<PAGE>

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

/X/  Annual report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934. For the fiscal year ended: December 31, 1999.

or

/ /  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934. For the transition period from      to      .

Commission File Number: 1-11920

MMI COMPANIES, INC.
(Exact name of registrant as specified in its charter)

Delaware                               36-3263253
(State or other jurisdiction of       (IRS Employer
incorporation or organization)         Identification No.)

540 Lake Cook Road, Deerfield, Illinois 60015-5290
(Address of principal executive offices)

(847) 940-7550
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.10 par value;        New York Stock Exchange
7 5/8% Series B Capital Securities    None
(Title of each class)                (Name of each exchange on which registered)

Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/

The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $169,222,000 as of January 31, 2000. The aggregate number of the
Registrant's $0.10 par value Common Stock shares outstanding on January 31, 2000
was 19,202,444.


<PAGE>

PART I

ITEM 1. BUSINESS

GENERAL

Introduction

MMI Companies, Inc. (together with its subsidiaries, "MMI" or the "Company")
provides insurance products and related specialized services in two principal
markets: the United States healthcare industry and international insurance and
reinsurance markets.

Domestically, MMI offers specialized medical malpractice insurance products and
consulting services that are designed to assist healthcare providers manage the
cost and quality of care. MMI integrates its professional liability insurance
with certain of its fee-based risk management services and does not offer such
insurance or that set of risk management services on a stand-alone basis.
Accordingly, insurance clients are required to purchase a specific set of risk
modification services consisting of consulting, education and information in
order to have access to MMI's professional liability coverage. In addition, MMI
offers a variety of other consulting and fee-based services to healthcare
providers, including strategic and management consulting, employee relations
consulting, risk management services and property and casualty claims
management.

Internationally, MMI operates as a specialty casualty and property reinsurer and
insurer operating in the London-based reinsurance and insurance market (the
"London Market"), primarily through its subsidiary, Unionamerica Insurance
Company Limited (together with its affiliates, "Unionamerica").Unionamerica's
core businesses are professional liability reinsurance, including malpractice
reinsurance for healthcare providers, as well as lawyers and other
professionals, and reinsurance and insurance for a variety of property and
casualty risks. Unionamerica's gross premiums written are generated primarily in
the U.S.

Agreement and Plan of Merger

On December 20, 1999, MMI and The St. Paul Companies, Inc. ("The St. Paul")
executed an Agreement and Plan of Merger, whereby each outstanding share of MMI
common stock held immediately prior to the effective time of the merger will be
converted into the right to receive $10.00 in cash.

On March 9, 2000, the stockholders of MMI approved the merger at a special
meeting of stockholders. Completion of the merger is subject to regulatory
approval. The transaction is expected to close in the second quarter of 2000.

History

MMI was formed in 1983 to write medical malpractice insurance and provide risk
management services for hospitals and physicians in the United States. MMI has
substantially increased the breadth of its products and services and its
capacity to deliver them. MMI has acquired insurance and reinsurance, strategic
management consulting, employee relations consulting and property and casualty
claims management businesses. In December 1997, MMI acquired Unionamerica.

Unionamerica was founded in 1971. Since 1996, Unionamerica has acquired or
created interests in Lloyd's dedicated corporate capital vehicles, Lloyd's
managing agencies and a Lloyd's underwriting consortium manager specializing in
international medical malpractice insurance.

BUSINESS SEGMENTS

MMI's business is organized into three reportable segments: domestic insurance,
international insurance, and consulting and fee services.

The following tables set forth MMI's revenues and income (loss) before income
taxes and extraordinary items by segment, over the past three years. Prior
years amounts have been restated to reflect discontinued operations.

<PAGE>

REVENUES BY SEGMENT (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                     --------------------------------
                                                        1999       1998       1997
                                                     ---------- ---------- ----------
<S>                                                  <C>        <C>        <C>
Domestic insurance segment:
 Net premiums earned.................................$  184,670 $  210,506 $  159,579
 Net investment income...............................    48,529     49,103     47,171
                                                     ---------- ---------- ----------
                                                        233,199    259,609    206,750

International insurance segment:
 Net premiums earned.................................   189,952    136,229    127,918
 Net investment income...............................    23,739     27,453     28,319
                                                     ---------- ---------- ----------
                                                        213,691    163,682    156,237

Consulting and fee segment...........................    61,187     44,485     44,862
Net realized gains (losses) on investments...........      (965)     2,678      2,182
                                                     ---------- ---------- ----------
Total revenues.......................................$  507,112 $  470,454 $  410,031
                                                     ---------- ---------- ----------
</TABLE>

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EXTRAORDINARY
LOSS BY SEGMENT (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                     --------------------------------
                                                        1999       1998       1997
                                                     ---------- ---------- ----------
<S>                                                  <C>         <C>         <C>
Domestic insurance segment...........................$  (57,061) $  (3,866)  $ 21,113
International insurance segment(1)...................   (83,756)    17,064     16,451
Consulting and fee segment...........................   (14,717)      (200)     7,385
Net realized gains (losses) on investments...........      (965)     2,678      2,182
                                                     ---------- ---------- ----------
Income (loss) from continuing operations before
  income taxes and extraordinary loss................$ (156,499) $ 15,676 $   47,131
                                                     ---------- ---------- ----------
</TABLE>

(1) 1997 includes expenses of $9,745,000 related to the acquisition of
Unionamerica.


DOMESTIC INSURANCE SEGMENT

Target Market

The healthcare industry, particularly healthcare providers, constitutes MMI's
target market. MMI believes that the healthcare business environment requires
providers and networks to address related business, clinical and insurance
risks, and MMI has developed a comprehensive set of insurance products and
consulting and fee-based services designed to assist healthcare providers
address these issues. These products and services have been developed both
internally and through acquisition.

Products

MMI's insurance products include professional liability insurance for hospitals
and healthcare systems, physicians and allied healthcare professionals, written
principally by American Continental Insurance Company ("ACIC"), MMI's primary
domestic insurance subsidiary. MMI was the eleventh largest writer of medical
malpractice insurance in the United States in 1998, based on direct premiums
written.

Hospitals and Healthcare Systems. MMI writes primary, excess and high excess
liability insurance for hospitals and healthcare systems. MMI has capacity to
write policy limits to $51.0 million and obtains reinsurance for losses in


<PAGE>

excess of $3.0 million, subject to an annual aggregate reinsurance deductible of
$8.0 million. MMI's liability insurance is written primarily on a claims-made
basis.

Physicians and Allied Healthcare Professionals. MMI underwrites physician groups
and physicians that are employed by or affiliated with insured hospitals or
clinics, and locum tenens organizations. MMI writes both primary and excess
policies primarily on a claims-made basis and has capacity to write policy
limits of up to $5.0 million per occurrence with a $7.0 million aggregate policy
limit. MMI cedes to reinsurers 100% of losses in excess of $500,000 per claim.
MMI's maximum exposure on any single occurrence involving more than one insured
is $750,000.

Distribution

MMI believes that a close working relationship with its healthcare industry
clients is desirable and consequently markets its products and services directly
and through insurance brokers where such a close client relationship can be
created and maintained. MMI markets nationally and has principal regional
insurance offices in Deerfield, Illinois; Atlanta, Georgia; and Oakland,
California. MMI also has several small offices in locations where specialized
services are provided to clients. MMI has insurance licenses in 50 states and
the District of Columbia. In 1999, the five largest states in terms of medical
malpractice direct written premium by MMI were Illinois, Tennessee, California,
Florida and West Virginia, which together accounted for approximately 44% of
MMI's direct written premium.

Underwriting

MMI has a select risk underwriting philosophy and utilizes a team approach to
support the underwriting process. Clinical risk management consultants prepare
reports regarding potential new business and provide site visit reports, risk
assessments and recommendations, as well as statistical reports regarding risk
management programs for renewal business. MMI's risk management consultants
conduct a pre-acquisition process to determine the degree to which clients have
processes in place to assess and manage risk. Claims managers and underwriters
evaluate loss history and reserve data, and underwriters require detailed
historical exposure data and financial information. MMI's underwriters perform
an underwriting evaluation for every new and renewal applicant and determine
premiums and coverage provisions when an insurance quotation is issued.

Claims

MMI's approach to claims management utilizes multi-disciplinary teams and early
clinical evaluation. MMI believes that this approach allows it to assess claims
more accurately and manage them to resolution more efficiently. Clinical
resource work groups are a key component of claims management for MMI. Each
regional work group meets three times a year and includes five Board certified
physicians in specialty areas that are affiliated with insured healthcare
institutions and MMI legal, claims, risk and underwriting personnel. The work
groups review and evaluate clinical, standard of care, causation and risk
management issues relating to new claims.

MMI emphasizes early evaluation and management of claims. Claims professionals
are required to complete a full evaluation and reserving of claims within nine
months of the filing of a claim. The claims department conducts major case
reviews in each region semi-annually. Cases reviewed include those with ground
up reserves at or above $250,000 and for all obstetric claims. The major case
review process ensures ongoing senior management involvement for all large
exposure claims. MMI works closely with its defense counsel to develop case
strategies and participate in litigation of claims. Claims professionals attend
case conferences and trials and maintain an expert witness data bank. When
necessary, medical consultants are retained to assist in defense of claims.
Litigation management and structured settlement specialists participate in case
strategies and mediation to minimize ultimate claim costs.

MMI seeks a cooperative working relationship with client risk managers and
individual insured providers. Claims professionals are assigned responsibility
for claim activity on an account basis, working closely with underwriters and
risk management consultants also assigned to these accounts. Claims
professionals routinely conduct phone consultations with client risk managers
regarding specific cases and perform claim audits regularly. This working


<PAGE>

relationship and open communication is critical for MMI to identify incidents
that may result in claims and assists MMI in evaluating and responding to claims
expeditiously.

CONSULTING AND FEE SEGMENT

MMI's consulting and fee segment consists of its clinical risk management
services, which are closely linked with its domestic insurance operations, as
well as management consulting, employee and labor relations consulting, and
property and casualty claims administration.

Healthcare Risk Services

MMI provides fee-based services designed to help its customers increase
revenues, reduce cost and improve the quality of healthcare provided. MMI
requires that its insurance clients purchase certain of its risk modification
programs, educational programs and information services as a condition to
obtaining its insurance coverage.

MMI's specialized clinical risk modification programs seek to contribute to the
quality of patient care by improving clinical practices, thereby reducing loss
exposures and incurred losses, and improving clinical outcomes. MMI requires
that healthcare systems continually review clinical practices and submit
clinical indicator data monthly. These data measure the insureds' degree of
compliance with the guidelines that have been developed by national work groups
of physicians and other medical professionals working under the sponsorship of
MMI. These data comprise a comparative database of practice and outcome
indicators that has been maintained since 1985. Insured institutions must also
establish procedures for internal clinical and risk management review of cases,
furnish reports and make available patient records, case review summaries and
other material requested to support the evaluation of their risk management
activity. The delivery of these services to an insured is accomplished through a
combination of consultation, education and information services and programs.

Property and Casualty Claims Administration

MMI provides professional liability, workers compensation and general liability
claims administration services designed to assist healthcare and other
organizations to manage self-insured retention. MMI believes that in the future,
consolidating healthcare organizations will have increased financial capacity
and will seek to retain liability exposures through increased deductibles and
self-insured retention. This trend represents an opportunity for MMI to provide
a highly specialized service to healthcare providers on an outsourced basis.

Strategy Consulting Services

MMI provides a wide variety of management consulting services, including
strategy development, healthcare system integration and development, medical
group practice development, managed care strategy design and implementation,
hospital/physician alignment strategies and business process reengineering.
These services are designed to assist healthcare clients in implementing
organizational change.

Employee and Labor Relations Consulting

MMI provides employee relations and human resource consulting services to
healthcare organizations. MMI believes that human resource and compensation
issues will take on increased importance as healthcare organizations continue to
consolidate and evolve. Principal services provided include labor relations
consulting, compensation consulting, employee opinion surveys and executive
search services.

INTERNATIONAL INSURANCE SEGMENT

Internationally, MMI operates as a specialty casualty and property reinsurer and
insurer operating in the London Market, primarily through its subsidiary,
Unionamerica. Unionamerica's core businesses are professional liability
reinsurance, including malpractice reinsurance for healthcare providers, as well
as lawyers and other professionals, and reinsurance and insurance for a variety
of property and casualty risks.

Products


<PAGE>

MMI writes casualty and property reinsurance on both a treaty and facultative
basis. MMI also writes insurance, particularly for U.S. insureds, on an excess
and surplus lines basis. MMI writes its core casualty contracts predominantly on
a claims-made basis.

Casualty. The core casualty lines written by MMI are professional indemnity and
single industry and/or single state third-party risks coverage. MMI's focus on
these lines is a natural outgrowth of its underwriting philosophy, in that these
coverages are predominantly written on a claims-made basis for accounts with
clearly-defined exposure parameters, which generally permit more accurate
pricing than do accounts which consist of casualty exposures arising in a number
of different geographic locations or across a range of industries.

MMI's core casualty treaty book is the largest component of its total
international book of business. The largest component of MMI's casualty treaty
reinsurance business is its professional indemnity line, which includes
primarily medical malpractice and hospital indemnity reinsurance business, as
well as lawyers, architects, engineers, accountants and insurance agents and a
few specialized sources for D&O business. The main component of MMI's casualty
direct and facultative business is U.S. primary casualty business underwritten
on a surplus lines basis through carefully selected managing general agents.
Such business consists of insurance for small commercial risks, as well as a
number of individual programs.

Property. The volume and type of property business written varies from year to
year depending on the state of the market in the United States, London and
elsewhere. MMI's property treaty book consists of catastrophe and general risk
coverages. These coverages are primarily written on an excess of loss basis,
although some proportional treaties are also written where historical results
and the quality of information provided by the reinsured justify doing so. This
book consists of approximately half each U.S. exposures and international
exposures, predominately in the U.K., Northern Europe and Japan. In its
underwriting, MMI seeks to limit its maximum exposure to any catastrophe in
defined geographic areas of the United States and specific catastrophe regions
elsewhere. Property direct and facultative business comprises individual
non-marine property and automobile physical damage risks, mainly written on an
excess and surplus lines basis through selected managing general agents. The
vast majority of this business originates from North America.

Lloyds. MMI's majority investment in Jago Capital Limited ("JCL"),which provided
25% of capacity for Lloyd's Non-Marine Syndicate 205, produced gross premiums
written of $24.7 million in 1999. In 1998, MMI made a significant minority
investment in Marketform, a Lloyd's underwriting consortium manager specializing
in international medical professional liability insurance. MMI has formed
Lloyd's Syndicate 2468, in which it has a 95% participation, to underwrite such
insurance. MMI's Marketform related gross premiums written totaled $13.2 million
in 1999.

Distribution

MMI generally writes its business in the London Market. Treaty and facultative
reinsurance business originating in the United States is typically placed for an
insured or reinsured by one or more U.S. reinsurance intermediaries or brokers
and then through a London Market broker to MMI. Direct insurance business is
also generally placed by London Market brokers, who in turn have received the
business directly from a U.S. broker. Non-United States business is also
generally placed by local country brokers through London Market brokers to MMI.
Recently, a small percentage of European business has been placed with MMI
directly by European brokers. MMI devotes considerable effort to maintaining and
enhancing its relationships with key brokers, and management considers
relationships with such brokers to be strong.

Underwriting

MMI believes that its core professional indemnity and single industry and/or
single state risks businesses require a high level of technical underwriting
skills and judgment in order to price risks appropriately. Members of MMI's
underwriting team have an average of 15 years' experience as underwriters with
MMI. Before joining MMI, most of them were London Market brokers, an experience
that has given them an understanding of the business acquisition process from
both the broker's and the underwriter's perspective.


<PAGE>

A key element of MMI's strategy is its ability, primarily as a result of the
length of service and reputation of its underwriting team in the London Market,
to be one of a limited number of reinsurers involved in the negotiation of the
terms and pricing of nearly all of the specialty casualty business in which it
participates, thereby functioning, in London Market terminology, as a "lead".
Such involvement allows MMI to gain the most advantage from its underwriting
expertise. As a result, MMI is presented with opportunities to participate in a
high percentage of the reinsurance programs in its specialized lines of business
which are brought to the London Market. In addition, MMI also has the
opportunity to subscribe for a larger percentage of each of such risks than
reinsurers without such expertise.

MMI generally seeks to write the lower or middle layers of excess of loss
reinsurance coverage. In its direct casualty insurance business, MMI generally
emphasizes the writing of coverage above a significant self-retention by the
insured party.

Claims

In accordance with standard London Market contract conditions, the majority of
claims are made on MMI through the London Market broker that placed the
business. The London Market broker acts as custodian of the claims files and
notifies MMI, and other participants, of claims that have been filed. In the
London Market, it is standard practice for the lead underwriter on a particular
risk to advise the other underwriters on the handling of the claim, including
whether to pursue settlement negotiations or litigation. However, each following
reinsurer retains the right to reject such advice and pursue alternative
approaches.

RESERVES

MMI establishes policy liabilities based on its estimates of the future amounts
necessary to pay claims and expenses associated with investigation and
settlement of claims. These estimates include two components: case reserves and
non-case reserves. Case reserves are estimates of future losses and loss
adjustment expenses (LAE) for reported claims. Non-case reserves, which include
a provision for losses that have occurred but have not been reported to MMI as
well as development on reported claims, are the difference between (i) the sum
of case reserves and paid losses and (ii) actuarially estimated ultimate
incurred losses. Ultimate incurred losses are an actuarially determined estimate
of total losses and LAE necessary for the ultimate settlement of all reported
claims and incurred but not reported claims including amounts already paid.

The process of estimating reserves is inherently uncertain and involves an
evaluation of many variables including social and economic conditions. A
significant period of time may elapse between the report of a claim to MMI and
the ultimate settlement of the claim. The inherent uncertainty of establishing
reserves is relatively greater for companies writing long-tail casualty
insurance, including medical malpractice insurance, due primarily to the
longer-term nature of the resolution of claims. There can be no assurance that
the ultimate liability of MMI will not exceed the amounts reserved.

The following tables present the development of liability for property and
casualty reserves net of and before reinsurance for the calendar years 1990
through 1999. The amounts shown for each year on the top line of the table
represent MMI's estimate of its liability for future payments of losses and LAE
as of the date as originally reported. The upper portion of the table represents
a re-estimate of the original liability at the end of each succeeding period,
followed by a line indicating the change from the original estimate to the most
current re-estimate. The lower portion of the table represents the cumulative
amount of the original liability that has been paid in the succeeding years.

ANALYSIS OF NET LOSS AND LOSS ADJUSTMENT EXPENSE RESERVE DEVELOPMENT (IN
THOUSANDS)

<TABLE>
<CAPTION>
                     DECEMBER 31,
                     ---------------------------------------------------------------------------------------
                        1990       1991       1992       1993       1994       1995       1996      1997
                     ---------- ---------- ---------- ---------- --------- ---------- ---------- ----------
<S>                  <C>        <C>        <C>        <C>        <C>       <C>         <C>        <C>
Liability for unpaid
 losses and LAE; gross..                              $1,008,114 $ 993,957 $1,182,431 $1,141,697 $1,115,342
Deduct reinsurance
 receivables                                             310,190   292,751    263,934    241,270    263,401
                                                       ---------  --------  ---------  ---------  ---------
<PAGE>

Liability for unpaid
 losses and LAE, net...$547,993   $616,003   $644,881    697,924   701,206    918,497    900,427    851,941

Liability re-estimated
as of:
 One year later........ 541,904    616,880    645,937    695,113   699,294    908,855    886,742    873,232
 Two years later....... 552,882    606,952    641,382    694,590   693,639    897,436    905,397    966,125
 Three years later..... 538,867    591,608    634,813    680,453   658,184    892,263    928,248
 Four years later.......524,345    593,996    614,590    645,797   645,379    868,741
 Five years later.......524,664    576,630    586,693    641,988   630,402
 Six years later........515,775    562,064    584,379    628,278
 Seven years later......502,340    565,831    582,224
 Eight years later......506,336    563,272
 Nine years later.......502,396
                        -------    -------    -------    -------   -------    -------    -------     -------
Cumulative redundancy
 (deficiency), net...... 45,597     52,731     62,657     69,646    70,804     49,756     (27,821) (114,184)
                        -------    -------    -------    -------   -------    -------    ---------   -------

Cumulative net
liability paid as of:
 One year later........$103,849   $145,215   $123,719   $176,319  $162,844   $204,693   $228,561   $251,496
 Two years later....... 201,336    235,776    251,331    309,933   320,828    385,497    416,915    487,366
 Three years later..... 264,043    323,344    349,441    427,157   356,676    519,638    580,154
 Four years later...... 331,625    394,961    416,852    428,801   434,506    611,339
 Five years later...... 381,599    445,555    412,083    489,069   496,346
 Six years later....... 418,146    424,741    457,215    528,913
 Seven years later..... 394,665    458,498    490,824
 Eight years later..... 414,743    485,826
 Nine years later...... 441,350

                                              1998       1999
                                            --------- ----------
Liability for unpaid losses and LAE; gross
                          ................ $1,156,817 $1,245,016
Deduct reinsurance receivables............    293,284    305,695
                                            --------- ----------
Liability for unpaid losses and LAE, net .    863,533  $ 939,321
Liability re-estimated as of:
 One year later                             1,009,659
 Two years later
 Three years later
 Four years later
 Five years later
 Six years later
 Seven years later
 Eight years later
 Nine years later

Cumulative redundancy (deficiency), net    $ (146,126)

Cumulative net liability paid as of:
 One year later                            $  345,065
 Two years later
 Three years later
 Four years later
 Five years later
 Six years later
 Seven years later
 Eight years later
 Nine years later

<CAPTION>

ANALYSIS OF GROSS LOSS AND LOSS ADJUSTMENT EXPENSE RESERVE DEVELOPMENT (IN THOUSANDS)
DECEMBER 31,
                        -----------------------------------------------------------------------------------
                            1993        1994        1995        1996        1997       1998        1999
                        ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S>                      <C>         <C>         <C>         <C>         <C>         <C>         <C>
Liability for unpaid
 losses and LAE, gross.  $1,008,114  $  993,957  $1,182,431  $1,141,697  $1,115,342  $1,156,817  $1,245,016
Liability re-estimated
 as of:
 One year later.........    994,427   1,030,558   1,163,423   1,130,976   1,159,656   1,317,096
 Two years later........  1,034,565   1,015,670   1,148,545   1,157,271   1,263,948
 Three years later......  1,019,160     972,955   1,152,790   1,182,578

<PAGE>

 Four years later.......    979,057     971,098      1,127,601
 Five years later.......    984,271     948,174
 Six years later........    965,896
                        ----------- ----------- ----------- ----------- ----------- ----------- -----------
Cumulative redundancy
 (deficiency), gross....     42,218      45,783      54,830     (40,881)    (148,606)   (160,279)
                        ----------- ----------- ----------- ----------- ----------- ----------- -----------

Cumulative gross liability paid as of:
 One year later.........  $ 212,816   $ 210,685   $ 256,518   $ 268,771   $ 287,632    $ 378,965
 Two years later........    390,049     411,583     463,042     490,995     550,870
 Three years later......    549,149     458,046     622,030     667,126
 Four years later.......    556,409     559,059     725,867
 Five years later.......    637,655     626,436
 Six years later            682,712
</TABLE>

In evaluating the information in the tables above, it should be noted that each
column includes the effects of changes in amounts for prior periods. The tables
do not present accident year or policy year development data. Conditions and
trends that have affected the development of liabilities in the past may not
necessarily occur in the future. Accordingly, it may not be appropriate to
extrapolate future redundancies or deficiencies based on these tables.

In 1999, MMI strengthened loss and LAE reserves substantially for both its
domestic and international insurance segments. The strengthening primarily
related to business written from 1995 to 1998, including long-term care and
clinic accounts for the domestic insurance segment and principally medical
malpractice and other casualty lines in the international insurance segment.
The reserve deficiencies indicated in the 1996 through 1998 columns are
principally the result of these actions. In 1998, the Company strengthened
loss and LAE reserves on its domestic and international insurance segments.
The 1998 strengthening was confined to long-term care and a disparate group
of clinic accounts for the domestic insurance segment and asbestos exposures
in the international insurance segment. See Note 7 to the Consolidated
Financial Statements for additional information on incurred and paid losses
and LAE.

The following table presents a reconciliation of reserves of MMI's property and
casualty operations in accordance with statutory accounting practices ("SAP")
with reserves reported in the consolidated financial statements prepared in
accordance with generally accepted accounting principles("GAAP") as of December
31, 1999.

