<PAGE>




================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


[x]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

                For the quarterly period ended September 30, 2000

                               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 0-15022

                         FRONTIER INSURANCE GROUP, INC.
             (Exact name of Registrant as specified in its charter)

<TABLE>

<S>                                                                <C>
                    DELAWARE                                        14-1681606
         (State or other jurisdiction of                         (I.R.S. Employer
          Incorporation or organization)                         Identification No.)

195 LAKE LOUISE MARIE ROAD, ROCK HILL, NEW YORK                     12775-8000
    (Address of principal executive offices)                        (Zip Code)
</TABLE>


       Registrant's telephone number, including area code: (914) 796-2100


Indicate by 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 of 1934 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.


                   [x] Yes                              [ ] No


The aggregate number of shares of the Registrant's Common Stock, $.01 par value,
outstanding on November 17, 2000 was 41,642,205.

                                  Page 1 of 31

===============================================================================





<PAGE>






                         FRONTIER INSURANCE GROUP, INC.

<TABLE>
<CAPTION>
                                                INDEX                                             PAGE
                                                -----                                             ----
<S>                                                                                                <C>
PART I - FINANCIAL INFORMATION

   Item 1.     Consolidated Financial Statements

               Consolidated Balance Sheets at September 30, 2000 (Unaudited)
                  and December 31, 1999.......................................................     3-4

               Consolidated Statements of Operations and Comprehensive Income (Unaudited)
                  for the Three Months and Nine Months Ended September 30, 2000 and 1999.....        5

               Consolidated Statements of Cash Flows (Unaudited)
                  for the Nine Months Ended September 30, 2000 and 1999.......................       6

               Notes to the Consolidated Financial Statements (Unaudited).....................    7-15

   Item 2.     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations...............................   16-28

   Item 3.     Quantitative and Qualitative Disclosures About Market Risk.....................      28

PART II - OTHER INFORMATION

   Item 1.     Legal Proceedings..............................................................      29

   Item 2.     Changes in Securities..........................................................      29

   Item 3.     Defaults upon Senior Securities................................................      29

   Item 4.     Submission of Matters to a Vote of Security Holders............................      29

   Item 5.     Other Information..............................................................   29-30

   Item 6.     Exhibits and Reports on Form 8-K...............................................      30

Signatures   .................................................................................      31

</TABLE>


                                                  2




<PAGE>




                                   PART I - FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS


                 FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                          (dollar amounts in thousands)

<TABLE>
<CAPTION>

                                                            September 30,         December 31,
                                                                2000                  1999
                                                            ----------------------------------
                                                             (unaudited)
<S>                                                            <C>                 <C>
ASSETS
Investments:
   Fixed maturity securities, available for sale               $  455,713          $1,161,655
   Equity securities, available for sale                           39,181              79,712
   Limited investment partnerships                                 43,500              43,085
   Equity investees                                                17,744              16,968
   Real estate and mortgage loans                                   7,928               8,016
   Short-term investments                                          58,722             105,244
                                                            ----------------------------------
Total investments                                                 622,788           1,414,680

Cash                                                                9,407              43,219
Premiums and agents' balances receivable, less allowances
   for doubtful accounts (2000 - $7,341; 1999- $9,864)            133,181             183,589
Reinsurance recoverables on:
   Paid losses and loss adjustment expenses                        57,363              45,025
   Unpaid losses and loss adjustment expenses                     976,788             473,633
Prepaid reinsurance premiums                                       44,554             176,607
Accrued investment income                                           8,659              16,848
Federal income taxes recoverable                                    9,572                 647
Deferred policy acquisition costs                                  44,389             129,746
Deferred federal income taxes                                       3,933              10,565
Property, furniture, equipment and software                        46,777              57,987
Intangible assets                                                   5,699              44,217
Other assets                                                       36,789              38,774
                                                            ----------------------------------
TOTAL ASSETS                                                   $1,999,899          $2,635,537
                                                            ==================================
</TABLE>

See notes to the consolidated financial statements.





                                        3




<PAGE>




                 FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

              (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>

                                                                   September 30,     December 31,
                                                                       2000              1999
                                                            ---------------------------------------
                                                                    (unaudited)
<S>                                                                 <C>               <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Policy liabilities:
   Unpaid losses                                                    $1,007,683        $   982,123
   Unpaid loss adjustment expenses                                     343,958            331,187
   Unearned premiums                                                   206,454            649,736
                                                            ---------------------------------------
Total policy liabilities                                             1,558,095          1,963,046

Funds withheld under reinsurance contracts                             122,421            137,894
Bank debt                                                               67,800            142,800
Reinsurance balances payable                                            38,942             65,103
Deferred gain on retroactive reinsurance contract                       35,947               --
Other liabilities                                                       61,785             80,796
                                                            ---------------------------------------
TOTAL LIABILITIES                                                    1,884,990          2,389,639

Guaranteed preferred beneficial interest in Company's
   convertible subordinated debentures                                 127,017            167,345

Shareholders' equity:
Preferred Stock, par value $.01 per share
   (shares authorized and unissued: 1,000,000)                             --                --
Common Stock, par value $.01 per share
   (shares authorized : 150,000,000; shares issued:
   2000 - 45,570,113; 1999 - 37,646,663)                                   456                376
Additional paid-in capital                                             495,581            450,886
Accumulated other comprehensive loss, net of tax                        (7,304)           (18,617)
Deficit                                                               (460,985)          (314,431)
                                                            ---------------------------------------
                                                                        27,748            118,214
Treasury Stock - at cost (2000 - 3,927,908 shares;
   1999 - 3,830,570 shares)                                            (39,856)           (39,661)
                                                            ---------------------------------------
TOTAL SHAREHOLDERS' EQUITY (ACCUMULATED DEFICIT)                       (12,108)            78,553
                                                            ---------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                          $1,999,899         $2,635,537
                                                            =======================================
Book value per share                                                    $(0.29)             $2.32
                                                            =======================================
</TABLE>


See notes to the consolidated financial statements.





                                                  4




<PAGE>







                 FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES

         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                                   (Unaudited)
                  (amounts in thousands, except per share data)

<TABLE>
<CAPTION>

                                                         Three Months             Nine Months
                                                      Ended September 30,     Ended September 30,
                                                     2000         1999         2000        1999
                                                  -------------------------------------------------
<S>                                               <C>          <C>          <C>          <C>
REVENUES
Premiums earned                                   $ 116,148    $ 150,181    $ 397,660    $ 428,358
Net investment income                                 9,284       19,365       41,345       58,059

Net realized capital gains (losses)                 (12,052)       1,693      (10,748)       5,415
                                                  -------------------------------------------------
   Total net investment income (loss)                (2,768)      21,058       30,597       63,474

Net gain on sale of renewal rights                    8,038         --          8,038         --
                                                  -------------------------------------------------
   Total revenues                                   121,418      171,239      436,295      491,832

EXPENSES
Losses                                              111,212      136,514      271,511      249,216
Loss adjustment expenses                             25,739       91,111       92,787      139,705
Amortization of policy acquisition costs             30,896       35,015      104,806       96,811
Underwriting and other expenses                      16,478       35,941       61,680       75,838
Restructuring related charges                         7,544         --         17,604         --
ManagedComp termination fee                            --           --          4,500         --
Other corporate expenses                              2,137          808       13,421        2,243
Minority interest in income of consolidated
   subsidiary trust                                   5,222        2,743       10,744        8,230
Interest expense                                      1,952        1,985        5,276        5,262
                                                  -------------------------------------------------
     Total expenses                                 201,180      304,117      582,329      577,305
                                                  -------------------------------------------------
     Loss before income taxes                       (79,762)    (132,878)    (146,034)     (85,473)

Provision for income taxes:
     State                                              240          217          442          990
     Federal                                         (1,019)      42,734           78       56,590
                                                  -------------------------------------------------
Total income tax expense (benefit)                     (779)      42,951          520       57,580
                                                  -------------------------------------------------
     NET LOSS                                       (78,983)    (175,829)    (146,554)    (143,053)
Other comprehensive income (loss), net of tax         5,693      (13,915)      11,313      (40,066)
                                                  -------------------------------------------------
     TOTAL COMPREHENSIVE LOSS                     $ (73,290)   $(189,744)   $(135,241)   $(183,119)
                                                  =================================================
Loss per common share:
     Basic                                        $   (2.19)   $   (5.06)   $   (4.25)   $   (4.05)
                                                  =================================================
     Diluted                                      $   (2.19)   $   (5.06)   $   (4.25)   $   (4.05)
                                                  =================================================
Weighted average common shares outstanding:
     Basic                                           36,032       34,743       34,520       35,323
     Diluted                                         36,032       34,743       34,520       35,323

Cash dividends declared per common share               --      $    0.07         --      $    0.21
                                                  =================================================

</TABLE>

See notes to consolidated financial statements



                                       5



<PAGE>




                 FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                    NINE MONTHS
                                                                                ENDED SEPTEMBER 30,
                                                                               ------------------------
                                                                                 2000           1999
                                                                                 ----           ----
<S>                                                                            <C>          <C>
OPERATING ACTIVITIES
   Net loss                                                                    $(146,554)   $(143,053)
   Adjustments to reconcile net loss to net cash (used in) provided
     by operating activities:
        Purchase of aggregate retroactive reinsurance coverage                  (505,000)        --
        Deferred gain on retroactive reinsurance contract                         35,947         --
        Increase (decrease) in policy liabilities                                (72,605)     283,220
        Increase in reinsurance balances                                         (11,409)     (36,363)
        Decrease (increase) in agents' balances and premiums receivable           32,837      (70,159)
        Decrease (increase) in deferred policy acquisition costs                  22,795      (28,188)
        Decrease (increase) in accrued investment income                           4,631         (901)
        Deferred income tax expense                                                 --         54,580
        Depreciation and amortization                                             31,760       16,319
        Realized capital losses (gains)                                           10,748       (5,415)
        Other, net                                                                17,719       25,019
                                                                               ------------------------
             NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES                (579,131)      95,059

INVESTING ACTIVITIES
   Proceeds from sales of fixed maturity securities                              629,957       84,292
   Proceeds from calls, paydowns and maturities of fixed maturity securities      51,889       81,265
   Proceeds from sales of equity securities                                       41,152       33,512
   Proceeds from sales of limited partnership investments                         10,150         --
   Proceeds from cancellation of interest rate swap                                1,560         --
   Proceeds from sales of wholly-owned subsidiaries, net of cash
      transferred and selling expenses                                           150,138         --
   Purchases of equity securities                                                (15,686)     (49,609)
   Purchases of limited partnership investments                                  (11,323)        --
   Purchases of fixed maturity securities                                       (229,680)    (277,899)
   Purchases of property, furniture, equipment and software                         (580)     (17,542)
   Fees paid and funds loaned to ManagedComp Holdings, Inc. in connection
      with termination of proposed acquisition                                    (8,500)        --
   Purchases of intangible assets                                                   (657)     (16,598)
   Short-term investments, net                                                     2,094       61,896
   Other, net                                                                       --         (7,480)
                                                                               ------------------------
             NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                 620,514     (108,163)

FINANCING ACTIVITIES
   Proceeds from bank borrowings                                                    --         40,300
   Repayment of bank borrowings                                                  (75,000)        --
   Cash dividends paid                                                              --         (7,459)
   Issuance of common stock                                                         --            537
   Purchases of treasury stock, net                                                 (195)     (25,781)
                                                                               ------------------------
             NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                 (75,195)       7,597
                                                                               ------------------------
             DECREASE IN CASH                                                    (33,812)      (5,507)
                                                                               ------------------------
             CASH AT BEGINNING OF YEAR                                            43,219       28,335
                                                                               ------------------------
             CASH AT END OF PERIOD                                             $   9,407    $  22,828
                                                                               ========================

</TABLE>

See notes to consolidated financial statements.



