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

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

                                   FORM 10-K

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

                  For the fiscal year ended December 31, 1999

                                      or

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

                          Commission File No. 1-10760

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

                          MUTUAL RISK MANAGEMENT LTD.
            (Exact name of registrant as specified in its charter)

                 Bermuda                             Not Applicable
     (Jurisdiction of Incorporation)      (I.R.S. Employer Identification No.)

                               44 Church Street
                            Hamilton HM 12 Bermuda
                                (441) 295-5688

  (Address, including zip code, and telephone number, including area code, of
                  registrant's principal executive offices).

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

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<CAPTION>
Title of Each Class                          Name of Each Exchange on Which Registered
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<S>                                         <C>
Common Shares, $.01 par value.............            New York Stock Exchange
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       Securities registered pursuant to Section 12(g) of the Act: None

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

  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days,  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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K.

  At March 17, 2000 registrant had outstanding 41,209,500 Common Shares, the
only class of registrant's common stock outstanding, and the aggregate market
value of voting stock held by non-affiliates at such date was $620,718,093
(based on the closing price of such Common Shares of $15 1/16 on March 17,
2000, as reported on the New York Stock Exchange, Inc., composite listings).

                      DOCUMENTS INCORPORATED BY REFERENCE

  Certain portions of registrant's Proxy Circular relating to its Annual
General Meeting of Shareholders scheduled to be held on May 16, 2000, are
incorporated by reference into Part III of this report.

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                           MUTUAL RISK MANAGEMENT LTD

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
 Item                                                                     Page
 ----                                                                     ----
                                     PART I

 <C>  <S>                                                                 <C>
  1.  Business..........................................................    3
  2.  Properties........................................................   16
  3.  Legal Proceedings.................................................   16
  4.  Submission of Matters to Security Holders.........................   16

                                    PART II

  5.  Market for Common Shares..........................................   18
  6.  Selected Consolidated Financial Data..............................   19
  7.  Management's Discussion and Analysis of Financial Condition and
      Results of Operations.............................................   20
  7A. Quantitative and Qualitative Disclosures about Market Risk........   28
  8.  Financial Statements and Supplementary Data.......................   29
  9.  Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure..............................................   29

                                    PART III

 10.  Management........................................................
 11.  Executive Compensation............................................   30
 12.  Security Ownership of Certain Beneficial Owners and Management....   30
 13.  Certain Relationships and Related Transactions....................   30

                                    PART IV

 14.  Exhibits, Financial Statement Schedules and Reports on Form 8K....   31
</TABLE>

                                       2
<PAGE>

                                    PART I

ITEM 1. BUSINESS

The Company

  Mutual Risk Management Ltd., also known as MRM, is a Bermuda company
incorporated in 1977. Our principal business is the provision of risk
management services to clients seeking an alternative to traditional
commercial insurance for certain of their risk exposures. Risk management
involves a process of analyzing loss exposures and developing risk financing
methods to reduce exposure to loss and to control associated costs. The use of
such loss financing methods in place of traditional insurance has become known
as the alternative market and involves clients participating in a significant
amount of their loss exposure and transferring only the unpredictable excess
risk to insurers. The benefits of such alternative market techniques typically
include lower and more stable costs, greater control over the client's risk
management program and an increase in the emphasis within the client's
organization on loss prevention and loss control.

  Our insurance business can be divided into three segments:

  Program            The fastest growing of our business segments, Program
  Business:          Business involves us replacing traditional insurers as
                     the conduit between producers of specialty books of
                     business and reinsurers wishing to write that business.
                     We provide a wide range of services for a fee and the
                     underwriting profit is shared between the producer and
                     the reinsurers.

  Corporate Risk     Our original business segment, Corporate Risk Management
  Management:        involves providing services to businesses and
                     associations seeking to insure a portion of their risk in
                     a loss sensitive alternative market structure.

  Specialty          This business segment provides access to alternative risk
  Brokerage:         transfer insurers and reinsurers in Bermuda and Europe.
                     The two components of this segment are MRM Hancock
                     Limited, which provides access to London and European
                     reinsurers, and H&H Park International Limited, which
                     brokers to the Bermuda market.

  In addition to its insurance industry services, in 1996, we entered the
financial services business through its acquisition of The Hemisphere Group
Limited. Hemisphere, which is based in Bermuda, provides administrative and
other services to offshore mutual funds and other companies. Financial
Services is our fourth business segment.

Insurance Services

  Our principal source of profits is fees received for the various insurance
and other services provided to clients in connection with our programs. The
structure of our programs places most of the underwriting risk with our
clients or reinsurers. For regulatory and other reasons, however, we are
required to assume a limited amount of risk. We seek to limit this risk to the
minimum level feasible. This approach to risk distinguishes us from typical
property/casualty companies, which assume significant levels of underwriting
risk as part of their business. We do not seek to earn income from
underwriting risk but rather from fees for services provided. We market our
services exclusively to retail insurance brokers and consultants representing
clients. The services offered to clients in connection with our products
typically include the following:

  [_]design and implementation of a risk financing program;

  [_]issuance of an insurance policy by one of our wholly-owned, licensed
     insurance companies, Legion Insurance Company, Legion Indemnity Ltd.,
     also referred to as Legion Indemnity, and Villanova Insurance Company,
     also referred to as Villanova . These companies are collectively
     referred to as the Legion Companies. In December 1997, A.M. Best Company
     extended the Legion Insurance group rating of "A ," excellent, to
     include Villanova;

                                       3
<PAGE>

  [_]use of our Insurance Profit Center Program, also known as the IPC
     Program, as the vehicle within which to fund a chosen portion of the
     client's risk or, alternatively, the management by us of the client's
     captive insurance company.

  [_]brokering to unaffiliated reinsurers the excess risk which the client
     chooses not to fund and, in some cases, arranging for insurers, other
     than Legion Insurance, to issue the original insurance policy; and

  [_]coordinating the purchase, on behalf of the client, of loss prevention,
     loss control and claims administration services from unaffiliated
     providers.

  Our major product is the IPC Program. This program allows the client to
retain a significant portion of its own loss exposure without the
administrative costs and capital commitment necessary to establish and operate
its own captive insurance company. The actual amount of underwriting profit
and investment income produced by the client's IPC Program is returned to the
client creating a direct incentive for it to engage in loss prevention and
loss control in order to reduce the overall cost of financing its loss
exposures.

  In recent years, the fastest growing segment of our insurance business is
its Program Business, in which third-parties other than the insured, typically
the broker and reinsurers, finance a portion of the insured's risk and
participate in any underwriting profit or loss. For a discussion of our
Corporate Risk Management and Program Business segments, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

 Lines of Business

  Our programs can be utilized by clients for many lines of insurance. In
1999, approximately 53% of our fee income was derived from workers'
compensation insurance. During the 1980's and through 1993, workers'
compensation presented many employers with substantial problems due to cost
increases and the limited availability of commercial coverage in certain
states. Workers' compensation costs accelerated rapidly because of: (i) the
general level of medical cost inflation, as medical costs generally amount to
40% or more of all workers' compensation costs; (ii) an increase in the number
of workers' compensation claims which resulted in litigation; (iii) a
broadening of injuries which are considered to be work-related; and (iv) an
increase in state mandated benefit levels. Since 1993, workers' compensation
reforms have been occurring in a number of states, most notably in California,
which have addressed many of these issues in the last five years. A number of
markets have seen a significant decline in premium rates due to new capacity,
entering the market subsequent to these reforms. These lower premium rates
have reduced the fees we earn on our programs as fees are based on premiums.
Notwithstanding the changes in the market, workers' compensation continues to
be suitable for the alternative market because many states set rates or
enforce minimum rate laws which prohibit the commercial insurance market from
offering premium discounts to insureds with favorable loss experience. This
causes these clients to seek an alternative method of funding their workers'
compensation exposure, which rewards their status as a preferred risk. In
addition, workers' compensation involves relatively frequent, predictable
levels of loss, which are the type favored by clients for alternative market
insurance programs.

  In addition to workers' compensation, our programs have been utilized for
other casualty insurance lines such as medical malpractice, general liability,
commercial auto liability and auto physical damage.

  At December 31, 1999, we had a total of 1,143 employees.

 Marketing--Commonwealth Risk Services, L.P.

  Our wholly owned subsidiary, Commonwealth Risk Services, L.P., also referred
to as CRS, markets our services in the United States, Canada and Europe to
insurance brokers and consultants representing clients. CRS also designs risk
financing programs for potential clients in conjunction with their insurance
brokers and consultants. Through offices in Philadelphia, California and
London, CRS markets these services using direct mail, advertising, seminars
and trade and industry conventions.

                                       4
<PAGE>

  CRS seeks to become actively involved with the insurance broker in the
presentation of our services to potential clients and maintains a direct
relationship with the client after the sale. CRS assists brokers in the design
and implementation of risk financing programs, although the extent of this
involvement depends on the size, experience and resources of the particular
broker. Members of the CRS staff frequently provide supporting promotional
materials and assist in the preparation of financial analyses comparing the
net present value, after-tax cost of an IPC Program with alternative
approaches. Representatives of CRS seek to be present at meetings with
potential clients to explain how the IPC Program works, including how
reinsurance is handled, how funds are invested and how underwriting profits
and investment income are returned.

 The Insurance Profit Center Program and Program Business

  In 1980, we developed a program which provides clients with a facility for
managing their insurance exposures. This type of structure is frequently
referred to as a "rent-a-captive," although the facility has many significant
differences from a captive insurance company. The facility was designed to
provide certain of the benefits available through captive insurance companies
without the administrative cost and capital commitment necessary to establish
and operate a captive insurance company. Since the IPC Program involves a
retention of risk by the client, it encourages the implementation of risk
management and risk reduction programs to lower the losses incurred.

  The IPC Program is appropriate for corporations and associations which
generate $.75 million or more in annual premiums. Typically, clients which use
an IPC Program are profitable and have adequate working capital but generate
insufficient premium to consider, or are otherwise unsuitable for, a wholly-
owned captive. During 1999, the Company increased the number of agency IPC
Programs in which an insurance agent or broker, rather than the insured,
becomes the preferred shareholder and participates in the profit or loss on
the program. These types of programs are referred to as "Program Business" and
are discussed below,

  Return on the IPC program is a function of the loss experience of the
insured. The principal benefits of the IPC Program to the client are:

  [_]a reduction of the net present value, after-tax cost of financing the
     client's risks;

  [_]a lower commitment of funds than would be necessary to capitalize and
     maintain a captive insurance company;

  [_]access to commercial reinsurance markets for the client's excess risk;
     and

  [_]program structure that is customized, flexible and relatively easily
     implemented.

  We operate the IPC Program from offices in Bermuda. The Bermuda office is
involved in designing, negotiating and administering IPC Programs and reviews
each prospective client, negotiates the shareholder's agreement with the
client and the reinsurance agreement with Legion Insurance or another policy-
issuing company. One of the Company's foreign insurance companies, also
referred to as the IPC Companies, receives and invests premiums, administers
policy claims, establishes reserves, provides quarterly financial reports to
clients and, ultimately, returns the underwriting profit and investment income
to the client as preferred share dividends.

  The funds of each IPC Program are invested by our subsidiary, Mutual Finance
Ltd. The funds are invested using the services of professional investment
advisors.

  Neither Legion Insurance nor the IPC Companies underwrite risk in the
traditional sense. Rather, their function is to ensure that substantially all
of the underwriting risk of the client is either retained by the client in the
IPC Program or its captive insurance company, as the case may be, or
transferred to unaffiliated reinsurers. In the event that the IPC Company
sustains an underwriting loss on a program which exceeds that program's
investment income, the IPC Company recovers this loss from the client. Since
the client has generally

                                       5
<PAGE>

collateralized the IPC Company for at least the difference between the funds
available in that client's IPC Program and the level of currently expected
losses by cash or a letter of credit, the IPC Company should not be affected
by the bankruptcy of a client. In the event, however, that the IPC Company is
unable to recover the full amount of its loss from the cash collateral or the
letter of credit, the IPC Company would seek to recover from the client
pursuant to the indemnity provisions of the shareholder's agreement. As of
December 31, 1999, we maintained a provision of $10.0 million against losses
which may occur on programs where we may be forced to rely solely on the
clients indemnity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".

  In addition to programs for corporate clients, we also offer an association
IPC Program, which allows smaller insureds to collectively take advantage of
the financial benefits available to larger corporate insureds individually.

The Legion Companies

  Legion Insurance is domiciled in Pennsylvania and is admitted to write
primary insurance, often called being admitted or writing insurance on an
admitted basis, in all 50 states of the United States, the District of
Columbia and Puerto Rico. Legion Indemnity is domiciled in Illinois, is an
admitted insurer in Illinois and is an authorized surplus lines insurer in 42
states, the District of Columbia, Guam and the Virgin Islands. An authorized
surplus lines insurer writes specialty property and liability coverage when
the specific specialty coverage is unavailable from admitted insurers.
Villanova is domiciled in Pennsylvania and is admitted to write primary
insurance in 43 states.

  In our Corporate Risk Management business segment, one of the Legion
Companies issues an insurance policy to the client, which either fulfills a
legal requirement that the client have a policy from a licensed insurer or
satisfies a business need the client may have for an admitted policy. The
client and the Legion Company determine the level of exposure the client
wishes to retain and the Legion Company transfers the specific excess risk and
the aggregate excess risk beyond that retention to unaffiliated reinsurers.
The Legion Company then reinsures the client's chosen retention to one of the
IPC Companies or to the client's captive insurance company. In certain cases
the Legion Company may issue a large deductible type policy through which the
client pays claims up to its chosen retention directly. Payments within the
deductible are covered by a deductible reimbursement policy issued by one of
the IPC Companies. In either type of policy, the Legion Company retains only a
relatively small portion of the risk on each program for its own account.

  In Program Business, the Legion Company replaces traditional insurers as the
conduit between producers of specialty books of business and reinsurers
wishing to write that business. In this line of business, the reinsurer
replaces the insured as the risk-bearing entity. As with the Corporate Risk
Management line of business, the Legion Company negotiates the reinsurance and
performs certain administrative services in connection with the program.
Program Business differs from the Corporate Risk Management line of business
in that policy underwriting, issuance and premium collection are usually
provided by the general agent, rather than the Legion Company. The Legion
Company analyzes each program prior to inception, arranges for quota share or
specific and aggregate excess reinsurance coverage through its reinsurance
treaties, collects the premium from the client, prepares accounting cessions
for the reinsurers, audits the final premium, supervises the independent
claims adjuster, collects claim reimbursements from reinsurers and performs
certain other related services for each account.

  For the Corporate Risk Management business, the Legion Companies have
established a reinsurance treaty with an unaffiliated reinsurer to transfer
the specific and aggregate excess risk above the client's retention. The
client's retention is negotiated separately for each program and reflects the
amount of risk the client wishes to retain for its program on both a specific
and aggregate basis. For the Program Business, each Legion Company purchases a
separate reinsurance treaty, both on a quota share and a specific and
aggregate excess of loss basis.

                                       6
<PAGE>

The Legion Companies currently place substantially all reinsurance with
unaffiliated commercial reinsurers whose ratings from A.M. Best Company are A-
or higher. At December 31, 1999, the largest reinsurance recoverables from
unaffiliated commercial reinsurers were $172.6 million from Transatlantic
Reinsurance Company, a participant on several layers of specific and aggregate
reinsurance with respect to various of our Program and Corporate Risk
Management business and substantially all of our American Psychiatric
Association program, $161.3 million from First Excess and Reinsurance Corp.
and $145.4 million from American Re-insurance Company, which are both
reinsurers on several current treaties. Transatlantic is rated "A++," First
Excess, now GE Reinsurance Corporation and part of the Employers Re US Group,
is rated "A++" and American Re-insurance is rated "A++" by A.M. Best Company.

  Through its reinsurance arrangements, each Legion Company places significant
amounts of reinsurance with a variety of unaffiliated reinsurance companies.
In order to maintain an acceptable level of net written premium for regulatory
purposes, each Legion Company seeks to develop a level of net written premium
which will not involve a significant degree of underwriting risk. In most
Legion programs, the Legion Company retains liability for a specified amount
of losses equal to at least 10% of the gross written premium. The level of
losses retained by the Legion Company are set at a level such that no
significant underwriting profit or loss should occur.

  In order to take regulatory credit for reinsurance ceded to one of the IPC
Companies or to a captive insurance company, the Legion Company must receive a
letter of credit for the amount of the insurance reserves ceded since the
companies to which the reinsurance is ceded are not licensed reinsurers in any
state of the United States. The letter of credit must be issued or confirmed
by a bank which is a member of the U.S. Federal Reserve System. At December
31, 1999, the Legion Companies had $371 million of such letters of credit, of
which $257 million was supplied by the IPC Companies. Legion Insurance, Legion
Indemnity and Villanova are also subject to other regulation by the insurance
departments of Pennsylvania, Illinois and other states where they are
licensed. See "Regulatory Considerations."

  As of December 31, 1999, the Legion Companies had 355 accounts, they wrote
gross statutory premiums of $1.2 billion during 1999 and had statutory capital
of $349.9 million. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations."

Specialty Brokerage

  In 1991, we acquired a 51% interest in a newly-formed London reinsurance
brokerage firm, MRM Hancock Limited. MRM Hancock specializes in the placement
of reinsurance for captive insurance companies in the London market, including
Lloyds of London. In 1996, we acquired the remaining 49% of MRM Hancock from
the management of MRM Hancock and General International Ltd., a Bermuda
insurance subsidiary of General Motors Corporation. MRM Hancock is now a
wholly owned subsidiary. In July 1992, we acquired 100% of Park International
Limited, a Bermuda broker specializing in placing coverage with Bermuda-based
excess liability and corporate officers' and directors' liability carriers. In
1998, we acquired H&H Reinsurance Brokers, Ltd., a Bermuda-based specialty
reinsurance broker that was part of the IAS Group. During 1999, all of our
brokerage business was combined into one unit to better coordinate the
specialty brokerage activities and to improve customer service.

  Segment information relating to our Specialty Brokerage operations is
contained in footnote 16 of the Notes to the Consolidated Financial Statements
set forth herein.

Financial Services

  In July 1996, we acquired The Hemisphere Group Limited, a Bermuda financial
services company. Hemisphere, which has been in business since 1980, has three
active subsidiary operations in Bermuda providing company management,
corporate secretarial, fund administration and trust management services. It
also has a

                                       7
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wholly-owned Cayman Islands subsidiary. With a total staff of 158, Hemisphere
had approximately 279 mutual fund clients as of December 31, 1999. In
addition, Hemisphere administers investment holding companies, trading
companies and trusts. Hemisphere has formed a network of professional
relationships in the major financial centers of the world and this network is
the source for significant ongoing referrals of business. During 1997,
Hemisphere expanded its trust operations by the acquisition of Hugo Trust
Company based in Jersey in the Channel Islands. Hemisphere Trust (Jersey)
Limited, which is comprised of Hugo Trust Company and Augres Trust Company,
provides a base to develop European based trust business and had revenues of
$2.8 million in 1999.

  In January 1997, we incorporated MRM Life Ltd. in Bermuda to provide life
insurance and related products, including annuities and variable annuities. We
began marketing these products in the fourth quarter of 1997.

  In 1998, Hemisphere expanded its operations to Dublin, Ireland and Boston,
Massachusetts in order to service the European offshore and US hedge fund
industries, respectively.

Competition

  Our insurance services compete with self-insurance plans, captive insurance
companies managed by others and a variety of risk financing insurance
policies. We believe that the IPC Program is the largest independent
alternative market facility that is not affiliated with either a major retail
insurance broker or a major insurance company. We face significant competition
in marketing the IPC Program from other risk management programs offered by
U.S. insurance companies, from captive insurance companies for large insureds
and from rent-a-captives organized by large insurance companies and brokers.

  The primary basis for competition among these alternative risk management
vehicles varies with the financial and insurance needs and resources of each
potential insurance buyer. The principal factors that are considered include
an analysis of the net present-value, after-tax cost of financing the client's
expected level of losses, the amount of premium and collateral required, the
attachment point of excess coverage provided in the event losses exceed
expected levels as well as cash flow and tax planning considerations and the
expected quality and consistency of the services to be provided. We believe
that for insureds with financial characteristics and loss experience lending
themselves to an IPC Program, the IPC Companies compete effectively with other
risk financing alternatives.

  In the present soft insurance market characterized by excess capital and
competitive pricing, it is generally easier for us to structure programs
because of the availability and pricing of reinsurance but more difficult to
attract potential participants and sell programs because of competition. In a
hard market, such as that experienced during 1985-1987, it is more difficult
to structure programs due to the high price and unavailability of reinsurance
but we experience less competition in attracting clients and selling programs.

Regulatory Considerations

  The Bermuda-based IPC Companies, Mutual Indemnity Ltd., Mutual Indemnity
(Bermuda) Ltd. and Mutual Indemnity (US) Ltd., are subject to regulation under
the Bermuda Companies Act of 1981 and as insurers under the Bermuda Insurance
Act of 1978, as amended by the Insurance Amendment Act 1995, and the
regulations promulgated thereunder. They are required, among other things, to
meet and maintain certain standards of solvency, to file periodic reports in
accordance with Bermuda statutory accounting rules, to produce annual audited
financial statements and to maintain a minimum level of statutory capital and
surplus. In general, the regulation of insurers in Bermuda relies heavily upon
the auditors, directors and managers of the Bermuda insurer, each of which
must certify that the insurer meets the solvency and capital requirements of
the Bermuda Insurance Act of 1978. Mutual Indemnity (Barbados) Ltd. and Mutual
Indemnity (Dublin) Ltd. are subject to similar regulation in Barbados and
Ireland, respectively.

  The Legion Companies are subject to regulation and supervision by the
insurance regulatory authorities of the various states of the United States in
which they conduct business. This regulation is intended primarily for

                                       8
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the benefit of policyholders. Legion Insurance is admitted in 50 states, the
District of Columbia and Puerto Rico, and is subject to regulation in each
jurisdiction. Legion Indemnity is admitted in Illinois and is authorized as a
surplus lines insurer in 42 states, the District of Columbia, Guam and the
Virgin Islands. Legion Indemnity is regulated in Illinois but is generally not
subject to regulation in those states where it acts as a surplus lines
insurer. Villanova is admitted in 43 states and is subject to regulation in
each jurisdiction. State insurance departments have broad regulatory,
supervisory and administrative powers. These powers relate primarily to the
standards of solvency which must be met and maintained, the licensing of
insurers and their agents, the approval of rates and forms and policies used,
the nature of, and limitations on, insurers investments, the form and content
of periodic and other reports required to be filed, and the establishment of
reserves required to be maintained for unearned premiums, losses and loss
expenses or other purposes.

