SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

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


For the Fiscal Year Ended December 31, 1999
Commission File Number 0-21988


                                 Kaye Group Inc.
             (exact name of registrant as specified in its charter)


        Delaware                                          13-3719772
(State or Other Jurisdiction of                (IRS Employer Identification No.)
Incorporation or Organization)

                    122 East 42nd Street, New York, NY 10168
              (Address and Zip Code of Principal Executive Offices)

                  Registrant's Telephone Number: (212) 338-2100

Securities Registered Under Section 12(b) of the Exchange Act:

    Title of Each Class                             Name of Exchange
Common Stock $.01 par value                      NASDAQ National Market

Securities Registered Under Section 12(g) of the Exchange Act:

                                      None

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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 __

     Check  if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation  S-K is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best  of  registrant's  knowledge  in  definitive  proxy  or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. _X_


<PAGE>



     The  aggregate  market  value  of the  registrant's  common  stock  held by
non-affiliates  of  the  registrant  as of  March  20,  2000  was  approximately
$35,065,000

     Number of shares of the registrant's  common stock  outstanding as of March
20, 2000: 8,480,887.


                       DOCUMENTS INCORPORATED BY REFERENCE

     The registrant's  definitive proxy statement,  which will be filed with the
Securities  and  Exchange  Commission  within 120 days after  December  31, 1999
(incorporated by reference under Part III).

     Total number of pages filed including cover and under pages 88.

     Index to Exhibits is on page 40.



















                                       2
<PAGE>



                                 KAYE GROUP INC.

                                TABLE OF CONTENTS

Part I

Item 1.        Business                                                  4

Item 2.        Properties                                               19

Item 3.        Legal Proceedings                                        20

Item 4.        Submission of Matters to a Vote of Security Holders      20


Part II

Item 5.        Market for Common Equity and Related
               Stockholder Matters                                      21

Item 6.        Selected Financial Data                                  22

Item 7.        Management's Discussion and Analysis
               of Financial Condition and Results of Operations         24

Item 8.        Financial Statements and Supplementary Data              37


Item 9.        Changes in and Disagreements with Accountants
               on Accounting and Financial Disclosure                   37


Part III

Item 10.       Directors and Executive Officers of the Registrant       37

Item 11.       Executive Compensation                                   38

Item 12.       Security Ownership of Certain
               Beneficial Owners and Management                         38

Item 13.       Certain Relationships and Related Transactions           38


Part IV

Item 14.       Exhibits, Financial Statement Schedules
               and Reports on Form 8-K                                  38

Financial Statements                                                    F-1



                                       3
<PAGE>



                                     PART I

Item 1. Business

Business Segments

     Kaye Group Inc.  (the  "Company"),  a  Delaware  corporation,  is a holding
company  which,  through  its  subsidiaries,  is  engaged  in a broad  range  of
insurance brokerage,  underwriting and related activities.  The Company operates
in  two  insurance  business  segments  -  the  Insurance   Brokerage  Companies
Operations ("Brokerage Operations"),  comprised of the Retail Brokerage Business
and the Program  Brokerage  Business,  and the Property  and Casualty  Companies
Operations.

     In addition,  Corporate  Operations  includes those activities that benefit
the Company in its entirety and cannot be specifically  identified to either the
Brokerage  Operations or the Property and Casualty  Companies  Operations.  Such
activities  include  debt  servicing  and  public  company  expenses,  including
investor relations costs.

     The Company's  activities are conducted in New York, New York, and in other
offices located in Pasadena, California, Westport, Connecticut, Floral Park, New
York, Woodbury, New York and Warwick, Rhode Island.

Insurance Brokerage Companies Operations

     The Retail  Brokerage  Business  operates  insurance  brokerage  businesses
through four subsidiaries of the Company, the "Retail Brokerage Companies".  The
Retail Brokerage  Companies offers commercial  clients a full range of insurance
brokerage services including  procurement of property/casualty  insurance,  risk
management consulting,  bonding, loss prevention engineering, and group employee
benefit  consulting  services.  In addition,  personal lines and life and health
insurance coverage are placed on behalf of individual clients.

     The Retail Brokerage Business' primary strategy is to service middle market
companies  and  organizations  just below the  Fortune 500 level for which other
national  brokers  intensely  compete.  Within  this middle  market,  the Retail
Brokerage Business has developed particular expertise and knowledge of the risks
facing a number of industry sectors including health care, real estate,  retail,
manufacturing, churches, law firms, homes for the aged and fine arts.

     During 1999, the Retail Brokerage  Business serviced  approximately  17,000
insureds.  The  Retail  Brokerage  Business  is  compensated  for  its  services
primarily in the form of commissions paid by insurance companies. The commission
is usually a percentage  of the premium paid by the  insured.  Commission  rates
depend upon the type of insurance,  the particular  insurance  company,  and the
role in which the Retail Brokerage  Business acts. In some cases a commission is
shared with other agents or brokers who



                                       4
<PAGE>



have acted jointly with the Retail  Brokerage  Business in  connection  with the
transaction.  The Retail  Brokerage  Business may also receive from an insurance
company a contingent commission that is generally based on the profitability and
volume of business placed with it by the Retail Brokerage  Business over a given
period  of time.  The  Retail  Brokerage  Business  may also  receive  fees from
insureds in connection  with  consulting  services  relating to the marketing of
insurance.

     Program Brokerage  Corporation or "PBC" (the "Program Brokerage  Business")
is a  subsidiary  of the Company and  operates a wholesale  insurance  brokerage
business which offers retail insurance agents and brokers  innovative  solutions
to the twin  insurance  problems  of price  and  availability  of  coverage.  It
accomplishes  this by organizing pools of similar risks into specially  designed
alternative distribution programs through which it places insurance for affinity
groups (the "Programs").

     The Program Brokerage  Business is one of the leaders in the application of
purchasing groups in the commercial insurance market. Approximately 69% of PBC's
premium  volume  was  generated  by its  own  producers  and  approximately  600
unrelated  retail  insurance agent and broker  producers  serving  approximately
8,000  insureds  during  1999.  The  remaining  31% was derived  from the Retail
Brokerage  Business.  Approximately  41% of PBC's premium  volume is directly or
indirectly  placed  with two  affiliates,  Old Lyme  Insurance  Company of Rhode
Island, Inc. ("OLRI") and Old Lyme Insurance Company, Ltd. (Bermuda) ("OLB").

Property and Casualty Companies Operations

     The Company  conducts  its  property  and  casualty  underwriting  business
through two insurance company subsidiaries (the "Insurance Companies"), OLRI and
OLB. OLRI is a property and casualty  insurance company licensed in Rhode Island
and  eligible as a surplus  lines  insurer in New York and New Jersey.  OLB is a
property and casualty insurance company organized and licensed under the laws of
Bermuda.  In states where the Insurance  Companies are not admitted  insurers or
surplus lines insurers, the Insurance Companies underwrite risks through various
reinsurance agreements.

     The Insurance Companies  underwrite property risks (loss or physical damage
to property) and OLRI  underwrites  casualty risks (legal liability for personal
injury or  damaged  property  of others)  for  insureds  in the  United  States.
Insurance is sold principally  through the Programs marketed by PBC which insure
various   types  of   businesses   and   properties   that  have   similar  risk
characteristics,  such as apartments, condominiums,  cooperatives,  restaurants,
building  maintenance  companies,  automobile  service stations,  retail stores,
funeral homes and pharmacies, among others.



                                       5
<PAGE>



     The Insurance  Companies'  strategy is to underwrite only the first "layer"
of the property and casualty insurance provided under the Programs.  Exposure to
individual insureds on individual losses is thereby generally limited to between
$10,000 and $25,000 per claim (inclusive of allocated loss expenses),  depending
on the Program.  Under the Programs,  the Insurance Companies' policies are sold
in  conjunction  with  policies  issued by  unaffiliated  Program  insurers that
provide  coverage for losses above the first layer of risk  underwritten  by the
Insurance Companies.  In addition,  OLRI has issued policies on a selected basis
with limits up to $25,000,000, retaining up to the first $50,000 of exposure and
reinsuring the remaining limits with  unaffiliated  reinsurers rated A or better
by A.M. Best Company ("A.M. Best"), a major rating agency for insurers.

     The  Property   and   Casualty   Companies   Operations   includes   Claims
Administration  Corporation  ("CAC"),  a  subsidiary  of the  Company  which  is
responsible for the  administration  of a large majority of the claims submitted
to the Insurance Companies. The administration of claims includes investigation,
engagement of legal counsel,  approval of settlements and the making of payments
to, or on behalf of insureds. CAC also provides claims administration service to
certain of the unaffiliated Program insurers for a fee.

