EXHIBIT 10(d)


                           SECURITY FUND AGREEMENT
                 (hereinafter referred to as the "Agreement")

                          entered into by and among

                 American Hallmark Insurance Company of Texas
                                 City, State
                 (hereinafter referred to as the "Depositor")
                                     and

                State And County Mutual Fire Insurance Company
                              Fort Worth, Texas
                (hereinafter referred to as the "Beneficiary")

                                   Held By

                  First Tennessee Bank, National Association
                              Memphis, Tennessee
                 (hereinafter referred to as the "Custodian")

 SECTION 1.     PURPOSE OF AGREEMENT
                --------------------

      1.1  The Depositor has assumed  all liabilities of Beneficiary  arising
      from insurance business subject to that certain Quota Share Reinsurance
      Agreement  dated  effective  April  1,  2003,  between  Depositor   and
      Beneficiary (hereinafter referred to as the "Reinsurance Agreement").

      1.2  Depositor desires to secure the payment of its liabilities and the
      performance of  its obligations  to Beneficiary  under the  Reinsurance
      Agreement.   Beneficiary  reserves the  right  to require  deposits  to
      secure the payment  of Depositor's liabilities  and performance of  its
      obligations  to  Beneficiary  under   (i)  that  certain  Quota   Share
      Reinsurance Agreement, and (ii) that certain General Agency  Agreement,
      both dated effective April 1, 2003, between Depositor and Beneficiary.

      1.3  Depositor desires to deliver to Custodian "Securities" (as defined
      in Section  4.1 hereof)  to  be held  by  Custodian as  collateral  and
      security for the sole use and benefit of Beneficiary, which  securities
      may hereinafter be referred to as the "Fund."

 SECTION 2.     SECURITY GRANTED BY DEPOSITOR
                -----------------------------

      2.1  Pursuant to  the  terms  hereof, the  Depositor  hereby  obligates
      itself to  deliver to  and deposit  with  the Custodian  securities  in
      accordance with Section  3 hereof as  collateral and  security for  the
      Depositor's obligations to Beneficiary under the Reinsurance  Agreement
      including the  obligations  for  Run-Off Risk,  Credit  Risk,  Unearned
      Premiums Reserves, if  any, and Reserves  For Losses  Incurred But  Not
      Reported  And  Losses Reported  But Unpaid.   The Loss  Reserves  shall
      include  all  allocated  loss   adjustment  expenses  and   appropriate
      unallocated loss adjustment expenses.  For purposes of this  Agreement,
      the following terms shall have the following meanings:

      (a)  "Unearned Premiums" means,  as of  any given  date, the  aggregate
           premium attributable  to  the  unexpired coverage  period  of  all
           insurance policies produced  under the  Reinsurance Agreement,  as
           determined  in  accordance  with  generally  accepted   accounting
           principles consistently applied.  For this purpose, premium  shall
           be the written  premium charged on  the insurance  policy for  the
           period such  policy is  in force  irrespective of  the  subsequent
           billing and collection of such premium.

      (b)  "Loss  Reserves"  means,  as  of  any  given  date,  the   reserve
           attributable to  losses  incurred  but  not  reported  and  losses
           reported but  not  paid with  respect  to the  insurance  policies
           produced  under  the  Reinsurance  Agreement,  and  shall  include
           provision for  both  allocated  and  unallocated  loss  adjustment
           expense,  in  each  instance  as  determined  in  accordance  with
           generally accepted accounting principles consistently applied.