  The Legion Companies are also subject to state laws regulating insurance
holding companies. Under these laws, state insurance departments may examine
the Legion Companies at any time, require disclosure of material transactions
by the holding company and require prior approval of certain "extraordinary"
transactions, such as dividends from the insurance subsidiary to the holding
company and purchases of certain amounts of the insurance subsidiary's capital
stock. These laws also generally require approval of changes of control, which
are usually triggered by the direct or indirect acquisition of 10% or more of
the insurer.

  Most states require all admitted insurance companies to participate in their
respective guaranty funds, which cover certain claims against insolvent
insurers. Solvent insurers licensed in these states are required to cover the
losses paid on behalf of insolvent insurers by the guaranty funds and are
generally subject to annual assessments in the state by its guaranty fund to
cover these losses. Some states also require licensed insurance companies to
participate in assigned risk plans which provide coverage for workers'
compensation, automobile insurance and other lines for insureds which, for
various reasons, cannot otherwise obtain insurance in the open market. This
participation may take the form of reinsuring a portion of a pool of policies
or the direct issuance of policies to insureds. Generally, the Legion
Companies participates as a pool reinsurer or assigns to other companies the
direct policy issuance obligations. The calculation of an insurer's
participation in these plans is usually based on the amount of premium for
that type of coverage that was written by the insurer on a voluntary basis in
a prior year. Assigned risk pools tend to produce losses which result in
assessments to insurers writing the same lines on a voluntary basis. The
Legion Companies also pay a fee to carriers assuming their direct policy
issuance obligations. For each program a Legion Company writes, it estimates
the amount of assigned risk and guaranty fund assessments that it will incur
as a result of having written that program. If that estimate proves to be
inadequate, the Legion Company is entitled under its reinsurance agreements
with the IPC Companies to recover from the reinsurer the amount of any
assessments in excess of the estimate. The IPC Companies are then entitled
under the terms of each shareholder's agreement to recover this excess from
the client. However, the IPC Companies are generally only able to
collateralize this obligation up to the amount of the estimated assessments.

  The National Association of Insurance Commissioners, ("NAIC") has
established the Insurance Regulatory Information System, ("IRIS") to assist
state insurance departments in their regulation and oversight of insurance
companies domiciled or operating in their respective states. IRIS has
established a set of twelve financial ratios with specified "unusual values"
for each ratio. Companies reporting four or more unusual values on the IRIS
ratios may expect inquiries from individual state insurance departments
concerning specific aspects of the insurer's financial position. As of
December 31, 1999, Legion Insurance Company, Villanova Insurance Company and
Legion Indemnity Company, had six, four and three unusual values,
respectively. Four of the Legion Insurance Company's ratios,: Change in Net
Writings, Surplus Aid to Surplus, Agent's Balance to Surplus and Estimated
Current Reserve Deficiency to Surplus are directly related to premium growth.
Change in Surplus was unusual due to the $143.0 million of additional capital
contributed during 1999. The final ratio, Liabilities to Liquid Assets, was
unusual on account of receiving $35 million in premium prior to receiving
policy level detail to record the written premium. This inflates the ratio as
it represents funds awaiting application to actual policies.

  Villanova had two unusual values related to premium growth, Change in Net
Writings and Estimated Current Reserve Deficiency to Surplus. It also has an
unusual value for a low investment yield. The low value for investment yield
is the result of actual investments made late in the year while the ratio is
calculated assuming

                                       9
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investments were made evenly throughout the year. The last unusual value for
Villanova was a decrease in surplus. This was the result of the dividends to
its parent and the sharing of receivables write-offs under the Company's
pooling arrangement.

  Legion Indemnity had three unusual values, all premium growth related. They
were Change in Net Writings, Surplus Aid to Surplus and Agent's Balance to
Surplus.

  The NAIC has also adopted a Risk Based Capital for Insurers Model Act. The
Risk Based Capital Model Act sets forth a risk based capital formula for
property and casualty insurers. The formula measures minimum capital and
surplus needs based on the risk characteristics of a company's products and
investment portfolio. The formula is part of each company's annual financial
statement filings and is to be used as a tool to identify weakly capitalized
companies. In those states having enacted the Risk Based Capital Model Act,
companies having capital and surplus greater than the minimum required by the
formula but less than a specified multiple of the minimum may be subject to
additional regulatory scrutiny from domiciliary state insurance departments. To
date, nearly all states have adopted the Risk Based Capital Model Act. At
December 31, 1999, the Legion Companies combined risk-based capital was $347.4
million. Under the risk-based capital tests, the threshold that constitutes the
authorized control level which authorizes the commissioner to take whatever
regulatory action considered necessary to protect the best interest of the
policyholders and creditors of the Legion Companies, was $121 million.
Therefore, the Legion Companies capital exceeds all requirements of the Risk
Based Capital Model Act.

  In reaction to increasing rates for and decreasing availability of workers'
compensation insurance starting in the early 1990's, many states began to enact
reforms designed to reduce the cost of workers' compensation insurance,
principally through a reduction in benefits or an increase in efficiencies in
the system. In California, a reform package was enacted in 1993 providing for,
in part, a reduction of premium rates, an increase in the standard necessary to
prove "stress-related" work injuries, group-self insurance for employers and
the repeal of the minimum rate law effective January 1, 1995. In Florida, the
assigned risk plan was abolished and replaced by a joint underwriting
authority. Other states have enacted or are considering similar reforms.
Workers' compensation reform, together with the effects of competition and
other factors, has led to reduced premiums in many states. This has reduced the
appeal of alternative market products such as those offered by us. This is
apparent in California where workers' compensation rates have declined by more
than 50% since mid-1993 while benefit levels have increased. This will
inevitably lead to significant losses for those traditional carriers who are
writing this business. A number of these carriers have recently filed for
significant rate increases.

  The Legion Companies are permitted to pay dividends only from statutory
earned surplus. Subject to this limitation, the maximum amount of dividends
that it is able to pay in any twelve-month period will be the greater of
statutory net income in the preceding year or 10% of statutory surplus. Based
on 1999 results, the maximum dividend the Legion Companies would be permitted
to pay in 2000 is $35.0 million.

Losses and Loss Reserves

  We establish reserves for losses and loss adjustment expenses related to
claims which have been reported on the basis of the evaluations of independent
claims adjusters under the supervision of each Legion Company's claims staff.
In addition, reserves are established for losses which have occurred but have
not yet been reported and for adverse development of reserves on reported
losses by us on a quarterly basis. The estimate of claims arising for accidents
which have not yet been reported is based upon our's and the insurance
industry's experiences together with statistical information with respect to
the probable number and nature of these claims.

  Gross loss reserves of $136.0 million and $121.0 million at December 31, 1999
and 1998 have been discounted by $39.5 million and $36.2 million, respectively,
assuming interest rates of 6% for medical malpractice reserves and 4% for
excess workers' compensation reserves based on the recommended rate under
Pennsylvania law. These reserves are also discounted in our regulatory filings.
In 1993, we adopted SFAS 113 and reclassified substantially all of our net
retained medical malpractice reserves as claims deposit liabilities. On

                                       10
<PAGE>

a net basis, therefore, the only discounted reserves are those relating to the
Company's share of the excess reinsurance coverage provided in connection with
each program. This discounting reduced net loss reserves on our consolidated
balance sheets by $3.8 million and $4.7 million at December 31, 1999 and 1998,
respectively.

  Prior to 1995 loss development has been generally favorable. The adverse
development in recent years has principally been a result of losses on
terminated programs.

  The following table sets forth a reconciliation of beginning and ending
reserves for losses and loss adjustment expenses in accordance with generally
accepted accounting principles, also referred to as GAAP:

<TABLE>
<CAPTION>
                                                Year ended December 31,
                                             --------------------------------
                                                1999        1998       1997
                                             ----------  ----------  --------
                                                     (In thousands)
<S>                                          <C>         <C>         <C>
Gross reserves for losses and loss
 adjustment expenses,
 beginning of year.......................... $1,190,426  $  716,461  $419,737
Recoverable from reinsurers.................  1,079,562     630,697   350,318
                                             ----------  ----------  --------
Net reserves for losses and loss adjustment
 expenses,
 beginning of year..........................    110,864      85,764    69,419
Less: Other net reserves(1).................    (10,184)     (3,542)   (1,008)
                                             ----------  ----------  --------
                                                100,680      82,222    68,411
Provision for losses and loss adjustment
 expenses for claims occurring in:
  Current year..............................    140,574      74,476    50,301
  Prior years...............................      7,131       3,782      (444)
                                             ----------  ----------  --------
Total losses and loss adjustment expenses
 incurred...................................    147,705      78,258    49,857
                                             ----------  ----------  --------
Payments for losses and loss adjustment
 expenses for claims occurring in:
  Current year..............................    (61,697)    (15,039)  (10,850)
  Prior years...............................    (64,562)    (44,761)  (25,196)
                                             ----------  ----------  --------
Total payments..............................   (126,259)    (59,800)  (36,046)
                                             ----------  ----------  --------
Net reserves for losses and loss adjustment
 expenses, end of year......................    122,126     100,680    82,222
Other net reserves(1).......................      8,058      10,184     3,542
                                             ----------  ----------  --------
                                                130,184     110,863    85,764
                                             ----------  ----------  --------
Recoverable from reinsurers.................  1,729,936   1,079,563   630,697
                                             ----------  ----------  --------
Gross reserves for losses and loss
 adjustment expenses,
 end of year................................ $1,860,120  $1,190,426  $716,461
                                             ==========  ==========  ========
</TABLE>
--------
(1) Other reserves represent reinsurance contracts which are being run-off and
    which were written in subsidiaries other than Legion, plus reserves for
    other run-off business.

                                      11
<PAGE>

  The following table reconciles the difference between the Legion Companies'
portion of the GAAP reserves and those contained in regulatory filings made by
the Legion Companies' in accordance with statutory accounting practices, also
referred to as SAP.

                    Reconciliation of SAP and GAAP Reserves

<TABLE>
<CAPTION>
                                                  Year ended December 31,
                                               --------------------------------
                                                  1999        1998       1997
                                               ----------  ----------  --------
                                                       (in thousands)
<S>                                            <C>         <C>         <C>
Reserves for Legion losses and loss
 adjustment expenses,
 end of year SAP.............................  $  141,709  $  109,506  $114,211
Gross-up for ceded reinsurance reserves......   1,728,988   1,077,349   629,227
Provision for reinsurance uncollectible on a
 GAAP basis reported as a provision for
 unauthorized reinsurance on a SAP basis.....         --          302       924
Reclassification of loss reserves to claims
 deposit liabilities.........................     (13,853)    (19,163)  (29,011)
Reclassification of retroactive reinsurance
 reserve to receivable from affiliate........       2,777       8,598       --
Elimination of statutory increase in assigned
 risk reserves...............................     (15,000)    (15,000)  (15,000)
Reserves for audit premium estimates not
 included on SAP basis.......................       4,260       2,745       730
                                               ----------  ----------  --------
Reserves for Legion losses and loss
 adjustment expenses.........................   1,840,361   1,164,337   701,081
Other non-US Reserves........................      11,567      13,813    10,489
                                               ----------  ----------  --------
Liabilities for unpaid losses and loss
 adjustment expenses.........................   1,851,928   1,178,150   711,570
Reserves on run-off business.................       8,192      12,276     4,891
                                               ----------  ----------  --------
Total Reserves for Losses and Loss adjustment
 expenses,
 end of year GAAP............................  $1,860,120  $1,190,426  $716,461
                                               ==========  ==========  ========
</TABLE>

  The following table presents the development of the Company's ongoing net
reserves for 1989 through 1999. The top line of the table shows the estimated
reserve for unpaid losses and loss adjustment expenses recorded at the balance
sheet date for each of the indicated years. This amount represents the
estimated amount of losses and loss adjustment expenses for claims that are
unpaid at the balance sheet date, including losses that have been incurred but
not yet reported to the Company. The table also shows the re-estimated amount
of the previously recorded reserve based on experience as of the end of each
succeeding year. The estimate changes as more information becomes known about
the frequency and severity of claims for individual years. The "cumulative
redundancy (deficiency)" represents the aggregate change in the estimates over
all prior years. It should be noted that the following table presents a "run-
off" of balance sheet reserves, rather than accident or policy year loss
development. Therefore, each amount in the table includes the effects of
changes in reserves for all prior years.

                                      12
<PAGE>

                 ANALYSIS OF LOSS AND LOSS EXPENSE DEVELOPMENT
                       (Net of Reinsurance Recoverable)

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                  ---------------------------------------------------------------------------------------------------------------
                   1989     1990      1991      1992      1993      1994      1995      1996      1997        1998        1999
                  -------  -------  --------  --------  --------  --------  --------  --------  ---------  ----------  ----------
                                                             (In thousands)
<S>               <C>      <C>      <C>       <C>       <C>       <C>       <C>       <C>       <C>        <C>         <C>
Gross reserve
 for losses and
 loss adjustment
 expenses (1)     $43,339  $88,437  $142,605  $191,775  $205,272  $242,189  $315,689  $419,737  $ 716,461  $1,190,426  $1,860,120
Reinsurance
 reserves         (22,221) (52,321)  (89,295) (113,075) (148,637) (178,002) (256,678) (350,318) (630,697)  (1,079,562) (1,729,936)
                  -------  -------  --------  --------  --------  --------  --------  --------  ---------  ----------  ----------
Net reserve for
 losses and loss
 adjustment
 expenses          21,118   36,116    53,310    78,700    56,635    64,187    59,011    69,419     85,764     110,864     130,184
Other reserves
 (3)               (2,540)  (1,357)   (1,464)   (1,531)   (1,118)   (1,006)   (1,008)   (1,008)    (3,542)    (10,184)     (8,058)
                  -------  -------  --------  --------  --------  --------  --------  --------  ---------  ----------  ----------
                   18,578   34,759    51,846    77,169    55,517    63,181    58,003    68,411     82,222     100,680     122,126
Reclassification
 of reserves to
 claim deposit
 liabilities (2)  (12,560) (20,796)  (28,322)  (36,078)      --        --        --        --         --          --          --
                  -------  -------  --------  --------  --------  --------  --------  --------  ---------  ----------  ----------
Reserve for
 losses and loss
 adjustment
 expenses
 restated for
 the effects of
 SFAS 113 :         6,018   13,963    23,524    41,091    55,517    63,181    58,003    68,411     82,222     100,680     122,126
Reserve re-
 estimated as of
 :
One year later     20,220   35,453    53,193    40,443    55,131    60,917    54,982    67,966     86,002     107,811
Two years later    20,476   34,953    24,269    41,433    52,381    56,767    54,328    70,502     91,809
Three years
 later             20,434   13,131    23,298    39,351    47,657    56,291    56,576    74,294
Four years later    6,328   12,132    22,010    36,330    47,740    57,760    59,198
Five years later    6,397   12,268    20,390    36,424    48,162    60,762
Six years later     5,993   10,649    20,500    36,652    51,532
Seven years
 later              4,737   10,700    20,689    37,515
Eight years
 later              4,768   10,750    23,472
Nine years later    4,672   10,757
Ten years later     4,522
Cumulative
 Redundancy
 (Deficiency)       1,496    3,206        52     3,576     3,985     2,419    (1,195)   (5,883)    (9,587)     (7,131)
Percentage             25%      23%       0%        9%        7%        4%       -2%       -9%        -12%        -7%

Reserve for Losses
and Loss Adjustment
Expenses without
the effect of
Discounting :
Discounted
 reserve          $18,578  $34,759  $ 51,846  $ 77,169  $ 55,517  $ 63,181  $ 58,003  $ 68,411  $  82,222  $  100,680  $  122,126
Total Discount      4,144    6,091     8,345    10,785     1,387     2,905     3,291     3,547      3,671       4,667       3,745
                  -------  -------  --------  --------  --------  --------  --------  --------  ---------  ----------  ----------
Ultimate Reserve
 Liability         22,722   40,850    60,191    87,954    56,904    66,086    61,294    71,958     85,893     105,347     125,871
Reclassification
 of reserves to
 claim deposit
 liabilities (2)  (16,704) (26,889)  (36,667)  (46,862)      --        --        --        --         --          --          --
                  -------  -------  --------  --------  --------  --------  --------  --------  ---------  ----------  ----------
Ultimate reserve
 liability
 restated for
 the effects of
 SFAS 113           6,018   13,961    23,524    41,092    56,904    66,086    61,294    71,958     85,893     105,347     125,871
Reserve re-
 estimated as of
 :
One year later     23,493   41,084    60,820    40,443    56,272    63,480    57,866    71,008     89,347     111,972
Two years later    23,760   39,668    24,269    41,433    53,410    59,186    57,097    73,790     95,584
Three years
 later             23,025   13,131    23,298    39,351    48,499    58,558    59,456    77,490
Four years later    6,328   12,132    22,010    36,330    48,400    60,096    61,943
Five years later    6,397   12,268    20,390    36,424    48,854    62,919
Six years later     5,993   10,649    20,500    36,652    52,031
Seven years
 later              4,737   10,700    20,689    37,515
Eight years
 later              4,768   10,750    23,472
Nine years later    4,672   10,757
Ten years later     4,522
Cumulative
 Redundancy
 (Deficiency)
 without
 discount effect    1,346    3,211     2,835     4,440     8,050     5,990     1,838    (1,832)    (3,454)     (6,625)
Percentage             22%      23%       12%       11%       14%       9%        3%       -3%        -4%         -6%
Cumulative
 Amount of
 Reserve Paid
 through :
One year later    $ 1,768  $ 4,705  $  9,647  $ 15,972  $ 17,909  $ 19,720  $ 10,955  $ 25,196  $  44,761  $   65,931
Two years later     2,590    4,986    13,158    21,121    25,306    21,054    22,422    43,068     62,781
Three years
 later              3,541    6,077    15,104    24,991    27,134    28,547    31,925    49,571
Four years later    3,857    6,859    16,897    25,510    31,972    34,398    41,684
Five years later    4,093    7,533    17,311    28,110    35,967    45,706
Six years later     4,322    7,381    17,943    30,793    41,392
Seven years
 later              3,842    7,484    19,494    33,432
Eight years
 later              3,662    8,304    20,920
Nine years later    4,010    8,845
Ten years later     4,279

</TABLE>

(1) Medical malpractice reserves have been discounted at 8.25% in 1989 and
    1990, and 6% in 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998 and 1999.
(2) The re-classification of reserves to claims deposit liablilties is a
    result of the adoption of SFAS 113.
(3) Other reserves represent reinsurance contracts which are being run-off and
    which were written in subsidiaries other than Legion, plus reserves on
    other run-off business.

                                       13
<PAGE>

Investments and Investment Results

  For a complete description of our investments and investment results, see
note 5 to the consolidated financial statements.

Risk Factors

  You should carefully consider the risks described below regarding us and our
common shares. The risks and uncertainties described below are not the only
ones we face. There may be additional risks and uncertainties. If any of the
following risks actually occur, our business, financial condition or results
of operations could materially be affected and the trading price of our common
shares could decline significantly.

  New insurance legislation in some states has increased competition, which
has reduced our fee revenues and made sales and renewals more difficult.

  Beginning in 1993, legislative reforms designed to reduce the cost of
workers' compensation insurance in some important workers' compensation
markets caused competition to increase significantly. This heightened level of
competition has persisted. Increased competition has lowered the premium rates
that we may charge, which has reduced our fee revenue. Increased competition
also has made sales and renewals of our programs more difficult. Workers'
compensation reform, to the extent it reduces premiums and introduces relative
stability in the traditional workers' compensation market, may reduce the
appeal of alternative market products such as those offered by us.

  If we are unable to purchase reinsurance and transfer risk to reinsurers,
our net income would be reduced or we could incur a loss.

  A significant feature of our risk management programs is the utilization of
reinsurance to transfer all or a portion of risk not retained by the insured.
The availability and cost of reinsurance is subject to market conditions,
which are outside of our control. As a result, we may not be able to
successfully purchase reinsurance and transfer risk through reinsurance
arrangements. A lack of available reinsurance would adversely affect the
marketing of our programs and force us to retain all or a part of the risk
that cannot be reinsured. If we were required to retain these risks and
ultimately pay claims with respect to these risks, our net income would be
reduced or we could incur a loss. In addition, we are subject to credit risk
with respect to our reinsurers because the transfer of risk to a reinsurer
does not relieve us of our liability to the insured. The failure of a
reinsurer to honor its obligations would reduce our net income or could cause
us to incur a loss.

  If the issuers of letters of credit and clients fail to honor their
obligations, our net income would be reduced or we could incur a loss.

  Each of our clients chooses a level of risk retention, which is reinsured
either by one of our foreign reinsurance subsidiaries or by the client's
captive insurance company. Letters of credit generally also supports this
retention. In addition, we rely extensively on letters of credit issued or
confirmed by a bank in order to secure a portion of the client's obligation to
reimburse us for losses on a program. The failure of a bank to honor its
letter of credit or the inability of a client to honor its uncollateralized
reimbursement obligation would reduce our net income or could cause us to
incur a loss.

  If tax laws prevent our IPC Program participants from deducting premiums
paid to us, we would be unable to competitively market this program.

  The tax treatment of the IPC Program is not clear and varies significantly
with the circumstances of each IPC Program participant. However, some
participants deduct the premiums paid to us for federal income tax purposes. A
determination that a significant portion of the IPC Program participants are
not entitled to deduct the premiums paid to us, without a similar
determination as to competing products, would adversely affect the
marketability of the IPC Program.

                                      14
<PAGE>

  If our loss reserves are inadequate to meet our actual losses, our net
income would be reduced or we could incur a loss.

