<PAGE>   1
EXHIBIT 13.  ANNUAL REPORT TO SHAREHOLDERS

                              FINANCIAL HIGHLIGHTS
        (Expressed in thousands of US dollars, except per share amounts)

<TABLE>
<CAPTION>
                                                                            FISCAL YEAR ENDED
                                                                              SEPTEMBER 30,
                                                              1996                1995                1994
                                                              ----                ----                ----
<S>                                                 <C>                     <C>                  <C>


Premiums written                                     $     119,802         $   136,884           $   102,065
Premiums earned                                            124,461             120,556                56,705
Net income                                           $      90,762         $    90,656           $    29,815

Net income per share                                 $        3.63         $      3.94           $      1.32
Pro forma net income per share (1)                   $        3.64         $      3.65                  1.20
Dividends declared per share (2)                     $        1.86         $      9.00           $         -
Weighted average shares outstanding                     24,989,506          23,009,828            22,684,606

Loss and loss expense ratio                                   22.5%               29.3%                 44.6%
Expense ratio                                                 21.5%               18.6%                 18.6%
Combined ratio                                                44.0%               47.9%                 63.2%
</TABLE>

<TABLE>
<CAPTION>
                                                                         SEPTEMBER 30,
                                                            1996             1995                 1994
                                                            ----             ----                 ----
<S>                                                   <C>                    <C>                  <C>
Total assets                                         $     516,840         $597,641              $534,014
Shareholders' equity                                 $     417,037         $356,397              $468,067
 
Book value per share                                 $       16.90         $  15.94              $  20.76
</TABLE>


Share Price Range:

<TABLE>
<CAPTION>
                                                                                    HIGH                  LOW
<S>                                                                         <C>                  <C>
Quarter ended December 31, 1996 (from December 18, 1996)                    $      23.000        $       19.875
Quarter ended March 31, 1996                                                $      25.750        $       21.500
Quarter ended June 30, 1996                                                 $      27.125        $       24.250
Quarter ended September 30, 1996                                            $      26.875        $       21.500
</TABLE>


---------------
(1) Assuming 3.3 million shares issued pursuant to sponsor warrants in December
    1995 and 1.0 million shares repurchased in July 1996 were effected October 
    31, 1993.

(2) The 1995 fiscal year dividend was a one-time distribution which preceded
    establishment of the Company's current dividend policy.

<PAGE>   2
 

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

GENERAL

GCR commenced operations in October 1993. The financial data included in the
following discussion are as of September 30, 1996 and 1995 and for the years
ended September 30, 1996, 1995 and 1994. Because GCR has a limited operating and
loss history, the financial data included herein are not necessarily indicative
of the financial condition or results of operations of GCR in the future.

Renewal dates for property catastrophe reinsurance policies are generally
concentrated in the first quarter of each calendar year - i.e., in the second
quarter of the Company's fiscal year. Approximately half of GCR's reinsurance
programs and more than half of its premiums written are related to contracts
with renewal dates (primarily January 1 ) in the second quarter of the Company's
fiscal year - i.e., the quarter ending March 31. Nevertheless, because premiums
generally are earned over the term in which the related reinsurance coverage is
provided, GCR's premiums earned are not concentrated in any interim period.
Earned premiums in the year ended September 30, 1994 and, to a lesser extent, in
the year ended September 30, 1995 reflect the start-up nature of the Company's
operations during these fiscal years.

RESULTS OF OPERATIONS, YEARS ENDED SEPTEMBER 30, 1996 AND 1995

Written premiums for the year ended September 30, 1996 were $119.8 million, a
decrease of 12.5% compared to written premiums for the prior fiscal year. This
decrease was the result of several factors: increasing price competition in
GCR's property catastrophe line of business, a reduction in reinstatement
premium associated with favorable loss experience and negative adjustments of
premium associated with proportional business. Price competition has caused GCR
to reduce, and in some cases cancel, its participation in business it does not
consider to be adequately priced. Premium rates in the global property
catastrophe market have decreased in recent periods due to favorable loss
experience in the industry. Further downward pressure on rates and on GCR's
written premiums in 1997 can be expected if and while this favorable loss
experience continues.

For the current fiscal year, premiums earned were $124.5 million, an increase of
3.2% compared to the prior fiscal year. This increase reflects the practice of
earning premiums ratably over the reinsurance contract period (generally one
year) and, therefore, the earning of some premiums written in fiscal year 1995,
when GCR achieved significant growth in new business from new and existing
clients.

For the year ended September 30, 1996 losses and loss expenses were $28.0
million compared to $35.3 million for the prior fiscal year, a decline of 20.6%.
GCR was affected by only two catastrophic events in the most recent period -
Hurricane Opal, which struck the Florida Panhandle in early October 1995 and for
which the Company



<PAGE>   3
incurred losses and loss expenses of $3.3 million and Hurricane Fran, which
struck the coast of North Carolina in September 1996 and for which the Company
incurred losses and loss expenses of $6.8 million, and saw favorable loss
development of $3.1 million related to previous periods. GCR's loss ratio was
22.5% for the year ended September 30, 1996, compared to 29.3% for the prior
fiscal year. While loss experience for the year was favorable, GCR is subject to
infrequent but severe effects of natural and man-made catastrophes, which can
lead to volatile losses and financial results.

Investment income was $29.0 million for the year ended September 30, 1996. The
11.3% decrease from $32.7 million in the year ended September 30, 1995 is the
result of declining interest rates and the use of cash generated from the sale
of investment assets to repay borrowings under the Credit Agreement (described
below) in February 1996, which more than offset the effects of positive cash
flow from operations added to the investment portfolio. The average yield on the
investment portfolio was 6.1% in fiscal 1996, compared to 6.6% in the prior
fiscal year.

Acquisition expenses were $20.0 million for the fiscal year 1996, compared to
$17.1 million for the fiscal year 1995. The increase in acquisition expenses is
related to growth of international property catastrophe business and higher
commission rates on proportional business.

General and administrative expenses increased 24.6% to $10.7 million for the
year ended September 30, 1996 compared to the prior year. This increase reflects
an increase in GCR's staff, compensation expense of $1.6 million related to an
adjustment in the exercise price of certain outstanding options and certain
non-recurring expenses associated with the public offerings in December 1995 and
July 1996. GCR's expense ratio was 21.5% for the year ended September 30, 1996,
compared to 18.6% for the year ended September 30, 1995.

Interest expense of $2.0 million for fiscal year 1995 and $3.7 million for the
fiscal year 1996 reflects the borrowing under the Credit Agreement in August
1995 of $142.0 million at 6.7% per annum. The borrowing was repaid by February
1996.

For the fiscal years 1996 and 1995, respectively, net income was $90.8 million
and $90.7 million, or $3.63and $3.94 per share.

