STOCK OPTION PLAN 2004

APPENDIX C

21ST CENTURY INSURANCE GROUP
2004 STOCK OPTION PLAN

SECTION 1.    PURPOSE OF PLAN

The purpose of this 2004 Stock Option Plan (the "Plan") of 21st Century Insurance Group (the "Company") is to enable the Company and its subsidiaries to attract, retain and motivate employees of the Company by providing for or increasing the proprietary interests of such individuals in the Company, and to enable the Company to attract, retain and motivate its nonemployee directors and further align their interests with those of the shareholders of the Company by providing for or increasing the proprietary interests of such directors in the Company. The Plan is intended to supersede the Company's existing 1995 Stock Option Plan (the "1995 Plan"). On and after the Effective Date, no further grants shall be made under the 1995 Plan, which shall remain in effect solely as to outstanding awards under it.

SECTION 2.    PERSONS ELIGIBLE UNDER PLAN

Any employee of the Company or any of its subsidiaries, including any employee director of the Company (an "Employee"), who in the opinion of the Committee (hereinafter defined) possesses a capacity to contribute in substantial measure to the success of the Company shall be eligible to be considered for the grant of Awards (hereinafter defined) pursuant to Section 3 hereof. Any director of the Company who is not an Employee (a "Nonemployee Director") automatically shall receive Nonemployee Director Options (hereinafter defined) pursuant to Section 4 hereof, but otherwise shall not participate in the Plan.

SECTION 3.    AWARDS

(a)    The Committee (hereinafter defined), on behalf of the Company, is authorized under the Plan to grant options to Employees for the issuance of shares of common stock of the Company ("Common Shares"). The granting of such an option is referred to herein as the grant of an Award.

(b)    No Award shall provide for an exercise price that is less than the Fair Market Value (hereinafter defined) of the underlying Common Shares on the date of grant.

(c)    Subject to the provisions of the Plan, the Committee, in its discretion, shall determine all of the terms and conditions of each Award (which may vary from Award to Award), which terms and conditions shall be set forth in an individual agreement evidencing each such Award. Agreements evidencing Awards that are intended to qualify as "Incentive Stock Options" pursuant to Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), shall contain all the terms required under Section 422 for the Award to so qualify.

(d)    Notwithstanding any other provision of the Plan, no person shall be granted an Award and no person shall be entitled to exercise any right with respect to an Award previously granted if such grant or exercise would violate any provision of the charter of the Company, or would violate any term or condition set forth in the agreement evidencing such Award. The Company may require recipients of Awards to make such representations and enter into such covenants as reasonably are deemed necessary in order to ensure that the grant or exercise of rights with respect to Awards will not result in a violation of this Section 3(d).

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SECTION 4.    NONEMPLOYEE DIRECTOR OPTIONS

(a)    Each year, on the day of the annual meeting of shareholders of the Company (or any adjournment thereof) at which directors of the Company are elected (the "Date of Grant"), each Nonemployee Director automatically shall be granted an option (a "Nonemployee Director Option") to purchase 4,000 Common Shares. Each Nonemployee Director automatically shall be granted a Nonemployee Director Option to purchase 4,000 Common Shares upon appointment to the Board of Directors of the Company (the "Board").

(b)    If, on any date upon which Nonemployee Director Options are to be granted pursuant to this Section 4, the number of Common Shares remaining available for issuance under the Plan is less than the total number of Common Shares that otherwise would be covered by the Nonemployee Director Options as specified in Section 4(a), then a Nonemployee Director Option to purchase a pro rata amount of the remaining Common Shares available for issuance (rounded to the nearest whole share) shall be granted to each Nonemployee Director on such date.

(c)    Each Nonemployee Director Option granted under the Plan shall become exercisable to purchase 100% of the Common Shares subject thereto one year after the Date of Grant of such Nonemployee Director Option if, and only if, the optionee still is a Nonemployee Director at such time.

(d)    Each Nonemployee Director Option that vests pursuant to Section 4(c) shall expire upon the first to occur of the following:

(i)    The first anniversary of the date upon which the optionee ceases to be a Nonemployee Director; or

(ii)    The tenth anniversary of the Date of Grant.