      (c)  The Run-Off Risk is  $1,100,000.  The  calculation of the  Run-Off
           Risk is based  on average  monthly written  premium of  $4,000,000
           (the "Target Premium").   If the  average monthly written  premium
           during any  calendar  quarter is  more  or less  than  the  Target
           Premium, the Run-Off Risk shall be  adjusted on a pro rata  basis.
           The collateralization for  Run-Off Risk  shall be  funded in  four
           equal installments via the security  fund.  The first  installment
           shall be funded as soon as possible or within 10 business days  of
           the  effective  date  of  this Agreement.  The second,  third  and
           fourth installments shall be funded within 10 business days  prior
           to  the  end  of  each  calendar  quarter  thereafter.  Within  10
           business days  following the  end of  each calendar  quarter,  the
           General Agent shall provide a report to the Company and  Reinsurer
           setting forth the actual run off  risk hereunder (in force  policy
           count x $7.20  per month  to policy  expirations =  total run  off
           risk) for that calendar quarter and the Beneficiary and  Depositor
           shall immediately adjust the security fund accordingly.

      (d)  The Credit Risk is $3,000,000.  The calculation of the Credit Risk
           is based on  average monthly  written premium  of $4,000,000  (the
           "Target Premium").  If the average monthly written premium  during
           any calendar quarter is more or less than the Target Premium,  the
           Credit  Risk  shall  be  adjusted   on  a  pro  rata  basis.   The
           collateralization for  Credit  Risk shall  be  funded as  soon  as
           possible or within 10 business days of the effective date of  this
           Agreement.

      (e)  Should the amount of the security fund at the end of any  calendar
           quarter be greater than the amount required in this Section 2, the
           Depositor shall be entitled to reduce  the amount of the  security
           fund to  an amount  not  less than  the  amount required  in  this
           Section 2.   The  Qualified  United States  Financial  Institution
           shall  permit  such   reduction  upon   receipt  by   it  of   the
           Beneficiary's written statement that Depositor is entitled to such
           reduction, which  written  statement  shall  not  be  unreasonably
           withheld by Beneficiary.

           Beneficiary shall  be entitled  at any  time, at  its expense,  to
      engage an independent actuary  to review the  adequacy of the  Unearned
      Premiums and Loss Reserves.  In the event of a dispute or difference of
      opinion between the amount of Unearned  Premiums and Loss Reserves,  as
      determined by the actuary engaged by  Beneficiary, and such amounts  as
      determined by the Depositor or its affiliate, the amounts determined by
      the actuary  engaged  by  Beneficiary  shall  govern  for  purposes  of
      determining the amount  of the securities  to be  deposited under  this
      Agreement.

      2.2  During the term  of this Agreement,  Depositor hereby agrees  that
      Custodian shall act for the benefit  of Beneficiary in taking  delivery
      and possession of the said securities pursuant to Section 3 hereof  and
      in holding such  securities as  collateral for  the purposes  expressed
      herein for  Beneficiary's  benefit,  and  Depositor  hereby  grants  to
      Custodian all  powers  necessary  and  reasonable  in  the  performance
      hereunder.

      2.3  The  existence  of  the  Fund,  as  security  for  obligations  of
      Depositor to  Beneficiary,  shall not  affect  Depositor's  obligations
      under the Reinsurance Agreement, nor shall  the securities of the  Fund
      be used as a set off  by Depositor for any obligations to  Beneficiary,
      except for Depositor's right  to withdraw securities  from the Fund  in
      accordance with Section 3 or to  receive any excess securities held  by
      Beneficiary pursuant to Section 5.5.

 SECTION 3.     DEPOSITS TO AND INVESTMENT OF SECURITY
                --------------------------------------

      3.1  Within 10 business days of the  effective date of this  Agreement,
      and within 10 business days prior  to the end of each calendar  quarter
      thereafter, Beneficiary  shall  provide  Depositor with  a  good  faith
      estimate of the expected sum of Depositor's Run-Off Risk, Credit  Risk,
      Ceded Outstanding Unearned Premium And Loss  Reserves as of the end  of
      the forthcoming calendar quarter (the "Estimate"). The Depositor shall,
      within two business days prior to the commencement of such  forthcoming
      calendar quarter, fund  the security fund  in an  amount equivalent  to
      100% of the Estimate.