RESULTS OF OPERATIONS, YEARS ENDED SEPTEMBER 30, 1995 AND 1994

In the year ended September 30, 1995, GCR produced written premiums of $136.9
million, reflecting growth in new business from new and existing clients, offset
in part by modest rate reductions. GCR established itself in the worldwide
property catastrophe reinsurance market in its first year of operations, which
ended September 30, 1994, and produced written premiums of $102.1 million in
that year. Premiums earned for the years ended September 30, 1995 and 1994 were
$120.6 million and $56.7 million, respectively,


<PAGE>   4


with the increase principally reflecting GCR's continuing efforts to establish
new reinsurance clients and, to a lesser extent, growth in business from
existing clients.

Investment income was $32.7 million and $20.1 million for the years ended
September 30, 1995 and 1994, respectively. The 1994 fiscal year results reflect
interest rates that were low by historical standards. The average yield on GCR's
investment portfolio for the years ended September 30, 1995 and 1994 was 6.6%
and 4.6%, respectively. Realized gains (losses) on investments were $0.4 million
for the year ended September 30, 1995 and $(10.2) million in the year ended
September 30, 1994. Approximately $6.0 million of the realized losses in the
1994 fiscal year reflected a decision to shorten the average maturity of the
portfolio in November 1993, which in large measure, but not completely,
insulated the Company from the most serious effects of rising interest rates
later in that fiscal year.

Losses and loss expenses for the years ended September 30, 1995 and 1994 were
$35.3 million and $25.3 million, respectively. Of the 1994 amount, $17.6 million
was the result of catastrophe losses sustained in the earthquake in Northridge,
California on January 17, 1994. The 1995 losses included $5.8 million of loss
development reported in 1995 related to the Northridge earthquake. Losses
incurred in the fourth quarter of the 1995 fiscal year were $15.0 million,
including provisions for losses from Hurricanes Luis and Marilyn and a hailstorm
in Germany. The Company's loss ratio - i.e., the ratio of losses and loss
expenses to earned premium - was 29.3% and 44.6% for the years ended September
30, 1995 and 1994, respectively. The decline in the loss ratio during fiscal
year 1995 was primarily due to the absence of a significant loss event during
that year compared to the prior year, in which the 1994 Northridge earthquake
occurred.

Acquisition expenses, primarily commission and brokerage related to the
production of premiums, were $17.1 million and $6.7 million for the years ended
September 30, 1995 and 1994, respectively. The increase in acquisition expenses
for the 1995 fiscal year is directly related to the growth in earned premiums
during that year. General and administrative expenses were $8.6 million and $5.3
million in the years ended September 30, 1995 and 1994, respectively. The growth
in these expenses in fiscal year 1995 reflects growth in staff size, travel
expenses and the opening of GCR's office in Belgium, as well as expenses
associated with the line of credit established in August 1995 and with the
initial public offering.

Net income for the year ended September 30, 1995 was $90.7 million, or $3.94 per
ordinary share. Net income for the 1994 fiscal year was $29.8 million, or $1.32
per ordinary share, The increase in net income is principally attributable to
the start-up nature of GCR's business during these periods, as well as to the
occurrence of the Northridge earthquake in fiscal year 1994 and the absence of
any catastrophic event of comparable severity during the subsequent fiscal year.


<PAGE>   5


LIQUIDITY AND CAPITAL RESOURCES

The Company raised approximately $441.0 million in cash, net of placement costs,
through an initial placement of ordinary shares in October 1993. Of this amount,
$440.0 million was contributed to Global Capital Re.

The Company is a holding company that conducts no operations of its own and
whose assets essentially consist of its equity interest in Global Capital Re.
Consequently, the Company's cash flows are limited to distributions from Global
Capital Re and borrowings under the Credit Agreement, which are its only sources
of cash to pay creditors and to pay any dividends to holders of ordinary shares.
Distributions by Global Capital Re to the Company are limited pursuant to
statutory capital and surplus requirements. As a result of the application of
those requirements to the financial position of Global Capital Re as of
September 30, 1996, Global Capital Re would be required to notify Bermuda
authorities before making any distribution to the Company in excess of
approximately $107.3 million during the 1997 fiscal year. This amount is
determined based on Global Capital Re's financial position as of September 30 of
each year and is subject to annual adjustment. In addition, the full $150.0
million is currently available to the Company for borrowing under the Credit
Agreement, assuming the Company is able to continue meeting the minimum net
worth and other requirements thereunder.

GCR generated cash flow from operations of $97.9 million, $104.9 million and
$55.0 million during the years ended September 30, 1996, 1995 and 1994,
respectively. These amounts represent the excess of premiums and net investment
income collected over losses, loss expenses and underwriting and other expenses
paid. Net cash flows from operating activities are added to funds available for
investment. GCR can be expected to incur significant catastrophe losses from
time to time and, as a result, generate substantially reduced or even negative
cash flow from operating activities.

Substantially all of GCR's funds have been invested in a portfolio of short
duration, high quality fixed income investments. At September 30, 1996, the fair
value of GCR's fixed investment portfolio was $438.2 million, all of which was
invested in securities rated investment grade by Standard & Poor's Corporation.
GCR's investment portfolio is structured to provide liquidity to meet
requirements for large loss payments to clients in the event of significant
catastrophes. All of GCR's investments are currently classified as securities
available for sale and are carried at fair value in the financial statements.

Cash flow used in investing activities (i.e., the net purchase of investments
for GCR's portfolio), amounted to $121.4 million in fiscal 1995 and $374.5
million in fiscal year 1994. Cash flow provided by investing activities (i.e.,
the net liquidation of investments in GCR's portfolio) was $46.2 million in the 
year ended September 30, 1996. In the 1996 fiscal the year, investments were
liquidated to provide funds to repay borrowings under the Credit Agreement.

<PAGE>   6


In the 1996 fiscal year, net cash used in financing activities was $171.5
million reflecting the repayment of funds borrowed under the Credit Agreement
and the payment of quarterly dividends to shareholders, offset in part by the
proceeds from exercise of sponsor warrants in December 1995. The Company paid
dividends in respect of its ordinary shares, of $0.62 per share, on February 27,
1996 ($15.9 million), May 15, 1996 ($15.9 million) and August 20, 1996 ($15.3
million). In fiscal year 1995, significant financing activity consisted of
borrowing under the Credit Agreement, substantially all of which was used to pay
a portion of the August 1995 distribution to shareholders, resulting in a net
use of funds of $63.5 million. In fiscal year 1994, cash flow from financing
activity related primarily to the initial funding of the Company and amounted to
$441.0 million in cash.

In August 1995, the Company entered into the Credit Agreement with various
commercial banks, for which The First National Bank of Chicago is acting as
agent, and borrowed approximately $142.0 million under the facility. The Company
used substantially all of these borrowed funds, together with available cash
generated from the sale of the investments, to pay a distribution to
shareholders on August 18, 1995 of $201.3 million. Of these borrowings, $34.0
million was repaid out of the proceeds of the exercise of the sponsors' warrants
on December 22, 1995 and the remaining $108.0 million was repaid out of the
proceeds of the liquidation of investments on February 22, 1996.