History of the Company

1952 to 1993

     Prior  to  the  initial  public  offering   ("IPO")  of  Old  Lyme  Holding
Corporation's  ("Holding")  common stock in August 1993,  the  operations of the
Retail Brokerage Companies,  PBC, the Insurance Companies and CAC were part of a
single  combined  insurance and brokerage  business owned by Kaye  International
L.P.  ("KILP")  and  certain  individuals.  KILP,  via  several  stock and asset
acquisitions  and mergers,  traces its origins  back to 1952.  Prior to the IPO,
KILP  developed  the concept of the  "deductible"  primary  "layer" of insurance
coverage  administered  through  Programs.  This business was placed through the
Insurance  Companies.  In August 1993,  after years of  successful  growth,  the
Insurance  Companies,  PBC  and CAC  were  organized  under  Holding,  of  which
approximately 33% was sold to the public.

     At the time of the IPO,  management of Holding believed that its historical
marketing  efforts and ability to expand its business were hampered by its small
capital  base and its lack of a letter  rating  from  A.M.  Best.  Approximately
$13,000,000 of the proceeds of the IPO were  contributed to OLRI to increase its
capital and surplus to permit it to (i) increase its underwriting  capabilities,
(ii)  obtain a letter  rating  from A.M.  Best,  and (iii)  enable  OLRI to meet
certain regulatory capital and surplus requirements. As a result of the proceeds
being contributed,  OLRI significantly increased its underwriting capacity. This
enabled it to ultimately obtain an A.M. Best rating of A- (Excellent)  (which it
currently maintains) and meet all regulatory capital and surplus requirements.



                                       6
<PAGE>



     The business growth of OLRI however depends on the creation of new Programs
and the  addition  of insureds  into  existing  Programs.  OLRI relies on PBC to
develop  new  Programs.  PBC is  also  OLRI's  most  important  and  significant
producing  broker,  historically  producing all of the Insurance  Companies' net
premiums earned.

1994

     In 1994, the Retail  Brokerage  Business  completed the  integration of its
1992  acquisition  of  Amalgamated  Programs  Corporation  and related  entities
("Amalgamated")  and  continued to downsize to adjust for the  continuing  "soft
market" in property and casualty premium rates. At the time, the officers of the
general  partners  of  KILP  (which  included  members  of  Holding's  Board  of
Directors)  concluded that the  combination of Holding and the Retail  Brokerage
Business would be advantageous for both OLRI and KILP. This conclusion was based
on three factors:  (a) improved  operating  results derived from the Amalgamated
integration  and "soft  market"  downsizing,  (b) the  improved  outlook for the
Retail Brokerage  Business and (c) the fact that the Retail  Brokerage  Business
accounted for approximately one-half of PBC's premium volume.

     In evaluating the combination, Holding's Board of Directors also considered
the fact that the  market  for  Holding's  common  stock  following  the IPO was
relatively  illiquid.  The Board  believed  that the  combination  of the Retail
Brokerage  Business with Holding would  increase the size of Holding,  make it a
more financially  diverse company and potentially  attract a broader spectrum of
investors.

1995

     The  combination  ("Transaction")  was  effective  October  2, 1995 and was
accounted for as a transfer and exchange between companies under common control.
Accordingly,  the assets and liabilities of the Retail  Brokerage  Business were
combined with those of Holding at their historical cost in a manner similar to a
"pooling of interests" (see Note 2 to the consolidated  financial  statements of
the Company). The combination was accomplished as follows:

          1. Holding  transferred  to then  recently  formed Kaye Holding  Corp.
     ("KHC") all of the outstanding stock of the Insurance Companies and its two
     other  subsidiaries,  PBC and CAC, and its other assets in exchange for (i)
     82,400  shares  of KHC  common  stock,  representing  82.4%  of  the  total
     outstanding KHC common stock,  and (ii) the assumption by KHC of certain of
     Holding's liabilities.

          2. KILP  transferred  all of its interest in the limited  partnerships
     conducting the Retail Brokerage  Business (the "Retail  Partnerships")  and
     certain  related  assets to KHC in  exchange  for (i) 17,200  shares of KHC
     common stock, representing 17.2% of the total outstanding KHC common stock,
     and (ii) the assumption by KHC of certain KILP liabilities.



                                       7
<PAGE>



          3. Certain  individuals  transferred to KHC all of their  interests in
     the  corporate  general  partners of the Retail  Partnerships  (the "Retail
     Brokerage  Companies")  in  exchange  for 400 shares of KHC  common  stock,
     representing 0.4% of the total outstanding KHC common stock.

          4. KHC  contributed  its interests in the Retail  Partnerships  to the
     Retail  Brokerage  Companies  thereby causing the dissolution of the Retail
     Partnerships. As a result, the Retail Brokerage Companies, as a group, owns
     all of the assets and is subject to all of the  liabilities,  of the Retail
     Brokerage Business.

1997

     On December 30, 1997  stockholders of the Company  approved a restructuring
that merged KHC into the Company.  This eliminated the minority  interest in KHC
held by KILP  and  simplified  the  corporate  structure  and  reporting  of the
Company.

1998

     On May 12, 1998 KILP was dissolved and  approximately  6,100,000  shares of
the  Company  were  distributed  by KILP  to its  partners,  consisting  of Kaye
Investments L.P., ZS Kaye, L.P., other entities and individuals.

The chart below reflects the current structure of the Company:




                               [GRAPHIC OMITTED]








                                       8
<PAGE>




Affinity Group Marketing

     The  Company  generally  services  middle  market  entities  just below the
Fortune 500 level. Within this market, it has developed particular expertise and
knowledge of risks facing a number of industry sections. Based on this expertise
and knowledge,  the Company develops and markets insurance  programs for various
purchasing groups (Affinity Group Marketing), including hospitals, churches, law
firms,  mental  health  practitioners,  homes for the aged and fine arts,  among
others.  Affinity Group Marketing programs (including  alternative  distribution
programs) contribute 62% of the Company's 1999 consolidated revenues,  excluding
investment income.


Retail Brokerage Operations

     The Retail Brokerage  Business generally services middle market entities as
described  above.  Approximately  23% of the  Retail  Brokerage  Business'  1999
revenues relate to such affinity groups.  Of this 23%,  approximately 51% of the
related revenues are derived from unrelated insurance markets. The remaining 49%
are derived from PBC. (The premium  volume  associated  with this 49% represents
approximately  one-third of PBC's  premium  volume.) No premiums are placed with
the Insurance Companies directly by the Retail Brokerage Business.

PBC and Insurance Companies Operations

     PBC designs  alternative  distribution  programs  for  affinity  groups and
markets  via a  network  of  retail  insurance  brokers,  including  the  Retail
Brokerage  Companies.  PBC's distribution network includes its own producers and
approximately 600 unrelated retail agent and broker  producers.  These producers
account  for  two-thirds  of  PBC's  premium  volume.  The  Insurance  Companies
underwrite a portion of the Programs and only  underwrite  programs  designed by
PBC.

     During the past seven years the original  1:2 ratio of  insurance  premiums
produced by  unrelated  retail  brokers to  insurance  premiums  produced by the
Retail Brokerage Companies (the "Production Ratio"), respectively, has reversed.
But production from both sources has grown.  PBC's total premium volume for 1999
of $68,000,000 increased 12% over 1998. It is expected that the Production Ratio
will  approach 3:1 during 2000,  consistent  with PBC's  strategy of growing the
unrelated retail producer distribution network.

     Once PBC establishes a program,  it acts as the placing broker with respect
to insurance under the Programs.  In such a role, PBC acts as an intermediary in
placing the programs with various unaffiliated insurers as well as the Insurance
Companies.



                                       9
<PAGE>



     PBC receives  commissions from OLRI and the unaffiliated  Program insurers.
Pursuant to  sub-brokerage  agreements,  PBC pays  commissions to retail brokers
based upon all business produced by such agents and brokers (including  business
placed by PBC with the unaffiliated Program insurers).

     The Insurance  Companies'  strategy in most cases is to underwrite only the
first "layer" per claim (the deductible range) (primarily inclusive of allocated
loss  expenses)  of the  property  and  casualty  insurance  provided  under the
Programs developed by PBC. This limits their exposure to individual  insureds on
individual  losses to the deductible  range depending on the Program.  Under the
Programs,  the  Insurance  Companies'  policies  are  sold in  conjunction  with
policies issued by unaffiliated  insurers that provide coverage for losses above
the first "layer" of risk underwritten by the Insurance Companies. The Insurance
Companies  believe that their rates for the first "layer" of risk, when combined
with the rates of such other  unrelated  insurers  for the  coverage  above such
layer, are generally  competitive with the rates that other insurance  companies
would charge to provide comparable insurance coverage.

     The  Insurance   Companies   currently   participates   in  29  alternative
distribution programs. The major program groupings are as follows:

          1. The residential  real estate programs provide property and casualty
     insurance  for  residential  real  estate   including  rental   apartments,
     cooperatives,  and  condominiums.  Policies protect the owner from property
     losses and casualty claims, such as claims brought by a tenant or member of
     the public injured on the premises.  These programs are offered principally
     in the New York City area and have approximately 2,100 insureds.

