Document:

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                                                                   Exhibit 10.13

                        QUOTA SHARE REINSURANCE AGREEMENT

                                     BETWEEN

                   STATE NATIONAL SPECIALTY INSURANCE COMPANY

                                       AND

                        DIRECT GENERAL INSURANCE COMPANY

                            EFFECTIVE OCTOBER 1, 2002

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                                TABLE OF CONTENTS

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

       1          Business Reinsured                                            1

       2          Original Conditions                                           2

       3          Exclusions                                                    2

       4          Commencement, Termination, Terms & Conditions                 3

       5          Loss and Loss Adjustment Expense                              5

       6          Reports and Remittances                                       6

       7          Errors and Omissions                                          8

       8          Premium and Commission                                        8

       9          Access to Records                                             9

      10          Arbitration                                                  10

      11          Assessments, Assignments, Fines and Penalties                10

      12          Premium Financing                                            11

      13          Insolvency                                                   11

      14          Alternate Payee                                              12

      15          Hold Harmless Provisions                                     13

      16          Loss in Excess of Policy Limits/ECO                          15

      17          Regulatory Matters                                           15

      18          The General Agent                                            15

      19          Reinsurer or General Agent or Transfer                       16

      20          Miscellaneous                                                16

      21          Loss and Unearned Premium Reserve Funding                    19

      22          T.B.A. Insurance Group, Ltd. ("T.B.A.")                      20

      23          Savings Clause                                               20
</TABLE>

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                        QUOTA SHARE REINSURANCE AGREEMENT

THIS QUOTA SHARE REINSURANCE AGREEMENT (this "Agreement") is made and entered
into as of October 1, 2002, by and among DIRECT GENERAL INSURANCE COMPANY, a
corporation organized under the laws of the State 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
("General Agent") 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 private passenger
automobile physical damage 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 (save the
risk of the Reinsurer's insolvency). The Reinsurer shall hold the Company
harmless and indemnify it for these and all risks. The sole consideration
provided by the Company, in exchange for the fees as agreed to, is to permit the
Policies (as hereinafter defined), which are reinsured 100% 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 Effective as of the effective date of this Agreement, the Company obligates
itself to cede to the Reinsurer, and the Reinsurer obligates itself to accept,
100% of the Company's gross liability under 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
private passenger automobile physical damage, 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 Section 18.02 of this Agreement.

1.02 Subject to Section 15.05 hereof, for purposes of determining the liability
of the Reinsurer, the physical damage limits of liability of the Company with
respect to any one policy shall be $75,000.

It is understood that the General Agent shall not bind the Company to amounts in
excess of those stated above.

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                                   ARTICLE II
                               ORIGINAL CONDITIONS

2.01 RESERVED.

2.02 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.

2.03 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 to the Reinsurer
from the original date of the Company's liability.

2.04 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.

2.05 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
                                   EXCLUSIONS

         With respect to the classes of business which the General Agent may be
authorized to produce under this Agreement, the General Agent will not solicit
or accept proposals or bind the Company for insurance coverage on the following
risks:

         (a)      All business not specifically described as business covered
                  under Section 1.01 of this Agreement.

         (b)      Garagekeepers legal liability.

         (c)      Vendors single interest.

         (d)      Vehicles principally used as ambulances, fire and police
                  units.

         (e)      Commercial vehicles rated as such, and all automobile fleets.

         (g)      Automobile dealers.

         (h)      Loss or damage caused by or resulting from war, invasion,
                  hostilities, acts of foreign enemies, civil war, insurrection,
                  military or usurped power, martial law or confiscation by
                  order of any governmental or public authority, but not
                  excluding

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                  loss or damage which would be covered under a policy or
                  standard form containing a standard war exclusion clause.

         (i)      Nuclear Exclusion Clauses - Liability and Physical Damage -
                  Reinsurance.

         (j)      Reinsurance issued for the account of other insurance
                  companies.

         (k)      Vehicles used in racing or speed events.

         (l)      Taxis, limos, buses, livery.

         (m)      See page and Pollution Exclusion Clause.

                                   ARTICLE IV
                 COMMENCEMENT, TERMINATION, TERMS AND CONDITIONS

4.01 The effective date of this Agreement is at 12:01 a.m. Central Standard
Time, on October 1, 2002. This Agreement shall remain continuously in force
until terminated according to the provisions set forth herein.

4.02 This Agreement may be terminated as follows:

         (a) By any Party hereto, by providing at least ninety (90) days written
         notice to the other Parties, such notice to be sent by certified mail,
         return receipt requested, postage prepaid;

         (b) Immediately by mutual consent of the Company and Reinsurer;

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

         (d) By the Reinsurer after thirty (30) days written notice to the
         General Agent and Company of the General Agent's failure to pay to the
         Reinsurer all payments of premiums due hereunder, provided, however,
         that in the event such payment is received by the Reinsurer prior to
         the date of cancellation stated in the Reinsurer's written notice this
         Agreement shall not be so terminated and said written notice shall be
         of no further force or effect. If the Reinsurer receives such late
         premium within a ten (10) day period following receipt of such notice,
         the Reinsurer shall inform the Company and the General Agent of such
         receipt as soon as the premium is received and the termination of the
         Agreement for reason of default shall be rescinded;

         (e) Immediately, upon written notice by the Company, if the Reinsurer
         or General Agent is found to be insolvent by a State Insurance
         Department or court of competent jurisdiction, or is placed in
         supervision, conservation, rehabilitation, or liquidation, or has a
         receiver or supervisor appointed. By the Reinsurer, upon thirty (30)
         days written notice, if the Company or General Agent is found to be
         insolvent by a State Insurance Department or court of competent
         jurisdiction, or is placed in supervision, conservation, rehabilitation
         or liquidation, or has a receiver or supervisor appointed;

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         (f) By the Company immediately and automatically without prior written
         notice should the Texas Department of Insurance or other regulatory
         agency of competent jurisdiction, require cancellation or disallow
         credit for this reinsurance, if mutually acceptable changes cannot be
         implemented that would result in the Department's allowing credit for
         such reinsurance;

         (g) After thirty (30) days written notice by any party in the event
         that the Company, the Reinsurer or the General Agent amalgamates with
         or passes under the control of any other company or corporation or
         changes a majority of its officers or board of directors during the
         term of this Agreement; or

         (h) As provided in Section 23.02 of this Agreement.

4.03 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. 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 producing agent has
not been timely canceled, until the expiration dates on said Policies. The
General Agent agrees that, notwithstanding anything to the contrary, its
appointment by the Company to produce business terminates when this Agreement
terminates unless the General Agent's authority has been terminated earlier;
except that the Company shall provide the General Agent with the limited agency
authority needed to service the run-off of the business, e.g., issue, cancel,
offer renewal where required by law.

