SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                    FORM 10-K
         (Mark One)

(X)       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1999

                                       or

(  )      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

                  For the transition period from ____________ to ____________

                  Commission File Number 0-27462

                                  RISCORP, Inc.
             (Exact name of registrant as specified in its charter)

                    FLORIDA                                    65-0335150
         (State or other jurisdiction of                 (I.R.S. Employer
         incorporation or organization)                 Identification No.)


         2 North Tamiami Trail, Suite 608, Sarasota, Florida        34236 -5642
         ---------------------------------------------------       ------------
                (Address of principal executive offices)            (Zip Code)

       Registrant's telephone number, including area code: (941) 366-5015

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

                                                        Name of Each Exchange
               Title of Each Class                       on which Registered

                       None                                      None
              -----------------------                      ----------------

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

                      Class A Common Stock, $.01 par value
                                (Title of Class)

Indicate by check mark whether  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.

                                   Yes X No __

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

The aggregate  market value of shares of the  registrant's  Class A Common Stock
held by non-affiliates of the registrant as of March 9, 2000 was $34,755,511.

The number of shares of the registrant's  Common Stock issued and outstanding as
of March 9,  2000 was  38,593,114  consisting  of  14,258,671  shares of Class A
Common Stock and 24,334,443 shares of Class B Common Stock.

Documents Incorporated by Reference:  None



<PAGE>

                                  RISCORP, Inc.
                           Annual Report on Form 10-K
                      for the year ended December 31, 1999

<TABLE>
<CAPTION>
                                Table of Contents


                            Description                                                         Page

                                                      PART I
<S>                                                                                               <C>

Item 1.                    Business                                                               1

Item 2.                    Properties                                                             13

Item 3.                    Legal Proceedings                                                      13

Item 4.                    Submission of Matters to a Vote
                           of Security Holders                                                    16

                                                      PART II

Item 5.                    Market for Registrant's Common
                           Equity and Related Stockholder Matters                                 17

Item 6.                    Selected Financial Data                                                17

Item 7.                    Management's Discussion and Analysis
                           of Financial Condition and Results
                           of Operations                                                          18

Item 8.                    Financial Statements and Supplementary Data                            27

Item 9.                    Changes in and Disagreements with
                           Accountants on Accounting and
                           Financial Disclosure                                                   27

                                                     PART III

Item 10.                   Directors and Executive Officers
                           of the Registrant                                                      28

Item 11.                   Executive Compensation                                                 28

Item 12.                   Security Ownership of Certain
                           Beneficial Owners and Management                                       28

Item 13.                   Certain Relationships and Related Transactions                         28

                                                      PART IV

Item 14.                   Exhibits, Financial Statement
                           Schedules, and Reports on Form 8-K                                     29

                           Signatures                                                             33
</TABLE>

<PAGE>

                                     PART I

Item 1.        Business

Forward-Looking Statements

         This Annual  Report on Form 10-K contains  forward-looking  statements,
particularly with respect to Risk Factors, Legal Proceedings,  and the Liquidity
and  Capital  Resources  section of  Management's  Discussion  and  Analysis  of
Financial  Condition  and  Results  of  Operations.  Additional  written or oral
forward-looking  statements  may be made by RISCORP,  Inc.  ("RISCORP")  and its
subsidiaries (collectively, the "Company") from time to time in filings with the
Securities and Exchange Commission or otherwise. Such forward-looking statements
are within the meaning of that term in  Sections  27A of the  Securities  Act of
1933,  as amended  (the  "Securities  Act") and  Section  21E of the  Securities
Exchange Act of 1934,  as amended (the  "Exchange  Act").  Such  statements  may
include,  without  limitation,  projections of revenues,  income,  losses,  cash
flows, plans for future operations,  financing needs,  estimates  concerning the
effects of litigation or other disputes, as well as assumptions regarding any of
the foregoing.

         Forward-looking   statements  are  inherently   subject  to  risks  and
uncertainties,  some of which  cannot be  predicted.  Future  events  and actual
results  could  differ  materially  from  those set forth in or  underlying  the
forward-looking  statements.  Many factors could  contribute to such differences
and include,  among others,  the actual  outcome of pending  litigation  both on
behalf of and against the Company,  the  Company's  ability to gain approval and
receive  payment  from the  Florida  Department  of  Labor  for  certain  refund
applications,  the Company's  ability to receive  payment for the alleged errors
and  understatement of the Final Business Balance Sheet by the neutral auditors,
the Company's need for additional  capital to meet operating  requirements,  and
other factors mentioned elsewhere in this report.

Overview

         General

         RISCORP and certain of its subsidiaries sold substantially all of their
assets  and  transferred  certain  liabilities  to Zenith on April 1,  1998.  In
connection with the sale to Zenith, the Company ceased  substantially all of its
former business operations,  including its insurance operations, effective April
1, 1998.  Accordingly,  after such date, the Company's operations have consisted
primarily of the  administration  of the day-to-day  activities of the surviving
corporate  entities,  compliance  with  the  provisions  of the  Asset  Purchase
Agreement,  and the investment,  protection,  and  maximization of the remaining
assets of the Company.  At the present time,  RISCORP has no plans to resume any
operating activities. The sale to Zenith is more fully described in Note 1(c) of
the accompanying consolidated financial statements.

        Since  April 1, 1998,  the  Company has had no  employees  or  insurance
operations,  and has  provided  no  services  to  self-insurance  funds or other
insurance related entities.



                                       1
<PAGE>

Execution of Merger Agreement with William D. Griffin

        On November 3, 1999,  RISCORP  entered into a definitive  agreement (the
"Merger  Agreement") to merge with Griffin  Acquisition  Corp.  ("Acquiror"),  a
company  controlled  by Mr.  William D.  Griffin,  the majority  shareholder  of
RISCORP.  Pursuant  to the  terms  of the  Merger  Agreement,  each  issued  and
outstanding  share of Class A Common  Stock will receive  $2.85 in cash,  plus a
contingent  right to  receive  an  additional  pro rata cash  amount if  RISCORP
recovers any additional amounts from Zenith Insurance  Company.  Under the terms
of the Merger Agreement, Acquiror will assume all of the liabilities of RISCORP,
including  its  pending  litigation.  The  transaction  is subject to  customary
closing conditions,  including shareholder approval, and is expected to close in
the second quarter of 2000. This transaction, if consummated,  will constitute a
going private transaction.

Sale to Zenith Insurance Company

        As previously  disclosed,  on April 1, 1998,  RISCORP and certain of its
subsidiaries  sold  substantially  all of their assets and  transferred  certain
liabilities to Zenith Insurance Company ("Zenith").  In connection with the sale
to  Zenith,  the  Company  ceased  substantially  all  of  its  former  business
operations, including its insurance operations.

         On July 7, 1999, the Company and Zenith  settled,  with certain limited
exceptions,  the claims arising out of the sale.  The Asset  Purchase  Agreement
contemplated a post-closing  purchase price  adjustment  based on the difference
between  the  book  value of the  assets  purchased  and the  book  value of the
liabilities assumed as of the closing date. In connection with the determination
of the final  purchase  price,  a dispute arose  between the parties  regarding,
among  other  things,  the  book  value of the  assets  and  liabilities  of the
business,  Zenith's assumption of certain operating liabilities of the business,
and each party's indemnification obligations under the Asset Purchase Agreement.
The terms of the settlement  included,  among other things,  RISCORP's  right to
seek  correction  of alleged  errors made by the neutral  auditors in connection
with its determination of certain reinsurance  recoverable adjustments contained
in the Final Business  Balance Sheet.  On October 7, 1999, the neutral  auditors
denied  RISCORP's  request for  correction of these errors.  On January 5, 2000,
RISCORP  filed a  lawsuit  against  Zenith  and  the  neutral  auditors  seeking
correction of these alleged errors.

         In connection with the sale of RISCORP's insurance operations to Zenith
on April  1,  1998,  RISCORP  voluntarily  consented  to the  Florida  Insurance
Department's  request  that the Company  discontinue  writing any new or renewal
insurance business for an indefinite period of time.

      (d) Business

         Prior to April 1, 1998,  RISCORP,  through its  wholly-owned  insurance
subsidiaries,   was  principally  engaged  in  providing  workers'  compensation


                                       2
<PAGE>

insurance  under a  managed  care  philosophy.  RISCORP  provided  managed  care
workers'  compensation products and services to clients throughout the Southeast
and other  select  markets.  In  addition,  RISCORP,  through  its  wholly-owned
non-insurance  subsidiaries,  provided  reinsurance,  risk  management  advisory
services, and insurance managerial services.

         As more  fully  described  in Note  1(c),  RISCORP  and  certain of its
subsidiaries  sold  substantially  all of their assets and  transferred  certain
liabilities to Zenith in exchange for cash. The Company's  computer  systems and
proprietary  computer software,  including the policy issue,  management system,
and claims systems, were included in the assets sold to Zenith.

Basis of Presentation

        As previously  disclosed,  due to the sale to Zenith, the Company ceased
substantially all of its business operations as of April 1, 1998. However, given
the  operations  of the Company  prior to April 1, 1998,  a  description  of the
Company's former business operations and the workers'  compensation industry are
included in this report to comply with the  requirements of the Exchange Act and
the rules and regulations of the Securities and Exchange Commission.

Industry

        Workers'  compensation benefits are mandated and regulated by individual
states,  and most states require  employers to provide medical benefits and wage
replacement to individuals injured at work,  regardless of fault.  Virtually all
employers  in the  United  States  are  required  either  to  purchase  workers'
compensation  insurance  from a private  insurance  carrier,  a  state-sponsored
assigned risk pool, a  self-insurance  fund (an entity that allows  employers to
pool their liabilities for obtaining  workers'  compensation  coverage),  or, if
permitted  by  their  state,  to be  self-insured.  Workers'  compensation  laws
generally  require two kinds of  benefits  for  injured  employees:  (i) medical
benefits that include expenses related to diagnosis and treatment of the injury,
as well as  rehabilitation,  if  necessary,  and (ii)  payments  that consist of
temporary wage replacement or permanent disability payments.

Programs and Products

Workers' Compensation Products

        Prior to the sale to Zenith,  the Company  operated in a single industry
segment.  The  Company's  products  and rating  plans  encompassed  a variety of
options  designed to fit the needs of a wide  selection of  employers.  The most
basic  product  was a  guaranteed  cost  contract,  where the premium was set in
advance  and  changes  were made  only when  changes  occurred  in  policyholder
operations  or  payrolls.  The  premium  for these  policies  was based on state
approved  rates,  which varied  depending on the type of work  performed by each
employee  and the general  business of the  insured.  The Company  also  offered
several  loss  sensitive  plans  (retrospective  rating,   dividend,  and  large
deductible  plans) that determined the final premium to be paid based largely on
the insured's losses during the policy period. Employers large enough to qualify
had their premiums based on their loss experience over a three-year period. This


                                       3
<PAGE>

loss  experience was adjusted by the type of business and associated  risks.  In
Florida,  policyholders  could also qualify for one or more  premium  credits (5
percent and 2 percent) by agreeing  to comply with  drug-free  workplace  and/or
safe workplace  policies,  respectively.  Policyholders that elected to assume a
certain  amount  of  financial  risk  could  elect a  deductible  that made them
responsible  for the first portion of any claim.  In exchange for the deductible
election, the employer received a premium reduction.  As a result of the sale to
Zenith, the Company no longer offers any programs or products.

Workers' Compensation Management Services

        Prior to the sale to Zenith,  the Company  provided  fee-based  workers'
compensation   insurance   management  services  to  self-insurance   funds  and
governmental  risk-sharing pools, and performed all the services of an insurance
carrier  except  assumption  of the  underwriting  risk.  The Company  generally
required that it be given complete  managerial control over the fund's or pool's
operations,  and that it be entitled to share in cost  savings it  generated  in
addition to its base fees.  Prior to the sale to Zenith,  the  Company  provided
these services to four entities  (representing  approximately  3,000  employers)
with standard  premiums in force under management of approximately  $80 million.
The  largest  contracts  were with  Governmental  Risk  Insurance  Trust,  North
Carolina Commerce Fund, and Third Coast Insurance Company.  Effective January 1,
1998,  the Company  entered into an agreement  for the sale of the  Company's 50
percent  interest in Third Coast Holding  Company ("Third  Coast").  Third Coast
owned a 100 percent interest in Third Coast Insurance Company.

Workers' Compensation Managed Care Arrangements  ("WCMCAs")

        Effective   January  1,  1997,   Florida  law  mandated   that  workers'
compensation  insurers  provide all medical  care  through  WCMCAs.  Under those
arrangements,  the Company was allowed to direct injured employees to a provider
network in which  employees were required to participate or face possible denial
of medical cost coverage.

        The Company  developed a provider  network that covered the entire state
of Florida and  included  approximately  5,000  physicians  and 650 hospital and
ancillary facilities as of March 31, 1998. The Company believed that its ability
to obtain  discounted  medical  fees,  manage  utilization,  and  track  medical
outcomes for providers that  participated in its network enhanced its ability to
manage claims. This provider network was assumed by Zenith on April 1, 1998.

Sales

        Prior  to the  sale  to  Zenith,  the  Company's  workers'  compensation
products and services were sold by independent  insurance agencies.  As of March
31,  1998,  the Company had  appointed  approximately  800  agencies in the four
states where its products were sold, of which approximately 400 were in Florida.
These  independent  agencies  were  viewed by the  Company as  important  to its
success.  As a result of the sale to Zenith,  the  Company  no longer  maintains
relationships with any agencies.


                                       4
<PAGE>

Customers

        The Company insured over 18,000  policyholders as of March 31, 1998. The
Company  generally  requested that its agencies  target  customers that complied
with a return-to-work program,  maintained a drug-free workplace, were proactive
in seeking to minimize injuries in the workplace, and were financially sound or,
for certain types of policies,  were willing to provide adequate  security.  The
Company did not target any  particular  industry and believes  that its policies
were issued to a diversified mix of employers.  However,  the Company  generally
did not insure certain  employers that it considered to be high risk,  including
nuclear facilities  operators,  asbestos  removers,  and certain other high-risk
employers. The Company no longer has any customers.

Employees

        Since  April 1, 1998,  the  Company has had no  employees  or  insurance
operations  and has  provided  no  services  to self  insurance  funds  or other
insurance  related  entities.  Those services normally provided by employees are
currently being outsourced.

Reinsurance

        In  connection  with the sale to Zenith,  the  Company  entered  into an
assumption and indemnity  reinsurance  agreement with Zenith  effective April 1,
1998. Under the terms of that agreement, the Company ceded to Zenith 100 percent
of its outstanding  loss reserves  (including  incurred but not reported losses)
and 100  percent  of its  unearned  premiums  as of April 1,  1998.  Zenith  was
responsible  for issuing  assumption  certificates  to all the Company's  former
policyholders.

        Pursuant to the terms of the Asset Purchase Agreement,  Zenith agreed to
assume  all of the  Company's  obligations  under  its then  current  and  prior
insurance and reinsurance contracts.  The terms of the Asset Purchase Agreement,
including the assumption and indemnity reinsurance  agreement,  were approved by
the Florida and Missouri  Insurance  Departments  on March 31, 1998 and April 1,
1998, respectively.

        The Company  transferred its reinsurance assets and liabilities in their
entirety  to Zenith on April 1, 1998.  Prior to the sale to Zenith,  the Company
shared the risks and benefits of the  workers'  compensation  insurance  that it
wrote with other insurance and reinsurance companies through various reinsurance
agreements.

        The Company is  contingently  liable to the extent that the  reinsurers,
including  Zenith,  are unable to meet  their  contractual  obligations  for any
losses and loss adjustment expenses ceded.

A.M. Best Ratings of Insurance Subsidiaries

        Due  to  the  discontinuation  of the  Company's  insurance  operations,
RISCORP's insurance  subsidiaries are no longer rated by A.M. Best, an insurance
rating organization, or any other rating organization.

                                       5
<PAGE>

        Prior to the sale to Zenith,  the Company's limited  operating  history,
pending  litigation,  and  other  factors  affected  the  ability  of  RISCORP's
insurance  subsidiaries  to obtain  favorable A.M. Best and comparable  ratings.
A.M.  Best ratings are based on, among other things,  a comparative  analysis of
the  financial  condition and operating  performance  of insurance  companies as
determined by their publicly  available  reports and meetings with the entities'
officers.  A.M.  Best  ratings  are  weighted  towards  factors  of  concern  to
policyholders  and are not  weighted  toward the  protection  of  investors.  In
assigning  ratings,  companies  may fall  within one of three A.M.  Best  rating
groupings:  Best's Ratings,  Best's Financial  Performance Ratings, or Not Rated
("NR").  The NR category  identifies the primary reason a rating opinion was not
assigned.

        At December 31, 1998,  RISCORP's three insurance  subsidiaries,  RISCORP
Insurance  Company  ("RIC"),  RISCORP  Property  &  Casualty  Insurance  Company
("RPC"),  and RISCORP National Insurance Company ("RNIC"),  were each assigned a
Best's  classification  of  NR-3  (Rating  Procedure   Inapplicable).   An  NR-3
classification  is assigned to companies that are not rated by A.M. Best because
the A.M. Best normal rating procedures do not apply due to a company's unique or
unusual business features.

Competition

        Since April 1, 1998, the Company has not provided any insurance products
or services.  However,  prior to ceasing its insurance  operations,  the Company
competed in a highly  competitive  market. The Company's  competitors  included,
among  others,  insurance  companies,   specialized  provider  groups,  in-house
benefits administrators,  state insurance pools, and other significant providers
of  health  care and  insurance  services.  A  number  of the  Company's  former
competitors  were  significantly  larger,  had greater  financial  and operating
resources than the Company, and could offer their services  nationwide.  After a
period of absence  from the market,  traditional  national  insurance  companies
re-entered the Florida workers'  compensation  insurance market,  which re-entry
increased  competition in the Company's  principal market segment.  In addition,
the Company faced  significant  competition in its newer  markets,  particularly
North Carolina and Alabama. The Company did not offer the full line of insurance
products that were offered by some of its competitors.

Regulation

General

        The  Company's  business  was subject to  state-by-state  regulation  of
workers'   compensation   insurance  (which  in  some  instances  included  rate
regulation  and mandatory fee  schedules)  and workers'  compensation  insurance
management services. Those regulations are primarily intended to protect covered
employees and policyholders, not the insurance companies nor their shareholders.
Under the  workers'  compensation  system,  employer  insurance  or  self-funded
coverage is governed by individual  laws in each of the 50 states and by certain


                                       6
<PAGE>

federal  laws. In addition,  many states limit the maximum  amount of dividends,
distributions,  and loans that may be made in any year by  insurance  companies.
RISCORP did not make any  shareholder  dividends or  distributions  during 1999,
1998, or 1997.

         The  Company  may from time to time  need  additional  surplus  to meet
certain state  regulatory  requirements.  There can be no assurance that capital
will  continue to be available  when needed or, if  available,  will be on terms
acceptable to the Company.

         In accordance with the terms of the Asset Purchase  Agreement,  RISCORP
entered into a non-compete  agreement  with Zenith and,  pursuant  thereto,  its
insurance  subsidiaries  cannot re-enter the insurance  business for a period of
three years from April 1, 1998. In addition,  in connection with the approval of
the sale to Zenith,  RISCORP voluntarily consented to a request from the Florida
Insurance  Department  to  discontinue  writing  any  new or  renewal  insurance
business for an indefinite period of time.

        Based  on the  inability  of the  Company  to write  any new or  renewal
insurance  business  for  an  indefinite  period  of  time,  the  impact  of the
non-compete on the marketability of RISCORP's  insurance  subsidiaries,  and the
future  need  for  operating  capital,  RISCORP  is  presently  considering  the
surrender  of  the   Certificates   of  Authority   ("COAs")  of  its  insurance
subsidiaries.  If RISCORP surrenders the COAs of its insurance subsidiaries,  it
would be able to  dividend  funds  from the  insurance  subsidiaries  to RISCORP
without regulatory approval.

Premium Rate Restrictions

        State  regulations   governing  the  workers'  compensation  system  and
insurance  business  in general  imposed  restrictions  and  limitations  on the
Company's business operations. Among other matters, state laws regulate not only
the kind of workers' compensation benefits that must be paid to injured workers,
but also the  premium  rates that may be charged to insure  employers  for those
liabilities.  As a consequence,  the Company's  ability to pay insured  workers'
compensation  claims out of the premium revenue  generated from the sale of such
insurance was  dependent on the level of premium rates  permitted by state laws.
In this regard, it is significant  that, in certain instances  applicable to the
Company,  the state  regulatory  agency  that  regulated  workers'  compensation
benefits was not the same agency that regulated workers' compensation  insurance
premium rates and, in certain  circumstances,  such agencies'  regulations  were
incompatible.

Financial and Investment Restrictions

        Insurance company operations are subject to financial  restrictions that
are not imposed on most other businesses. State laws require insurance companies
to maintain minimum capital and surplus levels and place limits on the amount of
insurance  premiums a company  may write  based on the  amount of the  company's
surplus.  These limitations restricted the rate at which the Company's insurance
operations could grow. The Company's 1999 statutory filings indicate that, as of
December 31, 1999, RISCORP's insurance subsidiaries met applicable state minimum
capital and surplus requirements.  See "Management's  Discussion and Analysis of
Financial Condition and Results of Operations."

                                       7
<PAGE>

        State laws also require  insurance  companies to establish  reserves for
the payment of policyholder  liabilities and impose  restrictions on the type of
assets in which insurance  companies may invest.  Those restrictions may require
the Company to invest its  insurance  subsidiaries'  assets more  conservatively
than if those companies were not subject to the state law restrictions which may
prevent  the Company  from  obtaining  as high a return on these  assets than it
might otherwise be able to realize.

Participation in State Guaranty Funds

        Every state in which the Company  operated has  established  one or more
insurance  guaranty funds or  associations  that are charged by state law to pay
claims  of  policyholders  insured  by  companies  that  become  insolvent.  All
insurance companies must participate in the guaranty  associations in the states
where they do business and are assessable for the associations' operating costs,
including the cost of paying  policyholder  claims of insolvent  insurers.  This
type of guaranty fund is separate from the Florida Special Disability Trust Fund
("SDTF")  which  is  designed  to pay  insurers  for  certain  benefits  paid to
previously injured Florida workers.  Pursuant to the terms of the Asset Purchase
Agreement,  Zenith  assumed all  liabilities  and  obligations  with  respect to
guaranty fund  assessments  and similar  charges  attributable  to the Company's
former insurance operations.

Statutory Accounting and Solvency Regulation

        State  regulation  of  insurance  company  financial   transactions  and
financial  condition are based on statutory  accounting  practices ("SAP").  SAP
differs  in a number  of ways  from  generally  accepted  accounting  principles
("GAAP")  which  govern the  financial  reporting of most other  businesses.  In
general,  SAP-basis  financial  statements are more conservative than GAAP-basis
financial statements, often resulting in lower asset values and higher liability
values.

     State  insurance   regulators  closely  monitor  the  SAP-basis   financial
condition  of  insurance  companies  and  can  impose  financial  and  operating
restrictions on an insurance  company,  including the 1) transfer or disposition
of assets, 2) withdrawal of funds from bank accounts,  3) extension of credit or
making loans, and 4) investment of funds.

        At December 31, 1999 and 1998, each of RISCORP's insurance  subsidiaries
maintained  statutory  capital  and  surplus  that met the  minimum  capital and
surplus requirements in each state in which the individual company was licensed.

        The  National   Association  of  Insurance   Commissioners  has  adopted
risk-based  capital  standards  to  determine  the  capital  requirements  of an
insurance carrier based on the risks inherent in its operations.  The standards,
which  have not yet been  adopted  in  Florida,  require  the  computation  of a
risk-based  capital  amount that is then  compared to a carrier's  actual  total
adjusted capital. The computation involves applying factors to various financial
data to address four primary risks:  asset risk,  insurance  underwriting  risk,
credit risk, and off-balance  sheet risk. These standards provide for regulatory
intervention when the percentage of total adjusted capital to authorized control
level risk-based capital is below certain levels. At December 31, 1999 and 1998,
RISCORP's  insurance  subsidiaries'  statutory  surplus  was  in  excess  of any
risk-based capital action level requirements.

                                       8
<PAGE>

Losses and Loss Adjustment Expenses

        On April 1, 1998,  the  Company's  net  liabilities  for losses and loss
adjustment expense were transferred to Zenith; accordingly, at December 31, 1999
and 1998, no liability for losses and loss adjustment expenses was necessary.

        Prior to the sale to  Zenith,  the  Company  established  its  estimated
liability  for losses and loss  adjustment  expenses  based on facts then known,
estimates of future claims trends, experience with similar cases, and historical
Company and industry  trends.  These trends  included loss payment and reporting
patterns, claim closures, and product mix.

        The following  table presents an analysis of losses and loss  adjustment
expenses and provides a reconciliation of beginning and ending reserves for 1998
and 1997.

