<PAGE>

                                                                   EXHIBIT 10.39



                            GENERAL AGENCY AGREEMENT


         THIS GENERAL AGENCY AGREEMENT (this "Agreement") is made and entered
into as of January 1, 2005, by and among STATE NATIONAL INSURANCE COMPANY, INC.,
an insurance company organized under the laws of the State of Texas ("Company"),
TOWER INSURANCE COMPANY OF NEW YORK, an insurance company organized under the
laws of the State of New York ("Reinsurer"), and TOWER RISK MANAGEMENT CORP., a
company organized under the laws of the State of New York ("General Agent");

                              W I T N E S S E T H:

         THAT, in consideration of the mutual covenants hereinafter contained
and upon the terms and conditions hereinbelow set forth, the parties hereto
agree as follows:

                                    PREAMBLE

         The Company and HANNOVER REINSURANCE (IRELAND) LIMITED and E+S
REINSURANCE (IRELAND) LIMITED, and TOKIO MILLENNIUM RE LTD. (collectively the
"2005 State National Quota Share Reinsurers") have entered into Quota Share
Reinsurance Agreements dated as of January 1, 2005 (collectively the "2005 State
National Quota Share Reinsurance Agreements"), and the Company, General Agent
and Reinsurer have entered into an Excess of Liability Reinsurance Agreement
dated as of January 1, 2005 (the "2005 Excess of Liability Reinsurance
Agreement"), true and complete copies of which are attached hereto as Exhibits A
and B respectively, and fully incorporated herein by this reference (the 2005
State National Quota Share Reinsurance Agreements and the 2005 Excess of
Liability Reinsurance Agreement shall be referred to collectively as the
"Reinsurance Agreements"), which Reinsurance Agreements require the appointment
of the General Agent to perform certain specified acts on behalf of the Company
and the respective reinsurers as set forth in the Reinsurance Agreements. The
General Agent desires to perform the functions and duties necessary under the
Reinsurance Agreements. It is therefore mutually agreed by the parties that the
General Agent will perform all functions necessary for the production, service
and management of policies issued under the Reinsurance Agreements in accordance
with the terms and conditions set forth therein and herein. To the extent that
there is any conflict between the terms of this Agreement and the Reinsurance
Agreements, the Reinsurance Agreements shall govern. Notwithstanding any
provisions to the contrary contained elsewhere herein or in any other document,
it is expressly understood that the execution and delivery of this Agreement and
the Company's performance hereunder shall not under any circumstances be
interpreted to affect, weaken or modify the Reinsurer's obligation to indemnify
and hold the Company harmless from and against the business, credit and
insurance risks as set forth in the 2005 Excess of Liability Reinsurance
Agreement. The contractual assumption by the Reinsurer of these risks in the
2005 Excess of Liability Reinsurance Agreement is a condition precedent to the
Company's entering into this Agreement with the General Agent.

                                    ARTICLE I
                             APPOINTMENT AND DUTIES

1.01 The Company, at the direction of the Reinsurer, hereby appoints the General
Agent as its managing general agent for the purpose of producing and handling
the business, which is the subject of the Reinsurance Agreements, issued or
renewed on or after the effective date of this Agreement. The Company, at the
request of the Reinsurer, hereby grants authority to the General Agent to
solicit, accept and receive applications for such classes of coverage as are
specified in the Reinsurance Agreements; to secure, at its own expense,
reasonable underwriting information through reporting agencies or other
appropriate sources relating to each risk insured; to issue, renew and
countersign policies, certificates, endorsements and binders which the Company
may, from time to time, authorize to be issued, delivered, renewed and
countersigned; and to collect and receipt for the premiums thereon and therefor.



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1.02 All activities of the General Agent pursuant to this Agreement shall be in
strict compliance with the terms of the Reinsurance Agreements and all rules,
regulations and instructions of the Company, including, but not limited to, all
rules, instructions and specifications included in the Company's rate manuals,
rate brochures and rate schedules.

1.03 The Company, at the Reinsurer's request, further authorizes the General
Agent to perform all acts and duties under policies of insurance issued by the
Company as would otherwise be performed by the Company, including, but not
limited to, properly sending and/or receiving reports and notices and remitting
and/or receiving monies due from or to the Company, and adjusting and paying
losses or other claims. The Company grants to the General Agent the authority to
settle claims on behalf of the Company. However, the maximum dollar amount of
such authority per claim shall not exceed $100,000. For claims settlement in
excess of $100,000, the General Agent may only settle such claims with prior
approval of the Company and the 2005 State National Quota Share Reinsurers. The
Company retains final authority to determine any disputes relating to claims
settlement and setting of loss reserves. In performing each of the acts
mentioned above, the General Agent shall be under the direct supervision and
control of the Reinsurer, and the Reinsurer shall be solely responsible for the
acts of the General Agent. While there are acts of the General Agent which may
be required by applicable law to be performed on behalf of the Company, the
Reinsurer shall remain ultimately responsible for such acts and will indemnify
and hold the Company completely harmless for any damage, cost, liability,
expense and/or loss (including attorneys' fees and expenses) incurred by the
Company as respects such acts of the General Agent. The General Agent must send
to the Company a report, as soon as it becomes known, that a claim (i) involves
a coverage dispute; (ii) involves a demand in excess of policy limits; (iii)
alleges bad faith; (iv) exceeds General Agent's claims settlement authority; (v)
is open for more than six months; or (vi) alleges a violation of any applicable
unfair practices and unfair competition statutes. The Company may suspend or
terminate the settlement authority of the General Agent during the pendency of
any dispute regarding any event of default by the General Agent.

