 30 days thereafter, the Executive's employment hereunder
shall be deemed terminated ("Effective Termination Date").

B. The Executive's "circumstances of employment shall have
changed" shall mean and include, but shall not necessarily be limited to, any
of the following:

1. Notice by the Board of the Directors of the Companies
to the Executive of termination of his employment, this Agreement or
the Employment Period for any reason whatsoever, other than pursuant
to Articles VI or VII;

2. failure of NUC and/or the Companies to nominate and
vote for the Executive and his designee in the positions all as
provided in Article 11, Section B above;

3. reduction in the Basic Salary or New Basic Salary
then being paid to the Executive by the Companies, or withdrawal from
him of fringe benefits or perquisites (including participation in
current or future stock option or stock appreciation plans) provided
to him under this Agreement or otherwise available to other senior
corporate officers of the Companies;

4. a change in the Executive's place of employment
without his written consent as above described in Article II, Section
C.1 above, or requirements or demands of the Executive to perform
services which would make the continuance of his principal residence
and home life in Sioux Falls, South Dakota unreasonably difficult or
inconvenient for him, and/or which would materially restrict or reduce
the Executive's participation in Continuing Activities;

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5. the termination or discharge of a material number of
employees (5% of the employees located in the Sioux Falls, S.D.
office of the Companies in any calendar year) of the Companies if (a)
the positions of such terminated or discharged employees are to be
filled by persons who are employed by any of NUC, EH or any of their
affiliates, or (b) such terminations are due to the relocation of the
employees' positions outside of the Sioux Falls, South Dakota area, or
(c) such terminations are not in connection with a general reduction
of the number of employees of WSC or SFC due to a significant economic
downturn in the Business of WSC and SFC; or (ii) the relocation of a
significant portion of the operations of the Business of the Companies
which are currently conducted in Sioux Falls, South Dakota to any
other location, provided, however, the foregoing shall not be deemed
to prevent the termination of an employee for cause due to such
employee's lack of performance;

6. a material increase in the time the Executive is
required to spend in travel for the Companies which requires overnight
stays away from Sioux Falls, South Dakota, other than quarterly
meetings of the Board of Directors of NUC;

7. failure of the Companies to make charitable donations
of at least $200,000 in each year of the term hereof to donees with
offices, facilities or programs located in South Dakota in accordance
with the past practice of the Companies; and

8. other material and adverse changes in the Executive's
conditions of employment imposed on him by NUC or the Companies or any
material breach by the Companies of the provisions of this Agreement,
after compliance with the provisions of Article V hereof.

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Obligations on Termination. In the event Executive's
employment under this Agreement terminates on or before , 1994,
for any reason other than "cause", death or the passing of the applicable
Expiration Date, the Executive shall be entitled to receive all payments and
other benefits provided to him under this Agreement (including, without
limitation, Basic or New Basic Salary and Incentive Bonus Compensation and
amounts pursuant to Article VI) for a period equal to the remaining term of the
Agreement up to , 1994. Executive shall also be entitled to
remove from personal office all computer equipment, all personal computer files
not essential to the business, all other personal files, books, memorabilia
related to Company/Kirby family history, and all other personal items.

ARTICLE IX: INDEMNIFICATION.

Each of NUC, SFC and WSC will indemnify, defend and hold harmless the
Executive (and his personal or legal representatives or other successors) to
the fullest extent permitted by the laws of their respective states and their
existing certificates of incorporation and by-laws, and the Executive shall be
entitled to the protection of all insurance policies which NUC and the
Companies may acquire and maintain generally for the benefit of their directors
and officers, against all costs, charges and expenses (including, but not
limited to, attorneys' fees and other legal expenses) whatsoever incurred or
sustained by the Executive or his personal or legal representatives in
connection with any action, suit or proceeding to which he (or his personal or
legal representatives or other successors) may be made a party by reason of
his being or having been a director, employee or officer of NUC, SFC or WSC
and their respective subsidiaries and affiliates. If the existing
certificates of incorporation and by-laws of NUC and the Companies do not
provide for indemnity

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of the Executive to the fullest extent permitted by the laws of their
respective states of domicile, NUC and the Companies will use their diligent
best efforts to amend such certificates of incorporation and/or by-laws so as
to provide maximum indemnification.

ARTICLE X: NO DUTY TO MITIGATE/NO REDUCTIONS.

A. The parties agree that the Executive shall not be under any
duty to mitigate damages under this Agreement and such defense shall not be
interposed in any legal proceedings among the parties. In furtherance
thereof, it is expressly agreed that if the Executive's employment is
terminated pursuant to this Agreement in a manner which results in the
Executive being entitled to additional payments or benefits hereunder, such
additional payments or benefits shall not be reduced by any amounts or benefits
he could have earned or by any payments or benefits actually earned or received
from parties other than the Companies.

ARTICLE XI: JURISDICTION AND VENUE.

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ARTICLE XII: LAW.

Subject to and without limitation of the provisions of Articles XI and
XXII hereof, this Agreement shall be governed by and construed in accordance
with the conflict laws of the State of Illinois

ARTICLE XIII: NOTICES.

All notices hereunder shall be in writing and shall be either (A) sent
by registered or certified mail, return receipt requested, or (B) overnight
delivery or courier, or (C) by "Fax", telex, telecopier or other
telecommunication device capable of creating a legible written record (and
promptly confirmed in writing), or (D) served by personal service. If intended
for NUC or the Companies, such notices shall be addressed to such party,
attention of its Chairman of the Board at either NUC's or the Companies' most
current address for their respective executive offices, or at such other
address of which NUC or the Companies shall have given notice to the Executive
in the manner herein provided with a copy to Sheli Z. Rosenberg, Rosenberg &
Liebentritt, P.C., 2 North Riverside Plaza, Chicago, Illinois; and if intended
for the Executive, shall be addressed him at 2021 Austin Drive, Sioux Falls,
South Dakota 57105 with a copy to Rudnick & Wolfe, 203 North LaSalle Street,
Chicago, Illinois, Attention: J. Marks and L. Robins, or at such other address
of which the Executive shall have given notice to NUC or the Companies in the
manner herein provided. Personal service of notices may be substituted for
mailing provided a written acknowledgement of such service is provided by the
recipient. For purposes of this Article XIII, notice shall be deemed received
upon actual receipt.

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ARTICLE XIV: ENTIRE AGREEMENT.
This Agreement constitutes the entire understanding among the parties
with respect to the matters referred to herein and no waiver or modification to
the terms hereof shall be valid unless in writing signed by the party to be
charged and only to the extent therein set forth. All prior and
contemporaneous agreements and understandings between the parties with respect
to the subject matter of this Agreement are superseded by this Agreement,
unless otherwise provided in any separate writing signed by the parties hereto.

ARTICLE XV: COUNTERPARTS.

This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and each of which shall be
deemed an original.

ARTICLE XVI: SEVERABILITY.

ARTICLE XVII: BINDING EFFECT.

ARTICLE XVIII: WITHHOLDING.

NUC and the Companies shall be entitled to withhold from amounts
payable to the Executive hereunder such amount as may be required by applicable
law.

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ARTICLE XIX: ASSIGNMENT.

ARTICLE XX: EFFECT OF WAIVER.

The waiver of either party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach thereof.

ARTICLE XXI: HEADINGS.

The headings contained in this Agreement are inserted for convenience
only and do not constitute a part of this Agreement.

ARTICLE XXII: ARBITRATION.

If any dispute, claim or controversy shall arise between the parties
hereto as to any issue whatsoever, other than the determination of disability,
the same shall be referred to and settled by the following "arbitration"
procedure which may be requested upon the application of any interested party:
It is agreed the arbitration hearings, if any, shall be held solely in Chicago,
Illinois, and any such dispute, claim or controversy shall be referred to and
settled by such arbitration in accordance with the Commercial Arbitration Rules
("Rules") of the American Arbitration Association ("AAA") then in effect (which
Rules are incorporated herein by reference as through set forth at length
herein) and any decision or order or finding rendered by the arbitrator or
arbitrators ("arbitrators") appointed in accordance with such Rules shall be
final and conclusive upon the parties hereto and judgment upon the award,
finding or decision rendered may be entered in the Court of the forum, state or
federal, having jurisdiction, as provided In Article XI above. It is expressly

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agreed between the parties hereto that whether or not the Rules of the AAA
shall provide for a discovery procedure, such discovery procedure is hereby
granted and permitted in the said arbitration proceedings and the parties may
apply to the arbitrators for the enforcement of any form of discovery which
would be permitted by the laws of the State of Illinois and their award or
decision in respect of such discovery shall be final and binding.

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

NUCORP, INC., a Delaware corporation

By: Arthur A. Greenberg
- --------------------------- ----------------------------------
Witness Its Vice President

("NUC")

SUREWEST FINANCIAL CORP., a South
Dakota corporation

By: Dan L. Kirby
- --------------------------- -----------------------------------
Witness Its Vice President

("SFC")

WESTERN SURETY COMPANY, a South
Dakota corporation

By: Dan L. Kirby
- --------------------------- -----------------------------------
Witness Its Vice President

("WSC")

EQUITY HOLDINGS, an Illinois partner-
ship

By: Arthur A. Greenberg, Trustee
- --------------------------- -----------------------------------
Witness A duly authorized Partner or other
representative solely as to the
obligations under Article II B3

("EH")

JOE P. KIRBY
- --------------------------- --------------------------------------
Witness JOE P. KIRBY

(the "Executive")

SI ACQUISITION CORP., a Texas
corporation

By: Arthur A. Greenberg
- --------------------------- ----------------------------------
Witness Its Vice President

<PAGE> 1
EXHIBIT 10(17)

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

CREDIT AGREEMENT

Dated as of March 29, 1994,

Among

CAPSURE FINANCIAL GROUP, INC.,

CAPSURE HOLDINGS CORP.,

THE LENDERS NAMED HEREIN and

CHEMICAL BANK,

as Administrative Agent

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

TABLE OF CONTENTS

Page

<S> <C> <C>
I.
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

SECTION 1.01. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Terms Generally . . . . . . . . . . . . . . . . . . . . . . . 18

II. THE CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

SECTION 2.01. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.02. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.03. Notice of Borrowings . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.04. Notes; Repayment of Loans . . . . . . . . . . . . . . . . . . 20
SECTION 2.05. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.06. Interest on Loans . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.07. Default Interest . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.08. Alternate Rate of Interest . . . . . . . . . . . . . . . . . . 22
SECTION 2.09. Termination and Reduction of
Commitments . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.10. Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.11. Reserve Requirements; Change in
Circumstances . . . . . . . . . . . . . . . . . . . 23
SECTION 2.12. Change in Legality . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.13. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.14. Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.15. Sharing of Setoffs . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.16. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.17. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

III. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . 29

SECTION 3.01. Organization; Powers . . . . . . . . . . . . . . . . . . . . . 29
SECTION 3.02. Authorization . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 3.03. Enforceability . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 3.04. Governmental Approvals . . . . . . . . . . . . . . . . . . . . 29
SECTION 3.05. Financial Statements . . . . . . . . . . . . . . . . . . . . . 30
SECTION 3.06. No Material Adverse Change . . . . . . . . . . . . . . . . . . 30
SECTION 3.07. Title to Properties; Possession Under
Leases . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 3.08. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 3.09. Litigation; Compliance with Laws . . . . . . . . . . . . . . . 30
SECTION 3.10. Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 3.11. Federal Reserve Regulations . . . . . . . . . . . . . . . . . 31

</TABLE>

<PAGE> 3

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 3.12. Investment Company Act; Public Utility
Holding Company Act . . . . . . . . . . . . . . . . 31
SECTION 3.13. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 3.14. Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 3.15. No Material Misstatements . . . . . . . . . . . . . . . . . . 31
SECTION 3.16. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . 32
SECTION 3.17. Environmental and Safety Matters . . . . . . . . . . . . . . . 32
SECTION 3.18. Security Documents . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 3.19. Absence of Certain Restrictions . . . . . . . . . . . . . . . 33
SECTION 3.20. Reinsurance Agreements . . . . . . . . . . . . . . . . . . . . 33
SECTION 3.21. Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

IV. CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

SECTION 4.01. All Credit Events . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 4.02. First Credit Event . . . . . . . . . . . . . . . . . . . . . . 34

V. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

SECTION 5.01. Existence; Businesses and Properties . . . . . . . . . . . . . 37
SECTION 5.02. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 5.03. Obligations and Taxes . . . . . . . . . . . . . . . . . . . . 38
SECTION 5.04. Financial Statements, Reports, etc. . . . . . . . . . . . . . 38
SECTION 5.05. Litigation and Other Notices . . . . . . . . . . . . . . . . . 40
SECTION 5.06. Employee Benefits . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 5.07. Maintaining Records; Access to
Properties and Inspections . . . . . . . . . . . . 41
SECTION 5.08. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.09. Further Assurances . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.10. Environmental and Safety Laws . . . . . . . . . . . . . . . . 42
SECTION 5.11. Risk-Based Capital . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 5.12. Insurance Regulatory Information System . . . . . . . . . . . 43
SECTION 5.13. Investment Ratios . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 5.14. Deposit and Investment Accounts . . . . . . . . . . . . . . . 43
SECTION 5.15. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . 43

VI. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

SECTION 6.01. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.02. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.03. Sale and Leaseback Transactions . . . . . . . . . . . . . . . 45
SECTION 6.04. Investments, Loans and Advances . . . . . . . . . . . . . . . 45
SECTION 6.05. Mergers, Consolidations and Acquisitions . . . . . . . . . . . 46
SECTION 6.06. Dividends and Distributions . . . . . . . . . . . . . . . . . 48
SECTION 6.07. Transactions with Affiliates . . . . . . . . . . . . . . . . . 48
SECTION 6.08. Nature of Business . . . . . . . . . . . . . . . . . . . . . . 48

</TABLE>

<PAGE> 4

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 6.09. Net Operating Losses . . . . . . . . . . . . . . . . . . . . . 48
SECTION 6.10. Debt Payments . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 6.11. Limitation on Surplus Relief Reinsurance
Agreements . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.12 Reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.13. Total Debt to Adjusted Capital Ratio . . . . . . . . . . . . . 49
SECTION 6.14. Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . 49
SECTION 6.15. Total Debt to Total Cash Flow Sources
Ratio . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.16. Operating Leverage Ratio . . . . . . . . . . . . . . . . . . . 50
SECTION 6.17. Amendment of Certain Documents . . . . . . . . . . . . . . . . 50

VII. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

VIII. GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

IX. THE ADMINISTRATIVE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

X. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

SECTION 10.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 10.02. Survival of Agreement . . . . . . . . . . . . . . . . . . . . 59
SECTION 10.03. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 10.04. Successors and Assigns . . . . . . . . . . . . . . . . . . . . 60
SECTION 10.05. Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . 62
SECTION 10.06. Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 10.07. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 10.08. Waivers; Amendment . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 10.09. Interest Rate Limitation . . . . . . . . . . . . . . . . . . . 64
SECTION 10.10. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 10.11. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . 64
SECTION 10.12. Severability . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 10.13. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 10.14. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 10.15. Jurisdiction; Consent to Service of
Process . . . . . . . . . . . . . . . . . . . . . . 65

</TABLE>

<PAGE> 5

<TABLE>
<CAPTION>
Exhibits
--------
<S> <C>
Exhibit A Form of Note
Exhibit B Assignment and Acceptance
Exhibit C Administrative Questionnaire
Exhibit D Form of Opinion of Rosenberg & Liebentritt
Exhibit E Form of Indemnity, Subrogation and Contribution Agreement
Exhibit F Form of Pledge Agreement
Exhibit G Form of Security Agreement
Exhibit H Form of Pledgeholder Agreement
Exhibit I Form of Guarantee Agreement
Exhibit J Form of Mortgage
</TABLE>

<TABLE>
<CAPTION>
Schedules
- ---------
<S> <C>
Schedule 1.01(a) Rightholder
Schedule 2.01 Lenders and Commitments
Schedule 3.08 Subsidiaries
Schedule 3.17 Environmental and Safety Matters
Schedule 3.18(b) UCC Filing Offices
Schedule 3.20 Reinsurance Agreements
Schedule 4.02(g) Stocks to be Pledged
Schedule 6.01 Indebtedness
Schedule 6.02 Liens

</TABLE>

<PAGE> 6

CREDIT AGREEMENT dated as of March 29, 1994, among CAPSURE
FINANCIAL GROUP, INC., an Oklahoma corporation (the "Borrower"),
CAPSURE HOLDINGS CORP., a Delaware corporation ("Capsure"), the
financial institutions listed on Schedule 2.01 (the "Lenders") and
CHEMICAL BANK, a New York banking corporation ("Chemical Bank"), as
agent for the Lenders (in such capacity, the "Administrative
Agent").

The Borrower has requested the Lenders to extend credit in order to
enable the Borrower, on the terms and subject to the conditions set forth in
this Agreement, to borrow on a revolving basis, at any time and from time to
time prior to the Maturity Date (such term and each other capitalized term used
but not defined in this introductory statement having the meanings assigned to
such terms in Section 1.01), an aggregate principal amount at any time
outstanding not to exceed $135,000,000 less the amount of any reductions in
Commitments pursuant to Section 2.09. The proceeds of such borrowings are to
be used (a) in an aggregate amount not to exceed $86,000,000, to refinance all
indebtedness outstanding under the Existing Credit Facilities, (b) for general
corporate purposes in the ordinary course of business of the Borrower and the
Subsidiaries, including funding the working capital requirements of the
Borrower and the Subsidiaries, whether now owned or hereafter existing (such
working capital requirements to include investment activities to the extent
permitted by Section 6.04 and dividend payments to the extent permitted by
Section 6.06), (c) to finance all or part of the purchase price to be paid in
connection with any Permitted Acquisition and (d) to make capital contributions
to any Subsidiary to the extent permitted hereunder. The Lenders are willing to
extend such credit to the Borrower on the terms and subject to the conditions
set forth in this Agreement.

Accordingly, the Borrower, Capsure, the Lenders and the Administrative
Agent agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms shall have the meanings specified below:

"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.

"ABR Loan" shall mean any Loan bearing interest at a rate determined by
reference to the Alternate Base Rate in accordance with the provisions of
Article II.

"Adjusted Capital" shall mean, at any time, the sum of (a) Total Debt at
such time and (b) the difference between (i) Stockholders' Equity at such time
and (ii) the aggregate amount of deferred tax assets relating to the Available
Net Operating Losses at such time, net of any valuation allowance, determined
in accordance with GAAP, of Capsure and its subsidiaries on a consolidated
basis at such time.

"Administrative Questionnaire" shall mean an Administrative Questionnaire
in the form of Exhibit C.
<PAGE> 7

"Affiliate" shall mean, when used with respect to a specified person,
another person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the person
specified.

"Alternate Base Rate" shall mean, for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/100 of 1%) equal to the greatest of (a)
the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such
day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%. For purposes hereof, the term "Prime Rate" shall mean the rate of
interest per annum publicly announced from time to time by the Administrative
Agent as its prime rate in effect at its principal office in New York City;
each change in the Prime Rate shall be effective on the date such change is
publicly announced as being effective. The term "Base CD Rate" shall mean the
sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii)
Statutory Bank Reserves and (b) the Assessment Rate. The term "Three-Month
Secondary CD Rate" shall mean, for any day, the secondary market rate for
three-month certificates of deposit reported as being in effect on such day
(or, if such day shall not be a Business Day, the next preceding Business Day)
by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so reported on such day
or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Administrative Agent from three New York City negotiable
certificate of deposit dealers of recognized standing selected by it. If for
any reason the Administrative Agent shall have determined (which determination
shall be conclusive absent manifest error) that it is unable to ascertain the
Base CD Rate or the Federal Funds Effective Rate or both for any reason,
including the inability or failure of the Administrative Agent to obtain
sufficient quotations in accordance with the terms thereof, the Alternate Base
Rate shall be determined without regard to clause (b) or (c), or both, of the
first sentence of this definition, as appropriate, until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or
the Federal Funds Effective Rate shall be effective on the effective date of
such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal
Funds Effective Rate, respectively.

"Annual Statement" shall mean, with respect to any Insurance Subsidiary,
the Annual Statement of such Insurance Subsidiary required to be filed with the
Applicable Insurance Regulatory Authority in accordance with state law,
including any exhibits, schedules, certificates or actuarial opinions filed or
delivered therewith.

"Applicable Commitment Fee Percentage" shall mean, for any date, the
applicable percentage set forth below based on the ratio of Total Debt to Total
Cash Flow Sources as of the last day of the Borrower's fiscal quarter most
recently ended as of such date:

<TABLE>
<CAPTION>
Ratio Commitment Fee
<S> <C>
Below 1.25 to 1.00 0.250%

At least 1.25 to 1.00 but below 4.00 to 1.00 0.375%

At least 4.00 to 1.00 0.500%

</TABLE>
<PAGE> 8

For purposes of the foregoing, the Applicable Commitment Fee Percentage
at any time shall be determined by reference to the ratio of Total Debt to
Total Cash Flow Sources as of the last day of the Borrower's fiscal quarter
most recently ended as of such date and any change in the Applicable Commitment
Fee Percentage shall become effective for all purposes on and after the date of
delivery to the Administrative Agent of the certificate described in Section
5.04(c) relating to such fiscal quarter; provided, however, that if the
proceeds of any Borrowing are used to finance a Permitted Acquisition and the
ratio of Total Debt to Total Cash Flow Sources after giving effect to such
Permitted Acquisition would result in a change in the Applicable Commitment Fee
Percentage, such change shall become effective for all purposes simultaneously
with such Borrowing. Notwithstanding the foregoing, at any time during which
the Borrower has failed to deliver the certificate described in Section 5.04(c)
with respect to a fiscal quarter in accordance with the provisions thereof, the
ratio of Total Debt to Total Cash Flow Sources shall be deemed, solely for the
purposes of this definition, to be 4.00 to 1.00 until such time as the Borrower
shall deliver such certificate in accordance with the provisions of Section
5.04(c).

"Applicable Insurance Regulatory Authority" shall mean, with respect to
any Insurance Subsidiary, the insurance commission or similar Governmental
Authority located in the state in which such Insurance Subsidiary is domiciled
and any Federal insurance Governmental Authority and any successor to any of
the foregoing.

"Applicable Margin" shall mean, for any date, with respect to the Loans
comprising any Eurodollar Borrowing or ABR Borrowing, as the case may be, the
applicable spread set forth below based on the ratio of Total Debt to Total
Cash Flow Sources as of the last day of the Borrower's fiscal quarter most
recently ended as of such date:

<TABLE>
<CAPTION>
Ratio Eurodollar Loan Spread ABR Loan Spread
<S> <C> <C>
Below 1.25 to 1.00 0.750% None

At least 1.25 to 1.00 but below 2.25 to 1.00 1.000% None

At least 2.25 to 1.00 but below 3.25 to 1.00 1.125% 0.125%

At least 3.25 to 1.00 but below 3.75 to 1.00 1.250% 0.250%

At least 3.75 to 1.00 but below 4.00 to 1.00 1.375% 0.375%

At least 4.00 to 1.00 1.750% 0.750%
</TABLE>

For purposes of the foregoing, the Applicable Margin at any time shall be
determined by reference to the ratio of Total Debt to Total Cash Flow Sources
as of the last day of the Borrower's fiscal quarter most recently ended as of
such date and any change in the Applicable Margin shall become effective upon
the delivery to the Administrative Agent of the certificate described in
Section 5.04(c) relating to such fiscal quarter and shall apply (a) to ABR
Loans outstanding on such delivery date or made on or after such delivery date
and (b) to Eurodollar Loans made on or after such delivery date; provided,
however, that, if the proceeds of any Borrowing are used to finance a Permitted
Acquisition and the ratio of Total Debt to Total Cash Flow Sources after giving
effect to such Permitted Acquisition would result in a change in the Applicable
Margin, such change shall become effective for all purposes simultaneously with
such Borrowing and shall apply (a) to ABR Loans outstanding on such date or
made on or after such date and (b) to Eurodollar Loans made on or after such
date. Notwithstanding the foregoing, at any time during
<PAGE> 9

which the Borrower has failed to deliver the certificate described in Section
5.04(c) with respect to a fiscal quarter in accordance with the provisions
thereof, the ratio of Total Debt to Total Cash Flow Sources shall be deemed,
solely for the purposes of this definition, to be 4.00 to 1.00 until such time
as the Borrower shall deliver such certificate in accordance with the
provisions of Section 5.04(c).

"Arlington" shall mean Arlington Leasing Co., a Nevada corporation.

"Assessment Rate" shall mean for any date the annual rate (rounded
upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the
Administrative Agent as the then-current net annual assessment rate that will
be employed in determining amounts payable by the Administrative Agent to the
Federal Deposit Insurance Corporation (or any successor) for insurance by such
Corporation (or such successor) of time deposits made in dollars at the
Administrative Agent's domestic offices.

"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Lender and an assignee, and accepted by the Administrative
Agent, in the form of Exhibit B or such other form as shall be approved by the
Administrative Agent and as shall be reasonably satisfactory to the parties to
such assignment and acceptance.

"Available Net Operating Losses" shall mean, for any date in any taxable
year, the net operating loss carryforwards to such taxable year for Federal
income tax purposes of Capsure and its subsidiaries that are not subject to the
limitations of Section 382 of the Code, Treasury Regulation Section 1.1502 -
21(c), Treasury Regulation Section 1.1502 - 21(d) or any similar limitation.

"Board" shall mean the Board of Governors of the Federal Reserve System
of the United States.

"Borrower Tax Sharing Agreement" shall mean each Tax Sharing Agreement as
in effect on the date hereof between the Borrower and any of its direct
subsidiaries.

"Borrowing" shall mean a group of Loans of a single Type made by the
Lenders on a single date and as to which a single Interest Period is in effect.

"Business Day" shall mean any day (other than a Saturday, Sunday or legal
holiday in the State of New York) on which banks are open for business in New
York City; provided, however, that, when used in connection with a Eurodollar
Loan, the term "Business Day" shall also exclude any day on which banks are not
open for dealings in dollar deposits in the London interbank market.

"Capital Lease Obligations" of any person shall mean the obligations of
such person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.

"Cash Equivalents" shall mean:

(a) United States Government Securities maturing within 90 days from
the date of acquisition thereof;
<PAGE> 10

(b) investments in commercial paper maturing within 90 days from the
date of acquisition thereof and having, at such date of acquisition, a
rating of A1 or higher from Standard & Poor's or a rating of P1 or higher
from Moody's;

(c) investments in certificates of deposit, banker's acceptances and
time deposits (including Eurodollar time deposits) maturing within 90
days from the date of acquisition thereof issued or guaranteed by or
placed with, and money market deposit accounts issued or offered by, any
domestic office of any commercial bank of recognized standing organized
under the laws of the United States of America or any state thereof that
has a combined capital and surplus and undivided profits of not less than
$250,000,000 and the deposits of which are rated (or the senior debt
securities of the holding company of such commercial bank are rated) A-
or better by Standard & Poor's or A3 or better by Moody's or carrying an
equivalent rating by another nationally recognized rating agency if
neither of the two named rating agencies shall rate such commercial bank
(or the holding company of such commercial bank);

(d) other investment instruments approved in writing by the Required
Lenders and offered by financial institutions that have a combined
capital and surplus and undivided profits of not less than $250,000,000;
and

(e) investments in repurchase agreements, dollar rolls, money market
preferred and collateralized short term puts, in each case maturing
within 90 days from the date of acquisition thereof and having, at such
date of acquisition, a rating of A1 or higher from Standard & Poor's or a
rating of P1 or higher from Moody's.

A "Change in Control" shall be deemed to have occurred if (a) the Zell
Entities, collectively, shall cease to own in the aggregate, directly,
beneficially and of record, shares representing at least 20% of the aggregate
ordinary voting power represented by the issued and outstanding capital stock
of Capsure, provided that such 20% shall be reduced by dilution suffered by
such persons on a pro rata basis with all other shareholders of Capsure as a
result of any issuance by Capsure for fair value after the Closing Date of any
capital stock representing ordinary voting power (i) to a seller as
consideration for a Permitted Acquisition or (ii) in a public offering, the
entire net proceeds (after underwriting discount and expenses incurred in
connection with such offering) of which are (A) paid to a seller as
consideration for a Permitted Acquisition or (B) contributed as capital to the
Borrower; (b) Capsure shall cease to own and control directly, of record and
beneficially, 100% of each class of outstanding capital stock of the Borrower
free and clear of all Liens (other than any Liens under the Security
Documents); or (c) the Borrower shall issue any class of capital stock (or
security convertible into any of its capital stock) that is not pledged to the
Collateral Agent for the ratable benefit of the Secured Parties.

"Closing Date" shall mean the date of the first Credit Event hereunder.

"Code" shall mean the Internal Revenue Code of 1986, as the same may be
amended from time to time and any successor statute thereto.

"Collateral" shall mean all the "Collateral" as such term is defined in
any Security Document.

"Collateral Agent" shall mean Chemical Bank, as Collateral Agent under
the Security Documents, or any successor thereto.
<PAGE> 11

"Commitment" shall mean, with respect to each Lender, the commitment of
such Lender to make Loans hereunder as set forth on Schedule 2.01, as the same
may be reduced from time to time pursuant to Section 2.09.

"Commitment Fee" shall have the meaning assigned to such term in Section
2.05(a).

"Control" shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a person,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "Controlling" and "Controlled" shall have meanings correlative
thereto.

"Credit Event" shall have the meaning assigned to such term in Article IV.

"Default" shall mean any event or condition that upon notice, lapse of
time or both would constitute an Event of Default.

"dollars" or "$" shall mean lawful money of the United States of America.

"EBIDA" shall mean, with respect to any person for any period, the sum of
(a) Net Income of such person for such period, (b) Interest Expense deducted in
determining such Net Income and (c) depreciation, amortization and other
noncash charges deducted in determining such Net Income.

"Environmental and Safety Laws" shall mean any and all applicable current
and future treaties, laws, regulations, requirements, binding determinations,
orders, decrees, judgments, injunctions, permits, approvals, authorizations,
licenses, permissions, notices or binding agreements issued, promulgated or
entered by any Governmental Authority, relating to the environment, to employee
health or safety as it pertains to the use or handling of, or exposure to,
Hazardous Substances, to preservation or reclamation of natural resources or to
the management, release or threatened release of contaminants or noxious odors,
including the Hazardous Materials Transportation Act, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"), the Solid
Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of
1976 and the Hazardous and Solid Waste Amendments of 1984, the Federal Water
Pollution Control Act, as amended by the Clean Water Act of 1977, the Clean Air
Act of 1970 (to the extent it pertains to the use or handling of, or exposure
to, Hazardous Substances), as amended, the Toxic Substances Control Act of
1976, the Occupational Safety and Health Act of 1970, as amended, the Emergency
Planning and Community Right-to-Know Act of 1986, the Safe Drinking Water Act
of 1974, as amended, and any similar or implementing state law and all
amendments or regulations promulgated thereunder.

