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, 1998

                                                        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 (I.R.S. Employer Identification Number)
            corporation or organization)

         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 19, 1999 was $17,377,755.

The number of shares of the registrant's  Common Stock issued and outstanding as
of March 19, 1999 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, 1998

                                Table of Contents


                            Description                           Page



                                     PART I

Item 1.    Business                                                  1


Item 2.    Properties                                                15

Item 3.    Legal Proceedings                                         15

Item 4.    Submission of Matters to a Vote
           of Security Holders                                       18

                                      PART II

Item 5.    Market for Registrant's Common
           Equity and Related Stockholder Matters                    19

Item 6.    Selected Financial Data                                   19

Item 7.    Management's Discussion and Analysis
           of Financial Condition and Results
           of Operations                                             20

Item 8.    Financial Statements and Supplementary Data               29

Item 9.    Changes in and Disagreements with
           Accountants on Accounting and
           Financial Disclosure                                      29

                                     PART III

Item 10.   Directors and Executive Officers
           of the Company                                            30

Item 11.   Executive Compensation                                    30

Item 12.   Security Ownership of Certain
           Beneficial Owners and Management                          30

Item 13.   Certain Relationships and Related Transactions            30

                                      PART IV

Item 14.   Exhibits, Financial Statement
           Schedules, and Reports on Form 8-K                        31

           Signatures                                                36




                                     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,  uncertainties  with respect to the final  purchase
price to be paid by Zenith Insurance Company ("Zenith") pursuant to that certain
Asset Purchase Agreement by and among RISCORP, certain of its subsidiaries named
therein,  and Zenith,  dated June 17,  1997,  as amended  (the  "Asset  Purchase
Agreement");  the  actual  outcome  of pending  litigation,  including,  without
limitation, the litigations currently pending with Zenith; the Company's ability
to gain approval and receive payment from the Florida  Department of Labor;  the
Company's need for additional capital to meet operating requirements;  and other
factors mentioned elsewhere in this report.

Overview

        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 this sale, the Company 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.  At the present time,  the Company has no plans to resume
any operating activities.

        Prior to April 1,  1998,  the  Company  offered  managed  care  workers'
compensation  insurance  and  services  designed to lower the  overall  costs of
work-related  claims,  while providing  quality  cost-effective  care to injured
employees.  As of March 31, 1998,  the Company  provided  workers'  compensation
insurance and services to  approximately  18,000  policyholders,  principally in
Florida and the southeastern United States.

Asset Purchase Agreement with Zenith

        On June 17, 1997, the Company entered into the Asset Purchase  Agreement
with  Zenith  for the sale of  substantially  all of the  assets of the  Company
related to its workers' compensation and other insurance business, including the
Company's  existing  inforce  business,  and the  right  to all new and  renewal
policies (the "Asset Sale"). The transaction  closed on April 1, 1998.  Pursuant
to a covenant  not to compete  set forth in the Asset  Purchase  Agreement,  the
Company agreed that it would not compete in the workers' compensation  insurance
business in the United  States for a  three-year  period  following  the closing
date.  Accordingly,  after the  transaction  closed,  the  Company  ceased to be
engaged in the workers'  compensation or managed care businesses.  In connection
with  the  transaction,  Zenith  assumed  certain  liabilities  related  to  the
Company's insurance business, including $15 million in Company indebtedness owed
to American Re-Insurance Company.

      In connection with the Asset Sale,  Zenith paid the Company $35 million in
cash,  of which $10 million  was placed in escrow to secure its  indemnification
obligations to Zenith.  Pursuant to the terms of the Asset  Purchase  Agreement,
the final  purchase  price to be paid by Zenith  will be the amount by which the
book value of the  transferred  assets exceeds the book value of the transferred
liabilities  assumed by Zenith at closing. On June 9, 1998, RISCORP delivered to
Zenith a closing date balance  sheet (the  "Proposed  Business  Balance  Sheet")
representing  the  audited  statement  of  transferred  assets  and  transferred
liabilities as of Apri1 1, 1998. The Proposed  Business  Balance Sheet indicated
RISCORP's proposal as to the final purchase price of approximately $141 million,
less the $35 million previously paid by Zenith.

         Subsequent  to  June  9,  1998,  Zenith  suggested  adjustments  to the
Proposed Business Balance Sheet that totaled  approximately $211 million.  These
suggested  adjustments  principally  related to differences in the estimation of
loss and loss adjustment  expense reserves and the estimate of the allowance for
uncollectible receivables. The adjustments proposed by Zenith reflected Zenith's
position that the aggregate value of the liabilities  assumed by Zenith exceeded
the value of the assets transferred by approximately $70 million.

         On July 10, 1998,  RISCORP and Zenith  engaged a nationally  recognized
independent  accounting firm to serve as neutral auditors and neutral  actuaries
(the  "Independent  Expert") to resolve the items in dispute between the parties
and to determine the Final Business Balance Sheet for this transaction. On March
19, 1999,  the  Independent  Expert  delivered  its  determination  of the Final
Business  Balance Sheet and, as such, its conclusion  that the book value of the
transferred  assets  exceeded  the  book  value of the  transferred  liabilities
assumed by Zenith at closing by $92.3 million. Therefore,  pursuant to the terms
of the Asset  Purchase  Agreement and given the $35 million  previously  paid by
Zenith at  closing,  Zenith is required to pay an  additional  $57.3  million in
immediately  available funds on or before March 26, 1999, plus interest  thereon
of 6.13  percent  from April 1, 1998  through the final  payment  date.  Of this
amount,  $53.5 million,  plus the interest component,  is required to be paid to
RISCORP,  and $3.8  million is required to be  deposited  into escrow to further
secure the Company's indemnification obligations to Zenith. RISCORP has reported
the results of the Independent Expert's  determinations in the accompanying 1998
consolidated  financial  statements;  however,  RISCORP  is in  the  process  of
analyzing the basis for the adjustments to the Proposed  Business  Balance Sheet
and is evaluating its alternatives related thereto.

        The  sale  to  Zenith  is  more  fully  described  in  Note  1(b) of the
accompanying consolidated financial statements.

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 for the period January 1, 1998 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. At the present time, the Company has no plans to resume
any operating activities.

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) which  determined the final premium 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
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. As of March 31, 1998  (immediately  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.  The Company no longer  provides any  workers'  compensation
management services.

Workers' Compensation Managed Care Arrangements  ("WCMCAs")

        Effective   January  1,  1997,   Florida  law  mandated   that  workers'
compensation  insurers  provide all medical  care  through  WCMCAs.  Under these
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 which 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 four states
which sold its  products,  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 Asset Sale, the Company no longer maintains  relationships  with
any agencies.

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 which 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.   The  Company  had  approximately  580  full-time
employees at March 31,  1998.  Of the  Company's  employees,  approximately  435
provided  services to the  Company's  customers  and 145 worked in the Company's
administrative and financial functions. The Company's employees were not subject
to  collective  bargaining  agreements.  The Company  believed that its employee
relations and staffing were satisfactory to meet its former operating levels.

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  issued
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.

        As more fully  explained in Note 1(b) of the  accompanying  consolidated
financial  statements,  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.  For a further discussion of reinsurance,  see
Note 8 to the accompanying consolidated financial statements included herein.

        To the extent that the reinsurers,  including Zenith, are unable to meet
their contractual  obligations,  the Company may be contingently  liable for any
losses and loss adjustment  expenses ceded.  Any such failure on the part of the
Company's  reinsurers  could have a  material  adverse  effect on the  Company's
financial condition.

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.

        Prior to the sale to Zenith,  the Company's limited  operating  history,
pending  litigation,  and other  factors  affected the ability of the  insurance
companies 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  weighed  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 which were offered by some of its competitors.



<PAGE>


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. These 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
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.
The Company did not make any shareholder dividends or distributions during 1998.

         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 1998 statutory  filings  indicated that, as
of December 31, 1998, its insurance  subsidiaries  met applicable  state minimum
capital and surplus requirements.  See "Management's  Discussion and Analysis of
Financial Condition and Results of Operations."

        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.  These 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  principles ("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 financial  statements  are more  conservative  than GAAP 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:  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, 1998 and 1997, 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  upon  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 which 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, 1998 and 1997,  RISCORP's insurance  subsidiaries'  statutory surplus was in
excess of any risk-based capital action level requirements.

        The  Florida  Insurance  Department  completed  an  examination  of  the
statutory  books and records of RIC and RPC as of  December  31, 1996 and issued
final reports on the  examinations in October 1998. There were no adjustments to
the capital and surplus of RPC and $3.5 million of adjustments which reduced the
capital and surplus of RIC. The most significant  examination  adjustment to the
capital  and  surplus  of RIC was the  non-admission  by the  examiners  of $2.2
million  of  investments  that  were  held by a bank  outside  of  Florida.  The
remaining $1.3 million of adjustments related primarily to certain related party
receivables  that were  either  collected  or charged to expense in 1997.  These
statutory  adjustments  had no material  impact on the  accompanying  GAAP-based
financial statements.

      On  October  9, 1997,  the  Missouri  Insurance  Department  completed  an
examination  of RNIC's books and records as of December  31, 1996,  and issued a
final report on the 1996 examination in January 1998. The statutory  capital and
surplus as of December 31, 1996  determined  by the  examiners  was $1.7 million
less than that reported by RNIC in its 1996 statutory financial statements.  One
of the examination  adjustments was the non-admission of a $0.9 million accounts
receivable balance relating to the loss portfolio transfer from the Occupational
Safety  Association  of  Alabama  ("OSAA"),  an  Alabama  self-insured  workers'
compensation  fund.  This balance was paid in full by OSAA.  The remaining  $0.8
million of adjustments  pertained to items that were either collected or charged
to expense  during  1997.  These  examination  adjustments  related  only to the
statutory financial statements and had no impact on the accompanying  GAAP-based
financial statements.



<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,
1998, no liability for losses and loss adjustment expense 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.
<TABLE>
<CAPTION>

        The following  table presents an analysis of losses and loss  adjustment
expenses and provides a  reconciliation  of  beginning  and ending  reserves for
1998, 1997, and 1996.

                                                                           1998             1997           1996
                                                                                      (in thousands)
Gross reserves for losses and loss adjustment
<S>                                                                       <C>             <C>             <C>     
    expenses, beginning of year                                           $437,038        $458,239        $261,700
Less reinsurance recoverables                                              184,251         180,698         100,675
Less SDTF recoverable                                                       45,211          49,505          51,836
Less prepaid managed care fees                                               8,420          31,958          16,369
Net balance at January 1                                                   199,156         196,078          92,820

Assumed during year from loss portfolio transfers and acquisitions               -               -          88,212

Incurred losses and loss adjustment expenses related to:
  Current year                                                              14,860         125,764         123,986
  Prior years                                                               11,717          (2,401)          3,023
        Total incurred losses and loss adjustment expenses                  26,577         123,363         127,009


Losses and loss adjustment expenses paid related to:

  Current year                                                               1,717          45,646          56,088
  Prior years                                                               26,760          74,639          55,875
        Total losses and loss adjustment expenses paid                      28,477         120,285         111,963
Net balance at December 31                                                 197,256         199,156         196,078

Plus reinsurance recoverables                                              214,302         184,251         180,698
Plus SDTF recoverables                                                      44,552          45,211          49,505

Plus prepaid managed care fees                                               6,182           8,420          31,958
                                                                           462,292         437,038         458,239

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        $458,239
</TABLE>




<PAGE>


        The following  table shows the development of losses and loss adjustment
expenses for 1988 through 1997. The  development  data for 1998 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 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 table below represents combined  development for RIC, RPC, and their
predecessors  through 1995. 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)
                          1988    1989    1990    1991      1992      1993       1994      1995     1996     1997
Loss and loss adjustment
<S>                     <C>    <C>    <C>     <C>       <C>       <C>       <C>         <C>     <C>      <C>     
  expenses, 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   19,674  4,551   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
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,  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, 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

         On March 19, 1999, the Independent  Expert delivered its  determination
of the Final Business  Balance Sheet and, as such, its conclusion  that the book
value of the  transferred  assets  exceeded  the book  value of the  transferred
liabilities assumed by Zenith at closing by $92.3 million.  Therefore,  pursuant
to the  terms  of the  Asset  Purchase  Agreement  and  given  the  $35  million
previously  paid by Zenith at closing,  Zenith is required to pay an  additional
$57.3 million in immediately  available  funds on or before March 26, 1999, plus
interest  thereon of 6.13 percent  from April 1, 1998 through the final  payment
date. Of this amount, $53.5 million, plus the interest component, is required to
be paid to RISCORP,  and $3.8 million is required to be deposited into escrow to
secure the Company's indemnification obligations to Zenith.

         Of the cash proceeds to be received from Zenith in connection  with the
Asset Purchase  Agreement,  approximately 85 percent have been, or will be, used
to (i) fund the working capital  requirements  of the Company,  (ii) resolve all
claims and  contingencies  pending against RISCORP and its  subsidiaries  and to
fund all expenses  associated  therewith,  (iii) fund all other  liabilities not
transferred  to  Zenith,  and (iv)  satisfy  any  statutory  reserve  or capital
requirements to which RISCORP's regulated subsidiaries are subject following the
closing of the  transaction  with Zenith.  Fifteen  percent of the cash proceeds
received from Zenith is to be held in escrow until the second anniversary of the
Closing Date.  Such escrowed  funds are to be used to indemnify  Zenith  against
liabilities (other than those transferred) and any misrepresentation, breach, or
nonfulfillment  of any agreement  contemplated in the Asset Purchase  Agreement.
After the two year anniversary of the Closing Date, if no indemnification  claim
is pending,  the funds  remaining  in escrow are to be paid to the Company  with
accrued  interest,  and such amount, if any, is to be available for the purposes
set forth in items (i), (ii), (iii), and (iv) above.

         The Company  anticipates  that,  after  satisfaction  of all claims and
contingencies pending against the Company and its subsidiaries and after funding
all expenses  associated  therewith,  the  remaining  proceeds,  if any, will be
distributed to those  shareholders  of record on a record date to be established
by  RISCORP's  Board of  Directors in  connection  with any future  dividends or
distributions.  Such claims and contingencies  include all litigation pending or
hereafter  instituted  against RISCORP,  its subsidiaries,  and their respective
officers,  directors, and agents, including,  without limitation, the litigation
with Zenith.

         While  the  Company  believes  that  a  portion  of the  proceeds  will
ultimately  be  available  for  distribution  to  shareholders,  it is currently
anticipated that the resolution of various contingent liabilities, including the
Company's  indemnification  obligations to Zenith, will take at least two years.
In addition,  the Company is unable to predict when its  litigation  with Zenith
will be resolved and what effect such resolution will have on funds available to
shareholders.  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  that 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.