1.04 Claims handling shall be accomplished by the General Agent through its
designated representative ("Claims Administrator"), which designation is subject
to the Company's and Reinsurer's continuing approval. The agreement between the
General Agent and the Claims Administrator shall be subject to the approval of
the Reinsurer and the Company and shall not be inconsistent with the terms and
conditions of this Agreement. Payment to the Claims Administrator shall be made
by the General Agent, on behalf of the Company, directly to the Claims
Administrator. The Claims Administrator shall accept notice of and investigate
any claim arising under any of the Policies, and pay, adjust, settle, resist, or
compromise any such claim, unless the Company specifically directs to the
contrary with respect to any individual claim. All such loss settlements,
whether under strict policy conditions or by way of compromise, shall be
unconditionally binding upon the Company and the Reinsurer. However, should the
Company be ordered or instructed by the Texas Department of Insurance or any
other regulatory agency of competent jurisdiction to take any action or refrain
from taking any action with regard to any claim, the Reinsurer and the General
Agent shall be bound by and shall follow the order or instructions of such
regulatory agency as though the General Agent were the object of such order or
instruction. The General Agent will exercise the authority granted hereunder in
good faith and toward the end of paying any and all valid claims. The General
Agent is authorized to have claims adjusted through independent claims
adjusters, subject to the supervision of the Reinsurer. The selection of
independent claims adjusters shall be subject to prior written approval of the
Reinsurer and Company. Such independent claims adjusters are not the agents of
the Company and the Company shall be held harmless and indemnified by the
Reinsurer for any liability, claim, demand, expense and/or cost of whatever kind
or character as a result of, related to or connected with any action or inaction
of such claims adjusters.


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1.05 The Company shall not be responsible for the General Agent's expenses and
costs, including, but not limited to, salaries, bonuses, rentals, transportation
facilities, clerk hire, solicitors' fees, postage, advertising, exchange,
personal license fees, adjustment by the General Agent of losses under policies
issued by the General Agent, or any other agency expenses whatsoever. The
General Agent's sole compensation shall be the amounts payable to the General
Agent in Article III of this Agreement.

1.06 The General Agent understands and agrees that it has no power or authority
granted to it by the Company independent of this Agreement and the 2005 Excess
of Liability Reinsurance Agreement, and that this Agreement and the General
Agent's authority hereunder shall cease immediately upon the termination, for
any reason, of this Agreement or any of the Reinsurance Agreements (excepting
only the General Agent's responsibilities with regard to run-off and other
matters as set forth herein or in the Reinsurance Agreements).

1.07 The General Agent shall not have the power to accept or bind risk other
than as set forth herein, as set forth in the 2005 Excess of Liability
Reinsurance Agreement or as may be subsequently authorized by the Company and
Reinsurer in writing. The General Agent may not bind or cede reinsurance or
retrocession on behalf of the Company, may not commit the Company to
participation in insurance or reinsurance syndicates, and may not commit the
Company to a claim settlement with a reinsurer without the prior written
approval of the Company. If such prior written approval is given, the General
Agent shall forward promptly a report to the Company concerning such transaction
and/or payment. The Company hereby authorizes the General Agent to collect
payments for losses and loss adjustment expenses from a reinsurer. The General
Agent shall send a report to the Company concerning such transactions promptly.

1.08 The General Agent acknowledges that, with respect to any state in which
business is permitted to be written under the Reinsurance Agreements, this
Agreement shall not become effective until the General Agent is first duly
appointed by the Company with the applicable regulatory authority. The General
Agent agrees that any producing agent receiving commission pursuant to this
Agreement shall first be duly registered by the Company and said appointment on
file with any applicable state insurance department. The General Agent further
agrees to be responsible for the payment of any penalty assessed to the Company
for any violation by the General Agent or any producing agent or broker
registered by the General Agent pursuant to the provisions of Article IV hereof
of any license or appointment provision of the Texas Insurance Code, or other
applicable state statutes, and the rules and regulations promulgated thereunder.
If the General Agent fails to pay such penalty, the Reinsurer shall in
accordance with the 2005 Excess of Liability Reinsurance Agreement pay it
immediately upon written notification by the Company of the General Agent's
failure to pay such penalty.

1.09 It is understood that the Reinsurer has acknowledged that the Company shall
not be required to monitor the General Agent's compliance with the terms of
either the Reinsurance Agreements or this Agreement and the Reinsurer shall be
responsible for monitoring the General Agent's compliance with the Reinsurance
Agreements and this Agreement.


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1.10 The authority and limitations of the General Agent to issue policies are as
follows:

         (a) the maximum annual premium volume the General Agent may produce
         under this Agreement is $50,000,000 (fifty million dollars);

         (b) the basis of the rates charged are as provided in the Company's
         rate manuals, rate brochures and rate schedules which the General Agent
         shall follow, and the General Agent shall not decrease rates or
         increase discounts without the prior approval of the Company and
         Reinsurer;

         (c) the only classes of business the General Agent is authorized to
         produce and handle under this Agreement are the classes of business
         specified in the Reinsurance Agreements;

         (d) the General Agent may issue policies under this Agreement only to
         insured residents in the states in which business is permitted to be
         produced under the Reinsurance Agreements; but this limitation shall
         not apply to losses if said policies provide coverage outside the
         aforesaid territorial limit;

         (e) the General Agent shall only cancel policies as set forth in the
         policy form for the policies produced hereunder or as otherwise
         permitted by applicable law;

         (f) the maximum term for any policy issued hereunder shall be twelve
         (12) months;

         (g) the General Agent shall employ all reasonable and appropriate
         measures to control and keep a record of the issuance of the Company's
         insurance policies hereunder, including, but not limited to, keeping
         records of policy numbers issued and maintaining policy inventories;

         (h) the excluded risks are those set forth in the 2005 State National
         Quota Share Reinsurance Agreements.