          2. The restaurant  programs insure restaurants against casualty claims
     (most  typically  brought by an injured  restaurant  patron)  and  property
     losses.  Many of the  restaurants  that  participate  in these programs are
     "white tablecloth" restaurants.  The restaurant programs have approximately
     1,700 insureds.

          3. The real estate umbrella program insures residential and commercial
     real estate owners against certain types of casualty  losses.  Insureds are
     provided with an extra level of protection in  conjunction  with a standard
     umbrella  policy.  Coverage is provided for losses that are included within
     the broad terms of the policy,  but are excluded under the general casualty
     policy.  This program also offers high umbrella  casualty limits  primarily
     provided by unrelated Program insurance companies to individual real estate
     owners.  OLRI has a maximum  exposure of $10,000 per claim. The real estate
     umbrella program has approximately 500 insureds.



                                       10
<PAGE>



          4. The remaining  programs represent 17% of the net premiums earned by
     the Insurance Companies in 1999. They have approximately 3,700 insureds and
     include  among others the following  affinity  groups:  catalog  showrooms,
     homeowners,  retail  stores,  drug  stores,  funeral  directors,  bars  and
     taverns,   waste  haulers,   laundromats  and  dry  cleaners,  New  England
     restaurants,  Asian  American  restaurants,  automobile  service  stations,
     houses of worship, and main street small businesses.

     The restaurant  programs,  residential real estate programs and real estate
umbrella  program  accounted for 83% of the net premiums earned by the Insurance
Companies in 1999. The following table sets forth the percentage of net premiums
earned  attributable  to the  programs and all other  business  during the years
ended December 31, 1999, 1998 and 1997.

                                                         Net Premiums Earned
                                                       Years Ended December 31,
                                                      1999       1998       1997
                                                      ----       ----       ----
Residential real estate programs ..............        45%        43%        46%
Restaurant programs ...........................        22%        26%        26%
Real estate umbrella program ..................        16%        18%        17%
Other .........................................        17%        13%        11%
                                                      ---        ---        ---
                                                      100%       100%       100%
                                                      ===        ===        ===

Acquisitions

     During  1997,  the  Brokerage   Operations   acquired  certain  assets  and
liabilities of Western Insurance Associates,  Inc. ("WIA"). This acquisition was
accounted  for as a  purchase  and  achieved  critical  mass  for the  brokerage
operations located in Pasadena,  California.  In addition,  this acquisition was
synergistic  as WIA's  competitive  advantage was in the  production of business
from affinity groups, including churches and homes for the aged.

     During  1998,  the  Brokerage   Operations   acquired  certain  assets  and
liabilities  of Florida  Insurance  Associates,  Inc.  ("FIA"),  Daniel V. Keane
Agency, Inc. ("DVK") and Laub Group of Florida, Inc. ("LGF"). These acquisitions
were accounted for as purchases. FIA, located in Hollywood, Florida, represented
the Company's entrance into the Florida marketplace. DVK, located in Bridgeport,
Connecticut,  was relocated to the Company's  Westport,  Connecticut  office and
added  to  that  office's  personal  lines  and  main  street  (small  business)
operations.  LGF, located in Hollywood,  Florida, added alternative distribution
transfer capabilities to the FIA operations.

     During the first quarter of 1999, the Brokerage Operations acquired certain
assets and liabilities of Seaman, Ross, & Weiner, Inc. ("SRW"). This acquisition
was accounted for as a purchase.  SRW, located in Woodbury,  New York,  enhances
the general commercial,  group benefits and life insurance Brokerage  Operations
in the New York City metropolitan area.



                                       11
<PAGE>



     During  the  first  quarter  of 2000,  the  Brokerage  Operations  sold the
operations of LGF at no gain or loss. The Company is finalizing the sale of FIA.

     The  Company  believes  that  the  effect  of  past,   present  and  future
acquisitions  will be to expand  its  insurance  program  services  to  affinity
groups, thus providing earnings to all operations.

     The  Company  is  considering  and  intends to  consider  from time to time
additional  acquisitions  and divestitures on terms it deems consistent with its
strategies.  The Company at this time is engaged in preliminary discussions with
a number of  candidates  for  possible  future  acquisitions  but has not signed
contracts  or  agreements  in  principle  to make  additional  acquisitions.  No
assurances can be given that any additional acquisitions or divestitures will be
completed, or if completed, that they will be advantageous to the Company.

Seasonality

     The  Brokerage  Operations'  revenues  vary  significantly  from quarter to
quarter as a result of the timing of policy renewals and their related billings.
This is due to the revenue  recognition  method for brokerage  commissions which
requires  that a full year's  commissions  be  recognized  immediately  upon the
billing  date of the  related  policies.  Further,  the  majority  of the Retail
Brokerage Business' incentive  commissions from insurance companies are recorded
when  collected  which is usually  during the first  quarter.  However,  premium
revenues of the Insurance  Companies are recognized ratably over the term of the
related policies. As a result, there is little variation from quarter to quarter
in the Property and Casualty Companies Operations' revenues.

     Consolidated  revenues  by quarter  for 1999,  1998 and 1997 were earned as
follows.  Amounts  shown  represent  a  percentage  of  the  related  full  year
consolidated revenues.

                                            1999        1998       1997
                                            ----        ----       ----
         First Quarter                       23%         23%        22%
         Second Quarter                      26%         24%        23%
         Third Quarter                       24%         26%        28%
         Fourth Quarter                      27%         27%        27%



                                       12
<PAGE>



Competition, and Industry and Market Risk

     The  Company is the 27th  largest  insurance  broker in the  United  States
according to "Business Insurance", a leading insurance industry publication.  It
operates in a highly  competitive  industry and faces  competition from regional
brokers and regional offices of worldwide brokers and insurers.

     The  insurance  brokerage  business  is  highly  competitive.  The  Company
believes that it is well  positioned  to compete  within its  designated  market
because of the  expertise  and  knowledge it has  developed in servicing  middle
market companies,  the Programs it has developed and the proprietary database of
affinity group underwriting and claims information it has developed. In general,
premium pricing and commission  rate  reductions  continue to impact the Company
and the  insurance  industry  as a whole.  The Company  has been  successful  in
replacing  business lost from such premium and  commission  rate  reductions and
attrition  through new business  developed  from new accounts and programs,  and
extension of service to existing  accounts.  During 1999,  the Retail  Brokerage
Operations  no longer  served as the primary  broker for certain New York City -
based  entities'  medical  malpractice  coverage.  This  portfolio  of  business
represented  the majority of the Retail  Brokerage  Operations  revenues in this
concentration of coverage placement.

     Many  insurance  companies  which compete with OLRI have a higher A.M. Best
-rating  (OLRI  is  rated  A-(Excellent)),  and  are  larger  and  have  greater
financial, marketing and management resources than OLRI. Competition is based on
many factors,  including  perceived overall  financial  strength of the insurer,
premiums charged, policy terms and conditions,  services offered, reputation and
experience. Due to its size, management and operational flexibility, the Company
can  respond  quickly  to,  and  take  advantage  of,   changing   circumstances
encountered in the marketplace.

     In the event that admitted  insurers  (including the  unaffiliated  Program
insurers)  begin to offer the coverage in New York which the Company offers as a
surplus  lines  insurer,  it is  possible  that OLRI may be  unable  to  receive
placements on a surplus  lines basis,  because  brokers are  generally  required
first to obtain three  "declinations"  from  admitted  carriers  before they can
offer  the  business  to a  surplus  lines  underwriter.  In  addition,  in soft
insurance  markets,  other insurance  companies may be more willing to offer low
deductibles,  at prices  competitive  with or lower than the  insurance  offered
under the Programs.

As part of its ongoing business,  the Company is exposed to certain market risks
of  potential  losses  from  adverse  changes in market  rates and  prices.  The
Company's  primary market risk exposure is interest rate risk in regard to fixed
rate  domestic  instruments  and  outstanding  debt.  The  Company  has  certain
investments in equity  securities,  which have market risk  exposure.  It has no
derivative  instruments.  The  Company's  financial  instruments  consist of the
investment  portfolio of OLRI. These  instruments are comprised of Corporate and
Municipal  Bonds,  U.S.  Treasury  securities  and  equity  securities  that are



                                       13
<PAGE>



classified as available for sale. OLRI generally selects  investment assets with
characteristics such as duration,  yield,  currency, and liquidity to match cash
flows of related  insurance and  reinsurance  contracts.  It selects medium term
fixed  rate  investments  to  support  general   liability  claims  and  shorter
investments to support property  claims.  The fair value of and weighted average
interest  rate  on  the  investment  portfolio  as  of  December  31,  1999  was
$46,043,000 and 5%, respectively.