In the 1995 initial public offering, which closed on December 22, 1995,
7,618,750 shares were sold on behalf of the Company's original shareholders at a
price of $18.50 per share. All offering proceeds were received by the selling
shareholders. In connection with the 1995 offering, the Company's shareholders
approved an increase in the Company's authorized capital and a 5:1 share split,
which was effected in the form of a share dividend on December 22, 1995. In
addition, the Company's sponsors exercised all of their options to acquire
3,303,655 ordinary shares at an aggregate exercise price of $36.3 million
($11.00 per share), substantially all of which was used to repay a portion of
the outstanding borrowings under the Credit Agreement.

In the July 1996 offering, 5,350,000 shares were sold on behalf of the Company's
original shareholders at an offering price of $22.00 per share. All offering
proceeds were received by the selling shareholders. Global Capital Re
repurchased 1,000,000 of the shares sold in the July 1996 offering, at the
public offering price net of the underwriting discount. This repurchase reduced
shareholders' equity by approximately $20.9 million. The shares purchased by
Global Capital Re, while held by it, will continue to carry the dividend, voting
and other rights associated with outstanding ordinary shares but, for purposes
of GCR's consolidated financial statements, such shares will be treated as if
they have been retired when repurchased.


<PAGE>   7


BERMUDA REGULATORY CAPITAL REQUIREMENTS

The Company's ability to pay dividends to shareholders is limited by the Bermuda
Insurance Act 1978, which requires Global Capital Re to maintain a minimum
solvency margin and a minimum liquidity ratio. The solvency margin requirement
is the greater of $100.0 million, 50% of net premiums written (with maximum
credit of 25% for reinsurance ceded) or 15% of loss reserves. If Global Capital
Re were to reduce its capital by more than 15% of that contained in its
statutory financial statements for the prior fiscal year, it would be required
to apply to the Minister of Finance for approval and file certain required
information, including an affidavit declaring that it would remain in compliance
with the required solvency margin and continue to have $100 million of statutory
capital and surplus. The Company does not expect these requirements to impose
any significant limitations on the Company's liquidity, based on Global Capital
Re's current capital structure and operating results.

THE CREDIT AGREEMENT

The Company currently has no outstanding borrowings under the Credit Agreement.
The Credit Agreement provides that the Company may not pay dividends or make
other distributions in any fiscal year in amounts that, in the aggregate, would
exceed GCR's consolidated net income for the prior fiscal year or if any
material or incipient default exists under the facility. Pursuant to the Credit
Agreement, the Company has also agreed, among other things, that (i) it will use
the funds borrowed under the facility only to meet its general needs and those
of Global Capital Re; (ii) other than pursuant to the Credit Agreement, it will
not incur indebtedness in excess of $5.0 million, or grant any lien, subject to
certain limited exceptions; (iii) it will not effect any merger, asset sale or
other significant business combination; (iv) it will not dispose of more than
10% of its assets on a consolidated basis; (v) it will limit its investments to
certain specified categories; and (vi) it will maintain a consolidated net
worth, and cause Global Capital Re to maintain a net worth, of at least $250.0
million (as of September 30, 1996, such consolidated net worth of the Company
was approximately $417.0 million), and will cause Global Capital Re to maintain
a ratio of premiums written to net worth, determined as of the end of each
fiscal quarter for the four fiscal quarters ending on such date, of not more
than 0.75 to 1.0 (as of September 30, 1996, such ratio was less than 0.28 to 1).
As security for its obligations under the Credit Agreement, the Company has
pledged to the agent for the lenders all of the capital shares of Global Capital
Re. The Credit Agreement terminates on August 17, 1998.

The Credit Agreement provides for advances in the form of Eurodollar loans
bearing interest at the London Interbank Offered Rate ("LIBOR") plus 60 or 70
basis points, depending upon the amount of outstanding borrowings, or in the
form of U.S. floating rate loans bearing interest at an annual rate equal to the
higher of the federal funds rate plus 50 basis points per annum or the corporate
base rate of The First National Bank of Chicago, as announced from time to time.

<PAGE>   8


The Company has agreed to pay to the lenders under the Credit Agreement a
commitment fee of between 0.175% and 0.20% of the daily unborrowed portion of
the facility. The Company can permanently reduce the total commitment of the
lenders (and therefore its commitment fee) by giving three days' notice to the
agent for the lenders.

A default under the Credit Agreement will occur when, among other occurrences,
the Company (i) fails to repay any principal or interest; (ii) fails to comply
with the covenants referred to above; (iii) fails, or Global Capital Re fails,
to pay any material amount due under indebtedness to any other person; (iv)
files, or Global Capital Re files, for bankruptcy or otherwise becomes unable to
pay its debts generally as they become due; (v) there occurs a change of control
(defined generally as the acquisition by any person or group (other than
Goldman, Sachs & Co. and their affiliates) of beneficial ownership of 20% or
more of the ordinary shares or the turnover within a 25-month period of a
majority of the Company's Board of Directors); or (vi) Global Capital Re has any
regulatory proceedings instituted against it. Upon a default (other than a
default under (iv) above with respect to which acceleration would be automatic),
the lenders holding at least 66 2/3% of the outstanding loans under the facility
may accelerate the maturity of all borrowings thereunder and the agent for the
lenders may foreclose upon, and hold or dispose of, the capital shares of Global
Capital Re in satisfaction of any amounts owed thereunder.

CURRENCY

GCR's functional currency is the U.S. dollar. However, while substantially all
of GCR's investments are in U.S. dollar-denominated instruments, the premiums
receivable and losses payable in respect of a substantial portion of GCR's
business are denominated in currencies other than U.S. dollars. GCR has not
hedged its currency exposure with respect to premiums receivable or losses
payable. With respect to losses payable, GCR does not hedge its currency
exposure prior to the occurrence of an event that may give rise to a claim,
although it may purchase a currency hedge after a major event occurs. After a
catastrophe occurs, GCR's loss settlement cost may increase if the related
claims are denominated in a foreign currency that appreciates against the U.S.
dollar during the claim settlement period. To date, GCR has not incurred any
significant claims that are payable in currencies other than U.S. dollars.

GCR's investment portfolio does not currently include options, warrants, swaps,
hedges, collars or similar derivative instruments. GCR has no plans to change
its investment strategy to provide for the purchase of such instruments other
than in the limited circumstances described above.

EFFECTS OF INFLATION

GCR estimates the effects of inflation on its business and reflects these
estimates in the pricing of its reinsurance contracts. Because of the relatively
short claims settlement cycle associated with its reinsurance portfolio, GCR
generally does not take into account the effects of inflation when estimating
reserves. The actual effects of inflation on the results of GCR cannot be
accurately known until claims are ultimately settled.