                                                     1998             1997
                                                         (in thousands)
Gross reserves for losses and loss adjustment
    expenses, beginning of year                    $437,038        $458,239
Less reinsurance recoverables                       184,251         180,698
Less SDTF recoverable                                45,211          49,505
Less prepaid managed care fees                        8,420          31,958
                                                   ---------       ---------
Net balance at January 1                            199,156         196,078
                                                   ---------       ---------

Incurred losses and loss adjustment expenses related to:
  Current year                                       14,860         125,764
  Prior years                                        11,717          (2,401)
                                                   ---------       ---------
      Total incurred losses and
          loss adjustment expenses                   26,577         123,363
                                                   ---------       ---------

Losses and loss adjustment expenses paid related to:
  Current year                                        1,717          45,646
  Prior years                                        26,760          74,639
                                                   ---------       ---------
      Total losses and
           loss adjustment expenses paid             28,477         120,285
                                                   ---------       ---------
Net balance at December 31                          197,256         199,156

Plus reinsurance recoverables                       214,302         184,251
Plus SDTF recoverables                               44,552          45,211
Plus prepaid managed care fees                        6,182           8,420
                                                  ---------        ---------
                                                    462,292         437,038

Less reserves for losses and loss adjustment
   expenses transferred to Zenith                   462,292               -
                                                  ---------        ---------
Gross reserves for losses and loss adjustment
  expenses at December 31                         $       -        $437,038
                                                  ==========       =========

        The following  table shows the development of losses and loss adjustment
expenses for 1988 through 1997.  The  development  data for 1998 and 1999 is not
available due to the transfer of the  liabilities for losses and loss adjustment
expenses  to Zenith on April 1, 1998.  The top line of the table  indicates  the
estimated liabilities for unpaid losses and loss adjustment expenses as reported
at the end of the stated year. Each calendar year-end reserve includes estimated


                                       9
<PAGE>

unpaid  liabilities for the current  accident year and all prior accident years.
The cumulative  amount paid portion of the table presents the amounts paid as of
subsequent  years on those claims for which  liabilities were carried as of each
specific year. The section  captioned  "Liability  Re-estimated as of" shows the
original recorded  liabilities as adjusted at the end of each subsequent year to
give effect to the cumulative  amounts paid and all other facts and  information
discovered  during each year. For example,  an adjustment  made in 1996 for 1992
loss reserves will be reflected in the re-estimated  ultimate liability for each
of the years 1992 through 1995.  The  cumulative  redundancy  (deficiency)  line
represents the cumulative change in estimates since the initial liabilities were
established.  It is equal to the difference  between the initial reserve and the
latest liability re-estimated amount.

        The following table  represents  combined  development for RIC, RPC, and
their  predecessors,  as well as RNIC for  1996 and  1997.  Calendar  year  1996
estimates of ultimate  liabilities include reserves assumed with the purchase of
RNIC and the subsequent loss portfolio transfers of five  self-insurance  funds.
Effective  in  1996,  the  Company  has  separately  reported  unallocated  loss
adjustment expenses previously included in general and administrative  expenses.
The cumulative paid and re-estimated  liability data in the following table have
been  restated  for all  years  to  reflect  this  change.  The  table  presents
development  data by  calendar  year and does not relate the data to the year in
which the accident occurred.

<TABLE>
<CAPTION>
                                        As of December 31
_________________________________________________________________________________________________________
                                         (In thousands)
<S>                     <C>        <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
                          1988       1989       1990      1991      1992      1993      1994      1995      1996      1997
                          ----       ----       ----      ----      ----      ----      ----      ----      ----      ----
Loss and loss adjustment
  expense reserves, net $  954     $ 11,273   $ 36,323  $ 68,674  $ 96,755  $152,406 $128,453  $ 92,820   $196,078  $199,156

Cumulative Amount Paid:
  One Year Later           355        8,927     19,335    32,241    47,572   122,603   95,229    55,875     74,639
  Two Years Later          902       14,922     34,010    55,794   116,193   164,840  127,395    77,823
  Three Years Later      1,185       19,675     44,551    91,441   134,193   172,699  141,803
  Four Years Later       1,595       22,587     59,651   100,307   137,782   177,603
  Five Years Later       1,665       26,943     62,775   102,468   140,671
  Six Years Later        1,801       27,870     63,620   103,936
  Seven Years Later      1,821       28,141     64,129
  Eight Years Later      1,662       28,563
  Nine Years Later       1,862

Liability Re-estimated as of:
  One Year Later         1,016       18,508     44,192    71,145   115,116   156,866  133,651    95,843    193,677
  Two Years Later        1,219       20,541     49,429    83,918   123,472   156,303  139,992    96,189
  Three Years Later      1,462       24,514     55,485    91,477   123,298   162,811  144,138
  Four Years Later       1,890       27,108     58,588    91,821   125,751   167,907
  Five Years Later       1,977       26,670     57,867    92,878   131,074
  Six Years Later        1,785       26,023     57,981    96,905
  Seven Years Later      1,734       26,067     59,986
  Eight Years Later      1,567       26,814
  Nine Years Later       1,763

Cumulative Redundancy
 (Deficiency)             (809)     (15,541)   (23,663)  (28,231)  (34,319)  (15,501) (15,685)   (3,369)    2,401
</TABLE>

        As the foregoing table indicates, the Company's reserving results in its
early  years were  adversely  impacted  by its short  operating  history and the
relative  age of  the  accounts  it  insured.  Additionally,  the  inclusion  of
unallocated  loss  adjustment  expenses in the table  increased  the  cumulative
deficiency for all years. From 1992 through March 31, 1998, the Company believes


                                       10
<PAGE>

its  reserving   methodologies  became  more  reliable.  Key  factors  for  this
improvement  were 1) the ability to identify trends and reduce  volatility based
on a larger claims  database,  2) the  maturation of the Company's  managed care
approach to claims, and 3) industry reforms.

Risk Factors

         In  evaluating  the Company,  prospective  investors  should  carefully
consider  the  following  risk  factors,  in addition  to the other  information
contained in this Annual Report.

Cessation of Business Operations

         On  April  1,  1998,  RISCORP  and  certain  of its  subsidiaries  sold
substantially all of their assets and transferred certain liabilities to Zenith.
In  connection  with the Asset Sale,  RISCORP  ceased  substantially  all of its
former business operations,  including its insurance operations, effective April
1, 1998.  Accordingly,  since such date,  the  operations  of the  Company  have
consisted, and will continue to consist,  primarily of the administration of the
day-to-day  activities of the surviving corporate entities,  and the investment,
protection,  and  maximization  of the remaining  assets of the Company.  At the
present time, the Company has no plans to resume any operating activities.

Control by a Single Shareholder

         The Company's  equity  consists of RISCORP's Class A and Class B Common
Stock, which vote together as a single class on all issues,  except as otherwise
required by law. Mr. William D. Griffin owns  beneficially  22,176,052 shares of
RISCORP's  Class B Common  Stock,  each  share of which has ten times the voting
power of a share of Class A Common  Stock.  As a result,  Mr.  Griffin  controls
approximately 86 percent of the combined voting power of the Class A and Class B
Common Stock and controls the outcome of substantially all shareholder votes.

Uncertainties Relating to the Availability of Cash Proceeds for Distribution
to Shareholders

         As  previously  disclosed,  RISCORP  entered into a  definitive  Merger
Agreement to merge with Griffin  Acquisition  Corp., a company controlled by Mr.
William D. Griffin, the majority  shareholder of RISCORP.  Pursuant to the terms
of the Merger  Agreement,  each issued and  outstanding  share of Class A Common
Stock  will  receive  $2.85 in cash,  plus a  contingent  right  to  receive  an
additional pro rata cash amount if RISCORP recovers any additional  amounts from
Zenith Insurance Company. Under the terms of the Merger Agreement, Acquiror will
assume all of the liabilities of RISCORP,  including its pending litigation. The
transaction is subject to customary closing  conditions,  including  shareholder
approval,  and is  expected  to  close  in the  second  quarter  of  2000.  This
transaction, if consummated, will constitute a going private transaction.

         In  the  event  that  the  Merger  Agreement  is  not  approved  by the
shareholders  or  regulators,  the Company  believes  that  certain  assets will
ultimately be available for distribution to shareholders  after  satisfaction of


                                       11
<PAGE>

all claims and  contingencies  pending against the Company and its  subsidiaries
and  after  funding  all  expenses   associated   therewith.   Such  claims  and
contingencies  include all  litigation  pending as herewith  instituted  against
RISCORP, its subsidiaries, and their respective officers, directors, and agents.
The Company is unable to predict the amount or timing of any future distribution
to those  shareholders of record on a record date to be established by RISCORP's
Board of Directors.

         Pursuant to the terms of  RISCORP's  Amended and  Restated  Articles of
Incorporation,  the holders of Class A Common Stock and Class B Common Stock are
entitled  to  participate  in any  dividends  declared  or  paid by  RISCORP  or
distributions to the holders of common stock in connection with any liquidation,
dissolution, or winding up of the Company ratably on a per share basis.

         Any future  distribution of closing  proceeds will be at the discretion
of the Board of Directors and available only to RISCORP shareholders on a record
date to be  established  at a later  time in  connection  with any  such  future
distribution.  Shareholders  who currently are record  holders of Class A Common
Stock or Class B Common  Stock who are not  record  holders at the time a record
date is  established  in  connection  with a  future  distribution  will  not be
entitled to participate in any such distribution of closing proceeds.  The Board
of Directors intends to solicit additional shareholder approval prior to a final
distribution of closing proceeds. Although interim distributions or dividends to
shareholders  do not  require  shareholder  approval,  a final  distribution  of
closing proceeds will require additional shareholder approval.

Personal Holding Company Income

         Following  the  consummation  of the Asset  Sale,  the  Company  ceased
substantially  all of its former business  operations and invested a substantial
portion of its  remaining  assets in  interest-bearing  obligations  pending the
resolution  of various  outstanding  claims and other  contingencies.  Under the
Internal Revenue Code of 1986, as amended (the "Code"),  corporations  that have
60 percent or more of their  income  from  various  passive  sources,  including
dividends  and interest,  and that have 50 percent or more of their  outstanding
stock held by five or fewer individuals, are subject to a tax of 39.6 percent on
their undistributed  personal holding company income, as defined in the Code, in
addition to their  regular  income  tax.  Because the Company has ceased to have
active  business  income,  but  will  not be able  to  liquidate  or make  other
distributions  promptly,  it is  anticipated  that in one or more  post-1998 tax
years the Company may be  considered to be a personal  holding  company and will
either be subject to the personal holding company tax in addition to the regular
income tax or will be  required  to  distribute  an amount  equal to the taxable
income  earned by the Company,  net of certain  expenses and with certain  other
adjustments,  as regular dividends taxable as ordinary income to shareholders to
avoid  the  imposition  of such a tax.  In an effort  to avoid  unfavorable  tax
treatment,  the Company,  pending  resolution  of claims or  contingencies,  may
invest in  obligations  the interest of which is excluded  from gross income for
federal income tax purposes.  The Company's  failure to make such investments or
in the alternative to make distributions of net investment income, if any, could
have a material adverse effect on the amount distributable to shareholders.

                                       12
<PAGE>

Investment Company Act Considerations

         While the  Company  does not intend to conduct  its affairs in a manner
that would require  registration  as an investment  company under the Investment
Company Act of 1940, as amended (the "Investment  Company Act"), a determination
that it is an  investment  company  subject  to  registration  could  materially
increase its administrative  costs and regulatory  requirements.  The Investment
Company Act places restrictions on the capital structure,  business  activities,
and corporate transactions of companies registered  thereunder.  Registration by
the Company under the Investment Company Act would require the Company to comply
with various reporting and other  requirements under the Investment Company Act,
would  subject the Company to certain  additional  expense,  and could limit the
Company's options for future operations. Generally, a company is deemed to be an
investment  company  subject to  registration  if its  holdings  of  "investment
securities"  (generally,  securities  other than  securities  issued by majority
controlled,  non-investment  company  subsidiaries,  and government  securities)
exceed 40  percent  of the value of its total  assets  exclusive  of  government
securities and cash items on an unconsolidated  basis. Pursuant to a rule of the
Securities  and Exchange  Commission  (the  "Commission")  under the  Investment
Company  Act,  a company  that  otherwise  would be  deemed to be an  investment
company may be excluded  from such status for a one-year  period  provided  that
such  company  has a bona  fide  intent  to be  engaged  primarily,  as  soon as
reasonably  possible  (and in any  event  within  that  one-year  period),  in a
business other than that of investing,  reinvesting, owning, holding, or trading
in securities.

         If the Company would  otherwise be deemed to be an  investment  company
under the  Investment  Company Act, the Company  intends to rely on the one year
exemption  described  above and does not  intend to  register  as an  investment
company under the Investment Company Act.

Item 2.          Properties

        On April 1, 1998,  the Company sold its  principal  executive  office in
Sarasota,  Florida to Zenith in accordance  with the terms of the Asset Purchase
Agreement.  The building  contained  112,000 square feet of space, as well as an
adjacent parking  facility.  The Company  currently leases office space at three
locations in two states, including Florida, under terms expiring through January
2001.  The Company  incurred rent expense of $0.1 million for 1999.  The Company
has aggregate continuing lease commitments through April 2000 of $10,000 related
to one location in which offices were closed during 1997 and have been subleased
on a month-to-month basis.

Item 3.            Legal Proceedings

         In August 1997, the Occupational Safety Association of Alabama Workers'
Compensation Fund (the "Fund"), an Alabama  self-insured  workers'  compensation
fund,  filed a breach of  contract  and fraud  action  against  the  Company and
others.  The  Fund  entered  into  a  Loss  Portfolio  Transfer  and  Assumption
Reinsurance Agreement dated August 26, 1996 and effective September 1, 1996 with
RNIC.  Under  the  terms of the  agreement,  RNIC  assumed  100  percent  of the
outstanding  loss reserves  (including  incurred but not reported  losses) as of
September 1, 1996.  Co-defendant  Peter D. Norman ("Norman") was a principal and
officer of Independent  Association  Administrators,  Inc.  ("IAA") prior to its


                                       13
<PAGE>

acquisition by RISCORP in September 1996. The complaint  alleges that Norman and
IAA breached  certain  fiduciary  duties owed to the Fund in connection with the
subject agreement and transfer.  The complaint alleges that RISCORP has breached
certain  provisions of the agreement and owes the Fund monies under the terms of
the agreement.  The Fund claims, per a Loss Portfolio  Evaluation dated February
26, 1998, that the Fund overpaid RNIC by $6 million in the subject  transaction.
The court has  granted  RNIC's  Motion to Compel  Arbitration  per the terms and
provisions of the  agreement.  In December 1998, the trial court issued an order
prohibiting  the  American   Arbitration   Association  from  administering  the
arbitration  between RNIC and the Fund,  and RNIC has appealed the trial court's
ruling.  The Alabama Supreme Court has stayed the current  arbitration.  Despite
the Alabama  Supreme  Court's  stay,  the  dispute  between the Fund and RNIC is
expected to be resolved through  arbitration.  The other  defendants,  including
IAA, have  appealed to the Supreme Court of Alabama the trial court's  denial of
their  motions to compel  arbitration.  RNIC  intends to  vigorously  defend the
Fund's claim.

         In March  1998,  RIC and RPC were added as  defendants  in a  purported
class action lawsuit filed in the United States  District Court for the Southern
District of Florida,  styled Bristol Hotel Management  Corporation,  et. al., v.
Aetna  Casualty  &  Surety  Company,   a/k/a  Aetna  Group,  et.  al.  Case  No.
97-2240-CIV-MORENO.  The  plaintiffs  purport to bring this  action on behalf of
themselves  and a class  consisting of all employers in the State of Florida who
purchased or renewed  retrospectively  rated or adjusted  workers'  compensation
policies in the voluntary  market since 1985. The suit was  originally  filed on
July 17,  1997  against  approximately  174  workers'  compensation  insurers as
defendants.   The  complaint  was  subsequently   amended  to  add  the  RISCORP
defendants.  The amended  complaint named a total of  approximately  161 insurer
defendants.  The suit claims that the defendant insurance companies violated the
Sherman  Antitrust Act, the Racketeer  Influenced and Corrupt  Organizations Act
("RICO"),  and the Florida Antitrust Act, committed breach of contract and civil
conspiracy, and were unjustly enriched by unlawfully adding improper and illegal
charges and fees onto retrospectively rated premiums and otherwise charging more
for those policies than allowed by law. The suit seeks compensatory and punitive
damages,  treble  damages  under the  Antitrust  and RICO claims,  and equitable
relief.  RIC and RPC moved to dismiss the amended  complaint and have also filed
certain  motions  to  dismiss  the  amended  complaint  filed by  various  other
defendants.

         In August 1998,  the  district  court  issued an order  dismissing  the
entire suit  against all  defendants  on one of the  grounds  identified  in the
various motions to dismiss filed by the defendants. The district court indicated
that all other  grounds  and motions to dismiss  that were  pending at that time
were mooted by the dismissal.  In September 1998, the plaintiffs  filed a Notice
of Appeal. In February 1999, the district court issued,  sua sponte, an Order of
Reconsideration  in which the court indicated its desire to vacate the dismissal
of the RICO claims and pendant  state claims  based on a recent  decision of the
United States Supreme Court.  In June 1999,  the Eleventh  Circuit  remanded the
case to the district  court,  and the district  court has assigned the case to a
magistrate  for  handling  pre-trial  matters.  At a status  conference  held in
October 1999,  the magistrate  established  deadlines for the filing of a motion


                                       14
<PAGE>

for leave to amend the complaint,  for supplemental briefing on pending motions,
and set a hearing for March 7, 2000.  Plaintiffs' counsel subsequently agreed to
dismiss  all claims  against the Company  without  prejudice  and filed a Second
Amended Complaint that did not state claims against the Company. On February 25,
2000,  the  magistrate  granted a consent  motion  with  respect to the  RISCORP
defendants and ordered the dismissal of RIC and RPC without prejudice.

         In July 1999,  a  shareholder  class action  lawsuit was filed  against
RISCORP, two of its executive officers, and two former executive officers in the
United States District Court for the Middle  District of Florida.  The plaintiff
in this action  purports to represent  the class of  shareholders  who purchased
shares of RISCORP's Class A Common Stock between  November 19, 1997 and July 20,
1998. The complaint alleges,  among other things, that the financial  statements
included  in the  periodic  reports  filed by RISCORP  with the  Securities  and
Exchange  Commission  during  the class  period  contain  false  and  misleading
statements of material fact and  omissions,  in violation of Sections  10(b) and
20(a)  of the  Securities  Exchange  Act of 1934,  as  amended,  and Rule  10b-5
promulgated  thereunder.  These allegations principally relate to the difference
between the net book value of RISCORP as  reflected on its  published  financial
statements  during  the  class  period  and the net  book  value  of the  assets
transferred  to Zenith as  determined  by the neutral  auditors  pursuant to the
terms  of  the  Asset  Purchase  Agreement.   The  complaint  seeks  unspecified
compensatory  damages.  RISCORP believes that these claims are without merit and
intends to vigorously defend this suit.

         On or about February 15, 2000, an alleged  shareholder of RISCORP filed
a putative  class  action  suit  against the  Company,  its  Directors,  and its
majority shareholder in the Circuit Court of the 12th Judicial Circuit, Sarasota
County,  Florida,  styled Harris  Blackman v. William D. Griffin,  Seddon Goode,
Jr.,  George E.  Greene III,  Walter L.  Revell,  and  RISCORP,  Inc.,  Case No.
20002103 CA DIV-A.  The suit contends that the pending  transaction with Griffin
Acquisition Corp. pursuant to which William D. Griffin, the majority shareholder
of  RISCORP,  proposes  to  purchase  the Class A shares of RISCORP  held by the
public shareholders is inadequately priced. The suit alleges that the defendants
are  liable  for  breach  of  fiduciary  duty,  and seeks  either to enjoin  the
transaction or to recover an unspecified amount of damages. RISCORP has received
no notice of any hearing on the plaintiff's claim for equitable relief.  RISCORP
denies the plaintiff's allegations and intends to defend the suit vigorously.

         On  February  25,  2000,  the State of  Alabama,  on behalf of D. David
Parsons (as Acting  Commissioner of Insurance of the State of Alabama),  filed a
lawsuit  against RNIC. The complaint  alleges that RNIC owes an additional  $2.5
million  in  premium  taxes  for the 1996 tax  year.  RNIC  entered  into a Loss
Portfolio  Transfer  Agreement dated August 26, 1996 and effective  September 1,
1996 with the Occupational Safety Association of Alabama Workmen's  Compensation
Fund (the  "Fund").  According  to the  complaint,  pursuant to the terms of the
agreement,  RNIC assumed the workers'  compensation  risks that were in the Fund
and became the insurer of those risks.  The State claims that premium tax is due
on the  consideration  received by RNIC for insuring those risks.  The complaint
seeks compensatory damages. RNIC intends to vigorously defend this suit.

                                       15
<PAGE>

         In April 1999,  RISCORP  received an invoice from Salomon  Smith Barney
seeking  approximately $2 million for financial  advisory  services  rendered in
connection  with the sale to Zenith.  RISCORP  disputes  any  liability  for the
payment  of such  fees and  intends  to  vigorously  defend  any cause of action
instituted by Salomon Smith Barney seeking payment.

         The Company,  in the ordinary  course of business,  is party to various
lawsuits.  Based on information  presently available,  and in the light of legal
and other defenses available to the Company, contingent liabilities arising from
such  threatened and pending  litigation in the ordinary  course of business are
not presently considered by management to be material.

         Other  than  as  noted  herein,  no  provision  had  been  made  in the
accompanying  consolidated  financial  statements  for  the  foregoing  matters.
Certain of the  related  legal  expenses  may be  covered  under  directors  and
officers' insurance coverage maintained by the Company.

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

                 None.




                                       16
<PAGE>


                                     PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters

         Following  RISCORP's initial public offering in February 1996,  RISCORP
Class A Common  Stock ($.01 par value) was traded on the NASDAQ  Stock  Market's
National Market under the symbol "RISC." There is no public market for RISCORP's
Class B Common  Stock.  Due to  RISCORP's  inability  to timely  file its Annual
Report on Form 10-K for the year ended December 31, 1996 or its Quarterly Report
on Form 10-Q for the quarter  ended  March 31,  1997,  RISCORP's  Class A Common
Stock was delisted in July 1997. Despite RISCORP's timely filing of all periodic
reports for all periods subsequent to the third quarter of 1997, RISCORP's Class
A Common  Stock has  remained  delisted,  and RISCORP has no  intention  to seek
readmission  for listing on NASDAQ or any other  national  securities  exchange.
Accordingly,  since July 2, 1997,  there has been no public market for RISCORP's
Class A Common Stock.

         As of  December  31,  1999,  there were 370  record  holders of Class A
Common  Stock.  The  following  table  sets forth the high and low per share bid
prices for RISCORP's Class A Common Stock for each quarterly period, as reported
to  RISCORP by a  national  brokerage  firm.  Such  over-the-counter  quotations
reflect inter-dealer prices, without retail mark-up,  mark-down,  or commission,
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>

                                 Per Share Bid Information for Class A Common Stock
---------------------------------------------------------------------------------------------------------------------
                              1999                                                       1998
         --------- ------------- ----------- ------------          ------------ ------------ ----------- ------------
<S>      <C>       <C>           <C>         <C>                   <C>          <C>          <C>         <C>
         1st           2nd          3rd          4th                   1st          2nd         3rd          4th
         Quarter     Quarter      Quarter      Quarter               Quarter      Quarter     Quarter      Quarter
-------- --------- ------------- ----------- ------------ -------- ------------ ------------ ----------- ------------
High      1 1/2      1 21/32      1 47/64       2 5/8                 2 1/2        2 3/8       2 1/8       1 1/32
Low       25/32      1 5/16       1 9/16       1 23/32                25/32      1 31/32        7/8         23/32
</TABLE>

     No dividends  have been  declared or paid since  RISCORP's  initial  public
offering  and  it is  not  anticipated  that  dividends  will  be  paid  in  the
foreseeable future.

Item 6.          Selected Financial Data
<TABLE>
<CAPTION>

                                                                     Year Ended December 31

                                             1999            1998             1997             1996           1995
                                             ----            ----             ----             ----           ----
                                                             (in thousands, except for per share data)
<S>                                      <C>             <C>              <C>              <C>            <C>
Income Statement Data:
Revenues:
   Premiums earned                         $      -        $25,819         $179,729         $173,557        $135,887
   Fees and other income                        778          5,906           20,369           31,733          22,397
   Net realized gains                           150          4,280            1,546              105           1,016
   Net investment income                      5,473          7,103           16,447           12,194           6,708
                                           --------       --------         --------         --------        --------
           Total revenues                     6,401         43,108          218,091          217,589         166,008
                                           --------       --------         --------         --------        --------
Expenses:
   Losses and loss
     adjustment expenses                          -         24,016          104,052          114,093          82,532
   Unallocated loss
     adjustment expenses                          -          2,561           19,311           12,916          10,133
   Commissions and general and
     administrative expenses                 11,083         34,191           70,800           65,685          48,244
   Interest                                   1,349            676            1,919            2,795           4,634
   Depreciation and amortization                142          2,736            7,423           11,500           1,683
                                           --------       --------         --------         --------        --------
           Total expenses                    12,574         64,180          203,505          206,989         147,226
                                           --------       --------         --------         --------        --------

</TABLE>




                                       17
<PAGE>
<TABLE>
<CAPTION>

                                                                     Year Ended December 31

                                             1999            1998             1997             1996           1995
                                             ----            ----             ----             ----           ----
<S>                                      <C>             <C>              <C>              <C>            <C>
Income (loss) from operations                (6,173)       (21,072)          14,586           10,600          18,782
Loss on sale of net assets to Zenith         (3,292)       (47,747)               -                -               -
                                          ---------       --------         --------         --------        --------
Income (loss) before income taxes            (9,465)       (68,819)          14,586           10,600          18,782
Income taxes (1)                             (2,417)         2,056            7,300            8,202           5,099
                                          ---------       --------         --------         --------        --------
           Net income (loss)              $  (7,048)      $(70,875)        $  7,286         $  2,398        $ 13,683
                                          =========       ========         ========         ========        ========
Net income (loss) per share (4)           $   (0.19)      $  (1.91)        $   0.20         $   0.07        $   0.49
                                          =========       ========         ========         ========        ========
Net income (loss) per share assuming
   dilution (4)                           $   (0.19)      $  (1.91)        $   0.20         $   0.07        $   0.45
                                          =========       ========         ========         ========        ========
Weighted average common
  shares outstanding                         37,563         37,012           36,892           34,648          28,100
                                          =========       ========         ========         ========        ========
Weighted average common
  shares and common share
  equivalents outstanding (2) (3)            37,563         37,012           37,116           36,406          30,093
                                          =========       ========         ========         ========        ========


Balance Sheet Data (at end of year):
Cash and investments                      $  85,574       $ 37,686          $253,634        $281,963        $ 92,713
Total assets                                                95,076           123,393         749,650         828,442
443,242
Long-term debt                                    -              -            15,609          16,303          46,417
Shareholders' equity                         90,298         95,566           163,533         157,308          16,157
</TABLE>


(1)      Certain  subsidiaries  of  RISCORP  were S  Corporations  prior  to the
         reorganization   [as  referred  to  in  Note  1(a)  to  the   Company's
         consolidated  financial  statements]  and were not subject to corporate
         income taxes.