                                        6




<PAGE>







                 FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1.  BASIS OF PRESENTATION

    The accompanying unaudited consolidated financial statements have been
    prepared in accordance with the instructions to Form 10-Q and Article 10 of
    Regulation S-X and, accordingly, do not include all of the information and
    footnotes required by generally accepted accounting principles for complete
    financial statements and should be read in conjunction with the consolidated
    financial statements and notes thereto included in the Company's Annual
    Report on Form 10-K for the year ended December 31, 1999. In the opinion of
    management, all adjustments (consisting of only normal, recurring accruals)
    considered necessary for a fair presentation have been included. Certain
    amounts in the 1999 financial statements have been reclassified to conform
    to the 2000 presentation. Operating results for the nine-month period ended
    September 30, 2000 are not necessarily indicative of the results that may be
    expected for the year ending December 31, 2000. Also, refer to "Management's
    Discussion and Analysis of Financial Condition and Results of Operations"
    for disclosures regarding the Company's reportable segments.

2.  EARNINGS PER COMMON SHARE

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

<TABLE>
<CAPTION>

                                                           Three Months Ended         Nine Months Ended
                                                             September 30,              September 30,
                                                        -------------------------------------------------
                                                           2000         1999          2000         1999
                                                        -------------------------------------------------
<S>                                                     <C>         <C>          <C>          <C>
NUMERATOR:
Net loss                                                $(78,983)   $(175,829)   $(146,554)   $(143,053)
                                                        ================================================
Numerator for basic loss per share--loss
   available to common shareholders                      (78,983)    (175,829)    (146,554)    (143,053)
Effect of dilutive securities:
   Minority interest in income of
      consolidated subsidiary trust                         --           --           --           --
                                                        -------------------------------------------------
Numerator for diluted loss per share--loss available
   to common shareholders after assumed conversions     $(78,983)   $(175,829)   $(146,554)   $(143,053)
                                                        ================================================
DENOMINATOR:
Denominator for basic loss per share--weighted
   average shares                                         36,032       34,743       34,520       35,323
Effect of dilutive securities:
   Convertible Trust Originated Preferred Securities        --           --           --           --
   Employee stock options                                   --           --           --           --
                                                        -------------------------------------------------
Dilutive potential common shares                            --           --           --           --
                                                        -------------------------------------------------
Denominator for diluted loss per share--adjusted
   weighed average shares and assumed conversions         36,032       34,743       34,520       35,323
                                                        ================================================
Loss per common share:
   Basic                                                $  (2.19)   $   (5.06)   $   (4.25)   $   (4.05)
                                                        ================================================
   Diluted                                              $  (2.19)   $   (5.06)   $   (4.25)   $   (4.05)
                                                        ================================================
</TABLE>






                                        7




<PAGE>




                 FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                                   (UNAUDITED)

3.  SALES OF SUBSIDIARIES

    Effective January 20, 2000, the Company sold Lyndon Insurance Group, Inc.
    ("Lyndon") to Protective Life Insurance Company ("Protective") for $163.5
    million in cash. After legal and advisory fees, other selling costs and
    estimated purchase price adjustments, the Company recognized a gain of
    approximately $1.2 million, which is included in net realized capital gains
    (losses) in the accompanying consolidated statements of operations.

    The purchase price was subject to adjustment based on a target level of
    adjusted capital and surplus for Lyndon, as defined in the purchase
    agreement. The aforementioned $1.2 million gain reflects estimated net
    purchase price adjustments of approximately $4.5 million that the Company
    believes is due from Protective. In connection with finalizing the purchase
    price adjustment, disagreements arose between the Company and Protective
    regarding certain amounts reflected in Lyndon's closing balance sheet,
    particularly which party would be responsible for approximately $9.3 million
    in federal income taxes, which under the group tax sharing agreement would
    be payable to the Company by Lyndon.

    The Company and Protective have been unable to resolve their disagreements
    and, pursuant to the purchase agreement, the matters will be decided by an
    independent arbitrator. Based on the provisions of the purchase agreement
    and terms of a group tax sharing agreement between its subsidiaries
    (including Lyndon), management, in consultation with outside legal counsel,
    believes that the Company will prevail in the arbitration process and
    ultimately collect the $4.5 million due from Protective.

    Following is a summary of Lyndon's revenues and expenses included in the
    accompanying statements of operations (in thousands, except for per share
    data):

<TABLE>
<CAPTION>

                                                     THREE MONTHS ENDED        NINE MONTHS ENDED
                                                     SEPTEMBER 30, 1999        SEPTEMBER 30, 1999
                                                     --------------------------------------------

<S>                                                       <C>                     <C>
Premiums earned                                           $19,638                 $56,962
Net investment income                                       4,041                  11,873
Realized gains                                                352                     692
                                                     --------------------------------------------
  Total revenues                                           24,031                  69,527

Losses                                                     11,746                  30,855
LAE                                                         1,092                   3,552
Amortization of policy acquisition costs                    5,107                  11,583
Underwriting and other expenses                             4,278                  12,681
                                                     --------------------------------------------
  Total expenses                                           22,223                  58,671
                                                     --------------------------------------------
     Income before income taxes                             1,808                  10,856
Provision for income taxes                                    346                   3,093
                                                     --------------------------------------------
  Net income                                              $ 1,462                 $ 7,763
                                                     ============================================
Earnings per common share:
  Basic                                                   $   .04                 $  .22
                                                     ============================================
  Diluted                                                 $   .04                 $  .22
                                                     ============================================
</TABLE>


                                        8




<PAGE>


     Effective June 1, 2000, the Company sold Regency Insurance Company
     ("Regency") to Tomoka Re Holdings, Inc. for approximately $6.7 million in
     cash. After transaction costs, the Company recognized a loss of
     approximately $2.3 million, which is included in net realized capital gains
     (losses) in the accompanying consolidated statements of operations.
     Regency's operations were not material to the consolidated financial
     statements. For the three and nine months ended September 30, 1999, Regency
     recognized net income of approximately $198,000 and $353,000, respectively.
     For the five months ended May 31, 2000, Regency recognized a net loss of
     approximately $1.4 million.

     Following is a summary of the assets and liabilities related to Lyndon and
     Regency which are included in the accompanying consolidated balance sheet
     at December 31, 1999 (in thousands):

<TABLE>
<CAPTION>

                                                        LYNDON         REGENCY           TOTAL
                                                       --------       --------         --------
<S>                                                    <C>             <C>             <C>
ASSETS
    Invested assets                                    $306,420        $10,651         $317,071
    Other assets                                        214,817         37,119          251,936
                                                       --------       --------         --------
                                                       $521,237        $47,770         $569,007
                                                       ========       ========         ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
    Unpaid losses and LAE                              $ 46,168        $14,542         $ 60,710
    Unearned premiums                                   286,178         19,154          305,332
    Other liabilities                                    38,139          3,739           41,878
                                                       --------       --------         --------
Total liabilities                                       370,485         37,435          407,920
Shareholder's equity                                    150,752         10,335          161,087
                                                       --------       --------         --------
Total liabilities and shareholder's equity             $521,237        $47,770         $569,007
                                                       ========       ========         ========
</TABLE>


     In June 2000, the Company closed its wholly-owned subsidiary, OneStop.com,
     Inc. ("OneStop"), an ecommerce entity created during the second quarter of
     1999 to market products and services to affinity groups via the internet.

     OneStop recognized net losses of approximately $1.9 million and $2.1
     million for the three and nine months ended September 30, 1999,
     respectively, and approximately $1 million and $11.7 million for the three
     and nine-months ended September 30, 2000, respectively. Such losses,
     excluding approximately $1 million and $5.5 million in restructuring
     related charges (including approximately $0.8 million of severance costs)
     for the three and nine months ended September 30, 2000, respectively, are
     included in other corporate expenses in the accompanying consolidated
     statements of operations.

     On July 11, 2000, the Company sold OneStop to SolutionsAmerica, Inc.
     ("SolutionsAmerica"), a privately owned development stage e-commerce
     entity. The Company received one million shares of SolutionsAmerica's
     common stock representing an approximate 10% ownership interest in
     SolutionsAmerica. Due to the developmental stage of SolutionsAmerica,
     including cumulative net losses, no value has been assigned to the stock by
     the Company.

4.   SALE OF RENEWAL RIGHTS

     On August 4, 2000, the Company sold to Gulf Insurance Company ("Gulf") the
     renewal rights to policies related to its environmental, excess and surplus
     lines casualty business and certain classes of surety business
     (collectively, the "Business"). Under the agreement, Gulf is obligated to
     pay the Company 30% of the insurance premiums for the renewal term from
     policies written by Gulf or its affiliates with respect to the Business
     (and, in certain limited instances, with respect to new policies) and an
     additional 5% of the premiums, if any, in excess of $50 million. Gulf made
     a non-refundable advance payment of $8.4 million at the closing against
     these obligations and is obligated to make an additional non-refundable
     advance payment of $3.6 million during the fourth quarter of 2000, provided
     that the Company has complied with its



                                        9




<PAGE>





     obligations to promptly refund premiums to customers of the Business that
     replace their current policies with policies written by Gulf.

     As the Company has no obligation for any continuing involvement with the
     Business, the $12 million non-refundable payment, net of approximately $4
     million in selling costs, is reflected as a gain in the accompanying
     consolidated financial statements. Any additional consideration to be
     received by the Company is contingent upon renewal premiums exceeding $40
     million. Since the Company is not able to reasonably estimate the amount of
     future renewal premiums, any additional consideration will be recognized
     once the actual renewal premiums exceed $40 million and the contingent
     consideration is due to the Company.

     In connection with the sale of the renewal rights during the third quarter
     of 2000, the Company wrote-off remaining goodwill related to the
     Environmental, Excess and Surplus Lines and Surety Divisions of
     approximately $5.6 million which is included in restructuring related
     charges in the accompanying consolidated statements of operations.

5.   EXCHANGE OF CONVERTIBLE TRUST ORIGINATED PREFERRED SECURITIES ("TOPrS")


     During the third quarter of 2000, the Company issued 7,923,450 shares of
     its Common Stock in exchange for 833,900 TOPrS, which included
     approximately $1.7 million in deferred interest payments, in a series of
     privately negotiated transactions. Following the exchanges, the acquired
     TOPrS were cancelled, together with approximately $42 million in principal
     amount of the related convertible debentures issued by the Company. The
     fair value of the Common Stock issued to TOPrS holders was approximately
     $4.1 million and the carrying value of the TOPrS (and related convertible
     debentures) cancelled, net of unamortized offering costs of approximately
     $1.2 million, was approximately $40.5 million.

