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                                                                    EXHIBIT 10.3


                  PACIFIC LIFE AND ACCIDENT  INSURANCE COMPANY

                            SURPLUS DEBENTURE  NO. 6

$55,000,000                                                        July 24, 1996

FOR VALUE RECEIVED,  Pacific Life and Accident Insurance Company, a Texas life
insurance corporation ("Pacific"), subject to the terms, conditions,
restrictions, and limitations contained herein, promises to pay to the order of
PennCorp Financial Group, Inc. Corporation, a Delaware corporation
("PennCorp"), or to any subsequent holder hereof (the "Holder"), the principal
sum of Fifty-Five Million Dollars ($55,000,000) together with interest on the
unpaid balance thereof at a rate (the "Rate") equal to the sum of (i) two and
one-half percent (2.5%) per annum and (ii) the rate of interest required by
that certain Credit Agreement, dated as of  July, 1996, among PennCorp as
borrower,  ING Capital (U.S.) Corporation, as administrative agent, and the
other lenders party thereto, (together will all amendments, renewals,
extensions or refinancings thereof, the "Loan Agreement").  In respect to the
Loan (as defined in the Loan Agreement) made to PennCorp, it is understood that
the rate of interest with respect to the Loan may vary from time to time by
operation of law or under the terms and conditions of the Loan Agreement.  Each
change in the interest rate applicable to the Loan shall cause a corresponding
change in the calculation of the Rate, effective as of the time and date of
such change in the interest rate applicable to the Loan, without any notice to
Pacific or further action by the Holder.  In the event the Loan is repaid in
full prior to the full repayment of the Surplus Debenture, the Rate shall
become 10% at that time.

Interest on this Surplus Debenture will be payable on  March 31, June 30,
September 30 and December 31 of each year (each, an "Interest Payment Date"), 
commencing on  March 31, 1997 and continuing until the entire principal
amount of this Surplus Debenture is paid in full.  Both principal of and
interest on this Surplus Debenture will be due and payable in the following
manner at the offices of the Holder.

1.       On or before each Interest Payment Date, Pacific will calculate the
         Surplus of Pacific (as hereinafter defined) as of the most recent date
         practicable, but in no event prior to the end of the immediately
         preceding calendar quarter (each such date being hereinafter referred
         to as a "Calculation Date").

2.       On each Interest Payment Date, Pacific will pay the Holder the amount
         of accrued but unpaid interest on the unpaid principal balance of this
         Surplus Debenture to the extent the Surplus of Pacific exceeds $1.2
         million as of the Calculation Date immediately prior to such Interest
         Payment Date.

3.       If, as of any Calculation Date, the Surplus of Pacific does not exceed
         $1.2 million by an amount sufficient to pay all accrued but unpaid
         interest on this Surplus Debenture, the remaining accrued but unpaid
         interest (together with interest thereon at the Rate) shall be





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         payable on the next Interest Payment Date to the extent the Surplus of
         Pacific exceeds $1.2 million as of the Calculation Date immediately
         prior to such next Interest Payment Date.

4.       Pacific will pay to the Holder on the dates set forth below
         (a"Principal Payment Date") the amounts of principal set forth below
         or such lesser amount as may be paid hereunder, together with all
         accrued but unpaid interest, to the extent the Surplus of Pacific
         exceeds $1.2 million as of the most recent  Calculation Date:


<TABLE>
<CAPTION>
         Payment Date                     Principal Amount Each Date
         ------------                     --------------------------
         <S>                                     <C>
         March 31, 1997                          $ 6,000,000
         September 30, 1997                        6,000,000
         March 31, 1998                            6,000,000
         September 30, 1998                        6,000,000
         March 31, 1999                            2,500,000
         September 30, 1999                        2,500,000
         March 31, 2000                            2,500,000
         September 30, 2000                        2,500,000
         March 31, 2001                            2,500,000
         September 30, 2001                        2,500,000
         March 31, 2002                            2,500,000
         September 30, 2002                        2,500,000
         March 31, 2003                            3,000,000
         September 30, 2003                        8,000,000
</TABLE>

5.       If on a Principal Payment Date, the Surplus of PLAIC does not exceed
         $1.2 million by an amount sufficient to pay to the Holder  the
         principal amount due, together with all accrued but unpaid interest on
         this Surplus Debenture, the remaining unpaid portion of such principal
         amount and such interest (together with interest thereon at the Rate)
         shall be payable thereafter at such time or from time to time as the
         Surplus of PLAIC exceeds $1.2 million.

6.       For purposes of this Surplus Debenture, the term "Surplus of PLAIC"
         shall mean the remainder obtained after subtracting the carrying value
         of the insurance subsidiaries of PLAIC from the sum of:

                 a.       "common capital stock" of PLAIC;

                 b.       "gross paid-in and contributed surplus" of PLAIC;

                 c.       "unassigned surplus" of PLAIC;

                 d.       "special surplus" of PLAIC;





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                 e.       any amounts required to be carried as liabilities
                          with respect to outstanding surplus debentures issued
                          by PLAIC; and

                 f.       surplus evidenced by surplus debentures of PLAIC
                          which is not included in clauses a-e of this
                          paragraph 6.

         The items listed in clauses a-f of this paragraph 6 will be calculated
         in accordance with the accounting practices required or permitted by
         the Texas Department of Insurance ("Texas Department") for inclusion
         in the Annual Statement of PLAIC filed with the Texas Department as of
         December 31 of each year.