(2)      The 1995  shares  exclude  2,556,557  shares  of  Class A Common  Stock
         reserved  for  issuance  pursuant  to the  exercise  of  stock  options
         outstanding as of December 31, 1995, having a weighted average exercise
         price of $3.96 per share.

(3)      The  1997  and  1996  shares  include   790,336  and  225,503   shares,
         respectively,  of  Class A Common  Stock  pursuant  to the  contingency
         clauses  in the  acquisition  agreement  with  IAA.  See  Note 4 to the
         Company's consolidated financial statements.

(4)      The Company has adopted Statement of Financial Accounting Standards No.
         128,  "Earnings Per Share".  As required by that  pronouncement,  these
         amounts have, for all years presented,  been recalculated in accordance
         with its provisions.


Item 7.        Management's Discussion and Analysis of Financial Condition
               and Results of Operations

General

         As discussed more fully in Note 1(c) of the  accompanying  consolidated
financial statements, RISCORP and certain of its subsidiaries sold substantially
all of their assets and  transferred  certain  liabilities to Zenith on April 1,
1998. In connection  with that sale,  RISCORP  ceased  substantially  all of its
former business operations,  including its insurance operations, effective April
1, 1998.  Accordingly,  after such date, the operations of the Company consisted
primarily of the  administration  of the day-to-day  activities of the surviving
corporate  entities,  compliance  with  the  provisions  of the  Asset  Purchase
Agreement,  and the investment,  protection,  and  maximization of the remaining
assets of the Company.

         Since  April 1, 1998,  the Company has had no  employees  or  insurance
operations,  and has  provided  no  services  to  self-insurance  funds or other
insurance related entities.  Because of the significant changes in the operating


                                       18
<PAGE>

activities  of the Company  after April 1, 1998, a comparison  of the results of
operations for 1999 to 1998 and 1997 is meaningless.  Therefore,  the results of
operations  for the year ended  December  31, 1999 and for the nine months ended
December 31, 1998 are explained  separately with no comparison to the comparable
prior  periods.  The results of  operations of the Company prior to the April 1,
1998 sale to Zenith,  compared to the comparable  period in 1997 are included to
comply with the  requirements  of the Exchange Act and the rules and regulations
of the Securities and Exchange Commission;  however, those results of operations
are not  indicative of the operations of the Company since April 1, 1998 and are
not  indicative  of  any  future  operations  by the  Company  since  no  future
operations are  anticipated.  A discussion of the balance sheets at December 31,
1999 and 1998 is included in the discussion that follows.

Results of Operations

April 1, 1998 to December 31, 1999

         During the year  ended  December  31,  1999 and the nine  months  ended
December 31, 1998, the Company's operating activities consisted primarily of the
administration of the day-to-day activities of the surviving corporate entities,
compliance  with  the  provisions  of the  Asset  Purchase  Agreement,  and  the
investment, protection, and maximization of the remaining assets of the Company.

     An analysis of certain balances contained in the December 31, 1999 and 1998
consolidated balance sheets is as follows:

             At  December  31,   1999,   the  $1.9  million  of  cash  and  cash
            equivalents-restricted  consisted of amounts on deposit with various
            governmental agencies. The $12.9 million decrease in restricted cash
            and cash  equivalents from December 31, 1998 to December 31, 1999 is
            the result of the  release  of the funds  held in the Zenith  escrow
            account.

             The $63 million  increase in investments  from December 31, 1998 to
            December  31,  1999  resulted  from the  collection  and  subsequent
            investment  of the  proceeds  from the sale to Zenith and of certain
            tax refunds,  the release of the cash previously held in escrow, and
            the investment of funds previously held in bank accounts.

             The  elimination  of the  receivable  from Zenith from December 31,
            1998 to December 31, 1999 resulted from the collection in March 1999
            of the remaining receivable from the sale to Zenith.

             The  $17.3  million  decrease  in  income  taxes  recoverable  from
            December  31,  1998  to  December  31,  1999  is the  result  of the
            collection of taxes due from tax agencies.

             The $1.6 million decrease in other assets from December 31, 1998 to
            December 31, 1999 resulted from the  collection of interest in March
            1999 from the sale to Zenith.

                                       19
<PAGE>

             The $5.8  million and $7.3  million of other assets at December 31,
            1999 and 1998,  respectively,  consisted  of $4.6  million  and $5.2
            million of prepaid  expenses  and $1.2  million and $2.1  million of
            accrued investment income, respectively.

             The $2.1 million  decrease in deferred  income taxes from  December
            31, 1998 to December 31, 1999 is due to the  collection  of taxes in
            March and October 1999.

             The  $5.1  million  decrease  in  accounts   receivable-other  from
            December  31, 1998 to  December  31,  1999 is  primarily  due to the
            collection of $4.8 million of certain insurance proceeds.

             A summary of the accrued expenses and other liabilities at December
            31, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
                                                                        1999             1998
                                                                    --------------    ------------

<S>                                                                  <C>               <C>
                      Income taxes payable                           $  2,539          $  1,001
                      Accrued professional services                     1,819             2,518
                      Trade accounts payable                              205             1,309
                      Other accruals and payables                         215               778
                      Accrued legal settlement                              -            20,500
                      Payable to Zenith                                     -             1,721
                                                                     --------          --------

                      Total                                          $  4,778          $ 27,827
                                                                     ========          ========
</TABLE>

           The $20.5 million  decrease in the accrued legal settlement is due to
           the payment of this liability in April 1999.

         The Company's  operating  results for the year ended  December 31, 1999
resulted  in a net loss of $7 million.  The  following  comments  pertain to the
Company's revenues and expenses for the year ended December 31, 1999:

             The $5.5 million of net investment income consisted of $1.3 million
            of interest  income on the receivable  from Zenith,  $0.3 million of
            interest  income on the $12.8  million  balance  previously  held in
            escrow, and $3.9 million of investment portfolio income.

             Operating  expenses  totaled  $12.6  million and  consisted  of the
            following:

                     The  $11.1  million  of  commissions,   underwriting,   and
                    administrative   expenses   consisted  of  $1.2  million  of
                    management expenses, $1.7 million of accounting and auditing
                    expenses,  $2.9 million of legal  expenses,  $2.3 million of
                    recurring  operating  expenses  such  as  rent,   telephone,
                    insurance,  and similar costs, $2 million of amortization of
                    unearned  compensation  relating to The  Phoenix  Management
                    Company,  Ltd.  restricted  stock  award,  and $1 million of
                    other expenses.

                                       20
<PAGE>

                     The $1.4 million of interest expense consisted primarily of
                    the interest paid in March 1999 on the settlement of a class
                    action lawsuit.

                     Depreciation and amortization expense was $0.1 million. The
                    Company  transferred  all assets subject to  amortization to
                    Zenith in connection with the sale and retained $0.4 million
                    of  fixed  assets   (consisting   principally   of  computer
                    equipment) that are being depreciated over three years.

              The  Company  recorded  a loss on sale of net  assets to Zenith of
           $3.3 million pursuant to the terms of the Settlement Agreement, dated
           July 1999.

         The weighted  average common and common share  equivalents  outstanding
for the year ended  December 31, 1999 was  37,562,906  as compared to 37,011,864
for the year ended  December 31, 1998.  These amounts  include,  for each period
presented,  the vested  portion  only,  as of the end of such period,  of shares
issued in April 1998 under a Restricted  Stock Award  Agreement  between RISCORP
and The Phoenix Management Company, Ltd.

         As previously  discussed,  on April 1, 1998, RISCORP and certain of its
subsidiaries  sold  substantially  all of their assets and  transferred  certain
liabilities to Zenith, and the Company's operations have been limited after that
date.  The Company's  operating  results for the nine months ended  December 31,
1998 resulted in a net loss of $61.6 million.  The following comments pertain to
the Company's revenues and expenses for the nine months ended December 31, 1998:

             The  $47.7  million  loss on the  sale  to  Zenith  represents  the
            adjustment  to the  purchase  price  as  determined  by the  neutral
            auditors.

             Net  realized  gains  were $2.8  million.  The net  realized  gains
            consisted  primarily of gains on the sale of securities  transferred
            to Zenith in connection with the Asset Purchase Agreement. For 1998,
            the net realized gains were $4.3 million,  of which $1.3 million was
            the gain on the sale of Third Coast  Holding  Company  recognized in
            the first quarter of 1998, as more fully  discussed in Note 4 of the
            accompanying consolidated financial statements.

             Net  investment  income was $3.8  million.  Net  investment  income
            consisted  of $1.8 million of interest  income on the $49.9  million
            receivable  from Zenith,  interest income of $0.4 million on the $10
            million balance in escrow, and $1.6 million of investment  portfolio
            income.

             Operating  expenses  totaled $18.6  million.  This amount  included
            three significant  non-recurring expenses that relate to the sale to
            Zenith.  The first  non-recurring  expense  totaled $3.4 million and
            consisted of severance  payments to certain of the Company's  former
            executives  and employees.  The second expense  totaled $4.1 million
            and  consisted  of the  issuance  of  RISCORP  stock to The  Phoenix
            Management Company, Ltd. ("Phoenix") in accordance with a Restricted
            Stock Award  Agreement.  The third expense  totaled $2.8 million and
            represented  a payment for a tax gross up related to the issuance of


                                       21
<PAGE>

            the restricted stock award to Phoenix. The remaining $8.3 million of
            operating  expenses  consisted  of $2.8  million of  accounting  and
            auditing expenses, $1.7 million of recurring operating expenses such
            as rent,  telephone,  insurance,  and similar  costs,  $1 million of
            adjustments to the Proposed  Business Balance Sheet, $0.9 million of
            management expenses, $0.3 million of transition expenses incurred as
            a result of the sale to Zenith, and $1.6 million of other expenses.

             In September  1998, the Company  received a  reimbursement  of $1.2
            million of legal fees incurred in 1997 and 1998 in  connection  with
            payments made on behalf of certain former  officers and directors of
            the  Company.  This  reimbursement  was  included as a reduction  in
            commissions  and  underwriting  and  administrative  expenses in the
            accompanying 1998 consolidated statement of operations.

             Depreciation and amortization expense was $0.3 million. The Company
            transferred all assets subject to depreciation  and  amortization to
            Zenith in connection  with the sale except for $0.4 million of fixed
            assets (consisting  primarily of computer  equipment) that are being
            depreciated over three years.

             Interest expense was $0.7 million.

             Net investment  income for 1998 was $7.1 million  compared to $16.4
            million in 1997,  a net  decrease  of $9.3  million.  The decline in
            investment income was due to a decline in invested assets (including
            the  receivable  from Zenith) of $157.6 million for 1998 compared to
            1997. The decrease in invested  assets was primarily due to the sale
            to Zenith and the decline in written premiums as discussed elsewhere
            herein.

Prior to April 1, 1998

        The  discussion  that follows  relates to the  operations  and operating
philosophy of the Company's  activities  that existed prior to April 1, 1998 and
includes the results for the year ended December 31, 1998 compared to 1997.

        Prior to 1996, the Company's at-risk operations were focused in Florida.
During 1996, RISCORP acquired RNIC and its 19 licenses and assumed business from
several  self  insurance  funds  outside of  Florida  which  allowed  RISCORP to
diversify its at-risk  operations.  A comparison of the Company's direct written
premiums for 1998 and 1997 (prior to  reinsurance  cessions or  assumptions)  by
state is presented below (in millions):

                                  Direct Premiums Written
                               ------------------------------
                                  1998 (a)           1997
                               -------------   --------------
Florida                           $  29.2          $ 180.8
Alabama                               4.1             39.1
North Carolina                        4.4             32.2
Other                                 1.0             28.4
                                 --------          -------
Total                             $  38.7          $ 280.5
                                 ========          =======

                           (a) 1st quarter 1998, prior to the sale to Zenith.

                                       22
<PAGE>

         Direct  written  premiums  were  reduced by the 65 percent  quota-share
reinsurance  agreement  (effective  October  1996),  with another  reinsurer for
certain non-Florida business.  The 65 percent quota-share  reinsurance agreement
was  reduced to 60 percent  effective  January  1, 1997 and was  cancelled  on a
run-off basis on December 31, 1997.

         The  majority of the  Company's  premiums  were  written in Florida,  a
regulated  pricing state where premiums for guaranteed  cost products were based
on state-approved rates. However,  prior to the sale to Zenith, the Company also
offered  policies  that were subject to premium  reductions  as high  deductible
plans,  participating dividend plans, or other loss sensitive plans. Pricing for
those plans tended to be more competitively  based, and the Company  experienced
increased  competition during 1997 and 1998 in pricing those plans. In addition,
in  October  1996,  the  Florida   Insurance   Commissioner   ordered   workers'
compensation providers to reduce rates by an average of 11.2 percent for new and
renewal policies written after 1996.  Concurrently,  with the premium  reduction
effective  January 1, 1997,  the 10 percent  managed care credit was phased out.
This credit had been offered  since 1994 to employers  who met certain  criteria
for participating in a qualified workers' compensation managed care arrangement.
In October 1997,  Florida  further  reduced premium rates by 1.7 percent for new
and renewal policies written after 1997. North Carolina  approved a 13.7 percent
decrease in loss costs,  effective  April 1, 1997,  that the Company  adopted in
October  1997,  which  resulted in an overall  effective  rate  reduction of 8.4
percent.

         The Company experienced increased pricing pressures during 1997. During
1997, the Company made the strategic  decision to discontinue  writing  business
owners'  protection,  commercial  multiple peril,  and auto, and to focus on its
core workers' compensation  business. Net written premiums on those discontinued
lines of business were less than $1 million during 1997.

         In June 1997,  the Company  implemented a strategic plan to consolidate
several of its field  offices and  announced  its  intention  to close all field
offices, except Charlotte,  North Carolina, and Birmingham,  Alabama, by the end
of 1997,  and to  cease  writing  new  business  in  certain  states,  including
Oklahoma, Virginia, Missouri, Mississippi,  Louisiana, and Kansas. The estimated
impact of the  decision to  discontinue  writing  business in those states was a
reduction of $16 million in direct premiums written.

         The Company  attempted  to lower claim costs by applying  managed  care
techniques  and  programs  to  workers'  compensation  claims,  particularly  by
providing  prompt  medical  intervention,   integrating  claims  management  and
customer  service,  directing care of injured  employees  through a managed care
provider network,  and availing itself of potential recoveries under subrogation
and other programs.

         Part  of  the  Company's  claims  management  philosophy  was  to  seek
recoveries  for  claims  that were  reinsured  or that  could be  subrogated  or
submitted for reimbursement under various state recovery programs.  As a result,
the  Company's  losses and loss  adjustment  expenses  were offset by  estimated
recoveries  from  reinsurers  under  specific   excess-of-loss  and  quota-share


                                       23
<PAGE>

reinsurance  agreements,  subrogation  from  third  parties,  and state  "second
disability" funds, including the Florida Special Disability Trust Fund ("SDTF").

        The  following  table  shows  direct,  assumed,  ceded,  and net  earned
premiums for 1998 and 1997 (in millions):

                                        Year Ended December 31
                                    ------------------------------
                                        1998 (a)         1997
                                    --------------  --------------
Direct premiums earned                    $ 48.4        $328.2
Assumed premiums earned                      0.1          18.8
Premiums ceded to reinsurers               (22.7)       (167.3)
                                          ------        ------
Net premiums earned                        $25.8        $179.7
                                           =====        ======

                  (a) 1st quarter 1998, prior to the sale to Zenith.

        The Company experienced a decrease in direct earned premiums in the last
six months of 1997 and the first  quarter of 1998  primarily due to the decrease
in new and renewal premiums experienced by the Company in the second, third, and
fourth  quarters of 1997.  These premium  declines  resulted  from,  among other
things,  the adverse publicity  pertaining to the A.M. Best ratings of RISCORP's
insurance  subsidiaries,  RISCORP's  inability to file its 1996 Form 10-K,  1997
Form 10-Qs, and 1996 audited statutory financial  statements in a timely manner,
the delisting of RISCORP's stock by NASDAQ, and the failure by Zenith to provide
a cut-through  endorsement  for the  non-Florida  business,  as requested by the
Company.

        In September  1995, the Company  entered into a fronting  agreement with
another  insurer that enabled the Company to begin  expansion  into states where
the RISCORP insurance  companies were not licensed.  The fronting  agreement was
cancelled  effective  December  31,  1997.  The  cancellation  of  the  fronting
agreement  and the sale to Zenith  were the  primary  reasons  that the  assumed
premiums  decreased  to $0.1  million  in 1998 from $18.8  million in 1997.  The
assumed  premiums  from the  fronting  agreement  were  $7.1  million  for 1997.
Although  the Company  assumed  premiums  from  several  insurers,  the fronting
agreement generated the majority of the assumed premiums.

        For 1997,  the Company ceded 50 percent of its Florida  premiums under a
quota-share reinsurance agreement and 60 percent of the business written by RNIC
under a  separate  quota-share  agreement  with  Chartwell  Reinsurance  Company
("Chartwell").  The Company  terminated the agreement with Chartwell at December
31,  1997;  however,  the  reinsurer  continues  to receive  premiums  and to be
responsible for its portion of all losses incurred on policies  effective before
the  termination  date.  The decrease in ceded premiums to $22.7 million in 1998
from $167.3  million in 1997 was due  primarily to the sale to Zenith and to the
decrease in direct premiums earned discussed above.

        Fee income for 1998 was $5.7 million compared to $20.4 million for 1997.
The decrease in fee income was primarily due to sale of the insurance operations
to Zenith.

                                       24
<PAGE>

        Net  investment  income  for 1998 and 1997 was $7.1  million  and  $16.4
million,  respectively. Net investment income consists entirely of earnings from
the investment portfolio, excluding realized gains and losses in 1997.

        The  loss  ratios  for 1998 and 1997  were 93  percent  and 58  percent,
respectively.  The 35 percent  increase in the 1998 loss ratio was due primarily
to $10.3 million of adverse gross loss  development  during the first quarter of
1998 in the 1997 and prior  accident  years  from  certain  business  written in
Florida,  $2.6 million of gross favorable loss  development in Alabama and North
Carolina, and $0.3 million of gross adverse loss development in business written
by RNIC and RPC in several smaller states.

        Unallocated  loss adjustment  expenses for 1997 were $19.3 million.  The
unallocated  loss adjustment  expense ratio for 1998 and 1997 was 10 percent and
11 percent, respectively.

        Commissions  and general  expenses for 1998 and 1997 were $34.2  million
and $70.8  million,  respectively.  The 1997 expenses were high due to severance
payments  incurred  in  connection  with  the  June  1997  workforce  reduction,
increased  accounting,   auditing,  consulting,  and  legal  expenses  primarily
resulting from the Company's inability to file its 1996 financial  statements in
a timely manner, a $13 million expense  recognized in the fourth quarter of 1997
in connection with the proposed settlement of a securities class action lawsuit,
and increases in other operating  expenses.  The Company had no employees at the
end of 1998 and approximately 580 at December 31, 1997.

        Interest expense for 1997 was $1.9 million.

        Depreciation and amortization expense for 1997 was $7.4 million.

Liquidity and Capital Resources

        RISCORP and certain of its subsidiaries sold  substantially all of their
assets  and  transferred  certain  liabilities  to Zenith on April 1,  1998.  In
connection with that sale to Zenith, the Company ceased substantially all of its
former business operations and, accordingly,  after April 1, 1998, the Company's
primary  source of cash flows has been  generated from  investment  income.  The
Company's  future  cash  requirements  are  expected  to  be  satisfied  through
investment  income  and the  liquidation  of  investments.  Prior to the sale to
Zenith,  the Company  historically  met its cash  requirements  and financed its
growth  through  cash  flows  generated  from  operations  and  borrowings.  The
Company's  primary  sources  of cash  flow from  operations  were  premiums  and
investment income, and its cash requirements consisted principally of payment of
losses  and loss  adjustment  expenses,  support  of its  operating  activities,
including various reinsurance agreements and managed care programs and services,
capital  surplus  needs for the  insurance  subsidiaries,  and other general and
administrative expenses.

       Cash flows from  operations for the year ended December 31, 1999 and 1998
was $1.6 million and $(37.6) million, respectively. The change from 1998 to 1999


                                       25
<PAGE>

was due primarily to the sale to Zenith and the cessation of  substantially  all
the Company's former business operations.

       The Company has projected  cash flows through  December 2000 and believes
it has sufficient liquidity and capital resources to support its operations.

       As of December 31, 1999 and 1998,  RISCORP's  insurance  subsidiaries had
combined  statutory  capital  and  surplus of $12  million  and $156.5  million,
respectively.  The decline in combined  statutory  surplus  from 1998 to 1999 is
primarily the result of 1) the  determination  of the final purchase price to be
paid by Zenith  resulted in a $34.3  million loss on the sale being  recorded by
RISCORP's  insurance  subsidiaries,  and 2) RISCORP's receiving and retaining of
the  proceeds  from  the  sale  to  Zenith.  Consequently,  RISCORP's  insurance
subsidiaries  recorded $94 million of receivables from RISCORP for their portion
of those proceeds.  Those  receivable  balances are classified as a non-admitted
asset at December 31, 1999 because those  receivables are more than 90 days past
due.  The  individual  capital  and  surplus  of  each  of  RISCORP's  insurance
subsidiaries  exceeded  the minimum  statutory  capital and surplus  required by
their respective state of domicile.

       The  National   Association  of  Insurance   Commissioners   has  adopted
risk-based  capital  standards  to  determine  the  capital  requirements  of an
insurance carrier based on the risks inherent in its operations.  The standards,
which  have not yet been  adopted  in  Florida,  require  the  computation  of a
risk-based  capital  amount that is then  compared to a carrier's  actual  total
adjusted capital. The computation involves applying factors to various financial
data to address four primary risks:  asset risk,  insurance  underwriting  risk,
credit risk, and off-balance  sheet risk. Those standards provide for regulatory
intervention when the percentage of total adjusted capital to authorized control
level risk-based capital is below certain levels. At December 31, 1999 and 1998,
RISCORP's  insurance  subsidiaries'  statutory  surplus  was  in  excess  of any
risk-based capital action level requirements.

Market Risks of Investment Securities

       RISCORP's  investment  securities are exposed  primarily to interest rate
risk.  The  interest  rate  exposure  is a result of the  effect of  changes  in
interest  rates  on the fair  market  value of the  Company's  investments.  The
Company used a sensitivity analysis prepared by the Company's investment advisor
to estimate the amount of  sensitivity  to interest rate  changes.  For example,
given the  duration  of a  security,  the  market  value of that  security  will
increase if market interest rates decrease.  Likewise, the value of the security
will decrease if market interest rates increase.

       The estimated effect of potential increases in interest rates on the fair
values of our investment securities follows (in thousands):
<TABLE>
<CAPTION>

                                                  1999                                1998
                                     -------------------------------      ----------------------------
<S>                                  <C>             <C>                  <C>            <C>
                                        Market            +100               Market          +100
                                        Value          Basis Points          Value        Basis Points
                                     ------------     --------------      ------------   --------------

Fixed-maturity securities              $ 78,981         $ 78,783            $ 15,980        $ 15,940
                                       ========         ========            ========        ========
</TABLE>

                                       26
<PAGE>


       Should  significant   amounts  of  unrealized  losses  occur  because  of
increases in market yields, the Company would not expect to realize  significant
losses because the Company has the ability to hold such securities to maturity.

Year 2000

       The term "Year 2000  issue" is a general  term used to  describe  various
problems that may result from the improper processing of date and date-sensitive
calculations  by computers and other  machinery as the Year 2000 was  approached
and  reached.  Those types of problems  could have  resulted  from  hardware and
software  being unable to  distinguish  dates in the "2000's"  from dates in the
"1900's"  and  from  other  sources,  such  as the  use  of  special  codes  and
conventions that make use of a date field.

       Effective April 1, 1998,  RISCORP ceased  substantially all of its former
business  operations,  including  its core  insurance  and  managerial  services
operations.  RISCORP's  computer  systems  and  proprietary  computer  software,
including the policy issue and management  system and the claims  systems,  were
included in the assets sold to Zenith pursuant to the Asset Purchase Agreement.

