Document:

<PAGE>
                                                                   Exhibit 10.27

                            SECURITY TRUST AGREEMENT

         This Agreement effective as of January 1, 2003, by and between DIRECT
GENERAL INSURANCE COMPANY ("Grantor") the assuming insurer or reinsurer, OLD
AMERICAN COUNTY MUTUAL FIRE INSURANCE COMPANY ("Beneficiary") the ceding insurer
and any successor by operation of law, and BANK ("Trustee"), which is a
qualified United States financial institution.

                              PURPOSE OF AGREEMENT

         WHEREAS, the Grantor and the Beneficiary have previously entered into a
certain Quota Share Reinsurance Agreement No. DIRECT-03-001 effective January 1,
2003 ("Reinsurance Agreement"), and the terms and conditions of this Agreement
are subject only to the conditions and qualifications contained in the
Reinsurance Agreement and no other; and

         WHEREAS, as a result of this Reinsurance Agreement certain amounts are
payable and will become payable from time to time to or for the benefit of the
Beneficiary; and

         WHEREAS, the Grantor and the Beneficiary want to provide the
Beneficiary an interest in certain assets as defined herein as collateral to be
held in trust to insure the payment of amounts that may become due; and

         WHEREAS, the Trustee has agreed to act as Trustee hereunder, and to
hold such assets in trust for the benefit of the Beneficiary.

         NOW THEREFORE, in consideration of the mutual promises and conditions
contained herein, and for other good and valuable consideration, the parties do
hereby agree as follows:

                                   SECTION 1

                  CREATION OF TRUST FUND AND DEPOSIT OF ASSETS

The Grantor will open a Security Trust Account with Trustee for the sole benefit
of the Beneficiary, and deposit or cause to be deposited as soon as practical,
but in no event more than ten (10) days from the date of this Security Trust
Agreement, cash or securities, or a combination thereof ("Assets" as defined in
Section 5.1 below) in the initial amount of $250,000, along with any properly
executed assignment, endorsement or bond powers that may be required to make
good delivery of the Assets. The Assets held in the Security Trust Account are
hereinafter referred to as the "Trust Fund."

                                   SECTION 2

                      RIGHTS AND OBLIGATIONS OF THE TRUSTEE

        2.1 The Grantor shall deliver to the Trustee, Assets at least equal in
market value to the Grantor's funding obligations as defined in the Reinsurance
Agreement and in accordance with Section 4.2 hereof. These Assets shall be
deposited into a trust account established for the

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sole benefit of the Beneficiary, held by the Trustee at the Trustee's office
within the United States.

         2.2 The Trustee shall:

                  (a) Receive the Assets and hold all Assets in safekeeping;

                  (b) Determine that all Assets are in such form that the
Beneficiary, or the Trustee upon direction by the Beneficiary, may, whenever
necessary, negotiate any such assets, without consent or signature from the
Grantor or any other person or entity;

                  (c) Furnish to the Grantor and the Beneficiary a statement of
all Assets in the Trust Fund upon its inception and at intervals no less
frequently than the end of each calendar quarter;

                  (d) Notify the Grantor and the Beneficiary, within five (5)
days, of any deposits (exclusive of deposits or additions generated by the Trust
Fund itself) to or withdrawals from the Trust Fund;

                  (e) Upon written demand of the Beneficiary, promptly provide
notice of the same to the Grantor and take any and all steps necessary to
transfer, to or for the benefit of the Beneficiary, absolutely and
unequivocally, all right, title, and interest in the Assets held in the Trust
Fund and liquidated in the amount necessary to pay those net balances due as
specified and documented in the notice submitted by the Beneficiary to the
Trustee; and,

                  (f) Allow no substitutions or withdrawals of assets from the
Trust Fund, except on written instructions from the Beneficiary. For the
purposes of this Agreement it is stipulated that the Beneficiary hereby approves
of the substitution or withdrawal of Assets from the Trust Fund, provided that
Assets are simultaneously replaced with Qualified Assets (as defined in Section
5.1 below) having a fair market value equal to or greater than the Assets
substituted or withdrawn. The Trustee may, without the consent of but with
written notice (which need not be prior notice) to the Beneficiary, upon call or
maturity of any Trust Fund Asset, withdraw such Asset upon condition that the
proceeds are paid or deposited into the Trust Fund.