"Environmental Claim" shall mean any written notice of any Governmental
Authority alleging liability for damage to the environment or by any person
alleging liability for personal injury (including sickness, disease or death),
in either case resulting from or based upon (a) the presence or release
(including intentional and unintentional, negligent and nonnegligent, sudden or
nonsudden, accidental or nonaccidental leaks or spills) of any Hazardous
Substance at, in or from the property of any person, whether or not owned or
leased by such person, or (b) any other circumstances forming the basis of any
violation, or alleged violation, of any Environmental and Safety Law; provided,
that the term "Environmental Claim" shall not include any allegation of
liability on the part of any Insurance Subsidiary for any of the foregoing
under any bond or policy issued by such Insurance Subsidiary.
<PAGE> 12

"Equity Contribution" shall mean the contribution by Capsure to the
Borrower of (a) all the capital stock of, and intercompany indebtedness owing
to Capsure by, each subsidiary of Capsure in existence on the date hereof and
any other interest Capsure may hold with respect to any such subsidiary or such
subsidiary's assets, (b) all marketable securities held by Capsure on the date
hereof and (c) all cash held by Capsure on the date hereof (other than $250,000
(net of fees and expenses incurred in connection with the Transactions) to be
retained by Capsure for the payment of reasonable and customary accounting,
legal and other administrative expenses in the ordinary course of Capsure's
business).

"Equity Holdings" shall mean Equity Holdings, an Illinois partnership.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as the same may be amended from time to time.

"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that is, together with Capsure and/or the Borrower, treated as a
single employer under Section 414 of the Code.

"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
Loans.

"Eurodollar Loan" shall mean any Loan bearing interest at a rate
determined by reference to the LIBO Rate in accordance with the provisions of
Article II.

"Event of Default" shall have the meaning assigned to such term in
Article VII.

"Excess Cash Flow" shall mean, for any period, the difference between (a)
Total Cash Flow Sources for such period (determined without giving effect to
(i) clauses (a)(ii), (b)(ii) and (c)(ii) of the definition of the term "Total
Cash Flow Sources" and (ii) any gain resulting from the sale of any assets by
any Subsidiary other than any realized gain from the sale of Invested Assets by
the Borrower or any Subsidiary (other than any Insurance Subsidiary)) and (b)
Total Cash Flow Uses for such period minus the aggregate amount of reductions
in the Commitments required under Section 2.09(b) and Section 2.09(c) during
such period, but only to the extent that such reductions (i) have been included
in Total Cash Flow Uses for such period and (ii) did not result in a required
payment or prepayment under Section 2.10(b).

"Excluded Dividends" shall mean (a) dividends, distributions or other
cash payments from the Borrower or any of its subsidiaries to Capsure, in an
amount not to exceed (i) $2,500,000 in the aggregate in each calendar year from
1994 through 1997 and (ii) $3,000,000 in the aggregate in each calendar year
from 1998 through 2000, in each case solely to enable Capsure to pay reasonable
and customary accounting, legal and other administrative expenses (to the
extent such expenses have not been reimbursed by the Borrower or any subsidiary
of the Borrower or Capsure) in the ordinary course of Capsure's business, (b)
dividends, distributions or other cash payments from the Borrower or any of its
subsidiaries to Capsure to the extent required under the Tax Sharing Agreements
and (c) in addition to dividends, distributions or other cash payments
permitted under clauses (a) and (b) above, dividends, distributions or other
cash payments from the Borrower or any of its subsidiaries to Capsure in an
amount not to exceed $30,000,000 in the aggregate since the Closing Date.

"Excluded Investments" shall have the meaning assigned to such term in
Section 6.04(f).

"Existing Credit Facilities" shall mean (a) the Credit Agreement dated
August 14, 1992, among SI Acquisition Corp., the lenders named therein and
Continental Bank, N.A., as agent for such lenders,
<PAGE> 13

and (b) the Credit Agreement dated February 20, 1990, among NI Acquisition
Corp., the lenders named therein and Continental Bank, N.A., as agent for such
lenders.

"Extraordinary Dividend" shall mean any dividend paid or payable by any
Insurance Subsidiary that is not an Ordinary Dividend at the time of payment
thereof.

"Federal Funds Effective Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers, as published on
the next succeeding Business Day by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day that is a Business Day, the
average of the quotations for the day of such transactions received by the
Administrative Agent from three Federal funds brokers of recognized standing
selected by it.

"Fee Letter" shall mean the Fee Letter dated February 16, 1994, between
Capsure and the Administrative Agent.

"Fees" shall mean the Commitment Fees, the Participation Fees and all
other amounts required to be paid to the Administrative Agent and/or the
Lenders pursuant to Section 2.05.

"Financial Officer" of any corporation shall mean the chief financial
officer, principal accounting officer, Treasurer or Controller of such
corporation.

"Fixed Charge Coverage Ratio" shall mean, for any period, the ratio of
(a) the sum of (i) Total Cash Flow Sources for such period and (ii) an amount
equal to the lesser of (A) $10,000,000 or (B) the aggregate amount of cash and
Cash Equivalents held by the Borrower and the Subsidiaries (other than any
Insurance Subsidiary and any subsidiary of any Insurance Subsidiary) on the
last day of such period minus, in the case of each of clause (A) and clause
(B), the aggregate principal amount, without duplication, of loans and
advances to the Borrower and the Subsidiaries (other than any Insurance
Subsidiary and any subsidiary of any Insurance Subsidiary) from Capsure, any
Insurance Subsidiary or any subsidiary of any Insurance Subsidiary outstanding
on the last day of such period (provided that, for purposes of this definition,
the amount under this clause (ii) shall not be less than zero) to (b) Total
Cash Flow Uses for such period.

"Funded Indebtedness" shall mean, for Capsure and its subsidiaries at any
time, the aggregate amount of Indebtedness consisting of obligations for
borrowed money and Capital Lease Obligations of Capsure and its subsidiaries at
such time.

"GAAP" shall mean generally accepted accounting principles applied on a
consistent basis.

"Governmental Authority" shall mean any Federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory body.

"Guarantee" of or by any person shall mean any obligation, contingent or
otherwise, of such person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other person (the "primary obligor") in
any manner, whether directly or indirectly, and including any obligation of
such person, direct or indirect, (a) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Indebtedness or to purchase (or to
advance or supply funds for the purchase of) any security for the payment of
such Indebtedness, (b) to purchase property, securities or services for the
purpose of
<PAGE> 14

assuring the owner of such Indebtedness of the payment of such Indebtedness or
(c) to maintain working capital, equity capital or other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness; provided, however, that the term "Guarantee"
shall not include (i) endorsements for collection or deposit, or (ii) surety
bonds issued by any Insurance Subsidiary in either case in the ordinary course
of business.

"Guarantee Agreement" shall mean the Guarantee Agreement, substantially
in the form of Exhibit I, among the Subsidiary Guarantors, any person that
shall become a party thereto pursuant to Section 5.09 and the Collateral Agent.

"Guarantor" shall mean Capsure and each Subsidiary Guarantor.

"Hazardous Substances" shall mean any toxic, radioactive, caustic or
otherwise hazardous substance, material or waste, including petroleum, its
derivatives, by-products and other hydrocarbons, including polychlorinated
biphenyls ("PCBs"), asbestos or asbestos-containing material, and any
substance, waste or material regulated under Environmental and Safety Laws.

"Indebtedness" of any person shall mean, without duplication, (a) all
obligations of such person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such person
upon which interest charges are customarily paid, (d) all obligations of such
person under conditional sale or other title retention agreements relating to
property or assets purchased by such person, (e) all obligations of such person
issued or assumed as the deferred purchase price of property or services, (f)
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such person, whether or not the
obligations secured thereby have been assumed, (g) all Guarantees by such
person of Indebtedness of others, (h) all Capital Lease Obligations of such
person, (i) all obligations of such person in respect of interest rate
protection agreements, foreign currency exchange agreements or other interest
or exchange rate hedging arrangements and (j) all obligations of such person as
an account party in respect of letters of credit and bankers' acceptances. The
Indebtedness of any person shall include the Indebtedness of any partnership in
which such person is a general partner.

"Indemnity, Subrogation and Contribution Agreement" shall mean the
Indemnity, Subrogation and Contribution Agreement, substantially in the form of
Exhibit E, among the Subsidiary Guarantors, any person that shall become a
party thereto pursuant to Section 5.09 and the Borrower.

"Insurance Business" shall mean one or more aspects of the business of
selling, issuing, underwriting, reinsuring, producing, administering, managing
or servicing property and casualty insurance and activities incidental thereto.

"Insurance Liabilities" shall mean (a) with respect to any Insurance
Subsidiary at any time, the amount set forth on line 21 of the Liabilities,
Surplus and Other Funds Statement in the Annual Statement of such Insurance
Subsidiary or line 22 of the Liabilities, Surplus and Other Funds Statement in
the Quarterly Statement of such Insurance Subsidiary, in each case most
recently delivered to the Administrative Agent and the Lenders pursuant to
Section 5.04 (or, in the case of any Insurance Subsidiary acquired after the
date hereof that has not yet delivered any such statement to the Administrative
Agent, in the Annual Statement or Quarterly Statement of such Insurance
Subsidiary most recently filed with the Applicable Insurance Regulatory
Authority) or, if any such statement shall be modified, the equivalent item
<PAGE> 15

on any applicable successor form and (b) with respect to any other Subsidiary
engaged in the Insurance Business at such time, the total liabilities (other
than Funded Indebtedness and amounts available to be borrowed under credit
facilities the proceeds of which are to be used for working capital purposes of
such Subsidiary) of such Subsidiary that would properly be classified as
liabilities at such time, determined in accordance with GAAP.

"Insurance Regulatory Information System" shall mean the Insurance
Regulatory Information System promulgated by the NAIC, or any successor system
promulgated by the NAIC.

"Insurance Subsidiaries" shall mean Western Surety, United Capitol,
Surety Bonding Company of America and any other Subsidiary, whether now owned
or hereafter acquired, that is regulated, in accordance with applicable state
law or any Federal law, as an insurer by an insurance commission or similar
Governmental Authority located in the state in which such Subsidiary is
domiciled or by any Federal insurance Governmental Authority.

"Interest Expense" shall mean, with respect to any person for any period,
the interest expense of such person for such period, as shown on the
unconsolidated statement of earnings of such person for such period, determined
in accordance with GAAP.

"Interest Payment Date" shall mean, with respect to any Loan, the last
day of the Interest Period applicable to the Borrowing of which such Loan is a
part and, in the case of a Eurodollar Borrowing with an Interest Period of more
than three months' duration, each day that would have been an Interest Payment
Date had successive Interest Periods of three months' duration been applicable
to such Borrowing, and, in addition, the date of any refinancing or conversion
of such Borrowing with or to a Borrowing of a different Type.

"Interest Period" shall mean (a) as to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing or on the last day of the
immediately preceding Interest Period applicable to such Borrowing, as the case
may be, and ending on the numerically corresponding day (or, if there is no
numerically corresponding day, on the last day) in the calendar month that is
1, 2, 3 or 6 months thereafter, as the Borrower may elect, and (b) as to any
ABR Borrowing, the period commencing on the date of such Borrowing or on the
last day of the immediately preceding Interest Period applicable to such
Borrowing, as the case may be, and ending on the earliest of (i) the next
succeeding March 31, June 30, September 30 or December 31, (ii) the Maturity
Date and (iii) the date such Borrowing is prepaid in accordance with Section
2.10; provided, however, that if any Interest Period would end on a day other
than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless, in the case of a Eurodollar Borrowing only,
such next succeeding Business Day would fall in the next calendar month, in
which case such Interest Period shall end on the next preceding Business Day.

"Invested Assets" of any person shall mean (a) in the case of any
Insurance Subsidiary, the amount set forth on line 8A under Subtotals, Cash and
Invested Assets in the Assets Statement in the Annual Statement or Quarterly
Statement of the Insurance Subsidiary most recently delivered to the
Administrative Agent and the Lenders pursuant to Section 5.04 (or, in the case
of any Insurance Subsidiary acquired after the date hereof that has not yet
delivered any such statement to the Administrative Agent, in the Annual
Statement or Quarterly Statement of such Insurance Subsidiary most recently
filed with the Applicable Insurance Regulatory Authority) or, if any such
statement shall be modified, the equivalent item on any applicable successor
form or (b) in the case of any other person, assets of such person of the type
described in clause (a) above.
<PAGE> 16

"Investment-Grade Security" shall mean any of the following: (a) any
United States Government Security, (b) any Invested Asset that is rated NAIC 1
or NAIC 2 by the NAIC, (c) any Invested Asset that is rated BBB- or higher by
Standard & Poor's or Baa3 or higher by Moody's and (d) any Invested Asset that
is rated BBB- or higher by Duff & Phelps Credit Rating Co. or by Fitch
Investors Service, Inc., provided that any Invested Asset specified in this
clause (d) shall cease to be an Investment-Grade Security if such Invested
Asset shall not receive a rating of NAIC 1 or NAIC 2 from the NAIC on or before
the day that is 90 days following the date of issuance of such Invested Asset.

"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any
Interest Period, the interest rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the product of (a) the rate at which dollar
deposits approximately equal in principal amount to the Administrative Agent's
portion of such Eurodollar Borrowing and for a maturity comparable to such
Interest Period are offered to the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period and (b) Statutory Bank Reserves.

"Lien" shall mean, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement relating to such asset
and (c) in the case of securities, any purchase option, call or similar right
of a third party with respect to such securities.

"Loans" shall mean the revolving loans made by the Lenders to the
Borrower pursuant to Section 2.01. Each Loan shall be a Eurodollar Loan or an
ABR Loan.

"Loan Documents" shall mean this Agreement, the Notes, the Security
Documents, the Guarantee Agreement, the Indemnity, Subrogation and Contribution
Agreement and the Fee Letter.

"Long Tail Insurance Line of Business" shall mean any line of business in
respect of which the NAIC requires, at the time of determination, computation
of an excess statutory reserve of the type set forth on page 93 of the Annual
Statement of any Insurance Subsidiary for the year ended December 31, 1993,
or, if such statement shall be modified, the equivalent item on any applicable
successor form.

"Margin Stock" shall have the meaning given such term under Regulation U.

"Material Adverse Effect" shall mean (a) a materially adverse effect on
the business, assets, operations, prospects or condition, financial or
otherwise, of Capsure and its subsidiaries, taken as a whole, or (b) a
material impairment of the ability of Capsure, the Borrower or any of the
Subsidiaries to perform any of its material obligations under any Loan Document
to which it is or will be a party or under any of its other Indebtedness.

"Maturity Date" shall mean March 31, 2000.

"Moody's" shall mean Moody's Investors Service, Inc.

"Mortgage" shall mean each Mortgage, Security Agreement and Assignment of
Leases and Rents, substantially in the form of Exhibit J hereto, entered into
after the date hereof between the Borrower or any person that shall become a
party thereto pursuant to Section 5.09 and the Collateral Agent.
<PAGE> 17

"Multiemployer Plan" shall mean a multiemployer plan as defined in
Section 4001(a)(3) of ERISA to which Capsure, the Borrower or any ERISA
Affiliate (other than one considered an ERISA Affiliate only pursuant to
subsection (m) or (o) of Section 414 of the Code) is making or accruing or has
within any of the preceding five plan years made or accrued an obligation to
contribute.

"NAIC" shall mean the National Association of Insurance Commissioners or
any association or Governmental Authority succeeding to any or all of the
functions of the National Association of Insurance Commissioners.

"NAIC 1" shall mean the rating NAIC 1 of the NAIC.

"NAIC 2" shall mean the rating NAIC 2 of the NAIC.

"Net Income" shall mean with respect to any person for any period, the
aggregate net income (or net deficit) of such person for such period computed
in accordance with GAAP, provided that the term "Net Income" shall exclude all
extraordinary items determined in accordance with GAAP.

"Net Written Premiums" shall mean, with respect to any Insurance
Subsidiary for any period of four consecutive fiscal quarters, the amount set
forth on line 1 of Exhibit 3 to the Reconciliation of Ledger Assets in the
Annual Statement and/or Quarterly Statement of such Insurance Subsidiary
relating to such period or, if any such statement shall be modified, the
equivalent item on any applicable successor form.

"Note" shall mean a promissory note of the Borrower, substantially in the
form of Exhibit A, evidencing Loans.

"Obligations" shall mean all obligations defined as "Obligations" in the
Guarantee Agreement and the Security Documents.

"Operating Leverage Ratio" shall mean the ratio, with respect to any
Insurance Subsidiary, of (a) Net Written Premiums of such Insurance Subsidiary
for the period of four consecutive fiscal quarters preceding the date of any
determination to (b) Surplus of such Insurance Subsidiary at such date.

"Ordinary Dividends" shall mean, with respect to any Insurance
Subsidiary, the maximum amount of dividends that such Insurance Subsidiary may
pay during any period of four consecutive fiscal quarters without seeking
regulatory approval under applicable regulations in effect during such period.

"Participation Fee" shall have the meaning given to such term in Section
2.05(c).

"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
and defined in ERISA.

"Perfection Certificate" shall mean the Perfection Certificate,
substantially in the form of Annex 2 to the Security Agreement, prepared by
Capsure and the Borrower.

"Permitted Acquisition" shall have the meaning assigned to such term in
Section 6.05(c)(ii).
<PAGE> 18

"Permitted Investments" shall mean:

(a) United States Government Securities maturing within 360 days from
the date of acquisition thereof;

(b) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, a
rating of A1 or higher from Standard & Poor's or a rating of P1 or higher
from Moody's;

(c) investments in certificates of deposit, banker's acceptances and
time deposits (including Eurodollar time deposits) maturing within 360
days from the date of acquisition thereof issued or guaranteed by or
placed with, and money market deposit accounts issued or offered by, any
domestic office of any commercial bank of recognized standing organized
under the laws of the United States of America or any state thereof that
has a combined capital and surplus and undivided profits of not less than
$250,000,000 and the deposits of which are rated (or the senior debt
securities of the holding company of such commercial bank are rated) A-
or better by Standard & Poor's or A3 by Moody's or carrying an equivalent
rating by another nationally recognized rating agency if neither of the
two named rating agencies shall rate such commercial bank (or the holding
company of such commercial bank);

(e) other Investment Grade Securities maturing within three years
from the date of acquisition thereof.

"person" shall mean any natural person, corporation, business trust,
joint venture, association, company, limited liability company, partnership or
government, or any agency or political subdivision thereof.

"Plan" shall mean any employee pension benefit plan (other than a
Multiemployer Plan) that is subject to the provisions of Title IV of ERISA or
Section 412 of the Code and is maintained for current or former employees, or
any beneficiary thereof, of Capsure, the Borrower or any ERISA Affiliate.

"Pledge Agreement" shall mean the Pledge Agreement, substantially in the
form of Exhibit F, among Capsure, the Borrower, each Subsidiary Guarantor,
certain other Subsidiaries, any person that shall become a party thereto
pursuant to Section 5.09 and the Collateral Agent.

"Pledgeholder Agreement" shall mean each Pledgeholder Agreement,
substantially in the form of Exhibit H hereto, between the Borrower or any
person that shall become a party thereto pursuant to Section 5.09, any
Pledgeholder named therein and the Collateral Agent.

"Quarterly Statement" shall mean, with respect to any Insurance
Subsidiary, the Quarterly Statement of such Insurance Subsidiary required to be
filed with the Applicable Insurance Regulatory Authority in accordance with
state law, including any exhibits, schedules, certificates or actuarial
opinions filed or delivered therewith.
<PAGE> 19

"Register" shall have the meaning given such term in Section 10.04(d).

"Regulation G" shall mean Regulation G of the Board as from time to time
in effect and all official rulings and interpretations thereunder or thereof.

"Regulation U" shall mean Regulation U of the Board as from time to time
in effect and all official rulings and interpretations thereunder or thereof.

"Regulation X" shall mean Regulation X of the Board as from time to time
in effect and all official rulings and interpretations thereunder or thereof.

"Reinsurance Agreements" shall mean all agreements, contracts, treaties,
certificates and other arrangements whereby an insurance company agrees to
transfer or cede to another insurer all or part of the liability assumed by
such insurance company under a policy or policies of insurance reinsured by
such insurance company, provided that, for purposes of Section 3.20 and Section
5.04(j) only, the term "Reinsurance Agreements" shall not include individual
facultative reinsurance agreements or arrangements.

"Reportable Event" shall mean any reportable event as defined in Section
4043(b) of ERISA or the regulations issued thereunder with respect to a Plan
(other than a Plan maintained by an ERISA Affiliate that is considered an ERISA
Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code).

"Required Lenders" shall mean, at any time, Lenders holding Loans
representing at least a majority of the aggregate principal amount of the Loans
outstanding or, if no Loans are outstanding, Lenders having Commitments
representing at least a majority of the aggregate Commitments.

"Responsible Officer" of any corporation shall mean any executive officer
or Financial Officer of such corporation and any other officer or similar
official thereof responsible for the administration of the obligations of such
corporation in respect of this Agreement.

"Right" shall mean the potential right (as in effect on the date hereof)
of the Rightholder to purchase shares of convertible preferred stock of United
Capitol Holding Company, upon the terms and conditions in effect on the date
hereof.

"Rightholder" shall mean the person or persons set forth on Schedule
1.01(a).

"Risk-Based Capital" shall mean, with respect to the Insurance
Subsidiaries at any time, the Risk-Based Capital (as defined by the NAIC at
such time and as computed in accordance with SAP) of the Insurance Subsidiaries
(consolidated in accordance with SAP) at such time.

"SAP" shall mean, with respect to any Insurance Subsidiary, the
accounting procedures prescribed or permitted by the Applicable Insurance
Regulatory Authority applied on a basis consistent with those that are
indicated in Section 1.02.

"Secured Parties" shall have the meaning assigned to such term in the
Security Agreement.
<PAGE> 20

"Security Agreement" shall mean the Security Agreement, substantially in
the form of Exhibit G, among Capsure, the Borrower, each Subsidiary Guarantor,
any person that shall become a party thereto pursuant to Section 5.09 and the
Collateral Agent.

"Security Documents" shall mean the Pledge Agreement, the Security
Agreement, each Mortgage, each Pledgeholder Agreement and each of the security
agreements and other instruments and documents executed and delivered pursuant
to any of the foregoing or pursuant to Section 5.09.

"Short Tail Insurance Line of Business" shall mean any line of business
in the Insurance Business that is not, at the time of determination, a Long
Tail Insurance Line of Business.

"Standard & Poor's" shall mean Standard and Poor's Corporation.

"Statement of Actuarial Opinion" shall mean, with respect to any
Insurance Subsidiary, the Statement of Actuarial Opinion required to be filed
with the Applicable Insurance Regulatory Authority in accordance with state law
or, if such Applicable Insurance Regulatory Authority shall no longer require
such a statement, information equivalent to that required to be included in the
Statement of Actuarial Opinion that was filed immediately prior to the time
such statement was no longer required.

"Statutory Bank Reserves" shall mean a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including
any marginal, special, emergency or supplemental reserves) expressed as a
decimal established by the Board and any other banking authority to which the
Administrative Agent is subject (a) with respect to the Base CD Rate (as such
term is used in the definition of "Alternate Base Rate"), for new negotiable
nonpersonal time deposits in dollars of over $100,000 with maturities
approximately equal to three months and (b) with respect to the LIBO Rate, for
Eurocurrency Liabilities (as defined in Regulation D of the Board). Such
reserve percentages shall include those imposed pursuant to such Regulation D.
Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and to
be subject to such reserve requirements without benefit of or credit for
proration, exemptions or offsets which may be available from time to time to
any Lender under such Regulation D. Statutory Bank Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.

"Statutory Surplus" or "Surplus" shall mean, with respect to any
Insurance Subsidiary at any time, the amount set forth on line 25 of the
Liabilities, Surplus and Other Funds Statement in the Annual Statement of such
Insurance Subsidiary or line 26 of the Liabilities, Surplus and Other Funds
Statement in the Quarterly Statement of such Insurance Subsidiary, in each case
most recently delivered to the Administrative Agent and the Lenders pursuant to
Section 5.04 (or, in the case of any Insurance Subsidiary acquired after the
date hereof that has not yet delivered any such statement to the Administrative
Agent, in the Annual Statement or Quarterly Statement of such Insurance
Subsidiary most recently filed with the Applicable Insurance Regulatory
Authority) or, if such statement shall be modified, the equivalent item on any
applicable successor form.

"Stockholders' Equity" shall mean, at any date, for Capsure and its
subsidiaries on a consolidated basis, stockholders equity at such date,
determined in accordance with GAAP and after giving effect to all adjustments
required thereby.

"subsidiary" shall mean, with respect to any person (herein referred to
as the "parent"), any corporation, partnership, association or other business
entity (a) of which securities or other ownership
<PAGE> 21

interests representing more than 50% of the equity or more than 50% of the
ordinary voting power or more than 50% of the general partnership interests
are, at the time any determination is being made, owned, controlled or held, or
(b) that is, at the time any determination is made, otherwise Controlled, by
the parent or one or more subsidiaries of the parent or by the parent and one
or more subsidiaries of the parent.

"Subsidiary" shall mean any subsidiary of the Borrower.

"Subsidiary Guarantor" shall mean SI Acquisition Corp., NI Acquisition
Corp., Surewest Financial Corp. and United Capitol Holding Company, Troy Fain
Insurance, Inc., Pin Oak Petroleum Inc., Capsure Agency Holding Corp., APGO
Drilling & Production Services, Capital Dredge & Dock Corp., Cogburn Pump &
Supply Co., Condor Pipe, Incorporated, Crowder Tank, Inc., Del-Tex, Inc., Eagle
Upsetters, Inc., Jim Williams & Associates, Inc., Martin Pipe Co., Inc., Nucorp
Compressor, Inc., Nucorp Management Company, Nucorp Properties, Inc., SMCI
Incorporated, Superior Allied Products, Inc., Sweetwater Pump & Supply, Inc.,
Taylor Rig and Equipment Company and Wildcat Supply, Inc., and each person that
shall become a Subsidiary Guarantor pursuant to Section 5.09.

"Surplus Relief Reinsurance Agreement" shall mean any agreement whereby
any Insurance Subsidiary either assumes or cedes business under a Reinsurance
Agreement that would be considered a "financing-type" reinsurance agreement and
is entered into solely for the purpose of impacting or affecting the income
statement of such Insurance Subsidiary.

"Tax Sharing Agreement" shall mean each Tax Sharing Agreement (including
each Borrower Tax Sharing Agreement) as in effect on the date hereof between
(a) Capsure and the Borrower, (b) the Borrower and any of its subsidiaries or
(c) any subsidiary of the Borrower and any other subsidiary of the Borrower.

"Total Cash Flow Sources" shall mean, at any measurement date, for the
period of four consecutive fiscal quarters preceding such measurement date (the
"Reference Period"), the sum, without duplication, of (a)(i) in the case of
Western Surety, United Capitol and, for any measurement date occurring after
the completion of three consecutive fiscal quarters immediately following the
fiscal quarter during which the acquisition thereof is consummated in
accordance with Section 6.05, any Insurance Subsidiary (other than any
Insurance Subsidiary that is a subsidiary of any other Insurance Subsidiary)
hereafter acquired, (A) the capacity to pay Ordinary Dividends (calculated as
if the measurement date is the end of a calendar year and determined by
reference to the regulations governing the payment of dividends by insurance
companies to insurance holding companies promulgated by the Applicable
Insurance Regulatory Authority as in effect from time to time) of such persons
during the Reference Period or (B) if such Ordinary Dividends have not been
paid during the Reference Period, the aggregate amount of dividends actually
paid during the Reference Period by such persons or (ii) for purposes of
determining compliance with Section 6.05 (c)(ii)(H), and for any measurement
date occurring prior to the completion of three consecutive fiscal quarters
immediately following the fiscal quarter during which the acquisition thereof
is consummated in accordance with Section 6.05 (but occurring after the date on
which such acquisition is consummated), the capacity to pay Ordinary Dividends
(calculated as if the measurement date is the end of a calendar year and
determined by reference to the regulations governing the payment of dividends
by insurance companies to insurance holding companies promulgated by the
Applicable Insurance Regulatory Authority as in effect from time to time)
during the Reference Period of any Insurance Subsidiary hereafter acquired,
calculated as if such Subsidiary had been a Subsidiary as of the first day of
the Reference Period, (b)(i) EBIDA during the Reference Period of all
Subsidiaries (other than Insurance Subsidiaries and subsidiaries of Insurance
Subsidiaries) now owned and, for any measurement date occurring after the
completion of three consecutive fiscal quarters immediately following the
fiscal quarter
<PAGE> 22

during which the acquisition thereof is consummated in accordance with Section
6.05, any Subsidiary (other than Insurance Subsidiaries and subsidiaries of
Insurance Subsidiaries) hereafter acquired and (ii) for purposes of determining
compliance with Section 6.05(c)(ii)(H), and for any measurement date occurring
prior to the completion of three consecutive fiscal quarters immediately
following the fiscal quarter during which the acquisition thereof is
consummated in accordance with Section 6.05 (but occurring after the date on
which such acquisition is consummated), EBIDA during the Reference Period of
any Subsidiary (other than Insurance Subsidiaries and subsidiaries of Insurance
Subsidiaries) hereafter acquired, calculated as if such Subsidiary had been a
Subsidiary as of the first day of the Reference Period, (c)(i) in the case of
any direct subsidiary of the Borrower existing on the date hereof and, for any
measurement date occurring after the completion of three consecutive fiscal
quarters immediately following the fiscal quarter during which the acquisition
thereof is consummated in accordance with Section 6.05, any other direct
subsidiary of the Borrower hereafter acquired, the net payments (determined
without giving effect to the tax benefit resulting from the payment of interest
under the Existing Credit Facilities) required to be made to the Borrower
during the Reference Period under the Borrower Tax Sharing Agreements by such
persons and (ii) for purposes of determining compliance with Section 6.05
(c)(ii)(H), and for any measurement date occurring prior to the completion of
three consecutive fiscal quarters immediately following the fiscal quarter
during which the acquisition thereof is consummated in accordance with Section
6.05 (but occurring after the date on which such acquisition is consummated),
the net payments that would have been required to have been made to the
Borrower under the Borrower Tax Sharing Agreements during the Reference Period
by any direct subsidiary of the Borrower hereafter acquired, assuming such
Subsidiary had been a Subsidiary as of the first day of the Reference Period,
and (d) cash received by the Borrower during the Reference Period (or, for any
Reference Period that includes one or more of the four consecutive fiscal
quarters ended March 31, 1994, by Capsure during any of such fiscal quarters
included in such Reference Period) as a result of income from management fees
earned and income (determined in accordance with GAAP) from Invested Assets of
the Borrower or Capsure, as applicable. The term "Total Cash Flow Sources"
shall in all cases exclude the aggregate amount of Extraordinary Dividends and
extraordinary distributions or other payments received by the Borrower during
the applicable Reference Period.