       Effective April 1, 1998, the Company entered into a computer  outsourcing
agreement.  Under the terms of that  agreement,  the  vendor is to  provide  the
Company   with   computer   configuration,    software   installation,   network
configuration   and  maintenance,   telecommunication   coordination,   computer
maintenance,  and other computer-related services. The agreement is for a period
of 36 months.

       Neither the Company, its suppliers,  nor the financial  institutions with
which the Company  maintains  banking or investment  accounts,  experienced  any
known Year 2000 computer problems.

Item 8.           Financial Statements and Supplementary Data

         The   Company's   consolidated   financial   statements,   notes,   and
supplementary schedules are set forth on pages F-3 to F-42 hereof.

Item 9.           Changes In and Disagreements with Accountants on Accounting
                  and Financial Disclosure

        There  were  no  changes  in,  or  disagreements  with,  accountants  on
accounting or financial disclosure for the two years ended December 31, 1999.




                                       27
<PAGE>

                                    PART III


Item 10.          Directors and Executive Officers of the Registrant

         The  information   required  by  this  item  will  appear  in,  and  is
incorporated by reference from, the sections entitled "Proposals for Shareholder
Action - Proposal 1.  Election  of  Directors"  and  "Management  Directors  and
Executive Officers" included in RISCORP's definitive Proxy Statement relating to
the 2000 Annual Meeting of Shareholders.

Item 11.          Executive Compensation

        The  information  required  by this  item will  appear  in the  sections
entitled  "Executive   Compensation"  included  in  RISCORP's  definitive  Proxy
Statement   relating  to  the  2000  Annual  Meeting  of   Shareholders,   which
information,  other than the Compensation Committee Report and Performance Graph
required by Items 402(k) and (l) of Regulation  S-K, is  incorporated  herein by
reference.

Item 12.          Security Ownership of Certain Beneficial Owners and Management

        The   information   required  by  this  item  will  appear  in,  and  is
incorporated  by reference  from, the section  entitled  "Security  Ownership of
Directors, Officers and Principal Shareholders" included in RISCORP's definitive
Proxy Statement relating to the 2000 Annual Meeting of Shareholders.

Item 13.          Certain Relationships and Related Transactions

        The   information   required  by  this  item  will  appear  in,  and  is
incorporated by reference from, the sections entitled "Certain Relationships and
Related Transactions"  included in RISCORP's definitive Proxy Statement relating
to the 2000 Annual Meeting of Shareholders.







                                       28
<PAGE>

                                     PART IV


Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form 8 - K

<TABLE>
<CAPTION>

(a) List the following documents filed as part of this report:

    1.   Financial Statements.
          <S>                                                                                             <C>

               Independent Auditors' Report...............................................................F-1
               Consolidated Balance Sheets at December 31, 1999 and 1998..................................F-3
               Consolidated Statements of Operations for the Years Ended December 31, 1999,
              1998, and 1997..............................................................................F-4
               Consolidated Statements of Changes in Shareholders' Equity for the Years Ended
              December 31, 1999, 1998, and 1997...........................................................F-5
               Consolidated Statements of Cash Flows for the Years Ended December 31, 1999,
              1998, and 1997..............................................................................F-6
               Consolidated Statements of Comprehensive Income (Loss) for the Years Ended
              December 31, 1999, 1998, and 1997...........................................................F-8
               Notes to Consolidated Financial Statements.................................................F-9
</TABLE>
<TABLE>
<CAPTION>

    2.   Financial Statement Schedules
               <S>                                                                                       <C>

               I - Summary of investments - other than investments in related parties....................F-36
               II -Condensed financial information of registrant.........................................F-37
               IV - Reinsurance..........................................................................F-41
               VI - Supplemental information concerning property-casualty insurance operations...........F-42
</TABLE>

         All other  schedules  are omitted  because of the absence of conditions
under which they are required or because the necessary  information  is provided
in the consolidated financial statements or notes thereto.

    3.   Exhibits

        Set forth in paragraph (c) below.

(b) Reports on Form 8-K

        - RISCORP  filed a  current  report  on Form 8-K on  October  28,  1999,
          disclosing the death of Mr. Frederick M. Dawson,  former president and
          CEO of RISCORP.

        - RISCORP  filed a  current  report  on Form  8-K on  November  4,  1999
          disclosing  that  RISCORP had signed a  definitive  agreement to merge
          with Griffin Acquisition Corp., a company controlled by Mr. William D.
          Griffin, the majority shareholder of RISCORP.

(c) Exhibits

        The following are filed as exhibits to this report:

EXHIBIT #                DESCRIPTION
---------                -----------


     10.1             First  Amendment  to  Management  Agreement by and between
                      RISCORP,  Inc., its subsidiaries,  the estate of Frederick
                      M. Dawson,  and Walter E. Riehemann,  dated as of December
                      22, 1999.

     11               Statement Re Computation of Per Share Net Loss

     21               Subsidiaries of the Registrant

     27               Financial Data Schedule







                                       29
<PAGE>






                                  EXHIBIT 10.1

             First Amendment to Management Agreement by and between
            RISCORP, Inc., its subsidiaries, the estate of Frederick
       M. Dawson, and Walter E. Riehemann, dated as of December 22, 1999.




                                       30
<PAGE>

                                 FIRST AMENDMENT
                                       TO
                              MANAGEMENT AGREEMENT


         THIS FIRST AMENDMENT TO MANAGEMENT AGREEMENT (this "Amendment") is made
and entered into as of the 22nd day of December,  1999, by and among The Phoenix
Management  Company,  Ltd.,  a  Florida  limited  partnership  (the  "Management
Company"),  RISCORP,  Inc., a Florida  corporation  ("RI"),  RISCORP  Management
Services,  Inc., a Florida corporation ("RMS"), 1390 Main Street Services, Inc.,
a  Florida  corporation  ("1390"),   RISCORP  of  Illinois,  Inc.,  an  Illinois
corporation ("ROI"),  Independent Association Administrators,  Incorporated,  an
Alabama  corporation  ("IAA"),  RISCORP  Insurance  Services,  Inc.,  a  Florida
corporation ("RIS"),  RISCORP Managed Care Services, Inc., a Florida corporation
("RMCS"), CompSource, Inc., a North Carolina corporation ("CompSource"), RISCORP
Real Estate Holdings, Inc., a Florida corporation ("RREH"),  RISCORP West, Inc.,
an Oklahoma corporation ("RWl"), RISCORP of Florida, Inc., a Florida corporation
("ROF"),  RISCORP Insurance  Company,  a Florida  corporation  ("RIC"),  RISCORP
Property & Casualty Insurance Company, a Florida  corporation  ("RPC"),  RISCORP
National Insurance Company, a Missouri corporation  ("RNIC"),  RISCORP Services,
Inc., a Florida corporation ("RSI"), RISCORP Staffing Solutions Holding, Inc., a
Florida  corporation  ("RSSH"),  RISCORP Staffing  Solutions,  Inc. I, a Florida
corporation  ("RSSI"),  and  RISCORP  Staffing  Solutions,  Inc.  II, a  Florida
corporation  ("RSSII") (RI, RMS, 1390,  ROI, IAA, RIS, RMCS,  CompSource,  RREH,
RWI, ROF, RIC, RPC, RNIC, RSI, RSSH, RSSI and RSSII are hereinafter collectively
or, if the context otherwise requires,  individually  referred to as "RISCORP"),
the estate of  Frederick  M.  Dawson,  and Walter E.  Riehemann,  an  individual
resident of the State of Florida ("Mr. Riehemann").

         WHEREAS,  on February  18,  1998,  RISCORP  entered  into a  management
agreement  (the  "Agreement")  with  the  Management   Company  to  provide  all
management  services  required  in  connection  with the ongoing  operations  of
RISCORP  following  the  sale  of  substantially  all of its  assets  to  Zenith
Insurance Company;

         WHEREAS,  at the  time  RISCORP  entered  into  the  Agreement,  Dawson
Managers,  Inc., the general  partner of the Management  Company,  was owned and
controlled by Mr. Frederick M. Dawson,  the former president and chief executive
officer of RISCORP;

         WHEREAS,  on October 24, 1999,  Mr. Dawson died of  complications  from
colon cancer;

         WHEREAS,  prior to Mr. Dawson's death, Mr. Walter E. Riehemann,  former
senior vice president and general  counsel of RISCORP,  assumed an integral role
in the activities  and  operations of the  Management  Company and had principal
operational  responsibility  for the resolution of the claims and  contingencies
pending against RISCORP or that have been or might be asserted by RISCORP;

         WHEREAS,  on November 12, 1999,  Mr.  Riehemann  exercised an option to
purchase all of the outstanding shares of Dawson Managers,  Inc. from the estate
of Mr. Dawson and, as such,  will control the  activities  and operations of the
Management Company;




<PAGE>

         WHEREAS,  given the  proposed  privatization  of RISCORP  and the other
significant   contingencies  that  are  pending,  the  Board  of  Directors  has
determined  that it is in the best interest of RI and its  shareholders to amend
the Management Agreement on the terms and conditions set forth herein;

         WHEREAS,   in  connection  with  entering  into  this  Amendment,   the
Management Company desires to assign the Agreement to Dawson Managers, Inc. with
such assignment to be effective as of December 1, 1999.

         NOW,  THEREFORE,  in consideration of the mutual covenants,  conditions
and  agreements   hereinafter  set  forth,  and  for  other  good  and  valuable
consideration,  the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:

         1.  Section  3.1.  Section 3.1 of the  Agreement  is hereby  amended by
deleting the words "Mr. Dawson" in the second sentence thereof and inserting the
words "Mr. Riehemann" in its place.

         2.  Section  4.1.  Section 4.1 of the  Agreement  is hereby  amended by
deleting "$100,000" in the first sentence thereof and inserting "$70,000" in its
place.

         3.  Section  7.4.  Section 7.4 of the  Agreement  is hereby  amended by
deleting "(i) Mr. Dawson" and inserting "(i) Mr. Riehemann" in its place.

         4. Section 7.5.  Section  7.5(B) of the Agreement is hereby  deleted in
its entirety and, in lieu thereof,  the following new paragraph 7.5(B) is hereby
inserted:

                  B.       Upon the  termination of this  Agreement  pursuant to
                           Section  7.4(viii) or (ix),  the  Management  Company
                           shall be entitled to retain the  $600,000  prepayment
                           described in Section 4.1 hereof and RISCORP shall pay
                           the Management  Company an additional amount equal to
                           the  difference  between  (1)  $520,000  and  (2) the
                           aggregate amount of the monthly  management fees paid
                           to the  Management  Company  pursuant  to Section 4.1
                           hereof on or after  December 1, 1999 and prior to the
                           effective date of such termination.

         5. Article  VIII.  Article VIII of the  Agreement is hereby  amended by
deleting  the second  sentence  thereof in its  entirety  and, in lieu  thereof,
inserting the following new sentence:

                  "Notwithstanding the foregoing,  the parties hereto agree that
                  RISCORP is entering into this  Agreement  with the  Management
                  Company to, among other things,  obtain the personal  services
                  of Mr.  Riehemann in connection  with the  performance  of the
                  Services  hereunder and,  accordingly,  the Management Company


                                     - 2 -
<PAGE>

                  shall have no  authority to delegate  those  duties  typically
                  performed by a chief executive officer of a corporation to any
                  person other than Mr. Riehemann  without the prior approval of
                  the Board of Directors."

         6.  Effective  Time.  The parties  agree that this  Amendment  shall be
effective as of December 1, 1999.

         7. Consent to Assignment.  RISCORP hereby consents to the assignment of
the Management  Agreement,  as amended,  from the  Management  Company to Dawson
Managers, Inc. and ratifies and confirms that all references in the Agreement to
the Management  Company shall be references to Dawson  Managers,  Inc. after the
effective date hereof.

         8. Other Terms and Conditions Ratified and Confirmed.  All of the terms
and conditions of the Agreement are hereby ratified and confirmed by the parties
and shall remain in full force and effect.

         9.  Counterparts.  This  amendment  may be  executed  in  two  or  more
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one in the same instrument.

                            [Signatures on Next Page]



                                     - 3 -
<PAGE>




         IN  WITNESS  WHEREOF,   the  undersigned  parties  have  executed  this
Amendment to be effective as of December 1, 1999.

               RISCORP,  Inc.,  individually  and on  behalf  of  each of its
               subsidiaries identified as parties to this Agreement


                                   /S/
                              Seddon Goode, Jr.
                              Director


                                   /S/
                              George E. Greene III
                              Director


                                   /S/
                              Walter L. Revell
                              Director


                              THE PHOENIX MANAGEMENT
                              COMPANY, LTD.

                              By:  Dawson Managers, Inc., its General Partner


                                   /S/
                              Walter E. Riehemann
                              President


                                   /S/
                              Walter E. Riehemann


                              ESTATE OF FREDERICK M. DAWSON


                                   /S/
                              Karen Dawson
                              Executrix





                                     - 4 -
<PAGE>



                                                    EXHIBIT 11

                                  STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
                                          RISCORP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>

                                                                     Year Ended December 31
                                                         ------------------------------------------------
                                                             1999               1998          1997
                                                             ----               ----          ----

<S>                                                     <C>                <C>               <C>
Net income (loss)                                        $ (7,048,000)     $(70,875,000)     $ 7,286,000
                                                         ============      ============      ===========

Average outstanding shares used for
  calculating basic earnings or loss per share (1)         37,562,906        37,011,864      36,891,864
Additional common shares issuable under
  employee stock options using the treasury stock
  method (2)                                                       -                 -          223,808
                                                         ------------       -----------      ----------
Average outstanding shares used for
  calculating diluted earnings or loss per share           37,562,906        37,011,864      37,115,672
                                                         ============       ===========      ==========
Net income (loss) per share                              $      (0.19)      $     (1.91)     $     0.20
                                                         =============      ============     ==========
Net income (loss) per share - assuming dilution          $      (0.19)      $     (1.91)     $     0.20
                                                         =============      ============     ==========
</TABLE>


(1)  The 1997 shares include  790,336 shares of Class A Common Stock pursuant to
     the  contingency  clause  in the  acquisition  agreement  with  Independent
     Association Administrators, Inc.
(2) Based on the average quarterly market price.






                                       31
<PAGE>




                                                    EXHIBIT 21

                                          RISCORP, INC. AND SUBSIDIARIES
                                          SUBSIDIARIES OF THE REGISTRANT
                                                 DECEMBER 31, 1999


<TABLE>
<CAPTION>

Subsidiaries of the Registrant*                                        State of Incorporation

<S>                                                                             <C>
RISCORP, Inc. (Registrant)                                                      Florida
         RISCORP Acquisition, Inc.                                              Florida
                  RISCORP West, Inc.                                            Oklahoma
         RISCORP of Florida, Inc.                                               Florida
                  RISCORP Insurance Company                                     Florida
                  RISCORP Property & Casualty Insurance Company                 Florida
                  RISCORP National Insurance Company                            Missouri
                  1390 Main Street Services, Inc.                               Florida
         RISCORP Services, Inc.                                                 Florida
         RISCORP Management Services, Inc.                                      Florida
                  RISCORP Insurance Services, Inc.                              Florida
                  RISCORP Managed Care Services, Inc.                           Florida
                  RISCORP of Illinois, Inc.                                     Florida
                  CompSource, Inc.                                              North Carolina
                  Independent Association of Administrators Incorporated        Alabama
         RISCORP Real Estate Holdings, Inc.                                     Florida
         RISCORP Staffing Solutions Holding, Inc.                               Florida
                  RISCORP Staffing Solutions, I, Inc.                           Florida
                  RISCORP Staffing Solutions II, Inc.                           Florida
</TABLE>


*All  subsidiaries  identified  herein are owned,  directly or  indirectly,  100
percent by the Registrant.





                                       32
<PAGE>





SIGNATURES

         Pursuant  to  the  requirement  of the  Securities  Act  of  1933,  the
Registrant  has duly  caused  this Form  10-K to be signed on its  behalf by the
undersigned,  thereunto  duly  authorized,  in the  City of  Sarasota,  State of
Florida, on the 9th day of March, 2000.

                                                  RISCORP, INC.

                                         By:      /s/ Walter E. Riehemann
                                                  Walter E. Riehemann
                                                  President and General Counsel


         PURSUANT TO THE  REQUIREMENTS  OF THE SECURITIES ACT OF 1933, THIS FORM
10-K  REGISTRATION  STATEMENT  HAS BEEN SIGNED BY THE  FOLLOWING  PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>

<S>                                          <C>                                     <C>
SIGNATURE                                    TITLE                                   DATE


/s/ Walter E. Riehemann
Walter E. Riehemann                          President and General Counsel           March 9, 2000
                                             (principal executive officer)


/s/ Edward W. Buttner IV
Edward W. Buttner IV                         Chief Accounting Officer                March 9, 2000



/s/ Seddon Goode, Jr.
Seddon Goode, Jr.                            Director                                March 9, 2000



/s/ George E. Greene III
George E. Greene III                         Director                                March 9, 2000



/s/ Walter L. Revell
Walter L. Revell                             Director                                March 9, 2000

</TABLE>




                                       33
<PAGE>





                          Independent Auditors' Report



The Board of Directors and Shareholders
RISCORP, Inc.:

We have  audited the  consolidated  financial  statements  of RISCORP,  Inc. and
subsidiaries ("the Company") as listed in the accompanying  index. In connection
with our audits of the consolidated  financial statements,  we have also audited
the related  financial  statement  schedules listed in the  accompanying  index.
These consolidated  financial  statements and financial  statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated  financial  statements and financial  statement
schedules based on our audits.

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

As discussed in note 19 to the accompanying  consolidated  financial statements,
the Company,  its  subsidiaries,  and certain of its current and former officers
and  directors,  have been named as  defendants  in various  litigation  matters
which, if the plaintiffs  prevail,  could have a material  adverse effect on the
accompanying  financial  statements.  Management's  plans with  respect to these
matters are also discussed in Note 19. The accompanying  financial statements do
not  include  any  adjustments  that  might  result  from  the  outcome  of  the
aforementioned litigation.






                                     F - 1
<PAGE>





In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial  position of RISCORP,  Inc. and
subsidiaries  as of  December  31,  1999  and  1998,  and the  results  of their
operations and their cash flows for each of the years in the  three-year  period
ended  December  31,  1999 in  conformity  with  generally  accepted  accounting
principles. Also in our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole,  present  fairly,  in all material  respects,  the  information set forth
therein.




[GRAPHIC OMITTED]

Atlanta, Georgia
March 6, 2000


                                     F - 2
<PAGE>
                         RISCORP, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                 (in thousands, except share and per share data)

<TABLE>
<CAPTION>

                                                                                                    December 31

                                                                                             1999               1998
                                                                                        --------------     --------------
<S>                                                                                     <C>                <C>
                                         ASSETS
Investments:
   Fixed maturities available for sale, at fair value (amortized cost $226,240
      $76,058 in 1999 and $6,666 in 1998)                                               $      75,959      $       6,716
   Fixed maturities available for sale, at fair value (amortized cost $2,995
      in 1999 and $9,047 in 1998)--restricted                                                   3,022              9,264
                                                                                        -------------      -------------
      Total investments                                                                        78,981             15,980

Cash and cash equivalents                                                                       4,668              6,864
Cash and cash equivalents--restricted                                                           1,925             14,842
Receivable from Zenith                                                                              -             49,933
Accounts receivable--other                                                                      2,545              7,674
Income taxes recoverable                                                                            -             17,277
Deferred income taxes                                                                           1,010              3,141
Property and equipment, net                                                                       196                337
Other assets                                                                                    5,751              7,345
                                                                                        -------------      -------------
   Total assets                                                                         $      95,076      $     123,393

                     LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities - accrued expenses and other liabilities                                    $       4,778      $      27,827
                                                                                        -------------      -------------
Shareholders' equity:
   Class A Common Stock, $.01 par value, 100,000,000 shares authorized;
       14,258,671 shares issued                                                                   143                143
   Class B Common Stock, $.01 par value, 100,000,000 shares authorized;
       24,334,443 shares issued and outstanding                                                   243                243
   Preferred Stock, $.01 par value, 10,000,000 shares authorized; none issued or
       outstanding                                                                                  -                  -
   Additional paid-in capital                                                                 142,688            142,688
   Retained deficit                                                                           (52,728)           (45,680)
   Unearned compensation--restricted stock                                                          -             (2,000)
   Treasury Class A Common Stock--at cost, 112,582 shares                                          (1)                (1)
   Accumulated Other Comprehensive Income (Loss):
      Net unrealized gains (losses) on investments                                                (47)               173
                                                                                        -------------      -------------
         Total shareholders' equity                                                            90,298             95,566
                                                                                        -------------      -------------
         Total liabilities and shareholders' equity                                     $      95,076      $     123,393
                                                                                        =============      =============

</TABLE>

See accompanying notes to consolidated financial statements.




                                     F - 3
<PAGE>




                         RISCORP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands, except share and per share data)

<TABLE>
<CAPTION>

                                                                                     Year Ended December 31
                                                                       ----------------------------------------------------

                                                                            1999               1998              1997
                                                                       ---------------     --------------    --------------
Revenues:
<S>                                                                    <C>                 <C>                <C>
    Fees and other income                                              $         778       $       5,906      $     20,369
    Net realized gains                                                           150               4,280             1,546
    Net investment income                                                      5,473               7,103            16,447
    Premiums earned                                                                -              25,819           179,729
                                                                       -------------       -------------      ------------
        Total revenues                                                         6,401              43,108           218,091

Expenses:
    Commissions and general and administrative expenses                       11,083              34,191            70,800
    Interest                                                                   1,349                 676             1,919
    Depreciation and amortization                                                142               2,736             7,423
    Losses and loss adjustment expenses                                            -              24,016           104,052
    Unallocated loss adjustment expenses                                           -               2,561            19,311
                                                                       -------------       -------------      ------------
        Total expenses                                                        12,574              64,180           203,505
                                                                       -------------       -------------      ------------

Income (loss) from operations                                                 (6,173)            (21,072)           14,586
Loss on sale of net assets to Zenith                                          (3,292)            (47,747)                -
                                                                       -------------       -------------      ------------

Income (loss) before income taxes                                             (9,465)            (68,819)           14,586
Income tax expense (benefit)                                                  (2,417)              2,056             7,300
                                                                       -------------       -------------      ------------
        Net income (loss)                                              $    (  7,048)      $     (70,875)     $      7,286
                                                                       =============       =============      ============

Per share data:
    Net income (loss) per common share-basic                           $       (0.19)      $       (1.91)    $       0.20
                                                                       =============       =============      ============
    Net income (loss) per common share-diluted                         $       (0.19)      $       (1.91)    $       0.20
                                                                       =============       =============      ============

Weighted average common shares outstanding                                37,562,906          37,011,864        36,891,864
                                                                       =============       =============      ============
Weighted average common shares and common share equivalents
    outstanding                                                           37,562,906          37,011,864        37,115,672
                                                                       =============       =============      ============

</TABLE>




See accompanying notes to consolidated financial statements.




                                     F - 4
<PAGE>




                         RISCORP, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                  Years Ended December 31, 1997, 1998, and 1999
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                         Net
                                                                     Unrealized
                                     Class A    Class B  Additional     Gains                  Retained                Total
                                     Common     Common     Paid-in  (Losses) on    Unearned    Earnings   Treasury  Shareholders'
                                      Stock      Stock     Capital   Investments  Compensation (Deficit)   Stock       Equity
                                     -------    -------  ----------  -----------  ------------ ---------  --------  ------------


<S>                                  <C>        <C>     <C>           <C>         <C>          <C>        <C>       <C>
Balance, January 1, 1997             $ 120      $ 243   $ 137,813     $ 1,769      $  (546)    $ 17,909   $    -    $ 157,308

Net income                               -          -           -           -            -        7,286        -        7,286

Purchase of treasury stock               -          -           1           -            -            -       (1)           -

Change in unearned compensation          -          -      (1,840)          -          546            -        -       (1,294)

Increase in net unrealized gains on
   investments                           -          -           -         233            -            -        -          233
                                     -------    -------  ----------  ----------- ------------  ---------  --------  ------------

Balance, December 31, 1997             120        243     135,974       2,002            -       25,195       (1)     163,533

Net loss                                 -          -           -           -            -      (70,875)       -      (70,875)

Issuance of common and restricted stock 26          -       6,714           -       (2,000)           -        -        4,740

Decrease in net unrealized gains
     on investments                      -          -           -      (1,829)           -            -        -       (1,829)

Other adjustments                       (3)         -           -           -            -            -        -           (3)
                                     -------    -------  ----------  ----------- ------------  ---------  --------  ------------

Balance, December 31, 1998             143        243     142,688         173       (2,000)     (45,680)      (1)      95,566

Net loss                                 -          -           -           -            -       (7,048)       -       (7,048)

Amortization of unearned compensation    -          -           -           -        2,000            -        -        2,000

Change in net unrealized gains
   on investments                        -          -              -      (220)          -            -        -         (220)
                                     -------    -------  ----------  ----------- ------------  ---------  --------  ------------

Balance, December 31, 1999           $ 143      $ 243   $ 142,688      $   (47)    $     -      $(52,728) $   (1)    $ 90,298
                                     =======    =======  ==========  =========== ============  =========  ========  ============
</TABLE>















See accompanying notes to consolidated financial statements.