         (i) the maximum limits of liability for policies to be produced are as
         follows:

            1.    General Liability - $1,000,000 (one million dollars) per
                  occurrence; $2,000,000 (two million dollars) aggregate;

            2.    Automobile Liability - $1,000,000 (one million dollars)
                  combined single limit or $1,000,000 (one million
                  dollars)/$1,000,000 (one million dollars) split limit;

            3.    Property - $10,000,000 (ten million dollars) per risk

            The above limits apply to all segments for General Liability. These
            limits also apply to the Small Market and Middle Market for Property
            and Automobile policies only.

In underwriting policies, the General Agent shall follow the underwriting
guidelines developed by the General Agent, the Reinsurer and the Company, and
these guidelines are herein incorporated by reference.


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                                   ARTICLE II
                                    PREMIUMS

2.01 It is expressly agreed and understood that all premiums collected by the
General Agent are collected on behalf of the Company; that such premiums are the
property of the Company, the 2005 State National Quota Share Reinsurers and the
Reinsurer as their respective interests may appear pursuant to the Reinsurance
Agreements, less such commissions and fees as are due the General Agent as
specified herein. All premiums on policies issued hereunder shall be collected
within seventy-five (75) days of the effective date of the policy or the General
Agent shall cancel such policy. All premiums collected by the General Agent on
the business produced under the Reinsurance Agreements shall be held in trust by
the General Agent in a fiduciary capacity on behalf of the Company and shall be
deposited immediately in a segregated trust account that is maintained separate
and apart from all other bank accounts of the General Agent and which reflects
the ownership of the account by the Company (the "Operating Fund"). The General
Agent shall not commingle any funds deposited in the Operating Fund with its
general assets. The General Agent shall have no legal or beneficial right, title
or interest in the Operating Fund. The General Agent is responsible for full
compliance with all applicable laws, regulations, rules and requirements
regarding fiduciary trust accounts.

         (a) All premiums collected by the General Agent shall be deposited
         immediately in the Operating Fund. The only disbursements from the
         Operating Fund shall be the payment of claims, claims expenses, return
         premiums, commission due the General Agent as authorized herein, Ceding
         Fee (as defined in Article 3.02 of this Agreement) due the Company and
         remittances in accordance with Article 12, Accounts, Remittances and
         Loss Settlements of the 2005 State National Quota Share Reinsurance
         Agreements. Within ten (10) days after the end of each month, the
         General Agent will furnish an accounting of the cash transactions
         reported in the Operating Fund. Such accounting will include: (i) a
         summary of premiums, net of cancellations and returns, deposited in the
         account; (ii) losses and loss adjustment expenses paid, net of any
         salvage and subrogation; (iii) commissions paid or received; (iv)
         interest or other investment income received; (v) any bank charges
         deducted; (vi) Ceding Fees and premium taxes paid; (vii) detail of all
         such other amounts that increased or decreased the reported cash
         balance in a level of detail sufficient to enable the Company to meet
         its Statutory financial reporting requirements; and (viii) copies of
         bank statements and of the reconciliation of same to the reported
         financial amounts.

         (b) The General Agent, via an investment manager, shall have the power
         to direct the investment of the funds held in the Operating Fund. The
         General Agent shall satisfy any financial obligation of the Company to
         the 2005 State National Quota Share Reinsurers by remitting funds
         deposited in the Operating Fund to such 2005 State National Quota Share
         Reinsurers. In addition, any interest earned on funds deposited in the
         Operating Fund shall inure to the benefit of the General Agent. The
         Operating Fund shall be established so that the Company will receive on
         a monthly basis a detailed report on all investment transactions,
         copied on all executed trade tickets, and receive monthly account
         reporting directly from the Custodian so that all disbursements and
         transactions can be reconciled.

         (c) The bank costs incurred for the Operating Fund shall be deducted
         from interest income earned on the Operating Fund balance. The General
         Agent shall be responsible for any bank costs that exceed the interest
         income earned on the Operating Fund.

The General Agent shall not make personal use of any funds in this account. The
commissions payable to the General Agent are debts due to the General Agent by
the Reinsurer and the privilege herein granted of deducting commissions from
said premiums should not be taken as a waiver by the Company of its exclusive
ownership rights of premiums as provided herein. Should any dispute arise
between the Company, the Reinsurer and/or the General Agent regarding payment of
premium, the General Agent shall remit immediately all money and property,
without deductions for commissions, to the Operating Fund with full reservation
of any and all rights reserved by the parties.

2.02 The General Agent shall furnish to the Company and the Reinsurer all
necessary premium and loss data (in a form acceptable to the Reinsurer and the
Company) no later than thirty (30) days following the end of the month during
which the business is written or losses are incurred to enable the Company to
record statistics required by statutes, regulation or upon call by authorities
having competent jurisdiction. Such data shall include, but is not limited to,
premiums written and unearned premium. Said data shall be segregated by lines of
insurance and location of risk.


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2.03 The keeping of an account with the General Agent on the Company's books as
a creditor and debtor account is declared a record memorandum of business
transacted and neither such keeping of an account, nor alteration in commission
rate, nor failure to enforce prompt remittance or compromise or settlement or
declaration of balance of account, shall be held to waive assertion of the trust
relation as to premiums collected by the General Agent.

2.04 The General Agent shall be liable for the payment of all premiums upon all
policies of insurance written through the General Agent or any sub-agents of the
General Agent.

2.05 The General Agent shall remit to the Reinsurer, or Company as applicable,
any funds of or due to the Company under this Agreement at the earlier of the
following: (1) forty-five (45) days from the end of the month in which premium
is recorded; or (2) forty-five (45) days from the end of the month in which the
coverage under this Agreement became effective.