      3.2  Should the aggregate market  value of the Fund  at the end of  any
      calendar quarter be greater than the amount required in Section 2,  the
      Depositor shall be entitled to withdraw  such securities from the  Fund
      held in custody so as to reduce the aggregate market value of the  Fund
      to an amount not less than the  amount required in the said Section  2.
      The Custodian shall permit  such withdrawal upon receipt  by it of  the
      Beneficiary's written statement that Depositor is entitled to  withdraw
      the  designated  securities,  which  written  statement  shall  not  be
      unreasonably withheld by Beneficiary.

      3.3  The Depositor shall be entitled at any time to withdraw securities
      from the  Fund  if concurrently  therewith  securities (as  defined  in
      Section 4.1 hereof) of equal or  greater market value are deposited  in
      the Fund, and the Custodian is  authorized to permit such  substitution
      of securities upon receipt of the Beneficiary's written approval, which
      shall not be unreasonably withheld.

      3.4  All securities deposited by  the Depositor (i)  shall be free  and
      clear of all  encumbrances, and (ii)  shall be fully  negotiable or  in
      such form that Custodian  may sell, transfer  or otherwise deposit  the
      same without any additional signature or agreement from Depositor.

 SECTION 4.     SECURITIES
                ----------

      4.1  The term "Securities" as used herein is defined as any combination
      of (a) cash, or deposits held, or certificates of deposit issued by any
      national or state chartered bank or savings and loan association with a
      rating of  B+, or  better, by  Lace Financial  Corporation, (b)  United
      States Government issued or  guaranteed bonds, bills  or notes, or  (c)
      any other bonds with a Standard  & Poor's or Moody's quality rating  of
      "A" or better.   All securities and  assets held in  the Fund shall  be
      readily marketable over a national exchange and shall be listed by  the
      Securities Valuation Office  of the National  Association of  Insurance
      Commissioners with designations of "1-Highest Quality". All  securities
      and assets held in the Fund shall be of the type specified in the Texas
      Insurance Code  Article 5.75-1(d),  any successor  section thereto,  or
      other similar  applicable laws  or regulations.   All  such  securities
      shall be in conformance with  the investment requirements described  in
      Article  2.10  of  the  Insurance  Code  of  Texas,  or  other  similar
      applicable laws or regulations.

      4.2  For purposes of  this Agreement,  the market  value of  securities
      shall be determined  as follows:   (a) at the  time any securities  are
      deposited initially with the Custodian,  and as respects securities  on
      deposit at the end of each calendar month, the Depositor shall in  good
      faith place  a tentative  market value  on  said securities  and  shall
      notify  the  Beneficiary  of  such  valuation  by  supplement  to   the
      Custodian's monthly activities report; (b) if the Beneficiary disagrees
      with such tentative market  valuation, it may  so notify the  Depositor
      within 30  days after  the date  it  receives the  Custodian's  monthly
      activities report and  the Depositor's supplement  thereto; and (c)  in
      the event the parties cannot resolve any difference with respect to the
      market value of  the securities, the  market value of  the security  in
      dispute shall be determined by the  Securities Valuation Office of  the
      National Association of Insurance Commissioners.

 SECTION 5.     BENEFICIARY'S CLAIM ON THE FUND
                -------------------------------

      5.1  The Beneficiary shall have the  right to withdraw securities  from
      the  Fund,  without  diminution  because  of  the  insolvency  of   the
      Beneficiary or  the  Depositor, for  the  purposes and  to  the  extent
      specified in Sections 5.2 and 5.3  below, with written notice from  the
      Beneficiary to the Custodian  given in accordance  with Section 7.1  of
      this Agreement.   Upon  such written  notice  by the  Beneficiary,  the
      Custodian shall  immediately  take  any  and  all  steps  necessary  to
      transfer to the Beneficiary absolute  and unequivocal right, title  and
      interest in the  requested securities  and assets  in the  Fund and  to
      deliver such securities and assets  to the Beneficiary and  Beneficiary
      shall acknowledge to the Custodian receipt of such withdrawn securities
      and assets.   Any dispute between  Depositor and Beneficiary  regarding
      Beneficiary's claim  on  the  Fund shall  be  resolved  by  arbitration
      pursuant to  Section 11.   Custodian  shall  strictly comply  with  its
      instructions hereunder without resorting to interpleader.   Beneficiary
      will hold Custodian harmless if acting upon Beneficiary's  instructions
      hereunder.