4.04 Upon termination of this Agreement, the Reinsurer and General Agent shall
not be relieved of or released from any obligation created by or under this
Agreement in relation to payment, expenses, reports, accounting or handling,
which relate to insurance business reinsured under this Agreement. 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 and General Agent recognize that to the extent possible there
shall be no cost to or involvement by the Company in servicing this run-off.
Upon termination of this Agreement, the General Agent shall service the run-off
of the business, and its duties for such run-off shall include, but not be
limited to, handling all claims, and handling and servicing all policies through
their natural expiration, together with any policy renewals, required to be made
by provisions of applicable law, whether or not the effective date of such
renewal is subsequent to the effective date of cancellation of this Agreement.
All costs and expenses associated with the handling of such run-off business
following the cancellation or termination of this Agreement shall be borne
solely by the General Agent; however, the Reinsurer shall be ultimately
responsible for the run-off and shall pay any such costs and/or expenses if the
General Agent does not for any reason pay or cause to be paid such costs and
expenses. If for any reason the General Agent fails or is unable to service any
such run-off business (or any business while the 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 appoint a successor to the General Agent, subject to the
approval of the Company, to administer and otherwise handle the run-off as
provided herein. 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.

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In addition, the Company in its sole discretion may terminate the authority of
the General Agent or a successor thereto to handle such run-off business and the
Reinsurer shall then appoint a successor to handle the run-off, subject to the
Company's approval, at no cost to the Company.

4.05 In the event this Agreement is terminated, the Reinsurer shall remain
liable to and shall, immediately upon request, reimburse the Company for any
assessment made upon the Company, applicable to the risks reinsured hereunder.
The Company shall likewise remain liable for, and account to the Reinsurer for
any recovery of such assessment, or any credit allowed to it against its premium
tax, applicable to the risks reinsured hereunder.

4.06 Except as otherwise contemplated in Section 6.05 of the General Agency
Agreement, the title and ownership of all undelivered Policies, books, supplies
or other property related to the reinsured business is in the name of the
Company, and upon termination these shall be delivered immediately by the
Reinsurer and/or General Agent to the Company, without compelling the Company to
resort to any legal proceedings to secure the aforesaid described property of
the Company.

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

4.08 At the option of the Company, this Agreement may be terminated on a cut-off
basis. If the Company so elects, (i) the Reinsurer shall pay to the Company (or
its designee) an amount equal to the sum of the ceded outstanding unearned
premium as of the date of termination, and (ii) the Reinsurer shall incur no
liability for losses occurring subsequent to the date of termination.

4.09 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 V
                        LOSS AND LOSS ADJUSTMENT EXPENSE

5.01 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, 100% of 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 100% of 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).

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5.02 The Reinsurer's 100% share of losses, expense and loss recovery shall be
carried into the monthly accounting for which provision is hereinafter made.

5.03 As provided in this Agreement and the General Agency Agreement, the Company
hereby empowers the Reinsurer and/or the General Agent, to accept notice of and
investigate any claim arising under any of the Policies, to pay, adjust, settle,
resist or compromise any such claim, unless the Company specifically directs to
the contrary with respect to any individual claim. In the latter event, the
Reinsurer and/or General Agent shall follow the instructions of the Company as
respects such claim. All such loss settlements, whether under strict policy
conditions or by the way of compromise, shall be unconditionally binding upon
the Reinsurer. However, should the Company be ordered or instructed by an
applicable Department of Insurance or any other regulatory agency of competent
jurisdiction to take any action or refrain from taking any action with regard to
any claim, the Reinsurer shall be bound by and shall follow the order or
instructions of such regulatory agency as though Reinsurer were the object of
such order or instruction. The Reinsurer will exercise the authority granted
hereunder in good faith and toward the end of paying any and all valid claims.

5.04 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.

5.05 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 VI
                             REPORTS AND REMITTANCES

6.01 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:

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

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

6.02 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.

6.03 Within forty-five (45) days after the end of each month, the General Agent
shall remit to the Reinsurer the following:

         (a)      Ceded net written premium during the month, less;

         (b)      The Company's commission thereon, less;

         (c)      The Company's LAE allowance thereon, less;

         (d)      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

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                  previous monthly report.

The positive balance of (a) less (b) less (c) less (d) 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.

                                   ARTICLE VII
                              ERRORS AND OMISSIONS

7.01 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.

7.02 Should the Company suffer any loss whatsoever, applicable to the risks
reinsured hereunder, the Reinsurer shall assume loss for its own account and
save and hold the Company harmless therefor.

                                  ARTICLE VIII
                             PREMIUM AND COMMISSION

8.01 In consideration of the acceptance by the Reinsurer of one hundred percent
(100%) of the Company's liability on insurance business reinsured hereunder
(i.e., automobile physical damage), the Reinsurer is entitled to one hundred
percent (100%) of the Net Premiums (as hereinafter defined) received by the
General Agent or the Reinsurer on Policies reinsured less (i) the commission
paid to the Company pursuant to Section 8.05; and (ii) the LAE allowance paid to
the Company pursuant to Section 8.05 hereof. "Net Premiums" shall mean the gross
premiums (excluding policy fees) charged on all original and renewal Policies
written on behalf of the Company, less return premiums. Such amounts as provided
in Section 5.09 of the General Agency Agreement shall be paid to the Reinsurer
or received from the Reinsurer by the General Agent on behalf of the Company.
"Net Policy Fees" shall mean gross policy fees, if any, charged on all original
and renewal Policies written on behalf of the Company, less return policy fees.

8.02 It is understood that the General Agent shall pay, in accordance with the
terms of the General Agency Agreement, 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, TBA, as a ceding fee), 4% of Net
Premiums and Net Policy Fees, plus the amount of assessments and state premium
taxes as provided in this Article VIII. (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 during which the Agreement is in
effect, plus the aforementioned assessments and state premium taxes. This
minimum ceding fee 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.

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8.03 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 written premiums reinsured hereunder 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.

8.04 The Reinsurer hereby guarantees that 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. The Reinsurer shall guarantee payment to the
Company of its ceding fee on all premiums reinsured hereunder (prior to
deduction of premiums, if any, ceded by the Company for inuring reinsurance),
and in addition guarantees those amounts described in Section 8.07 of this
Agreement and is directly responsible for payment of the amount described in
Article XI. The Company shall allow return ceding fees on return premiums at the
same rates.

8.05 The Reinsurer shall allow the Company a commission of 24% on all premiums
ceded to the Reinsurer hereunder. The Company shall allow the Reinsurer return
commission on return premiums at the same rate. In addition, Reinsurer shall
allow the Company an LAE allowance of 6% on premiums ceded to the Reinsurer
hereunder.