  We are required to maintain reserves to cover our estimated ultimate
liability losses and loss adjustment expenses for both reported and unreported
claims incurred. These reserves are only estimates of what we think the
settlement and administration of claims will cost based on facts and
circumstances then known to us. Because of the uncertainties that surround
estimating loss reserves and loss adjustment expenses, we cannot be certain
that ultimate losses will not exceed these estimates of loss and loss
adjustment reserves. If our reserves are insufficient to cover our actual
losses and loss adjustment expenses, we would have to increase our reserves
and our net income would be reduced or we could incur a loss.

  Insurance laws and regulations restrict our ability to operate.

  We are subject to extensive regulation under state and foreign insurance
laws. These laws limit the amount of dividends that can be paid by our
operating subsidiaries, impose restrictions on the amount and type of
investments that they can hold, prescribe solvency standards that must be met
and maintained by them and require them to maintain reserves. These laws also
require disclosure of material transactions by MRM and require prior approval
of certain "extraordinary" transactions. These "extraordinary" transactions
include declaring dividends that exceed statutory maximums from operating
subsidiaries to MRM or purchases of an operating subsidiary's capital stock.
These laws also generally require approval of changes of control. Our failure
to comply with these laws could subject us to fines and penalties and restrict
us from conducting business. The application of these laws could affect our
liquidity and could restrict our ability to expand our business operations
through acquisitions involving our insurance subsidiaries.

  Our investment objectives may not be realized.

  The success of our investment objectives is affected by general economic
conditions that are outside of our control. General economic conditions can
adversely affect the markets for interest-rate-sensitive securities, including
the extent and timing of investor participation in those markets, the level
and volatility of interest rates and, consequently, the value of fixed income
securities. We may not be able to realize our investment objectives, which
could reduce our net income or cause us to incur a loss.

  Our industry is highly competitive and we may not be able to compete
successfully in the future.

  Our industry is highly competitive and has experienced severe price
competition over the last several years. We compete in the United States and
international markets with domestic and international insurance companies.
Some of these competitors have greater financial resources than we do, have
been operating for longer than we have and have established long-term and
continuing business relationships throughout the industry, which can be a
significant competitive advantage. In addition, we expect to face further
competition in the future. We may not be able to compete successfully in the
future.

  We are dependent on our key personnel.

  Our success has been, and will continue to be, dependent on our ability to
retain the services of our existing key executive officers and to attract and
retain additional qualified personnel in the future. The loss of the services
of any of our key executive officers or the inability to hire and retain other
highly qualified personnel in the future could adversely affect our ability to
conduct our business.

  If U.S. tax law changes, our net income may be reduced.

  Certain members of Congress have recently expressed concern over an alleged
competitive advantage that foreign-controlled insurers and reinsurers may have
over U.S.-controlled insurers and reinsurers due to the purchase of
reinsurance by U.S. insurers from affiliates operating in certain foreign
jurisdictions, including Bermuda. In this connection, it is possible that
legislation will be proposed which would increase the U.S. tax

                                      15
<PAGE>

burden on such transactions. No prediction can be made as to whether such
legislation will ever be enacted into law. Were such legislation to be
implemented, the U.S. tax burden on any business ceded from our licensed U.S.
insurance subsidiaries to certain offshore reinsurers could be increased which
could adversely affect our net income.

ITEM 2. PROPERTIES

  We and our subsidiaries operate out of leased premises, the most significant
of which are in Philadelphia and Bermuda.

ITEM 3. LEGAL PROCEEDINGS

  At December 31st 1999, the Company was engaged in three separate arbitration
proceedings against reinsurers who have withheld payment under reinsurance
agreements with Legion. These proceedings are being conducted in accordance
with the arbitration provisions contained in the relevant reinsurance
agreements and will be held before arbitration panels in Philadelphia. At
December 31st, 1999, the amount currently owing from these reinsurers for paid
losses was approximately $6 million although this amount will increase if the
reinsurers continue to withhold payment of reinsurance recoveries on future
paid losses. These arbitrations are in the preliminary stages and, to date,
none of the reinsurers has produced any evidence that causes the Company to
believe it will not recover all amounts owing to it under the relevant
agreements.

  In 1997 The United States Internal Revenue Service (the "IRS") commenced an
examination of the Company's calculation of "Related Party Insurance Income"
("RPII") for 1993 and 1994. We calculate RPII on behalf of certain of our
clients participating in its Insurance Profit Center Program in order to
provide those clients with information used in preparing their United States
income tax returns. We believe that our calculation of RPII was materially
correct in both years. As a part of this examination, the IRS also questioned
whether certain clients of the Insurance Profit Center Program properly
deducted all or a portion of the premium paid in connection with their
program. We believe that the IRS has completed its examination. No adjustments
were required as a result of the examination either to the Company's RPII
calculations or generally to client's tax returns with regard to the
deductibility of premiums paid to the IPC Program.

ITEM 4. SUBMISSION OF MATTERS TO SECURITY HOLDERS

  None


                                      16
<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<CAPTION>
                             Officer                 Principal Occupation
   Name                  Age  Since                  & Business Experience
   ----                  --- -------                 ---------------------
<S>                      <C> <C>     <C>
Robert A. Mulderig......  47  1982   Chief Executive Officer of MRM since 1982; Chairman
                                     of Legion Insurance Co.; Director of The Galtney
                                     Group, Inc., and The Bank of N.T. Butterfield & Sons
                                     Ltd. Also serves as a director or officer of a
                                     number of unaffiliated captive insurance companies
                                     to which we provide management services.

John Kessock, Jr. ......  51  1979   President of the MRM, Mutual Group Ltd. and Legion
                                     Insurance; primarily responsible for marketing the
                                     Company's programs since 1979; Chairman of
                                     Commonwealth Risk Services L.P. and the IPC
                                     Companies. Director of Ward North America, Inc.

Richard G. Turner.......  49  1984   Executive Vice President of MRM; President of CRS
                                     since 1984; Vice President of Marketpac
                                     International, a subsidiary of American
                                     International Group, from 1979 to 1984. Director of
                                     Colonial Penn Insurance Company,

Glenn R. Partridge......  46  1983   Executive Vice President of MRM; Senior Vice
                                     President of Legion Insurance; primarily responsible
                                     for Legion Insurance's underwriting function since
                                     1987; Vice President of CRS from 1983 to 1987.

James C. Kelly..........  45  1985   Senior Vice President and Chief Financial Officer of
                                     MRM; Vice President and Chief Financial Officer
                                     since March 1991; Vice President & Controller since
                                     1985.

Paul D. Watson..........  41  1986   Senior Vice President and Chief Operating Officer of
                                     MRM; Vice President of MRM since March 1991;
                                     President of the IPC Companies from July 1992 until
                                     December 1998; held various management and
                                     accounting positions since joining MRM in 1986.

Richard E. O'Brien......  42  1995   Senior Vice President and General Counsel of MRM
                                     since March 1995. Prior thereto partner in the law
                                     firm of Dunnington, Bartholow & Miller, New York.
</TABLE>

  All Executive Officers are appointed by MRM's Board of Directors and serve
until the next annual general meeting of the shareholders or until their
successors are appointed.

Section 16 (a) Beneficial Ownership Reporting Compliance

  Section 16 (a) of the Exchange Act requires our directors and executive
officers, and persons who own more than ten percent of a registered class of
our equity securities, to file with the United States Securities and Exchange
Commission, also known as the SEC, initial reports of ownership and reports of
changes in ownership of Common Stock and other of our equity securities .
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish us with copies of all Section 16(a) forms they file.

  To our knowledge, based solely on review of the copies of the reports
furnished to us and written representations that no other reports were
required, during the year ended December 31, 1999, all Section 16(a) filing
requirements applicable to our officers, directors and greater than ten-
percent beneficial owners were complied with, except that Mrs. Patrick filed a
Form 4 late with respect to the sale of common stock, and Mr. Galtney filed a
Form 4 late with respect to the purchase of common stock.

                                      17
<PAGE>

                                    PART II

ITEM 5. MARKET FOR COMMON SHARES AND RELATED STOCKHOLDER MATTERS

  Our common shares have been listed on the New York Stock Exchange under the
symbol MM since June 25, 1991. Our common shares were listed in connection
with our initial public offering completed in July 1991. There were 411
holders of record of our common shares as of February 25, 2000.

  The following table sets forth the high and low closing sale prices for the
shares during 1998 and 1999 for the calendar quarters indicated as reported by
the New York Stock Exchange Composite Tape.

<TABLE>
<CAPTION>
                                                                  High     Low
                                                                -------- -------
   <S>                                                          <C>      <C>
   Year Ended December 31, 1998
     First Quarter............................................. 34 7/16  28 3/16
     Second Quarter............................................ 36       31 1/2
     Third Quarter............................................. 38 15/16 30
     Fourth Quarter............................................ 39 7/8   27 1/2

   Year Ended December 31, 1999
     First Quarter............................................. 42 5/8   32 7/8
     Second Quarter............................................ 40 3/8   33 3/8
     Third Quarter............................................. 35       12 1/4
     Fourth Quarter............................................ 16 15/16 10 3/8

   Year Ended December 31, 2000
     First Quarter (through March 17, 2000).................... 17       12 5/8
</TABLE>

  The last reported closing price per share of our common shares on the New
York Stock Exchange Composite Tape on March 17, 2000 was $15 1/16.

  During 1999 and 1998 we paid dividends of $.25 and $.21 per common share,
respectively. Dividends are paid quarterly.

  Our ability to pay dividends is restricted due to certain insurance
regulations. See "Management's Discussion and Analysis of Financial Conditions
and Results of Operations" and Note 12 to the consolidated financial
statements.

                                      18
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

INCOME STATEMENT DATA:

<TABLE>
<CAPTION>
                                         Year Ended December 31,
                          ------------------------------------------------------
                             1999     1998(3)    1997(3)    1996(3)    1995(3)
                          ---------- ---------- ---------- ---------- ----------
                                 (In thousands, except per share amounts)
<S>                       <C>        <C>        <C>        <C>        <C>
Revenues................  $  387,626 $  287,914 $  230,498 $  171,426 $  138,659
                          ---------- ---------- ---------- ---------- ----------
Income before income
 taxes and minority
 interest...............      50,307     72,970     60,109     46,465     40,368
                          ---------- ---------- ---------- ---------- ----------
Income before minority
 interest...............      50,672     64,434     49,477     38,322     31,502
                          ---------- ---------- ---------- ---------- ----------
Income before
 extraordinary loss.....      50,620     64,527     49,477     38,067     31,027
                          ---------- ---------- ---------- ---------- ----------
Net income..............      50,438     64,527     49,477     38,067     31,027
                          ---------- ---------- ---------- ---------- ----------
Net income available to
 common shareholders....      50,438     64,527     49,372     37,900     30,837
                          ---------- ---------- ---------- ---------- ----------
Net income available to
 common shareholders
 --Basic................  $     1.18 $     1.56 $     1.25 $       99 $      .82
 --Diluted..............  $     1.14 $     1.42 $     1.15 $      .93 $      .79
                          ---------- ---------- ---------- ---------- ----------
Weighted average number
 of common shares
 outstanding(1)
 --Basic................      42,797     41,275     39,379     38,369     37,442
 --Diluted..............      49,607     50,233     48,785     47,281     40,313
                          ---------- ---------- ---------- ---------- ----------
Dividends per common
 share..................  $      .25 $      .21 $      .19 $      .16 $      .13
                          ---------- ---------- ---------- ---------- ----------

BALANCE SHEET DATA:

<CAPTION>
                                            As at December 31,
                          ------------------------------------------------------
                             1999     1998(3)    1997(3)    1996(3)    1995(3)
                          ---------- ---------- ---------- ---------- ----------
                                              (In thousands)
<S>                       <C>        <C>        <C>        <C>        <C>
Total assets............  $4,033,174 $3,074,257 $2,206,050 $1,690,428 $1,425,411
                          ---------- ---------- ---------- ---------- ----------
Reserve for losses and
 loss expenses..........   1,860,120  1,190,426    716,461    419,737    315,689
                          ---------- ---------- ---------- ---------- ----------
Debt(2).................     227,898    125,485    128,711    122,211    116,039
                          ---------- ---------- ---------- ---------- ----------
Redeemable preferred and
 common shares..........         --         --       1,929      4,462      4,026
                          ---------- ---------- ---------- ---------- ----------
Shareholders' equity....     358,144    343,166    263,575    211,343    169,207
                          ---------- ---------- ---------- ---------- ----------
</TABLE>
--------
(1) See Note 14 of Notes to Consolidated Financial Statements for an
    explanation of the method used to determine the number of shares used to
    compute per share amounts.
(2) See Note 6 and 7 of Notes to Consolidated Financial Statements.
(3) All prior period results have been restated to reflect the pooling of
    interests following the acquisition of Captive Resources, Inc.

                                      19
<PAGE>

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

Management's Discussion and Analysis of Financial Condition and Results of
Operations

CONSOLIDATED RESULTS OF OPERATIONS

For the Years Ended December 31, 1999, 1998 and 1997

  Consolidated Net income decreased by 22% to $50.4 million in 1999 from $64.5
million in 1998 which was in turn a 30% increase over the $49.5 million earned
in 1997. The decline in earnings in 1999 is due to slower growth in the
Program Business segment and a decline in Corporate Risk Management offset, in
part, by growth in Specialty Brokerage and Financial Services. 1999 earnings
were also adversely affected by the third quarter provisions related to net
losses incurred on terminated programs of $8 million, net of tax. The increase
in 1998 earnings was primarily attributable to the growth experienced in the
Program Business and Financial Services segments.

  All prior period results have been restated to reflect a pooling of
interests following the acquisition of Captive Resources, Inc.

  Set forth in Table I is an analysis of the components of the Company's
revenues for each of the last three years.

                               TABLE I--REVENUES
                                (In thousands)

<TABLE>
<CAPTION>
                                             Year Ended December 31,
                                     ------------------------------------------
                                       1999    Growth   1998    Growth   1997
                                     --------  ------ --------  ------ --------
<S>                                  <C>       <C>    <C>       <C>    <C>
Fee income.......................... $177,711     13% $157,271    30%  $121,258
Premiums earned.....................  181,798     78   101,913    21     84,200
Net investment income...............   33,616     14    29,590    11     26,592
Realized capital losses.............   (5,199)   418    (1,003)  (38)    (1,608)
Other income........................     (300)  (310)      143   155         56
                                     --------         --------         --------
    Total........................... $387,626     35% $287,914    25%  $230,498
                                     ========         ========         ========
</TABLE>

  The growth of Fee income and Premiums earned over the past three years has
been primarily due to the strong growth in Program Business, which has
compensated for the decline in Corporate Risk Management business.

  Overall, pre-tax profit margins on Fee income fell in 1999 to 28% compared
to 35% in 1998 and 37% in 1997.

                               SEGMENT ANALYSIS

  The components of Fee income by business segment are illustrated in Table
II.

                   TABLE II--FEE INCOME BY BUSINESS SEGMENT
                                (In thousands)

<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                        ----------------------------------------
                                          1999   Growth   1998   Growth   1997
                                        -------- ------ -------- ------ --------
<S>                                     <C>      <C>    <C>      <C>    <C>
Program Business fees.................. $ 95,132   16%  $ 82,267   67%  $ 49,363
Corporate Risk
  Management fees......................   49,365   (4)    51,640   (6)    54,800
  Specialty Brokerage fees.............   13,692   52      9,021    8      8,351
  Financial Services fees..............   19,522   36     14,343   64      8,744
                                        --------        --------        --------
    Total.............................. $177,711   13%  $157,271   30%  $121,258
                                        ========        ========        ========
</TABLE>


                                      20
<PAGE>

Program Business

  Program Business involves replacing traditional insurers and acting as the
conduit between producers of specialty books of business and reinsurers wishing
to write that business. Program Business accounted for 53% of total Fees for
1999 compared to 52% in 1998 and 41% in 1997. This growth has resulted from the
continued expansion of this business as a result of reinsurers' increased
appetite for premium volume in the current soft market. Fees earned on
individual Program accounts are more likely to grow compared to Corporate
accounts because new policy holders are constantly being added in each program.
Program Business also has historically had a higher retention rate than
Corporate Risk Management. Pre-tax margins in this segment were 28% for 1999
compared to 40% in 1998 and 39% in 1997. The second half of 1999 saw a decline
in the growth rate and margins in this segment as a result of a decline in
premium rates, especially at the Company's underwriting management subsidiary,
Small Business Underwriters.

Corporate Risk Management

  Corporate Risk Management, the Company's original business segment, involves
providing services to businesses and associations seeking to insure a portion
of their risk in a loss sensitive Alternative Market structure. This segment,
which accounted for 28% of total Fee income for 1999 compared to 33% in 1998
and 45% in 1997, has been the most affected by the extremely soft insurance
market cycle for commercial risks. Corporate Risk Management Fees decreased in
both 1998 and 1999 due to these soft market conditions. The number of Corporate
Risk Management accounts decreased in 1999 to 103 from 118 in 1998 which was in
turn down from 154 in 1997. Profit margins fell in 1999 to 32% compared to 39%
in 1998 and 37% in 1997. The 1999 profit margin was negatively impacted by the
decrease in Fees on Program Business because certain Operating expenses are not
separately identified by segment, but rather are apportioned by Fee income.

  Historically, workers' compensation has been the major line of business
written by the Company in both its Corporate Risk and Program Business
segments. Generally, competition for workers' compensation business has
increased in recent years and the resulting under-pricing of workers'
compensation risks by traditional insurers has reduced the incentive for
insureds to enter "Alternative Market" vehicles such as those offered by the
Company in its Corporate Risk Management segment. However, the Company is
beginning to see price increases in a number of lines, particularly in
California workers' compensation and in accident and health across the U.S.,
resulting in increased submission activity.

  Despite these competitive forces, the Company was successful in increasing
its business as a result of the attractiveness of Program Business in this soft
reinsurance market. The Company continued to diversify its business to reduce
its reliance on the workers' compensation market and was successful in doing
so. As a percentage of Total Fee income, workers' compensation accounts
decreased from over 80% at December 31, 1994 to 53% at December 31, 1999 as a
result of the Company writing accounts comprising other lines of coverage such
as accident and health, commercial, auto liability, auto physical damage and
other liability coverages as well as the expansion of the Company's Financial
Services segment.

Specialty Brokerage

  The Company's Specialty Brokerage business segment provides access to
Alternative Risk Transfer insurers and reinsurers in Bermuda and Europe. Fees
in this segment grew by 52% in the year as a result of increased business
placed in Bermuda and London. Profit margins improved to 38% from 25% in 1998
and 31% in 1997 primarily as a result of the increased revenues.

Financial Services

  Financial Services, the Company's newest business segment, provides
administrative services to offshore mutual funds and other companies. This
segment also includes the Company's family of proprietary mutual funds as well
as asset accumulation life insurance products for the high net worth market.
Financial Services accounted for 11% of total Fee income for 1999, up from 9%
for 1998 and 7% in 1997. Fees from Financial Services

                                       21
<PAGE>

increased primarily as a result of an increase in the number of mutual funds
under management from 129 in 1997 and 195 in 1998, to 279 in 1999. Profit
margins decreased from 26% in 1997 to 4% in 1998, and improved to 7% in 1999.
Margins in the Financial Services segment were adversely affected in both 1998
and 1999 by the previously announced revised Executive Incentive Plan
implemented in 1998. The effect of this revised Executive Incentive Plan will
continue through 2000. Excluding the effect of the revised Executive Incentive
Plan, the profit margins in this segment would have been 17% and 18% for the
years ended December 31, 1999 and 1998 respectively.

UNDERWRITING

  The Company generally requires each Corporate Risk Management client to
indemnify it against an underwriting loss and the client normally provides
collateral for at least the difference between the funds available in that
client's account and the level of expected losses as actuarially determined by
the Company, although in certain circumstances the collateral level is below
the level of expected losses. This is also the case for Program Business
clients who participate in the IPC Programs. For Program Business clients that
do not participate in the IPC Programs, reinsurance protection is purchased by
the Company to minimize its underwriting risk.

  The Company faces a credit exposure in the event that losses exceed their
expected level and the client is unable or unwilling to honor its indemnity to
the Company. The Company also faces credit exposure on both Program and
Corporate Risk Business if its clients or brokers fail to pay the premium due,
through failure of the program manager or broker to properly administer the
program and through failure of reinsurers to honor their obligations. Lastly,
the Company is exposed to underwriting risk if losses incurred under programs
exceed their reinsurance limits or where there is a gap in purchased
reinsurance cover.

  The Company has established provisions for losses as a result of these
exposures for certain clients.These provisions, which totaled $18.0 million at
December 31, 1999, $7.3 million in 1998 and $5.6 million in 1997, reduced the
level of Fee income in each year by $3.1 million, $.9 million and $1.1 million
respectively. These provisions also adversely impacted the underwriting
results in each year by $7.6 million, $.8 million and $0 in 1999, 1998, and
1997 due to programs where losses exceeded reinsurance limits and uncollected
premiums. The increase in provisions from 1998 to 1999 relates primarily to
provisions established in the third quarter on a number of terminated
programs. The 1999 provisions are net of a reinsurance recovery of $14.7
million under a contingency excess of loss policy. The increase in the number
of accounts and their inherent growth in premium volume, the increase in the
clients' aggregate retentions since 1991, the amounts recoverable from
reinsurers, which amounted to $2.0 billion at December 31, 1999 and $1.3
billion at December 31, 1998, in addition to competitive factors which have
limited the amount of collateral that clients are willing to provide, have
significantly increased the Company's exposure to such losses. The Company
evaluates the financial condition of its clients, brokers and reinsurers to
minimize its exposure to losses from insolvencies.

  During 1999, the Company initiated binding arbitration proceedings for the
payment of reinsurance recoverables from a number of reinsurers who have
withheld payment due to the Company. The amounts due to the Company relate
primarily to reinsurance on workers' compensation coverage. The Company
believes it will ultimately prevail in such arbitrations and any related
actions that may arise.