      5.2  The Beneficiary may  require reimbursement from  the Fund for  any
      losses or unearned premiums, which the Beneficiary is obligated to  pay
      under the Reinsured Policies if:

      (a)  the Beneficiary  is  legally  required by  order  of  a  court  or
           regulatory  authority  having  jurisdiction,  to  pay  a  loss  or
           unearned premium amount under a Reinsured Policy; or

      (b)  the Beneficiary, although not legally required by order, as above,
           but acting under its non-delegable responsibility with respect  to
           claims for losses or  unearned premiums under Reinsured  Policies,
           pays any  such  claim  in good  faith;  provided  that  notice  of
           payment, along  with  documentation  and  an  explanation  of  the
           circumstances of the payment of the  claim, is first delivered  to
           Depositor and Depositor fails to pay  or reimburse any such  claim
           within 30 days from such notice.

      The term "legally required  by order" as used  in this Agreement  shall
      mean, in the case of a  court, a final unappealable order or  judgment,
      or an order or judgment which in the opinion of counsel for Beneficiary
      should not be appealed.   In the case  of a regulatory authority,  this
      shall mean any directive from a  person in a supervisory or  management
      position in an insurance regulatory agency  which has the authority  to
      initiate disciplinary  action against  the Beneficiary  for failure  to
      follow  such  directive  and  which   directive,  in  the  opinion   of
      Beneficiary's counsel, should not be further contested or appealed.

      The Beneficiary  will  reasonably  inform  Depositor  of  circumstances
      surrounding and preceding any such payment  of claim and shall  consult
      with Depositor.

      5.3  The Beneficiary may withdraw all of the securities of the Fund and
           hold the same under the Reinsurance Agreement if:

           (a)  the commissioner of insurance of any state in which  business
           is produced  under  the  Reinsurance  Agreement  pursuant  to  the
           applicable insurance code  (i) issues  an order  to the  Depositor
           notifying the  Depositor or  its Board  of Directors  that he  has
           determined that the Depositor is operating in a manner that  could
           lead to,  or is  in a  financial condition,  which, if  continued,
           would make it hazardous  to the public,  or its policyholders;  or
           (ii) reports  that there  may be  grounds for  rehabilitation  and
           liquidation under the  applicable insurance code;  or (iii)  gives
           notice of, or issues an order stating that Depositor is  operating
           in a manner which  appears to be detrimental  to the interests  of
           the  policyholders   or  the   general  public;   or  (iv)   files
           allegations, that a condition exists  which would justify a  court
           order for proceedings under the applicable insurance code;

           (b)  a court  having jurisdiction  over  the Depositor  enters  an
           order directing the Commissioner  of Insurance to take  possession
           or control of  the Depositor,  or its  property, business,  books,
           records and accounts; or

           (c)  the Beneficiary has  any other  good reason  to believe  that
           there has  been  a  substantial  deterioration  of  the  financial
           condition of the Depositor.

      5.4  In the  event  the Beneficiary  takes  control of  the  securities
      pursuant to Section 5.3, such securities  shall be held by  Beneficiary
      as an asset for the purpose of securing the Unearned Premiums and  Loss
      Reserves, and otherwise  securing Beneficiary under  the terms of  this
      Agreement, and shall be maintained in an identifiable manner as  "Funds
      Held  By  Beneficiary  Under   the  Quota  Share  Reinsurance   Treaty"
      (hereinafter referred to as "Funds Held.") The Beneficiary may disburse
      amounts from  the Funds  Held for  the payment  of losses  and  refunds
      through the Quota Share Reinsurance Agreement pursuant to the terms  of
      its General  Agency Agreement  with Beneficiary,  or to  any  successor
      appointed  by  the  Beneficiary  to  act as general agent in connection
      with  the  business  subject  to the  Reinsurance Agreement.  Also, the
      Beneficiary may use such Funds Held to reimburse itself for any amounts
      Depositor is obligated under the Reinsurance Agreement, including,  but
      not be limited to, any losses  paid, and unearned premiums refunded  by
      the Beneficiary, and for actual costs of administration incurred by the
      Beneficiary in the event Beneficiary is  required to assume control  of
      the servicing  and  claims handling  of  the business  subject  to  the
      Reinsurance Agreement.