     As a result of the exchanges, the Company recognized a non-cash inducement
     charge of approximately $2.6 million, representing the fair value of the
     shares of Common Stock issued in excess of the contractual conversion rate
     of 2.3461 shares per TOPrS, net of the deferred interest and related
     unamortized offering costs. This amount is included in minority interest in
     income of consolidated subsidiary trust in the accompanying consolidated
     financial statements.


6.    COMPREHENSIVE INCOME

     The components of comprehensive loss are as follows (in thousands):

<TABLE>
<CAPTION>

                                               THREE MONTHS                   NINE MONTHS
                                            ENDED SEPTEMBER 30,           ENDED SEPTEMBER 30,
                                          -------------------------------------------------------
                                             2000           1999           2000           1999
                                          -------------------------------------------------------
<S>                                        <C>            <C>           <C>            <C>
Net loss                                   $(78,983)      $(175,829)    $(146,554)     $(143,053)
Other comprehensive loss:
    Unrealized gains (losses), net of tax     5,693         (13,915)       11,313        (40,066)
                                          -------------------------------------------------------
      Total comprehensive loss             $(73,290)      $(189,744)    $(135,241)     $(183,119)
                                          =======================================================
</TABLE>

     Accumulated other comprehensive loss consists of unrealized losses of $7.3
     million and $18.6 million related deferred federal income tax, as of
     September 30, 2000 and December 31, 1999, respectively.



                                       10




<PAGE>





7.    REINSURANCE

     The effect of reinsurance on premiums written and earned is as follows (in
     thousands):

<TABLE>
<CAPTION>

                  THREE MONTHS ENDED SEPTEMBER 30,                      NINE MONTHS ENDED SEPTEMBER 30,
           ----------------------------------------------      ------------------------------------------------
                   2000                      1999                      2000                       1999
                 Premiums                  Premiums                  Premiums                   Premiums
           --------------------     --------------------       -------------------      -----------------------
           Written    Earned         Written   Earned          Written    Earned        Written      Earned
           --------   ---------      --------  --------        --------   -------       --------     --------
<S>        <C>        <C>            <C>       <C>             <C>        <C>           <C>          <C>
Direct     $ 75,436   $127,487       $266,061  $214,830        $331,570  $ 484,404     $ 722,533    $ 609,418
Assumed      24,598     29,392         22,992    13,817          78,562     63,375        40,664       34,104
Ceded       (25,214)   (40,731)       (92,949)  (78,466)        (97,292)  (150,119)     (246,357)    (215,164)
           --------   ---------      --------  --------        --------  ---------     ---------    ---------
Net        $ 74,820   $116,148       $196,104  $150,181        $312,840  $ 397,660     $ 516,840    $ 428,358
           ========   =========      ========  ========        ========  =========     =========    =========
</TABLE>

     The effect of reinsurance ceded decreased incurred loss and loss adjustment
     expense ("LAE") as follows (in thousands):

<TABLE>
<CAPTION>

                       THREE MONTHS ENDED SEPTEMBER 30,         NINE MONTHS ENDED SEPTEMBER 30,
                            2000            1999                          2000            1999
                         -------------------------------          -------------------------------

<S>                        <C>             <C>                         <C>            <C>
Incurred losses            $65,365         $54,054                     $130,602       $143,526
Incurred LAE                 8,843           2,044                       14,490         18,852
</TABLE>


    COMMUTATION OF UNICOVER AGREEMENT
    During the first quarter of 2000, the Company rescinded a reinsurance
    agreement with Reliance Insurance Company related to certain workers'
    compensation programs placed through Unicover Managers. As a result of the
    recission, the Company reversed approximately $12.3 million and $10.3
    million of previously ceded premiums written and earned, respectively.
    Additionally, the Company reversed approximately $4.9 million of ceded
    commission income and approximately $8.1 million of ceded incurred losses
    and LAE. Also, the Company received a cancellation fee of approximately $3.7
    million, which is reflected in underwriting and other expenses in the
    accompanying consolidated statements of operations.

    AGGREGATE STOP-LOSS AGREEMENT
    On September 27, 2000, the Company entered into a retroactive aggregate
    reinsurance contract with National Indemnity Company ("National Indemnity"),
    a subsidiary of Berkshire Hathaway, Inc., relating to approximately $514.3
    million in loss and LAE reserves held on June 30, 2000 for accident years
    1999 and prior for Frontier Insurance Company ("Frontier"). The agreement
    provides for up to $285.7 million in additional coverage in excess of the
    reserves held at June 30, 2000.

    Under the agreement, the Company paid National Indemnity $505 million. The
    $9.3 million gain, representing the difference between the amount paid and
    the recorded reserves of $514.3 million, was deferred and will be recognized
    in earnings over the settlement period of the underlying claims. Further,
    the Company is currently in discussions with National Indemnity regarding
    reinsurance recoverables on claims paid by the Company prior to the
    effective date of the contract. If National Indemnity's interpretation
    prevails, the Company could owe National Indemnity additional consideration
    of up to approximately $6.5 million which could result in an offsetting
    reduction to the deferred gain. During the third quarter of 2000, Frontier
    increased its loss and LAE reserves relating to accident years 1999 and
    prior (and covered under this contract) by approximately $30.3 million and,
    accordingly, recorded an additional deferred gain. The Company recognized
    $3.7 million of the deferred gain during the third quarter of 2000 as a
    reduction of incurred losses. At September 30, 2000 the accompanying balance
    sheet reflects reinsurance recoverables on unpaid losses and LAE related to
    this contract of approximately $478 million and a deferred gain of $35.9
    million.

    In connection with the reinsurance agreement with National Indemnity, the
    Company is currently negotiating a novation of the existing stop loss
    reinsurance agreements between the Company and Zurich Reinsurance (North
    America), Inc. ("Zurich N.A.") which cover accident years 1995 through 1998.
    Under the terms of the


                                       11




<PAGE>




    novation, National Indemnity would receive a premium of approximately $170
    million in exchange for assuming the liabilities related to the business
    covered by the Zurich N.A. stop loss reinsurance agreements. Although terms
    of a definitive agreement are still to be negotiated, $107 million of the
    premium would be expected to be paid by the Company and, upon its approval
    of an agreement, $63 million would be expected to be paid by Zurich N.A.
    Funds withheld by the Company at September 30, 2000 under the Zurich N.A.
    treaties and reported as a liability in the accompanying balance sheet were
    approximately $105 million. The Company expects that a definitive agreement
    will be executed during the fourth quarter of 2000.

8.  CREDIT FACILITY AND DEBT COVENANTS

    The Company is in violation of certain financial covenants under the terms
    of the credit facility with a syndicate of five banks led by Deutsche Bank
    A.G. ("Deutsche Bank"). These violations permit Deutsche Bank to elect to
    accelerate repayment of amounts outstanding under the credit facility and
    exercise their rights with respect to the stock and ownership interests
    pledged as collateral.

    In addition, the Company is in violation of certain financial cross-default
    provisions included in agreements underlying the guarantees by the Company
    of the bank loan to Douglass/Frontier LLC and amounts borrowed by executive
    employees under the officer loan program. These violations permit the lender
    to accelerate repayment of amounts borrowed, which would likely result in a
    demand for payment from the Company.

    The Company is currently negotiating revisions to its financial covenants
    with its lenders.

9.  RELATED PARTY TRANSACTIONS

    METRO PARTNERS, INC.
    As previously disclosed in the Company's 1999 Form 10-K, at December 31,
    1999, the Company maintained a 60% interest in Metro Partners, Inc. ("Metro
    Partners"). Metro Partners, organized in 1998 by an executive vice president
    and a director of the Company, provides administrative services to insurance
    agents and brokers. In January of 2000, the Company purchased Emmis
    Holdings, a holding company which owned 30% of Metro Partners for
    approximately $97,000, thus increasing the Company's ownership in Metro
    Partners to 90%. The purchase price for the additional 30% interest exceeded
    the related net tangible assets by approximately $750,000, which amount was
    immediately written off and is reflected in other corporate expenses in the
    accompanying consolidated statements of operations.

    Although the Company believed that increasing its ownership interest in
    Metro Partners would provide increased opportunities for product
    distribution by its insurance subsidiaries, due to the continued operating
    losses of Metro Partners, on June 15, 2000, the Company terminated its
    ownership interest and entered into a restructuring agreement (the
    "Agreement"). In exchange for its 90% ownership interest, the Company
    received 1,040 shares of non-voting, non-convertible, 8%, cumulative
    preferred stock, and a five year warrant to purchase up to 15% of Metro
    Partners' common stock at a purchase price of $5 per share. The preferred
    stock is redeemable at the option of Metro Partners at a price of $5,000 per
    share, plus accrued dividends. At least 50% of cumulative dividends are
    required to be paid in cash each year commencing on June 15, 2001. In
    addition, the Agreement provides for mandatory redemptions of the preferred
    stock equal to ten percent of the net cash proceeds received at the closing
    of any equity financing secured by MetroPartners. As of the date of the
    Agreement, the Company has no common stock ownership interest in Metro
    Partners.

    The Company is carrying its investment in the preferred stock at
    approximately $530,000, which approximates the carried value of its former
    ownership interest in Metro Partners at the date of the restructuring
    agreement. No value has been assigned to the warrant. Metro Partners is
    currently seeking other capital raising alternatives. Failure on the part of
    Metro Partners to secure additional capital would have a material adverse
    effect on the carrying value of preferred stock.

    Through June 15, 2000, net losses recognized by Metro Partners included in
    other corporate expenses in the accompanying consolidated statements of
    operations amounted to approximately $1 million.


                                       12






<PAGE>

     DIRECTOR AND OFFICER LOANS AND GUARANTEES
     As disclosed in the Company's 1999 Form 10-K, at December 31, 1999 the
     Company had pledged collateral for, or guaranteed amounts owed by, Thomas
     J. Dietz ("Dietz"), an officer of the Company, and Peter L. Rhulen
     ("Rhulen"), a director of the Company, of approximately $2 million and $8.6
     million, respectively, related to personal obligations of Dietz and Rhulen.
     In addition to the $8.6 million guaranty for Rhulen, at December 31, 1999,
     the Company had transferred $4.5 million of United States Treasury Notes
     ("Treasuries") to an account maintained by Rhulen as collateral for another
     personal obligation. In exchange, Rhulen transferred to the Company 930,212
     personally owned shares of the Company's Common Stock which, at the date of
     transfer, had a market value approximating the value of the Treasuries.

     During the first quarter of 2000, Dietz repaid $250,000 to his creditors
     and transferred to the Company personally owned shares of the Company's
     Common Stock with a market value of $200,000, which transactions reduced
     the Company's exposure to Dietz's obligations to approximately $1.6
     million. At December 31, 1999, the Company had established an allowance for
     its exposure to the Dietz obligations of $750,000. During the third quarter
     of 2000, based on an evaluation of the creditworthiness of, and security
     pledged by Dietz, the Company increased this allowance by $850,000 to fully
     reserve this exposure. The additional $850,000 is reflected in other
     corporate expenses in the accompanying consolidated statements of
     operations.

     During the first quarter of 2000, Rhulen repaid his creditor approximately
     $8.2 million, reducing the Company's guaranty to approximately $400,000 at
     March 31, 2000. Further, in October of 2000, Rhulen satisfied an additional
     $278,000 of the Company's guaranty which reduced the Company's outstanding
     guaranty to $122,000. Additionally, Rhulen repaid approximately $547,000
     related to his obligations for which the Company had previously transferred
     the Treasuries. Accordingly, Treasuries currently held by Rhulen were
     reduced to approximately $4 million. The Company continues to hold the
     930,212 shares of Common Stock previously transferred by Rhulen.