2.06 The General Agent shall hold all funds of or due the Company in a fiduciary
capacity.

                                   ARTICLE III
                        COMPENSATION TO THE GENERAL AGENT

3.01 In partial consideration for the services rendered hereunder and under the
Reinsurance Agreements, the General Agent is entitled to the commission payable
by the Reinsurer as specified herein. In addition, the Company shall allow the
General Agent a provisional commission as specified in Article 10, Section A and
B of the 2005 State National Quota Share Reinsurance Agreements less 2.0% (two
point zero percent) on all subject collected net written premiums, as defined in
the 2005 State National Quota Share Reinsurance Agreements with such amounts to
be paid to the General Agent on all subject collected net written premiums
produced under this Agreement. The Company shall not pay the General Agent any
commission amounts in respect of net written premiums which are not received by
the Company. The General Agent shall assume the credit risk associated with the
underlying insureds and shall pay to the Company a Ceding Fee in respect of the
net written premiums whether collected or not by the General Agent.

3.02 The General Agent shall pay direct to the Company 6.0% (six point zero
percent) of all net written premiums produced under this agreement ("Ceding
Fee"), and to the 2005 State National Quota Share Reinsurers and 2005 Excess of
Liability Reinsurer their premiums, as specified in the respective Reinsurance
Agreements, and the amounts for assignments, assessments, premium taxes, fines
and penalties as specified in such Reinsurance Agreements. This above Ceding Fee
due the Company shall not be reduced by any payments due by the General Agent to
third parties except for return net written premiums. The General Agent shall
allow the Company to return commission on return net written premiums and policy
fees at the same rates as received by the General Agent.

3.03 The General Agent's commission on premiums ceded to the various Reinsurers
is subject to adjustment as specified in Article 10, Section A. and B. of the
2005 State National Quota Share Reinsurance Agreements less 2.0% (two point zero
percent).

3.04 The Company shall not be liable for or responsible for any commissions or
other monies payable by the 2005 State National Quota Share Reinsurers to the
General Agent. The General Agent shall not sue or seek arbitration against the
Company for any actions by, or debts owing from, the 2005 State National Quota
Share Reinsurers.


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3.05 In the event the Company or the 2005 State National Quota Share Reinsurers,
during the continuance of this Agreement or after its termination, refunds
premiums under any policy of insurance by reasons of cancellation or otherwise,
the General Agent agrees immediately to return to the Company or the 2005 State
National Quota Share Reinsurers, as applicable, the commission previously
received by it on the portion of the premium refunded. The General Agent shall
not be required to return, as commission or return commission, monies greater
than the total commission paid or otherwise payable to the General Agent.

                                   ARTICLE IV
                                   SUB-AGENTS

4.01 The General Agent shall comply with, and shall be responsible to insure the
compliance by, all such producing agents with the terms of this Agreement and
the Reinsurance Agreements and all other written rules and regulations of the
Company, and treat as confidential and use only in the interest of the Company
all instructions, information and materials received from the Company.

4.02 The General Agent shall be solely responsible for the performances of any
producing agents under all of the terms and provisions hereof, including, but
not limited to, the collections of premiums and refunds of premiums.

4.03 Each such producing agent must be registered or appointed, as required, as
an agent of the Company through the appropriate regulatory body before any
application shall be accepted from him or other insurance performances on behalf
of the Company are performed. The General Agent shall be ultimately responsible
for the obligation of the producing agent to obtain an appointment as provided
herein.

4.04 It is also specified that the General Agent shall be responsible for all
commissions payable to any producing agents. The General Agent and any producing
agent shall not seek to hold the Company or Reinsurer liable through litigation,
arbitration or otherwise for commissions payable to such producing agents.

4.05 The Company, in its sole discretion with or without cause, and without
prior written notice, may terminate the appointment of any producing agent.

4.06 The General Agent shall not permit its subagents or subproducers to serve
on its Board of Directors.

4.07 The General Agent shall not appoint sub-managing general agents.

4.08 The General Agent shall not employ an individual who is employed with the
Company.


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                                    ARTICLE V
                           ADDITIONAL DUTIES OF AGENT

5.01 The General Agent shall, at all times during the period of this Agreement,
comply with all applicable laws and all orders, policy decisions or other
requirements of the Texas Department of Insurance or other applicable state
insurance department.

5.02 All books, records, accounts, documents and correspondence of the General
Agent and any producing agent pertaining to the Company's and Reinsurer's
business shall, at all times, be open to examination by any authorized
representative of the Company, Reinsurer or any of the 2005 State National Quota
Share Reinsurers. The General Agent shall make copies of records available upon
request by the Company or Reinsurer any of the 2005 State National Quota Share
Reinsurers, whether such request is before or after termination of this
Agreement or the Reinsurance Agreements. The General Agent must maintain
separate records of business, including, but not limited to, underwriting files
for each insurer for whom it acts as a general agent. Such records must be
maintained for five (5) years or until the completion of a financial examination
by the insurance department of the state in which the Company is domiciled,
whichever is longer.

5.03 The General Agent shall maintain adequate accounting procedures and
systems, at no cost or expense to the Company, and shall provide statistics in a
timely manner for all reporting requirements under the Reinsurance Agreements or
as shall be required from time to time by the regulatory authorities of the
State of Texas or any other applicable governmental agency or authority. Such
statistical information shall be provided to the Company by the General Agent at
the General Agent's sole cost and expense.

5.04 The General Agent shall forward to the Company, no later than the 30th day
of the month following the month being accounted for, a report in detail of all
policies of insurance written or placed, or liability increased or decreased, or
policies continued or renewed or canceled by or through the General Agent during
the month being accounted for, which shall include all premiums due thereon
whether collected or not. Such report shall show the net amount due to the
Company and Reinsurer on all such business on the lines of business authorized
to be written by the General Agent and the amounts paid in losses, loss
adjustment expenses and commissions. Such report shall also include, to the
extent not already included, both insurance and reinsurance transactions,
including:

         (i)    statement of written, earned and unearned premiums;

         (ii)   losses and loss expenses outstanding;

         (iii)  losses incurred but not reported; and

         (iv)   any management fees.