  Premiums earned increased by 78% in 1999, 21% in 1998 and 49% in 1997. These
increases are attributable to the shift in business from the Corporate Risk
Management segment to the Program Business segment and the strong growth
within this segment. Program Business usually involves higher premiums than
business derived from the Corporate Risk Management segment due to new
policies constantly being added by agents. Premiums earned represent the net
premiums retained by the Company on which it bears underwriting risk. The
Company believes that both the volatility of underwriting profit or loss and
the probability of experiencing a severe underwriting loss are less than would
ordinarily be expected for a traditional property/casualty insurer, due to the
nature of the business written by the Company and the structure of its
reinsurance. In the past, the level of Premiums earned has been closely
matched by the level of Total insurance costs, resulting in small amounts of
underwriting loss as a percentage of Premiums earned. However, in 1999, Losses
incurred under certain

                                      22
<PAGE>

programs exceeded their reinsurance limits and caused underwriting losses to
be higher than historical levels. The fact that Premiums earned have
historically matched Total insurance costs means that even a significant
fluctuation in Premiums earned should have a relatively insignificant impact
on the Company's Net income.

  Included in Premiums earned are assigned risk premiums of $1.8 million in
1999 as compared to $2.5 million in 1998 and $8.4 million in 1997. The
underwriting losses associated with these assigned risk premiums, together
with other charges imposed by certain states on voluntary insurers such as
Legion to support involuntary market losses ("residual market loads"), are
passed on by Legion to clients' accounts.

  Other than the risks described above, the Company's principal exposure to
underwriting loss exists in relation to the premium associated with the
Company's retention of a portion of the specific and aggregate excess risk on
each client's account. On this retained excess risk the Company may experience
volatility in underwriting results. The portion of the Company's Premiums
earned which relate to this risk was $4.1 million in 1999 as compared to $2.1
million in 1998 and $2.2 million in 1997, representing 2%, 2%, and 3% of
Premiums earned in 1999, 1998 and 1997 respectively. The Company incurred an
underwriting loss of $17.5 million in 1999, $2.4 million in 1998 and $1.5
million in 1997. The large loss in 1999 was principally due to the provisions
on terminated programs described above. These underwriting losses were also a
result of retained risk on the Company's treaties and underwriting expenses.
The Company takes 100% of the risk within the first $1.25 million layer of the
aggregate excess exposure on its main treaty up to a deductible amount equal
to 1.5% of the Company's gross premiums (as defined) and 10% of the risk over
a loss ratio of 120%, in the event that the loss ratio for the first layer
exceeds 120%. The Company takes no share of the risk in the layer $3.75
million excess of $1.25 million per account. The maximum retention for
specific excess losses is 10% of $.75 million excess of $.25 million per
occurrence.

INVESTMENT INCOME

  Gross investment income increased by $.8 million in 1999 to $35.9 from $35.1
million in 1998 and $30.0 million in 1997 as a result of increases in gross
invested assets. Net investment income, after adjusting for investment income
which is payable to others, increased by 14% to $33.6 million in 1999 from
$29.6 million in 1998 and $26.6 million in 1997. The increase in Net
investment income for 1999 is due, in part, to the inclusion of investment
income from one of the Company's programs, accounted for as Claims deposit
liabilities, which added $2.8 million for the year. Net invested assets
increased $88 million or 20% to $527 million in 1999 from $439 million in 1998
and $402 million in 1997. The yield on these assets remained steady at 6.9% in
1999 and 1998, which was up slightly from 6.7% in 1997. The Company's
investment income is produced through the investment of its capital funds,
long term debt, other funds held representing amounts due others and reserves
held by the Company for unearned premiums and unpaid losses.

  The breakdown of expenses for each of 1999, 1998 and 1997 is set forth in
Table III.

TABLE III--EXPENSES
                                (In thousands)

<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                        ----------------------------------------
                                          1999   Growth   1998   Growth   1997
                                        -------- ------ -------- ------ --------
<S>                                     <C>      <C>    <C>      <C>    <C>
Losses incurred........................ $147,705   89%  $ 78,258   57%  $ 49,857
Acquisition costs......................   51,582   98     26,061  (27)    35,816
                                        --------        --------        --------
Total insurance costs..................  199,287   91    104,319   22     85,673
Operating expenses.....................  128,524   26    101,687   32     76,795
Interest expense.......................    6,807    0      6,819    1      6,752
Other expenses.........................    2,701   27      2,119   81      1,169
                                        --------        --------        --------
  Total................................ $337,319   57%  $214,944   26%  $170,389
                                        ========        ========        ========
</TABLE>


                                      23
<PAGE>

  The increases in Total insurance costs are typically the direct result of the
increases in Premiums earned during the relevant period. However, Total
insurance costs during 1999 exceeded the increase in Premiums earned. During
the year, the Company established a provision related to net losses incurred on
a number of terminated programs of $8 million net of tax. This resulted in a
$12.3 million increase in Losses and loss expenses incurred offset by a $4.3
million reduction in Income taxes. Losses incurred also increased as a direct
result of the decreased use of large deductible policies and the increase in
Program Business. The 27% decrease in Acquisition costs from 1997 to 1998 is
due to the reduction in the number of deductible programs, which have high
expense levels; the loss of one large account that was fully retained; and
reduction in expenses charged by the assigned risk pools.

  The primary factors responsible for the increases in Operating expenses were:
(a) the increased cost of administering the Company's highly regulated policy-
issuing subsidiaries, as the volume of policies issued increased; (b) increased
personnel costs in all areas, caused by an increase in the number of full time
employees from 743 in 1997 to 934 in 1998 to 1,143 in 1999, resulting from the
growth of the Company's businesses as well as the impact of the Company's
growth in revenues and profits on employee bonus plans; and (c) the
acquisitions of SBU, Hugo Trust, Avreco, Capital Management and the Hemisphere
expansions to Boston and Ireland.

  The charges for Income taxes represent effective tax rates of 17.6%, 11.7%
and (.7)% in 1997 through 1999 respectively. The reduced tax rate in 1998 and
1999 is due to increased earnings outside of the United States. The tax rate in
1999 was reduced further by the provisions on terminated programs. These
factors, plus interest earned on tax-fee municipal securities and the tax
benefit derived from the exercise of employee stock options, are the major
causes of the difference between the expected federal income tax rate in the
United States of 35% plus state income taxes and the Company's effective rates
in the year. The Legion Companies, as insurance companies in the United States,
are subject to income tax on an accelerated basis and, as a result, a deferred
tax benefit was carried on the Consolidated Balance Sheets of $4.2 million in
1999 and $.9 million in 1998.

                        LIQUIDITY AND CAPITAL RESOURCES

Investments

  At December 31, 1999 the market value of the Company's Total marketable
investments was $607 million, as compared to $580 million at December 31, 1998.
In accordance with SFAS 115, Investments available for sale are reported at
fair market value with unrealized gains and losses included as a separate
component of Shareholders' equity. These Investments generally consist of
investment grade fixed-income securities that the Company believes are readily
marketable and could be liquidated to meet cash requirements, if necessary.

Cash Flow

  Cash flow from operations has historically provided the Company its principal
source of liquidity. The Company has continued to produce a positive cash flow
with $20.6 million of cash provided from operations during 1999, as compared to
$62.4 million in 1998 and $56.4 million in 1997. Cash flow in 1999 was
adversely affected by delays in recovering reinsurance payments in the
Company's Program Business segment but improved in the second half of 1999 from
the first and second quarters.

  The Company recently established a $250 million bridge loan facility, $117
million of which was outstanding at December 31, 1999. The Company made an
additional contribution to the policyholders' surplus of its U.S. insurance
companies in the amount of $110 million from this facility. As of December 31,
1999, the Company had repurchased $14 million face amount of its Convertible
Exchangeable Subordinated Debentures due 2015 at a cost of $6.3 million, also
from this facility. The Company expects to refinance this bridge loan facility
with permanent financing during 2000, and recently filed an S-3 Shelf
Registration Statement with the U.S. Securities and Exchange Commission for the
future issuance of $500 million of debt and preferred securities.

                                       24
<PAGE>

  The Company believes that funds generated from operations and available
credit will be sufficient to finance its current operations and to fund the
repurchase of the remaining Convertible Exchangeable Subordinated Debentures as
well as the 2.4 million remaining Common Shares of the Company's 5.0 million
share repurchase authorization.

Insurance Operations

  At the end of 1999 and 1998, 61% and 56% of the Company's Total marketable
investments were held by the Company's policy-issuing subsidiaries in the
United States. These companies are restricted by regulation in the amount of
dividends they can pay without prior regulatory approval to $35.0 million in
2000 (based on 1999 results) and will continue to face these restrictions in
the future. During 1999 they paid a dividend of $7 million. They are also
required to maintain certain deposits with or supply letters of credit to
regulatory authorities which totaled $166 million at December 31, 1999 ($59
million of deposits and $107 million of letters of credit) as compared to $152
million at December 31, 1998 ($60 million of deposits and $92 million of
letters of credit).

  A widely accepted factor used by regulators and rating agencies in evaluating
insurance companies is the ratio of net premiums written to policyholders'
surplus which is an indication of the degree to which an insurer is leveraged.
Because of the low level of net premiums written, they have produced a
relatively low ratio on this basis of approximately 0.6:1 in 1999, 0.5:1 in
1998 and 0.4:1 in 1997 and should continue to produce relatively low ratios in
the future. Due to the nature of the Company's operations, a more appropriate
indication of leverage is the ratio of gross premiums written to policyholders'
surplus, which amounted to 3.6:1 in 1999, 3.6:1 in 1998 and 3.0:1 in 1997. The
National Association of Insurance Commissioners ("NAIC") has established that
an "unusual value" for this ratio would be 9:1 or higher. The Company has
adopted a policy that this ratio should not exceed 4:1.

  The NAIC has adopted a risk-based capital ("RBC") formula to be applied to
all property/casualty insurance companies. The formula measures capital and
surplus needs based on an insurance company's products and investment portfolio
and is to be used as a tool to identify weakly capitalized companies. An
insurance company that does not meet the threshold RBC measurement standards
could be required to reduce the scope of its operations and ultimately could
become subject to statutory receivership proceedings. At December 31, 1999 the
Company's policy-issuing subsidiaries met the RBC requirements with a combined
required risk-based capital of $121.0 million and an actual adjusted capital of
$347.4 million.

Shareholders' Equity

  Shareholders' equity increased 4% to $358 million at December 31, 1999 from
$343 million at December 31, 1998. This increase was attributable to Net income
in 1999, less dividends paid, plus the value of shares issued on the exercise
of employee stock options, and the conversion of debentures. During 1999 the
total number of Common Shares outstanding decreased to 41,205,191 from the 1998
level of 42,205,596, mainly as a result of the Company repurchase of 2.6
million shares in the fourth quarter at an average price of $11.31 per share.
This decrease in Common Shares outstanding for the year was partly offset by
the conversion of debentures and the exercise of employee stock options.

Total Assets

  Total assets increased to $4.0 billion at December 31, 1999, a 31% increase
from $3.1 billion at December 31, 1998. $693.4 million, or 17% of Total assets
in 1999 and $722.3 million, or 23%, in 1998 related to Assets held in separate
accounts. As detailed in Note 2A to the Consolidated Financial Statements, such
assets are principally managed assets attributable to participants in the
Company's IPC Programs. Total assets also increased due to the increase in
Reinsurance receivables from $1,079.6 million in 1998 to $1,729.9 million in
1999. This increase, which is largely offset by corresponding increases in the
Reserve for losses and loss expenses and Accounts payable, is due to the
greater amount of reinsurance utilized in connection with the Company's Program
Business segment.

                                       25
<PAGE>

Inflation

  The Company does not believe its operations have been materially affected by
inflation. The potential adverse impacts of inflation include: (a) a decline in
the market value of the Company's fixed maturity investment portfolio; (b) an
increase in the ultimate cost of settling claims which remain unresolved for a
significant period of time; and (c) an increase in the Company's Operating
expenses. However, the Company generally holds its fixed maturity investments
to maturity and currently believes that an acceptable amount is included in the
yield to compensate the Company for the risk of inflation. In addition, any
increase from inflation in the ultimate cost of settling unpaid claims will be
borne by the Company's clients and offset by investment income earned for the
benefit of the client during the period that the claim is outstanding. Finally,
the increase in Operating expenses resulting from inflation should generally be
matched by similar inflationary increases in the client's premium and the
Company's Fee income, which includes a fee based upon a percentage of the
client's premium.

Market Sensitive Instruments

  Market risk generally represents the risk of loss that may result from
potential change in the value of a financial instrument due to a variety of
market conditions. The Company's exposure to market risk is generally limited
to potential losses arising from changes in the level or volatility of interest
rates on market values of investment holdings and on a bridging loan. The
Company's exposure to movements in exchange rates and equity prices is limited.
The Company does not hold or issue significant derivative financial instruments
for trading or speculative purposes.

  a) Interest Rate Risk

    Interest rate risk results from the Company' holdings in interest-rate-
  sensitive instruments. The Company is exposed to potential losses arising
  from changes in the level or volatility of interest rates on fixed rate
  instruments held. The Company is also exposed to credit spread risk
  resulting from possible changes in the issuer's credit rating. To manage
  its exposure to interest rate risk the Company attempts to select
  investments with characteristics that match the characteristics of the
  related insurance and contract holder liabilities. Additionally, the
  Company generally only invests in higher-grade interest bearing
  instruments.

    The Company is also exposed to interest rate risk on the $117 million
  bridging loan, which bears interest at LIBOR plus 0.75%. $110 million of
  this facility was contributed to the U.S. insurance companies and has been
  invested in a variable rate debt instrument with matching terms and
  maturity to cover the interest cost of the bridge loan financing.

  b) Foreign Exchange Risk

    When the Company invests in non-U.S. dollar denominated financial
  instruments it is subject to exposure from exchange rate movements. This
  risk arises from the possibility that changes in foreign exchange rates
  will impact adversely upon the value of financial instruments. Due to the
  Company's limited holdings of non-U.S. dollar denominated investments,
  management does not believe the Company is exposed to a material risk from
  exchange rate movements.

  c) Equity Price Risk

    Equity price risk arises from fluctuations in the value of securities
  held. Changes in the level or volatility of equity prices affect the value
  of equity securities held by the Company. Management does not believe the
  Company is exposed to a material risk from changes in equity prices due to
  its limited investment in equity securities.

                                       26
<PAGE>

  The tables below provide information about the Company's available for sale
investments that are sensitive to changes in interest rates at December 31,
1999 and 1998 respectively. The tables present expected cash flows and related
weighted-average interest rates by expected maturity dates. Separate account
assets and liabilities are not included in this analysis as gains and losses
related to these accounts generally accrue to the program holders. There were
no material quantitative changes in market risk exposure between the current
and preceding fiscal year with respect to available for sale investments.

             YEAR ENDED DECEMBER 31, 1999--EXPECTED MATURITY DATE

<TABLE>
<CAPTION>
                                                                  Total
                         2000  2001  2002  2003  2004  Thereafter Value   Fair
                         ----- ----- ----- ----- ----- ---------- ------ ------
                          (dollars in millions, except average interest rates)
<S>                      <C>   <C>   <C>   <C>   <C>   <C>        <C>    <C>
Assets
Investments
  Available for sale.... $29.3 $40.5 $50.1 $50.3 $52.3   $137.8   $360.3 $352.3
  Average Interest
   Rate.................  5.9%  6.6%  6.3%  6.7%  7.1%     6.4%
</TABLE>

             YEAR ENDED DECEMBER 31, 1998--EXPECTED MATURITY DATE

<TABLE>
<CAPTION>
                                                                  Total
                         1999  2000  2001  2002  2003  Thereafter Value   Fair
                         ----- ----- ----- ----- ----- ---------- ------ ------
                          (dollars in millions, except average interest rates)
<S>                      <C>   <C>   <C>   <C>   <C>   <C>        <C>    <C>
Assets
Investments
  Available for sale.... $45.4 $34.6 $45.2 $50.2 $32.4   $139.1   $346.9 $352.5
  Average Interest
   Rate.................  6.6%  5.8%  6.5%  6.3%  7.1%     6.4%
</TABLE>

Impact of Year 2000

  The Company has not experienced any significant Year 2000 issues to date.
All systems identified for replacement before the Year 2000 were replaced.
Since the Company regularly updates its hardware and software, the pure
additional cost of Year 2000 compliance was not material.

  The Company has taken steps that it believes are reasonably designed to
obtain assurances that its critical customers, reinsurance intermediaries,
managing general agents, suppliers and others have addressed their Year 2000
compliance efforts. Although the change in date to Year 2000 has occurred, it
is not possible to conclude that all aspects of the Year 2000 issue that may
affect the Company relating to other third party providers have been fully
resolved. The inability of the Company's third party providers to properly
address the Year 2000 issue could have an adverse material impact on the
Company's financial position or results of operations. Management will
continue to monitor the status of and its exposure to this issue, however, the
Company has not experienced any significant Year 2000 issues to date.
Contingency plans are still in place should critical customers, reinsurance
intermediaries, managing general agents, suppliers and others fail to resolve
their own Year 2000 issues. To date, the Company has not been notified of any
Year 2000 related claims.

Acquisitions

  On March 1, 1999, the Company acquired Captive Resources, Inc., ("CRI") a
provider of services to member owned group captive insurance companies. CRI
has long-term contracts with more than 20 well established captives.

Recent Accounting Pronouncements

  In October 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-7, "Deposit Accounting: Accounting for Insurance and
Reinsurance Contracts That Do Not Transfer Insurance

                                      27
<PAGE>

Risk". The Statement provides guidance on how to account for insurance and
reinsurance contracts that do not transfer insurance risk under deposit
accounting. The Statement is effective for fiscal years beginning after June
15, 1999 with early adoption encouraged. The Company does not expect the
Statement to have a material impact on its financial position or results of
operations.

  In June 1998, the Financial Accounting Standards Board issued Statement 133,
"Accounting for Derivative Instruments and Hedging Activities" which was
amended by Statement 137 in June 1999. The Statement requires recording all
derivative instruments as assets or liabilities, measured at fair value. The
Statement is effective for fiscal years beginning after June 15, 2000. The
Company does not expect the Statement to have a material impact on its
financial position or results of operations.

Subsequent Events

  During the first quarter of 2000, the Company repurchased convertible
Debentures representing a principal amount of $222 million in the open market
at a cost of $101.3 million. The repurchased debentures were convertible into
$4.8 million Common Shares and their repurchase will result in a one-time
extraordinary loss of approximately $4.3 million, net of tax.

Safe Harbor Disclosure For Forward-Looking Statements

  In connection with the "safe harbor' provisions of the Private Securities
Litigation Reform Act of 1995 (the "Act"), the Company sets forth below
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those which might be
projected, forecasted, or estimated or otherwise implied in the Company's
forward-looking statements, as defined in the Act, made by or on behalf of the
Company in press releases, written statements or documents filed with the
Securities and Exchange Commission, or in its communications and discussions
with investors and analysts in the normal course of business through meetings,
telephone calls and conference calls. Such statements may include, but are not
limited to, projections of Fee income, Premiums earned, Net investment income,
Other income, Losses and loss expenses incurred, Acquisition costs, Operating
expenses, Other expenses, earnings (including earnings per share), cash flows,
plans for future operations, Shareholders' equity, financing needs, capital
plans, dividends, plans relating to products or services of the Company, and
estimates concerning the effects of litigation or other disputes, as well as
assumptions for any of the foregoing and are generally expressed with words
such as "believes", "estimates", "expects", "anticipates", "could have", "may
have", and similar expressions.

  Forward-looking statements are inherently subject to risks and
uncertainties. The Company cautions that factors which may cause the Company's
results to differ materially from such forward-looking statements include, but
are not limited to, the following: (a) Changes in the level of competition in
the reinsurance or primary insurance markets that adversely affect the volume
or profitability of the Company's business. These changes include, but are not
limited to, the intensification of price competition, the entry of new
competitors, existing competitors exiting the market, and the development of
new products by new and existing competitors; (b) Changes in the demand for
reinsurance, including changes in ceding companies'retentions, and changes in
the demand for primary and excess and surplus lines insurance coverages; (c)
The ability of the company to execute its business strategies and its reliance
on key personnel; (d) Adverse development on claims and claims expense
liabilities related to business and the failure of clients, reinsurers or
others to meet their obligations to the Company in connection with such
losses.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  See Item 7.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  Our consolidated financial statements for the years ended December 31, 1999,
1998 and 1997 are filed herewith in response to Item 14.


                                      28
<PAGE>

ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING DISCLOSURE

  None.

                                       29
<PAGE>

                                   PART III

ITEM 10. MANAGEMENT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  Pursuant to General Instructions G(3) of Form 10-K, Items 10 to 13,
inclusive, have not been restated or answered since we intend to file within
120 days after the close of our fiscal year with the SEC a definitive proxy
statement pursuant to Regulation 14A under the Exchange Act and the
information contained in the proxy is hereby incorporated by reference. The
information included in the proxy statement pursuant to the requirements of
Sections 402(k) and (l) of Regulation S-K is not incorporated by reference in
this annual report.

                                      30
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K

A. Exhibits

<TABLE>
<CAPTION>
 Exhibit
   No.                                Description
 -------                              -----------
 <C>     <S>
   3.1   Memorandum of Association(1)

   3.2   Bye-Laws of Registrant(4)

   3.3   Bye-Laws of IPC Mutual Holdings Ltd.(1)

   4.1   Form of Stock Certificate(1)

   4.2   Indenture dated as of October 30, 1995 relating to the Company's Zero
         Coupon Convertible Exchangeable Subordinated Debentures due 2015.(5)

  10.1   Share Purchase Agreements with Messrs. Partridge, Turner and
         Kelly(1)(3)

  10.2   Mutual Risk Management Ltd. 1988 Stock Option Plan(1)(3)

  10.3   1991 Long Term Incentive Plan(2)(3)

  10.4   Form of Director's Stock Option Grant Agreement(2)(3)

  10.5   Form of Non-Qualified Stock Option Grant Agreement(2)(3)

  10.6   Form of Shareholders Agreement relating to the IPC Program(1)

  10.7   Agreement between Mutual Risk Management (Bermuda) Ltd. and Robert A.
         Mulderig relating to Hemisphere Trust Company Limited.(6)

  10.8   Directors Deferred Cash Compensation Plan(3)(5)

  10.9   Directors Restricted Stock Plan(3)(5)

  10.10  Deferred Compensation Plan(7)

  10.11  1998 Long Term Incentive Plan(7)

  10.12  Credit Agreement dated December 6, 1999 between Mutual Risk
         Management, certain subsidiaries and Prudential Securities Credit
         Corporation.