8.06 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.

                                   ARTICLE IX
                                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.

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                                    ARTICLE X
                                   ARBITRATION

10.01 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.

10.02 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.

10.03 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.

10.04 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.

10.05 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 X.

10.06 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.

10.07 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 XI
                  ASSESSMENTS, ASSIGNMENTS, FINES AND PENALTIES

11.01 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

                                       10
<PAGE>

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.

11.02 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.

11.03 The Reinsurer shall also pay promptly and directly to the Company any
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.

                                   ARTICLE XII
                                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 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 thirty (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 XII and/or to indemnify the Company as
provided in this Article XII, 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 XIII
                                   INSOLVENCY

13.01 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

                                       11
<PAGE>

because the liquidator, receiver, conservator or statutory successor of the
Company has failed to pay all or a portion of any claims.

13.02 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.

13.03 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.

13.04 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 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 XIV
                                 ALTERNATE PAYEE

14.01 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.

14.02 In the event that an assuming insurer is submitted for the Company under
Section 14.01, 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.

                                       12
<PAGE>

                                   ARTICLE XV
                            HOLD HARMLESS PROVISIONS

15.01 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/or 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.

15.02 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 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.

15.03 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 100% of 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 these amounts if
the successor or administrator does not.

15.04 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.

                                       13
<PAGE>

15.05 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, and/or are excluded under Article III, 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, and/or are excluded under Article II, whether
intentional or not, shall be 100% reinsured and subject to this Agreement.

15.06 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.

15.07 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.

15.08 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.

                                       14
<PAGE>

                                   ARTICLE XVI
          LOSS IN EXCESS OF POLICY LIMITS/EXTRA CONTRACTUAL OBLIGATIONS

16.01 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 100% under this Agreement.

16.02 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.

16.03 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 XVII
                               REGULATORY MATTERS

17.01 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 100% of all liability and responsibility for all
premiums in the course of collection.

17.02 The Reinsurer shall agree, at no cost to the Company, to take those
actions (including, 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 XVIII
                                THE GENERAL AGENT

18.01 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.

                                       15
<PAGE>

18.02 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.

18.03 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.

18.04 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.

18.05 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.

18.06 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.

                                   ARTICLE XIX
                   REINSURER OR GENERAL AGENT SALE OR TRANSFER

         The Reinsurer 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)      Enter into a new reinsurance agreement with the successor; or

         (c)      Terminate this Agreement as provided in Section 4.02(g) of
                  this Agreement.

                                   ARTICLE XX
                                  MISCELLANEOUS

20.01 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,

                                       16
<PAGE>

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.

20.02 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.

20.03 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.

20.04 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.

20.05 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.

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

20.07 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.

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

20.09 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.

20.10 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.

20.11 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

                                       17
<PAGE>

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.

20.12 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.

20.13 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.

20.14 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.

                                       18
<PAGE>
                                   ARTICLE XXI
                    LOSS AND UNEARNED PREMIUM RESERVE FUNDING

21.01 The Reinsurer will secure its obligations under this Agreement, including
the obligations for unearned premiums reserves, if any, and reserves for losses
incurred but not reported and losses reported but unpaid, via a security fund
(via a security fund agreement, a copy of which is attached hereto as Exhibit B
and incorporated fully by this referenced) or letter of credit to be obtained by
the Reinsurer in favor of the Company, which letter of credit or security fund
shall be in all respects acceptable to the Company.

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

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

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

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

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

                  (ii)     the issuer of the security fund or letter of credit
                           gives Company notice of cancellation or non-renewal
                           of the security fund or letter of credit.

21.02 Within 10 business days of the effective date of this Agreement, and
within 10 business days prior to the end of each calendar quarter thereafter,
Company shall provide Reinsurer with a good faith estimate of the expected sum
of Reinsurer's ceded outstanding Unearned Premium and Loss Reserves as of the
end of the forthcoming calendar quarter (the "Estimate"). The Reinsurer shall,
within two business days prior to the commencement of such forthcoming calendar
quarter, fund/obtain a security fund or letter of credit in an amount equivalent
to 100% of the Estimate.

21.03 If at any time, based upon the monthly reporting provided to Company under
this Agreement, it shall be determined by the Company or Reinsurer that the
amount of the security fund or letter of credit may not be equivalent to 100% of
Reinsurer's ceded outstanding Unearned Premium and Loss Reserves as of the end
of the current calendar quarter (the "Revised Estimate"), then upon written
notice from Company, Reinsurer shall immediately, and no later than thirty (30)
days after receipt of such written notice, increase the amount of the security
fund or letter of credit to an amount equivalent to 100% of the Revised
Estimate. The Company shall at all times be in possession of a security fund or
letter of credit equivalent to 100% of Reinsurer's anticipated ceded outstanding
Unearned Premium and Loss Reserves as of the end of the current calendar
quarter.

21.04 Should the amount of the security fund or letter of credit at the end of
any calendar quarter be greater than the amount required in this Article XXI,
the Reinsurer shall be entitled to reduce the amount of the security fund or
letter of credit to an amount not less than the amount required in this Article
XXI. The Qualified United States Financial Institution shall permit such
reduction upon receipt by it of the Company's written statement that Reinsurer
is entitled to such reduction, which written statement shall not be unreasonably
withheld by Company.

                                       19
<PAGE>

21.05 For the purpose of this Article XXII, Unearned Premiums means, as of any
given date, the aggregate premium attributable to the unexpired coverage period
of all insurance policies produced under the Agreement, as determined in
accordance with generally accepted statutory accounting principles consistently
applied. For this purpose, premium shall be the written premium charged on the
insurance policy for the period such policy is in force irrespective of the
subsequent billing and collection of such premium.

21.06 For the purpose of this Article XXI, Loss Reserves means, as of any given
date, the reserve attributable to losses incurred but not reported and losses
reported but not paid with respect to the insurance policies produced under the
Reinsurance Agreement, and shall include provision for both allocated and
unallocated loss adjustment expense, in each instance as determined in
accordance with generally accepted accounting principles consistently applied.

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

         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.

                                  ARTICLE XXIII
                                 SAVINGS CLAUSE

23.01 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.

23.02 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 Party may in its sole discretion terminate this Agreement immediately
without prior notice.