Year 2000 Compliance

     Many computers,  software programs and microprocessors  embedded in certain
equipment (collectively,  "systems") were designed to accommodate only two-digit
date fields to  represent  a given year (e.g.,  "98"  represents  1998).  It was
thought possible that such systems would not be able to accurately  process data
containing  information relating to dates before, during or after the year 2000.
It was thought possible that such systems could fail entirely,  although in many
instances  the  consequences  of a system not being "year 2000  complaint"  were
unknown.

     Testing  conducted  by a team of  informational  technology  personnel  and
operational  line staff  from  January  1, 2000  through  January 3, 2000 on its
application  operating  software and hardware  determined that the Company's Y2K
remediation efforts had been successful. This has been confirmed by post January
3, 2000 normal operations being unimpeded by Y2K related issues.

     The total cost to modify these existing production systems,  which includes
both  internal  and  external  costs  of   programming,   coding,   testing  and
software/hardware  and equipment  purchases was  approximately  $473,000 and has
been reflected in the financial statements.

     A  comprehensive  review was  performed  by the  Company  of the  insurance
policies written by its Insurance Companies and their underwriting guidelines to
determine year 2000 exposure.  The Insurance Companies primarily issued policies
covering  all or  part  of an  insured's  self-insured  retention,  with  limits
generally  up to $25,000  that follow the form of the  policies  for coverage in
excess of the Insurance  Companies'  policies.  The Insurance  Companies did not
issue exclusions on these policies. The Insurance Companies also issued a number
of policies with greater limits of coverage,  and included a year 2000 exclusion
on such policies.  The Company is aware that year 2000 liabilities may be deemed
not to be  fortuitous in nature and,  therefore,  not covered under the policies
underwritten  by the Insurance  Companies.  Moreover,  based upon the classes of
insurance  primarily  underwritten  by  the  Insurance  Companies,  the  Company
believes that its coverage exposure with respect to year 2000 losses will not be
material.  However,  changes in social and legal trends may  establish  coverage
unintended for Year 2000 exposures by  re-interpreting  insurance  contracts and
exclusions.



                                       14
<PAGE>



Ceded Reinsurance

     OLRI has  from  time to time  obtained  reinsurance  for  portions  of,  or
specific risks under, the first layer of risks underwritten by OLRI. Reinsurance
has been  placed  with PXRE  Reinsurance  Company,  The  Hartford  Steam  Boiler
Inspection and Insurance Co. and CNA Reinsurance Company Ltd., which are rated A
or better by A.M.  Best.  However,  if  reinsurance  should  become  more widely
available at economical  prices,  OLRI may increase the amount of reinsurance it
purchases (see Note 13 to the consolidated financial statements of the Company).

Losses and Loss Expenses

     The  Insurance  Companies  are directly  liable for losses and loss expense
payments  under the terms of insurance  policies that they write,  and under the
reinsurance agreements to which they are party. In many cases, several years may
elapse  between the  occurrence of an insured loss, the reporting of the loss to
the Insurance  Companies and the Insurance  Companies  payment of that loss. The
Insurance  Companies  reflect their  liability  for the ultimate  payment of all
incurred  losses  and loss  expenses  by  establishing  loss  and  loss  expense
reserves,  which are balance sheet liabilities  representing estimates of future
amounts needed to pay claims and related expenses with respect to insured events
that have occurred.

     When a claim involving a probable loss is reported, the Insurance Companies
establish a loss reserve for the estimated  amount of the  Insurance  Companies'
ultimate  loss and loss  expense  payments.  The  estimate  reflects an informed
judgment  based  on  established  reserving  practices  and the  experience  and
knowledge of CAC's claims examiners regarding the nature and value of the claim,
as well as the  estimated  expense of settling  the claim,  including  legal and
other fees, and general expenses of administering the claims adjustment process.
The Insurance Companies also establish reserves on an aggregate basis to provide
for  losses  incurred  but not  reported  ("IBNR  reserves"),  as well as future
developments  on losses  reported to the Insurance  Companies.  The amount of an
insurer's  incurred  losses in a given period is determined by adding losses and
loss expenses paid during the period to case loss and loss expense  reserves and
IBNR reserves  (collectively "loss reserves") at the end of the period, and then
subtracting loss reserves existing at the beginning of the period.

     As  part  of  the  reserving  process,  historical  data  is  reviewed  and
consideration is given to the anticipated  effect of various factors,  including
anticipated  legal  developments,  changes in social  attitudes,  inflation  and
economic conditions.  Reserve amounts are necessarily based on Management's best
estimates,  and as other data becomes available and is reviewed, these estimates
are revised, resulting in increases or decreases to existing reserves.



                                       15
<PAGE>



     OLRI  receives  claims  related to lead paint  exposures  it insures  under
various residential real estate programs.  There are uncertainties in estimating
the  amount  of  reserves  due to  factors  including:  difficulty  in  properly
allocating responsibility and/or liability for the lead paint exposure;  changes
in the  underlying  laws and the  judicial  interpretation  of those  laws;  and
questions   regarding  the  interpretation  and  application  of  insurance  and
reinsurance  coverage.  OLRI has reserves established for these claims on a case
basis  and an  incurred  but not  reported  basis.  The  reserves  provided  are
established  based  on  Management's  best  estimate  of  ultimate  liabilities.
However,  due to the nature of the exposures,  such reserves  cannot be, and are
not established using standard actuarial techniques.

     To further  review the adequacy of the reserves,  the  Insurance  Companies
engage  independent  actuarial  consultants  to perform annual case and ultimate
loss reserve analysis.

     The  following  table  sets  forth a  reconciliation  of the  change in the
reserves for  outstanding  losses and loss  expenses,  including paid losses and
loss expenses, for each year in the three year period ended December 31, 1999.

                                                  Years Ended December 31,
                                           ------------------------------------
                                             1999          1998          1997
                                           --------      --------      --------
                                                      (in thousands)
Balance at January 1,                      $ 21,567      $ 19,126      $ 15,227
  Less reinsurance recoverables              (2,811)         (882)
                                           --------      --------      --------
                                                                         (3,220)
  Net balance                                18,347        16,315        14,345
                                           --------      --------      --------
Incurred related to:
  Current year                               10,410         8,461         8,824
  Prior years                                    35          (108)
                                           --------      --------      --------
  Total incurred                              9,754         8,496         8,716
                                           --------      --------      --------

Paid related to:
  Current year                                2,188         1,877         1,802
  Prior years                                 4,622         4,587         4,944
                                           --------      --------      --------
  Total paid                                  6,810         6,464         6,746
                                           --------      --------      --------

Net balance at December 31,                  21,291        18,347        16,315
  Plus reinsurance recoverables               2,678         3,220         2,811
                                           --------      --------      --------

  Balance                                  $ 23,969      $ 21,567      $ 19,126
                                           ========      ========      ========



                                       16
<PAGE>



     The  following  table  presents the  development  of unpaid losses and loss
expense reserves for the past ten years for the Insurance Companies.  During the
ten year period covered by this table,  OLB changed its fiscal  year-end  during
1989  from  July 31 to  April  30 and then to  December  31 for the  year  ended
December 31, 1990. In addition,  Bermuda domiciled insurance  companies,  unlike
U.S. domiciled insurers, are not required to file calendar year loss development
information  with  regulatory  authorities.  Accordingly,  the loss  development
information  included in the following  table with respect to OLB prior to 1992,
reflects  development  data converted from the policy year loss development data
maintained by OLB through the use of  mathematical  models.  The top line of the
table shows the  estimated  reserve for unpaid  losses and loss  expenses at the
balance sheet date for each of the indicated years.  These figures represent the
estimated  amount of unpaid losses and loss  expenses for claims  arising in the
current  and all  prior  years  that  were  unpaid at the  balance  sheet  date,
including  losses that had been  incurred but not yet  reported.  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  available,  principally  about the frequency of claims for
individual  years.  The table is presented  gross of  reinsurance  for all years
presented. The reinsurance recoverable on unpaid losses at December 31, 1999 and
1998 were $2,678,000 and $3,220,000, respectively.