      5.5  An amount equal  to the market  value of the  Funds Held shall  be
      carried by the Beneficiary as a liability under its financial statement
      denominated "Funds Held by Beneficiary Under Reinsurance Treaties," and
      all amounts paid out of such Funds Held by the Beneficiary pursuant  to
      Section  5.4  shall   reduce  the  liability  of  the  Depositor.   Any
      securities in  excess  of  the amount  required  to  pay  or  reimburse
      Beneficiary for  the purposes  described herein  shall be  returned  to
      Depositor, its successor or  legal representative, upon the  conclusion
      of all  further  obligations  of Depositor  to  Beneficiary  under  the
      Reinsurance Agreement.

      5.6  In the  event  the Beneficiary  takes  control of  the  securities
      pursuant to  Section  5.3, the  Depositor  shall remain  obligated  for
      amounts due under the Reinsurance Agreement  and shall be obligated  to
      maintain in the Funds Held by Beneficiary a value at least equal to the
      Unearned Premium and Loss Reserves in accordance with Section 3.1.  The
      Depositor's rights and obligations  to withdraw and deposit  securities
      from the Funds Held shall be the same as when the securities were  held
      in the Fund by the Custodian as provided in Section 3.

 SECTION 6.     INTEREST, DIVIDENDS AND EXPENSES
                --------------------------------

      6.1  Any interest, dividends or other investment income generated  from
      the securities held  by Custodian shall  remain in  the Fund,  subject,
      however, to  Depositor's right  to withdraw  assets  from the  Fund  in
      accordance with Sections 3.2  and 3.3.  Depositor  shall be liable  for
      reporting and paying any income taxes arising therefrom.

      6.2  Also,  Depositor  will  receive  the  benefit  of  the   interest,
      dividends or  other investment  income  generated from  any  securities
      taken and held by the Beneficiary pursuant to Section 5.3.

      6.3  All fees and expenses  charged by the  Custodian for its  services
      under the terms of this Agreement shall be paid by the Depositor.

 SECTION 7.     CUSTODIAN'S AGREEMENT
                ---------------------

      7.1  The Custodian agrees to hold and  disburse the Fund in  accordance
      with  the  provisions  expressed  herein.   Custodian   shall  disburse
      securities to  the Beneficiary  upon receipt  of  a duly  executed  and
      completed Affidavit by Beneficiary in accordance with the form attached
      hereto as Exhibit "A".   Custodian is authorized  and directed by  both
      parties to act  upon such instructions  in compliance herewith  without
      inquiry as to the accuracy of the facts and statements made in any such
      affidavit and  without  regard  to  protest  by  any  party;  provided,
      however, Custodian would not be expected  to act contrary to any  court
      order or any arbitration directive pursuant to Section 11, supported by
      the affidavit of two of the three arbitrators.

      7.2  The Fund  shall be  (i)  in the  possession  of Custodian  at  its
      offices in Memphis, Tennessee,  (ii) kept separate  and apart from  any
      assets of the Custodian and any other securities held by the  Custodian
      for whomever and for whatsoever purpose, (iii) clearly identifiable  as
      securities subject  to  this  Agreement  at  all  times  while  in  the
      possession of the Custodian, and (iv) in such form that the Beneficiary
      or the Custodian upon  the direction of  the Beneficiary may,  whenever
      necessary, negotiate any securities in the Fund, without the consent or
      signature from the Depositor or any other person or entity.