"Total Cash Flow Uses" shall mean, for any period of four consecutive
fiscal quarters, the sum, without duplication, of (a) the aggregate amount of
Commitment reductions required under Section 2.09(b) and Section 2.09(c) during
such period to the extent that the amount of Commitments outstanding after any
such reduction is less than the greatest amount of Loans that has been
outstanding at any time since the Closing Date before giving effect to such
reduction, (b) the aggregate amount of Indebtedness required to be repaid by
Capsure and its subsidiaries during such period, (c) Interest Expense of
Capsure and its subsidiaries during such period, (d) the aggregate amount of
taxes paid by the Borrower or Capsure during such period, (e) the aggregate
amount of dividends, distributions or other payments made by the Borrower to
Capsure during such period (excluding dividends, distributions or other
payments, made pursuant to Section 6.06(b)(iv), in an aggregate amount of up
to $20,000,000 since the Closing Date, so long as the Borrower has cash and
Cash Equivalents equal to the amount of any such excluded dividend,
distribution or other payment immediately prior to the payment thereof) and (f)
any other expenses of the Borrower and the Subsidiaries during such period and
any other uses of cash by Capsure (excluding expenses of Capsure for which
dividends have been paid to Capsure under Section 6.06(b)(ii) to the extent
such dividends have been included under clause (e) of this definition) and its
subsidiaries (other than Insurance Subsidiaries) during such period (including
dividends or other distributions in respect of the capital stock of Capsure and
its subsidiaries), in each case to the extent not otherwise included in EBIDA
during such period of such Subsidiaries (other than Insurance Subsidiaries).

"Total Debt" shall mean, at any time, the aggregate amount of Funded
Indebtedness at such time.
<PAGE> 23

"Transactions" shall have the meaning assigned to such term in Section
3.02.

"Transferee" shall have the meaning assigned to such term in Section 2.17.

"Type", when used in respect of any Loan or Borrowing, shall refer to the
Rate by reference to which interest on such Loan or on the Loans comprising
such Borrowing is determined. For purposes hereof, the term "Rate" shall
include the LIBO Rate and the Alternate Base Rate.

"United States Government Securities" shall mean direct obligations of,
or obligations the principal of and interest on which are unconditionally
guaranteed by, the United States of America, any agency thereof, the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation, the
Government National Mortgage Association, the Student Loan Market Association,
the Federal Home Loan Bank or the Federal Farm Credit Bank.

"Western Surety" shall mean Western Surety Company, a South Dakota
corporation.

"Withdrawal Liability" shall mean liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.

"United Capitol" shall mean United Capitol Insurance Company, a Wisconsin
corporation.

"Zell Entities" shall mean (a) each of Equity Holdings and Arlington so
long as Samuel Zell, Ann Lurie and the persons specified in clauses (b) and (c)
of this definition, collectively, (i) shall Control each such entity and (ii)
shall own, directly and indirectly, beneficially and of record, at least 51% of
the aggregate ordinary voting power represented by the issued and outstanding
capital stock or general partnership interests of each such entity, (b) trusts
created for the benefit of Samuel Zell, Ann Lurie or their respective immediate
family members and (c) any other person Controlled by Samuel Zell or the trusts
specified in clause (b) of this definition.

SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP or, to the extent such terms apply to an
Insurance Subsidiary, SAP, in each case as in effect from time to time;
provided, however, that for purposes of determining compliance with any
covenant set forth in Article VI, such terms shall be construed in accordance
with GAAP or SAP (and the NAIC and the Insurance Regulatory Information
System), as applicable, as in effect on the date of this Agreement applied on a
basis consistent with the application used in preparing Capsure's audited
financial statements referred to in Section 3.05 or the Insurance Subsidiaries'
financial statements filed with their respective Applicable Insurance
Regulatory Authorities, as the case may be.
<PAGE> 24

ARTICLE II

THE CREDITS

SECTION 2.01. Commitments. Upon the terms and subject to the conditions
and relying upon the representations and warranties herein set forth, each
Lender agrees, severally and not jointly, to make Loans to the Borrower, at any
time and from time to time on or after the Closing Date and until the earlier
of the Maturity Date and the termination of the Commitment of such Lender in
accordance with the terms hereof, in an aggregate principal amount at any time
outstanding not to exceed (after giving effect to all Loans repaid) an amount
equal to the Commitment set forth opposite such Lender's name on Schedule 2.01,
as such Commitment may be reduced from time to time pursuant to Section 2.09.
Within the limits set forth in the preceding sentence, the Borrower may borrow,
pay or prepay and reborrow Loans on or after the Closing Date and prior to the
Maturity Date, upon the terms and subject to the conditions and limitations set
forth herein.

SECTION 2.02. Loans. (a) Each Loan shall be made as part of a Borrowing
consisting of Loans made by the Lenders ratably in accordance with their
respective Commitments; provided, however, that the failure of any Lender to
make any Loan shall not in itself relieve any other Lender of its obligation to
lend hereunder (it being understood, however, that no Lender shall be
responsible for the failure of any other Lender to make any Loan required to be
made by such other Lender). The Loans comprising each Borrowing shall be in an
aggregate principal amount that is an integral multiple of $1,000,000 and not
less than $1,000,000 (or, if less, an aggregate principal amount equal to the
remaining balance of the Commitments).

(b) Each Borrowing shall be comprised entirely of ABR Loans or Eurodollar
Loans, as the Borrower may request pursuant to Section 2.03. Each Lender may
at its option fulfill its Commitment with respect to any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Lender to make such
Loan, provided that any exercise of such option shall not affect the obligation
of the Borrower to repay such Loan in accordance with the terms of this
Agreement and the applicable Note. Borrowings of more than one Type may be
outstanding at the same time; provided, however, that the Borrower shall not be
entitled to request any Borrowing that, if made, would result in an aggregate
of more than three separate Eurodollar Loans of any Lender being outstanding
hereunder at any one time. For purposes of the foregoing, Loans having
different Interest Periods, regardless of whether they commence on the same
date, shall be considered separate Loans.

(c) Subject to paragraph (e) below, each Lender shall make a Loan in the
amount of its pro rata portion, as determined under Section 2.14, of each
Borrowing hereunder on the proposed date thereof by wire transfer of
immediately available funds to the Administrative Agent in New York, New York,
not later than 12:00 noon, New York City time, and the Administrative Agent
shall by 3:00 p.m., New York City time, credit the amounts so received to the
general deposit account of the Borrower with the Administrative Agent or, if a
Borrowing shall not occur on such date because any condition precedent herein
specified shall not have been met, return the amounts so received to the
respective Lenders. Unless the Administrative Agent shall have received notice
from a Lender prior to any Borrowing that such Lender will not make available
to the Administrative Agent such Lender's portion of such Borrowing, the
Administrative Agent may assume that such Lender has made such portion
available to the Administrative Agent on the date of such Borrowing in
accordance with this paragraph (c) and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Lender shall not have
made such portion available to the Administrative Agent, such Lender and the
Borrower severally agree to repay to the Administrative Agent
<PAGE> 25

forthwith on demand such corresponding amount together with interest thereon,
for each day from and including the date such amount is made available to the
Borrower to but excluding the date such amount is repaid to the Administrative
Agent, at (i) in the case of the Borrower, the interest rate applicable at the
time to the Loans comprising such Borrowing and (ii) in the case of such
Lender, the Federal Funds Effective Rate. If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount shall constitute
such Lender's Loan as part of such Borrowing for purposes of this Agreement.

(d) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request any Borrowing if the Interest Period requested
with respect thereto would end after the Maturity Date.

(e) The Borrower may refinance all or any part of any Borrowing with a
Borrowing of the same or a different Type, subject to the conditions and
limitations set forth in this Agreement. Any Borrowing or part thereof so
refinanced shall be deemed to be repaid or prepaid in accordance with Section
2.04 or 2.10, as applicable, with the proceeds of a new Borrowing, and the
proceeds of the new Borrowing, to the extent they do not exceed the principal
amount of the Borrowing being refinanced, shall not be paid by the Lenders to
the Administrative Agent or by the Administrative Agent to the Borrower
pursuant to paragraph (c) above.

SECTION 2.03. Notice of Borrowings. Except in the case of the Credit
Event occurring on the Closing Date (which shall consist solely of an ABR
Borrowing), the Borrower shall give the Administrative Agent written or
telecopy notice (or telephone notice promptly confirmed in writing or by
telecopy) (a) in the case of a Eurodollar Borrowing, not later than 12:00 noon,
New York City time, three Business Days before a proposed borrowing and (b) in
the case of an ABR Borrowing, not later than 12:00 (noon), New York City time,
one Business Day before a proposed borrowing. Such notice shall be irrevocable
and shall in each case refer to this Agreement and specify (a) whether such
Borrowing is to be a Eurodollar Borrowing or an ABR Borrowing; (b) the date of
such Borrowing (which shall be a Business Day) and the amount thereof; and (c)
if such Borrowing is to be a Eurodollar Borrowing, the Interest Period with
respect thereto. If no election as to the Type of Borrowing is specified in any
such notice, then the requested Borrowing shall be an ABR Borrowing. If no
Interest Period with respect to any Eurodollar Borrowing is specified in any
such notice, then the Borrower shall be deemed to have selected an Interest
Period of one month's duration. If the Borrower shall not have given notice in
accordance with this Section 2.03 of its election to refinance a Borrowing
prior to the end of the Interest Period in effect for such Borrowing, then the
Borrower shall (unless such Borrowing is repaid at the end of such Interest
Period) be deemed to have given notice of an election to refinance such
Borrowing with an ABR Borrowing. The Administrative Agent shall promptly
advise the Lenders of any notice given pursuant to this Section 2.03 and of
each Lender's portion of the requested Borrowing.

SECTION 2.04. Notes; Repayment of Loans. The Loans made by each Lender
shall be evidenced by a Note, duly executed on behalf of the Borrower, dated
the Closing Date, in substantially the form attached hereto as Exhibit A, with
the blanks appropriately filled, payable to the order of such Lender in a
principal amount equal to such Lender's Commitment. The outstanding principal
balance of each Loan, as evidenced by such a Note, shall be payable on the last
day of the Interest Period applicable to such Loan and on the Maturity Date.
Each Note shall bear interest from and including the date of the first
Borrowing hereunder on the outstanding principal balance thereof as set forth
in Section 2.06. Each Lender shall, and is hereby authorized by the Borrower
to, endorse on the schedule attached to each Note delivered to such Lender (or
on a continuation of such schedule attached to such Note and made a part
thereof), or otherwise to record in such Lender's internal records, an
appropriate notation evidencing the date and amount of each Loan from such
Lender, each payment and prepayment of principal of any such Loan, each payment
of
<PAGE> 26

interest on any such Loan and the other information provided for on such
schedule; provided, however, that the failure of any Lender to make such a
notation or any error therein shall not affect the obligation of the Borrower
to repay the Loans made by such Lender in accordance with the terms of this
Agreement and the applicable Notes. Such a notation shall be conclusive absent
manifest error.

SECTION 2.05. Fees. (a) The Borrower agrees to pay to each Lender,
through the Administrative Agent, the following fees (each, a "Commitment
Fee"): (i) on the Closing Date, a Commitment Fee of 3/8 of 1% per annum on the
average daily unused amount of the Commitment of such Lender during the period
from and including the date on which such Lender's Commitment was accepted to
but excluding the Closing Date and (ii) on the last day of March, June,
September and December in each year, and on the date on which the Commitment of
such Lender shall be terminated as provided herein, a Commitment Fee equal to
the Applicable Commitment Fee Percentage on the average daily unused amount of
the Commitment of such Lender during the preceding quarter (or shorter period
commencing with the Closing Date or ending with the Maturity Date or the date
on which the Commitment of such Lender shall be terminated). All Commitment
Fees shall be computed on the basis of the actual number of days elapsed in a
year of 360 days.

(b) The Borrower agrees to pay to the Administrative Agent, for its own
account, the fees set forth in the Fee Letter at the times set forth in the Fee
Letter.

(c) The Borrower agrees to pay to the Administrative Agent, for the
account of the Lenders other than Chemical Bank, the participation fees (the
"Participation Fees") set forth in the Fee Letter on the Closing Date.

(d) All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders. Once paid, none of the Fees shall be refundable under any
circumstances, absent manifest error in the calculation thereof.

SECTION 2.06. Interest on Loans. (a) Subject to the provisions of Section
2.07, the Loans comprising each ABR Borrowing shall bear interest (computed on
the basis of the actual number of days elapsed over a year of 365 or 366 days,
as the case may be, when such interest is determined by reference to the Prime
Rate and over a year of 360 days at all other times) at a rate per annum equal
to the Alternate Base Rate plus the Applicable Margin at the time in effect.

(b) Subject to the provisions of Section 2.07, the Loans comprising each
Eurodollar Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 360 days) at a rate per annum equal to
the LIBO Rate for the Interest Period in effect for such Borrowing plus the
Applicable Margin in effect at the time of the making of such Loans.

(c) Interest on each Loan shall be payable on the Interest Payment Dates
applicable to such Loan except as otherwise provided in this Agreement. The
applicable Alternate Base Rate or LIBO Rate for each Interest Period or day
within an Interest Period, as the case may be, shall be determined by the
Administrative Agent, and such determination shall be conclusive absent
manifest error.

(d) Interest shall accrue from and including the first day of an Interest
Period to but excluding the last day of such Interest Period.

SECTION 2.07. Default Interest. If the Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount
becoming due hereunder, by acceleration or otherwise, the
<PAGE> 27

Borrower shall on demand from time to time pay interest, to the extent
permitted by law, on such defaulted amount up to but excluding the date of
actual payment (after as well as before judgment) at a rate per annum (computed
on the same basis as an ABR Loan) equal to the rate that would at the time be
applicable to an ABR Loan under Section 2.06 plus 2% per annum.

SECTION 2.08. Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined that dollar deposits in the principal amounts of the Loans
comprising such Borrowing are not generally available in the London interbank
market, or that the rates at which such dollar deposits are being offered will
not adequately and fairly reflect the cost to Lenders having at such time
Commitments representing at least 20% of the total Commitments at such time of
making or maintaining their Eurodollar Loans during such Interest Period, or
that reasonable means do not exist for ascertaining the LIBO Rate, the
Administrative Agent shall, as soon as practicable thereafter, give written or
telecopy notice of such determination to the Borrower and the Lenders. In the
event of any such determination, any request by the Borrower for a Eurodollar
Borrowing pursuant to Section 2.03 shall, until the Administrative Agent shall
have advised the Borrower and the Lenders that the circumstances giving rise to
such notice no longer exist, be deemed to be a request for an ABR Borrowing.
Each determination by the Administrative Agent hereunder shall be conclusive
absent manifest error.

SECTION 2.09. Termination and Reduction of Commitments. (a) The
Commitments shall be automatically and permanently terminated on the Maturity
Date.

(b) The Commitments shall be automatically and permanently reduced on
each of the following dates in the amounts corresponding to such dates as set
forth below:

<TABLE>
<CAPTION>
Date Commitment Reduction
<S> <C>
March 31, 1996 $12,500,000
September 30, 1996 $12,500,000
March 31, 1997 $12,500,000
September 30, 1997 $12,500,000
March 31, 1998 $15,000,000
September 30, 1998 $15,000,000
March 31, 1999 $17,500,000
September 30, 1999 $17,500,000
March 31, 2000 $20,000,000
</TABLE>

(c) The Commitments shall be automatically and permanently reduced (i)
upon the payment of any dividend or other distribution in respect of the
capital stock of the Borrower, any redemption, repurchase or retirement by the
Borrower of any shares of its capital stock or any other cash payment from the
Borrower or any of its subsidiaries to Capsure (other than Excluded Dividends
and distributions in the form of additional capital stock of the Borrower),
such reduction to be in an amount equal to the amount of such dividend,
distribution, redemption, repurchase or other cash payment and (ii) upon any
sale or other disposition permitted hereunder of assets (other than sales or
dispositions of Invested Assets) by Capsure, the Borrower or any Subsidiary
Guarantor (other than sales or other dispositions of assets in an amount not
exceeding $2,000,000 in the aggregate in any fiscal year), such reduction to be
in an amount equal to 100% of the net proceeds (after sales commissions, other
expenses incurred in connection with such sale or disposition and a reasonable
estimate of taxes payable in connection with such sale or disposition) of such
sale or disposition. Commitment reductions pursuant to this paragraph (c)
shall be applied pro rata against the reductions required under paragraph (b)
above.
<PAGE> 28

(d) Upon at least three Business Days' prior irrevocable written or
telecopy notice to the Administrative Agent, the Borrower may at any time in
whole permanently terminate, or from time to time in part permanently reduce,
the Commitments; provided, however, that each partial reduction of the
Commitments shall be in an integral multiple of $1,000,000 and in a minimum
principal amount of $5,000,000. Reductions pursuant to this paragraph (d)
shall be applied, first, in any six-month period, against the next succeeding
reduction required during such six-month period under paragraph (b) above and,
thereafter, pro rata against the remaining reductions required under paragraph
(b) above.

(e) Each reduction in the Commitments hereunder shall be made ratably
among the Lenders in accordance with their respective Commitments. The
Borrower shall pay to the Administrative Agent for the account of the Lenders,
on the date of each termination or reduction, the Commitment Fees on the amount
of the Commitments so terminated or reduced accrued to the date of such
termination or reduction.

SECTION 2.10. Prepayment. (a) The Borrower shall have the right at any
time and from time to time to prepay any Borrowing, in whole or in part, upon
at least two Business Days' prior written or telecopy notice (or telephone
notice promptly confirmed by written or telecopy notice) to the Administrative
Agent; provided, however, that each partial prepayment shall be in an amount
that is an integral multiple of $1,000,000.

(b) On the date of any termination or reduction of the Commitments
pursuant to Section 2.09, the Borrower shall pay or prepay so much of the
Borrowings as shall be necessary in order that the aggregate principal amount
of the Loans outstanding on such date will not exceed the aggregate Commitments
on such date (after giving effect to such termination or reduction).

(c) On the date of any sale or transfer of any capital stock (or
securities convertible into such capital stock) of United Capitol Holding
Company to the Rightholder pursuant to the exercise of the Right, the Borrower
shall pay or prepay the Borrowings in an amount equal to the proceeds received
by NI Acquisition Corp. from such sale or transfer.

(d) Each notice of prepayment shall specify the prepayment date and the
principal amount of each Borrowing (or portion thereof) to be prepaid, shall be
irrevocable and shall commit the Borrower to prepay such Borrowing by the
amount stated therein on the date stated therein. All prepayments under this
Section 2.10 shall be subject to Section 2.13 but otherwise without premium or
penalty. All prepayments under this Section 2.10 shall be accompanied by
accrued interest on the principal amount being prepaid to the date of payment.

SECTION 2.11. Lender Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision herein, if after the date of this Agreement
any change (other than any such change that is reflected in the applicable LIBO
Rate) in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender of the
principal of or interest on any Eurodollar Loan made by such Lender, Fees or
other amounts payable hereunder (other than changes in respect of taxes imposed
on the overall net income of such Lender by the jurisdiction in which such
Lender has its principal office or by any political subdivision or state or
taxing authority therein), or shall impose, modify or deem applicable any
reserve, deposit insurance, special deposit or similar requirement against
assets of, deposits with or for the account of or credit extended by such
Lender or shall impose on such Lender or the London interbank market any other
condition affecting this Agreement or Eurodollar Loans made by such Lender, and
the result of any of the foregoing shall be to increase the cost to such Lender
of making or maintaining any Eurodollar Loan or
<PAGE> 29

to reduce the amount of any sum received or receivable by such Lender hereunder
or under the Notes (whether of principal, interest or otherwise) by an amount
deemed by such Lender to be material, then the Borrower will pay to such Lender
upon demand such additional amount or amounts as will compensate such Lender
for such additional costs incurred or reduction suffered.

(b) If any Lender shall have determined that the adoption after the date
hereof of any law, rule, regulation, agreement or guideline regarding capital
adequacy, or any change after the date hereof in any of the foregoing or in the
interpretation or administration after the date hereof of any of the foregoing
by any governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by any Lender (or
any lending office of such Lender) or any Lender's holding company with any
request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on such Lender's capital
or on the capital of such Lender's holding company, if any, as a consequence of
this Agreement or the Loans made by such Lender pursuant hereto to a level
below that which such Lender or such Lender's holding company could have
achieved but for such applicability, adoption, change or compliance (taking
into consideration such Lender's policies and the policies of such Lender's
holding company with respect to capital adequacy) by an amount deemed by such
Lender to be material, then from time to time the Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender or such
Lender's holding company for any such reduction suffered.

(c) A certificate of each Lender setting forth such amount or amounts as
shall be necessary to compensate such Lender or its holding company as
specified in paragraph (a) or (b) above, as the case may be, shall be delivered
to the Borrower and shall be conclusive absent manifest error. The Borrower
shall pay each Lender the amount shown as due on any such certificate delivered
by it within 10 days after its receipt of the same.

(d) Failure on the part of any Lender to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any period shall not constitute a waiver of
such Lender's right to demand compensation with respect to such period or any
other period, provided that if such Lender shall not have notified the
Borrower, within 90 days after the date on which such Lender shall have become
aware of such increased costs or reductions, that such Lender will demand
compensation for such increased costs or reductions, the Borrower's obligation
to compensate such Lender for such increased costs or reductions shall be
limited to increased costs or reductions accruing from and including the day
that is 90 days prior to the date on which such Lender notifies the Borrower
that such Lender will demand such compensation. The protection of this Section
2.11 shall be available to each Lender regardless of any possible contention
of the invalidity or inapplicability of the law, rule, regulation, guideline or
other change or condition that shall have occurred or been imposed.

(e) Each Lender will, at the request of the Borrower, designate a
different lending office if such designation (i) will avoid the need for, or
minimize the amount of, any compensation to which such Lender is entitled
pursuant to this Section 2.11 and (ii) will not, in the reasonable judgment of
such Lender, be otherwise disadvantageous to such Lender.

SECTION 2.12. Change in Legality. (a) Notwithstanding any other provision
herein, if any change in any law or regulation or in the interpretation thereof
by any governmental authority charged with the administration or interpretation
thereof shall make it unlawful for any Lender to make or maintain any
Eurodollar Loan or to give effect to its obligations as contemplated hereby
with respect to any Eurodollar
<PAGE> 30

Loan, then, by written or telecopy notice to the Borrower and to the
Administrative Agent, such Lender may:

(i) declare that Eurodollar Loans will not thereafter be made by such
Lender hereunder, whereupon any request by the Borrower for a Eurodollar
Borrowing shall, as to such Lender only, be deemed a request for an ABR
Loan unless such declaration shall be subsequently withdrawn; and

(ii) require that all outstanding Eurodollar Loans made by it be
converted to ABR Loans, in which event all such Eurodollar Loans shall be
automatically converted to ABR Loans as of the effective date of such
notice as provided in paragraph (b) below.

In the event any Lender shall exercise its rights under subparagraph (i) or
(ii) above, all payments and prepayments of principal that would otherwise have
been applied to repay the Eurodollar Loans that would have been made by such
Lender or the converted Eurodollar Loans of such Lender shall instead be
applied to repay the ABR Loans made by such Lender in lieu of, or resulting
from the conversion of, such Eurodollar Loans.

(b) For purposes of this Section 2.12, a notice to the Borrower by any
Lender shall be effective as to each Eurodollar Loan, if lawful, on the last
day of the Interest Period then applicable to such Eurodollar Loan; in all
other cases such notice shall be effective on the date of receipt by the
Borrower.

SECTION 2.13. Indemnity. The Borrower shall indemnify each Lender against
any loss or expense that such Lender may sustain or incur as a consequence of
(a) any failure by the Borrower to fulfill on the date of any borrowing
hereunder the applicable conditions set forth in Article IV, (b) any failure by
the Borrower to borrow or to refinance any Loan hereunder after irrevocable
notice of such borrowing or refinancing has been given pursuant to Section
2.03, (c) any payment or prepayment of a Eurodollar Loan required by any other
provision of this Agreement or otherwise made or deemed made on a date other
than the last day of the Interest Period applicable thereto or (d) any default
in payment or prepayment of the principal amount of any Loan or any part
thereof or interest accrued thereon, as and when due and payable (at the due
date thereof, whether by scheduled maturity, acceleration, irrevocable notice
of prepayment or otherwise), including, in each such case, any loss or expense
sustained or incurred or to be sustained or incurred in liquidating or
employing deposits from third parties acquired to effect or maintain such Loan
or any part thereof as a Eurodollar Loan. Such loss or expense shall be equal
to the sum of (a) such Lender's actual costs and expenses incurred (other than
any lost profits) in connection with, or by reason of, any of the foregoing
events and (b) the excess, if any, as determined by such Lender, of (i) its
cost of obtaining the funds for the Loan being paid, prepaid or not borrowed
(assumed to be the LIBO Rate applicable thereto) for the period from the date
of such payment, prepayment or failure to borrow to the last day of the
Interest Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan that would have commenced on the date of such
failure) over (ii) the amount of interest (as determined by such Lender) that
would be realized by such Lender in reemploying the funds so paid, prepaid or
not borrowed for such period or Interest Period, as the case may be. A
certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive pursuant to this Section 2.13 shall be delivered to the
Borrower and shall be conclusive absent manifest error.

SECTION 2.14. Pro Rata Treatment. Except as required under Section 2.12,
each Borrowing, each payment or prepayment of principal of any Borrowing, each
payment of interest on the Loans, each payment of the Commitment Fees, each
reduction of the Commitments and each refinancing of any Borrowing with a
Borrowing of any Type shall be allocated pro rata among the Lenders in
accordance with their respective Commitments (or, if such Commitments shall
have expired or been terminated, in
<PAGE> 31

accordance with the respective principal amounts of their outstanding Loans).
Each Lender agrees that in computing such Lender's portion of any Borrowing to
be made hereunder, the Administrative Agent may, in its discretion, round each
Lender's percentage of such Borrowing, computed in accordance with Section
2.01, to the next higher or lower whole dollar amount.

SECTION 2.15. Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim
against the Borrower, or pursuant to a secured claim under Section 506 of Title
11 of the United States Code or other security or interest arising from, or in
lieu of, such secured claim, received by such Lender under any applicable
bankruptcy, insolvency or other similar law or otherwise, or by any other
means, obtain payment (voluntary or involuntary) in respect of any Loan or
Loans as a result of which the unpaid principal portion of its Loans shall be
proportionately less than the unpaid principal portion of the Loans of any
other Lender, such Lender shall be deemed simultaneously to have purchased from
such other Lender at face value, and shall promptly pay to such other Lender
the purchase price for, a participation in the Loans of such other Lender so
that the aggregate unpaid principal amount of the Loans and participations in
Loans held by each Lender shall be in the same proportion to the aggregate
unpaid principal amount of all Loans then outstanding as the principal amount
of its Loans prior to such exercise of banker's lien, setoff or counterclaim or
other event was to the principal amount of all Loans outstanding prior to such
exercise of banker's lien, setoff or counterclaim or other event; provided,
however, that if any such purchase or purchases or adjustments shall be made
pursuant to this Section 2.15 and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustment restored without interest. The Borrower expressly consents to the
foregoing arrangements and agrees that any Lender holding a participation in a
Loan deemed to have been so purchased may exercise any and all rights of
banker's lien, setoff or counterclaim with respect to any and all moneys owing
by the Borrower to such Lender by reason thereof as fully as if such Lender had
made a Loan directly to the Borrower in the amount of such participation.

SECTION 2.16. Payments. (a) The Borrower shall make each payment
(including principal of or interest on any Borrowing or any Fees or other
amounts) hereunder and under any other Loan Document not later than 12:00 noon,
New York City time, on the date when due in dollars to the Administrative Agent
for the account of the Administrative Agent or the Lenders, as the case may be,
at the Administrative Agent's offices at 270 Park Avenue, New York, New York,
in immediately available funds.

(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
interest or Fees, if applicable.

SECTION 2.17. Taxes. (a) Any and all payments by the Borrower hereunder
shall be made, in accordance with Section 2.16, free and clear of and without
deduction for any and all current or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding
(i) income taxes imposed on the net income of the Administrative Agent or any
Lender (or any transferee or assignee thereof, including a participation holder
(any such entity a "Transferee")) and (ii) franchise taxes imposed on the net
income of the Administrative Agent or any Lender (or Transferee), in each case
by the jurisdiction under the laws of which the Administrative Agent or such
Lender (or Transferee) is organized or any political subdivision thereof or
state therein (all such nonexcluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities, collectively or individually, "Taxes").
If the Borrower shall be required to deduct any Taxes from or in respect of any
sum payable hereunder to any Lender (or
<PAGE> 32

any Transferee) or the Administrative Agent, (i) the sum payable shall be
increased by the amount (an "additional amount") necessary so that after making
all required deductions (including deductions applicable to additional amounts
payable under this Section 2.17) such Lender (or Transferee) or the
Administrative Agent (as the case may be) shall receive an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrower
shall make such deductions and (iii) the Borrower shall pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable
law.

(b) In addition, the Borrower agrees to pay to the relevant Governmental
Authority in accordance with applicable law any current or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or
any other Loan Document ("Other Taxes").

(c) The Borrower will indemnify each Lender (or Transferee) and the
Administrative Agent for the full amount of Taxes and Other Taxes paid by such
Lender (or Transferee) or the Administrative Agent, as the case may be, and any
liability (including penalties, interest and expenses (including reasonable
attorney's fees and expenses)) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted by
the relevant Governmental Authority. A certificate setting forth the amount of
such payment or liability prepared by a Lender or the Administrative Agent on
its behalf, absent manifest error, shall be final, conclusive and binding for
all purposes. Such indemnification shall be made within 30 days after the date
any Lender (or Transferee) or the Administrative Agent, as the case may be,
makes written demand therefor.