RECONCILIATION OF SAP RESERVES WITH GAAP RESERVES (IN THOUSANDS)

<TABLE>
<S>                                                            <C>
Liability for losses and LAE on a SAP basis...... ............ $ 536,308
Add: Unionamerica.............................................   387,204
     Other....................................................    15,809
                                                               ---------
Liability for losses and LAE on a GAAP basis
 (net of reinsurance receivables of $305,695)................. $ 939,321
</TABLE>

CEDED REINSURANCE

Insurance companies purchase reinsurance to limit risk on individual exposures,
protect against catastrophic losses and increase their capacity to write
insurance. Reinsurance involves an insurance company transferring, or ceding,
all or a portion of its exposure on insurance to a reinsurer. The reinsurer
assumes the exposure in return for a portion of the premium received by the
insurance company. Reinsurance does not discharge the insurer from its
obligation to its insureds. If the reinsurer fails to meet its obligations, the
ceding insurer remains liable to pay the insured.

MMI cedes a material amount of its business to reinsurers to spread risk and
limit loss per exposure. Management seeks to mitigate exposure to adverse
reinsurance pricing conditions and to limit its credit risk by maintaining a
diversity of reinsurers.

Domestic Insurance Operations

For its hospital medical malpractice insurance business, MMI has reinsurance
capacity to write policy limits to $51.0 million. MMI has reinsurance for all
losses in excess of $3.0 million per occurrence subject to an $8.0 million
aggregate annual deductible. MMI provides for its estimated liability relating
to this deductible in loss reserves. For its physician business, MMI has
reinsurance capacity to write policy limits up to $5.0 million per claim with a
$7.0

<PAGE>

million annual aggregate limit. MMI has reinsurance for losses in excess of
$500,000 per claim and $750,000 for occurrences involving more than one claim.

MMI's Vetting Committee evaluates the credit risk associated with every
reinsurer and reports its findings to the Audit Committee of the Board of
Directors. For new reinsurers, the standards require minimum capital and surplus
of $125.0 million and one of the following ratings: at least A- or better from
A.M. Best, Claims Paying Ability rating from Standard & Poor's of at least A or
a S&P Insurance Solvency International rating of at least A.

International Insurance Operations

In 1999, MMI limited its maximum exposure to any one casualty loss (after the
benefit of any automatic or individual facultative reinsurance but before the
benefit of treaty reinsurance) in respect of any single casualty reinsurance or
insurance cedant by line of business to $2.0 million. In addition, MMI purchases
treaty reinsurance in order to reduce its exposure both to individual insured
losses and to multiple insured losses arising out of one loss event. The
reinsurance program provides a maximum of $9.65 million exceeding a retention of
$350,000 by MMI for 1999 for each insured loss or loss event. This program is
purchased in several layers, with such layers having varied maximum recoverable
provisions.

In its property business, MMI seeks to limit its maximum exposure before
reinsurance both on any one risk and in any one geographic region. In 1999, the
maximum gross exposure (except for trucking terminal automobile fire theft and
collision ("FTC") business) on any one direct or facultative property risk is
limited to $500,000. In the case of trucking terminal FTC business, the maximum
gross exposure for any one terminal is $1.0 million.

MMI purchases catastrophe reinsurance protecting its U.S. direct and facultative
property binding authority account. For 1999, MMI purchased two layers of
coverage, collectively totaling a maximum of $3.0 million of protection in
excess of a $1.0 million retention by MMI on an each loss basis, with each layer
having one reinstatement. Within this band of coverage, MMI retains net an
amount of $150,000 in co-insurance.

In addition, MMI also purchases catastrophe reinsurance protecting its entire
U.S. property account (including property treaty as well as direct and
facultative business). For 1999, MMI purchased such catastrophe coverage in
several layers, collectively totaling a maximum of $8.45 million of protection
in excess of a retention of $1.35 million on an each loss basis. Within this
band of coverage MMI retains net an amount of $340,000 in co-insurance. Each
such layer purchased permits a maximum of one reinstatement. Furthermore, MMI
protects itself against frequency of catastrophe loss by buying additional
coverage against the possibility of it experiencing a number of losses retained
under its $1.5 million retention under MMI's principal catastrophe reinsurance
coverage described above. This "frequency of loss" coverage provides MMI with:
(a) $500,000 of coverage above a $500,000 retention on each loss, but only after
an aggregate of $500,000 in losses to the layer between $500,000 and $1.0
million have been borne by MMI; and (b) $1.0 million of coverage above a $1.0
million retention on each loss, but only after an aggregate of $1.0 million in
losses to the layer between $1.0 million and $2.0 million have been borne by
MMI. The only change to the above for 1999 relates to the "frequency of loss"
coverage.

MMI estimates that its maximum gross exposure in respect of all of its property
coverages with respect to a catastrophe in any one of four U.S. geographic
regions (Northeast, Southeast, West Coast and Mid-West) is approximately $22.0
million before reinsurance, reinstatement premiums and tax benefits, which
management believes MMI would not experience except in connection with a
catastrophe producing total insured losses in excess of those produced by
Hurricane Andrew (which produced the largest insured loss in history).
Therefore, MMI estimates that its maximum net exposure to any such catastrophe
would be significantly less than $22.0 million, since it would have $10.9
million in catastrophe reinsurance recoverables, in addition to any
reinstatement premiums. MMI's estimate of its maximum gross exposure to a
catastrophe in respect of all its U.S. property coverages was derived by adding
together three components: (a) the total limits exposed in its catastrophe
treaty business, subject to an adjustment to take account of nationwide treaty
accounts; (b) for property non-catastrophe treaty business, a conservative
proportion, based on MMI's experience, of the total limits exposed; and(c) for
direct and facultative business, an amount representing the largest exposure by
geographic region, taking into account likely loss based on prevailing type of
property construction and spread of risk. International, non-U.S. property risk
is managed by using carefully controlled aggregate exposure limits for each
designated geographical zone. The maximum aggregate exposure is monitored
carefully to ensure that, despite its minimal reinsurance protection, it

<PAGE>

will not yield a catastrophe loss of more than $10.8 million.

MMI's Security Committee reviews the credit risk associated with each reinsurer
and reports its findings to the Audit Committee. In conducting its evaluation of
reinsurers, the Committee considers their capitalization, liquidity, operating
and financial leverage as well as other factors.

INVESTMENTS

MMI invests principally in investment grade fixed income securities and
preferred stocks. The Investment Committee of MMI's Board of Directors meets
quarterly with management to set investment policy and review performance of
internal and external investment managers. MMI's Board of Directors approves
investment policy which currently authorizes a maximum average effective
duration of six years. MMI's investment managers select specific bond issues
within these guidelines. The investment policy limits holdings in private
placements, common stocks, preferred stocks and international stocks and bonds,
cumulatively, to 5% of invested assets.

In general, the investment policy of MMI is to maximize after-tax total return,
subject to constraints on investment quality, maturity and liquidity. MMI's
investment policy establishes a range for the appropriate allocation among asset
classes. The precise allocation varies depending on an evaluation of the
economic environment and on MMI's tax position.

All fixed maturity and preferred stock securities are classified as
available-for-sale and carried at fair value. For these securities, temporary
unrealized gains and losses, net of tax, are reported in stockholders' equity,
and have no effect on net income or loss.

MMI's investment policy emphasizes quality and liquidity. MMI's current
investment objective is to maximize current yield while preserving principal and
maintaining liquidity. MMI attempts to match the durations and currency mix of
its investments as closely as possible with those of its obligations. See Note 4
to the Consolidated Financial Statements.

COMPETITION

MMI competes with monoline medical malpractice insurance companies, specialty
reinsurers, large multi-line property and casualty insurers and reinsurers and
providers of risk management and consulting services. The insurance and
reinsurance businesses are highly competitive and in a prolonged soft market due
in part to the level of capital available in the industry. Many of MMI's
competitors have substantially greater financial resources than MMI and there
are many companies that provide risk management and other services that MMI
provides. Among other things, competition may take the form of lower prices,
broader coverage, greater product flexibility or higher quality service.
However, MMI believes that its particular combination of insurance and
reinsurance, risk management services involving clinical risk management,
consulting services, direct access to the client organization, experienced staff
and long-term relationships with its clients provide it with a competitive
advantage in its chosen markets.

REGULATION

Agreement and Plan of Merger

On March 9, 2000, MMI stockholders approved MMI's agreement to merge with The
St. Paul, subject to certain regulatory approvals. The Missouri Department of
Insurance approved the change in control of ACIC and the waiting period in
connection with the Hart-Scott-Rodino Antitrust Improvements Act of 1976 has
been terminated. Regulatory approvals are pending in Ireland and, in the UK
with the Financial Services Authority (FSA), with the Office of Fair Trading
and Lloyds. Completion of the merger is expected early in the second quarter
of 2000.

Domestic Insurance Operations

<PAGE>

MMI's domestic insurance subsidiaries (ACIC and American Continental Life
Insurance Company, collectively, the "Domestic Insurance Subsidiaries") are
subject to the insurance laws and regulations in each state in which they are
licensed to do business, and in Missouri, their state of domicile. Each of the
states in which MMI's Domestic Insurance Subsidiaries are licensed has the duty
and obligation to impose premium taxes and other fees and to regulate rates,
financial data and major business transactions. Also, the subsidiaries must pass
certain solvency tests and meet minimum capital and surplus requirements in each
jurisdiction where they are licensed. Statutory financial statements must be
filed on a quarterly basis and insurance reserves must be certified by an
actuary on an annual basis. The Domestic Insurance Subsidiaries are regulated
with regard to the amount of insurance they may write based upon the amount of
their respective surpluses.

As part of a holding company system, the Domestic Insurance Subsidiaries are
subject to the reporting requirements of their respective states, which
require them to file an annual Holding Company System Registration Statement
(Form B). Form B is required by Missouri and several other jurisdictions
where the Insurance Subsidiaries are licensed. Form B must include relevant
information concerning the history, capital structure and significant
transactions of each of the Insurance Subsidiaries, their parent and
affiliates. Pertinent biographical information regarding each director and
officer must also be provided. Transfers of assets and significant
transactions between MMI's subsidiaries within the holding company system
also require regulatory approval.

Every insurance company is subject to a periodic examination under the authority
of the insurance commissioner of its state of domicile. Any other state
interested in participating in a periodic examination may do so. Various states
also conduct "market conduct examinations" which are periodic, unscheduled
examinations designed to monitor the compliance with state laws and regulations
concerning the filing of rates and forms.

The Domestic Insurance Subsidiaries are required to participate in the guaranty
funds of states in which they are licensed to do business. Assessments are made
by the states to pay amounts to policyholders who were insured by companies
which have become insolvent and are placed into liquidation either voluntarily
or involuntarily by the insurance commissioner. These assessments vary from
state to state and are dependent upon the amount of the insolvencies in each
state during a given year.

The Missouri insurance laws and regulations impose restrictions on the amount of
dividends that may be paid to stockholders by insurance companies domiciled in
the state without prior approval of the Director of Insurance. In 2000, dividend
payments by ACIC to MMI require prior regulatory approval.

The Missouri insurance laws and regulations impose a risk-based capital
requirement for insurance companies that attempts to measure statutory capital
and surplus needs based on the risks in a company's insurance business and
investment portfolio. As of December 31, 1999, the surplus of each of the
Domestic Insurance Subsidiaries exceeded their respective risk-based capital
requirement under the standards.

The National Association of Insurance Commissioners ("NAIC") annually calculates
a number of financial ratios to assist regulators in monitoring the financial
condition of insurance companies. In 1999, the ratios for MMI's principal
domestic insurance subsidiary, ACIC, fell outside the "normal" range for three
of the ratios.

International Insurance Operations

Authorization to Transact Business. Except as permitted under European Union
law, no person may carry on an insurance business in the United Kingdom unless
authorized to do so under the Insurance Companies Act 1982, as amended from time
to time (the "1982 Act"). Authorization is obtained from the Financial Services
Authority ("FSA"). The FSA, in deciding whether to grant authorization, has
broad discretion to act in the public interest and is required to determine
whether the applicant is a fit and proper entity to be engaged in insurance
business and, in particular, whether it has, or has available to it, adequate
knowledge and expertise and whether the criteria of sound and prudent management
will be fulfilled with respect to the applicant. In connection with a company's
authorization, the FSA may impose such conditions as it sees fit relating to the
operation of MMI and the writing of insurance business. These are specific to
each insurance company and are set out in a "Notice of Requirements." In
addition, companies incorporated in the U.K. must comply with certain provisions
of the Companies Act 1985 as amended from time to time (the "Companies Act")
requiring them to file and provide their shareholders with audited financial
statements and related reports by their directors.

<PAGE>

Excess and Surplus Lines Insurance in the United States. Unionamerica is an
approved or eligible excess and surplus lines insurer in 47 states, as well
as in the District of Colombia, the Commonwealth of Puerto Rico and the U.S.
Virgin Islands. In order to maintain such approvals and eligibilities,
Unionamerica has established a U.S. trust fund for the benefit of U.S.
surplus lines policyholders.

Reinsurance Business in the United States. To date, Unionamerica has been
granted trusteed or accredited reinsurer status in 45 U.S. States, as well as in
the District of Colombia and the Commonwealth of Puerto Rico. Accreditation
makes it more convenient for U.S. reinsureds to do business with Unionamerica,
since it allows reinsureds to take credit for the reinsurance in their statutory
financial statements without withholding funds or requiring Unionamerica to
provide letters of credit. MMI has obtained such status in most of the states in
which its significant U.S. reinsureds are organized and is continuing to seek
such a status in all other U.S. jurisdictions in which the law would permit
accreditation of Unionamerica. Management believes that accreditation provides a
marketing advantage with U.S clients by emphasizing Unionamerica's commitment to
the U.S. market and by enhancing Unionamerica's reputation for financial
stability. As of December 31,1999, Unionamerica's U.S. Reinsurance Trust for the
benefit of its U.S. cedants is funded with trusteed assets plus accrued interest
of $238.5 million. In addition, as of December 31, 1999, the Unionamerica
provided letters of credit totaling $59.2 million to U.S. cedants on business
not currently covered by the Trust.

EMPLOYEES

As of December 31, 1999, MMI employed approximately 760 persons. None of its
employees are represented by a labor union, and MMI believes that its employee
relations are excellent.

ITEM 2. PROPERTIES

MMI leases approximately 360,000 square feet of office space throughout the
United States and a suite in the London Underwriting Center in the United
Kingdom. MMI's principal leasehold obligation relates to its corporate office
located in Deerfield, Illinois. The Deerfield, Illinois office space consists of
approximately 136,000 square feet. The lease expires December 31, 2009. MMI's
principal regional and subsidiary offices are in Atlanta, Georgia; Oakland,
California; Independence, Missouri; and London, England.

ITEM 3. LEGAL PROCEEDINGS

The Company is subject to litigation and arbitration in the normal course of its
business. The Company does not believe that any pending litigation or
arbitration will have a material adverse effect on its consolidated financial
position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth
quarter of 1999.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded on the New York Stock Exchange under the
symbol "MMI". There were 560 holders of record as of January 31, 2000. The
following table sets forth the quarterly high and low daily closing prices
during 1999 and 1998.

<TABLE>
<CAPTION>
                                                     HIGH         LOW
                                                  ----------   ----------
1999
<S>                                               <C>          <C>
 First Quarter....................................$ 17 11/16   $ 14 1/2
 Second Quarter...................................  17 1/4       14 7/16


<PAGE>

 Third Quarter..................................... 16 5/16      10 3/8
 Fourth Quarter.................................... 10 7/8        3 7/16

1998

 First Quarter.....................................$ 26        $ 23 7/16
 Second Quarter....................................  24 3/4      20 3/4
 Third Quarter...................................... 23 1/4      15 1/2
 Fourth Quarter..................................... 19 1/16     13 7/8
</TABLE>

On December 31, 1999 the closing price of the Company's Common Stock was $8 5/8.

In 1999, the Company declared quarterly dividends of $0.09 per share, compared
to quarterly dividends of $0.08 per share in 1998. See Notes 6 and 8 to the
Consolidated Financial Statements for a description of restrictions on the
ability of the registrant's subsidiaries to transfer funds to the registrant in
the form of dividends.


<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

   The following selected financial data are derived from the Company's
consolidated financial statements. The data should be read in conjunction with
the consolidated financial statements, related notes and other financial
information included elsewhere in this report.

<TABLE>
<CAPTION>
                                                               Year Ended December 31
                                                   ------------------------------------------------------------------------
                                                   1999           1998          1997           1996            1995
---------------------------------------------------------------------------------------------------------------------------
                                                       (In thousands, except per share amounts and ratios)
<S>                                            <C>             <C>            <C>            <C>            <C>
Premiums and Income Data (1):
     Gross premiums written.............       $498,463        $439,021       $372,173       $357,718       $366,802
     Net premiums earned................        374,622         346,735        287,497        281,391        272,903
     Consulting and fee income..........         61,187          44,485         44,862         32,314         21,544
     Net investment income..............         72,268          76,556         75,490         73,681         62,936
     Net realized gains (losses)
         on investments.................          (965)           2,678          2,182          (890)          1,692
     Total revenues.....................        507,112         470,454        410,031        386,496        359,075
     Income (loss) from continuing
       operations before extraordinary
       loss (2).........................      (100,860)          14,060         36,897         46,490         35,294
       Per share (4)....................         (5.28)            0.73           1.90           2.57           2.62

Operating income (loss) (3)(5)..........      (100,233)          12,320         35,487         47,086         34,187
     Per share (4)......................         (5.25)            0.64           1.83           2.60           2.54
Cash dividends per common share.........           0.36            0.32           0.22           0.17           0.15
Weighted average number of common
     and common equivalent shares (4)...         19,106          19,385         19,396         18,087         13,446

Balance Sheet Data (at end of year) (1):
Investments.............................     $1,165,956      $1,259,422     $1,230,800     $1,212,556     $1,166,825
Total assets............................      1,995,687       1,959,409      1,884,067      1,804,421      1,741,758
Loss and loss adjustment expense
     reserves...........................      1,275,848       1,176,073      1,125,146      1,149,918      1,199,870
Long-term notes payable.................         45,000              --             --         93,000         89,000
Mandatorily redeemable preferred
     capital securities.................        119,029         118,817        118,724             --             --
Unrealized gains (losses)
     on investments.....................       (16,162)          29,147         24,332         13,456         22,709
Stockholders' equity....................        257,392         412,928       399,002         355,166        272,266
Book value per share....................          13.40           21.67         21.16           19.01          16.39

GAAP Ratios (6):
Loss ratio..............................         121.8%           84.1%          72.8%          74.2%           75.6%
Expense ratio...........................          32.8%           31.7%          38.3%          31.0%           29.4%
                                                 --------------------------------------------------------------------
Combined ratio..........................         154.6%          115.8%         111.1%         105.2%          105.0%
                                                 ====================================================================
</TABLE>

(1)  The Company acquired Unionamerica Holdings plc in December 1997 in a
     transaction accounted for as a pooling of interests. As such, the
     consolidated financial statements include Unionamerica's balance sheet and
     results of operations for all periods presented.

(2)  Income from continuing operations excludes a loss from discontinued
     operations, net of tax of $3,643,000 in 1999, $2,696,000 in 1998,
     $1,830,000 in 1997, $6,370,000 in 1996 and $1,163,000 in 1995, related to
     former affiliates. See Note 15 to the consolidated financial statements.

(3)  Operating income represents income from continuing operations before
     extraordinary losses of $707,000 in 1997 and $4,737,000 in 1995 and
     after-tax realized investment gains (losses) of $(627,000) in 1999,
     $1,740,000 in 1998, $1,410,000 in 1997, $(596,000) in 1996, and $1,106,000
     in 1995.

(4)  The Company adopted a new standard on earnings per share in 1997. All
     earnings per share amounts have been restated to conform to the new
     requirements. Per share and weighted average shares are presented on a
     diluted basis.

(5)  In 1997, operating income includes a charge, net of tax, of $8,937,000 or
     $.46 per share related to the acquisition of Unionamerica.

(6)  GAAP ratios have been derived from the results of the Company's domestic
     and international insurance segments. The 1997 expense ratio includes 3.4
     percentage points related to expenses incurred in connection with the
     Unionamerica acquisition.


<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

     The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
financial statements and notes thereto included elsewhere in this report.

RESULTS OF OPERATIONS

1999 COMPARED TO 1998

     REVENUES. Gross premiums written increased by 13.6% to $498.5 million in
1999 from $439.0 million in 1998. Medical malpractice gross premiums written
decreased 11.9% to $209.0 million in 1999 from $237.3 million, international
gross premiums written increased 44.8% to $239.0 million in 1999 from $165.1
million in 1998 and other gross premiums written increased 37.6% to $50.5
million in 1999 from $36.7 million 1998. Net premiums written increased by 9.2%
to $387.4 million in 1999 from $354.8 million in 1998.

     Net premiums earned increased by 8.0% to $374.6 million in 1999 from $346.7
million in 1998. Medical malpractice net premiums earned decreased by 17.0% to
$164.0 million in 1999 from $197.5 million in 1998. International net premiums
earned increased 39.5% to $190.0 million from $136.2 million due to growth in
the Company's participation in Lloyd's syndicates as well as third quarter, 1999
premiums for prior policy year swing-rated medical malpractice reinsurance
treaties. Other net premiums earned increased 58.5% to $20.6 million from $13.0
million due to growth in medical expense business. The effect of one-time
premiums, such as prior acts coverage for new insureds, contributed to the
decline in medical malpractice premiums in 1999. During 1999, medical
malpractice premiums earned included $10.5 million in such one time premiums, a
decrease of $25.3 million from 1998.

     Consulting and fee income increased 37.5% to $61.2 million in 1999 from
$44.5 million in 1998 due to inclusion of revenues from Applied Risk
Management Inc. ("ARM") from the date of acquisition in February 1999.
Consulting and fee income as a percentage of net premiums earned and
consulting and fee income was 14.0% in 1999 compared to 11.4% in 1998.

     Net investment income decreased by 5.6% to $72.3 million in 1999 from $76.6
million in 1998. The decrease in investment income is due to a decrease in
invested assets. The Company had net realized losses on investments of $1.0
million in 1999 compared to $2.7 million in net realized gains in 1998.

     LOSSES AND EXPENSES. Losses and loss adjustment expenses ("LAE") increased
by 56.5% to $456.3 million in 1999 from $291.5 million in 1998. Medical
malpractice liability losses and LAE increased by 6.6% to $206.1 million in 1999
from $193.3 million in 1998. Medical malpractice losses and LAE increased due to
unfavorable loss experience recognized in the third quarter 1999 of $57.9
million due primarily to a change in the legal environment affecting a specific
block of business. That business, which the Company has exited completely as of
December 31, 1998, consists of groups of for-profit long-term care facilities.
As a result of several large judgments and settlements, one of which affected
the Company, average case values have increased significantly. The Company
undertook a major review of all such cases and increased reserves on open cases
to reflect the environmental change and increased its reserve for unreported
cases and claim development on this block of business. This reserve
strengthening totaled $35.0 million.

     In addition, two of the Company's more traditional customer blocks of
business experienced reserve growth for cases attributable to the 1996-1998
accident years. This growth was primarily the result of increases in average
case severity. Losses associated with policies covering healthcare facilities
increased by $15.0 million. The Company also increased reserves by $7.9 million
for policies covering groups of physicians insured under the Company's clinic
programs.

     International losses and LAE increased 160.2% to $229.0 million in 1999
from $88.0 million due to $96.0 million of loss reserve strengthening covering
the 1995-1999 policy years that was recorded in the third and fourth quarter,
1999. The third quarter strengthening totaled $31.0 million and approximately
one-half of the reserve increase related to short-tail lines, primarily property
and medical expense business with the remaining reserve development occurring in
the casualty lines including medical malpractice and commercial auto. Loss
reserve


<PAGE>

development of $65.0 million in the fourth quarter related to casualty lines,
primarily United Stated medical malpractice and surplus lines business. The
reserve increases reflect a continuation of competitive market conditions and
increasing trends in frequency and severity. Other losses and LAE increased
108.9% to $21.1 million in 1999 from $10.1 million in 1998 due to an increase in
other earned premium as well as losses recorded in 1999 in recognition of
unfavorable experience in the medical expense insurance business.

     Insurance and administrative expenses increased by 28.9% to $197.3 million
in 1999 from $153.1 million in 1998. Included in the 1999 total is $14.0 million
in restructuring charges, primarily related to the consulting and fee
businesses. These charges related to the impairment of goodwill for certain
consulting and fee businesses reflecting unprofitable operating results,
discontinuance of certain product offerings, employee termination benefits and
disposition of real estate lease obligations in several locations. This increase
in insurance and administrative expenses also related to the inclusion of ARM
since its date of acquisition in 1999 as well as an increase in acquisition
costs related to the growth in international premiums written.

