Document:

<PAGE>
                                                                   Exhibit 10.11

                       PROPERTY CATASTROPHE EXCESS OF LOSS
                              REINSURANCE CONTRACT

                                    issued to

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING
                            DIRECT INSURANCE COMPANY
                        DIRECT GENERAL INSURANCE COMPANY
                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA
                                       AND
                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI
   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF
                            THE DIRECT GENERAL GROUP

<PAGE>

                       PROPERTY CATASTROPHE EXCESS OF LOSS
                              REINSURANCE CONTRACT

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
ARTICLE                                                                          PAGE
-------                                                                          ----
<S>         <C>                                                                  <C>
            Preamble...............................................................2
    1       Business Reinsured.....................................................2
    2       Cover..................................................................2
    3       Term...................................................................3
    4       Territory..............................................................4
    5       Exclusions.............................................................4
    6       Premium................................................................6
    7       Reinstatement..........................................................7
    8       Reports................................................................7
    9       Definitions............................................................8
   10       Net Retained Lines....................................................10
   11       Original Conditions...................................................10
   12       Notice of Loss and Loss Settlements...................................10
   13       Offset................................................................11
   14       Currency..............................................................11
   15       Loss Funding..........................................................11
   16       Taxes.................................................................13
   17       Federal Excise Tax....................................................13
   18       Inspection............................................................14
   19       Delay, Omission or Error..............................................14
   20       Insolvency............................................................14
   21       Arbitration...........................................................15
   22       Service of Suit.......................................................16
   23       Agency of Agreement...................................................17
   24       Entire Contract.......................................................17
   25       Intermediary..........................................................17
   26       Mode of Execution.....................................................17
            Company Signature.....................................................18

ATTACHMENTS

            Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance
            - U.S.A...............................................................19
</TABLE>

                                    1 of 20

<PAGE>

                       PROPERTY CATASTROPHE EXCESS OF LOSS
                              REINSURANCE CONTRACT
                                (the "Contract")

                                    issued to

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING
                            DIRECT INSURANCE COMPANY
                        DIRECT GENERAL INSURANCE COMPANY
                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA
                                       AND
                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI
   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF
                            THE DIRECT GENERAL GROUP
                          (collectively the "Company")

                                       by

                 THE SUBSCRIBING REINSURER(S) IDENTIFIED IN THE
                     INTERESTS AND LIABILITIES AGREEMENT(S)
                  ATTACHED TO AND FORMING PART OF THIS CONTRACT
                                (the "Reinsurer")

                                   ARTICLE 1

BUSINESS REINSURED

This Contract is to indemnify the Company in respect of the net excess liability
as a result of any loss or losses which occur during the term of this Contract
under any Policy covering Private Passenger Automobile Physical Damage business
in force, written or renewed by or on behalf of the Company, subject to the
terms and conditions herein contained.

                                   ARTICLE 2

COVER

A.      The Reinsurer shall be liable in respect of each Loss Occurrence for
        100% of the Ultimate Net Loss over and above the initial Ultimate Net
        Loss retention(s) as set forth in the schedule below for each Loss
        Occurrence, subject to a limit of liability to the Reinsurer, as set
        forth in the schedule below for each Loss Occurrence.

                                    2 of 20
<PAGE>

B.      The Reinsurer's liability for all Loss Occurrences occurring during the
        term of this Contract shall not exceed the amount(s) set forth in the
        Reinstatement Article.

--------------------------------------------------------------------------------
                          RETENTION AND LIMIT SCHEDULE
--------------------------------------------------------------------------------
  LAYER            COMPANY'S RETENTION           REINSURER'S LIMIT OF LIABILITY
--------------------------------------------------------------------------------
               ULTIMATE NET LOSS IN RESPECT       ULTIMATE NET LOSS IN RESPECT
                  OF EACH LOSS OCCURRENCE            OF EACH LOSS OCCURRENCE
--------------------------------------------------------------------------------
FIRST LAYER             $2,000,000                          $3,000,000
--------------------------------------------------------------------------------
SECOND LAYER            $5,000,000                          $5,000,000
--------------------------------------------------------------------------------

C.      The maximum value of any one vehicle covered hereunder shall be $75,000,
        or so deemed.

D.      As respects each excess layer hereunder, the Company shall retain, net
        and unreinsured elsewhere, at least a 2.5% part of a 100% share in the
        interests and liabilities of the Reinsurer hereunder.

E.      The Company may maintain in effect a quota share on private passenger
        automobile business recoveries from which shall be disregarded when
        establishing Ultimate Net Loss for purposes of this Article. The Company
        may also maintain a quota share participation on private passenger
        automobile business produced by Direct Insurance Company and Direct
        General Insurance Agency on behalf of various front companies.

F.      The Company shall be permitted to carry additional reinsurance on its
        retention hereunder, which shall inure solely to the benefit of the
        Company, and recoveries under which shall be disregarded in arriving at
        the Ultimate Net Loss for the purposes of this Contract.

                                   ARTICLE 3

TERM

A.      This Contract shall become effective at 12:01 a.m., Central Standard
        Time, January 1, 2003, and shall remain in full force and effect for one
        year, expiring 12:01 a.m., Central Standard Time, January 1, 2004.

B.      Should this Contract expire while a loss covered hereunder is in
        progress, the Reinsurer shall be responsible for the loss in progress in
        the same manner and to the same extent it would have been responsible
        had the Contract expired the day following the conclusion of the loss in
        progress.

                                    3 of 20
<PAGE>

                                   ARTICLE 4

TERRITORY

This Contract applies to losses arising out of Policies written in the United
States of America, its territories and possessions, and Puerto Rico, wherever
occurring.

                                   ARTICLE 5

EXCLUSIONS

A.      This Contract does not cover:

        1.      As regards interests which at time of loss or damage are on
                shore, no liability shall attach hereto in respect of any loss
                or damage which is occasioned by war, invasion, hostilities,
                acts of foreign enemies, civil war, rebellion, insurrection,
                military or usurped power, or martial law or confiscation by
                order of any government or public authority. This War Exclusion
                Clause shall not, however, apply to interests which at time of
                loss or damage are within the territorial limits of the United
                States of America (comprising the fifty States of the Union, the
                District of Columbia, and including bridges between the U.S.A.
                and Mexico provided they are under United States ownership),
                Canada, St. Pierre and Miquelon, provided such interests are
                insured under Policies, endorsements or binders containing a
                standard war or hostilities or warlike operations exclusion
                clause.

        2.      Business excluded by the attached Nuclear Incident Exclusion
                Clause - Physical Damage - Reinsurance - U.S.A.

        3.      Pools, Associations and Syndicates, except losses from Assigned
                Risk Plans or similar plans are not excluded.

        4.      Excess of loss reinsurance.

        5.      Mortgage Impairment Insurance or other similar covers, however
                styled.

        6.      Liability of the Company arising by contract, operation of law
                or otherwise from its participation or membership, whether
                voluntary or involuntary, in any insolvency fund. "Insolvency
                fund" includes any guarantee fund (other than recoupment fees),
                insolvency fund, plan, pool, association, fund or other
                arrangement, howsoever denominated, established or governed,
                which provides for any assessment of or payment or assumption by
                the Company of part or all of any claim, debt, charge, fee or
                other obligation of an insurer or its successors or assigns
                which has been declared by any competent authority to be
                insolvent or which is otherwise deemed unable to meet any claim,
                debt, charge, fee or other obligation in whole or in part.

                                    4 of 20
<PAGE>

        7.      Loss arising out of the ownership, maintenance or use of any
                vehicle, the principal use of which is:

                (a)     As a public or livery conveyance;

                (b)     Emergency vehicles;

                (c)     Drive yourself motor vehicles available for leasing
                        periods of less than six months;

                (d)     Automobiles used in speed contests and races;

                (e)     Motorcycles.

        8.      Commercial Automobile Physical Damage and Liability business.

        9.      Private Passenger Automobile Liability business.

        10.     Excess of Policy limits and extra contractual obligations.

        11.     Loss or damage or costs or expenses arising from seepage and/or
                pollution and/or contamination, other than contamination from
                smoke damage. Nevertheless, this exclusion does not preclude any
                payment of the cost of the removal of debris of property damaged
                by a loss otherwise covered hereunder, but subject always to a
                limit of 25% of the Company's Property Business loss under the
                original Policy.

        12.     Loss, damage, cost, or expense directly or indirectly caused by,
                contributed to by, resulting from, or arising out of or in
                connection with any Act of Terrorism, as defined herein,
                regardless of any other cause or event contributing concurrently
                or in any other sequence to the loss.

                An "Act of Terrorism" includes any act, or preparation in
                respect of action, or threat of action designed to influence the
                government de jure or de facto of any nation or any political
                division thereof, or in pursuit of political, religious,
                ideological, or similar purposes to intimidate the public or a
                section of the public of any nation by any person or group(s) of
                persons whether acting alone or on behalf of or in connection
                with any organization(s) or government(s) de jure or de facto,
                and which:

                (a)     involves violence against one or more persons; or

                (b)     involves damage to property; or

                (c)     endangers life other than that of the person committing
                        the action; or

                (d)     creates a risk to health or safety of the public or a
                        section of the public; or

                (e)     is designed to interfere with or to disrupt an
                        electronic system.

                                    5 of 20
<PAGE>

                This Contract also excludes loss, damage, cost, or expense
                directly or indirectly caused by, contributed to by, resulting
                from, or arising out of or in connection with any action in
                controlling, preventing, suppressing, retaliating against, or
                responding to any Act of Terrorism.

                Notwithstanding the above and subject otherwise to the terms,
                conditions, and limitations of this Contract, in respect only of
                personal lines this Contract shall pay actual loss or damage
                (but not related cost or expense) caused by any Act of Terrorism
                provided such act is not directly or indirectly caused by,
                contributed to by, resulting from, or arising out of or in
                connection with biological, chemical, or nuclear pollution or
                contamination.

B.      Business which is beyond the terms, conditions or limitations of this
        Contract may be submitted to the Reinsurer for special acceptance
        hereunder and such business, if accepted by the Reinsurer, shall be
        subject to all of the terms, conditions and limitations of this Contract
        except as modified by the special acceptance.

                                   ARTICLE 6

PREMIUM

A.      As respects each excess layer hereunder, the premium to be paid to the
        Reinsurer shall be calculated at the rates set out below multiplied by
        the Company's Gross Net Written Premium Income with respect to the
        business covered hereunder, subject to the minimum and deposit premiums
        stated hereunder:

        ------------------------------------------------------------------------
                                    PREMIUM SCHEDULE
        ------------------------------------------------------------------------
                                   PREMIUM          DEPOSIT             MINIMUM
             LAYER                  RATE            PREMIUM             PREMIUM
        ------------------------------------------------------------------------
          FIRST LAYER              2.4864%         $540,000            $480,000
        ------------------------------------------------------------------------
          SECOND LAYER             1.5540%          337,500            $300,000
        ------------------------------------------------------------------------

        The deposit premiums shall be payable to the Reinsurer by the Company in
        installments as follows:

<TABLE>
<CAPTION>
        ---------------------------------------------------------------------------------
                              DEPOSIT INSTALLMENT SCHEDULE
        ---------------------------------------------------------------------------------
             LAYER        JANUARY 1, 2003   APRIL 1, 2003  JULY 1, 2003   OCTOBER 1, 2003
        ---------------------------------------------------------------------------------
<S>                       <C>               <C>            <C>            <C>
          FIRST LAYER        $135,000         $135,000       $135,000        $135,000
        ---------------------------------------------------------------------------------
          SECOND LAYER       $ 84,375         $ 84,375       $ 84,375        $ 84,375
        ---------------------------------------------------------------------------------
</TABLE>

B.      Within 60 days after the expiration of this Contract, the Company shall
        provide a report to the Reinsurer setting forth the premium due
        hereunder for each excess layer, computed in accordance with paragraph A
        above. If the premium due the Reinsurer is greater than the deposit
        premium paid, an additional premium shall be due and payable for the
        amount in excess of the deposit. If the premium due the Reinsurer is
        less than the deposit premium

                                    6 of 20
<PAGE>

        paid, the Reinsurer shall refund the excess premium paid, subject to the
        minimum premium specified in paragraph A above.

C.      The use of written premium as subject matter premium in this Contract is
        for the convenience of the parties. For all purposes premium paid to the
        Reinsurer shall be considered earned premium unless otherwise
        specifically provided to the contrary.

                                   ARTICLE 7

REINSTATEMENT

A.      As respects each Excess Layer, loss payments under this Contract shall
        reduce the limit of coverage afforded by the amounts paid, but the limit
        of coverage shall be reinstated from the time of the occurrence of the
        loss, and for each amount so reinstated, the Company agrees to pay an
        additional premium calculated at pro rata of 100% of the Reinsurer's
        premium for the applicable layer for the term of this Contract, being
        pro rata only as to the fraction of the Reinsurer's limit of liability
        hereunder (i.e., the fraction of the Reinsurer's limit of liability for
        each Loss Occurrence as set forth in the Retention and Limit Article) so
        reinstated. Nevertheless, the Reinsurer's liability under the applicable
        layer shall not exceed such limit in respect of any one Loss Occurrence,
        and shall not exceed the applicable limit set forth below in respect of
        all Loss Occurrences during the term of this Contract.