      7.3  The Custodian shall not  deposit any securities  of the Fund  with
      correspondent banks, investment  bankers, brokers or  any other  third-
      party nor  shall such  securities be  pledged  or hypothecated  by  the
      Custodian in  any manner  nor  shall such  securities  be used  by  the
      Custodian in any manner for the benefit of the Custodian.

      7.4  The Custodian shall on request of the Beneficiary, the  Depositor,
      certify in  writing  the  securities held  by  the  Custodian  for  the
      Beneficiary, which certification shall include  the name of the  issuer
      of each security,  the class of  security, the "cusip"  number of  each
      security, the number of shares of  units, and the face amounts of  such
      securities.

      7.5  The Custodian shall  fully and  completely respond  to any  direct
      inquiries of any  duly authorized  insurance regulatory  agency of  any
      state concerning  the  Fund, including,  but  not limited  to  detailed
      inventories of securities or funds, and  the Custodian will permit  the
      representative of any such regulatory agency  to examine and audit  all
      securities or funds held hereunder.

      7.6  The Custodian  agrees  to  provide copies  of  monthly  activities
      reports to  the  Beneficiary and  the  Depositor as  soon  as  possible
      following the end of each month, which reports shall show all deposits,
      withdrawals, substitutions and a listing of  securities in the Fund  as
      of the end of the month.  The Custodian agrees to notify the  Depositor
      and the Beneficiary within 10 days  of any deposits to, or  withdrawals
      from the Fund.

      7.7  The Custodian  hereby waives  any right  of offset  and all  other
      rights and remedies against or affecting the Fund.

      7.8  The Custodian  may at  any time  resign  from, and  terminate  its
      capacity hereunder by written notice of resignation, effective not less
      than 90 days after receipt by  both the Beneficiary and the  Depositor.
      However, no such resignation by the Custodian shall be effective  until
      a successor to the Custodian shall have been duly appointed as provided
      in this Agreement and  all the securities and  assets in the Fund  have
      been duly transferred to such successor.  The Beneficiary, upon receipt
      of such notice, shall undertake to obtain the agreement of a qualified,
      successor depository, agreeable to the Depositor, to act in  accordance
      with all agreements of  the Custodian herein.   A qualified  depository
      shall be any United States financial institution member of the  Federal
      Reserve System.  Depositor agrees not to unreasonably withhold approval
      if the  depository  so chosen  has  capital  and surplus  of  at  least
      $100,000,000.   Upon  the  Custodian's delivery  of  the  Fund  to  the
      qualified, successor depository, along with a closing statement showing
      all activities (as contemplated in Section  7.6) from the last  monthly
      report, the Custodian shall  be discharged of further  responsibilities
      hereunder.

 SECTION 8.     CUSTODIAN'S RESPONSIBILITY
                --------------------------

      8.1  The Custodian shall in no way  be responsible for determining  (a)
      market value or  rating of  the initial  deposit of  securities by  the
      Depositor, (b) market  value or rating  of any securities  as may  from
      time to  time  be substituted  by  the  Depositor, (c)  the  amount  of
      securities required to be deposited by the Depositor, or (d) monitoring
      whether or not the securities conform to investment requirements.

      8.2  The Custodian is not a  party to, and is  not bound by or  charged
      with notice of the Reinsurance Agreement or any other agreement out  of
      which this Agreement may arise.

      8.3  The  Custodian  is  not  responsible  or  liable  in  any   manner
      whatsoever for the sufficiency, correctness, genuineness or validity of
      the subject matter of  this Agreement or any  part thereof, or for  the
      form or execution thereof, for the identity or authority of any  person
      executing or depositing it.

      8.4  The Custodian  shall  be  protected in  acting  upon  any  written
      notice, request,  affidavit,  waiver,  consent,  certificate,  receipt,
      authorization, power of attorney or other  paper or document which  the
      Custodian in good faith believes to be genuine and what purports to  be
      from the Beneficiary or the Depositor.


      8.5  The Custodian  shall  be  indemnified  and  not  held  liable  for
      anything which it may do or refrain from doing in connection  herewith,
      except its own negligence, willful misconduct,  lack of good faith,  or
      breach of fiduciary duty.