The report shall be received by or confirmed to the Company no later than thirty
(30) days from the close of the month for which business is reported. The
Company shall maintain such account reports on file for at least five (5) years
and shall make the account reports available to the Commissioner of Insurance of
the State of Texas (the "Commissioner"), or other applicable state department of
insurance, for review upon request.

5.05 The General Agent shall account for and furnish to the Company, upon
request with reasonable notice, complete copies of all policies issued, copies
of all spoiled, voided or otherwise unissued policies, and copies of all claim
files created with respect to all loss occurrences under any policy issued under
this Agreement.


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5.06 The title of all undelivered policies, books, supplies, or other property
related to the reinsured business is in the Company, and these shall be
delivered to the Company by the General Agent immediately upon the termination
of this Agreement. The General Agent agrees to surrender peaceably the same
without compelling the Company to resort to any legal proceedings whatsoever.

5.07 The General Agent shall not insert any advertisement respecting the Company
in any publication or issue any circular or paper referring to the Company
without first obtaining the written consent of the Company. The General Agent
shall comply with all statutes and regulations pertaining to advertising, and
establish and maintain records of any such advertising as required by the
applicable laws of the states in which it is doing business.

5.08 The General Agent shall maintain on behalf of the Company and Reinsurer
complete copies of all policies issued hereunder and copies of all claim files
created with respect to all loss occurrences thereunder. Any or all policies
and/or claim files required to be maintained by General Agent pursuant to this
Section 5.08 may be maintained in electronic data storage form accessible by
computer and if so stored in this fashion, no physical copy of such items need
be maintained. Where electronic claims files are maintained by the General
Agent, any data from such files requested or required by the Company shall be
provided within thirty (30) days or less if so requested by the Company.

5.09 The General Agent shall pay to the account specified in Section 2.01 hereof
the positive balance, if any, no later than forty-five (45) days following the
end of the month during which the business was written net collected premiums
hereunder (being defined as premiums collected less return premiums) less the
General Agent's commissions and less loss adjustment expenses and loss payments.
Should such balance be a negative amount, the Reinsurer shall promptly pay the
General Agent upon receipt and verification of the amount due as reported by the
General Agent.

5.10 The General Agent shall be solely responsible for procuring any renewal,
extension, or new policy of insurance that may be required by any state or rule
or regulation of any state insurance department with respect to policies
originally written directly for the Company. The General Agent and Reinsurer, in
accordance with the Reinsurance Agreements, shall indemnify the Company and hold
it harmless from any loss, damage, cost, claim or expense whatsoever that the
Company may incur, or for which it may become liable, as a result of the said
General Agent's failure, refusal or neglect to fulfill said responsibility.

5.11 The General Agent agrees that its duties and obligations under this
Agreement shall be due and owing also to the Company's and Reinsurer's
successors and assigns.

5.12 Nothing in this Article V shall be construed as requiring the Company to
monitor the book of business which is the subject of the Reinsurance Agreements
for the benefit of the Reinsurer.

5.13 The Company shall conduct or cause to be conducted a semi-annual
examination of the General Agent, in accordance with the Company's audit
guidelines. Furthermore, if the Company's aggregate premium volume increases by
thirty (30) percent in any thirty (30) day period, the Reinsurer at no expense
to the Company, and on behalf of the Company, shall examine or cause to be
examined within ninety (90) days the General Agent if it writes more than twenty
(20) percent of the Company's volume and has also experienced a twenty (20)
percent increase in premium volume during that same thirty (30) day period.


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The examinations required under the preceding paragraph shall adequately provide
the Commissioner with the information outlined in (a) through (e) below, shall
be made available to the Commissioner for review, shall remain on file with the
Company for a minimum of three (3) years and shall, at a minimum, contain
information concerning the following:

         (a)   claims procedures of the General Agent;

         (b)   timeliness of claims payments by the General Agent (i.e., lag
               time between date claim is reported and date claim is paid);

         (c)   timeliness of premium reporting and collection by the General
               Agent;

         (d)   compliance by the General Agent with underwriting guidelines
               under Section 1.10 hereof; and

         (e)   reconciliation of policy inventory.

5.14 The General Agent shall return any unearned premium due insureds or other
persons on the business which is the subject of the Reinsurance Agreements; if
for any reason, the General Agent does not return such unearned premium, then
the Reinsurer shall pay such amount and/or amounts.

5.15 The General Agent shall be duly licensed as a managing general agent or as
otherwise required under applicable law to perform its duties hereunder.

5.16 Should any state insurance department make a request to the Company for any
data required to comply with a statistical data call, the General Agent shall be
solely responsible to provide the Company with such data. Should the request
from such state insurance department require the Company to contract the
services of an outside source, such as an actuarial firm, to compile the data
required, the General Agent shall be responsible for its proportionate share of
the total cost for services rendered.

5.17 General Agent, when placing business under this Agreement, may not charge a
per-policy fee in excess any fees allowed by the applicable insurance regulatory
authority.

5.18 The General Agent shall provide Company, at General Agent's expense, an
independent financial examination in a form acceptable to the applicable state
departments of insurance, or other regulatory body, if required.

5.19 The General Agent shall provide annually to Company, at General Agent's
expense, an independent actuary opinion attesting to the adequacy of loss
reserves established for losses incurred and outstanding on business produced
hereunder if General Agent establishes total loss reserves including IBNR, if
required by the applicable insurance regulatory authority.

5.20 The General Agent acknowledges receipt of the Company's Statistical
Reporting Policy and Procedure Manual, and will act in accordance therewith. The
General Agent will act, at its sole cost and expense, on behalf of the Company
to produce, prepare, and file statistical information with the designated
statistical reporting bureau. The General Agent will also furnish the Company,
and other parties as designated by the Company, with monthly, quarterly and
annual reports showing statistical data in respect of the business written as
required.