<PAGE>


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 will 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 affect on the amount distributable to shareholders.

Investment Company Act Considerations

         While the  Company  does not intend to conduct  its affairs in a manner
which 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.  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 such exemption while it
attempts to resolve all contingencies  pending against the Company, and will not
register as an investment  company under the  Investment  Company Act during the
one-year period following the closing of the Asset Sale.

         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.

         Because the Company does not expect to have resolved all  contingencies
pending against it within the one-year period referred to above, the Company may
be required either to (i) apply to the Commission for exemptive  relief from the
requirements of the Investment  Company Act or (ii) invest certain of its assets
in  government   securities  and  cash   equivalents  that  are  not  considered
"investment  securities"  under  the  Investment  Company  Act.  There can be no
assurance  that the  Company  will be able to obtain  exemptive  relief from the
Commission.  Alternatively,   investments  in  government  securities  and  cash
equivalents  could  yield a  significantly  lower  rate  of  return  than  other
investments  which  the  Company  could  make  if it  chose  to  register  as an
investment company.

Item 2.          Properties

        On  April  1,  1998,  the  Company  sold its  headquarters  building  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 an aggregate of 17,000
square feet of office space at four other  locations in three states,  including
Florida,  under terms expiring  through January 2001. The Company  incurred rent
expense of $0.2 million for 1998.  The Company has  aggregate  continuing  lease
commitments  through  October 2000 of $0.2 million  related to two  locations in
which offices were closed during 1997.

Item 3.            Legal Proceedings

        Zenith Litigation.  On or about January 11, 1999, Zenith filed a lawsuit
against  RISCORP and certain of its  subsidiaries  in federal  court in New York
setting  forth 14 separate  causes of action  arising out of the Asset  Purchase
Agreement and certain ancillary  agreements.  The complaint seeks an unspecified
total amount of damages,  but the amount of  compensatory  damages  sought is in
excess of $30 million,  together with an unspecified  amount of punitive damages
and attorneys' fees. Zenith's claims include, among others, that the Company (i)
breached certain  representations and warranties set forth in the Asset Purchase
Agreement,  (ii) failed to transfer  certain  assets to Zenith,  (iii) failed to
operate its business in the ordinary course, (iv) failed to reimburse Zenith for
certain  payments,  and (v)  fraudulently  induced  Zenith to execute  the Asset
Purchase  Agreement  due to certain  alleged  verbal  representations  made with
respect to RISCORP's Year 2000 compliance.

        On October 16, 1998,  RISCORP and certain of its  subsidiaries  filed an
action  against Zenith in federal court in Tampa,  Florida  alleging a breach of
the Asset Purchase  Agreement.  The Company  amended its complaint in Florida on
January  25,  1999,  and added ten  additional  claims  arising  out of Zenith's
failure to  indemnify  the  Company  for certain  claims of third  parties.  The
Company  also added two other  claims,  one for breach of  contract  and one for
conversion,  related to  Zenith's  taking of $4.1  million  the  Company  had on
deposit with the South Carolina Insurance Department.

        The Company intends to vigorously defend those claims asserted by Zenith
and to  vigorously  prosecute  the Company's  claims;  however,  there can be no
assurance as to the ultimate outcome of this litigation.
shapeType1fFlipH0fFlipV0fFilled1lineColor16777215fShadow0
        Securities  Litigation.  Between November 20, 1996 and January 31, 1997,
nine  shareholder  class-action  lawsuits were filed  against  RISCORP and other
defendants  in the  United  States  District  Court for the Middle  District  of
Florida.  In March 1997,  the court  consolidated  these  lawsuits and appointed
co-lead  plaintiffs and co-lead  counsel.  The plaintiffs  subsequently  filed a
consolidated complaint.  The consolidated complaint named as defendants RISCORP,
three of its executive  officers,  one  non-officer  director,  and three of the
underwriters  for  RISCORP's  initial  public  offering.  The  plaintiffs in the
consolidated  complaint  purport  to  represent  the class of  shareholders  who
purchased  RISCORP's Class A Common Stock between February 28, 1996 and November
14,  1996.  The  consolidated  complaint  alleges  that  RISCORP's  Registration
Statement and Prospectus of February 28, 1996, as well as subsequent statements,
contained  false and misleading  statements of material fact and  omissions,  in
violation of Sections 11 and 15 of the Securities Act,  Sections 10(b) and 20(a)
of the Exchange Act, and Rule 10b-5  promulgated  thereunder.  The  consolidated
complaint seeks unspecified compensatory damages.

         In July 1998,  the parties  executed a  stipulation  and  agreement  of
settlement  in  which  the  Company  agreed  to pay  $21  million  in  cash to a
settlement fund to settle this litigation.  The Company has paid $0.5 million as
an advance to the settlement fund. The remainder of the settlement fund is to be
paid from the  proceeds  of the  second  payment  due  under the Asset  Purchase
Agreement with Zenith. On July 29, 1998, the court issued a preliminary approval
order in which it certified the purported  class for  settlement  purposes.  The
court held a settlement  fairness hearing on December 15, 1998. At that hearing,
the court  announced its opinion that the settlement was fair and reasonable and
should  be  approved.  The  parties  have  executed  several  amendments  to the
settlement agreement extending the deadline after which plaintiffs may terminate
the settlement agreement and resume litigation. Under the most recent amendment,
the  Company  has until  March 24,  1999 in which to fully  fund the  settlement
agreement from the proceeds of the Zenith transaction. If the settlement fund is
not fully  funded by that  date,  plaintiffs  have the  right to  terminate  the
settlement agreement pursuant to procedures specified in the agreement.

         The Company  estimates  that $8 million of insurance  proceeds  will be
available for  contribution to the settlement  amount,  as well as related costs
and expenses. The Company recognized the $21 million proposed settlement and the
related  insurance  proceeds in the 1997  consolidated  statement of operations.
Because the  settlement  agreement is contingent on the Company's  receipt of an
additional  payment from Zenith in connection with the Asset Sale,  there can be
no  assurance  that this  litigation  will be  ultimately  settled  on the terms
described herein.

         OSAA  Litigation.  On August 20, 1997,  the OSAA Workers'  Compensation
Fund (the  "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 Mr. Peter D. Norman  ("Norman") was a principal
and officer of Independent Association Administrators, Inc. ("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.  RNIC has appealed the trial court's  ruling which
prevents the American Arbitration Association from administering the arbitration
between  RNIC and the Fund.  The  Alabama  Supreme  Court has stayed the current
arbitration.  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.

         Bristol Hotel Litigation.  On March 13, 1998, RIC and RPC were added as
defendants in a purported class action 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.

         On August 26, 1998, the district  court issued an order  dismissing the
entire suit against all defendants.  On September 13, 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.  Although  the  Plaintiffs  have
indicated  that  they  will  seek to have  the  appeal  terminated  and the case
remanded to the district  court,  no formal motion has been filed with the Court
of Appeals.  Management  will  continue  to monitor the  progress of the appeals
process as necessary and intends to defend the case vigorously if it is returned
to the district court for further proceedings.

         Employee  Matters.  In June 1997,  the Company  terminated  a number of
employees in connection with a workforce reduction. As a result of the workforce
reduction,  a number of former employees have initiated  proceedings,  including
arbitration,  against the Company for certain  severance  benefits.  The Company
intends to  vigorously  defend these suits;  however,  there can be no assurance
that it will prevail in these proceedings.

     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 are not presently
considered by management to be material.

        Other  than  as  noted  above,   no  provision  had  been  made  in  the
accompanying  consolidated  financial  statements  for the foregoing  matters at
December 31, 1998.

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

                 None.


<PAGE>


                                     PART II

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

         Following  RISCORP's  initial public offering on February 29, 1996, the
Company's  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 on July 2, 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 the RISCORP's Class A Common Stock.

         As of  December  31,  1998,  there were 376  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
                              1998                                                       1997
         --------- ------------- ----------- ------------          ------------ ------------ ----------- ------------
         1st           2nd       3rd             4th                   1st      2nd Quarter     3rd          4th
         Quarter     Quarter      Quarter      Quarter               Quarter                  Quarter      Quarter
-------- --------- ------------- ----------- ------------ -------- ------------ ------------ ----------- ------------
<S>       <C>         <C>          <C>        <C>                     <C>          <C>        <C>           <C> 
High      2 1/2       2 3/8        2 1/8       1 1/32                 4 3/8         33/4      1 1/8         11/2
Low       25/32      131/32         7/8         23/32                 1 7/8          5/8      15/16          3/8
</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
                                             1998            1997             1996             1995           1994
                                                               (in thousands, except for per share data)
Income Statement Data:
Revenues:
<S>                                         <C>           <C>              <C>             <C>               <C>    
   Premiums earned                          $25,819       $179,729         $173,557        $ 135,887         $ 1,513
   Fees and other income                      5,906         20,369           31,733           22,397          56,712
   Net realized gains                         4,280          1,546              105            1,016               -
   Net investment income                      7,103         16,447           12,194            6,708           1,677
           Total revenues                    43,108        218,091          217,589          166,008          59,902
Expenses:
   Losses and loss
     adjustment expenses                     24,016        104,052          114,093           82,532            (716)
   Unallocated loss
     adjustment expenses                      2,561         19,311           12,916           10,133           8,804
   Commissions and general and
     administrative expenses                 34,191         70,800           65,685           48,244          35,869
   Interest                                     676          1,919            2,795            4,634           1,750
   Depreciation and amortization              2,736          7,423           11,500            1,683           1,330
           Total expenses                    64,180        203,505          206,989          147,226          47,037
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                                            _______            ______     Year Ended December 31___              _____
                                             1998            1997             1996            1995            1994

<S>                                         <C>             <C>              <C>              <C>             <C>   
Income (loss) from operations               (21,072)        14,586           10,600           18,782          12,865
Loss on sale of net assets to Zenith        (47,747)             -               -                -               -
Income (loss) before income taxes           (68,819)        14,586           10,600           18,782          12,865
Income taxes (1)                              2,056          7,300            8,202            5,099           5,992
           Net income (loss)               $(70,875)    $    7,286       $    2,398        $  13,683      $    6,873
Net income (loss) per share (4)          $   (1.91)    $      0.20      $      0.07      $      0.49     $      0.24
Net income (loss) per share assuming
   dilution (4)                          $   (1.91)    $      0.20      $      0.07      $      0.45     $      0.23
Weighted average common
  shares outstanding                         37,012         36,892           34,648           28,100          28,100
Weighted average common
  shares and common share
  equivalents outstanding (2) (3)            37,012         37,116           36,406           30,093          30,093


Balance Sheet Data (at end of year):
Cash and investments                      $  37,686      $ 253,634        $ 281,963          $92,713         $47,037
Total assets                                               123,393          749,650          828,442         443,242
93,908
Long-term debt                                    -         15,609           16,303           46,417          27,840
Shareholders' equity                         95,566        163,533          157,308           16,157           3,895
</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 Notes 4 and 20 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(b) 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 this 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
activities  of the Company  after April 1, 1998, a comparison  of the results of
operations for 1998 to 1997 and 1996 is meaningless.  Therefore,  the results of
operations 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 and 1996 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.

Results of Operations

April 1, 1998 to December 31, 1998

        During the nine months ended  December 31, 1998,  the Company's  primary
operating  activities were the defense of the Proposed  Business  Balance Sheet,
the investment of the net $25 million  initial  payment  received from Zenith on
April 2, 1998, the investment of other invested  assets retained by the Company,
compliance  with  the  provisions  of the  Asset  Purchase  Agreement,  and  the
administration of the day-to-day activities of the surviving corporate entities.
Compliance  with the  provisions of the Asset  Purchase  Agreement  included the
transfer of all of the assets and liabilities,  not retained by the Company,  to
Zenith,  and assisting  with the orderly  transition of the Company's  insurance
operations to Zenith.

        At December 31, 1998, the Company had investments  totaling $16 million,
of which $4.6 million consisted of securities to be transferred to Zenith. Those
securities  were primarily  regulatory  deposits and securities held in trust in
connection with certain reinsurance agreements.

        The following comments pertain to the other balances on the December 31,
1998 balance sheet.

         Restricted  cash and cash  equivalents  consisted  primarily of the $10
           million initial  purchase price payment which is being held in escrow
           under the terms of the Asset Purchase Agreement.

         The $49.9  million  receivable  from Zenith  represents  the  remaining
           purchase  price to be  received  from Zenith in  connection  with the
           Asset Sale. A more in-depth  discussion of the receivable  amount can
           be found in Note 1(b) of the accompanying financial statements.

         Deferred  income taxes of $3.1  million  consisted of federal and state
           income taxes that are anticipated to be recovered in future years. At
           this time, this asset is expected to be fully recoverable.

         Other assets of $7.3 million  consisted  primarily of prepaid insurance
           coverages of $4.1 million,  retainers  paid to certain  professionals
           and  consultants of $1.1 million,  and accrued  investment  income of
           $2.1 million,  of which $1.8 million  relates to interest  receivable
           from Zenith.

         InMarch 1999, the Company  collected $11.9 million of the $17.3 million
           of  recorded  income  taxes  recoverable.  The  remaining  balance is
           expected to be received during 1999.

         Accounts receivable-other of $7.7 million consisted primarily of a $2.3
           million  receivable  which  is  expected  to  be  realized  upon  the
           redemption  of the  Company's  outstanding  stock and $4.8 million of
           certain insurance  recoverables which is expected to be received when
           the accrued legal settlements discussed herein are actually paid.

         Accrued  expenses  and other  liabilities  totaled  $27.8  million  and
           consisted  primarily of $20.5 million of an accrued legal settlement,
           $2.5 million of accrued legal,  accounting,  auditing,  and actuarial
           expenses  that  primarily  relate  to the  defense  of  the  Proposed
           Business Balance Sheet,  $1.3 million of trade accounts  payable,  $1
           million of income taxes payable, $0.6 million of unpaid restructuring
           cost  relating  to the  June  1997  corporate  restructuring,  and $1
           million of other accruals and payables.

        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  Independent  Expert [see
           Note 1(b) of the accompanying consolidated financial statements].

            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  recognized  in the first  quarter of
           1998, 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 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 (discussed more fully in Note 1(b) of
           the accompanying consolidated financial statements),  $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   amortization  to  Zenith  in
           connection   with  the  sale   and,   based   on   discussions   with
           representatives  of Zenith,  retained  $0.3  million of fixed  assets
           (consisting   primarily  of  computer   equipment)   which  is  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 which existed prior to April 1, 1998 and
includes the results for the year ended  December 31, 1998  compared to 1997 and
1996.