<PAGE>   9



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

We have audited the accompanying consolidated balance sheets of GCR Holdings
Limited (a Cayman Islands company) as of September 30, 1996 and 1995 and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended September 30, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of GCR
Holdings Limited as of September 30, 1996 and 1995 and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended September 30, 1996 in conformity with accounting principles generally
accepted in the United States.

ARTHUR ANDERSEN & CO.

Hamilton, Bermuda
October 21, 1996


<PAGE>   10
                           CONSOLIDATED BALANCE SHEETS
                           September 30, 1996 and 1995
 (Expressed in thousands of United States dollars, except for per share amounts)

<TABLE>
<CAPTION>
                                                1996         1995
                                            -----------   ----------
<S>                                        <C>           <C>
ASSETS

Fixed maturity investments, at fair value
(amortized cost: $438,393 and $484,858)      $ 438,204    $ 485,322

Cash and cash equivalents                       14,070       41,490

Premiums receivable                             45,542       49,716

Accrued investment income                        8,941       10,073

Deferred acquisition costs                       9,416       10,257

Other assets                                       667          783

-------------------------------------------------------------------
TOTAL ASSETS                                 $ 516,840    $ 597,641
===================================================================


LIABILITIES

Reserve for losses and loss expenses         $  39,934    $  33,390

Unearned premium reserve                        57,029       61,688

Loan payable                                      --        142,000

Loan interest payable                             --          1,017

Accrued expenses and accounts payable            2,840        3,149

-------------------------------------------------------------------
TOTAL LIABILITIES                               99,803      241,244
-------------------------------------------------------------------


SHAREHOLDERS' EQUITY

Ordinary shares, 24,674,255 and 22,361,600
     shares outstanding, par value US$0.10       2,467        2,236

Additional paid-in capital                     355,295      338,353

Notes receivable for shares issued              (1,359)      (1,783)

Unrealized gains (losses) on investments          (129)         464

Retained earnings                               60,763       17,127

-------------------------------------------------------------------
SHAREHOLDERS' EQUITY                           417,037      356,397
-------------------------------------------------------------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 516,840    $ 597,641
===================================================================
</TABLE>


The accompanying notes to the Consolidated Financial Statements are an integral
part of these Balance Sheets.

<PAGE>   11

                        CONSOLIDATED STATEMENTS OF INCOME
              For the years ended September 30, 1996, 1995 and 1994
 (Expressed in thousands of United States dollars, except for per share amounts)

<TABLE>
<CAPTION>
                                                      1996            1995            1994
                                                      ----            ----            ----
<S>                                          <C>             <C>             <C> 
REVENUES

Premiums written                              $    119,802    $    136,884    $    102,065

Change in unearned premiums                          4,659         (16,328)        (45,360)

------------------------------------------------------------------------------------------
Premiums earned                                    124,461         120,556          56,705

Investment income, net                              28,964          32,651          20,095

Realized gains (losses) on investments, net            (17)            391         (10,216)

Exchange gains (losses), net                          (147)            (20)            529

------------------------------------------------------------------------------------------
TOTAL REVENUES                                     153,261         153,578          67,113
------------------------------------------------------------------------------------------


EXPENSES

Losses and loss expenses                            28,028          35,293          25,278

Acquisition expenses                                20,025          17,063           6,743

General and administrative expenses                 10,722           8,602           5,277

Interest expense                                     3,724           1,964            --

------------------------------------------------------------------------------------------
TOTAL EXPENSES                                      62,499          62,922          37,298
------------------------------------------------------------------------------------------


NET INCOME                                    $     90,762    $     90,656    $     29,815
==========================================================================================


Net income per ordinary share                 $       3.63    $       3.94    $       1.32
Weighted average number of ordinary shares      24,989,506      23,009,828      22,684,606
</TABLE>

The accompanying notes to the Consolidated Financial Statements are an integral
part of these Statements.

<PAGE>   12
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
              For the years ended September 30, 1996, 1995 and 1994
   (Expressed in thousands of United States dollars, except for share amounts)

<TABLE>
<CAPTION>
                                                                    ADDITIONAL                UNREALIZED
                                       SHARES            PAR        PAID-IN        NOTES      INVESTMENT       RETAINED
                                    OUTSTANDING         VALUE       CAPITAL     RECEIVABLE    GAINS (LOSSES)   EARNINGS
<S>                                 <C>             <C>        <C>            <C>          <C>              <C>            


Balance October 1, 1993                       -     $    -     $       -      $      -     $        -         $      -

Issuance of shares                   22,562,050      2,256       440,817        (2,100)

Change in unrealized gains
(losses) on investments                                                                        (2,721)

Net income                                                                                                      29,815

---------------------------------------------------------------------------------------------------------------------------
Balance September 30, 1994           22,562,050        2,256      440,817        (2,100)       (2,721)          29,815

Issuance of shares                          965                        20

Repurchase of shares                   (201,415)         (20)      (4,573)

Payments on notes receivable                                                        317

Change in unrealized gains
(losses) on investments                                                                         3,185

Net income                                                                                                      90,656

Dividends to shareholders                                         (97,911)                                    (103,344)

---------------------------------------------------------------------------------------------------------------------------
Balance September 30, 1995           22,361,600        2,236      338,353        (1,783)          464           17,127

Issuance of shares                    3,312,655          331       37,762

Repurchase of shares                 (1,000,000)        (100)     (20,820)

Payments on notes receivable                                                        424

Change in unrealized gains
(losses) on investments                                                                          (593)

Net income                                                                                                      90,762

Dividends to shareholders                                                                                      (47,126)

---------------------------------------------------------------------------------------------------------------------------
Balance September 30, 1996           24,674,255       $2,467     $355,295       $(1,359)      $  (129)       $  60,763
===========================================================================================================================
</TABLE>


The accompanying notes to the Consolidated Financial Statements are an integral
part of these Statements.