     The combined ratio, which includes the sum of losses and LAE and insurance
segment expenses divided by earned premiums, increased to 154.6% in 1999
compared to 115.8% in 1998. The loss ratio increased by 37.7 percentage points
and the expense ratio increased by 1.1 percentage points in 1999, as compared to
1998. The loss ratio increase is due to reserve strengthening in the medical
malpractice and international lines of business. The loss reserve development
reflected in medical malpractice and international losses and loss adjustment
expenses represented an increase in the 1999 loss ratio of 41.1 percentage
points.

     Interest expense decreased by 1.0% to $10.1 million in 1999 from $10.2
million in 1998. Debt outstanding totaled $164.0 million at December 31, 1999
as compared to $118.8 million at December 31, 1998.  MMI borrowed $45.0
million in December, 1999.

     INCOME TAXES (CREDITS). Income taxes were a credit of $55.6 million in
1999 compared to a provision of $1.6 million in 1998. The decrease in income
tax expense is due to a pre-tax loss in 1999.

     DISCONTINUED OPERATIONS. The loss from discontinued operations related
to the March 31, 1999 sale of Healthcare Credentials Management Services
(HCMS) was $5.6 million in 1999, comprised of $4.5 million loss on disposal
and $1.1 million loss from operations. The loss from operations was $4.2
million in 1998. Net of taxes, the loss was $3.6 million in 1999 and $2.7
million in 1998.

     NET INCOME (LOSS). Net income decreased to a loss of $104.5 million in
1999 from net income of $11.4 million in 1998 principally as a result of
adverse reserve development from the medical malpractice and international
lines of business, as well as the restructuring charge recorded in the third
quarter 1999.

     NET INCOME (LOSS) PER SHARE. Diluted net loss per common and common
equivalent share was $5.47 in 1999 compared to diluted net income of $0.59 in
1998. Included in both year's totals are losses from discontinued operations of
$.19 in 1999 and $.14 in 1998, net of tax; and a loss of $.03 in 1999 and a gain
of $.09 in 1998 related to net realized gains and losses on investments, net of
tax.

1998 COMPARED TO 1997

     REVENUES. Gross premiums written increased by 17.9% to $439.0 million in
1998 from $372.2 million in 1997. Medical malpractice gross premiums written
increased 18.4% to $237.3 million in 1998 from $200.5 million. International
gross premiums written increased 8.6% to $165.1 million in 1998 from $152.0
million in 1997 and other gross premiums written increased 86.3% to $36.7
million in 1998 from $19.7 million in 1997. Net premiums written increased by
15.6% to $354.8 million in 1998 from $306.9 million in 1997.

     Net premiums earned increased by 20.6% to $346.7 million in 1998 from
$287.5 million in 1997. Medical malpractice net premiums earned increased by
28.2% to $197.5 million in 1998 from $154.1 million in 1997. International net
premiums earned increased 6.5% to $136.2 million from $127.9 million due to
increased premiums from Unionamerica's interest in Lloyd's underwriting
syndicate and other net premiums earned increased 136.4% to $13.0 million from
$5.5 million. The effect of one-time premiums, such as prior acts coverage for
new insureds, contributed to the increase in medical malpractice premium growth
in 1998. During


<PAGE>

1998, medical malpractice premiums earned included $35.8 million in such one
time premiums, an increase of $28.8 million from 1997.

     Consulting and fee income was relatively unchanged at $44.5 million in 1998
compared to $44.9 million in 1997. Consulting and fee income as a percentage of
net premiums earned and consulting and fee income was 11.4% in 1998 compared to
13.5% in 1997.

     Net investment income increased by 1.5% to $76.6 million in 1998 from $75.5
million in 1997. A modest increase in invested assets was partly offset by a
slight decrease in portfolio yield. The Company had net realized gains on
investments of $2.7 million in 1998 compared to $2.2 million in 1997.

     LOSSES AND EXPENSES. Losses and loss adjustment expenses (LAE) increased by
39.2% to $291.5 million in 1998 from $209.4 million in 1997. Medical malpractice
liability losses and LAE increased by 50.0% to $193.3 million in 1998 from
$128.9 million in 1997. Medical malpractice liability losses and LAE increased
due to unfavorable loss experience related to two specific but small areas of
the Company's domestic operations: long-term care and a disparate group of
clinic clients. In the third quarter 1998, the Company recorded $17.5 million of
additional losses and LAE related to this business. The increase in medical
malpractice losses and LAE also includes losses related to the increase in one
time premiums in the first quarter 1998 that were recorded at a higher loss
ratio than the core medical malpractice business as well as an increase in the
core loss ratio for the current year's business. International losses and LAE
increased 15.2% to $88.0 million in 1998 from $76.4 million due to a growth in
earned premiums as well as a third quarter provision of $3.3 million for claims
related to asbestos exposures written in prior years. Other losses and LAE
increased 146.3% to $10.1 in 1998 from $4.1 million in 1997 due to an increase
in other earned premium.

     Insurance and administrative expenses increased by 4.1% to $153.1 million
in 1998 from $147.0 million in 1997. Included in the 1997 total is $9.7 million
of expenses related to the Company's acquisition of Unionamerica, which was
completed in December 1997. Before the effect of the acquisition related
expenses, insurance and administrative expenses increased 11.5%, principally due
to increased commission expense related to premium growth.

     The combined ratio, which includes the sum of losses and LAE and
insurance segment expenses, divided by earned premiums was 111.1% in 1997.
The loss ratio increased by 11.3 percentage points and the expense ratio
decreased by 6.6 percentage points in 1998. The loss ratio increase is due to
the loss reserve development totaling $20.8 million recorded in the third
quarter 1998 as well as higher loss ratios related to one-time premiums and
an increase in the current year's loss ratio. The expense ratio decline in
1998 is primarily due to the inclusion of the acquisition related expenses in
1997 and one-time premiums in 1998, which have a proportionally lower level
of acquisition expense.

     Interest expense increased by 56.9% to $10.2 million in 1998 from $6.5
million in 1997 due to an increase in debt outstanding and a higher interest
rate related to the Company's issuance of 30 year capital securities in December
1997. Debt outstanding totaled $118.8 million at December 31, 1998.

     INCOME TAXES. Income taxes were $1.6 million in 1998 compared to $10.2
million in 1997. The decrease in income tax expense is due to a decline in the
pre-tax income in 1998.

     EXTRAORDINARY LOSS, NET OF TAX. In connection with the repayment of the
bank lines of credit in 1997, the Company wrote off deferred financing costs
totaling $0.7 million, net of tax.

     DISCONTINUED OPERATIONS. Healthcare Credential Management Services (HCMS)
was sold on March 31, 1999. The loss on discontinued operations from the sale
was $4.2 million in 1998 and $2.8 million in 1997. Net of taxes, the loss was
$2.7 million in 1998 and $1.8 million in 1997.


<PAGE>

     NET INCOME. Net income decreased by 66.9% to $11.4 million in 1998 from
$34.4 million in 1997 as a result of loss reserve development recorded in the
third quarter of 1998 as well as a decrease in the consulting and fee segment
profit margin in 1998.

     NET INCOME PER SHARE. Diluted net income per common and common equivalent
share decreased to $0.59 in 1998 from $1.77 in 1997. Included in the 1998 and
1997 amounts are a reduction of $.88 for loss reserve development and $.46 per
share for the expenses, net of tax, incurred in connection with the Unionamerica
acquisition, respectively. The loss from discontinued operations, net of tax,
was $0.14 in 1998 and $0.09 in 1997. Also included is an increase of $.09 in
1998 and an increase of $.07 in 1997 related to net realized gains on
investments, net of tax, as well as an extraordinary loss of $.04 in 1997.

LIQUIDITY AND CAPITAL RESOURCES

     As a holding company, the Company's assets consist primarily of the stock
of its subsidiaries. The Company's principal sources of operating funds are
management fees and dividends from its subsidiaries. In 1999, the Company
received dividends from its subsidiaries of $6.0 million, compared to $6.6
million in 1998 and $29.8 million in 1997. Of the 1997 dividend, $20.0 million
was a special dividend paid by Health Providers Insurance Company to the Company
in 1997 in connection with an intercompany assumption reinsurance transaction.
The Company then contributed the $20.0 million to American Continental Insurance
Company's statutory surplus. The Company received management fees from its
subsidiaries of $29.0 million in 1999, $24.0 million in 1998 and $28.5 million
in 1997. The Company's principal uses of funds are operating expenses,
acquisitions, debt service and dividends to stockholders.

     On a consolidated basis, the Company's principal sources of operating funds
are premiums, investment income, fees and recoveries from reinsurers. Funds are
used to pay claims, operating expenses, reinsurance premiums, acquisition
related expenditures, debt service requirements, taxes and dividends to
stockholders.

     CASH FLOW. On a consolidated basis, the Company had negative cash flow from
operations in 1999 and positive cash flow from operations in 1998 and 1997. Cash
flow from operations declined in the most recent year due to an increase in paid
losses and loss adjustments expenses. Cash flow from operations is affected by
the difference between the collection of premiums and payment of claims and
expenses. Because of uncertainty related to the timing of payment of claims,
cash from operations for a casualty insurance company can vary substantially
from year to year and quarter to quarter. Cash used by operating activities was
$53.8 million in 1999 compared to cash provided of $39.2 million in 1998 and
$6.5 million in 1997.

     Investing activities, substantially in fixed income securities, have been
the principal use of cash flow from operations. Cash provided by investing
activities was $25.1 million in 1999. Cash used by investing activities was
$28.9 million in 1998 and $24.4 million in 1997. The Company has no material
commitments for capital expenditures.

     Financing activities provided $37.1 million in cash in 1999, used $3.7
million in 1998 and provided $19.8 million in 1997. In December 1999, the
Company drew on its line of credit and borrowed $45.0 million to contribute to
the capital and surplus of ACIC. In July 1997, the Company increased its
borrowings by $10.0 million to finance an investment in additional Lloyd's
underwriting capacity. In December 1997, the Company completed a private
placement of Capital Securities and received net proceeds of $118.7 million.
Concurrent with the receipt of the proceeds, the Company repaid the full
outstanding amounts under its credit agreements totaling $103.0 million. The
Company had no outstanding bank debt at December 31, 1998 and 1997.

     INVESTED ASSETS. The Company invests in investment grade fixed income
securities and preferred stocks. The estimated fair value of preferred stocks
was less than 5.0% of the fair value of total invested assets as of December 31,
1999. The estimated fair value of the Company's short-term, fixed maturity and
preferred stock investments was $1,166.0 million as of December 31, 1999,
compared to $1,259.4 million as of December 31, 1998. The December 31, 1999
amount includes net unrealized losses of $24.9 million, which represent the
amount by which the estimated fair value of the investment portfolio exceeds
amortized cost. Unrealized gains were $44.2 million as of December 31, 1998. The
decrease in unrealized gains during 1999 was due to an increase in the general
level of interest rates.


<PAGE>

     The Company maintains a portion of its investment portfolio in high
quality, short-term securities to meet its short-term operating liquidity
requirements, including the payment of claims and expenses. Short-term
investments totaled $82.6 million or 7.1% of invested assets as of December 31,
1999, compared to $50.8 million or 4.0% of invested assets as of December 31,
1998. The Company believes that all of its invested assets are readily
marketable.

     TRUST PREFERRED CAPITAL SECURITIES. In December 1997, MMI issued $125.0
million in 30 year non-callable Capital Securities of MMI Capital Trust I, a
subsidiary of MMI. The Capital Securities were rated ba1 by Moody's Investor
Service and BBB- by Standard & Poor's Rating Services as of March 29, 2000. The
Capital Securities pay cumulative distributions at the annual rate of 7 5/8%
semiannually in arrears and have a maturity date of December 15, 2027. Payments
on the Capital Securities are fully and unconditionally guaranteed by MMI. Total
proceeds, net of expenses, were $118.7 million.

     LINE OF CREDIT. In February 1998, the Company obtained an unsecured
revolving credit line of $100.0 million. The Company borrowed $45.0 million
against this line of credit in December 1999 to contribute to the capital and
surplus of ACIC, replenishing statutory surplus to the level that existed
prior to the $60.0 million pre-tax loss reserve strengthening recorded in the
third quarter, 1999. The credit agreement provides for interest at a fixed
rate equal to the Interbank Offered Rate for periods of up to one year plus a
margin of 20 to 40 basis points, and contains financial covenants with
respect to minimum net worth and statutory surplus, maximum debt to total
capitalization, and minimum risk-based capital levels. The credit agreement
also restricts the Company's ability to pay stockholders' dividends in a
single year in excess of 50% of the average of the prior three years net
income. As a result of net losses incurred, MMI is in non-compliance with a
certain covenant which may have resulted in amounts drawn upon the bank line
being currently due. MMI obtained a waiver for the covenant in non-compliance
through May 31, 2000.

     STOCKHOLDERS' EQUITY. The Company's stockholders' equity was $257.4 million
as of December 31, 1999, compared to $412.9 million as of December 31, 1998.
Changes in stockholders' equity are primarily attributable to net income (loss)
of the Company, dividends to stockholders, changes in unrealized gains or losses
on investments and issuances of Common Stock. Cash dividends to stockholders
totaled $6.9 million in 1999, $6.1 million in 1998 and $4.2 million in 1997. As
of December 31, 1999, unrealized losses on investments were $16.2 million, net
of deferred tax credit of $8.7 million. As of December 31, 1998 the Company had
an unrealized gain, net of taxes, of $29.1 million.

     RISK-BASED CAPITAL. The NAIC has adopted risk-based capital solvency
standards for domestic insurers. Under these standards, several solvency
thresholds are calculated based on the underwriting, credit, and investment
risks of a company. As of December 31, 1999 the statutory capital and surplus of
each of the Company's domestic insurance subsidiaries exceeded its
risk-based-capital requirements.

     MINIMUM SOLVENCY MARGIN. Under the Insurance Companies Act of 1982, the
Financial Services Authority (FSA) authorizes companies in the United Kingdom to
engage in the insurance business. Under the 1982 Act, companies authorized to
transact business are required to maintain a minimum solvency margin. As of
December 31, 1999, Unionamerica's minimum solvency margin was estimated at $28.8
million and its available assets, for U.K. regulatory purposes, were estimated
at $40.7 million.

ACQUISITIONS

     In February 1999, MMI acquired Applied Risk Management (ARM), Inc., a
privately held third party administrator and consulting firm that specializes in
workers' compensation. Subsequent to the acquisition, ARM was integrated into
Professional Risk Management (PRM), Inc., an MMI subsidiary that provides third
party administration and consulting related to professional and general
liability risks and claims primarily for self-insured organizations. The
purchase price for ARM, including expenses, was $7.7 million in cash.

     In a series of transactions in 1998, the Company acquired a 49% interest in
Marketform Holdings Limited (MHL), a London-based underwriting agency
specializing in non-U.S. medical malpractice insurance and 95%


<PAGE>

ownership of Marketform Corporate Member Limited (MCML), a dedicated Lloyd's
corporate member. The total consideration was $4.5 million in cash and $1.3
million in short-term notes payable.

     On December 11, 1997, the Company acquired all of the capital stock of
Unionamerica. MMI issued 7.1 million shares of Common Stock at the exchange
ratio of 0.836 MMI shares for each Unionamerica American Depository Share. The
acquisition was accounted for as a pooling of interests, and, as such, the
Company's 1997 consolidated financial statements, and for all prior periods
presented were restated as if the acquisition had occurred at the beginning of
the earliest period presented. Founded in 1971, Unionamerica is a specialty
casualty and property reinsurer and insurer operating in the London-based
reinsurance and insurance market.

     On July 23, 1997, MMI acquired a 39% interest in JMA Holdings Limited
(JMAHL), the parent company of Jago Managing General Agency Limited, a Lloyd's
managing agency, for consideration of $9.1 million. The consideration was
comprised of $5.9 million in cash and $3.2 million of short-term notes payable.

     Effective January 1, 1997, the Company purchased substantially all of the
net assets of Equifax Medical Credentials Verification Services (EMCVS), a unit
of Atlanta-based Equifax, Inc., and acquired by merger all of the outstanding
stock of PRM. The total purchase price for these acquisitions was $8.3 million
in cash and $2.0 million in MMI Common Stock. These acquisitions were accounted
for as purchases and the operations of EMCVS and PRM are included in the
Company's consolidated financial statements since their dates of acquisition.

YEAR 2000

     The Company implemented an enterprise-wide plan to address Year 2000
("Y2K") issues across all of its technology platforms as well as to reasonably
assure that its critical business partners are prepared for business continuity
beyond January 1, 2000. The rollover to Year 2000 proved to be uneventful for
MMI. No adverse impact or issues were experienced and the Company enjoyed normal
operations throughout the first quarter of 2000. The total cost to address all
Y2K related issues was $.7 million.

ITEM 7(a) MARKET RISK

     The Company is exposed to various market risks, most specifically changes
in interest rates and foreign currency exchange rates. Market risk is the
potential loss arising from adverse changes in market rates and prices, such as
interest and foreign currency exchange rates. The Company does not utilize
derivative or other similar financial instruments for trading or speculative
purposes. The following analysis presents the hypothetical loss in fair value of
the financial instruments held by the Company at December 31, 1999 that are
sensitive to changes in interest rates and/or foreign currency exchange rates.
The range of changes in interest rates used in the analysis reflects the
Company's view of changes that are reasonably possible over a one-year period.
This discussion of market risks related to the Company's consolidated balance
sheet includes estimates of future economic environments caused by changes in
interest risks. The effect of actual changes in these risk factors may differ
materially from the Company's estimates. In the ordinary course of business, the
Company also faces risks that may be either non-financial or non-quantifiable,
e.g., credit risk. Such risks are not included in the following analysis.

     The Company has a comprehensive and diversified investment portfolio. The
Company's invested assets are held primarily as fixed maturities which are
available for sale, short term investments and preferred stocks. Accordingly,
these assets are subject to various market risk exposures such as interest rate
risk.

     The fair value of the Company's short-term investment portfolio at December
31, 1999 and 1998 approximated its carrying value due to its short-term
duration. Market risk was estimated as the potential decrease in fair value
resulting from a hypothetical 100 basis point increase in interest rates for the
issues contained in the short term investment portfolio, and was not materially
different from the December 31, 1999 or 1998 carrying values.


<PAGE>

     At December 31, 1999 and 1998 the fair value of the Company's fixed
maturity and preferred stock portfolio was $1,083.4 million and $1,208.6 million
versus an amortized cost basis of $1,108.3 million and $1,164.4 million,
respectively. The estimated fair value of the fixed maturity and preferred stock
portfolio resulting from a hypothetical increase in interest rates of 100 basis
points at December 31, 1999 would be approximately $1,029.2 million or a
decrease of 5.0%. The comparable fair value and decrease at December 31, 1998
are $1,159.0 million and 4.1%, respectively. The Company utilizes several
outside investment advisory companies in the management of the portfolio. This
portfolio, which is not hedged, consists primarily of U.S. dollar denominated,
investment grade, taxable and tax advantaged fixed maturity securities. The
primary objectives of the portfolio are to provide the Company with a stable,
long term, after tax yield with sufficient quality and liquidity to meet its
cash flow needs and to provide an after tax total return to meet its profit
objectives.

     The Company is subject to foreign currency exchange risk due to several
primary reasons, including its United Kingdom-based subsidiaries, which incur
expenses, denominated in British pound sterling and hold invested assets in
foreign currencies which result primarily from business generated in foreign
currencies. While there is exposure to several currencies, the predominant
exposure is in British pound sterling.

     As of December 31, 1999 the Company estimates that overhead and other
payables of approximately $1.5 million per month which must be paid in British
pound sterling are to be paid throughout the next year by its UK subsidiaries.
The British pound sterling are to be purchased periodically throughout the year,
usually with U.S. dollars; and a hypothetical strengthening of the British pound
sterling versus the U.S. dollar of 10% would increase the cost of these
purchases by up to $1.8 million throughout the year. The Company does monitor
the foreign currency markets and could purchase British pound sterling in
advance if appropriate due to market conditions.

     The Company also holds invested assets in foreign currencies, which result
primarily from business generated in foreign currencies and thus expose the
Company to foreign exchange currency risk. The predominant exposure is in
British pound sterling. Revenues from our business in foreign countries are the
primary source of funds for our purchase of these investments. The Company
purchases these investments as a natural hedge against insurance reserves and
other liabilities denominated in the same currency, effectively reducing foreign
currency exchange rate exposure. At December 31, 1999, the Company does have a
net unhedged foreign currency exposure in its invested assets of approximately
4.0 million British pound sterling. A hypothetical weakening of 10% in the
British pound sterling versus the U.S. dollar would result in a loss of value of
approximately $.6 million. Management reviews its foreign currency exposure risk
on a monthly basis and is of the opinion that other foreign currency exchange
risk is not material.

     In December 1997, the Company completed a private placement of $125.0
million 30-year, mandatorily redeemable preferred capital securities (Capital
Securities) of MMI Capital Trust I, a subsidiary of MMI. The Capital Securities
pay a dividend of 7.625% semi-annually in arrears and have a maturity date of
December 15, 2027. Total proceeds were $118.7 million net of expenses. The
carrying value of the Capital Securities is $119.1 million and $118.8 million as
of December 31, 1999 and 1998, respectively. These securities had a fair value
of $98.3 million at December 31, 1999 and $121.9 million at December 31, 1998. A
hypothetical 100 basis point decrease in interest rates would increase the fair
value to approximately $108.9 million and $137.3 million as of December 31, 1999
and December 31, 1998, respectively.

     The Company manages its market risk by matching the projected cash inflows
of assets with liabilities. For all its financial assets and liabilities, the
Company seeks to reasonably match durations consistent with the Company
objectives of maximization of income without sacrificing investment quality and
providing for necessary liquidity, return and diversification.

     The estimated fair values at current market rates discussed above for
financial instruments subject to interest rate risk are the same as those in
Note 4 to the consolidated financial statements. The estimated fair value at the
adjusted market rates (assuming a 100 basis point increase in market interest
rates) are calculated using discounted cash flow methods and duration modeling,
where appropriate. The foreign currency exposure risk analysis assumes a year
end spot rate on the British pound sterling of 1.61 at December 31, 1999.


<PAGE>

     This sensitivity analysis provides only a limited, point-in-time view of
the market risk sensitivity of certain of the Company's financial instruments.
The actual impact of interest rate and price changes may differ significantly
from those shown in the analysis. The sensitivity is further limited as it does
not take into consideration any actions the Company could take in response to or
in anticipation of movements in interest rates or prices.

EFFECT OF INFLATION

     The primary effect of inflation on the Company is implicitly considered in
pricing and estimating reserves for unpaid losses and loss adjustment expenses,
particularly for claims where there is a long period between reporting and
settlement. The actual effect of inflation on the Company's results cannot be
accurately known until claims are ultimately settled. Based on actual results to
date, the Company believes that loss and LAE reserve levels and the Company's
rate-making process adequately incorporate the effects of inflation.


<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Auditors


Board of Directors
MMI Companies, Inc.

We have audited the accompanying consolidated balance sheets of MMI Companies,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules 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 MMI
Companies, Inc. and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.


Chicago, Illinois
February 24, 2000, except for Note 17 as to which
the date is March 9, 2000.