         2.3 Each investment of the Assets contained in the Trust Fund shall be
made pursuant to the written instructions of the Grantor, provided that any such
instructions shall be in accordance with Exhibit A. The Beneficiary and Grantor
may, from time to time designate investments or categories of investments which
are consistent with the provisions contained in Section 5.1.

         2.4 The Trustee may resign upon delivery of a written notice of
resignation, effective not less than ninety (90) days after receipt by the
Beneficiary and Grantor of the notice. Similarly, the Trustee may be removed by
the Grantor by delivery to the Trustee and the Beneficiary of a written notice
of removal effective not less than ninety (90) days after receipt by the Trustee
and the Beneficiary of the notice. Provided however, no such notice, whether
provided by the Trustee or the Grantor, shall be effective until a successor
trustee has been duly

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appointed and approved by the Beneficiary and the Grantor and all Assets in the
Trust Fund have been duly transferred to the successor trustee.

         2.5 The Trustee's duties are solely as expressly set forth herein
notwithstanding any reference herein to the Reinsurance Agreement.

         2.6 The Trustee shall be entitled to rely and act upon any instructions
from the Beneficiary without any independent duty to inquire. No statement or
document, other than the written notice from the Beneficiary to the Trustee,
shall be accepted by the Trustee to withdraw Assets.

                                   SECTION 3

    RIGHTS AND OBLIGATIONS OF THE BENEFICIARY WITH RESPECT TO THE TRUST FUND

         3.1 The Beneficiary shall have the right to withdraw Assets from the
Trust Fund at any time without notice to the Grantor, subject only to written
notice to the Trustee and the terms and conditions of this Agreement and the
Reinsurance Agreement. Such notice shall be presentable to the Trustee's office
in the United States, with a simultaneous courtesy copy being provided to
Grantor. No statement or document, other than the written notice from the
Beneficiary to the Trustee, shall be accepted to withdraw Assets. The
Beneficiary shall be required to acknowledge receipt of Assets from the Trust
Fund by providing written acknowledgement to both the Trustee and the Grantor.

         3.2 The Beneficiary shall undertake to use and apply any amounts drawn
upon the Trust Fund, without diminution because of the insolvency of the
Beneficiary or the Grantor, for the following purposes only:

                  (a) To pay or reimburse the Beneficiary for the Grantor's
share under the specific Reinsurance Agreement regarding any losses and
allocated loss expenses paid by the Beneficiary, but not recovered from the
Grantor, or for unearned premiums due and payable to the Beneficiary, if not
otherwise paid by the Grantor;

                  (b) To authorize payment by the Trustee to the Grantor of any
amounts held in the Trust Fund that exceed one hundred two percent (102%) of the
actual amount required to fund the Grantor's obligations under the Reinsurance
Agreement; and

                  (c) Where the Beneficiary has received notification of
termination of the Trust Fund and where the Grantor has obligations under the
Reinsurance Agreement which remain unliquidated and undischarged ten (10) days
prior to such termination date, to withdraw amounts equal to such obligations
and deposit such amounts in a separate account, in the name of the Beneficiary
in any United States bank or trust company, apart from its general assets, in
trust for such uses and purposes specified in subsections (a) and (b) of this
paragraph as may remain executory after such withdrawal and for any period after
such termination date.

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         3.3 Should the aggregate market value of the Trust Fund at the end of
any calendar quarter be in excess of the amount required under the Reinsurance
Agreement, the Beneficiary shall, within seven (7) days after receipt of written
request from Grantor, authorize release of such excess by making the appropriate
communication to the Trustee pursuant to this Security Trust Agreement.