(e)    Each Nonemployee Director Option shall have an exercise price equal to the aggregate Fair Market Value on the Date of Grant of such option of the Common Shares subject thereto.

(f)    Payment in full of the exercise price of any Nonemployee Director Option granted under the Plan shall be made in cash, concurrent with the exercise of such Nonemployee Director Option. Notwithstanding the foregoing, the Committee, at its discretion, may permit a Nonemployee Director Option to be exercised through a "cashless exercise" pursuant to which either (i) the Nonemployee Director delivers to the Company in payment of the exercise price a number of Common Shares already owned by such Nonemployee Director whose Fair Market Value is equal, on the date of exercise, to the exercise price thereof, or (ii) the Nonemployee Director directs the Company to retain that number of Common Shares whose Fair Market Value is equal on the date of exercise to the exercise price, thereby surrendering as payment the portion of the Nonemployee Director Option that covers the retained Common Shares.

(g)    Notwithstanding any other provision in this Section 4, all outstanding Nonemployee Director Options shall terminate immediately upon the first to occur of the following:

(i)    the dissolution or liquidation of the Company;

(ii)    a reorganization, merger or consolidation of the Company as a result of which the outstanding securities of the class then subject to such outstanding Nonemployee Director Options are exchanged for or converted into cash, property or securities not issued by the Company (or any combination thereof) unless the terms of such reorganization, merger or consolidation provide otherwise; or

(iii)    the sale of all or substantially all of the property and assets of the Company.

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(h)    Except as provided in Section 4(i), each Nonemployee Director Option shall be nontransferable by the optionee other than by will or the laws of descent and distribution, and shall be exercisable during the optionee's lifetime only by the optionee or the optionee's guardian or legal representative.

(i)    Notwithstanding the foregoing provisions of Section 4(h), each Nonemployee Director may provide the Committee with a written designation, in such form as the Committee shall determine, designating a person or persons ("Beneficiary") to whom Nonemployee Director Options and the Common Shares subject thereto may be transferred upon the death of such Nonemployee Director. The Company shall honor each such written designation, provided that the Beneficiary named shall take all steps necessary, as determined by the Committee, to comply with the Plan or with federal or state securities laws or other legal requirements.

SECTION 5.    STOCK SUBJECT TO PLAN

(a)    The aggregate number of Common Shares that may be issued pursuant to the exercise of all Awards and Nonemployee Director Options granted under the Plan is (i) 4,000,000, plus (ii) Common Shares that were authorized but not made subject to awards under the 1995 Plan, plus (iii) Common Shares that were subject to outstanding awards under the 1995 Plan to the extent that such awards expire, are terminated, are cancelled, or are forfeited for any reason without Common Shares being issued, all as subject to adjustment as provided in Section 8 hereof. Notwithstanding the foregoing, the aggregate number of Common shares that may be issued pursuant to the exercise of Awards granted under the Plan that are intended to qualify as Incentive Stock Options is 6,000,000, subject to adjustment as provided in Section 8 hereof.

(b)    Common Shares attributable to all or any portion of any Award or Nonemployee Director Option that expires, is cancelled, or otherwise is terminated (other than by exercise) shall be restored to the Plan and shall not be counted against the limit set forth in Section 5(a).

(c)    In no event shall an Employee be granted Awards with respect to a number of Common Shares that is in excess of 800,000, during any calendar year, and in no event shall any Nonemployee Director be granted Nonemployee Director Options with respect to a number of Common Shares that is in excess of 4,000 per calendar year, in each case subject to adjustment as provided in Section 8 hereof.

SECTION 6.    DURATION OF PLAN

Neither Awards nor Nonemployee Director Options shall be granted under the Plan on or after the tenth anniversary of the Effective Date (as defined herein).

SECTION 7.    ADMINISTRATION OF PLAN

(a)    The Plan shall be administered by a committee of the Board (the "Committee") consisting of two or more directors, each of whom is a "Non-Employee Director" (as such term is defined Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as such Rule may be amended from time to time), and an "outside director" (within the meaning of Section 162(m) of the Code). This Committee also may serve as the Compensation Committee of the Company.