     OFFICER LOAN PROGRAM
     In December 1998, the Company initiated a program to facilitate the
     purchase of its Common Stock by key management executives. Under the
     program, a financial institution loaned funds to the executive for such
     purchase and the shares were pledged to the financial institution as
     collateral for the loan by the executive, who is be responsible for its
     repayment and payment of the related interest. The amount borrowed by the
     executive is guaranteed by the Company. At September 30, 2000, the total
     outstanding amount borrowed by current and former executives and guaranteed
     by the Company was approximately $4.1 million.

     Although executives participating in the program are responsible for the
     loan repayment and related interest, the Company recorded a non-cash charge
     of approximately $1 million related to its guarantees for officers no
     longer employed by the Company. Additionally, in an attempt to retain its
     current key executives, the Company's Board of Directors authorized
     management to develop a plan under which a portion of the amounts owed by
     current officers would be repaid on their behalf by the Company. Although
     the terms and conditions of the plan have not been finalized, during the
     third quarter the Company recorded a non-cash charge of approximately $1.9
     million related to the obligations of current officers participating in the
     program. The total estimated liability of $2.9 million is included in other
     corporate expenses and other liabilities in the accompanying consolidated
     financial statements.

10.  RESTRUCTURING RELATED CHARGES

     As part of its Corrective Action Plan ("CAP") implemented during the first
     quarter of 2000, the Company has decided to reduce staffing levels,
     including closing or selling several of its underwriting operations.

     Through the nine months ended September 30, 2000, the Company terminated
     approximately 389 employees, including 78 during the third quarter.
     Severance costs recognized as a result of such terminations amounted to
     approximately $0.9 million and $4.8 million for the three and nine months
     ended September 30, 2000.



                                       13









<PAGE>




    Following is a summary of the accrued severance costs included in other
    liabilities in the accompanying consolidated financial statements:


<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED                          Nine Months Ended
                                    ----------------------------------------------------     ------------------
                                    MARCH 31, 2000    JUNE 30, 2000   SEPTEMBER 30, 2000     SEPTEMBER 30, 2000
                                    ----------------------------------------------------     ------------------
<S>                                  <C>                <C>                <C>                    <C>
Balance at beginning of period       $     -            $ 2,071            $   703                $    --
   Provision for severance costs       2,687              1,164                934                  4,785
   Severance benefits paid              (616)            (2,532)            (1,247)                (4,395)
                                    ----------------------------------------------------       -------------
Balance at end of period             $ 2,071            $   703            $   390                $   390
                                    ====================================================       =============
</TABLE>

    In addition, goodwill of approximately $2.5 million related to the closing
    of a small underwriting operation within the Environmental, Excess and
    Surplus Lines Division was written off during the second quarter of 2000.

    As a result of the sale of certain renewal rights during the third quarter
    of 2000 (see Note 4 - Sale of Renewal Rights), the Company wrote-off the
    remaining goodwill related to the Environmental, Excess and Surplus Lines
    and Surety Divisions of approximately $5.6 million.

    Restructuring related charges also include a write down of approximately
    $3.7 million for certain assets related to the closure of OneStop during the
    second quarter and approximately $1 million in additional closing costs
    during the third quarter related to the "winding down" of OneStop's
    operations prior to its sale (refer to Note 3 - Sales of Subsidiaries).

    The Company expects additional restructuring and related severance costs
    will be incurred in the future as it continues to implement its expense
    reduction and cost containment initiatives.

11. IMPAIRMENT OF INTANGIBLE ASSETS
    In April 2000, the Company's insurance subsidiaries were downgraded to C++
    ("Marginal") by A.M. Best, Inc. ("A.M. Best"). In July 2000, the Surety Bond
    Branch of the United States Treasury removed Frontier and Frontier Pacific
    Insurance Company ("Frontier Pacific") from its listing of insurance
    companies deemed acceptable for the purpose of writing certain bonds
    ("T-Listing"), primarily subdivision, customs and miscellaneous guarantee
    bonds.

    Primarily due to the downgrade by A.M. Best and the loss of Frontier's and
    Frontier Pacific's T-Listing, during the second quarter of 2000 the Company
    wrote off approximately $2.7 million and $7.4 million of intangible assets
    related to previous acquisitions of certain insurance agencies and renewal
    rights within its Environmental, Excess and Surplus Lines Division and
    Surety Division, respectively. The Company determined that the expected
    undiscounted cash flows related to the business generated by the acquired
    agencies or renewal rights would not be sufficient to support the valuation
    of the related intangible asset. The total $10.1 million impairment charge
    is included in underwriting and other expenses in the accompanying
    consolidated statements of operations.

12. STATUTORY FINANCIAL AND OTHER INFORMATION
    At September 30, 2000 and December 31, 1999, the consolidated amounts of the
    Company's insurance subsidiaries' policyholders' surplus on a statutory
    accounting practices ("SAP") basis were approximately $79.7 million and
    $307.8 million ($203.4 million excluding Lyndon and Regency), respectively.
    These amounts reflect a discount of Frontier's medical malpractice loss and
    LAE reserves, which varies from prescribed SAP as permitted by the State of
    New York Insurance Department, of approximately $7 million and $53.6 million
    at September 30, 2000 and December 31, 1999, respectively. The December 31,
    1999 discount amount was reversed as a result of the purchase of the
    aggregate stop loss reinsurance treaty with National Indemnity.

    Continuing statutory losses have significantly weakened the financial
    condition of the Company and its insurance subsidiaries. Most notably,
    during the third quarter of 2000, Western Indemnity Insurance Company
    ("Western") was placed under administrative oversight following the
    conclusion of an examination


                                                 14







<PAGE>




    by the Texas Department of Insurance. Western has filed a plan of withdrawal
    with the Texas Department of Insurance under which, Western will no longer
    write any new or renewal business. Western represented approximately 3.3%
    and 4% of the Company's consolidated net premiums written and earned,
    respectively, during 1999.

    In addition, the Company has voluntarily agreed to stop writing new and
    renewal business in certain states as a result of its weakened financial
    condition. One state has suspended the Certificate of Authority of Frontier.
    Net premiums written and earned in these states are not expected to have a
    significant impact on the potential future writings of the Company.



                                       15







<PAGE>






ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: This Quarterly Report on Form 10-Q contains forward-looking statements,
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, which are not historical facts and
involve risks and uncertainties that could cause actual results to differ
materially from those expected and projected. These forward-looking statements
reflect Frontier's current views about future events. These forward-looking
statements are identified, in part, by their use of terms including, but not
limited to, "expects," "continues," "believes," "intends," "plans,"
"anticipate," and similar expressions identifying forward-looking statements.
These forward-looking statements also include any statement whose accuracy can
be discerned sometime in the future. These forward-looking statements are
subject to a variety of risks and uncertainties include the following: recent
rating agency downgrades, lack of liquidity, regulatory agency oversight,
actions by state regulators limiting Frontier's ability to write new or renewal
business, withdrawal or failure to obtain endorsements from medical
organizations, the ability to negotiate rate increases, the need to re-negotiate
financial covenants under which the Company is in violation, general economic
conditions and conditions specific to the property and casualty insurance
industry including its cyclical nature, regulatory changes and conditions,
rating agency policies and practices, competitive factors, claims development
and the impact thereof on loss reserves and the Company's reserving policies,
the adequacy of the Company's reinsurance programs, developments in the
securities markets and the impact on the Company's investment portfolio, changes
in generally accepted accounting principles and the risk factors set forth in
the Company's other Securities and Exchange Commission filings. Accordingly,
there can be no assurance that the actual results will conform to the
forward-looking statements in this Quarterly Report.

The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Quarterly Report and with the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.


REPORTABLE SEGMENTS

The Company's operations include approximately 130 insurance programs classified
in six reportable segments: Professional Liability (previously the Health Care
Segment); Surety; Alternative Risk; Specialty Programs; Environmental, Excess
and Surplus Lines; and Personal and Credit-Related. The Company's reportable
segments are divisions that offer different types of coverages and are managed
separately because of the specialized nature of the related products
underwritten.

During the second quarter of 2000, the Company revised the composition of its
operating segments. The change in segments involved the reclassification of the
Company's health and human services business from the Health Care Division
(renamed the Professional Liability Division) to the Specialty Programs Division
and the reclassification of the Company's errors and omissions and director and
officer liability business from the Specialty Programs Division to the
Professional Liability Division. All information for the Company's reportable
segments has been restated to reflect the change in segment composition.

The following is a summary of premiums earned by segment (in thousands):


<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                    SEPTEMBER 30,                     SEPTEMBER 30,
                                               ---------------------              -----------------------
                                                 2000         1999                  2000          1999
                                               ---------------------              -----------------------
<S>                                            <C>          <C>                   <C>           <C>
NET PREMIUMS EARNED BY SEGMENT:
  Professional Liability                       $ 20,564     $ 21,597              $ 71,219      $ 78,528
  Surety (1)                                     21,231       26,450                78,537        72,337
  Alternative Risk                                3,537        3,870                28,923        17,874
  Specialty Programs                             51,443       51,670               155,961       136,023
  Environmental, Excess and Surplus Lines (1)    17,405       16,855                46,815        47,684
  Personal and Credit Related (2):
    Lyndon                                           --       19,638                    --        56,962
    Other                                         1,968       10,101                16,205        18,950
                                               --------     --------              --------      --------
       Total                                   $116,148     $150,181              $397,660      $428,358
                                               ========     ========              ========      ========
</TABLE>



                                       16







<PAGE>


The following is a summary of profit (loss) by segment (in thousands):


<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED                  NINE MONTHS ENDED
                                                    SEPTEMBER 30,                      SEPTEMBER 30,
                                              ------------------------            ----------------------
                                                 2000          1999                 2000         1999
                                              ------------------------            ----------------------
<S>                                            <C>            <C>                  <C>           <C>
SEGMENT PROFIT (LOSS):
  Professional Liability                      $(13,812)      $(76,486)            $ (28,779)    $ (60,655)
  Surety (1)                                    (5,506)        12,533               (13,602)       20,185
  Alternative Risk                              (5,415)       (10,839)                2,467         1,942
  Specialty Programs                           (40,685)       (72,730)              (89,172)      (98,842)
  Environmental, Excess and Surplus Lines (1)   (4,021)         2,301                (9,465)        6,661
  Personal and Credit Related (2):
    Lyndon                                        --           (3,207)                 --          (2,347)
    Other                                         (970)            28                (2,413)         (156)
                                              -----------------------             -----------------------
Total segment loss                             (70,409)      (148,400)             (140,964)     (133,212)
Reconciling items:
    Total net investment income (loss)          (2,768)        21,058                30,597        63,474
    Amortization of deferred gain                3,709           --                   3,709          --
    Interest expenses                           (7,174)        (4,728)              (16,020)      (13,492)
    Other corporate expenses, net (3)           (3,120)          (808)              (23,356)       (2,243)
                                               ----------------------             -----------------------
  Consolidated loss before taxes              $(79,762)     $(132,878)             (146,034)    $ (85,473)
                                               ======================             =======================
</TABLE>

(1) In August 2000, the Company sold the renewal rights to certain classes of
    business written through these segments (see Note 4 of the Notes of the
    Consolidated Financial Statements--Sale of Renewal Rights).