                                     F - 5
<PAGE>




                         RISCORP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                                        Year Ended December 31
                                                                            -----------------------------------------------
                                                                                1999               1998            1997
                                                                            --------------     -------------    -----------
Cash flows from operating activities:
<S>                                                                       <C>                 <C>             <C>
   Net income (loss)                                                      $      (7,048)      $   (70,875)    $    7,286
   Adjustments to reconcile net income (loss) to net cash from
      operating activities:
      Depreciation and amortization                                                 142             2,736          7,423
      Amortization of unearned compensation                                       2,000                 -              -
      Loss on sale of net assets to Zenith                                        3,292            47,747              -
      Loss (gain) on disposal of property and equipment                               -               (99)           291
      Net realized gain on sale of investments                                     (150)           (4,280)        (1,545)
      Gain on sale of personal residence                                              -                (1)             -
      Net amortization of discounts on investments                                  (73)              166             14
      Issuance of RISCORP, Inc. stock                                                 -             4,740              -
      Other                                                                          15             1,181              -
      Change in:
         Premiums receivable, net                                                     -            16,627         22,026
         Accounts receivable--other                                               5,129            (1,558)        (5,104)
         Recoverable from Florida State Disability Trust Fund, net                    -               659          4,295
         Reinsurance recoverables                                                     -           (30,051)        (3,553)
         Prepaid reinsurance premiums                                                 -             8,301         19,807
         Prepaid managed care fees                                                    -             2,238         23,537
         Accrued reinsurance commissions                                              -            (1,481)       (16,770)
         Income taxes recoverable                                                17,277           (17,277)             -
         Deferred tax assets                                                      2,250            20,181            431
         Other assets                                                             1,594               495         (3,249)
         Loss and loss adjustment expense reserves                                    -            25,253        (21,502)
         Unearned premiums                                                            -           (13,147)       (46,280)
         Accounts payable--related party                                              -                 -         (1,171)
         Accrued expenses and other liabilities                                 (22,832)          (29,140)        (8,880)
                                                                           ------------        ----------     ----------
             Net cash provided by (used in) operating activities                  1,596           (37,585)       (22,944)
                                                                           ------------        ----------     ----------

Cash flows from investing activities:
   Proceeds from:
      Sales and maturities of fixed maturities--available for sale              357,510            86,533        130,542
      Maturities of fixed maturities--held to maturity                                -             6,000          1,885
      Sale of equity securities                                                     150             1,324          4,284
      Sale of equipment                                                               -               255            158
      Sale of personal residence                                                      -               436              -
   Purchase of:
      Fixed maturities--available for sale                                     (420,800)          (69,215)      (100,499)
      Fixed maturities--held to maturity                                              -            (5,874)        (1,237)
      Equity securities                                                               -                 -           (637)
      Property and equipment                                                          -              (971)        (4,477)
      Personal residence                                                              -              (435)             -

</TABLE>
                    (continued)




                                     F - 6
<PAGE>




                         RISCORP, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                        Year Ended December 31
                                                                            ------------------------------------------------
                                                                                1999               1998            1997
                                                                            --------------     -------------    ------------
Cash flows from investing activities (continued):
<S>                                                                           <C>               <C>             <C>
      Net cash received from Zenith for sale of net assets                       46,431            35,000                -
   Purchase (net of cash acquired) of:
      Cash and investments not yet transferred to Zenith                              -             7,404                -
      Maryland NARM Fund                                                              -                 -              134
                                                                              ---------          --------         --------
         Net cash provided by (used in) investing activities                    (16,709)           60,457           30,153
                                                                              ---------          --------         --------

Cash flows from financing activities:
   Transfer of cash and cash equivalents from (to) restricted balances           12,917           (30,856)         (13,295)
   Increase (decrease) in deposit balances payable                                    -            (1,598)             725
   Decrease in unearned compensation                                                  -                 -              546
   Purchase of treasury stock subject to put options                                  -                 -           (2,100)
   Principal repayments of notes payable                                              -              (412)            (694)
   Other, net                                                                         -                 -           (1,840)
                                                                              ---------          --------         --------
         Net cash provided by (used in) financing activities                     12,917           (32,866)         (16,658)
                                                                              ---------          --------         --------

Net decrease in cash and cash equivalents                                        (2,196)           (9,994)          (9,449)
Cash and cash equivalents, beginning of year                                      6,864            16,858           26,307
                                                                              ---------          --------         --------
Cash and cash equivalents, end of year                                         $  4,668           $ 6,864         $ 16,858
                                                                              =========          ========         ========

Supplemental disclosures of cash flow information:

   Cash paid during the year for:
      Interest                                                                 $  1,154          $    493         $  1,928
                                                                              =========          ========         ========
      Income taxes                                                             $    247          $  2,341         $  6,566
                                                                              =========          ========         ========

</TABLE>
Supplemental schedule of noncash investing and financing activities:

     As of April 1, 1998,  the Company sold  substantially  all of its insurance
     assets and transferred  certain  liabilities to Zenith. In conjunction with
     the sale and transfer,  a $49,933 receivable from Zenith was recorded as of
     December 31, 1998 [see Note 1(c)].














See accompanying notes to consolidated financial statements.




                                     F - 7
<PAGE>




                         RISCORP, INC. AND SUBSIDIARIES

             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                                 (in thousands)


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

<S>                                                                        <C>                 <C>               <C>
Net income (loss)                                                          $     (7,048)       $  (70,875)       $   7,286
                                                                           ------------        ----------        ---------

Other comprehensive income (loss), before income taxes:
       Unrealized gains (losses) on securities available for sale:
       Unrealized holding gains (losses) arising during year                       (339)              194           (2,392)
       Income tax expense (benefit) related to items of other
          comprehensive income (loss)                                              (119)               68             (837)
                                                                           ------------        ----------        ---------
Other comprehensive income (loss), net of income taxes                             (220)              126           (1,555)
                                                                           ------------        ----------        ---------

Total comprehensive income (loss)                                          $     (7,268)       $  (70,749)       $   5,731
                                                                           ============        ==========        =========

</TABLE>

                                     F - 8
<PAGE>

                         RISCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




(1)   Background and Sale to Zenith Insurance Company

      (a) Background

          RISCORP,  Inc.  ("RISCORP")  was formed in February  1996  through the
reorganization and consolidation of several affiliated companies  (collectively,
the  "Company")  that were under the common  control of a majority  shareholder,
who, at that time, was the Chairman of the Board and Chief Executive  Officer of
RISCORP.   The  reorganization   and  consolidation   qualified  as  a  tax-free
reorganization of commonly controlled entities and was accounted for in a manner
similar to a "pooling of interests."

          In November  1996,  at a special  meeting of the Board of Directors of
RISCORP,  the Board voted to  establish a Strategic  Alternatives  Committee  to
evaluate  alternatives  to  maximize  shareholder  value,   including,   without
limitation,   potential  acquisitions,   joint  ventures,   mergers,   strategic
alliances,  and the sale of all or part of  RISCORP  and its  subsidiaries.  The
actions of the Strategic  Alternatives Committee during the period from November
1996  through  June 1997  culminated  in the  execution  of the  Asset  Purchase
Agreement  on June 17, 1997 [as more fully  described in Note 1(c)] for the sale
and  transfer  of  certain  of  RISCORP's  and  its  subsidiaries'   assets  and
liabilities  to another  insurer for cash.  In addition,  the Florida  Insurance
Department  requested the purchaser to provide an interim reinsurance  agreement
and cut-through  endorsement on all inforce business as of June 17, 1997 and all
new and renewed business written after June 17, 1997. This reinsurance agreement
only provided coverage for Florida workers'  compensation  policyholders and was
approved by the Florida Insurance Department.

          Following RISCORP's inability to timely file its Annual Report on Form
10-K for the year ended  December 31, 1996 or its Quarterly  Report on Form 10-Q
for the  quarter  ended  March  31,  1997,  RISCORP's  Class A Common  Stock was
delisted in July 1997 by the NASDAQ Stock Market's National Market, on which its
stock was  traded.  RISCORP  filed its 1996 Form  10-K/A on October 28, 1997 and
amended that filing on February 27, 1998 in response to comments  received  from
the  Securities  and  Exchange   Commission   ("SEC")  in  connection  with  the
preparation  of RISCORP's  special  meeting proxy  statement  that was mailed to
shareholders on March 3, 1998.  Despite  RISCORP's timely filing of all periodic
reports for all periods subsequent to the third quarter of 1997, RISCORP's Class
A Common  Stock has  remained  delisted,  and RISCORP has no  intention  to seek
readmission for listing on NASDAQ or any national securities exchange.

      (b)  Execution of Merger Agreement with William D. Griffin

          In November  1999,  RISCORP  entered into a definitive  agreement (the
"Merger  Agreement") to merge with Griffin  Acquisition  Corp.  ("Acquiror"),  a
company  controlled  by Mr.  William D.  Griffin,  the majority  shareholder  of
RISCORP.  Pursuant  to the  terms  of the  Merger  Agreement,  each  issued  and
outstanding  share of Class A Common  Stock will receive  $2.85 in cash,  plus a
contingent  right to  receive  an  additional  pro rata cash  amount if  RISCORP
recovers any additional amounts from Zenith Insurance  Company.  Under the terms
of the Merger Agreement, Acquiror will assume all of the liabilities of RISCORP,
including  its  pending  litigation.  The  transaction  is subject to  customary
closing conditions,  including shareholder approval, and is expected to close in
the second quarter of 2000. This transaction, if consummated,  will constitute a
going private transaction.

       (c) Sale to Zenith Insurance Company

          As of April 1, 1998,  RISCORP  and  certain of its  subsidiaries  sold
substantially all of their assets and transferred  certain liabilities to Zenith


                                     F - 9
<PAGE>

Insurance Company ("Zenith"). In connection with the sale to Zenith, the Company
ceased  substantially  all of its  former  business  operations,  including  its
insurance  operations.  Accordingly,  after such date, the Company's  operations
consisted  principally of the administration of the day-to-day activities of the
surviving  corporate  entities,  compliance  with the  provisions  of the  Asset
Purchase  Agreement,  and the investment,  protection,  and  maximization of the
remaining  assets of the Company.  At the present time,  RISCORP has no plans to
resume any operating activities.

          On July 7, 1999, the Company and Zenith settled,  with certain limited
exceptions,  the claims arising out of the sale.  The Asset  Purchase  Agreement
contemplated a post-closing  purchase price  adjustment  based on the difference
between  the  book  value of the  assets  purchased  and the  book  value of the
liabilities assumed as of the closing date. In connection with the determination
of the final  purchase  price,  a dispute arose  between the parties  regarding,
among  other  things,  the  book  value of the  assets  and  liabilities  of the
business,  Zenith's assumption of certain operating liabilities of the business,
and each party's indemnification obligations under the Asset Purchase Agreement.
The terms of the settlement  included,  among other things,  RISCORP's  right to
seek  correction  of alleged  errors made by the neutral  auditors in connection
with its determination of certain reinsurance  recoverable adjustments contained
in the Final Business  Balance Sheet.  On October 7, 1999, the neutral  auditors
denied  RISCORP's  request for  correction of these errors.  On January 5, 2000,
RISCORP filed a lawsuit against Zenith and the neutral  auditors in the Superior
Court of Fulton County, Georgia, seeking correction of these alleged errors.

          In  connection  with the sale of  RISCORP's  insurance  operations  to
Zenith on April 1, 1998, RISCORP voluntarily  consented to the Florida Insurance
Department's  request  that  RISCORP  discontinue  writing  any  new or  renewal
insurance business for an indefinite period of time.

      (d) Business

          Prior to April 1, 1998,  RISCORP,  through its wholly-owned  insurance
subsidiaries,   was  principally  engaged  in  providing  workers'  compensation
insurance  under a  managed  care  philosophy.  RISCORP  provided  managed  care
workers'  compensation products and services to clients throughout the Southeast
and other  select  markets.  In  addition,  RISCORP,  through  its  wholly-owned
non-insurance  subsidiaries,  provided  reinsurance,  risk  management  advisory
services, and insurance managerial services.

          As more fully  described  in Note  1(c),  RISCORP  and  certain of its
subsidiaries  entered into an Asset Purchase  Agreement with Zenith for the sale
of substantially all of their assets and the transfer of certain  liabilities in
exchange for cash.  The  Company's  computer  systems and  proprietary  computer
software,  including the policy issue,  management  system,  and claims systems,
were included in the assets sold to Zenith.


(2)   Summary of Significant Accounting Policies

      (a) Basis of Presentation

          The accompanying  consolidated financial statements have been prepared
in accordance  with  generally  accepted  accounting  principles  ("GAAP").  All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.  The preparation of financial  statements in conformity with GAAP
requires the use of  assumptions  and estimates in reporting  certain assets and
liabilities  and related  disclosures.  Actual  results  could differ from those
estimates.

                                     F - 10
<PAGE>

      (b) Recognition of Revenues

          Workers'   compensation  and  employer  liability  insurance  premiums
consisted of deposit premiums and installment premiums billed under the terms of
the policy, and estimates of retrospectively-rated  premiums based on experience
incurred under those contracts. Unbilled installment premiums and audit premiums
were  recognized  as revenue  on the  accrual  basis.  Premiums  were  primarily
recognized  as revenue over the period to which the premiums  related  using the
daily pro rata basis with a liability  for  unearned  premiums  recorded for the
excess of premiums billed over the premiums earned.

          Service fee revenue was  recorded as a percentage  of standard  earned
premiums of the  underlying  insurance  policies of the facilities  managed,  in
accordance with the specific contractual provisions.

          Reinsurance  premiums  were  recognized as revenue on a pro rata basis
over the contract terms with a liability for unearned  premiums  established for
the unexpired portion of the contracts.

          As more fully  described  in Note 1(c),  the Company  transferred  the
unearned  premium  reserve to Zenith on April 1, 1998,  in  accordance  with the
terms of the Asset Purchase Agreement.

      (c) Florida Special Disability Trust Fund

          The State of Florida operates a Special Disability Trust Fund ("SDTF")
for the  purpose  of  providing  benefits  to  workers  who have a  pre-existing
condition and incur a second or subsequent injury.

          The SDTF is financed  through annual  assessments  imposed on workers'
compensation  insurers,  which  assessments  are  based on a  percentage  of net
workers' compensation premiums written. The Company submitted claims to the SDTF
for recovery of applicable claims paid on behalf of the Company's insureds.  The
Company  estimated  such  recoveries  based on  industry  statistics  applied to
ultimate projected claims.

          As more fully described in Note 1(c), the Company transferred the SDTF
recoverable  to Zenith on April 1,  1998,  in  accordance  with the terms of the
Asset Purchase Agreement.

      (d) Investments

          Fixed maturity  investments  are securities that mature at a specified
future date more than one year after being acquired.  Fixed maturity  securities
that may be sold prior to maturity due to changes in interest rates,  prepayment
risks,  liquidity needs,  tax-planning  purposes,  or other similar factors, are
classified as  "available  for sale" and are carried at fair value as determined
using values from independent pricing services.

          When owned,  equity  securities  (common and  nonredeemable  preferred
stocks)  were  carried at fair  value.  If the  current  market  value of equity
securities was higher than the original cost, the excess was an unrealized gain,
and if lower than the original cost, the difference was an unrealized  loss. The
net unrealized gains or losses on equity securities, net of the related deferred
income taxes,  were reported as a separate  component of  shareholders'  equity,
along  with the net  unrealized  gains or  losses on fixed  maturity  securities
available for sale.


                                     F - 11
<PAGE>

          Realized  gains and losses on sales of  investments  are recognized as
income or loss on the  specific  identification  basis,  as of the  trade  date.
Impairment losses, if any, resulting from other-than-temporary  declines in fair
value are included in net investment income.

          As more fully  described  in Note 1(c),  the Company  transferred  the
major portion of its investment portfolio,  including restricted investments, to
Zenith on April 1,  1998,  in  accordance  with the terms of the Asset  Purchase
Agreement.

      (e) Losses and Loss Adjustment Expenses

          The liabilities for losses and loss adjustment  expenses were based on
an actuarial  determination  and represented  management's  best estimate of the
ultimate  cost of losses and loss  adjustment  expenses  that were unpaid at the
balance sheet date,  including  incurred but not reported  claims.  Although the
liabilities  were  supported  by  actuarial  projections  and other  data,  such
liabilities  were  ultimately  based on  management's  reasoned  expectations of
future events.  The  liabilities  for losses and loss  adjustment  expenses were
continually reviewed and, as adjustments became necessary, such adjustments were
included in current operations.

          The Company recognized  reinsurance  recoveries,  estimated recoveries
from the SDTF,  and  subrogation  from  third  parties as  reductions  to losses
incurred.

          As more fully  described  in Note 1(c),  the Company  transferred  the
liabilities for losses and loss adjustment  expenses to Zenith on April 1, 1998,
in accordance with the terms of the Asset Purchase Agreement.

      (f) Reinsurance

          Premiums and losses and loss adjustment  expenses ceded by the Company
under  reinsurance  contracts in which the Company was provided  indemnification
against loss or liability relating to specified insurance risks were reported as
reductions  to  premiums  earned  and  losses  and  loss  adjustment   expenses,
respectively.  Amounts recoverable for ceded losses and loss adjustment expenses
and ceded  unearned  premiums  under  reinsurance  agreements  were  reported as
assets.  Reinsurance  contracts that did not transfer risk were accounted for as
deposits.

          As more fully  described  in Note 1(c),  the Company  transferred  the
reinsurance  assets and  liabilities  to Zenith on April 1, 1998,  in accordance
with the terms of the Asset Purchase Agreement.

      (g) Income Taxes

          The Company  accounts for income taxes in  accordance  with  Financial
Accounting  Standards Board Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109").  Under SFAS 109, deferred tax assets
and deferred tax liabilities are established for temporary  differences  between
the  financial  reporting  basis  and tax  basis  of the  Company's  assets  and
liabilities  at enacted tax rates expected to be in effect when such amounts are
recovered or settled. Such temporary differences were principally related to the
deferral of policy acquisition costs,  tax-basis discount on reserves for unpaid
losses and loss adjustment expenses, the deductibility of unearned premiums, the
allowance  for  uncollectible  premiums  receivable,  and  the  amortization  of
goodwill.  A valuation allowance has been established to reduce the net deferred
tax asset to an amount that, in the opinion of  management,  is more likely than
not to be realized.




                                     F - 12
<PAGE>

      (h) Policy Acquisition Costs

          The costs of acquiring and renewing business, principally commissions,
premium  taxes,  and other  underwriting  expenses,  were deferred to the extent
recoverable  and amortized over the terms of the related  policies.  Anticipated
investment  income  was  considered  in  the  determination  of  recoverability.
Unearned  ceding  commissions  were  reported as a reduction to deferred  policy
acquisition  costs.  The  policy  acquisition  costs  deferred  in 1998 and 1997
totaled  $8.9 million and $41  million,  respectively.  The 1998 and 1997 policy
acquisition   costs   amortized   totaled  $11.4  million  and  $49.2   million,
respectively.  The  amortization  of policy  acquisition  costs was  included in
commissions  and  general  and  administrative   expenses  in  the  accompanying
consolidated statements of operations for 1998 and 1997.

          As more fully  described  in Note 1(c),  the Company  transferred  the
deferred policy acquisition cost asset to Zenith on April 1, 1998, in accordance
with the terms of the Asset Purchase Agreement.

      (i) Goodwill

          The costs in excess of net assets acquired, or goodwill, represent the
unamortized  excess  of the cost over the  underlying  net  assets of  companies
acquired.  The goodwill has been amortized on a straight-line basis over periods
ranging  from  five to 15  years.  The  amortization  expense  for 1998 and 1997
totaled  $0.9  million  and  $3.3   million,   respectively,   and   accumulated
amortization as of December 31, 1997 was $11.3 million.  The net assets acquired
in  excess  of  cost,  or  "negative"   goodwill,   have  been  amortized  on  a
straight-line  basis over 10 years.  The income  from  amortization  of negative
goodwill totaled $0.2 million and $0.8 million for 1998 and 1997,  respectively.
As more fully  described in Note 1(c),  the Company  transferred  the  goodwill,
including  "negative"  goodwill,  to Zenith on April 1, 1998, in accordance with
the terms of the Asset Purchase Agreement.

          The Company  periodically  reviewed its assets subject to Statement of
Financial  Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for Long-Lived Assets to Be Disposed Of" and, when events
or changes in  circumstances  indicated that the carrying amount of an asset may
no longer be fully  recoverable,  the Company reviewed the recoverability of the
asset  principally  by estimating  the future cash flows expected to result from
the use of the asset and its  eventual  disposition.  If the sum of the expected
future cash flows  (undiscounted and without interest charges) was less than the
carrying  value of the asset,  the Company  recognized an impairment  loss.  The
measurement of an impairment loss was based on the carrying amount and estimated
fair value of the asset.

      (j) Property and Equipment

          Property and  equipment  have been  recorded at cost less  accumulated
depreciation.  Depreciation was computed using the straight-line method over the
useful  lives of the related  assets.  Property  and  equipment  recorded  under
capital lease  arrangements  was being amortized over the shorter of the asset's
useful life or the lease term.

          The  Company  capitalized  incremental  internal  and  external  costs
directly related to internally  developed  software to meet the Company's needs.
Those software  development  projects  represented major system  enhancements or
replacements   of   existing   operating    management    information   systems.
Capitalization  commenced when  management had committed to funding the software
project and it was probable that upon  completion the software would perform its
intended function. The capitalized costs were recorded as property and equipment
and amortized  using the  straight-line  method over three years.  In 1998,  the
Company capitalized costs of $0.3 million and recorded  amortization expense for
internally  developed  software costs of $0, $0.1 million,  and $0.3 million for
1999, 1998, and 1997, respectively.


                                     F - 13
<PAGE>

          As more fully  described  in Note 1(c),  the Company  transferred  the
major portion of the property and equipment,  including the internally developed
software,  to Zenith on April 1, 1998, in accordance with the terms of the Asset
Purchase Agreement.

       (k) Investment in Joint Venture

          The Company accounted for its 50 percent investment in a joint venture
arrangement  on the equity basis of accounting  whereby the  Company's  recorded
investment was adjusted for its proportionate share of earnings or losses of the
joint venture.

      (l) Cash and Cash Equivalents

          The Company considered all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

     The  Company had  restricted  cash at  December  31, 1999 of $1.9  million,
consisting of deposits with various governmental agencies.

      (m) Premiums Receivable, Net

          As more fully  described  in Note 1(c),  the Company  transferred  the
premiums  receivable balance and related allowance for uncollectible  amounts to
Zenith on April 1,  1998,  in  accordance  with the terms of the Asset  Purchase
Agreement.

      (n) Earnings Per Share

          In February  1997,  the Financial  Accounting  Standards  Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128").  SFAS 128 requires  the  presentation  of two earnings per share  ("EPS")
calculations,  basic EPS and diluted  EPS,  in the  consolidated  statements  of
operations. Basic EPS is computed by dividing net income or loss by the weighted
average number of shares outstanding for the period.  Diluted EPS is computed by
dividing net income by the weighted average number of shares outstanding for the
period  plus the shares for the  dilutive  effect of stock  options,  contingent
shares, and other common stock equivalents.

          The  components  of the  weighted  average  shares  used  in  the  EPS
calculations are summarized as follows:

                                          1999           1998            1997
  Average outstanding shares used for
        calculating basic EPS          37,562,906     37,011,864      36,891,864
  Effect of stock options                      --             --         223,808
                                       ----------     ----------      ----------
  Average outstanding shares used for
           calculating diluted EPS     37,562,906     37,011,864      37,115,672
                                       ==========     ==========      ==========


      (o) Stock-Based Compensation

          In October  1995,  the  Financial  Accounting  Standards  Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation"  ("SFAS 123").  SFAS 123  established  a method of accounting  for
stock-based  compensation  that is based on the fair value of stock  options and


                                     F - 14
<PAGE>

similar  instruments  and  encourages,  but does not  require,  adoption of that
method.  RISCORP has elected to continue following  Accounting  Principles Board
Opinion  No. 25,  "Accounting  for Stock  Issued to  Employees,"  for  measuring
compensation cost.  However,  as required by SFAS 123, RISCORP has disclosed pro
forma  net  income  or loss per  share  for  1999,  1998,  and  1997,  as if the
provisions of SFAS 123 had been adopted (see Note 12).

      (p) Year 2000

          Neither the Company,  its  suppliers,  nor the financial  institutions
with which the Company maintains banking or investment accounts, experienced any
known Year 2000 computer problems.

      (q) Concentrations of Risk

          A description of significant risks that faced RISCORP and its property
and casualty  insurance  subsidiaries  and how those risks were  minimized is as
follows:

               Legal/Regulatory  Risk is the risk that  changes  in the legal or
          regulatory  environment  in which an insurer  operates that can create
          additional  loss costs or expenses not  anticipated  by the insurer in
          pricing its  products.  That is,  regulatory  initiatives  designed to
          reduce insurer  profits or new legal theories may create costs for the
          insurer beyond those currently  reported in the financial  statements.
          The Company  minimized  this risk by reviewing  legislative  and other
          regulatory changes and adjusting rates whenever  possible.  All of the
          Company's  premiums  were derived from  products  offered to customers
          located  in the  United  States.  Accordingly,  an  insurer  could  be
          adversely affected by economic  downturns,  significant  unemployment,
          and other conditions that may occur from time to time.

               Credit Risk is the risk that issuers of  securities  owned by the
          Company will default,  or other  parties,  including  reinsurers,  the
          SDTF,  agents,  and insureds that may owe the Company money,  will not
          pay. The Company  minimized this risk by, among other means,  adhering
          to a conservative  investment  strategy,  by placing  reinsurance with
          highly rated reinsurers, and by actively monitoring collections of the
          SDTF recoverable and premiums receivable.