     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

<PAGE>


       comparison of the Company's  direct written  premiums for 1998, 1997, and
1996 (prior to reinsurance  cessions or assumptions) by state is presented below
(in millions):

                                Direct Premiums Written
                        1998 (a)        1997           1996
Florida                  $  29.2       $ 180.8        $ 270.8
Alabama                      4.1          39.1           21.7
North Carolina               4.4          32.2           41.4
Other                        1.0          28.4           22.8
Total                    $  38.7       $ 280.5        $ 356.7

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

        Direct written  premiums were reduced by specific  reinsurance  cessions
(1996),  the 50 percent  quota-share  reinsurance  agreement  for the  Company's
Florida workers'  compensation  business (1996), and the 65 percent  quota-share
reinsurance  agreement  (effective  October 1, 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  which were subject to premium  reductions as high  deductible
plans,  participating dividend plans, or other loss sensitive plans. Pricing for
these plans tended to be more competitively  based, and the Company  experienced
increased  competition during 1997 and 1998 in pricing these 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 on or after January 1, 1997.  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 on or after January 1, 1998. 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 these lines of
business  were less than $1 million  during 1997 and were less than $0.5 million
in 1996.

         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  claims 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  which were  reinsured  or which 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
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, 1997, and 1996 (in millions):

                                           Year Ended December 31
                                        1998 (a)        1997           1996
Direct premiums earned                    $ 48.4        $328.2         $326.9
Assumed premiums earned                      0.1          18.8           11.7
Premiums ceded to reinsurers               (22.7)       (167.3)        (165.0)
Net premiums earned                        $25.8        $179.7         $173.6

                  (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.

         The $1.3 million net increase in the direct  premiums  earned for 1997
compared to 1996 was primarily the result of the following factors:

         The  infusion  of $68.9  million of capital  into  RISCORP's  insurance
           subsidiaries  from RISCORP's initial public offering ("IPO") proceeds
           allowed the insurance  subsidiaries to increase their premium writing
           capacity and, as a result,  the Company was able to increase premiums
           during  the last  nine  months  of 1996 due to its  expanded  premium
           writing capabilities.  Written premiums were earned pro rata over the
           policy periods  (usually 12 months);  therefore,  increased  premiums
           written during the last nine months of 1996 had a positive  impact on
           earned premiums in 1996 and 1997.

         Written premiums increased in the third and fourth quarters of 1996 and
           the first quarter of 1997 from the  assumption  reinsurance  and loss
           portfolio  agreements  entered  into  by the  Company  and  from  the
           acquisitions made by the Company during 1996.

         Enhanced marketing initiatives implemented by the Company after the IPO
           to increase the number of policies and to write  accounts with larger
           premiums.

        In September  1995, the Company  entered into a fronting  agreement with
another  insurer which 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
increase in assumed  premiums  earned in 1997 from 1996 was primarily the result
of the Company  recording  $11.4  million of earned  premiums  from the National
Council on Compensation Insurance, Inc. pool participation. The assumed premiums
from the fronting  agreement  were $7.1  million and $11.7  million for 1997 and
1996,  respectively.  While the company assumed premiums from several  insurers,
the fronting agreement generated the majority of the assumed premiums.

        For 1997 and 1996, 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  (65 percent  during 1996) 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 and $31.7
million  for 1997  and  1996,  respectively.  The  decrease  in fee  income  was
primarily  due to sale of the  insurance  operations  to  Zenith.  The  decrease
between  1996 and 1997 was  primarily  due to the loss of service  fees from the
conversion of the National Alliance for Risk Management ("NARM")  self-insurance
funds of North Carolina and Virginia (which funds were previously managed by the
Company) to at-risk  business  via loss  portfolio  transfers  and  decreases in
RISCORP West  Incorporated  ("RWI")  service fee income from the  termination of
RWI's  Mississippi and Louisiana service  contracts.  The decrease in fee income
was partially offset by new fees generated from the CompSource acquisition,  the
fronting  agreement,  the new  service  agreement  with  Third  Coast  Insurance
Company, and growth in other existing fee products.

        Net investment  income for 1998, 1997, and 1996 was $7.1 million,  $16.4
million,  and  $12.2  million,  respectively.  Net  investment  income  consists
entirely of earnings from the investment portfolio, excluding realized gains and
losses in 1997 and 1996.  See the  foregoing  comments on the  components of the
1998 investment income.

        The loss ratios for 1998,  1997,  and 1996 were 93 percent,  58 percent,
and 67 percent,  respectively. The increase in the 1998 loss ratio of 35 percent
was due primarily to adverse gross loss development  during the first quarter of
1998 in the 1997 and prior  accident  years  from  certain  business  written in
Florida of $10.3 million,  gross favorable loss development in Alabama and North
Carolina of $2.6 million,  and gross adverse loss development of $0.3 million in
business written by RNIC and RPC in several smaller states.  The decrease in the
loss ratio  from 1996 to 1997 was due  primarily  to  favorable  development  in
Florida (7 percent) and North Carolina (1 percent) and  unfavorable  development
in Alabama (1 percent)  relating  to the  Company's  1996 and  earlier  accident
years' loss and loss  adjustment  reserves.  The  favorable  development  in the
Florida  business  was due  primarily  to the  reduction  in the  loss  and loss
adjustment  expense reserves  resulting from an actuarial  analysis completed in
the fourth quarter of 1997 and the favorable  development  for the 1996 accident
year  resulting  primarily  from  favorable  development  of  post-1993  Florida
accident years due to enhanced savings form the legislative  changes that became
effective in 1994.

        Unallocated  loss  adjustment  expenses  for  1997  were  $19.3  million
compared  to $12.9  million  for 1996,  a net  increase  of $6.4  million.  This
increase was primarily  due to the  increased  premium  volume,  increased  loss
reserves during 1997, and unfavorable  loss  development.  The unallocated  loss
adjustment  expense ratio for 1998,  1997, and 1996 was 10 percent,  11 percent,
and 7 percent,  respectively.  The 4 percent  increase in the 1996 to 1997 ratio
was primarily due to increased personnel and personnel related costs.

        Commissions and general and administrative  expenses for 1998, 1997, and
1996 were $34.2 million, $70.8 million, and $65.7 million, respectively. The net
increase of $5.1  million  from 1996 to 1997 is  primarily  the result of a $6.3
million  increase in the  amortization  of deferred  acquisition  costs,  a $2.1
million increase in personnel  expenses  primarily related to severance payments
incurred in connection  with the June 1997 workforce  reduction,  a $5.9 million
increase in  accounting,  auditing,  consulting,  and legal  expenses  primarily
resulting from the Company's inability to file its 1996 financial  statements in
a timely manner,  a $2.8 million increase in postage,  telephone,  and insurance
expenses,  a $13 million  expense  recognized  in the fourth  quarter of 1997 in
connection with the proposed  settlement of the securities class action lawsuit,
a $5  million  increase  relating  to  expenses  associated  with the NCCI  pool
participation, a $5.3 million increase in commissions paid to agents, and a $1.7
million  reduction in ceding  commission  income.  These expense  increases were
offset by  reductions  in marketing  related  travel  expenses of $1.5  million,
decreases in premium taxes of $8.5 million  resulting  from a decline in written
premiums,  and a decline in bad debt expenses of $27 million. The Company had no
employees at the end of 1998 and approximately 580 at December 31, 1997.

        Interest  expense for 1997 and 1996 was $1.9  million and $2.8  million,
respectively.  The decrease was due to the repayment of $28.6 million of debt in
March 1996 using the proceeds from RISCORP's initial public offering.

        Depreciation  and   amortization   expense  for  1997  and  1996  were
$7.4  million  and  $11.5  million, respectively.

Liquidity and Capital Resources

        The Company  historically  met its cash  requirements  and  financed its
growth through cash flow 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  primarily 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 its  insurance  subsidiaries,  and other  general  and  administrative
expenses.  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 this 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 flow 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.

        Cash flow from operations for 1998,  1997, and 1996 was $(37.6) million,
$(22.9) million and $28.1 million,  respectively. The decrease from 1997 to 1998
was due primarily to reductions in unearned  premiums  resulting from a decrease
in direct premiums written and increases in losses and loss adjustment expenses,
unallocated  loss adjustment  expenses,  and commissions  and  underwriting  and
administration  expenses in relation to premiums earned during the first quarter
of 1998, and the expenses related to the sale to Zenith. These expenses included
severance  payments  to certain  employees,  the  payment  of  accrued  employee
benefits,  and the payment of other  expenses  related to the sale. The decrease
from 1996 to 1997 was due primarily to reductions in unearned premiums, and loss
and loss  adjustment  expense  reserves,  resulting  from a  decrease  in direct
premiums  written of $76.2  million,  as well as  increases in  commissions  and
general and administrative  expenses and unallocated loss adjustment expenses of
$4.8 million and $6.4 million, respectively.

        The Company has projected cash flows through  December 1999 and believes
it has sufficient liquidity and capital resources to support its operations. The
liquidity of the Company could be materially adversely affected if Zenith should
prevail in the dispute  resolution  process with respect to the determination of
the final purchase price.  Furthermore,  the adverse resolution of certain legal
issues or any material  delay in the  Company's  receipt of the final payment of
the  ultimate  purchase  price  determined  to be payable by Zenith could have a
material adverse effect on the Company's liquidity. See "Sale to Zenith," "Legal
Proceedings," and "Recent Developments."

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 is approached and
reached.  These  problems  may  arise  from  hardware  and  software  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.

        Due to the cessation of its operations,  RISCORP does not believe it has
any material third-party relationships that present significant Year 2000 risks.
The Company has  requested  confirmation  from the financial  institutions  with
which it maintains accounts that such institutions are Year 2000 compliant.

        Based  on  its  limited  operations,   the  Company  believes  its  most
reasonably  likely worst case  scenario  Year 2000 problem  would be a temporary
inability  to  access  its  accounts  with   financial   institutions   if  such
institutions' systems are not Year 2000 compliant.  Because the Company does not
expect that the Year 2000 will have a material adverse effect on the Company, it
has determined that it is unnecessary to develop a contingency plan.

Item 8.           Financial Statements and Supplementary Data

         The   Company's   consolidated   financial   statements,   notes,   and
supplementary schedules are set forth on pages F-2 to F-50 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, 1998.


<PAGE>


                                    PART III


Item 10.          Directors and Executive Officers of the Company

         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 1999 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  1999  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 1999 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 1999 Annual Meeting of Shareholders.





<PAGE>


                                     PART IV


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


(a) List the following documents filed as part of this report:
<TABLE>
<CAPTION>

    1.   Financial Statements.

<S>                                                                                                      <C>
               Independent Auditors' Report...............................................................F-1
               Consolidated Balance Sheets at December 31, 1998 and 1997..................................F-2
               Consolidated Statements of Operations for the Years Ended December 31, 1998,
              1997, and 1996..............................................................................F-4
               Consolidated Statements of Changes in Shareholders' Equity for the Years Ended
              December 31, 1998, 1997, and 1996...........................................................F-5
               Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
              1997, and 1996..............................................................................F-6
               Consolidated Statements of Comprehensive Income for the Years Ended
              December 31, 1998, 1997, and 1996...........................................................F-8
               Notes to Consolidated Financial Statements.................................................F-9

    2.   Financial Statement Schedules

                 I - .....................................................................................Summary
              of investments - other than investments in related parties..................................F-45
                II -Condensed financial information of registrant.........................................F-46
               IV - Reinsurance...........................................................................F-49
               VI - Supplemental information concerning property-casualty insurance operations............F-50

         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.
</TABLE>

    3.   Exhibits

        Set forth in paragraph (c) below.

(b) Reports on Form 8-K

       None.

(c) Exhibits
<PAGE>
<TABLE>
<CAPTION>
       The following are filed as exhibits to this report:





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

<S>         <C>                                                       
        3.1      -Amended and Restated Articles of Incorporation.*
                     (Incorporated herein by reference to Exhibit 3.1 to RISCORP's Amendment No.
                     4 to Form S-1, as of February 28, 1996, Commission File Number 33-99760)
        3.2      -Bylaws.* (Incorporated herein by reference to Exhibit 3.2
                      to RISCORP's Amendment No. 4 to Form S-1, as of February 28, 1996,
                      Commission File Number 33-99760)
        4.1      -Form of Common Stock Certificate.* (Incorporated herein by reference to
                      Exhibit 4.1 to RISCORP's Amendment No. 4 to Form S-1, as of
                      February 28, 1996, Commission File Number 33-99760)

       10.1              -Employment and Severance Agreement, dated as of January 1, 1995, by and between
                          RISCORP Management Services, Inc. and William D. Griffin.* (Incorporated herein by
                          reference to Exhibit 10.31 to RISCORP's Amendment No. 4 to Form S-1, as of February 28,
                          1996, Commissions File Number 33-99760)**
       10.2          -Form of Registration Rights Agreement dated as of February 1, 1996, by and among RISCORP,
                          Inc., RISCORP Management Services, Inc., and William D. Griffin*.  (Incorporated herein
                          by reference to Exhibit 10.57 of RISCORP's Amendment No. 4 to Form 5-1, as of February
                          28, 1996, Commission File Number 33-99760).
       10.3          -Asset Purchase Agreement with Zenith Insurance Company dated June 17, 1997* (Incorporated
                          herein by reference to Exhibit No. 2.1 to RISCORP's Form 8-K, dated July 2, 1997,
                          Commission File Number 0-27462).
       10.4          -Management Agreement of RISCORP, Inc., dated February 18, 1998, by and between RISCORP,
                          Inc. and subsidiaries and The Phoenix Management Company, Ltd.* ** (Incorporated herein
                          by reference to Exhibit 10.83 to RISCORP's Annual Report on Form 10-K for the year
                          ended December 31, 1997, Commission File Number 0-27462.)
       10.6          -Outsourcing Services Agreement, dated April 1, 1998, by and between RISCORP, Inc. and
                          Buttner Hammock & Company, P.A.
       11                 -Statement Re Computation of Per Share Earnings.
       21                 -List of Subsidiaries of the Registrant.
       27                 -Financial Data Schedule (for SEC use only).
       28.1               -Information from Reports Furnished to State Insurance Regulatory Authorities.*
                          (Incorporated herein by reference to Exhibit 28.1 1.1 to RISCORP's Amendment No. 4 to
                          Form S-1, as of February 28, 1996, Commission File Number 33-99760)


* Previously filed.
**Management contract or executive compensation plan or arrangement.
</TABLE>




<PAGE>

<TABLE>
<CAPTION>

                                                    EXHIBIT 11

                                  STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
                                          RISCORP, INC. AND SUBSIDIARIES

                                                                     Year Ended December 31
                                                         ------------------------------------------------
                                                              1998              1997              1996

<S>                                                       <C>               <C>              <C>       
Net income (loss)                                         $(70,875,000)     $7,286,000       $2,398,000

Average outstanding shares used for
  calculating basic earnings or loss per share (1)           37,011,864     36,891,864       34,647,986
Additional common shares issuable under
  employee stock options using the treasury stock
  method (2)                                                          -        223,808        1,757,602
Average outstanding shares used for
  calculating diluted earnings per share                     37,011,864     37,115,672       36,405,588
Net income (loss) per share                         $             (1.91)$         0.20   $         0.07
Net income (loss) per share - assuming dilution     $             (1.91)$         0.20   $         0.07


(1)  The 1997 and 1996 shares include 790,336 and 225,503 shares,  respectively,
     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 of each year.