        ------------------------------------------------------------------------
                   LAYER              REINSURER'S LIMITS OF LIABILITY IN RESPECT
                                       OF ALL LOSS OCCURRENCES DURING THE TERM
        ------------------------------------------------------------------------
               FIRST EXCESS                                $ 6,000,000
        ------------------------------------------------------------------------
               SECOND EXCESS                               $10,000,000
        ------------------------------------------------------------------------

B.      If at the time of a loss settlement hereon the reinsurance premium, as
        calculated in accordance with the Premium Article, is unknown, the above
        calculation of reinstatement premium shall be based upon the deposit
        premium, subject to adjustment when the reinsurance premium is finally
        established.

                                   ARTICLE 8

REPORTS

Within 60 days following the expiration of this Contract, the Company shall
furnish the Reinsurer with:

        1.      Net Written Premium Income of the Company for the term of this
                Contract.

        2.      Any other information which the Reinsurer may require to prepare
                its Annual Statement which is reasonably available to the
                Company.

                                    7 of 20
<PAGE>

                                   ARTICLE 9

DEFINITIONS

A.      The term "Private Passenger Automobile Physical Damage Business" as used
        in this Contract shall mean all insurances and reinsurances written by
        the Company and assumed from various front companies and classified as
        private passenger automobile physical damage (comprehensive only).

B.      The term "Ultimate Net Loss" as used in this Contract shall mean the
        actual loss paid by the Company or for which the Company becomes liable
        to pay, such loss to include expenses of litigation and interest,
        Declaratory Judgment Expenses, and all other loss expense of the Company
        including subrogation, salvage, and recovery expenses (office expenses
        and salaries of officials and employees not classified as loss adjusters
        are not chargeable as expenses for purposes of this paragraph), but
        salvages and all recoveries, shall be first deducted from such loss to
        arrive at the amount of liability attaching hereunder.

        All salvages, recoveries or payments recovered or received subsequent to
        loss settlement hereunder shall be applied as if recovered or received
        prior to the aforesaid settlement, and all necessary adjustments shall
        be made by the parties hereto.

        For purposes of this definition, the phrase "becomes liable to pay"
        shall mean the existence of a judgment which the Company does not intend
        to appeal, or a release has been obtained by the Company, or the Company
        has accepted a proof of loss.

        The term "Declaratory Judgment Expenses," as used in this Contract shall
        mean all expenses incurred by the Company in connection with declaratory
        judgment actions brought to determine the Company's defense and/or
        indemnification obligations that are allocable to specific Policies and
        claims subject to this Contract. Declaratory Judgment Expenses shall be
        deemed to have been incurred by the Company on the date of the original
        loss (if any) giving rise to the declaratory judgment action.

        Nothing in this clause shall be construed to mean that losses are not
        recoverable hereunder until the Company's Ultimate Net Loss has been
        ascertained.

C.      The term "Loss Occurrence" shall mean the sum of all individual losses
        directly occasioned by any one disaster, accident or loss or series of
        disasters, accidents or losses arising out of one event which occurs
        within the area of one state of the United States or province of Canada
        and states or provinces contiguous thereto and to one another. However,
        the duration and extent of any one "Loss Occurrence" shall be limited to
        all individual losses sustained by the Company occurring during any
        period of 168 consecutive hours arising out of and directly occasioned
        by the same event, except that the term "Loss Occurrence" shall be
        further defined as follows:

                                    8 of 20
<PAGE>

        1.      As regards windstorms, hail, tornado, hurricane, cyclone,
                including ensuing collapse and water damage, all individual
                losses sustained by the Company occurring during any period of
                72 consecutive hours arising out of and directly occasioned by
                the same event. However, the event need not be limited to one
                state or province or states or provinces contiguous thereto.

        2.      As regards riot, riot attending a strike, civil commotion,
                vandalism and malicious mischief, all individual losses
                sustained by the Company occurring during any period of 72
                consecutive hours within the area of one municipality or county
                and the municipalities or counties contiguous thereto arising
                out of and directly occasioned by the same event. The maximum
                duration of 72 consecutive hours may be extended in respect of
                individual losses which occur beyond such 72 consecutive hours
                during the continued occupation of an insured's premises by
                strikers, provided such occupation commenced during the
                aforementioned period.

        3.      As regards earthquake (the epicenter of which need not
                necessarily be within the territorial confines referred to in
                the opening paragraph of this Article) and fire following
                directly occasioned by the earthquake, only those individual
                fire losses which commence during the period of 168 consecutive
                hours may be included in the Company's "Loss Occurrence."

        4.      As regards "freeze," only individual losses directly occasioned
                by collapse, breakage of glass and water damage (caused by
                bursting of frozen pipes and tanks) may be included in the
                Company's "Loss Occurrence."

        For all "Loss Occurrences" the Company may choose the date and time when
        any such period of consecutive hours commences, provided that it is not
        earlier than the date and time of the occurrence of the first recorded
        individual loss sustained by the Company arising out of that disaster,
        accident or loss and provided that only one such period of 168
        consecutive hours shall apply with respect to one event, except for
        those "Loss Occurrences" referred to in subparagraphs 1 and 2 above
        where only one such period of 72 consecutive hours shall apply with
        respect to one event, regardless of the duration of the event.

        No individual losses occasioned by an event that would be covered by 72
        hours clauses may be included in any "Loss Occurrence" claimed under the
        168 hours provision.

D.      The term "Net Written Premium Income" as used in this Contract shall
        mean the gross written premium income on business the subject of this
        Contract (meaning comprehensive premium only) less returns and
        cancellations and less written premium income paid for pro rata
        reinsurances, recoveries under which would inure to the benefit of this
        Contract.

E.      The term "Policy" as used in this Contract shall mean any binder,
        policy, or contract of insurance or reinsurance issued, accepted or held
        covered provisionally or otherwise, by or on behalf of the Company.

                                    9 of 20
<PAGE>

                                   ARTICLE 10

NET RETAINED LINES

A.      This Contract applies only to that portion of any Policy which the
        Company retains net for its own account, and in calculating the amount
        of any loss hereunder and also in computing the amount or amounts in
        excess of which this Contract attaches, only loss or losses in respect
        of that portion of any Policy which the Company retains net for its own
        account shall be included.

B.      The amount of the Reinsurer's liability hereunder in respect of any loss
        or losses shall not be increased by reason of the inability of the
        Company to collect from any other reinsurer(s), whether specific or
        general, any amounts which may have become due from such reinsurer(s),
        whether such inability arises from the insolvency of such other
        reinsurer(s) or otherwise.

C.      Nothing herein shall in any manner create any obligations or establish
        any rights against the Reinsurer in favor of any third party or any
        persons not parties to this Contract.

                                   ARTICLE 11

ORIGINAL CONDITIONS

All reinsurance under this Contract shall be subject to the same rates, terms,
conditions, waivers and interpretations, and to the same modifications and
alterations as the respective Policies of the Company. However, in no event
shall this be construed in any way to provide coverage outside the terms and
conditions set forth in this Contract.

                                   ARTICLE 12

NOTICE OF LOSS AND LOSS SETTLEMENTS

A.      The Company shall advise the Reinsurer promptly of all claims which in
        the opinion of the Company may involve the Reinsurer and of all
        subsequent developments on these claims which may materially affect the
        position of the Reinsurer.

B.      The Reinsurer agrees to abide by the loss settlements of the Company,
        provided that retroactive extension of Policy terms or coverages made
        voluntarily by the Company and not in response to court decisions
        (whether such court decision is against the Company or other companies
        affording the same or similar coverages) shall not be covered under this
        Contract.

C.      When so requested the Company shall afford the Reinsurer an opportunity
        to be associated with the Company, at the expense of the Reinsurer, in
        the defense of any claim or suit or

                                    10 of 20
<PAGE>

        proceeding involving this reinsurance and the Company shall cooperate in
        every respect in the defense of such claim, suit or proceeding.

D.      The Reinsurer shall pay its share of loss settlements immediately upon
        receipt of proof of loss from the Company.

                                   ARTICLE 13

OFFSET

The Company and the Reinsurer shall have the right to offset any balance or
balances (whether on account of premiums or losses) due from one party to the
other under the terms of this Contract or any other contract heretofore or
hereafter entered into between the Company and the Reinsurer, whether acting as
assuming reinsurer or ceding company. However, in the event of the insolvency of
any party hereto, offsets shall be allowed in accordance with the statutes
and/or regulations of the state having jurisdiction over the insolvency.

                                   ARTICLE 14

CURRENCY

The currency to be used for all purposes of this Contract shall be United States
of America currency.

                                   ARTICLE 15

LOSS FUNDING

A.      This Article applies only to a Reinsurer who does not qualify for full
        credit with any insurance regulatory authority having jurisdiction over
        the Company's reserves.

B.      The Company agrees, in respect of its Policies or bonds falling within
        the scope of this Contract, that when it files with its insurance
        regulatory authority, or sets up on its books liabilities as required by
        law, it will forward to the Reinsurer a statement showing the proportion
        of such liabilities applicable to the Reinsurer. The "Reinsurer's
        Obligations" shall be defined as follows:

        1.      Unearned premium (if applicable);

        2.      Known outstanding losses that have been reported to the
                Reinsurer and Loss Adjustment Expense relating thereto;

        3.      Losses and Loss Adjustment Expense paid by the Company but not
                recovered from the Reinsurer;

                                    11 of 20
<PAGE>

        4.      Losses incurred but not reported and Loss Adjustment Expense
                relating thereto.

C.      The Reinsurer's Obligations shall be funded by funds withheld, cash
        advances, trust agreement or a Letter of Credit (LOC). The Reinsurer
        shall have the option of determining the method of funding provided it
        is acceptable to the insurance regulatory authorities having
        jurisdiction over the Company's reserves.

D.      When funding by an LOC, the Reinsurer agrees to apply for and secure
        timely delivery to the Company of a clean, irrevocable and unconditional
        LOC issued by a bank and containing provisions acceptable to the
        insurance regulatory authorities having jurisdiction over the Company's
        reserves in an amount equal to the Reinsurer's Obligations. Such LOC
        shall be issued for a period of not less than one year, and shall be
        automatically extended for one year from its date of expiration or any
        future expiration date unless 30 days (or such other time period as may
        be required by insurance regulatory authorities), prior to any
        expiration date the issuing bank shall notify the Company by certified
        or registered mail that the issuing bank elects not to consider the LOC
        extended for any additional period.

E.      The Reinsurer and Company agree that any funding provided by the
        Reinsurer pursuant to the provisions of this Contract may be drawn upon
        at any time, notwithstanding any other provision of this Contract, and
        be utilized by the Company or any successor, by operation of law, of the
        Company including, without limitation, any liquidator, rehabilitator,
        receiver or conservator of the Company, for the following purposes,
        unless otherwise provided for in a separate trust agreement:

        1.      To reimburse the Company for the Reinsurer's Obligations, the
                payment of which is due under the terms of this Contract and
                that has not been otherwise paid;

        2.      To make refund of any sum that is in excess of the actual amount
                required to pay the Reinsurer's Obligations under this Contract
                (or in excess of 102% of Reinsurer's Obligations, if funding is
                provided by a trust agreement);

        3.      To fund an account with the Company for the Reinsurer's
                Obligations. Such cash deposit shall be held in an interest
                bearing account separate from the Company's other assets, and
                interest thereon not in excess of the prime rate shall accrue to
                the benefit of the Reinsurer. Any taxes payable on accrued
                interest shall be paid out of the assets in the account that are
                in excess of the Reinsurer's Obligations (or in excess of 102%
                of Reinsurer's Obligations, if funding is provided by a trust
                agreement). If the assets are inadequate to pay taxes, any taxes
                due shall be paid by the Reinsurer;

        4.      To pay the Reinsurer's share of any other amounts the Company
                claims are due under this Contract.

F.      If the amount drawn by the Company is in excess of the actual amount
        required for 1. or 3., or in the case of 4., the actual amount
        determined to be due, the Company shall promptly

                                    12 of 20
<PAGE>

        return to the Reinsurer the excess amount so drawn. All of the foregoing
        shall be applied without diminution because of insolvency on the part of
        the Company or the Reinsurer.

G.      The issuing bank shall have no responsibility whatsoever in connection
        with the propriety of withdrawals made by the Company or the disposition
        of funds withdrawn, except to ensure that withdrawals are made only upon
        the order of properly authorized representatives of the Company.

