EXHIBIT 10.31

                                  May 21, 1998


Mr. James P. McDermott
c/o PennCorp Financial, Inc.
3 Bethesda Metro Center
Suite 1600
Bethesda, Maryland  20814

         Re:     Option to Purchase Shares of ACO Brokerage Holdings Corporation

Dear Mr. McDermott:

     The Board of Directors of PennCorp  Financial  Group,  Inc. (the "Company")
has  authorized  and  approved  granting  you the option  described  herein with
respect to a portion of the 50,000 shares of Common  Stock,  par value $0.01 per
share, of ACO Brokerage Holdings Corporation currently owned by the Company (the
"Shares").  Such grant shall be on the terms specified in this letter  agreement
(the "Option Agreement").

     1. Grant of Option.  Subject to the terms and  conditions set forth herein,
the Company hereby grants to you, as a matter of separate  inducement and not in
lieu of any salary or other  compensation  for  services  as an  employee of the
Company, the right and option described in paragraph 3 below (the "Option") with
respect to an aggregate of one thousand one hundred  (1,100) Shares (the "Option
Shares")  at a price  of  $100.00  per  Option  Share  (the  "Exercise  Price").

     2. Exercisability and Termination of Option.

     (a)  During a period commencing on the date hereof and terminating upon the
          earliest to occur of the events  specified  in  paragraph  2(b) below,
          this Option may be exercised by you for all or a portion of the Option
          Shares in the manner  described  in  paragraph 5 below.  To the extent
          that this Option is not exercised within the period of  exercisability
          specified  herein, it shall expire as to the then unexercised part. In
          no event  shall you  exercise  this Option for a fraction of an Option
          Share.

     (b)  The   unexercised   portion  of  the  Option   granted   herein   will
          automatically  and without  notice  terminate and become null and void
          upon the earliest to occur of the following:

          (i)  the date of your voluntary  termination of your  employment  with
               the Company,  any parent  thereof and all  subsidiaries  thereof,
               unless termination is for Good Reason as defined in the Executive
               Retention  Agreement  entered into as of May 22, 1998 between you
               and the Company ("Retention Agreement");

          (ii) the date of termination of your  employment by the Company or any
               parent  or  subsidiary  thereof  for  Cause  as  defined  in  the
               Retention Agreement; or

          (iii)as described  below,  in  connection  with the sale of the Option
               Shares by the Company.
<PAGE>

     In the event of the sale of the Option Shares by the Company,  this Option,
to the extent not theretofore terminated,  shall terminate upon notice to you in
respect of such sale, and you will receive, in respect of each Option Shares for
which  this  Option is then  exercisable,  an amount  equal to the excess of the
gross price  (before  taking into account any other  obligations  of the Company
relating to the Option  Shares)  received by the Company for such Option  Shares
over the  Exercise  Price,  payable in cash upon the closing of such sale of the
Option Shares less applicable tax withholdings.

     3. Form of Option.  Upon delivery by you of an Exercise  Notice (as defined
in  paragraph  5) to the  Company,  you shall be  entitled  to receive  from the
Company,  in respect of each Option Share  subject to such Exercise  Notice,  an
amount in cash equal to the excess of the fair market value without  taking into
account any other  obligations of the Company  relating to the Option Shares (if
other than in connection with the sale of the Option Shares by the Company, then
as such fair market value is  determined in good faith by the Board of Directors
of the Company) of such Option Share over the Exercise  Price.  You shall not be
entitled to receive any Option Shares upon any exercise of this Option.

     4.  Assignability  and  Non-transferability  of Option.  This Option is not
transferable  by you,  in whole or in  part,  other  than by will or the laws of
descent and distribution,  and is exercisable  during your lifetime only by you.
Except  to  the  extent  provided  above,  this  Option  may  not  be  assigned,
transferred,  pledged,  hypothecated  or  disposed  of in any  way  (whether  by
operation of law or otherwise) and shall not be subject to execution, attachment
or similar process,  and any purported  assignment in contravention hereof shall
be void and of no  effect.  No rights  or  obligations  of  Company  under  this
Agreement  may  be  assigned  or  transferred  by  Company  (including,  without
limitation,  by merger,  consolidation,  or other  operation of law) except that
such rights or obligations  may be assigned or transferred  pursuant to a merger
or consolidation in which Company is not the continuing or surviving  entity, or
the sale or liquidation of all or substantially all of the assets of Company, to
one or more  entities  that have the  financial  and other  ability  to  perform
Company's obligations under this Agreement; provided, however, that the assignee
or transferee is the successor to all or substantially  all of the assets of the
Company and such assignee or transferee assumes the liabilities, obligations and
duties of Company under this Agreement,  either  contractually or as a matter of
law.

     5. Method of Exercising  this Option.  Any exercise of this Option shall be
made by written notice (an "Exercise  Notice") addressed to the Secretary of the
Company at the  principal  place of business of the Company,  which notice shall
state the number of Option Shares for which this Option is then being exercised.

     6.   Certain   Adjustments.   In  the   event   of  any   stock   dividend,
recapitalization,  merger,  consolidation,  stock split,  reverse stock split or
other event affecting the Option Shares,  the Option granted  hereunder shall be
extended to such stock or other  securities  received by the Company in addition
to or in exchange for the Option Shares,  with an appropriate  adjustment to the
Exercise Price.


<PAGE>

     7.  Withholding.  The Company may withhold  from sums or property due or to
become due to you from the Company an amount necessary to satisfy its obligation
to withhold  taxes  incurred by reason of the  exercise of this  Option,  or may
require you to reimburse the Company in such amount.

     8. No Contract of  Employment.  This Option  Agreement is not a contract of
employment  and the terms of your  employment,  if any,  shall  not be  affected
hereby or by any agreement referred to herein except to the extent  specifically
so provided  herein or therein.  Nothing herein shall be construed to impose any
obligation on the Company or any parent or subsidiary thereof to employ you, and
nothing  herein shall impose any  obligation  on your part to be employed by the
Company or any parent or subsidiary thereof.

     9.  Complete  Agreement.  This  Option  Agreement  constitutes  the  entire
agreement  among the parties  hereto with respect to the subject  matters herein
contained  and  shall  supersede  all  prior  written  or  oral  agreements  and
understandings    among   the   parties   with   respect   to   such    matters.

     10.  Counterparts.  This Option  Agreement may be executed in any number of
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one and the same instrument.

     11.  Amendments.  This  Option  Agreement  may  not  be  amended,  changed,
supplemented,  waived or  otherwise  modified  or  terminated,  except  upon the
execution and delivery of a written  agreement  executed by the parties  hereto.

     12. Governing Law. This Option Agreement,  including,  without  limitation,
the interpretation,  construction,  validity and enforceability hereof, shall be
governed by the laws (other than the conflict of laws rules) of the State of New
York.

     Please  indicate your  acceptance  of all the terms and  conditions of this
Option Agreement by signing and returning a copy of this Option Agreement to the
Company.

                                       Very truly yours,

                                       PENNCORP FINANCIAL GROUP, INC.


                                       By: /s/ Scott D. Silverman
                                       --------------------------
                                       Name: Scott D. Silverman
                                       Title: Executive Vice President



Accepted and Agreed to as of
the date first above written:



/s/ James P. McDermott
----------------------
James P. McDermott