                                       20
<PAGE>

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

STATE NATIONAL SPECIALTY INSURANCE COMPANY

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

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

DIRECT GENERAL INSURANCE COMPANY

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

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

                                       21<PAGE>

                                                                   Exhibit 10.14

                        QUOTA SHARE REINSURANCE AGREEMENT
                              NUMBER DIRECT-03-001
                                TABLE OF CONTENTS

Article 1         Recitals
Article 2         Definitions
Article 3         Business Reinsured
Article 4         Obligatory Agreement
Article 5         Term and Cancellation
Article 6         Consideration
Article 7         Loss and Loss Adjustment Expense
Article 8         Reports and Remittances
Article 9         Ceding Commission, Fronting Fees and Premium Taxes
Article 10        Errors and Omissions
Article 11        Inspection of Records
Article 12        Offset Clause
Article 13        Arbitration
Article 14        Honorable Undertaking
Article 15        Assessments and Assignments
Article 16        Conservation, Liquidation or Insolvency
Article 17        Hold Harmless
Article 18        Regulatory Matters
Article 19        Loss in Excess of Policy Limits/Extra Contractual Obligations
Article 20        Savings Clause
Article 21        Unauthorized (Non-Admitted) Reinsurance
Article 22        Program Review
Article 23        Miscellaneous

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                    QUOTA SHARE REINSURANCE AGREEMENT NUMBER
                                  DIRECT-03-001

This Agreement is made and entered into by and between OLD AMERICAN COUNTY
MUTUAL FIRE INSURANCE COMPANY (hereinafter referred to as the "Company") and
DIRECT GENERAL INSURANCE COMPANY (hereinafter referred to as the "Reinsurer").

               THE COMPANY AND REINSURER HEREBY AGREE AS FOLLOWS:

ARTICLE 1 - RECITALS

1.1 The Company and Reinsurer hereby wish to enter into a reinsurance
arrangement through which the Company is to bear no business, credit or
insurance risk whatsoever (save the risk of the Reinsurer's insolvency). The
Reinsurer shall hold the Company fully harmless and indemnify it for these and
all risks arising pursuant to this Agreement.

1.2 The Company and Reinsurer hereby agree that the full consideration provided
by the Company in exchange for the fees set forth herein, is to permit the
Policies as defined herein to be issued in the name of the Company and which are
reinsured one hundred percent (100%) under this Agreement.

1.3 It is understood and agreed that neither the Company nor the Reinsurer is
obligated by any representations or warranties made by any of the parties
involved in this transaction unless such representations and warranties are
formally included in this Agreement.

1.4 All business reinsured hereunder shall be produced by DIRECT GENERAL
INSURANCE AGENCY, INC. (Managing General Agent), in accordance with the terms
and conditions of the Managing General Agency Agreement effective January 1,
2003, (Managing General Agency Agreement) between the Managing General Agent and
the Company, a copy of said Agreement is attached hereto and fully incorporated
herein.

1.5 This Agreement sets forth all of the duties and obligations between the
Company and the Reinsurer and supersedes any and all prior or contemporaneous or
written agreements with respect to matters referred to in this Agreement. This
Agreement may not be modified, amended or changed except by an agreement in
writing signed by both parties.

ARTICLE 2 - DEFINITIONS

2.1 "Policies" is defined as all policies, endorsements, certificates,
contracts, agreements and binders of insurance issued or renewed on or after the
effective date of this Agreement on behalf of the Company by Managing General
Agent.

2.2 "Net Premium" is defined as the gross premium (total written premium) on all
original and renewal Policies written by the Company, less return premium and
cancellations.

2.3 "Loss in Excess of Policy Limits" (XPL) is defined as any amount which the
Company pays or would have been contractually held liable to pay had it not been
for the limit of the original Policy.

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2.4 "Extra Contractual Obligation" (ECO) is defined as those liabilities not
covered under any other provision of this Agreement which arise from the
handling of any claim on business covered hereunder, because of, but not limited
to, failure by the Company to settle within the policy limit, or by reason of
alleged or actual negligence, fraud or bad faith in rejecting an offer of
settlement or in the preparation of the defense or in the trial of any action
against its insured or reinsured or in the preparation or prosecution of an
appeal consequent upon such action. The date on which any ECO is incurred by the
Company shall be deemed, in all circumstances, to be the date of the original
disaster and/or casualty.

2.5 "Loss Adjustment Expense" shall mean expenditures by or on behalf of the
Company that are not part of the indemnity under the original policy (i.e. which
do not contribute to exhaustion of the original policy limit), made in
connection with the disposition of a claim, loss or legal proceeding (including
investigation, negotiation, cost of bonds, court costs, statutory penalties,
prejudgment interest or delayed damages, and interest on any judgment or award
and legal expenses of litigation) and the Company's defense costs and legal
expenses incurred in direct connection with legal actions (including, but not
limited to, Declaratory Judgment actions) brought to determine the Company's
defense and/or indemnification obligations that are allocable only to Policies
and claims under Policies subject to this Contract. Any Declaratory Judgment
action expenses shall be deemed to have been fully incurred on the same date as
the original loss (if any) giving rise to the action.

2.6 "Prejudgment Interest" or "Delayed Damages" shall mean interest or damages
added to a settlement, verdict, award or judgment based on the amount of time
prior to the settlement, verdict, award or judgment whether or not made part of
the settlement, verdict, award or judgment.

ARTICLE 3 - BUSINESS REINSURED

3.1 The Reinsurer hereby reinsures the Company for a one hundred percent (100%)
quota share in respect of all liability, including, but not limited to, losses
and loss adjustment expenses, under Policies issued or renewed on or after the
effective date hereon on behalf of the Company by the Managing General Agent or
its designated representative as classified by the Company in the attached
Schedule of Business.

3.2 It is understood that the classes of business reinsured under this Agreement
are deemed to include coverages required for non-resident drivers under the
motor vehicle financial responsibility law or the motor vehicle compulsory
insurance law or any similar law of any state or province, following the
provisions of the Company's policies when they include or are deemed to include
so-called "Out of State Insurance" provisions.

3.3 All insurance under this Agreement shall be subject to the same rates,
terms, conditions and waivers, and to the same modifications and alterations as
the respective Policies of the Company.

ARTICLE 4 - OBLIGATORY AGREEMENT

4.1 The Company agrees to cede to the Reinsurer, and the Reinsurer agrees to
accept from the Company, a one hundred percent (100%) quota share reinsurance
participation under all

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Policies effective on or after the effective date hereof by the Company covering
risks situated in Texas. The liability of the Reinsurer shall commence
obligatorily and simultaneously with that of the Company subject to the terms,
conditions and limitations set forth in this Agreement.

4.2 Business ceded hereunder shall include every original policy, rewrite,
renewal or extension (whether before or after the termination of this Agreement)
required by statute or by rule or regulation of the Texas Department of
Insurance, or other authority having competent jurisdiction, of any policy of
insurance originally ceded hereunder by the Company to the Reinsurer.