  12.0   Consolidated Ratio of Earnings to Fixed Charges

  21.1   List of subsidiaries

  23.1   Consent and Reports of Ernst & Young

  24     Powers of Attorney

  27.1   Financial Data Schedule for (current) fiscal year ended Dec-31-1999

  27.2   Restated FDS for quarter ended Sep-30-1999

  27.3   Restated FDS for quarter ended June-30-1999

  27.4   Restated FDS for quarter ended Mar-31-1999

  27.5   Restated FDS for fiscal year ended Dec-31-1998

  27.6   Restated FDS for quarter ended Sep-30-1998

  27.7   Restated FDS for quarter ended Jun-30-1998

  27.8   Restated FDS for quarter ended Mar-31-1998

  27.9   Restated FDS for fiscal year ended Dec-31-1997

  27.10  Restated FDS for quarter ended Sep-30-1997

  27.11  Restated FDS for quarter ended Jun-30-1997

  27.12  Restated FDS for quarter ended Mar-31-1997
</TABLE>
--------
(1) Incorporated by reference to Form S-1 Registration Statement (No. 33-40152)
    of Mutual Risk Management Ltd. declared effective June 25, 1991.

                                       31
<PAGE>

(2) Incorporated by reference to the 1991 Annual Report on Form 10-K of Mutual
    Risk Management Ltd.
(3) This exhibit is a management contract or compensatory plan or arrangement.
(4) Incorporated by reference to Form 10-Q of Mutual Risk Management Ltd. for
    the period ended June 30, 1996.
(5) Incorporated by reference to 1995 Annual Report on Form 10-K of Mutual
    Risk Management Ltd.
(6) Incorporated by reference to 1996 Annual Report on Form 10-K of Mutual
    Risk Management Ltd.
(7) Incorporated by reference to 1998 Annual Report on Form 10-K of Mutual
    Risk Management Ltd.

B. Financial Statements and Financial Statement Schedules

<TABLE>
     <S>                                                                    <C>
     Consolidated Financial Statements..................................... F-1
     Notes to Consolidated Financial Statements............................ F-5
     Independent Auditors' Report.......................................... F-26
     Schedule II Condensed Financial Information of Registrant............. S-1
     Schedule VI Supplementary Insurance Information....................... S-4
</TABLE>

  All other schedules required by Article 7 of Regulation S-X are not required
under the related instructions, are inapplicable or are included elsewhere in
this filing, and therefore have been omitted.

C. Reports on Form 8-K

  None


                                      32
<PAGE>

                                  SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in Hamilton,
Bermuda, on March 28, 2000.

                                          Mutual Risk Management Ltd.

                                                 /s/ Robert A. Mulderig
                                          By: _________________________________
                                                     Robert A. Mulderig
                                                Chairman and Chief Executive
                                                          Officer

  Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                    <C>                        <C>
      /s/ Robert A. Mulderig           Chairman and Chief           March 28, 2000
______________________________________  Executive Officer
          Robert A. Mulderig            (Principal Executive
                                        Officer)

      /s/ John Kessock, Jr.            President, Director and      March 28, 2000
______________________________________  Authorized U.S.
          John Kessock, Jr.             Representative

      /s/ Richard G. Turner            Executive Vice President     March 28, 2000
______________________________________  and Director
          Richard G. Turner

      /s/ Glenn R. Partridge           Executive Vice President     March 28, 2000
______________________________________  and Director
          Glenn R. Partridge

        /s/ James C. Kelly             Senior Vice President and    March 28, 2000
______________________________________  Chief Financial Officer
            James C. Kelly              (Principal Financial and
                                        Accounting Officer)

       /s/ Roger E. Dailey             Director                     March 28, 2000
______________________________________
           Roger E. Dailey

        /s/ David J. Doyle             Director                     March 28, 2000
______________________________________
            David J. Doyle

       /s/ Arthur E. Engel             Director                     March 28, 2000
______________________________________
           Arthur E. Engel

</TABLE>


                                      33
<PAGE>

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                    <C>                        <C>
      /s/ Allan W. Fulkerson           Director                     March 28, 2000
______________________________________
          Allan W. Fulkerson

   /s/ William F. Galtney, Jr.         Director                     March 28, 2000
______________________________________
       William F. Galtney, Jr.

     /s/ Jerry S. Rosenbloom           Director                     March 28, 2000
______________________________________
         Jerry S. Rosenbloom

     /s/ Norman L. Rosenthal           Director                     March 28, 2000
______________________________________
         Norman L. Rosenthal

      /s/ Joseph D. Sargent            Director                     March 28, 2000
______________________________________
          Joseph D. Sargent
</TABLE>



                                       34
<PAGE>

                  MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                           At December 31,
                                                         ----------------------
                                                            1999      1998(1)
                                                         ----------  ----------
                                                            (In thousands)
<S>                                                      <C>         <C>
ASSETS
Cash and cash equivalents............................... $  155,387  $  117,423
Investments--Held in available for sale account at fair
 value (Amortized cost $466,857; 1998--$455,648)........    451,920     462,434
                                                         ----------  ----------
  Total marketable investments..........................    607,307     579,857
Other investments.......................................     28,426      20,664
Investment income due and accrued.......................      5,173       5,252
Accounts receivable.....................................    564,590     353,869
Reinsurance receivables.................................  1,729,936   1,079,563
Deferred expenses.......................................     30,406      27,215
Prepaid reinsurance premiums............................    281,078     206,487
Fixed assets............................................     28,880      19,671
Deferred tax benefit....................................      4,233         899
Goodwill................................................     52,924      52,901
Other assets............................................      6,831       5,616
Assets held in separate accounts........................    693,390     722,263
                                                         ----------  ----------
  Total Assets.......................................... $4,033,174  $3,074,257
                                                         ==========  ==========
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Reserve for losses and loss expenses.................... $1,860,120  $1,190,426
Reserve for unearned premiums...........................    335,265     241,893
Pension fund reserves...................................     67,981      79,753
Claims deposit liabilities..............................     27,924      37,448
Accounts payable........................................    353,966     243,418
Accrued expenses........................................     11,054      12,052
Taxes payable...........................................     23,181      14,850
Bridging loan...........................................    117,000         --
Other loans payable.....................................      4,049       3,538
Prepaid fees............................................     58,026      47,126
Debentures..............................................    110,898     125,485
Other liabilities.......................................     12,176      12,839
Liabilities related to separate accounts................    693,390     722,263
                                                         ----------  ----------
  Total Liabilities.....................................  3,675,030   2,731,091
                                                         ----------  ----------
SHAREHOLDERS' EQUITY
Common Shares--Authorized 180,000,000 (par value $0.01)
 Issued and outstanding 41,205,191 (excluding 2,636,716
 cumulative shares held in treasury) (1998--
 42,205,596)............................................        412         422
Additional paid-in capital..............................    110,755     114,916
Accumulated other comprehensive (loss) income...........    (14,937)      4,456
Retained earnings.......................................    261,914     223,372
                                                         ----------  ----------
  Total Shareholders' Equity............................    358,144     343,166
                                                         ----------  ----------
  Total Liabilities & Shareholders' Equity.............. $4,033,174  $3,074,257
                                                         ==========  ==========
</TABLE>
--------
(1) Prior periods have been restated to reflect a pooling of interests
    following the acquisition of Captive Resources, Inc.

          See accompanying notes to consolidated financial statements

                                      F-1
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                Year ended December 31,
                                            ----------------------------------
                                               1999      1998(1)     1997(1)
                                            ----------  ----------  ----------
                                             (In thousands except per share
                                                         data)
<S>                                         <C>         <C>         <C>
REVENUES
  Fee income............................... $  177,711  $  157,271  $  121,258
  Premiums earned..........................    181,798     101,913      84,200
  Net investment income....................     33,616      29,590      26,592
  Realized capital losses..................     (5,199)     (1,003)     (1,608)
  Other (losses) income....................       (300)        143          56
                                            ----------  ----------  ----------
   Total Revenues..........................    387,626     287,914     230,498
                                            ----------  ----------  ----------
EXPENSES
  Losses and loss expenses incurred........    147,705      78,258      49,857
  Acquisition costs........................     51,582      26,061      35,816
  Operating expenses.......................    128,524     101,687      76,795
  Interest expense.........................      6,807       6,819       6,752
  Other expenses...........................      2,701       2,119       1,169
                                            ----------  ----------  ----------
   Total Expenses..........................    337,319     214,944     170,389
                                            ----------  ----------  ----------
INCOME BEFORE INCOME TAXES AND MINORITY
 INTEREST..................................     50,307      72,970      60,109
  Income taxes (benefit)...................       (365)      8,536      10,632
                                            ----------  ----------  ----------
INCOME BEFORE MINORITY INTEREST............     50,672      64,434      49,477
  Minority interest........................        (52)         93         --
                                            ----------  ----------  ----------
INCOME BEFORE EXTRAORDINARY LOSS...........     50,620      64,527      49,477
  Extraordinary loss on extinguishment of
   debentures, net of tax..................        182         --          --
                                            ----------  ----------  ----------
NET INCOME.................................     50,438      64,527      49,477
  Preferred share dividends................        --          --         (105)
                                            ----------  ----------  ----------
NET INCOME AVAILABLE TO COMMON
 SHAREHOLDERS..............................     50,438      64,527      49,372
OTHER COMPREHENSIVE INCOME, NET OF TAX
  Unrealized (losses) gains on investments,
   net of reclassification adjustment......    (19,393)        421       3,987
                                            ----------  ----------  ----------
COMPREHENSIVE INCOME....................... $   31,045  $   64,948  $   53,359
                                            ==========  ==========  ==========
EARNINGS PER COMMON SHARE(2)
  Net income available to Common
   Shareholders:
  Basic.................................... $     1.18  $     1.56  $     1.25
  Diluted.................................. $     1.14  $     1.42  $     1.15
  Dividends per Common Share............... $     0.25  $     0.21  $     0.19
  Weighted average number of Common Shares
   outstanding--Basic...................... 42,797,133  41,275,156  39,379,122
                                            ==========  ==========  ==========
  Weighted average number of Common Shares
   outstanding--Diluted.................... 49,606,913  50,233,147  48,785,252
                                            ==========  ==========  ==========
</TABLE>
--------
(1) Prior periods have been restated to reflect a pooling of interests
    following the acquisition of Captive Resources, Inc.
(2) Prior periods' per share calculations have been restated to reflect the
    two-for-one stock split to holders of record at September 26, 1997.

          See accompanying notes to consolidated financial statements

                                      F-2
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                              Series B
                                                                              Preferred    Common      Dividend
                                           Treasury     Change in               Share       Share         of
                          Opening  Shares   Shares      Unrealized     Net    Dividends   Dividends    Acquired   Closing
                          Balance  Issued  Purchased  Gain (Loss)(4) Income  Declared(1) Declared(2) Companies(6) Balance
                          -------- ------- ---------  -------------- ------- ----------- ----------- ------------ --------
                                                                  (In thousands)
<S>                       <C>      <C>     <C>        <C>            <C>     <C>         <C>         <C>          <C>
Year Ended December 31,
 1999
 Common Shares..........  $    422 $    16 $    (26)     $    --     $   --     $ --      $    --      $   --     $    412
 Additional paid-in
  capital...............   114,916  25,626  (29,787)          --         --       --           --          --      110,755
 Accumulated other
  comprehensive income
  (loss)................     4,456     --       --        (19,393)       --       --           --          --      (14,937)
 Retained earnings......   223,372     --       --            --      50,438      --       (11,005)       (891)    261,914
                          -------- ------- --------      --------    -------    -----     --------     -------    --------
 Total Shareholders'
  Equity at December 31,
  1999..................  $343,166 $25,642 $(29,813)     $(19,393)   $50,438    $ --      $(11,005)    $  (891)   $358,144
                          ======== ======= ========      ========    =======    =====     ========     =======    ========
Year Ended December 31,
 1998(5)
 Common Shares..........  $    399 $    23 $    --       $    --     $   --     $ --      $    --      $   --     $    422
 Additional paid-in
  capital...............    89,339  25,577      --            --         --       --           --          --      114,916
 Accumulated other
  comprehensive income..     4,035     --       --            421        --       --           --          --        4,456
 Retained earnings......   169,801     --       --            --      64,527      --        (8,826)     (2,130)    223,372
                          -------- ------- --------      --------    -------    -----     --------     -------    --------
 Total Shareholders'
  Equity at December 31,
  1998..................  $263,574 $25,600 $    --       $    421    $64,527    $ --      $ (8,826)    $(2,130)   $343,166
                          ======== ======= ========      ========    =======    =====     ========     =======    ========
Year Ended December 31,
 1997(3)(5)(7)
 Common Shares..........  $    392 $     7 $    --       $    --     $   --     $ --      $    --      $   --     $    399
 Additional paid-in
  capital...............    82,049   7,290      --            --         --       --           --          --       89,339
 Accumulated other
  comprehensive income..        48     --       --          3,987        --       --           --          --        4,035
 Retained earnings......   128,854     --       --            --      49,477     (105)      (7,311)     (1,114)    169,801
                          -------- ------- --------      --------    -------    -----     --------     -------    --------
 Total Shareholders'
  Equity at December 31,
  1997..................  $211,343 $ 7,297 $    --       $  3,987    $49,477    $(105)    $ (7,311)    $(1,114)   $263,574
                          ======== ======= ========      ========    =======    =====     ========     =======    ========
</TABLE>
--------
(1) Dividend per share amount was $.04 for 1997.
(2) Dividend per share amounts were $.25, $.21 and $.19 for 1999, 1998 and
    1997 respectively (prior periods restated for stock splits).
(3) Effective September 26, 1997 the Company effected a two-for-one stock
    split recorded in the form of a stock dividend. 18,741,121 Common Shares
    were issued in respect of this split. Prior periods have been restated.
(4) Net of reclassification adjustment, net of tax (see Note 8).
(5) Prior periods have been restated to reflect a pooling of interests
    following the acquisition of Captive Resources, Inc.
(6) Prior to the merger, International Advisory Services paid cash dividends
    of $1.51 and $1.09 in 1998 and 1997 respectively based on the equivalent
    number of Common Shares that would have been outstanding on the dividend
    dates after giving effect to the pooling of interests in 1998. Captive
    Resources, Inc. paid cash dividends of $.51, $2.05 and $2.18 in 1999, 1998
    and 1997 respectively based on the equivalent number of Common Shares that
    would have been outstanding on the dividend dates after giving effect to
    the pooling of interests in 1999.
(7) See Note 18.

          See accompanying notes to consolidated financial statements

                                      F-3
<PAGE>

                  MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                   Year ended December 31,
                                                  ----------------------------
                                                    1999    1998(1)   1997(1)
                                                  --------  --------  --------
                                                        (In thousands)
<S>                                               <C>       <C>       <C>
NET CASH FLOW FROM OPERATING ACTIVITIES
Net income....................................... $ 50,438  $ 64,527  $ 49,477
Items not affecting cash
 Depreciation....................................    8,306     6,021     4,372
 Amortization of investments.....................   (1,344)   (1,907)   (1,608)
 Net loss on sale of investments.................    5,587     1,498     1,619
 Other investment gains..........................     (361)     (599)      --
 Amortization of convertible debentures..........    5,997     6,605     6,500
 Deferred tax benefit............................   (1,004)    3,194    (2,789)
 Other items.....................................    2,254     1,570     1,002
Net changes in non-cash balances relating to
 operations:
 Accounts receivable............................. (210,721) (166,668)  (38,469)
 Reinsurance receivables......................... (650,373) (448,866) (280,379)
 Investment income due and accrued...............       79    (1,452)    1,191
 Deferred expenses...............................   (3,191)    2,777    (9,380)
 Prepaid reinsurance premiums....................  (74,591)  (50,469)  (82,430)
 Other assets....................................   (1,215)    2,050    (1,512)
 Reserve for losses and loss expenses............  669,694   473,965   296,724
 Prepaid fees....................................   10,900     6,414     7,498
 Reserve for unearned premium....................   93,372    53,504    94,647
 Accounts payable................................  110,548   102,331     1,843
 Taxes payable...................................    8,331      (161)    5,748
 Accrued expenses................................     (998)    3,896     2,102
 Other liabilities...............................   (1,074)    4,121       196
                                                  --------  --------  --------
NET CASH FLOW FROM OPERATING ACTIVITIES..........   20,634    62,351    56,352
                                                  --------  --------  --------
CASH FLOWS FROM INVESTING ACTIVITIES
 Proceeds from sale of investments--Available for
  sale...........................................   85,312   145,745   209,745
 Proceeds from maturity of investments--Available
  for sale.......................................   53,183    57,175    44,685
 Fixed assets purchased..........................  (17,732)   (9,890)   (8,483)
 Investments purchased--Available for sale....... (153,949) (268,868) (243,861)
 Acquisitions and other investments..............  (10,130)  (28,886)  (25,792)
 Proceeds from sale of other investments.........      577     2,929       --
 Other items.....................................      104         9        21
                                                  --------  --------  --------
NET CASH APPLIED TO INVESTING ACTIVITIES.........  (42,635) (101,786)  (23,685)
                                                  --------  --------  --------
CASH FLOWS FROM FINANCING ACTIVITIES
 Loan repayment and interest received............      --        389       419
 Bridging loan received..........................  117,000       --        --
 Other loans received............................      511     1,379       --
 Redemption of preferred shares..................      --        --     (2,952)
 Extinguishment of convertible debentures........   (6,163)      --        --
 Proceeds from shares issued.....................   11,209     8,055     7,297
 Purchase of Treasury shares.....................  (29,813)      --        --
 Claims deposit liabilities......................   (9,524)   (4,997)   (3,244)
 Pension fund reserves...........................  (11,773)   79,753       --
 Dividends paid..................................  (11,482)  (10,427)   (8,301)
                                                  --------  --------  --------
NET CASH FLOW FROM (APPLIED TO) FINANCING
 ACTIVITIES......................................   59,965    74,152    (6,781)
                                                  --------  --------  --------
 Net increase in cash and cash equivalents.......   37,964    34,717    25,886
 Cash and cash equivalents at beginning of year..  117,423    82,706    56,820
                                                  --------  --------  --------
 Cash and cash equivalents at end of year........ $155,387  $117,423  $ 82,706
                                                  ========  ========  ========
 Supplemental cash flow information:
 Interest paid................................... $    810  $    214  $    252
                                                  ========  ========  ========
 Income taxes paid, net.......................... $  3,217  $  5,622  $ 11,848
                                                  ========  ========  ========
</TABLE>
--------
(1) Prior periods have been restated to reflect a pooling of interests
    following the acquisition of Captive Resources, Inc.

          See accompanying notes to consolidated financial statements

                                      F-4
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--DECEMBER 31, 1999

1. GENERAL

  Mutual Risk Management Ltd. (the "Company") was incorporated under the laws
of Bermuda in 1977. The Company is a holding company engaged, through its
subsidiaries, in providing risk management and financial services in the
United States, Bermuda, Barbados, the Cayman Islands and Europe. The "IPC
Companies" offer the IPC Program, an alternative risk facility for insureds.
The Company also provides administrative, accounting and reinsurance services
for unaffiliated captive insurers. Legion Insurance Company, a Pennsylvania
insurance company, Legion Indemnity Company, an Illinois excess and surplus
lines insurance company and Villanova Insurance Company, a Massachusetts
insurance company (together "Legion" or the "Legion Companies") act as policy-
issuing companies on many of the IPC Programs reinsuring a portion of the
liability and premium to one of the IPC Companies. MRM Financial Services Ltd.
provides financial services to offshore mutual funds and other companies.
Other subsidiaries provide specialty brokerage, proprietary loss control
services and underwriting management.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  These Consolidated Financial Statements have been prepared in accordance
with generally accepted accounting principles prevailing in the United States
("GAAP") and are presented in United States Dollars.

A. Consolidation

 (i) General

  The Consolidated Financial Statements include the accounts of the Company
and all of its subsidiaries. All significant intercompany transactions and
balances have been eliminated on consolidation. Prior period results have been
restated to reflect a pooling of interests following the acquisition of
Captive Resources, Inc. ("CRI") (See note 18). All of the voting common shares
of the IPC companies are owned by wholly owned subsidiaries of the Company.
All of the earnings, assets and liabilities of the IPC companies attributable
to the common shareholders are consolidated on a line by line basis. All of
the non-voting preferred shares of the IPC companies are owned by program
holders (see note 2A(ii)). Management is required to make estimates that
affect the amounts reported in the Consolidated Financial Statements and
accompanying notes. Actual results may differ from those estimates.

 (ii) Assets Held in and Liabilities Related to Separate Accounts

  A substantial majority of the assets and liabilities of the IPC Companies
represents assets under management and related liabilities of the IPC
Programs. The program holders, through their ownership of preferred shares in
the IPC Companies, enter into a Preferred Shareholder Agreement. The preferred
shares are redeemable after five years. The Preferred Shareholder Agreements
provide for the payment of dividends to the preferred shareholders based on
Premiums earned, investment income, expenses paid and losses and loss expenses
incurred in each separate account. The final dividend on a program is
determined when all incurred losses in all underwriting years of a program are
ultimately paid; the preferred shareholder may not terminate its indemnity
obligation under the Preferred Shareholder Agreement before this time. Under
the Preferred Shareholder Agreement the program holder assumes investment and
underwriting risk and the IPC Company receives an administrative fee for
managing the program. Accordingly, the Company treats the Premium written in
connection with these programs, whether written directly or assumed as
reinsurance, as Premiums ceded to the separate accounts of the IPC Companies
and does not include such amounts in the Company's Premiums earned on the
Consolidated Statements of Income and Comprehensive Income. This Premium ceded
amounted to $257.8 million in 1999 (1998--$251.4 million; 1997--$277.4
million) of which over 80% in each year relates to workers' compensation
risks. The assets and liabilities of the IPC Companies relating to the
preferred shareholders interest are included within "Assets held in and
Liabilities related to separate accounts" on the

                                      F-5
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Consolidated Balance Sheets. Included in these assets are cash and marketable
investments of $340.1 million at December 31, 1999 (1998--$381.8 million) and
other assets of $220.0 million (1998--$243.5 million).