</TABLE>


<PAGE>


                                   EXHIBIT 21

                         RISCORP, INC. AND SUBSIDIARIES
                         SUBSIDIARIES OF THE REGISTRANT
                                DECEMBER 31, 1998


ubsidiaries of the Registrant*                           State of Incorporation

         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


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


<PAGE>


<TABLE>
<CAPTION>

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 22nd day of March 1999.

                                           RISCORP, INC.
                                   By:

                                           Frederick M. Dawson
                                           President and Chief Executive Officer


         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.

SIGNATURE                                   TITLE                                       DATE

<S>                                        <C>                                        <C>

/s/ Frederick M. Dawson
Frederick M. Dawson                         President, Chief Executive                  March 22, 1999
                                            Officer and Director
                                            (principal executive officer)

/s/ Edward W. Buttner IV
Edward W. Buttner IV                        Chief Accounting Officer                    March 22, 1999
 


/s/ Seddon Goode, Jr.
Seddon Goode      , Jr.                     Director                                    March 22, 1999



/s/ George E. Greene III
George E. Greene III                        Director                                    March 22, 1999



/s/ Walter L. Revell                        Director                                    March 22, 1999
Walter L. Revell




</TABLE>






                                           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.

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,  1998  and  1997,  and the  results  of their
operations and their cash flows for each of the years in the  three-year  period
ended  December  31,  1998 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]



Fort  Lauderdale,  Florida March 5, 1999,  except as to Notes 1(b) and 20, which
are as of March 19, 1999



<PAGE>

<TABLE>
<CAPTION>

                         RISCORP, INC. AND SUBSIDIARIES

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


                                                                                                    December 31
                                                                                             1998               1997
                                         ASSETS

Investments:
<S>                                                                                     <C>                <C>
   Fixed maturities available for sale, at fair value (amortized cost $226,240
      $6,666 in 1998 and $142,876 in 1997)                                              $       6,716       $    145,571
   Fixed maturities available for sale, at fair value (amortized cost $9,047
      in 1998 and $53,437 in 1997)--restricted                                                   9,264             53,820
   Fixed maturities held to maturity, at amortized cost (fair value $24,347
      in 1997)                                                                                                     24,090
                                                                                                    -
      Total investments                                                                        15,980            223,481



Cash and cash equivalents                                                                       6,864             16,858
Cash and cash equivalents--restricted                                                           14,842             13,295
Receivable from Zenith                                                                         49,933                  -
Premiums receivable, net                                                                            -            100,183
Accounts receivable--other                                                                       7,674             16,720
Recoverable from Florida Special Disability Trust Fund                                              -             45,211
Reinsurance recoverables                                                                            -            184,251
Prepaid reinsurance premiums                                                                        -             29,982
Prepaid managed care fees                                                                           -              8,420
Accrued reinsurance commissions                                                                     -             37,188
Income taxes recoverable                                                                       17,277                  -
Deferred income taxes                                                                           3,141             22,120
Property and equipment, net                                                                       337             26,665
Goodwill                                                                                            -             15,286
Other assets                                                                                    7,345              9,990

   Total assets                                                                         $     123,393       $    749,650









See accompanying notes to consolidated financial statements.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                         RISCORP, INC. AND SUBSIDIARIES

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


                                                                                                    December 31
                                                                                             1998               1997
                          LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
<S>                                                                                     <C>                 <C>
   Losses and loss adjustment expenses                                                  $          -        $    437,038
   Unearned premiums                                                                                -             56,324
   Notes payable of parent company                                                                  -             15,000
   Notes payable of subsidiaries                                                                    -                609
   Deposit balances payable                                                                         -              5,512
   Accrued expenses and other liabilities                                                      27,827             65,885
   Net assets in excess of cost of business acquired                                                -              5,749
                                                                                               27,827            586,117

Shareholders' equity:
   Class A Common Stock, $.01 par value, 100,000,000 shares authorized; shares
       issued:  14,258,671 and 11,855,917 in 1998 and 1997, respectively                          120                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                                                                 140,688            135,974
   Retained earnings (deficit)                                                                (45,680)            25,195
   Treasury Class A Common Stock--at cost, 112,582 shares                                          (1)                (1)
   Accumulated Other Comprehensive Income:
      Net unrealized gains on investments                                                         173              2,002
         Total shareholders' equity                                                            95,566            163,533

         Total liabilities and shareholders' equity                                      $    123,393       $    749,650




See accompanying notes to consolidated financial statements.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                         RISCORP, INC. AND SUBSIDIARIES

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


                                                                            Year Ended December 31
                                                             ----------------------------------------------------
                                                                  1998               1997              1996
                                                             ---------------     --------------    --------------
Revenues:
<S>                                                           <C>                  <C>               <C>        
    Premiums earned                                           $     25,819         $   179,729       $   173,557
    Fees and other income                                            5,906              20,369            31,733
    Net realized gains                                               4,280               1,546               105
    Net investment income                                            7,103              16,447            12,194
        Total revenues                                              43,108             218,091           217,589

Expenses:
    Losses and loss adjustment expenses                             24,016             104,052           114,093
    Unallocated loss adjustment expenses                             2,561              19,311            12,916
    Commissions and general and administrative expenses             34,191              70,800            65,685
    Interest                                                           676               1,919             2,795
    Depreciation and amortization                                    2,736               7,423            11,500
        Total expenses                                              64,180             203,505           206,989

Income (loss) from operations                                      (21,072)             14,586            10,600
Loss on sale of net assets to Zenith                               (47,747)                  -                 -

Income (loss) before income taxes                                  (68,819)             14,586            10,600
Income taxes                                                         2,056               7,300             8,202
        Net income (loss)                                      $   (70,875)      $       7,286     $       2,398

Per share data:
    Net income (loss) per common share-basic                 $       (1.91)      $       0.20      $       0.07

    Net income (loss) per common share-diluted               $       (1.91)      $       0.20      $       0.07


Weighted average common shares outstanding                       37,011,864         36,891,864       34,647,986

Weighted average common shares and common share equivalents
    outstanding                                                  37,011,864         37,115,672       36,405,588




See accompanying notes to consolidated financial statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


                         RISCORP, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
                   EQUITY Years ended December 31, 1996, 1997,
                                    and 1998
                                 (in thousands)



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


<S>                                <C>          <C>      <C>          <C>        <C>            <C>                <C>     
Balance, January 1, 1996           $     -      $ 281    $    349     $   510    $   (215)      $15,232$       -   $ 16,157

Net income                               -          -           -           -           -         2,398        -      2,398

Issuance of common stock                72          -     125,789           -           -             -        -    125,861

Conversion of common stock              38        (38)          -           -           -             -        -          -

Stock options exercised                  2          -          63           -           -             -        -         65

Issuance of common stock for
   acquisitions                          8          -      10,891           -           -             -        -     10,899

Change in unearned compensation          -          -         721           -        (331)            -        -        390

Change in net unrealized gains
   on investments                        -          -           -       1,259           -             -        -      1,259

Other                                    -          -           -          -            -           279        -        279

Balance, December 31, 1996             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)

Change 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 stock                26          -       4,714           -           -             -        -      4,740

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

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

Balance, December 31, 1998           $ 143     $  243   $ 140,688   $     173 $         -      $(45,680)$        (1)$   95,566






See accompanying notes to consolidated financial statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


                         RISCORP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)


                                                                                        Year Ended December 31
                                                                            -----------------------------------------------
                                                                                1998               1997            1996
                                                                            --------------     -------------    -----------
Cash flows from operating activities:
<S>                                                                         <C>                <C>           <C>        
   Net income (loss)                                                        $   (70,875)       $    7,286    $     2,398
   Adjustments to reconcile net income (loss) to net cash from
      operating activities:
      Depreciation and amortization                                               2,736             7,423         11,500
      Loss on sale of net assets to Zenith                                       47,747                 -              -
      Loss (gain) on disposal of property and equipment                             (99)              291            294
      Net realized gain on sale of investments                                   (4,280)           (1,545)          (140)
      Gain on sale of personal residence                                             (1)                -              -
      Net amortization of discounts on investments                                  166                14            174
      Issuance of RISCORP, Inc. stock                                             4,740                 -              -
      Other                                                                       1,181                 -              -
      Change in:
         Premiums receivable, net                                                16,627            22,026        (24,275)
         Accounts receivable--other                                              (1,558)           (5,104)       (11,676)
         Recoverable from Florida State Disability Trust Fund, net                  659             4,295          2,331
         Reinsurance recoverables                                               (30,051)           (3,553)       (76,971)
         Prepaid reinsurance premiums                                             8,301            19,807        (27,908)
         Prepaid managed care fees                                                2,238            23,537        (15,589)
         Accrued reinsurance commissions                                         (1,481)          (16,770)       (12,870)
         Income taxes recoverable                                               (17,277)                -              -
         Deferred income taxes                                                   20,181               431         (8,448)
         Other assets                                                               495            (3,249)        21,026

         Losses and loss adjustment expenses                                     25,253           (21,502)       106,484
         Unearned premiums                                                      (13,147)          (46,280)        30,891
         Accounts payable--related party                                              -            (1,171)           171
         Accounts and notes receivable--related party                                 -                 -         10,754

         Accrued expenses and other liabilities                                 (29,140)           (8,880)        19,909
             Net cash provided by (used in) operating activities                (37,585)          (22,944)        28,055

Cash flows from investing activities:
   Proceeds from:
      Sale of fixed maturities--available for sale                               80,404           110,299         88,900
      Maturities of fixed maturities--available for sale                          6,129            20,243          6,295
      Maturities of fixed maturities--held to maturity                            6,000             1,885          4,400
      Sale of equity securities                                                   1,324             4,284            732
      Sale of equipment                                                             255               158            532
      Sale of personal residence                                                    436                 -              -
   Purchase of:
      Fixed maturities--available for sale                                      (69,215)         (100,499)      (191,153)
      Fixed maturities--held to maturity                                         (5,874)           (1,237)        (2,452)
      Equity securities                                                               -              (637)        (3,952)
      Property and equipment                                                       (971)           (4,477)       (13,215)
      Personal residence                                                           (435)                -              -
      Cash received from Zenith for sale of net assets                           35,000                 -              -

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                         RISCORP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)


                             Year Ended December 31
                                                                            ------------------------------------------------
                                                                                1998               1997            1996
                                                                            --------------     -------------    ------------
Cash  flows  from  investing  activities  (continued):  Purchase  (net  of  cash
   acquired) of:
<S>                                                                               <C>           <C>              <C>
      Cash and investments not yet transferred to Zenith                          7,404                 -                -
      CompSource and Insura                                                           -                 -          (10,733)
      Atlas Insurance Company                                                         -                 -           (5,573)

      NARM                                                                            -                 -            2,717
      Virginia Funds                                                                  -                 -            1,300
      IAA                                                                             -                 -              282
      RISC                                                                            -                 -             (538)
      Maryland NARM Fund                                                              -               134                -
         Net cash provided by (used in) investing activities                     60,457            30,153         (122,458)

Cash flows from financing activities:
   Increase (decrease) in deposit balances payable                               (1,598)              725              968
   Decrease (increase) in unearned compensation                                       -               546             (331)
   Transfer of cash and cash equivalents to restricted balances                 (30,856)          (13,295)               -
   Purchase of treasury stock subject to put options                                  -            (2,100)               -
   Principal repayments of notes payable                                           (412)             (694)         (30,202)
   Proceeds of initial offering of common stock                                       -                 -          127,908
   Stock options exercised                                                            -                 -               65

   Other, net                                                                         -            (1,840)          (1,046)
         Net cash provided by (used in) financing activities                    (32,866)          (16,658)          97,362


Net increase (decrease) in cash and cash equivalents                             (9,994)           (9,449)           2,959
Cash and cash equivalents, beginning of year                                     16,858            26,307           23,348
Cash and cash equivalents, end of year                                      $     6,864       $    16,858      $    26,307

Supplemental disclosures of cash flow information:

   Cash paid during the year for:
      Interest                                                              $       493      $      1,928     $      3,689
      Income taxes                                                           $    2,341      $      6,566      $    15,127

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(b)].








See accompanying notes to consolidated financial statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


                         RISCORP, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (in thousands)


                             Year Ended December 31
                                                                            ------------------------------------------------
                                                                                1998               1997            1996
                                                                            --------------     -------------    ------------

<S>                                                                          <C>                <C>              <C>      
Net income (loss)                                                            $  (70,875)        $   7,286        $   2,398

Other comprehensive income (loss), before income
taxes:
       Unrealized gains (losses) on securities available for sale:
       Unrealized holding gains (losses) arising during year                        194            (2,392)           2,044
Income tax expense (benefit) related to items of other
    comprehensive income (loss)                                                      68              (837)             696
Other comprehensive income (loss), net of income taxes                              126            (1,555)           1,348

Total comprehensive income (loss)                                            $  (70,749)        $   5,731        $   3,746






























See accompanying notes to consolidated financial statements.
</TABLE>




                         RISCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(1)   Background and Sale to Zenith Insurance Company

      (a) Background

          RISCORP,  Inc. ("RISCORP") was formed on February 28, 1996 through the
reorganization and consolidation of several affiliated companies  (collectively,
the "Company")  which 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."

          On November 9, 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(b)] 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 on July 2, 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  which 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) 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
Insurance Company ("Zenith"). 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  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.

          In  connection  with the  closing  of this  transaction,  Zenith  paid
RISCORP $35 million in cash, of which $10 million was placed in escrow  pursuant
to the terms of the Asset  Purchase  Agreement.  The final  purchase price to be
paid by Zenith  will be the  amount by which the book  value of the  transferred
assets exceeds the book value of the transferred  liabilities  assumed by Zenith
at closing.  On June 9, 1998,  RISCORP  delivered to Zenith a balance sheet (the
"Proposed  Business  Balance  Sheet"),  representing  the audited  statement  of
transferred assets and transferred liabilities as of Apri1 1, 1998. The Proposed
Business  Balance Sheet  indicated  RISCORP's  proposal as to the final purchase
price of  approximately  $141 million,  less the $35 million  previously paid by
Zenith.