               Interest  Rate Risk is the risk that  interest  rates will change
          and cause a decrease in the value of the  Company's  investments.  The
          Company  mitigated  this  risk by  attempting  to match  the  maturity
          schedule of its assets with the expected payout of its liabilities. To
          the extent that  liabilities come due more quickly than assets mature,
          an insurer  would have to sell assets prior to maturity and  recognize
          potential gains or losses.

               Liquidity  Risk is the risk  that the  liquidity  of the  Company
          could have been materially  adversely affected if Zenith had prevailed
          in the dispute resolution process with respect to the determination of
          the final  purchase price or if there had been a material delay in the
          Company's  receipt of the final  payment  determined  to be payable by
          Zenith. See Note 1(c) for further discussion of this issue.

      (r) Restructuring Charges

          In June 1997,  the Company  implemented  a workforce  reduction  and a
consolidation of the Company's management team, field offices, and products. The


                                     F - 15
<PAGE>

reduction in the work force resulted in the  termination  of 128 employees.  The
Company also  announced  in June 1997 its  intention to focus solely on its core
workers' compensation insurance business and to close all field offices,  except
Charlotte and Birmingham,  by the end of 1997. The Company recorded $5.8 million
in  non-recurring  expenses during the second quarter of 1997 in connection with
the  workforce  reduction and  consolidation  of the field offices and products.
Those non-recurring expenses consisted principally of severance expenses of $5.1
million and occupancy  costs of $0.7 million,  of which $0.1 million and $7,000,
respectively,  were  unpaid as of December  31,  1999 and $0.4  million and $0.2
million were unpaid as of December 31, 1998. Those  non-recurring  expenses were
included in commissions  and  underwriting  and  administrative  expenses in the
accompanying 1997 consolidated statement of operations.

      (s) Participating Insurance Policies

          The Company  offered  participating  insurance  policies in connection
with custom plans,  flexible  retention  plans,  and preferred  account dividend
plans.  Policyholder dividends were approved quarterly by the Board of Directors
and  were  based  on the  actual  loss  experience  of  each  of  the  policies.
Participating policies represented 20 percent and 16 percent of written premiums
as of March 31, 1998 (just prior to the sale to Zenith) and  December  31, 1997,
respectively.  The Company paid dividends to participating policyholders of $8.5
million during 1997. No policyholder  dividends were paid in 1998; however,  the
policyholder  dividends  expected  to be paid  after  1997 were  reduced by $0.5
million during the quarter ended March 31, 1998 due to loss experience.

          As more fully  described  in Note 1(c),  the Company  transferred  the
liability for  policyholder  dividends to Zenith on April 1, 1998, in accordance
with the terms of the Asset Purchase Agreement.

      (t) Determination of Fair Values of Financial Instruments

          In the accompanying  financial statements,  cash and cash equivalents,
fixed  maturity  securities,   receivables,  and  other  liabilities  have  been
identified as financial  instruments.  The fair values of fixed  maturities  and
equity  securities  are  presented  in  Note  5.  For  the  remaining  financial
instruments,  management believes the carrying values approximate fair value due
to the short maturity,  terms,  and  fluctuations in market  conditions of those
instruments.  The  estimated  fair value  amounts  have been  determined  by the
Company,   using  available   market   information  and  appropriate   valuation
methodologies.   However,  considerable  judgment  is  necessarily  required  in
interpreting  market data to develop the  estimates of fair value.  Accordingly,
the estimates reported herein are not necessarily indicative of the amounts that
the Company could  realize in a current  market  exchange.  The use of different
market assumptions and/or estimation  methodologies could have a material effect
on the estimated fair value amounts.

      (u) Comprehensive Income

          As of January 1, 1998,  the Company  adopted  Statement  of  Financial
Accounting  Standards No. 130,  "Reporting  Comprehensive  Income" ("SFAS 130").
SFAS 130  established  new rules for the reporting and display of  comprehensive
income and its components;  however, the adoption of this standard had no impact
on the  Company's  net income or  shareholders'  equity.  In addition to certain
other adjustments, SFAS 130 requires unrealized gains or losses on the Company's
available for sale securities,  which prior to adoption were reported separately
in shareholders' equity, to be included in other comprehensive income.




                                     F - 16
<PAGE>

      (v) Reclassifications

         For comparative purposes,  certain amounts in the accompanying 1998 and
1997  financial  statements  have  been  reclassified  from  amounts  previously
reported.   Those   reclassifications  had  no  effect  on  previously  reported
shareholders' equity or net income (loss).


(3)    Management and Outsourcing Agreements

      Following  the  consummation  of the sale to Zenith on April 1, 1998,  the
Company has had no employees.  Therefore,  as more fully  described  below,  the
Company  entered into a management  agreement  and certain  outsourcing  service
agreements  to provide the Company with the  necessary  resources to conduct its
day-to-day activities.

      In February  1998,  the Company  entered into a Management  Agreement (the
"Management  Agreement") with The Phoenix Management Company,  Ltd.  ("Phoenix")
for the  provision  of various  management  services to the Company  immediately
following  the  consummation  of the  transactions  contemplated  by  the  Asset
Purchase  Agreement  with  Zenith.  Mr.  Frederick  M.  Dawson  owned a majority
interest  in  Phoenix,  a  Florida  limited  partnership,   and  controlled  its
operations as President of the General  Partner until his death in October 1999.
Mr. Walter E. Riehemann owned a minority  interest in Phoenix and serves as Vice
President and Secretary of the General Partner.  Although neither Mr. Dawson nor
Mr.  Riehemann have been employees of the Company since the  consummation of the
transactions  contemplated  by the Asset  Purchase  Agreement  with Zenith,  the
Management  Agreement  specifically  provided  that Mr.  Dawson  was to hold the
titles of President and Chief Executive Officer of the Company and Mr. Riehemann
was to hold the titles of Chief Investment Officer,  Treasurer, and Secretary of
the Company.  Following Mr.  Dawson's  death,  the Board of Directors  named Mr.
Riehemann to also fill the position of President of RISCORP.

      Pursuant to the terms of the Management Agreement,  the Company was to pay
Phoenix  $100,000 per month,  plus  expenses,  and granted  Phoenix a restricted
stock award for 1,725,000  shares of RISCORP's  Class A Common Stock (subject to
certain  vesting  provisions)  in  consideration  for its  management  services.
Following  Mr.  Dawson's  death,  the amount  paid to Phoenix by the Company was
reduced to $70,000  per month  effective  on December  1, 1999.  The  Management
Agreement  has an  initial  term of  three  years  which  commenced  immediately
following  the  consummation  of the  transactions  contemplated  by  the  Asset
Purchase Agreement with Zenith, and the Company has the right to extend the term
for an  additional  year.  The Company paid Phoenix a retainer of $0.6  million,
which  retainer  is to be  applied by Phoenix  against  the fees  payable by the
Company  during the final six  months of the  initial  term.  That  retainer  is
included  in  other  assets  in the  accompanying  December  31,  1999  and 1998
consolidated  balance sheets.  The restricted stock grant vests monthly over the
initial term of the Management Agreement,  and Phoenix is entitled to all rights
applicable  to holders of shares of RISCORP's  Class A Common Stock with respect
to all such shares from the date of grant,  including,  without limitation,  the
right to receive any dividends or distributions payable on the restricted stock.
Pursuant to the terms of the restricted stock award  agreement,  Phoenix may not
dispose of or otherwise  transfer the  restricted  stock until  vested.  For the
grant of restricted stock, unearned  compensation  equivalent to the fair market
value  of the  shares  at the  date of the  grant  was  recorded  as a  separate
component of shareholders' equity and subsequently amortized to expense over the
vesting  period.  The  Company  recognized  amortization  of $2 million and $4.1
million to  consulting  expense for the years ended  December 31, 1999 and 1998,
respectively.  Pursuant to the terms of the  Management  Agreement,  the Company
paid Phoenix $2.8 million to reimburse the partners of the  Management  Company,


                                     F - 17
<PAGE>

on an after-tax  basis,  for all taxes  (exclusive  of state taxes)  incurred in
connection  with the Section 83(b) election filed with respect to the restricted
stock grant.  In the event that the  Management  Agreement is  terminated by the
Company  prior to the  expiration  of its initial  term due to (i) the  complete
liquidation,  dissolution,  and winding up of all of the business and affairs of
the  Company,  including,  without  limitation,  the final  distribution  to all
RISCORP  shareholders or (ii) the final distribution to the holders of RISCORP's
Series A Common  Stock,  the  vesting  under the  restricted  stock  grant  will
accelerate  immediately prior to such event and the Company will make a lump sum
payment to Phoenix equal to the unpaid  balance of the amount that Phoenix would
have  received  in  monthly  management  fees  during  the  initial  term of the
Management Agreement.

      Pursuant to the terms of the Management Agreement, Phoenix provides, among
other  things,  the  following  services to the Company:  (i)  management of the
day-to-day  operations of RISCORP and its  subsidiaries,  (ii) management of the
preparation,  negotiation,  and defense of the Final Business  Balance Sheet (as
defined  in the Asset  Purchase  Agreement),  (iii)  assistance  in the  overall
planning and coordination of the business of the Company, (iv) assistance in the
resolution  of all claims and  contingencies  pending or  subsequently  asserted
against the  Company,  (v)  coordination  of the  finance,  accounting,  and tax
requirements  of the Company with the specific  duties to be  delegated,  at the
expense of the  Company,  to  competent  professionals  approved by the Board of
Directors of the Company,  (vi)  preparation  of the  investment  policy for the
Company and  coordination  of the  investment  transactions  through one or more
investment advisors, and (vii) performance of such other duties as may from time
to time be requested  by the Board of Directors of the Company not  inconsistent
with the terms of the Management Agreement.

      In May 1997,  subject  to  shareholder  approval,  RISCORP  granted to Mr.
Frederick  M.  Dawson  non-qualified  options to  purchase  2,533,326  shares of
RISCORP's  Class  A  Common  Stock.  Pursuant  to the  terms  of the  Management
Agreement,   immediately   following  the   consummation  of  the   transactions
contemplated by the Asset Purchase  Agreement with Zenith and the receipt of the
applicable cash payments under his employment agreement,  RISCORP and Mr. Dawson
entered into a Termination  Agreement evidencing the termination of each party's
rights,  duties,  and  obligations  under  Mr.  Dawson's  employment  agreement,
including the termination of the stock option grants and Mr.
Dawson's right to receive any of the shares thereunder.

      Effective   April  1,  1998,  the  Company   entered  into  an  accounting
outsourcing  agreement with Buttner Hammock & Company,  P.A. ("BHC").  Under the
terms  of  the  agreement,  BHC  is to  provide  monthly  accounting,  financial
reporting,  tax return  preparation,  and certain  financial and tax  consulting
services.  Under that  agreement,  Mr. Buttner has been  designated as the chief
accounting officer for RISCORP and each of its subsidiaries.  The agreement with
BHC is for a period of 36 months.  In consideration for the services provided by
BHC,  the  Company is to pay BHC a monthly  fee of  approximately  $0.1  million
during 1998, 1999, and 2000, plus reasonable  out-of-pocket  costs. In addition,
as  defined in the  agreement,  BHC may also  provide  certain  services  to the
Company  that are to be billed on an hourly rate basis.  The Company  paid BHC a
retainer  of $0.5  million  against the fees due for the final six months of the
initial term of the agreement.  That retainer is included in other assets in the
accompanying December 31, 1999 and 1998 consolidated balance sheets.

      Effective April 1, 1998, the Company  entered into a computer  outsourcing
agreement.  Under the terms of that  agreement,  the  vendor is to  provide  the
Company   with   computer   configuration,    software   installation,   network
configuration   and  maintenance,   telecommunication   coordination,   computer
maintenance,  and other computer-related services. The agreement is for a period


                                     F - 18
<PAGE>

of 36 months. In consideration of the services provided, the Company is to pay a
fee of  $100  per  hour  plus  reasonable  out-of-pocket  costs  with a  minimum
commitment of 1,020 hours for year one of the contract and a minimum  commitment
of 900 hours for years two and three of the contract.

      During 1999 and 1998,  the Company  expensed $3.0 million and $3.4 million
in fees,  respectively,  excluding  restricted  stock  grants,  and tax payments
previously  discussed,  in  connection  with the  services  provided  under  the
foregoing management and outsourcing agreements.  Those expenses are included in
commissions and general and administrative expenses in the accompanying 1999 and
1998 consolidated statement of operations, respectively.


(4)   Acquisitions and Joint Venture

Acquisition of CompSource

      In  March  1996,  RISCORP  purchased  all  of  the  outstanding  stock  of
CompSource,  Inc. and Insura, Inc. (collectively,  "CompSource") in exchange for
$12.1  million in cash and  112,582  shares of  RISCORP's  Class A Common  Stock
valued at $2.1 million on the date of acquisition.  On the acquisition date, the
excess of the purchase price over the fair value of the net assets  acquired was
$12.6   million  and  was  recorded  as  goodwill.   CompSource  is  a  workers'
compensation   management  services  company  offering  its  services  in  North
Carolina.  Pursuant to a stock redemption agreement entered into as part of this
transaction,  the former  shareholders  of  CompSource  elected to have  RISCORP
repurchase  the 112,582  shares in March 1997,  and  RISCORP  repurchased  those
shares from the former  shareholders  for $2.1  million in  accordance  with the
terms of the redemption agreement.

Acquisition of Independent  Association  Administrators,  Inc.  ("IAA") and Risk
Inspection Services and Consulting, Inc. ("RISC")

      In September 1996,  RISCORP  purchased all of the outstanding stock of IAA
and RISC in exchange for $11.5 million, consisting principally of 790,336 shares
of  RISCORP's  Class A  Common  Stock  valued  at $10.9  million  on the date of
acquisition.   IAA  and  RISC  are  workers'  compensation  management  services
companies  offering services in Alabama.  On the acquisition date, the excess of
the  purchase  price over the fair value of the net  assets  acquired  was $11.4
million and was recorded as goodwill.

      The remaining unamortized goodwill relating to those acquisitions was $7.8
million at March 31, 1998 (just prior to the  transfer of the goodwill to Zenith
on April 1, 1998).

      Due to a decrease in the market value of RISCORP's  Class A Common  Stock,
790,336  additional  shares of  RISCORP's  Class A Common  Stock  valued at $0.6
million were issued in January 1998 to the former shareholders of IAA.

Joint Venture Arrangement

      In January 1996,  RISCORP,  through one of its wholly-owned  subsidiaries,
entered into a joint venture  arrangement  with Health Care Service  Corporation
("HCSC"), a subsidiary of Blue Cross and Blue Shield of Illinois,  to underwrite
and sell managed care workers' compensation  insurance in Illinois.  RISCORP and
HCSC each held 50 percent  ownership in the joint  venture  known as Third Coast
Holding Company ("Third Coast").  RISCORP  contributed the use of its expertise,
insurance systems, and intellectual property, while HCSC contributed cash of $10
million.  RISCORP's  contributed  property  in Third  Coast  was  valued  at $10
million; however, RISCORP's cost basis in the contributed property was



                                     F - 19
<PAGE>




$0 and, as of December 31, 1996,  RISCORP  recorded  its initial  investment  in
Third Coast at $0. The carrying value of RISCORP's  investment in Third Coast at
December 31, 1997 was $0.

      Initially,  RISCORP accounted for its 50 percent investment in Third Coast
on the equity basis of accounting,  whereby  RISCORP's  recorded  investment was
adjusted  for its  proportionate  share of  earnings  or losses of Third  Coast.
RISCORP  discontinued the use of the equity method of accounting for Third Coast
in the  first  quarter  of 1997 when the  cumulative  losses  reduced  RISCORP's
investment in Third Coast to $0.  RISCORP has not made any financial  guarantees
relating to Third Coast and has not made any  financial  commitments  to provide
any future funding to Third Coast.

      Effective January 1, 1998,  RISCORP entered into an agreement with HCSC to
sell  RISCORP's 50 percent  interest in Third Coast for $1.3  million.  The $1.3
million  gain on the sale of Third Coast was  included in the 1998 net  realized
gains.  RISCORP  received the funds due in connection  with this  transaction in
April 1998.

      As more  fully  described  in  Note  1(c),  the  Company  transferred  the
unamortized  balance of goodwill to Zenith on April 1, 1998, in accordance  with
the terms of the Asset Purchase Agreement.


(5)   Investments

      Investments   (including   restricted   investments)   included   in   the
accompanying  consolidated  balance  sheets as of December 31, 1999 and 1998 are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                            Cost or           Gross           Gross
                                                           Amortized       Unrealized       Unrealized     Estimated
                                                             Cost             Gains           Losses       Fair Value
                                                           ---------       ----------       ----------     ----------


December 31, 1999:
   Available for sale:
      Fixed maturity securities:
<S>                                                      <C>           <C>             <C>                <C>
         U.S. government obligations                     $  20,181     $         32    $       (50)       $  20,163
         Corporate obligations                              58,872                1            (55)          58,818
                                                         ---------     ------------    -----------        ---------
               Total investments                         $  79,053     $         33    $      (105)       $  78,981
                                                         =========     ============    ===========        =========

   Available for sale:
      Unrestricted                                       $  76,058     $          6    $      (105)       $  75,959
      Restricted                                             2,995               27              -            3,022
                                                         ---------     ------------    -----------        ---------
               Total                                     $  79,053     $         33    $      (105)       $  78,981
                                                         =========     ============    ===========        =========

December 31, 1998:
   Available for sale:
      Fixed maturity securities:
         U.S. government obligations                     $  13,681        $     219      $       -        $  13,900
         Corporate obligations                               2,032               48              -            2,080
                                                         ---------        ---------      ---------        ---------
               Total investments                         $  15,713        $     267      $       -        $  15,980
                                                         =========        =========      =========        =========

   Available for sale:
      Unrestricted                                       $   6,666        $      50      $       -        $   6,716
      Restricted                                             9,047              217              -            9,264
                                                         ---------        ---------      ---------        ---------
               Total                                     $  15,713        $     267      $       -        $  15,980
                                                         =========        =========      =========        =========
</TABLE>


     The fair  values  of  investments  (including  restricted  investments)  at
December 31, 1999 and 1998 were determined using independent pricing services.





                                     F - 20
<PAGE>




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

                                             Available for Sale
                                           -----------------------
                                           Amortized     Estimated
                                             Cost        Fair Value
                                           ---------     ----------

             Due in 2000                   $  66,667      $  66,613
             Due in 2001 to 2004              11,987         11,964
             Due in 2005 to 2009                 399            404
                                           ---------     ----------

             Total                         $  79,053      $  78,981
                                           =========      =========

      The actual maturities may differ from the contractual  maturities  because
certain  borrowers have the right to call or prepay  obligations with or without
call or prepayment penalties.

      During 1999,  1998, and 1997,  proceeds from sales and maturities of fixed
maturities available for sale totaled $357.5 million,  $86.5 million, and $130.5
million, respectively.

      Gross  realized  gains  and  gross  realized   losses  from  the  sale  of
investments  for 1999,  1998, and 1997 are summarized in the following table and
were  reported  in  net  investment  income  in  the  accompanying  consolidated
statements of operations (in thousands):

                                        1999           1998            1997
                                      --------       --------        --------
             Gross realized gains      $  150         $ 4,348        $  1,770
             Gross realized losses          -             (68)           (224)
                                      --------       --------        --------
             Net realized gains        $  150         $ 4,280        $  1,546
                                      ========       ========        ========

      A gross  realized  gain of $2.9 million and a gross  realized loss of $0.1
million  relating to securities  that were  transferred  to Zenith in connection
with the Asset  Purchase  Agreement  were  included  in the  foregoing  1998 net
realized gains.

      The following table summarizes the components of net investment income for
1999, 1998, and 1997 (in thousands):

                                        1999           1998            1997
                                      --------       --------        --------
             Fixed maturities          $ 3,258        $ 3,733        $ 13,815
             Equity securities               -           (166)            469
             Cash and cash equivalents     491          1,633           2,516
             Zenith receivable and other
                accounts receivable      1,831          2,080               -
                                      --------       --------        --------
                                         5,580          7,280          16,800
             Investment expenses          (107)          (177)           (353)
                                      --------       --------        --------

             Net investment income    $  5,473       $  7,103        $ 16,447
                                      ========       ========        ========

      Although the Company has credit risk in the investment portfolio, no fixed
maturity  security had a Standard & Poor's rating of less than A at December 31,
1999.  The carrying  value of  securities  on deposit with various  governmental
agencies  was $3.0  million  and $11.6  million at  December  31, 1999 and 1998,
respectively.  In addition,  the carrying  value of securities  held in trust in
connection with a fronting  agreement between Virginia Surety Company,  Inc. and
RISCORP Management Services, Inc. was $1.6



                                     F - 21
<PAGE>




million at December 31, 1998; such securities were included in fixed  maturities
available  for  sale-restricted  classification  at  December  31,  1998  in the
accompanying consolidated balance sheets.

      Excluding  investments  issued or  guaranteed  by the United  States,  the
Company had no  investments  in any insurer in excess of 10 percent of RISCORP's
shareholders' equity at December 31, 1999 or 1998.


(6)   Liabilities for Losses and Loss Adjustment Expenses

      As more  fully  described  in  Note  1(c),  the  Company  transferred  the
liabilities for losses and loss adjustment  expenses to Zenith on April 1, 1998,
in accordance with the terms of the Asset Purchase Agreement.

      Prior  to the  sale  to  Zenith,  the  Company  established  an  estimated
liability  for losses and loss  adjustment  expenses  with  respect to  reported
claims and claims incurred but not yet reported as of the end of each accounting
period.  The  Company  established  that  liability  based on facts then  known,
estimates of future claims trends,  and other  factors,  including the Company's
experience with similar cases and historical  Company and industry trends,  such
as  reserving  patterns,  loss payment  patterns,  claim  closure and  reporting
patterns, and product mix.

      The activity in the liability for losses and loss  adjustment  expenses
for 1998 and 1997 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                      1998         1997
                                                                                   ----------   ----------
<S>                                                                                <C>          <C>
      Gross liability for losses and loss adjustment expenses,
        at January 1                                                               $ 437,038    $ 458,239
      Reinsurance recoverables                                                      (184,251)    (180,698)
      SDTF recoverables                                                              (45,211)     (49,505)
      Prepaid managed care fees                                                       (8,420)     (31,958)
                                                                                  ----------     ---------
      Net balance at January 1                                                       199,156      196,078
                                                                                  ----------     ---------

      Incurred losses and loss adjustment expenses related to:
        Current year                                                                  14,860      125,764
        Prior years                                                                   11,717       (2,401)
                                                                                  ----------     ---------
        Total incurred losses and loss adjustment expenses                            26,577      123,363
                                                                                  ----------     ---------

      Paid related to:
        Current year                                                                   1,717       45,646
        Prior years                                                                   26,760       74,639
                                                                                  ----------     ---------
        Total paid                                                                    28,477      120,285
                                                                                  ----------     ---------
      Net balance at December 31                                                     197,256      199,156

      Plus reinsurance recoverables                                                  214,302      184,251
      Plus SDTF recoverables                                                          44,552       45,211
      Plus prepaid managed care fees                                                   6,182        8,420
                                                                                  ----------     ---------
      Gross liability at December 31                                                 462,292      437,038

      Gross liability for losses and loss adjustment expenses
        transferred to Zenith [see Note 1(c)]                                       (462,292)           -
                                                                                  ----------     ---------


      Gross liability for losses and loss adjustment expenses,
        at December 31                                                            $        -     $ 437,038
                                                                                  ==========     ==========

</TABLE>

                                     F - 22
<PAGE>

      The 1998 adverse loss  development  was primarily  related to increases in
the actuarial estimates of remaining loss liabilities  pertaining to the Florida
business  offset  somewhat by decreases in the actuarial  estimates of remaining
loss liabilities pertaining to the Alabama and North Carolina business.

      The Company recognized recoveries from the SDTF and subrogation from third
parties as a reduction of incurred  losses.  In determining the best estimate of
the effect of these  recoveries  on the ultimate  cost of all unpaid  losses and
loss  adjustment   expenses,   the  Company  utilized  historical  and  industry
statistics.  The  estimated  amount of  recoveries  from the SDTF  included as a
reduction to the  liability  for losses and loss  adjustment  expenses was $45.2
million at December 31, 1998.


(7)   Florida Special Disability Trust Fund ("SDTF")

      Florida   operates   the  SDTF   that   reimburses   insurance   carriers,
self-insurance funds, and self-insured employers in Florida for certain workers'
compensation  benefits  paid to injured  employees.  The SDTF  reimburses  claim
payments made to a claimant whose injury merges with, aggravates, or accelerates
a pre-existing  permanent physical impairment.  The SDTF is managed by the State
of Florida and is funded through  assessments against insurers and self-insurers
providing  workers'  compensation  coverage in Florida.  The Company's  pro-rata
amount of the SDTF assessment is based on their written premiums compared to the
total  workers'  compensation  premiums  written  by all  Florida  insurers  and
self-insurance  funds.  Should  a  carrier  stop  writing  business,  it  has no
obligation  for  future   assessments.   The  SDTF's   assessment   formula  has
historically yielded sufficient revenues for annual  reimbursement  payments and
for costs associated with administering the SDTF. The SDTF has not prefunded its
claims liability and no reserves  currently exist. The Company has been informed
that,  as  of  September  30,  1996,  the  SDTF  had  an  actuarially  projected
undiscounted  liability of $4 billion based on a study performed for the SDTF by
independent actuarial consultants. The SDTF actuarial study also indicated that,
at the current  assessment  rates,  the payment of the existing  liability would
take numerous years.