      8.6  Notwithstanding anything else  contained herein  to the  contrary,
      the Custodian acknowledges liability for  any certificates lost due  to
      theft or  any  error  or  omission  or  other  comparable  act  of  the
      Custodian, or authorized representative  thereof, and Custodian  agrees
      that it shall maintain fidelity or other insurance coverage  applicable
      to such liability  which shall  be in addition  to the  full faith  and
      credit of the Custodian therefor.

 SECTION 9.     ACCESS TO RECORDS
                -----------------

      9.1  The Beneficiary  and the  Depositor shall  have the  right at  any
      reasonable time to examine all papers in the possession of each  other,
      or with  the  Custodian, applicable  to  this Agreement  and  the  Fund
      deposited and maintained hereunder.

 SECTION 10.    TERMINATION
                -----------

      10.1 This Agreement shall terminate and the Custodian shall release and
      deliver to the Depositor all securities held pursuant to this Agreement
      upon receipt by the Custodian of  written notice from Beneficiary  that
      Depositor's obligations under  the Reinsurance  Agreement for  Unearned
      Premium and Loss Reserves  have been discharged, including  obligations
      for the "run-off" of any business subject to the Reinsurance Agreement.

      10.2 The termination of the  Reinsurance Agreement shall not  terminate
      this Agreement, but Depositor  shall continue to  pay claims under  the
      terms of  the  Reinsurance  Agreement as  if  there  were  no  security
      provided under this Agreement,  subject, however, to Depositor's  right
      to withdraw securities from the Fund  in accordance with Section 3,  or
      to receive  any  excess  securities held  by  Beneficiary  pursuant  to
      Section 5.5.

 SECTION 11.    ARBITRATION
                -----------

      11.1 It  is  agreed   between  Beneficiary  and   Depositor  that   any
      disagreement  between   such   parties  regarding   the   construction,
      application, or implementation  of this Agreement  may be submitted  to
      arbitration  pursuant  to  arbitration  provisions  contained  in   the
      Reinsurance Agreement.  However, questions arising out of Section 3  or
      Section 5 require an expedited resolution pursuant to these provisions.

      11.2 The party  invoking  arbitration  with respect  to  Section  3  or
      Section 5 shall notify  the other party and  shall provide the name  of
      its designated arbitrator at that time.  The second party shall have 15
      days from  receipt of  notice to  designate its  arbitrator, who  shall
      contact  the  first  arbitrator to  select  a  third  arbitrator.  Both
      arbitrators shall use their best efforts  to obtain a third  arbitrator
      within   30   days.   Once   chosen,  the   three  arbitrators   should
      expeditiously resolve  the issues  presented by  the parties.   If  the
      party receiving notice of intent to  arbitrate does not provide  notice
      of its arbitrator within the 15  day period required, such party  shall
      be deemed to have waived its  right to designate the second  arbitrator
      and  the  arbitrator  first  designated  shall  designate  the   second
      arbitrator.  The arbitrators shall be disinterested, active or  retired
      officers of property and casualty insurance companies.  The arbitration
      provisions of the Reinsurance Agreement may be referred to for guidance
      as to matters not specifically provided herein.

      11.3 The Beneficiary and the Depositor agree  to be bound by the  final
      or any interim  findings and directives  of the arbitrators,  including
      the immediate deposit or return of securities or assets to the Fund  if
      so directed.

 SECTION 12.    CONSTRUCTION AND EFFECT
                -----------------------

      12.1 This Agreement  and  all  proceedings  pursuant  hereto  shall  be
      governed by the laws of the State of Texas.

      12.2 This Agreement  shall  be binding  upon  and shall  inure  to  the
      benefit of the parties hereto, their successors and assigns.