H.      Fifty days prior to the end of each calendar quarter, the Company shall
        prepare a specific statement of the Reinsurer's Obligations for the sole
        purpose of amending the LOC or other method of funding, in the following
        manner:

        1.      If the statement shows that the Reinsurer' s Obligations exceed
                the balance of the LOC as of the statement date, the Reinsurer
                shall, within 30 days after receipt of the statement, secure
                delivery to the Company of an amendment to the LOC increasing
                the amount of credit by the amount of such difference. Should
                another method of funding be used, the Reinsurer shall, within
                the time period outlined above, increase such funding by the
                amount of such difference.

        2.      If, however, the statement shows that the Reinsurer's
                Obligations are less than the balance of the LOC (or less than
                102% of Reinsurer' s Obligations if funding is provided by a
                trust agreement), as of the statement date, the Company shall,
                within 30 days after receipt of written request from the
                Reinsurer, release such excess credit by agreeing to secure an
                amendment to the LOC reducing the amount of credit available by
                the amount of such excess credit. Should another method of
                funding be used, the Company shall, within the time period
                outlined above, decrease such funding by the amount of such
                excess.

                                   ARTICLE 16

TAXES

In consideration of the terms under which this Contract is issued, the Company
undertakes not to claim any deduction of the premium hereon when making tax
returns, other than income or profits tax returns, to any state or territory of
the United States of America or to the District of Columbia.

                                   ARTICLE 17

FEDERAL EXCISE TAX

A.      The Company will be liable for taxes (except Federal Excise Tax) on
        premiums reported to the Reinsurer hereunder.

                                    13 of 20
<PAGE>

B.      Federal Excise Tax applies only to those Reinsurers, excepting
        Underwriters at Lloyd's, London and other Reinsurers exempt from the
        Federal Excise Tax, who are domiciled outside the United States of
        America.

C.      The Reinsurer has agreed to allow for the purpose of paying the Federal
        Excise Tax 1% of the premium payable hereon to the extent such premium
        is subject to Federal Excise Tax.

D.      In the event of any return of premium becoming due hereunder, the
        Reinsurer will deduct 1% from the amount of the return, and the Company
        or its agent should take steps to recover the Tax from the U.S.
        Government.

                                   ARTICLE 18

INSPECTION

The Company shall place at the disposal of the Reinsurer at all reasonable
times, and the Reinsurer shall have the right to inspect through its authorized
representatives, all books, records and papers of the Company in connection with
any reinsurance hereunder or claims in connection herewith.

                                   ARTICLE 19

DELAY, OMISSION OR ERROR

Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, providing such delay, omission or
error is rectified upon discovery.

                                   ARTICLE 20

INSOLVENCY

A.      In the event of the insolvency of the Company, reinsurance under this
        Contract shall be payable by the Reinsurer on the basis of the liability
        of the Company under Policy or Policies reinsured without diminution
        because of the insolvency of the Company, to the Company or to its
        liquidator, receiver, or statutory successor except as provided by
        Section 4118(a) of the New York Insurance Law or except when the
        Contract specifically provides another payee of such reinsurance in the
        event of the insolvency of the Company or when the Reinsurer with the
        consent of the direct insured or insureds has assumed such Policy
        obligations of the Company as direct obligations of the Reinsurer to the
        payees under such Policies and in substitution for the obligations of
        the Company to such payees.

                                    14 of 20
<PAGE>

B.      It is agreed, however, that the liquidator or receiver or statutory
        successor of the insolvent Company shall give written notice to the
        Reinsurer of the pendency of a claim against the insolvent Company on
        the Policy or Policies reinsured within a reasonable time after such
        claim is filed in the insolvency proceeding and that during the pendency
        of such claim, the Reinsurer may investigate such claim and interpose,
        at its own expense, in the proceeding when such claim is to be
        adjudicated, any defense or defenses which it may deem available to the
        Company or its liquidator or receiver or statutory successor. The
        expense thus incurred by the Reinsurer shall be chargeable, subject to
        court approval, against the insolvent Company as part of the expense of
        liquidation to the extent of a proportionate share of the benefit which
        may accrue to the Company solely as a result of the defense undertaken
        by the Reinsurer.

C.      When two or more reinsurers are involved in the same claim and a
        majority in interest elect to interpose defense to such claim, the
        expense shall be apportioned in accordance with the terms of this
        Contract as though such expense had been incurred by the insolvent
        Company.

D.      In the event of the insolvency of any company or companies included in
        the designation of "Company," this clause will apply only to the
        insolvent company or companies.

                                   ARTICLE 21

ARBITRATION

A.      As a condition precedent to any right of action hereunder, any
        irreconcilable dispute between the parties to this Contract will be
        submitted for decision to a board of arbitration composed of two
        arbitrators and an umpire meeting at a site in Nashville, Tennessee.

B.      Arbitration shall be initiated by the delivery of a written notice of
        demand for arbitration by one party to the other within a reasonable
        time after the dispute has arisen.

C.      The members of the board of arbitration shall be active or retired
        disinterested officials of insurance or reinsurance companies, or
        Underwriters at Lloyd's, London, not under the control or management of
        either party to this Contract. Each party shall appoint its arbitrator
        and the two arbitrators shall choose an umpire before instituting the
        hearing. If the respondent fails to appoint its arbitrator within four
        weeks after being requested to do so by the claimant, the latter shall
        also appoint the second arbitrator. If the two arbitrators fail to agree
        upon the appointment of an umpire within four weeks after their
        nominations, each of them shall name three, of whom the other shall
        decline two, and the decision shall be made by drawing lots.

D.      The claimant shall submit its initial brief within 45 days from
        appointment of the umpire. The respondent shall submit its brief within
        45 days thereafter and the claimant may submit a reply brief within 30
        days after filing of the respondent's brief.

                                    15 of 20
<PAGE>

E.      The board shall make its decision with regard to the custom and usage of
        the insurance and reinsurance business. The board shall issue its
        decision in writing based upon a hearing in which evidence may be
        introduced without following strict rules of evidence but in which
        cross-examination and rebuttal shall be allowed. The board shall make
        its decision within 60 days following the termination of the hearings
        unless the parties consent to an extension. The majority decision of the
        board shall be final and binding upon all parties to the proceeding.
        Judgment may be entered upon the award of the board in any court having
        jurisdiction.

F.      Each party shall bear the expense of its own arbitrator and shall
        jointly and equally bear with the other party the expense of the umpire
        and of the arbitration.

                                   ARTICLE 22

SERVICE OF SUIT

A.      This Article applies if the reinsurer is not domiciled in the United
        States of America and/or is not authorized in any State, Territory or
        District of the United States where authorization is required by
        insurance regulatory authorities.

B.      It is agreed that in the event of the failure of the Reinsurer hereon to
        pay any amount claimed to be due hereunder, the Reinsurer hereon, at the
        request of the Company, will submit to the jurisdiction of a court of
        competent jurisdiction within the United States. Nothing in this Clause
        constitutes or should be understood to constitute a waiver of the
        Reinsurer's right to commence an action in any court of competent
        jurisdiction in the United States, to remove an action to a United
        States district court or to seek a transfer of a case to another court
        as permitted by the laws of the United States or of any state in the
        United States.

C.      It is further agreed that service of process in such suit may be made
        upon Messrs. Mendes & Mount, 750 Seventh Avenue, New York, New York
        10019-6829 and that in any suit instituted against the Reinsurer upon
        this Contract, the Reinsurer will abide by the final decision of such
        court or of any appellate court in the event of an appeal.

D.      The above-named are authorized and directed to accept service of process
        on behalf of the Reinsurer in any such suit and/or upon the request of
        the Company to give a written undertaking to the Company that they will
        enter a general appearance upon the Reinsurer's behalf in the event such
        a suit shall be instituted.

E.      Further, pursuant to any statute of any state, territory or district of
        the United States which makes provision therefor, the Reinsurer hereon
        hereby designates the superintendent, commissioner or director of
        insurance or other officer specified for that purpose in the statute or
        his successor or successors in office 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 Company or any beneficiary
        hereunder arising out of this Contract, and

                                    16 of 20
<PAGE>

        hereby designates the above-named as the person to whom the said officer
        is authorized to mail such process or a true copy thereof.

                                   ARTICLE 23

AGENCY AGREEMENT

If more than one reinsured Company is named as a party to this Contract, the
first named Company shall be deemed the agent of the other reinsured companies
for purposes of sending or receiving notices required by the terms and
conditions of this Contract, and for purposes of remitting or receiving any
monies due any party.

                                   ARTICLE 24

ENTIRE CONTRACT

This Contract embodies the entire agreement and understanding between the
Company and the Reinsurer relating to the subject matter hereof during the term
of this Contract. Unless otherwise specifically provided herein, this Contract
may be amended, modified or waived only by an instrument in writing signed by
the Company and each subscribing reinsurer that is affected by such amendment,
modification or waiver.

                                   ARTICLE 25

INTERMEDIARY

Guy Carpenter & Company, Inc., is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All communications
(including notices, statements, premiums, return premiums, commissions, taxes,
losses, loss expense, salvages, and loss settlements) relating thereto shall be
transmitted to the Company or the Reinsurer through Guy Carpenter & Company,
Inc., 3600 Minnesota Drive, Suite 400, Edina, Minnesota 55435. Payments by the
Company to the Intermediary shall be deemed payment to the Reinsurer. Payments
by the Reinsurer to the Intermediary shall be deemed payment to the Company only
to the extent that such payments are actually received by the Company.

                                   ARTICLE 26

MODE OF EXECUTION

A.      This Contract may be executed by:

        1.      An original written ink signature of paper documents.

                                    17 of 20
<PAGE>

        2.      An exchange of facsimile copies showing the original written ink
                signature of paper documents.

        3.      Electronic signature technology employing computer software and
                a digital signature or digitizer pen pad to capture a person's
                handwritten signature in such a manner that the signature is
                unique to the person signing, is under the sole control of the
                person signing, is capable of verification to authenticate the
                signature and is linked to the document signed in such a manner
                that if the data is changed, such signature is invalidated.

B.      The use of any one or a combination of these methods of execution shall
        constitute a legally binding and valid signing of this Contract. This
        Contract may be executed in one or more counterparts, each of which,
        when duly executed, shall be deemed an original.

IN WITNESS WHEREOF, THE COMPANY HAS CAUSED THIS CONTRACT TO BE EXECUTED BY ITS
DULY AUTHORIZED REPRESENTATIVE(S) THIS 24TH DAY OF MARCH, 2003.

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING
                            DIRECT INSURANCE COMPANY
                        DIRECT GENERAL INSURANCE COMPANY
                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA
                                       AND
                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI
   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF
                            THE DIRECT GENERAL GROUP

                               /s/ J. Todd Hagely
--------------------------------------------------------------------------------
                      Vice President - Finance & Treasurer

                                    18 of 20
<PAGE>

   NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - U.S.A.

1.      This Reinsurance does not cover any loss or liability accruing to the
        Reassured, directly or indirectly, and whether as Insurer or Reinsurer,
        from any Pool of Insurers or Reinsurers formed for the purpose of
        covering Atomic or Nuclear Energy risks.

2.      Without in any way restricting the operation of paragraph (1) of this
        clause, this Reinsurance does not cover any loss or liability accruing
        to the Reassured, directly or indirectly and whether as Insurer or
        Reinsurer, from any insurance against Physical Damage (including
        business interruption or consequential loss arising out of such Physical
        Damage) to:

        I.      Nuclear reactor power plants including all auxiliary property on
                the site, or

        II.     Any other nuclear reactor installation, including laboratories
                handling radioactive materials in connection with reactor
                installations, and "critical facilities" as such, or

        III.    Installations for fabricating complete fuel elements or for
                processing substantial quantities of "special nuclear material",
                and for reprocessing, salvaging, chemically separating, storing
                or disposing of "spent" nuclear fuel or waste materials, or

        IV.     Installations other than those listed in paragraph (2) III above
                using substantial quantities of radioactive isotopes or other
                products of nuclear fission.

3.      Without in any way restricting the operations of paragraphs (1) and (2)
        hereof, this Reinsurance does not cover any loss or liability by
        radioactive contamination accruing to the Reassured, directly or
        indirectly, and whether as Insurer or Reinsurer, from any insurance on
        property which is on the same site as a nuclear reactor power plant or
        other nuclear installation and which normally would be insured therewith
        except that this paragraph (3) shall not operate

        (a)     where Reassured does not have knowledge of such nuclear reactor
                power plant or nuclear installation, or

        (b)     where said insurance contains a provision excluding coverage for
                damage to property caused by or resulting from radioactive
                contamination, however caused. However on and after 1st January
                1960 this sub-paragraph (b) shall only apply provided the said
                radioactive contamination exclusion provision has been approved
                by the Governmental Authority having jurisdiction thereof.

4.      Without in any way restricting the operations of paragraphs (1), (2) and
        (3) hereof, this Reinsurance does not cover any loss or liability by
        radioactive contamination accruing to the Reassured, directly or
        indirectly, and whether as Insurer or Reinsurer, when such radioactive
        contamination is a named hazard specifically insured against.