                                       10
<PAGE>


5.21 Company will provide to the General Agent the percentage of written premium
to remit directly to Company on a monthly basis for bureau fees related to
statistical reporting, and boards and bureaus participation ("Bureau Fees"). In
addition to the Bureau Fees, should the Company be charged any fines or
penalties for incomplete, inaccurate, or delinquent reporting, the General Agent
shall pay such fines or penalties immediately upon written notice. The General
Agent will remit Bureau Fees as designated by the Company until notified of any
necessary adjustments to the amount of the Bureau Fees. Should the General Agent
fail to remit any amounts due to Company under this Section 5.21, then the
Reinsurer shall pay such amounts within 60 days written notice from the Company.
The initial Bureau Fees shall be .25% of written premium. The Bureau Fees are in
addition to other fees and expenses expressly enumerated herein.

5.22 General Agent shall at all times during the term of this Agreement maintain
Errors and Omissions insurance coverage in an amount not less than $2,000,000
(two million dollars) per occurrence and $2,000,000 (two million dollars) annual
aggregate. General Agent shall provide the Company and the 2005 State National
Quota Share Reinsurers with evidence of such coverage prior to execution of this
Agreement. General Agent shall provide the Company and the 2005 State National
Quota Share Reinsurers with written notice of any change to, or amendment of,
such insurance coverage or any receipt by General Agent of any notice of
cancellation of such insurance coverage within ten (10) calendar days of any
such change, amendment or its receipt of notice of cancellation.

                                   ARTICLE VI
                              TERM AND TERMINATION

6.01 The effective date of this Agency Agreement is 12:01 a.m., Eastern Standard
Time, on January 1, 2005, and shall remain continuously in force unless canceled
as follows:

         (a)      This Agreement may be canceled by either party by giving at
                  least ninety (90) days prior written notice to the other
                  party. Notice shall be provided by registered mail, return
                  receipt requested, and notice shall be deemed to have been
                  provided on the date of mailing.

         (b)      Immediately by mutual consent of the Company and General
                  Agent.

         (c)      At any time, by the Company, without prior notice in the event
                  of the General Agent declaring bankruptcy or being declared or
                  found bankrupt or insolvent, or being the subject of a cease
                  and desist order, corrective order, or being placed in, or
                  subject to, a proceeding of supervision, conservation,
                  rehabilitation or liquidation.

         (d)      Immediately upon written notice by the Company in the event of
                  the cancellation or non-renewal of the General Agent's
                  license, as it relates to the business produced in that state,
                  by the New York Department of Insurance or other applicable
                  state insurance department.

         (e)      Immediately upon written notice by the General Agent in the
                  event any action against the Company is commenced by Texas
                  Department of Insurance or other applicable state insurance
                  department pursuant to rehabilitation or liquidation. The
                  Company agrees to furnish notice of such action immediately to
                  the General Agent.

         (f)      If the General Agent shall fail to make any remittances due
                  from the Company to any of the 2005 State National Quota Share
                  Reinsurers in accordance with Article 12, Accounts,
                  Remittances and Loss Settlements of the 2005 State National
                  Quota Share Reinsurance Agreements, then the Company may at
                  its sole discretion cancel this contract by giving the General
                  Agent written notice of cancellation served personally or by
                  mail, which shall be effective immediately.


                                       11
<PAGE>


         (g)      If the General Agent shall defraud or attempt to defraud the
                  Company; or any policyholder, then the Company may at its sole
                  discretion cancel this contract by giving the General Agent
                  written notice of cancellation served personally or by mail,
                  which shall be effective immediately.

         (h)      As provided in Section 8.11 of this Agreement.

         (i)      Automatically and immediately, without notice, upon the
                  cancellation or termination of the 2005 State National Quota
                  Share Reinsurance Agreements, including any special
                  termination invoked by any of the 2005 State National Quota
                  Share Reinsurers pursuant to Article 14, Special Termination
                  of the 2005 State National Quota Share Reinsurance Agreements.

         (j)      If the Reinsurer's A.M. Best rating drops below a "B+" then
                  the Company may at its sole discretion cancel this contract by
                  giving the General Agent written notice of cancellation served
                  personally or by mail, which shall be effective immediately.

         (k)      In the event of a reduction of more than 20% (twenty percent)
                  of the Reinsurer's statutory surplus from the Reinsurer's
                  Statutory Surplus Level at December 31, 2004 then the Company
                  may at its sole discretion cancel this contract by giving the
                  General Agent written notice of cancellation served personally
                  or by mail, which shall be effective immediately.

         (l)      If there is a change in the office of President or CEO of the
                  Reinsurer then the Company may at its sole discretion cancel
                  this contract by giving the General Agent written notice of
                  cancellation served personally or by mail, which shall be
                  effective immediately.

         (m)      In the event of the Insolvency, Rehabilitation, or Regulatory
                  Supervision of the Reinsurer then the Company may at its sole
                  discretion cancel this contract by giving the General Agent
                  written notice of cancellation served personally or by mail,
                  which shall be effective immediately.

         (n)      If the Reinsurer ceases underwriting new property and casualty
                  business then the Company may at its sole discretion cancel
                  this contract by giving the General Agent written notice of
                  cancellation served personally or by mail, which shall be
                  effective immediately.

         (o)      If the Reinsurer sells 50% or more of its assets or reinsures
                  50% or more of its Net Written Premium or net liabilities (all
                  as of January 1, 2005) to an unaffiliated third party then the
                  Company may at its sole discretion cancel this contract by
                  giving the General Agent written notice of cancellation served
                  personally or by mail, which shall be effective immediately.