          Subsequent  to June  9,  1998,  Zenith  suggested  adjustments  to the
Proposed Business Balance Sheet that totaled  approximately $211 million.  Those
suggested  adjustments  principally  related to differences in the estimation of
loss and loss adjustment  expense reserves and the estimate of the allowance for
uncollectible  receivables.  The  adjustments  proposed by Zenith  reflected its
position that the aggregate value of the liabilities  assumed by Zenith exceeded
the value of the assets transferred by approximately $70 million.

          On July 10, 1998,  RISCORP and Zenith engaged a nationally  recognized
independent  accounting firm to serve as neutral auditors and neutral  actuaries
(the  "Independent  Expert") to resolve the items in dispute between the parties
and to determine the Final Business  Balance  Sheet,  as that term is defined in
the  Asset  Purchase  Agreement.  On March  19,  1999,  the  Independent  Expert
delivered its  determination  of the Final Business  Balance Sheet and, as such,
its conclusion that the book value of the  transferred  assets exceeded the book
value of the  transferred  liabilities  assumed  by Zenith at  closing  by $92.3
million.  Therefore,  pursuant to the terms of the Asset Purchase  Agreement and
given the $35 million  previously paid by Zenith at closing,  Zenith is required
to pay an additional  $57.3 million in immediately  available funds on or before
March 26, 1999, plus interest thereon of 6.13 percent from April 1, 1998 through
the final  payment  date.  Of this  amount,  $53.5  million,  plus the  interest
component, is required to be paid to RISCORP, and $3.8 million is required to be
deposited  into escrow to secure the Company's  indemnification  obligations  to
Zenith.   RISCORP  has  reported  the  results  of  the   Independent   Expert's
determinations  in the  accompanying  1998  consolidated  financial  statements;
however, RISCORP is in the process of analyzing the basis for the adjustments to
the Proposed  Business Balance Sheet and is evaluating its alternatives  related
thereto.

          In  accordance  with the terms of the  Asset  Purchase  Agreement,  15
percent  of the total  purchase  price is  required  to be held in escrow  for a
period of two years from the Closing Date.  The escrowed funds are to be used to
indemnify  Zenith  against  any  liabilities  or  obligations  (other than those
transferred)  arising  out of or related to any  misrepresentation,  breach,  or
nonfulfillment  of any covenant or agreement by the Company.  The escrowed funds
are to be invested in United  States  government  debt  obligations  or in money
market funds secured by such debt  obligations,  with such funds to be disbursed
pursuant to the terms of the Escrow  Agreement.  Interest income on the escrowed
funds is to be paid to RISCORP at the end of each calendar quarter.

          In  connection  with the  closing  of this  transaction,  the  parties
entered into a letter  agreement dated April 1, 1998,  pursuant to which RISCORP
retained  certain  assets  necessary for each of its insurance  subsidiaries  to
maintain  the  minimum  capital  and  surplus  required by law to remain in good
standing  in  each  state  where  each  company  is  licensed   (the   "Definite
Exclusions").  In  accordance  with the  provisions  of this  letter  agreement,
RISCORP's insurance  subsidiaries  retained marketable  securities with carrying
values of $11.4 million as of April 1, 1998.  Zenith has  subsequently  disputed
RISCORP's determination of the amount of minimum capital and surplus required to
be retained pursuant to the letter agreement.

          In addition to the  aforereferenced  insurance company minimum capital
and surplus  amounts,  in the event that RISCORP is unable to transfer to Zenith
(i)  certain   certificates   of  deposit  and  securities  held  by  regulatory
authorities,  (ii) the stated  capital of the  selling  entities  other than the
insurance subsidiaries,  or (iii) certain certificates of deposit and securities
held in trust under certain reinsurance agreements prior to the date that Zenith
is required to pay the final purchase price, such assets, at Zenith's option and
in its sole  discretion,  are to be deemed not to be  transferred to Zenith (the
"Possible  Exclusions").  As of December 31, 1998,  the  amortized  cost of such
cash,  certificates  of  deposit,  and  securities  that  were  identified  as a
transferred  asset,  but that had not been  physically  transferred  to  Zenith,
totaled $7.4 million.  If the retention by RISCORP of the Definite Exclusions or
any  of  the  Possible  Exclusions  results  in the  value  of  the  transferred
liabilities to exceed the value of the transferred  assets, the minimum purchase
price specified in the Asset Purchase Agreement is to be reduced.

          Pursuant to various provisions of the Asset Purchase Agreement, Zenith
has   provided   notice  to  RISCORP  of  certain   alleged   breaches   of  the
representations,  warranties, or covenants made by RISCORP. RISCORP has disputed
the allegations asserted by Zenith and has also provided notice to Zenith of the
occurrence  of various  indemnifiable  events for which  RISCORP  believes it is
entitled to seek indemnification from Zenith. On October 16, 1998, RISCORP filed
suit  against   Zenith  in  federal  court  in  Tampa,   Florida  (the  "Florida
Litigation").  RISCORP's  complaint  was amended on January 25,  1999,  and sets
forth numerous  claims arising out of Zenith's  failure to indemnify  RISCORP in
accordance  with  the  terms of the  Asset  Purchase  Agreement,  as well as for
Zenith's  conversion of certain funds that RISCORP had on deposit with the South
Carolina Insurance Department.

        On or about January 11, 1999, Zenith filed a lawsuit against RISCORP and
certain  of its  subsidiaries  in  federal  court in New York  setting  forth 14
separate  causes  of action  arising  out of the Asset  Purchase  Agreement  and
certain ancillary agreements (the "New York Litigation"). The complaint seeks an
unspecified  total  amount of damages,  but the amount of  compensatory  damages
sought is in excess  of $30  million,  together  with an  unspecified  amount of
punitive  damages and attorneys'  fees.  Zenith's claims include,  among others,
that the Company (i) breached certain  representations  and warranties set forth
in the Asset  Purchase  Agreement,  (ii)  failed to transfer  certain  assets to
Zenith, (iii) failed to operate its business in the ordinary course, (iv) failed
to reimburse Zenith for certain payments, and (v) fraudulently induced Zenith to
execute  the  Asset   Purchase   Agreement   due  to  certain   alleged   verbal
representations made with respect to RISCORP's Year 2000 compliance.

        While the Asset  Purchase  Agreement  provides  that the decision of the
Independent  Expert is final,  binding,  and  conclusive,  given the  litigation
between the parties currently pending in both Florida and New York, there can be
no assurance  that Zenith will honor its  obligations  under the Asset  Purchase
Agreement and deliver the balance of the purchase price due within the requisite
five business day period.

          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  to  discontinue  writing  any  new or  renewal  insurance
business for an indefinite period of time.



<PAGE>


          The Proposed  Business  Balance Sheet, as of April 1, 1998,  indicated
RISCORP's  calculation  of  its  proposal  of the  final  purchase  price  to be
approximately $141 million, calculated as follows:

         Transferred Assets
         Investments:
            Fixed maturities available for sale, at fair value
               (amortized cost $112,937,628)                        $115,535,609
            Fixed maturities available for sale, at fair value
               (amortized cost $59,447,736) -- restricted             59,843,713
            Fixed maturities held to maturity, at amortized cost
               (fair value $14,602,160)                               14,437,092
                                                                  --------------
               Total investments                                     189,816,414

         Cash and cash equivalents                                   15,167,683
         Cash and cash equivalents-- restricted                      14,141,010
         Premiums receivable, net                                    83,556,333
         Accounts receivable-- other, net                            10,603,762
         Recoverable from Florida Special Disability Trust Fund      44,552,000
         Reinsurance recoverables                                   213,667,000
         Prepaid reinsurance premiums                                21,680,084
         Prepaid managed care fees                                    6,182,364
         Accrued reinsurance commissions                             38,669,647
         Property and equipment, net                                 25,221,907
         Goodwill                                                    14,068,754
         Other assets                                                 2,134,412

         Total assets transferred to Zenith Insurance Company      $679,461,370

         Transferred Liabilities
         Losses and loss adjustment expenses                       $461,656,421
         Unearned premiums                                           43,177,363
         Notes payable of parent company                             15,000,000
         Notes payable of subsidiaries                                  197,018
         Deposit balances payable                                     3,913,334
         Accrued expenses and other liabilities                       8,918,875
         Net assets in excess of cost of business acquired            5,543,563
            Total liabilities assumed by Zenith Insurance Company  $538,406,574

         Excess of assets transferred over liabilities assumed     $141,054,796
 
      The receivable from Zenith included in the accompanying  December 31, 1998
consolidated  balance sheet differs from the Proposed Business Balance Sheet due
primarily to the retention by RISCORP of certain cash, certificates of deposits,
and  securities  that were  identified as transferred  assets,  but had not been
physically  transferred to Zenith,  certain adjustments to the Proposed Business
Balance Sheet

<PAGE>

<TABLE>
<CAPTION>

     subsequently  agreed  to by  RISCORP  and  Zenith,  and the net  adjustment
determined by the Independent Expert as follows:

<S>                                                                     <C>                       <C>         
         Excess of assets transferred over liabilities assumed at April 1, 1998                       $141,054,796

         Less:    Payment of minimum purchase price made by Zenith on
                     April 2, 1998                                                $35,000,000
                  Cash and securities not yet transferred to Zenith                 7,403,679
                  Subsequent agreed-upon adjustments                                  971,323
                  Adjustment determined by the Independent Expert                 47,747,097            91,122,099
                                                                              ----------------    -----------------
         Receivable from Zenith as of December 31, 1998                                              $  49,932,697
                                                                                                  =================
</TABLE>


          The $49.9  million  net  receivable  from  Zenith is  included  in the
accompanying  December 31, 1998  consolidated  balance sheet.  The $47.7 million
adjustment,  as  determined  by  the  Independent  Expert,  is  included  in the
accompanying 1998 consolidated statement of operations. In addition, interest of
$1.8  million  from the Closing  Date  through  December 31, 1998 is included in
other assets in the accompanying  December 31, 1998  consolidated  balance sheet
and in net investment income in the accompanying 1998 consolidated  statement of
operations.

       (c) Initial Public Offering of Common Stock

          On February 29, 1996,  RISCORP  completed an Initial  Public  Offering
("IPO") of common  stock with the issuance of 10.935  million  shares of Class A
Common Stock. Of the shares offered, 7.2 million shares were sold by RISCORP and
3.735  million  shares were sold by the  majority  shareholder  of RISCORP.  The
following table summarizes certain IPO information:

<TABLE>
<CAPTION>
                                                        Price            Underwriting
                                         Number        Per Share        Discounts and             Net
           Shares Sold by              of Shares       to Public         Commissions             Proceeds
            ------------------         ------------     ----------      -----------------      ---------------

<S>                                   <C>               <C>               <C>                     <C>         
              RISCORP                 7,200,000         $19               $  8,892,000            $127,908,000
              Shareholder             3,735,000         $19                  4,612,725              66,352,275
          Total                      10,935,000                            $13,504,725            $194,260,275
</TABLE>

          The foregoing net proceeds are before  deducting  other expenses of $2
million incurred in conjunction with the IPO.

          RISCORP used the proceeds from the IPO to repay outstanding debt, fund
acquisitions,   increase  the  capital  and  surplus  of   RISCORP's   insurance
subsidiaries, and fund general corporate matters.

          RISCORP did not receive any  proceeds  from the sale of Class A Common
Stock  by  the  majority  shareholder;   however,  a  portion  of  the  majority
shareholder's  proceeds was used to repay $9.8  million in his then  outstanding
indebtedness to RISCORP.



<PAGE>


      (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(b),  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.  Management  believes  the computer
programs retained by the Company to support the current operations are presently
Year 2000 compliant.


(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.

      (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(b),  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.  At December 31, 1997,  the  Company's  actuarially
estimated  recoverable amount exceeded the amount of the estimated recoveries on
its reported claims to the SDTF.

          As more fully described in Note 1(b), 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 the  Company  intends  to hold  until  maturity  are  classified  as "fixed
maturities held to maturity" and are carried at amortized  cost.  Amortized cost
is based on the  purchase  price and is adjusted  periodically  so the  carrying
value of the  security  will  equal  the face or par  value at  maturity.  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.

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

          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(b),  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  represent  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 become necessary, such adjustments were
included in current  operations.  Management  believes that the  liabilities for
losses and loss adjustment  expenses at December 31, 1997 were adequate to cover
the  ultimate  liability.  However,  the ultimate  settlement  of losses and the
related  loss  adjustment  expenses  may vary from the  amounts  reported in the
accompanying financial statements.

          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(b),  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
in the accompanying consolidated balance sheets.  Reinsurance contracts that did
not  transfer  risk  were   accounted  for  as  deposits  in  the   accompanying
consolidated balance sheets.

          As more fully  described  in Note 1(b),  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 are 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.

      (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, 1997, and 1996
totaled $8.9 million,  $41 million, and $31.8 million,  respectively.  The 1998,
1997, and 1996 policy  acquisition costs amortized totaled $11.4 million,  $49.2
million, and $33.7 million,  respectively. The deferred policy acquisition costs
were included in other assets in the accompanying December 31, 1997 consolidated
balance sheet.  The  amortization  of policy  acquisition  costs was included in
commissions  and  general  and  administrative   expenses  in  the  accompanying
consolidated statements of operations.

          As more fully  described  in Note 1(b),  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, 1997, and 1996
totaled  $0.9  million,  $3.3  million,  and  $7.9  million,  respectively,  and
accumulated amortization as of December 31, 1997 was $11.3 million.

          The Company  periodically  reviews 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" ("SFAS 121") and,
when events or changes in circumstances  indicate that the carrying amount of an
asset may no longer be fully  recoverable,  the Company tests 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) is less
than the carrying value of the asset, the Company recognizes an impairment loss.
The  measurement  of an  impairment  loss is based on the  carrying  amount  and
estimated fair value of the asset.

          During  1996,  using the  criteria  contained in SFAS 121, the Company
recognized  an  impairment  loss of $3.2 million and reduced  goodwill  that was
recorded in 1995 in  conjunction  with the  purchase of RISCORP  West,  formerly
known  as the  Self  Insurers  Service  Bureau,  Inc.  ("SISB").  The  Company's
impairment  assessment was primarily based on the closing of former SISB offices
in certain states and the Company's then current focus on at-risk business.  The
impairment loss was recorded as a component of depreciation  and amortization in
the  accompanying  1996  consolidated  statement of operations.  The unamortized
goodwill  related to the SISB  purchase was $0 and $432,000 at December 31, 1998
and 1997, respectively.

          In 1996,  the Company  recorded an impairment  loss of $2.8 million in
connection with the acquisition of Independent Association Administrators,  Inc.
The remaining  unamortized goodwill relating to that acquisition was $0 and $7.9
million at December 31, 1998 and 1997, respectively.