                                    19 of 20
<PAGE>

5.      It is understood and agreed that this clause shall not extend to risks
        using radioactive isotopes in any form where the nuclear exposure is not
        considered by the Reassured to be the primary hazard.

6.      The term "special nuclear material" shall have the meaning given it in
        the Atomic Energy Act of 1954 or by any law amendatory thereof.

7.      Reassured to be sole judge of what constitutes:

        (a)     substantial quantities, and

        (b)     the extent of installation, plant or site.

Note: Without in any way restricting the operation of paragraph (1) hereof, it
is understood and agreed that

        (a)     all policies issued by the Reassured on or before 31st December
                1957 shall be free from the application of the other provisions
                of this Clause until expiry date or 31st December 1960 whichever
                first occurs whereupon all the provisions of this Clause shall
                apply.

        (b)     with respect to any risk located in Canada policies issued by
                the Reassured on or before 31st December 1958 shall be free from
                the application of the other provisions of this Clause until
                expiry date or 31st December 1960 whichever first occurs
                whereupon all the provisions of this Clause shall apply.

12/12/57
NMA1119

--------------------------------------------------------------------------------

NOTES:  Wherever used herein the terms:

        "Reassured" shall be understood to mean "Company", "Reinsured",
                    "Reassured" or whatever other term is used in the attached
                    reinsurance document to designate the reinsured company or
                    companies.

        "Agreement" shall be understood to mean "Agreement", "Contract",
                    "Policy" or whatever other term is used to designate the
                    attached reinsurance document.

        "Reinsurers" shall be understood to mean "Reinsurers", "Underwriters" or
                     whatever other term is used in the attached reinsurance
                     document to designate the reinsurer or reinsurers.

                                    20 of 20
<PAGE>

                       INTERESTS AND LIABILITIES AGREEMENT
                                (the "Agreement")

                                     of the

                          CONTINENTAL CASUALTY COMPANY
                          (the "Subscribing Reinsurer")

                                 as respects the

                       PROPERTY CATASTROPHE EXCESS OF LOSS
                              REINSURANCE CONTRACT
                                (the "Contract")

                            issued to and executed by

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING
                            DIRECT INSURANCE COMPANY
                        DIRECT GENERAL INSURANCE COMPANY
                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA
                                       AND
                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI
   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF
                            THE DIRECT GENERAL GROUP
                          (collectively, the "Company")

The Subscribing Reinsurer agrees that its share in the interests and liabilities
of the "Reinsurer" as set forth in the Contract attached hereto shall be for:

                        12.50% of the First Excess Layer
                        12.50% of the Second Excess Layer

The share of the Subscribing Reinsurer in the interests and liabilities of the
Reinsurer in respect of each Layer of said Contract shall be separate and apart
from the shares of such other subscribing reinsurers, if any, in respect of each
Layer of said Contract. The interests and liabilities of the Subscribing
Reinsurer shall not be joint with those of such other subscribing reinsurers,
and in no event shall the Subscribing Reinsurer participate in the interests and
liabilities of such other subscribing reinsurers.

                                     1 of 2
<PAGE>

This Agreement shall be effective for the period commencing 12:01 a.m., Central
Standard Time, January 1, 2003, and shall remain in full force and effect for
one year, expiring 12:01 a.m., Central Standard Time, January 1, 2004.

IN WITNESS WHEREOF, the Subscribing Reinsurer has caused this Agreement to be
executed by its duly authorized representative as follows:

on this ___________ day of __________________________, in the year of _________.

                          CONTINENTAL CASUALTY COMPANY

--------------------------------------------------------------------------------

Market Reference Number for First Excess Layer:

Market Reference Number for Second Excess Layer:

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING
                            DIRECT INSURANCE COMPANY
                        DIRECT GENERAL INSURANCE COMPANY
                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA
                                       AND
                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI
   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF
                            THE DIRECT GENERAL GROUP

                       PROPERTY CATASTROPHE EXCESS OF LOSS
                              REINSURANCE CONTRACT

<PAGE>

                                         Page:                 6 of 12
                                         File #:               8958-00-0001-00
                                         Effective Date:       01/01/2003

ACCEPTED:

LAYER ONE:  $3,000,000 EXCESS OF $2,000,000

REINSURER:                              Continental Casualty Company
                           -----------------------------------------------------

REFERENCE #:                                      10857
                           -----------------------------------------------------

AUTHORIZED SIGNATURE:                        /s/ Carl Bergh
                           -----------------------------------------------------

DATE:                                            1/23/03
                           -----------------------------------------------------

LINE:  12.5%      WHICH EQUALS:  $375,000

<PAGE>

                                         Page:                 7 of 12
                                         File #:               8958-00-0001-00
                                         Effective Date:       01/01/2003

ACCEPTED:

LAYER TWO:  $5,000,000 EXCESS OF $5,000,000

REINSURER:                             Continental Casualty Company
                           -----------------------------------------------------

REFERENCE #:                                     10858
                           -----------------------------------------------------

AUTHORIZED SIGNATURE:                       /s/ Carl Bergh
                           -----------------------------------------------------

DATE:                                           1/23/03
                           -----------------------------------------------------

LINE:  12.5%      WHICH EQUALS:  $625,000

<PAGE>

                       INTERESTS AND LIABILITIES AGREEMENT
                                (the "Agreement")

                                     of the

                      ENDURANCE SPECIALTY INSURANCE LIMITED
                          (the "Subscribing Reinsurer")

                                 as respects the

                       PROPERTY CATASTROPHE EXCESS OF LOSS
                              REINSURANCE CONTRACT
                                (the "Contract")

                            issued to and executed by

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING
                            DIRECT INSURANCE COMPANY
                        DIRECT GENERAL INSURANCE COMPANY
                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA
                                       AND
                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI
   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF
                            THE DIRECT GENERAL GROUP
                          (collectively, the "Company")

The Subscribing Reinsurer agrees that its share in the interests and liabilities
of the "Reinsurer" as set forth in the Contract attached hereto shall be for:

                        25.00% of the First Excess Layer
                        25.00% of the Second Excess Layer

The share of the Subscribing Reinsurer in the interests and liabilities of the
Reinsurer in respect of each Layer of said Contract shall be separate and apart
from the shares of such other subscribing reinsurers, if any, in respect of each
Layer of said Contract. The interests and liabilities of the Subscribing
Reinsurer shall not be joint with those of such other subscribing reinsurers,
and in no event shall the Subscribing Reinsurer participate in the interests and
liabilities of such other subscribing reinsurers.

                                     1 of 2
<PAGE>

This Agreement shall be effective for the period commencing 12:01 a.m., Central
Standard Time, January 1, 2003, and shall remain in full force and effect for
one year, expiring 12:01 a.m., Central Standard Time, January 1, 2004.

IN WITNESS WHEREOF, the Subscribing Reinsurer has caused this Agreement to be
executed by its duly authorized representative as follows:

on this ____________ day of __________________________, in the year of ________.

                      ENDURANCE SPECIALTY INSURANCE LIMITED

--------------------------------------------------------------------------------

Market Reference Number for First Excess Layer:

Market Reference Number for Second Excess Layer:

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING
                            DIRECT INSURANCE COMPANY
                        DIRECT GENERAL INSURANCE COMPANY
                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA
                                       AND
                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI
   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF
                            THE DIRECT GENERAL GROUP

                       PROPERTY CATASTROPHE EXCESS OF LOSS
                              REINSURANCE CONTRACT

                                     2 of 2
<PAGE>
                                         Page:                 6 of 12
                                         File #:               8958-00-0001-00
                                         Effective Date:       01/01/2003

ACCEPTED:

LAYER ONE:  $3,000,000 EXCESS OF $2,000,000

REINSURER:                           Endurance Specialty Insurance Ltd.
                           -----------------------------------------------------

REFERENCE #:                                    005828 002
                           -----------------------------------------------------

AUTHORIZED SIGNATURE:                     /s/ Glenn N. B. Clinton
                           -----------------------------------------------------

DATE:                                       February 5, 2003
                           -----------------------------------------------------

LINE:  25.0%      WHICH EQUALS:  $750,000

<PAGE>

                                         Page:                 7 of 12
                                         File #:               8958-00-0001-00
                                         Effective Date:       01/01/2003

ACCEPTED:

LAYER TWO:  $5,000,000 EXCESS OF $5,000,000

REINSURER:                          Endurance Specialty Insurance Ltd.
                           -----------------------------------------------------

REFERENCE #:                                  007913 001
                           -----------------------------------------------------

AUTHORIZED SIGNATURE:                   /s/ Glenn N. B. Clinton
                           -----------------------------------------------------

DATE:                                      February 5, 2003
                           -----------------------------------------------------

LINE:  25.0%      WHICH EQUALS:  $1,250,000

<PAGE>
                       INTERESTS AND LIABILITIES AGREEMENT
                                (the "Agreement")

                                     of the

                           QBE REINSURANCE CORPORATION
                          (the "Subscribing Reinsurer")

                                 as respects the

                       PROPERTY CATASTROPHE EXCESS OF LOSS
                              REINSURANCE CONTRACT
                                (the "Contract")

                            issued to and executed by

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING
                            DIRECT INSURANCE COMPANY
                        DIRECT GENERAL INSURANCE COMPANY
                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA
                                       AND
                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI
   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF
                            THE DIRECT GENERAL GROUP
                          (collectively, the "Company")

The Subscribing Reinsurer agrees that its share in the interests and liabilities
of the "Reinsurer" as set forth in the Contract attached hereto shall be for:

                        25.00% of the First Excess Layer
                        15.00% of the Second Excess Layer

The share of the Subscribing Reinsurer in the interests and liabilities of the
Reinsurer in respect of each Layer of said Contract shall be separate and apart
from the shares of such other subscribing reinsurers, if any, in respect of each
Layer of said Contract. The interests and liabilities of the Subscribing
Reinsurer shall not be joint with those of such other subscribing reinsurers,
and in no event shall the Subscribing Reinsurer participate in the interests and
liabilities of such other subscribing reinsurers.

                                     1 of 2
<PAGE>

This Agreement shall be effective for the period commencing 12:01 a.m., Central
Standard Time, January 1, 2003, and shall remain in full force and effect for
one year, expiring 12:01 a.m., Central Standard Time, January 1, 2004.

IN WITNESS WHEREOF, the Subscribing Reinsurer has caused this Agreement to be
executed by its duly authorized representative as follows:

on this ____________ day of __________________________, in the year of ________.

                           QBE REINSURANCE CORPORATION

--------------------------------------------------------------------------------

Market Reference Number for First Excess Layer:

Market Reference Number for Second Excess Layer:

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING
                            DIRECT INSURANCE COMPANY
                        DIRECT GENERAL INSURANCE COMPANY
                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA
                                       AND
                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI
   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF
                            THE DIRECT GENERAL GROUP

                       PROPERTY CATASTROPHE EXCESS OF LOSS
                              REINSURANCE CONTRACT

                                     2 of 2
<PAGE>
                                         Page:                 6 of 12
                                         File #:               8958-00-0001-00
                                         Effective Date:       01/01/2003

ACCEPTED:

LAYER ONE:  $3,000,000 EXCESS OF $2,000,000

REINSURER:                              QBE Reinsurance Corporation
                           -----------------------------------------------------

REFERENCE #:                                      TR 2546
                           -----------------------------------------------------

AUTHORIZED SIGNATURE:                      /s/ Thomas Renart
                           -----------------------------------------------------

DATE:                                             1/22/03
                           -----------------------------------------------------

LINE:  25.0%      WHICH EQUALS:  $750,000

<PAGE>

                                          Page:                 7 of 12
                                          File #:               8958-00-0001-00
                                          Effective Date:       01/01/2003

ACCEPTED:

LAYER TWO:  $5,000,000 EXCESS OF $5,000,000

REINSURER:                               QBE Reinsurance Corporation
                           -----------------------------------------------------

REFERENCE #:                                       TR 3125
                           -----------------------------------------------------

AUTHORIZED SIGNATURE:                       /s/ Thomas Renart
                            ----------------------------------------------------

DATE:                                             1/22/03
                           -----------------------------------------------------

LINE:  15.0%      WHICH EQUALS:  $750,000

<PAGE>

                       INTERESTS AND LIABILITIES AGREEMENT
                                (the "Agreement")

                                     of the

                                    XL RE LTD
                          (the "Subscribing Reinsurer")

                                 as respects the

                       PROPERTY CATASTROPHE EXCESS OF LOSS
                              REINSURANCE CONTRACT
                                (the "Contract")

                            issued to and executed by

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING
                            DIRECT INSURANCE COMPANY
                        DIRECT GENERAL INSURANCE COMPANY
                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA
                                       AND
                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI
   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF
                            THE DIRECT GENERAL GROUP
                          (collectively, the "Company")

The Subscribing Reinsurer agrees that its share in the interests and liabilities
of the "Reinsurer" as set forth in the Contract attached hereto shall be for:

                        10.00% of the First Excess Layer
                        10.00% of the Second Excess Layer

The share of the Subscribing Reinsurer in the interests and liabilities of the
Reinsurer in respect of each Layer of said Contract shall be separate and apart
from the shares of such other subscribing reinsurers, if any, in respect of each
Layer of said Contract. The interests and liabilities of the Subscribing
Reinsurer shall not be joint with those of such other subscribing reinsurers,
and in no event shall the Subscribing Reinsurer participate in the interests and
liabilities of such other subscribing reinsurers.