B. Investments

  Investments are comprised of bonds, redeemable preferred shares and mutual
funds. All Investments are classified as available for sale in accordance with
SFAS 115 and are reported at fair market value with unrealized gains and
losses, net of tax, included in Accumulated other comprehensive income in
Shareholders' equity.

  Realized gains and losses on the sale of Investments are recognized in Net
income using the specific identification basis for Bonds and the average cost
method for Mutual Funds. Investments which incur a decline in value, which is
other than temporary, are written down to fair value as a new cost basis with
the amount of the write down included in Net income. Investment income is
accrued as earned and includes amortization of premium and discount relative
to bonds acquired at amounts other than their par value.

C. Revenue Recognition

  (i) Policy issuing fees earned are recorded as the premium is written and
earned over the applicable policy period. The unearned portion is included in
Prepaid fees on the Consolidated Balance Sheets.

  (ii) Underwriting fees of the IPC Companies are earned over the applicable
policy period. The unearned portion of such fees is included in Prepaid fees
on the Consolidated Balance Sheets.

  (iii) Investment fees earned by the IPC Companies are accrued on a daily
basis.

  (iv) Commissions and brokerage fees are recorded and earned when the
business is placed with the reinsurance carrier, at which time substantially
all of the services have been performed.

  (v) Premiums written and assumed are recorded on an accrual basis. Premiums
earned are calculated on a pro-rata basis over the terms of the applicable
underlying insurance policies with the unearned portion deferred on the
Consolidated Balance Sheets as Reserve for unearned premiums. Reinsurance
premiums ceded are similarly pro-rated with the prepaid portion recorded as an
asset in the Consolidated Balance Sheets. Premiums written which are related
to the separate accounts of the IPC Companies are included in Premiums ceded
(see Note 2A(ii)).

  (vi) Net investment income is included after deducting various items as
detailed in Note 5C.

  (vii) Realized capital (losses) gains include gains and losses on the sale
of investments available for sale, other investments and fixed assets (see
Note 5B(ii)).

D. Losses and Loss Expenses Incurred

  Losses and related loss adjustment expenses are charged to income as they
are incurred and are net of losses recovered and recoverable of $1,185.7
million in 1999 (1998--$657.8 million; 1997--$521.9 million). Amounts
recoverable from reinsurers are estimated in a manner consistent with the
claim liability associated with the reinsured policy. Included in loss
reserves are gross loss reserves of $136.0 million and $121.0 million at
December 31, 1999 and 1998 which have been discounted by $39.5 million and
$36.2 million respectively, assuming interest rates of approximately 6% for
medical malpractice reserves and 4% for specific and aggregate workers'
compensation reserves. These reserves are also discounted for regulatory
filings. After reinsurance, the net effect of this discounting was to decrease
Net income by $.8 million in 1999 and increase Net income by $.9 million and
$.1 million in 1998 and 1997. Discounting also reduced net loss reserves by
$3.8 million and $4.7 million at December 31, 1999 and 1998 respectively.

                                      F-6
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Reserves are established for losses and loss adjustment expenses relating to
claims which have been reported on the basis of evaluations of independent
claims adjusters under the supervision of the Company's claims staff. In
addition, reserves are established, in consultation with the Company's
independent actuaries, for losses which have occurred but have not yet been
reported to the Company and for adverse development of reserves on reported
losses. Reinsurance receivables are shown separately on the Consolidated
Balance Sheets. Management believes that the resulting estimate of the
liability for losses and loss adjustment expenses at December 31, 1999 and
1998 is adequate to cover the ultimate net cost of losses and loss expenses
incurred, however, such liability is necessarily an estimate and no
representation can be made that the ultimate liability will not exceed such
estimate.

E. Claims Deposit Liabilities

  The Company records certain programs that do not meet the conditions for
reinsurance accounting as Claims deposit liabilities on the Consolidated
Balance Sheets. In October 1998, the Accounting Standards Executive Committee
issued Statement Of Position 98-7, "Deposit Accounting: Accounting for
Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk". The
Statement provides guidance on how to account for insurance and reinsurance
contracts that do not transfer insurance risk under deposit accounting. This
Statement is effective for fiscal years beginning after June 15, 1999 with
early adoption encouraged. The Company does not expect the Statement to have a
material impact on its financial position or results of operations.

F. Income Taxes

  The Company records its income tax liability and deferred tax asset in
accordance with SFAS 109. In accordance with this statement, the Company
records deferred income taxes which reflect the net tax effect of the
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.

G. Depreciation and Amortization

  Depreciation of furniture and equipment is provided on a straight-line basis
over their estimated useful lives ranging from 2 to 10 years. Amortization of
leasehold improvements is computed on a straight-line basis over the terms of
the leases. Accumulated depreciation at December 31, 1999 amounted to $29
million (1998--$21.1 million). Goodwill related to the acquisition of
subsidiaries is amortized on a straight-line basis over 25 to 40 years, is
evaluated periodically for any impairment in value and is included in Other
expenses on the Consolidated Statements of Income and Comprehensive Income.
Accumulated amortization at December 31, 1999 amounted to $7.6 million (1998--
$4.9 million).

H. Deferred Expenses

  Deferred expenses which consist primarily of policy acquisition costs are
deferred and charged to income on a pro-rata basis over the periods of the
related policies.

I. Earnings per Common Share

  Basic earnings per share is based on weighted average common shares and
excludes any dilutive effects of options and convertible securities. Diluted
earnings per share assumes the conversion of dilutive convertible securities
and the exercise of all dilutive stock options (see Note 14). Earnings per
share for 1997 have been restated to reflect the two-for-one stock split
effective September 26, 1997 (see Note 12). All earnings per share have been
restated to reflect the pooling of interests following the acquisition of
Captive Resources, Inc.


                                      F-7
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

J. Cash and Cash Equivalents

  Cash and cash equivalents include cash on hand, money market instruments and
other debt issues purchased with an original maturity of ninety days or less.

K. Zero Coupon Convertible Exchangeable Subordinated Debentures

  The Debentures are recorded at original issue price plus accrued original
issue discount. The current amortization of the original issue discount is
included in Interest expense on the Consolidated Statements of Income and
Comprehensive Income.

L. Stock-Based Compensation

  The Company applies APB Opinion 25 and related interpretations in accounting
for its stock option plans and accordingly, does not recognize compensation
cost as all options are issued with an exercise price equal to the market
price of the stock on the date of issue. Note 13 contains a summary of the
pro-forma effects to reported Net income and earnings per share for 1999, 1998
and 1997 had the Company elected to recognize compensation cost based on the
fair value of the options granted at grant date as prescribed by SFAS 123.

M. Pension Fund Reserves

  Pension fund reserves represent receipts from the issuance of pension
investment contracts. Such receipts are considered deposits on investment
contracts that do not have mortality or morbidity risk. Account balances in
the accumulation phase are increased by deposits received and interest
credited and are reduced by withdrawals and administrative charges.
Calculations of contract holder account balances for investment contracts
reflect interest crediting rates ranging from 2.75% to 7.25% at December 31,
1999 (1998--3.05% to 7.25%), based on contract provisions, the Company's
experience and industry standards. At December 31, 1999, the amount of pension
fund reserves related to products in the accumulation phase was $62.5 million
(1998--$74.6 million).

  Upon retirement, individuals can convert their accumulated pension fund
account balances into a benefit stream by purchasing a payout annuity from the
Company. Single premium life reserves are established for the payout annuities
in amounts adequate to meet the estimated future obligations of the policies
in force. The calculation of these reserves involves the use of estimates
concerning such factors as mortality rates, interest rates averaging 5.82% at
December 31, 1999 (1998--5.90%), and future expense levels applicable to the
individual policies. Mortality assumptions are based on various actuarial
tables. These assumptions consider Company experience and industry standards.
To recognize the uncertainty in the reserve calculation, the reserves include
reasonable provisions for adverse deviations from those estimates. At December
31, 1999, the amount of pension fund reserves related to payout annuities was
$5.4 million (1998--$5.2 million).

3. REINSURANCE AND CLIENT INDEMNIFICATION

  A. Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result
in losses to the Company and allowances are established for amounts deemed
uncollectible. The Company evaluates the financial condition of its reinsurers
to minimize its exposure to losses from reinsurer insolvencies.

  B. At December 31, 1999, Losses recoverable and Prepaid reinsurance of
$2,011.0 million (1998--$1,286.1 million) had been ceded to reinsurers other
than the IPC Companies. $1,663.2 million of this amount (1998--$1,122.4
million) has been ceded to reinsurers licensed in the United States which are
not required to

                                      F-8
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

provide letters of credit or other collateral to secure their obligations. One
such U.S. reinsurer accounted for $207.6 million (1998--$191.0 million). The
remaining $347.8 million of reinsurance ceded (1998--$163.7 million) was ceded
to reinsurers not licensed in the United States, including $25.2 million ceded
to companies managed by the Company (1998--$12.4 million). These non-U.S.
reinsurers have provided collateral security to the Company in the form of
letters of credit and cash at December 31, 1999 of $114.0 million (1998--$42.2
million). Letters of credit held by the Company are issued by and/or confirmed
by member banks of the U.S. Federal Reserve. The Company regularly reviews the
credit exposure which it has to each bank, together with that bank's financial
position and requires replacement of the collateral security in cases where
the exposure to the bank exceeds acceptable levels. The Company's largest
exposure to an individual bank amounted to $20.1 million at December 31, 1999
(1998--$7.5 million). The IPC Companies have a $350 million (1998--$320
million) Letter of Credit facility pursuant to which letters of credit are
issued on their behalf to the Legion Companies and certain other US insurance
companies. This facility is fully collateralized by incoming letters of credit
and funds on deposit. The facility is guaranteed by the Company. At December
31, 1999 a reserve for uncollectible reinsurance of $.2 million (1998--$.3
million) was outstanding.

  C. The Company's Reserve for unearned premiums and Reserve for losses and
loss expenses exclude reserves related to Premiums ceded to the IPC Companies,
where the program holders assume the underwriting risk relating to such
premium (see Note 2A(ii)). These reserves are included in Liabilities related
to separate accounts and amounted to $495.1 million at December 31, 1999
(1998--$450.3 million). Clients of the Company's IPC Program generally agree,
as part of a Shareholder Agreement, to indemnify the Company against certain
underwriting losses on the IPC Program. Clients generally provide letters of
credit or cash deposits as collateral for this indemnification, either in the
full amount of the potential net loss or to the level of expected losses as
projected by the Company. These contractual indemnifications from clients,
whether fully or partially secured, amounted to approximately $104.7 million
at December 31, 1999 (1998--$90.6 million) of which $51.5 million (1998--$36.3
million) is uncollateralized. The uncollateralized amounts will vary based on
the underwriting results of the IPC Programs. Management reviews its
collateral security position at the inception and renewal of each IPC Program
in order to minimize the risk of loss. In order for the Company to sustain a
loss on the portion of such indemnity agreement secured by a letter of credit,
the Company would have to be unable to collect from both the client and the
bank issuing the letter of credit. The Company has a credit exposure in the
event that losses exceed their expected level and the client is unable or
unwilling to honor its indemnity to the Company or fails to pay the premium
due. For these reasons the Company has established provisions for losses on
certain of these programs. These provisions are net of a reinsurance recovery
of $14.7 million under a contingency excess of loss policy at December 31,
1999. These provisions, which totaled $18.0 million at December 31, 1999
(1998--$7.3 million), reduced the level of Risk management fees by $3.1
million, $.9 million and $1.1 million for the years ended December 31, 1999,
1998 and 1997 respectively. These provisions also adversely impacted the
underwriting results for 1999 by $7.6 million (1998--$.8 million; 1997--nil).

  During 1999, the Company initiated binding arbitration proceedings for the
payment of reinsurance recoverables from reinsurers who have withheld payments
due to the Company. The amounts due to the Company relate primarily to
reinsurance on workers' compensation coverage. While such reinsurance
recoverable amounts are material to the Company's results of operations and
financial position, Company management believes it will ultimately prevail in
such arbitrations and any related actions that may arise. As such, no
provision for any adverse determinations in these pending arbitrations has
been made in the consolidated financial statements of the Company.

  The Company is involved in other legal actions, arbitrations and
contingencies occurring in the normal course of business. In the opinion of
management, the outcome of these matters is not expected to have a material
adverse effect on the results of operations or financial position of the
Company.

                                      F-9
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  D. Premiums earned are the result of the following:

<TABLE>
<CAPTION>
                                           Year ended December 31,
                          --------------------------------------------------------------
                                  1999                  1998                1997
                                Premiums              Premiums            Premiums
                          ----------------------  ------------------  ------------------
                           Written      Earned    Written    Earned   Written    Earned
                          ----------  ----------  --------  --------  --------  --------
                                               (In thousands)
<S>                       <C>         <C>         <C>       <C>       <C>       <C>
Direct..................  $1,129,935  $1,018,761  $790,776  $753,463  $642,511  $542,907
Assumed.................      64,099      54,724    59,657    48,291    12,917    15,492
Ceded to IPC
 Companies(1)...........    (257,848)   (233,953) (251,443) (248,335) (277,448) (195,665)
Ceded to third parties..    (735,669)   (657,734) (494,042) (451,506) (281,810) (278,534)
                          ----------  ----------  --------  --------  --------  --------
Net Premiums............  $  200,517  $  181,798  $104,948  $101,913  $ 96,170  $ 84,200
                          ==========  ==========  ========  ========  ========  ========
</TABLE>
--------
(1)  See Note 2A (ii)

4. RESERVE FOR LOSSES AND LOSS EXPENSES

  The following table sets forth a reconciliation of beginning and ending
reserves for losses and loss expenses.

<TABLE>
<CAPTION>
                                                Year ended December 31,
                                             --------------------------------
                                                1999        1998       1997
                                             ----------  ----------  --------
                                                     (In thousands)
<S>                                          <C>         <C>         <C>
Gross reserves for losses and loss
 adjustment expenses, beginning of year..... $1,190,426  $  716,461  $419,737
Recoverable from reinsurers.................  1,079,563     630,697   350,318
                                             ----------  ----------  --------
Net reserves for losses and loss adjustment
 expenses, beginning of year................    110,863      85,764    69,419
Provision for losses and loss adjustment
 expenses for claims occurring in:
  Current year..............................    140,574      74,476    50,301
  Prior years...............................      7,131       3,782      (444)
                                             ----------  ----------  --------
    Total losses and loss adjustment
     expenses incurred......................    147,705      78,258    49,857
                                             ==========  ==========  ========
Payments for losses and loss adjustment
 expenses for claims occurring in:
  Current year..............................    (61,697)    (15,039)  (10,850)
  Prior years...............................    (66,687)    (38,120)  (22,662)
                                             ----------  ----------  --------
    Total payments..........................   (128,384)    (53,159)  (33,512)
                                             ==========  ==========  ========
Net reserves for losses and loss adjustment
 expenses, end of year......................    130,184     110,863    85,764
Recoverable from reinsurers.................  1,729,936   1,079,563   630,697
                                             ----------  ----------  --------
Gross reserves for losses and loss
 adjustment expenses, end of year........... $1,860,120  $1,190,426  $716,461
                                             ==========  ==========  ========
</TABLE>

5. INVESTMENTS

  A. Cash and cash equivalents include amounts invested in commercial paper
and discount notes at December 31, 1999 of $64.8 million (1998--$29.1
million). Substantially all of the remaining amount is invested in money
market or interest-bearing bank accounts.

                                     F-10
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  B. (i) All Investments are held as available for sale. The amortized cost
and fair market value are as follows:

<TABLE>
<CAPTION>
                                               At December 31, 1999
                                    -------------------------------------------
                                    Amortized Unrealized Unrealized Fair Market
                                      Cost       Gain       Loss       Value
                                    --------- ---------- ---------- -----------
                                                  (In thousands)
<S>                                 <C>       <C>        <C>        <C>
U.S. Treasury Securities and
 Obligations of U.S. Government
 Corporations and Agencies......... $180,747    $  274    $ 3,532    $177,489
Corporate debt securities..........  182,827       102      9,846     173,083
                                    --------    ------    -------    --------
Total Bonds........................  363,574       376     13,378     350,572
Redeemable Preferred Shares........    2,068       --         377       1,691
                                    --------    ------    -------    --------
                                     365,642       376     13,755     352,263
Mutual Funds(1)....................  101,215     1,814      3,372      99,657
                                    --------    ------    -------    --------
  Total Investments................ $466,857    $2,190    $17,127    $451,920
                                    ========    ======    =======    ========
<CAPTION>
                                               At December 31, 1998
                                    -------------------------------------------
                                    Amortized Unrealized Unrealized Fair Market
                                      Cost       Gain       Loss       Value
                                    --------- ---------- ---------- -----------
                                                  (In thousands)
<S>                                 <C>       <C>        <C>        <C>
U.S. Treasury Securities and
 Obligations of U.S. Government
 Corporations and Agencies......... $189,236    $4,499    $    10    $193,725
Corporate debt securities..........  155,613     2,519      1,457     156,675
                                    --------    ------    -------    --------
Total Bonds........................  344,849     7,018      1,467     350,400
Redeemable Preferred Shares........    2,108        46          6       2,148
                                    --------    ------    -------    --------
                                     346,957     7,064      1,473     352,548
Mutual Funds(1)....................  108,691     2,254      1,059     109,886
                                    --------    ------    -------    --------
  Total Investments................ $455,648    $9,318    $ 2,532    $462,434
                                    ========    ======    =======    ========
</TABLE>
--------
(1) The Company invests in Mutual Funds with fair market values of $87 million
    (1998--$102 million) which are administered by MRM Financial Services
    Ltd., a wholly-owned subsidiary of the Company.

  The Company does not have any investment in a single corporate security
which exceeds 1.4% of total bonds at December 31, 1999 (1998--1.4%).

  The following unrealized gains and losses on available for sale investments
have been recorded in Accumulated other comprehensive income in Shareholders'
equity:

<TABLE>
<CAPTION>
                                        Gross Unrealized          Net Unrealized
                                         Gains (losses)    Tax    Gains (losses)
                                        ---------------- -------  --------------
                                                    (In thousands)
<S>                                     <C>              <C>      <C>
January 1, 1997........................     $    320     $  (272)    $     48
Movement...............................        5,531      (1,544)       3,987
                                            --------     -------     --------
December 31, 1997......................        5,851      (1,816)       4,035
Movement...............................          935        (514)         421
                                            --------     -------     --------
December 31, 1998......................        6,786      (2,330)       4,456
Movement...............................      (21,723)      2,330      (19,393)
                                            --------     -------     --------
December 31, 1999......................     $(14,937)    $   --      $(14,937)
                                            ========     =======     ========
</TABLE>

                                     F-11
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The following table sets forth certain information regarding the investment
ratings of the Company's Bond and Redeemable Preferred Share portfolio.

<TABLE>
<CAPTION>
                                        December 31, 1999    December 31, 1998
                                       -------------------- --------------------
                                       Amortized            Amortized
                                         Cost    Percentage   Cost    Percentage
                                       --------- ---------- --------- ----------
                                                    (In thousands)
<S>                                    <C>       <C>        <C>       <C>
Ratings(1)
AAA................................... $173,132     47.35%  $202,561     58.39%
AA....................................   46,252     12.65%    46,567     13.42%
A.....................................  111,550     30.51%    74,448     21.46%
BBB...................................   25,164      6.88%    11,952      3.44%
BB....................................    9,544      2.61%    10,929      3.15%
B.....................................        0      0.00%       500      0.14%
                                       --------    ------   --------    ------
Total................................. $365,642    100.00%  $346,957    100.00%
                                       ========    ======   ========    ======
</TABLE>
--------
(1) Ratings as assigned by Standard & Poor's Corporation.

  The maturity distribution of Investments in Bonds and Redeemable Preferred
Shares is as follows:

<TABLE>
<CAPTION>
                                     December 31, 1999     December 31, 1998
                                   --------------------- ---------------------
                                   Amortized Fair Market Amortized Fair Market
                                     Cost       Value      Cost       Value
                                   --------- ----------- --------- -----------
                                                 (In thousands)
<S>                                <C>       <C>         <C>       <C>
Due in one year or less........... $ 27,139   $ 26,996   $ 23,836   $ 24,035
Due in one year through five
 years............................  111,017    109,728     84,372     85,895
Due in five years through ten
 years............................   82,191     77,758     76,871     78,331
Due after ten years...............  145,295    137,781    161,878    164,287
                                   --------   --------   --------   --------
Total............................. $365,642   $352,263   $346,957   $352,548
                                   ========   ========   ========   ========
</TABLE>

  (ii) Realized gains and losses:


<TABLE>
<CAPTION>
                                                    Year ended December 31,
                                                   ---------------------------
                                                    1999      1998      1997
                                                   -------  --------  --------
                                                        (In thousands)
<S>                                                <C>      <C>       <C>
Proceeds from sale of Investments
 --held as available for sale..................... $85,312  $145,745  $209,745
                                                   =======  ========  ========
Realized gains on Investments
 --held as available for sale..................... $   932  $  1,703  $  1,636
Realized losses on Investments
 --held as available for sale.....................  (6,519)   (3,201)   (3,255)
                                                   -------  --------  --------
Net realized losses...............................  (5,587)   (1,498)   (1,619)
Other gains.......................................     388       495        11
                                                   -------  --------  --------
Realized capital losses........................... $(5,199) $ (1,003) $ (1,608)
                                                   =======  ========  ========
</TABLE>

                                     F-12
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  C. Details of investment income by major categories are presented below:

<TABLE>
<CAPTION>
                                                      Year ended December 31,
                                                      -------------------------
                                                       1999     1998     1997
                                                      -------  -------  -------
                                                          (In thousands)
<S>                                                   <C>      <C>      <C>
Cash and cash equivalents............................ $ 5,622  $ 6,054  $ 7,958
Mutual funds.........................................   9,872    9,214    4,729
Preferred stock......................................     172       79      349
Bonds................................................  20,502   19,866   16,875
                                                      -------  -------  -------
Gross investment income..............................  36,168   35,213   29,911
Claims deposit liabilities, net......................  (1,552)  (4,314)  (2,450)
Contract expense.....................................    (380)    (728)    (396)
Investment expenses..................................    (620)    (581)    (473)
                                                      -------  -------  -------
Net investment income................................ $33,616  $29,590  $26,592
                                                      =======  =======  =======
</TABLE>

  Net investment income is reported after deducting investment income earned
on assets related to Claims deposit liabilities. Contract expense represents
investment income where the Company has contracted to pay this income to the
insured. Investment expenses consisting of investment advisory fees and
custodian charges have been deducted from Net investment income.