                                   SECTION 4

      RIGHTS AND OBLIGATIONS OF THE GRANTOR WITH RESPECT TO THE TRUST FUND

         4.1 The Grantor prior to depositing the Assets with the Trustee, shall
execute assignments, endorsements in blank, or transfer legal title to the
Trustee of all shares, obligations or any other assets requiring assignments, in
order that the Beneficiary, or the Trustee upon the direction of the Beneficiary
may, whenever necessary, negotiate any such Assets without consent or signature
from the Grantor or any other entity.

         4.2 Subject to Section 2.1, within thirty-seven (37) days after the end
of each calendar quarter, the Grantor shall deposit with the Trustee such Assets
as may be necessary to increase the aggregate market value of the Trust Fund to
an amount at lease equal to the Grantor's funding obligations to the Beneficiary
under the Reinsurance Agreement. The Grantor shall continue to be liable for any
amount by which balances due the Beneficiary exceed amounts distributed from the
Trust Fund.

         4.3 The Grantor may at any time withdraw Assets from the Trust Fund,
provided however, that concurrently therewith, Qualified Assets (as defined in
Section 5.1 below) of equal or greater market value are deposited in the Trust
Fund, and the Trustee is authorized to permit such substitution of Qualified
Assets pursuant to the provisions of Section 2.2(f) hereinabove.

                                   SECTION 5

                                     ASSETS

         5.1 The term "Assets" as used herein is defined as any combination of
cash (United States legal tender), United States Treasury Notes or Bonds, U.S.
Government backed securities, certificates of deposit (issued by a United States
bank and payable in United States legal tender), or other certificates of
indebtedness or commercial paper which would qualify as a permitted investment
under the applicable Texas Insurance Code. Securities or investments in the
above categories are stipulated to be qualified assets ("Qualified Assets")
provided that such investments are issued by an institution that is not the
parent, subsidiary or affiliate of either the Grantor or the Beneficiary.
Grantor and Beneficiary hereby agree to the investment guidelines set forth on
Exhibit A hereto, which investment guidelines shall be deemed to be in
accordance with this Section 5.1, and any investment made in accordance with
such investment guidelines shall be deemed to be a Qualified Asset.

         5.2 For purposes of this Agreement, the "market value" of Assets shall
be determined as follows:

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                  (a) at the time any Assets are deposited initially in the
Trust Fund with respect to Assets on deposit at the end of each calendar
quarter, the Trustee shall in good faith place a tentative market value on said
Assets and shall notify the Grantor and Beneficiary of such valuation by
supplement to the Trustee's quarterly activities report;

                  (b) if the Grantor or the Beneficiary disagrees with such
tentative market valuation, it may so notify the Trustee within thirty (30) days
after the date it receives the Trustee's quarterly activities report; and

                  (c) if the event the parties cannot resolve any difference
with respect to the market value of the Assets, the market value of the security
in dispute shall be determined by using the definition of "value" set forth in
the Investment Company Act of 1940, Section 2(a)(41).

                                   SECTION 6

                         INVESTMENT INCOME AND EXPENSES

         6.1 The Grantor shall have the right to receive any interest or other
investment income from Assets deposited in the Trust Fund, and such income shall
be payable by the Trustee to the Grantor no less frequently than monthly.

         6.2 All fees and expenses charged by the Trustee for its services
hereunder shall be born by the Grantor. In no event shall any of the fees and
expenses charged by the Trustee be paid from the corpus of the Trust Fund.

                                   SECTION 7

                               DISPUTE RESOLUTION

         7.1 In the event the Grantor objects to the withdrawal of Assets from
the Trust Fund by the Beneficiary, for any reason, notice of such objection
shall be sent to the Beneficiary with a copy to the Trustee. Upon receipt of
such notice of objection from the Grantor, the Trustee will seek instructions
from the Beneficiary. If the parties cannot settle the objection through
negotiation, the parties agree first to try in good faith to settle the dispute
by mediation administered by the American Arbitration Association under its
Commercial Mediation Rules, before resorting to arbitration, litigation or some
other dispute resolution procedure. Such mediation shall take place within
thirty (30) days of the notice by Grantor or as soon thereafter as reasonable.