(2) Effective January 20, 2000, the Company sold Lyndon Insurance Group, Inc.
    ("Lyndon") through which the majority of business in this segment was
    written in 1999. Effective June 1, 2000, the Company sold Regency Insurance
    Company through which the majority of business in this segment has been
    written in 2000.

(3) For the nine months ended September 30, 2000, other corporate expenses
    included the ManagedComp termination fee, OneStop restructuring charges,
    and other corporate expenses of approximately $4.5 million, $5.5 million
    and $13.4 million, respectively.

The following table sets forth the Company's combined ratio calculated on a
statutory basis ("Statutory Combined Ratio") and on the basis of generally
accepted accounting principles ("GAAP Combined Ratio") for the periods
indicated:


<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                      SEPTEMBER 30,                         SEPTEMBER 30,
                                              ----------------------------           --------------------------
                                                   2000            1999                 2000           1999
                                              ----------------------------           --------------------------
<S>                                                <C>             <C>                   <C>           <C>
STATUTORY COMBINED RATIO:
Losses                                             97.5%           94.2%                 73.9%         59.6%
Loss adjustment expenses ("LAE")                   20.9            64.6                  22.9          34.9
Underwriting and other operating expenses          52.5            34.1                  47.7          34.3
                                              ----------------------------         ---------------------------
    Total combined ratio                          170.9%          192.9%                144.5%        128.8%
                                              ============================         ===========================
GAAP COMBINED RATIO
Losses                                             95.8%           90.9%                 68.3%         58.2%
LAE                                                22.2            60.7                  23.3          32.6
Underwriting and other operating expenses (1)      49.9            47.8                  51.0          40.8
                                              ----------------------------         ---------------------------
    Total combined ratio                          167.9%          199.4%                142.6%        131.6%
                                              ============================         ===========================
</TABLE>

(1) For purposes of calculating the GAAP Combined Ratio, underwriting and other
    operating expenses include amortization of policy acquisition costs,
    underwriting and other expenses, restructuring related charges, the
    ManagedComp termination fee and other corporate expenses.


                                       17






<PAGE>





SEGMENT RESULTS

Overall, segment results for the three and nine months ended September 30, 2000
reflect increased ultimate loss and LAE ratios utilized as a result of an
in-depth actuarial study completed during the third quarter of 1999.
Additionally, continued deterioration during 2000 for business written primarily
in years 1999 and prior resulted in additional reserve charges during the three
and nine month 2000 periods of approximately $42.4 million and $66 million,
respectively (see management's discussion of the results for the three and nine
months ended September 30, 2000 -- Losses and LAE).

Additionally, as a result of certain underwriting actions implemented (including
terminating several agent relationships), rating agency downgrades, the loss of
its T-Listing, and the sale of renewal rights to to Gulf, the Company
experienced a 50.5% and 25.7% decline in net written premiums for the three and
nine months ended September 30, 2000 compared to the respective 1999 periods
(excluding Lyndon) (see management's discussion of the results for the three and
nine months ended September 30, 2000 -- Net Premiums Earned).

The 2000 segment results were also impacted by several significant charges
including restructuring and impairment charges, and increased acquisition costs
due to cut-through reinsurance arrangements. Finally, while management has seen
some impact of its cost containment and expense saving initiatives, expenses are
not declining in direct proportion to net earned premiums. The Company is
continuing to execute its Corrective Action Plan and expects to see further
expense reductions throughout the remainder of 2000.

THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999

NET PREMIUMS EARNED
The $34 million or 23% decrease in net premiums earned during the three months
ended September 30, 2000 from the same period in 1999 was primarily attributable
to the current year sales of Lyndon and Regency, planned decreases in
unprofitable programs within the Professional Liability Division, the negative
effect of the loss of Frontier's and Frontier Pacific's Treasury Listing and
rating agency downgrades which have impaired the Company's ability to write
new and renewal business, underwriting actions, including terminated
relationships with certain agents and competitive pricing conditions in
the market.

The decrease in these divisions was slightly offset by the growth in premiums
earned within the Environmental, Excess and Surplus Lines Division for the
quarter, which does not yet reflect the full negative impact on premiums written
that the rating agency downgrade is expected to have.

Net premiums earned for the Professional Liability Division decreased 5% from
$21.6 million during the three month period ended September 30, 1999 to $20.6
million for the same period in 2000 primarily reflecting the effect of the
rating agency downgrade, including the loss of an endorsement from the Academy
of General Dentistry. The negative effect of the downgrade was offset by
approximately $2.6 million in additional premiums earned due to rate increases.

Net premiums earned for the Surety Division decreased 20% from $26 million
during the three month period ended September 30, 1999 to $21 million for the
same period in 2000 due to the loss of Frontier's and Frontier Pacific's
Treasury Listing. As a result of the sale of the renewal rights to a large book
of business in this division (see Note 4 of the Notes to the Consolidated
Financial Statements -- Sale of Renewal Rights), management expects the trend
in declining premiums to continue.

Net premiums earned for the Specialty Programs Division in the third quarter of
2000 remained constant with the third quarter of 1999 as decreases in many
programs were offset by the effects of earned premiums from business written in
1999 for a variety of commercial auto programs, several of which have been
discontinued during 2000. The Company's focus on a variety of commercial
auto-related programs, many of which had strong written premium growth in mid to
late 1999, contributed to an increase of $6.7 million in net premiums earned in
the third quarter of 2000 over the same period in 1999. In addition, a
manufacturing and contracting program, which the Company began writing in the
year 2000, contributed an additional $1.6 million of premiums earned in the
third quarter.


                                       18







<PAGE>



These increases were offset by decreases in net premiums earned resulting from
the loss of business due to rating agency downgrades, competitive pricing
conditions and the effects of several underwriting actions taken by the Company
including exiting certain high risk classes, terminating agents, increasing
premium rates and implementing more stringent underwriting guidelines for new
and renewal business. These changes primarily affected the health and human
services, daycare, child and family services, and camp programs and contributed
to a combined $8 million decrease in premiums earned for the three month period
ended September 30, 2000 when compared to the same period in 1999.

The 93% decrease in net premiums earned for the Personal and Credit-Related
Division was primarily due to the sales of Lyndon and Regency effective January
20, 2000 and June 1, 2000, respectively (See Note 3 of the Notes to the
Consolidated Financial Statements -- Sales of Subsidiaries). Lyndon and Regency
accounted for approximately $19.6 million and $10 million, respectively, of net
premiums earned during the third quarter of 1999.

NET INVESTMENT INCOME
Net investment income declined 52.1% to $9.3 million in the third quarter of
2000 from $19.4 million in the third quarter of 1999. Excluding Lyndon, net
investment income declined 39.4% to $9.3 million from $15.3 in the third quarter
of 1999. The decrease, excluding Lyndon, was primarily related to the
liquidation of assets in connection with the purchase of an aggregate stop loss
reinsurance treaty from National Indemnity (see Note 7 of the Notes to the
Consolidated Financial Statements -- Reinsurance). Although payment for the
treaty was not made until September 27, 2000, the Company transferred related
investment income of approximately $7.1 million to National Indemnity from the
effective date of the treaty, July 1, 2000, until the payment date. This
decrease was partially offset by an increased allocation from municipal
securities to higher yielding taxable securities during the third quarter of
2000 compared to the 1999 three-month period. As a result of the reinsurance
transaction, the Company believes that net investment income will continue at a
rate slightly less than that reported in the current quarter.

Also during the third quarter of 2000, the Company realized a net capital loss
of approximately $12 million compared to a net realized capital gain of $1.7
million in the third quarter of 1999, which was primarily the result of the
liquidation of portfolio securities in connection with the purchase of the
aggregate stop loss reinsurance treaty.

LOSSES AND LAE
The overall GAAP loss and LAE ratio decreased from 151.6% in the third quarter
of 1999 to 118% in the third quarter of 2000. Such decrease was due to the fact
that the 2000 three-month results included an adverse loss development charge of
approximately $42.4 million and the corresponding 1999 period included an
adverse loss development charge of approximately $136 million.

The reserve charge recorded during the third quarter of 2000 resulted from
deterioration in the Specialty Programs, Professional Liability, Environmental,
Excess and Surplus Lines Divisions which reflect adverse development of
approximately $24.1 million, $10.8 million, and $4 million, respectively.
Additionally, the Surety Division recorded a $3.5 million charge related to one
large plugging and abandonment claim.

The increase in the Specialty Division related to deterioration in its
commercial auto liability and general liability programs. Commercial auto
liability reserves increased by $10.3 million primarily due to three
discontinued programs which included a short-term auto rental program, an
ambulette program and a truckers program. Additionally, general liability
reserves increased by approximately $13.8 million, of which approximately $12.6
million resulted from deterioration of discontinued programs for large crane
operators, landlords of low and moderate-income housing and a workers'
compensation program written in California. Also contributing to this increase
was a program for municipalities in New Jersey. The remaining $1.2 million of
this increase related to a variety of programs, none of which were individually
significant.



                                       19








<PAGE>




The reserve charge recorded in the Professional Liability Division related
primarily to losses incurred by Western Indemnity. These charges included
approximately $3.4 million of medical practice business assumed by Western prior
to 1999. During the third quarter of 2000, the Company filed a plan of
withdrawal for Western with the Texas Department of Insurance under which
Western will no longer write any new or renewal business (see Note 12 of Notes
to the Consolidated Financial Statements -- Statutory Financial and Other
Information).

The reserve charge recorded in the Environmental, Excess and Surplus Lines
Division was primarily due to increased costs associated with the settlement of
claims, primarily in the general liability line of business.

Of the $42.4 million of adverse development charges recorded during the third
quarter of 2000, approximately $30.3 million is recoverable under the National
Indemnity reinsurance treaty (See Note 7 of the Notes to the Consolidated
Financial Statements -- Reinsurance). The expected recoveries under the treaty
must be deferred and recognized as reductions to losses and LAE incurred in
future periods as the underlying claims are settled.

AMORTIZATION OF POLICY ACQUISITION COSTS
For the three months ended September 30, 2000, amortization of policy
acquisition costs represented 26.6% of net premiums earned compared to 23.3%
(22.9% excluding Lyndon) for the comparable 1999 period. The increase, excluding
Lyndon, was primarily due to the Company's increased use of its cut-through
reinsurance agreements described below. Also contributing to this increase was
the run off of the unearned premiums and related deferred policy acquisition
costs for both the Surety and Environmental, Excess and Surplus Lines Divisions,
which traditionally have acquisition costs in excess of 30%.

As a result of rating agency downgrades, effective December 1, 1999, the Company
entered into cut-through reinsurance agreements with "A" rated insurance
companies. These cut-through arrangements effectively provide assurance to the
Company's insureds that these "A" rated companies will pay claims in the event
of the Company's insolvency. For the three months ended September 30, 2000, the
Company incurred cut-through fees of approximately $1 million.