4.3 The parties understand and intend that the Reinsurer shall follow the
fortunes of the Company in every respect to activities engaged in hereunder.

ARTICLE 5 - TERM AND CANCELLATION

5.1 This Agreement shall become effective 12:00:01 a.m. (Central Standard Time)
on the first day of January 2003, as respects losses arising under Policies
effective on or after such date, and shall remain continuously in force unless
terminated by either party.

5.2 This Agreement may be terminated by either party at any calendar quarter end
giving the other party written notice at least thirty (30) days prior to such
date.

5.3 When the 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. The parties understand and
agree that any Policies with effective dates prior to the termination date, but
issued after the termination date, are covered under this Agreement.
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 an agent (appointed by the Company at the request of the Reinsurer) has
not been timely canceled, until the expiration dates on said Policies.

5.4 Upon termination of this Agreement, the Reinsurer and the Company shall not
be relieved or released from any obligation which relate to outstanding
insurance business created by or under this Agreement. 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
and all outstanding losses and loss adjustment expenses have been settled. While
by law and regulations, the Company recognizes its primary obligations to its
Policyholders, the Reinsurer recognizes that there shall be no cost or
involvement by the Company, unless specifically agreed, in servicing this
run-off. The Reinsurer shall bear all costs and expenses associated with
handling of such run-off business following the cancellation or termination of
this Agreement. If for any reason the Managing General Agent or any sub-agent
appointed by the Managing General Agent fails to service any such run-off
business (or any business while the 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 such managing general agent and/or 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
managing general agent and/or agent with respect to servicing such run-off
business.

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5.5 In addition to the provisions set forth in Article 5.2 herein, this
Agreement may be terminated at any time in accordance with the following terms
and conditions:

         a.       After thirty (30) days written notice by the Company in the
                  event the Reinsurer:

                  (i)      is acquired and/or merged by or in any manner becomes
                           under the control of any other company or
                           corporation;

                  (ii)     changes a majority of its officers or board of
                           directors; or

                  (iii)    is the subject of a filing or petition or initiation
                           of any proceeding for supervision, rehabilitation,
                           conservation or liquidation, or any other proceedings
                           for the protection of a creditor.

         b.       After thirty (30) days written notice by the Reinsurer in the
                  event Company:

                  (i)      is acquired and/or merged by or in any manner becomes
                           under the control of any other company or
                           corporation;

                  (ii)     changes a majority of its officers or board of
                           directors; or

                  (iii)    is the subject of a filing or petition or initiation
                           of any proceeding for supervision, rehabilitation,
                           conservation or liquidation, or any other proceedings
                           for the protection of a creditor.

         c.       By the Company immediately and automatically without prior
                  written notice should the Texas Department of Insurance
                  require cancellation or disallow credit for this reinsurance;
                  provided, however, that the Reinsurer shall have first been
                  given the opportunity to implement mutually acceptable changes
                  that would result in the Department's allowing credit for such
                  reinsurance.

         d.       In the event of a breach of conditions, fraud or default by
                  either party under the terms and conditions of the Agreement
                  that remains uncured after fifteen (15) days from receipt of a
                  written notice of default.

5.6 Notices hereunder shall be provided in accordance with Article 23.2, hereof.

ARTICLE 6 - CONSIDERATION

6.1 In consideration of the acceptance by the Reinsurer of one hundred percent
(100%) of the Company's liability on insurance business reinsured hereunder, the
Reinsurer is entitled to one hundred percent (100%) of the Net Premiums written
by the Managing General Agent and/or agent or the Reinsurer on Policies
reinsured less the claims handling fee and ceding commission allowed to the
Company, which includes premium taxes and fronting fees on Policies subject to
reinsurance hereunder.

ARTICLE 7 - LOSS AND LOSS ADJUSTMENT EXPENSE

7.1 All loss settlements, judgments and all interest on said judgments,
including losses in excess of policy limits (XPL) and extra contractual
obligations (ECO) made by the Company or the Company's designee under the terms
of this Agreement, whether under strict policy conditions or by way of
compromise, shall be unconditionally binding upon the Reinsurer. The Reinsurer
shall also be liable for one hundred percent (100%) of and pay on behalf of the
Company all loss adjustment expenses as defined in Article 2.5. The Reinsurer
shall be credited with all salvage or recoveries by the Company on business
reinsured hereunder.

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7.2 Claims handling shall be accomplished by the Managing General Agent or its
designated representative ("Claims Agent") pursuant to the Managing General
Agency Agreement and whose designation is subject to the Company's continuing
approval and shall not be inconsistent with the terms and conditions of this
Agreement.

7.3 The Reinsurer's share of losses, loss adjustment expenses and loss
recoveries shall be carried into the monthly account for which provision is
hereinafter made; however, when the amount of loss paid by the Company under
insurance subject to this Agreement exceeds the balance due the Reinsurer
pursuant to Article 8, the Reinsurer will, at the option and the demand of the
Company, be immediately reimbursed by special remittance. The Reinsurer shall
retain the right to deduct from any such special remittance any overdue balance
due the Reinsurer by the Company.

ARTICLE 8 - REPORTS AND REMITTANCES

8.1 Within forty-five (45) days after the end of each calendar month, the
Company shall report to the Reinsurer the following:

         a.       Ceded net written and collected premium for the month;

         b.       Ceding commission on such ceded net written and collected
                  premium as provided in Article 9.1;

         c.       Ceded losses and loss adjustment expenses paid during the
                  month;

         d.       Ceded unearned premium at the end of the month; and

         e.       Ceded outstanding losses and loss adjustment expenses at the
                  end of the month.

8.2 Upon receipt from the Managing General Agent, the Company shall immediately
pay any and all sums due directly to the Reinsurer pursuant to this Agreement.

8.3 The Reinsurer shall remit balances due directly to the Company via wire
transfer within 48 hours, or as soon as commercially feasible:

         a.       If the net monthly account results in an amount due to the
                  Company, or

         b.       If, during the month, there are no funds to pay losses, and
                  the Company submits additional reports reflecting an amount
                  due to the Company.

ARTICLE 9 - CEDING COMMISSION, CLAIM HANDLING FEE, FRONTING FEES AND
            PREMIUM TAXES

9.1 The Reinsurer will pay to the Company a ceding commission of twenty-two
percent (22%) and a claim handling fee of six percent (6%), which shall be
calculated on the basis of all net written premium and policy fees charged on
policies reinsured hereunder.