(b)    Subject to the provisions of the Plan, the Committee shall be authorized and empowered to do all things necessary or desirable in connection with the administration of the Plan, including, without limitation, the following:

(i)    adopt, amend and rescind rules and regulations relating to the Plan;

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(ii)    determine which Employees will be granted Awards;

(iii)    determine the terms and conditions of Awards, including the number of Common Shares issuable pursuant thereto;

(iv)    determine the terms and conditions of Nonemployee Director Options, other than the terms and conditions specified in Section 4 hereof;

(v)    determine whether, and the extent to which, adjustments are required pursuant to Section 8 hereof; and

(vi)    interpret and construe the Plan and the terms and conditions of all Awards and Nonemployee Director Options granted hereunder.

(c)    Notwithstanding any provision of the Plan to the contrary, the Committee shall not have authority to reprice outstanding Awards or Nonemployee Director Options through reducing the exercise price thereof, or through amendment, cancellation or replacement of Awards or Nonemployee Director Options.

SECTION 8.    ADJUSTMENTS

If the outstanding securities of the class then subject to the Plan are increased, decreased or exchanged for or converted into cash, property or a different number or kind of securities, or if cash, property or securities are distributed in respect of such outstanding securities, in either case as a result of a reorganization, merger, consolidation, recapitalization, restructuring, reclassification, partial or complete liquidation, stock split, reverse stock split or the like, then, unless the terms of such transaction shall provide otherwise, the Committee shall make appropriate and proportionate adjustments in (a) the number and type of shares or other securities or cash or other property that may be acquired pursuant to Awards and Nonemployee Director Options theretofore granted under the Plan, (b) the maximum number and type of shares or other securities that may be issued pursuant to Awards and Nonemployee Director Options thereafter granted under the Plan, and (c) the maximum number of Common Shares with respect to which Awards or Nonemployee Director Options may be granted to any Employee or Nonemployee Director, respectively, during any calendar year.

SECTION 9.    AMENDMENT AND TERMINATION OF PLAN

The Committee may amend or terminate the Plan at any time and in any manner, subject to the following limitations:

(a)    No such amendment or termination shall deprive the recipient of any Award or Nonemployee Director Option theretofore granted under the Plan, without the consent of such recipient, of any of his or her rights thereunder or with respect thereto; and

(b)    Notwithstanding anything in the Plan to the contrary, no provision of Section 4 shall be amended without the approval of the Committee, the Board, or the shareholders of the Company.

SECTION 10.    FAIR MARKET VALUE

For purposes of the Plan, the "Fair Market Value" of a Common Share on any date shall be, unless determined otherwise by the Committee in good faith, the reported closing price of the Company's common stock on the New York Stock Exchange (or such other principal stock exchange on which the Company's common stock is listed on such date, as applicable), or, if the New York Stock Exchange is not open for business on such date, the reported closing price of the Company's common stock on the next business day.

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SECTION 11.    TAX WITHHOLDING

(a)    The Company's obligation to deliver Common Shares upon the exercise of Awards and Nonemployee Director Options is subject to the satisfaction of all applicable Federal, state, and local income and employment tax withholding requirements.

(b)    The Committee may permit, in its discretion, recipients of outstanding Awards and Nonemployee Director Options to elect to have the Company withhold, from the Common Shares otherwise issuable pursuant to such awards, Common Shares with an aggregate Fair Market Value equal to the Federal, state, and local income and employment tax incurred in connection with the acquisition of such Common Shares. Recipients of Awards and Nonemployee Director Options also may be permitted, in the Committee's discretion, to deliver previously acquired Common Shares in satisfaction of such tax. The withheld or delivered shares will be valued at Fair Market Value on the applicable determination date for such tax.

SECTION 12.    EFFECTIVE DATE

The Plan shall be effective May 27, 2004 (the "Effective Date"), provided that it has been approved by such date by the affirmative votes of the holders of a majority of the Common Shares of the Company present, or represented, and entitled to vote at a meeting duly held in accordance with the laws of the State of California, or by written consent of a majority of the outstanding Common Shares.

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