UNDERWRITING AND OTHER EXPENSES
Underwriting and other expenses as a percentage of net premiums earned decreased
from 23.3% (24.3% excluding Lyndon) in the 1999 third quarter to 14.2% in the
comparable 2000 period due primarily to several significant charges recorded
during the 1999 period. During the third quarter of 1999, a time study was
conducted in connection the Company's reserve analysis and related claim study,
as a result of which, the Company recorded a $5.3 million adjustment to
underwriting and other expenses for certain corporate and administrative
expenses previously included in loss adjustment expenses. Additionally, the 1999
three-month period includes an increase in the provision for doubtful accounts
of approximately $2 million. The balance of the decrease in underwriting and
other expenses is primarily related to the Company's cost containment and
expense saving initiatives implemented during the first quarter of 2000. As of
September 30, 2000, the Company had approximately 700 employees compared to
approximately 1,200 as of December 31, 1999.

OTHER CORPORATE EXPENSES
Other corporate expenses include expenses of the parent company and directly
owned non-insurance subsidiaries, reduced by other miscellaneous income. The
$1.3 million increase in other corporate expenses was due to non-cash charges
related to guarantees and on amount due from certain officers of the Company
(see Note 9 of the notes to the consolidated financial statements -- Related
Party Transactions).

RESTRUCTURING RELATED CHARGES
As part of the Company's Corrective Action Plan implemented during the first
quarter of 2000, the Company recorded approximately $7.5 million of
restructuring related charges for the three months ended September 30, 2000. For
additional disclosure regarding the restructuring related charges see Note 10 of
the Notes to the Consolidated Financial Statements -- Restructuring Related
Charges.





                                       20







<PAGE>




MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARY TRUST
Minority interest in income of consolidated subsidiary trust for the three
months ended September 30, 2000 reflects approximately $2.6 million in non-cash
inducement charges related to the exchange of common stock for TOPrS. (see Note
5 of the Notes to the Consolidated Financial Statements -- Exchange of
Convertible Trust Originated Preferred Securities ("TOPrS")).

INTEREST EXPENSE
Although the amount of interest expense in the 2000 three-month period
approximated that of the 1999 three-month period, the 2000 amount reflected
increased interest rates charged under the Deutsche Bank Credit Facility. Such
increase is partially offset by the reduced principal amounts outstanding as a
result of the $75 million repayment made on January 21, 2000.

INCOME TAXES
The significant decrease in federal income taxes was due the establishment of a
deferred tax valuation allowance of approximately $89 million during the third
quarter of 1999. Although the Company has incurred operating losses during 2000,
no deferred tax asset has been recorded related to these losses as management
does not currently believe that it is more likely than not that these tax
benefits will be realized in the near future.

NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999

NET PREMIUMS EARNED
Net premiums earned during the nine months ended September 30, 2000 decreased
$30.7 million compared to the same period in 1999. The 7% decrease was primarily
attributable to the sales of Lyndon and Regency and planned decreases in
unprofitable programs within the Professional Liability Division, offset by
growth in net premiums earned in the Surety, Alternative Risk, and the Specialty
Programs Divisions.

Net premiums earned for the Professional Liability Division decreased 9.3% from
$78.5 million during the nine month period ended September 30, 1999 to $71.2
million for the same period in 2000. In 1998, the Company put into place a
corrective action plan to improve the results of its medical malpractice
business, which included exiting certain high risk classes, terminating agents,
increasing rates, and implementing more stringent underwriting guidelines for
both new and renewal business. These actions contributed to an approximate $10.3
million decrease in net premiums earned during the nine months ended September
30, 2000 compared to the same period in 1999. This decrease was slightly offset
by the growth of a workers' compensation program for health care facilities,
written through one managing general agent, which was introduced in early 2000
and has generated $3 million in net premiums earned during the nine months ended
September 30, 2000.

The $11 million increase in net premiums earned in the Alternative Risk Division
during the nine months ended September 30, 2000, as compared to the same period
in 1999, was primarily attributable to the effect of the Unicover recission
which took place during the first quarter of 2000 (see Note 7 of Notes to the
Consolidated Financial Statements -- Reinsurance).

The $0.9 million decrease in net premiums earned for the Environmental, Excess,
and Surplus Lines Division resulted from the inability to renew business during
the first quarter of 2000 due to the rating agency downgrades which mainly
affected the California contractors' liability and environmental and pollution
liability programs. Net premiums earned for the third quarter of 2000 were
consistent with the same period in 1999 since fronting arrangements, which
became available late in the first quarter, made it possible to renew some
business during the second and third quarters. Due to the sale of substantially
all of the renewal rights to business written through the Environmental, Excess
and Surplus Lines Division, the Company anticipates that premiums written within
this Division will decline significantly in future periods. (see Note 4 of the
notes to the consolidated financial statements -- Sale of Renewal Rights)

Net premiums earned for the Surety Division increased 8.6% from $72 million
during the nine-month period ended September 30, 2000 to $78.5 million for the
same period in 2000. This increase resulted from the acquisition of several bond
agencies and geographic expansion throughout 1999 and early 2000 before the loss
of


                                       21






<PAGE>




Frontier's and Frontier Pacific's Treasury Listing. Growth in a miscellaneous
performance bond program, which the Company began writing in May of 1999,
contributed an additional $3.8 million of net premiums earned for the nine-month
period ended September 30, 2000. In addition, the contract and license and
permit bond programs increased by approximately $1.4 million and $.9 million,
respectively. Due to the sale of substantially all of the renewal rights to
business written through the Surety Division, the Company anticipates that
premiums written within this Division will decline significantly in future
periods. (see Note 4 of the notes to the consolidated financial statements --
Sale of Renewal Rights)

The $20 million increase in net premiums earned for the Specialty Programs
Division was primarily attributable to the Company's focus on certain specialty
sectors of the commercial auto market. Most notably, in 1999 the Company began a
short-term auto rental program (subsequently discontinued in 2000) that
generated an increase of approximately $11.4 million in net premiums earned for
the nine-month period ended September 30, 2000 over the same period in 1999. A
variety of smaller commercial auto-related programs generated an additional
increase of $9.1 million in net premiums earned for the nine-month period ended
September 30, 2000 over the comparable 1999 period. A California workers'
compensation program introduced in 1998 (subsequently discontinued in 2000)
generated an approximate increase of $7.6 million in net premiums earned for the
nine-month period ended September 30, 2000. In addition, a manufacturing and
contracting program, which the Company began writing in early 2000, contributed
an additional $2.7 million of net premiums earned.

These increases were offset by decreases in net premiums earned resulting from
the loss of business due to rating agency downgrades, terminated relationships
with some of the larger agents of the insurance subsidiaries, and competitive
pricing conditions in the market. These changes primarily affected the health
and human services, daycare, child and family services, and camp programs and
contributed to a combined $10.8 million decrease in net premiums earned for the
nine-months ended September 30, 2000 compared to the same period in 1999.

The 79% decrease in net premiums earned for the Personal and Credit-Related
Division was primarily due to the sales of Lyndon and Regency effective January
1, 2000 and June 1, 2000, respectively (see Note 3 of the Notes to the
Consolidated Financial Statements -- Sales of Subsidiaries). Lyndon and Regency
accounted for approximately $57 million and $19 million, respectively, of net
premiums earned through the third quarter of 1999.

NET INVESTMENT INCOME
Net investment income declined 28.8% to $41.3 million during the 2000 nine-month
period from $58.1 million in the comparable 1999 period. Excluding Lyndon, net
investment income declined 10.5% to $41.3 million from $46.2 million in the
third quarter of 1999, primarily related to the liquidation of assets in
connection with the purchase of the aggregate stop loss reinsurance treaty from
National Indemnity (see Note 7 of the Notes to the Consolidated Financial
Statements -- Reinsurance). Although payment for the treaty was not made until
September 27, 2000, the Company transferred related investment income of
approximately $7.1 million to National Indemnity from the effective date of the
treaty, July 1, 2000, until the payment date. This decrease was partially offset
by an increased allocation from municipal securities to higher yielding taxable
securities during the third quarter of 2000 compared to the 1999 three-month
period. As a result of the reinsurance transaction, the Company believes that
net investment income will continue at a rate slightly less than that reported
in the third quarter of 2000.

Also during the third quarter of 2000, the Company realized a net capital loss
of approximately $12 million, primarily the result of the liquidation of
portfolio securities in connection with the purchase of the aggregate stop loss
reinsurance treaty.

LOSSES AND LAE
The overall GAAP loss and LAE ratio increased from 90.8% in the first nine
months of 1999 to 91.6% in the first nine months of 2000. The nine months ended
September 30, 2000 results reflect increased ultimate loss and LAE ratios
utilized as a result of an in-depth actuarial study completed during the third
quarter of 1999. However, in addition to maintaining these higher ratios,
continued deterioration of business written primarily in years 1999 and prior
resulted in reserve charges during 2000 of approximately $66 million.


                                       22






<PAGE>





The adverse loss development charge recorded during 2000 resulted from
deterioration in the Specialty Programs, Professional Liability, Surety,
Environmental, Excess and Surplus Lines Divisions which recorded reserve charges
during the 2000 nine month period of approximately $32 million, $17 million, $13
million, and $4 million, respectively.

The increase in the Specialty Division related to deterioration in its
commercial auto liability and general liability programs. During 2000, the
commercial auto liability reserves were increased approximately $14 million
primarily due to three discontinued programs which included a short-term auto
rental program, an ambulate program and a truckers program. Additionally,
general liability reserves increased by approximately $18 million. Approximately
$16.8 million of this increase was due to deterioration related to discontinued
programs for large crane operators, landlords of low and moderate-income housing
and a workers' compensation program written in California. Also contributing to
this increase was a program for municipalities in New Jersey. The remaining $1.2
million of this increase related to a variety of programs, none of which were
individually significant.

The reserve charge recorded in the Professional Liability Division related
primarily to losses incurred by Western Indemnity. These charges included
approximately $10 million on medical practice and workers compensation business
written by Western prior to 1999. During the third quarter of 2000, the Company
filed a plan of withdrawal for Western with the Texas Department of Insurance
under which Western will longer write any new or renewal business (see Note 12
of the Notes to the Consolidated Financial Statements -- Statutory Financial
and Other Information).

During 2000, the Surety Division recorded charges related to a plugging and
abandonment bond loss and a self-insured workers' compensation bond loss of
approximately $3.5 million and $7 million, respectively. The remaining $2.5
million increase related to increased frequency in small to medium sized claims.

The reserve charge recorded in the Environmental, Excess and Surplus Lines
Division was primarily due to increased costs associated with the settlement of
claims, primarily in the general liability line of business.

Of the $66 million of adverse development charges recorded during 2000,
approximately $30.3 million is recoverable under the National Indemnity
reinsurance treaty (See Note 7 of the Notes to the Consolidated Financial
Statements -- Reinsurance). The expected recoveries under the treaty must be
deferred and recognized as a reduction to losses and LAE incurred in future
periods as the underlying claims are settled.

AMORTIZATION OF POLICY ACQUISITION COSTS
For the nine months ended September 30, 2000, amortization of policy acquisition
costs represented 26.3% of net premiums earned compared to 22.6% (22.9%
excluding Lyndon) for the comparable 1999 period. The increase, excluding
Lyndon, was primarily due to the Company's increased use of its cut-through
reinsurance agreements described below. Also contributing to this increase is
the run off of the unearned premiums and related deferred policy acquisition
costs for both the Surety and Environmental, Excess and Surplus Lines Divisions,
which traditionally have acquisition costs in excess of 30%.

