1997 AMERICAN CAPITOL INSURANCE COMPANY
                   KEY EMPLOYEE INCENTIVE STOCK OPTION PLAN

                        GRANT OF INCENTIVE STOCK OPTION

                              (Grant No. -------)


THIS AGREEMENT is made as of the 2nd day of September, 1997 (the "Grant
Date"), by American Capitol Insurance Company, a Texas corporation (the
"Company") and John D. Cornett (the "Grantee"), an employee of the Company,
pursuant to the 1997 American Capitol Insurance Company Key Employee
Incentive Stock Option Plan (the "Plan").  A copy of the Plan is appended
and made a part of this Agreement.

WHEREAS,  the Board of Directors of the Company (the "Board of Directors")
has adopted the Plan for the benefit of certain employees of the Company;
and

WHEREAS, the undersigned comprise all of the duly elected, qualified and
acting members of the Compensation Committee of the Board of Directors and,
as such, are authorized to select and designate employees of the Company as
key employees and to grant Incentive Stock Options pursuant to the Plan; and

WHEREAS, pursuant to the Plan,  the Board of Directors regards the Grantee
as a key employee and has determined that it would be in the interest of the
Company and its shareholders to grant the option provided herein in order to
encourage the Grantee to acquire a greater proprietary interest in the
success of the Company, to continue employment with the Company and to
render superior performance during such employment; and

WHEREAS, the Grantee does not own 10% or more of the voting stock of the
Company;

NOW THEREFORE, the Company, acting by and through this unanimous action of
the Compensation Committee of its Board of Directors, and Grantee confirm
the foregoing recitations and agree as follows:

1.   Grant of Option.  Subject to the terms and conditions herein, the
     Company grants to the Grantee, an option (the "Option"), effective on
     the above Grant Date, to purchase one hundred (100) shares (the "Option
     Shares") of the Common Stock of Acap Corporation ("Acap"), par value of
     $.10 per share (the "Common Stock"), at a price of $240 per share (the
     "Option Price"), which price is equal to the Fair Market Value (as
     defined in Section 1.2 of the Plan) per share of the Option Shares on
     the Grant Date.  Such Option is intended to qualify as an Incentive
     Stock Option pursuant to Section 422 of the Internal Revenue Code, as
     amended.

2.   Conditions of Exercise.  The Option is exercisable only in accordance
     with the conditions stated in this paragraph.

     (a)  Except as provided in subparagraph (b) of paragraph 8, the Option
          may be exercised to the extent the Option Shares are available for
          purchase in accordance with the following schedule:

               Anniversary of                     Percentage of
                 Grant Date             Shares Available for Purchase

               Prior to the 5th                        Zero
               After the 5th                           100%
               After the 10th                          Zero

     (b)  To the extent an Option is exercisable, such option may be
          exercised in whole or in part (at any time) until such option
          lapses.

3.   Manner of Exercise.  The Option shall be considered exercised on the
     latest of (i) the date of exercise designated in the written notice
     referred to in subparagraph (a), (ii) if the date so designated is not
     a business day, the first business day following such date or (iii) the
     earliest business day by which the Company has received all of the
     following:

     (a)  Written notice, in such form as the Company may require,
          designating, among other things, the date of exercise and the
          number of Option Shares to be purchased;

     (b)  If the Option is to be exercised, payment of the Option Price in
          such form as the Company may require; and

     (c)  Any other documentation that the Company may reasonably require.

4.   Withholding for Taxes.  Grantee agrees to pay or reimburse the Company
     for any federal, state or local taxes required to be withheld by the
     Company upon the exercise of the Option, at such time and upon such
     terms and conditions as the Company may prescribe.

5.   Delivery by the Company.  After receipt of all items referred to in
     paragraph 3 and any payment required by paragraph 4, the Company shall
     deliver to the Grantee a certificate or certificates issued in
     Grantee's name for the number of Option Shares purchased by exercise of
     the Option.  If delivery is by mail, delivery of shares of Common Stock
     shall be deemed effected for all purposes when the certificate or
     certificates, as the case may be, shall have been deposited in the
     United States mail, addressed to the Grantee.   In no event shall the
     Company be liable for any delay in the issuance of the stock
     certificate or certificates, as the case may be, if its delay, if any,
     shall be reasonable under the circumstances or for cause.