                                       17
<PAGE>



KAYE GROUP INC.
LOSS DEVELOPMENT SCHEDULE
(In thousands)


<TABLE>
<CAPTION>

      Year Ended                   1989    1990     1991     1992     1993     1994     1995     1996    1997     1998     1999
      ----------                   ----    ----     ----     ----     ----     ----     ----     ----    ----     ----     ----
<S>                                <C>    <C>      <C>      <C>      <C>      <C>      <C>      <C>     <C>      <C>      <C>
Reserves for outstanding
  losses and loss expenses
  on December 31,                  $8,418 $12,555  $16,244  $18,444  $17,929  $14,118  $12,672  $15,227 $19,126  $21,567  $23,969


Cumulative amount paid as of:

     One year later                $2,505  $4,374   $5,569   $6,379   $6,965   $4,161   $3,697   $4,943  $4,587   $4,674
     Two years later                5,266   7,545    9,258   11,704   10,002    6,802    6,882    7,780   7,716
     Three years later              7,041   9,245   12,695   13,833   12,278    9,455    8,691    9,756
     Four years later               7,600  11,378   13,813   14,973   14,120   10,917    9,425
     Five years later               8,539  11,705   14,146   15,784   15,281   11,539
     Six years later                8,660  11,768   14,385   16,374   15,788
     Seven years later              8,681  11,877   14,562   16,641
     Eight years later              8,701  11,917   14,635
     Nine years later               8,720  11,931
     Ten years later                8,724


Re-estimated liability as of:

     One year later                $9,127 $13,665  $16,117  $18,140  $17,856  $14,254  $12,257  $15,494 $18,534  $19,613
     Two years later                9,767  13,003   15,182   18,511   18,184   13,487   12,454   15,352  16,944
     Three years later              9,288  11,850   15,609   18,636   16,552   13,990   12,448   14,635
     Four years later               9,002  12,410   15,462   18,177   18,157   13,985   12,113
     Five years later               9,060  12,468   15,312   18,252   17,993   13,840
     Six years later                8,973  12,224   14,982   17,999   17,887
     Seven years later              8,893  12,121   14,872   17,916
     Eight years later              8,847  11,996   14,911
     Nine years later               8,733  11,994
     Ten years later                8,733


Cumulative
Redundancy (Deficiency):            ($315)   $561   $1,333     $528      $42     $278     $559     $592  $2,182   $1,954
</TABLE>







                                       18
<PAGE>




Regulation

     The  Company is  subject  to a  substantial  degree of  regulation  that is
designed to protect the interests of insurance policyholders.  As a Rhode Island
property  and  casualty  insurance  company,  OLRI is  primarily  subject to the
regulatory  oversight  of the Rhode  Island  Department  of Business  Regulation
through its Insurance Division.

     As a Bermuda  property and casualty  insurance  company,  OLB is subject to
regulation of the regulatory body of Bermuda.  Such regulation relates to, among
other things, authorized lines of business, capital and surplus requirements and
general standards of solvency,  the filing of annual and other financial reports
prepared on the basis of statutory accounting practices,  the filing and form of
actuarial  reports,  the  establishment and maintenance of reserves for unearned
premiums,  losses  and  loss  expenses,  underwriting  limitations,   investment
parameters,  transactions  with  affiliates,  dividend  limitations,  changes in
control and a variety of other financial and non-financial matters.

     The  National   Association  of  Insurance   Commissioners   has  developed
risk-based capital formulas to be applied to all domestic  insurance  companies.
These formulas  calculate a minimum required  statutory net worth,  based on the
underwriting,  investment  and other  business  risks  inherent in an  insurance
company's  operations.  Any  insurance  company  that  does not  meet  threshold
risk-based  capital levels ultimately will be subject to statutory  receivership
proceedings. The statutory net worth of OLRI is adequate in light of its current
and  anticipated  future  business and OLRI has met its  risk-based  capital and
surplus  requirements  at  December  31,  1999.  The  authorized  control  level
risk-based  capital for OLRI,  as of December 31, 1999 was  $5,069,989  and OLRI
exceeded that threshold by $26,030,098.

Employees

     As of December 31, 1999, the Company had 368 employees.  The Company is not
unionized and believes that its employee relationships are satisfactory.

Item 2. Properties

     The  Company  owns  approximately  7,500  square feet of space in an office
condominium building in Warwick, Rhode Island, which is utilized by employees of
PBC and OLRI.  The Company  also  leases  space  located in New York,  New York,
Pasadena, California, Westport, Connecticut, Woodbury, New York and Floral Park,
New York. The Company's total leased space at these  locations is  approximately
116,000 square feet and is suitable for its current needs.



                                       19
<PAGE>



Item 3. Legal Proceedings

     The  Company  is a party  to  lawsuits  arising  in the  normal  course  of
business.  Virtually all pending lawsuits in which the Insurance Companies are a
party,  involve  claims  under  policies   underwritten  or  reinsured  by  such
Companies.  Management believes these lawsuits have been adequately provided for
in its  established  loss and loss expense  reserves and that the  resolution of
these  lawsuits  will  not  have a  material  adverse  effect  on the  Company's
financial condition or results of operations.

     The  Insurance  Brokerage  Companies  are  subject  to  various  claims and
lawsuits from both private and  governmental  parties,  which include claims and
lawsuits in the ordinary  course of business.  The majority of pending  lawsuits
involve insurance claims,  errors and omissions,  employment claims and breaches
of contract. The Company believes that the resolution of these lawsuits will not
have a material adverse effect on the Company's  financial  condition or results
of operations.

     As licensed brokers,  the Insurance  Brokerage  Companies are or may become
party to  administrative  inquiries and at times to  administrative  proceedings
commenced  by state  insurance  regulatory  bodies.  Certain  subsidiaries  were
involved in an  administrative  investigation  commenced in 1992 by the New York
Insurance Department  ("Department") relating to how property insurance policies
were issued for the Residential Real Estate Program.  As a result, the manner in
which policies are structured for certain  clients in this Program were altered,
which has not had a material  adverse effect on this Program.  While the Company
had discussions with the Department  regarding settlement of such investigation,
this matter has not been pursued for several years.  If the matter is not closed
or settled,  the  Department  could  institute  formal  proceedings  against the
subsidiaries  seeking fines or license  revocation.  Management does not believe
the resolution of this issue will have a material adverse effect on the Company.

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

     No matters  were  submitted  to a vote of  security  holders of the Company
during the fourth quarter of the fiscal year ended December 31, 1999.




                                       20
<PAGE>



                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

     In  August  1993,  in  connection  with the  consummation  of the IPO,  the
Company's Common Stock was listed on the NASDAQ National Market System under the
symbol  "OLHC".  On October 2, 1995, in connection  with the  combination of the
Retail Brokerage Business of Kaye with Holding, Holding changed its name to Kaye
Group Inc. and is now listed under its new symbol  "KAYE".  The following  table
sets forth the closing  high and low prices for the Common  Stock as reported on
NASDAQ for the indicated  periods and the  dividends  paid per share during such
periods.


                                                Price Range          Dividends
                                                -----------             Paid
                                            High           Low       Per Share
                                            ----           ---       ---------
1999:
First Quarter                             $7 7/8         $7 1/8    $ .025 cash
Second Quarter                             8 3/8          6 3/4    $ .025 cash
Third Quarter                              9 7/16         7        $ .025 cash
Fourth Quarter                             9              7 1/4    $ .025 cash

1998:
First Quarter                             $7 13/16       $6 1/4    $ .025 cash
Second Quarter                             7 1/2          6 3/8    $ .025 cash
Third Quarter                              7 1/4          6 1/4    $ .025 cash
Fourth Quarter                             7 5/8          5 1/8    $ .025 cash



     The approximate  number of holders of record of the Company's  Common Stock
as of March 20, 2000 was 98.

     See Item 7 - "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations - Dividends" for a discussion of dividends paid by the
Company.






                                       21
<PAGE>



Item 6.  Selected Financial Data

The following  table should be read in conjunction  with, and is supplemented in
its entirety by, the  consolidated  financial  statements and the notes thereto.
Financial data has been restated to take into effect the Transactions  effective
October 2, 1995.  The  financial  data for the years 1995  through 1999 has been
derived from the audited consolidated financial statements of the Company.


<TABLE>
<CAPTION>

                                                                                      Years ended December 31,
----------------------------------------------------------------------------------------------------------------------------------
                                                                     1999          1998          1997          1996         1995
----------------------------------------------------------------------------------------------------------------------------------
                                                                                (in thousands, except per share data)
<S>                                                               <C>           <C>           <C>           <C>          <C>
Statement of Income Data:
Operating revenues(1)                                             $  64,231     $  60,191     $  55,309     $  51,339    $  51,582
Net investment income                                                 4,529         4,735         4,312         3,576        3,912
Net realized gains (losses) on investments                              (16)           85            21            72          (47)
                                                                  ---------     ---------     ---------     ---------    ---------

Total revenues                                                    $  68,744     $  65,011     $  59,642     $  54,987    $  55,447
                                                                  ---------     ---------     ---------     ---------    ---------


Net income                                                        $   7,504     $   7,282     $   4,357     $   3,071    $   5,181

Earnings per share:
    Basic                                                         $    0.89     $    0.86     $    0.62     $    0.44    $    0.74
    Diluted                                                       $    0.87     $    0.85     $    0.62     $    0.44    $    0.74
----------------------------------------------------------------------------------------------------------------------------------

PRO FORMA NET INCOME AND EPS - BASIC(2)
    Income before minority interest and income taxes              $  10,729     $  10,554     $   7,555     $   5,211    $   6,309

    Provision for income taxes                                        3,225         3,272         2,267         1,484        1,995
                                                                  ---------     ---------     ---------     ---------    ---------