      12.3 In the  event of  the  failure of  the  Depositor to  perform  its
      obligations under  the  terms  of this  Agreement  or  the  Reinsurance
      Agreement, the  Depositor, at  the request  of the  Beneficiary,  shall
      submit to the jurisdiction  of any court  of competent jurisdiction  in
      any State  of the  United States,  will  comply with  all  requirements
      necessary to give such court jurisdiction, and will abide by the  final
      decision of such court  or of any  Appellate Court in  the event of  an
      appeal.

      12.4 The Depositor shall designate the State Board of Insurance in  the
      state in which business is produced,  or a designated attorney, as  its
      true and lawful attorney upon whom may be served any lawful process  in
      any action,  suit or  proceeding  instituted by  or  on behalf  of  the
      Beneficiary. This provision, however, is not intended to conflict  with
      or override the obligation of the parties to arbitrate their disputes.

 SECTION 13.    NOTICES
                -------

      13.1 Unless  otherwise  specifically  provided  herein,  every   notice
      required or permitted to be given  under this Agreement shall be  given
      in writing to an officer of the party to whom it is directed by  actual
      delivery to  the address,  or by  telecopy message  to the  number,  as
      follows:

                Depositor:

                American Hallmark Insurance Company of Texas
                14651 Dallas Parkway Suite 900
                Dallas, TX 75240
                Telecopy: 972-788-0520

                Beneficiary:

                State And County Mutual Fire Insurance Company
                8200 Anderson Boulevard
                Fort Worth, Texas 76120
                Telecopy:  (817) 861-1051

                Custodian:

                First Tennessee Bank, National Association
                4385 Poplar Avenue
                Memphis, Tennessee 38117
                Telecopy: (901) 681-2540

                Attn:  Trust Department


           Any party to this  Agreement may change  the address and  telecopy
           number above set out  by giving the other  parties notice of  such
           change in the manner specified for notice in this Agreement.

 SECTION 14.    EFFECTIVE DATE
                --------------

      14.1 This Agreement shall be effective April 1, 2003.

      IN WITNESS  WHEREOF,  the  parties  hereto  by  their  respective  duly
 authorized officers have executed this Agreement.

 STATE AND COUNTY MUTUAL FIRE INSURANCE COMPANY


 By: _________________________________
 Its _________________________________


 AMERICAN HALLMARK INSURANCE COMPANY OF TEXAS

 By: _________________________________
 Its _________________________________


 FIRST TENNESSEE BANK, NATIONAL ASSOCIATION

 By: _________________________________
 Its _________________________________


<PAGE>

                                  EXHIBIT A
                                  ---------

                  CERTIFICATION OF WITHDRAWAL OF SECURITIES
                  -----------------------------------------

      Reference is  made  to  that  certain  Security  Fund  Agreement  dated
 effective _______________, by and among ___________________, ____________ as
 "Depositor," __________________, as "Beneficiary," and First Tennessee Bank,
 National Association, as "Custodian"  (the "Agreement").   Section 5 of  the
 Agreement set forth circumstances under  which the Beneficiary may  withdraw
 securities from  the  Fund.   Beneficiary  hereby  certifies  to  Custodian,
 pursuant to  Section  7 of  the  Agreement,  that the  following  event  has
 occurred which entitles Beneficiary to withdraw securities from the Fund:


      Capitalized terms used herein and not otherwise defined shall have  the
 respective meanings ascribed to such terms in the Agreement.


      Dated:              STATE AND COUNTY MUTUAL FIRE
                          INSURANCE COMPANY

                          By:  _________________________________
                          Its: _________________________________


 THE STATE OF TEXAS  S
                     S
 COUNTY OF TARRANT   S

 I, ______________________, a Notary Public, do  hereby certify that on  this
 the __ day of ________, 200_, personally appeared before me ________________
 ______, who declared that he is _______________ of the corporation executing
 the foregoing instrument,  and being by  me first  duly sworn,  acknowledged
 that he signed the foregoing document in the capacity therein set forth  and
 declared that the statements therein contained are true.

 IN WITNESS WHEREOF, I hereunder set my hand and seal of office, the date and
 year before written.

                                    Notary Public in and
                                    for the State of Texas

                                    My Commission expires: ____________