6.   Nontransferability of Option.  During Grantee's lifetime, the Option is
     not transferable (voluntarily or involuntarily) and is exercisable only
     by Grantee, provided, however, if Grantee ceases to have legal capacity
     to act, his or her duly appointed and qualified legal representative
     shall be entitled to act on Grantee's behalf and such person shall be
     deemed the Grantee.  Following Grantee's death, the Option, if
     otherwise exercisable, may be exercisable by the person to whom such
     option passes according to Grantee's will or the laws of descent and
     distribution, and such person shall be deemed the Grantee.

7.   No Shareholder Rights.  Grantee shall not be deemed for any purpose to
     be a shareholder of the company with respect to any shares of Common
     Stock as to which this Agreement relates until such shares shall have
     been transferred to Grantee by the Company.  Furthermore, the existence
     of this Agreement shall not affect the right or power of the Company or
     its shareholders, or Acap or its shareholders, to accomplish any
     corporate act.

8.   Adjustments.

     (a)  The Board of Directors, in accordance with Section 3.1 of the
          Plan, shall make appropriate adjustments to the Option in the
          event of a change in the Common Stock occurring after the Grant
          Date.

     (b)  Upon the dissolution or liquidation of the Company or Acap, the
          Option shall terminate; however, Grantee shall be given the
          opportunity, prior to such termination, to exercise the Option
          with regard to subparagraph (a) of paragraph 2.

     (c)  Except as provided in subparagraphs (a) and (b), the issuance by
          Acap of shares of stock of any class, or securities convertible
          into shares of stock of any class, shall not affect this Agreement
          or the rights granted herein.

9.   Restrictions Imposed by Law.  Notwithstanding any other provision of
     this Agreement, Grantee agrees that Grantee will not exercise the
     Option and that the Company will not be obligated to deliver any shares
     of Common Stock, if counsel to the Company determines that such
     exercise, delivery or payment would violate any law or regulation of
     any governmental authority or any agreement between the Company, or
     Acap, and any national securities exchange upon which the Common Stock
     is listed.  The Company shall in no event be obligated to take any
     affirmative action in order to cause the exercise of the Option or the
     resulting delivery of shares of Common Stock to comply with any law or
     regulation of any governmental authority.

10.  Termination of Option. 

     (a)  The Option and all rights hereunder with respect thereto, to the
          extent such rights shall not have been exercised, shall terminate
          and become null and void after the expiration of ten (10) years
          from the Date of Grant (the "Option Term").

     (b)  Upon the occurrence of the Grantee's ceasing for any reason to be
          employed by the Employer (such occurrence being a "termination of
          the Grantee's employment"), the Option, to the extent not
          previously exercised, shall terminate and become null and void
          immediately upon such termination of the Grantee's employment,
          except in a case where the termination of the Grantee's employment
          is by reason of retirement, disability or death.  Upon a
          termination of the Grantee's employment by reason of retirement,
          disability or death, the Option may be exercised during the
          following periods, but only to the extent that the Option was
          outstanding and exercisable on any such date of retirement,
          disability or death: (i) the one-year period following the date of
          such termination of the Grantee's employment in the case of a
          disability (within the meaning of Section 22(e)(3) of the Code),
          (ii) the six-month period following the date of issuance of
          letters testamentary or letters of administration to the executor
          or administrator of a deceased Grantee, in the case of the
          Grantee's death during his employment by the Employer, but not
          later than one year after the Grantee's death, and (iii) the
          three-month period following the date of such termination in the
          case of retirement on or after attainment of age 65, or in the
          case of disability other than as described in (i) above.  In no
          event, however, shall any such period extend beyond the Option
          Term.