          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,  $0.8 million,  and $0.9
million for 1998, 1997, and 1996, respectively.  The accumulated amortization as
of December 31, 1997 was $2.5 million.

          As more fully  described  in Note 1(b),  the Company  transferred  the
goodwill,  including  "negative"  goodwill,  to  Zenith  on  April 1,  1998,  in
accordance with the terms of the Asset Purchase Agreement.

      (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 and 1997,
the Company  capitalized  costs of $0.3 million and $1.3 million,  respectively,
and recorded  amortization  expense for internally  developed  software costs of
$0.1  million,  $0.3  million,  and $0.4  million  for  1998,  1997,  and  1996,
respectively.

          As more fully  described  in Note 1(b),  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, 1998 of $14.8 million,
consisting of $10 million held in escrow in connection  with the sale to Zenith,
$3.8 million on deposit with various governmental agencies, $0.6 million held in
escrow in connection with the acquisition of RISCORP National  Insurance Company
(this  escrow  arrangement  expires in March 1999 and the Company  expects  that
these funds held in escrow will be released  by March 31,  1999),  $0.3  million
pledged  to  secure a  letter  of  credit,  and  $0.1  million  held in trust in
connection with a fronting  agreement between Virginia Surety Insurance Company,
Inc. and RISCORP Management Services, Inc.

      (m) Bad Debt Allowance

          The bad debt  allowance  was based on the  Company's  experience  with
uncollectible  premiums receivable and represents the Company's best estimate of
the ultimate  uncollectible amounts incurred through the balance sheet date. The
premiums  receivable  reported in the accompanying  consolidated  balance sheets
have been shown net of this valuation allowance.

          As more fully  described  in Note 1(b),  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; SFAS 128 also requires restatement of all prior-period EPS data that
is presented in the financial statements.  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.
<TABLE>

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

                                                                1998           1997            1996
       Average outstanding shares used for
<S>                                                            <C>             <C>            <C>       
           calculating basic EPS                               37,011,864      36,891,864     34,647,986
       Effect of stock options                                         --         223,808      1,757,602
        Average outstanding shares used for
           calculating diluted EPS                             37,011,864      37,115,672     36,405,588
  
</TABLE>

      (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
similar  instruments  and  encourages,  but does not  require,  adoption of that
method.  The Company 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, the Company has disclosed
pro forma net  income or loss per  share  for 1998,  1997,  and 1996,  as if the
provisions of SFAS 123 had been adopted.

      (p) Year 2000

          As more fully  described  in Note 1(b),  the Company  transferred  the
computer systems and proprietary  computer software,  including the policy issue
and  management  system and the claims  systems,  to Zenith on April 1, 1998, in
accordance with the terms of the Asset Purchase Agreement.

          Management  believes  the  computer  programs  retained  by RISCORP to
support its current operations are presently Year 2000 compliant.




<PAGE>


      (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 be materially adversely affected if Zenith should prevail in the
          dispute  resolution  process with respect to the  determination of the
          final  purchase price or if there is a material delay in the Company's
          receipt of the final payment  determined to be payable by Zenith.  See
          Note 1(b) 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
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 $0.4  million and $0.2
million, respectively, were unpaid as of December 31, 1998, and $3.2 million and
$0.4 million were unpaid as of December 31, 1997. 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,  16 percent,  and 17 percent of
written  premiums as of March 31,  1998 (just prior to the sale to Zenith),  and
December  31,  1997 and  1996,  respectively.  The  Company  paid  dividends  to
participating  policyholders  of $8.5 million and $9.2  million  during 1997 and
1996,  respectively.  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(b),  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 maturities and equity 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.

      (v) Reclassifications

         For comparative purposes,  certain amounts in the accompanying 1997 and
1996  financial  statements  have  been  reclassified  from  amounts  previously
reported.   Those   reclassifications  had  no  effect  on  previously  reported
shareholders' equity or net income.



<PAGE>



(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 owns a majority interest
in Phoenix,  a Florida  limited  partnership,  and  controls its  operations  as
President  of the  General  Partner.  Mr.  Walter E.  Riehemann  owns 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  provides
that Mr. Dawson is to hold the titles of President and Chief  Executive  Officer
of the  Company  and Mr.  Riehemann  is to hold the  titles of Chief  Investment
Officer, Treasurer, and Secretary of the Company.

      Pursuant to the terms of the Management  Agreement,  the Company is to pay
Phoenix  $0.1  million  per month,  plus  expenses,  and has  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.  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, 1998
consolidated financial statement.  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 Management Agreement, the Company
paid Phoenix $2.8 million to reimburse the partners of the  Management  Company,
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.

      The fair  market  value of the  restricted  stock  grant to Phoenix on its
effective date was $4.1 million.  In October 1998, the Company paid Phoenix $2.8
million in connection  with the income taxes incurred by the partners of Phoenix
on the restricted  stock grant.  Those amounts have been included in commissions
and general and  administrative  expenses in the accompanying  1998 consolidated
statement of operations.

      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 the Company 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,  the Company 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, 1998 consolidated balance sheet.

      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. 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.



<PAGE>


      During  1998,  the  Company  expensed  $3.4  million  in  fees,  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  1998  consolidated  statement  of
operations.


(4)   Acquisitions and Joint Venture

Acquisitions

      As more fully described below, RISCORP acquired RISCORP National Insurance
Company ("RNIC") and two workers' compensation  management services companies in
1996. Each of those  transactions was accounted for under the purchase method of
accounting  under  which the  aggregate  purchase  price paid for the entity was
allocated to the assets acquired and liabilities  assumed based on the estimated
fair  value of such  assets and  liabilities  at the dates of  acquisition.  The
excess of the purchase prices over the fair value of the net assets acquired has
been reported as costs in excess of net assets  acquired and has been  amortized
over periods ranging from five to 15 years. For acquisitions in which net assets
acquired  exceeded the purchase  price,  a liability for net assets  acquired in
excess of costs has been recorded and has been accreted over 10 years.

      The operating  results of the acquired  entities have been included in the
consolidated financial statements from their dates of acquisition. The following
schedule  summarizes  certain pro forma  consolidated  results of operations for
1996, as if the acquisitions took place on January 1, 1996 (in thousands, except
the per share amount):

     Total revenues                                          $  275,410
     Income before income taxes                                  18,503
     Net income                                                   6,860
     Earnings per share                                            0.19

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 on March 8, 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.

      During the first quarter of 1997, the Company determined that the goodwill
recorded when IAA and RISC were acquired  could not be fully  recovered from the
profitability  of  the  workers'  compensation  business  that  was  then  under
contract.  Therefore,  as of December  31,  1996,  $2.8  million of goodwill was
written off and was reported as amortization  expense. The remaining unamortized
goodwill  relating to those  acquisitions  was $7.8  million and $7.9 million at
March 31, 1998 (just prior to the transfer of the goodwill to Zenith on April 1,
1998) and December 31, 1997, respectively.

      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 on January 9, 1998 to the former shareholders of IAA.

Acquisition of Atlas Insurance Company

      In March 1996, a wholly-owned  subsidiary of RISCORP  acquired 100 percent
of the outstanding  capital stock of Atlas  Insurance  Company for $5 million in
cash.  Following  the  acquisition,  the name was changed  from Atlas  Insurance
Company to RISCORP National  Insurance Company  ("RNIC").  RNIC, which primarily
provided  workers'  compensation  insurance,  is  licensed  to do business in 19
states and is authorized to operate on an excess and surplus lines basis in five
additional  states.  On the  acquisition  date, the excess of the purchase price
over the fair value of the net assets acquired was $2.6 million and was recorded
as goodwill.

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 $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.  In  connection  with the  closing of the sale to  Zenith,  RISCORP
received  notice that Zenith  believes  that it is entitled to the proceeds from
the sale of Third Coast. RISCORP disputes Zenith's entitlement to these proceeds
and intends to  vigorously  defend any claim  asserted by Zenith  related to the
Third Coast transaction.

      As more  fully  described  in  Note  1(b),  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
<TABLE>
<CAPTION>

      Investments   (including   restricted   investments)   included   in   the
accompanying  consolidated  balance  sheets as of December 31, 1998 and 1997 are
summarized as follows (in thousands):

                                                            Cost or           Gross           Gross
                                                         Amortized Cost    Unrealized       Unrealized    -----------
                                                                              Gains           Losses       Estimated
                                                                                                          Fair Value
December 31, 1998:
   Available for sale:
      Fixed maturity securities:
<S>                                                     <C>               <C>            <C>             <C>       
         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

December 31, 1997:
   Available for sale:
      Fixed maturity securities:
         Municipal government obligations               $   58,294        $     718       $      2       $   59,010
         U.S. government obligations                        38,065            1,193             10           39,248
         Corporate obligations                              88,102            1,119             22           89,199
         Mortgage backed securities                          1,932               36              -            1,968
         Asset backed securities                             9,920               49              3            9,966
               Total available for sale                    196,313            3,115             37          199,391

   Held to maturity:
      Fixed maturity securities:
         U.S. government obligations                        18,434              204              9           18,629
         Municipal government obligations                    4,186               62              -            4,248
         Certificates of deposit                             1,470                -              -            1,470
               Total held to maturity                       24,090              266              9           24,347
               Total investments                         $ 220,403         $  3,381        $    46        $ 223,738

   Available for sale:
      Unrestricted                                       $ 142,876         $  2,732         $   37        $ 145,571
      Restricted                                            53,437              383              -           53,820
               Total                                     $ 196,313         $  3,115         $   37        $ 199,391

</TABLE>

     The fair  values  of  investments  (including  restricted  investments)  at
December 31, 1998 and 1997 were determined using independent pricing services.

      The amortized cost and estimated fair value of fixed maturities (including
restricted  investments) by contractual  maturity,  as of December 31, 1998, are
summarized as follows (in thousands):

                                            Available for Sale
                                          Amortized    Estimated
                                           Cost       Fair Value

             Due in 1999                $   8,195      $   8,227
             Due in 2000 to 2003            7,020          7,205
             Due in 2004 to 2008              498            548

             Total                       $ 15,713       $ 15,980

      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  1998,  1997,  and 1996,  proceeds  from sales of fixed  maturities
available for sale totaled $80.4  million,  $110.3  million,  and $88.9 million,
respectively.

      Gross  realized  gains  and  gross  realized   losses  from  the  sale  of
investments  for 1998,  1997, and 1996 are summarized in the following table and
were  reported  in  net  investment  income  in  the  accompanying  consolidated
statements of operations (in thousands):

                                           1998           1997            1996
             Gross realized gains       $  4,348       $  1,770      $      178
             Gross realized losses           (68)          (224)            (73)
             Net realized gains         $  4,280       $  1,546      $      105

      As more  fully  described  in Note  1(b),  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
1998, 1997, and 1996 (in thousands):

                                           1998           1997            1996

   Fixed maturities                     $  3,733       $ 13,815        $ 10,444
   Equity securities                        (166)           469             547
   Cash and cash equivalents               1,633          2,516           1,700
   Zenith receivable and other accounts
      receivable                           2,080              -               -
                                           7,280         16,800          12,691
   
    Investment expenses                    (177)          (353)           (497)

   Net investment income                $  7,103       $ 16,447        $ 12,194

      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,
1998.  The carrying  value of  securities  on deposit with various  governmental
agencies  was $11.6  million and $23.8  million at  December  31, 1998 and 1997,
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 and $1.5 at December 31, 1998 and
1997,  respectively.  Such securities are included in fixed maturities available
for sale-restricted  classification at December 31, 1998 and in fixed maturities
held  to  maturity-restricted   classification  at  December  31,  1997  in  the
accompanying consolidated balance sheets.

      The carrying value of the Company's investments in excess of 10 percent of
RISCORP's  shareholders'  equity at December  31, 1998 and 1997,  aggregated  by
issuer and excluding  investments  issued or  guaranteed  by the United  States,
consisted of the following (in thousands):

                                           1998               1997
                                       -------------      --------------

 Fixed maturities - State of Florida  $           -          $ 20,980


(6)   Liabilities for Losses and Loss Adjustment Expenses

      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.
<TABLE>
<CAPTION>

      The activity in the liability for losses and loss adjustment  expenses for
1998, 1997, and 1996, is summarized as follows (in thousands):

                                                                         1998         1997         1996

      Gross liability for losses and loss adjustment expenses,
<S>                                                                  <C>           <C>          <C>      
        beginning of year                                            $ 437,038     $ 458,239    $ 261,700
      Reinsurance recoverables                                        (184,251)     (180,698)    (100,675)
      SDTF recoverables                                                (45,211)      (49,505)     (51,836)
      Prepaid managed care fees                                         (8,420)      (31,958)     (16,369)
      Net balance at January 1                                         199,156       196,078       92,820

      Assumed during the year from loss portfolio transfers
        and acquisitions                                                     -              -      88,212

      Incurred losses and loss adjustment expenses related to:
        Current year                                                    14,860       125,764      123,986
        Prior years                                                     11,717        (2,401)       3,023
        Total incurred losses and loss adjustment expenses              26,577       123,363      127,009


      Paid related to:
        Current year                                                     1,717        45,646       56,088
        Prior years                                                     26,760        74,639       55,875
        Total paid                                                      28,477       120,285      111,963
      Net balance at December 31                                       197,256       199,156      196,078
</TABLE>


<PAGE>
<TABLE>
<CAPTION>



                                                                         1998         1997         1996

<S>                                                                    <C>           <C>          <C>    
      Plus reinsurance recoverables                                    214,302       184,251      180,698
      Plus SDTF recoverables                                            44,552        45,211       49,505
      Plus prepaid managed care fees                                     6,182         8,420       31,958
      Gross liability at December 31                                   462,292       437,038      458,239

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

      Gross liability for losses and loss adjustment expenses,
        at December 31                                         $             -     $ 437,038    $ 458,239

</TABLE>

      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 1996
adverse  development  occurred due to deterioration  in pre-1994  accident years
offset in part by improved expenses for the 1995 accident year.

      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 $0, $45.2
million, and $49.5 million at December 31, 1998, 1997, and 1996, respectively.

      As more  fully  described  in  Note  1(b),  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.


(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, 1997, and 1996, the Company's cash recoveries from the SDTF were
$1.8 million, $5.9 million, and $2.5 million,  respectively.  The Company's SDTF
assessments were $2 million, $6.8 million, and $11.7 million for 1998, 1997, and
1996, respectively.