(d) If a Lender (or Transferee) or the Administrative Agent shall become
aware that it is entitled to claim a refund from a Governmental Authority in
respect of Taxes or Other Taxes as to which it has been indemnified by the
Borrower, or with respect to which the Borrower has paid additional amounts,
pursuant to this Section 2.17, it shall promptly notify the Borrower of the
availability of such refund claim and shall make a claim to such Governmental
Authority for such refund at the Borrower's expense. If a Lender (or
Transferee) or the Administrative Agent receives a refund (including pursuant
to a claim for refund made pursuant to the preceding sentence) in respect of
any Taxes or Other Taxes as to which it has been indemnified by the Borrower or
with respect to which the Borrower has paid additional amounts pursuant to this
Section 2.17, it shall within 30 days from the date of such receipt pay over
such refund to the Borrower (but only to the extent of indemnity payments made,
or additional amounts paid, by the Borrower under this Section 2.17 with
respect to the Taxes or Other Taxes giving rise to such refund), net of all
out-of-pocket expenses of such Lender (or Transferee) or the Administrative
Agent and without interest (other than interest paid by the relevant
Governmental Authority with respect to such refund); provided, however, that
the Borrower, upon the request of such Lender (or Transferee) or the
Administrative Agent, agrees to repay the amount paid over to the Borrower
(plus penalties, interest or other charges) to such Lender (or Transferee) or
the Administrative Agent in the event such Lender (or Transferee) or the
Administrative Agent is required to repay such refund to such Governmental
Authority.

(e) As soon as practicable after the date of any payment of Taxes or Other
Taxes by the Borrower to the relevant Governmental Authority, the Borrower will
furnish to the Administrative Agent, at its address referred to in Section
10.01, the original or a certified copy of a receipt issued by such
Governmental Authority evidencing payment thereof.

(f) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.17 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder and of all other Obligations.
<PAGE> 33

(g) Each Lender (or Transferee) that is organized under the laws of a
jurisdiction other than the United States, any State thereof or the District of
Columbia (a "Non-U.S. Lender") shall deliver to the Borrower and the
Administrative Agent two copies of either United States Internal Revenue
Service Form 1001 or Form 4224, or in the case of a Non-U.S. Lender claiming
exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of
the Code with respect to payments of "portfolio interest", a Form W-8, or any
subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender
delivers a Form W-8, a certificate representing that such Non-U.S. Lender is
not a bank for purposes of Section 881(c) of the Code, is not a 10-percent
shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the
Borrower and is not a controlled foreign corporation related to the Borrower
(within the meaning of Section 864(d)(4) of the Code)), properly completed and
duly executed by such Non-U.S. Lender claiming complete exemption from, or
reduced rate of, U.S. Federal withholding tax on payments by the Borrower under
this Agreement and the other Loan Documents. Such forms shall be delivered by
each Non-U.S. Lender on or before the date it becomes a party to this Agreement
(or, in the case of a Transferee that is a participation holder, on or before
the date such participation holder becomes a Transferee hereunder) and on or
before the date, if any, such Non-U.S. Lender changes its applicable lending
office by designating a different lending office (a "New Lending Office"). In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Notwithstanding any other provision of this Section 2.17(g), a Non-U.S.
Lender shall not be required to deliver any form pursuant to this Section
2.17(g) that such Non-U.S. Lender is not legally able to deliver.

(h) The Borrower shall not be required to indemnify any Non-U.S. Lender,
or to pay any additional amounts to any Non-U.S. Lender, in respect of United
States Federal withholding tax pursuant to paragraph (a) or (c) above to the
extent that (i) the obligation to withhold amounts with respect to United
States Federal withholding tax existed on the date such Non-U.S. Lender became
a party to this Agreement (or, in the case of a Transferee that is a
participation holder, on the date such participation holder became a Transferee
hereunder) or, with respect to payments to a New Lending Office, the date such
Non-U.S. Lender designated such New Lending Office with respect to a Loan;
provided, however, that this clause (i) shall not apply to any Transferee or
New Lending Office that becomes a Transferee or New Lending Office as a result
of an assignment, participation, transfer or designation made at the request of
the Borrower; and provided further, however, that this clause (i) shall not
apply to the extent the indemnity payment or additional amounts any Transferee,
or Lender (or Transferee) through a New Lending Office, would be entitled to
receive (without regard to this clause (i)) do not exceed the indemnity payment
or additional amounts that the person making the assignment, participation or
transfer to such Transferee, or Lender (or Transferee) making the designation
of such New Lending Office, would have been entitled to receive in the absence
of such assignment, participation, transfer or designation or (ii) the
obligation to pay such additional amounts would not have arisen but for a
failure by such Non-U.S. Lender to comply with the provisions of paragraph (g)
above.

(i) Any Lender (or Transferee) claiming any indemnity payment or
additional amounts payable pursuant to this Section 2.17 shall use reasonable
efforts (consistent with legal and regulatory restrictions) to file any
certificate or document reasonably requested in writing by the Borrower or to
change the jurisdiction of its applicable lending office if the making of such
a filing or change would avoid the need for or reduce the amount of any such
indemnity payment or additional amounts that may thereafter accrue and would
not, in the sole determination of such Lender (or Transferee), be otherwise
disadvantageous to such Lender (or Transferee).
<PAGE> 34

(j) Nothing contained in this Section 2.17 shall require any Lender (or
Transferee) or the Administrative Agent to make available any of its tax
returns (or any other information that it deems to be confidential or
proprietary).

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Each of the Borrower and Capsure represents and warrants to each Lender
and the Administrative Agent that:

SECTION 3.01. Organization; Powers. Each of Capsure, the Borrower and each
of the Subsidiaries (a) is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization, (b)
has all requisite power and authority to own its property and assets and to
carry on its business as now conducted and as proposed to be conducted, (c) is
qualified to do business in every jurisdiction where such qualification is
required, except for those jurisdictions in which the failure to so qualify
would not result in a Material Adverse Effect, and (d) has the corporate power
and authority to execute, deliver and perform its obligations under each of the
Loan Documents and each other agreement or instrument contemplated thereby to
which it is or will be a party and, in the case of the Borrower, to borrow
hereunder.

SECTION 3.02. Authorization. The execution, delivery and performance by
each of the Borrower, Capsure, each Subsidiary Guarantor and each other
Subsidiary of each of the Loan Documents, the borrowings hereunder and the
creation of the security interests contemplated by the Security Documents
(collectively, the "Transactions") (a) have been duly authorized by all
requisite corporate and, if required, stockholder action and (b) will not (i)
violate (A) any provision of any material law, statute, rule or regulation, or
of the certificate of incorporation or other constitutive documents or by-laws
of Capsure, the Borrower or any of the Subsidiaries, (B) any order of any
Governmental Authority or (C) any provision of any indenture or other material
agreement or instrument to which Capsure, the Borrower or any of the
Subsidiaries is a party or by which any of them or any of their property is or
may be bound, (ii) be in conflict with, result in a breach of or constitute
(alone or with notice or lapse of time or both) a default under any such
indenture or other material agreement or instrument or (iii) except for the
Liens created by the Security Documents, result in the creation or imposition
of any Lien upon or with respect to any property or assets now owned or
hereafter acquired by Capsure, the Borrower or any of the Subsidiaries.

SECTION 3.03. Enforceability. This Agreement has been duly executed and
delivered by Capsure and the Borrower and constitutes, and each other Loan
Document to which Capsure, the Borrower, any Subsidiary Guarantor or any other
Subsidiary is a party, when executed and delivered by it will constitute, a
legal, valid and binding obligation of Capsure, the Borrower, such Subsidiary
Guarantor or such Subsidiary, as the case may be, enforceable against it in
accordance with its terms.

SECTION 3.04. Governmental Approvals. No action, consent or approval of,
registration or filing with or any other action by any Governmental Authority
is or will be required in connection with the Transactions, except (a) such
filings as are necessary to record and perfect the security interest created by
the Security Documents and (b) such as have been made or obtained and are in
full force and effect.
<PAGE> 35

SECTION 3.05. Financial Statements. Capsure has heretofore furnished to
the Lenders (a) its consolidated and consolidating balance sheets and
statements of income and changes in financial condition as of and for the
fiscal year ended December 31, 1993, prepared in accordance with GAAP and
audited by and accompanied by the opinion of Capsure's independent public
accountants on the date hereof or other independent public accountants
reasonably satisfactory to the Required Lenders, and (b) the Annual Statement
of each of the Insurance Subsidiaries for the fiscal year ended December 31,
1993, prepared in accordance with SAP and filed with such Insurance
Subsidiary's Applicable Insurance Regulatory Authority. All the foregoing
financial statements that were prepared in accordance with GAAP present fairly
the financial condition and results of Capsure and its subsidiaries and all the
foregoing statements that were prepared in accordance with SAP present fairly
the statutory assets, liabilities, capital and surplus, results of operations
and cash flows of the applicable Insurance Subsidiary, in each case as of the
relevant dates and for the relevant periods. All the foregoing balance sheets
and the notes thereto disclose all material liabilities, direct or contingent,
of Capsure and its subsidiaries or such Insurance Subsidiary, as the case may
be, as of the dates thereof.

SECTION 3.06. No Material Adverse Change. There has been no material
adverse change in the business, assets, operations, prospects or condition,
financial or otherwise, of Capsure and its subsidiaries, taken as a whole,
since December 31, 1993.

SECTION 3.07. Title to Properties; Possession Under Leases. (a) Each of
Capsure, the Borrower and the Subsidiaries has good and marketable title to, or
valid leasehold interests in, all its material properties and assets, except
for minor defects in title that do not interfere with its ability to conduct
its business as currently conducted or to utilize such properties and assets
for their intended purposes. All such material properties and assets are free
and clear of Liens, other than Liens expressly permitted by Section 6.02.

(b) Each of Capsure, the Borrower and the Subsidiaries has complied in all
material respects with all obligations under all material leases to which it is
a party and all such leases are in full force and effect. Each of Capsure, the
Borrower and the Subsidiaries enjoys peaceful and undisturbed possession under
all such leases.

SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth as of the Closing
Date a list of all subsidiaries of each of Capsure and the Borrower and the
percentage ownership interest of Capsure or the Borrower therein. All
outstanding shares of the capital stock of each Subsidiary are fully paid and
nonassessable and are owned beneficially and of record as set forth in Schedule
3.08, free and clear of all Liens and encumbrances whatsoever, except such as
are created pursuant to the Security Documents. There are no outstanding
subscriptions, options, warrants, calls, rights (including preemptive rights)
or other agreements or commitments of any nature relating to any capital stock
of any Subsidiary, other than the Right.

SECTION 3.09. Litigation; Compliance with Laws. (a) There are not any
actions, suits or proceedings at law or in equity or by or before any
Governmental Authority now pending or, to the knowledge of Capsure or the
Borrower, threatened against or affecting Capsure, the Borrower or any of the
Subsidiaries or any business, property or rights of any such person (i) that
involve any Loan Document or the Transactions or (ii) as to which there is a
reasonable possibility of an adverse determination and which, if adversely
determined, could individually or in the aggregate, result in a Material
Adverse Effect, other than any litigation arising in the ordinary course of
business of any Insurance Subsidiary in connection with which recourse is
sought against insurance policies or bonds issued by such Insurance Subsidiary
or obligations arising in connection with such insurance policies or bonds.
<PAGE> 36

(b) None of Capsure, the Borrower or any Subsidiary is in violation of any
law, rule or regulation, nor is Capsure, the Borrower or any Subsidiary in
default with respect to any judgment, writ, injunction or decree of any
Governmental Authority, including any Applicable Insurance Regulatory Authority
of any Insurance Subsidiary, where such violation or default could reasonably
be expected to result in a Material Adverse Effect. None of the Transactions
will violate any judgment, writ, injunction or decree of any Governmental
Authority, including any Applicable Insurance Regulatory Authority of any
Insurance Subsidiary, where such violation or default could reasonably be
expected to result in a Material Adverse Effect.

SECTION 3.10. Agreements. (a) None of Capsure, the Borrower or any of the
Subsidiaries is a party to any agreement or instrument or subject to any
corporate restriction that has resulted or could reasonably be expected to
result in a Material Adverse Effect or an impairment of the rights of or
benefits available to the Administrative Agent or any of the other Lenders
under any Loan Document.

(b) None of Capsure, the Borrower or any of the Subsidiaries is in default
in any manner under any provision of any indenture or other agreement or
instrument evidencing Indebtedness, or any other material agreement or
instrument to which it is a party or by which it or any of its properties or
assets are or may be bound, where such default could reasonably be expected to
result in a Material Adverse Effect or an impairment of the rights of or
benefits available to the Administrative Agent or any of the other Lenders
under any Loan Document.

SECTION 3.11. Federal Reserve Regulations. (a) None of Capsure, the
Borrower or any of the Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.

(b) No part of the proceeds of any Loan will be used, whether directly or
indirectly, and whether immediately, incidentally or ultimately, (i) to
purchase or carry Margin Stock or to extend credit to others for the purpose of
purchasing or carrying Margin Stock or to refund indebtedness originally
incurred for such purpose or (ii) for any purpose that entails a violation of,
or is inconsistent with, the provisions of the Regulations of the Board,
including Regulation G, U or X.

SECTION 3.12. Investment Company Act; Public Utility Holding Company Act.
None of Capsure, the Borrower or any of the Subsidiaries is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.

SECTION 3.13. Use of Proceeds. The Borrower will use the proceeds of the
Loans only for the purposes specified in the preamble to this Agreement.

SECTION 3.14. Tax Returns. Each of Capsure and its subsidiaries has filed
or caused to be filed all Federal, all state and all local tax returns required
to have been filed by it and has paid or caused to be paid all taxes shown to
be due and payable on such returns or on any assessments received by it, except
taxes that are being contested in good faith by appropriate proceedings and for
which Capsure or the applicable subsidiary shall have set aside on its books
adequate reserves.

SECTION 3.15. No Material Misstatements. The information, reports,
financial statements, exhibits and schedules furnished by or on behalf of
Capsure or any of its subsidiaries to the Administrative Agent or any Lender in
connection with the negotiation of any Loan Document or included therein or
<PAGE> 37

delivered pursuant thereto, when taken as a whole, did not contain, does not
contain and will not contain any material misstatement of fact and did not
omit, does not omit and will not omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were, are or will be made, not misleading. The projections and pro forma
financial information contained in such materials are based on good faith
estimates and assumptions believed by Capsure to be reasonable as of the date
such projections and pro forma financial information were furnished by Capsure.
Such pro forma financial information was prepared in accordance with GAAP or
SAP, as applicable.

SECTION 3.16. Employee Benefit Plans. Each of Capsure, the Borrower and
each of their ERISA Affiliates is in compliance in all material respects with
the applicable provisions of ERISA and the Code and the final effective
regulations and published interpretations of general applicability thereunder.
No Reportable Event has occurred in respect of any Plan of Capsure, the
Borrower or any such ERISA Affiliate. The present value of all benefit
liabilities under each Plan (based on those assumptions used to fund such Plan)
did not, as of the last annual valuation date applicable thereto, exceed by
more than $250,000 the value of the assets of such Plan and the present value
of all underfunded Plans (based on those assumptions used to fund each such
Plan) did not, as of the last annual valuation dates applicable thereto, exceed
by more than $250,000 the value of the assets of all such underfunded Plans.
None of Capsure, the Borrower or any ERISA Affiliate has incurred any
Withdrawal Liability that materially adversely affects the financial condition
of Capsure, the Borrower and their ERISA Affiliates, taken as a whole. None of
Capsure, the Borrower or any ERISA Affiliate has received any notification that
any Multiemployer Plan is in reorganization or has been terminated, within the
meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably expected
to be in reorganization or to be terminated where such reorganization or
termination has resulted or can reasonably be expected to result in an increase
in the contributions required to be made to such Plan that would materially and
adversely affect the financial condition of Capsure, the Borrower and their
ERISA Affiliates, taken as a whole.

SECTION 3.17. Environmental and Safety Matters. Except as set forth on
Schedule 3.17, Capsure and each of its subsidiaries is in compliance in all
material respects with all applicable Environmental and Safety Laws. Except as
set forth on Schedule 3.17, neither Capsure nor any of its subsidiaries has
received notice of any material failure so to comply. Capsure's and each of
its subsidiaries' facilities do not store, release or dispose of any Hazardous
Substances in violation of any applicable Environmental and Safety Laws.
Except as set forth on Schedule 3.17, neither Capsure nor the Borrower is
aware, after reasonable inquiry, of any events, conditions or circumstances
involving environmental pollution or contamination or employee health or safety
that could reasonably be expected to result in a Material Adverse Effect.

SECTION 3.18. Security Documents. (a) The Pledge Agreement is effective to
create in favor of the Collateral Agent, for the ratable benefit of the Secured
Parties, a legal, valid and enforceable security interest in the Collateral (as
defined in the Pledge Agreement) and the proceeds thereof and, when the stock
that is to be pledged as Collateral is delivered to the Collateral Agent, the
Pledge Agreement shall constitute a fully perfected first priority lien on, and
security interest in, all right, title and interest of Capsure, the Borrower,
each Subsidiary Guarantor and each other Subsidiary party thereto (other than
any interest represented by the Right) in such Collateral and the proceeds
thereof, in each case prior and superior in right to any other person.

(b) The Security Agreement is effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal,
valid and enforceable security interest in the Collateral (as defined in the
Security Agreement) and proceeds thereof, and when financing statements in
appropriate form are filed in the offices specified on Schedule 3.18(b), the
Lien created under the Security Agreement will constitute a fully perfected
lien on, and security interest in, all right, title and interest of Capsure,
the
<PAGE> 38

Borrower and each Subsidiary Guarantor party thereto in such Collateral and the
proceeds thereof, in each case prior and superior in right to any other person,
other than with respect to Liens expressly permitted by Section 6.02.

SECTION 3.19. Absence of Certain Restrictions. Except as required by law,
rule or regulation or by any Governmental Authority, including any Applicable
Insurance Regulatory Authority, no indenture, certificate of designation for
preferred stock, agreement or instrument to which any Subsidiary is a party
will, directly or indirectly, prohibit or restrain the payment of dividends by
such Subsidiary. As of the Closing Date, no such indenture, certificate,
agreement or instrument to which Capsure, the Borrower or any Subsidiary is a
party will require the prepayment of any amounts owed by Capsure, the Borrower
or such Subsidiary as a result of the consummation of the Transactions.

SECTION 3.20. Reinsurance Agreements. Schedule 3.20 sets forth all the
Reinsurance Agreements to which any Insurance Subsidiary is a party on the
Closing Date, and the Borrower has delivered to the Administrative Agent copies
of each such Reinsurance Agreement with respect to which the Administrative
Agent has requested copies. On the Closing Date, each such Reinsurance
Agreement is in full force and effect and none of Capsure, the Borrower, any
Subsidiary or, to the best of the knowledge of Capsure and the Borrower, any
other person party thereto is in default in respect of any material provision
thereof.

SECTION 3.21. Reserves. All reserves and other liabilities with respect to
insurance contracts reflected in each Annual Statement or Quarterly Statement
of each Insurance Subsidiary filed with an Applicable Insurance Regulatory
Authority since December 31, 1993 or delivered to any Lender or the
Administrative Agent ("Reserve Liabilities"), (a) were determined in accordance
with generally accepted actuarial standards consistently applied, (b) were
fairly stated in accordance with sound actuarial principles, (c) were based on
actuarial assumptions that were in accordance with or more conservative than
those appropriate (in the reasonable determination of the applicable Insurance
Subsidiary) for the related insurance policies, (d) met the requirements of the
applicable insurance laws, rules and regulations of their respective states of
domicile and met in all material respects the requirements of the applicable
insurance laws, rules and regulations of each other jurisdiction in which they
are licensed to write insurance contracts and (e) reflected (on a net basis)
the related reinsurance, coinsurance and other similar agreement of such
Insurance Subsidiary. Adequate provision for all such Reserve Liabilities has
been made (under generally accepted actuarial principles consistently applied)
to cover the total amount of matured and unmatured benefits, claims and other
liabilities of such Insurance Subsidiary under all insurance policies under
which such Insurance Subsidiary has any liability (including any liability
arising under or as a result of any reinsurance, coinsurance or other similar
agreement) on the respective dates of the Annual Statements or Quarterly
Statements based on commonly accepted actuarial assumptions as to future
contingencies that are reasonable and appropriate under the circumstances.

ARTICLE IV

CONDITIONS OF LENDING

The obligations of the Lenders to make Loans (each making of a Loan, a
"Credit Event") hereunder are subject to the satisfaction of the following
conditions:
<PAGE> 39

SECTION 4.01. All Credit Events. On the date of each Credit Event,
including each Borrowing in which Loans are refinanced with new Loans as
contemplated by Section 2.02(e):

(a) The Administrative Agent shall have received a notice of such Credit
Event as required by Section 2.03.

(b) The representations and warranties set forth in Article III hereof
(except in the case of a refinancing that does not increase the aggregate
principal amount of Loans outstanding) shall be true and correct in all
material respects on and as of the date of such Credit Event with the same
effect as though made on and as of such date, except to the extent such
representations and warranties expressly relate to an earlier date.

(c) Each of Capsure, the Borrower, each Subsidiary Guarantor and each
other Subsidiary shall be in compliance in all material respects with all the
terms and provisions set forth herein and in each other Loan Document on its
part to be observed or performed, and at the time of and immediately after such
Borrowing no Event of Default or Default shall have occurred and be continuing.

(d) In the case of any Borrowing other than a Borrowing the proceeds of
which are to be used for general corporate purposes in the ordinary course of
the Borrower's business (including funding the working capital requirements of
the Borrower and the Subsidiaries), no person or group (within the meaning of
Rule 13d-5 of the Securities and Exchange Commission as in effect on the date
hereof) other than the Zell Entities shall own, directly or indirectly,
beneficially or of record, shares representing more than 50% of the aggregate
ordinary voting power represented by the issued and outstanding capital stock
of Capsure.

Each Credit Event shall be deemed to constitute a representation and
warranty by Capsure and the Borrower on the date of such Borrowing as to the
matters specified in paragraphs (b) and (c) of this Section 4.01.

SECTION 4.02. First Credit Event. On the Closing Date:

(a) Each Lender shall have received a duly executed Note complying with
the provisions of Section 2.04.

(b) The Administrative Agent shall have received a favorable written
opinion of Rosenberg & Liebentritt, P.C., counsel for Capsure and the Borrower,
to the effect set forth in Exhibit E hereto, dated the Closing Date and
addressed to the Administrative Agent and the Lenders, and Capsure and the
Borrower hereby instruct such counsel to deliver such opinion to the
Administrative Agent.

(c) All legal matters incident to this Agreement and the Borrowings
hereunder shall be satisfactory to the Lenders and their counsel and to
Cravath, Swaine & Moore, counsel for the Administrative Agent.

(d) The Administrative Agent shall have received (i) a copy of the
certificate or articles of incorporation, including all amendments thereto, of
Capsure, the Borrower and each Subsidiary Guarantor, certified as of a recent
date by the Secretary of State of the state of its organization, and a
certificate as to the good standing of Capsure, the Borrower and each
Subsidiary Guarantor as of a recent date from such Secretary of State; (ii) a
certificate of the Secretary or Assistant Secretary of Capsure, the Borrower
and each Subsidiary Guarantor dated the Closing Date and certifying (A) that
attached thereto is a true and complete copy of the by-laws of Capsure, the
Borrower or such Subsidiary Guarantor, as the case may be,
<PAGE> 40

as in effect on the Closing Date and at all times since a date prior to the
date of the resolutions described in clause (B) below, (B) that attached
thereto is a true and complete copy of resolutions duly adopted by the Board of
Directors of Capsure, the Borrower or such Subsidiary Guarantor, as the case
may be (or a duly authorized committee thereof), authorizing the execution,
delivery and performance of the Loan Documents and the borrowings hereunder,
and that such resolutions have not been modified, rescinded or amended and are
in full force and effect as of the Closing Date, (C) that the certificate or
articles of incorporation of Capsure, the Borrower or such Subsidiary
Guarantor, as the case may be, have not been amended since the date of the last
amendment thereto shown on the certificate of good standing furnished pursuant
to clause (i) above and (D) as to the incumbency and specimen signature of each
officer executing any Loan Document or any other document delivered in
connection herewith on behalf of Capsure, the Borrower or such Subsidiary
Guarantor, as the case may be; (iii) a certificate of another officer as to the
incumbency and specimen signature of the Secretary or Assistant Secretary
executing the certificate pursuant to (ii) above; and (iv) such other documents
as the Lenders or their counsel or Cravath, Swaine & Moore, counsel for the
Administrative Agent, may reasonably request.

(e) The Administrative Agent shall have received a certificate, dated the
Closing Date and signed by a Financial Officer of each of Capsure and the
Borrower, confirming compliance with the conditions precedent set forth in
paragraphs (b) and (c) of Section 4.01.

(f) The Administrative Agent shall have received all Fees and other
amounts due and payable on or prior to the Closing Date.

(g) The Pledge Agreement shall have been duly executed by the parties
thereto and delivered to the Collateral Agent and shall be in full force and
effect, and all the outstanding capital stock of the Borrower and each of
Western Surety, United Capitol and the other Subsidiaries listed on Schedule
4.02(g) shall have been duly and validly pledged thereunder to the Collateral
Agent for the ratable benefit of the Secured Parties and certificates
representing such shares, accompanied by instruments of transfer and stock
powers endorsed in blank, shall be in the actual possession of the Collateral
Agent.

(h) The Security Agreement shall have been duly executed by Capsure, the
Borrower, the Subsidiary Guarantors and the Collateral Agent and shall be in
full force and effect, and each document (including each Uniform Commercial
Code financing statement) required by law or reasonably requested by the
Administrative Agent to be filed, registered or recorded in order to create in
favor of the Collateral Agent for the benefit of the Secured Parties a valid
and perfected first priority security interest in or lien on the Collateral
described in such agreement shall have been delivered to the Collateral Agent.

(i) The Collateral Agent shall have received the results of a search of
the Uniform Commercial Code filings (or equivalent filings) made with respect
to Capsure, the Borrower and each Subsidiary Guarantor in the states (or other
jurisdictions) in which the chief executive offices of such persons are
located, or in which any offices of such persons in which records have been
kept relating to accounts receivable are located, and in the other
jurisdictions in which Uniform Commercial Code filings (or equivalent filings)
are to be made pursuant to the preceding subsection, together with copies of
the financing statements (or similar documents) disclosed by such search, and
accompanied by evidence satisfactory to the Administrative Agent that the Liens
indicated in any such financing statement (or similar document) would be
permitted under Section 6.02 or have been released.

(j) The Collateral Agent shall have received a Perfection Certificate with
respect to each of Capsure, the Borrower and the Subsidiary Guarantors dated
the Closing Date and duly executed by a Financial Officer of each of Capsure
and the Borrower.
<PAGE> 41

(k) The Guarantee Agreement shall have been duly executed by the
Subsidiary Guarantors and delivered to the Collateral Agent, and shall be in
full force and effect.

(l) The Indemnity, Subrogation and Contribution Agreement shall have been
duly executed by the Borrower and the Subsidiary Guarantors and delivered to
the Collateral Agent, and shall be in full force and effect.

(m) All amounts due under the Existing Credit Facilities shall have been
repaid in full, the commitments thereunder shall have been permanently
terminated and all obligations thereunder and security interests relating
thereto shall have been discharged, and the Administrative Agent shall have
received satisfactory evidence of such repayment, termination and discharge.

(n) The Lenders shall be reasonably satisfied that Capsure has made (or
shall make, contemporaneously with the initial Borrowing hereunder) the Equity
Contribution.

(o) All requisite Governmental Authorities and third parties shall have
approved or consented to (or, if applicable law or regulation provides that
approval or consent of the requisite Governmental Authority shall be deemed to
have been granted if no disapproval is issued within a specified period, such
Governmental Authority did not disapprove within such specified period) the
Transactions and the other transactions contemplated hereby to the extent
required, all applicable appeal periods shall have expired and there shall be
no governmental or judicial action, actual or threatened, that has or would
have a reasonable likelihood of restraining, preventing or imposing burdensome
conditions on the Transactions or the other transactions contemplated hereby.

(p) There shall be no litigation or administrative proceedings or other
legal or regulatory developments with respect to Capsure or any of its
subsidiaries (including any governmental policy or initiative relating to
insurance), actual or overtly threatened, that, in the reasonable judgment of
the Lenders, could reasonably be expected to result in a Material Adverse
Effect or an impairment of the rights of or benefits available to the
Administrative Agent or any of the other Lenders under any Loan Document.

(q) There shall have been no material adverse change with respect to the
business, assets, financial condition, prospects or material agreements of
Capsure and its subsidiaries, taken as a whole, since December 31, 1993.

(r) The Lenders shall have received (i) the management letter from Coopers
& Lybrand for the fiscal year 1992 (together with any response thereto prepared
by Capsure) and (ii) a reasonably satisfactory consolidated balance sheet and
income statement of Capsure and its subsidiaries as of and for the year ended
December 31, 1993, and the Lenders shall be reasonably satisfied that such
balance sheet and income statement are not materially inconsistent with the
projections previously furnished to the Lenders.

(s) The Lenders shall be reasonably satisfied with (i) the tax position,
including the amount of the Available Net Operating Losses, of Capsure and its
subsidiaries, (ii) the arrangements for tax sharing, including the terms and
provisions of the Tax Sharing Agreements, among Capsure and its subsidiaries
and (iii) all other legal, tax and accounting matters relating to the
Transactions and the other transactions contemplated hereby.
<PAGE> 42

(t) The Lenders shall be reasonably satisfied with the nature and amount
of any contingent liabilities of Capsure and its subsidiaries (including
environmental, pension and tax liabilities) and the amount of reserves
established by Capsure and its subsidiaries in connection therewith.

(u) The Lenders shall be reasonably satisfied with the amount, terms and
provisions of all Indebtedness of Capsure and its subsidiaries that will be
outstanding as of the Closing Date as set forth on Schedule 6.01.

(v) The Borrower shall have (i) extended the maturity date of the
Subordinated Note (the "Subordinated Note") dated February 20, 1990, from NI
Acquisition Corp. to Capsure (and contributed to the Borrower as part of the
Equity Contribution) to a date not earlier than the Maturity Date (it being
understood that such Subordinated Note shall continue to provide that no
payments of principal of or interest on such note shall be made prior to such
maturity date, as so extended) or (ii) forgiven the repayment of the
Indebtedness evidenced thereby.

ARTICLE V

AFFIRMATIVE COVENANTS

Each of the Borrower and Capsure covenants and agrees with each Lender and
the Administrative Agent that so long as this Agreement shall remain in effect
or the principal of or interest on any Loan, any Fees or any other expenses or
amounts payable under any Loan Document shall be unpaid, unless the Required
Lenders shall otherwise consent in writing, each of the Borrower and Capsure
will, and will cause each of its subsidiaries to:

SECTION 5.01. Existence; Businesses and Properties. (a) Do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence, except as otherwise expressly permitted under Section
6.05.