         7.2 In the event the dispute is resolved through mediation, arbitration
or by a court of competent jurisdiction, the prevailing party shall be entitled
to court or arbitration costs, attorney's fees and any other reasonable
expenses.

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<PAGE>

                                   SECTION 8

                                ACCESS TO RECORDS

         8.1 The Beneficiary and Grantor, by their duly appointed
representatives, shall have the right at any reasonable time to examine and copy
all records and papers in the possession or control of the Trustee applicable to
this Agreement, and applicable to the Assets deposited and maintained hereunder.

                                   SECTION 9

                                   TERMINATION

         9.1 Upon termination of the Reinsurance Agreement and after all of the
Grantor's obligations to the Beneficiary under Article 21 of the Reinsurance
Agreement have been discharged, this Agreement shall terminate and the Trustee
shall return all Assets to the Grantor forthwith. At least thirty (30) days
prior to the termination of the Trust Fund, written notification of termination
shall be delivered by the Trustee via certified mail to the Beneficiary and the
Texas Department of Insurance, Attention: Financial Activity, 333 Guadalupe,
Austin, Texas 78701.

         9.2 Upon termination of the Trust Fund, the Trustee shall pay over and
deliver to Grantor all of the remaining Assets, if any, of the Trust Account not
previously withdrawn by the Beneficiary pursuant to the provisions of Section 3,
and the Beneficiary shall have no further rights to the Trust Account.

                                   SECTION 10

                            LIABILITY OF THE TRUSTEE

         10.1 The Beneficiary and Grantor, jointly and severally, shall hold the
Trustee harmless from and against any and all losses, claims, damages,
liabilities, costs and expenses arising out of or in connection with the
Trustee's performance in accordance with the terms and conditions of this
Security Trust Agreement; provided, however, that the Trustee shall be liable to
the extent of its own negligence, willful misconduct, lack of good faith or
breath of fiduciary duty. The Trustee shall be entitled to rely upon the advice
of counsel (which may be inside or outside counsel), and any actions of the
Trustee in accordance with the advice of counsel shall be deemed to be in
accordance with this Agreement.

                                   SECTION 11

                                     NOTICES

         11.1 Any notice permitted or required hereunder shall be deemed to have
been duly given if delivered personally, received by electronic mail, or if
transmitted by facsimile with machine confirmation of transmittal and followed
by the mailing of "hard copies" of such transmittals or if mailed certified or
registered mail (return receipt requested), postage prepaid, to

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<PAGE>

the parties at their address set forth below or to such other address as they
may hereafter designate. Any notice given to the Trustee shall be simultaneously
given to the other party to this Agreement.

         IF TO THE GRANTOR:          DIRECT GENERAL INSURANCE COMPANY
                                     1281 Murfreesboro Road
                                     Nashville, TN 37217-2342
                                     Attn: Barry D. Elkins
                                     barry.elkins@directins.com

         IF TO THE BENEFICIARY:      OLD AMERICAN COUNTY MUTUAL FIRE
                                       INSURANCE COMPANY
                                     6210 Campbell Road, Suite 200
                                     Dallas, Texas 75248-1381
                                     Attn: Thomas A. McCall
                                     tom.mccall@oldam.com

         IF TO THE TRUSTEE:          BANK

                                   SECTION 12

                                 BINDING EFFECT

         12.1 This Agreement shall be binding upon the respective parties hereto
and their heirs, executors, successors and assigns.

                                   SECTION 13

                                  MODIFICATIONS

         13.1 This Agreement may not be altered or modified without the express
written consent of the parties hereto. No course of conduct shall constitute a
waiver of any of the terms and conditions of this Agreement, unless such waiver
is specified in writing, and then only to the extent so specified. A waiver of
any of the terms and conditions of this Agreement on one occasion shall not
constitute a waiver of the other terms of this Agreement, or of such terms and
conditions on any other occasion.