         (p)      If an insurance regulatory authority or governmental entity in
                  any United States jurisdiction revokes, suspends or forces the
                  Reinsurer to withdraw its certificate of authority in such
                  jurisdiction then the Company may at its sole discretion
                  cancel this contract by giving the General Agent written
                  notice of cancellation served personally or by mail, which
                  shall be effective immediately.

6.02 This Agreement shall automatically become renewed from year to year upon
the renewal of the license or certificate of authority granted to the Company by
the New York Department of Insurance and other applicable state insurance
department, provided this Agreement shall not be otherwise canceled.


                                       12
<PAGE>

6.03 It is expressly agreed and understood that nothing in this Article VI
authorizes the General Agent to write any new business under this Agreement
should the 2005 State National Quota Share Reinsurance Agreements terminate,
except the business that is required to be renewed or issued because of
applicable law or regulation, as provided in Article 3, A. of the 2005 State
National Quota Share Reinsurance Agreements. The General Agent also agrees, that
upon termination of the 2005 State National Quota Share Reinsurance Agreements,
to terminate and/or non-renew, as soon as allowable under the applicable law
and/or regulation, all business written under this Agreement.

6.04 The Company shall have no liability to the General Agent by virtue of the
Company's termination of this Agreement as set forth in this Article; it being
expressly understood that partial consideration for the Company's grant of
agency authority to the General Agent is the General Agent's promise that the
Company shall not be responsible for any damages which might arise by virtue of
any termination of this Agreement.

6.05 In the event of termination of this Agreement, after the General Agent
having promptly accounted for and paid over premiums for which it may be liable,
the General Agent's records, use and control of expirations shall remain the
property of the General Agent and left in its undisputed possession.

6.06 In the event that this Agreement is terminated, the General Agent, for no
additional fee, shall have the authority (unless revoked by the Company at its
sole discretion in which case the Reinsurer shall appoint a successor at no cost
to the Company) as provided in this Agreement to continue to perform all of its
duties under this Agreement on the remaining policies during the run-off period.
The General Agent's duties during the run-off period shall include handling and
servicing of all policies through their natural expiration, together with any
policy renewals required to be made by the provisions of applicable law, whether
or not the effective date of such renewal is subsequent to the effective date of
cancellation of this Agreement. Further, upon termination of this Agreement, the
General Agent shall not be relieved of or released from any obligation created
by or under this Agreement in relation to payment, expenses, reports, accounting
or handling, which relate to the outstanding insurance business under this
Agreement existing on the date of such termination. The Company and the General
Agent will cooperate in handling all such business until the business has
expired either by cancellation or by the terms of the policies and all
outstanding losses and loss adjustment expenses have been settled.

6.07 As the 2005 Excess of Liability Reinsurance Agreement provides for
termination on a run-off basis, the relevant provisions of this Agreement shall
apply to business being run-off. It is also expressly agreed that the terms,
conditions and obligations of the Preamble and Articles II, IV and V, Sections
6.04, 6.05, 6.06, 6.07 and 6.08, Article VII, Section 8.11 and Article IX herein
shall survive termination of this Agreement.

6.08 The Company may suspend the authority of the General Agent during the
pendency of any dispute regarding any event of default by the General Agent.


                                       13
<PAGE>


                                   ARTICLE VII
                        HOLD HARMLESS AND INDEMNIFICATION

         The General Agent agrees to and does hereby indemnify and hold the
Company harmless from and against any and all actions, causes of actions, suits,
arbitrations, or proceedings of any kind, liabilities, losses, claims, damages,
costs, or expenses (including attorneys' fees and expenses), incurred by the
Company by reason of, arising out of, or relating in any way to this Agreement
or any action taken or inaction by the General Agent. In addition, if the
Reinsurer does not indemnify and hold the Company harmless as required by the
Reinsurance Agreements, the General Agent shall fulfill the obligations of the
Reinsurer and make the payments required pursuant to the Reinsurance Agreements.

                                  ARTICLE VIII
                                  MISCELLANEOUS

8.01 This Agreement has been made and entered into in the State of Texas and
shall be governed by and construed in accordance with the laws of the State of
Texas.

8.02 This Agreement is not exclusive and the Company reserves the right to
appoint other agents in the territory covered by this Agreement and the General
Agent reserves the right to act as General Agent for other insurers or
reinsurers.

8.03 This Agreement shall be binding upon the parties hereto, together with
their respective successors and permitted assigns.

8.04 The Company shall have no right of control over the General Agent as to
time, means or manner of the General Agent's conduct within the terms of the
Agreement and the Reinsurance Agreements and the authority herein granted and
nothing herein is intended or shall be deemed to constitute the General Agent an
employee or servant of the Company. The General Agent shall at all times be an
independent contractor.

8.05 This Agreement shall be deemed performable at the Company's administrative
office in Fort Worth, Texas, and it is agreed that the venue of any controversy
arising out of this Agreement, or for the breach thereof, shall be in Tarrant
County, Texas.

8.06 The General Agent shall not assign any of its rights or obligations under
this Agreement without the prior written consent of the Company. No verbal
modification will be recognized by any party hereto and this Agreement cannot be
modified by any subsequent practices or course of dealing by the parties
inconsistent herewith. If the Company or the General Agent shall fail to take
advantage of a breach, if any, by another party of the terms, conditions,
covenants, or any of them herein contained, such failure shall not be deemed to
constitute, or be construed as, a waiver of any rights on the part of the
General Agent or Company to thereafter enforce any of the said terms, conditions
or covenants.

8.07 This Agreement may be amended, modified or supplemented only by a written
instrument executed by all parties hereto. All such amendments or changes shall
specify the effective date of such amendments or changes.

8.08 This Agreement supersedes any and all provisions, terms and/or conditions
of any other general agency agreements, whether oral or written, by between and
among the parties with respect to the subject matter hereof.