                                     1 of 2
<PAGE>

This Agreement shall be effective for the period commencing 12:01 a.m., Central
Standard Time, January 1, 2003, and shall remain in full force and effect for
one year, expiring 12:01 a.m., Central Standard Time, January 1, 2004.

IN WITNESS WHEREOF, the Subscribing Reinsurer has caused this Agreement to be
executed by its duly authorized representative as follows:

on this ____________ day of __________________________, in the year of ________.

                                    XL RE LTD

--------------------------------------------------------------------------------

Market Reference Number for First Excess Layer:

Market Reference Number for Second Excess Layer:

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING
                            DIRECT INSURANCE COMPANY
                        DIRECT GENERAL INSURANCE COMPANY
                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA
                                       AND
                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI
   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF
                            THE DIRECT GENERAL GROUP

                       PROPERTY CATASTROPHE EXCESS OF LOSS
                              REINSURANCE CONTRACT

                                     2 of 2
<PAGE>
                                         Page:                 6 of 12
                                         File #:               8958-00-0001-00
                                         Effective Date:       01/01/2003

ACCEPTED:

LAYER ONE:  $3,000,000 EXCESS OF $2,000,000

REINSURER:                                    XL Re Ltd
                           -----------------------------------------------------

REFERENCE #:                                 6106-01-2003
                           -----------------------------------------------------

AUTHORIZED SIGNATURE:                 /s/ Gregory S. Hendrick
                           -----------------------------------------------------

DATE:                                     February 13, 2003
                           -----------------------------------------------------

LINE:  10.0%      WHICH EQUALS:  $300,000

<PAGE>

                                         Page:                 7 of 12
                                         File #:               8958-00-0001-00
                                         Effective Date:       01/01/2003

ACCEPTED:

LAYER TWO:  $5,000,000 EXCESS OF $5,000,000

REINSURER:                                    XL Re Ltd
                           -----------------------------------------------------

REFERENCE #:                                 6107-01-2003
                           -----------------------------------------------------

AUTHORIZED SIGNATURE:                     /s/ Gary S. Hill
                           -----------------------------------------------------

DATE:                                     February 13, 2003
                           -----------------------------------------------------

LINE:  10.0%      WHICH EQUALS:  $500,000

<PAGE>

                       INTERESTS AND LIABILITIES AGREEMENT
                                (the "Agreement")

                                     of the

            CERTAIN UNDERWRITING MEMBERS OF LLOYD'S, LONDON, ON WHOSE
                     BEHALF THIS AGREEMENT HAS BEEN SIGNED
                        (AS PER SCHEDULE ATTACHED HERETO)
                          (the "Subscribing Reinsurer")

                                 as respects the

                       PROPERTY CATASTROPHE EXCESS OF LOSS
                              REINSURANCE CONTRACT
                                (the "Contract")

                            issued to and executed by

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING
                            DIRECT INSURANCE COMPANY
                        DIRECT GENERAL INSURANCE COMPANY
                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA
                                       AND
                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI
   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF
                            THE DIRECT GENERAL GROUP
                          (collectively, the "Company")

The Subscribing Reinsurer agrees that its share in the interests and liabilities
of the "Reinsurer" as set forth in the Contract attached hereto shall be for:

                        25.00% of the First Excess Layer
                        35.00% of the Second Excess Layer

The share of the Subscribing Reinsurer in the interests and liabilities of the
Reinsurer in respect of each Layer of said Contract shall be separate and apart
from the shares of such other subscribing reinsurers, if any, in respect of each
Layer of said Contract. The interests and liabilities of the Subscribing
Reinsurer shall not be joint with those of such other subscribing reinsurers,
and in no event shall the Subscribing Reinsurer participate in the interests and
liabilities of such other subscribing reinsurers.

                                     1 of 2
<PAGE>

This Agreement shall be effective for the period commencing 12:01 a.m., Central
Standard Time, January 1, 2003, and shall remain in full force and effect for
one year, expiring 12:01 a.m., Central Standard Time, January 1, 2004.

IN WITNESS WHEREOF, the Subscribing Reinsurer has caused this Agreement to be
executed by its duly authorized representative as follows:

on this ____________ day of __________________________, in the year of ________.

            CERTAIN UNDERWRITING MEMBERS OF LLOYD'S, LONDON, ON WHOSE
                     BEHALF THIS AGREEMENT HAS BEEN SIGNED
                        (AS PER SCHEDULE ATTACHED HERETO)

--------------------------------------------------------------------------------

Market Reference Number for First Excess Layer:

Market Reference Number for Second Excess Layer:

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING
                            DIRECT INSURANCE COMPANY
                        DIRECT GENERAL INSURANCE COMPANY
                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA
                                       AND
                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI
   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF
                            THE DIRECT GENERAL GROUP

                       PROPERTY CATASTROPHE EXCESS OF LOSS
                              REINSURANCE CONTRACT

                                     2 of 2
<PAGE>

                                    MARSH LTD

                                    per
                                    Guy Carpenter & Company Ltd

<TABLE>
<CAPTION>
                                      Schedule of Reinsurers
                                      ----------------------
<S>                        <C>
             12.5000%      Lloyd's Underwriter Syndicate No. 2010 MMX, LONDON

             12.5000%      Lloyd's Underwriter Syndicate No. 2001 AML, LONDON
           ------------
             25.0000%
</TABLE>

FOR AND ON BEHALF OF
MARSH LTD

    /s/ Martin Verrills, Sr.
---------------------------------               --------------------------------
             AUTHORIZED SIGNATORY                           AUTHORIZED SIGNATORY

<PAGE>

                                    MARSH LTD

                                    per
                                    Guy Carpenter & Company Ltd

<TABLE>
<CAPTION>
                                      Schedule of Reinsurers
                                      ----------------------
<S>                        <C>
             15.0000%      Lloyd's Underwriter Syndicate No. 2010 MMX, LONDON

             20.0000%      Lloyd's Underwriter Syndicate No. 2001 AML, LONDON
           ------------
             35.0000%
</TABLE>

FOR AND ON BEHALF OF
MARSH LTD

    /s/ Martin Verrills, Sr.
---------------------------------               --------------------------------
             AUTHORIZED SIGNATORY                           AUTHORIZED SIGNATORY<PAGE>
                                                                   Exhibit 10.12

                    EXCESS OF LIABILITY REINSURANCE AGREEMENT

                                     BETWEEN

                   STATE NATIONAL SPECIALTY INSURANCE COMPANY

                                       AND

                        DIRECT GENERAL INSURANCE COMPANY

                           EFFECTIVE: OCTOBER 1, 2002

<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
  ARTICLE                                                                    PAGE
<S>              <C>                                                         <C>
                 Preamble                                                       1

       1         Business Reinsured                                             1

       2         Original Conditions                                            2

       3         Commencement, Termination, Terms & Conditions                  2

       4         Loss and Loss Adjustment Expense                               3

       5         Reports and Remittances                                        4

       6         Errors and Omissions                                           6

       7         Premium and Commission                                         6

       8         Access to Records                                              7

       9         Arbitration                                                    7

      10         Assessments, Assignments, Fines and Penalties                  8

      11         Premium Financing                                              9

      12         Insolvency                                                     9

      13         Alternate Payee                                               10

      14         Hold Harmless Provisions                                      10

      15         Loss in Excess of Policy Limits/ECO                           12

      16         Regulatory Matters                                            12

      17         The General Agent                                             13

      18         Reinsurer or General Agent Sale or Transfer                   14

      19         Miscellaneous                                                 14

      20         Loss and Unearned Premium Reserve Funding                     16

      21         T.B.A. Insurance Group, Ltd. ("T.B.A.")                       16

      22         Savings Clause                                                17

      23         Inuring Reinsurance                                           17
</TABLE>

<PAGE>

                    EXCESS OF LIABILITY REINSURANCE AGREEMENT

THIS EXCESS OF LIABILITY REINSURANCE AGREEMENT (this "Agreement") is made and
entered into as of October 1, 2002, by and among DIRECT GENERAL INSURANCE
COMPANY, an insurance company organized under the laws of South Carolina
("Reinsurer") and STATE NATIONAL SPECIALTY INSURANCE COMPANY, an insurance
company organized under the laws of the State of Texas ("Company");

                              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 Direct General Insurance Agency, Inc., a Texas
corporation, have entered into a General Agency Agreement dated as of October 1,
2002 (the "General Agency Agreement") a true and correct copy of which is
attached hereto as Exhibit A and fully incorporated herein by this reference. It
is understood that, in relation to the business produced under the General
Agency Agreement, the Company and the Reinsurer (hereinafter identified
collectively as the "Parties") wish to enter into a reinsurance arrangement
through which the Company is to bear no business, credit or insurance risk
whatsoever in connection with the private passenger automobile insurance
policies issued through the General Agent (the "Subject Program"). In this
regard, all underwriting risks arising from the Subject Program, with the
exception of private passenger automobile physical damage, will be ceded to and
assumed by The North Carolina Reinsurance Facility (the "Facility"). As a
condition precedent to the Company's agreement to permit policies to be issued
in the name of the Company pursuant to the Subject Program, the Reinsurer shall
hold the Company harmless and indemnify it for these and all risks arising from
the Subject Program other than those assumed and actually paid by the Facility.
The sole consideration provided by the Company, in exchange for the fees set
forth in Article VII herein, is to permit the Policies (as hereinafter defined)
which are reinsured under this Agreement, to be issued in the name of the
Company. All provisions of this Agreement shall be interpreted so as to be in
accord with this Preamble.

                                    ARTICLE I
                               BUSINESS REINSURED

1.01 The Reinsurer hereby reinsures and accepts any and all liability accruing
to the Company in connection with the Subject Program and all policies,
certificates, contracts, binders, agreements or other proposals or evidences of
insurance, new and renewal policies, binders, and contracts of insurance
(hereinafter called "Policies") issued by and on behalf of the Company in its
sole discretion as auto liability, and miscellaneous coverages as endorsed in
North Carolina during the term of this Agreement, produced by or through the
General Agent appointed by the Company at the request of the Reinsurer as
provided in 17.02 of this Agreement (other than those liabilities assumed by the
Facility), including without limitation, every claim, demand, liability, loss,
damage, cost, charge, attorneys' fees, expense, suit, order, judgment, and
adjudication of whatever kind or character arising out of or in connection with
the Subject Program, the business reinsured thereunder (including, but not
limited to, credit loss, and/or run-off expense and/or all legal fees and
expenses incurred by the Company in asserting its rights under this Agreement).
The Reinsurer's obligation hereto relates to, but is not limited

                                       1
<PAGE>

to, the following: all liability for agents' balances; return premiums and
commissions; deceptive trade practice liability; premiums, policy fees or other
charges; costs, liability, damages, fees and/or expenses incurred by the Company
due to a lawsuit between the Reinsurer and the General Agent (any dispute
involving the Company and the Reinsurer is subject to arbitration); all actions
or inactions by the General Agent relating to this Agreement, any agreement with
a premium finance company or claims administrator; and/or all fees and/or
commissions owing to the General Agent under this and the aforementioned related
agreements.

                                   ARTICLE II
                               ORIGINAL CONDITIONS

2.01 Business ceded hereunder shall include every original policy, rewrite,
renewal or extension (whether before or after the termination of this Agreement)
required by applicable statute, or by rule or regulation of any policy of
insurance ceded hereunder by the Company to the Reinsurer.

2.02 The liability of the Reinsurer shall commence obligatorily and
simultaneously with that of the Company as soon as the Company becomes liable,
and the premium on account of such liability shall be credited, as applicable,
to the Reinsurer from the original date of the Company's liability.

2.03 All reinsurance for which the Reinsurer shall be liable, by virtue of this
Agreement, shall be subject, in all respects, to the same rates, terms,
conditions, interpretations, waivers, the exact proportion of premiums paid to
the Company without any deduction for brokerage, and to the same modifications,
alterations and cancellations, as the respective insurance of the Company to
which such reinsurance relates, the true intent of this Agreement being that the
Reinsurer shall, in every case to which this Agreement applies and in the
proportion specified herein, follow the fortunes of the Company.

2.04 Nothing herein shall in any manner create any obligations, establish any
rights or create any direct right of action against the Reinsurer in favor of
any third party, or other person not party to this Agreement; or create any
privity of contract between the policyholders and the Reinsurer.