<PAGE>   13
                       CONSOLIDATED STATEMENTS CASH FLOWS
             For the years ended September 30, 1996, 1995 and 1994
                (Expressed in thousands of United States dollars)

<TABLE>
<CAPTION>
                                                                       1996             1995               1994
                                                                   -------------    -------------    -----------------
<S>                                                             <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES

Net income                                                       $       90,762   $       90,656   $           29,815
Adjustments to reconcile net income to cash provided by
  operating activities:

  Depreciation and amortization                                             435              314                  216
  Realized (gains) losses on sale of investments                             17             (391)              10,216
  Add (deduct) changes in assets and liabilities:

      Premiums receivable                                                 4,174          (11,857)             (37,859)
      Accrued investment income                                           1,132           (2,778)              (7,295)
      Deferred acquisition costs                                            841           (4,282)              (5,975)
      Other assets                                                          (83)            (102)                 (52)
      Reserve for losses and loss expenses                                6,544           13,685               19,705
      Unearned premium reserve                                           (4,575)          16,328               45,360
      Loan interest payable                                              (1,017)           1,017
      Accrued expenses and accounts payable                                (309)           2,267                  882

----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                97,921          104,857               55,013
----------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sales and maturities of investments                       684,680          677,375            1,355,700
Purchases of investments                                               (638,172)        (798,308)          (1,729,451)
Purchases of fixed assets                                                  (320)            (419)                (739)

----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                      46,188         (121,352)            (374,490)
----------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issue of shares                                            38,093               20              451,241
Less: Placement costs                                                                                          (8,168)
Less: Issued for notes receivable                                                                              (2,100)
Repurchase of shares                                                    (20,920)          (4,593)
Repayment of notes receivable                                               424              317
(Repayment) proceeds of borrowing                                      (142,000)         142,000
Dividends to shareholders                                               (47,126)        (201,255)

----------------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                    (171,529)         (63,511)             440,973
----------------------------------------------------------------------------------------------------------------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                    (27,420)         (80,006)             121,496
Cash and cash equivalents at the beginning of the year                   41,490          121,496

======================================================================================================================
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR                 $       14,070   $       41,490   $          121,496
======================================================================================================================
</TABLE>


The accompanying notes to the Consolidated Financial Statements are an integral
part of these Statements.


<PAGE>   14

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996

1. GENERAL

GCR Holdings Limited (the "Company") was incorporated on May 14, 1993, under the
laws of the Cayman Islands. The Company conducts business through its wholly-
owned subsidiary, Global Capital Reinsurance Limited ("Global Capital Re"),
which was incorporated in Bermuda on June 11, 1993, and is licensed to write
insurance business. Global Capital Re, which specializes in worldwide property
catastrophe reinsurance written on an excess-of-loss basis, began writing
business as of October 1, 1993.

Global Capital Re underwrites property catastrophe reinsurance and has large
aggregate exposures to natural and man-made disasters. Management expects that
Global Capital Re's loss experience generally will involve infrequent events of
great severity. Consequently, the occurrence of losses from catastrophic events
is likely to result in substantial volatility in the financial results.

An initial public offering of 7.6 million shares of the Company held by existing
shareholders was completed in December 1995. In connection with the initial
public offering, the shareholders approved an increase in the Company's
authorized capital and the Board of Directors approved a share split in the form
of a share dividend effected at a ratio of 5:1. In addition, the Company's
sponsors exercised warrants to acquire 3.3 million shares at an aggregate
exercise price of $36.3 million ($11.00 per share). Of that amount, $34.0
million was used to reduce outstanding borrowings. Net income per share is set
forth in the consolidated statements of income for all periods after giving
effect to the share split.

A secondary public offering of 5.4 million shares of the Company held by
existing shareholders was completed in July, 1996.

2. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared using accounting
principles generally accepted in the United States. These statements include the
accounts of GCR Holdings Limited and its wholly-owned subsidiary, Global Capital
Re (together, "GCR"). All significant intercompany transactions have been
eliminated. Certain reclassifications have been made to the 1994 and 1995
balances to conform to the 1996 presentation. The preparation of consolidated
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting year. Actual
results could differ from those estimates.

<PAGE>   15


PREMIUMS. Written premiums are recognized on policies which have effective dates
within the period of the consolidated income statement. Written premiums are
recorded based on information provided by clients. Any subsequent premium
adjustments are recognized in the period in which they are determined. Premiums
are earned on a pro rata basis over the policy coverage period. Unearned
premiums represent the portion of premiums written in respect of coverage
applicable to the unexpired terms of policies in force.

DEFERRED ACQUISITION COSTS. Acquisition costs, consisting of commissions and
brokerage expenses incurred at policy issuance, are deferred and amortized on
the same basis as the underlying policy premiums. Deferred acquisition costs are
limited to estimated realizable value based on related unearned premiums, and
take into account anticipated claims and expenses, based on experience, and
anticipated investment income.

LOSSES AND LOSS EXPENSES. The reserve for losses and loss expenses includes
reserves for unpaid losses and loss expenses and for losses incurred but not
reported. The reserve for losses and loss expenses is established by management
based on information received from clients, modified as necessary using
management's industry experience and judgment. The methods used to estimate the
reserves are periodically reviewed to ensure that the assumptions made continue
to be appropriate. Any adjustments resulting therefrom are reflected in income
in the period in which the adjustments are made. For certain catastrophic events
there is considerable uncertainty underlying the assumptions and associated
estimated reserves for losses and loss adjustment expenses.

Management believes that the reserve for losses and loss expenses is adequate to
cover the ultimate net cost of losses and loss expenses incurred. However, the
reserve is necessarily an estimate and the amount ultimately paid may be more or
less than the estimate.

INVESTMENTS. Investments are considered available for sale in response to
changes in market interest rates, changes in liquidity needs or other factors,
and are carried at fair value based on quoted market prices. Investments are
recorded on a trade date basis with balances pending settlement accrued in the
balance sheet. Realized gains and losses on sales of investments are determined
on the basis of specific identification of the cost of securities sold. The net
unrealized gain or loss on investments available for sale is included as a
separate component of shareholders' equity. Investment income is recognized when
earned and includes the amortization of bond premium and accretion of bond
discount.


<PAGE>   16



FAIR VALUE OF FINANCIAL INSTRUMENTS. Fair value disclosures with respect to
certain financial instruments are included separately herein when appropriate.
The carrying values of other financial instruments, including the loan payable,
premiums receivable and accrued investment income, approximate their fair value
due to the short-term nature of the balances.

CASH AND CASH EQUIVALENTS. Cash and cash equivalents includes amounts due from
banks and short-term investments having maturities within three months of date
of purchase. The carrying value approximates fair value due to the short
maturity of these instruments.

PREMIUMS RECEIVABLE. Reinsurance premiums receivable are stated net of an
allowance for doubtful accounts. The allowance for doubtful accounts is nil at
September 30, 1996 and 1995.

FOREIGN EXCHANGE. The consolidated financial statements are expressed in United
States dollars. Transactions denominated in other currencies have been
translated into United States dollars using the rate of exchange in effect at
the date of the transaction. The components of the consolidated balance sheets
have been translated at the rates in effect at the balance sheet date, except
for the unearned premium reserve and deferred acquisition costs, which are
translated at historical rates of exchange.

STOCK INCENTIVE COMPENSATION PLANS. The Company accounts for stock option grants
in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and, accordingly, recognizes compensation expense for stock option grants to the
extent that the fair value of the stock exceeds the exercise price of the option
at the measurement date. For certain of the stock options outstanding, the
declaration of dividends results in a change in the option price and a new
measurement date.