7.       The obligation of PLAIC to pay this Surplus Debenture will not
         otherwise be or constitute a liability of PLAIC or a claim against any
         of its assets except in the event of the liquidation of PLAIC, and in
         no event will this Surplus Debenture be considered or treated as a
         current or fixed liability or obligation of PLAIC under the Texas
         insurance laws and the regulations thereunder except to the extent
         that a payment of principal or interest becomes due and payable
         hereunder or to the extent otherwise required by Texas law.

8.       In the event of the liquidation of PLAIC, this Surplus Debenture will
         become immediately due and payable and will be superior to and in
         preference of the rights and claims of the shareholders of PLAIC;
         provided, however, that to the extent required by applicable law, all
         obligations, rights and claims hereunder are expressly subordinated to
         the claims of (a) policyholders, insureds, and beneficiaries under
         insurance contracts or policies issued by PLAIC and (b) any
         supervisor, conservator or receiver of PLAIC appointed by the
         Commissioner of Insurance of the State of  Texas.

9.       All payments made hereunder will be credited first to accrued but
         unpaid interest, if any, and the balance of such payment will be
         credited to the principal amount hereof.

10.      As a condition to the consolidation or merger of PLAIC into another
         corporation or the sale of all or substantially all of PLAIC's assets
         to any other corporation, the corporation into which PLAIC is
         consolidated or merged or to which the assets of PLAIC are transferred
         shall unconditionally assume the liability of PLAIC hereunder.

11.      By acceptance and as a part of the consideration for the issuance
         hereof, the Holder expressly acknowledges that it has been informed
         and has knowledge that this Surplus Debenture has not been registered
         under the Securities Act of 1933, as amended, or the securities laws
         of any state and that PLAIC has issued this Surplus Debenture for
         investment purposes and not with a view toward a public distribution
         hereof  and that this Surplus Debenture may not be sold or otherwise
         transferred in the absence of an effective registration statement with
         respect hereto or an exemption from registration under the Securities
         Act of 1933, as amended, or any other applicable securities laws.





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12.      If this Surplus Debenture is collected through judicial proceedings,
         PLAIC agrees, subject to conditions and restrictions contained herein,
         to pay all reasonable legal fees and disbursements incurred by the
         Holder in connection with such collection.

13.      This Surplus Debenture may be prepaid in whole or in part at any time
         or from time to time without premium or penalty to the extent that the
         Surplus of PLAIC exceeds $1.2 million on the most recent Calculation
         Date before the date of any proposed prepayment.

14.      This Surplus Debenture will be governed by and construed in accordance
         with the laws of the State of Texas.

15.      It being the intention of the parties hereto to conform strictly to
         the applicable usury laws of the State of Texas, all agreements
         between PLAIC and PennCorp  whether now or hereafter arising and
         whether written or oral, are here expressly limited so that in no
         event, whether by reason of acceleration of the maturity of any amount
         owed hereunder or otherwise, shall the amount paid or agreed to be
         paid to PennCorp for the use, forbearance or retention of money
         hereunder or otherwise exceed the maximum amount permissible under
         applicable law (the "Maximum Lawful Amount").  If  fulfillment of any
         provision hereof, at the time performance of such provision shall be
         due, shall cause the amount of interest applicable to this Surplus
         Debenture to exceed the Maximum Lawful Amount, then, ipso facto, the
         obligation to be fulfilled shall be reduced to the extent necessary to
         cause the amount of  interest applicable to this Surplus Debenture not
         to exceed the Maximum Lawful Amount; and if the holder of this Surplus
         Debenture shall ever receive anything of value deemed interest under
         applicable law that would cause the interest applicable to this
         Surplus Debenture to exceed the Maximum Lawful Rate, an amount equal
         to the portion of such interest in excess of the Maximum Lawful Rate
         shall be applied to the reduction of the principal amount owing
         hereunder and not to the payment of interest, or if such excessive
         interest exceeds the unpaid principal amount hereof, such excess shall
         be promptly refunded to PLAIC by the holder hereof.  All sums paid or
         agreed to be paid to the holder of this Surplus Debenture for the use,
         forbearance or retention of the indebtedness of PLAIC shall, to the
         extent permitted by applicable law, be amortized, prorated, allocated
         and spread throughout the full term of such indebtedness until payment
         in full so that interest on account of such indebtedness is uniform
         throughout the full term thereof.  The provisions of this paragraph
         shall control agreements between PLAIC and the holder of this Surplus
         Debenture.

16.      PennCorp may assign its rights hereunder to any person or entity
         without the consent of PLAIC.   This Surplus Debenture will inure to
         the benefit of PLAIC and its successors and assignees.
         Notwithstanding the above, this Surplus Debenture is registered as to
         both principal and any stated interest with PLAIC and transfer of the
         Surplus Debenture may be effected only by surrender of the old
         instrument and either the reissuance by PLAIC of a new instrument to
         the new holder or the issuance by PLAIC of a new instrument to the new
         holder.  No transfer of any ownership interest in this Surplus
         Debenture shall be made unless such transfer is permitted under Texas
         insurance law and PLAIC and PennCorp shall comply





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         with all regulatory and legal limitations and requirements in
         connection with any transfer of this Surplus Debenture.

17.      To the extent required by Texas law, PLAIC will notify the Texas
         Department of the payment of principal and interest under this Surplus
         Debenture.


IN WITNESS WHEREOF, PLAIC has caused this Surplus Debenture to be duly executed
as of July 24, 1996.




                                     PACIFIC LIFE AND ACCIDENT INSURANCE COMPANY



                                     By: /s/ ROSS A. MARAZZO
                                         ---------------------------------------

                                         Name: Ross A. Marazzo
                                         ---------------------------------------

                                         Title: Vice President, Regulatory and
                                                Corporate Compliance
                                           




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