                                   ARTICLE III
                 COMMENCEMENT, TERMINATION, TERMS AND CONDITIONS

3.01 This Agreement shall become effective on October 1, 2002 at 12:01 A.M. as
respects losses arising out of occurrences commencing under Policies written on
or after such date at the offices of the Company, and shall remain continuously
in force unless terminated as provided herein.

3.02 This Agreement shall continue from the effective date and thereafter until
termination of the General Agency Agreement (as hereinafter defined). The
parties may not cancel this Agreement independent of the General Agency
Agreement, and this Agreement shall terminate automatically and only upon
termination of the General Agency Agreement.

3.03 When this Agreement terminates for any reason, reinsurance hereunder shall
continue to apply to the business in force at the time and date of termination
until expiration or cancellation of such business. It is understood that any
Policies with effective dates prior to the termination date but issued after the
termination date are covered under this Agreement.

                                       2
<PAGE>

Additionally, the reinsurance hereunder shall continue to apply as to Policies
which must be issued or renewed, as a matter of state law or regulation or
because a sub-agent has not been timely canceled, until the expiration dates on
said Policies.

3.04 Upon termination of this Agreement, the Reinsurer, General Agent and the
Company 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 outstanding insurance business under this Agreement
existing on the date of such termination. The parties hereto expressly covenant
and agree that they will cooperate with each other in the handling of all such
run-off insurance business until all policies have expired either by
cancellation or by terms of such policies and all outstanding losses and loss
adjustment expenses have been settled. While by law and regulation, the Company
recognizes its primary obligations to its policyholders, the Reinsurer
recognizes that to the extent possible there shall be no cost or involvement by
the Company in servicing this run-off. All costs and expenses associated with
handling of such run-off business following the cancellation or termination of
this Agreement shall be borne solely by the General Agent and, to the extent not
borne by the General Agent, solely by Reinsurer. If for any reason the General
Agent fails or is unable to service any such run-off business (or any business
while this Agreement is still in effect), including the payment of claims, then
consistent with this Agreement, the Reinsurer's obligation with respect to such
run-off business shall continue and the Reinsurer shall either service such
run-off business directly or appoint, at the Reinsurer's expense, a successor to
the General Agent, subject to the approval of the Company, which approval shall
not be unreasonably withheld. Such successor shall perform all of the duties and
obligations of the General Agent with respect to servicing such run-off business
including the payment of claims.

3.05 This Agreement provides for termination on a run-off basis. The relevant
provisions of this Agreement shall apply to business being run off.

3.06 Upon termination of this Agreement, the Reinsurer shall ensure the General
Agent takes those actions necessary, including, but not limited to, sending
statutorily prescribed non-renewal notices to insureds in a timely manner to
effectuate the intent that there be no renewals or new policies (but for those
required by applicable law or regulation) after the termination of this
Agreement.

                                   ARTICLE IV
                        LOSS AND LOSS ADJUSTMENT EXPENSE

4.01 All loss settlements made by the Company or the General Agent under the
terms of this Agreement, whether under strict policy conditions or by way of
compromise, shall be unconditionally binding upon the Reinsurer in proportion to
its participation, and the Reinsurer shall benefit proportionately in all
salvage and recoveries. The Reinsurer shall assume and be liable for and pay on
behalf of the Company, all losses incurred in connection with the risks covered
by this Agreement, including, but not limited to, judgments (including interest
thereon) and settlements in connection therewith. The Reinsurer shall also be
liable for and pay on behalf of the Company all costs, expenses, and fees
(including, but not limited to, attorney's fees) incurred by the Company in
connection with the investigation or settlement or contesting the validity of
claims or losses covered under this Agreement (this shall include but, of
course, is not limited to, costs, expenses and fees resulting from a declaratory
judgment or injunctive action brought by an insured or other person).

                                       3
<PAGE>

4.02 The Reinsurer's share of losses, expense and loss recovery shall be carried
into the monthly accounting for which provision is hereinafter made.

4.03 All records pertaining to claims arising under insurance policies issued on
behalf of the Company through or by the General Agent subject to this Agreement
shall be deemed to be jointly owned records of the Company and the Reinsurer,
and shall be made available to the Company or the Reinsurer or their respective
representatives or any duly appointed examiner for any state within the United
States; and these records shall be kept in the State of North Carolina or such
other jurisdiction as may be required or permitted by applicable state law or
regulation. Notwithstanding the foregoing, the Reinsurer is authorized to
maintain duplicate working files of all such records outside the State of North
Carolina. The Company, the Reinsurer and the General Agent each agree that it
will not destroy any such records in its possession without the prior written
approval of the other parties except that neither party shall be required to
retain files longer than required by the guidelines set forth by any applicable
state department of insurance.

4.04 The Reinsurer shall, or shall cause the General Agent to, establish a
separate claim register or method of recording claims arising under the Policies
covered by this Agreement so that all claims may be segregated and identified
separate and apart from other records of the Reinsurer or General Agent, with
such claims register to identify each claim on an individual case basis both as
to identify the insured(s) and the claimant, the reserve for loss and adjusting
expense. Such claim register shall be kept in a manner whereby the Company can,
at any time, determine the status of any claim arising under Policies covered by
this Agreement. Such records shall reflect the amount of reserves established
for the individual claim and the date when such reserve was established, and if
closed, whether such claim was closed with or without payment, and if with
payment, the amount paid thereon.

                                    ARTICLE V
                             REPORTS AND REMITTANCES

5.01 In lieu of the Company furnishing the Reinsurer with bordereaux showing the
particulars of all reinsurances ceded hereunder, the Reinsurer shall furnish or
cause to be furnished to the Company, within forty-five (45) days after the
close of each of the respective periods indicated below (on forms agreeable to
the Parties) with monthly, quarterly and annual reports showing the following
statistical data in respect to the business reinsured hereunder:

         (a)  Monthly, with the data segregated by major classes.

                  (i)      Net and ceded premiums written.
                  (ii)     Net and ceded unearned premiums.
                  (iii)    Net and ceded losses paid.
                  (iv)     Net and ceded adjustment expenses paid during this
                           month.
                  (v)      Ceded adjustment expenses paid during this month.
                  (vi)     Losses outstanding.
                  (vii)    Ceding commission due the Company.
                  (viii)   Commission due the General Agent.

         (b)      Annually, with the data segregated by major classes.

                  (i)      Annual summaries of net premiums written, net losses
                           paid, net adjusting expenses paid during the year in
                           such form so as to enable the Company

                                       4
<PAGE>

                           to record such data in its annual convention
                           statement. Such information is to be furnished not
                           later than February 15th of the following year. In
                           force and unearned premium segregated as to advance
                           premiums, premiums running twelve (12) months or less
                           from inception date of policy, and premiums running
                           more than twelve (12) months from inception date of
                           policy in such form as to enable the Company to
                           record such data in its convention annual statement.

                  (ii)     If applicable, annual summaries of net premiums
                           written by geographical location in such form as to
                           enable the Company to record such premiums in its
                           annual report to the Texas Catastrophe Property
                           Insurance Association.

         (c)      Periodic, with data segregated by major lines.

                           Statistical or other data as may be requested from
                           time to time by regulatory authorities.

5.02 In order to facilitate the handling of the business reinsured under this
Agreement, the Reinsurer agrees to furnish the Company with any additional
reports necessary to provide the information needed by the Company to prepare
its monthly, quarterly and annual statements to regulatory authorities.

5.03 Within 60 days after the end of each month, the General Agent shall remit
to the Reinsurer the following:

         (a)      Reinsurance Premium as collected in accordance with Section
                  7.06, less;

         (b)      ceded portion of Net Paid losses and loss adjustment expenses
                  paid, provided such losses and loss adjustment expenses have
                  not been deducted on behalf of the Company in any previous
                  monthly report.

The positive balance of (a) less (b) shall be remitted by the General Agent with
its report. Any balance shown to be due the Company shall be remitted by the
Reinsurer as promptly as possible after receipt and verification of the General
Agent's report, but no later than 60 days after the end of each month.

                                   ARTICLE VI
                              ERRORS AND OMISSIONS

6.01 The Company shall not be prejudiced in any way by any omission through
clerical error, accident or oversight to cede to the Reinsurer any reinsurance
rightly falling under the terms of this Agreement, or by erroneous cancellation,
either partial or total, or any cession, or by omission to report, or by
erroneously reporting any losses, or by any other error or omission, but any
such error or omission shall be corrected immediately upon discovery.

6.02 Should the Company suffer any loss whatsoever, the Reinsurer shall assume
loss for its own account and save and hold the Company harmless therefor.

                                       5
<PAGE>

                                   ARTICLE VII
                             PREMIUM AND COMMISSION

7.01 It is understood that the General Agent shall pay, and the Reinsurer shall
guarantee, the Company directly a fee within forty-five (45) days following the
end of each month (to the Company's designated agent, T.B.A. Insurance Group,
Ltd. ("TBA"), as a ceding fee), 19% of Net Premiums, and in addition guarantees
the amount of assessments and state premium taxes as provided in this Article X.
(The ceding fee amount shall be computed on a calendar year basis based on
premium written in each annual period ended December 31st.) Notwithstanding
anything else contained herein to the contrary, regardless of the amount of Net
Premiums, the minimum ceding fee due the Company shall be $37,500 for each
six-month period, plus the aforementioned assessments and state premium taxes.
(This minimum ceding fee applicable to each successive six-month period shall
not be affected by the amounts of Net Premiums written in other six-month
periods and shall not be reduced by reason of payments in excess of the minimum
in other periods. The minimum ceding fee for each period shall be paid within
sixty (60) days of the end of each period. For these purposes, a policy's entire
premium shall be applied to the period in which the policy is written.) "Net
Premiums" shall mean the gross premiums (including policy fees) charged on all
original and renewal Policies written on behalf of the Company, less return
premiums.

7.02 The General Agent shall allow and pay within forty-five (45) days of the
end of each month to the Company an amount equal to the state premium tax on the
Net Premiums for the past month. Should any additional premium tax be assessed
at any time on written premium reinsured hereunder, the Reinsurer shall pay the
Company such additional premium tax within (fifteen) 15 days of being informed
by the Company of such additional premium tax. The Parties acknowledge that at
the effective date of this Agreement, the North Carolina Department of Insurance
(or other state agency responsible for collecting premium taxes) may require the
payment of estimated premium taxes in advance on a semi-annual basis. The
Reinsurer shall, therefore, pay to the Company within five days prior to the due
date of any such estimated premium tax payment, the amount that would be due
based upon the business produced hereunder.

7.03 The Reinsurer hereby guarantees that (i) the Company will receive the
ceding fee provided hereunder irrespective of any events, losses or developments
for the term of this Agreement (Such payment is not dependent upon the
performance of the General Agent, underwriting experience, loss experience,
whether premium is collected or not, or any other event foreseen or unforeseen
by the parties at the inception of this Agreement.), and in addition (ii) those
amounts described in Section 7.05 of this Agreement and is directly responsible
for payment of the amount described in Article X. The Company shall allow return
ceding fees on return premiums at the same rates.

7.04 RESERVED.

7.05 General Agent shall pay to the Company all premium taxes payable for
policies subject to reinsurance hereunder. In the event that the ceding fee and
premium taxes are not so paid by the General Agent within 60 days following the
end of the month, the unpaid balance shall be paid directly to the Company by
the Reinsurer.

7.06 The Company shall pay the Reinsurer a premium equal to 15.0% of Net Premium
(the "Reinsurance Premium"). The Reinsurance Premium is payable by the Company
to the Reinsurer at the same time, and on the same basis, the ceding fee is
payable to the Company

                                       6
<PAGE>

under section 7.01 hereunder.

                                  ARTICLE VIII
                                ACCESS TO RECORDS

         The Reinsurer or its duly appointed representatives shall have free
access at any and all reasonable times to such books and records of the Company
or General Agent, its departmental or branch offices, as shall reflect premium
and loss transactions of the Company and/or the business produced hereunder, for
the purpose of obtaining any and all information concerning this Agreement or
the subject matter thereof. Likewise, the Company or its duly appointed
representatives shall have free access at any and all reasonable times to such
books and records of the Reinsurer and/or General Agent, its departmental or
branch offices as shall reflect premium and loss transactions of the Company
and/or the business produced hereunder, for the purpose of obtaining any and all
information concerning this Agreement or the subject matter hereof.

                                   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 and
the Reinsurer with respect to this Agreement, or with respect to these Parties'
obligations hereunder, it is hereby mutually agreed that such dispute or
difference of opinion shall be submitted to arbitration.