                                   SECTION 14

                                  GOVERNING LAW

         14.1 This Agreement shall be governed by and construed under the laws
of the State of Texas, the state in which the insurance is written.

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<PAGE>

                                   SECTION 15

                                  FORCE MAJEURE

         15.1 Neither Grantor nor Beneficiary nor Trustee shall be responsible
for delays or failures in performance resulting from acts beyond its control.
Such acts shall include but not be limited to acts of God, strikes, lockouts,
riots, acts of war or terrorism, epidemics, governmental regulations
superimposed after the fact, fire, communication line failures, power failures,
earthquakes or other disasters.

                                   SECTION 16

                                 REPRESENTATIONS

         16.1 Each of the Grantor and Beneficiary represent and warrant that:

                  (a) it is duly incorporated or organized and validly exists in
good standing in its jurisdiction of incorporation or organization;

                  (b) the execution, delivery and performance of this Agreement
and all documents and instruments to be delivered hereunder or there under have
been duly authorized;

                  (c) the person executing this Agreement and all documents and
instruments to be delivered hereunder or there under on its behalf has been duly
authorized to act on its behalf;

                  (d) this Agreement constitutes a legal, valid, binding and
enforceable agreement;

                  (e) its entry into this Agreement will not violate any
agreement, law, rule or regulation by which it is bound on by which any of its
assets are affected; and

                  (f) all necessary steps have been taken to obtain the approval
of the appropriate state insurance regulatory agencies for this Agreement to the
extent required by the insurance laws of any state in which the Grantor and the
Beneficiary conduct business and to which this Agreement relates.

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         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date hereinabove first written:

                                       DIRECT GENERAL INSURANCE COMPANY

                                       By: /s/ Barry D. Elkins
                                           -------------------------------------
                                       Name:  Barry D. Elkins
                                       Title: Senior Vice President & Chief
                                       Financial Officer

                                       OLD AMERICAN COUNTY MUTUAL FIRE
                                       INSURANCE COMPANY

                                       By: /s/ Thomas A. McCall
                                           -------------------------------------
                                           Thomas A. McCall, President

                                       BANK

                                       First Tennessee Bank National
                                       Association, Trustee

                                       By: /s/ Susan M. Fletcher
                                          --------------------------------------
                                       Name: Susan M. Fletcher
                                            ------------------------------------
                                       Title: Vice President & Trust Officer
                                             -----------------------------------

                                       9<PAGE>
                            STOCK PURCHASE AGREEMENT

         STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of December 2,
2002, between Mutual Service Casualty Insurance Company, a corporation organized
under the laws of the State of Minnesota (the "Seller"), and Direct General
Corporation, a corporation organized under the laws of the State of Tennessee
(the "Buyer' or the "Company").

         WHEREAS, the Seller desires to sell to the Buyer, and the Buyer desires
to purchase from the Seller an aggregate of 101,697 shares of Direct General
Corporation Common Stock, no par value (the shares to be sold being referred to
hereinafter as the "Shares"), upon the terms and subject to the conditions set
forth herein.

         NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements contained herein, the parties hereto hereby
agree as follows:

         SECTION 1. SALE AND PURCHASE OF SHARES. The Seller hereby sells to the
Buyer, and the Buyer hereby purchases from the Seller, the Shares, for an
aggregate purchase price of $4,300,000.00 (or approximately $42.28 per Share).

         SECTION 2. CLOSING DELIVERY. Concurrently herewith, the Seller is
delivering to the Buyer one or more stock certificates representing in the
aggregate the number of Shares being purchased by the Buyer, duly endorsed for
transfer or accompanied by appropriate stock powers duly endorsed in blank,
against delivery by the Buyer to the Seller of a wire transfer as instructed by
Seller, or, payable to Seller's order, of one or more certified or official bank
checks payable in next day funds in the aggregate amount of the purchase price
for the number of the Shares being purchased by the Buyer.