9.2 The Company will be liable for remitting state premium taxes based on net
written premium and net policy fees charged. Should service fees be charged on
any policy covered by this Agreement, and such fees be deemed taxable for
premium tax purposes, then such service fees are to be added to the net written
premium and net policy fees charged to determine the amount subject to Fronting
Fees payable under the Managing General Agent Agreement. Since premium taxes are
required to be paid semiannually on March 1st and August 1st, the Company

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may bill the Reinsurers for their proportionate share of the prepayment and
shall allow credit for premium taxes on the monthly accounts.

9.3 The Reinsurer acknowledges that the Company is not responsible for any
contingent commission adjustment, and such adjustment shall be settled directly
between the Managing General Agent and the Reinsurer. The Reinsurer shall seek
recovery for any contingent commission adjustment directly from the Managing
General Agent.

ARTICLE 10 - ERRORS AND OMISSIONS

10.1 Inadvertent delays, errors or omissions made in connection with this
Agreement or any transaction hereunder shall not relieve either party from any
liability which would have attached had such delay, error or omission not
occurred, provided always that such error or omission is rectified as soon as
possible after discovery.

ARTICLE 11 - INSPECTION OF RECORDS

11.1 All records pertaining to Policies issued on behalf of the Company through
or by the Reinsurer or its designated representative subject to this Agreement,
shall be deemed to be jointly owned records of the Company and the Reinsurer,
and shall be made immediately available to the Company or the Reinsurer or their
representative, upon reasonable request, or any duly appointed examiner for any
State within the United States; and these records shall be kept in the State of
Texas 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 Texas. The Company and the Reinsurer agree that neither will destroy
any such records in their possession without the prior written approval of the
other, except that neither party shall be required to retain files longer than
required by the guidelines set by the Texas Department of Insurance.

11.2 Any or all policies and/or claim files or other records required to be
maintained by Reinsurer pursuant to this Article 11 may be maintained in
electronic data storage form accessible by computer and if so stored in this
fashion, no physical copy of such items need be maintained, unless otherwise
required by law.

ARTICLE 12 - OFFSET CLAUSE

12.1 The Company or the Reinsurer shall have the right to offset any balance or
amounts due from one party to the other under the terms of this Agreement. The
party asserting the right of offset may exercise such right at any time whether
the balances due are on account of premiums or losses or otherwise. However, in
the event of the insolvency of any party hereto, offsets on any amount due under
this agreement shall be allowed in accordance with the statutes and/or
regulations of the state having jurisdiction over the insolvency.

ARTICLE 13 - ARBITRATION

13.1 Unless both parties mutually agree to waive arbitration with respect to a
particular dispute, the parties to this Contract hereby agree that binding
arbitration shall be the sole remedy for any and all dispute(s) arising between
them with reference to any transactions, terms or conditions

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under this Contract including its formation and validity. Arbitration
proceedings brought hereunder shall be referred for final determination to the
majority decision of a Panel of three disinterested arbitrators. Notice of
demand for arbitration shall be made in writing and shall be served via
certified or registered mail, return receipt requested, on the Respondent to the
Arbitration at the Respondent's current address. The notice requesting
arbitration shall identify the contract(s) involved in the dispute, the issues
to be resolved in the view of the Petitioner, and the arbitrator selected by the
Petitioner. The term "days" as used herein shall mean calendar days.

13.2 The Respondent shall appoint an arbitrator within 30 days of receiving a
request by the Petitioner in writing and served via certified or registered
mail, return receipt requested, to do so. At the same time as the appointment,
the Respondent shall identify in writing any issues which in its view must be
resolved in the arbitration proceeding and which were not identified by the
Petitioner. If the Respondent fails to appoint its arbitrator within 30 days of
being requested to do so, in writing, by the Petitioner, the Petitioner shall
have the right to appoint the second arbitrator. Within 30 days after their
appointment, the two arbitrators so chosen shall select a third arbitrator to
act as umpire. If the two arbitrators do not agree as to the selection of a
third arbitrator within 60 days after their appointment, the third arbitrator
shall be selected from a list of six individuals (three named by each
arbitrator) by a judge of the federal district court in Dallas County, Texas.

13.3 Each arbitrator shall be a disinterested, active or retired official or
officer of an insurance or reinsurance company, not under the control or
management of either party to this Contract, and shall have experience in the
class and type of business subject to this dispute.

13.4 Within 30 days after notice of appointment of all arbitrators, the
Petitioner and the Respondent shall each submit a statement of position to the
Panel.

13.5 Within 60 days after notice of appointment of all arbitrators, each party
shall provide the other with its relevant books, records, and/or other papers
not protected from disclosure by either the work-product or attorney client
privilege. Other than the exchange of relevant documents, both parties shall
refrain from engaging in any type of discovery including, but not limited to,
depositions and interrogatories.

13.6 Within 30 days following the exchange of documents, the Petitioner and the
Respondent shall submit re-hearing briefs to the Panel.

13.7 Unless some other location is mutually agreeable to the parties,
arbitration proceedings shall take place within the municipality wherein the
Home Office of the Company is located. Arbitration shall commence as soon as
practicable but in no event longer than 120 days after selection of the third
arbitrator with notice thereof to the parties. The specific time and site of
arbitration shall be promptly agreed to by the parties, or if no Contract is
reached, then determined by the Panel.

13.8 The Panel shall be relieved from applying the strict rules of evidence
and/or procedure and shall make its decision based on the custom and practice of
the insurance and reinsurance business with a view toward effecting this
Contract in a reasonable manner. Should either party fail to appear at an
arbitration and/or fail to furnish the Panel with any subpoenaed papers or
information, the Panel is empowered to proceed ex parte. The Panel shall make
its award within 60 days following the close of the hearing. The majority
decision of the Panel shall be final and binding upon the parties and shall be
reduced to a written award, which may include factual findings, and shall be
signed by any two of the three arbitrators, dated and delivered overnight to the
parties. The Panel may award pre-judgment and post-judgment interest, but in no
case shall

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the authority of the Panel extend to awarding punitive or exemplary damages.
Judgment may be entered upon the award by any court having jurisdiction.

13.9 Each party shall bear the expense of its own arbitrator, and shall equally
share with the other the expense of the third arbitrator. In the event that the
two arbitrators are chosen by one party, as above provided, the expense of the
two arbitrators, the third arbitrator and the arbitration shall be equally
divided between the Petitioner and the Respondent. Unless mutually agreed other
wise, a court reporter transcript shall be taken of the hearing with costs to be
divided equally between the parties. The remaining costs of arbitration shall be
allocated by the Panel.

13.10 The Arbitration proceeding brought hereunder, any or all provisions
contained herein, and arbitration awards entered pursuant to this Article are
specifically governed by, subject to and enforceable under the Federal
Arbitration Act (Title 9, United States Code, Sections 1-14, as amended.)