                                                               Ernst & Young LLP


<PAGE>

                      MMI COMPANIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (In thousands, except share and per share data)
<TABLE>
<CAPTION>
                                                                                               December 31
                                                                                -------------------------------------
                                                                                        1999                  1998
                                                                                        ----                  ----
<S>                                                                                <C>                     <C>
ASSETS
   INVESTMENTS (Note 4)
     Short-term investments -- at fair value (amortized cost: 1999 -
        $82,556;  1998 - $50,819).................................                 $    82,556            $    50,819
     Fixed maturities-- at fair value (amortized cost: 1999 -
        $1,058,553; 1998 - $1,109,210) ...........................                   1,034,908              1,150,622
     Preferred stocks -- at fair value (amortized cost: 1999 -
        $49,709; 1998 - $55,155)..................................                      48,492                 57,981
                                                                                        -------                ------
                                                                                     1,165,956              1,259,422
   OTHER ASSETS
     Cash ........................................................                      21,627                 13,323
     Premiums and fees receivable ................................                     191,750                161,000
     Reinsurance receivables (Note 3) ............................                     355,664                336,518
     Prepaid reinsurance premiums (Note 3) .......................                      26,836                 21,232
     Accrued investment income ...................................                      16,684                 17,375
     Cost in excess of net assets of purchased
       subsidiaries, less accumulated amortization (Notes 1 and 2)                      35,943                 43,018
     Furniture and equipment - at cost,
       less accumulated depreciation .............................                       6,572                 14,702
     Deferred income taxes (Note 5) ..............................                     120,406                 44,093
     Other .......................................................                      54,249                 48,726
                                                                                        -------                ------
                                                                                   $ 1,995,687            $ 1,959,409
                                                                                   ============           ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
   LIABILITIES
     Policy liabilities:
       Loss and loss adjustment expense reserves (Note 7):
         Medical malpractice .....................................                 $   682,682            $   672,647
         International ...........................................                     562,334                484,170
         Other ...................................................                      30,832                 19,256
                                                                                   -----------            -----------
                                                                                     1,275,848              1,176,073
       Unearned premium reserves .................................                     158,827                141,939
       Future life policy benefits ...............................                       5,653                  8,326
                                                                                   -----------            -----------
                                                                                     1,440,328              1,326,338
     Accrued expenses and other liabilities ......................                      67,375                 50,136
     Amounts due to reinsurers (Note 3) ..........................                      66,563                 51,190
     Notes payable (Note 6).......................................                      45,000                     --
     Company-obligated, mandatorily redeemable preferred capital
           securities of subsidiary trust holding solely junior
           subordinated debentures of the Company (Note 6).........                    119,029                118,817
                                                                                   -----------            -----------
                                                                                     1,738,295              1,546,481
Contingencies and commitments  (Notes 3 and 11)

STOCKHOLDERS' EQUITY (Notes 8 and 10)
   Common Stock, par value $.10 per share:
     Authorized shares: 30,000
     Issued and outstanding shares:
       1999 - 19,210; 1998 - 19,059 ..............................                       1,921                  1,906
   Additional paid-in capital ....................................                     222,787                221,649
   Retained earnings .............................................                      48,846                160,226
   Accumulated other comprehensive income (loss), net of taxes:
     1999 - $(8,700); 1998 - $15,091 .............................                      (16,162)               29,147
                                                                                   ------------           -----------

                                                                                       257,392                412,928
                                                                                   ------------           -----------
                                                                                   $ 1,995,687            $ 1,959,409
                                                                                   ============           ===========
</TABLE>

                 See Notes to Consolidated Financial Statements.

<PAGE>

                      MMI COMPANIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                             Year Ended December 31
                                                             --------------------------------------------------------
                                                                      1999               1998              1997
                                                                      ----               ----              ----
<S>                                                                   <C>                <C>               <C>
REVENUES
Insurance premiums earned (Note 3):
   Medical malpractice .................................               $  164,026        $  197,461        $  154,097
   International........................................                  189,952           136,229           127,918
   Other................................................                   20,644            13,045             5,482
                                                                       ----------        ----------        ----------
                                                                          374,622           346,735           287,497
Consulting and fee income ..............................                   61,187            44,485            44,862
Net investment income (Note 4) .........................                   72,268            76,556            75,490
Net realized gains (losses) on investments (Note 4).....                    (965)             2,678             2,182
                                                                       ----------        ----------        ----------
       TOTAL REVENUES ..................................                 507,112            470,454           410,031

LOSSES AND EXPENSES
Losses and loss adjustment expenses (Notes 3 and 7):
   Medical malpractice .................................                 206,122            193,302           128,869
   International........................................                 229,029             88,032            76,417
   Other................................................                  21,122             10,147             4,079
                                                                       ----------        ----------        ----------
                                                                         456,273            291,481           209,365
Insurance and administrative expenses (Note 3) .........                 197,256            153,132           147,046
Interest expense .......................................                  10,082             10,165             6,489
                                                                       ----------        ----------        ----------
       TOTAL LOSSES AND EXPENSES .......................                 663,611            454,778           362,900
                                                                       ----------        ----------        ----------

       INCOME (LOSS) BEFORE INCOME TAXES,
         EXTRAORDINARY LOSS AND
         DISCONTINUED OPERATIONS........................                (156,499)            15,676            47,131
Income tax (credit) (Note 5) ...........................                 (55,639)             1,616            10,234
                                                                       ----------        ----------        ----------
       INCOME (LOSS) FROM CONTINUING
       OPERATIONS BEFORE  EXTRAORDINARY
       LOSS.............................................                (100,860)            14,060            36,897

Extraordinary loss, net of tax (Note 6).................                      --                 --               707
                                                                      ----------        ----------        ----------
       INCOME (LOSS) FROM CONTINUING OPERATIONS                         (100,860)            14,060            36,190
Loss from discontinued operations, net of tax (Note 16).                     691              2,696             1,830
Loss on sale, net of tax of $1,509 (Note 6).............                   2,952                 --                --
                                                                       ----------        ----------        ----------
       NET INCOME (LOSS) ...............................               $(104,503)        $   11,364        $   34,360
                                                                       ==========        ==========        ==========


Earnings per common and common equivalent share (Note 9):
Basic...................................................
     Income (loss) from continuing operations before
       extraordinary loss...............................               $   (5.28)        $     0.74        $     1.97
     Extraordinary loss.................................                      --                 --             (0.04)

     Loss from discontinued operations..................                   (0.19)             (0.14)            (0.10)
                                                                       ----------        ----------        ----------
     Net income (loss)..................................               $   (5.47)        $     0.60        $     1.83
                                                                       ==========        ==========        ==========

Diluted ................................................
     Income (loss) from continuing operations before
       extraordinary loss...............................               $   (5.28)        $     0.73        $     1.90
     Extraordinary loss.................................                      --                 --             (0.04)

     Loss from discontinued operations..................                   (0.19)             (0.14)            (0.09)
                                                                       ----------        ----------        ----------
     Net income (loss)..................................               $   (5.47)        $     0.59        $     1.77
                                                                       ==========        ==========        ==========

Weighted average number of common and common equivalent shares:
      Basic.............................................                  19,106             18,936            18,751
      Diluted ..........................................                  19,106             19,385            19,396
                                                                       ==========        ==========        ==========
</TABLE>

See Notes to Consolidated Financial Statements.

<PAGE>

                      MMI COMPANIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                                                                       Accumulated
                                                                                                          Other
                                                        Common Stock        Additional                Comprehensive      Total
                                                     Number        Par       Paid-In      Retained   Income (Loss),  Stockholders'
                                                    of Shares     Value     Capital       Earnings    Net of Taxes     Equity
                                                    --------------------- ----------- ------------ ---------------- --------------
<S>                                                 <C>          <C>       <C>           <C>        <C>            <C>
Balance at January 1, 1997                              18,681    1,868    $ 215,091     124,751    $       13,456        355,166

Year ended December 31, 1997:
   Net income ..............................                                              34,360                           34,360
   Change in unrealized gains (losses) on
     investments, net of taxes of $5,595 and
     reclassification adjustment............                                                                10,876         10,876
                                                                                                                         --------
Comprehensive income........................                                                                               45,236
   Issuance of Common Stock in connection
     with acquisition of subsidiary.........                85         9       1,942                                        1,951
   Issuance of Common Stock in connection
     with employee benefit plans and exercise
     of employee stock options .............               212        21       3,650                                        3,671
   Common Stock repurchased.................              (121)      (12)     (2,828)                                      (2,840)
   Common cash dividends ($.22 per share) ..                                              (4,182)                          (4,182)
                                                    ------------ -------- ----------- ------------ ---------------- --------------

Balance at December 31, 1997                            18,857    1,886      217,855     154,929            24,332        399,002

Year ended December 31, 1998:
   Net income ..............................                                              11,364                           11,364
   Change in unrealized gains (losses) on
     investments, net of taxes of $2,279 and
     reclassification adjustment............                                                                 4,815          4,815
                                                                                                                         --------
Comprehensive income........................                                                                               16,179
   Issuance of Common Stock in connection
     with acquisition of subsidiary.........                66        6        1,394                                        1,400
   Issuance of Common Stock in connection
     with employee benefit plans and exercise
     of employee stock options .............               146       15        2,553                                        2,561
   Common Stock repurchased.................               (10)      (1)        (153)                                        (154)
   Common cash dividends ($.32 per share) ..                                              (6,067)                          (6,067)
                                                    ----------- --------- ----------- ------------ ---------------- --------------


Balance at December 31, 1998 ...............            19,059     1,906     221,649     160,226            29,147        412,928


Year ended December 31, 1999:
   Net loss ................................                                            (104,503)                        (104,503)
   Change in unrealized gains (losses) on
     investments, net of taxes of ($23,791)
     and reclassification adjustment........                                                               (45,309)       (45,309)
                                                                                                                        ----------
Comprehensive loss..........................                                                                             (149,812)
   Issuance of Common Stock in connection
     with acquisition of subsidiary.........               117       12        2,207                                        2,219
   Issuance of Common Stock in connection
     with employee benefit plans and exercise
     of employee stock options .............               206       20        1,447                                        1,467
   Common  Stock repurchased................              (172)     (17)      (2,516)                                      (2,533)
   Common cash dividends ($.36 per share) ..                                              (6,877)                          (6,877)
                                                    ----------- --------- ----------- ------------ ---------------- --------------

Balance at December 31, 1999 ...............            19,210    1,921   $  222,787   $  48,846           (16,162)       257,392
                                                    =========== ========= =========== ============ ================ ==============
</TABLE>

                 See Notes to Consolidated Financial Statements

<PAGE>

                      MMI COMPANIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                  Year Ended December 31
                                                                           1999              1998              1997
                                                                  -----------------  -----------------      ----------
<S>                                                               <C>                <C>                    <C>
OPERATING ACTIVITIES
Net income (loss)...............................................        (104,503)            11,364            34,360
Adjustments to reconcile net income (loss) to net cash
  provided (used) by operating activities:
     Increase in policy liabilities.............................         113,990             58,281             2,978
     Change in reinsurance balances.............................          (9,377)           (33,182)          (19,380)
     Change in premiums and fees receivable.....................         (28,113)             4,949            (6,600)
     Increase in deferred tax asset.............................         (52,522)            (3,431)           (2,686)
     Increase in accrued investment income
      and other assets..........................................          (3,273)            (3,342)           (8,398)
     Change in accrued expenses and other
      liabilities...............................................           9,528                 (2)            1,961
     Net realized (gain) loss on investments....................             965             (2,678)           (2,182)
     Depreciation and amortization on
        Investments and goodwill................................          14,644              7,227             6,453
     Loss on sale of discontinued operations....................           4,841                 --                --
                                                                  -----------------  -----------------      ----------
       Net cash provided (used) by operating activities.........         (53,820)            39,186             6,506

INVESTING ACTIVITIES
   Net sale (purchase) of short-term investments................         (28,153)               365             8,660
   Purchase of available for sale investments...................        (456,105)          (542,809)         (721,863)
   Sale of available for sale investments ......................         419,551            433,116           644,791
   Maturities of available for sale investments.................          92,950             92,299            71,916
   Acquisition of subsidiaries..................................          (7,222)            (5,824)          (21,006)
   Disposition of subsidiary....................................           4,000                 --                --
   Furniture and equipment additions............................          (2,536)            (6,055)           (6,915)
   Furniture and equipment disposals............................           2,582                 --                --
                                                                  -----------------  -----------------      ----------
       Net cash provided (used) by investing activities.........          25,067            (28,908)          (24,417)

FINANCING ACTIVITIES
   Issuance of Common Stock ....................................           1,467              2,568             1,899
   Common Stock repurchased.....................................          (2,533)              (154)           (2,840)
   Proceeds from notes payable..................................          45,000                 --            10,000
   Dividends....................................................          (6,877)            (6,067)           (4,182)
   Issuance of Capital Securities...............................              --                 --           124,551
   Costs incurred in connection with securities offerings.......              --                 --            (5,832)
   Finance costs of long-term debts.............................              --                 --              (826)
   Payments on notes payable....................................              --                 --          (103,000)
                                                                  -----------------  -----------------      ----------
       Net cash provided (used) by financing activities.........          37,057             (3,653)           19,770
                                                                  -----------------  -----------------      ----------
       Increase in cash.........................................           8,304              6,625             1,859
Cash at beginning of year.......................................          13,323              6,698             4,839
                                                                  -----------------  -----------------      ----------
Cash at end of year ............................................  $       21,627             13,323         $   6,698
                                                                  =================  =================      ==========
</TABLE>

                 See Notes to Consolidated Financial Statements.


<PAGE>

                      MMI COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999

1.    ACCOUNTING POLICIES

NATURE OF OPERATIONS

MMI Companies, Inc. (MMI) is a specialty company that offers insurance products
and risk management and consulting services primarily to the healthcare
industry. MMI writes its medical malpractice liability insurance and property
and casualty insurance and reinsurance through its principal subsidiaries,
American Continental Insurance Company (ACIC) and Unionamerica Insurance Company
Limited (Unionamerica). MMI provides its products and services in all 50 states
and in Europe. Information on MMI's operations by reportable segment is included
in Note 13.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
(GAAP) and include the accounts and operations of MMI and its majority owned
subsidiaries. All material intercompany accounts and transactions have been
eliminated in consolidation. Certain reclassifications have been made to the
prior years' financial statements in order to conform to the current year
presentation. MMI's participation in Lloyd's Non-Marine Syndicate 205 through
its majority investment in Jago Capital Limited and Marketform Syndicate 2468 is
consolidated with the international insurance segment results.

USE OF ESTIMATES

The preparation of the financial statements in conformity with GAAP requires
management to make estimates and assumptions that can affect the amounts
reported in the consolidated financial statements and accompanying notes. Such
estimates and assumptions could change in the future as more information becomes
known, which could impact the amounts reported and disclosed herein.

INVESTMENTS

MMI classifies all of its fixed maturity and preferred stock investments as
"available for sale," requiring that these investments be carried at fair value,
with unrealized gains and losses, less related deferred income taxes, excluded
from earnings and reported in stockholders' equity as accumulated other
comprehensive income (loss).

Realized gains and losses on sales of investments are recognized on the specific
identification basis. Realized losses also include losses for fair value
declines that are considered to be other than temporary.

FAIR VALUE INFORMATION

The fair values of investments are reported in Note 4. The fair values of other
financial instruments, principally accrued investment income, premiums and fees
receivable, notes payable, accrued expenses and other liabilities and amounts
due to reinsurers approximate their December 31, 1999 and 1998 carrying values.
The fair value of mandatorily redeemable preferred capital securities is
reported in Note 6.

PREMIUM REVENUES

Premiums are earned pro rata over the terms of the policies, which are generally
one year. Adjustments to estimated premiums are made in the period in which it
is determined an adjustment is warranted. Unearned premiums are calculated using
the monthly pro rata basis.


<PAGE>

 CONSULTING AND FEE INCOME

Consulting and fee income is derived from fixed fee contracts and projects
performed on a per diem basis. Fixed fee contracts are for a specific period of
time, generally one year, in which MMI provides services that are delivered over
the entire contract term. Ratable recognition of fixed fee contract revenue
results in a matching with expenses incurred as the related expenses are
principally employee compensation and benefits.
Revenues from projects are recognized as the services are rendered.

DEFERRED POLICY ACQUISITION COSTS

Commissions and other costs that vary with, and are primarily related to, the
production of new and renewal business have been deferred and are amortized over
the period of the related insurance policies. Such unamortized amounts included
in other assets amounted to $31,600,000 and $28,300,000 at December 31, 1999 and
1998, respectively. Amortization of such costs are included in insurance and
administrative expenses and amounted to $64,700,000 in 1999, $56,200,000 in 1998
and $49,000,000 in 1997.

UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

The liabilities for unpaid losses and loss adjustment expenses represent the
estimated liability for claims reported to MMI plus claims incurred but not yet
reported and the related estimated adjustment expenses. The liabilities for
losses and related loss adjustment expenses are determined using case-basis
evaluations and statistical analyses. Although considerable variability is
inherent in such estimates, management believes that the liabilities for unpaid
losses and loss adjustment expenses are reasonable. The estimates are
continually reviewed and adjusted as necessary; such adjustments are included in
current operations.

FUTURE POLICY BENEFITS

The liability for future policy benefits principally represents reserves related
to disability policies.

REINSURANCE

Reinsurance premiums, commissions, expense reimbursements and liabilities
related to reinsurance, assumed and ceded, are accounted for on bases consistent
with those used in accounting for the original policies issued and with the
terms of the reinsurance contracts. Premiums assumed from other companies have
been reported as an increase to premium revenues. Premiums ceded to other
companies have been reported as a reduction of premium revenues. Expense
allowances received and paid in connection with reinsurance ceded and assumed,
respectively, have been accounted for as an adjustment of the related deferred
policy acquisition costs and are deferred and amortized accordingly. Reinsurance
receivables and prepaid reinsurance premiums are reported as assets in the
accompanying balance sheets.

FURNITURE AND EQUIPMENT

The costs of furniture and equipment are depreciated over their estimated useful
lives of three to seven years using the straight line method. As of December 31,
1999 and 1998, accumulated depreciation amounted to $14,100,000 and $16,100,000,
respectively.

GOODWILL

Costs in excess of net assets of purchased subsidiaries are being amortized on a
straight-line basis over periods ranging from ten to twenty years. As of
December 31, 1999 and 1998, accumulated amortization amounted to $10,000,000 and
$12,600,000, respectively. See Note 15.


<PAGE>

INCOME TAXES

MMI and its United States subsidiaries file a consolidated federal income tax
return. Unionamerica and its subsidiaries file tax returns with Inland Revenue
in the United Kingdom. Deferred tax assets and liabilities are determined based
on differences between financial reporting and tax bases of assets and
liabilities and are measured using tax rates and laws that are expected to be in
effect when the differences reverse.

STOCK-BASED COMPENSATION

MMI grants stock options for a fixed number of shares to employees with an
exercise price equal to the fair value of the shares at the date of grant. MMI
recognizes no compensation expense for the stock option grants.
Additional stock option information is included in Note 10.

EARNINGS PER SHARE

Earnings per share are computed based on the weighted average number of common
and common equivalent shares outstanding during the respective period. Common
equivalent shares include incremental shares from dilutive stock options. Refer
to Note 9 for more information.

CASH FLOWS

In the consolidated statements of cash flows, cash includes principally demand
deposit accounts. Also, sales and purchases of short-term investments presented
on a net cash basis include investments with original maturities of three months
or less.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the 1999
presentation.

EFFECT OF NEW PRONOUNCEMENTS

As of January 1, 1999, MMI adopted AICPA Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires specific accounting treatment for the
capitalization of internal use software at cost. The adoption of SOP 98-1 did
not have a material effect on consolidated operating results or financial
position.

In December 1997, the AcSEC issued SOP 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments". SOP 97-3 provides guidance on
when an insurance enterprise should recognize a liability for guaranty fund or
other assessments and how to measure the liability. SOP 97-3 was effective
January 1, 1999. The adoption of SOP 97-3 did not have a significant impact on
MMI's consolidated operating results or financial position.

In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 137, "Accounting for Derivative
Instruments and Hedging Activities" which delayed the effective date of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" for
one year. SFAS 133 provides guidance for the recognition and measurement of
derivatives and hedging activities. The new standard requires an entity to
record, at fair value, all derivatives as either assets or liabilities in the
balance sheet, and it establishes specific accounting rules for certain types
of hedges. SFAS 133 is now effective for fiscal years beginning after June
15, 2000 and will be adopted by MMI when required, if not earlier. The
impact, if any, of adopting SFAS 133 on MMI's consolidated financial
position, results of operations and cash flows, has not been finalized.


<PAGE>

2.  BUSINESS COMBINATIONS

In February 1999, Professional Risk Management, Inc. (PRM), a subsidiary of MMI,
acquired Applied Risk Management (ARM), Inc., a privately held third party
administrator and consulting firm that specializes in workers' compensation. PRM
provides third party administration and consulting related to professional and
general liability risks and claims primarily for self-insured organizations. The
purchase price for ARM, including expenses, was $7,927,000 in cash. This
acquisition was accounted for as a purchase.

In April 1999, MMI issued 117,143 shares of common stock in connection with the
acquisition of a 20% minority interest in MMedica Insurance Limited, now a
wholly owned subsidiary of MMI Companies, Inc.

In a series of transactions in 1998, MMI acquired for total consideration of
$5,800,000, a 49% interest in Marketform Holdings Limited, a London-based
underwriting agency specializing in non-U.S. medical malpractice insurance. The
purchase price consisted of $4,500,000 in cash and $1,300,000 in short-term
notes payable.

On December 11, 1997, MMI acquired the capital stock of Unionamerica Holdings
plc (Unionamerica Holdings), in exchange for 7,100,000 shares of MMI Common
Stock. Unionamerica Holdings' principal subsidiary, Unionamerica Insurance
Company Limited is a United Kingdom-domiciled insurance and reinsurance company.
The acquisition was accounted for as a pooling of interests and, as such, MMI's
1997 consolidated financial statements, and all prior periods presented, were
restated as if the acquisition had occurred at the beginning of the earliest
period presented.

Effective January 1, 1997, MMI purchased substantially all of the net assets of
Equifax Medical Credentials Verification Services (EMCVS), a unit of
Atlanta-based Equifax, Inc. and acquired by merger all of the outstanding stock
of PRM. The total purchase price of EMCVS and PRM was $8,300,000 in cash and
$2,000,000 of MMI Common Stock.

On July 23, 1997, MMI acquired a 39% interest in JMA Holdings Limited (JMAHL),
the parent company of Jago Managing General Agency Limited, a Lloyd's managing
agency, for total consideration of $9,100,000. The consideration was comprised
of $5,900,000 cash and $3,200,000 of short-term notes payable. JMAHL's financial
results are included in the Company's consolidated financial statement on the
equity basis.

The ARM, EMCVS and PRM acquisitions were accounted for as purchases, and the
operations of the acquired businesses are included in MMI's consolidated
financial statements since the dates of acquisition. Assets acquired,
liabilities assumed, and the excess of cost over net assets purchased were as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                            Year Ended December 31
                                                                            ----------------------
                                                                   1999             1998              1997
                                                                   ----             ----              ----
<S>                                                            <C>               <C>               <C>
         Cost in excess of net assets purchased                $ 6,527           $ 5,800           $18,252
         Cash                                                      705                --               566
         Other assets                                            6,769                --             2,570
         Liabilities                                            (6,074)               --              (689)
                                                              --------------------------------------------
                                                               $ 7,927           $ 5,800           $20,699
                                                               ===========================================
</TABLE>

The pro forma impact of the purchased businesses on results of operations was
not material.

3.   REINSURANCE

MMI's insurance subsidiaries are involved in the cession of reinsurance to other
domestic and foreign companies, which permits the recovery of a portion of the
gross losses. MMI's insurance subsidiaries would remain liable to the extent
that these reinsurance companies are unable to meet their obligations under
these arrangements.

Insurance premiums earned are composed of the following (in thousands):

<PAGE>
<TABLE>
<CAPTION>
                                                    Year Ended December 31
                                           -----------------------------------------
                                           1999               1998              1997
                                           -----------------------------------------
<S>                                    <C>                   <C>              <C>
                    Direct             $ 343,539             $ 303,019        $ 234,462
                   Assumed               109,372               129,568          110,492
                     Ceded               (78,289)              (85,852)         (57,457)
                                         -------               --------         --------
                                       $ 374,622             $ 346,735        $ 287,497
                                       ==========            ==========       ==========
</TABLE>

MMI evaluates the financial condition of its reinsurers and monitors the
geographic spread of risk to minimize the exposure to losses from reinsurer
insolvencies. The reinsurers with the largest receivable balance due to MMI are
identified as follows (in thousands):

<TABLE>
<CAPTION>
                                                                      December 31
                                                            -----------------------------
                                                                  1999            1998
                                                            ---------------    ----------
<S>                                                         <C>                 <C>
         Lloyd's Underwriters*                                $  67,477         $55,656
         Hannover Reinsurance Company*                           32,477          31,748
         CIGNA Reinsurance Company                               24,669          23,567
         National Reinsurance Company                            21,701          26,738
         Munich Reinsurance Company*                             17,441          18,583
         CNA Reinsurance Company Limited*                        13,167          10,880
         Commercial Casualty                                      9,684           2,000
         Odyssey America Re (TIG Re)                              8,900           8,312
         Transatlantic Reinsurance Company                        7,610           8,120
         American Re-Insurance Company                            7,021           6,543
         All others                                             145,517         144,371
                                                                -------        --------
         Total                                                 $355,664        $336,518
                                                               ========        ========
</TABLE>

* represents a foreign reinsurer

In 1999, 1998 and 1997, respectively, MMI's losses and loss adjustment expenses
were net of reinsurance ceded of $97,908,000, $99,743,000 and $64,000,000.