         SECTION 3. SELLER'S REPRESENTATIONS AND WARRANTIES. The Seller hereby
represents and warrants to the Buyer that:

         (a) Clear Title to the Shares. The Seller has, and is hereby conveying
to the Buyer, good, valid and marketable title to the Shares, free and clear of
any and all liens, equities, claims, charges or other encumbrances or rights of
any third parties of any nature (including, but not limited to, options, rights
of first refusal or similar rights, contingent or otherwise).

         (b) Enforceability of This Agreement. The Seller has all requisite
legal power to enter into and to perform its obligations under this Agreement.
This Agreement and the stock certificates or stock powers being delivered
concurrently herewith have been duly executed and delivered by the Seller. This
Agreement constitutes the legal, valid and binding obligation of the Seller,
enforceable against the Seller in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, reorganization,
rehabilitation, insolvency, moratorium or other similar laws affecting creditors
rights generally and by general principles of equity.

         (c) No Violation of Other Contracts or Law. Neither the execution and
delivery of this Agreement nor the consummation by the Seller of the transaction
contemplated hereby will

<PAGE>

conflict with, result in a breach of or constitute a default under or violation
of any term of any agreement, contract or instrument to which it is a party or
any applicable law, rule, regulation, order or judgment of any court or
governmental authority.

         (d) No Governmental Consents. No consent, approval, authorization, or
order of registration or filing with, or notice to, any domestic or foreign
governmental authority, regulatory body or court is required for the execution
or delivery of, or the performance by the Seller of its obligations under, or
compliance by the Seller with, this Agreement or the transaction contemplated
hereunder.

         (e) No Third Party Consents. The Seller has obtained all consents,
approvals and waivers of third parties that may be required in connection with
the execution and delivery of this Agreement and the consummation of the
transaction contemplated hereby. Without limiting the foregoing, to the Seller's
best information and belief no such consent, approval, or waiver is required
under the Amended and Restated Stockholders Agreement, dated as of November 18,
1996, among the Company and certain stockholders of the Company, because the
Shares are being sold directly to the Company.

         (f) Receipt and Review of Company Information. The Seller has, prior to
the date hereof (i) reviewed or been afforded adequate and satisfactory
opportunity to review, any and all records and documents of the Company material
to the transaction contemplated hereby; (ii) been informed on a regular basis of
all business developments material to the Company, including, without
limitation, being informed that, subject to public securities market conditions
and other relevant factors, the Company is considering a possible public
offering of its Common Stock within the next four to six months and that,
assuming such offering does in fact occur, the price per share at which the
Company's Common Stock is expected to sell in such offering may be substantially
in excess of the per share amount stated in Section 1 hereof; (iii) been
afforded adequate and satisfactory opportunity to ask such questions and make
such inquiries of management of the Company regarding (x) the Company's
business, financial condition and future prospects and (y) the transactions
contemplated hereby, as the Seller has deemed necessary, appropriate or
desirable' and (iv) received such information concerning the Company and the
transaction contemplated hereby as the Seller has requested of the Company (all
such information supplied or made available to the Seller by the Company, the
"Company Information").

         (g) Independent Judgment. The Seller has (i) undertaken its independent
analysis of the Company, based on the Company Information and based on such
advice, if any, that the Seller has received from the Seller's legal, tax and
financial advisors; (ii) considered such other factors it deems relevant to the
decision to sell the Shares to Buyer at the purchase price contemplated herein;
and (ii) made its independent judgment to enter into this Agreement and sell to
the Buyer the Shares.

         (h) No Representations or Warranties by Buyers About the Company or
Shares. The Buyer has not made, and the Seller has not relied upon, any
representations or warranties to the Seller regarding the Company or its
business, prospects or financial condition, or the terms or

                                       2

<PAGE>

value of the Shares, and the Seller has not looked to or made any request to the
Buyer for any such representations or warranties.