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

9.03 In the event that a party fails to choose an Arbiter within thirty (30)
days following a written request by either party to the other to name an
Arbiter, 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 thirty (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 party shall present its case to the Arbiters and Umpire within a
reasonable amount of time after selection of the Umpire, unless the period is
extended by the Arbiters and the Umpire in writing and/or at 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 Parties shall be final and binding on
the parties. 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 Reinsurer concerning
this Agreement and the General Agency Agreement (regardless of whether either
party has claims against the General Agent), the entire dispute between the
Company and the Reinsurer shall be subject to arbitration as provided in this
Article IX.

                                       7
<PAGE>

9.06 The costs of the arbitration, including the fees of the arbitrators and the
umpire, shall be borne equally 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 and conducted according to the Texas General
Arbitration Act.

                                    ARTICLE X
                  ASSESSMENTS, ASSIGNMENTS, FINES AND PENALTIES

10.01 The Reinsurer hereby assumes liability for any and all assessments and
assignments imposed as a result of Policies reinsured hereunder (whether before
or after the termination of this Agreement). The Reinsurer shall immediately
reimburse the Company for any assessments made against the Company pursuant to
those laws and regulations creating obligatory funds (including, but not limited
to, insurance guaranty and insolvency funds), pools, joint underwriting
associations, FAIR plans and similar plans. Amounts owed by the Reinsurer under
this Section shall be payable directly by the Reinsurer to the Company. The
Reinsurer shall be entitled to receive from the Company on or prior to the 31st
day of March of each year thereafter (or such date on which such premium taxes
are paid) a sum equal to the premium tax credit that is allowed to the Company
with respect to such assessments. The premium tax credit allowed the Reinsurer
hereunder is to be on a pro-rata and first-in, first-out basis. The Company
shall promptly return to the Reinsurer any amount of assessment refunded to or
credited to the Company.

10.02 This Agreement shall apply to risks assigned to the Company under any
assigned risk plan if, in the reasonable judgment of the Company, such risks
were assigned to the Company because of the business written and reinsured
hereunder.

10.03 The Reinsurer shall also pay promptly and directly to the Company the
fines, penalties and/or any other charge incurred by the Company as respects the
business reinsured hereunder arising out of the actions or inactions of the
General Agent unless such fines, penalties and/or any other charge was a direct
result of any willful misconduct on the part of the Company, which has been
finally determined by a court of competent jurisdiction after the exhaustion of
all appeals.

10.04 The Reinsurer shall cause the General Agent to act on behalf of the
Company to produce, prepare, and file statistical information with the
designated statistical reporting bureau. Such costs and expenses shall be
remitted in advance by the General Agent, and the Reinsurer hereby guarantees
the timely payment of such costs and expenses, to the Company with its monthly
account, based on the Company's good faith estimation. Adjustments to the
estimation shall be made annually by the Company to reflect the actual costs
related to the business produced hereunder. The Reinsurer shall also cause the
General Agent to 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.

                                   ARTICLE XI
                                PREMIUM FINANCING

         With respect to Policies covered under the provisions of this
Agreement, if any premiums are financed, the General Agent shall receive and
accept on behalf of the Company all notices required by statute, contract or
otherwise to be given to the Company, including, without limitation, notices of
the existence of premium finance agreements or of cancellation of policies

                                       8
<PAGE>

the premiums of which are financed ("financed policies"). No producing agent or
any other agent shall be entitled to receive or accept any notice on behalf of
the Company, and the General Agent shall be responsible for and will indemnify
and hold the Company harmless from and against any and all liabilities, losses,
claims, damages and expenses incurred by reason of or arising out of any action
taken or inaction suffered as a result of receipt of any notice by any person,
firm or entity other than the General Agent or the Company. Notwithstanding any
other term or provision of this Agreement, the General Agent agrees to return
and pay over to any premium finance company (whether affiliated with the Company
or not) which has sent notice of cancellation of a financed policy to the
General Agent, on behalf of the Company, within 30 days of receipt of such
notice of cancellation, any and all unearned commissions as of the date of
cancellation, together with any and all unearned premiums due any premium
finance company. The General Agent agrees to and does hereby relinquish any and
all rights to any unearned commissions for any such financed policy as of the
date of cancellation. The obligation of the General Agent to refund unearned
commissions and unearned premiums on a canceled financed policy shall survive
the termination or cancellation of this Agreement for so long as any policy
written under the terms of this Agreement remains in force. If the General Agent
does not fulfill its obligations to refund unearned commissions and unearned
premiums as provided in this Article XI and/or to indemnify the Company as
provided in this Article XI, then the Reinsurer shall pay the amount of the
refund owed and/or shall indemnify the Company even if the premium finance
company is an affiliate of the Company.

                                   ARTICLE XII
                                   INSOLVENCY

12.01 In the event of insolvency of the Company, this reinsurance shall be
payable directly to the Company or to its liquidator, receiver, conservator or
statutory successor on the basis of the liability of the Company without
diminution because of the insolvency of the Company or because the liquidator,
receiver, conservator or statutory successor of the Company has failed to pay
all or a portion of any claims.

12.02 It is agreed, however, that the liquidator, receiver, conservator or
statutory successor of the Company shall give written notice to the Reinsurer of
the pendency of a claim against the Company indicating the policy or bond
reinsured which claim would involve a possible liability on the part of the
Reinsurer within thirty (30) days after such claim is filed in the insolvency,
conservation or liquidated proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such claims and
interpose, at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses that it may deem available to the Company
or its liquidator, receiver, conservator or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to the approval of
the Court, against the Company as part of the expense of conservation or
liquidation to the extent of a pro rata share of the benefit which may accrue to
the Company solely as a result of the defense undertaken by the Reinsurer.

12.03 Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by the Company.

12.04 It is further understood and agreed that, in the event of the insolvency
of the Company, the reinsurance under this Agreement shall be payable directly
by the Reinsurer to the Company or to its liquidator, receiver or statutory
successor, except (i) as provided by applicable law, (ii) where the Agreement
specifically provides another payee of such

                                       9
<PAGE>

reinsurance in the event of the insolvency of the Company and (iii) where the
Reinsurer with the consent of the direct insured or insureds has assumed such
policy obligations of the Company as direct obligations of the Reinsurer to the
payees under such policies and in substitution for the obligation of the Company
to such payees.

                                  ARTICLE XIII
                                 ALTERNATE PAYEE

13.01 As respects subject business assumed as reinsurance under this Agreement,
it is agreed that if the Company has a conservator, liquidator or receiver
appointed for it, or becomes the subject of any conservation, liquidation or
insolvency proceeding, and the General Agent exercises its option to require the
Company to permit all its liabilities under the Policies reinsured hereunder to
be assumed by another licensed insurer as is permitted pursuant to the General
Agency Agreement, such assuming insurer shall be substituted for the Company as
payee of any reinsurance recoverable hereunder in respect of losses under
Policies subject hereto, and the Reinsurer, shall make payment thereof directly
to the substituted insurer. In the event of assumption, the Company shall,
however, be entitled to any ceding fees and other sums owing hereunder with
respect to Policies originally issued on its behalf.

13.02 In the event that an assuming insurer is submitted for the Company under
Section 13.01, all the other provisions of this Agreement shall apply to the
substituted insurer in the same manner as if said insurer were substituted for
the Company as the reinsured party hereunder, and to the extent this Agreement
reinsures such substituted insurer, coverage hereunder shall be excluded as
respects the Company.

                                   ARTICLE XIV
                            HOLD HARMLESS PROVISIONS

14.01 Notwithstanding anything else contained herein to the contrary, as
respects all matters related to this Agreement, in addition to those specific
provisions insulating the Company from specific risks hereunder, the Reinsurer
hereby covenants and agrees to reimburse and hold the Company harmless from and
against every claim, demand, liability, loss, damage, cost, charge, attorneys'
fees, expense, suit, order, judgment and adjudication of whatever kind or
character regarding (i) this Agreement and/or (ii) the business reinsured
hereunder (including, but not limited to, underwriting loss, credit loss, and/or
run-off expense and/or all legal fees and expenses incurred by the Company in
asserting its rights under this Agreement) whether or not such claim, demand,
loss, damage, cost, charge, attorneys' fees, expense, suit, order, judgment or
liability is within the terms of Policies written and reinsured hereunder. The
Reinsurer's obligation hereto relates to, but is not limited to the following:
all liability for agents' balances; return premiums and commissions; deceptive
trade practice liability; premiums, policy fees or other charges (whether
collected or not); costs, liability, damages, fees and/or expenses incurred by
the Company due to a lawsuit between the Reinsurer and the General Agent (any
dispute involving the Company and the Reinsurer is subject to arbitration); all
actions or inactions by General Agent relating to this Agreement, any agreement
with a premium finance company or claims administrator; and/or all fees and/or
commissions owing to the General Agent under this and the aforementioned related
agreements.

14.02 The Company shall not be liable to the Reinsurer for premiums unless the
Company itself has actually received those premiums and wrongfully not remitted
them to the Reinsurer. The Reinsurer may not offset, unless otherwise
contemplated in this Agreement, any balances on account of losses, loss
adjustment expenses or any other amounts due except as to

                                       10
<PAGE>

premiums actually received by the Company itself (as distinct from premiums not
collected, or premiums collected by the General Agent, or premium placed in the
premium trust account pursuant to the General Agency Agreement) which have
wrongfully not been transmitted to the Reinsurer.

14.03 If for any reason the General Agent fails or is unable to administer the
policies reinsured hereunder (whether the Agreement is still in effect or the
business is being run-off), (i) the Reinsurer shall appoint a party (acceptable
and approved by the Company) to administer the business and the Reinsurer shall
be responsible for the cost of said administration and (ii) the General Agent
will fully cooperate with the Company (or its designated representative) in
providing access to such of the General Agent's personnel, computer systems or
other assets or procedures as the Company may deem necessary to provide for an
orderly transition of the administration of the Policies reinsured hereunder. If
return premiums or other funds need to be returned to premium finance companies,
policyholders or sub-agents, the Reinsurer shall pay of these amounts if the
successor or administrator does not.

14.04 The Reinsurer shall not sue, or seek arbitration, against the Company for
any acts of the General Agent for any monies which the General Agent owes unless
the Company has actually received those monies and has wrongfully not remitted
them to the Reinsurer; and the Reinsurer shall indemnify the Company for any
damages, liabilities and expenses incurred by reason of the General Agent's acts
or failure to act. The Company is not responsible for any commissions or other
monies payable to the General Agent in connection with this Agreement and the
General Agent shall not sue, or seek arbitration against, the Company for any
actions by, or debts owing from, the Reinsurer. The Reinsurer shall not seek to
recover from, or offset against, the Company any sums, whether premiums or other
monies, which the General Agent was unable or unwilling to remit to the Company
or the Reinsurer.

14.05 In the event the Reinsurer, or any agent appointed pursuant to this
Agreement, binds the Company for insurance coverage on insurance risks which are
in excess of the policy limits set forth in Article I, and/or are not within the
terms of business specified in Article I, and/or are not within the territory
specified in Article I, whether intentional or not, the Reinsurer and General
Agent will do such things and take such actions as may be necessary to reduce
the Company's exposure to such risks and to hold the Company harmless against
any liability or loss which may be incurred by the Company in excess hereof. At
the Company's request, the General Agent in accordance with applicable law, and
policy terms, shall cancel or not renew any risk bound which is not in
conformance with this Agreement. Any such insurance coverage on insurance risks
bound contrary to the limitations which are in excess of the policy limits set
forth in Article I, and/or are not within the classes of business specified in
Article I, and/or are not within the territory specified in Article I, whether
intentional or not, shall be reinsured and subject to this Agreement.

14.06 In furtherance of the protections afforded to the Company under this
Agreement, the Reinsurer expressly acknowledges that certain circumstances may
come to exist with respect to the Policies reinsured hereunder that require
adjustment to the timing of Reinsurer remittances. If, in the sole discretion of
the Company, an advance payment or payments of the Reinsurer's obligations under
this Agreement is necessary to avoid irreparable harm to the Company (as, for
example, in the circumstance where the funds available in the premium trust
account established pursuant to Section 2.01 of the General Agency Agreement are
insufficient to provide for timely payment of claims), the Reinsurer shall make
such payment or payments promptly upon the Reinsurer's receipt of the Company's
good faith estimate or calculation of the necessity thereof.

                                       11
<PAGE>

14.07 In the event any provision, term and/or condition of this Agreement (other
than the Preamble hereof) is inconsistent with the provision, terms and/or
conditions of Section 14.01 above, the provision, terms, and/or conditions of
said Section 14.01 above shall control over and supercede such inconsistent
provision, terms, and/or conditions.

14.08 The Reinsurer's indemnification obligations to the Company under this
Agreement shall occur when the Company incurs or becomes liable for any
indemnifiable damage, liability or expense hereunder and not upon the actual
payment by the Company of such damage, liability or expense.

14.09 This indemnification provision shall not apply with respect to actions,
causes of actions, suits, arbitrations, or proceedings of any kind, liabilities,
losses, claims, damages, costs, or expenses that result from the gross
negligence or willful misconduct of the Company or attributable to the Company.