4. INVESTMENTS

The amortized cost and fair value of investments, which are available for sale,
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                           Gross            Gross
                                        Amortized       Unrealized       Unrealized        Fair
      Cost                                Gains           Losses            Value
      ----                                -----           ------            -----
<S>                                 <C>                 <C>            <C>              <C>
December 31, 1999:
Fixed maturities:
   U.S. Government and agencies     $    122,373        $       333    $   (4,038)      $     118,668
   State and political subdivisions      323,175              6,508        (7,018)            322,665
   Foreign governments                    21,353                242          (771)             20,824
   Corporate securities                  298,278              1,414       (10,460)            289,232
   Mortgage-backed securities            293,374                238       (10,093)            283,519
                                    -------------       ------------   ------------     -------------
                                       1,058,553              8,735       (32,380)          1,034,908
Short-term investments                    82,556                 --            --              82,556
Preferred stocks                          49,709              1,308        (2,525)             48,492
                                    -------------       ------------   ------------     -------------
                                    $  1,190,818        $    10,043    $  (34,905)      $   1,165,956
                                    =============       ============   ============     =============

December 31, 1998:
Fixed maturities:
   U.S. Government and agencies     $    149,038        $     6,365    $     (133)      $     155,270
   State and political
     subdivisions                        441,442             23,245          (153)            464,534
   Foreign governments                    20,893              1,193           (17)             22,069
   Corporate securities                  208,685              7,778        (1,440)            215,023
   Mortgage-backed securities            289,152              5,162          (588)            293,726
                                    ------------        ------------   -----------      -------------
                                       1,109,210             43,743        (2,331)          1,150,622
Short-term investments                    50,819                 --            --              50,819
Preferred stocks                          55,155              3,450          (624)             57,981
                                    ------------        -----------    -----------      -------------
                                    $  1,215,184        $    47,193    $   (2,955)      $   1,259,422
                                    ============        ===========    ===========      =============
</TABLE>


<PAGE>

Fair values of investments are principally based on quoted market prices.
Short-term investments are comprised principally of corporate and municipal
securities.

The amortized cost and fair value of fixed maturities at December 31, 1999, by
contractual maturity, are as follows (in thousands):

<TABLE>
<CAPTION>
                                 Amortized          Fair
                                    Cost           Value
                                ---------        ---------
<S>                            <C>              <C>
Due in 2000                    $   24,033       $   24,057
Due in 2001 through 2004          217,433          217,561
Due in 2005 through 2009          168,357          166,781
Due in 2010 and thereafter        355,356          342,990
                               ----------       ----------
                                  765,179          751,389
Mortgage-backed securities        293,374          283,519
                               ----------       ----------
                               $1,058,553       $1,034,908
                               ==========       ==========
</TABLE>

The expected maturities may differ from contractual maturities in the foregoing
table because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties, or MMI may have the right to put
obligations back to the issuer prior to stated maturity.

The changes in unrealized gains and losses, which are recorded in stockholders'
equity as accumulated other comprehensive income (loss), were as follows (in
thousands):

<TABLE>
<CAPTION>
                                                           Year Ended December 31
                                       -----------------------------------------------------------------
                                           1999                     1998                   1997
                                           ----                     ----                   ----
<S>                                    <C>                    <C>                      <C>
Fixed maturities and
    short-term investments             $  (65,057)            $     7,671              $  14,538
Preferred stocks                           (4,043)                   (577)                 1,933
                                       ----------             -----------              ---------
                                       $  (69,100)            $     7,094              $  16,471
                                       ==========             ===========              =========
</TABLE>

Net realized gains(losses) on investments are comprised of the following (in
thousands):

<TABLE>
<CAPTION>
                                                           Year Ended December 31
                                       -----------------------------------------------------------------
                                              1999                   1998                         1997
                                              ----                   ----                         ----
<S>                                        <C>                   <C>                            <C>
Fixed maturities:
     Gross gains                          $   3,563               $   4,703                     $  2,771
     Gross losses                            (5,110)                 (2,840)                      (1,270)
                                          ----------               ----------                     -------
                                             (1,547)                  1,863                        1,501
                                          ----------               ----------                     -------
Preferred stocks:
     Gross gains                                841                   1,211                          726
     Gross losses                              (259)                   (396)                         (45)
                                          ----------               ----------                     -------
                                                582                     815                          681
                                          ----------               ----------                     -------
                                          $    (965)              $   2,678                     $  2,182
                                          ==========              ===========                   =========
</TABLE>

Major categories of net investment income are as follows (in thousands):

<TABLE>
<CAPTION>
                                                               Year Ended December 31
                                                     -------------------------------------------
                                                     1999              1998             1997
                                                     ----              ----             ----
<S>                                                  <C>              <C>               <C>
Fixed maturities                                     $68,722          $72,892           $72,520
Short-term investments and cash                        3,889            4,220             4,586
Preferred stocks                                       3,256            3,408             2,215
                                                     -------          -------           -------
Total investment income                               75,867           80,520            79,321
Expenses                                               3,599            3,964             3,831
                                                     -------          -------           -------
Net investment income                                $72,268          $76,556           $75,490
                                                     =======          =======           =======
</TABLE>

The components of accumulated other comprehensive income are as follows (in
thousands):


<PAGE>

<TABLE>
<CAPTION>
                                                               Year Ended December 31
                                                     -------------------------------------------
                                                     1999              1998             1997
                                                     ----              ----             ----
<S>                                                 <C>              <C>               <C>
Holding gains (losses) arising during the
  year, net of taxes of $(24,129), $3,216
  and $6,359, respectively                          $(45,936)         $  6,556         $  12,294
Reclassification adjustment for gains (losses)
  realized in net income during the year,
  net of taxes of $(338), $937 and $764,
  respectively                                         (627)            1,741             1,418
                                                      ------           ------            ------
Net change in unrealized gain (loss) on
  available for sale securities during the year,
  net of taxes of $(23,791), $2,279 and $5,595,
  respectively                                     $(45,309)         $  4,815         $  10,876
                                                   =========         ========         =========
</TABLE>

At December 31, 1999, investments with a fair value of $11,905,709 were on
deposit to meet domestic statutory requirements.

Certain investments of the international segment are held in a trust fund set up
as collateral for holders of United States insurance policies. At December 31,
1999 and 1998, the fair value of fixed maturities in the trust fund amounted to
$14,000,000 and $6,700,000, respectively. The required minimum trust fund for
1999 and 1998, was $13,800,000 and $5,400,000, respectively.

Fixed maturities of the international segment of $235,500,000 in 1999 and
$273,200,000 in 1998 were held in a trust fund required by virtue of status as
an accredited reinsurer in a number of United States jurisdictions.

5.  INCOME TAXES

Deferred income taxes reflect the net tax effect of temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of MMI's
deferred tax assets and liabilities as of December 31, 1999 and 1998 are as
follows (in thousands):

<TABLE>
<CAPTION>
                                             December 31
                                        --------------------
                                           1999       1998
                                        ---------  ---------
<S>                                     <C>        <C>
Deferred tax assets:
    Tax-basis loss reserve adjustment   $ 30,023   $ 31,329
    Tax-basis unearned premium
       reserve adjustment                  4,104      4,004
    Unrealized investment loss             4,598         --
    Net operating loss carryforward       69,768     14,658
    Alternative minimum tax
       credit carryforward                14,389     13,445
    Other                                  5,448      2,249
                                        --------    -------
    Total deferred tax assets            128,330     65,644
                                        --------    -------

Deferred tax liabilities:
    Unrealized investment gains               --    (12,056)
    Deferred policy acquisition costs     (2,676)    (2,698)
    Receivables                             (964)    (1,134)
    Other                                 (4,284)    (5,663)
                                        --------    -------
    Total deferred tax liabilities        (7,924)   (21,551)
                                        --------    -------
Net deferred tax asset                  $120,406   $ 44,093
                                        ========   ========
</TABLE>

MMI has identified tax planning strategies which, when implemented and combined
with future book income, will result in adequate future taxable income to
realize the deferred tax asset. Accordingly, no valuation reserve is considered
necessary.

Significant components of the provision for income taxes (credit) are as follows
(in thousands):


<PAGE>

<TABLE>
<CAPTION>
                               Year Ended December 31
                            ---------------------------
                            1999        1998       1997
                            ----        ----       ----
<S>                     <C>         <C>          <C>
Current (credit):
Domestic                $     56    $ (3,037)    $  3,705
Foreign                   (4,937)      7,392        8,505
                          ---------   --------  ---------
Total current             (4,881)      4,355       12,210
                          --------    --------   --------

Deferred (credit):
Domestic                 (30,553)     (1,476)        (959)
Foreign                  (20,205)     (1,263)      (1,017)
                         -------- ----------    ---------
Total deferred           (50,758)     (2,739)      (1,976)
                        ---------   --------    ---------
Provision for income
  taxes (credit)         $(55,639)   $  1,616    $ 10,234
                        =========  =========    =========
</TABLE>

A reconciliation of income tax computed at the United States federal statutory
tax rate of 35% to income tax expense (credit) in the accompanying financial
statements is as follows (dollars in thousands):

<TABLE>
<CAPTION>

                                                                    Year Ended December 31
                                                   ------------------------------------------------
                                                 1999                1998              1997
                                                 ----                ----              ----
                                               Amount      %       Amount      %      Amount    %
                                            ---------     ---    --------     ---   --------   ---
<S>                                         <C>           <C>    <C>          <C>    <C>       <C>
     Tax at U.S. Statutory rate             $(54,774)    (35)%    $ 5,487       35%   $16,496    35%
     Non-taxable investment income            (7,600)     (5)      (7,126)     (46)    (8,431)  (18)
     Acquisition costs                            --      --           --       --      2,603     5
     Foreign operations                        4,800       3        1,275        8         --    --
     Other                                     1,935       1        1,980       13     (  434)   --
                                            --------   -----      -------    ------   --------  ----
     Net provision (credit)                 $(55,639)    (36)%    $ 1,616       10%   $10,234    22%
                                            =========  =====      =======    ======    ======== ====
</TABLE>

Federal income taxes have not been provided on the difference between the amount
for financial reporting and the tax basis in the stock of the foreign
subsidiaries because management intends to indefinitely invest that difference
in these subsidiaries. Determination of the amount of the unrecognized deferred
United States income tax liability is not practicable.

MMI's net payments of income taxes were $488,000, $7,947,000, and $9,302,000
during 1999, 1998 and 1997, respectively. As of December 31, 1999, MMI had
federal net operating loss carry-forwards of approximately $28,000,000 that, if
not utilized, expire beginning in 2019. As of December 31, 1999, MMI had an
alternative minimum tax credit carryforward of $14,389,000 that may be carried
forward indefinitely. The United Kingdom group had net operating loss
carry-forwards of approximately $91,000,000 that may be carried forward
indefinitely.

6. TRUST PREFERRED CAPITAL SECURITIES AND NOTES PAYABLE

In December 1997, MMI completed a private placement of $125,000,000 30-year,
mandatorily redeemable preferred capital securities (Capital Securities) of
MMI Capital Trust I, a subsidiary of MMI. The Capital Securities pay a
dividend of 7 5/8%, semiannually, in arrears and have a maturity date of
December 15, 2027. Payments on the Capital Securities are fully and
unconditionally guaranteed by MMI. Total proceeds were $118,700,000 net of
expenses. The effective rate of the Capital Securities is 8.06%. The fair
value at December 31, 1999 and 1998 was $98,300,000 and $121,900,000,
respectively, and was estimated using discounted cash flow analyses, based on
MMI's current incremental borrowing rates for similar types of borrowing
arrangements.

With the proceeds from the Capital Securities, MMI repaid its $103,000,000 in
bank debt. In connection with the extinguishment of the notes payable in 1997,
costs of $700,000, net of taxes of $400,000, that were deferred when paid and
amortized over the terms of the notes were expensed and are classified as an
extraordinary item in the 1997 financial statements.

In February 1998, MMI obtained an unsecured bank line of credit in an amount up
to $100,000,000. MMI drew upon the bank line on December 20, 1999 in the amount
of $45,000,000. The interest rate on the loan was 8.5% through December 30, 1999
at which point the loan was converted to a floating rate loan with a rate of
6.3875%,


<PAGE>

effective through June 30, 2000. This rate will then be reset as of June 30,
2000. At December 31, 1999, notes payable amounted to $45,000,000. As a result
of net losses incurred, MMI is in noncompliance with a certain covenant which,
if not waived, would result in amounts drawn upon the bank line being currently
due. MMI obtained a waiver through May 31, 2000 for the noncompliant covenant.

Total interest paid in 1999, 1998 and 1997 was $10,000,000, $9,800,000 and
$6,400,000, respectively.

7. LIABILITY FOR LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

The following table presents a reconciliation of beginning and ending
property/casualty loss and loss adjustment expense (LAE) reserve balances for
the years indicated (in thousands):

<TABLE>
<CAPTION>
                                                                       Year Ended December 31
                                                                    -----------------------------
                                                                    1999         1998         1997
                                                                    -----------------------------
<S>                                                           <C>            <C>          <C>
Liability for losses and LAE at beginning of year
  (net of reinsurance receivables: 1999 --$293,284;
  1998 -- $263,401;  1997 -- $241,270)                          $863,533     $ 851,941     $ 900,427

Add provision for losses and LAE for claims occurring in:
       Current year                                              289,025       260,043       209,367
       Prior years                                               146,126        21,291       (4,081)
                                                               ---------       -------       -------
Total incurred losses and LAE                                    435,151       281,334       205,296

Less losses and LAE payments for claims occurring in:
       Current year                                               14,298         24,772       13,108
       Prior years                                               345,065        244,970      240,664
                                                               ---------        -------      -------
       Total paid losses and LAE                                 359,363        269,742      253,772
                                                               ---------        -------      -------

Liability for losses and LAE at end of year
  (net of reinsurance receivables: 1999 -- $305,695;
   1998 -- $293,284;  1997 -- $263,401)                        $ 939,321      $ 863,533    $ 851,941
                                                             ===========      =========    =========
</TABLE>

The provision for losses and LAE in the foregoing schedule for 1999 in
connection with prior years are a result of loss reserve strengthening of
$156,000,000 (after-tax impact of $5.56 per share) recorded in the third and
fourth quarter. Domestically, loss reserve strengthening related to two specific
areas of operations: long-term care and a disparate group of clinic accounts.
Internationally, loss reserve development related principally to United States
medical malpractice and surplus lines business and, to a lesser extent,
short-tail lines, primarily property and medical expense business. Loss reserve
strengthening of $20,800,000 recorded in the third quarter 1998 related to
long-term care and a disparate group of clinic accounts for the domestic
insurance segment and asbestos exposures for the international insurance
segment.

8.  STOCKHOLDERS' EQUITY

The statutory accounting practices prescribed or permitted by regulatory
authorities for MMI's insurance subsidiaries differ in some respects from GAAP.
Reconciliations of statutory-basis capital and surplus and net income (loss) of
its domestic insurance operations to MMI's GAAP-basis amounts included in the
accompanying financial statements are as follows (in thousands):

<TABLE>
                                                                                 December 31
                                                                           --------------------------
                                                                                1999           1998
                                                                           ----------       ---------
<S>                                                                         <C>             <C>
Statutory-basis capital and surplus                                         $ 183,941        $188,309
Additions (deductions):
      Unionamerica                                                             54,193         129,118
      GAAP-basis deferred income taxes                                         65,372          30,974
      Other, including non-insurance company amounts                          (46,114)         64,527
                                                                          -----------        --------
GAAP-basis consolidated stockholders' equity of MMI                         $ 257,392        $412,928
                                                                            =========       =========

</TABLE>


<PAGE>

<TABLE>
<CAPTION>
                                                                                  Year Ended December 31
                                                                         ---------------------------------------
                                                                            1999           1998           1997
                                                                         ---------      ---------      ---------
<S>                                                                      <C>            <C>            <C>
Statutory-basis combined net income (loss)                               $ (33,398)     $   4,150      $  27,763
Additions (deductions):
      Unionamerica                                                         (60,407)        11,382          8,162
      GAAP-basis deferred income taxes                                      18,282         (1,553)          (786)
      Other, including non-insurance company amounts                       (28,980)        (2,615)          (779)
                                                                         ---------      ---------      ---------
GAAP-basis consolidated net income (loss) of MMI                         $(104,503)     $  11,364      $  34,360
                                                                         =========      =========      =========
</TABLE>

The above statutory-basis capital and surplus amounts relate to MMI's direct
domestic insurance subsidiary, ACIC. The capital and surplus amounts for ACIC
include the capital and surplus of American Continental Life Insurance Company
(ACLIC), a life insurance company owned by ACIC, in the amount of $15,800,000 at
December 31, 1999 and $16,000,000 at December 31, 1998. Statutory net income
(loss) of ACLIC amounted to $(304,000) in 1999, $500,000 in 1998 and $300,000 in
1997.

The maximum amount of dividends that can be paid from ACIC to MMI without
regulatory approval is the lesser of net investment income or 10% of ACIC's
statutory-basis capital and surplus, each as of the preceding December 31.
Accordingly, the maximum total dividend amount is $18,000,000 in 2000. In
2000, dividend payment by ACIC to MMI require prior regulatory approval.

Under a Notice of Requirements from its regulatory body in the United Kingdom,
the Department of Trade and Industry (DTI), Unionamerica may not pay any
dividends unless it has given the DTI 14 days advance notice and the DTI has not
objected. The DTI has the power to prohibit or require Unionamerica to reduce
the amount of a dividend.

ACIC's GAAP-basis net assets amounted to $258,000,000 at December 31, 1999. The
excess of these combined net assets over ACIC's maximum dividend amount
represents restricted consolidated net assets.

MMI has authorized and unissued 5,000,000 shares of $20 par value Preferred
Stock. Of such Preferred Stock, 300,000 shares have been designated as Series B
Junior Participating Preferred Stock in connection with the Rights Plan
described in the following paragraph.

On June 14, 1997, the Board of Directors declared a dividend distribution to
holders of record on June 30, 1997 of one right (Right) to purchase 1/100 share
of Series B Junior Participating preferred stock on each outstanding share of
MMI Common Stock. The Rights issued under the Plan become exercisable only when
a person or group acquires or announces its intention to acquire more than 15%
of the Common Stock of MMI. Under certain conditions, each Right would, upon
exercise, entitle stockholders, other than the third party acquirer, to buy $150
worth of a MMI Common Stock equivalent at an exercise price of $75. If MMI is
acquired in a merger or other business combination transaction that has not been
approved by the Board of Directors, each Right will entitle its holder to
acquire common stock of the acquiring company with a market value equal to two
times the exercise price of the Right, a purchase value of $150 of the common
stock of the acquiring company for $75. At any time prior to the distribution
date, the Board of Directors retains the right to amend the Rights Plan and to
redeem the Rights at $.01 per Right. The Rights Plan was amended in
connection with the signing of the definitive merger agreement with The
St. Paul so that The St. Paul will not be considered an acquiring person who
would trigger the rights under the Plan. See Note 17 to the consolidated
financial statements. The Rights have a ten year term.

9.  EARNINGS PER SHARE

Earnings per share are computed based on the weighted average number of
outstanding shares of common stock and equivalents, including incremental shares
from dilutive stock options since the date of grant using the treasury stock
method.

The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share amounts):


                                       38
<PAGE>

<TABLE>
<CAPTION>

                                                        Year Ended December 31
                                                  ----------------------------------
                                                     1999         1998        1997
                                                  ---------      -------     -------
<S>                                               <C>            <C>         <C>
Income (loss) from continuing
    operations                                    $(100,860)     $14,060     $36,190
                                                  =========      =======     =======
Weighted average shares for basic
    earnings per share                               19,106       18,936      18,751
Effect of dilutive employee
    stock options                                        --          449         645
                                                  ---------      -------     -------

Adjusted weighted average shares
   for diluted earnings per share                    19,106       19,385      19,396
                                                  =========      =======     =======
Basic earnings (loss) per share                   $   (5.28)     $  0.74     $  1.93
                                                  =========      =======     =======
Diluted earnings (loss) per share                 $   (5.28)     $  0.73     $  1.86
                                                  =========      =======     =======
</TABLE>

In 1999, all outstanding stock options were excluded from the calculation of
diluted earnings per share since MMI reported a loss from continuing operations.
Options to purchase 585,000 and 143,000 shares of Common Stock were outstanding
during 1998 and 1997, respectively, but were not included in the computation of
the dilutive effect of stock options. These options were excluded from the
computation because the options' exercise prices were greater than the average
market price of the common shares and, therefore, would be anti-dilutive.

10.      STOCK OPTION PLANS

MMI has an employee stock plan that authorizes the issuance, subject to
directors' approval, of nonqualified stock options, incentive stock options and
restricted stock, and a nonqualified formula stock option plan for non-employee
directors. In addition, MMI has adopted the Long-Term Incentive Plan (LTIP) of
1997 under which it has issued restricted stock and stock options to
non-executives. The directors plan provides for the issuance of 1,375 options
annually for each director and 4,125 options to a new director joining MMI's
Board of Directors, with exercise prices equal to fair value at the grant date.
In addition, performance options for 2,500 shares are granted to each
non-employee director on January 1 of each year. All options, other than options
issued in replacement of Unionamerica options, have 10-year terms and generally
vest and become fully exercisable six months after the date of grant.

A summary of the MMI stock option activity, and related information for the
years ended December 31 follows:

<TABLE>
<CAPTION>
                                      1999                               1998                                 1997
                        --------------------------------    --------------------------------    --------------------------------
                                                                            Weighted                            Weighted
                                       Weighted Average                     Average                             Average
                        Shares         Exercise Price       Shares          Exercise Price      Shares          Exercise Price
                        -------------- -----------------    --------------- ----------------    --------------- ----------------
<S>                     <C>            <C>                  <C>             <C>                 <C>             <C>
Outstanding at
    beginning of year    1,998,298       $   17.20            1,589,362       $   16.15           1,580,916       $    14.98
Granted                    740,500            6.89              478,336           21.19             130,625            25.30
Exercised                 (147,527)           5.36              (16,400)          10.01            (121,079)           10.57
Cancelled                 (101,517)          23.86              (53,000)          24.22             ( 1,100)           24.25
                        -----------     ----------           ------------    -----------         ------------    -----------
                         2,489,754           14.56            1,998,298           17.20           1,589,362            16.15
LTIP options
outstanding                595,560           16.23              357,245           16.29                  --               --
                        ----------      ----------           -----------     -----------         --------------  -------------
                         3,085,314      $    14.90            2,355,543       $   17.06           1,589,362       $    16.15
                        ==========      ==========           ===========      ==========          =========       ==========

Options exercisable
    at year-end          1,994,452      $    16.84            1,597,712        $  16.28           1,534,862       $    15.76
Shares available for
   grant at end of
    year                1,086,056                               225,039                             650,392
</TABLE>


<PAGE>

Shares available for grant exclude LTIP shares. Other information regarding
options outstanding and exercisable as of December 31, 1999 is as follows:

<TABLE>
<CAPTION>
                                      Options Outstanding                                Options Exercisable
                      -------------------------------------------------------     ----------------------------------
                                       Weighted Average
    Range of            Number             Remaining          Weighted Average      Number           Weighted Average
Exercise Prices       Outstanding      Contractual Life        Exercise Price     Exercisable         Exercise Price
--------------        -----------      ----------------        --------------     -----------         --------------
<S>                   <C>               <C>                    <C>               <C>                  <C>
$ 5.06                   724,190              8.37                   $ 5.10            116,790              $ 5.36
$13.13 to $18.63      1,800,970               6.86                    15.66          1,497,508               15.55
$21.06 to $32.25         560,154              7.36                    25.09            380,154               25.43
                      ----------              ----                   -----          ----------              ------
                      3,085,314               7.30                   $14.90          1,994,452              $16.84
                      ==========              ====                   ======         ==========              ======
</TABLE>

  Pro forma information regarding net income (loss) and net income (loss) per
  share has been determined as if MMI had accounted for its stock option grants
  since January 1, 1995 under the plan using the fair value method of SFAS 123,
  "Accounting for Stock-Based Compensation." For these purposes, the fair value
  for the stock option grants was estimated at the date of the grant using a
  Black-Scholes option pricing model with the following weighted-average
  assumptions for 1999, 1998 and 1997, respectively: risk-free interest rate of
  5%, 5% and 6%, a volatility factor of 64%, 33% and 29%, expected life of the
  option in years of five, five and four, and an annual dividend yield of 4%, 2%
  and 1%.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
MMI's employee and director stock options have characteristics significantly
different from those of traded options, and because changes in the selected
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee and director stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' six-month vesting period. MMI's pro
forma information is as follows:

<TABLE>
<CAPTION>
                                                                  Year Ended December 31
                                                          ----------------------------------
                                                           1999          1998            1997
                                                           ----          ----            ----
<S>                                                  <C>              <C>             <C>
      Pro forma net income (loss) (in thousands)     $(107,550)       $10,266         $33,216
      Pro forma net income (loss) per common
         and common equivalent share:
             Basic                                   $   (5.63)       $  0.54         $  1.77
             Diluted                                     (5.63)          0.53            1.71
</TABLE>

The pro forma disclosures only include the effect of options granted subsequent
to January 1, 1995. Accordingly, the effects of applying the SFAS 123 pro forma
disclosures to future periods may not be indicative of future effects.