8.09 The General Agent shall notify the Company in writing within thirty (30)
days when there is a change in the ownership of 10% or more of the outstanding
stock in the General Agent or when there is any change in the General Agent's
principal officers or directors.

8.10 The General Agent shall not offset balances due under this Agreement
against balances due or owing under any other contract.



                                       14
<PAGE>


8.11 This Agreement shall be interpreted in conformance with applicable Texas
law and regulation. If it is found or ordered by a court or regulatory body that
any provision or term of this Agreement does not conform to such law or
regulation then this Agreement shall be deemed to be amended, and modified to be
in accordance with such law. However, where this Agreement is found not to
comply with applicable law or regulations, the Company may in its sole
discretion terminate this Agreement immediately and without prior notice.

                                   ARTICLE IX
                                   ARBITRATION

9.01 As a condition precedent to any right of action hereunder, in the event of
any dispute or difference of opinion hereafter arising between the Company, on
the one hand, and the General Agent, on the other hand, with respect to this
Agreement or with respect to the General Agent's and/or the Company's
obligations hereunder, it is hereby mutually agreed that such dispute or
difference of opinion shall be submitted to arbitration.

9.02 The Company shall choose one arbiter (an "Arbiter") and the General Agent
shall choose one Arbiter. An umpire (an "Umpire") shall be chosen by the two
Arbiters, all of whom shall be active or retired disinterested executive
officers of property and casualty insurance or reinsurance companies.

9.03 Both the General Agent and the Company shall choose an Arbiter within 30
days following a written request by one party to the other to name an Arbiter.
In the event either the Company or the General Agent fails to choose an Arbiter
within this time period, the party who has chosen its Arbiter may choose the
unchosen Arbiter. Thereafter, the Arbiters shall choose an Umpire before
entering upon arbitration. If the Arbiters fail to agree upon the selection for
the Umpire within 30 days following their appointment, each Arbiter shall name
three nominees, of whom the other shall decline two and the decision shall be
made by drawing lots.

9.04 Each side shall present its case to the Arbiters and Umpire, in a hearing
in Dallas, Texas. The Arbiters and Umpire shall consider this Agreement as an
honorable engagement, as well as a legal obligation, and they are relieved of
all judicial formalities and may abstain from following the strict rules of law
regarding entering of evidence. The decision in writing by a majority of the
Arbiters and Umpire when filed with the Company and the General Agent shall be
final and binding. Judgment upon the final decision of the Arbiters and Umpire
may be entered in any court of competent jurisdiction.

9.05 In the event of a dispute between the Company and the General Agent
concerning this Agreement and the Quota Share Reinsurance Agreement between the
Company and the Reinsurer, regardless of whether either party has claims against
the Reinsurer, the entire dispute between the Company and the General Agent
shall be subject to arbitration as provided under this Article IX.

9.06 The costs of the arbitration, including the fees of the Arbiters and the
Umpire, shall be borne equally by the sides unless the Arbiters and Umpire shall
decide otherwise.

9.07 This Agreement shall be interpreted under the laws of Texas and the
arbitration shall be governed by the Texas Arbitration Code.


                                       15
<PAGE>

                                    ARTICLE X
                                     PRIVACY

10.01 The General Agent shall provide to each new policyholder, prior to or upon
the issuance of any Policies written under this Agreement, and in accordance
with applicable state and federal laws, an initial notice of the Company's
privacy policies and practices. Not less than annually thereafter, the General
Agent, upon the request of the Company, distribute a copy of the Company's
annual privacy notice, as may be amended from time to time, to each existing
policyholder. In addition, the General Agent shall, upon the request of the
Company, distribute revised privacy notices and opt-out notices as applicable to
each policyholder to reflect any revisions which may be made to the Company's
privacy policies and practices. In each case, the Company shall be responsible
for providing the Agency with a copy of the form for its privacy policies and
practices notice, which forms the General Agent shall use to create and deliver
the notices described herein, at the Agency's sole cost and expense. These
notices shall be created and delivered independent of any separate legal
obligation the General Agent may have to create and deliver its own such
notices.

10.02 The General Agent shall not disclose or use any nonpublic personal
financial information or nonpublic personal health information related to any
policyholder, or to any consumer or customer (as such terms are defined under
applicable state and federal privacy laws), except as necessary to carry out its
duties and obligations under this Agreement or as otherwise permitted under
applicable state or federal law.

10.03 The General Agent shall develop and implement, in accordance with
applicable state and federal laws, a comprehensive written information security
program designed to (i) ensure the security and confidentiality of nonpublic
personal financial information and nonpublic personal health information related
to any policyholder, or to any consumer or customer (as such terms are defined
under applicable state and federal privacy laws), (ii) protect against any
anticipated threats or hazards to the security or integrity of such information,
and (iii) protect against unauthorized access to or use of such information that
could result in substantial harm or inconvenience to any customer.



                                       16
<PAGE>


         IN WITNESS WHEREOF, the Parties hereto by their respective duly
authorized representatives have executed this Agreement as of the date first
above written.


STATE NATIONAL INSURANCE COMPANY, INC.


BY:       /s/ Terry Ledbetter
   --------------------------------------------------

ITS:      President
    -------------------------------------------------

DATE:     January 20, 2005
     ------------------------------------------------


TOWER RISK MANAGEMENT CORP.


BY:       /s/ Marina Contiero
   --------------------------------------------------

ITS:      Vice President
    -------------------------------------------------

DATE:     December 29, 2004
     ------------------------------------------------



TOWER INSURANCE COMPANY OF NEW YORK


BY:       /s/ Marina Contiero
    -------------------------------------------------

ITS:      Vice President
     ------------------------------------------------

DATE:     December 29, 2004
     ------------------------------------------------


                                       17