START-UP EXPENSES AND OFFERING COSTS. Expenses incurred in the incorporation of
GCR and the public offerings have been charged to the consolidated statements of
income.

INCOME PER SHARE. Income per share is based upon the weighted average number of
shares and share equivalents outstanding during the year. Stock options and
warrants were considered share equivalents and were included in the number of
weighted average shares outstanding using the treasury stock method. There is no
material difference between primary and fully diluted net income per ordinary
share.


<PAGE>   17



3.  INVESTMENTS AVAILABLE FOR SALE

Amortized cost, fair value and related unrealized gains and losses on
investments available for sale were as follows:


<TABLE>
<CAPTION>
                                                                          
                                                         SEPTEMBER 30, 1996
                                        -------------------------------------------------
                                                        GROSS         GROSS           
                                        AMORTIZED    UNREALIAZED   UNREALIZED     FAIR 
                                          COST          GAINS         LOSSES     VALUE
                                        ---------     --------       ------     ---------
                                             (in thousands of United States dollars)
<S>                                      <C>           <C>            <C>        <C>     
US Government and Government
Agency Bonds                             $299,081      $  269         $ 485      $298,865
US Corporate bonds                         52,815         274                      53,089
US Asset-backed securities                 27,300           4           232        27,072
Commercial Paper                           59,197                        19        59,178
                                         --------      ------         -----      --------
                                          438,393      $  547         $ 737      $438,204
                                         ========      ======         =====      ======== 
</TABLE>

<TABLE>
<CAPTION>
                           

                                                         SEPTEMBER 30, 1996
                                        -------------------------------------------------
                                                        GROSS        GROSS                    
                                        AMORTIZED    UNREALIAZED   UNREALIZED     FAIR 
                                          COST          GAINS        LOSSES      VALUE
                                        ---------     --------       ------     ---------                                        
                                             (in thousands of United States dollars)
<S>                                     <C>           <C>            <C>        <C>
US Government and Government
Agency bonds                             $205,517      $  598         $          $206,115      
US Corporate bonds                        223,497         711           776       223,432      
US Asset-backed securities                 55,844          15            84        55,775      
                                         --------      ------         -----      --------
                                         $484,858      $1,324         $ 860      $485,322      
                                         ========      ======         =====      ========
</TABLE>


<PAGE>   18
3. INVESTMENTS AVAILABLE FOR SALE (CONTINUED)

The contractual maturity of investments available for sale is shown below. The
actual maturity of investments may differ because borrowers may have the right
to call or prepay certain obligations.

<TABLE>
<CAPTION>     
                                                    30 SEPTEMBER, 1996
                                          --------------------------------------
                                                AMORTIZED         FAIR
                                                   COST           VALUE
                                         (in thousands of United States dollars)
--------------------------------------    --------------------------------------
<S>                                             <C>             <C>      
Due in less than one year                       $ 128,676       $ 128,857
Due after one year through three years            309,717         309,347
Due after more than three years                   -               -
                                                               
--------------------------------------    --------------------------------------
                                                $ 438,393       $ 438,204
======================================    ======================================
</TABLE>
                                                              
The following table summarizes the composition of the portfolio by ratings
assigned by Standard & Poor's Corporation or, with respect to non-rated issues,
as estimated by GCR's investment advisor.

<TABLE>
<CAPTION>
                                                     SEPTEMBER 30,                        
                                                 1996            1995                 
                                                   %               %                  
--------------------------------------------------------------------------------
<S>                                             <C>             <C>             
Cash and cash equivalents                         1.2%            8.0%          
US Government and Government Agency              67.4%           39.1%          
AAA                                               6.1%           10.5%          
A                                                22.1%           26.3%          
BBB                                               3.2%           16.1%          
--------------------------------------------------------------------------------
                                                100.0%          100.0%          
================================================================================
</TABLE>                                                                        
                                                                  
Realized gains and losses included in income were as follows:

<TABLE>
<CAPTION>
                                            YEAR ENDED SEPTEMBER 30,
                                      1996            1995            1994
                                     (in thousands of United States dollars)
--------------------------------------------------------------------------------
<S>                                <C>             <C>             <C>      
Realized gains                     $  2,226        $  2,007        $   4,732
Realized losses                      (2,243)         (1,616)         (14,948)
--------------------------------------------------------------------------------
Net realized gains                 $    (17)       $    391        $ (10,216)
================================================================================
</TABLE>
                                                     

<PAGE>   19
3.   INVESTMENTS AVAILABLE FOR SALE (CONTINUED)

Unrealized gains and losses included in shareholders' equity were as follows:

<TABLE>
<CAPTION>
                                                                                  SEPTEMBER, 30
                                                                                 1996        1995
                                                                                 ----        ----
                                                                (in thousands of United States dollars)

<S>                                                                             <C>        <C>    
Unrealized gains (1996 includes $60 related to cash equivalents)                $    607   $ 1,324
Unrealized losses                                                                   (736)     (860)
-------------------------------------------------------------------------------------------------------
Net unrealized gains (losses)                                                   $   (129)  $   464
=======================================================================================================
</TABLE>

Investment income was as follows:
<TABLE>
<CAPTION>

                                                                      1996       1995         1994
                                                                      ----       ----         ---- 
                                                               (in thousands of United States dollars)
-------------------------------------------------------------------------------------------------------
<S>                                                                <C>         <C>        <C>
Interest income                                                     $29,697     $33,334    $20,942
Investment expenses                                                    (733)       (683)      (847)
-------------------------------------------------------------------------------------------------------
Net investment income                                               $28,964     $32,651    $20,095
=======================================================================================================
</TABLE>
                                        

Fixed maturity investments and cash and cash equivalents pledged to secure
letters of credit were $21.5 million and $15.7 million as of September 30, 1996
and 1995 respectively.



<PAGE>   20
4.  RESERVE FOR LOSSES AND LOSS EXPENSES

Activity in the reserve for losses and loss expenses is summarized as follows:


<TABLE>
<CAPTION>
                                           YEAR ENDED SEPTEMBER 30,
                                        1996         1995         1994
                                   (in thousands of United States dollars)
----------------------------------------------------------------------------
<S>                                   <C>          <C>          <C>
Balance at the beginning of the year   $33,390      $19,705      $     -
                                                                 
Incurred related to:                                             
     Current year                       31,174       29,880       25,278
     Prior years                        (3,146)       5,413            -
----------------------------------------------------------------------------
Total incurred                          28,028       35,293       25,278
----------------------------------------------------------------------------
                                                                 
Paid related to:                                                 
     Current year                       10,225        6,128        5,573
     Prior years                        11,259       15,480            -
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Total paid                              21,484       21,608        5,573
----------------------------------------------------------------------------
                                                                 
----------------------------------------------------------------------------
Balance at the end of the year         $39,934      $33,390      $19,705
============================================================================
</TABLE>
                                                            
Losses incurred in the year ended September 30, 1996, in respect of the prior
year reflect favorable development of the proportional and per risk lines of
business. Losses incurred in the year ended September 30, 1995 in respect of the
prior year included approximately $5,800,000 of loss development reported in
1995 related to the Northridge earthquake, offset in part by favorable
developments in other lines of business.