11.   COMMITMENTS AND CONTINGENCIES

MMI is engaged in various legal actions incident to the nature of its business.
Management is of the opinion that the outcome of the litigation will not have a
material effect on MMI's financial position or results of operations.

MMI leases its office space and certain equipment under noncancelable leases.
Rental expense for 1999, 1998 and 1997 was $12,900,000, $10,100,000 and
$8,600,000, respectively. As of December 31, 1999 aggregate minimum rental
commitments under noncancelable leases amounted to $9,000,000 in 2000,
$8,100,000 in 2001, $7,600,000 in 2002, $4,400,000 in 2003, $4,300,000 in 2004
and $16,700,000 thereafter.



<PAGE>

12.   EMPLOYEE BENEFIT PLANS

MMI has a defined-contribution pension plan that covers substantially all
domestic employees who have attained age 21 and completed three months of
service. MMI contributes 4% of salary for all eligible employees and matches a
portion of employee contributions. MMI's contributions charged to operations
were $3,200,000 in 1999, $2,900,000 in 1998 and $2,700,000 in 1997.

MMI operates a non-contributory, defined pension plan (the "Plan"), principally
for its international employees. The Plan provides for monthly retirement
benefits, normally at ages between 60 to 65, to eligible employees based on
employee compensation and length of employment.

The following table is a summary of activity for the Plan (in thousands):

<TABLE>
<CAPTION>
                                                                             December 31
                                                                   -----------------------------
                                                                      1999              1998
                                                                   -------------     -----------
<S>                                                                 <C>               <C>            <C>
                   Change in benefit obligation:
                     Benefit obligation at beginning of year         $14,037           $12,553
                     Service cost                                        960               895
                     Interest cost                                       821               826
                     Actuarial gains                                  (1,209)             (161)
                     Foreign currency exchange rate change              (353)              153
                     Benefits paid                                      (173)             (229)
                                                                   ----------        ----------
                     Benefit obligation at end of year               $14,083           $14,037
                                                                   ----------        ---------

                   Change in Plan assets:
                     Fair value of Plan assets at beginning of
                        year                                         $15,870           $12,894
                     Actual return on Plan assets                      2,563             2,190
                     Foreign currency exchange rate change              (400)              157
                     Company contributions                               814               858
                     Benefits paid                                      (173)             (229)
                                                                   ----------       ----------
                     Fair value of Plan assets at end of year      $  18,674           $15,870
                                                                   --------           -------

                     Plan overfunding                              $   4,591      $      1,832
                     Unrecognized net actuarial gain                    (802)             (421)
                     Unrecognized prior service cost                  (3,077)             (852)
                                                                   ---------         ----------
                     Prepaid benefit cost                          $    712      $         559
                                                                   ==========         ========

                   Weighted-average  assumptions  as of
                   December 31:                                       1999           1998          1997
                                                                   ------------- ------------- -------------
                     Discount rate                                    6.00%         5.25%         6.50%
                     Expected return on Plan assets                   7.00          6.50          8.00
                     Rate of compensation increase                    4.50          3.50          5.50
</TABLE>

Net pension expense includes the following components (in thousands):

<TABLE>
<CAPTION>
                                                                      Year Ended December 31
                                                                   --------------------------------------
                                                                      1999          1998         1997
                                                                   ------------- ------------- ----------
<S>                                                                <C>           <C>            <C>
                     Service cost                                   $  960        $  895         $ 704
                     Interest cost                                     821           826           656
                     Expected return on plan assets                 (1,082)       (1,044)         (829)
                     Amortization of prior service cost                (50)          (50)          (49)
                                                                   --------      --------       -------
                     Net pension expense                            $  649        $  627         $ 482
                                                                   ========      ========       =======
</TABLE>


<PAGE>

13.   INDUSTRY SEGMENTS

Presentation of MMI's operations has been classified and summarized into three
reportable segments: domestic insurance, international insurance, and consulting
and fees. Reportable segments are classified by the product lines of insurance
and consulting and fees with insurance segments classified along geographic
lines of domestic and international. Segment revenues and segment income (loss)
exclude realized gains (losses) on investments. Intersegment revenues are not
material. There are no individual customers which account for ten percent or
more of MMI's revenue (in thousands).

<TABLE>
<CAPTION>
                                                                    Domestic      International      Consulting
1999:                                                              Insurance        Insurance         and Fees         Total
                                                                 -----------      -----------      -----------      -----------
<S>                                                              <C>              <C>              <C>              <C>
Revenues from external customers                                 $   184,670      $   189,952      $    61,187      $   435,809
Net investment income                                                 48,529           23,739               --           72,268
                                                                 -----------      -----------      -----------      -----------
Total segment revenues                                               233,199          213,691           61,187          508,077
Net realized losses on investments                                                                                         (965)
                                                                                                                    -----------
Total revenues                                                                                                      $   507,112
                                                                                                                    ===========

Segment loss                                                         (57,061)         (83,756)         (14,717)        (155,534)
Net realized losses on investments                                                                                         (965)
                                                                                                                    -----------
Loss from continuing operations before income tax credit                                                            $  (156,499)
                                                                                                                    ===========

Interest expense                                                       4,751            3,910            1,421           10,082
Depreciation and amortization                                          3,287            2,316           10,004           15,607
Reserve strengthening                                                 60,100           96,000               --          156,100
Restructuring charges                                                  1,000               --           13,000           14,000

Significant non-cash items:
   Increase in policy reserves                                        25,649           88,341               --          113,990
   Amortization of deferred policy acquisition costs                  19,717           45,026               --           64,743

Identifiable assets at end of year                                 1,158,292          803,358           34,037        1,995,687

1998:
Revenues from external customers                                 $   210,506      $   136,229      $    44,485      $   391,220
Net investment income                                                 49,103           27,453               --           76,556
                                                                 -----------      -----------      -----------      -----------
Total segment revenues                                               259,609          163,682           44,485          467,776
Net realized gains on investments                                                                                         2,678
                                                                                                                    -----------
Total revenues                                                                                                      $   470,454
                                                                                                                    ===========

Segment income (loss)                                                 (3,866)          17,064             (200)          12,998
Net realized gains on investments                                                                                         2,678
                                                                                                                    -----------
Income from continuing operations before income taxes                                                               $    15,676
                                                                                                                    ===========

Interest expense                                                       4,921            3,936            1,308           10,165
Depreciation and amortization                                          3,921            1,625            3,179            8,725
Reserve strengthening                                                 17,500            3,300               --           20,800

Significant non-cash items:
   Increase (decrease) in policy liabilities                          70,055          (11,774)              --           58,281
   Amortization of deferred policy acquisition costs                  19,311           36,906               --           56,217

Identifiable assets at end of year                                 1,136,520          778,137           44,752        1,959,409


<PAGE>

1997:
Revenues from external customers                               $  159,579     $  127,918      $   44,862     $  332,359
Net investment income                                              47,171         28,319              --         75,490
                                                               ----------     ----------      ----------     ----------
Total segment revenues                                            206,750        156,237          44,862        407,849
Net realized gains on investments                                                                                 2,182
                                                                                                             ----------
Total revenues                                                                                               $  410,031
                                                                                                             ==========

Segment income                                                     21,113         16,451           7,385         44,949
Net realized gains on investments                                                                                 2,182
                                                                                                             ----------
Income from continuing  operations before income taxes and
   extraordinary loss                                                                                         $  47,131
                                                                                                             ==========

Interest expense                                                    3,118          2,777             594          6,489
Depreciation and amortization                                       3,232          1,302           2,992          7,526
Acquisition expenses                                                   --          9,745              --          9,745

Significant non-cash items:
   Increase (decrease) in policy liabilities                        5,154         (2,176)             --          2,978
   Amortization of deferred policy acquisition costs               15,805         33,244              --         49,049

Identifiable assets at end of year                              1,050,691        784,650          48,726      1,884,067
</TABLE>

<TABLE>
<CAPTION>

Enterprise-Wide Disclosures                       1999         1998         1997
---------------------------                       ----         ----         ----
<S>                                             <C>           <C>          <C>
Revenues from external customers by product:
   Professional liability insurance              $164,026     $197,461     $154,097
   International insurance                        189,952      136,229      127,918
   Life and health insurance                       20,644       13,045        5,482
   Consulting services                             61,187       44,485       44,862
                                                 --------     --------     --------
    Total                                        $435,809     $391,220     $332,359
                                                 ========     ========     ========
</TABLE>

14.   QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (in thousands, except per
      share data):

<TABLE>
<CAPTION>
                                                                                  Three Months Ended
                                                           ----------------------------------------------------------------
                                                             3/31/99           6/30/99       9/30/99               12/31/99
                                                           ----------------------------------------------------------------
<S>                                                        <C>              <C>           <C>                  <C>
Revenues                                                   $   114,960      $ 117,815     $   139,870           $   134,467

Income (loss) from continuing operations                   $     5,866      $   5,378     $   (69,349)          $   (42,755)
Loss from discontinued operations, net of tax                   (3,643)            --              --                    --
                                                           ----------------------------------------------------------------

Net income (loss)                                          $     2,223      $   5,378     $   (69,349)          $   (42,755)
                                                           ================================================================


Earnings per common and common equivalent share:
   Basic:
     Income (loss) from continuing operations              $      0.31      $    0.28     $     (3.62)          $    (2.23)
     Loss from discontinued operations, net of tax               (0.19)            --              --                   --
                                                           ----------------------------------------------------------------
     Net income (loss)                                     $      0.12      $    0.28     $     (3.62)           $    (2.23)
                                                           ================================================================

   Diluted:
     Income (loss) from continuing operations              $      0.31      $    0.28     $     (3.62)          $    (2.23)
     Loss from discontinued operations, net of tax               (0.19)            --              --                   --
                                                           ----------------------------------------------------------------
     Net income (loss)                                     $      0.12      $    0.28     $     (3.62)          $     2.23
                                                           ================================================================

<PAGE>

<CAPTION>
                                                                                       Three Months Ended
                                                           ----------------------------------------------------------------
                                                              3/31/98         6/30/98       9/30/98               12/31/98
                                                           ----------------------------------------------------------------
<S>                                                        <C>              <C>           <C>                   <C>
Revenues                                                   $   133,147      $ 106,077     $   108,629           $   122,601

Income (loss) from continuing operations                   $     9,418      $   9,125     $   (12,283)          $     7,800
Loss from discontinued operations, net of tax                     (723)          (641)           (720)                 (612)
                                                           ----------------------------------------------------------------
      Net income (loss)                                    $     8,695      $   8,484     $   (13,003)          $     7,188
                                                           ================================================================

Earnings per common and common equivalent share:
   Basic:
      Income (loss) from continuing operations             $         0.50   $    0.48      $    (0.65)          $      0.41
      Loss from discontinued operations, net of tax                 (0.04)      (0.03)          (0.04)                (0.03)
                                                           ----------------------------------------------------------------
       Net income (loss)                                   $         0.46   $    0.45      $    (0.69)          $      0.38
                                                           =================================================================

   Diluted:
      Income (loss) from continuing operations             $         0.49   $    0.47      $    (0.65)          $      0.40
      Loss from discontinued operations, net of tax                 (0.04)      (0.03)          (0.04)                (0.03)
                                                           ----------------------------------------------------------------
         Net income (loss)                                 $         0.45   $    0.44      $    (0.69)          $      0.37
                                                           ================================================================
</TABLE>

15.      RESTRUCTURING CHARGES

In the third quarter 1999, MMI consummated a plan of restructuring primarily
in its consulting and fee businesses and recorded a pretax charge of
$14,000,000. Total termination benefits were $1,400,000, involving 50
positions, of which 43 occurred in 1999 and 7 are planned for 2000. The
remaining charges primarily are in connection with asset impairments of
$8,900,000 and lease abandonment of $3,700,000 related to exiting certain
lines of business.

The following outlines the activity related to the charge (in thousands):

<TABLE>
<CAPTION>
                                  Termination       Asset            Lease
                                  Benefits          Impairments      Abandonment       Total
                                  -----------       -----------      -----------       -------
<S>                               <C>              <C>               <C>              <C>
Restructuring charge
  recorded in 1999                $1,400            $8,900           $3,700            $14,000
Amounts charged off
  in 1999                            100             8,900              400              9,400
                                  ------            ------           ------            -------

Balance at December 31, 1999      $1,300            $   --           $3,300            $ 4,600
                                  ======            ======           ======            =======
</TABLE>

16.   DISCONTINUED OPERATIONS

Effective March 31, 1999, MMI sold the net assets of Healthcare Credentials
Management Services, its credentials verification organization subsidiary. MMI
received $4,000,000 in cash proceeds. There was a loss on this transaction of
$3,643,000, net of taxes of $1,962,000. Revenues for the years ended December
31, 1999, 1998 and 1997 were $889,000, $4,439,000 and $6,764,000, respectively.

17.   SUBSEQUENT EVENTS

In December 1999, MMI announced the signing of a definitive agreement to
merge with The St. Paul Companies, Inc. ("The St. Paul"). Under the terms of
the merger, MMI will merge with a subsidiary of The St. Paul. On March 9,
2000, MMI stockholders approved the merger with The St. Paul. In connection
with obtaining regulatory approvals for the merger, early termination of The
Hart-Scott-Rodino waiting period and approval from the Missouri Department of
Insurance have been granted. Regulatory approvals are pending in the U.K.
(with the Financial Services Authority, with the Office of Fair Trading and
Lloyds and in Ireland).

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors

The following section provides information about the directors of MMI. Ages
given are as of December 31, 1999.

Richard R. Barr, age 60, retired in 1995 as President of Presbyterian Healthcare
Services in Albuquerque, New Mexico. He is presently President of Rust Tractor
Company in Albuquerque, New Mexico. Mr. Barr has been a director of the Company
since 1986 and his term ends in 2000.

B. Frederick Becker, age 53, is Chairman and Chief Executive Officer. Mr. Becker
joined the Company as its President in 1985. Mr. Becker has been a director of
the Company since 1985 and his term ends in 2002. Mr. Becker is also a director
of Transcend Services, Inc.

George B. Caldwell, age 69, has been Chairman of the Collier Company since 1990
and was President Emeritus of Lutheran General Health System in Park Ridge,
Illinois from 1990 to 1995. Mr. Caldwell is a director of Transcend Services,
Inc. Mr. Caldwell has been a director of the Company since 1983 and his term
ends in 2001.

K. James Ehlen, M.D. age 55, is a consultant with Augustine Medical Inc., and
was President of Allina Health System in Minneapolis, Minnesota from 1994 to
1999. Dr. Ehlen has been a director since 1997 and his term ends in 2002.

F. Laird Facey, M.D., age 68, is a general surgeon affiliated with Daniel
Freeman Hospitals, Inc. in Inglewood, California. Dr. Facey has been a director
of the Company since 1983 and his term ends in 2000.

Alan C. Guy, age 52, has been President and Chief Executive Officer of Covenant
Health since 1996. He was President and Chief Executive Officer of Fort Sanders
Alliance from 1985 to 1996. Mr. Guy has been a director since 1998 and his term
ends in 2001.

William M. Kelley, age 64, has been Chairman of Hill-Rom in Batesville, Indiana
since 1995. He served as President of Hill-Rom from 1992 to 1995. Mr. Kelley has
been a director of the Company since 1993 and his term ends in 2000.

Andrew D. Kennedy, age 56, is a Partner with Beachcroft Wansbroughs, London
solicitors, with whom he has been affiliated since 1970. Mr. Kennedy has been a
director of the Company since 1996 and his term ends in 2002.

Timothy R. McCormick, age 53, has been President of the Unity Health System in
Rochester, New York since 1977. Mr. McCormick has been a director of the Company
since 1986 and his term ends in 2001.

Gerald L. McManis, age 63, retired in 1999 as President of McManis Associates,
Inc. ("McManis Associates"), a subsidiary of the Company. He joined the Company
in 1993 when the Company acquired McManis Associates, which he co-founded in
1964. Mr. McManis is a director of Magellan Health Services, Inc. Mr. McManis
has been a director of the Company since 1994 and his term ends in 2000.

Scott S. Parker, age 64, has been President and Chief Executive Officer of
Intermountain Health Care, Inc. in Salt Lake City, Utah since 1975. Mr. Parker
is also a director of First Security Corporation, Questar Corporation and First
Consulting Group Inc. Mr. Parker has been a director of the Company since 1986
and his term ends in 2001.


<PAGE>

Edward C. Peddie, age 58, has served as President and CEO of AvMed, Inc. since
1986. Mr. Peddie has been a director of the Company since 1990 and his term ends
in 2002.

Joseph D. Sargent, age 70, has been the Vice Chairman and Treasurer of
Connecticut Surety Corporation since February 1998 and was Chairman from 1993 to
1998. Mr. Sargent is also a director of Trenwick Group, Inc., Policy Management
Systems Corporation, Mutual Risk Management Ltd., and Command Systems Inc. Mr.
Sargent has been a director of the Company since 1985 and his term ends in 2002.

Robert A. Spass, age 44, has served as Managing Partner of Capital Z Partners,
L.P. since 1998 and has served as Managing Partner of Insurance Partners
Advisors, L.P. since 1994. He is also a director of Superior National Insurance
Group, Inc., Highlands Insurance Group, Inc., Universal American Financial Corp.
and Ceres Group, Inc. Mr. Spass has been a director since 1998 and his term ends
in 2001.

EXECUTIVE OFFICERS

The following section provides information about the executive officers of the
Company. Mr. Becker is also an executive officer.

Ian G. Sinclair, age 55, has been Chief Executive Officer of Unionamerica
Insurance Company Limited ("Unionamerica"), a subsidiary of the Company, since
1997. He was Managing Director-Underwriting of Unionamerica from 1984 to 1996.

Paul M. Orzech, age 57, has been Executive Vice President and Chief Financial
Officer of the Company since 1993.

Anna Marie Hajek, age 51, is Executive Vice President of the Company. She was
President of the MMI Healthcare Risk Services Group from 1998 to 1999, President
of the Healthcare Services Group from 1995 to 1998 and President of the
Company's risk management services subsidiary, MMI Risk Management Resources,
Inc. from 1992 to 1997. Ms. Hajek joined the Company in 1985.

Wayne A. Sinclair, age 53, is Senior Vice President, Secretary and General
Counsel of the Company. He joined the Company in 1987.

Mr. Ian Sinclair and Mr. Wayne Sinclair are not related.

ITEM 11. EXECUTIVE COMPENSATION

Compensation And Option Tables

The following table summarizes the compensation of the Company's chief executive
officer and the next most highly compensated executive officers of the Company
for 1999.

Summary Compensation Table

<TABLE>
<CAPTION>
                                                                               LONG TERM
                                             ANNUAL COMPENSATION              COMPENSATION
                                -----------------------------------------  --------------------
                                                          OTHER ANNUAL     OPTION               ALL OTHER
NAME AND PRINCIPAL POSITION     YEAR  SALARY    BONUS     COMPENSATION(1)  AWARDS    PAYOUTS(2) COMPENSATION
---------------------------   ------  --------  --------  ---------------  --------  ---------- ------------
<S>                             <C>  <C>       <C>        <C>              <C>       <C>        <C>
B. Frederick Becker             1999 $580,000  $258,000       --           185,000              $41,000
Chairman and Chief Executive    1998  553,000   151,000       --           192,500      --       42,000
Officer                         1997  519,000   275,000       --            25,000      --       38,000

Ian G. Sinclair                 1999  637,000      -        $ 70,000        25,000      --        9,000
Chief Executive Officer         1998  627,000   380,000       64,000        89,136      --        7,000
Unionamerica Insurance Co. Ltd. 1997  542,000   394,000      273,000         --      $ 38,000    24,000

Paul M. Orzech                  1999  311,000    77,000       --            54,000               23,000
Executive Vice President and    1998  297,000    61,000       --            25,500      --       23,000
Chief Financial Officer         1997  283,000    87,000       --             6,000      --       22,000


<PAGE>

Anna Marie Hajek                1999  279,000    68,000       --            54,000      --       22,000
Executive Vice President        1998  255,000    52,000       --            22,500      --       21,000
                                1997  232,000    70,000       --             4,000      --       20,000

Wayne A. Sinclair               1999  223,000    44,000       --            22,000      --       19,000
Senior Vice President           1998  214,000    36,000       --             8,400      --       19,000
General Counsel and Secretary   1997  205,000    71,000       --             1,000      --       19,000
</TABLE>

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

(1) For Mr. I. Sinclair in 1999 and 1998, includes taxable income of $68,000 and
$59,000, respectively, related to an auto allowance pursuant to his employment
agreement. In connection with the acquisition of Unionamerica, the Company
terminated certain of Unionamerica's executive compensation plans. Mr. Sinclair
received $273,000 in 1997 related to accelerated payment of awards previously
granted under such plans.

(2) For Mr. I. Sinclair, amounts include payments received pursuant to
Unionamerica's Loan Stock Plan, which plan has been terminated.

(3) 1999 amounts include compensation as follows:

<TABLE>
<CAPTION>
                                                                                  RETIREMENT
                                                  401(K) PLAN   LIFE INSURANCE   EQUITY PLAN
                                                 -------------  ---------------  ------------
<S>                                                <C>             <C>            <C>
Mr. Becker.....................................    $  15,000       $  10,000      $   16,000
Mr. I. Sinclair................................       --               9,000          --
Mr. Orzech.....................................       15,000           2,000           6,000
Ms. Hajek......................................       15,000           2,000           5,000
Mr. W. Sinclair................................       15,000           1,000           3,000
</TABLE>


The following table shows the total number of options granted to each of the
named executive officers during 1999 (both as a number of shares of Common Stock
and as a percentage of all options granted to employees during 1999) and, for
each of these grants, the exercise price per share of Common Stock, option
expiration date and potential realizable value at the termination date.
Option grants with exercise prices in excess of $10 per share will expire
with the closing of the merger with The St. Paul.

Option Grants In Last Fiscal Year

<TABLE>
<CAPTION>
                                                                                  POTENTIAL
                                                                                  REALIZABLE VALUE AT
                                   PERCENT                                        ASSUMED ANNUAL
                                   OF TOTAL                                       RATES OF SHARE
                        NUMBER OF  OPTIONS                                        PRICE APPRECIATION
                        OPTIONS    GRANTED TO  EXERCISE                           FOR OPTION TERMS (1)
                        GRANTED    EMPLOYEES   PRICE                            --------------------------
NAME                    IN 1999    IN 1999     PER SHARE   EXPIRATION DATE           5%             10%
----------------------  -------   ----------   ---------   ---------------      ------------  ------------
<S>                    <C>         <C>        <C>          <C>                  <C>            <C>
B. Frederick Becker(2).. 60,000       6.1%     $14.94      February 24, 2009      $  564,000    $1,428,000
                        125,000      12.7        5.06      November 5, 2009          398,000     1,009,000

Ian G. Sinclair.........  5,000       0.5       14.94      February 24, 2009          47,000       119,000
                         20,000       2.0        5.06      November 5, 2009           64,000       161,000

Paul M. Orzech..........  4,000       0.4       14.94      February 24, 2009          38,000        95,000
                         50,000       5.1        5.06      November 5, 2009          159,000       403,000

Anna Marie Hajek........  4,000       0.4       14.94      February 24, 2009          38,000         95,000
                         50,000       5.1        5.06      November 5, 2009          159,000        403,000

Wayne A. Sinclair.......  2,000       0.2       14.94      February 24, 2009          19,000         48,000
                         20,000       2.0        5.06      November 5, 2009           64,000        161,000
</TABLE>

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

(1) The potential realizable values were calculated by assuming that the value
of the Common Stock appreciates from the exercise price on the date of grant to
the expiration date of the options at the alternate assumed annual rates of 5%
and 10%.

(2) Mr. Becker was granted 60,000 performance-based options in 1999 with an
exercise price of $14.94. Options vest in 2008. Vesting may accelerate if
certain financial targets of the Company are achieved. The options will also
become fully vested in the event any person acquires


<PAGE>

25% or more of the Common Stock of the Company in an approved transaction, or in
the event of a change of control, death or disability. Financial targets were
not achieved in 1999. Consequently, no such performance-based options were
earned in 1999. See "Report of the Personnel and Compensation Committee on
Executive Compensation."


The following table shows, for each of the named executive officers, the number
of unexercised options held at December 31, 1999 and the aggregate dollar value
of unexercised options that are in-the-money based on the market value of the
Company's Common Stock as of December 31, 1999.