13.11 Each party agrees that time is of the essence with respect to all terms
and conditions referenced in this Article. All deadlines contained in this
Article may be extended by mutual Contract of the parties, and if the Panel has
been selected, the Panel's Contract must also be obtained.

13.12 Each party agrees that any arbitration award entered pursuant to and
governed by this Article shall not have any precedential or collateral estoppel
effect on future arbitrations, proceedings, or controversies, if any, between
the parties. Any claim of res judicata or claim preclusion shall itself be
subject to arbitration.

13.13 This Article shall survive the termination of this Contract.

ARTICLE 14 - HONORABLE UNDERTAKING

14.1 The purposes of this Contract are not to be defeated by narrow or technical
legal interpretations of its provisions. This Contract shall be construed as an
honorable undertaking and should be interpreted for the purpose of giving effect
to the intentions of the parties hereto.

ARTICLE 15 - ASSESSMENTS AND ASSIGNMENTS

15.1 The Reinsurer hereby assumes liability for any and all costs, assessments
or assignments imposed as a result of Policies reinsured hereunder (whether
before or after the termination of this Agreement) levied or made by a guaranty
fund, insolvency fund, plan, pool, association, or other arrangement created by
statute or regulation including, but not limited to, assessments levied by the
Texas Property & Casualty Insurance Guaranty Association. The Company shall
account to the Reinsurer for any recovery or any credit allowed to the Company
against its premium taxes, and return to the Reinsurer its share of any recovery
or credit.

ARTICLE 16 -  CONSERVATION, LIQUIDATION OR INSOLVENCY

16.1 In the event of the insolvency of the Company, the Reinsurance afforded by
this Agreement shall be payable directly by the Reinsurer to the Company or its
liquidator, receiver or statutory successor on the basis of the liability of the
Company under the Policies, without diminution because of the insolvency of the
Company, in accordance with the provisions of any State Law which may be
involved except:

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         a.       where the Agreement specifically provides another payee of
                  such reinsurance in the event of the insolvency of the
                  Company; or

         b.       where the Reinsurer with the consent of the direct insured(s)
                  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 the
                  payees.

16.2 In the event of the insolvency of the Company, the liquidator, receiver or
statutory successor of the Company shall give written notice to the Reinsurer of
the pendency of a claim against the insolvent Company on a Policy within a
reasonable time after such claim is filed in the insolvency proceedings. During
the pendency of such claim, the Reinsurer may investigate such claim and
interpose at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses which it may deem available to the Company
or its liquidator, 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 the
proportionate share of the benefits which may accrue to the Company solely as a
result of the defense undertaken by the Reinsurer.

16.3 If two (2) 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.

16.4 As respects subject business assumed as reinsurance under this Agreement,
the parties agree 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 Company is permitted to have all its liabilities
under the Policies reinsured hereunder assumed by another licensed insurer, 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 payments thereof directly to the
substituted insurer.

16.5 In the event the foregoing provisions apply, 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 17 - HOLD HARMLESS

17.1 In consideration of these presents and the reciprocal benefits derived by
the Company and the Reinsurer, the Reinsurer assumes liability for any and all
uncollected balances, unsettled finance agreements, claims, commission
adjustments, losses, loss corridors, demands, causes of action (including, but
not limited to, violations of the Texas Deceptive Trade Practices Act or
insurance laws or regulations), damages (including, but not limited to, any and
all extra contractual or liability in excess of policy limits), judgments and
expenses (including, but not limited to, attorney's fees and costs of court)
which may be made against the Company and which are incurred, either directly or
indirectly, in connection with this Agreement or contracts related to this
Agreement or any actions or failure to take action by the Managing General Agent
or any agent or by the Company in successfully asserting its rights hereunder in
connection with or with respect to this Agreement.

Notwithstanding anything to the contrary, this provision shall not apply to:

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         a.       fraud, dishonesty, theft or collusion on the part of any
                  Director, Officer or employee of the Company; or

         b.       policies not reinsured hereunder; or

         c.       the Company's failure to perform its duties and obligations
                  under this Agreement due to the Company's gross negligence.

17.2 If, for any reason, the Managing General Agent or 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), the Reinsurer shall appoint,
a third party, subject to the Company's approval, to administer the business in
accordance with the terms and conditions of this Agreement and the agreement
with the Managing General Agent. The Reinsurer shall be responsible for the cost
of such administration. The Company agrees to cooperate with the Reinsurer and
the third party administrator in the run-off of the business. If return premiums
or other funds need to be returned or paid to premium finance companies,
policyholders, sub-agents or any other party, the Reinsurer shall pay these
amounts if the Managing General Agent or agent does not.

17.3 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 escrow
account established pursuant to Article 7 of the Managing General Agent
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.

17.4 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.

17.5 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.

ARTICLE 18 - REGULATORY MATTERS

18.1 It is the parties' understanding that the Texas Department of Insurance
views current premium due over ninety (90) days past due (aged by item and
effective date) from insureds or their designated representative to the Company
as non-admitted assets. In confirmation of the liabilities assumed by the
Reinsurer under this Agreement, the Reinsurer hereby assumes its share of all
liability and responsibility for all premium in the course of collection.

18.2 The Reinsurer shall agree, at no cost to the Company, to take those actions
(including, but not limited to, modifications in how funds are handled and how
accounts are cleared and settled) 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 the laws of the State of Texas and regulations
promulgated by any governmental entity thereof, including the Texas

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Department of Insurance, insofar as this reinsurance program is concerned,
subject to the provisions of Article 16.

18.3 The Reinsurer and the Company shall not offset obligations arising under
this Agreement with obligations arising under any other agreement except to the
extent permitted under state law and/or regulations.

ARTICLE 19 - LOSS IN EXCESS OF POLICY LIMITS/EXTRA CONTRACTUAL OBLIGATIONS

19.1 This Agreement shall protect the Company for one hundred percent (100%) of
any loss in excess of Policy limits (XPL) and/or one hundred percent (100%) of
the extra contractual obligations (ECO) shall be deemed to be a loss under the
Policy involved and shall be subject to this Agreement.

19.2 Notwithstanding anything stated herein, this Agreement shall not apply to
any extra contractual obligation (ECO) incurred by the Company as a result of
any fraudulent and/or criminal act by any officer or director of the Company
acting individually or collectively or in collusion with any individual or
corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.

ARTICLE 20 - SAVINGS CLAUSE

20.1 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 and compliance with such law or regulation cannot be obtained by
amendment or modification to the Agreement that is mutually agreeable between
the parties, then, 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, regulation 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.

20.2 Should any portion of this Agreement be held to be unenforceable by
Arbitration or any court of competent jurisdiction, the remainder of such
Agreement shall be construed as if originally written without the unenforceable
portion thereof, giving effect to the extent possible of the original intent of
the parties hereto as expressed in such Agreement as originally written.