(b) Do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; maintain and operate such business in
substantially the manner in which it is currently conducted and operated (or,
in the case of any business acquired in a Permitted Acquisition, in
substantially the manner in which it is conducted and operated on the date on
which such Permitted Acquisition is consummated), which, in the case of any
Insurance Subsidiary, may include the underwriting of property and casualty
lines of business not currently underwritten by such person; comply in all
material respects with all applicable laws, rules, regulations and orders of
any Governmental Authority, whether now in effect or hereafter enacted; and at
all times maintain and preserve all property material to the conduct of such
business and keep such property in good repair, working order and condition and
from time to time make, or cause to be made, all needful and proper repairs,
renewals, additions, improvements and replacements thereto necessary in order
that the business carried on in connection therewith may be properly conducted
at all times.

SECTION 5.02. Insurance. Keep its insurable properties adequately insured
at all times by financially sound and reputable insurers; maintain such other
insurance to such extent and against such risks, including fire and other risks
insured against by extended coverage, as is customary with companies in the
same or similar businesses, including public liability insurance against claims
for personal injury or death or property damage occurring upon, in, about or in
connection with the use of any properties owned,
<PAGE> 43

occupied or controlled by it; maintain sufficient insurance so that neither any
Insurance Subsidiary nor any other Subsidiary will be considered a co-insurer
or co-insurers; maintain such other insurance as may be required by law; and
cause each insurance policy that is required by this Section 5.02 and insures
any of the Collateral to be endorsed or otherwise amended to include a lender's
loss payable endorsement (except in the case of liability policies) in form and
substance reasonably satisfactory to the Collateral Agent and to name the
Collateral Agent as an additional insured.

SECTION 5.03. Obligations and Taxes. Pay its Indebtedness and other
obligations promptly and in accordance with its terms and pay and discharge
promptly when due all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or in respect of its property,
before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise that, if unpaid, might
give rise to a Lien upon such properties or any part thereof; provided,
however, that such payment and discharge shall not be required with respect to
any such tax, assessment, charge, levy or claim so long as the validity or
amount thereof shall be contested in good faith by appropriate proceedings and
Capsure or the applicable subsidiary thereof shall have set aside on its books,
in accordance with GAAP, adequate reserves with respect thereto.

SECTION 5.04. Financial Statements, Reports, etc. Furnish to the
Administrative Agent and each Lender:

(a) within 105 days after the end of each fiscal year, its consolidated
and consolidating balance sheets and related statements of income and changes
in financial position, showing the financial condition of Capsure and its
subsidiaries as of the close of such fiscal year and the results of their
operations during such year, all audited by Coopers & Lybrand or other
independent public accountants of recognized national standing acceptable to
the Required Lenders and accompanied by an opinion of such accountants (which
shall not be qualified in any material respect) to the effect that such
consolidated financial statements fairly present the financial condition and
results of operations of Capsure on a consolidated basis in accordance with
GAAP consistently applied;

(b) within 50 days after the end of each of the first three fiscal
quarters of each fiscal year, the consolidated and consolidating balance sheets
and related statements of income and changes in financial position, showing the
financial condition of Capsure and its subsidiaries as of the close of such
fiscal quarter and the results of their operations during such fiscal quarter
and the then elapsed portion of the fiscal year, all certified by a Financial
Officer of each of Capsure and the Borrower as fairly presenting the financial
condition and results of operations of Capsure on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end audit
adjustments;

(c) concurrently with any delivery of financial statements under paragraph
(a) or (b) above, a certificate of the accounting firm or Financial Officers
opining on or certifying such statements (which certificate, when furnished by
an accounting firm, may be limited to accounting matters and disclaim
responsibility for legal interpretations) (i) certifying that no Event of
Default or Default has occurred or, if such an Event of Default or Default has
occurred, specifying the nature and extent thereof and any corrective action
taken or proposed to be taken with respect thereto and (ii) setting forth
computations in detail reasonably satisfactory to the Administrative Agent
demonstrating compliance with the covenants contained in Sections 6.13, 6.14,
6.15 and 6.16;

(d) as soon as available and in any event within 90 days after the end of
each fiscal year, (i) the Statement of Actuarial Opinion of each Insurance
Subsidiary for such fiscal year and as filed with the Applicable Insurance
Regulatory Authority and (ii) the Annual Statement of each Insurance Subsidiary
for
<PAGE> 44

such fiscal year and as filed with the Applicable Insurance Regulatory
Authority, together with, in the case of the statements delivered pursuant to
clause (ii) above, a certificate of a Responsible Officer of the Borrower to
the effect that such statements present fairly the statutory assets,
liabilities, capital and surplus, results of operations and cash flows of such
Insurance Subsidiary in accordance with SAP;

(e) as soon as available and in any event within 45 days after the end of
each of the first three fiscal quarters of each fiscal year, the Quarterly
Statement of each Insurance Subsidiary for such fiscal quarter and as filed
with the Applicable Insurance Regulatory Authority, certified by a Responsible
Officer of the Borrower as fairly presenting the statutory assets, liabilities,
capital and surplus, results of operations and cash flows of such Insurance
Subsidiary;

(f) as soon as available and in any event at least once each fiscal year
and no later than 30 days after the completion thereof, an actuarial report of
each Insurance Subsidiary, prepared by any independent actuarial or accounting
firm of nationally recognized standing acceptable to the Required Lenders;

(g) promptly after delivery to an Insurance Subsidiary, final copies of
all regular and periodic reports of examinations of such Insurance Subsidiary,
delivered to such Insurance Subsidiary by the Applicable Insurance Regulatory
Authority;

(h) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by it
(and any filing on Schedule 13D or Schedule 13G with respect to the ownership
of Capsure's equity securities) with the Securities and Exchange Commission, or
any governmental authority succeeding to any of or all the functions of said
Commission, or with any national securities exchange, or distributed to its
shareholders, as the case may be;

(i) upon the request of the Administrative Agent or the Required Lenders,
and promptly following the preparation thereof, copies of each management
letter prepared by Capsure's auditors (together with any response thereto
prepared by Capsure);

(j) as soon as available, and in any event no later than 90 days after the
end of each fiscal year, a revised Schedule 3.20 as of such date, and, upon the
request of the Administrative Agent or the Required Lenders, copies of any
Reinsurance Agreement of any Insurance Subsidiary;

(k) as soon as available, and in any event no later than 90 days after the
end of each fiscal year, forecasted financial projections and summary data
through the end of the then-current fiscal year, including a specification of
the underlying assumptions, all certified by a Financial Officer of each of
Capsure and the Borrower to be a fair summary of results and a good faith
estimate of the forecasted financial projections and results of operations for
such year;

(l) at least ten Business Days prior to any Permitted Acquisition,
financial projections covering the period from the date of such Permitted
Acquisition through the Maturity Date giving effect to such Permitted
Acquisition and demonstrating compliance by Capsure and its subsidiaries on a
pro forma basis with the covenants in Article VI from and after the date of,
and after giving effect to, such Permitted Acquisition through the Maturity
Date;

(m) promptly after receipt thereof, copies of any notices or other
communications received by it with respect to the Pledged Securities (as
defined in the Pledge Agreement);
<PAGE> 45

(n) at least 10 days' prior written notice of the payment of any dividend,
distribution or other payment by the Borrower to Capsure or by Capsure to any
holder of its capital stock if such dividend, distribution or payment will
result in a reduction in the Commitments under Section 2.09(c);

(o) no later than 90 days after the end of each fiscal year and within 10
days after any filing on Schedule 13D or Schedule 13G with respect to the
ownership of Capsure's equity securities, a certificate of a Financial Officer
and the chief legal officer of Capsure certifying that since the Closing Date
there has been no "ownership change" within the meaning of Section 382(g) of
the Code.

(p) no later than 30 days after the end of each fiscal quarter, a
certificate of a Responsible Officer of each of Capsure and the Borrower
setting forth the aggregate amount of dividends, distributions and other
payments paid by Capsure and the Borrower during such fiscal quarter and the
aggregate cost basis of the Excluded Investments as of the last day of such
fiscal quarter.

(q) promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of Capsure or its
subsidiaries, or compliance with the terms of any Loan Document, as the
Administrative Agent or any Lender may reasonably request.

SECTION 5.05. Litigation and Other Notices. Furnish to the Administrative
Agent and each Lender written notice of the following promptly after any
Responsible Officer of Capsure or the Borrower obtains knowledge thereof:

(a) any Event of Default or Default, specifying the nature and extent
thereof and the corrective action (if any) proposed to be taken with respect
thereto;

(b) the filing or commencement of any action, suit or proceeding, whether
at law or in equity or by or before any Governmental Authority, against
Capsure, the Borrower or any Subsidiary that, if adversely determined, could
result in a Material Adverse Effect (other than any litigation arising in the
ordinary course of business of any Insurance Subsidiary in connection with
which recourse is sought against insurance policies or bonds issued by such
Insurance Subsidiary or obligations arising in connection with such insurance
policies or bonds);

(c) any development that has resulted in, or could reasonably be
anticipated to result in, a Material Adverse Effect; and

(d) any "ownership change" within the meaning of Section 382(g) of the
Code.

SECTION 5.06. Employee Benefits. (a) Comply in all material respects with
the applicable provisions of ERISA and the Code and (b) furnish to the
Administrative Agent and each Lender (i) as soon as possible after, and in any
event within 30 days after any Responsible Officer of Capsure, the Borrower or
any of their ERISA Affiliates knows or has reason to know that, any Reportable
Event has occurred that alone or together with any other Reportable Event could
reasonably be expected to result in liability of Capsure, the Borrower or any
Subsidiary Guarantor to the PBGC in an aggregate amount exceeding $250,000, a
statement of a Financial Officer of the Borrower setting forth details as to
such Reportable Event and the action that Capsure, the Borrower or such
Subsidiary Guarantor proposes to take with respect thereto, together with a
copy of the notice, if any, of such Reportable Event given to the PBGC, (ii)
promptly after receipt thereof, a copy of any notice that Capsure, the Borrower
or any of their ERISA Affiliates may receive from the PBGC relating to the
intention of the PBGC to terminate any Plan or Plans (other than a Plan
maintained by an ERISA Affiliate that is considered an ERISA Affiliate only
pursuant
<PAGE> 46

to subsection (m) or (o) of Code Section 414) or to appoint a trustee to
administer any such Plan, (iii) within 10 days after the due date for filing
with the PBGC pursuant to Section 412(n) of the Code a notice of failure to
make a required installment or other payment with respect to a Plan, a
statement of a Financial Officer of the Borrower setting forth details as to
such failure and the action that Capsure, the Borrower or any ERISA Affiliate
proposes to take with respect thereto, together with a copy of any such notice
given to the PBGC and (iv) promptly and in any event within 30 days after
receipt thereof by Capsure, the Borrower or such ERISA Affiliate from the
sponsor of a Multiemployer Plan, a copy of each notice received by Capsure, the
Borrower or any ERISA Affiliate concerning (A) the imposition of Withdrawal
Liability or (B) a determination that a Multiemployer Plan is, or is expected
to be, terminated or in reorganization, both within the meaning of Title IV of
ERISA.

SECTION 5.07. Maintaining Records; Access to Properties and Inspections.
Maintain all financial records in accordance with GAAP and, with respect to any
Insurance Subsidiary, SAP, and, upon reasonable notice, permit any
representatives designated by any Lender to visit and inspect the financial
records and the properties of Capsure or any of its subsidiaries at reasonable
times and as often as requested and to make extracts from and copies of such
financial records, and permit any representatives designated by any Lender to
discuss the affairs, finances and condition of Capsure or any of its
subsidiaries with the officers thereof and, in the presence of representatives
of Capsure if requested by Capsure, independent accountants therefor.

SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans only for the
purposes set forth in the preamble to this Agreement.

SECTION 5.09. Further Assurances. (a) Execute and cause to be executed any
and all further documents, financing statements, agreements and instruments,
and take all further action (including (i) filing Uniform Commercial Code and
other financing statements, (ii) executing and delivering a Mortgage and (iii)
executing and delivering a Pledgeholder Agreement) that may be required under
applicable law, or which the Required Lenders, the Administrative Agent or the
Collateral Agent may reasonably request, in order to effectuate the
transactions contemplated by the Loan Documents and in order to grant,
preserve, protect and perfect the validity and first priority of the security
interests or liens created or intended to be created by the Security Documents.
Each of Capsure and the Borrower agrees to provide such evidence as the
Required Lenders shall reasonably request as to the perfection and priority
status of such security interests and Lien.

(b) (i) Cause each subsidiary created, and (to the extent required by
Section 6.05(c)(ii)) each subsidiary acquired, by the Borrower or its
subsidiaries from time to time in accordance with the terms of this Agreement
and each existing Subsidiary (to the extent required by Section 6.05(c)(ii)
and to the extent not a party thereto at such time) that acquires stock or
assets in a Permitted Acquisition (A) to undertake the obligation of and to
become a Subsidiary Guarantor under the Guarantee Agreement pursuant to one or
more instruments or agreements substantially in the form of Annex 1 to the
Guarantee Agreement, (B) to undertake the obligation of and to become a
Subsidiary Guarantor under the Indemnity, Subrogation and Contribution
Agreement pursuant to one or more instruments or agreements substantially in
the form of Annex I thereto, (C) to undertake the obligation of and to become
a Grantor under the Security Agreement pursuant to one or more instruments or
agreements substantially in the form of Annex 1 to the Security Agreement, (D)
to undertake the obligation of and to become a Pledgor under the Pledge
Agreement pursuant to one or more instruments or agreements substantially in
the form of Annex I to the Pledge Agreement, (E) to undertake the obligation of
and become a Mortgagor under a Mortgage if such subsidiary acquires real
property in such Permitted Acquisition and (F) to undertake the obligation of
and become a Pledgor under a Pledgeholder Agreement to the extent required by
Section 5.14 and
<PAGE> 47

(ii) pledge or cause to be pledged the shares of capital stock of any such
created or acquired subsidiary (other than the capital stock of any acquired
subsidiary, the stock of which may not be pledged due to any applicable
insurance regulatory prohibition on such a pledge) to the Collateral Agent for
the benefit of the Lenders pursuant to the Pledge Agreement or one or more
agreements substantially in the form of Annex 1 to the Pledge Agreement.

(c) Use its best efforts to obtain (as soon as the same practicably may be
obtained) any approvals required in order for any subsidiary of an Insurance
Subsidiary to grant any security interest or lien contemplated by Section
6.05(c)(ii)(E).

(d) Use its best efforts to obtain, as soon as the same may practicably
be obtained following receipt of a request from the Required Lenders, all
requisite approvals and consents from the Applicable Insurance Regulatory
Authority necessary to permit it to cause, as soon as practicable after receipt
of such approvals, (i) the capital stock of each of Fischer Underwriting Group,
Incorporated and United Capitol Managers, Inc. to be duly and validly pledged
under the Pledge Agreement to the Collateral Agent for the ratable benefit of
the Secured Parties, (ii) certificates representing such stock, accompanied by
instruments of transfer and stock powers endorsed in blank, to be delivered to
the Collateral Agent and (iii) each of Fischer Underwriting Group, Incorporated
and United Capitol Managers, Inc. to become a party to each of the Security
Documents, the Guarantee Agreement and the Indemnity, Subrogation and
Contribution Agreement.

SECTION 5.10. Environmental and Safety Laws. (a) Comply with all
Environmental and Safety Laws and obtain and comply with and maintain any and
all licenses, approvals, registrations or permits required by Environmental and
Safety Laws, except to the extent that failure so to comply or to obtain and
comply with and maintain such licenses, approvals, registrations and permits
does not have, and could not reasonably be expected to result in, a Material
Adverse Effect.

(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions, required under
Environmental and Safety Laws and promptly comply with all lawful orders and
directives of all Governmental Authorities in respect of Environmental and
Safety Laws, except to the extent that the same are being contested in good
faith by appropriate proceedings, the pendency of which would not have a
Material Adverse Effect.

(c) Notify the Administrative Agent and the Lenders of any of the
following that is reasonably likely to have a Material Adverse Effect:

(i) any Environmental Claim received by Capsure or any of its
subsidiaries, including any such Environmental Claim seeking to cause Capsure
of any of its subsidiaries to take or pay for any remedial, removal, response
or cleanup or other action with respect to any Hazardous Substance contained on
any property owned or leased by Capsure or any of its subsidiaries;

(ii) any notice of any alleged violation of or knowledge by Capsure or any
of its subsidiaries of a condition that might reasonably result in a violation
of any Environmental and Safety Law; and

(iii) any commencement or threatened commencement of any judicial or
administrative proceeding or investigation alleging a violation or potential
violation of any requirement of any Environmental and Safety Law by Capsure or
any of its subsidiaries.
<PAGE> 48

SECTION 5.11. Risk-Based Capital. Cause each Insurance Subsidiary to
maintain at all times Risk-Based Capital in an amount in excess of the level at
which the Applicable Insurance Regulatory Authority may issue a corrective
order or take any other action the effect of which is substantially equivalent
to the issuance of a corrective order.

SECTION 5.12. Insurance Regulatory Information System. Cause each
Insurance Subsidiary to comply in all material respects with the requirements
of the Insurance Regulatory Information System.

SECTION 5.13. Investment Ratios. (a) Cause all Invested Assets (other than
(i) Excluded Investments and (ii) investments in the capital stock of any
subsidiary, so long as such person owns, directly, beneficially and of record,
shares representing at least 80% of the shares of each class of capital stock
of such subsidiary before giving effect to such investment) owned by it or any
of its subsidiaries (other than the Insurance Subsidiaries) to be in the form
of cash, Cash Equivalents and Permitted Investments.

(b) Cause at any time at least 90% of the Invested Assets of each
Insurance Subsidiary (excluding investments in the capital stock of
subsidiaries of such Insurance Subsidiary) to constitute Investment Grade
Securities, cash and Cash Equivalents.

(c) Cause each Insurance Subsidiary to own at any time Invested Assets
(excluding investments in United States Government Securities), of which no
single Invested Asset equals or exceeds 3% (or, in the case of any Invested
Asset that is in the form of a Cash Equivalent, 6%) of the value of all
Invested Assets owned by such Insurance Subsidiary at such time.

SECTION 5.14. Deposit and Investment Accounts. (a) In the case of the
Borrower, establish not later than 30 days after the Closing Date and
thereafter maintain, and, in the case of the Borrower and its subsidiaries,
cause each Subsidiary Guarantor (other than any Subsidiary Guarantor that is a
subsidiary of any Insurance Subsidiary) to establish not later than 30 days
after the Closing Date and thereafter maintain, all its collection or deposit
accounts with the Collateral Agent.

(b) (i) In the case of the Borrower, execute and deliver, and, in the case
of the Borrower and its subsidiaries, cause each of Pin Oak Petroleum, Inc.and
NI Acquisition Corp.to execute and deliver, to the Collateral Agent an
effective Pledgeholder Agreement not later than 30 days after the Closing Date
and (ii) in the case of the Borrower, execute and deliver, and, in the case of
the Borrower and its subsidiaries, cause each Subsidiary Guarantor (other than
any Subsidiary Guarantor that is an Insurance Subsidiary or a subsidiary of any
Insurance Subsidiary) to execute and deliver, to the Collateral Agent an
effective Pledgeholder Agreement substantially contemporaneously with the
establishment by any such person after the date hereof of any brokerage,
investment, money market or similar account with any person other than the
Collateral Agent.

SECTION 5.15. Fiscal Year. Cause its fiscal year to end on December 31
of each year.

ARTICLE VI

NEGATIVE COVENANTS

Fees or any other expenses or amounts payable under any Loan Document shall be
unpaid, unless the Required Lenders shall otherwise consent in writing, the
Borrower and Capsure will not, and will not cause or permit any of their
respective subsidiaries to:

SECTION 6.01. Indebtedness. Incur, create, issue, assume, guarantee or
permit to exist any Indebtedness, except:

(a) Indebtedness existing on the date hereof and set forth on Schedule
6.01, but not any extensions, renewals, replacements or refinancings of such
Indebtedness;

(b) in the case of the Borrower, Indebtedness consisting of the Borrowings
hereunder;

(c) in the case of the Borrower or any of its wholly owned Subsidiaries,
Indebtedness assumed or incurred in connection with any Permitted Acquisition,
so long as such Indebtedness is permitted to be so assumed or incurred under
Section 6.05(c)(ii);

(d) in the case of Capsure, its guarantee of the Obligations pursuant
to Article VIII; and

(e) in the case of each Subsidiary Guarantor, its guarantee of the
Obligations pursuant to the Guarantee Agreement.

SECTION 6.02. Liens. Create, incur, assume or permit to exist any Lien on
any property or assets (including stock or other securities of any person,
including any subsidiary) now owned or hereafter acquired by it or on any
income or revenues or rights in respect thereof, except:

(a) Liens on property or assets existing on the date hereof and set forth
on Schedule 6.02, provided that such Liens shall secure only those obligations
that they secure on the date hereof;

(b) any Lien existing on any property or asset prior to the acquisition
thereof by the Borrower or any wholly owned Subsidiary, provided that (i) such
Lien is not created in contemplation of or in connection with such acquisition,
(ii) such Lien does not apply to any other property or assets of Capsure or its
subsidiaries and (iii) such Lien secures Indebtedness permitted by Section
6.01(c);

(d) carriers', warehousemen's, mechanic's, materialmen's or other like
Liens arising in the ordinary course of business and securing obligations that
are not due or that are being contested in compliance with Section 5.03;

(e) pledges and deposits made in the ordinary course of business in
compliance with workmen's compensation, unemployment insurance and other social
security laws or regulations other than in respect of employee benefit plans
subject to ERISA;

(f) deposits to secure the performance of bids, trade contracts (other
than for Indebtedness), leases (other than Capital Lease Obligations),
statutory obligations (including reserves held by or deposited with regulatory
agencies or guaranty funds), surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary course of business;
<PAGE> 50

(g) zoning restrictions, easements, servitudes, restrictions on use of
real property and other similar encumbrances incurred in the ordinary course of
business that, in the aggregate, are not substantial in amount and do not
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the business of Capsure or any of its
subsidiaries;

(h) Liens contemplated by the Security Documents; and

(i) extensions, renewals and replacements of Liens referred to in clauses
(a) and (b) above; provided that any such extension, renewal or replacement
Lien is limited to the property or assets covered by the Lien extended, renewed
or replaced and does not secure any Indebtedness in addition to that secured
immediately prior to such extension, renewal or replacement.

SECTION 6.03. Sale and Leaseback Transactions. Enter into any arrangement
(a "Sale and Leaseback Transaction"), directly or indirectly, with any person
whereby it shall sell or transfer any property, real or personal, used or
useful in its business, whether now owned or hereafter acquired, and thereafter
rent or lease such property or other property which it intends to use for
substantially the same purpose or purposes as the property being sold or
transferred, provided that the Borrower or any Subsidiary may, in the ordinary
course of business, enter into any Sale and Leaseback Transaction involving
automobiles or office equipment if, after giving effect to such Sale and
Leaseback Transaction, the aggregate purchase price of all property subject to
Sale and Leaseback Transactions does not exceed $1,000,000.

SECTION 6.04. Investments, Loans and Advances. Purchase, hold or acquire
any capital stock, evidences of indebtedness or other securities of, make or
permit to exist any loans or advances to, or make or permit to exist any
investment or any other interest in, any other person, except:

(a) investments existing on the date hereof;

(b) investments by the Borrower, any Subsidiary Guarantor or any Insurance
Subsidiary in the capital stock of any Insurance Subsidiary, so long as such
capital stock has been pledged to the Collateral Agent under the Pledge
Agreement;

(d) in the case of any Guarantor, any Guarantee permitted by Section 6.01
hereof;

(e) investments by the Borrower or any of its wholly owned Subsidiaries in
capital stock in connection with Permitted Acquisitions so long as the
Borrower, such wholly owned Subsidiary and any subsidiary formed or acquired in
connection with such Permitted Acquisition shall have complied with Section
5.09; and

(f) in the case of Capsure, the Borrower and the Subsidiaries (other than
any Insurance Subsidiary), investments ("Excluded Investments") having a cost
basis not in excess of $30,000,000 in the aggregate at any time less the sum,
without duplication, of (i) the amount of dividends, distributions or other
payments made by Capsure to any holder of its capital stock since the Closing
Date, (ii) the amount expended by Capsure to repurchase, retire, redeem or
otherwise acquire shares of its capital stock since the Closing Date and (iii)
an amount equal to the excess of (A) the amount paid to the Rightholder or its
successors or assigns by NI Acquisition Corp. to repurchase or redeem any
capital stock (or securities convertible into such capital stock) purchased by
the Rightholder pursuant to the exercise of the Right over
<PAGE> 51

(B) the amount paid to NI Acquisition Corp. by the Rightholder to purchase
such capital stock (or securities convertible into such capital stock) pursuant
to the exercise of the Right.

SECTION 6.05. Mergers, Consolidations and Acquisitions. Merge into or
consolidate with any other person, or permit any other person to merge into or
consolidate with it, or sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) any of its assets (whether now
owned or hereafter acquired) or any capital stock of any subsidiary, or
purchase, lease or otherwise acquire (in one transaction or a series of
transactions) all or any substantial part of the capital stock or assets of any
other person, except that (a) the Borrower and any Subsidiary may purchase and
sell, transfer, lease or otherwise dispose of assets (including Invested Assets
to the extent permitted hereunder) in the ordinary course of business on an
arm's-length basis, (b) Capsure may purchase and sell, transfer, lease or
otherwise dispose of Invested Assets to the extent permitted hereunder and (c)
if at the time thereof and immediately after giving effect thereto no Event of
Default or Default shall have occurred and be continuing:

(i) (A) any wholly owned Subsidiary of the Borrower may merge into
the Borrower in a transaction in which the Borrower is the surviving
corporation and (B) any wholly owned Subsidiary (other than any Insurance
Subsidiary) may merge into or consolidate with any other wholly owned
Subsidiary (other than any Insurance Subsidiary) in a transaction in which
the surviving entity is a wholly owned Subsidiary and no person other than
the Borrower or a wholly owned Subsidiary receives any consideration;

(ii) the Borrower or any of its wholly owned Subsidiaries (other
than, except as contemplated by clause (C)(II) below, any Insurance
Subsidiary) may make acquisitions of assets or capital stock, so long as
(A) such acquisition shall not have been preceded by an unsolicited tender
offer for such capital stock by Capsure or any of its Affiliates (it being
understood that an unsolicited bid letter or other unsolicited expression
of interest in an acquisition shall not constitute an unsolicited tender
offer); (B) such acquisition and all transactions related thereto shall be
consummated in accordance with applicable laws, including insurance laws
and regulations and Regulations of the Board; (C) such acquisition shall
constitute an acquisition of all or a portion of the assets of, or 100% of
the common stock of, a corporation engaged in the Insurance Business
(other than (I) acquisitions of all or a portion of the assets of, or 100%
of the common stock of, corporations primarily engaged in the financial
services business, the aggregate consideration paid in connection with
which does not (when added together with all other acquisitions since the
Closing Date of all or a portion of the assets of, or 100% of the common
stock of, corporations primarily engaged in the financial services
business) exceed $10,000,000 and (II) acquisitions by any Insurance
Subsidiary of all or a portion of the assets of, or 100% of the common
stock of, an insurance agency of such Insurance Subsidiary); (D)
simultaneously with the acquisition thereof, all capital stock acquired in
connection with such acquisition shall be duly and validly pledged to the
Collateral Agent for the ratable benefit of the Secured Parties (other
than the capital stock of any acquired Subsidiary, the stock of which may
not be pledged due to an applicable insurance regulatory prohibition on
such a pledge); (E)(I) a valid and perfected first priority security
interest or lien in favor of the Collateral Agent for the ratable benefit
of the Secured Parties shall be created in all assets acquired in
connection with such acquisition, (x) in the case of any acquisition by
the Borrower or any Subsidiary (other than any Insurance Subsidiary and
any subsidiary of an Insurance Subsidiary), simultaneously with the
acquisition thereof or (y) in the case of any acquisition by an Insurance
Subsidiary or by a subsidiary of an Insurance Subsidiary, to the extent
permitted by, and as soon as practicable after receipt of any approval
required under, applicable law, ordinance or regulation and (II) a valid
and perfected first priority security interest or lien in favor of the
Collateral Agent for the ratable benefit of the Secured Parties shall be
created in all the assets of any Subsidiary (other than any Insurance
Subsidiary or any subsidiary of an Insurance Subsidiary, in
<PAGE> 52

each case except to the extent permitted by and as soon as practicable
after receipt of any approval required under, applicable law, ordinance or
regulation), the capital stock of which is acquired in connection with
such acquisition, and any acquiring subsidiary or acquired or created
Subsidiary that is required to grant a security interest or lien under
this clause (E) shall become (to the extent not a party thereto at such
time) a Grantor under the Security Agreement, a Pledgor under the Pledge
Agreement and a Subsidiary Guarantor under the Guarantee Agreement and the
Indemnity, Subrogation and Contribution Agreement, in each case in
accordance with Section 5.09, and the Borrower and any subsidiary shall
execute and/or deliver any documents, financing statements, agreements and
instruments (including a Mortgage, a Pledgeholder Agreement and, if
requested by the Collateral Agent, an appraisal of any real property
acquired in such acquisition) and take all action (including filing
Uniform Commercial Code and other financing statements) that may be
required under applicable law, or that the Collateral Agent may request,
in order to grant, preserve, protect and perfect any security interest or
lien contemplated by this clause (E); (F) no capital stock or assets
acquired in connection with such acquisition shall be subject to any Lien
(other than Liens permitted by Section 6.02(b), (d) or (g)); (G) neither
the Borrower nor any Subsidiary may assume or incur, directly or
indirectly, any Indebtedness or other liability (including any contingent
liability) in connection with such acquisition (other than (I) the
Borrowings hereunder used to finance all or part of the purchase price of
such acquisition, (II) liabilities in the ordinary course of business of
the acquired business in an amount not in excess of $2,000,000, provided
that the aggregate amount of liabilities assumed by the Borrower and the
Subsidiaries, collectively, under this clause (G) (II) shall not exceed
$10,000,000 since the Closing Date and (III) Insurance Liabilities
incurred in the ordinary course of business of the acquired business); (H)
Capsure and its subsidiaries shall satisfy, on a pro forma basis as of the
date on which such acquisition is consummated, after giving effect to such
acquisition as if it had occurred on the first day of the most recently
completed period of four consecutive fiscal quarters preceding the date on
which such acquisition is consummated, the covenants set forth in
Sections 6.13, 6.14, 6.15 and 6.16; (I) after giving effect to such
acquisition, there shall not have occurred any Material Adverse Effect;
and (J) the person to be acquired, or from which any assets are acquired,
shall have had taxable income for (I) at least one of its preceding two
fiscal years and (II) at least three of its preceding five fiscal years,
in each case after giving effect to pro forma adjustments (including
adjustments attributable to purchasing only a portion of the assets of
such person) such that such taxable income will include (A) extraordinary
compensation paid during the applicable period, (B) to the extent that
there are Available Net Operating Losses at the determination date, the
amount of income lost by such person during the applicable period as a
result of investing in tax-exempt securities as opposed to taxable
securities, (C) amounts paid pursuant to reinsurance arrangements during
the applicable period, (D) management fees or other payments to Affiliates
during the applicable period and (E) income lost during the applicable
period due to the tax treatment of purchased intangibles (but only if such
tax treatment will not result in an increase in the tax liability of
Capsure or its subsidiaries after the acquisition of such person or from
such person is consummated) (any acquisition satisfying each of the
criteria set forth in this sentence is referred to herein as a "Permitted
Acquisition"); and

(iii) upon the exercise of the Right by the Rightholder, NI
Acquisition Corp. may sell or transfer to the Rightholder the shares of
convertible preferred stock (and the shares of common stock into which
such shares are convertible) of United Capitol Holding Company that are
subject to such Right, so long as on the date that is 90 days after the
date of such sale or transfer to the Rightholder, NI Acquisition Corp.
shall own 100% of the capital stock (and securities convertible into the
capital stock) of United Capitol Holding Company (it being understood that
the pendency beyond such 90-day period of any appraisal rights proceeding
shall not be deemed to violate this Section 6.05(c)(iii)).
<PAGE> 53

SECTION 6.06. Dividends and Distributions. Declare or pay, directly or
indirectly, any dividend or make any other distribution (by reduction of
capital or otherwise), whether in cash, property, securities (other than
additional capital stock of the Borrower, as long as such capital stock is
pledged to the Collateral Agent under the Pledge Agreement) or a combination
thereof, with respect to any shares of the Borrower's capital stock or, in the
case of the Borrower and its subsidiaries, directly or indirectly redeem,
purchase, retire or otherwise acquire for value (or permit any Subsidiary to
purchase or acquire for value) any shares of any class of capital stock of
Capsure or any of its subsidiaries or set aside any amount for any such
purpose; provided, however, that (a) any Subsidiary may declare and pay
dividends or make other distributions to any other Subsidiary that is its
parent and to the Borrower and (b) if at the time thereof and immediately after
giving effect thereto no Default or Event of Default shall have occurred and be
continuing, the Borrower may declare and pay dividends or make other
distributions to Capsure (i) in an amount not to exceed, in any fiscal year,
25% of Excess Cash Flow for the fiscal year immediately preceding the payment
thereof, (ii) in an aggregate amount not to exceed (A) $2,500,000 in each
calendar year from 1994 through 1997 and (B) $3,000,000 in each calendar year
from 1998 through 2000, in each case solely to enable Capsure to pay reasonable
and customary accounting, legal and other administrative expenses (to the
extent such expenses have not been reimbursed by the Borrower or by any
subsidiary of the Borrower or Capsure) in the ordinary course of its business,
(iii) to the extent required under the Tax Sharing Agreement between Capsure
and the Borrower and (iv) in addition to dividends and other distributions
permitted under clauses (i), (ii) and (iii) above, in an aggregate amount not
to exceed $30,000,000 since the Closing Date minus an amount equal to the
excess of (A) the amount paid to the Rightholder or its successors or assigns
by NI Acquisition Corp. to repurchase or redeem any capital stock (or
securities convertible into such capital stock) purchased by the Rightholder
pursuant to the exercise of the Right over (B) the amount paid to NI
Acquisition Corp. by the Rightholder to purchase such capital stock (or
securities convertible into such capital stock) pursuant to the exercise of the
Right.