Aggregated Option Exercises In Last Fiscal Year
And Fiscal Year-End Option Values

<TABLE>
<CAPTION>
                                                                              VALUE OF UNEXERCISED
                                                   NUMBER OF                  IN-THE-MONEY
                            SHARES                 OPTIONS AT                 OPTIONS AT
                            ACQUIRED     VALUE     DECEMBER 31, 1999          DECEMBER 31, 1999
NAME                        ON EXERCISE  REALIZED  EXERCISABLE/UNEXERCISABLE  EXERCISABLE/UNEXERCISABLE(1)
--------------------------  -----------  --------  -------------------------  -----------------------------
<S>                         <C>         <C>        <C>                        <C>
B. Frederick Becker.......                           287,375 /365,000             -  / $445,000
Ian G. Sinclair...........    84,302     $828,000    190,351 / 20,000             -  /   71,000
Paul M. Orzech............                            75,500 / 50/000             -  /  178,000
Anna Marie Hajek..........                            97,750 / 50,000             -  /  178,000
Wayne A. Sinclair.........                            64,775 / 20,000             -  /   71,000
</TABLE>

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

(1) These values are calculated by determining the difference between the fair
market value of the Common Stock at December 31, 1999 which was determined to be
$8 5/8 per share, the closing price on the New York Stock Exchange at such date,
and the exercise price of the option.

Unionamerica Pension Plan

The following table sets forth the estimated annual pension benefits payable
upon retirement to Unionamerica employees under the Unionamerica (1993) Pension
Scheme (the "Pension Plan") formula to persons in the specified remuneration and
years of service classifications.

<TABLE>
<CAPTION>
                             ESTIMATED ANNUAL PENSION FOR REPRESENTATIVE YEARS OF CREDITED SERVICE
                             ---------------------------------------------------------------------
PENSIONABLE SALARY                  15           20           25           30           35
----------------------------   -----------  -----------  -----------  -----------  -----------
<S>                             <C>          <C>          <C>          <C>          <C>
$125,000......................  $    31,250  $    41,667  $    52,083  $    62,500  $    72,917
150,000.......................       37,500       50,000       62,500       75,000       87,500
175,000.......................       43,750       58,333       72,917       87,500      102,083
200,000.......................       50,000       66,667       83,333      100,000      116,667
225,000.......................       56,250       75,000       93,750      112,500      131,250
250,000.......................       62,500       83,333      104,467      125,000      145,883
300,000.......................       75,000      100,000      125,000      150,000      175,000
400,000.......................      100,000      133,333      166,667      200,000      233,333
450,000.......................      112,500      150,000      187,500      225,000      262,500
500,000.......................      125,000      166,667      208,333      250,000      291,667
</TABLE>

Pension Plan benefits are based on an employee's pensionable salary and years of
credited service with the Company. Under the terms of the Pension Plan, the
pensionable salary used to determine benefits shown in the table above is the
greater of the employee's pensionable salary on the date of retirement or the
highest pensionable salary for such employee in the last five years. Pensionable
salary for the purpose of determining benefits means solely compensation listed
in the "Salary" column of the Summary Compensation Table. As of December 31,
1999, the number of years of credited service for Mr. Sinclair was 26 years.


<PAGE>

Annual pension amounts shown in the table above are not subject to any offset or
deduction for U.K. government-provided benefits. Total pension benefits shown in
the table are subject to certain limitations imposed by the Inland Revenue.
Benefits therefore will be restricted should any participating employee's total
benefits exceed such limitations.

Director Compensation

Non-employee directors receive an annual fee of $15,000 and $1,100 per meeting
day attended. Chairmen of Committees of the Board of Directors receive an
additional annual fee of $2,000. Annual and meeting fees may be received in cash
or may be deferred. For 1999, but not 2000, directors could receive annual and
meeting fees in lieu of cash in the form of stock issued at 85% of fair market
value. In addition, non-employee directors receive life insurance under a group
universal life insurance policy with a death benefit of $100,000, receive travel
and accident insurance for Company related trips with variable benefits ranging
from $62,500 to $250,000, participate in the 1993 Non-Employee Directors'
Formula Stock Option Plan (the "1993 Director Stock Option Plan"), the 1999
Stock Option Plan, and participate in the Board of Directors Retirement Plan
("Retirement Plan").

The Retirement Plan was suspended as of February 26, 1998. All current
non-employee directors, upon retirement from the Board of Directors, who
completed at least one year of service as of February 26, 1998 are entitled
to receive a benefit of $15,000 per year served on the Board of Directors
prior to February 26, 1998, with a maximum benefit of $150,000. Benefits
payable under the Retirement Plan are payable in the form of either (i) a
lump-sum cash payment, or (ii) retirement benefits may be deferred for a
period of up to ten years beginning with retirement from the Board of
Directors.

Under the 1993 Director Stock Option Plan and the 1999 Stock Option Plan,
non-employee directors of the Company are granted an initial non-qualified
option to purchase 4,125 shares of Common Stock and annually thereafter are
granted a non-qualified option to purchase 1,375 shares of Common Stock. In
addition, due to suspension of the Retirement Plan, directors may also receive
2,500 performance share options annually if the Company meets performance goals
for the fiscal year. Each such option will be exercisable for ten years from the
date of the grant. The exercise price of each such option will be the fair
market value on the date of the grant. Performance targets for 1999 were not met
and therefore performance options granted in 1999 were forfeited.

Loan Stock Program

On August 13, 1998, the Personnel and Compensation Committee approved a Loan
Stock Program to encourage directors and certain senior executives to purchase
Company Stock. The Company has made $2,000,000 available to loan to such persons
to purchase MMI shares in the open market. The maximum amount which may be
borrowed by any person is $250,000.

All loans are evidenced by promissory notes bearing an interest rate equal to
the five year U.S. treasury note yield on the date of the loan. The loans
have a five year term with interest only payments due once a year at
anniversary. Principal is payable upon an officer leaving the Company for any
reason, a Director retiring from the Board of Directors or a sale of the
stock which is purchased by proceeds from a loan. Outstanding Loans will be
due and payable upon the closing of the St. Paul acquisition. Loans may be
renewed at maturity for a second five year term at an interest rate equal to
the five-year U.S. treasury note yield at that time. Loans are not
collateralized, however, the Company is holding the stock certificates for
the purchased shares as custodian.

The amounts originally loaned, which are the principal amounts outstanding as of
December 31, 1999, are as follows: Mr. Barr $70,000; Mr. Becker $115,000; Dr.
Facey $248,000; Mr. Kelley $87,000; Mr. Kennedy $98,000; Mr. McCormick $249,000;
Mr. Orzech $249,000; Mr. Parker $199,000; Mr. Peddie $75,000; and Mr. Spass
$250,000. Interest on the notes ranges from a low of 4.23% to a high of 5.19%. A
total of 100,000 shares have been purchased under the program.

Employment Agreements

Mr. Becker


<PAGE>

The Company is a party to an employment agreement dated May 1, 1997, with its
Chairman and Chief Executive Officer, B. Frederick Becker. In that employment
agreement, the Company agreed to pay Mr. Becker a salary of not less than
$531,300 per annum. If the Company achieves the financial, operational and
managerial goals mutually agreed to by Mr. Becker and the Personnel and
Compensation Committee of the Board of Directors, Mr. Becker will receive a
bonus of up to 65% of his annual salary or such higher amount as may be
determined if circumstances warrant. Mr. Becker is also entitled to an annual
perquisite allowance of $35,000 and to participate in any employee benefits
available to senior executives, including any retirement, hospitalization, group
life insurance or similar program of the Company. The Company also agreed to pay
Mr. Becker a lump sum equal to one and one-half times his annual salary if the
Company terminates his employment without cause.

Mr. Becker's employment agreement provides that the Company will pay Mr. Becker
an amount equal to two times his annual salary and maximum bonus if any of the
following events occur within twelve months of a Change of Control (as defined)
of the Company: (a) an involuntary termination of Mr. Becker's employment except
for death, permanent disability or cause or (b) the voluntary termination of Mr.
Becker's employment within sixty days following either (i) a significant
reduction in his responsibilities or title, or any reduction of salary, bonus
opportunity or benefits or (ii) a relocation of the Company's principal place of
business in excess of seventy-five miles from its existing location. Such
employment agreement defines a Change of Control as either (a) the acquisition
of beneficial ownership of more than 50% of the Company's outstanding stock or
the combined voting power of the Company's then outstanding securities by any
individual, entity, controlled group of entities, or group of individuals or
entities acting in concert for the purpose of controlling the Company, or (b)
the approval of the stockholders of the Company of i) a reorganization, merger
or consolidation, in each case where stockholders immediately prior to such
reorganization, merger or consolidation do not immediately thereafter own more
than 50% of the reorganized, merged or consolidated Company's then outstanding
securities, ii) a liquidation or dissolution of the Company, or iii) the sale of
all or substantially all of the Company's assets. The closing of the
Agreement and Plan of Merger with The St. Paul will constitute a Change of
Control under Mr. Becker's employment agreement.

Mr. I. Sinclair

The Company has entered into an employment contract with Mr. I. Sinclair, as
Chief Executive Officer of Unionamerica. The Company has agreed to employ Mr. I.
Sinclair until the earlier to occur of i) the termination of his employment by
the Company upon not less than three months' written notice or ii) the day upon
which he attains the age of 65 years or such other age as may be determined by
the Board of Directors as the retirement age.

The base salary of Mr. I. Sinclair is $551,000, or such salary as may from time
to time be agreed in writing. He is also entitled to participate in the
Company's pension, health insurance, profit sharing and incentive plans from
time to time, to be reimbursed for out-of-pocket expenses incurred in the course
of employment and to receive use of company automobiles.

Mr. I. Sinclair can terminate his employment upon not less than two months'
written notice to the Company. The Company can terminate his employment at any
time with or without cause. If the Company terminates his employment with cause,
Mr. I. Sinclair is entitled to receive only accrued but unpaid salary as of the
date of termination. If the Company terminates his employment without cause, Mr.
I. Sinclair is entitled to receive a payment in lieu of salary and other
benefits for three months. In addition, Mr. I. Sinclair has agreed i) for a
period of six months after termination of his employment not to entice certain
employees of the Company away from the Company and not to solicit certain
clients of the Company and ii) for a period of four months after termination of
employment, not to engage in any competing business in the London Market.

Other Officers

The Company is a party to agreements with Messrs. Orzech and W. Sinclair and Ms.
Hajek. In those agreements, the Company agrees to pay Mr. Orzech and Ms. Hajek a
lump sum equal to one and one-half times their annual salary, and to Mr. W.
Sinclair, a lump sum equal to one times his annual salary, if any of the
following events occur within twelve months following a Change of Control (as
defined) of the Company: (a) an involuntary termination of such officer's
employment except for death, disability or cause or (b) the voluntary
termination of such officer's employment within sixty days of either (i) a
reduction in their responsibilities, title, or base salary or (ii) a relocation
of the Company's principal place of business in excess of fifty miles from its
existing location. Such employment


<PAGE>

agreement defines a Change of Control as either (a) a reconstitution of more
than 50% of the Board of Directors of the Company within any consecutive twelve
month period or (b) an accumulation of more than 50% of the Company's
outstanding stock by any individual, entity, controlled group of entities, or
group of individuals or entities acting in concert for the purpose of
controlling the Company. The closing of the Agreement and Plan of Merger with
The St. Paul will constitute a Change of Control under such severance
agreements.

Compensation Committee Interlocks And Insider Participation In Compensation
Decisions

The Personnel and Compensation Committee consists of Messrs. Sargent, Kelley and
Parker and Dr. Facey. No executive officer of the Company served as a director
or member of the compensation committee of any entity whose executive officers
served on the Board of Directors or Personnel and Compensation Committee of the
Company.


Report Of The Personnel And Compensation Committee On Executive Compensation

Introduction

The Company's executive compensation program is administered by the Personnel
and Compensation Committee of the Board of Directors (the "Committee"). The
Committee consists of four non-employee Directors, who are appointed by the
Board of Directors to serve a one year term.

The Committee functions to:

-    establish, approve, and review annually the terms of employment including
     the compensation for the Chief Executive Officer of the Company, based upon
     an appraisal of the performance of the Chief Executive Officer, and where
     appropriate, negotiate and execute contracts with such employee;

-    approve and review periodically compensation process, programs, incentives,
     and other employee benefit plans;

-    monitor and oversee the establishment of employment contracts made with
     other executive officers or other key employees;

-    review and recommend action by the Board of Directors with respect to the
     compensation of directors;

-    administer the Company's Return on Equity Plan ("ROE Plan"), 1993 Employee
     Stock Plan ("1993 Stock Plan"), 1995 Employee Stock Investment Plan
     ("ESIP"), Long Term Incentive Plan of 1997, 1999 Stock Option Plan,
     Retirement Equity Plan ("REP"); Unionamerica Annual Incentive Plan and the
     Executive Deferred Compensation Scheme;

-    and perform other duties with regard to the compensation of officers and
     other key executives of the Company as the Board of Directors may request
     or are appropriate within the intention of the foregoing.

As outlined above, the Committee specifically determines the total compensation
for the Company's Chief Executive Officer, B. Frederick Becker, and considers
for approval recommendations made by the Chief Executive Officer with regard to
other officers and key employees, including the Company's next most highly paid
executive officers: Ian G. Sinclair, Paul M. Orzech, Anna Marie Hajek and Wayne
A. Sinclair, who are collectively referred to as the "Named Executives."

Compensation Policies for the Named Executives

The Committee's compensation policies and programs are designed to: 1) reward
performance, 2) attract and retain qualified executives, and 3) integrate pay
with the Company's long-term and annual performance goals. The


<PAGE>

Company's compensation package consists of base compensation, an annual bonus
based upon the achievement of annually established goals, stock options and
other long-term compensation strategies.

Annual Base Pay

The base pay of each executive officer is set at the level that the Committee
believes is appropriate with consideration for industry standards, performance,
and scope of responsibility in relation to other officers and key employees
within the Company. Salaries for executive officers are reviewed annually by the
Committee.

Annual Incentive (Bonus) Programs

The Company maintains bonus plans that are designed to attract and retain well
qualified executives and to focus executives' attention on key corporate,
business unit and individual objectives. Such plans include performance targets
established at the beginning of the fiscal year, with awards granted based on
actual performance as compared to targets. Each of the Named Executives
participates in certain of the Company's annual incentive programs. Awards are
approved annually by the Committee.

Domestic. The Company's principal incentive plan for domestic employees is its
Officer Incentive Plan (the "Incentive Plan"). At the beginning of each
Incentive Plan year, the Committee recommends an aggregate annual award budget
and establishes a profit target. Individual performance goals, both quantitative
and qualitative, are established for each participant. Potential awards
generally range between 15% to 35% of base salary, with the percentage
determined by level within the organization. Individual performance and an
earnings per share baseline determine 67% of the employee's incentive award; the
Company's performance determines 33% of an employee's award. At year end, both
Company and individual performance are assessed. If the Company does not achieve
the profit target, it is intended but not required that the 33% Company
component will not be paid. To encourage employee retention following
announcement of the pending acquisition of the Company by The St. Paul
Companies, Inc., the Committee determined that the 67% component of the
Incentive Plan would be operable despite the Company's earnings falling short of
the baseline target. The 33% component will not be paid.

International. The Company's principal incentive plans for its international
operations include the Unionamerica Annual Incentive Plan and the Executive
Deferred Compensation Scheme. The purpose of these plans is to promote the
financial success of Unionamerica and retain key employees. Annually, the
Committee approves the participants in each of the plans and a target incentive
pool and deferred compensation pool as a sliding-scale percentage of pre-tax
operating earnings of Unionamerica. At year end, actual results are compared to
plan and bonus targets and awards, if any, are made accordingly. For the
Executive Deferred Compensation Scheme, awards are calculated and paid over a
three year period, and a participant must be employed to receive payments.

1999 Stock Option Plan

The purpose of the Plan is to benefit the Company by offering employees and
officers of the Company the opportunity to become holders of MMI Common
Stock, thereby giving them a long-term stake in the growth and prosperity of
the Company and encouraging the continuance of their involvement with the
Company. The 1999 Stock Option plan intended to replace the 1993 Employee
Stock Plan and 1993 Director Stock Option Plan.

The Committee may, at its discretion, make awards to participants under the 1999
Stock Option Plan in the form of non-qualified stock options, incentive stock
options, or restricted stock, or a combination thereof. The maximum number of
shares which the Committee may issue under the Stock Plan is 1,500,000 shares.
As of December 31, 1999, there were 623,900 stock options outstanding, and
871,500 stock options available for grant pursuant to the 1999 Stock Option
Plan.

Return on Equity Incentive Plan

The Company's ROE Plan is maintained by the Company to assist in attracting and
retaining management personnel for the Company and to encourage executives to
strive for outstanding results in the operation of the Company from


<PAGE>

year to year. The ROE Plan is intended to provide an incentive comparable to
equity participation in the performance of the Company.

The Committee designates participants and their class of participation in the
ROE Plan. Messrs. Becker, Orzech, W. Sinclair and Ms. Hajek participate in the
ROE Plan. Awards under the ROE Plan are calculated by multiplying a
participant's base salary by an ROE factor which is a function of the Company
return on equity and the participant's class of participation. Awards vest in
three installments over a period of 40 months following the end of an ROE Plan
year, and may be adjusted over the vesting period based on the development, if
any, of the Company's loss reserves. The ROE Plan was suspended for 1999. In
1999, the Company paid awards relating to the 1995 ROE Plan year.

1999 Compensation for the Chief Executive Officer

Mr. Becker is eligible to participate in all of the Company's compensation
programs except those not available to executive officers. The Committee
considers industry standards and annual performance with respect to goals
established by the Committee in determining his base compensation. In 1999, the
Company increased Mr. Becker's base salary by 5% to $580,000.

The Committee established performance goals for Mr. Becker for 1999 that
consisted of consolidated earnings per share objectives and specific business
segment revenue and expense control objectives. The Committee subsequently
revised Mr. Becker's performance goals, which included Board directives in
connection with seeking strategic partners for the Company. The Committee
granted Mr. Becker 60,000 performance stock options which vest in 2008.

The Committee determined that Mr. Becker had largely accomplished his
performance goal by successfully negotiating and executing the Agreement and
Plan of Merger with The St. Paul Companies, and accomplishing the disposition of
certain business units, and awarded Mr. Becker a bonus of $232,000 under the
Incentive Plan. The Committee determined that Mr. Becker had not yet earned
performance options. Mr. Becker received $26,000 pursuant to the ROE Plan in
1999 relating to the 1995 ROE Plan year.

The Committee awarded Mr. Becker 125,000 stock options in November 1999 to
provide incentive for future performance.

Policy on Deductibility of Compensation Expenses

The Company is not allowed a deduction for certain compensation paid to its
chief executive officer and next four most highly compensated executive officers
in excess of $1 million, except to the extent such compensation constitutes
performance-based compensation. The Committee considers that its primary goal is
to design compensation strategies that further the best interests of the Company
and its shareholders. To the extent they are consistent with that goal, the
Committee attempts where practical to use compensation policies and programs
that preserve the deductibility of compensation expenses.

The Committee believes the compensation to the Company's Chief Executive Officer
and Named Executives to be reflective of Company performance within the scope of
industry standards.

Personnel and Compensation Committee of the MMI Companies, Inc. Board of
Directors:

Joseph D. Sargent  F. Laird Facey, M.D.  William M. Kelley   Scott S. Parker
(Chairman)

Stock Price Performance Graph

The following graph shows a comparison of cumulative total returns for the
Company, the S&P 500 index and an index of peer companies selected by the
Company, for the five-year period from December 31, 1994 through December 31,
1999. The chart assumes an initial investment of $100.00 and reinvestment of
dividends.


<PAGE>

Comparison Of Cumulative Total Return Among Mmi Companies, Inc., S&P 500 Index
And Company Peer Group

<TABLE>
<CAPTION>
                                 12/31/94   12/31/95   12/31/96   12/31/97   12/31/98   12/31/99
                                ---------  ---------  ---------  ---------  ---------  ---------
<S>                             <C>        <C>        <C>        <C>        <C>        <C>
MMI Companies, Inc..............$  100.00  $  152.67  $  206.82  $  162.91  $  110.41  $   58.65
S&P 500 Index...................   100.00     137.58     169.18     225.62     290.11     351.15
Company Peer Group..............   100.00     148.10     179.81     256.42     233.06     168.92
</TABLE>

The Company's peer group includes the companies that comprise the S&P
Property-Casualty Insurance Index: The Allstate Corporation, The Chubb
Corporation, Cincinnati Financial Corporation, Loews Corporation, MGIC
Investment Corporation, Progressive Corporation, Safeco Corporation and The St.
Paul Companies, Inc. The companies in the peer group are weighted by market
capitalization as of the beginning of the measurement period.




ITEM 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT OF MMI

As of January 31, 2000, there were approximately 560 holders of record of
19,202,444 shares of outstanding MMI common stock. Each share of common stock is
entitled to one vote per share, with no right of cumulative voting. The
following table sets forth information regarding the beneficial ownership of MMI
common stock as of the most recent practicable date, by each person or entity
known by MMI to beneficially own more than 5% of the outstanding shares of MMI
common stock.

<TABLE>
<CAPTION>
                                       AMOUNT AND NATURE         PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER   OF BENEFICIAL OWNERSHIP   OF CLASS
------------------------------------   -----------------------   ---------
<S>                                   <C>                       <C>
Heartland Advisors, Inc. (1) ..........     1,436,900               7.5%
 789 North Water Street
 Milwaukee, Wisconsin 53202

FMR Corp. (2) .........................     1,267,900               6.6%
 82 Devonshire Street
 Boston, Massachusetts 02109

Franklin Resources, Inc. (3) ..........     1,222,900               6.4%
 777 Mariners Island Blvd.
 San Mateo, California 94404
</TABLE>

------------------------
(1) These figures were reported in a Schedule 13G filed with the Securities and
Exchange Commission as of December 31, 1999. With respect to those shares,
Heartland Advisors, Inc. had sole power to vote 36,100 shares and the sole power
to direct the disposition of 1,436,900 shares.

(2) These figures were reported in a Schedule 13G filed with the Securities and
Exchange Commission as of December 31, 1999. With respect to those shares, FMR
Corp. had the sole power to direct the disposition of 1,267,900 shares and
neither sole nor shared power to vote the shares.

(3) These figures were reported in a Schedule 13G filed with the Securities and
Exchange Commission as of December 31, 1999. With respect to those shares,
Franklin Resources, Inc. had the sole power to vote 1,096,100 shares, and the
sole power to direct the disposition of 1,222,900 shares.


The following table sets forth information regarding the beneficial ownership of
MMI common stock as of February 28, 2000, the most recent practicable date, by
each MMI director, each MMI executive officer, and all MMI directors and
executive officers as a group.

<TABLE>
<CAPTION>
                                 AMOUNT AND
                                 NATURE OF
NAME OF BENEFICIAL OWNER         BENEFICIAL OWNERSHIP (1)    PERCENT OF CLASS
------------------------------   -----------------------    ----------------
<S>                              <C>                        <C>
DIRECTORS
 Richard R. Barr..................   10,325                      *


<PAGE>

 B. Frederick Becker (2)..........  177,445                      *
 George B. Caldwell...............   26,883                      *
 K. James Ehlen, M.D..............      -                        *
 F. Laird Facey, M.D..............   41,292                      *
 Alan C. Guy......................    2,396                      *
 William M. Kelley................    8,192                      *
 Andrew D. Kennedy................    9,182                      *
 Timothy R. McCormick.............   17,676                      *
 Gerald L. McManis (3)............    7,808                      *
 Scott S. Parker..................   17,425                      *
 Edward C. Peddie.................   10,982                      *
 Joseph D. Sargent................    4,420                      *
 Robert A. Spass..................   57,786                      *

CERTAIN EXECUTIVE OFFICERS
 Anna Marie Hajek ................   57,394                      *
 Paul M. Orzech ..................   88,867                      *
 Ian G. Sinclair..................  121,136                      *
 Wayne A. Sinclair ...............   24,214                      *

ALL DIRECTORS AND EXECUTIVE
 OFFICERS AS A GROUP (18) persons.  680,674.....................3.5%
* Represents less than 1% of MMI common stock.
</TABLE>

(1) Includes in-the-money options as follows: Mr. Becker - 125,000 options; Mr.
Orzech and Ms. Hajek - 50,000 options; Messrs. I. Sinclair and W. Sinclair -
20,000 options. Does not include out-of-the money options for each listed
director or officer as follows: Messrs. Barr, Caldwell, McCormick, Kelley,
Parker, Peddie, Sargent and Dr. Facey--12,375 options; Mr. Becker--527,375
options; Dr. Ehlen--6,875 options; Messrs. Guy and Spass--5,500 options; Mr.
Kennedy--8,250 options; Mr. McManis--32,000 options; Ms. Hajek--97,750 options;
Mr. Orzech--75,500 options; Mr. I. Sinclair--190,351 options; and Mr. W.
Sinclair--64,775 options. Such out-of-the-money options will expire unexercised
upon the closing of the acquisition of MMI by The St. Paul Companies, Inc.