      Under Florida's sunset laws applicable to some state-sponsored  funds, the
SDTF would have expired in November 1996 unless  affirmative action was taken by
the legislature to continue the SDTF. By action of the legislature, the SDTF was
continued and not scheduled for further  review under Florida  sunset laws until
the year 2000.  However,  in early 1997, the Florida  legislature  passed a bill
substantially changing the SDTF. Under that 1997 bill, the SDTF is not to accept
claims with accident dates after December 31, 1997; as such, certain SDTF claims
may have to be refiled  for  reimbursement  and any such  filing  may  require a
refiling  fee.   Additionally,   companies   accruing  SDTF  recoveries  may  be
statutorily  limited in the level of recoverables  they may be allowed to carry.
The bill  provides  for a funding  mechanism  through  which  companies  writing
workers' compensation  insurance in Florida will be assessed an annual charge to
cover payments made by the SDTF. The Company believes that, even in the event of
default  by the SDTF,  the  existing  reimbursements  of the SDTF  would  become
general obligations of the State of Florida.

      For 1998 and 1997, the Company's cash  recoveries  from the SDTF were $1.8
million and $5.9 million,  respectively.  The Company's SDTF assessments were $2
million and $6.8 million for 1998 and 1997, respectively.

      As more  fully  described  in  Note  1(c),  the  Company  transferred  the
recoverable  from the SDTF to Zenith on April 1, 1998,  in  accordance  with the
terms of the Asset Purchase Agreement.


                                     F - 23
<PAGE>

(8)   Reinsurance

      All of the  reinsurance  contracts  described in this note and in force on
April 1, 1998 were assumed by Zenith on April 1, 1998,  in  accordance  with the
terms of the Asset Purchase Agreement.

      The  Company  was   involved  in  the  cession  of  insurance  to  certain
unaffiliated  insurance and reinsurance companies under specific  excess-of-loss
and quota-share  reinsurance  contracts.  The amounts by which certain financial
statement balances have been reduced as a result of these reinsurance  contracts
as of and for the quarter and year ended March 31, 1998 and  December  31, 1997,
respectively, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                   1998(a)        1997
                                                                                  ---------     ----------

<S>                                                                              <C>            <C>
      Premiums written                                                           $  16,785      $ 143,983
      Premiums earned                                                               24,420        167,274
      Ceded losses and loss adjustment expenses                                     47,667         73,868
      Liabilities for losses and loss adjustment expenses                          645,892        183,150
      Unearned premiums                                                             61,384         25,842
</TABLE>

      (a)  1st quarter 1998, prior to the sale to Zenith


      Effective  April 1, 1998,  the  Company  entered  into an  assumption  and
indemnity  reinsurance  agreement  with  Zenith in  connection  with the sale to
Zenith  [see  Note  1(c)].  Under  the  terms of the  assumption  and  indemnity
reinsurance  agreement,   the  Company  ceded  to  Zenith  100  percent  of  the
outstanding  liabilities  for losses  and loss  adjustment  expenses  (including
incurred but not reported losses) and 100 percent of the unearned premiums as of
April 1, 1998. Zenith was responsible for issuing assumption certificates to all
the  Company's  former  policyholders.  The  liabilities  for  losses  and  loss
adjustment  expenses and unearned  premiums that were  transferred  to Zenith on
April 1, 1998 were $462.3 million and $43.2 million, respectively. In accordance
with the  terms of the  Asset  Purchase  Agreement,  Zenith  assumed  all of the
Company's obligations under its then current and prior insurance and reinsurance
contracts.  The terms of the Asset Purchase Agreement,  including the assumption
and indemnity  reinsurance  agreement,  was approved by the Florida and Missouri
Insurance Departments on March 31, 1998 and April 1, 1998, respectively.

      Effective  January 1, 1995,  RISCORP Insurance Company ("RIC") and RISCORP
Property  &  Casualty   Insurance   Company  ("RPC")  entered  into  quota-share
reinsurance agreements with American Re-Insurance Company ("AmRe"),  whereby RIC
and RPC  ceded  50  percent  of new and  renewal  premiums  written  and  losses
incurred.  These agreements  provided for the payment of a ceding  commission at
rates that varied from 27.5 percent to 60 percent based on the loss ratio of the
business ceded,  excluding unallocated loss adjustment expenses. The provisional
ceding commission provided for in the agreements was 33 percent.  The agreements
were to remain in force for an unlimited period of time, but could be terminated
by either party at any  December  31.  RISCORP and AmRe were parties to a senior
subordinated  note  agreement in the  principal  amount of $15 million due 2002.
Under  the  terms  of the  note  agreement,  the  Company  was to  maintain  the
quota-share  treaty or other comparable  reinsurance  agreements with AmRe for a
minimum  period of five years  beginning  January 1,  1995.  Ceding  commissions
earned under the AmRe  reinsurance  agreements were $7.7 million and $50 million
during 1998 and 1997, respectively.





                                     F - 24
<PAGE>




      Effective September 1, 1996, RIC entered into a retrocessional reinsurance
agreement with Chartwell  Reinsurance Company  ("Chartwell"),  whereby Chartwell
was to  retrocede  to the Company 50 percent of workers'  compensation  business
written by RISCORP  Management  Services,  Inc. (an affiliate of the Company) as
underwriting  manager for Virginia Surety Company,  Inc. The agreement  provided
for a profit commission in addition to the 30 percent ceding commission based on
the loss ratio and other  expenses  incurred  under the  contract.  The  initial
profit  commission  calculation  was scheduled to occur as of September 1, 2000.
This agreement was terminated on December 31, 1997.

      On April 18,  1997,  RIC entered  into a trust  agreement  with  Chartwell
whereby RIC agreed to maintain in trust for the benefit of Chartwell 102 percent
of RIC's portion of the outstanding loss liabilities and unearned premiums.  The
balance in this trust account was  generally  adjusted on a monthly  basis,  one
month in arrears.

      Effective  January 1, 1996,  RPC entered  into a  quota-share  reinsurance
agreement with Allstate Insurance Company ("Allstate"),  Chartwell,  Signet Star
Reinsurance Company ("Signet"), and San Francisco Reinsurance Company ("San Fran
Re"),  whereby RPC ceded 90 percent of its inforce,  and its new or renewal 1996
gross written  premiums,  for commercial  umbrella  coverage.  The maximum limit
under this agreement was $5 million per insured,  per occurrence.  The agreement
provided  for the  payment  of a ceding  commission  of 30  percent of the ceded
premiums. This agreement was to remain in force for an unlimited period of time,
but could be  terminated  by  either  party at any  December  31.  During  1997,
Allstate and San Fran Re were  replaced on this  agreement  by Scor  Reinsurance
Company ("Scor") and Hartford Fire Insurance Company ("Hartford"), respectively.
All other terms and conditions of the agreement were  unchanged.  This agreement
was terminated as of December 31, 1997;  however,  the reinsurers continue to be
responsible  for their  portion of all losses  incurred  on  policies  effective
before the termination date.

      Effective  January 1, 1996,  RPC entered  into a  quota-share  reinsurance
agreement  with  Allstate,  Chartwell,  Signet,  San Fran Re,  and  Great  Lakes
American Reinsurance  Company,  whereby RPC ceded 90 percent of its inforce, and
its  1996  new or  renewal  gross  written  premiums,  for  commercial  property
coverage.  The limit of  coverage  under this  agreement  was 90 percent of $2.5
million  per risk,  subject  to an  occurrence  limitation  of not less than $10
million nor greater than $15 million.  The agreement provided for the payment of
a ceding  commission  of 30 percent of ceded  premiums.  This  agreement  was to
remain in force for an  unlimited  period of time,  but could be  terminated  by
either  party at any December  31.  During  1997,  Allstate and San Fran Re were
replaced on this agreement by Scor and Hartford,  respectively.  All other terms
and conditions of the agreement were unchanged. This agreement was terminated as
of December 31, 1997;  however,  the reinsurers  continue to be responsible  for
their  portion  of  all  losses  incurred  on  policies   effective  before  the
termination date.

      Effective  January  1,  1996,  RPC  entered  into  a  commercial  casualty
excess-of-loss reinsurance agreement with Allstate,  Chartwell,  Signet, and San
Fran Re,  whereby  RPC ceded 100  percent of all  losses  incurred  on  business
inforce,  written or renewed during the term of this agreement,  per occurrence,
in excess of $0.25  million to $1 million.  RPC was required to pay 11.5 percent
of earned  premiums,  subject  to a minimum  premium of $0.5  million  under the
agreement.  This  agreement  was to remain in force for an  unlimited  period of
time,  but could be  terminated by either party at any December 31. During 1997,
Allstate and San Fran Re were  replaced on this  agreement by Scor and Hartford,
respectively.  All other terms and conditions of the agreement  were  unchanged.
This agreement was terminated as of December 31, 1997;  however,  the reinsurers
continue to be responsible  for their portion of all losses incurred on policies
effective before the termination date.

                                     F - 25
<PAGE>

      Effective  September 1, 1995,  RPC entered  into a medical  excess-of-loss
reinsurance  agreement with Cologne Life Reinsurance Company,  whereby RPC ceded
100 percent of all losses incurred per insured, per agreement year, in excess of
$0.15 million up to $1 million.  RPC paid $6.79 per certificate of insurance per
month  for this  coverage.  The  agreement  was to be  continuous,  but could be
canceled by either party at any September 1. The agreement  was  transferred  to
Zenith on April 1,  1998,  in  accordance  with the terms of the Asset  Purchase
Agreement.

      Effective  January 1, 1997,  RIC,  RNIC, and RPC ceded losses in excess of
$0.5 million to Continental  Casualty  Company  ("CNA") under an  excess-of-loss
reinsurance treaty. This treaty contained a corridor deductible of $1.25 million
which is  applicable  in the  aggregate to claims in the $0.5 million  excess of
$0.5 million  corridor for the Company.  RIC and RPC had a similar contract with
CNA effective January 1, 1996 with a corridor deductible of $1 million. Although
the contract contained provisions for minimum and deposit premiums, the premiums
for 1997,  based on earned  premiums,  exceeded the minimum  premium  provisions
specified under the contract.

      Effective  October 1, 1996,  RNIC entered into a  quota-share  reinsurance
agreement with Chartwell,  Swiss Reinsurance America  Corporation,  and Trenwick
America Reinsurance  Corporation  (collectively the "Reinsurers"),  whereby RNIC
ceded 65  percent  of its net  unearned  premiums  as of  October 1, 1996 and 65
percent of net written workers'  compensation and employers  liability premiums,
new or  renewal,  for the last four months of 1996.  Effective  January 1, 1997,
RNIC reduced the ceded quota-share amount to 60 percent.  The agreement provided
for the payment of a ceding  commission at rates which varied from 27 percent to
49 percent based on the loss ratio of the business ceded. The provisional ceding
commission  contained  in the  agreement  was 33  percent.  This  agreement  was
terminated  as of December  31, 1997;  however,  the  reinsurers  continue to be
responsible  for their  portion of all losses  incurred  on  policies  effective
before the termination date.

      Effective  January  1,  1997,  RNIC  entered  into an  agreement  with the
Insurance   Company   of  New   York   ("INSCORP")   and   Chartwell   to  issue
assumption-of-liability  endorsements ("ALE") to certain  policyholders of RNIC.
This agreement  expired on December 31, 1997 and was not renewed.  In connection
with this  agreement,  RNIC was required to provide  INSCORP and Chartwell  with
letters of credit in amounts equal to 29.2 percent of the gross written premiums
on all ALE policies plus $1.25 million in fixed  maturities.  The agreement also
required RNIC to pay a fee of .5 percent of gross premiums  subject to a minimum
fee of $50 and a maximum  fee of $1,000 per ALE.  As of  December  31,  1998 and
1997,  based on the gross premiums  subject to ALE's,  RNIC provided  letters of
credit of $0 and $3.7 million, respectively, under this agreement. RNIC incurred
fees of $39,000 during 1997 and $0 in 1998 prior to the transfer to Zenith.

      RNIC also maintained specific excess-of-loss coverage with Allstate on the
run-off of the book of business acquired by RNIC in March 1996.

      In  connection  with the sale to Zenith [as more fully  described  in Note
1(c)], RIC and RPC entered into an interim reinsurance agreement and cut-through
endorsement  with Zenith  covering all inforce  business as of June 17, 1997 and
all new and renewal  business  written  after June 17, 1997 on Florida  workers'
compensation  policies. In connection with this agreement,  Zenith required that
33 percent of the direct written premiums and 33 percent of the initial unearned
premiums subject to this agreement were to be deposited into a trust account for
the benefit of Zenith. In addition,  the agreement required the Company to pay a
fee to Zenith of one percent of the subject premiums.  The agreement with Zenith
was  terminated on April 1, 1998.  As of December 31, 1998 and 1997,  the market
value  of the  securities  in the  trust  account  was  $0  and  $52.4  million,
respectively,  and the required trust account  balance was $0 and $51.6 million,
respectively,  based on the direct written premiums for the period June 18, 1997


                                     F - 26
<PAGE>

through March 31, 1998 and the unearned  premiums at June 17, 1997.  The balance
in the  trust  account  was to be  adjusted  on a  monthly  basis,  one month in
arrears.  The Company  incurred  fees to Zenith of $0.1 million and $1.4 million
during 1998 and 1997, respectively, under this agreement.

      The Company had no reinsurance  recoverables or ceded unearned premiums as
of December 31, 1999 and 1998.

      The  Company is  contingently  liable to the extent  that the  reinsurers,
including  Zenith,  are unable to meet  their  contractual  obligations  for any
losses and loss adjustment expenses ceded.


(9)   Managed Care Agreements

      RIC and RPC were parties to  arrangements  with both Humana Medical Plans,
Inc. ("Humana"),  an unaffiliated health maintenance  organization  ("HMO"), and
RISCORP  Health  Plans,   Inc.  ("RHP"),   an  affiliated  HMO,  whereby,   upon
policyholder  election to participate,  RIC's and RPC's medical claim costs were
capped  for the  first  three  years of each  claim.  In May  1996,  RIC and RPC
terminated  those  arrangements  with RHP;  however,  injured  individuals  were
covered for three years  following  any accident  that  occurred  during  policy
periods in effect prior to termination. The Humana arrangement,  which commenced
July 1, 1995, was renewed for one additional year at the anniversary date. Under
the  Humana  arrangement,  injured  individuals  were  covered  for three  years
following any accident occurring within the policy periods. In October 1997, RIC
and RPC  entered  into  loss  portfolio  transfer  agreements  under  which  RHP
transferred its liability to RIC and RPC under the managed care  agreements;  at
that date,  RHP's  remaining  liability  under the managed  care  agreement  was
determined by an independent  consulting actuarial firm to be $8 million and, in
November 1997, RHP transferred  that amount to RIC and RPC in full  satisfaction
of RHP's  liability.  Included in losses and loss adjustment  expenses were $0.3
million and $6.1 million of managed care fees for 1998 and 1997, respectively.

      RIC is no  longer  contingently  liable  for any  unpaid  losses  and loss
adjustment expenses based on the terms of the July 7, 1999 settlement  agreement
between Zenith and the Company, to the extent that Humana was unable to meet its
contractual obligations under its agreement with RIC

      As  described  in  Note  1(c),  RISCORP  transferred  the  Humana  and RHP
contractual obligations to Zenith on April 1, 1998, in accordance with the terms
of the Asset Purchase Agreement.


(10)  Income Taxes

      The components of income taxes for 1999,  1998, and 1997 are summarized as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                      1999          1998         1997
          Current:
-------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>            <C>           <C>
               Federal                                            $  (4,768)     $(19,165)     $  6,197
               State                                                    320         1,040           798
                                                                  ----------     ---------     --------
                   Total - current                                   (4,448)      (18,125)        6,995
          Deferred - Federal                                          2,031        20,181           305
                                                                  ---------      ---------     --------
             Total income tax expense (benefit)                   $  (2,417)     $  2,056      $  7,300
                                                                  =========      =========     =========

</TABLE>




                                     F - 27
<PAGE>




      The differences between taxes computed at the statutory rates and recorded
income tax  expense  for 1999,  1998,  and 1997 are  summarized  as follows  (in
thousands):
<TABLE>
<CAPTION>

                                                                     1999           1998          1997
                                                                  ----------     ----------    ----------
<S>                                                               <C>            <C>           <C>
          Computed "expected" tax expense (benefit)               $  (3,313)     $(24,087)     $  5,105
          State taxes in excess of federal benefit                      320           807           519
          Non-taxable income                                              -          (231)       (1,188)
          Goodwill and other amortization                                 -         3,339           801
          Valuation allowance                                         2,844        21,168           412
          Fines and penalties                                             -             6            64
          Benefits not previously recorded                           (2,268)            -             -
          Other                                                           -         1,054         1,587
                                                                  ---------      --------      --------
             Income tax expense (benefit)                         $  (2,417)     $  2,056      $  7,300
                                                                  =========      ========      ========
</TABLE>

     The tax effects of temporary differences that gave rise to the deferred tax
assets at December 31, 1999 and 1998 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                       December 31
                                                                                  --------------------
                                                                                   1999          1998
                                                                                  ------        ------
        Deferred tax assets:
<S>                                                                              <C>             <C>
          Net operating losses                                                   $  22,772       $ 17,479
          Accrued litigation settlement costs                                           70          5,415
          Accrued employee benefits                                                      4            224
          Tax credit carryforwards                                                     985              -
          State refunds                                                              1,603          1,603
                                                                                 ---------       --------
             Gross deferred tax assets                                              25,434         24,721
        Valuation allowance                                                        (24,424)       (21,580)
                                                                                 ---------       --------
        Net deferred tax asset                                                   $   1,010       $  3,141
                                                                                 =========       ========

</TABLE>

      The  Company  estimated  that $1  million  of its  December  31,  1999 net
deferred tax asset could be realized  through the  generation of future  taxable
income, and it is more likely than not that the tax benefits of the deferred tax
assets  will be  realized.  Accordingly,  a valuation  allowance  of $25 million
relating  to  the  December  31,  1999  deferred  tax  asset  balance  has  been
established.

      The Company has $43.4 million of net  operating  loss  carryforwards  that
expire  in 2018  and  $21.6  million  that  expire  in  2019.  The  Company  has
approximately $1 million of alternative  minimum tax credit  carryforwards  that
are available indefinitely.

      The Company  received  $22.8 million in federal  income tax refunds during
1999.  The filed  federal  income tax refund claim  relating to the 1998 loss is
currently under  examination.  Although the ultimate results of that examination
cannot be predicted with certainty,  the Company's  management believes that the
examination  will  not  have a  material  adverse  effect  on  its  consolidated
financial condition or results of operations.






                                     F - 28
<PAGE>

(11)  Shareholders' Equity

      RISCORP  has 100  million  shares of $.01 par value  Class A Common  Stock
authorized and 14,258,671 issued shares at December 31, 1999 and 1998. RISCORP's
Class B Common Stock, par value $.01,  consists of 100 million shares authorized
and 24,334,443  shares issued and outstanding at December 31, 1999 and 1998. Ten
million shares of preferred  stock are  authorized,  but no shares are issued or
outstanding.  The  characteristics  of the Class B Common Stock are identical to
those of the Class A Common Stock, except that each holder of the Class B Common
Stock is entitled to 10 votes for each share held.  The Class B Common Stock may
be  converted  into  Class A Common  Stock at any  time at the  election  of the
holders  on a  one-for-one  basis.  RISCORP  did  not  declare  any  shareholder
dividends  during 1999, 1998, or 1997. At December 31, 1999 and 1998, there were
112,582 shares of RISCORP's Class A Common Stock in treasury.

      RISCORP's  insurance  subsidiaries are limited by statute in their ability
to  distribute  unassigned  surplus  without the  approval  of their  respective
domiciliary  insurance  department.  Dividends or  distributions to shareholders
that are made under these statutes and that do not require the prior approval of
the Florida or the Missouri  Insurance  Departments  are  determined  based on a
consideration of an insurer's net income, realized and unrealized capital gains,
percentages of dividends and  distributions of surplus,  and the relationship of
surplus after any such dividend or distribution is made to the minimum  required
statutory surplus.  During 2000, RISCORP's insurance  subsidiary,  RNIC, has the
ability to dividend  $0.4 million to RISCORP  without the prior  approval of the
Missouri Insurance Department.

      The combined  statutory  surplus as of December 31, 1999,  1998, and 1997,
and the  combined  statutory  net income for the years then ended for  RISCORP's
insurance subsidiaries, were as follows (in thousands):

                              1999            1998           1997
                           -----------     -----------    -----------

              Surplus      $ 12,004       $ 156,480       $ 96,280
              Net income        305          14,672         11,042

      The decline in combined  statutory  surplus from 1998 to 1999 is primarily
the result of 1) the  determination  of the final  purchase  price to be paid by
Zenith  resulted in a $34.3 million loss on the sale being recorded by RISCORP's
insurance subsidiaries, and 2) RISCORP's receiving and retaining of the proceeds
from the sale to Zenith. Consequently, RISCORP's insurance subsidiaries recorded
$94 million of  receivables  from RISCORP for their  portion of those  proceeds.
Those receivable balances are classified as a non-admitted asset at December 31,
1999 because those  receivables  are more than 90 days past due. The  individual
capital and surplus of each of  RISCORP's  insurance  subsidiaries  exceeded the
minimum  statutory  capital and surplus  required by their  respective  state of
domicile.

      To facilitate the regulators'  responsibility to monitor insurer solvency,
the  National  Association  of  Insurance  Commissioners  issued a model  law in
January 1995 to implement risk-based capital ("RBC") reporting  requirements for
property and casualty insurance  companies.  The model law is designed to assess
capital adequacy and the level of protection that statutory surplus provides for
policyholder  obligations.  The RBC formula for property and casualty  insurance
companies  measures  four  major  areas of risk  facing  property  and  casualty
insurers:  (i)  underwriting,   which  encompasses  the  risk  of  adverse  loss
development  and  inadequate  pricing;  (ii) credit risk,  which  evaluates  the
declines in asset values;  (iii) investment  risk,  which evaluates  declines in
asset  values;  and (iv) off  balance  sheet  risk.  Pursuant  to the model law,
insurers having less statutory  surplus than required by the RBC calculation are
subject  to varying  degrees of  regulatory  action,  depending  on the level of


                                     F - 29
<PAGE>

capital inadequacy. RPC and RIC are domiciled in the State of Florida, which has
yet to adopt the  provisions  of the RBC model  law;  however,  these  insurance
companies monitor their RBC results in anticipation of future filings. The other
RISCORP insurance subsidiary, RNIC, is domiciled in Missouri and RBC information
is filed  with  state  regulators.  RBC is  calculated  on an annual  basis.  At
December  31, 1999 and 1998,  RISCORP's  insurance  subsidiaries  had  statutory
surplus in excess of any action level requirements.


(12)   Stock Options

      In  conjunction  with the  reorganization  discussed  in Note 1(a),  stock
options of RISCORP were  substituted for options  previously  granted to certain
officers and employees of RISCORP's affiliates. The options granted in 1997 were
exercisable  for 10 years  after the date and the options  vested  over  periods
ranging  from  immediately  to two  years.  The  options  granted  in 1996  were
exercisable  over a 12 year  period  after the date of the grant and the options
vested over periods ranging from two to nine years.

      At December 31, 1999 and 1998, RISCORP had no stock options outstanding. A
summary of the status of  RISCORP's  stock  option  plan as of and for the years
ended December 31, 1999, 1998, and 1997 is as follows:

<TABLE>
<CAPTION>
                                              1999                     1998                     1997
                                      ----------------------     ------------------       ---------------------
                                                Weighted                 Weighted                   Weighted
                                                 Average                  Average                    Average
         Options                     Shares  Exercise Price   Shares   Exercise Price    Shares  Exercise Price
         -------                     ------  --------------   ------   --------------    ------  --------------

<S>                                  <C>     <C>            <C>        <C>             <C>            <C>
Outstanding, beginning of year        -         $    -       2,533,326       $4.43      3,078,779      $3.67
Granted                               -              -               -           -      2,533,326       4.43
Canceled                              -              -      (2,533,326)       4.43     (3,078,779)      3.67
                                    ----       ---------   -----------       -----     -----------     -----

Outstanding, end of year              -         $    -               -       $   -      2,533,326      $4.43
                                    ====       =========   ===========       =====     ===========     =====

Options exercisable at end of year    -         $    -               -       $   -      1,085,711      $6.67
                                    ====       =========   ===========       =====     ===========     =====
</TABLE>
<TABLE>
<CAPTION>
<S>                                      <C>                          <C>                         <C>
Weighted average fair value of
    options granted during
    the year                             $     -                      $      -                    $1.92
                                         =======                      ========                    =====
</TABLE>


      The fair value of each  option was  estimated  on the date that the option
was granted.  The exercise  prices of options  granted were determined to be not
less than the fair market value of RISCORP's Class A Common Stock.  Compensation
expense  recognized  for options  with  exercise  prices below fair market value
totaled $0 for 1999, 1998, and 1997.