                                   ARTICLE XV
                       LOSS IN EXCESS OF POLICY LIMITS/ECO

15.01 In the event the Company pays or is held liable to pay an amount of loss
in excess of its policy limit, but otherwise within the terms of its policy
(hereinafter called "loss in excess of policy limits") or any punitive,
exemplary, compensatory or consequential damages, other than loss in excess of
policy limits (hereinafter called "extra contractual obligations") because of
alleged or actual bad faith or negligence on its part in rejecting a settlement
within policy limits, or in discharging its duty to defend or prepare the
defense in the trial of an action against its policyholder, or in discharging
its duty to prepare or prosecute an appeal consequent upon such an action, or in
otherwise handling a claim under a policy subject to this Agreement, 100% of the
loss in excess of policy limits and/or 100% of the extra contractual obligations
shall be added to the Company's loss, if any, under the Policy involved, and the
sum thereof shall be reinsured under this Agreement; except to the extent that
such loss or obligation is assumed and actually paid by the Facility.

15.02 An extra contractual obligation shall be deemed to have occurred on the
same date as the loss covered or alleged to be covered under the Policy.

15.03 Notwithstanding anything stated herein, this Agreement shall not apply to
any loss incurred by the Company as a result of any fraudulent and/or criminal
act which has been finally determined by a court of competent jurisdiction,
after the exhaustion of all appeals, by any officer or director of the Company
acting individually or collectively or in collusion with any individual,
corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.

                                   ARTICLE XVI
                               REGULATORY MATTERS

16.01 It is the Parties' understanding that any premiums which are overdue from
the General Agent to the Company may be deemed non-admitted assets. In
confirmation of the liabilities assumed by the Reinsurer under this Agreement,
the Reinsurer hereby assumes all liability and responsibility for all premiums
in the course of collection.

16.02 The Reinsurer shall agree, at no cost to the Company, to take those
actions (including,

                                       12
<PAGE>

but not limited to, modifications in how funds are handled and how accounts are
cleared, settled and the manner in which incurred losses are accounted for) and
agree to those arrangements necessary to ensure that the Company suffers no
adverse impact because of this reinsurance program and is in compliance with any
applicable laws of a state insurance department, insofar as this reinsurance
program is concerned.

                                  ARTICLE XVII
                                THE GENERAL AGENT

17.01 The Reinsurer has selected the General Agent to administer the business
reinsured hereunder. While for regulatory purposes, the General Agent will need
to be appointed as the Company's agent, it is recognized that the General Agent
is acting on behalf of the Reinsurer. The Company is making no evaluation of the
General Agent's qualification, has no obligation to furnish reports or
statistics to the Reinsurer, or to monitor the performance of the General Agent.
The Company shall file with the State all reports requested by the State based
upon information received from the General Agent and Reinsurer.

17.02 The Company will, at the request of the General Agent and the Reinsurer,
appoint producing agents to produce business through the General Agent. The
Company, in its sole discretion, may refuse to appoint any such agent; provided,
however, that such appointment shall not be unreasonably withheld. The General
Agent will not establish any sub-general agencies or any agencies with the
authority of a general agency. The Reinsurer shall hold the Company harmless
from and indemnify it for any damage, liability, claim, expense, cost or fees
(including attorneys' fees and expenses) of whatever kind or character caused
directly or indirectly by any action of or failure to act, by any such producing
agent.

17.03 The General Agent shall be responsible for the control of the producing
agents appointed by the Company at the request of and on behalf of the
Reinsurer, including compliance with state licensing laws and the financial
condition of such agents.

17.04 The Reinsurer shall guarantee payment to the Company of any amounts due
the Company (or the Company's designated agent, TBA) from business produced by
and/or policies issued by or through the producing agents appointed by the
Company at the request of and on behalf of the General Agent and the Reinsurer.
The Reinsurer and the General Agent shall be solely responsible for notifying
such agents of this Agreement and of any termination hereof, and the Reinsurer
shall be responsible for the consequences of any failure to provide such
notification.

17.05 The General Agent shall not sue, or seek arbitration, against the Company
for any acts of the Reinsurer and shall indemnify and hold the Company harmless
from and against any damages, liabilities and expenses incurred by reason of the
Reinsurer's acts or failures to act.

17.06 The Company shall conduct or have conducted the examinations of the
General Agent as provided in Section 5.13 of the General Agency Agreement. The
examinations provided for herein shall be at no cost to the Company, and the
Reinsurer shall indemnify and hold the Company completely harmless as respects
any liability, damage, charge, cost, fine, or penalty, the Company may incur as
a result of such examinations.

                                       13
<PAGE>

                                  ARTICLE XVIII
                   REINSURER OR GENERAL AGENT SALE OR TRANSFER

         The Reinsurer and/or the General Agent agree to give the Company or its
designated agent, TBA, 90 days advance written notice of any sale or transfer of
such party's business, or such party's consolidation with a successor firm, in
order that the Company may, in its sole discretion:

         (a) Assign this Agreement to the successor; or

         (b) Terminate this Agreement.

                                   ARTICLE XIX
                                  MISCELLANEOUS

19.01 This Agreement has been made and entered into in the State of Texas and
the Agreement shall be subject to and construed under the laws of the State of
Texas. 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 any breach thereof, shall be
in Tarrant County, Texas.

19.02 All notices required to be given hereunder shall be deemed to have been
duly given by personally delivering such notice in writing or by mailing it,
Certified Mail, return receipt requested, with postage prepaid. Any Party may
change the address to which notices and other communications hereunder are to be
sent to such Party by giving the other Party written notice thereof in
accordance with this provision.

19.03 This Agreement shall be binding upon the Parties hereto, together with
their respective successors and permitted assigns. Neither the Reinsurer nor the
General Agent may assign any of its rights or obligations under this Agreement
without the prior written consent of the Company. The foregoing notwithstanding,
the General Agent may delegate any duties or obligations under this Agreement or
the General Agency Agreement to affiliates under common control.

19.04 This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

19.05 This Agreement is the entire agreement between the parties and supersedes
any and all previous agreements, written or oral, and amendments thereto with
respect to the subject matter hereof.

19.06 This Agreement may be amended, modified or supplemented only by a written
instrument executed by all Parties hereto.

19.07 A waiver by the Company, Reinsurer or General Agent of any breach or
default by the other party under this Agreement shall not constitute a
continuing waiver or a waiver by the Company or the Reinsurer of any subsequent
act in breach or of default hereunder.

19.08 Headings used in this Agreement are for reference purposes only and shall
not be deemed a part of this Agreement.

                                       14
<PAGE>

19.09 The Parties hereto intend all provisions of this Agreement to be enforced
to the fullest extent permitted. Accordingly, should a court of competent
jurisdiction or arbitration panel determine that the scope of any provision is
too broad to be enforced as written, the Parties intend that the court or
arbitration panel should reform the provision to such narrower scope as it
determines to be enforceable under present or future law; such provision shall
be fully severable; this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision were never a part hereof; and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision or by
its severance.

19.10 This Agreement is not exclusive and the Company reserves the right to
appoint or contract with other reinsurers, agents and/or managing agents in the
territory covered by this Agreement.

19.11 The Reinsurer or General Agent shall not insert any advertisement
respecting the Company or the business to be written under this Agreement in any
publication or issue any circular or paper referring to the Company or such
business without first obtaining the written consent of the Company. The
Reinsurer and/or General Agent shall establish and maintain records of any such
advertising as required by applicable statutes and regulations.

19.12 Policy cancellations at the Company's request will be made strictly
subject to requirements imposed by the Company's underwriting rules and
practices or the Reinsurer's underwriting rules and practices, as approved by
the Company, and in compliance with applicable statutes and regulations and the
applicable provisions contained in this Agreement and the pertinent policy. Such
cancellation authority shall be exercised only for causes inherent in the
particular risk and shall not be construed as authority to make general or
indiscriminate cancellations or replacement of the Policies with those of
another Company, except upon specific written instructions from the Company.
When directed by the Company, the Reinsurer will cancel any and all Policies
produced by it for any reason the Company deems necessary.

19.13 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
a term or provision of this Agreement does not conform to such law or regulation
then this Agreement shall be deemed to be amended and modified in accordance
with such law. However, where this Agreement is found not to comply with
applicable law or regulation, and such compliance cannot be obtained by
amendment or modification to the Agreement that is mutually agreeable between
the Parties, then either Party may in its sole discretion terminate this
Agreement immediately and without prior notice.

19.14 The Company agrees that the Reinsurer shall have the right, with the
approval of the Company, to determine the rates and prepare the rate filing for
the Company to file during the term of this Agreement and during the term of the
run-off. The Reinsurer and General Agent understand and agree that no business
shall be produced, until a written approval of the applicable rate rules and
forms is received from the regulatory authority of competent jurisdiction.

                                   ARTICLE XX
                    LOSS AND UNEARNED PREMIUM RESERVE FUNDING

20.01 The Reinsurer will secure its obligations under this Agreement via a
Security Fund Agreement, a copy of which is attached hereto as Exhibit B and
incorporated fully by this

                                       15
<PAGE>

referenced or letter of credit to be obtained by the Reinsurer in the amount of
$6,000,000 in favor of the Company, which letter of credit and/or security fund
shall be in all respects acceptable to the Company.

         (a)      At a minimum, the letter of credit and/or security fund must:

                  (i)      comply with the provisions of Texas Insurance Code,
                           art 5.75-1(d)(3) and 28 Texas Administrative Code
                           7.610;and;

                  (ii)     be issued by a Qualified United States Financial
                           Institution (as defined by the foregoing statute and
                           regulation).

         (b)      The Company may draw the full amount of the letter of credit
                  to satisfy, in whole or in part the obligations of reinsurer
                  hereunder or, if:

                  (i)      the Reinsurer fails to comply with the provisions of
                           this Article; or

                  (ii)     the issuer of the letter of credit gives the Company
                           notice of cancellation or non-renewal under the
                           evergreen provisions of the letter of credit.

20.02 Upon termination of this Agreement, the funding required under the
Security Fund Agreement shall be reduced as follows:

         (a)      $1,200,000 six (6) months after the date of termination of the
                  Reinsurance Agreement;

         (b)      $1,600,000 twelve (12) after the date of termination of the
                  Reinsurance Agreement;

         (c)      $400,000 eighteen (18) months after the date of termination of
                  the Reinsurance Agreement;

         (d)      All other securities deposited by Reinsurer when all of
                  Reinsurer's obligations to the Company under this Agreement
                  have been extinguished.

                                   ARTICLE XXI
                      T.B.A. INSURANCE GROUP, LTD. ("TBA")

         The Company has contracted with TBA as its designated intermediate
agent to perform certain duties on the Company's behalf and to issue certain
checks on behalf of the Company in exchange for certain fees. The Reinsurer
agrees that TBA is to bear no business, credit or insurance risk and can bear no
liability whatsoever to the Reinsurer save liability for any actual fraud or
violation of criminal law it commits, which has been finally determined by a
court of competent jurisdiction after the exhaustion of any appeals. TBA shall
receive all the protections from liability which are contained herein for the
benefit of the Company.

                                       16
<PAGE>

                                  ARTICLE XXII
                                 SAVINGS CLAUSE

22.01 If any law or regulation of any Federal, State or local government of the
United States of America, or the ruling of officials having supervision over
insurance companies, should prohibit or render illegal this Agreement, or any
portion thereof, as to risks or properties located in the jurisdiction of such
authority, either the Company or the Reinsurer may upon written notice to the
other suspend or abrogate this Agreement insofar as it relates to risks or
properties located within such jurisdiction to such extent as may be necessary
to comply with such law, regulations or ruling. Such illegality shall in no way
affect any other portion thereof; provided, however, that the Reinsurer or the
Company may terminate or suspend this Agreement insofar as it relates to the
business to which such law or regulation may apply.

22.02 This Agreement shall be interpreted in accordance with the laws of the
State of Texas. All provisions of this Agreement are intended to be enforced to
the fullest extent permitted. Accordingly, should a court of competent
jurisdiction or arbitration panel determine that the scope of any provision is
too broad to be enforced as written, the Parties intend that the court or
arbitration panel should reform the provision to such narrower scope as it
determines to be enforceable under present or future law; such provision shall
be fully severable; this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision were never a part hereof; and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision or by
its severance; provided, however, that where this Agreement is so found not to
comply with applicable law or regulation, if the parties are unable to amend
this Agreement upon mutual acceptable terms to bring it into compliance, then
either may in its sole discretion terminate this Agreement immediately without
prior notice.

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

STATE NATIONAL SPECIALTY INSURANCE COMPANY

BY: /s/ Terry L. Ledbetter
    --------------------------------

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

DIRECT GENERAL INSURANCE COMPANY

BY: /s/ J. Todd Hagely
    --------------------------------

ITS: VP -- Finance & Treasurer
     -------------------------------

                                       17

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00053-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00053-of-00352.parquet"}]]