    Income before minority interest                                   7,504         7,282         5,288         3,727        4,314

    Minority interest                                                                              (931)         (656)        (759)
                                                                  ---------     ---------     ---------     ---------    ---------

    Pro forma net income                                          $   7,504     $   7,282     $   4,357     $   3,071    $   3,555


    Pro forma earnings per share - basic                          $    0.89     $    0.86     $    0.62     $    0.44    $    0.51


    Weighted average of shares outstanding - basic                    8,460         8,474         7,024         7,020        7,020

    Weighted average of shares and
    share equivalents outstanding - diluted                           8,630         8,593         7,083         7,021        7,023
</TABLE>






                                       22



<PAGE>



Item 6.  Selected Financial Data (Continued)



<TABLE>
<CAPTION>
                                                           Years ended December 31,
-------------------------------------------------------------------------------------------------------
                                          1999          1998          1997          1996         1995
-------------------------------------------------------------------------------------------------------
                                                 (in thousands, except per share data and ratios)
<S>                                    <C>           <C>           <C>           <C>          <C>
Balance Sheet  data:

Total assets                             157,073     $ 167,066     $ 141,025     $ 156,102    $ 174,000
Long-term debt(3)                          2,911         4,672         5,810        12,787       13,679
Stockholders' equity                      47,251        41,769        35,168        24,984       22,882
Net book value  per share(4)                5.59          4.93          4.15          3.56         3.26
Cash dividend per share                     0.10          0.10          0.10          0.10         0.10

GAAP operating data:
Loss ratio                                  36.4%         34.4%         38.2%         36.4%        28.8%
Expense ratio                               41.8%         39.3%         41.0%         42.5%        41.1%
Combined ratio                              78.2%         73.7%         79.2%         78.9%        69.9%

Statutory operating data(5):
Net underwriting gain                  $   6,603     $   6,925     $   5,890     $   4,455    $   7,104
Policyholders' surplus                    32,514        29,286        25,566        25,485       26,231

Loss ratio                                  33.2%         33.1%         36.6%         34.1%        24.4%
Expense ratio                               40.6%         39.1%         38.6%         40.0%        37.1%
Combined ratio                              73.8%         72.2%         75.2%         74.1%        61.5%
</TABLE>


(1)  Subsequent to 1995,  commission expense paid to internal producers has been
     reclassified  to salary  expense to more  accurately  reflect  salaries and
     benefits. Previously this expense was netted against operating revenues and
     accordingly  operating  revenues  for 1995  and  1994  are not  comparable.
     Operating   revenues   include   transactions   between   segments.   These
     transactions have not been eliminated.

(2)  Prior  to  the  Transaction   certain  entities  were   partnerships  or  S
     Corporations  under the Internal  Revenue Code and therefore not liable for
     Federal  income taxes.  A charge in lieu of income taxes is presented as if
     the income of these  entities were taxed to those  entities  rather than to
     partners  or   stockholders   not  otherwise   included  in  the  Company's
     consolidated group.


(3)  Excludes that portion of long-term debt maturing in less than one year.

(4)  Based upon 8,458,295 shares  outstanding at December 31, 1999 and 8,474,435
     shares outstanding at December 31, 1998 and 1997 and 7,020,000  outstanding
     at December 31, 1996, and 1995.

(5)  Based upon  statutory  accounting  practices and derived from the statutory
     financial statements of the Insurance Companies, which excludes the effects
     of CAC.

(6)  Certain information prior to 1998 has been reclassified to conform with the
     1998 and forward year presentation.







                                       23
<PAGE>



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

General

     Kaye Group Inc.  (the  "Company"),  a  Delaware  corporation,  is a holding
company  which,  through  its  subsidiaries,  is  engaged  in a broad  range  of
insurance brokerage,  underwriting and related activities.  The Company operates
in  two  insurance  business  segments  -  the  Insurance   Brokerage  Companies
Operations  comprised of the Retail Brokerage Business and the Program Brokerage
Business,  and the Property and Casualty  Companies  Operations  ("Property  and
Casualty  Companies" or "Insurance"),  comprised of the Insurance  Companies and
Claims  Administration (see Note 1 to the consolidated  financial  statements of
the Company).

Overview

     The Insurance  Brokerage  Companies  derive their revenue  principally from
commissions  associated  with the placement of insurance  coverage for corporate
clients.  These commissions are paid by the insurance carriers and are usually a
fixed  percentage  of the  total  premiums.  Certain  of these  commissions  are
contingent upon the level of volume and profitability of the related coverage to
the insurance  companies.  There is normally a lag between receipt of funds from
the insured and payment to the insurance company. Investment of these funds over
this period generates additional revenue in the form of interest income.

     The Insurance business underwrites property and casualty risks for insureds
in  the  United  States,  principally  through  specially  designed  alternative
distribution  programs,  covering  various types of businesses  and  properties,
which have  similar  risk  characteristics.  The  Insurance  business  generally
underwrites  the first layer of insurance  under the  programs and  unaffiliated
program  insurers  provide  coverage  for losses  above the first layer of risk.
Substantially  all of the Insurance  business revenues are derived from premiums
on this  business,  plus  the  investment  income  generated  by the  investment
portfolio of the Insurance business.

     Corporate Operations include those activities that benefit the Company and,
for the most part, the related expenses are allocated to the Insurance Brokerage
Companies  or the  Property  and Casualty  Companies.  Certain  holding  company
expenses  are not  allocated  and  include  debt  servicing  and public  company
expenses, including investor relations costs.

     The Company has foreign  operations in Bermuda.  For further discussion see
Note 20 to the consolidated financial statements of the Company.



                                       24
<PAGE>



Results of Operations

Year ended December 31, 1999 compared with the year ended December 31, 1998

Net Income

     Net Income for the year ended  December  31, 1999  increased by $222,000 to
$7,504,000 or basic  earnings per share of $0.89 compared to $7,282,000 or $0.86
for the same period last year as explained  below.  During the fourth quarter of
1999 the Company updated the assumptions used to allocate certain human resource
and other operating  costs to its insurance  brokerage and  underwriting  units.
These costs are corporate  administrative  expenses,  attributable to all of the
Company's  operations,  but not previously  allocated to all  revenue-generating
business  segments.  The  effect  of this  revision  was to  move  approximately
$1,300,000 of expenses from the  Insurance  Brokerage  Companies to the Property
and Casualty Companies, but had no effect on the Company's consolidated results.

Insurance Brokerage Companies

     Income before income taxes increased by $617,000 to $2,322,000 in 1999 from
$1,705,000  in 1998.  The  increased  operating  result was  primarily  due to a
reduction of expenses as a result of an increase in intercompany management fees
allocated to the Property and Casualty Companies, as discussed below.

     Total revenues in 1999 were $38,753,000  compared with $37,202,000 in 1998,
an increase of $1,551,000  (4%).  Gross  commissions and fees grew by $3,325,000
(8%) as a result of new business and acquisitions  exceeding lost business.  The
SRW acquisition  generated $3,653,000 of gross revenues during 1999. Included in
lost business were revenues that had been derived from a certain New York City -
based  entities'  medical  malpractice  coverage.  This  portfolio  of  business
represented  the majority of the Retail  Brokerage  Operations  revenues in this
concentration  of coverage  placement.  The commission  expense rate (defined as
commissions  incurred  to  independent   producers  as  a  percentage  of  gross
commissions and fees) to produce new and renewal business  increased from 18% to
20% which  resulted  in a  decrease  in net  commissions  and fees of  $860,000.
Investment  income  decreased by $472,000 (26%) primarily due to lower fiduciary
investments as a result of certain lost business.

     Salaries and benefits  increased by $1,023,000  (5%) to $22,346,000 in 1999
compared to $21,323,000 in 1998. The increase was the result of acquisitions and
salary  increments offset partially by headcount  reductions,  reduced incentive
compensation  and an increase in  intercompany  management fees allocated to the
Property and Casualty Companies discussed previously.



                                       25
<PAGE>



     Amortization  of  intangibles  increased  $416,000  to  $1,095,000  in 1999
compared  with  $679,000  in 1998 due to  amortization  of  acquisition  related
intangibles on 1998 and 1999 acquisitions.

     Other  operating  expenses  decreased by $1,231,000  (9%) to $12,215,000 in
1999 compared with $13,446,000 in 1998 mainly due to an increase in intercompany
management  fees  allocated to the Property  and Casualty  Companies  (discussed
previously) as well as reduced insurance costs.

     Interest expense  increased by $726,000 as a result of the SRW acquisition,
which includes a related note payable to the Property and Casualty Companies.

Property and Casualty Companies

     Income before income taxes decreased by $811,000 (8%) to $8,826,000 in 1999
from  $9,637,000  in 1998.  The  decrease was due to an increase in the combined
ratio due to an increase in intercompany  management fees (discussed previously)
offset by an increase in net premiums earned.