     In October 1995, the Financial  Accounting Standards Board issued Statement
of  Financial   Accounting   Standards  No.  123,  "Accounting  for  Stock-Based
Compensation"  ("SFAS 123").  SFAS 123  established  a method of accounting  for
stock-based  compensation  that is based on the fair value of stock  options and
similar  instruments.  The  adoption of SFAS 123 is not required and the Company
has elected to continue  following  Accounting  Principles Board Opinion No. 25,


                                     F - 30
<PAGE>

"Accounting for Stock Issued to Employees," for measuring compensation cost. Had
the  Company  adopted  SFAS 123,  the pro forma net income or loss per share for
1999, 1998, and 1997, would have been as follows (in thousands, except per share
data):

                                            1999          1998          1997
                                       ------------  ------------  ------------

   Net income (loss)      - as reported  $ (7,048)   $ (70,875)       $ 7,286
                          - pro forma      (7,048)     (70,875)         5,286
   Net income (loss) per
    common share-diluted  - as reported     (0.19)       (1.91)          0.20
                          - pro forma       (0.19)       (1.91)          0.14


(13)  Property and Equipment

     The  components of the property and equipment at December 31, 1999 and 1998
are summarized as follows (in thousands):


                                           Estimated        December 31
                                          Useful Life     1999       1998
                                          -----------    ------     ------

           Furniture and equipment         3-7 years     $ 358      $  358
           Leasehold improvements         5-10 years         9           9
           Software                          3 years        81          81
                                                        -------    --------
                                                           448         448
           Less accumulated depreciation and
              amortization                                 252         111
                                                        -------    --------

           Net carrying amount                           $ 196      $  337
                                                        ========   ========

      Depreciation  and  amortization  expense related to property and equipment
totaled $0.1 million,  $1.8 million, and $4.9 million, for 1999, 1998, and 1997,
respectively. Included in those amounts is amortization expense of $29,000, $0.4
million,  and $1.4 million, for 1999, 1998, and 1997,  respectively,  related to
both purchased and  capitalized  internally  developed  software  costs. As more
fully  described in Note 1(c),  the major portion of the Company's  property and
equipment,  including computer  software,  was transferred to Zenith on April 1,
1998, in accordance with the terms of the Asset Purchase Agreement.


(14)  Leases

      The  Company  leases  space  for  some  of  its  office  facilities  under
non-cancelable  operating  leases  expiring  through 2001,  with renewal options
available for certain leases.  Total rental expense for 1999, 1998, and 1997 was
$0.1 million,  $0.2 million,  and $1.7  million,  respectively.  At December 31,
1999,  the Company was  obligated  under  aggregate  minimum  annual  rentals as
follows (in thousands):

                  Year             Annual Rental

                  2000                $  103
                  2001                     8
                                     ---------

                  Total               $  111
                                     =========


                                     F - 31
<PAGE>

 (15) Employee Health Benefits

      The Company  self-insured  its  employees'  health  benefits and purchased
excess  insurance  that limits its exposure to $1.1 million in the aggregate and
$50,000 per  occurrence.  The Company  estimated its liability for unpaid claims
based on aggregate  limits for health  insurance  payments less actual  payments
made.  Those estimates were continually  reviewed and adjustments,  if any, were
reported in current  operations.  Included in accrued  expenses at December  31,
1999 and 1998 is a liability  for  self-insured  health  benefits of $10,000 and
$0.6 million,  respectively. The Company realized $0.6 million of income in 1999
due to the reduction of the self insured  health  benefits  payable and incurred
expenses of $0.6 million and $3.3 million for 1998 and 1997, respectively.


(16)  Related Party Transactions

      The Company had accounts  receivable of $0.2 million and $0.5 million from
companies  owned by RISCORP's  majority  shareholder  ("affiliates or affiliated
entity")  that are  included in accounts  receivable-other  in the  accompanying
consolidated balance sheets at December 31, 1999 and 1998, respectively.

      The  Company  contracted  with  affiliated  entities  for  transportation,
facilities management,  and custodial and maintenance services. The Company also
leased  parking  facilities  from  affiliated  entities.  The  expense for those
services  amounted to $0.1 million for 1997 and is included in  commissions  and
general and administrative expenses in the accompanying  consolidated statements
of operations.

      In 1997 and the first quarter of 1998, the Company provided administrative
and support services to three affiliated entities. Under those arrangements, the
Company   received  $0.2  million  and  $0.6  million   during  1998  and  1997,
respectively.

      As described in Note 9, RIC was party to a managed care  arrangement  with
RHP, an affiliated HMO. Fees paid by RIC to RHP during 1997 totaled $3.7 million
and no fees were paid in 1998 or 1999. The managed care arrangement with RHP was
terminated in October 1997 following the sale of RHP to an unaffiliated  entity.
RIC assumed the  outstanding  liability  for unpaid  losses and loss  adjustment
expenses that totaled $8 million in November 1997.

      During 1998, all of the foregoing  contracts with the related parties were
cancelled and the Company has no further  obligations under any of the contracts
as of December 31, 1998. See Note 3 for a discussion of the  agreements  between
the Company and Phoenix and BHC.


(17)  Bad Debt Allowance

      As more  fully  described  in  Note  1(c),  the  Company  transferred  the
outstanding  premiums receivable balance, net of the allowance for bad debts, to
Zenith on April 1,  1998,  in  accordance  with the terms of the Asset  Purchase
Agreement.  The Company did not record any bad debt  allowance  at December  31,
1999.





                                     F - 32
<PAGE>




      The following table summarizes  activity in the bad debt allowance account
for premiums receivable for 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>

                                                                                       1998          1997
                                                                                     --------      --------
<S>                                                                                  <C>           <C>
           Balance at beginning of year                                              $  7,000      $ 17,000
           Addition (reduction) to allowance                                           (1,100)        4,374
           Recoveries (write-offs) against allowance                                      100       (14,374)
           Balance transferred to Zenith [see Note 1(c)]                               (6,000)            -
                                                                                    ---------      --------
           Balance at end of year                                                    $      -      $  7,000
                                                                                     ========      ========
</TABLE>

(18)  Concentration in a Single State

      Although the Company had expanded its operations into  additional  states,
75  percent  and  70  percent  of  its  premium  revenues  for  1998  and  1997,
respectively,  were  derived from  products  and  services  offered to customers
located  in  Florida.  Accordingly,  the  Company  previously  could  have  been
adversely affected by economic downturns,  significant  unemployment,  and other
conditions  that  could  have  occurred  from  time to time  in  Florida,  which
conditions  may  not  have  significantly   affected  its  more   geographically
diversified competitors.


(19)  Commitments and Contingencies

      In August 1997, the  Occupational  Safety  Association of Alabama Workers'
Compensation Fund (the "Fund"), an Alabama  self-insured  workers'  compensation
fund,  filed a breach of  contract  and fraud  action  against  the  Company and
others.  The  Fund  entered  into  a  Loss  Portfolio  Transfer  and  Assumption
Reinsurance  Agreement effective September 1, 1996 with RNIC. Under the terms of
the  agreement,  RNIC  assumed  100  percent of the  outstanding  loss  reserves
(including   incurred  but  not  reported  losses)  as  of  September  1,  1996.
Co-defendant Peter D. Norman ("Norman") was a principal and officer of IAA prior
to its  acquisition  by RISCORP in September  1996.  The complaint  alleges that
Norman and IAA breached certain  fiduciary duties owed to the Fund in connection
with the subject agreement and transfer.  The complaint alleges that RISCORP has
breached certain  provisions of the agreement and owes the Fund monies under the
terms of the agreement.  The Fund claims, per a Loss Portfolio  Evaluation dated
February  26,  1998,  that the Fund  overpaid  RNIC by $6 million in the subject
transaction.  The court has granted RNIC's Motion to Compel  Arbitration per the
terms and  provisions  of the  agreement.  On December 1, 1998,  the trial court
issued  an  order   prohibiting  the  American   Arbitration   Association  from
administering  the arbitration  between RNIC and the Fund, and RNIC has appealed
the trial  court's  ruling.  The  Alabama  Supreme  Court has stayed the current
arbitration.  Despite the Alabama  Supreme Court's stay, the dispute between the
Fund  and  RNIC is  expected  to be  resolved  through  arbitration.  The  other
defendants,  including  IAA,  have  appealed to the Supreme Court of Alabama the
trial  court's  denial of their motions to compel  arbitration.  RNIC intends to
vigorously defend the Fund's claim.

      In March 1998,  RIC and RPC were added as defendants in a purported  class
action  lawsuit  filed in the  United  States  District  Court for the  Southern
District of Florida,  styled Bristol Hotel Management  Corporation,  et. al., v.
Aetna  Casualty  &  Surety  Company,   a/k/a  Aetna  Group,  et.  al.  Case  No.
97-2240-CIV-MORENO.  The  plaintiffs  purport to bring this  action on behalf of
themselves  and a class  consisting of all employers in the State of Florida who
purchased or renewed  retrospectively  rated or adjusted  workers'  compensation
policies in the voluntary  market since 1985. The suit was  originally  filed on


                                     F - 33
<PAGE>

July 17,  1997  against  approximately  174  workers'  compensation  insurers as
defendants.   The  complaint  was  subsequently   amended  to  add  the  RISCORP
defendants.  The amended  complaint named a total of  approximately  161 insurer
defendants.  The suit claims that the defendant insurance companies violated the
Sherman  Antitrust Act, the Racketeer  Influenced and Corrupt  Organizations Act
("RICO"),  and the Florida Antitrust Act, committed breach of contract and civil
conspiracy, and were unjustly enriched by unlawfully adding improper and illegal
charges and fees onto retrospectively rated premiums and otherwise charging more
for those policies than allowed by law. The suit seeks compensatory and punitive
damages,  treble  damages  under the  Antitrust  and RICO claims,  and equitable
relief.  RIC and RPC moved to dismiss the amended  complaint and have also filed
certain  motions  to  dismiss  the  amended  complaint  filed by  various  other
defendants.

      In August 1998, the district  court issued an order  dismissing the entire
suit  against all  defendants  on one of the grounds  identified  in the various
motions to dismiss filed by the  defendants.  The district court  indicated that
all other  grounds  and motions to dismiss  that were  pending at that time were
mooted by the dismissal.  In September  1998,  the plaintiffs  filed a Notice of
Appeal. On February 9, 1999, the district court issued,  sua sponte, an Order of
Reconsideration  in which the court indicated its desire to vacate the dismissal
of the RICO claims and pendant  state claims  based on a recent  decision of the
United States Supreme Court.  In June 1999,  the Eleventh  Circuit  remanded the
case to the district  court,  and the district  court has assigned the case to a
magistrate  for  handling  pre-trial  matters.  At a status  conference  held in
October 1999,  the magistrate  established  deadlines for the filing of a motion
for leave to amend the complaint,  for supplemental briefing on pending motions,
and set a hearing for March 7, 2000.  Plaintiffs' counsel subsequently agreed to
dismiss  all claims  against the Company  without  prejudice  and filed a Second
Amended Complaint that did not state claims against the Company. On February 25,
2000,  the  magistrate  granted a consent  motion  with  respect to the  RISCORP
defendants and ordered the dismissal of RIC and RPC without prejudice.

      In July 1999, a  shareholder  class action  lawsuit was filed  against the
Company, two of its executive officers, and two former executive officers in the
United States District Court for the Middle  District of Florida.  The plaintiff
in this action  purports to represent  the class of  shareholders  who purchased
shares of RISCORP's Class A Common Stock between  November 19, 1997 and July 20,
1998. The complaint alleges,  among other things, that the financial  statements
included  in the  periodic  reports  filed by RISCORP  with the  Securities  and
Exchange  Commission  during  the class  period  contain  false  and  misleading
statements of material fact and  omissions,  in violation of Sections  10(b) and
20(a)  of the  Securities  Exchange  Act of 1934,  as  amended,  and Rule  10b-5
promulgated  thereunder.  These allegations principally relate to the difference
between  the net  book  value  of the  Company  as  reflected  on its  published
financial  statements  during  the class  period  and the net book  value of the
assets  transferred to Zenith as determined by the neutral  auditors and neutral
actuaries  pursuant  to the terms of the Asset  Purchase  Agreement  between the
parties. The complaint seeks unspecified  compensatory damages. RISCORP believes
that these claims are without merit and intends to vigorously defend this suit.

      On or about  February 15, 2000, an alleged  shareholder of RISCORP filed a
putative class action suit against the Company, its Directors,  and its majority
shareholder in the Circuit Court of the 12th Judicial Circuit,  Sarasota County,
Florida, styled Harris Blackman v. William D. Griffin, Seddon Goode, Jr., George
E. Greene III, Walter L. Revell, and RISCORP,  Inc., Case No. 20002103 CA DIV-A.
The suit contends that the pending  transaction with Griffin  Acquisition  Corp.
pursuant to which  William D.  Griffin,  the  majority  shareholder  of RISCORP,
proposes  to  purchase  the  Class  A  shares  of  RISCORP  held  by the  public
shareholders  is inadequately  priced.  The suit alleges that the defendants are
liable for breach of fiduciary  duty, and seeks either to enjoin the transaction
or to recover an unspecified  amount of damages.  RISCORP has received no notice
of any hearing on the plaintiff's claim for equitable relief. RISCORP denies the
plaintiff's allegations and intends to defend the suit vigorously.

                                     F - 34
<PAGE>

      On February 25, 2000, the State of Alabama,  on behalf of D. David Parsons
(as Acting  Commissioner of Insurance of the State of Alabama),  filed a lawsuit
against RISCORP National Insurance Company ("RNIC").  The complaint alleges that
RNIC owes an  additional  $2.5  million in premium  taxes for the 1996 tax year.
RNIC entered into a Loss Portfolio  Transfer Agreement dated August 26, 1996 and
effective  September 1, 1996 with the Occupational Safety Association of Alabama
Workmen's Compensation Fund (the "Fund").  According to the complaint,  pursuant
to the terms of the agreement, RNIC assumed the worker's compensation risks that
were in the Fund and became the insurer of those  risks.  The State  claims that
premium  tax is due on the  consideration  received by RNIC for  insuring  those
risks.  The complaint  seeks  compensatory  damages.  RNIC intends to vigorously
defend this suit.

      In April 1999,  RISCORP  received an invoice  from  Salomon  Smith  Barney
seeking  approximately $2 million for financial  advisory  services  rendered in
connection  with the sale to Zenith.  RISCORP  disputes  any  liability  for the
payment  of such  fees and  intends  to  vigorously  defend  any cause of action
instituted by Salomon Smith Barney seeking payment.

      The  Company,  in the  ordinary  course of  business,  is party to various
lawsuits.  Based on information  presently available,  and in the light of legal
and other defenses available to the Company, contingent liabilities arising from
such  threatened and pending  litigation in the ordinary  course of business are
not presently considered by management to be material.

      Other than as noted herein, no provision had been made in the accompanying
consolidated  financial  statements  for the foregoing  matters.  Certain of the
related legal  expenses may be covered under  directors and officers'  insurance
coverage maintained by the Company.






























See accompanying notes to consolidated financial statements.








                                     F - 35
<PAGE>

                      SCHEDULE I - SUMMARY OF INVESTMENTS -
                    OTHER THAN INVESTMENTS IN RELATED PARTIES

                         RISCORP, INC. AND SUBSIDIARIES

                                DECEMBER 31, 1999
                                 (in thousands)




Type of Investment                              Cost         Market Value
-----------------------                      ----------      ------------
Available for sale:
     Fixed maturity securities:
        U.S. government obligations           $  20,181       $  20,163
        Corporate obligations                    58,872          58,818
                                              ----------      ----------
           Total available for sale           $  79,053       $  78,981
                                              =========       =========

Available for sale:
     Unrestricted                             $  76,058       $  75,959
     Restricted                                   2,995           3,022
                                              ----------      ----------
           Total                              $  79,053       $  78,981
                                              =========       =========




































See accompanying Auditors' Report.




                                     F - 36
<PAGE>





           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                 BALANCE SHEETS

                       RISCORP, INC. (Parent Company Only)
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                            December 31
                                                                                       1999             1998
                                                                                     ---------      -----------


                                                      ASSETS

<S>                                                                                 <C>               <C>
Investments at fair value (cost $65,355 and $4,635)                                 $    65,291       $    4,636
Cash and cash equivalents                                                                 3,800            1,140
Cash and cash equivalents - restricted                                                        -           10,000
Investment in wholly-owned subsidiaries                                                 142,405          148,357
Surplus note receivable from subsidiary                                                  13,000           13,000
Other assets                                                                              8,100           18,840
                                                                                     ----------        ---------

     Total assets                                                                    $  232,596        $ 195,973
                                                                                     ==========        =========

                                       LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
  Accrued expenses and other liabilities                                             $   24,256        $  38,572
  Payable to affiliates                                                                 118,042           61,835
                                                                                     ----------        ---------

    Total liabilities                                                                   142,298          100,407
                                                                                     ----------        ---------

Shareholders' equity:
  Common stock                                                                              386              386
  Additional paid-in capital                                                            142,688          142,688
  Retained deficit                                                                      (52,728)         (45,680)
  Unearned compensation                                                                       -           (2,000)
  Treasury stock at cost                                                                     (1)              (1)
  Net unrealized gains (losses) on investments                                              (47)             173
                                                                                     ----------        ---------
   Total shareholders' equity                                                            90,298           95,566
                                                                                     ----------        ---------

      Total liabilities and shareholders' equity                                      $ 232,596        $ 195,973
                                                                                     ==========        =========

</TABLE>








See accompanying Auditors' Report.




                                     F - 37
<PAGE>





           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            STATEMENTS OF OPERATIONS

                       RISCORP, INC. (Parent Company Only)
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                    Year Ended December 31
                                                                         ----------------------------------------------
                                                                              1999            1998            1997
                                                                           ---------      ---------        ---------

Revenues:
<S>                                                                       <C>            <C>              <C>
      Net investment income                                               $   4,483      $    2,681       $      517
      Dividend income                                                             -               -            3,446
      Other income                                                               27             146                -
                                                                          ----------     -----------      -----------
          Total revenue                                                       4,510           2,827            3,963
                                                                          ----------     -----------      -----------

Expenses:
      General and administrative expenses                                     5,030          10,871           16,421
      Interest expense                                                        1,316             641            1,800
      Depreciation and amortization                                             142             359              857
                                                                          ----------     -----------      -----------
          Total expenses                                                      6,488          11,871           19,078
                                                                          ----------     -----------      -----------

Income (loss) from operations                                                (1,978)         (9,044)         (15,115)

Loss on sale of net assets to Zenith                                         (3,292)        (47,747)               -
                                                                          ----------     -----------      -----------

Loss before equity in income or loss
  of subsidiaries and income taxes                                           (5,270)        (56,791)         (15,115)

Equity in income (loss) of subsidiaries                                      (4,195)        (20,322)          20,935
                                                                          ----------     -----------      -----------

Income (loss) before income taxes                                            (9,465)        (77,113)           5,820
Income tax benefit                                                           (2,417)         (6,238)          (1,466)
                                                                          ----------     -----------      -----------

      Net income (loss)                                                   $  (7,048)       $(70,875)        $  7,286
                                                                          =========        ========         ========

</TABLE>

















See accompanying Auditors' Report.




                                     F - 38
<PAGE>




           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                             STATEMENTS OF CASH FLOW

                       RISCORP, INC. (Parent Company Only)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                         Year Ended December 31
                                                                             -----------------------------------------------
                                                                                 1999              1998            1997
                                                                             -------------     -------------    ------------
Cash flows from operating activities:
<S>                                                                         <C>                 <C>             <C>
   Net income (loss)                                                        $    (7,048)        $ (70,875)      $   7,286
   Adjustments to reconcile net income (loss) to net cash provided
      by operating activities:
      Equity in net loss (income) of subsidiaries                                 4,195            20,322         (18,344)
      Amortization of unearned compensation                                       2,000                 -               -
      Depreciation and amortization                                                 142               359             857
      Net amortization of discounts on investments                                   23                 -               -
      Net realized loss (gain) on sale of investments                                 -                 -              35
      Loss on sale of net assets to Zenith                                        3,292            47,747               -
      Issuance of RISCORP, Inc. stock                                                 -             4,740               -
      Decrease (increase) in other assets                                        10,716             4,166         (20,555)
      Increase (decrease) in total liabilities                                   (2,640)            3,751          26,934
      Other, net                                                                  1,468                 -               -
                                                                              -----------       -----------     ----------
          Net cash provided by (used in) operating activities                     12,148            10,210          (3,787)
                                                                              -----------       -----------     ----------

Cash flows from investing activities:
      Proceeds from sales and maturities of investments                         350,541            69,617           5,206
      Proceeds from the sale of equity securities                                     -                 -           1,548
      Net cash received from Zenith for sale of net assets                       46,431             9,345               -
      Cash due to Zenith                                                              -               388               -
      Purchase of fixed maturities--available for sale                         (416,460)          (73,252)              -
      Capital contributions to subsidiaries                                           -            (1,000)         (1,000)
      Purchase of property and equipment                                              -              (448)              -
                                                                              -----------       -----------     ----------
          Net cash provided by (used in) investing activities                    (19,488)            4,650           5,754
                                                                              -----------       -----------     ----------

Cash flows from financing activities:
      Purchase of treasury stock subject to put option                                -                 -          (2,100)
      Transfer of cash and cash equivalents to restricted balances               10,000           (12,568)              -
      Other, net                                                                      -                 -          (1,293)
                                                                              -----------       -----------     ----------
          Net cash provided by (used in) financing activities                     10,000           (12,568)         (3,393)
                                                                              -----------       -----------     ----------

Net increase (decrease) in cash and cash equivalents                              2,660             2,292          (1,426)
Cash and cash equivalents, beginning of year                                      1,140            (1,152)            274
                                                                              ===========       ============     ===========
Cash and cash equivalents, end of year                                        $     3,800       $     1,140      $  (1,152)
                                                                              ===========       ============     ===========

Supplemental  disclosures  of cash flow  information:  Cash paid during the year
   for:
      Interest                                                                $     1,120       $        450     $    1,800
                                                                              ===========       ============     ===========
      Income taxes                                                            $       173       $          -     $    6,556
                                                                              ===========       ============     ===========


</TABLE>


See accompanying Auditors' Report.



                                     F - 39
<PAGE>




           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                    STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

                       RISCORP, INC. (Parent Company Only)
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                        Year Ended December 31
                                                                            ------------------------------------------------
                                                                                1999               1998            1997
                                                                            --------------     -------------    ------------

<S>                                                                        <C>                 <C>               <C>
Net income (loss)                                                          $     (7,048)       $  (70,875)       $   7,286
                                                                           ------------        ----------        ---------
Other comprehensive income (loss), before income taxes:
       Unrealized gains (losses) on securities available for sale:
       Unrealized holding gains (losses) arising during year                       (339)              194           (2,392)
       Income tax expense (benefit) related to items of other
          comprehensive income (loss)                                              (119)               68             (837)
                                                                           ------------        ----------        ---------
Other comprehensive income (loss), net of income taxes                             (220)              126           (1,555)
                                                                           ------------        ----------        ---------

Total comprehensive income (loss)                                          $     (7,268)       $  (70,749)       $   5,731
                                                                           ============        ==========        =========
</TABLE>




























See accompanying Auditors' Report.




                                     F - 40
<PAGE>




                            SCHEDULE IV - REINSURANCE

                         RISCORP, INC. AND SUBSIDIARIES
                                 (in thousands)

<TABLE>
<CAPTION>


                                                                   Premiums Earned
                             --------------------------------------------------------------------------------------------

                                                 Ceded to         Assumed                         Percentage
Year Ended                      Gross             Other          from Other           Net         of Amount
December 31                    Amount            Companies        Companies         Amount       Assumed to Net
------------                   ------            ---------       -----------        ------       --------------


<S>                       <C>                 <C>               <C>               <C>            <C>
1999                      $        -          $       -         $      -          $       -              -
                          ==========          ==========        ========          =========           ======


1998                      $   48,416*         $  22,676*        $     79*         $  25,819              -*
                          ==========          ==========        ========          =========           ======


1997                      $ 328,191           $ 167,274         $ 18,812          $ 179,729             10%
                          ==========          ==========        ========          =========           ======


</TABLE>



* These amounts represent the first three months of 1998.




































See accompanying Auditors' Report.




                                     F - 41
<PAGE>






                     SCHEDULE VI - SUPPLEMENTAL INFORMATION

                         RISCORP, INC. AND SUBSIDIARIES
                                 (in thousands)

                                 December 31
------------------------------------------------------------------------------
                                 Reserves for      Discount,
                  Deferred       Unpaid Losses      if any,
                   Policy          and Loss         deducted
                Acquisition       Adjustment      in Previous      Unearned
    Year           Costs           Expenses          Column        Premiums

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

    1999         $      -          $       -          $ -         $      -

    1998         $      -          $       -          $ -         $      -

    1997         $ (2,053)         $ 437,038          $ -         $  56,324

<TABLE>
<CAPTION>

                SCHEDULE VI - SUPPLEMENTAL INFORMATION, CONTINUED

                         RISCORP, INC. AND SUBSIDIARIES
                                 (in thousands)

                             Year Ended December 31
--------------------------------------------------------------------------------------------------------------
                                                   Losses and Loss            Amortization          Net
                                                 Adjustment Expenses          of Deferred       Paid Losses
                     Net            Net           Incurred Related to:           Policy          and Loss            Net
                   Earned        Investment     Current            Prior       Acquisition       Adjustment        Premiums
    Year          Premiums         Income          Year            Years          Costs           Expenses          Written
 ---------       ---------       ----------     -------------------------      ------------     ------------       ---------

<S>              <C>             <C>           <C>             <C>             <C>             <C>               <C>
    1999         $       -       $   5,473     $       -       $       -        $      -        $       -         $       -

    1998         $  25,819*      $   7,103     $  14,860*      $  11,717*       $  3,681*       $  28,501*        $  20,209*

    1997         $ 179,729       $  16,447     $ 125,764       $  (2,401)       $ 49,221        $ 120,285         $ 157,495

</TABLE>

* These amounts represent the first three months of 1998.









See accompanying Auditors' Report.


                                     F - 42
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