<PAGE>   21
5.  SHARE CAPITAL

The Company raised approximately $443.1 million, net of placement costs, through
a private placement of ordinary shares in October, 1993. The authorized share
capital of the Company is $7.5 million consisting of 50,000,000 ordinary shares
of U.S.$0.10 par value and 25,000,000 other shares of U.S.$0.10 par value. Other
shares, of which none are outstanding, may be issued with such rights and
preferences as the Board of Directors may authorize, subject to the Company's
articles of association and applicable laws.

The following number of shares were issued and outstanding:

<TABLE>
<CAPTION>
                                               SEPTEMBER 30,
                                  1996              1995              1994
                                  ----              ----              ----

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

<S>                          <C>               <C>               <C>       
Ordinary shares outstanding    24,674,255        22,361,600        22,562,050

Share capital                 $ 2,467,426       $ 2,236,160       $ 2,256,205
================================================================================
</TABLE>

In July 1996, Global Capital Re purchased 1,000,000 of the Company's shares for
an aggregate price of $20.9 million. For purposes of these consolidated
financial statements, these shares are treated as though they have been retired.

In 1993, the Company loaned $2,100,000 to officers to purchase an aggregate of
105,000 ordinary shares. The notes receivable are secured by a portion of the
shares, bear interest at 7% per annum and mature at various dates in 2000 and
2001.


<PAGE>   22
6.  SHARE OPTIONS AND WARRANTS

The Company has issued share options to officers and directors to purchase
ordinary shares, U.S.$0.10 par value, as follows:

<TABLE>
                                       NUMBER            OPTION PRICE
                                      OF SHARES          ------------
                                      ---------
YEAR ENDED SEPTEMBER 30, 1994
<S>                                    <C>                <C>  
Granted                                212,680               $9.14
Exercised
Cancelled
Outstanding, end of year               212,680               $9.14
Exercisable, end of year                42,536               $9.14

YEAR ENDED SEPTEMBER 30, 1995

Granted                                 35,245               $9.90
Exercised
Cancelled
Outstanding, end of year               247,925               $9.-4 $9.90
Exercisable, end of year                42,536               $9.14

YEAR ENDED SEPTEMBER 30, 1996

Granted                                387,000              $15.24
Exercised                                9,000              $15.24
Cancelled
Outstanding, end of year               625,925               $9.-4 $15.24
Exercisable, end of year               111,883               $9.-4 $15.24
</TABLE>


Options issued to officers and directors on October 8, 1993 vest at the rate of
20% annually. Other options vest at the rate of 25% annually. All options lapse
on the tenth anniversary of issue. The option prices for options granted in
fiscal 1994 and 1995 have been adjusted to reflect dividends paid. Compensation
expense related to stock option price adjustment of $1.6 million, $0.4 million
and $0 has been recognized for the years ended September 30, 1996, 1995 and 1994
respectively.

Under the Company's share option plan, 1,104,755 shares are available for grant
to key employees based on achievement of performance goals. Any such options
will be granted at the market price on the date of the grant.

Coincident with the private placement in 1993, the Company granted to sponsors
warrants to purchase 3,303,655 ordinary shares at an exercise price of
U.S.$11.00 per share between October 8, 1993, and October 8, 2003. These
warrants were exercised in December 1995 (see note 1).


<PAGE>   23
7.  PREMIUMS WRITTEN BY GEOGRAPHIC AREA

Premiums written by geographic area of operations were as follows:

<TABLE>
<CAPTION>
                                                             YEAR ENDED SEPTEMBER 30,
                                           1996                         1995                      1994
                                  ----------------------      ---------------------      -----------------------
                                                     (in thousands of United States dollars)
----------------------------------------------------------------------------------------------------------------
<S>                               <C>             <C>         <C>            <C>         <C>             <C>  
United States *                   $  66,454        55.5%      $  78,069       57.0%      $  65,424        64.1%
Japan                                 5,700         4.8          11,279        8.2           9,798         9.6
Europe including the UK              11,572         9.7           9,898        7.2           6,328         6.2
Australia/New Zealand                 5,573         4.6           7,348        5.4           5,103         5.0
Caribbean                             3,074         2.5           5,129        3.8             919         0.9
Worldwide **                         21,113        17.6          20,133       14.7           8,573         8.4
Worldwide, excluding US ***           4,643         3.9           2,433        1.8           2,245         2.2
Other                                 1,673         1.4           2,595        1.9           3,675         3.6

----------------------------------------------------------------------------------------------------------------
                                  $ 119,802       100.0%      $ 136,884      100.0%      $ 102,065       100.0%
================================================================================================================
</TABLE>

*   Policies covering risk events only in the United States 
**  Policies covering risk events anywhere in the world including the United 
    States
*** Policies covering risk events anywhere in the world other than the United
    States

8.  RELATED PARTY TRANSACTIONS

Goldman Sachs Asset Management International provides investment advisory
services to GCR and, in that capacity, exercises discretionary authority with
respect to GCR's entire investment portfolio. Goldman Sachs Asset Management
International is an affiliate of Goldman, Sachs & Co., a sponsor of and (through
affiliates) an investor in the Company. Fees for these services were $674,000,
$559,000 and $497,000 for the years ended September 30, 1996, 1995 and 1994,
respectively. In addition, Goldman, Sachs & Co. acted as placement agents for
the private placement for which it received fees of $6,900,000 and as one of the
representatives of the underwriters in the Company's initial and secondary
public offerings, in which the underwriters received aggregate underwriting
discounts and commissions of approximately $15,158,800 from the selling
shareholders. One director of the Company is a limited partner of Goldman, Sachs
& Co. and another director of the Company is a general partner of Goldman, Sachs
& Co.

9.  CONCENTRATION OF CREDIT RISK

Other than investments in instruments issued by the U.S. Government or U.S.
Government agencies, GCR does not have any investment in a single issuer
exceeding 10% of consolidated shareholders' equity.


<PAGE>   24
10. LEASE

The Company leases its office under a three year non-cancelable lease. Annual
occupancy costs are estimated to be $250,000, including services and taxes.

11. TAXATION

At the present time, no income or capital taxes are levied in the Cayman
Islands, and no income, profit, capital or capital gains taxes are levied in
Bermuda. In the event such taxes are levied, the Company has received an
undertaking exempting it from such Cayman Islands taxes until 2013. Global
Capital Re has received an undertaking from the Bermuda Government exempting it
from such Bermuda taxes until 2016.