     Net premiums  earned for 1999  increased by $2,091,000  (8%) to $26,780,000
from  $24,689,000  in 1998.  The  Company's  efforts to develop new  alternative
distribution  programs and broaden the distribution network of existing programs
and coverage types has contributed to the growth of premium volume.

     Net investment  income increased by $29,000 (1%) to $2,949,000 in 1999 from
$2,920,000 in 1998. The increase was due to an increase in investments.

     Net realized  loss was $16,000 in 1999  compared to a realized gain $85,000
in 1998. The realization of investment  gains and losses is determined by market
conditions  and  management's  decision  regarding  the  holding  period  of the
portfolio.

     The loss ratio (loss incurred expressed as a percentage of premiums earned)
was 36% and 34% for 1999 and 1998,  respectively.  Exclusive of the intercompany
claims  management  fee increase in 1999  discussed  previously,  the loss ratio
would have been 35% and 34% for 1999 and 1998,  respectively.  This increase was
due to the change in the mix of business toward assumed general liability, which
traditionally experiences a higher loss frequency.

     The acquisition costs and general and administrative expenses ratio was 42%
and 39% for 1999 and 1998,  respectively.  Exclusive of a bad debt  recovered in
1998,  the ratio  would  have been 42% and 40% for 1999 and 1998,  respectively.
Exclusive  of  the  intercompany  management  fee  increase  in  1999  discussed
previously, the expense ratio would have been 40% for 1999 and 1998.



                                       26
<PAGE>

Corporate

     Net expenses  before income taxes decreased in 1999 by $369,000 to $419,000
from $788,000 in 1998. The segment's sole  investment in Arista  Investors Corp.
was reduced due to an initial liquidating distribution.  Arista's management has
indicated its intention to sell its remaining asset, its license to operate, and
its  stock.  This  initial  liquidating  distribution,  partially  offset by the
corresponding  reduction in fair market value of Arista stock, was accounted for
in net  investment  income and is the primary  reason for the positive  variance
along  with  lower  interest  expense  due to the  June  1998  restructuring  of
corporate debt.

Provision for Income Taxes

     The  provision  for  income  taxes  for 1999 and  1998 was  $3,225,000  and
$3,272,000,  respectively.  The 1999 provision reflects an adjustment to reflect
the tax on the Company's  income tax returns  resulting in an effective tax rate
of 30% and 31% for 1999 and  1998,  respectively.  The  difference  between  the
statutory  rate and the  effective  rate was  primarily  related  to tax  exempt
interest.

Year ended December 31, 1998 compared with year ended December 31, 1997

Net Income

     Net income for the year ended  December 31, 1998 increased by $2,925,000 to
$7,282,000 or basic  earnings per share of $0.86 compared to $4,357,000 or $0.62
for the same period last year as explained  below.  $931,000 of the increase was
due to the  elimination  of minority  interest  (see Note 2 to the  consolidated
financial statements of the Company).

Insurance Brokerage Companies

     Income before income taxes increased by $938,000 to $1,705,000 in 1998 from
$767,000 in 1997.  The  improved  operating  result was mainly due to  increased
revenues offset by the increase in salaries and benefits, as discussed below.

     Total revenues in 1998 were $37,202,000  compared with $33,782,000 in 1997,
an increase of $3,420,000  (10%).  Gross  commission and fees grew by $4,222,000
(11%) mainly as a result of new business  exceeding lost business,  acquisitions
and an increase in contingency  commissions due to volume and  profitability  of
1997 premiums placed with certain  insurance  carriers.  The commission  expense
rate  incurred to produce new and renewal  business  increased  from 17% to 18%.
Investment  income  increased  in  1998  by  $281,000  (18%)  primarily  due  to
collection  efficiencies  resulting  in a longer  holding  period for  fiduciary
investments.



                                       27
<PAGE>



     Salaries and benefits  increased by $2,418,000 (13%) to $21,323,000 in 1998
compared to $18,905,000 in 1997. This increase was due to  acquisitions,  salary
increments, increased commission expense to employees and annual incentive based
compensation.

     Amortization  of  intangibles  increased by $172,000 (34%) to $679,000 from
$507,000 in 1997 as a result of increased  amortization  of acquisition  related
intangibles due to 1997 and 1998 acquisitions.

     Other operating  expenses increased by $243,000 (2%) to $13,446,000 in 1998
compared  with  $13,203,000  in 1997.  This  increase was mainly the result of a
reserve for E & O deductibles partially offset by reduced rent costs.

     Interest expense  decreased by $351,000  primarily as a result of the early
payment of the $6,000,000 note payable to KILP in August, 1997.

Property & Casualty Companies

     Income before income taxes  increased by $1,918,000  (25%) to $9,637,000 in
1998 from  $7,719,000  in 1997.  The  increase  in  operating  result was due to
increased net premiums earned, investment income and a decreased combined ratio.

     Net premiums  earned for 1998  increased by $1,842,000  (8%) to $24,689,000
from $22,847,000 in 1997. The Property & Casualty Companies'  efforts,  combined
with the efforts of the Brokerage  segment's Program Brokerage  Corporation,  to
develop new  alternative  distribution  programs  and  broaden the  distribution
network of the existing  programs and coverage  types,  has  contributed  to the
growth of premium volume.

     Net  investment  income  increased  by  $228,000  (8%) to  $2,920,000  from
$2,692,000  in  1997.  This  increase  was  due to an  increase  in  investments
generated by cash flow from operations.

     Net realized gain on investment  transactions for 1998 increased by $64,000
to $85,000  compared to $21,000 in 1997. The realization of investment gains and
losses is determined by market  conditions and management's  decision  regarding
the holding period of the portfolio.

     Other  income for 1998  decreased by $99,000 to $146,000  from  $245,000 in
1997. This decrease is mainly due to discontinued warranty contracts in 1998.

     Loss and loss  expenses  decreased in 1998 by $220,000  (3%) to  $8,496,000
from $8,716,000 in 1997. The loss ratio (loss incurred expressed as a percentage
of  premiums  earned)  for 1998 and  1997  was 34% and 38%,  respectively.  This
decrease was due to low general  liability losses and an improvement in loss and
loss expense under the property programs resulting from mild weather.



                                       28
<PAGE>



     Acquisition costs and general and administrative expenses increased in 1998
by $337,000  (4%) to  $9,707,000  from  $9,370,000  in 1997.  The expense  ratio
(acquisition  costs and general and  administrative  expenses) for 1998 and 1997
was 39% and 41%,  respectively.  Exclusive of a bad debt recovered,  the expense
ratio would have been 40% and 41%, respectively.  This decrease was due to lower
general and administrative expenses in 1998.

Corporate

     Net expenses  before  income taxes  decreased in 1998 by $143,000  (15%) to
$788,000 from $931,000 in 1997.  This decrease was the result of lower  interest
expense and  insurance  costs  partially  offset by a provision  for  investment
decline and costs related to the restructuring of debt.

Effective Tax Rate (See Note 9)

     The effective  tax rate for 1998 and 1997 was, 31%, and 30%,  respectively.
The difference between the statutory tax rate and the effective tax rate in 1998
and 1997 was primarily related to tax exempt interest.

Financial Condition and Liquidity

     Management  believes that the Company's operating cash flow, along with the
cash equivalents and short term investments will provide  sufficient  sources of
liquidity  and capital to meet the Company's  anticipated  needs during the next
twelve months and the foreseeable future. The Company has no capital commitments
that are material individually or in the aggregate.

     Total assets  decreased by $11,371,000 (7%) to $149,212,000 at December 31,
1999 from  $160,583,000  at December 31, 1998.  Total  liabilities  decreased by
$16,853,000  (14%) to  $101,961,000  at December 31, 1999 from  $118,814,000  at
December  31,  1998.  These  reductions  were  primarily  due to  reductions  in
brokerage segment fiduciary assets and liabilities (insurance premiums).

     Stockholders'  equity  increased  by  $5,482,000  (13%) to  $47,251,000  at
December 31, 1999, from $41,769,000 at December 31, 1998. The increase in equity
resulted from net income of $7,504,000  and $35,000 for shares issued related to
the  exercise  of  stock  options,  offset  by an  increase  in  net  unrealized
depreciation  of investments of $769,000,  dividends paid of $847,000,  $229,000
for net purchases of treasury stock,  and $212,000  related to shares issued for
the Stock Performance Plan, net of amortization.

     The Company  maintains a  substantial  level of cash and liquid  short term
investments, which are used to meet anticipated payment obligations. At December
31,  1999 and  1998,  the  Company  had  cash  and  short  term  investments  of
$43,238,000 and $48,393,000,  respectively, of which $25,610,000 and $33,218,000
represents premiums



                                       29
<PAGE>



collected and held in a fiduciary capacity which are generally not available for
operating needs of the Company.  Of the Company's total invested  assets,  fixed
maturities  and cash  equivalents  carried at market  value of  $22,270,000  and
$13,747,000 as of December 1999 and 1998, respectively, are pledged or deposited
into trust funds to collateralize  the Company's  obligations  under reinsurance
agreements.