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


(8)   Reinsurance

      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 years ended  December 31, 1998,  1997, and 1996 are as follows
(in thousands):
<TABLE>
<CAPTION>

                                                                      1998           1997          1996

<S>                                                               <C>            <C>            <C>      
      Premiums written                                            $  16,785      $ 143,983      $ 192,528
      Premiums earned                                                24,420        167,274        165,022
      Ceded losses and loss adjustment expenses                      47,667         73,868        153,200
      Liabilities for losses and loss adjustment expenses           645,892        183,150        180,698
      Unearned premiums                                              61,384         25,842         49,788
</TABLE>

      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(b)].  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 issued 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, $50 million, and
$58.2 million during 1998,  1997, and 1996,  respectively.  At December 31, 1998
and 1997,  the  Company  may be  contingently  liable  for the  return of ceding
commissions to AmRe of $0 and $9.3 million, respectively.

      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.

      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.

      Beginning  in 1996,  RNIC  ceded  losses in excess of $0.5  million to CNA
under  three  separate  excess-of-loss   reinsurance  treaties.  Those  treaties
provided for the payment of premiums to CNA based on earned  premiums.  Although
the contracts contained  provisions for minimum premiums,  the premiums for 1996
exceeded the minimum premium provisions specified under these contracts. Each of
those treaties with CNA expired on January 1, 1997.

      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. These letters
of credit were  secured by  certificates  of deposits  and were  reported in the
accompanying  consolidated balance sheets under the caption "Cash and short-term
investments--restricted."  RNIC incurred fees of $0 and $38,797  during 1998 and
1997, respectively, under this agreement.

      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(b)], 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
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.

      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 had no combined  reinsurance  recoverables  and ceded unearned
premiums in excess of three percent of  shareholders'  equity as of December 31,
1998.

      At December 31, 1997, reinsurance recoverables consisted of $184.3 million
of recoverables for unpaid losses and loss adjustment expenses.  At December 31,
1997, $89.4 million of the reinsurance  recoverable balance related to RIC's and
RPC's  quota-share  agreement  with one  reinsurer.  The  remaining  recoverable
balance of $94.9 million at December 31, 1997 represented  estimated  recoveries
from 17  unaffiliated  reinsurers  that  provided  quota-share  and specific and
aggregate excess-of-loss coverage.



<PAGE>


      To the extent that the reinsurers,  including  Zenith,  are unable to meet
their contractual  obligations,  the Company may be contingently  liable 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.

      The fees paid to Humana and RHP have been  reported as prepaid  assets and
losses and loss adjustment  expenses in the  accompanying  consolidated  balance
sheets.  Included in losses and loss adjustment expenses were $0.3 million, $6.1
million, and $30.6 million of such fees for 1998, 1997, and 1996, respectively.

      To the extent that Humana was unable to meet its  contractual  obligations
under its  agreement  with RIC,  RIC may be  contingently  liable for any unpaid
losses and loss adjustment expenses.  At December 31, 1997, the estimated unpaid
losses and loss adjustment expenses to be covered by Humana were $4.8 million.

      As  described  in  Note  1(b),  RISCORP  transferred  the  Humana  and RHP
contractual  obligations,  in  accordance  with the terms of the Asset  Purchase
Agreement.


(10)  Income Taxes


      The components of income taxes for 1998,  1997, and 1996 are summarized as
follows (in thousands):

                                           1998          1997         1996
          Current:
               Federal                 $ (19,165)    $  6,197       $ 17,919
               State                       1,040          798          2,280
                   Total current         (18,125)       6,995         20,199
          Deferred:
               Federal                    20,181          305        (12,126)
               State                           -            -            129
                    Total deferred        20,181          305        (11,997)
                   Total income taxes $    2,056      $  7,300     $   8,202
<TABLE>
<CAPTION>

      The differences between taxes computed at the statutory rates and recorded
income tax  expense  for 1998,  1997,  and 1996 are  summarized  as follows  (in
thousands):

                                                                      1998          1997         1996

<S>                                                                <C>           <C>          <C>    
          Computed "expected" tax expense (benefit)                $(24,087)     $ 5,105      $ 3,710
          State taxes in excess of federal benefit                      807          519        1,336
          Non-taxable income                                           (231)      (1,188)        (982)
          Goodwill and other amortization                             3,339          801        2,437
          Valuation allowance                                        21,168          412            -
          Fines and penalties                                             6           64          543
          Amounts related to prior years                                  -            -          980
          Other                                                       1,054        1,587          178
             Income tax expense                                   $   2,056      $ 7,300      $ 8,202
</TABLE>
<TABLE>
<CAPTION>

      The tax effects of  temporary  differences  that gave rise to  significant
portions of the deferred tax assets and  deferred tax  liabilities  December 31,
1998 and 1997 are summarized as follows (in thousands):

                                                                                       December 31
                                                                                    1998          1997
----------
        Deferred tax assets:
<S>                                                                               <C>        <C>         
          Net operating losses                                                    $ 17,479   $          -
          Accrued litigation settlement costs                                        5,415          4,550
          Accrued employee benefits                                                    224            575
          Unearned premiums                                                              -          2,132
          Discount on reserve for losses and loss adjustment expenses                    -         14,160
          Bad debts                                                                      -          2,450
        Deferred policy acquisition costs                                                -            422
        Other                                                                        1,603            811
             Gross deferred tax assets                                              24,721         25,100

        Deferred tax liabilities:
          Unrealized gains on investments                                                -          1,077
          Depreciation                                                                   -            645
        Other                                                                            -            846
           Gross deferred tax liabilities                                                -          2,568
             Net deferred tax assets before valuation allowance                     24,721         22,532
             Valuation allowance                                                    21,580            412
             Net deferred tax asset                                               $  3,141       $ 22,120

</TABLE>

      The Company estimated that  approximately $3.1 million of its December 31,
1998 net  deferred tax asset could be realized  through the  carryback of future
tax losses to prior years or 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 $21.6 million relating to the
December 31, 1998 deferred tax balance has been established.

      The Company has filed refund claims of $19.7  million  related to the 1998
loss. The Company  received $11.9 million of these refunds in March 1999 and the
remaining balance is expected to be received prior to the end of 1999.


(11)  Notes Payable
<TABLE>
<CAPTION>

      A  December  31,  1997,  notes  payable  are  summarized  as  follows  (in
thousands):
<S>                                                                                         <C>   
           Subordinated notes to AmRe, a quota-share reinsurer,
                bearing interest at 12%; matures December 31, 2002                            $  15,000

           Note payable from acquisition of subsidiary,  with implicit  interest
                rate of 9.76% computed on the payment
                stream; matured November 9, 1998                                                    330

           Term loan, implicit interest rate of 12% computed on
                the payment stream; matured January 1, 1999                                         279

            Total                                                                              $ 15,609
</TABLE>

      As more fully  described  in Note 1(b),  the Company  transferred  the $15
million  liability in connection with the AmRe note agreement to Zenith on April
1, 1998, in accordance with the terms of the Asset Purchase Agreement. The other
note payable amounts were paid in full during 1998.


(12)  Shareholders' Equity

      RISCORP  has 100  million  shares of $.01 par value  Class A Common  Stock
authorized and 14,258,671 and 11,855,917  issued shares at December 31, 1998 and
1997, respectively.  RISCORP's Class B Common Stock, par value $.01, consists of
100  million  shares  authorized  and  24,334,443   million  shares  issued  and
outstanding at December 31, 1998 and 1997. 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  1998,  1997,  or 1996.  At
December  31, 1998 and 1997,  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  distribution of surplus,  and the  relationship of
surplus  after the  dividend or  distribution  is made to the  minimum  required
statutory  surplus.  In December 1997,  RPC paid a $2.2 million  dividend to its
parent.  During  1999,  RISCORP's  insurance  subsidiaries  have the  ability to
dividend $6.4 million to their parents without the prior approval of the Florida
or Missouri  Insurance  Departments,  consisting  of $2.4 million from RPC, $3.1
million from RNIC, and $0.9 million from RIC.

      The combined  statutory  surplus as of December 31, 1998 and 1997, and the
combined statutory net income for 1998, 1997, and 1996, for RISCORP's  insurance
subsidiaries, were as follows (in thousands):

                               1998            1997           1996
                            ------------    -----------    ------------

              Surplus       $ 156,480       $ 96,280        $ 90,639
              Net income       14,672         11,042          13,980

      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
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, 1998 and 1997,  RISCORP's  insurance  subsidiaries  had  statutory
surplus in excess of any action level requirements.


 (13)  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.
<TABLE>
<CAPTION>

      At December  31, 1998,  the Company 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, 1998, 1997, and 1996 is as follows:

                                              1998                     1997                     1996
                                                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      2,556,557     $3.96
    Granted                                 -         -          2,533,326     4.43       1,572,538      6.84
   Exercised                         -      -         -             -       (17,999)          3.61
   Canceled                          (2,533,326)   4.43         (3,078,779)    3.67      (1,032,317)     9.22

     Outstanding, end of year               -   $     -          2,533,326    $4.43       3,078,779     $3.67

     Options exercisable at end of year               -                 -    1,085,711      $6.67     731,849$2.08

     Weighted average fair value of
         options granted during
         the year                            $      -                    $1.92                     $5.44
</TABLE>

      The fair value of each  option was  estimated  on the date that the option
was granted.  The exercise  prices of options of options granted were determined
to be not less than the fair market value of  RISCORP's  Class A Common Stock on
the dates that the  options  were  granted,  with the  exception  of options for
387,314 and 2,604 shares made to two  employees at exercise  prices of $0.72 and
$4.50,  respectively,  and fair  values  of  $22.78  and  $12.54,  respectively.
Compensation  expense  recognized  for options with  exercise  prices below fair
market  value  totaled  $0 for 1998 and 1997 and $0.3  million  for  1996.  This
compensation  expense was reversed in the fourth  quarter of 1997  following the
cancellation of those options.

      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,
"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
1998, 1997, and 1996 would have been as follows (in thousands,  except per share
data):

<TABLE>
<CAPTION>
                                                                     1998          1997          1996
                                                                  ------------  ------------  ------------

<S>                                                                <C>            <C>            <C>    
           Net income (loss)             - as reported             $ (70,875)     $ 7,286        $ 2,398
                                         - pro forma                 (70,875)       5,286          1,933
           Net income (loss) per
              common share-diluted       - as reported                (1.91)         0.20           0.07
                                         - pro forma                  (1.91)         0.14        0.06

</TABLE>

(14)  Property and Equipment
<TABLE>
<CAPTION>

      The  components  of the property and  equipment at December 31, 1998 and 1997 are  summarized  as follows (in
thousands):

                                                                Estimated     -----------------------------
                                                                                       December 31
                                                               Useful Life         1998           1997

<S>                                                              <C>           <C>               <C>     
           Furniture and equipment                               3-7 years     $      358        $ 16,542
           Building                                               39 years              -           8,084
           Leasehold improvements                               5-10 years              9           4,810
           Software                                                3 years             81           6,758
           Land                                                                         -           1,200
                                                                                      448          37,394
           Less accumulated depreciation and
              amortization                                                            111          10,729

           Net carrying amount                                                 $      337        $ 26,665
</TABLE>



<PAGE>


      Depreciation  and  amortization  expense related to property and equipment
totaled $1.8 million,  $4.9 million,  and $3.6 million for 1998, 1997, and 1996,
respectively. Included in those amounts is amortization expense of $0.4 million,
$1.4 million, and $0.8 million for 1998, 1997, and 1996,  respectively,  related
to both purchased and capitalized  internally  developed software costs. As more
fully  described in Note 1(b), the Company  transferred the major portion of the
Company's  property and equipment,  including  computer  software,  to Zenith on
April 1, 1998, in accordance with the terms of the Asset Purchase Agreement.


(15)  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 1998, 1997, and 1996 was
$0.2 million,  $1.7 million,  and $1.3  million,  respectively.  At December 31,
1998,  the Company was  obligated  under  aggregate  minimum  annual  rentals as
follows (in thousands):

                  Year                 Annual Rental

                  1999                    $  218
                  2000                       184
                  2001                         8

                  Total                   $  410


 (16) 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,
1998 and 1997 is a liability for  self-insured  health  benefits of $0.6 million
and $0.9 million,  respectively.  The expense incurred for  self-insured  health
benefits was $0.6 million,  $3.3 million,  and $2.6 million for 1998,  1997, and
1996, respectively.


(17)  Related Party Transactions

      The Company had accounts  receivable of $0.5 million and $0.8 million from
companies  owned by RISCORP's  majority  shareholder  ("affiliates or affiliated
entity")  that are  included  in  accounts  and  notes  receivable-other  in the
accompanying  consolidated  balance  sheets  at  December  31,  1998  and  1997,
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.  Expenses relating to these
services  totaled $0, $0.1 million,  and $1.6 million for 1998,  1997, and 1996,
respectively.  These  expenses  are  included  in  commissions  and  general and
administrative   expenses  in  the  accompanying   consolidated   statements  of
operations.

      In 1996,  the Company paid $0.9 million of brokerage fees to an affiliated
entity for the negotiation and placement of reinsurance  under several  specific
excess-of-loss   coverages.  The  Company  terminated  its  agreement  with  the
affiliated entity during 1997.

      The  Company  provided   administrative  and  support  services  to  three
affiliated  entities.  Under these arrangements,  one of which was terminated in
1996, the Company received $0.2 million,  $0.6 million,  and $0.8 million during
1998, 1997, and 1996, respectively.

      As described in Note 9, RIC was party to a managed care  arrangement  with
RHP, an  affiliated  HMO,  until May 1996.  Fees paid by RIC to RHP during 1998,
1997, and 1996 totaled $0, $3.7 million,  and $17.1 million,  respectively.  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.


(18)  Bad Debt Allowance
<TABLE>
<CAPTION>

      The following table summarizes  activity in the bad debt allowance account
for premiums receivable for 1998, 1997, and 1996 (in thousands):

                                                                        1998           1997         1996

<S>                                                                  <C>             <C>         <C>       
           Balance at beginning of year                              $  7,000        $ 17,000    $    5,899
           Allowance acquired from acquisition                              -               -           782
           Addition (reduction) to allowance                           (1,100)          4,374        31,424
           Recoveries (write-offs) against allowance                      100         (14,374)      (21,105)
           Balance transferred to Zenith [see Note 1(b)]               (6,000)              -             -
           Balance at end of year                                $          -       $   7,000      $ 17,000

       Premiums  receivable  included  in the  accompanying  December  31,  1997
consolidated balance sheet are summarized as follows (in thousands):

           Commercial accounts, including final
               premium audit adjustments                                           $   29,612
           Loss sensitive contracts                                                    68,804
           NCCI pool accounts                                                           6,987
           Other                                                                        1,780
                                                                                      107,183
           Less bad debt allowance                                                     (7,000)

           Premiums receivable, net                                                 $ 100,183
</TABLE>

      As more  fully  described  in  Note  1(b),  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.

(19)  Concentration in a Single State

      Although the Company had expanded its operations into  additional  states,
75 percent,  70 percent,  and 74 percent of its premium revenues for 1998, 1997,
and 1996,  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.