     (c)  In the event of the death of Grantee or in the event Grantee
          ceases to have legal capacity to act, the Option may be exercised
          by the Grantee's legal representative(s), but only to the extent
          that the Option would otherwise have been exercisable by the
          Grantee.

     (d)  A transfer of the Grantee's employment between the Company and any
          affiliate of the Company, or between any affiliates of the
          Company, shall not be deemed to be a termination of the Grantee's
          employment.

     (e)  Notwithstanding any other provisions set forth herein or in the
          Plan, if the Grantee shall (i) commit any act of malfeasance or
          wrongdoing affecting the Company or any affiliate of the Company,
          (ii) breach any covenant not to compete, or obligation of
          confidentiality, or employment contract, with the Company or any
          affiliate of the Company, or (iii) engage in conduct that would
          warrant the Grantee's discharge for cause, any unexercised portion
          of the Option shall immediately terminate and be void, and any
          exercise of such a voidable Option shall be rescindable by the
          Committee.

11.  Notice.  Unless the Company notifies Grantee in writing of a different
     procedure, any notice or other communication to the Company with
     respect to this Agreement shall be in writing and shall be sent by
     first class mail, postage prepaid and addressed as follows:

     1997 American Capitol Insurance Company Key Employee Incentive Stock
     Option Plan
     Attention:  Chairman
     P. O. Box 42814
     Houston, TX 77042-2814

     Any notice or communication to the Grantee with respect to this
     Agreement shall be in writing and shall be sent by first class mail,
     postage prepaid, to Grantee's address as listed in the records of the
     Company on the Grant Date, unless the Company has received written
     notification from the Grantee of a change of address.

12.  Amendment.  Notwithstanding any other provision hereof, this Agreement
     may be amended, without the consent of the Grantee, as follows:

     (a)  The Agreement may be cancelled or amended by the Board of
          Directors at any time if the Board of Directors determines that
          cancellation or amendment is necessary or advisable because of any
          change or clarification after the Grant Date of any law or
          governmental regulation, including any applicable federal or state
          securities law;

     (b)  Subject to any required approval by Company shareholders, the
          Board of Directors may amend or cancel this Agreement at any time
          for reasons other than those stated in subparagraph (a); provided
          that such action shall not adversely affect the Option to the
          extent then exercisable.

13.  Grantee Employment.  Nothing this Agreement shall limit the right of
     the Company to terminate the Grantee's employment or otherwise impose
     upon the Company an obligation to employ the Grantee.

14.  Determinations.  All decisions of the Committee upon questions
     regarding the Plan or this Agreement shall be conclusive.  This
     Agreement is made pursuant to the Plan, which is incorporated by
     reference thereto for all purposes, and reference is made to the Plan
     in respect to all matters not expressly set forth in this Agreement. 
     In the event of any inconsistency between the terms of the Plan and
     this Agreement, or any matter not expressly set forth in this
     Agreement, the terms of the Plan shall control.  The validity and
     interpretation of this Agreement shall be determined, exclusively, in
     accordance with the laws of the State of Texas.

15.  Grantee Acceptance.  Grantee shall signify acceptance of the terms and
     conditions of this Agreement by signing in the space provided below and
     returning a signed copy to the Company.  THIS AGREEMENT IS CONTINGENT
     UNTIL SUCH ACCEPTANCE.  THE COMPANY MAY REVOKE THE OPTION, AND VOID ALL
     OBLIGATIONS UNDER THIS AGREEMENT, AT ANY TIME BEFORE THE COMPANY HAS
     RECEIVED A FULLY EXECUTED COPY OF THIS AGREEMENT FROM THE GRANTEE.


AMERICAN CAPITOL INSURANCE  COMPANY

By:  Members of the Compensation Committee:

     /s/C. Stratton Hill, Jr., M. D.           /s/R. W. Daniels
     -------------------------------           ---------------------------
     C. Stratton Hill, Jr., M. D.                 R. W. Daniels

ACCEPTED:
    /s/John D. Cornett, Grantee
    --------------------------------
     John D. Cornett, Grantee