(2) Does not include 114,000 shares that Mr. Becker may be deemed to own
indirectly by virtue of an interest in a private investment limited partnership.
Mr. Becker disclaims beneficial ownership of such shares.

(3) Includes 3,500 shares held by a corporation, with respect to which shares
Mr. McManis has joint investment power.

Item 13. Certain Relationships And Transactions

Certain directors of the Company and the health systems and employers with which
they are affiliated obtained insurance or consulting services in 1999 from the
Company's subsidiaries in the ordinary course of business at the Company's
customary and standard rates. These directors and their affiliated hospitals are
Alan C. Guy, President and Chief Executive Officer of Covenant Health; Timothy
R. McCormick, President of Unity Health System; Scott S. Parker, President and
Chief Executive Officer of Intermountain Health Care, Inc. and Edward C. Peddie,
President and CEO of AvMed, Inc. Premiums and consulting and fee revenues from
these healthcare institutions were not material to the Company's operations in
1999. See also "Compensation Committee Interlocks and Insider Participation in
Compensation Decisions."

Dr. Facey's director fees in 1999 were paid to F. Laird Facey M.D., Inc. Such
director fees exceeded 5% of the revenues for such corporation. In addition,
medical malpractice premiums paid to the Company by such corporation exceeded 5%
of its revenues.

                                    PART IV

Item 14. Exhibits, Financial Statement Schedules, And Reports On Form 8-K

a. Filed documents

         1. Financial statements.

                  Report of Independent Auditors
                  Consolidated Balance Sheets
                  Consolidated Statements of Operations


<PAGE>

                  Consolidated Statements of Stockholders' Equity
                  Consolidated Statements of Cash Flows
                  Notes to Consolidated Financial Statements

     2. Financial statement schedules: Financial statement schedules begin on
page S-1.

     3. Exhibits. An index to exhibits on this report is on page XX.

b. Reports on Form 8-K during the fourth quarter of 1999.

         On November 1, 1999 and on December 22, 1999, MMI filed a Current
Report on Form 8-K.


<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Registrant:            MMI Companies, Inc.
Date:                  March 29, 2000
By:                    /s/ B. FREDERICK BECKER
                       -----------------------
                       B. Frederick Becker
                       Chairman and Chief Executive Officer

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.

Date:                  March 29, 2000
By:                    /s/ B. FREDERICK BECKER
                       -----------------------
                       B. Frederick Becker
                       Chairman and Chief Executive Officer and Director

Date:                  March 29, 2000
By:                    /s/ PAUL M. ORZECH
                       ----------------
                       Paul M. Orzech
                       Executive Vice President and Chief Financial Officer

Date:                  March 29, 2000
By:                    /s/ JOSEPH R. HERMAN
                       --------------------
                       Joseph R. Herman
                       Senior Vice President and Controller

Date:                  March 29, 2000
By:                    /s/ RICHARD R. BARR
                       --------------------
                       Richard R. Barr
                       Director

Date:                  March 29, 2000
By:                    /s/ GEORGE B. CALDWELL
                       --------------------
                       George B. Caldwell
                       Director

Date:                  March 29, 2000
By:                    /s/ K. JAMES EHLEN, M.D.
                       --------------------
                       K. James Ehlen, M.D.
                       Director

Date:                  March 29, 2000
By:                    /s/ F. LAIRD FACEY, M.D.
                       --------------------
                       F. Laird Facey, M.D.
                       Director

Date:                  March 29, 2000
By:                    /s/ ALAN C. GUY
                       --------------------
                       Alan C. Guy
                       Director

Date:
By:
                       --------------------
                       William M. Kelley
                       Director


<PAGE>

Date:                  March 29, 2000
By:                    /s/ ANDREW D. KENNEDY
                       --------------------
                       Andrew D. Kennedy
                       Director

Date:
By:
                       --------------------
                       Timothy R. McCormick
                       Director

Date:                  March 29, 2000
By:                    /s/ GERALD L. MCMANIS
                       --------------------
                       Gerald L. McManis
                       Director

Date:                  March 29, 2000
By:                    /s/ SCOTT S. PARKER
                       --------------------
                       Scott S. Parker
                       Director

Date:                  March 29, 2000
By:                    /s/ EDWARD C. PEDDIE
                       --------------------
                       Edward C. Peddie
                       Director

Date:                  March 29, 2000
By:                    /s/ JOSEPH D. SARGENT
                       --------------------
                       Joseph D. Sargent
                       Director

Date:                  March 29, 2000
By:                    /s/ ROBERT A. SPASS
                       --------------------
                       Robert A. Spass
                       Director


<PAGE>


                     INDEX TO FINANCIAL STATEMENT SCHEDULES


II.      Condensed Financial Information of Registrant:
         Condensed Balance Sheets
         Condensed Statements of Operations
         Condensed Statements of Cash Flows
III.     Supplementary Insurance Information
IV.      Reinsurance
V.       Valuation and Qualifying Accounts
VI.      Supplementary Property/Casualty Insurance Information




Schedule I has been omitted because the required information is included in the
Consolidated Financial Statements or Notes thereto.


<PAGE>

                                  EXHIBIT INDEX

2.1   Agreement and Plan of Merger dated as of December 20, 1999, between MMI
      Companies, Inc., The St. Paul Companies, Inc., and Bowman Acquisition
      Corp. (14)
3.1   Certificate Of Incorporation of The Registrant. (6)
3.2   Bylaws of the Registrant. (3)
4.1   Specimen stock certificate representing Common Stock. (7)
4.2   Amended and Restated Rights Agreement dated as of September 24, 1998 by
      and between the Registrant and Chase Mellon Shareholder Services LLC, as
      Rights Agent, as amended. (13) (14)
10.1  Credit Agreement dated as of February 20, 1998 among the Registrant,
      Various Lenders and Bank of America National Trust and Savings
      Association, as Agent for the Lenders. (11)
10.2  Indenture dated December 23, 1997 relating to Junior Subordinated
      Debentures. (10)
10.3  Amended and Restated Declaration of Trust of MMI Capital Trust I dated
      December 23, 1997. (10)
10.4  Lease dated July 1, 1991 for the Registrant's principal executive offices
      and First through Eighth Amendments to Lease, various dates (1)(3)(4)(5)
      (7)(15)
10.5  Amended and Restated Return on Equity Incentive Plan, effective January 1,
      1990. (5) #
10.6  Amended 1993 Employee Stock Plan, effective January 15, 1993.(16) #
10.7  Retirement Equity Plan.(7) #
10.8  1993 Non-Employee Directors' Formula Stock Option Plan, effective January
      15, 1993. (11) #
10.9  Certificates of Insurance for Directors' Life Insurance Program.(1) #
10.10 Amended Board of Directors Retirement Plan, effective January 1, 1993.
      (11) #
10.11 Amended 1996 Non-Employee Director Stock and Deferred Cash Compensation
      Plan. (16) #
10.12 Employment Agreement, as amended, dated as of May 1, 1997, between the
      Registrant and its Chief Executive Officer, Mr. B. Frederick Becker.
      (11)(12) #
10.13 Form of agreements between the Registrant and Ms. Anna Marie Hajek, , Mr.
      Paul M. Orzech and Mr. Wayne A. Sinclair. (6) #
10.14 Service Agreement dated September 10, 1993, between Ian G. Sinclair and
      Unionamerica Management Company Limited. (8) #
10.15 Transfer and Forbearance Agreement dated as of December 30, 1993 among the
      Registrant and Gerald L. McManis. (2)
10.16 Share Purchase Agreement, as amended, dated as of June 30, 1993, among
      Unionamerica Acquisition Company Ltd., Unionamerica Holdings Ltd. and The
      Continental Corporation. (8)
10.17 Tax Indemnification Agreement, dated as of September 10, 1993, by and
      among The Continental Corporation and Unionamerica Acquisition Company
      Ltd. (8)
10.18 Form of Promissory Note in connection with Loan Stock Program. (17)
10.19 Long Term Incentive Plan, effective January 1, 1997 # (17)
10.20 1999 Stock Option Plan (15) #
12.1  Statement re computation of ratio of earnings to fixed charges
21.1  Subsidiaries of the registrant.
23.1  Consent of Ernst & Young LLP.
27.1  Financial data schedule.

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

(1)  Incorporated herein by reference to Registration Statement No. 33-59464 on
     Form S-1 dated June 24, 1993.

(2)  Incorporated herein by reference to Report on Form 10-K dated December 31,
     1993, Commission File No. 1-11920.

(3)  Incorporated herein by reference to Report on Form 10-K dated December 31,
     1994, Commission File No. 1-11920.

(4)  Incorporated herein by reference to Report on Form 10-K dated December 31,
     1995, Commission File No. 1-11920.

(5)  Incorporated herein by reference to Report on Form 10-K dated December 31,
     1996, Commission File No. 1-11920.

(6)  Incorporated herein by reference to Report on Form 10-Q dated June 30,
     1996, Commission File No. 1-11920.


<PAGE>

(7)  Incorporated herein by reference to Registration Statement No. 333-32027 on
     Form S-4, dated November 4, 1997.

(8)  Incorporated by reference to Registration Statement No. 33-99186 on Form
     F-1 dated November 9, 1995.

(9)  Incorporated by reference to Registration Statement No. 333-46889 on Form
     S-8, dated February 25, 1998.

(10) Incorporated herein by reference to Registration Statement No. 333-44565 on
     Form S-4, dated January 20, 1998

(11) Incorporated herein by reference to Report on Form 10-K dated December 31,
     1997, Commission File No. 1-11920.

(12) Incorporated herein by reference to Report on Form 10-Q dated June 30,
     1998, Commission File No. 1-11920.

(13) Incorporated herein by reference to Report on Form 8-A dated November 6,
     1998, Commission File No. 1-11920.

(14) Incorporated herein by reference to Current Report on Form 8-K dated
     December 22, 1999, Commission File No. 1-11920.

(15) Incorporated herein by reference to Report on Form 10-Q dated March 31,
     1999, Commission File No. 1-11920.

(16) Incorporated herein by reference to Report on Form 10-Q dated June 30,
     1999, Commission File No. 1-11920.

(17) Incorporated herein by reference to Report on Form 10-K dated December 31,
     1998, Commission File No. 1-11920.

# Compensatory plans or arrangements.


<PAGE>

                               MMI COMPANIES, INC.
                                (PARENT COMPANY)

           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            CONDENSED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                     December 31
                                                                             ------------------------
                                                                                  1999           1998
                                                                             ---------      ---------
<S>                                                                          <C>            <C>
ASSETS
  INVESTMENTS
    Investment in subsidiaries........................................       $ 305,082      $ 417,762
    Short-term investments............................................           6,163          6,806
    Fixed maturities..................................................           5,184         19,301
    Preferred stocks..................................................           2,000          2,000
                                                                             ---------      ---------
                                                                               318,429        445,869

  OTHER ASSETS
    Cash..............................................................             628             68
    Furniture and equipment - at cost, less accumulated
        depreciation:  1999 - $6,537; 1998 - $6,404...................           4,923          6,098
    Due from affiliates...............................................          93,529         71,288
    Deferred income taxes.............................................          16,342          8,851
    Other.............................................................           6,078          9,503
                                                                             ---------      ---------
                                                                             $ 439,929      $ 541,677
                                                                             =========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY
  LIABILITIES
    Accrued expenses and other liabilities............................       $  18,508      $   9,932
    Notes payable.....................................................          45,000             --
    Company-obligated, mandatorily redeemable preferred
       securities of subsidiary trust holding solely junior
       subordinated debentures of the Company.........................         119,029        118,817
                                                                             ---------      ---------

                                                                               182,537        128,749

  STOCKHOLDERS' EQUITY
    Common Stock, par value $.10 per share:
        Authorized shares: 30,000
        Issued and outstanding shares:  1999 - 19,210; 1998 - 19,059..           1,921          1,906
    Additional paid-in capital........................................         222,787        221,649
    Retained earnings.................................................          48,846        160,226
    Accumulated other comprehensive income (loss), net of taxes:
        1999 - $(8,700); 1998 - $15,091...............................         (16,162)        29,147
                                                                             ---------      ---------
                                                                               257,392        412,928
                                                                             ---------      ---------
                                                                             $ 439,929      $ 541,677
                                                                             =========      =========
</TABLE>
                 See Notes to Consolidated Financial Statements.

<PAGE>

                               MMI COMPANIES, INC.
                                (PARENT COMPANY)

     SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                       CONDENSED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                              Year Ended December 31
                                                                                  ----------------------------------------------
                                                                                       1999            1998          1997
                                                                                  ------------   --------------  ---------------
<S>                                                                               <C>            <C>               <C>
REVENUES
     Management fees from subsidiaries.................................              $ 29,000        $ 23,950          $ 28,450

     Dividends received from subsidiaries..............................                 6,000           6,551            29,750
     Net investment income.............................................                 1,020           1,746             1,578

     Net realized gains (losses) on investments........................                  (212)            154                16
                                                                                  ------------   --------------  ---------------
                                                                                       35,808          32,401            59,794
EXPENSES
     Administrative and other..........................................                40,347          29,082            24,394

     Interest expense...................................................                6,156           5,324             3,712
                                                                                  ------------   --------------  ---------------
                                                                                       46,503          34,406            28,106
                                                                                  ------------   --------------  ---------------

     Income (loss) from continuing operations before income
         taxes, extraordinary loss and equity in undistributed net
         income (loss) of subsidiaries.................................               (10,695)         (2,005)           31,688

     Income taxes (credit).............................................                (5,945)         (3,806)              381
                                                                                  ------------   --------------  ---------------
         Income (loss) from continuing operations before
             extraordinary loss and equity in
             undistributed net income (loss) of subsidiaries...........                (4,750)          1,801            31,307

     Extraordinary loss, net of taxes..................................                    --              --               141
                                                                                  ------------   --------------  ---------------
          Income (loss) from continuing operations before
              equity in undistributed net income (loss)
              of subsidiaries...........................................               (4,750)          1,801            31,166

     Loss from discontinued operations.................................                 3,643           2,696             1,830
                                                                                  ------------   --------------  ---------------
         Income (loss) before equity in undistributed net income
             (loss) of subsidiaries.....................................               (8,393)           (895)           29,336
     Equity in undistributed net income (loss) of subsidiaries.........               (96,110)         12,259             5,024
                                                                                  ------------   --------------  ---------------

         Net income (loss).............................................             $(104,503)       $ 11,364          $ 34,360
                                                                                  ============   ==============  ===============
</TABLE>

                 See Notes to Consolidated Financial Statements.

<PAGE>

                               MMI COMPANIES, INC.
                                (PARENT COMPANY)

     SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                            Year Ended December 31
                                                                                   ------------------------------------------
                                                                                     1999            1998             1997
                                                                                   ---------      ----------      -----------
<S>                                                                               <C>             <C>             <C>

Net cash provided (used) by operating activities.....................              $ (4,863)       $   5,437        $ (17,619)

Investing activities:
     Net sale (purchase) of short-term investments...................                   643           (5,971)          14,649
     Purchase of fixed maturities....................................                (5,118)          (8,373)         (43,108)
     Sale of fixed maturities........................................                16,970           19,377           33,133
     Maturities of fixed maturities..................................                 1,652            1,618            1,588
     Capital contribution to subsidiary..............................               (37,500)             --           (20,000)
     Furniture and equipment additions...............................                (1,416)          (2,704)          (3,200)
     Furniture and equipment disposals...............................                   357               --               --

     Acquisition of subsidiaries.....................................                (7,222)          (5,824)         (21,006)
                                                                                   ---------      ----------      -----------
        Net cash used by investing activities........................               (31,634)          (1,877)         (37,944)

Financing activities:
     Issuance of Common Stock........................................                 1,467           2,568             1,899
     Common Stock repurchased........................................                (2,533)           (154)           (2,840)
     Issuance of Capital Securities..................................                   --              --            124,551
     Costs incurred in connection with securities  offering..........                   --              --             (5,832)
     Payments on notes payable.......................................                   --              --            (58,000)
     Proceeds from notes payable.....................................                45,000              --                --
     Dividends.......................................................                (6,877)         (6,067)           (4,182)
                                                                                   ---------      ----------      -----------

        Net cash provided (used) by financing activities.............                37,057          (3,653)           55,596
                                                                                   ---------      ----------      -----------

        Increase (decrease) in cash..................................                   560             (93)               33
Cash at beginning of year............................................                    68             161               128
                                                                                   ---------      ----------      -----------
        Cash at end of year..........................................                $  628         $    68           $   161
                                                                                   =========      ==========      ===========
</TABLE>

                 See Notes to Consolidated Financial Statements.

<PAGE>

                      MMI COMPANIES, INC. AND SUBSIDIARIES

               SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                            December  31                                     Year Ended December 31
                             ------------------------------------------   --------------------------------------------------------
                                      Loss and                                          Benefits, Amortization
                            Deferred    Loss                                             Claims,  of Deferred
                             Policy  Adjustment  Unearned  Future               Net    Losses and   Policy      Other       Net
                          Acquisition  Expense   Premium   Policy   Premium  InvestmentSettlement Acquisition Operating   Premiums
              Segment        Costs    Reserves   Reserves Benefits  Revenues   Income   Expenses     Costs    Expenses    Written
              -------        -----    --------   -------- --------  --------   ------   --------     -----    --------    -------
<S>                        <C>        <C>        <C>      <C>       <C>       <C>       <C>         <C>       <C>         <C>
1999

Domestic insurance           $ 8,493   $713,514  $ 77,521  $ 5,653  $184,670   $48,529   $227,244    $19,717  $ 43,302    $189,863
International insurance       23,151   562,334     81,306       --   189,952    23,739    229,029     45,026    23,392     197,532
Consulting and fees               --        --        --        --        --        --         --         --    75,901          --
                             ------- ----------  --------  -------  --------   -------   --------    -------  --------    --------
                             $31,644 $1,275,848  $158,827  $ 5,653  $374,622   $72,268   $456,273    $64,743  $142,595    $387,395
                             ======= ==========  ========  =======  ========   =======   ========    =======  ========    ========

1998

Domestic insurance           $ 8,132   $691,903  $ 70,810  $ 8,326  $210,506   $49,103   $203,449    $19,311  $ 40,715    $214,028
International insurance       20,169    484,170    71,129       --   136,229    27,453     88,032     36,906    21,680     140,744
Consulting and fees               --         --       --        --        --        --         --         --    44,685          --
                             ------- ----------  --------  -------  --------   -------   --------    -------  --------    --------
                             $28,301 $1,176,073  $141,939  $ 8,326  $346,735   $76,556   $291,481    $56,217  $107,080    $354,772
                             ======= ==========  ========  =======  ========   =======   ========    =======  ========    ========


1997

Domestic insurance           $ 7,462   $625,114  $ 67,147   $8,723  $159,579   $47,171   $132,948    $15,805    $36,885   $168,607
International insurance       19,077    500,032    67,041       --   127,918    28,319     76,417     33,244     30,125    138,342

Consulting and fees               --         --       --       --         --        --         --         --     37,476         --
                             ------- ----------  --------  -------  --------   -------   --------    -------  --------    --------
                             $26,539 $1,125,146  $134,188  $ 8,723  $287,497   $75,490   $209,365    $49,049   $104,486   $306,949
                             ======= =========== ========  =======  ========   =======   ========    =======   ========   ========
</TABLE>


<PAGE>

                      MMI COMPANIES, INC. AND SUBSIDIARIES

                            SCHEDULE IV - REINSURANCE
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                                      Percentage
                                                                          Ceded to     Assumed                        of Amount
                                                             Gross         Other      from Other         Net          Assumed to
                                                            Amount       Companies    Companies         Amount            Net
                                                          ----------     ---------    ---------       ---------      -----------
<S>                                                       <C>          <C>            <C>            <C>             <C>
Year Ended December 31, 1999:
    Life insurance in force at end of year:               $  253,142     $ 105,504    $     ---       $ 147,638
                                                          ==========     =========    =========       =========
Premiums:
       Medical malpractice...........................     $  193,763     $  38,079    $   8,342       $ 164,026         5.09%
  International......................................        119,281        20,622       91,293         189,952        48.06%
  Other..............................................         30,495        19,588        9,737          20,644        47.17%
                                                          ----------     ---------    ---------       ---------      -----------
       Total premiums................................     $  343,539     $  78,289    $ 109,372       $ 374,622
                                                          ==========     =========    =========       =========

Year Ended December 31, 1998:
    Life insurance in force at end of year:               $1,073,993     $ 343,583    $     ---       $ 730,410
                                                          ==========     =========    =========       =========
Premiums:
    Medical malpractice..............................     $  222,232     $  33,438    $   8,669       $ 197,463         4.39%
  International .....................................         53,000        28,951      112,180         136,229        82.35%
  Other..............................................         27,787        23,463        8,719          13,043        66.85%
                                                          ----------     ---------    ---------       ---------      -----------
       Total premiums................................     $  303,019     $  85,852    $ 129,568       $ 346,735
                                                          ==========     =========    =========       =========


Year Ended December 31, 1997:
    Life insurance in force at end of year:               $  992,060     $ 302,889    $     ---       $ 689,171
                                                          ==========     =========    =========       =========
Premiums:
       Medical malpractice...........................     $  173,025     $  32,946    $  14,018       $ 154,097         9.10%
  International......................................         43,583        10,326       94,661         127,918        74.00%
  Other..............................................         17,854        14,185        1,813           5,482        33.07%
                                                          ----------     ---------    ---------       ---------      -----------
       Total premiums................................     $  234,462     $  57,457    $ 110,492       $ 287,497
                                                          ==========     =========    =========       =========
</TABLE>


<PAGE>

                      MMI COMPANIES, INC. AND SUBSIDIARIES

                 SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   Balance at
                                                                    Beginning                                           Balance at
Description                                                          of Year          Additions       Deductions       End of Year
-----------                                                        -----------        ---------       ----------       -----------
<S>                                                                 <C>               <C>             <C>              <C>
Year Ended December 31, 1999:
  Accumulated amortization of goodwill....................           $12,590          $ 10,474         $ 13,036          $ 10,028
  Accumulated depreciation of furniture and
       equipment..........................................            16,098             5,222            7,265            14,055



Year Ended December 31, 1998:
  Accumulated amortization of goodwill....................           $ 9,102           $ 3,488         $      -          $ 12,590
  Accumulated depreciation of furniture and
       equipment..........................................            10,699             5,683              284            16,098



Year Ended December 31, 1997
  Accumulated amortization of goodwill....................           $ 5,788           $ 3,314         $      -          $  9,102
  Accumulated depreciation of furniture and
       equipment..........................................            11,626             4,647            5,574            10,699
</TABLE>


<PAGE>

                      MMI COMPANIES, INC. AND SUBSIDIARIES

       SCHEDULE VI - SUPPLEMENTARY PROPERTY/CASUALTY INSURANCE INFORMATION
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                  December 31
                   --------------------------------------------
                                                   Discount
                                     Loss and    Deducted from
                      Deferred         Loss      Loss and Loss
   Affiliation         Policy       Adjustment    Adjustment     Unearned
       with          Acquisition     Expense       Expense       Premium     Premiums
    Registrant          Costs        Reserves      Reserves      Reserves     Earned
-----------------   ------------  ------------- ---------------  --------   ----------
<S>                 <C>           <C>           <C>             <C>        <C>
1999:
   Consolidated
    subsidiaries... $31,644       $1,245,016        $  --       $158,827     $353,978

1998:
   Consolidated
    Subsidiaries...  28,301        1,156,817           --        141,939      333,690

1997:
   Consolidated
    Subsidiaries...  26,539        1,113,095           --        134,188      282,015
</TABLE>

<TABLE>
<CAPTION>
                                             Year ended December 31
                   ---------------------------------------------------------------
                                       Losses and Loss
                                         Adjustment
                                          Expenses      Amortization
                                   Incurred Related to   of Deferred        Paid
   Affiliation          Net        -------------------      Policy     Losses and Loss      Net
       with          Investment     Current     Prior    Acquisition    Adjustment        Premiums
    Registrant         Income         Year      Years       Costs         Expenses        Written
-----------------    ---------     ---------    -----  -------------    -----------     ---------
<S>                  <C>           <C>        <C>        <C>           <C>              <C>
1999:
   Consolidated
    subsidiaries...     $70,538   $289,025    $146,126   $64,743         $359,363       366,910

1998:
   Consolidated
    Subsidiaries...      76,072    260,043      21,291    56,217          269,243       341,562
1997:
   Consolidated
    Subsidiaries...      74,019    209,367     ( 4,081)   49,049          253,473       301,465
</TABLE>