  D. Legion is required by certain states in which it operates to maintain
special deposits or provide letters of credit. This obligation amounted to
$166.4 million at December 31, 1999 (1998--$152.2 million) and included
deposits of $59.6 million (1998--$60.5 million) and letters of credit of
$106.8 million (1998--$91.7 million).

6. ZERO COUPON CONVERTIBLE EXCHANGEABLE SUBORDINATED DEBENTURES

  On October 30, 1995, the Company issued $324.3 million principal amount of
Zero Coupon Convertible Exchangeable Subordinated Debentures ("Debentures")
with an aggregate issue price of $115.0 million. The issue price of each
Debenture was $354.71 and there will be no periodic payments of interest. The
Debentures will mature on October 30, 2015 at $1,000 per Debenture
representing a yield to maturity of 5.25% (computed on a semi-annual bond
equivalent basis). The Debentures are subordinated to all existing and future
senior indebtedness of the Company.

  Each Debenture is convertible at the option of the holder at any time on or
prior to maturity, unless previously redeemed or otherwise purchased by the
Company, into Common Shares of the Company at a conversion rate of 21.52
shares per Debenture or an aggregate of 6,978,800 Common Shares. The
Debentures may be purchased by the Company, at the option of the holder, as of
October 30, 2000, October 30, 2005 and October 30, 2010, at the issue price
plus accrued original issue discount. The Company, at its option, may elect to
pay such purchase price on any particular purchase date in cash or Common
Shares, or any combination thereof. After October 30, 2000, each Debenture is
redeemable in cash at the option of the Company for an amount equal to the
issue price plus accrued original issue discount.

  Prior to October 30, 2000 the Debentures will be purchased for cash by the
Company, at the option of the holder, in the event of a Fundamental Change (as
defined). In addition, the Company will have the right, under certain
circumstances, to require the holders to exchange the Debentures for
Guaranteed Zero Coupon Exchangeable Subordinated Debentures due 2015 of Mutual
Group Ltd. (the "Exchangeable Debentures"), to be guaranteed on a subordinated
basis by the Company. The Exchangeable Debentures will be exchangeable for the
Company's Common Shares and will otherwise have terms and conditions
substantially identical to the Debentures. During the year Debentures
representing a principal amount of $34.23 million (1998--$24.1 million) were
converted into 736,606 Common Shares (1998--518,503 Common Shares).

                                     F-13
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  During the year Debentures representing a principal amount of $14 million
were repurchased in the open market for $6.3 million, resulting in an
extraordinary loss of $.18 million, net of tax.

7. BRIDGING LOAN

  The Company has entered into a $250 million bridging loan agreement with
various financial institutions. Interest rates on the facility are based on
LIBOR plus .75%. The credit agreement contains certain financial covenants,
including the requirement that the Company's total consolidated indebtedness
to total capital ratio shall not exceed 0.45:1, and that Shareholders' equity
shall be greater than or equal to $341,674,000. For these purposes,
Shareholders' equity is to be calculated in accordance with U. S. GAAP, but
excludes any unrealized gains or losses and any goodwill in excess of $55
million.

  At December 31, 1999, the Company had $117 million outstanding under this
loan, on which monthly interest payments are made, with the principal sum
being repayable on September 6, 2000. Under the terms of the agreement, and if
the Company was in compliance with the covenants thereunder, the Company has
access to an additional $133 million should the need arise. Under the
agreement the Company has access to this facility for a six month period
ending June 6, 2000.

  The Company was in compliance with all the covenants of this bridging loan
agreement as of December 31, 1999. Interest payments on the above loan totaled
$.4 million for the year ended December 31, 1999. The repayment of the loan
has been guaranteed by Mutual Group Ltd., a U.S. subsidiary of the Company.
Additionally, the Common Shares of the Company's significant subsidiaries have
been pledged as collateral for the repayment of the loan.

8. COMPREHENSIVE INCOME

  As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption
of this Statement had no impact on the Company's Net income or Shareholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
available for sale investments, which prior to adoption were reported
separately in Shareholders' equity, to be included in Other comprehensive
income.

<TABLE>
<CAPTION>
                                                 Year Ended December 31, 1999
                                                 -----------------------------
                                                 Before Tax         Net of Tax
                                                   Amount    Tax      Amount
                                                 ---------- ------  ----------
                                                        (In thousands)
<S>                                              <C>        <C>     <C>
Net unrealized (losses) gains on available for
 sale investments arising during the year.......  $(27,310) $2,702   $(24,608)
Less: reclassification adjustment for losses
 realized in net income.........................     5,587    (372)     5,215
                                                  --------  ------   --------
Other comprehensive income......................  $(21,723) $2,330   $(19,393)
                                                  ========  ======   ========
<CAPTION>
                                                 Year Ended December 31, 1998
                                                 -----------------------------
                                                   Amount    Tax      Amount
                                                 ---------- ------  ----------
                                                        (In thousands)
<S>                                              <C>        <C>     <C>
Net unrealized (losses) gains on available for
 sale investments arising during the year.......  $   (563) $   63   $   (500)
Less: reclassification adjustment for losses
 realized in net income.........................     1,498    (577)       921
                                                  --------  ------   --------
Other comprehensive income......................  $    935  $ (514)  $    421
                                                  ========  ======   ========
</TABLE>


                                     F-14
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

<TABLE>
<CAPTION>
                                          December 31, 1999   December 31, 1998
                                         ------------------- -------------------
                                         Carrying            Carrying
                                          Amount  Fair Value  Amount  Fair Value
                                         -------- ---------- -------- ----------
                                                     (In thousands)
<S>                                      <C>      <C>        <C>      <C>
Investments............................. $451,920  $451,920  $462,434  $462,434
Other investments....................... $ 28,426  $ 28,426  $ 20,664  $ 20,664
Claims deposit liabilities.............. $ 27,924  $ 23,850  $ 37,448  $ 32,624
Debentures.............................. $110,898  $115,001  $125,485  $144,252
Bridging loan........................... $117,000  $117,000  $    --   $    --
</TABLE>

  The following methods and assumptions were used to estimate the fair value
of specific classes of financial instruments. The carrying values of all other
financial instruments, as defined by SFAS 107, approximate their fair values
due to their short term nature.

 Investments:

  The fair market value of Investments is calculated using quoted market
prices.

 Other investments:

  Other investments consist primarily of privately held companies that do not
have readily ascertainable market values. These investments are initially
recorded at cost and are revalued based principally on substantive events or
factors which could indicate a diminution or appreciation in value.

 Claims deposit liabilities:

  The fair value of Claims deposit liabilities is calculated by discounting
the actuarially determined ultimate loss payouts at a rate of 6%.

 Debentures:

  The fair value of the Debentures is calculated using discounted cash flow
analyses based on current borrowing rates for similar types of borrowing
arrangements.

 Bridging loan:

  The Bridging loan bears interest at a floating rate and is repayable on
September 6, 2000, and as such, the fair value equals the carrying amount.

 Assets held in separate accounts:

  (a) Within Assets held in separate accounts are cash and marketable
investments with a carrying value and fair value of $471.2 million (1998:
$467.3 million). Fair value is calculated using quoted market prices.

  (b) Within the $222.2 million of other assets (1998: $255.0 million) $70.0
million (1998: $78.5 million) are financial instruments. The fair market value
of other assets approximates carrying value due to the short term nature of
these items.

10. INCOME TAXES

  The Company is incorporated under the laws of Bermuda and, under current
Bermuda law, is not obligated to pay any taxes in Bermuda based upon income or
capital gains. The Company has received an undertaking

                                     F-15
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

from the Minister of Finance in Bermuda pursuant to the provisions of the
Exempted Undertakings Tax Protection Act, 1966, which exempts the Company and
its shareholders, other than shareholders ordinarily resident in Bermuda, from
any Bermuda taxes computed on profits, income or any capital asset, gain or
appreciation, or any tax in the nature of estate duty or inheritance tax, at
least until the year 2016.

  Mutual Risk Management Ltd. and its non-U.S. subsidiaries, except as
described below, do not consider themselves to be engaged in a trade or
business in the United States and accordingly do not expect to be subject to
direct United States income taxation.

  The United States subsidiaries of the Company file a consolidated U.S.
federal income tax return. Mutual Indemnity (U.S.) Ltd. and Premium Securities
Ltd., Bermuda subsidiaries of the Company, have made irrevocable elections to
be taxed as domestic United States corporations.

  Income tax (benefit) expense consists of:

<TABLE>
<CAPTION>
                                                      Current  Deferred   Total
                                                      -------  --------  -------
                                                           (In thousands)
<S>                                                   <C>      <C>       <C>
December 31, 1999:
  U.S. federal....................................... $  (118) $(1,004)  $(1,122)
  U.S. state and local...............................     169      --        169
  Foreign............................................     588      --        588
                                                      -------  -------   -------
                                                      $   639  $(1,004)  $  (365)
                                                      =======  =======   =======
December 31, 1998:
  U.S. federal....................................... $ 4,603  $ 3,198   $ 7,801
  U.S. state and local...............................     171       (4)      167
  Foreign............................................     568      --        568
                                                      -------  -------   -------
                                                      $ 5,342  $ 3,194   $ 8,536
                                                      =======  =======   =======
December 31, 1997:
  U.S. federal....................................... $11,103  $(2,763)  $ 8,340
  U.S. state and local...............................   1,160      (26)    1,134
  Foreign............................................   1,158      --      1,158
                                                      -------  -------   -------
                                                      $13,421  $(2,789)  $10,632
                                                      =======  =======   =======
</TABLE>

  The effective total tax rate differed from the statutory U.S. federal tax
rate for the following reasons:

<TABLE>
<CAPTION>
                                                    Year ended December 31,
                                                    --------------------------
                                                     1999      1998     1997
                                                    -------   -------  -------
<S>                                                 <C>       <C>      <C>
Statutory U.S. federal tax rate....................    35.0 %    35.0%    35.0%
Increase (reduction) in income taxes resulting
 from:
  U.S. state taxes.................................     0.2       0.2      1.2
  Tax-exempt interest income.......................    (2.5)     (2.1)    (3.1)
  Foreign income not expected to be taxed in the
   U.S.............................................   (29.3)    (18.2)   (13.7)
  Foreign taxes....................................     1.2       0.8      1.9
  Options..........................................    (6.2)     (4.4)    (3.7)
  Other, net.......................................     0.9       0.4     (0.0)
                                                    -------   -------  -------
  Total............................................    (0.7)%    11.7%    17.6%
                                                    =======   =======  =======
</TABLE>


                                     F-16
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1999 and 1998 are presented below:

<TABLE>
<CAPTION>
                                                               1999      1998
                                                             --------  --------
                                                              (In thousands)
<S>                                                          <C>       <C>
Deferred tax assets:
  Unearned premiums and fees not deducted for tax........... $  6,008  $  7,355
  Unpaid losses, discounted for tax.........................   10,164    11,870
  Unrealized losses.........................................    3,463       --
  Interest rate swap........................................      --        704
  Other.....................................................      120       154
                                                             --------  --------
    Total gross deferred tax assets.........................   19,755    20,083
                                                             ========  ========
Deferred tax liabilities:
  Deferred acquisition costs................................   (7,090)   (5,913)
  Deferred marketing expenses...............................   (2,577)   (2,198)
  Deferred market discount..................................   (1,039)     (923)
  Unrealized gains..........................................      --     (2,330)
  Other.....................................................   (1,353)   (7,820)
                                                             --------  --------
    Total gross deferred tax liabilities....................  (12,059)  (19,184)
                                                             ========  ========
  Deferred tax benefit...................................... $  7,696  $    899
  Valuation allowance on unrealized losses..................   (3,463)      --
                                                             --------  --------
    Net deferred tax benefit................................ $  4,233  $    899
                                                             ========  ========
</TABLE>

  The valuation allowance of $3.5 million relates to unrealized losses and has
been accounted for in Accumulated other comprehensive income.

11. REDEEMABLE PREFERRED AND COMMON SHARES

  A. Series B Non-Voting Redeemable Preferred Shares--Authorized and issued
2,951,835, par value $1.00 per share. These shares were issued to one of the
IPC Companies as the holder of record for the benefit of the IPC Program
participants and were entitled to fixed, cumulative, preferential, semi-annual
dividends calculated at the six month LIBOR rate based on the redemption price
of $2.95 million. The Series B Non-Voting Redeemable Preferred Shares were
redeemed for their $1.00 par value or $2.95 million in 1997. The average
effective annual interest rate on these shares was 5.0% in 1997.

  B. Common Shares Subject to Redemption--Issued 937,168 at $1.75 per share.
These shares were issued to four executive officers of the Company. The
Company had the right to reacquire these shares if the employees defaulted on
the loans used for the purchase. Two subsidiaries of the Company made loans to
these executive officers during 1990 for the purchase of the Common Shares
Subject to Redemption. These loans have been repaid and the Common Shares
included in Shareholders' equity.

12. SHAREHOLDERS' EQUITY AND RESTRICTIONS

  A. The Board of Directors, on October 5, 1999, approved a stock repurchase
program to purchase up to three million of its outstanding Common Shares. On
October 27, 1999, the Board of Directors authorized the repurchase of an
additional two million shares. As of December 31, 1999, a total of 2,636,716
shares had been repurchased at an average price of $11.31.

                                     F-17
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  During the last quarter of 1999, the Company sold 570,000 put options for a
total consideration of $339,481 which has been recorded directly in additional
paid-in capital. The put options entitle the holders to sell Common Shares to
the company if the price of the Company's Common Shares falls below a
specified strike price. At December 31, 1999, 250,000 put options were
outstanding and no options had been exercised. The options expire at various
dates through May 2000 and have an average strike price of $12.83.

  B. In September 1997 the company announced a two-for-one stock split of its
Common Shares. In connection with this split the Company issued an additional
18,741,121 Common Shares and 468,584 Common Shares subject to redemption.

  C. The Company's ability to pay dividends is subject to certain restrictions
including the following:

    (i) The Company is subject to a 30% U.S. withholding tax on any dividends
  received from its U.S. subsidiaries and certain of the IPC Companies.

    (ii) The Company's ability to cause the Legion Companies to pay a
  dividend is limited by insurance regulation to an annual amount equal to
  the greater of 10% of the Legion Companies' statutory surplus as regards
  policyholders, or the Legion Companies' statutory income for the preceding
  year. The maximum dividend the Legion Companies will be permitted to pay
  under this restriction in 2000 is $35.0 million based upon 1999 results
  (1999--$23.6 million based on 1998 results). The Legion Companies' net
  assets which were restricted by the above were $353.6 million at December
  31, 1999 (1998--$236.9 million). Loans and advances by the Legion Companies
  to the Company or any other subsidiary would require the prior approval of
  the Pennsylvania insurance department and possibly other states in which
  they are licensed.

  D. At December 31, 1999 the Legion Companies' combined risk-based capital
was $347.4 million (1998--$225.5 million). Under the risk-based capital tests,
the threshold that constitutes the authorized control level, which authorizes
the commissioner to take whatever regulatory actions considered necessary to
protect the best interest of the policyholders and creditors of the Legion
Companies was $121.0 million (1998--$78.5 million).

  E. Net income and policyholders' surplus of the Legion Companies, as filed
with regulatory authorities on the basis of statutory accounting practices,
are as follows:

<TABLE>
<CAPTION>
                                                      Year ended December 31,
                                                     --------------------------
                                                       1999     1998     1997
                                                     -------- -------- --------
                                                           (In thousands)
<S>                                                  <C>      <C>      <C>
Statutory net income for the year................... $ 11,269 $ 20,238 $ 21,947
Statutory policyholders' surplus at year end........ $349,867 $227,664 $200,249
</TABLE>

13. STOCK OPTIONS

  Employees have been granted options to purchase Common Shares under the
Company's Long Term Incentive Plans. In each case, the option price equals the
fair market value of the Common Shares on the day of the grant and an option's
maximum term is five to ten years. Options granted vest ratably over a four
year period.

                                     F-18
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  In accordance with the provisions of SFAS 123, the Company applies APB
Opinion 25 and related Interpretations in accounting for its stock option
plans and, accordingly, does not recognize compensation cost. If the Company
had elected to recognize compensation cost based on the fair value of the
options granted at grant date as prescribed by SFAS 123, net income and
earnings per share would have been reduced to the pro forma amounts indicated
in the table below:

<TABLE>
<CAPTION>
                                              Year ended December 31,
                                     -----------------------------------------
                                         1999          1998          1997
                                     ------------- ------------- -------------
                                      (In thousands except per share amounts)
<S>                                  <C>           <C>           <C>
Net income--as reported............. $      50,438 $      64,527 $      49,372
Net income--pro forma............... $      44,465 $      60,732 $      47,192
Basic earnings per share--as
 reported...........................         $1.18         $1.56         $1.25
Basic earnings per share--pro
 forma..............................         $1.04         $1.47         $1.20
Diluted earnings per share--as
 reported...........................         $1.14         $1.42         $1.15
Diluted earnings per share--pro
 forma..............................         $1.02         $1.38         $1.13
</TABLE>

  The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:

<TABLE>
<S>                         <C>              <C>              <C>
Expected dividend yield....             1.5%             0.6%             0.5%
Expected stock price
 volatility................       .329-.398        .307-.330        .283-.329
Risk-free interest rate....             5.9%             5.3%             5.0%
Expected life of options... 4 years-9 years  4 years-9 years  4 years-9 years
</TABLE>

  The weighted average fair value of options granted during 1999 is $5.74 per
share (1998--$11.35 per share, 1997--$7.83 per share).

  The pro forma effect on net income for 1999, 1998 and 1997 is not
representative of the pro forma effect on net income in future years because
it does not take into consideration pro forma compensation expense related to
grants made prior to 1995.

  Options issued and outstanding under the plans are as follows:

Summary of Employee Stock Option Plan Activity

<TABLE>
<CAPTION>
                                           Year ended December 31,
                                  -------------------------------------------
                                      1999           1998           1997
                                  -------------  -------------  -------------
<S>                               <C>            <C>            <C>
Number of Options
Outstanding, beginning of year...     4,220,580      3,794,925      3,442,322
Granted..........................     1,586,183      1,010,399      1,015,100
Exercised........................      (744,223)      (563,293)      (615,189)
Cancelled........................      (138,267)       (21,451)       (47,308)
                                  -------------  -------------  -------------
Outstanding and exercisable, end
 of year.........................     4,924,273      4,220,580      3,794,925
                                  =============  =============  =============

Option Price Per Share
Granted.......................... $11.44-$39.63  $26.25-$38.31  $15.00-$28.63
Exercised........................ $ 7.97-$26.25  $ 7.97-$26.25  $ 7.97-$15.14
Cancelled........................ $ 9.52-$39.54  $10.83-$26.25  $ 7.97-$19.38
Outstanding and exercisable, end
 of year......................... $11.44-$39.63  $ 7.97-$38.31  $ 7.97-$28.63
</TABLE>

                                     F-19
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Summary of Options Outstanding at December 31, 1999

<TABLE>
<CAPTION>
                                    Weighted
Year of   Number     Number of      Average       Exercise
 Grant   of Shares Shares Vested Exercise Price  Price Range          Expiration Date Range
-------  --------- ------------- -------------- ------------- --------------------------------------
<S>      <C>       <C>           <C>            <C>           <C>
1995       316,553     316,553       $15.08     $13.97-$15.14 September 21, 2000 to December 1, 2000
1996     1,211,451     490,032       $15.11     $14.25-$16.78 January 2, 2001 to December 17, 2006
1997       898,625     440,750       $25.55     $15.00-$28.63 January 31, 2002 to December 18, 2002
1998       980,461     217,172       $35.23     $29.94-$38.31 January 2, 2003 to December 21, 2003
1999     1,517,183         --        $17.06     $11.44-$39.63 February 26, 2004 to December 14, 2004
         ---------   ---------       ------
         4,924,273   1,464,507       $21.54
         =========   =========       ======
</TABLE>

  Options generally vest 25% annually commencing one year after issuance,
except for 770,000 of the options issued in 1996 at a grant price of $15,
which were issued to executives of the Company. These options are for 10 years
and 75% have vesting schedules tied to the conversion of the Zero Coupon
Convertible Exchangeable Subordinated Debentures (see Note 6) and other
performance benchmarks.

  Options have been granted to each of the outside directors. All options are
for five years and become exercisable six months after issuance.

  Total options granted to directors are as follows:

<TABLE>
<CAPTION>
          Number of Shares
Year of  -------------------   Exercise
 Grant   Granted Outstanding     Price             Expiration Date
-------  ------- ----------- ------------- --------------------------------
<S>      <C>     <C>         <C>           <C>
1995     140,000   140,000          $15.14                 December 1, 2000
1996     105,000   105,000          $16.69                 December 1, 2001
1997      75,000    75,000   $19.50-$27.81 May 21, 2002 to December 1, 2002
1998      60,000    60,000          $37.25                 December 1, 2003
1999      60,000    60,000          $14.75                 December 1, 2004
         -------   -------
         440,000   440,000
         =======   =======
</TABLE>

                                     F-20
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


14. EARNINGS PER COMMON SHARE

  The following table sets forth the computation of basic and diluted earnings
per common share.