SECTION 6.07. Transactions with Affiliates. Sell or transfer any property,
assets or services to, or purchase or acquire any property, assets or services
from, or otherwise engage in any other transaction or series of transactions
with, any of its Affiliates, except that, so long as no Default or Event of
Default shall have occurred and be continuing, Capsure or any of its
subsidiaries may engage in any of the foregoing transactions in the ordinary
course of business at prices and on terms and conditions not less favorable to
such person than could be obtained on an arm's-length basis from unrelated
third parties.

SECTION 6.08. Nature of Business. (a) In the case of the Borrower and the
Subsidiaries, engage or permit any Subsidiary to engage at any time in any
business or business activity other than the property and casualty Insurance
Business and business activities reasonably incidental thereto; and

(b) in the case of Capsure, engage at any time in any business or business
activity other than owning (i) all the capital stock of the Borrower and (ii)
other investments to the extent permitted by Section 6.04(f), and business
activities reasonably incidental thereto.

SECTION 6.09. Net Operating Losses. Take any action that could result in
a reduction of the Available Net Operating Losses to an amount less than
$220,000,000 minus the amount of such Available Net Operating Losses utilized
in taxable years since the Closing Date to offset the taxable income for
Federal income tax purposes of Capsure and its subsidiaries.

SECTION 6.10. Debt Payments. Directly or indirectly make any optional
payment, prepayment, redemption, retirement or defeasance, whether in cash,
property, securities or a combination thereof, on
<PAGE> 54

account of the principal amount of any Indebtedness (other than the
Obligations), except payments by any Subsidiary of Insurance Liabilities in the
ordinary course of the Insurance Business.

SECTION 6.11. Limitation on Surplus Relief Reinsurance Agreements. Permit
any Insurance Subsidiary to enter into any Surplus Relief Reinsurance
Agreement.

SECTION 6.12. Reinsurance. Permit any Insurance Subsidiary to (a) enter
into any Reinsurance Agreement with any reinsurer except (i) insurance
companies (other than any other Insurance Subsidiary) rated A- or better by
A.M. Best & Co. or A or better by Standard & Poor's, (ii) other insurance
companies (including any other Insurance Subsidiary), but only if the
obligations of such other insurance companies under such Reinsurance Agreements
are secured by letters of credit, trust funds, withheld funds or other security
such that such Insurance Subsidiary would be permitted to take credit for
substantially all the ceded reinsurance in accordance with SAP for financial
statement reporting purposes, even if such reinsurer was admitted in a state
other than the state in which such Insurance Subsidiary is domiciled, and (iii)
insurance companies not admitted in South Dakota, Wisconsin or any other state
in which any Insurance Subsidiary is domiciled, but only if the obligations of
such insurance companies under such Reinsurance Agreements are secured by
letters of credit, trust funds, withheld funds or other security in a form such
that such Insurance Subsidiary is permitted to take credit for substantially
all the ceded reinsurance in accordance with SAP for financial statement
reporting purposes or (b) modify in any respect adverse to the interests of the
Lenders, its policies with respect to reinsurance from those in effect at
December 31, 1993.

SECTION 6.13. Total Debt to Adjusted Capital Ratio. Permit the ratio of
Total Debt to Adjusted Capital on the last day of any fiscal quarter ending on
the last day of or during any period indicated below to be in excess of the
ratio set forth opposite such period:

<TABLE>
<CAPTION>
From and Including: To and Including: Ratio:
<S> <C> <C>
January 1, 1994 December 31, 1994 0.55 to 1.00
January 1, 1995 December 31, 1996 0.50 to 1.00
January 1, 1997 December 31, 1997 0.40 to 1.00
January 1, 1998 December 31, 1998 0.35 to 1.00
January 1, 1999 March 31, 2000 0.25 to 1.00
</TABLE>

SECTION 6.14. Fixed Charge Coverage Ratio. Permit the Fixed Charge
Coverage Ratio on the last day of any period of four consecutive fiscal
quarters, commencing with the period of four consecutive fiscal quarters ending
on the Closing Date (which for purposes of any determination made under this
Section 6.14 prior to March 31, 1994, shall be presumed to be the end of the
fiscal quarter that began on January 1, 1994) to be less than 1.35 to 1.00.

SECTION 6.15. Total Debt to Total Cash Flow Sources Ratio. Permit
the ratio of Total Debt to Total Cash Flow Sources on the last day of any
period of four consecutive fiscal quarters ending on the last day of or during
any period indicated below to be less than the ratio set forth opposite such
period (provided that for purposes of any determination made under this Section
6.15 prior to March 31, 1994, the Closing Date shall be presumed to be the end
of the fiscal quarter that began on January 1, 1994):

<TABLE>
<CAPTION>
From and Including: To and Including: Ratio:
<S> <C> <C>
March 31, 1994 December 31, 1994 4.50 to 1.00
January 1, 1995 December 31, 1995 4.00 to 1.00

</TABLE>
<PAGE> 55

<TABLE>
<S> <C> <C>
January 1, 1996 December 31, 1996 3.50 to 1.00
January 1, 1997 December 31, 1997 2.50 to 1.00
January 1, 1998 March 31, 2000 2.00 to 1.00
</TABLE>

SECTION 6.16. Operating Leverage Ratio. Permit, at any time, the
Operating Leverage Ratio to be greater than (a) in the case of Western Surety,
3.00 to 1.00, (b) in the case of United Capitol, 2.00 to 1.00 and (c) in the
case of any Insurance Subsidiary hereafter acquired by the Borrower or any of
its wholly owned Subsidiaries, (i) 2.00 to 1.00 with respect to any such
Insurance Subsidiary for which 50% or more of its Net Written Premiums are in
respect of Long Tail Insurance Lines of Business and (ii) 3.00 to 1.00 with
respect to any such Insurance Subsidiary for which less than 50% of its Net
Written Premiums are in respect of Long Tail Insurance Lines of Business.

SECTION 6.17. Amendment of Certain Documents. Permit or agree to, or
permit any Subsidiary to agree to, (a) any amendment or modification that is
adverse in any material respect to the Lenders (or, in the case of any
Reinsurance Agreement, that could reasonably be expected to result in a
Material Adverse Effect) to its certificate of incorporation or by-laws, any
Reinsurance Agreement, any agreement evidencing Indebtedness or any other
material agreement to which it is a party or (b) any amendment to, or
modification or termination of, the Tax Sharing Agreements (which shall be
maintained in full force and effect at all times).

ARTICLE VII

EVENTS OF DEFAULT

In case of the happening of any of the following events ("Events of
Default"):

(a) any representation or warranty made or deemed made in or in connection
with any Loan Document or the borrowings hereunder, or any representation,
warranty, statement or information contained in any report, certificate,
financial statement or other instrument furnished in connection with or
pursuant to any Loan Document, shall prove to have been false or misleading in
any material respect when so made, deemed made or furnished;

(b) default shall be made in the payment of any principal of any Loan when
and as the same shall become due and payable, whether at the due date thereof
or at a date fixed for prepayment thereof or by acceleration thereof or
otherwise;

(c) default shall be made in the payment of any interest on any Loan or
any Fee or any other amount (other than an amount referred to in paragraph (b)
above) due under any Loan Document, when and as the same shall become due and
payable, and such default shall continue unremedied for a period of three
Business Days;

(d) default shall be made in the due observance or performance by Capsure
or the Borrower of any covenant, condition or agreement contained in Section
5.01(a) or 5.05 or in Article VI (other than Sections 6.04 and 6.12);

(e) default shall be made in the due observance or performance by Capsure
or the Borrower of any covenant, condition or agreement contained in Section
6.04 or 6.12 and such default shall continue
<PAGE> 56

unremedied for a period of (i) in the case of any covenant, condition or
agreement contained in Section 6.04, ten days, or (ii) in the case of any
covenant, condition or agreement contained in Section 6.12, thirty days, in
either case after any Responsible Officer of Capsure or the Borrower obtains
knowledge of such default;

(f) default shall be made in the due observance or performance by Capsure
or any of its subsidiaries of any covenant, condition or agreement contained in
any Loan Document (other than those specified in paragraph (b), (c), (d) or (e)
above) and such default shall continue unremedied for a period of five days
after notice thereof from the Administrative Agent or any Lender to the
Borrower;

(g) Capsure or any of its subsidiaries shall (i) fail to pay any principal
or interest, regardless of amount, due in respect of any Indebtedness in a
principal amount in excess of $2,000,000, when and as the same shall become due
and payable, or (ii) fail to observe or perform any other term, covenant,
condition or agreement contained in any agreement or instrument evidencing or
governing any such Indebtedness if the effect of any failure referred to in
this clause (ii) is to cause, or to permit the holder or holders of such
Indebtedness or a trustee on its or their behalf (with or without the giving of
notice, the lapse of time or both) to cause, such Indebtedness to become due
prior to its stated maturity;

(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i) relief
in respect of Capsure or any of its subsidiaries, or of a substantial part of
the property or assets of Capsure or any of its subsidiaries, under Title 11 of
the United States Code, as now constituted or hereafter amended, or any other
Federal or state bankruptcy, insolvency, receivership or similar law, (ii) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for Capsure or any of its subsidiaries or for a substantial
part of the property or assets of Capsure or any of its subsidiaries or (iii)
the winding-up or liquidation of Capsure or any of its subsidiaries; and such
proceeding or petition shall continue undismissed for 60 days or an order or
decree approving or ordering any of the foregoing shall be entered;

(i) Capsure or any of its subsidiaries shall (i) voluntarily commence any
proceeding or file any petition seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal or
state bankruptcy, insolvency, receivership or similar law, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner, any
proceeding or the filing of any petition described in (h) above, (iii) apply
for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for Capsure or any of its
subsidiaries or for a substantial part of the property or assets of Capsure or
any of its subsidiaries, (iv) file an answer admitting the material allegations
of a petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors, (vi) become unable, admit in writing
its inability or fail generally to pay its debts as they become due or (vii)
take any action for the purpose of effecting any of the foregoing;

(j) one or more judgments (other than judgments or such portion thereof
for which there is full insurance or reinsurance and with respect to which a
creditworthy insurer or reinsurer, as applicable, has assumed responsibility in
writing) for the payment of money in an aggregate amount (after giving effect
to the existence of such insurance or reinsurance) in excess of $4,000,000
shall be rendered against Capsure or any of its subsidiaries or any combination
thereof and the same shall remain undischarged for a period of 30 consecutive
days during which execution shall not be effectively stayed, or any action
shall be legally taken by a judgment creditor to levy upon assets or properties
of Capsure or any of its subsidiaries to enforce any such judgment;
<PAGE> 57

(k) (i) a Reportable Event or Reportable Events, or a failure to make a
required installment or other payment (within the meaning of Section 412(n)(l)
of the Code), shall have occurred with respect to any Plan or Plans that
reasonably could be expected to result in liability of Capsure, the Borrower or
any Subsidiary Guarantor to the PBGC or to a Plan in an aggregate amount
exceeding $250,000 and, within 30 days after the reporting of any such
Reportable Event to the Administrative Agent or after the receipt by the
Administrative Agent of the statement required pursuant to Section 5.06, the
Administrative Agent shall have notified Capsure or the Borrower in writing
that (A) the Required Lenders have made a determination that, on the basis of
such Reportable Event or Reportable Events or the failure to make a required
payment, there are reasonable grounds for the termination of such Plan or Plans
by the PBGC, the appointment by the appropriate United States district court of
a trustee to administer such Plan or Plans or the imposition of a Lien in favor
of a Plan and (B) as a result thereof an Event of Default exists hereunder;
(ii) a trustee shall be appointed by a United States district court to
administer any such Plan or Plans; or (iii) the PBGC shall institute
proceedings (including giving notice of intent thereof) to terminate any Plan
or Plans;

(l) (i) Capsure, the Borrower or any of their ERISA Affiliates shall have
been notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan, (ii) Capsure, the Borrower or
such ERISA Affiliate does not have reasonable grounds for contesting such
Withdrawal Liability or is not contesting such Withdrawal Liability in a timely
and appropriate manner and (iii) the amount of such Withdrawal Liability
specified in such notice, when aggregated with all other amounts required to be
paid to Multiemployer Plans in connection with Withdrawal Liabilities
(determined as of the date or dates of such notification), either (A) exceeds
$250,000 or requires payments exceeding $100,000 in any year or (B) is less
than $250,000 but any Withdrawal Liability payment remains unpaid 30 days after
such payment is due;

(m) Capsure, the Borrower or any of their ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is
in reorganization or is being terminated, within the meaning of Title IV of
ERISA, if solely as a result of such reorganization or termination the
aggregate annual contributions of Capsure, the Borrower and their ERISA
Affiliates to all Multiemployer Plans that are then in reorganization or have
been or are being terminated have been or will be increased over the amounts
required to be contributed to such Multiemployer Plans for their most recently
completed plan years by an amount exceeding $250,000;

(n) there shall have occurred a Change in Control;

(o) any security interest purported to be created by any Security Document
shall cease to be, or shall be asserted by Capsure or any of its subsidiaries
not to be, a valid, perfected, first priority security interest in the
securities or assets covered thereby, except to the extent that any such loss
of perfection or priority results from the failure of the Collateral Agent (i)
to maintain possession of certificates representing securities pledged under
the Pledge Agreement or (ii) to file any continuation statement required to be
filed under the Uniform Commercial Code;

(p) any Loan Document shall cease to be, or shall be asserted by Capsure
or any of its subsidiaries not to be, in full force and effect and enforceable
in accordance with its terms;

(q) any Applicable Insurance Regulatory Authority shall issue with respect
to any Insurance Subsidiary (i) any order of conservation, supervision or any
other order of like effect or (ii) any other order that could result in a
Material Adverse Effect or an impairment of the rights of or benefits available
to the Administrative Agent or any of the other Lenders under any Loan
Document;
<PAGE> 58

(r) (i) any party to any Reinsurance Agreement (whether entered into as of
the date hereof or hereafter entered into) to which any Insurance Subsidiary is
a party shall fail to comply with any material provision thereof or (ii) any
reinsurer under any Reinsurance Agreement shall become or shall be declared
insolvent or any order of liquidation, rehabilitation, conservation or
supervision shall be entered against any such reinsurer, or any other kind of
delinquency proceeding shall be commenced against any such reinsurer, if any
event contemplated by clause (i) or (ii) could reasonably be expected to result
in a Material Adverse Effect;

(s) the amount of Available Net Operating Losses at any time shall be less
than $220,000,000 minus the amount of such Available Net Operating Losses
utilized in taxable years since the Closing Date to offset the taxable income
for Federal income tax purposes of Capsure and its subsidiaries;

(t) any person that shall (i) become a direct or indirect "parent" (as
such term is used in the Tax Sharing Agreements) of Capsure and (ii) enter into
any tax sharing arrangement with Capsure, shall fail to enter into,
substantially contemporaneously with becoming such a parent, an agreement (on
terms satisfactory to the Required Lenders) pursuant to which such parent shall
guarantee the Obligations; or

(u) Capsure shall at any time fail to, or be unable to, file a Federal
consolidated income tax return with each of its subsidiaries;

then, and in every such event (other than an event with respect to Capsure and
its subsidiaries described in paragraph (h) or (i) above), and at any time
thereafter during the continuance of such event, the Administrative Agent may,
and at the request of the Required Lenders shall, by notice to the Borrower,
take any or all of the following actions, at the same or different times: (i)
terminate forthwith the Commitments, (ii) declare the Loans then outstanding to
be forthwith due and payable in whole or in part, whereupon the principal of
the Loans so declared to be due and payable, together with accrued interest
thereon and any unpaid accrued Fees and all other liabilities of the Borrower
accrued hereunder and under any other Loan Document, shall become forthwith due
and payable, without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived by the Borrower, anything
contained herein or in any other Loan Document to the contrary notwithstanding
and (iii) exercise any remedies available under any Loan Document or otherwise;
and in any event with respect to Capsure and its subsidiaries described in
paragraph (h) or (i) above, the Commitments shall automatically terminate and
the principal of the Loans then outstanding, together with accrued interest
thereon and any unpaid accrued Fees and all other liabilities of the Borrower
accrued hereunder and under any other Loan Document, shall automatically become
due and payable, without presentment, demand, protest or any other notice of
any kind, all of which are hereby expressly waived by the Borrower, anything
contained herein or in any other Loan Document to the contrary notwithstanding.

ARTICLE VIII

GUARANTEE

Capsure unconditionally and irrevocably guarantees, jointly with the other
Guarantors and severally, as a principal obligor and not merely as a surety,
the due and punctual payment and performance of all the Obligations. Capsure
further agrees that the Obligations may be extended or renewed, in whole or in
part, without notice or further assent from it, and that it will remain bound
upon the provisions of this Article VIII notwithstanding any extension or
renewal of any Obligation.
<PAGE> 59

Capsure waives presentment to, demand of, payment from and protest to the
Borrower of any of the Obligations, and also waives notice of acceptance of the
guarantee set forth in this Article VIII and notice of protest for nonpayment.
The obligations of Capsure hereunder shall not be affected by (a) the failure
of the Administrative Agent (which term, for purposes of this Article VIII,
shall be deemed to refer to the Administrative Agent and the Collateral Agent)
or any Lender to assert any claim or demand or to enforce any right or remedy
against the Borrower under the provisions of any guarantee or any Loan
Document; (b) any rescission, waiver, amendment or modification of, or any
release from any of the terms or provisions of this Agreement, any other Loan
Document, any guarantee or any other agreement, including with respect to any
other Guarantor under the Guarantee Agreement; (c) the release of any security
held by the Collateral Agent or any other Secured Party for the Obligations or
any of them; or (d) the failure of the Administrative Agent or any other
Secured Party to exercise any right or remedy against any other Guarantor or
guarantor of the Obligations.

Capsure hereby authorizes the Collateral Agent and each of the other
Secured Parties, in accordance with the terms and subject to the conditions set
forth in the Security Documents to which Capsure is a party, to (a) take and
hold security for the payment of this guarantee or the Obligations and
exchange, enforce, waive and release any such security, (b) apply such security
and direct the order or manner of sale thereof as they in their sole discretion
may determine and (c) release or substitute any one or more endorsees, other
guarantors or other obligors.

Capsure further agrees that the guarantee set forth in this Article VIII
constitutes a guarantee of payment when due and not of collection and waives
any right to require that any resort be had by the Administrative Agent or any
Lender to the balance of any deposit account or credit on the books of the
Administrative Agent or such Lender, as applicable, in favor of the Borrower or
any other person.

The obligations of Capsure hereunder shall be absolute and unconditional
and shall not be subject to any reduction, limitation, impairment or
termination for any reason, including any claim or waiver, release, surrender,
alteration or comprise, and shall not be subject to any defense of setoff,
counterclaim, deduction, diminution, abatement, suspension, deferment,
reduction, recoupment, termination or defense whatsoever by reason of the
invalidity, illegality or unenforceability of the Obligations or otherwise.
Without limiting the generality of the foregoing, the Obligations shall not be
released, discharged or impaired or otherwise affected by the failure of the
Administrative Agent or any Lender to assert any claim or demand or to enforce
any remedy under this Agreement or any other Loan Document, by any waiver or
modification of any thereof, by any default, failure or delay, wilful or
otherwise, in the performance of the Obligations or by any other circumstance
or condition whatsoever (whether or not Capsure, the Borrower, the
Administrative Agent or any Lender has knowledge thereof) that may or might in
any manner or to any extent vary the risk of Capsure or would otherwise operate
as a discharge of Capsure as a matter of law or equity (other than the
indefeasible payment in full of all the Obligations), including:

(a) any termination, amendment, modification, addition, deletion or
supplement to or other change to any of the terms of any Loan Document or any
other instrument or agreement applicable to any of the parties hereto or
thereto, or any assignment or transfer of any thereof, or any furnishing or
acceptance of security, or any release of any security, for any Obligations of
the Borrower, Capsure or any other Guarantor hereunder or thereunder, or the
failure of any security or the failure of any person to perfect any interest in
any collateral;

(b) any failure, forbearance, omission or delay on the part of the
Borrower or any Guarantor or the Administrative Agent or any other Secured
Party to conform or comply with any term of any Loan
<PAGE> 60

Document or any other instrument or agreement, or any failure to give notice to
the Borrower or any Guarantor of the occurrence of an Event of Default or any
Default occurring hereunder;

(c) any waiver of the payment, performance or observance of any of the
obligations, conditions, covenants or agreements contained in any Loan
Document, or any other waiver, consent, extension, renewal, indulgence,
compromise, release, settlement, refunding or other action or inaction under or
in respect of any Loan Document or any other instrument or agreement, or under
or in respect of any obligation or liability of the Borrower or any Guarantor
or the Administrative Agent or any other Secured Party or any exercise or
nonexercise of any right, remedy, power or privilege under or in respect of any
such instrument of agreement or any such obligation or liability;

(d) any extension of the time for payment of the principal of or interest
on any Obligation, or of the time for performance of any other obligations,
covenants or agreements under or arising out of any Loan Document, or the
extension or the renewal of any thereof;

(e) the exchange, surrender, substitution or modification of, or the
furnishing of any additional, collateral security for the Obligations under any
Loan Document;

(f) any failure, omission or delay on the part of the Administrative Agent
or any other Secured Party to enforce, assert or exercise any right, power or
remedy conferred on it in any Loan Document, or any such failure, omission or
delay on the part of the Administrative Agent or any other Secured Party in
connection with any Loan Document or any other action or inaction on the part
of the Administrative Agent or any other Secured Party;

(g) to the extent permitted by applicable law, any voluntary or
involuntary bankruptcy, insolvency, reorganization, moratorium, arrangement,
adjustment, readjustment, composition, assignment for the benefit of creditors,
receivership, conservatorship, custodianship, liquidation, marshalling of
assets and liabilities or similar proceedings with respect to the Borrower or
any Guarantor or any other person or any of their respective properties or
creditors, or any action taken by any trustee or receiver or by any court in
any such proceeding (including any automatic stay incident to any such
proceeding);

(h) any limitation on the liability or obligations of the Borrower or any
Guarantor under any Loan Document or any other instrument or agreement that may
now or hereafter be imposed by any statute, regulation, rule of law or
otherwise, or any discharge, termination, cancellation, frustration,
irregularity, invalidity or unenforceability, in whole or in part, of any
thereof;

(i) any merger, consolidation or amalgamation of the Borrower or any
Guarantor into or with any other person, or any sale, lease or transfer of any
of the assets of the Borrower or any Guarantor to any other person;

(j) any change in the ownership of any shares of capital stock of the
Borrower or any Guarantor;

(k) to the extent permitted by applicable law, any release or discharge,
by operation of law, of the Borrower, Capsure or any other Guarantor from the
performance or observance of any obligation, covenant or agreement contained in
any Loan Document; or

(l) any other occurrence, circumstance, happening or event whatsoever,
whether similar or dissimilar to the foregoing, whether foreseen or unforeseen,
and any other circumstance that might otherwise constitute a legal or equitable
defense, release or discharge (including the release or discharge
<PAGE> 61

of the liabilities of a guarantor or surety or that might otherwise limit
recourse against the Borrower or any Guarantor, whether or not the Borrower of
any Guarantor shall have notice or knowledge of the foregoing).

Capsure hereby waives any claim, right or remedy that it may now have or
hereafter acquire against the Borrower or any other Guarantor that arises under
any Loan Document and/or from the performance of such Guarantor under any Loan
Document, including any claim, right or remedy of the Administrative Agent or
any Secured Party or any security that the Administrative Agent or any Secured
Party now has or hereafter acquires, regardless of whether such claim, right or
remedy arises in equity, under contract, by statute, under common law or
otherwise.

Capsure agrees that, as between Capsure, on the one hand, and the
Administrative Agent and the other Secured Parties, on the other hand, (a) the
maturity of the Obligations guaranteed hereby may be accelerated as provided
herein for the purposes of Capsure's guarantee herein, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in respect
of the Obligations guaranteed hereby and (b) in the event of any declaration of
acceleration of such Obligations as provided herein, such Obligations (whether
or not due and payable) shall forthwith become due and payable in full by
Capsure for purposes of this Agreement.

Upon the occurrence and during the continuance of an Event of Default, the
Collateral Agent may elect to nonjudicially or judicially foreclose against any
real or personal property security it holds for the Obligations or any part
thereof, or accept an assignment of any such security in lieu of foreclosure or
compromise or adjust any part of the Obligations, or make any other
accommodation with the Borrower or any Guarantor, or exercise any other remedy
against the Borrower or any Guarantor or any security, in accordance with and
subject to the provisions of the Security Documents. No such action by the
Collateral Agent will release or limit the liability of Capsure to the
Administrative Agent, even if the effect of that action is to deprive Capsure
of the right to collect reimbursement from the Borrower for any sums paid to
the Administrative Agent.

To the extent permitted by applicable law, Capsure waives any defense
based on or arising out of any defense of the Borrower or the unenforceability
of the Obligations or any part thereof from any cause, or the cessation from
any cause of the liability of the Borrower, other than the indefeasible payment
in full of the Obligations. The Collateral Agent and the other Secured Parties
may, at their election, in accordance with the terms and subject to the
conditions set forth in the Security Documents to which Capsure is a party,
foreclose on any security held by one or more of them by one or more judicial
or nonjudicial sales, or exercise any other right or remedy available to them
against the Borrower or any Guarantor, or any security, without affecting or
impairing in any way the liability of Capsure hereunder except to the extent
the Obligations have been indefeasibly paid in full. Capsure waives any
defense arising out of any such election even though such election operates to
impair or to extinguish any right of reimbursement or subrogation or other
right or remedy of Capsure against the Borrower or any other Guarantor, as the
case may be, or any security.

Capsure further agrees that this guarantee shall continue to be effective
or be reinstated, as the case may be, if at any time payment, or any part
thereof, of any Obligation is rescinded, invalidated, declared to be fraudulent
or preferential, or must otherwise be returned, refunded, repaid or restored by
the Administrative Agent or any Lender upon the bankruptcy or reorganization of
the Borrower, any Guarantor or otherwise.

In furtherance of the foregoing and not in limitation of any other right
that the Administrative Agent or any Lender may have at law or in equity
against Capsure by virtue hereof, upon the failure of
<PAGE> 62

the Borrower to pay any Obligation when and as the same shall become due,
whether at maturity, by acceleration, after notice of prepayment or otherwise,
Capsure hereby promises to and will, upon receipt of written demand by the
Administrative Agent, promptly pay, or cause to be paid, to the Administrative
Agent in cash the amount of such unpaid Obligation.

The guarantee made hereunder shall terminate when all the Obligations have
been indefeasibly paid in full and the Lenders have no further commitment to
lend under the Credit Agreement.