         SECTION 4. BUYERS' REPRESENTATIONS AND WARRANTIES. The Buyer hereby
represents and warrants to the Seller that:

         (a) Enforceability of This Agreement. The Buyer has all requisite power
to enter into and perform its obligations under this Agreement. This Agreement
has been duly executed and delivered by the Buyer and constitutes the legal,
valid and binding obligation of the Buyer, enforceable against the Buyer in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, rehabilitation, insolvency, moratorium or
other similar laws affecting creditors' rights generally and by general
principles of equity.

         (b) No Violation of Other Contracts or Law. Neither the execution and
delivery of this Agreement nor the consummation by the Buyer of the transaction
contemplated hereby will conflict with, result in a breach of or constitute a
default under or violation of any term of any agreement, contract or instrument
to which it is a party or any applicable law, rule, regulation, order or
judgment of any court or governmental authority.

         (c) No Governmental Consents. No consent, approval, authorization, or
order of registration or filing with, or notice to, any domestic or foreign
governmental authority, regulatory body or court is required for the execution,
delivery and performance by the Buyer of its obligations under, or compliance by
the Buyer with, this Agreement or the transaction contemplated hereunder.

         (d) No Third Party Consents. The Buyer has obtained all consents,
approvals and waivers of third parties that may be required in connection with
the execution and delivery of this Agreement and the consummation of the
transaction contemplated hereby.

Without limiting the foregoing, to the Buyer's best information and belief no
such consent, approval, or waiver is required under the Amended and Restated
Stockholders Agreement, dated as of November 18, 1996, among the Company and
certain stockholders of the Company, because the Shares are being purchased
directly by the Company.

         SECTION 5. FURTHER ASSURANCES; CONSENTS. From time to time each party
hereto, at its own cost, will execute all such instruments and take all such
further actions as the other party may reasonably request in order to carry out
and to give effect to the intent and purpose hereof including without
limitation, the execution and delivery of any and all confirmatory and other
instruments, and any and all actions which may reasonably be necessary or
desirable to complete the transactions contemplated hereby.

         SECTION 6. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing, shall be delivered by hand,
commercial courier or facsimile transmission and shall be deemed to have been
given or made when delivered, addressed as follows:

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<PAGE>

<TABLE>
<CAPTION>
Seller:                                               Buyer:
------                                                -----
<S>                                                   <C>
Mutual Service Casualty Insurance Corp.               Direct General Corporation
Attn: CFO & Treasurer                                 Attn: SVP & CFO
Two Pine Tree Drive                                   1281 Murfreesboro Road
Arden Hills, MN 55112-3793                            Nashville, TN 37217
</TABLE>

         SECTION 7. MISCELLANEOUS. This Agreement embodies the entire agreement
and understanding between the Buyer and the Seller and supersedes all prior
agreements, correspondence, and understandings between them relating to the
subject matter hereof This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Tennessee. This
Agreement may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument. This
Agreement may be deemed executed upon receipt by all parties hereto (or their
duly authorized representatives) of executed signature pages by facsimile
transmission, provided that such facsimile transmission shall be followed by
overnight courier or mail delivery of such original executed signature pages.
This Agreement may not be amended or modified except in a writing signed by both
parties.

         IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date first above written.

SELLER

By: /s/ Stephen L. Rohde
    -----------------------------------------
    Stephen L. Rohde
    Vice President
    Chief Financial Officer & Treasurer
    Mutual Service Casualty Insurance Company

BUYER

By: /s/ Barry D. Elkins
    -----------------------------------------
    Barry D. Elkins
    Senior Vice President and
    Chief Financial Officer
    Direct General Corporation

                                       4
<PAGE>
                                                                   Exhibit 10.28

                           DIRECT GENERAL CORPORATION

                              NASHVILLE, TENNESSEE

     BARRY D. ELKINS

  SENIOR VICE PRESIDENT
& CHIEF FINANCIAL OFFICER

December 2, 2002

VIA FACSIMILE AND U.S. MAIL
Mr. Stephen L. Rohde
Mutual Service Casualty Insurance Company
Two Pine Tree Drive
Arden Hills, MN 55112-3793

RE:   (1) Funding of Uncollectible Reinsurance Recoverables Related to Reliance;
          and
      (2) Repurchase of Direct General Common Stock

Dear Steve:

This letter is in response to our telephone conversation this morning and, as
described below, sets forth the terms of two transactions between our respective
companies, Direct General Corporation (the "Company") and Mutual Service
Casualty Insurance Company ("MSCIC").

