PAYMENT AGREEMENT

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                                                                   Exhibit 10.12


                                PAYMENT AGREEMENT

            This PAYMENT AGREEMENT (the "Agreement"), dated as of June 28,
2005 (the "Effective Date"), is entered into by and between RAM Reinsurance
Company Ltd. (the "Company"), RAM Holdings Ltd. and RAM Holdings II Ltd.
(collectively referred to as "Holding") and James P. Gerry (the "Participant"
and, together with the Company and Holding, the "Parties").


                              W I T N E S S E T H:
                             - - - - - - - - - -

            WHEREAS, the Participant was granted a stock option pursuant to a
stock option agreement entered into by the Parties, effective March 13, 2001
(the "Option"), which is attached hereto as Annex A; and

            WHEREAS, the Parties previously entered into the Contingent Share
Agreement and the First Amendment to the Contingent Share Agreement
(collectively referred to as the "Contingent Share Agreement"), each of which
are attached hereto as Annex B; and

            WHEREAS, the Parties wish to terminate the Option and the Contingent
Share Agreement and to enter into this Agreement.

            NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, and intending to be
legally bound, the Parties hereby agree as follows:

            1.     Definitions.
                   -----------

                  (a) "Assumed Share Price" means the product of (i) the GAAP
book value of one Share (excluding the mark to market effect of FAS 133 and SFAS
115) as of the last day of the most recent fiscal quarter that ended prior to
the Payment Date or, if the Payment Date is the last day of a fiscal quarter, as
of the last day of the fiscal quarter that ends on the Payment Date (in either
case, as reported in the financial statements for such quarter), and (ii) 1.15.

                   (b) "Business Days" means any day except a Saturday, Sunday or
other day on which banks in Hamilton, Bermuda or the City of New York, United
States, are authorized or obligated by law or executive order to close.

                  (c) "Cash Payment" means a lump sum cash payment equal to the
product of (i) 9,911 and (ii) the excess, if any, of (A) the Assumed Share Price
over (B) $126.15.

                  (d) "Change in Control" means the first to occur of any of the
following events; provided that such event also constitutes a "change in the
ownership or effective control of the corporation, or in the ownership of a
substantial portion of the
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assets of the corporation" as those terms are used in Section 409A of the
Internal Revenue Code of 1986, as amended:

                        (i) the acquisition by any person, entity or "group" (as
                  defined in Section 13(d) of the Securities Exchange Act of
                  1934, as amended) of 50% or more of the combined voting power
                  of the Company's or Holding's then outstanding voting
                  securities;

                        (ii) the merger, reorganization, or consolidation of, or
                  share exchange involving, the Company or Holding, as a result
                  of which the shareholders of the Company or Holding
                  immediately before such transaction do not, immediately
                  thereafter, own, directly or indirectly, more than 50% of the
                  combined voting power entitled to vote generally in the
                  election of directors of the merged or consolidated company;

                        (iii) a sale of all or substantially all of the
                  Company's assets; and

                         (iv) approval by the Company or Holding of the
                  liquidation or dissolution of the Company or Holding other
                  than a liquidation of the Company into Holding.

                  (e) "Hypothetical Payment" means an amount equal to what the
Cash Payment would be if, in calculating the Cash Payment in accordance with
Section 1(c), the Assumed Share Price is an amount equal to the product of (i)
the GAAP book value of one Share (excluding the mark to market effect of FAS 133
and SFAS 115) as reported in the financial statements issued for the most recent
fiscal quarter that ended prior to the Payment Date and (ii) 1.15.

                  (f) "Payment Date" means the earlier to occur of (i) June 30,
2006 or (ii) the date of a Change in Control.

                  (g) "Preliminary Payment" means a lump sum cash payment equal
to seventy-five percent (75%) of the Hypothetical Payment.

                  (h) "Share" means a share of Class A Common Stock, par value
$1.00 per share, of RAM Holdings II Ltd.

                  (i) "True-Up Payment" means a lump sum cash payment equal to
the difference between the Cash Payment and the Preliminary Payment, which is
paid (i) by the Company to the Participant if the Cash Payment is greater than
the Preliminary Payment and (ii) by the Participant to the