Without limiting the generality of the foregoing, (a) Capsure assumes all
responsibility for being and keeping itself informed of the Borrower's
financial condition and assets, and all other circumstances bearing upon the
risk of nonpayment of the Obligations and the nature, scope and extent of the
risks Capsure assumes and incurs hereunder, and agrees that none of the
Administrative Agent and the other Secured Parties will have any duty to advise
Capsure of information known to it or any of them regarding such circumstances
or risks, and (b) the execution and delivery of any instrument adding a
Subsidiary Guarantor as a party to the Guarantee Agreement pursuant to Section
5.09 shall not require the consent of Capsure hereunder. The rights and
obligations of Capsure hereunder shall remain in full force and effect
notwithstanding the addition of any new Subsidiary Guarantor as a party to the
Guarantee Agreement.

ARTICLE IX

THE ADMINISTRATIVE AGENT

In order to expedite the transactions contemplated by this Agreement,
Chemical Bank is hereby appointed to act as Administrative Agent (which term,
for purposes of this Article IX, shall be deemed to refer to the Administrative
Agent and the Collateral Agent) on behalf of the Lenders. Each of the Lenders
and each subsequent holder of any Note, by its acceptance thereof, hereby
irrevocably authorizes the Administrative Agent to take such actions on their
behalf and to exercise such powers as are specifically delegated to the
Administrative Agent by the terms and provisions hereof and of the other Loan
Documents, together with such actions and powers as are reasonably incidental
thereto. The Administrative Agent is hereby expressly authorized by the
Lenders, without limiting any implied authority, (a) to receive on behalf of
the Lenders all payments of principal of and interest on the Loans and all
other amounts due to the Lenders hereunder, and promptly to distribute to each
Lender its proper share of each payment so received; (b) promptly to give
notice on behalf of each of the Lenders to the Borrower of any Event of Default
specified in this Agreement of which the Administrative Agent has actual
knowledge acquired in connection with its agency hereunder; and (c) promptly to
distribute to each Lender copies of all notices, financial statements and other
materials delivered by Capsure, the Borrower or any Subsidiary pursuant to this
Agreement as received by the Administrative Agent.

Neither the Administrative Agent nor any of its directors, officers,
employees or agents shall be liable as such for any action taken or omitted by
any of them except for its, his or her own gross negligence or wilful
misconduct, or be responsible for any statement, warranty or representation
herein or the contents of any document delivered in connection herewith, or be
required to ascertain or to make any inquiry concerning the performance or
observance by Capsure or any of its subsidiaries of any of the terms,
conditions, covenants or agreements contained in any Loan Document. The
Administrative Agent shall not be responsible to the Lenders or the holders of
the Notes for the due execution, genuineness, validity, enforceability or
effectiveness of this Agreement, the Notes or any other Loan Documents or other
instruments or agreements. The Administrative Agent may deem and treat the
payee of any Note as the owner thereof for all purposes hereof until it shall
have received from the payee of such Note notice, given
<PAGE> 63

as provided herein, of the transfer thereof in compliance with Section 10.04.
The Administrative Agent shall in all cases be fully protected in acting, or
refraining from acting, in accordance with written instructions signed by the
Required Lenders and, except as otherwise specifically provided herein, such
instructions and any action or inaction pursuant thereto shall be binding on
all the Lenders and each subsequent holder of any Note. The Administrative
Agent shall, in the absence of knowledge to the contrary, be entitled to rely
on any instrument or document believed by it in good faith to be genuine and
correct and to have been signed or sent by the proper person or persons.
Neither the Administrative Agent nor any of its directors, officers, employees
or agents shall have any responsibility to the Borrower or any other person on
account of the failure of or delay in performance or breach by any Lender of
any of its obligations hereunder or to any Lender or any other person on
account of the failure of or delay in performance or breach by any other Lender
or by Capsure, the Borrower or any Subsidiary of any of their respective
obligations hereunder or under any other Loan Document or in connection
herewith or therewith. The Administrative Agent may execute any and all duties
hereunder by or through agents or employees and shall be entitled to rely upon
the advice of legal counsel selected by it with respect to all matters arising
hereunder and shall not be liable for any action taken or suffered in good
faith by it in accordance with the advice of such counsel.

The Lenders hereby acknowledge that the Administrative Agent shall be
under no duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement or any other Loan Document unless
it shall be requested in writing to do so by the Required Lenders.

Subject to the appointment and acceptance of a successor Administrative
Agent as provided below, the Administrative Agent may resign at any time by
notifying the Lenders and the Borrower. Upon any such resignation, the
Required Lenders shall have the right to appoint a successor, subject to the
Borrower's approval, which shall not be unreasonably withheld. If no successor
shall have been so appointed by the Required Lenders and shall have accepted
such appointment within 30 days after the retiring Administrative Agent gives
notice of its resignation, then the retiring Administrative Agent may, on
behalf of the Lenders, appoint a successor Administrative Agent, which shall be
a bank with an office in the United States of America having a combined capital
and surplus of at least $500,000,000 or an Affiliate of any such bank. Upon
the acceptance of any appointment as Administrative Agent hereunder by a
successor bank, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent and
the retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. After the Administrative Agent's resignation hereunder,
the provisions of this Article and Section 10.05 shall continue in effect for
its benefit in respect of any actions taken or omitted to be taken by it while
it was acting as Administrative Agent.

With respect to the Loans made by it hereunder and the Notes issued to it,
the Administrative Agent in its individual capacity and not as Administrative
Agent shall have the same rights and powers as any other Lender and may
exercise the same as though it were not the Administrative Agent, and the
Administrative Agent and its Affiliates may accept deposits from, lend money to
and generally engage in any kind of business with Capsure or any of its
subsidiaries or other Affiliates as if it were not the Administrative Agent.

Each Lender agrees (a) to reimburse the Administrative Agent, on demand,
in the amount of its pro rata share (based on its Commitment hereunder) of any
expenses incurred for the benefit of the Lenders by the Administrative Agent,
including counsel fees and compensation of agents and employees paid for
services rendered on behalf of the Lenders, that shall not have been reimbursed
by the Borrower and (b) to indemnify and hold harmless the Administrative Agent
and its Affiliates and each of their respective directors, officers, employees
and agents, on demand, in the amount of such pro rata share, from and
<PAGE> 64

against any and all liabilities, taxes, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever that are imposed on, incurred by or asserted against
the Administrative Agent in its capacity as the Administrative Agent or any of
them in any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted by it or any of them under this
Agreement or any other Loan Document, to the extent the same shall not have
been reimbursed by the Borrower, provided that no Lender shall be liable to any
such indemnified person for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements that are determined to have resulted from the gross negligence or
wilful misconduct of such indemnified person.

Each Lender acknowledges that it has, independently and without reliance
upon the Administrative Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Administrative Agent or any
other Lender and based on such documents and information as it shall from time
to time deem appropriate, continue to make its own decisions in taking or not
taking action under or based upon this Agreement or any other Loan Document,
any related agreement or any document furnished hereunder or thereunder.

ARTICLE X

MISCELLANEOUS

SECTION 10.01. Notices. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopy as follows:

(a) if to Capsure, the Borrower or any Subsidiary Guarantor, to it at
Capsure Holdings Corp., 1400 Lake Hearn Drive, Suite 130, Atlanta, Georgia
30319, Attention of Mary Jane Robertson (Telecopy No. (404) 843-5034) with a
copy to Rosenberg & Liebentritt, P.C., Two North Riverside Plaza, Suite 1600,
Chicago, Illinois 60606, Attention of Sheli Z. Rosenberg (Telecopy No. (312)
454-0335);

(b) if to the Administrative Agent, to Chemical Bank Agency Services
Corporation, Grand Central Tower, 140 East 45th Street, New York, New York
10017, Attention of Maxeen Francis (Telecopy No. (212) 622-0002), with a copy
to Chemical Bank, at 270 Park Avenue, New York, New York 10017, Attention of
Brian Turrentine (Telecopy No. (212) 270-5222); or

(c) if to a Lender, to it at its address (or telecopy number) set forth on
Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender
shall have become a party hereto.

All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy with confirmation of receipt from the sending telecopy machine or on
the date five Business Days after dispatch by certified or registered mail if
mailed, in each case delivered, sent or mailed (properly addressed) to such
party as provided in this Section 10.01 or in accordance with the latest
unrevoked direction from such party given in accordance with this Section
10.01.

SECTION 10.02. Survival of Agreement. Unless a longer period is provided
herein, all covenants, agreements, representations and warranties made by
Capsure and the Borrower herein and by Capsure, the
<PAGE> 65

Borrower or any Subsidiary Guarantor in the certificates or other instruments
prepared or delivered in connection with or pursuant to this Agreement or any
other Loan Document shall be considered to have been relied upon by the
Administrative Agent and the Lenders and shall survive the making by the
Lenders of the Loans and the execution and delivery to the Lenders of the Notes
evidencing such Loans, regardless of any investigation made by the Lenders or
on any of their behalf, and shall continue in full force and effect as long as
the principal of or any accrued interest on any Loan or any Fee or any other
amount payable under this Agreement or any other Loan Document is outstanding
and unpaid and so long as the Commitments have not been terminated, provided
that, without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in Sections 2.11 and 2.13
shall survive the payment in full of the principal of and interest on all Loans
made hereunder.

SECTION 10.03. Binding Effect. This Agreement shall become effective when
it shall have been executed by Capsure, the Borrower and the Administrative
Agent and when the Administrative Agent shall have received copies hereof that,
when taken together, bear the signatures of each Lender, and thereafter shall
be binding upon and inure to the benefit of Capsure, the Borrower, the
Administrative Agent and each Lender and their respective successors and
assigns, except that neither Capsure nor the Borrower shall have the right to
assign its rights hereunder or any interest herein without the prior consent of
all the Lenders.

SECTION 10.04. Successors and Assigns. (a) Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party, and all covenants, promises and
agreements by or on behalf of Capsure, the Borrower, the Administrative Agent
or the Lenders that are contained in this Agreement shall bind and inure to the
benefit of their respective successors and assigns.

(b) Each Lender may assign to one or more assignees all or a portion of
its interests, rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it and the Notes
held by it); provided, however, that (i) except in the case of an assignment to
a Lender or an Affiliate of such Lender, the Borrower and the Administrative
Agent must each give their prior written consent to such assignment (which
consent shall not be unreasonably withheld), (ii) each such assignment shall be
of a constant, and not a varying, percentage of all the assigning Lender's
rights and obligations under this Agreement, (iii) the amount of the Commitment
of the assigning Lender subject to each such assignment (determined as of the
date the Assignment and Acceptance with respect to such assignment is delivered
to the Administrative Agent) shall not be less than $5,000,000 (or the
Commitment of the assigning Lender immediately prior to the assignment, if such
Commitment is less than $5,000,000), (iv) the parties to each such assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with the Note or Notes subject to such assignment and a
processing and recordation fee of $3,500, and (v) the assignee, if it shall not
be a Lender, shall deliver to the Administrative Agent an Administrative
Questionnaire and any certificates or other instruments required to be
delivered pursuant thereto. Upon acceptance and recording pursuant to paragraph
(e) of this Section 10.04, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least five Business
Days after the execution thereof, (i) the assignee thereunder shall be a party
hereto and, to the extent of the interest assigned by such Assignment and
Acceptance, have the rights and obligations of a Lender under this Agreement
and (ii) the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all or the remaining portion of an assigning Lender's rights and obligations
under this Agreement, such Lender shall cease to be a party hereto but shall
continue to be entitled to the benefits of Sections 2.11, 2.13, 2.15, 2.17 and
10.05, as well as to any Fees accrued for its account and not yet paid).
<PAGE> 66

(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and
that its Commitment and the outstanding balances of its Loans, in each case
without giving effect to assignments thereof that have not become effective,
are as set forth in such Assignment and Acceptance, (ii) except as set forth in
clause (i) above, such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement, or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement, any other Loan Document or any other instrument or document
furnished pursuant hereto, or the financial condition of Capsure or any of its
subsidiaries or the performance or observance by Capsure or any of its
subsidiaries of any of its obligations under this Agreement, any other Loan
Document or any other instrument or document furnished pursuant hereto; (iii)
such assignee represents and warrants that it is legally authorized to enter
into such Assignment and Acceptance; (iv) such assignee confirms that it has
received a copy of this Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 5.04 and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (v) such
assignee will independently and without reliance upon the Administrative Agent,
such assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (vi) such
assignee appoints and authorizes the Administrative Agent to take such action
as agent on its behalf and to exercise such powers under this Agreement as are
delegated to the Administrative Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all the obligations that by
the terms of this Agreement are required to be performed by it as a Lender.

(d) The Administrative Agent shall maintain at one of its offices in The
City of New York a copy of each Assignment and Acceptance delivered to it and a
register for the recordation of the names and addresses of the Lenders, and the
Commitment of, and principal amount of the Loans owing to, each Lender pursuant
to the terms hereof from time to time (the "Register"). The entries in the
Register shall be conclusive in the absence of manifest error and the Borrower,
the Administrative Agent and the Lenders may treat each person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement. The Register shall be available for inspection
by the Borrower and any Lender, at any reasonable time and from time to time
upon reasonable prior notice.

(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee together with the Note or Notes
subject to such assignment, an Administrative Questionnaire completed in
respect of the assignee (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b)
above and the written consent of the Borrower and the Administrative Agent to
such assignment, the Administrative Agent shall (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Lenders. Within five Business Days
after receipt of notice, the Borrower, at its own expense, shall execute and
deliver to the Administrative Agent, in exchange for the surrendered Note or
Notes, a new Note or Notes to the order of such assignee in a principal amount
equal to the applicable Commitment assumed by it pursuant to such Assignment
and Acceptance and, if the assigning Lender has retained a Commitment, a new
Note to the order of such assigning Lender in a principal amount equal to the
applicable Commitment retained by it. Such new Note or Notes that shall be in
an aggregate principal amount equal to the aggregate principal amount of such
surrendered Note; such new
<PAGE> 67

Notes shall be dated the date of the surrendered Notes that they replace and
shall otherwise be in substantially the form of Exhibit A, as appropriate.
Canceled Notes shall be returned to the Borrower.

(f) Each Lender may without the consent of the Borrower or the
Administrative Agent sell participations to one or more banks or other entities
in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it and the
Notes held by it); provided, however, that (i) such Lender's obligations under
this Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, (iii) the participating banks or other entities shall be entitled
to the benefit of the cost protection provisions contained in Sections 2.11,
2.13 and 2.17 to the same extent as if they were Lenders, provided that the
Borrower shall not be required to reimburse a participating lender or other
entity pursuant to Section 2.11, 2.13 or 2.17 in an amount in excess of the
amount that would have been payable thereunder to the Lender granting such
participation had such Lender not sold such participation and (iv) the
Borrower, the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights
and obligations under this Agreement, and such Lender shall retain the sole
right to enforce the obligations of the Borrower relating to the Loans and to
approve any amendment, modification or waiver of any provision of this
Agreement (other than amendments, modifications or waivers decreasing any fees
payable hereunder or the amount of principal of or the rate at which interest
is payable on the Loans, extending the final maturity date or date fixed for
the payment of interest on the Loans or changing or extending the Commitments
or releasing all or substantially all the Collateral).

(g) Any Lender or participant may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
10.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to Capsure and its subsidiaries furnished
to such Lender by or on behalf of the Borrower, provided that, prior to any
disclosure of information designated by the Borrower as confidential, each such
assignee or participant or proposed assignee or participant shall execute an
agreement whereby such assignee or participant shall agree (subject to
customary exceptions) to preserve the confidentiality of such confidential
information.

(h) Any Lender may at any time assign to a Federal Reserve Bank all or any
portion of its rights under this Agreement and the Notes issued to it, provided
that no such assignment shall release a Lender from any of its obligations
hereunder.

(i) Neither Capsure nor the Borrower shall assign or delegate any of its
rights or duties hereunder.

SECTION 10.05. Expenses; Indemnity. (a) The Borrower agrees to pay all
out-of-pocket expenses incurred by the Administrative Agent and the Collateral
Agent in connection with the preparation of this Agreement and the other Loan
Documents or in connection with any amendments, modifications or waivers of the
provisions hereof or thereof (whether or not the transactions hereby
contemplated shall be consummated) or incurred by the Administrative Agent, the
Collateral Agent or any Lender in connection with the enforcement or protection
of their rights in connection with this Agreement and the other Loan Documents
or in connection with the Loans made or the Notes issued hereunder, including
the fees, other charges and disbursements of Cravath, Swaine & Moore, counsel
for the Administrative Agent and the Collateral Agent, and, in connection with
any such enforcement or protection, the fees, charges and disbursements of any
other counsel for the Administrative Agent, the Collateral Agent or any Lender.
The Borrower further agrees that it shall indemnify the Lenders and the
Collateral Agent from and hold them harmless against any documentary taxes,
assessments or charges made by any Governmental Authority by reason of the
execution and delivery of this Agreement or any of the other Loan Documents.
<PAGE> 68

(b) The Borrower and Capsure agree, jointly and severally, to indemnify
the Administrative Agent, each Lender and the Collateral Agent and each of
their respective directors, officers, employees and agents (each such person
being called an "Indemnitee") against, and to hold each Indemnitee harmless
from, any and all losses, claims, demands, damages, penalties, fines,
liabilities, settlements, costs and related expenses, including reasonable
counsel fees, charges and disbursements, incurred by or asserted against any
Indemnitee arising out of, in any way connected with, or as a result of (i) the
execution or delivery of this Agreement or any other Loan Document or any
agreement or instrument contemplated thereby, the performance by the parties
thereto of their respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated hereby, (ii) the use of
the proceeds of the Loans, (iii) any claim, litigation, investigation or
proceeding relating to any of the foregoing, whether or not any Indemnitee is a
party thereto, or (iv) the violation of, noncompliance with or liability under
any Environmental and Safety Laws applicable to the operations of Capsure and
its subsidiaries, or any orders, requirements or demands of Governmental
Authorities related thereto (including reasonable and documented attorneys' and
consultants' fees, investigation and laboratory fees, response costs, court
costs and litigation expenses relating thereto), provided that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses resulted from the gross
negligence or wilful misconduct of such Indemnitee.

(c) The provisions of this Section 10.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the Transactions or the other transactions
contemplated hereby, the repayment of any of the Loans, the invalidity or
unenforceability of any term or provision of this Agreement or any other Loan
Document, or any investigation made by or on behalf of the Administrative
Agent, the Collateral Agent or any Lender. All amounts due under this Section
10.05 shall be payable on written demand therefor.

SECTION 10.06. Right of Setoff. If an Event of Default shall have occurred
and be continuing, each Lender is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower or Capsure against any of and all the
obligations of the Borrower or Capsure now or hereafter existing under this
Agreement and other Loan Documents held by such Lender, irrespective of whether
such Lender shall have made any demand under this Agreement or such other Loan
Document and although such obligations may be unmatured. The rights of each
Lender under this Section 10.06 are in addition to other rights and remedies
(including other rights of setoff) that such Lender may have.

SECTION 10.07. APPLICABLE LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK.

SECTION 10.08. Waivers; Amendment. (a) No failure or delay of the
Administrative Agent, the Collateral Agent or any Lender in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Administrative Agent, the Collateral Agent and the
Lenders hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver
of any provision of this Agreement or any other Loan Document or consent to any
departure by Capsure or any of its subsidiaries therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) below, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose
<PAGE> 69

for which given. No notice or demand on Capsure or any of its subsidiaries in
any case shall entitle such person to any other or further notice or demand in
similar or other circumstances.

(b) Neither this Agreement, the Guarantee Agreement or any of the Security
Documents nor any provision hereof or thereof may be waived, amended or
modified except, in the case of this Agreement, pursuant to an agreement or
agreements in writing entered into by Capsure, the Borrower and the Required
Lenders or, in the case of any of the Security Documents, pursuant to an
agreement or agreement in writing entered into by Capsure, the Borrower, the
Subsidiary Guarantors and the Collateral Agent and consented to by the Required
Lenders or, in the case of the Guarantee Agreement, pursuant to an agreement or
agreements in writing entered into by the Guarantors and the Collateral Agent
and consented to by the Required Lenders; provided, however, that no such
agreement shall (i) decrease the principal amount of, or extend the final
maturity date of or date for the payment of any interest on any Loan, or waive
or excuse any such payment or any part thereof, or decrease the rate of
interest on any Loan, or amend or modify the provisions of Section 2.09(b),
without the prior written consent of each Lender affected thereby, (ii) change
or extend the Commitment of any Lender or decrease the Commitment Fees of any
Lender without the prior written consent of such Lender, (iii) amend or modify
the provisions of Section 2.14, the provisions of this Section 10.08 or the
definition of the term "Required Lenders" without the prior written consent of
each Lender or (iv) release all or substantially all the Collateral under any
Security Document without the prior written consent of each Lender; provided
further that no such agreement shall amend, modify or otherwise affect the
rights or duties of the Administrative Agent hereunder without the prior
written consent of the Administrative Agent. Each Lender and each holder of a
Note shall be bound by any waiver, amendment or modification authorized by this
Section 10.08 regardless of whether its Note shall have been marked to make
reference thereto, and any consent by any Lender or holder of a Note pursuant
to this Section 10.08 shall bind any person subsequently acquiring a Note from
it, whether or not such Note shall have been so marked.

SECTION 10.09. Interest Rate Limitation. Notwithstanding anything herein
or in the Notes to the contrary, if at any time the applicable interest rate,
together with all fees and charges that are treated as interest under
applicable law (collectively, the "Charges"), as provided for herein or in any
other document executed in connection herewith, or otherwise contracted for,
charged, received, taken or reserved by any Lender, shall exceed the maximum
lawful rate (the "Maximum Rate") that may be contracted for, charged, taken,
received or reserved by such Lender in accordance with applicable law, the rate
of interest payable under the Note held by such Lender, together with all
Charges payable to such Lender, shall be limited to the Maximum Rate.

SECTION 10.10. Entire Agreement. This Agreement and the other Loan
Documents constitute the entire contract between the parties relative to the
subject matter hereof and thereof. Any previous agreement among the parties
with respect to the subject matter hereof is superseded by this Agreement and
the other Loan Documents. Nothing in this Agreement or in the other Loan
Documents, express or implied, is intended to confer upon any party other than
the parties hereto and thereto any rights, remedies, obligations or liabilities
under or by reason of this Agreement or the other Loan Documents.

SECTION 10.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES
<PAGE> 70

HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 10.11.

SECTION 10.12. Severability. In the event any one or more of the
provisions contained in this Agreement or in any other Loan Document should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby. The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions, the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.

SECTION 10.13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract, and shall become effective as
provided in Section 10.03.

SECTION 10.14. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of
this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.

SECTION 10.15. Jurisdiction; Consent to Service of Process. (a) Each of
Capsure, the Borrower, the Administrative Agent and each Lender hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
Agreement or the other Loan Documents, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that any Lender may otherwise
have to bring any action or proceeding relating to this Agreement or the other
Loan Documents against Capsure or any of its subsidiaries or the properties of
any of the foregoing in the courts of any jurisdiction.

(b) Each of Capsure, the Borrower, the Administrative Agent and each
Lender hereby irrevocably and unconditionally waives, to the fullest extent it
may legally and effectively do so, any objection that it may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement or the other Loan Documents in any New York State or
Federal court. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
<PAGE> 71

(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 10.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.

IN WITNESS WHEREOF, the Borrower, Capsure, the Administrative Agent and
the Lenders have caused this Agreement to be duly executed by their respective
authorized officers as of the day and year first above written.

CAPSURE FINANCIAL GROUP, INC.

by Bruce A. Esselborn
--------------------------------
Name: Bruce A. Esselborn
Title: President

CAPSURE HOLDINGS CORP.,

by Bruce A. Esselborn
--------------------------------
Name: Bruce A. Esselborn
Title: President

CHEMICAL BANK, individually and as
Administrative Agent,
by Brian J. Turrentine
--------------------------------
Name: Brian J. Turrentine
Title: Vice President

BANK ONE, TEXAS, N.A.,

by D. Keith Thompson
--------------------------------
Name: D. Keith Thompson
Title: Banking Officer
<PAGE> 72

BANQUE PARIBAS,

by Steven M. Heinen
--------------------------------
Name: Steven M. Heinen
Title: Vice President

by Rowena P. Festin
--------------------------------
Name: Rowena P. Festin
Title: Vice-President

THE BANK OF NEW YORK,

by Timothy J. Stambaugh
--------------------------------
Name: Timothy J. Stambaugh
Title: Vice President

FIRST BANK NATIONAL ASSOCIATION,

by Mark R. Olson
--------------------------------
Name: Mark R. Olson
Title: Vice President

FIRST UNION NATIONAL BANK OF NORTH
CAROLINA,

by Tammy Benton
--------------------------------
Name: Tammy Benton
Title: Vice President

NATIONSBANK OF GEORGIA, N.A.,

by Katherine W. Howland
--------------------------------
Name: Katherine W. Howland
Title: Vice President
<PAGE> 73

SHAWMUT BANK OF CONNECTICUT, N.A.,

by Joseph J. Wadlinger, Jr.
--------------------------------
Name: Joseph J. Wadlinger, Jr.
Title: Insurance Industry Officer

UNION BANK,

by J.R. Fothergill
--------------------------------
Name: James R. Fothergill
Title: VP

by Robert C. Dawson
--------------------------------
Name: Robert C. Dawson
Title: VP

<PAGE> 1
EXHIBIT 10(23)

CONTRACT SURETY BOND REINSURANCE AGREEMENT

ISSUED TO

WESTERN SURETY COMPANY
A SOUTH DAKOTA CORPORATION
(HEREINAFTER REFERRED TO AS THE "COMPANY")
BY
UNIVERSAL SURETY OF AMERICA
A TEXAS CORPORATION
(HEREINAFTER REFERRED TO AS THE "REINSURER)

ARTICLE I

BUSINESS COVERED

(A) The Company obligates itself to cede to the Reinsurer and the
Reinsurer obligates itself to accept as reinsurance from the Company the net
retained liability which may accrue to the Company under all policies, binders,
contracts and agreements of insurance whether oral or written (hereinafter
called "policies") written by the Company pursuant to a Co-Employee Agreement
with the Reinsurer during the continuance of this Agreement and classified by
the Company as Contract Surety Bonds.

(B) The Company will cede to the Reinsurer and the Reinsurer will
accept as reinsurance from the Company the net retained liability which may
accrue to the Company under policies, binders, contracts and agreements of
insurance whether oral or written (hereinafter called "policies") written by
the Company pursuant to a Co-Employee Agreement with the Reinsurer during the
continuance of this Agreement and classified by the Company as Miscellaneous
Bond Business, as shall be mutually agreed upon by the Company and the
Reinsurer.

ARTICLE II

NET RETAINED LINES

This Agreement applies only to that portion of any insurance covered
by this Agreement which the Company retains net for its own account and in
calculating the amount of any loss hereunder only loss or losses in respect of
that portion of any insurance which the Company retains net for its own account
shall be included. It being understood and agreed that the Reinsurer's
liability hereunder in respect of any loss or losses shall not be increased by
reason of the inability of the Company to collect from any other reinsurance
whether specific or general, any amounts which may have become due from them,
whether such inability arises from the insolvency of such other reinsurers or
otherwise.

<PAGE> 2

LIMITS

The Reinsurer shall accept as reinsurance 100% of the net retained
liability of the Company as respects Contract Surety Bonds written by the
Company pursuant to the Co-Employee Agreement with the Reinsurer.

MAXIMUM BOND LIMITS

The Company shall limit the maximum bond issued subject to this Treaty
to $3,000,000.00 bonded, uncompleted work-in-progress in the aggregate per
principal. These amounts may be increased and made subject to this agreement
as a special acceptance, by mutual agreement of both parties. The Company may
also increase these limits by use of facultative reinsurance or increased net
retention by the Company. If facultative excess of loss reinsurance is
purchased, the Company shall be the sole judge in proportioning premiums.

ARTICLE III

COMMENCEMENT

This Agreement shall take effect 12:01 A.M., Central Standard Time,
____________ ____, 1994 and shall apply to all losses occurring on and
after this date in respect of new and renewal business written on and after
this date and shall remain continuously in force, unless canceled in accordance
with the Termination of Special Termination provisions of this Agreement.

TERMINATION

This Agreement may be terminated by either party by giving 90 days
notice in writing by certified mail to the other party to take effect 12:01
A.M., Local Standard Time, __________ _____, 1995 or any [ANNIVERSARY DATE OF
THE AGREEMENT] thereafter.

Notwithstanding the options available solely to the Company,
termination of this Agreement shall be on a run-off basis and the Reinsurer
shall remain liable as respects business in-force at the date of termination
for losses occurring subsequent thereto; however, the liability of the
Reinsurer shall cease at the expiration of the business in-force at the time of
cancellation but not to extend beyond twelve months, plus odd time, after the
date of termination. Special acceptances exceeding twelve months plus odd time
may be agreed to by the Reinsurer.

TERMINATION ON CUT-OFF BASIS

Solely at the option of the Company this Agreement may be terminated
on a cut-off basis, and the Reinsurer shall incur no liability for losses
occurring subsequent to the effective date of termination. Should the Company
exercise its option to terminate
<PAGE> 3

this Agreement on a cut-off basis, the Company shall prepare a statement of the
unearned premium, calculated on a monthly pro rata basis, and the Reinsurer
shall return to the Company such unearned premium less the ceding commission
stated in Article VI.

COMMUTATION OPTION

Solely at the option of the Company, the Company may reassume from the
Reinsurer the losses outstanding under this Agreement at the date of
termination. Should the Company exercise this option, a settlement shall be
made by the Reinsurer to the Company based on the Company's estimate of losses
outstanding as of the date of termination. Such payment shall be considered
final by mutual agreement of the parties hereto. Otherwise, further periodic
adjustments shall be made so that the total amounts paid by the Reinsurer shall
equal the actual loss settlements made by the Company for losses outstanding as
of the date of termination.

SPECIAL TERMINATION

It is understood and agreed that should at any time the Company or the
Reinsurer lose 20% or more of its policyholders' surplus, become insolvent, or
be placed in conservation, rehabilitation or liquidation, or have a receiver
appointed, or be acquired or controlled by, merged with, or reinsure its entire
business with any other company or corporation, the other party shall have the
right to terminate this Agreement forthwith upon the giving of 30 days notice
in writing, which shall be in accordance with the termination provisions of
this Article.

This Agreement may be terminated by the Company on a cut-off basis
should the Reinsurer's rating by A.M. Best Company be lowered a letter grade or
more. The Company shall have the right to exercise its option to commute the
losses outstanding under this Agreement at the date of any termination under
this paragraph pursuant to the commutation provisions set forth above. Thirty
days written notice by the Company, shall be given to the Reinsurer by
Certified Mail.

If any law or regulation of the federal or state or local government
of any jurisdiction in which the Company is doing business shall render illegal
the arrangements made in this Agreement, this Agreement can be terminated
immediately insofar as it applies to such jurisdiction by the Company giving
notice to the Reinsurer to such effect.