<TABLE>
<CAPTION>
                                                  1999       1998       1997
                                               ---------- ---------- ----------
                                               (In thousands, except shares and
                                                     earnings per share)
<S>                                            <C>        <C>        <C>
Numerator
Income before extraordinary loss.............. $   50,620 $   64,527 $   49,477
Extraordinary loss on extinguishment of
 debentures, net of tax.......................        182        --         --
                                               ---------- ---------- ----------
Net Income....................................     50,438     64,527     49,477
Preferred share dividends.....................        --         --         105
Numerator for basic earnings per common share
 --Net income available to common
  shareholders................................     50,438     64,527     49,372
                                               ---------- ---------- ----------
Effect of dilutive securities:
 Conversion of Zero Coupon Convertible
  Exchangeable Subordinated Debentures........      5,997      6,605      6,500
Numerator for diluted earnings per common
 share
 --Net income available to common shareholders
  after assumed conversions................... $   56,435 $   71,132 $   55,872
                                               ========== ========== ==========
Denominator
Denominator for basic earnings per common
 share--weighted average shares............... 42,797,133 41,275,156 39,379,122
Effect of dilutive securities:
 Stock options................................    991,406  2,223,900  1,565,950
 Common shares subject to Redemption..........        --         --     861,380
 Conversion of Zero Coupon Convertible
  Exchangeable Subordinated Debentures........  5,818,374  6,734,091  6,978,800
                                               ---------- ---------- ----------
Denominator for diluted earnings per common
 share--adjusted weighted average shares and
 assumed conversions.......................... 49,606,913 50,233,147 48,785,252
                                               ========== ========== ==========
Basic earnings per common share
 Income before extraordinary loss............. $     1.18 $     1.56 $     1.25
 Extraordinary loss on extinguishment of
  debentures, net of tax...................... $     0.00 $      --  $      --
                                               ---------- ---------- ----------
Basic earnings per common share............... $     1.18 $     1.56 $     1.25
                                               ========== ========== ==========
Diluted earnings per common share
 Income before extraordinary loss............. $     1.14 $     1.42 $     1.15
 Extraordinary loss on extinguishment of
  debentures, net of tax...................... $     0.00 $      --  $      --
                                               ---------- ---------- ----------
Diluted earnings per common share............. $     1.14 $     1.42 $     1.15
                                               ========== ========== ==========
</TABLE>

15. DERIVATIVE FINANCIAL INSTRUMENTS

  The Company has had only limited involvement with derivative financial
instruments and does not use them for trading or speculative purposes. They
are utilized to manage interest rate risk.

  In June 1998, the Financial Accounting Standards Board issued Statement 133,
"Accounting for Derivative Instruments and Hedging Activities" which was
amended by Statement 137 in June 1999. The Statement

                                     F-21
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

requires recording all derivative instruments as assets or liabilities,
measured at fair value. The Statement is effective for fiscal years beginning
after June 15, 2000. The Company does not expect the Statement to have a
material impact on its financial position or results of operations.

16. SEGMENT INFORMATION

  Selected information by operating segment is summarized in the chart below.

Line of Business Financial Information

<TABLE>
<CAPTION>
                                                   Year ended December 31,
                                                  ----------------------------
                                                    1999      1998      1997
                                                  --------  --------  --------
                                                        (In thousands)
<S>                                               <C>       <C>       <C>
Revenue(1)
Program Business................................. $ 95,132  $ 82,267  $ 49,363
Corporate Risk Management........................   49,365    51,640    54,800
Specialty Brokerage..............................   13,692     9,021     8,351
Financial Services...............................   19,522    14,343     8,744
Underwriting.....................................  181,798   101,913    84,200
Net investment income............................   28,417    28,587    24,984
Other............................................     (300)      143        56
                                                  --------  --------  --------
  Total.......................................... $387,626  $287,914  $230,498
                                                  ========  ========  ========
Income Before Income Taxes and Minority Interest
Program Business................................. $ 26,969  $ 32,620  $ 19,080
Corporate Risk Management........................   15,694    20,158    20,498
Specialty Brokerage..............................    5,226     2,264     2,594
Financial Services...............................    1,298       542     2,291
Underwriting.....................................  (17,489)   (2,406)   (1,473)
Net investment income............................   21,610    21,768    18,232
Other............................................   (3,001)   (1,976)   (1,113)
                                                  --------  --------  --------
  Total.......................................... $ 50,307  $ 72,970  $ 60,109
                                                  ========  ========  ========
</TABLE>
--------
(1) Fee income from two clients accounted for 2% and 2% of total Fee income in
    1999 (1998--2% and 1%; 1997--2% and 1%). Premiums earned from two clients
    accounted for 6% and 6% of total Premiums earned during 1999 (1998--4% and
    3%; 1997--5% and 4%). The subsidiaries' accounting records do not capture
    information by reporting segment sufficient to determine identifiable
    assets by such reporting segments.

                                     F-22
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


17. FOREIGN SALES AND OPERATIONS

  The Company's non-U.S. operations include Bermuda, Barbados, the Cayman
Islands and Europe.

Financial Information Relating to Geographic Areas

<TABLE>
<CAPTION>
                                                  Year ended December 31,
                                              --------------------------------
                                                 1999       1998       1997
                                              ---------- ---------- ----------
                                                       (In thousands)
<S>                                           <C>        <C>        <C>
Total Revenues
U.S. Business................................ $  291,458 $  193,653 $  161,681
Non-U.S. Business............................     96,168     94,261     68,817
                                              ---------- ---------- ----------
  Total...................................... $  387,626 $  287,914 $  230,498
                                              ========== ========== ==========
Income Before Income Taxes and Minority
 Interest
U.S. Business................................ $   15,911 $   38,285 $   38,485
Non-U.S. Business............................     34,396     34,685     21,624
                                              ---------- ---------- ----------
  Total...................................... $   50,307 $   72,970 $   60,109
                                              ========== ========== ==========
Total Assets
U.S. Business................................ $3,078,861 $2,082,077 $1,411,881
Non-U.S. Business(1).........................    954,313    992,180    794,169
                                              ---------- ---------- ----------
  Total...................................... $4,033,174 $3,074,257 $2,206,050
                                              ========== ========== ==========
</TABLE>
--------
(1) Includes Assets held in separate accounts of $693.4 million, $722.3
    million and $649.2 million for 1999, 1998 and 1997 respectively.

18. ACQUISITIONS

  During 1998 the Company acquired several new businesses for a total of $25.6
million (1997--$19.6 million). The excess of the purchase price over net
assets acquired was $21.9 million (1997--$18.7 million). These acquisitions
were accounted for by the purchase method. The pro forma effect on the
Company's revenue, net income and earnings per share is not material.

  During 1998 the Company acquired CompFirst, Inc. and IAS in a business
combination accounted for as a pooling of interests. These companies became
wholly owned subsidiaries of the Company through the exchange of 943,821
Common Shares for 100% of each company's outstanding stock.

                                     F-23
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  On March 1, 1999, the Company acquired Captive Resources, Inc. ("CRI") in a
business combination accounted for as a pooling of interests. CRI became a
wholly owned subsidiary of the Company through the exchange of 1,058,766
Common Shares for 100% of its outstanding stock.

<TABLE>
<CAPTION>
                                                        Year ended   Year ended
                                                       December 31, December 31,
                                                           1998         1997
                                                       ------------ ------------
                                                            (In thousands)
<S>                                                    <C>          <C>
Revenues
MRM(1)................................................   $279,396     $223,826
Captive Resources, Inc................................      8,518        6,672
                                                         --------     --------
  As restated.........................................   $287,914     $230,498
                                                         ========     ========
Net Income
MRM(1)................................................   $ 63,632     $ 48,811
Captive Resources, Inc................................        895          666
                                                         --------     --------
  As restated.........................................   $ 64,527     $ 49,477
                                                         ========     ========
</TABLE>
--------
(1) As previously reported

  Shareholders' equity at January 1, 1997 was restated as follows:

<TABLE>
<CAPTION>
                                     As previously     Captive
                                       reported    Resources, Inc. As restated
                                     ------------- --------------- -----------
                                                  (In thousands)
<S>                                  <C>           <C>             <C>
Common shares.......................   $    381         $  11       $    392
Additional paid-in capital..........     82,059           (10)        82,049
Accumulated other comprehensive
 income.............................         48             0             48
Retained earnings...................    129,036          (182)       128,854
                                       --------         -----       --------
  Total shareholders' equity........   $211,524         $(181)      $211,343
                                       ========         =====       ========
</TABLE>

19. RELATED PARTY TRANSACTIONS

  A. $.8 million (1998--$.6 million; 1997--$.9 million) of Fee income and
$(.1) million (1998--$1.4 million; 1997--$4.2 million) of premiums were earned
from a certain IPC Program participant associated with a director and
shareholder of the Company.

  B. A number of subsidiaries of the Company have written business involving
subsidiaries of The Galtney Group, Inc. ("GGI") of which a director of the
Company is the principal shareholder. During 1999 the Company paid fees of
$3.0 million on such business to GGI (1998--$4.0 million; 1997--$4.3 million).

  C. The Company and its subsidiaries provide administrative and accounting
services to a number of unaffiliated insurance and reinsurance companies.
Certain officers, directors and employees of the Company serve as officers and
directors of these companies, generally without remuneration.

  D. In connection with the Company's acquisition of The Hemisphere Group
Limited ("Hemisphere") in July 1996, the Company acquired a 40% interest in
the Hemisphere Trust Company Limited ("Hemisphere Trust"), a Bermuda "local"
trust company, which had formerly been a wholly owned subsidiary of
Hemisphere. As a "local" Bermuda company, at least 60% of the shares of
Hemisphere Trust must be owned by Bermudians. In compliance with this
requirement, Mr. Robert A. Mulderig, Chairman and CEO of the Company, acquired

                                     F-24
<PAGE>

                 MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

60% of Hemisphere Trust for $.2 million at the time of the Company's
acquisition of Hemisphere. The amount of the purchase price was equal to 60%
of the book value of Hemisphere Trust on the date of acquisition.

  The Company and Mr. Mulderig have entered into a Shareholders' Agreement
relating to Hemisphere Trust which provides, amongst other things, that (i)
the Company has the option, subject to regulatory approval to acquire Mr.
Mulderig's interest in Hemisphere Trust at Mr. Mulderig's cost, plus interest
at 6% per annum; (ii) the Company has a pre-emptive right, also subject to
regulatory approval, over the shares held by Mr. Mulderig and (iii) no
dividends or other distributions can be made by Hemisphere Trust without the
prior consent of the Company.

20. QUARTERLY FINANCIAL DATA--(UNAUDITED)

<TABLE>
<CAPTION>
                                                  1999--Quarters Ended
                                         ---------------------------------------
                                          Dec 31   Sept 30   June 30  March 31
                                         -------- --------- --------- ----------
                                         (In thousands, except per share data)
<S>                                      <C>      <C>       <C>       <C>
Total revenues.......................... $ 89,293 $ 102,623 $ 103,817 $ 91,893
Income before income taxes and minority
 interest...............................    7,723     2,065    19,713   20,806
Income before minority interest.........    8,417     5,366    18,098   18,791
Income before extraordinary loss........    8,365     5,361    18,095   18,799
Net income..............................    8,183     5,361    18,095   18,799
Net income available to common
 shareholders...........................    8,183     5,361    18,095   18,799
Basic earnings per Common Share:
  Net income available to common
   shareholders......................... $   0.20 $    0.12 $    0.42 $   0.44
<CAPTION>
                                                1998--Quarters Ended(1)
                                         ---------------------------------------
                                          Dec 31   Sept 30   June 30  March 31
                                         -------- --------- --------- ----------
                                         (In thousands, except per share data)
<S>                                      <C>      <C>       <C>       <C>
Total revenues.......................... $ 77,351 $  72,935 $  65,154 $ 72,474
Income before income taxes and minority
 interest...............................   18,070    19,309    18,149   17,442
Income before minority interest.........   16,113    17,054    16,092   15,175
Net income..............................   16,163    17,097    16,092   15,175
Net income available to common
 shareholders...........................   16,163    17,097    16,092   15,175
Basic earnings per Common Share:
  Net income available to common
   shareholders......................... $   0.38 $    0.41 $    0.39 $  .0.38
</TABLE>
--------
(1) Prior periods have been restated to reflect a pooling of interests
    following the acquisition of Captive Resources, Inc.

21. SUBSEQUENT EVENTS

  In January and February 2000, the Company repurchased Convertible Debentures
representing a principal amount of $168.1 million in the open market for $76.8
million, resulting in an extraordinary loss of $3.4 million, net of tax. The
Company expects to have similar extraordinary losses in the future if it
repurchases the remaining $83.9 million principal amount of Convertible
Debentures in 2000.

  In January and February 2000, the Company drew down an additional $76.0
million under the bridging loan facility (see note 7).

  In February 2000, the Company filed an S-3 Shelf Registration Statement with
the U. S. Securities and Exchange Commission, for the future issuance of $500
million of debt and preferred securities.

                                     F-25
<PAGE>

                         INDEPENDENT AUDITOR'S REPORT

                                                        [LOGO OF ERNST & YOUNG
                                                         APPEARS HERE]

To the Board of Directors and Shareholders

Mutual Risk Management Ltd.

We have audited the accompanying consolidated balance sheets of Mutual Risk
Management Ltd. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income and comprehensive income, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Mutual Risk
Management Ltd. and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.

                                          /S/ ERNST & YOUNG

Hamilton, Bermuda
February 15, 2000
except for note 21, as to which the date is
February 29, 2000

                                     F-26
<PAGE>

                           MUTUAL RISK MANAGEMENT LTD
                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                       PARENT COMPANY ONLY BALANCE SHEETS

<TABLE>
<CAPTION>
                                                          1999       1998(1)
                                                      ------------ ------------
<S>                                                   <C>          <C>
ASSETS
Cash and cash equivalents............................ $  6,721,527 $    689,260
Investments..........................................    9,664,914    8,594,316
Investments in subsidiaries and affiliates...........  570,072,530  425,013,307
Due from subsidiaries and affiliates.................      542,308   34,455,222
Other Assets.........................................    2,319,150    2,371,905
                                                      ------------ ------------
Total Assets......................................... $589,320,429 $471,124,010
                                                      ============ ============
</TABLE>

<TABLE>
<S>             <C> <C>
LIABILITIES &
 SHAREHOLDERS'
 EQUITY
</TABLE>

<TABLE>
<S>                                                  <C>           <C>
LIABILITIES
Accounts payable and accrued expenses............... $    393,741  $        926
Other liabilities...................................    2,884,665     2,471,885
Debentures..........................................  110,898,002   125,485,201
Bridging loan.......................................  117,000,000           --
                                                     ------------  ------------
Total Liabilities...................................  231,176,408   127,958,012
                                                     ============  ============
SHAREHOLDERS' EQUITY
Common Shares--Authorized 180,000,000 (par value
 $0.01) Issued 41,205,191 (excluding 2,636,716
 cumulative shares held in treasury) (1998--
 42,205,596)........................................      412,052       422,056
Additional paid-in capital..........................  110,754,754   114,916,045
Accumulated other comprehensive (loss) income.......  (14,937,127)    4,456,781
Retained earnings...................................  261,914,342   223,371,116
                                                     ------------  ------------
Total Shareholders' Equity..........................  358,144,021   343,165,998
                                                     ------------  ------------
Total Liabilities & Shareholders' Equity............ $589,320,429  $471,124,010
                                                     ============  ============
</TABLE>
--------
(1) Prior periods have been restated to reflect a pooling of interests
    following the acquisition of Captive Resources, Inc.

                 See Notes to Consolidated Financial Statements

                                      S-1
<PAGE>

                           MUTUAL RISK MANAGEMENT LTD
                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                     PARENT COMPANY ONLY INCOME STATEMENTS

<TABLE>
<CAPTION>
                                              Years Ended December 31,
                                        --------------------------------------
                                            1999        1998(1)      1997(1)
                                        ------------  -----------  -----------
<S>                                     <C>           <C>          <C>
NET INVESTMENT INCOME.................     1,008,904    2,171,384    2,928,791
Operating expenses....................       141,055      141,140      140,943
Interest expense......................       573,200          --           --
Amortization of debentures............     5,996,459    6,605,238    6,500,288
                                        ------------  -----------  -----------
LOSS BEFORE EXTRAORDINARY LOSS AND
 EQUITY IN EARNINGS OF SUBSIDIARIES...    (5,701,810)  (4,574,994)  (3,712,440)
Extraordinary loss on extinguishment
 of debentures, net of tax............      (181,742)         --           --
                                        ------------  -----------  -----------
NET LOSS BEFORE EQUITY IN EARNINGS OF
 SUBSIDIARIES.........................    (5,883,552)  (4,574,994)  (3,712,440)
Dividend from subsidiaries............           --           --    11,922,627
Undistributed equity in earnings of
 subsidiary...........................    56,321,584   69,102,196   41,266,925
                                        ------------  -----------  -----------
NET INCOME............................    50,438,032   64,527,202   49,477,112
Preferred share dividends.............           --           --      (104,929)
                                        ------------  -----------  -----------
NET INCOME AVAILABLE TO COMMON
 SHAREHOLDERS.........................    50,438,032   64,527,202   49,372,183
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized (losses) gains on
 investments, net of reclassification
 adjustment...........................   (19,393,912)     421,385    3,987,716
                                        ------------  -----------  -----------
COMPREHENSIVE INCOME..................  $ 31,044,120  $64,948,587  $53,359,899
                                        ============  ===========  ===========
</TABLE>
--------
(1) Prior periods have been restated to reflect a pooling of interests
    following the acquisition of Captive Resources, Inc.


                 See Notes to Consolidated Financial Statements

                                      S-2
<PAGE>

                           MUTUAL RISK MANAGEMENT LTD
                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                  PARENT COMPANY ONLY STATEMENTS OF CASH FLOW

<TABLE>
<CAPTION>
                                            Years Ended December 31,
                                     -----------------------------------------
                                         1999         1998(1)       1997(1)
                                     -------------  ------------  ------------
<S>                                  <C>            <C>           <C>
NET CASH FLOW FROM OPERATING
 ACTIVITIES
Net loss before equity in earnings
 of subsidiaries...................  $  (5,883,552) $ (4,574,994) $ (3,712,440)
Items not affecting cash
 Amortization of debentures........      5,996,459     6,605,238     6,500,288
 Amortization of investments.......     (1,092,079)   (1,188,773)     (166,292)
Net changes in non-cash balances
 relating to operations:
 Other assets......................         52,755       239,181     5,229,028
 Accounts payable and accrued
  expenses.........................        392,815        (6,592)   (1,348,741)
 Other liabilities.................            --            --        (85,145)
 Due from subsidiaries and
  affiliates.......................     33,912,914   (11,370,137)  (20,698,928)
                                     -------------  ------------  ------------
NET CASH FLOW FROM (APPLIED TO)
 OPERATING ACTIVITIES..............     33,379,312   (10,296,077)  (14,282,230)
                                     -------------  ------------  ------------
CASH FLOWS FROM INVESTING
 ACTIVITIES
 Proceeds from sale of fixed
  assets...........................            --            --      1,265,818
 Cost of investments...............            --    (15,942,997)  (18,753,904)
 Proceeds from sale of
  investments......................            --     30,475,717    56,556,009
 Cost of investments in affiliates
  and subsidiaries.................   (108,097,564)   (2,587,782)  (36,397,234)
 Dividends received from
  subsidiaries.....................            --            --     11,922,627
                                     -------------  ------------  ------------
NET CASH (APPLIED TO) FROM
 INVESTING ACTIVITIES..............   (108,097,564)   11,944,938    14,593,316
                                     -------------  ------------  ------------
CASH FLOWS FROM FINANCING
 ACTIVITIES
 Proceeds from shares issued.......     11,209,642     8,055,217     7,297,184
 Purchase of Treasury shares.......    (29,813,837)          --            --
 Extinguishment of convertible
  debentures.......................     (6,163,258)          --            --
 Redemption of preferred shares....            --            --     (2,951,835)
 Bridging loan received............    117,000,000           --            --
 Subscription loans receivable.....            --        383,761       383,761
 Loan interest received............            --          4,922        34,727
 Dividends paid....................    (11,482,028)  (10,427,321)   (8,301,338)
                                     -------------  ------------  ------------
NET CASH FLOWS FROM (APPLIED TO)
 FINANCING ACTIVITIES..............     80,750,519    (1,983,421)   (3,537,501)
                                     -------------  ------------  ------------
Net increase (decrease) in cash and
 cash equivalents..................      6,032,267      (334,560)   (3,226,415)
Cash and cash equivalents at begin-
 ning of year......................        689,260     1,023,820     4,250,235
                                     -------------  ------------  ------------
Cash and cash equivalents at end of
 year..............................  $   6,721,527  $    689,260  $  1,023,820
                                     =============  ============  ============
</TABLE>
--------
(1) Prior periods have been restated to reflect a pooling of interests
    following the acquisition of Captive Resources, Inc.

                 See Notes to Consolidated Financial Statements

                                      S-3
<PAGE>

                                                                    SCHEDULE VI

                          MUTUAL RISK MANAGEMENT LTD.

                      SUPPLEMENTARY INSURANCE INFORMATION

                          (U.S. DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                    Gross
                    Deferred     Reserve for      Gross
   Year Ended        Policy     Unpaid Claims   Discount,   Gross     Net       Net
  December 31,     Acquisition       and         if any,   Unearned  Earned  Investment
Property-Casualty     Costs    Claims Expenses Deducted(1) Premiums Premiums   Income
-----------------  ----------- --------------- ----------- -------- -------- ----------
<S>                <C>         <C>             <C>         <C>      <C>      <C>
  1999               20,531       1,860,120      39,538    335,265  181,798    17,466
  1998               17,948       1,190,426      36,213    241,893  101,913    16,357
  1997               19,204         716,461      28,083    188,389   84,200    16,879
</TABLE>

<TABLE>
<CAPTION>
                   Net Claim and Claims
                     Expenses Incurred
                      Related to (1)
                   ---------------------
                                          Amortization Net Paid
                                          of Deferred   Claims
   Year Ended                                Policy      and      Net      Other
  December 31,       Current     Prior    Acquisition   Claims  Premiums Operating
Property-Casualty     Year       Year        Costs     Expenses Written  Expenses
-----------------  ----------- ---------  ------------ -------- -------- ---------
<S>                <C>         <C>        <C>          <C>      <C>      <C>
  1999                 146,414     1,291     51,582    128,384  200,517   42,857
  1998                  74,476     3,782     26,061     53,158  104,948   30,164
  1997                  50,301      (444)    35,816     33,512   96,170   19,559
</TABLE>
--------
(1) Medical malpractice reserves have been discounted at 6% in 1999, 1998 and
    1997. Workers' compensation reserves have been discounted at 4% in 1999,
    1998 and 1997.

                                      S-4