ARTICLE 21 - UNAUTHORIZED (NON-ADMITTED) REINSURANCE

21.1 The Reinsurer shall enter into a trust agreement and establish a trust
account for the benefit of the Company in a bank that is a member of the Federal
Reserve System, approved by the National Association of Insurance Commissioners
and in accordance with the rules and regulations as set forth by the Texas
Department of Insurance or any other regulatory authority having jurisdiction.
Such amount shall be equal to the Reinsurer's share of the reserves for unearned
premium and outstanding losses and loss expenses, including incurred but not
reported losses. The Company agrees to furnish the Reinsurer with necessary
accounting data to establish such amount.

                                       12
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21.2 The assets deposited in the trust account shall be valued, according to
their current fair market value, and shall consist only of cash, certificates of
deposit, and/or investments of the types permitted by the Texas Insurance Code,
Article 5.75-1 (d), provided that such investments are issued by an institution
that is not the parent, subsidiary, or affiliate of either the guarantor or the
beneficiary.

21.3 The trust agreement shall further require that all settlements of account
between the Company and the Reinsurer be made in cash or its equivalent.

21.4 The Reinsurer and the Company hereby agree that the assets in the trust
account established pursuant to this Agreement may be withdrawn by the Company
at any time, notwithstanding any other provisions in this Agreement. Such
withdrawals shall be utilized and applied by the Company or its successors in
interest by operation of law, including without limitation any liquidator,
rehabilitator, receiver, or conservator of such Company, without diminution
because of insolvency on the part of the Company or the Reinsurer, only for the
following purposes:

         a.       to reimburse the Company for the Reinsurer's share of premiums
                  returned to the owners of Policies reinsured under this
                  Agreement on account of cancellations of such Policies; or

         b.       to reimburse the Company for the Reinsurer's share of
                  surrenders and benefits or losses paid by the Company pursuant
                  to the provisions of the Policies reinsured under this
                  Agreement; or

         c.       in the event of notice of termination of the trust, to fund an
                  account with the Company in an amount at least equal to the
                  reinsurers share of reserves described in Article 21.1 above;
                  or

         d.       to pay any other amounts due the Company under this Agreement.

21.5 The Trust Account Agreement shall include authority for the Reinsurer to
terminate the Trust Account. upon the transfer of all Reinsurer obligations
under this Agreement to an unaffiliated third party reinsurer with an A.M. Best
rating A- or better; or the Reinsurer obtaining an A.M. Best rating of A- or
better, licensed by the Texas Department of Insurance.

21.6 If the Reinsurer is not licensed to transact insurance or reinsurance in
Texas, the Reinsurer hereby submits to the jurisdiction of the state courts of
Texas, in particular the Dallas County District Court, and agrees to comply with
all requirements necessary to give such courts jurisdiction, has designated
Long, Burner, Parks, & Delargy, 515 Congress Street, Austin Texas as agent upon
whom service of process may be effected and agrees to abide by the final
decision of such courts or appellate courts to which such court's decision is
appealed. This Contract shall be governed by and construed in accordance with
the laws of the State of Texas. The principles of conflicts of law will be
disregarded and only the laws of the State of Texas shall apply.

ARTICLE 22 - PROGRAM REVIEW

22.1 The Reinsurer acknowledges that it has been afforded the opportunity to
review the records of the Managing General Agent including but not limited to
rate levels, rate filings, underwriting guidelines and claims handling. Although
the Company may perform reviews as well,

                                       13
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it is understood that the participation of the Reinsurer on this contract is
based upon its continuing due diligence and not based upon due diligence
performed by the Company.

ARTICLE 23 - MISCELLANEOUS

23.1 This Agreement has been made and entered into in the State of Texas.

23.2 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, or by electronic
communication with proof of receipt by the other party. 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.

23.3 This Agreement shall be binding upon the parties hereto, together with
their respective executors, administrators, personal representatives, heirs and
assigns.

23.4 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.

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

23.6 This Agreement is the entire Agreement between the parties and supersedes
one and all previous agreements, written or oral, and amendments thereto.

23.7 A waiver by the Company, the Reinsurer or its designated representative of
any breach or default by the other party under this Agreement shall not
constitute a continuing waiver or a waiver by the Company, the Reinsurer or its
designated representative of any subsequent act in breach or of default
hereunder.

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

OLD AMERICAN COUNTY MUTUAL               DIRECT GENERAL INSURANCE COMPANY
FIRE INSURANCE COMPANY

By:    /s/ Thomas A. McCall              By:    /s/ Barry D. Elkins

Name:    Thomas A. McCall                Name:     Barry D. Elkins

Title:      President                    Title:       SVP & CFO

Date:    December 31, 2002               Date:     December 31, 2002

                                       14
<PAGE>

                              SCHEDULE OF BUSINESS

The Company, the Reinsurer and the Managing General Agent agree that the
Managing General Agent has the authority to accept, on forms approved by the
Company, any Policy, endorsement, binder, certificate, or proposal for
insurance. The Managing General Agent's authority is limited by this Schedule of
Business.

     Overall:
              Projected premium volume                $40,000,000
              Territory                               Texas only
              Maximum policy term                     Twelve months

While business will be predominately minimum limits, the lines of business and
the maximum limits of liability are as follows

                        COVERAGE                            MAXIMUM LIMITS

              Bodily Injury Liability                   $100,002 each person
                                                        $300,002 each accident
              Property Damage Liability                 $ 50,002 each accident

              Uninsured/Underinsured Motorists
                     Bodily Injury                      $ 20,002 each person
                                                        $ 40,002 each accident
                     Property Damage                    $ 15,002 each accident

              Personal Injury Protection                $  2,502 each person

              Medical payments                          $    502 each person

              Physical Damage                           $ 35,000 each automobile

This Agreement does not apply to and specifically excludes the following:

         a. Any business not produced by DIRECT GENERAL INSURANCE AGENCY, INC,
         or

         b. Any business not classified as private passenger automobile
         liability or physical damage, or

         c. Exclusions specified within the Quota Share Reinsurance Agreement
         Number DIRECT-03-001.

THE COMPANY:                             THE REINSURER:

OLD AMERICAN COUNTY MUTUAL               DIRECT GENERAL INSURANCE COMPANY
FIRE INSURANCE COMPANY

By:    /s/ Thomas A. McCall              By:    /s/ Barry D. Elkins

Name:    Thomas A. McCall                Name:     Barry D. Elkins

Title:      President                    Title:       SVP & CFO

Date:    December 31, 2002               Date:     December 31, 2002

                                       15

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