ARTICLE IV

TERRITORY

The liability of the Reinsurer under this Agreement shall be limited
to losses located in the United States of America, its territories and
possessions, including U.S. Embassies and Military Bases outside the United
States of America and Canada.

<PAGE> 4

ARTICLE V

EXCLUSIONS

This Agreement shall exclude business accepted by the Company as
assumed reinsurance.

ARTICLE VI

PREMIUM AND COMMISSION

The Company shall cede to the Reinsurer 100% of the original net
written premium charged by the Company for the business covered hereunder. The
Reinsurer shall allow the Company a commission equal to the Company's original
commission plus 7.5% ceding commission. The commission allowances shall cover
premium taxes of all kinds, local board assessments, and all other expenses and
charges whatsoever based upon premium (except losses and loss adjustment
expenses) ceded under this Agreement.

The term "original, net written premium" shall be understood to mean
all written premium subject to this Treaty less cancellations, returns, and
premiums paid to the Company's facultative reinsurers (if any).

ARTICLE VII

REINSURER'S LIABILITY

The liability of the Reinsurer shall commence obligatorily and
simultaneously with that of the Company; the premium on account of such
liability to be credited to the Reinsurer from the original date of the
Company's liability.

REINSURER TO FOLLOW COMPANY

All reinsurances for which the Reinsurer shall be liable by virtue of
this Agreement shall be subject in all respects to the same rates, terms,
conditions, interpretations adopted by the Company, waivers, modifications,
alterations, and cancellations, as the respective insurances of the Company to
which such reinsurances relate, the true intent of this Agreement is that the
reinsurer shall in every case to which the Agreement applies and in the
proportion specified, follow the fortunes of the Company.

ARTICLE VIII

ACCOUNTS AND STATISTICAL REPORTS

The Company shall render a monthly account to the Reinsurer within 30
days after the close of each calendar quarter, summarizing premium, return
premium, allowance for commission, losses paid, loss adjustment expenses paid
and salvage recovered,
<PAGE> 5

and showing the net balance due from either party. Balances shall be paid by
the debtor party within 45 days following the end of the quarter.

The Company agrees to furnish unearned premium and outstanding loss
figures monthly as soon as possible after the close of the corresponding
quarter, and the customary year end statistics for completion of the
Reinsurer's annual statement within thirty days after the close of the calendar
year.

ARTICLE IX

(Applies only to the Reinsurer when it does not qualify for full
credit as admitted reinsurance by any State or any other governmental authority
having jurisdiction over the Company's reserves.)

FUNDING OF RESERVES

As regards policies or bonds issued by the Company coming within the
scope of this Agreement, the Company agrees that when it shall file with the
South Dakota Insurance Division or set up on its books reserves for unearned
premium and losses covered hereunder which it shall be required by law to set
up, it will forward to the Reinsurer a statement showing the proportion of such
reserves which is applicable to the Reinsurer. The Reinsurer hereby agrees to
fund such reserves in respect of unearned premium and known outstanding losses
that have been reported to the Reinsurer and allocated loss expenses relating
thereto (excluding reserves for losses incurred but not reported) , as shown in
the statement prepared by the Company, by either funds withheld or cash
advances deposited with a bank or trust company pursuant to the terms of a
separate Trust Agreement. The Reinsurer shall have the option of determining
the method of funding provided it is acceptable to the insurance regulatory
authorities involved.

Notwithstanding any other provision of this Agreement, the Company or
its successors in interest may draw upon such reserve funding at any time
without diminution because of the insolvency of the Company or of the Reinsurer
for one or more of the following purposes only, unless otherwise provided for
in a separate Trust Agreement:

(a) To pay the Reinsurer's share or to reimburse the Company for
the Reinsurer's share of any loss reinsured by the Agreement,
the payment of which has been agreed by the Reinsurer and
which has not otherwise been paid.

(b) To make refund of any sum which is in excess of the actual
amount required to pay the Reinsurer's share of any liability
reinsured by this Agreement.
<PAGE> 6

(c) To establish a deposit of the Reinsurer's share of unearned
premium and known and reported outstanding losses and
allocated expenses relating thereto excluding reserves for
losses incurred but not reported under this Agreement. Such
cash deposit shall be held in an interest bearing account
separate from the Company's other assets, and interest thereon
shall accrue to the benefit of the Reinsurer.

(d) To pay or reimburse the Company for the Reinsurer's share of
any other amounts which are due the Company under the terms of
this Agreement, but not to include IBNR.

The bank or trust company holding any cash advance pursuant to a
separate Trust Agreement shall have no responsibility whatsoever in connection
with the propriety of withdrawals made by the Company or the disposition of
funds withdrawn, except to ensure that withdrawals are made only upon the order
of properly authorized representatives of the Company.

At annual intervals, or more frequently as agreed but never more
frequently than quarterly, the Company shall prepare a specific statement, for
the sole purpose of adjusting the amount of any cash funding, of the
Reinsurer's share of unearned premium and known and reported outstanding losses
and allocated expenses relating thereto excluding reserves for losses incurred
but not reported. If the statement shows that the Reinsurer's share of such
unearned premium and losses and allocated loss expenses excluding reserves for
losses incurred but not reported exceeds the balance of credit as of the
statement date, the Reinsurer shall, within thirty (30) days after receipt of
notice of such excess, increase any cash funding by the amount of such
difference. If, however, the statement shows that the Reinsurer's share of
unearned premium and known and reported outstanding losses and allocated loss
expenses relating thereto, excluding reserves for losses incurred but not
reported is less than the balance of credit as of the statement date, the
Company shall, within thirty days (30) days after receipt of written request
from the Reinsurer, release such excess credit by reducing any cash funding by
the amount of such difference.

ARTICLE X

LOSSES AND LOSS SETTLEMENTS

The Company or its designated representatives shall adjust, settle or
compromise all losses hereunder. All such adjustments, settlements and
compromises, including ex-gratia payments shall be binding on the Reinsurer, in
proportion to its participation and the Reinsurer shall benefit proportionately
in all salvage, subrogation and recoveries.
<PAGE> 7

The Reinsurer shall bear all loss adjustment expenses incurred by the
Company, (but not including office expenses or salaries of and expenses
incurred by the Company's regular employees) in the investigation, adjustment,
appraisal or defense of all claims under policies reinsured hereunder and the
Reinsurer shall receive any and all recoveries of such expense, excluding
office expenses or salaries of and expenses incurred by the Company's regular
employees. The Reinsurer's portion of loss adjustment expenses shall be in
addition to its limit of liability.

Collateral, if applicable, will be used as loss and/or loss adjustment
expenses where applicable, and will be assigned proportionately between the
Company and the Reinsurers.

ARTICLE XI

EXTRA CONTRACTUAL OBLIGATIONS

This Agreement shall protect the Company, within the limits hereof,
where the loss includes any Extra Contractual Obligations incurred by the
Company. "Extra Contractual Obligations" are defined as those liabilities not
covered under any other provisions of this Agreement and which arise from the
handling of any claim on business covered 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, fraud or
bad faith in rejecting an offer of settlement, or in the preparation of the
defense, or in the trial of any action against its insured, or in the
preparation or prosecution of an appeal consequent upon such action.

The date on which any Extra Contractual Obligation is incurred by the
Company shall be deemed, in all circumstances, to be the date of the original
loss.

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 acting individually or collectively 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.

However, only 80% of any loss as described above may be included in
the loss hereon, the remaining 20% to be retained by the Company and not
reinsured in any way.

ARTICLE XII

TAXES

It is understood and agreed that in consideration of the terms under
which this Agreement is issued, the Company undertakes not to claim any
deduction with respect to the premium hereon when making
<PAGE> 8

tax returns, other than income or profits tax returns, to the appropriate tax
authorities.

ARTICLE XIII

CURRENCY

All payments made under this Agreement shall be in currency of the
United States of America.

ARTICLE XIV

ACCESS TO RECORDS

The Reinsurer, or its duly appointed representatives, shall at all
reasonable times have free access to the books and records of the Company so
far as they relate to the business reinsured under this Agreement.

ARTICLE XV

ERRORS AND OMISSIONS

Any inadvertent delay, omission or error shall not be held to relieve
either party hereto from any liability which would attach to it hereunder if
such delay, omission or error had not been made, provided such delay, omission
or error is rectified immediately upon discovery.

ARTICLE XVI

INSOLVENCY

In the event of the insolvency of the Company this reinsurance shall
be payable by the Reinsurer directly to the Company or its liquidator,
receiver, conservator or statutory successor on the basis of the liability of
the Company without diminution because of the insolvency of the Company or
because the liquidator, receiver, conservator or statutory successor of the
Company has failed to pay all or a portion of any claim.

It is agreed however, that the liquidator, receiver, conservator or
statutory successor of the Company shall give written notice to the Reinsurer
of the pendency of a claim against the insolvent Company indicating the policy
or bonds reinsured which claim would involve a possible liability on the part
of the Reinsurer within a reasonable time after such claim is filed in the
conservation or liquidation proceedings or in the receivership, and that during
the pendency of such claims the Reinsurer may investigate such claims and
interpose, at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or
<PAGE> 9

defenses which it may deem available to the Company or its liquidator,
receiver, conservator or statutory successor; that the expense thus incurred by
the Reinsurer shall be chargeable subject to court approval against the
insolvent Company as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the Company solely as a
result of the defense undertaken by the Reinsurer.

This reinsurance shall be payable by the Reinsurer directly to the
Company, or to its liquidator, receiver, conservator or statutory successor,
except (a) where the Agreement specifically provides another payee of such
reinsurance in the event of the insolvency of the Company, and (b) where the
Reinsurer with the consent of the direct insured or uninsureds has assumed such
policy obligations of the Company as direct obligations of the Reinsurer to the
payees under such policies and in substitution for the obligations of the
Company to such payees.

ARTICLE XVII

ARBITRATION

As a precedent to any right of action hereunder, if any differences
shall arise between the contracting parties with reference to the
interpretation of this Agreement or the rights with respect to any transaction
involved, whether arising before or after termination of this Agreement, such
differences shall be submitted to arbitration upon the written request of one
of the contracting parties.

Each party shall appoint an arbitrator within thirty days of being
requested to do so, and the two named shall select a third arbitrator before
entering upon the arbitration. If either party refuses or neglects to appoint
an arbitrator within the time specified, the other party may appoint the second
arbitrator. If the two arbitrators fail to agree on a third arbitrator within
thirty days of their appointment, each of them shall name three individuals, of
whom the other shall decline two, and the choice shall be made by drawing lots.
All arbitrators shall be active or retired disinterested officers of insurance
or reinsurance companies or Underwriters at Lloyd's, London not under the
control of either party to this Agreement.

Each party shall submit its case to its arbitrator within thirty days
of the appointment of the third arbitrator or within such period as may be
agreed by the arbitrators. All arbitrators shall interpret this Agreement as
an honorable engagement rather than as merely a legal obligation. They are
relieved of all judicial formalities and may abstain from following the strict
rules of law. They shall make their award with a view to effecting the general
purpose of this Agreement rather than in accordance with a literal
interpretation of the language.
<PAGE> 10

The decision in writing of any two arbitrators, when filed with the
contracting parties, shall be final and binding on both parties. Judgment upon
the award rendered may be entered in any court having jurisdiction thereof.
Each party shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the expense of the third arbitrator and of
the arbitration. In the event that two arbitrators are chosen by one party as
above provided, the expense of the arbitrators and the arbitration shall be
equally divided between the two parties. Any arbitration shall take place in
Sioux Falls, South Dakota unless some other place is mutually agreed upon by
the contracting parties.

ARTICLE XVIII

OFFSET CLAUSE

The Company and the Reinsurer, each at its option, may offset any
balance or balances, whether on account of premiums, claims and losses, loss
expenses or salvages due from one party to the other under this Agreement,
provided, however, that in the event of the insolvency of a party hereto,
offsets shall only be allowed in accordance with the provisions of the statutes
and/or regulations of the state having jurisdiction over the insolvency.

ARTICLE XIX

CHOICE OF LAW

This Agreement shall be governed by and interpreted in accordance with
the laws of the State of South Dakota.

****

Signed and accepted, effective September 22, 1994 on behalf of
Western Surety Company, "the Company" by Bruce A. Esselborn this 22nd day of
September, 1994.

Signed and accepted, effective September 22, 1994 on behalf of
Universal Surety of America, "the Reinsurer" by John Knox, Jr. President,
this 22nd day of September, 1994.

<PAGE> 1
EXHIBIT 10(24)

CO-EMPLOYEE AGREEMENT BETWEEN WESTERN SURETY
COMPANY AND UNIVERSAL SURETY OF AMERICA

This Agreement is made this 22nd day of September, 1994 by
and between Western Surety Company, an insurance company organized under the
laws of South Dakota ("Western Surety") and Universal Surety of America, an
insurance company organized under the laws of Texas ("USA.")

WHEREAS, Western Surety and USA are affiliated companies; and

WHEREAS, USA and Western Surety each desire to use certain personnel of
the other;

NOW THEREFORE, the parties, in consideration of the mutual covenants and
agreements herein contained, do hereby agree as follows:

1. Certain of USA's underwriters and claims managers will become
co-employed by Western Surety to underwrite contract surety business and
administer the related claims for Western Surety.
<PAGE> 2

2. Certain of Western Surety's underwriters and claims managers will
become co-employed by USA to underwrite certain types of miscellaneous fidelity
and surety bond business and administer the related claims for USA.

3. This Agreement shall not cause any co-employee to be eligible for
duplicate benefits under any employee benefit plan of USA, Western Surety, or
any related company.

4. This Agreement may be terminated at any time by either party upon not
less than 30 days prior written notice to the other.

IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
executed on the date and the year written above.

Universal Surety of America

John Knox, Jr.
------------------
By: John Knox, Jr.
President

Western Surety Company

Phil Lundy
------------------
By: Phil Lundy
Treasurer

<PAGE> 1

EXHIBIT 11

CAPSURE HOLDINGS CORP. AND SUBSIDIARIES

EARNINGS PER SHARE COMPUTATION
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1994 1993 1992
--------- -------- ---------
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,378 $ 16,284 $ 10,695
========= ======== =========

Shares:
Weighted average shares outstanding . . . . . . . . . . . . . . . . . . . 15,160 15,036 10,997

Additional shares from assumed warrants and options exercised . . . . . . 256 379 736
--------- -------- ---------

Total shares outstanding for calculation . . . . . . . . . . . . . . . . 15,416 15,415 11,733

Additional shares from assumed warrants and options exercised -
assuming full dilution(1) . . . . . . . . . . . . . . . . . . . . . . . 39 (54) 481
--------- -------- ---------

Total shares outstanding - assuming full dilution . . . . . . . . . . . . 15,455 15,361 12,214
========= ======== =========

Earnings per share based on:
Weighted average common shares outstanding . . . . . . . . . . . . . . $ .95 $ 1.08 $ .97
========= ======== =========
Weighted average common and common equivalent shares
outstanding(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .93 $ 1.06 $ .91
========= ======== =========
Weighted average common and common equivalent shares
outstanding - assuming full dilution(2) . . . . . . . . . . . . . . . $ .93 $ 1.06 $ .88
========= ======== =========
</TABLE>

______________________________

(1) Amount is anti-dilutive for 1993.
(2) In 1994 and 1993, the dilutive effect of common stock equivalents was less
than 3%.

<PAGE> 1

EXHIBIT 21

CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
AS OF DECEMBER 31, 1994

<TABLE>
<CAPTION>
INCORPORATED
COMPANY IN
- ------- ------------
<S> <C>
Capsure Holdings Corp. (f/k/a Nucorp, Inc.) . . . . . . . . . . . . . . . . . . . . . . . Delaware
Capsure Financial Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oklahoma
(f/k/a/ Nucorp Energy of Oklahoma, Inc.)
APGO Drilling & Production Services . . . . . . . . . . . . . . . . . . . . . . . . Oklahoma
Capital Dredge & Dock Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ohio
Capsure Agency Holding Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
(f/k/a Nucorp Insurance Services, Inc.,
f/k/a Bill Dorland Machine & Equipment, Inc.)
Cogburn Pump & Supply Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Condor Pipe, Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
Crowder Tank, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oklahoma
Del-Tex, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oklahoma
Eagle Upsetters, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado
Jim Williams & Associates, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . Louisiana
Martin Pipe Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Louisiana
NI Acquisition Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
United Capitol Holding Company. . . . . . . . . . . . . . . . . . . . . . . . . Delaware
United Capitol Insurance Company . . . . . . . . . . . . . . . . . . . . . . Wisconsin
United Capitol Managers, Inc. . . . . . . . . . . . . . . . . . . . . . Delaware
Fischer Underwriting Group, Incorporated . . . . . . . . . . . . . . New Jersey
Nucorp Compressor, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
Nucorp Management Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ohio
Nucorp Properties, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ohio
Pin Oak Petroleum, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
SI Acquisition Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
Surewest Financial Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . South Dakota
Surety Bonding Company of America . . . . . . . . . . . . . . . . . . . . . South Dakota
Western Surety Company . . . . . . . . . . . . . . . . . . . . . . . . . . . South Dakota
Troy Fain Insurance, Inc. . . . . . . . . . . . . . . . . . . . . . . . Florida
SMCI Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mississippi
Superior Allied Products, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
Sweetwater Pump & Supply, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
Taylor Rig and Equipment Company . . . . . . . . . . . . . . . . . . . . . . . . . . Oklahoma
Universal Surety Holding Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
Universal Surety of America . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
Wildcat Supply, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oklahoma
</TABLE>

<PAGE> 1

EXHIBIT 23

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statement of
Capsure Holdings Corp. and Subsidiaries on Form S-8 (File No. 33-87048) of our
report dated February 24, 1995, on our audits of the consolidated financial
statements and financial statement schedules of Capsure Holdings Corp. and
Subsidiaries as of December 31, 1994 and 1993, and for the years ended December
31, 1994, 1993, and 1992, which report is included in this Annual Report on
Form 10-K.

COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 29, 1995

<PAGE> 1

EXHIBIT 24(1)
POWER OF ATTORNEY

STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )

KNOW ALL MEN BY THESE PRESENTS that Herbert A. Denton, having
an address at Providence Capital, 730 Fifth Avenue, New York, New York
10019, has made, constituted and appointed and BY THESE PRESENTS, does
make, constitute and appoint SHELI Z. ROSENBERG, having an address at Rosenberg
& Liebentritt, Two North Riverside Plaza, Chicago, Illinois 60606, his true and
lawful Attorney-in-Fact for him and in his name, place and stead to sign and
execute in any and all capacities this Annual Report on Form 10-K and any or
all amendments to this Annual Report on Form 10-K, and to file the same with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, giving and granting unto Sheli Z.
Rosenberg, said Attorney-in-Fact, full power and authority to do and perform
each and every act and thing, requisite and necessary to be done in and about
the premises, as fully, to all intents and purposes as he might or could do if
personally present at the doing thereof, with full power of substitution and
revocation, hereby ratifying and confirming all that said Attorney-in-Fact or
her substitutes shall lawfully do or cause to be done by virtue hereof.

This Power of Attorney shall remain in full force and effect until
terminated by the undersigned through the instrumentality of a signed writing.

IN WITNESS WHEREOF, Herbert A. Denton, has hereunto set his
hand this ________________ day of ____________________________________, 1995.

________________________________________
Herbert A. Denton

I, __________________________________________________________, a Notary
Public in and for said County in the State aforesaid, do hereby certify that
Herbert A. Denton, personally known to me to be the same person whose name
is subscribed to the foregoing instrument appeared before me this day in person
and acknowledged that he signed and delivered said instrument as his own free
and voluntary act for the uses and purposes therein set forth.

Given under my hand and notarial seal this ________________ day of
________________________________________, 1995.

________________________________________
(Notary Public)

My Commission Expires:

_______________________________________

<PAGE> 1

EXHIBIT 24(2)
POWER OF ATTORNEY

STATE OF TEXAS )
) SS
COUNTY OF DALLAS )

KNOW ALL MEN BY THESE PRESENTS that Bradbury Dyer, III,
having an address at Paragon Associates, 500 Crescent Court, Dallas,
Texas 75201, has made, constituted and appointed and BY THESE PRESENTS,
does make, constitute and appoint SHELI Z. ROSENBERG, having an address at
Rosenberg & Liebentritt, Two North Riverside Plaza, Chicago, Illinois 60606,
his true and lawful Attorney-in-Fact for him and in his name, place and stead
to sign and execute in any and all capacities this Annual Report on Form 10-K
and any or all amendments to this Annual Report on Form 10-K, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, giving and granting unto Sheli Z.
Rosenberg, said Attorney-in-Fact, full power and authority to do and perform
each and every act and thing, requisite and necessary to be done in and about
the premises, as fully, to all intents and purposes as he might or could do if
personally present at the doing thereof, with full power of substitution and
revocation, hereby ratifying and confirming all that said Attorney-in-Fact or
her substitutes shall lawfully do or cause to be done by virtue hereof.

This Power of Attorney shall remain in full force and effect until
terminated by the undersigned through the instrumentality of a signed writing.

IN WITNESS WHEREOF, Bradbury Dyer, III, has hereunto set his
hand this ________________ day of _____________________________________, 1995.

________________________________________
Bradbury Dyer, III

I, __________________________________________________________, a Notary
Public in and for said County in the State aforesaid, do hereby certify that
Bradbury Dyer, III, personally known to me to be the same person whose name
is subscribed to the foregoing instrument appeared before me this day in person
and acknowledged that he signed and delivered said instrument as his own free
and voluntary act for the uses and purposes therein set forth.

Given under my hand and notarial seal this ________________ day of
________________________________________, 1995.

________________________________________
(Notary Public)

My Commission Expires:

_______________________________________

<PAGE> 1

EXHIBIT 24(3)
POWER OF ATTORNEY

STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )

KNOW ALL MEN BY THESE PRESENTS that Talton R. Embry, having
an address at Magten Asset Management Corp., 35 East 21st Street, New
York, New York 10010, has made, constituted and appointed and BY THESE
PRESENTS, does make, constitute and appoint SHELI Z. ROSENBERG, having an
address at Rosenberg & Liebentritt, Two North Riverside Plaza, Chicago,
Illinois 60606, his true and lawful Attorney-in-Fact for him and in his name,
place and stead to sign and execute in any and all capacities this Annual
Report on Form 10-K and any or all amendments to this Annual Report on Form
10-K, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, giving and
granting unto Sheli Z. Rosenberg, said Attorney-in-Fact, full power and
authority to do and perform each and every act and thing, requisite and
necessary to be done in and about the premises, as fully, to all intents and
purposes as he might or could do if personally present at the doing thereof,
with full power of substitution and revocation, hereby ratifying and confirming
all that said Attorney-in-Fact or her substitutes shall lawfully do or cause to
be done by virtue hereof.

This Power of Attorney shall remain in full force and effect until
terminated by the undersigned through the instrumentality of a signed writing.

IN WITNESS WHEREOF, Talton R. Embry, has hereunto set his
hand this ________________ day of _____________________________________, 1995.

________________________________________
Talton R. Embry

I, __________________________________________________________, a Notary
Public in and for said County in the State aforesaid, do hereby certify that
Talton R. Embry, personally known to me to be the same person whose name is
subscribed to the foregoing instrument appeared before me this day in person
and acknowledged that he signed and delivered said instrument as his own free
and voluntary act for the uses and purposes therein set forth.

Given under my hand and notarial seal this ________________ day of
________________________________________, 1995.

________________________________________
(Notary Public)

My Commission Expires:

_______________________________________

<PAGE> 1

EXHIBIT 24(4)
POWER OF ATTORNEY

STATE OF SOUTH DAKOTA )
) SS
COUNTY OF MINNEHAHA )

KNOW ALL MEN BY THESE PRESENTS that Dan L. Kirby, having
an address at Western Surety Company, 101 South Phillips Avenue, Sioux
Falls, South Dakota 57102, has made, constituted and appointed and BY
THESE PRESENTS, does make, constitute and appoint SHELI Z. ROSENBERG, having an
address at Rosenberg & Liebentritt, Two North Riverside Plaza, Chicago,
Illinois 60606, his true and lawful Attorney-in-Fact for him and in his name,
place and stead to sign and execute in any and all capacities this Annual
Report on Form 10-K and any or all amendments to this Annual Report on Form
10-K, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, giving and
granting unto Sheli Z. Rosenberg, said Attorney-in-Fact, full power and
authority to do and perform each and every act and thing, requisite and
necessary to be done in and about the premises, as fully, to all intents and
purposes as he might or could do if personally present at the doing thereof,
with full power of substitution and revocation, hereby ratifying and confirming
all that said Attorney-in-Fact or her substitutes shall lawfully do or cause to
be done by virtue hereof.

This Power of Attorney shall remain in full force and effect until
terminated by the undersigned through the instrumentality of a signed writing.

IN WITNESS WHEREOF, Dan L. Kirby, has hereunto set his
hand this ________________ day of __________________________________, 1995.

________________________________________
Dan L. Kirby

I, __________________________________________________________, a Notary
Public in and for said County in the State aforesaid, do hereby certify that
Dan L. Kirby, personally known to me to be the same person whose name is
subscribed to the foregoing instrument appeared before me this day in person
and acknowledged that he signed and delivered said instrument as his own free
and voluntary act for the uses and purposes therein set forth.

Given under my hand and notarial seal this ________________ day of
________________________________________, 1995.

________________________________________
(Notary Public)

My Commission Expires:

_______________________________________

<PAGE> 1

EXHIBIT 24(5)
POWER OF ATTORNEY

STATE OF SOUTH DAKOTA )
) SS
COUNTY OF MINNEHAHA )

KNOW ALL MEN BY THESE PRESENTS that Joe P. Kirby, having
an address at Western Surety Company, 101 South Phillips Avenue, Sioux
Falls, South Dakota 57102, has made, constituted and appointed and BY
THESE PRESENTS, does make, constitute and appoint SHELI Z. ROSENBERG, having an
address at Rosenberg & Liebentritt, Two North Riverside Plaza, Chicago,
Illinois 60606, his true and lawful Attorney-in-Fact for him and in his name,
place and stead to sign and execute in any and all capacities this Annual
Report on Form 10-K and any or all amendments to this Annual Report on Form
10-K, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, giving and
granting unto Sheli Z. Rosenberg, said Attorney-in-Fact, full power and
authority to do and perform each and every act and thing, requisite and
necessary to be done in and about the premises, as fully, to all intents and
purposes as he might or could do if personally present at the doing thereof,
with full power of substitution and revocation, hereby ratifying and confirming
all that said Attorney-in-Fact or her substitutes shall lawfully do or cause to
be done by virtue hereof.

This Power of Attorney shall remain in full force and effect until
terminated by the undersigned through the instrumentality of a signed writing.

IN WITNESS WHEREOF, Joe P. Kirby, has hereunto set his
hand this ________________ day of _____________________________________, 1995.

________________________________________
Joe P. Kirby

I, __________________________________________________________, a Notary
Public in and for said County in the State aforesaid, do hereby certify that
Joe P. Kirby, personally known to me to be the same person whose name is
subscribed to the foregoing instrument appeared before me this day in person
and acknowledged that he signed and delivered said instrument as his own free
and voluntary act for the uses and purposes therein set forth.

Given under my hand and notarial seal this ________________ day of
________________________________________, 1995.

________________________________________
(Notary Public)

My Commission Expires:

_______________________________________

<PAGE> 1

EXHIBIT 24(6)
POWER OF ATTORNEY

STATE OF MARYLAND )
) SS
COUNTY OF PRINCE GEORGE )

KNOW ALL MEN BY THESE PRESENTS that L.G. Schafran, having an
address at Dart Group, 3300 75th Avenue, Landover, Maryland 20785,
has made, constituted and appointed and BY THESE PRESENTS, does make,
constitute and appoint SHELI Z. ROSENBERG, having an address at Rosenberg &
Liebentritt, Two North Riverside Plaza, Chicago, Illinois 60606, his true and
lawful Attorney-in-Fact for him and in his name, place and stead to sign and
execute in any and all capacities this Annual Report on Form 10-K and any or
all amendments to this Annual Report on Form 10-K, and to file the same with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, giving and granting unto Sheli Z.
Rosenberg, said Attorney-in-Fact, full power and authority to do and perform
each and every act and thing, requisite and necessary to be done in and about
the premises, as fully, to all intents and purposes as he might or could do if
personally present at the doing thereof, with full power of substitution and
revocation, hereby ratifying and confirming all that said Attorney-in-Fact or
her substitutes shall lawfully do or cause to be done by virtue hereof.

This Power of Attorney shall remain in full force and effect until
terminated by the undersigned through the instrumentality of a signed writing.

IN WITNESS WHEREOF, L.G. Schafran, has hereunto set his hand
this ________________ day of ________________________________________, 1995.

________________________________________
L.G. Schafran

I, __________________________________________________________, a Notary
Public in and for said County in the State aforesaid, do hereby certify that
L.G. Schafran, personally known to me to be the same person whose name is
subscribed to the foregoing instrument appeared before me this day in person
and acknowledged that he signed and delivered said instrument as his own free
and voluntary act for the uses and purposes therein set forth.

Given under my hand and notarial seal this ________________ day of
________________________________________, 1995.

________________________________________
(Notary Public)

My Commission Expires:

_______________________________________

<ARTICLE> 7
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CAPSURE
HOLDINGS CORP. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND RELATED
NOTES AND SCHEDULES THERETO INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 235,625
<DEBT-CARRYING-VALUE> 10,968
<DEBT-MARKET-VALUE> 10,326
<EQUITIES> 28,205
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 301,767
<CASH> 4,131
<RECOVER-REINSURE> 39,582
<DEFERRED-ACQUISITION> 25,150
<TOTAL-ASSETS> 553,370
<POLICY-LOSSES> 149,041
<UNEARNED-PREMIUMS> 76,630
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 71,000
<COMMON> 770
0
0
<OTHER-SE> 224,095
<TOTAL-LIABILITY-AND-EQUITY> 553,370
92,481
<INVESTMENT-INCOME> 19,129
<INVESTMENT-GAINS> 945
<OTHER-INCOME> 107
<BENEFITS> 23,344
<UNDERWRITING-AMORTIZATION> 29,390
<UNDERWRITING-OTHER> 24,514
<INCOME-PRETAX> 23,779
<INCOME-TAX> 9,401
<INCOME-CONTINUING> 14,378
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,378
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
<RESERVE-OPEN> 138,563
<PROVISION-CURRENT> 46,206
<PROVISION-PRIOR> (14,522)
<PAYMENTS-CURRENT> 3,003
<PAYMENTS-PRIOR> 18,203
<RESERVE-CLOSE> 149,041
<CUMULATIVE-DEFICIENCY> 15,690

</TABLE>