The Company is not engaged in trade or business in the United States and,
accordingly, does not expect to be subject to United States income taxation.

12.  CREDIT AGREEMENT

On August 17, 1995, the Company entered into a three-year revolving credit
agreement (as amended, the "Credit Agreement") with a group of commercial banks.
Under that agreement, the Company can borrow up to $150.0 million in the form
of, at the Company's option, Eurodollar loans at an annual interest rate of
LIBOR plus 60 or 70 basis points depending on the amount outstanding, or U.S.
floating rate loans at an annual interest rate equal to the lead bank's
corporate base rate or the U.S. Federal Funds rate plus 1/2%, whichever is
higher. The capital shares of Global Capital Re are pledged as security for
borrowings under the Credit Agreement. Prepayments of amounts borrowed may be
made without penalty.

On August 17, 1995 the Company borrowed $142.0 million under the Credit
Agreement for an initial period of six months at an interest rate of 6.7%. The
proceeds were used to fund, in part, the distribution made in August 1995 (see
Note 13). The Company has agreed to pay to the lenders under the Credit
Agreement a commitment fee of between 0.175% and 0.20% of the daily unborrowed
portion of the facility. Borrowings under the line of credit have been repaid;
$34.0 million in December 1995 and the balance in February 1996. Interest paid
was $3.7 million and $2.0 million in the years ended September 30, 1996 and
1995, respectively.

The Credit Agreement contains various financial and non-financial covenants,
including a requirement to maintain consolidated net worth of the Company and
net worth of Global Capital Re of at least $250.0 million in each case. The
Company was in compliance with all covenants under the Credit Agreement as of
September 30, 1996.


<PAGE>   25
13.  DIVIDENDS

The Company paid dividends of $0.62 per share in each of February 1996 ($15.9
million), May 1996 ($15.9 million) and August 1996 ($15.3 million).

On August 17, 1995, the Board of Directors declared a distribution of $9.00 per
ordinary share payable on August 18, 1995 to shareholders of record on the date
of declaration. The total amount of the distribution was $201.3 million and was
funded in part by borrowings under the Credit Agreement. The balance of the
distribution was funded by the liquidation of certain investments. The
distribution was accounted for as a distribution of all retained earnings as of
June 30, 1995, and the balance as a distribution from additional paid-in
capital.

The Company's ability to pay dividends is subject to certain regulatory
restrictions on the payment of dividends by Global Capital Re. Global Capital Re
is registered under the Bermuda Insurance Act 1978 and Related Regulations (the
"Act") and is obliged to comply with various provisions of the Act regarding
solvency and liquidity. These provisions have been met. The Registrar of
Companies in Bermuda, in which Global Capital Re is domiciled, recognizes as net
income and surplus (shareholders' equity) those amounts determined in conformity
with statutory accounting practices prescribed or permitted in Bermuda, which
differ in certain respects from generally accepted accounting principles. Under
Bermuda regulations, the required minimum statutory capital and surplus at
September 30, 1996 was $100.0 million. Global Capital Re's actual statutory
capital and surplus at that date was $429.2 million. Statutory net income of
Global Capital Re was $99.7million, $88.3 million and $25.2 million for the
years ended September 30, 1996, 1995 and 1994, respectively.

In addition, regulations in Bermuda limit the maximum amount of annual dividends
or other distributions available to shareholders without notification to the
Registrar of such payment (and in certain cases the prior approval of the
Registrar). The maximum amount of dividends which could be paid by Global
Capital Re to the Company during fiscal 1997 without such notification is
approximately $107.3 million.

The Company's ability to pay dividends is also subject to the requirements of
the Credit Agreement that consolidated net worth, and net worth of Global
Capital Re, of $250.0 million be maintained and that dividends paid in any
fiscal year not exceed consolidated net income in the prior fiscal year.


<PAGE>   26
14.  PENSION PLANS

Effective October 8, 1993, Global Capital Re adopted combined savings and
defined contribution pension plans for its officers and employees. Under these
plans, Global Capital Re contributes 10% of participants' base salaries. Pension
costs are fully funded and amounted to approximately $194,000, $171,000 and
$120,000 for the years ended September 30, 1996, 1995 and 1994, respectively.

15.  FOREIGN EXCHANGE GAINS AND LOSSES

The exchange gains (losses) comprise the net effect of realized and unrealized
exchange gains and losses, excluding exchange gains and losses earned on the
investment portfolio which are included in investment income. The unrealized
component arises from the revaluation of certain foreign currency assets and
liabilities at the balance sheet dates. The realized component arises from the
difference between amounts previously recorded for foreign currency assets and
liabilities and actual amounts received or paid during the year.

16.  ACCOUNTING STANDARDS

The Financial Accounting Standards Board has issued Statement No. 123,
"Accounting for Stock Based Compensation", effective for fiscal years beginning
after December 15, 1995, recognizing awards granted in the first fiscal year
after December 15, 1994. This Statement defines a fair value based method of
accounting for stock options or similar equity instruments in which an entity
acquires goods or services by issuing stock. Entities can either adopt the new
method or continue to use APB Opinion No. 25, providing pro forma disclosure of
net income and earnings per share as if the fair value based method had been
adopted. The Company intends to follow the latter alternative, providing the
necessary disclosure for its 1997 fiscal year.


<PAGE>   27
17.  UNAUDITED QUARTERLY FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                    FOR THE QUARTER ENDED
                                                -----------------------------------------------------------
                                                   DEC. 31,     MARCH  31,       JUNE  30,       SEPT. 30,
                                                    1995           1996             1996           1996

                                               (in thousands of United States dollars except per share data)
-----------------------------------------------------------------------------------------------------------

<S>                                               <C>             <C>             <C>             <C>     
Premiums written                                  $ 7,555         $66,469         $25,715         $20,063
Premiums earned                                    32,894          30,610          30,507          30,450
Investment income, net                              8,294           7,650           6,661           6,359
Realized gains (losses) on investments, net           763             377          (1,045)           (112)
Losses and loss expenses                           10,210           3,184           4,054          10,580
Net income (loss)                                 $22,716         $26,443         $23,973         $17,630
Net income (loss) per share                       $  0.99         $  1.02         $  0.92         $  0.70


                                                    DEC. 31,     MARCH  31,       JUNE  30,       SEPT. 30,
                                                     1994           1995            1995            1995
-----------------------------------------------------------------------------------------------------------
Premiums written                                  $ 7,229         $72,061         $40,455         $17,139
Premiums earned                                    25,181          30,651          31,848          32,876
Investment income, net                              7,179           8,044           8,675           8,753
Realized gains (losses) on investments, net        (1,042)           (431)            146           1,718
Losses and loss expenses                            6,177          11,016           3,085          15,015
Net income (loss)                                 $20,259         $22,614         $30,656         $17,127
Net income (loss) per share                       $  0.89         $  0.99         $  1.33         $  0.73
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