(20)  Commitments and Contingencies

      On or about January 11, 1999,  Zenith filed a lawsuit  against RISCORP and
certain  of its  subsidiaries  in  federal  court in New York  setting  forth 14
separate  causes  of action  arising  out of the Asset  Purchase  Agreement  and
certain ancillary agreements. The complaint seeks an unspecified total amount of
damages,  but the  amount  of  compensatory  damages  sought is in excess of $30
million,  together with an unspecified amount of punitive damages and attorneys'
fees.  Zenith's  claims  include,  among  others,  that the Company (i) breached
certain   representations  and  warranties  set  forth  in  the  Asset  Purchase
Agreement,  (ii) failed to transfer  certain  assets to Zenith,  (iii) failed to
operate its business in the ordinary course, (iv) failed to reimburse Zenith for
certain  payments,  and (v)  fraudulently  induced  Zenith to execute  the Asset
Purchase  Agreement  due to certain  alleged  verbal  representations  made with
respect to RISCORP's Year 2000 compliance.

      On October 16,  1998,  RISCORP and  certain of its  subsidiaries  filed an
action against  Zenith in federal court in Tampa,  Florida a breach of the Asset
Purchase Agreement.  The Company amended its complaint in Florida on January 25,
1999,  and added ten  additional  claims  arising  out of  Zenith's  failure  to
indemnify  the Company for certain  claims of third  parties.  The Company  also
added two other  claims,  one for  breach of  contract  and one for  conversion,
related to Zenith's  taking of $4.1  million the Company had on deposit with the
South Carolina Insurance Department.

      The Company  intends to vigorously  defend those claims asserted by Zenith
and to  vigorously  prosecute  the Company's  claims;  however,  there can be no
assurance as to the ultimate outcome of this litigation.
shapeType1fFlipH0fFlipV0fFilled1lineColor16777215fShadow0
      Between   November  20,  1996  and  January  31,  1997,  nine  shareholder
class-action  lawsuits  were filed against  RISCORP and other  defendants in the
United States District Court for the Middle District of Florida (the "Securities
Litigation"). In March 1997, the court consolidated these lawsuits and appointed
co-lead  plaintiffs and co-lead  counsel.  The plaintiffs  subsequently  filed a
consolidated complaint.  The consolidated complaint named as defendants RISCORP,
three of its executive  officers,  one  non-officer  director,  and three of the
underwriters  for  RISCORP's  initial  public  offering.  The  plaintiffs in the
consolidated  complaint  purport  to  represent  the class of  shareholders  who
purchased  RISCORP's Class A Common Stock between February 28, 1996 and November
14,  1996.  The  consolidated  complaint  alleges  that  RISCORP's  Registration
Statement and Prospectus of February 28, 1996, as well as subsequent statements,
contained  false and misleading  statements of material fact and  omissions,  in
violation of Sections 11 and 15 of the  Securities  Act of 1993,  Sections 10(b)
and 20(a) of the  Securities  Exchange Act of 1934,  and Rule 10b-5  promulgated
thereunder. The consolidated complaint seeks unspecified compensatory damages.

      In July  1998,  the  parties  executed  a  stipulation  and  agreement  of
settlement  in  which  the  Company  agreed  to pay  $21  million  in  cash to a
settlement fund to settle this litigation.  The Company has paid $0.5 million as
an advance to the settlement fund. The remainder of the settlement fund is to be
paid from the  proceeds  of the  second  payment  due  under the Asset  Purchase
Agreement with Zenith. On July 29, 1998, the court issued a preliminary approval
order in which it certified the purported  class for  settlement  purposes.  The
court held a settlement  fairness hearing on December 15, 1998. At that hearing,
the court  announced its opinion that the settlement was fair and reasonable and
should  be  approved.  The  parties  have  executed  several  amendments  to the
settlement agreement extending the deadline after which plaintiffs may terminate
the settlement agreement and resume litigation. Under the most recent amendment,
the  Company  has until  March 24,  1999 in which to fully  fund the  settlement
agreement from the proceeds of the Zenith transaction. If the settlement fund is
not fully  funded by that  date,  plaintiffs  have the  right to  terminate  the
settlement agreement pursuant to procedures specified in the agreement.

      The  Company  estimates  that $8 million  of  insurance  proceeds  will be
available for  contribution to the settlement  amount,  as well as related costs
and expenses. The Company recognized the $21 million proposed settlement and the
related insurance  proceeds in the accompanying  1997 consolidated  statement of
operations.  Because the settlement  agreement is contingent upon the timely and
adequate  payment from the Zenith  transaction,  there can be no assurance  that
this litigation will be ultimately settled on the terms described herein.

      On August  20,  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 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.  RNIC has
appealed  the trial  court's  ruling which  prevents  the  American  Arbitration
Association from  administering  the arbitration  between RNIC and the Fund. The
Alabama  Supreme Court has stayed the current  arbitration.  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.

      On March 13,  1998,  RIC and RPC were added as  defendants  in a purported
class action 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.

      On August 26, 1998,  the district  court  issued an order  dismissing  the
entire suit against all defendants.  On September 13, 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.  Although  the  Plaintiffs  have
indicated  that  they  will  seek to have  the  appeal  terminated  and the case
remanded to the district  court,  no formal motion has been filed with the Court
of Appeals.  Management  will  continue  to monitor the  progress of the appeals
process as necessary and intends to defend the case vigorously if it is returned
to the district court for further proceedings.

      In June 1997,  the Company  terminated a number of employees in connection
with a workforce reduction.  As a result of the workforce reduction, a number of
former employees have initiated proceedings,  including arbitration, against the
Company for certain severance benefits. The Company intends to vigorously defend
these suits;  however,  there can be no assurance  that it will prevail in these
proceedings.

      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.

      The Company has  historically  met its cash  requirements and financed its
growth  through  cash flow  generated  from the sale of stock,  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  companies,  and other
general and administrative expenses.

      As  discussed  more  fully  in  Note  1(b),  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  consummation of
that transaction, RISCORP received $35 million in cash, of which $10 million was
placed in escrow,  with the  balance of the  purchase  price,  if any, to be the
amount by which the book value of the transferred  assets exceeds the book value
of the transferred  liabilities as of the closing date, determined in accordance
with GAAP and generally accepted  actuarial  principles,  consistently  applied.
Pursuant to the terms of the Asset Purchase Agreement, Zenith is required to pay
the remaining  purchase price to RISCORP,  plus interest thereon of 6.13 percent
from the  Closing  Date  through  the  final  payment  date,  in cash,  less the
additional  amount  required to be deposited  into  escrow,  not later than five
business days after receipt of the Final Business  Balance Sheet,  as determined
by the Independent Expert.

      On March 19, 1999, the Independent  Expert delivered its  determination of
the Final Business Balance Sheet [see Note 1(b) for a detailed discussion].

      As a  result  of  this  sale,  the  Company  and its  subsidiaries  ceased
substantially all of their former business  operations and,  accordingly,  since
April 1, 1998,  the Company's cash  requirements  have been, and are expected to
continue  to  be,  satisfied  through  investment  income,  the  liquidation  of
investments  and other  assets,  and the receipt of certain  federal  income tax
claims.






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

                                          RISCORP, INC. AND SUBSIDIARIES

                                                 DECEMBER 31, 1998
                                                  (in thousands)


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

Type of Investment                                      Cost       Market Value

Available for sale:
     Fixed maturity securities:
        U.S. government obligations                    $ 13,681        $ 13,900
        Corporate obligations                             2,032           2,080
           Total available for sale                    $ 15,713        $ 15,980

Available for sale:
     Unrestricted                                     $   6,666       $   6,716
     Restricted                                           9,047           9,264
           Total                                       $ 15,713        $ 15,980




































See accompanying Auditors' Report.


<PAGE>


<TABLE>
<CAPTION>

           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                 BALANCE SHEETS

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


                                                                                               December 31
                                                                                         1998               1997

                                                      ASSETS

<S>                                                                                 <C>              <C>        
Investments at fair value (cost $4,635 and $1,000)                                  $     4,636      $     1,000
Cash and cash equivalents                                                                 1,140           (1,152)
Cash and cash equivalents - restricted                                                   10,000                -
Investment in wholly-owned subsidiaries                                                 148,357          172,463
Surplus note receivable from subsidiary                                                  13,000           13,000
Other assets                                                                             18,840           28,145
     Total assets                                                                     $ 195,973         $ 213,456

                                       LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
  Notes payable                                                                  $            -       $   15,000
  Accrued expenses and other liabilities                                                 38,572           34,923
  Payable to affiliates                                                                  61,835               -
    Total liabilities                                                                   100,407           49,923

Shareholders' equity:
  Common stock                                                                              386              362
  Additional paid-in capital                                                            140,688          135,975
  Net unrealized gains on investments                                                       173            2,002
  Retained earnings (deficit)                                                           (45,680)          25,195
  Treasury stock at cost                                                                     (1)              (1)
      Total shareholders' equity                                                         95,566          163,533

      Total liabilities and shareholders' equity                                      $ 195,973        $ 213,456











See accompanying Auditors' Report.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            STATEMENTS OF OPERATIONS

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


                                                                                    Year Ended December 31
                                                                         ----------------------------------------------
                                                                              1998            1997            1996

Revenues:
<S>                                                                      <C>              <C>              <C>      
      Net investment income                                              $    2,681       $      517       $   2,590
      Dividend income                                                             -           3,446           18,335
      Other income                                                              146               -                3
          Total revenue                                                       2,827           3,963           20,928

Expenses:
      General and administrative expenses                                    10,871          16,421            1,995
      Interest expense                                                          641           1,800            2,234
      Depreciation and amortization                                             359             857            3,830
          Total expenses                                                     11,871          19,078            8,059

Income (loss) from operations                                                (9,044)        (15,115)          12,869

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

Income (loss) before equity in income or loss
  of subsidiaries and income taxes                                          (56,791)        (15,115)          12,869

Equity in income (loss) of subsidiaries                                     (20,322)         20,935          (11,428)

Income (loss) before income taxes                                           (77,113)          5,820            1,441
Income tax benefit                                                           (6,238)         (1,466)            (957)

      Net income (loss)                                                    $(70,875)       $  7,286         $  2,398


















See accompanying Auditors' Report.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                            SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                              STATEMENTS OF CASH FLOW

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

                                                                              Year Ended December 31
                                                                             -----------------------------------------------
                                                                                 1998              1997            1996
                                                                             -------------     -------------    ------------
Cash flows from operating activities:
<S>                                                                           <C>               <C>            <C>       
   Net income (loss)                                                          $ (70,875)        $   7,286      $    2,398
   Adjustments to reconcile net income (loss) to net cash provided
      by operating activities:
      Equity in net loss (income) of subsidiaries                                20,322           (18,344)          5,967
      Depreciation and amortization                                                 359               857           3,830
      Net amortization of discounts on investments                                    -                 -              80
      Net realized loss (gain) on sale of investments                                 -                35              (4)
      Loss on sale of net assets to Zenith                                       47,747                 -               -
      Issuance of RISCORP, Inc. stock                                             4,740                 -               -
      Decrease (increase) in other assets                                         4,166           (20,555)          2,750
      Increase in accrued expenses and other liabilities                          3,751            26,934           3,421
                                                                              -----------       ------------     -----------
          Net cash provided by (used in) operating activities                     10,210            (3,787)         18,442
                                                                              -----------       ------------     -----------

Cash flows from investing activities:
      Proceeds from sale of fixed maturities--available for sale                  68,617             4,206          44,124
      Proceeds from maturities of fixed maturities--available for sale             1,000             1,000           1,000
      Proceeds from the sale of equity securities                                     -             1,548             353
      Cash received from Zenith for sale of net assets                            9,345                 -               -
      Cash due to Zenith                                                            388                 -               -
      Purchase of fixed maturities--available for sale                           (73,252)                -         (48,438)
      Purchase of equity securities                                                   -                 -          (1,905)
      Capital contributions to subsidiaries                                      (1,000)           (1,000)       (114,375)
      Purchase of property and equipment                                           (448)                -               -
      Purchase of IAA, net of cash acquired                                           -                 -             282
      Purchase of RISC, net of cash acquired                                          -                 -            (538)
                                                                              -----------       ------------     -------------
          Net cash provided by (used in) investing activities                      4,650             5,754        (119,497)
                                                                              -----------       ------------     -------------

Cash flows from financing activities:
      Purchase of treasury stock subject to put option                                -            (2,100)              -
      Transfer of cash and cash equivalents to restricted balances              (12,568)                -               -
      Principal repayment of notes payable                                            -                 -         (27,000)
      Exercise of stock options                                                       -                 -              65
      Proceeds of initial offering of common stock                                    -                 -         127,908
      Other, net                                                                      -            (1,293)            709
                                                                              -----------       ------------     -----------
          Net cash provided by (used in) financing activities                    (12,568)           (3,393)        101,682
                                                                              -----------       ------------     -----------

Net increase (decrease) in cash and cash equivalents                              2,292            (1,426)            627
Cash and cash equivalents, beginning of year                                     (1,152)              274            (353)
                                                                              ===========       ============     ===========
Cash and cash equivalents, end of year                                        $     1,140       $   (1,152)      $     274
                                                                              ===========       ============     ===========

Supplemental  disclosures  of cash flow  information:  Cash paid during the year
   for:
      Interest                                                                $        450      $      1,800     $   2,684
                                                                              ===========       ============     ===========
      Income taxes                                                            $                 $      6,556      $ 15,127
                                                                              -
                                                                              ===========       ============     ===========

See accompanying Auditors' Report.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                             SCHEDULE IV - REINSURANCE

                                          RISCORP, INC. AND SUBSIDIARIES
                                                  (in thousands)



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


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


1996                            $ 326,875           $ 165,022        $ 11,704           $ 173,557              7%




These amounts represent the first three months of 1998.




































See accompanying Auditors' Report.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                                                                          

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

<S>   <C>        <C>               <C>                 <C>        <C>           
      1998       $      -        $           -         $ -        $       -     

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

      1996       $      446         $ 458,239          $ -        $ 102,562     

</TABLE>
<TABLE>
<CAPTION>

                     SCHEDULE VI - SUPPLEMENTAL INFORMATION, CONTINUED

                         RISCORP, INC. AND SUBSIDIARIES
                                 (in thousands)

                                 December 31                                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                        Costs           Expenses        Written
                                             Years
-------------- ------------  -------------   -------------------------  ---------------   --------------  -------------

<S>   <C>      <C>             <C>           <C>             <C>             <C>              <C>           <C>       
      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

      1996     $ 173,557       $  12,194     $ 123,986       $   3,023       $ 33,716         $ 111,963     $ 179,706



* These amounts represent the first three months of 1998.
</TABLE>









See accompanying Auditors' Report.