As a result of rating agency downgrades, effective December 1, 1999, the Company
entered into cut-through reinsurance agreements with "A" rated insurance
companies. These cut-through arrangements effectively provide assurance to the
Company's insureds that these "A" rated companies will pay claims in the event
of the Company's insolvency. For the nine months ended September 30, 2000, the
Company incurred cut-through fees of approximately $3.2 million.

UNDERWRITING AND OTHER EXPENSES
Underwriting and other expenses as a percentage of net premiums earned decreased
from 17.7% (17% excluding Lyndon) during the 1999 nine-month period to 15.5% in
the comparable 2000 period. This decrease was due primarily to several
significant charges recorded during the 1999 period. Also, 2000 results
reflected a write down of goodwill of approximately $10.1 million. However, this
2000 write down was entirely offset by the


                                       23






<PAGE>




effects of the Company's cost containment and expense savings initiatives
undertaken during the first quarter of 2000.

During the third quarter of 1999, a time study was conducted in connection with
the Company's reserve analysis and related claim study. As a result of this
study, the Company recorded a $5.3 million adjustment to underwriting and other
expenses for certain corporate and administrative expenses previously included
in loss adjustment expenses. Additionally, the 1999 nine-month period included
an increase in the provision for doubtful accounts of approximately $2 million.
During the 2000 period, the Company wrote off approximately $2.7 million and
$7.4 million of intangible assets related to previously acquired insurance
agencies and renewal rights in the Environmental, Excess and Surplus Lines and
Surety Divisions, respectively (see Note 11 of the Notes to the Consolidated
Financial Statements -- Impairment of Intangible Assets). However, excluding the
2000 write off, underwriting and other expenses decreased due to the Company's
cost containment and expense saving initiatives implemented during the first
quarter of 2000. As of September 30, 2000, the Company had approximately 700
employees compared to approximately 1,200 as of December 31, 1999. While the
Company has seen some impact of its cost containment and expense saving
initiatives, underwriting and other expenses are not declining in direct
proportion to the decrease in net earned premiums. Accordingly, the Company is
continuing to execute its Corrective Action Plan and expects to see further
expense reductions throughout the remainder of 2000.

OTHER CORPORATE EXPENSES
Other corporate expenses include expenses of the parent company and directly
owned non-insurance subsidiaries, reduced by other miscellaneous income. During
the 2000 nine-month period, other corporate expenses increased approximately
$11.2 million to $13.4 million over the comparable 1999 period.

During the second quarter of 1999, the Company created an e-commerce entity,
OneStop.Com. For the nine months ended September 30, 2000 and 1999, OneStop
incurred losses included in other corporate expenses of $6.2 million and $2.1
million, respectively. On July 11, 2000, the Company sold OneStop to Solutions
America, Inc. (see Note 3 of Notes to the Consolidated Financial Statements --
Sales of Subsidiaries).

Additionally, the nine months ended September 2000 and 1999 included losses of
approximately $1.8 million and $640,000, respectively, related to Metro
Partners, Inc. ("Metro Partners"). The 2000 results included a write down of
goodwill of approximately $800,000. On June 15, 2000, desiring to terminate its
ownership interest in Metro Partners, the Company exchanged its common stock
ownership interest in Metro Partners for non-voting, non-convertible, 8%,
cumulative preferred stock (see Note 9 of the Notes to the Consolidated
Financial Statements -- Related Party Transactions).

Also during the 2000 nine-month period, the Company recorded non-cash charges
related to guarantees and an amount due from certain officers as discussed in
note 9 of the Consolidated Financial Statements -- Related Party Transactions.

The balance of the increase in other corporate expenses relates primarily to
losses incurred by the directly owned non-insurance subsidiaries, none of which
were individually significant.

RESTRUCTURING RELATED CHARGES
As part of the Company's Corrective Action Plan implemented during the first
quarter of 2000, the Company recorded approximately $17.6 million of
restructuring related charges for the nine months ended September 30, 2000. For
additional disclosure regarding the restructuring related charges see Note 10 of
the Notes to the Consolidated Financial Statements -- Restructuring Related
Charges.

MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARY TRUST
Minority interest in income of consolidated subsidiary trust for the nine months
ended September 30, 2000 reflects approximately $2.6 million in non-cash
inducement charges related to the exchange of common stock for TOPrS (see Note 5
of the Notes to the Consolidated Financial Statements -- Exchange of Convertible
Trust Originated Preferred Securities ("TOPrS")).


                                       24







<PAGE>





MANAGEDCOMP TERMINATION FEE
During September 1999, the Company entered into a definitive agreement to
purchase ManagedComp Holdings, Inc. ("ManagedComp"), a managed care workers'
compensation service company. On February 10, 2000, the Company announced that
it had terminated the purchase agreement to purchase ManagedComp. Under the
terms of the termination agreement, the Company agreed to pay a termination fee
of $4.5 million, extend the due date of a promissory note executed by
ManagedComp, and provide certain underwriting facilities to ManagedComp.

INTEREST EXPENSE
Although the amount of interest expense in the 2000 nine-month period
approximated that of the comparable 1999 period, the 2000 amount reflected
increased interest rates charged under the Deutsche Bank Credit Facility. Such
increase was partially offset by the reduced principal amount outstanding as a
result of a $75 million repayment on January 21, 2000.

INCOME TAXES
The significant decrease in federal income taxes was due the establishment of a
deferred tax valuation allowance of approximately $89 million during the third
quarter of 1999. Although the Company has incurred operating losses during 2000,
no deferred tax asset has been recorded related to these losses as management
does not currently believe that it is more likely than not that these tax
benefits will be realized in the near future.

LIQUIDITY AND CAPITAL RESOURCES
Negative cash flows from operations of approximately $579 million for the first
nine months of 2000 were primarily related to consideration paid for a
retroactive reinsurance contract (see Note 7 of the Notes to the Consolidated
Financial Statements -- Reinsurance) and an overall acceleration of claim
settlements within the medical malpractice and commercial automobile lines of
business, and the settlement of two individual surety bonds for approximately
$11 million.

The Company used the proceeds from the sale of Lyndon, which closed during the
first quarter of 2000, to repay $75 million in bank debt and contributed $80
million to Frontier Insurance Company ("Frontier") in order to strengthen
Frontier's capital and surplus.

On June 1, 2000, the Company received net proceeds of approximately $6.7 million
from the sale of Regency Insurance Company ("Regency") (see Note 3 of the Notes
to the Consolidated Financial Statements -- Sales of Subsidiaries) which will be
used for cash flow needs at the parent company level.

On August 4, 2000, the Company sold certain renewal rights related to United
Capitol Insurance Company's environmental book of business and Frontier and
Frontier Pacific Insurance Company's surety book of business. The Company
received $8.4 million of a $12 million non-refundable advance payment (see Note
4 of the Notes to the Consolidated Financial Statements -- Sale of Renewal
Rights). Other than approximately $2.4 million allocated to the holding company,
none of the current or future consideration to be received will be available for
use at the holding company level.

The net proceeds from the sales of Regency and the renewal rights underlying the
environmental and surety books of business were significantly less than
management's initial expectations. Management does not expect sales proceeds
from remaining assets (most notably, Western Indemnity Insurance Company) would
be sufficient to provide the funds needed to increase the statutory capital and
surplus of Frontier to a level that may be acceptable to insurance regulatory
authorities. As an alternative, Frontier has entered into a retroactive
aggregate reinsurance agreement with National Indemnity Insurance, under which
it obtained aggregate stop loss coverage for up to $800 million, thus reducing
regulatory concerns over its ability to honor policyholder obligations (see Note
7 of the Notes to the Consolidated Financial Statements -- Reinsurance).

Although cash flow at the holding company level is expected to be sufficient to
meet required interest payments on the Company's credit facility, the Company
remains in violation of certain debt covenants (see Note 8 of the Notes to the
Consolidated Financial Statements -- Credit Facility and Debt Covenants) and it
is unlikely that the


                                       25






<PAGE>




Company will be able to satisfy the remaining $67.8 million principal balance by
the maturity date of December 31, 2001.

LITIGATION WITH THE STATE OF NEW YORK
Over the past decade, the Company has been engaged in litigation with the State
of New York as to whether physician medical school faculty members at the State
University of New York ("SUNY") engaged in the clinical practice of medicine at
a SUNY medical school facility, corollary to such physicians' faculty
activities, were within the scope of their employment by SUNY, and thereby
protected by the State against malpractice claims arising out of such activity,
or by the Company under its medical malpractice policies insuring the SUNY
physicians. As a result of favorable judicial decisions in the New York Court of
Claims (the "Court of Claims") which were ultimately affirmed by the State's
highest court, the Court of Appeals, the Company recorded subrogation
recoverables for claims previously paid and reserves established with respect to
such malpractice claims of approximately $19 million on December 31, 1995 and
$13 million on June 30, 1996.

In September 1998, the Company and the State reached an agreement with respect
to the 83 cases currently being litigated in the Court of Claims pursuant to
which the Company received $15 million.

In addition to the action in the Court of Claims, the Company was pursuing
litigation in the New York Supreme Court (the "Supreme Court") that would
require the State to defend SUNY faculty members. The Supreme Court litigation
differed from the Court of Claims litigation, in that the Company was not
attempting to recover funds spent on the settlement of claims. In 1997, the
Company received an adverse determination on its action in the Supreme Court.

In December 1999, on a procedural motion in the Court of Claims, the Court
linked the 1997 adverse decision on the duty to defend litigation to the
Company's right to reimbursement and ruled that the Supreme Court decision would
govern the future outcome of any cases in the Court of Claims. Although the
Company is continuing to seek recovery from the State in the Court of Claims,
the December 1999 ruling may have a significant adverse impact on the Company's
ability to recover amounts paid by the Company on behalf of SUNY physicians. At
September 30, 2000, the amount of subrogation recoverables recorded by the
Company related to the SUNY litigation was approximately $1 million.

SHAREHOLDER LITIGATION
Following the Company's November 5, 1994 announcement of its third-quarter
financial results, the Company was served with seven purported class actions
alleging violations of federal securities laws by the Company and, in some
cases, by certain of its officers and directors. In September 1995, a pre-trial
order was signed which consolidated all actions in the Eastern District of New
York, appointed three law firms as co-lead counsel for the plaintiffs and set
forth a timetable for class certification, motion practice and discovery. In
November 1995, plaintiffs served a consolidated amended complaint alleging
violations by the Company of Section 10(b) of the Securities Exchange Act of
1934 and Rule 10(b)(5) thereunder, seeking to impose controlling person
liability on certain of the Company's officers and directors, and further
alleging insider sales, all premised on negative financial information that
should have been publicly disclosed earlier. Plaintiffs seek an unspecified
amount in damages to be proven at trial, reasonable attorney fees and expert
witness costs. In April 1997, the Court certified the class. Plaintiffs have
subpoenaed documents and deposed outside auditors and analysts. Plaintiffs have
also taken depositions from current or former officers, directors and employees
of the Company.