1.       Funding of Uncollectible Reinsurance Recoverables. Claim payments
         approximating $1,250,000 have been disbursed from the account
         established by the Company under the name "Mutual Service Casualty
         Insurance account" (the "Account"), but such amount has not been
         recovered from a reinsurer, Reliance Insurance Company ("Reliance"), in
         accordance with the terms of the Quota Share Reinsurance Agreements
         (the "Agreement") between MSCIC and Reliance. As the result of the
         liquidation of Reliance, it is unlikely that any of this amount will be
         received in the near future, if ever. MSCIC acknowledges that it is
         liable for any and all uncollectible reinsurance recoverables due from
         Reliance under the Agreement.

         With respect to the current unrecovered amount of approximately
         $1,250,000, MSCIC and the Company agree for their mutual financial
         planning benefit as follows:

         a.       MSCIC will wire $1,250,000 today in the name of the Company to
                  an account to be designated by the Company.

         b.       On or before the close of business on December 31, 2002, the
                  Company will wire or otherwise transfer funds in the amount of
                  $1,250,000 to the Account held for the benefit of MSCIC.

         c.       In the event that any of the uncollectible reinsurance
                  recoverables due under the Agreement to MSCIC from Reliance
                  are in fact recovered by the Company from

<PAGE>

                  Reliance, state guaranty fund, or other applicable source of
                  funds through court order, regulatory action, or other manner,
                  the Company will promptly reimburse such funds to MSCIC or to
                  the Account held for the benefit of MSCIC.

         With respect to any future claim payments disbursed from the Account,
         MSCIC agrees to transfer funds into the Account at least quarterly, in
         an amount representing the uncollectible reinsurance recoverable due
         from Reliance. The amount of such recoverable will be calculated by the
         Company and provided to MSCIC on a monthly basis.

2.       Repurchase of Direct General Corporation Common Stock. The Company and
         MSCIC have agreed by letter agreement dated November 12, 2002, that the
         Company will repurchase 101,697 shares of its Common Stock (the
         "Shares") from MSCIC for the aggregate purchase price of $4,300,000.
         Today, the parties are implementing that agreement as follows:

         a.       A copy of that certain Stock Purchase Agreement dated as of
                  December 2, 2002 (the "Purchase Agreement") signed by the
                  Company is being delivered in conjunction with this letter
                  (via fax or PDF email).

         b.       Upon the execution and return by MSCIC (via fax or PDF email)
                  of the Purchase Agreement, together with the execution and
                  return of this letter agreement, the Company will wire
                  $4,300,000 to MSCIC in accordance with transfer instructions
                  from MSCIC.

         c.       Upon receipt of said wire transfer of funds from the Company,
                  MSCIC will promptly deliver to the Company, by overnight
                  delivery, stock certificate(s) representing the Shares, duly
                  endorsed for transfer or accompanied by appropriate stock
                  powers duly endorsed in blank, as provided under Section 2 of
                  the Purchase Agreement.

If MSCIC agrees that this letter, together with the Purchase Agreement, sets
forth the terms of our agreement regarding the two transactions described above,
and that this letter, together with the Purchase Agreement, supercedes and
replaces any prior agreements between us regarding the same subject matter,
please sign below and return a signed copy of this letter to me.

Sincerely,                             Agreed.

/s/ Barry D. Elkins                    /s/ Stephen L. Rohde
----------------------------           -----------------------------------
Barry D. Elkins                        Stephen L. Rohde
Senior Vice President and              Vice President
Chief Financial Officer                Chief Financial Officer & Treasurer
Direct General Corporation             Mutual Service Casualty Insurance Company

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