In June 1999, plaintiffs were granted permission to amend their complaint and
the reopen discovery to take additional depositions and request additional
documents. The additional depositions have been taken. In February 2000, the
plaintiffs made an additional motion to amend their complaint to have the class
period, which presently runs from February 10, 1994 through November 8, 1994,
extended to November 15, 1999. The motion also sought to add an additional
plaintiff and defendant. Plaintiffs also sought to allege that increases in
reserves taken by the Company in various reporting periods subsequent to
November 1994 evidenced an ongoing fraud. In a Report and Recommendation dated
November 13, 2000, United States Magistrate Judge Cheryl L. Pollak recommended
that plaintiff's motion to amend be denied. If plaintiffs fail to file
objections within ten (10) days of receipt of the Report and Recommendation,
they will have waived the right to object.


                                       26






<PAGE>




In July 2000, the Company was served with a purported class action complaint
alleging violations of the federal securities laws by the Company and, in some
cases, by certain of its officers and directors. The complaint relates to
various statements and actions by the Company and certain officers and directors
for the period from August 5, 1997 to April 14, 2000, and alleges that the
Company, during this period, omitted and/or misrepresented material facts with
respect to its earnings, profits and business practices.

The Company believes the suits are without merit, has retained special legal
counsel to contest the suits vigorously and believes that the Company's exposure
to liability, if any, thereunder would not have a material adverse effect on the
Company's financial condition or results of operations.

REGULATORY AND RATING AGENCY ACTIONS
In April 2000, the Company's insurance subsidiaries were downgraded to C++
("Marginal") by A.M. Best Company, Inc. ("A.M. Best"). In July 2000, the Surety
Bond Branch of the United States Treasury removed Frontier Insurance Company
("Frontier") and Frontier Pacific Insurance Company ("Frontier Pacific") from
its listing of insurance companies deemed acceptable for the purpose of writing
certain bonds, primarily subdivision, customs and miscellaneous bonds. These
actions materially adversely affected the Company's operations.

During the third quarter of 2000, the Texas Department of Insurance (the "Texas
Department") completed an examination of Western Indemnity Insurance Company
("Western") for the three years ended December 31, 1998. As a result, Western
was placed under administrative oversight by the Texas Department. Western has
filed a plan of withdrawal with the Texas Department under which Western will no
longer write any new or renewal business. These actions will likely have an
adverse effect on the Company's efforts to sell Western.

Due to Frontier's continued deteriorating financial condition, oversight by
various state insurance departments in which Frontier operates has increased.
During the third quarter of 2000, Frontier has agreed to voluntarily cease
writing new and renewal business in several states. One state has suspended the
Certificate of Authority of Frontier. Currently, such states do not represent a
significant amount of Frontier's net written and earned premiums. However, there
can be no assurance that other states in which Frontier writes business might
not take some type of action to restrict Frontier's ability to write new or
renewal business.

CHANGE IN CERTIFYING ACCOUNTANTS
In December 1999, the Securities and Exchange Commission ("SEC") adopted new
rules designed to improve disclosure relating to the composition and practices
of audit committees and to enhance the reliability and credibility of financial
statements of public companies. Among other things, the new rules require that
effective for fiscal quarters ending on or after March 15, 2000, companies'
interim financial statements be reviewed by independent auditors before
companies file their Form 10-Q with the SEC. However, on May 1, 2000, Ernst &
Young LLP ("E&Y"), the Company's independent accountants, notified the Company
of its decision to decline to stand for reelection as the Company's auditors for
2000, which was reported on the Company's Form 8-K filed on May 1, 2000. On
September 29, 2000, the Company filed a Form 8-K disclosing that Johnson Lambert
& Co. has been selected as the Company's new independent accountants. The new
independent accountants have advised the Company that, in the limited period
since their engagement, they have not been able to attain sufficient
understanding of the Company's internal controls and significant nonrecurring
transactions and events to perform a review of the Company's interim financial
statements for the period ended September 30, 2000. As such, the accompanying
consolidated financial statements included in this Form 10-Q have not been
reviewed by independent accountants.

THE YEAR 2000
In prior filings, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of its information technology ("IT") systems. As a result of those
planning and implementation efforts, the Company experienced no significant
disruptions in mission critical IT systems and believes those systems
successfully responded to the Year 2000 date change.



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<PAGE>



Costs incurred in connection with remediating the Company's systems, amounted to
approximately $3 million. The Company is not aware of any material problems
resulting from Year 2000 issues, either with its internal systems, or the
products and services of third parties. The Company will continue to monitor its
mission critical computer applications and those of its suppliers and vendors
throughout the year 2000 to ensure that any latent Year 2000 matters that may
arise are addressed promptly.

The Company also conducted a comprehensive review of its underwriting guidelines
and obtained regulatory approval from most jurisdictions to add an endorsement
to commercial property and casualty policies to clarify that coverage is not
afforded to losses resulting from Year 2000 noncompliance by insureds. This
endorsement was added to the majority of commercial policies issued or renewed
in 1999. Underwriting policies and protocols were developed to address
nonapproving jurisdictions and business situations that cannot be endorsed. To
date, Year 2000 claims reported to the Company have been minimal. For these
reasons, the Company believes its exposure to Year 2000 claims will not be
material to its operations or financial condition. However, due to social and
legal trends, it is impossible to predict what, if any, exposure insurance
companies generally may have relating to Year 2000 claims.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's investment portfolio is subject to market risk arising from
potential changes in value of various securities held within its portfolio.
Market risks comprise many factors, such as interest rate risk, liquidity risk,
prepayment risk, credit risk and equity price risk. Analytical tools and
monitoring systems are in place to assess these market risks. During the third
quarter of 2000, the Company purchased an aggregate stop loss reinsurance
contract (see Note 7 of the Notes to the Consolidated Financial Statements -
Reinsurance). The purchase of such contract was funded primarily by the
liquidation of investment grade fixed income securities. As a result of this
transaction, fixed maturity securities represented approximately 73.2% of
invested assets at September 30, 2000, down from 82.1% at December 31, 1999.
Accordingly, the Company has reduced its exposure to interest rate risk but has
increased its exposure to equity price risk. In addition, at September 30, 2000
and December 31, 1999, investments in limited partnerships, equity investees and
real estate and mortgage loans represented approximately 11.1% and 4.8% of the
Company's total invested assets, respectively, reflecting an increase in
liquidity risk.






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<PAGE>




PART II -- OTHER INFORMATION

Item 1.  Legal Proceedings
         In July 2000, the Company was served with a purported class action
         complaint alleging violations of federal securities laws by the Company
         and, in some cases, by certain of its officers and directors. The
         complaint relates to various statements and actions by the Company and
         certain officers and directors for the period from August 5, 1997 to
         April 14, 2000, and alleges that the Company, during this period,
         omitted and/or misrepresented material facts with respect to its
         earnings, profits and business practices. The cases have been
         consolidated and an amended consolidated complaint is due to be
         filed in January 2001.

         The Company believes the suits are without merit, has retained special
         legal counsel to contest the suits vigorously. However, an adverse
         judgment in the litigation in excess of available insurance would have
         a material adverse effect on the Company's financial condition or
         results of operations.

Item 2.  Changes in Securities
         During the third quarter of 2000, the Company issued 7,923,450 shares
         of its Common Stock in exchange for 833,900 Convertible Trust
         Originated Preferred Securities ("TOPrS"), which included approximately
         $1.7 million in deferred interest payments, in a series of privately
         negotiated transactions. The shares were issued pursuant to Section
         3(a)(9) of the Securities Act of 1933, as amended, which provides an
         exemption from registration for certain exchanges of securities by an
         issuer with its existing security holders. Following the exchanges, the
         acquired TOPrS were cancelled, together with $42 million in principal
         amount of the related convertible debentures issued by the Company. The
         fair value of the Common Stock issued to TOPrS holders was
         approximately $4.1 million and the carrying value of the TOPrS (and
         related convertible debentures) cancelled, net of unamortized offering
         costs of approximately $1.2 million, was approximately $40.5 million.

Item 3.  Defaults upon Senior Securities
         The Company is in violation of certain financial covenants under the
         terms of the credit facility with a group of five banks, the head of
         which is Deutsche Bank A.G., New York Branch ("Deutsche Bank"). These
         violations permit Deutsche Bank to elect to accelerate repayment of
         amounts outstanding under the credit facility and exercise their rights
         with respect to the stock and ownership interests pledged as
         collateral. In addition, the Company is in violation of certain
         cross-default provisions included in agreements underlying the
         guarantees by the Company of the bank loan to Douglass/Frontier LLC and
         amounts borrowed by executive employees under the officer loan program.
         These violations permit the lender to accelerate repayment of amounts
         borrowed, which would likely result in a demand for payment from the
         Company. The Company is currently negotiating revisions to its
         financial covenants.

Item 4.  Submission of Matters to a Vote of Security Holders
         Not applicable.

Item 5.  Other Information

         NEW YORK STOCK EXCHANGE ("NYSE") LISTING STANDARDS
         On October 2, 2000, the Company announced that it was notified by the
         NYSE that it was "below criteria" for continued listing on the NYSE.
         Under NYSE listing standards, companies must have a market
         capitalization and shareholders' equity of not less than $50 million,
         and maintain a share price over $1.

         In accordance with NYSE listing standards, the Company has submitted a
         business plan to the NYSE that describes the steps the Company will
         take to become in compliance with minimum levels of both market
         capitalization and shareholders' equity within the next 18 months. The
         Company is also addressing the issue of a minimum share price. Frontier
         must raise the share price to $1 prior to December 16, 2000, or present
         a plan to raise the price to the NYSE, requiring a shareholder vote, by
         the next annual meeting in June 2001. There is no assurance,
         particularly, given the volatility of the markets and continued
         deterioration of the Company's financial condition that the Company's
         share price will reach $1 in the next 30 days.



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<PAGE>




         The removal of the Company from the NYSE listing would likely have an
         adverse effect on the share price of its Common Stock due to reduced
         liquidity. A de-listing would likely also have a negative impact the
         Company's ability to negotiate further exchanges of its Common Stock
         for outstanding TOPrS (see Note 5 of the Notes to the Consolidated
         Financial Statements -- Exchange of Convertible Trust Originated
         Preferred Securities ("TOPrS")), which is a significant factor in the
         Business Plan submitted to the NYSE.

Item 6.  Exhibits and Reports on Form 8-K
         Exhibits
             Exhibit 27 -- Financial Data Schedule

         a.  Reports on Form 8-K
                 Report on Form 8-K filed on September 29, 2000 for an event
                 (Change in Registrant's Certifying Accountants) which occurred
                 on September 26, 2000.





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<PAGE>



                                   SIGNATURES


Pursuant to the requirements 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.


<TABLE>
<S>                                               <C>
DATE:  November 21, 2000                                  Frontier Insurance Group, Inc.
                                                  -----------------------------------------------
                                                                   (Registrant)



                                                  By:          /s/ Patrick W. Kenny
                                                      -------------------------------------------
                                                                 Patrick W. Kenny
                                                  Executive Vice President -- Treasurer and Chief
                                                                 Financial Officer
                                                         (Principal Financial Officer and
                                                             Duly Authorized Officer)


                                                                /s/ Oscar Guerrero
                                                  -----------------------------------------------
                                                                  Oscar Guerrero
                                                            Vice President -- Controller
                                                      (Principal Accounting Officer and Duly
                                                                Authorized Officer)
</TABLE>




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