     As presented in the  Consolidated  Statements of Cash Flows,  the Company's
cash and cash  equivalents  decreased by $7,705,000  for the year ended December
31, 1999. Operating activities provided cash of $8,359,000. Investing activities
used  cash  of  $12,309,000  primarily  for  the  purchase  of  investments  and
acquisition payments.  Financing activities used cash of $3,755,000 for payments
of dividends, loan repayments and treasury stock purchases.

     During 1998,  the Company paid off its revolving  credit line of $6,094,000
early,  and  replaced it with a term loan of  $5,000,000,  at an  interest  rate
reduction of approximately 50 basis points, thereby reducing debt by $1,094,000.
As of  December  31,  1999,  $3,311,000  is  outstanding  on the Term  Loan.  In
addition, the Company has available a $4,500,000 revolving line of credit with a
bank.  Both lines are  collateralized  by the stock of the Property and Casualty
Companies.   The  proceeds  are  available  for  general   operating  needs  and
acquisitions. As of December 31, 1999, no amount is outstanding on the revolving
line of credit.

     The Company has  calculated  risk-based  capital and the result is that the
statutory net worth of OLRI is adequate in light of the current requirements.

     The  Company is subject to a  substantial  degree of  regulation,  which is
designed to protect the interests of insurance policyholders.  As a Rhode Island
property  and  casualty  insurance  company,  OLRI is  primarily  subject to the
regulatory  oversight  of the Rhode  Island  Department  of Business  Regulation
through its Insurance Division.

     The Company's  primary  source of cash is derived from  insurance  premiums
(fiduciary assets),  insurance brokerage commissions and fees, proceeds from the
sale of investments, and investment income. The Company's principal uses of cash
are payments of  insurance  premiums  (fiduciary  liabilities),  commissions  to
brokers  who  produce  the  business,  losses and loss  expenses  and  operating
expenses, and purchases of investments, acquisitions and fixed assets.

     The Company has minimized its investment risk by investing in a mix of cash
equivalents;  high  quality tax exempt  municipal  bonds;  U.S.  Government  and
government  agency  securities  and  corporate  bonds  rated A or  better  by an
accredited  rating agency with an average duration of approximately  four years;
and equity securities. The Company currently intends to continue this investment
strategy.



                                       30
<PAGE>



     The table below sets forth the  composition  of the Company's  portfolio of
fixed maturity investments by rating as of December 31, 1999 (in thousands):


                                         Market Value as           Percentage of
                      Amortized            Reflected on          Total at Market
  Rating (a)            Cost              Balance Sheet                Value
  ----------            ----              -------------                -----
     AAA(b)            $28,977                $28,213                  68.3%
      AA+                  609                    598                   1.4%
      AA                 4,944                  4,911                  11.9%
      AA-                2,916                  2,837                   6.9%
       A+                2,283                  2,230                   5.4%
       A                 2,544                  2,515                   6.1%
                       -------                -------                 -----
                       $42,273                $41,304                 100.0%
                       =======                =======                 =====

(a)  Ratings are  assigned  primarily by Standard & Poors  Corporation  with the
     remaining  ratings  assigned  by  Moody's  Investors  Services,   Inc.  and
     converted to the equivalent Standard & Poors ratings.

(b)  Includes U.S. Government Obligations.

     The  amortized  cost and  estimated  market  value of fixed  maturities  at
December 31, 1999, by  contractual  maturity  date,  are listed below.  Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without penalties.

                                                 Investments Available
                                                       for Sale
                                            -------------------------------
                                            Amortized        Aggregate Fair
                                               Cost              Value
                                            ---------        --------------
Due in one year or less                       $3,231             $3,218
Due after one year through five years         19,687             19,414
Due after five years through ten years        15,171             14,654
Due after ten years                            4,184              4,018
                                             -------            -------

Total                                        $42,273            $41,304
                                             =======            =======



                                       31
<PAGE>



     Investment results of the Company for each of the three years in the period
ended December 31, 1999 are shown in the following table (in thousands):

                                                        As of, or for the
                                                    years ended December 31,
                                               -------------------------------
                                               1999          1998         1997
                                               ----          ----         ----
Average cash and cash equivalents
  and invested assets(1)                    $ 91,097      $ 85,191     $ 76,534

Investment income                           $  4,529      $  4,735     $  4,312

Average yield on total investments               5.0%          5.6%         5.6%

Net realized investment gain (loss)         ($    16)     $     85     $     21

(1)  Based upon the  average of the  beginning  and end of the period  amortized
     cost for fixed maturities and cost for equity securities.

     The Company's  insurance  subsidiaries  require  capital to support premium
writing.  The  guidelines set forth by the NAIC for OLRI suggest that a property
and  casualty  insurer's  ratio of annual  statutory  net  premiums  written  to
policyholders'  surplus  should not exceed 3 to 1. At December 31,  1999,  OLRI,
with a statutory  surplus of  $31,100,000,  had a ratio of annual  statutory net
premiums written to its statutory surplus of approximately .85 to 1.

Quantitative and Qualitative Disclosures about Market Risk

     As part of its ongoing  business,  the Company is exposed to certain market
risks of potential  losses from adverse changes in market rates and prices.  The
Company's  primary market risk exposure is interest rate risk in regard to fixed
rate domestic  instruments,  equity securities and outstanding debt. The Company
is  exposed  to the  changes  in the  prices of equity  securities  owned by the
Company.  The equity price risk related to the Company's current  investments in
equity securities are not material.  The Company has no derivative  instruments.
The Company's financial instruments consist of the investment portfolio of OLRI.
These  instruments  are  comprised  of Corporate  and  Municipal  Bonds,  equity
securities,  and U.S.  Treasury  Securities that are classified as available for
sale.

     The Company generally selects investment assets with  characteristics  such
as  duration,   yield,   currency,  and  liquidity  to  reflect  the  underlying
characteristics  of related  insurance and  reinsurance  contracts.  The Company
selects medium term fixed rate  investments to support general  liability claims
and shorter investments to support property claims.



                                       32
<PAGE>



     The following table summarizes  information  about the Company's  financial
instruments  that are  sensitive to changes in interest  rate as of December 31,
1999. The table presents  principal and interest cash flow and related  weighted
average  interest rates by expected  maturity dates for assets and  liabilities.
The Company has presumed the call date as the expected  maturity  date for those
asset  instruments  with call  features.  Weighted  average rates are calculated
using the sum of expected  investment  income or interest expense divided by the
sum of the amortized  cost of assets or the sum of the average debt  outstanding
at each respective period.  For variable rate debt,  expected interest cash flow
is calculated using the December 31, 1999 weighted average interest rate without
any adjustments for projected fluctuations in prime rate.



<TABLE>
<CAPTION>

                                                         EXPECTED CASH FLOW
                                                           (in thousands)
                                  ------------------------------------------------------------------
                                  Fair     Total                                               There
Assets                            Value    Value    2000     2001    2002      2003    2004    after
------                            -----    -----    ----     ----    ----      ----    ----    -----
<S>                              <C>      <C>       <C>    <C>       <C>     <C>       <C>      <C>
U.S. Treasury Notes
Interest rates
ranging from 4.63% to 6.75%      $3,224   $3,852    $476   $1,000    $507    $1,203    $666


Weighted average interest rate              4.9%    5.4%     5.1%    5.1%      4.5%    2.6%

Municipal Bonds with call
features, Interest rates
ranging from 5.4% to 12.6%        8,926   11,287   1,164      870   1,407     3,229   1,450     3,167

Weighted average interest rate              6.4%    6.9%     6.8%    6.3%      5.8%    6.6%      5.9%

Municipal Bonds
without call
features, Interest
rates ranging from
3.8% to 10.9%                    25,539   35,928   2,837    2,745   4,667     2,622   3,946    19,111

Weighted average interest rate              6.2%    6.1%     6.1%    6.1%      6.3%    6.4%      6.2%

Corporate Bonds,
Interest rates
ranging from 4.6% to 7.5%         3,615    4,190   1,350      897     638       536     769

Weighted average interest rate              5.2%    5.5%     5.8%    4.4%      5.8%    2.9%

Total Fixed Rate
Instruments                     $41,304  $55,257  $5,827   $5,512  $7,219    $7,590  $6,831   $22,278

Weighted average
interest rate                               6.1%    6.2%     6.2%    6.0%      6.1%    6.2%      6.2%
</TABLE>



                                       33
<PAGE>



<TABLE>
<CAPTION>

                                                         EXPECTED CASH FLOW
                                                           (in thousands)
                                  ------------------------------------------------------------------
                                  Fair     Total                                               There
Liabilities                       Value    Value    2000     2001    2002      2003    2004    after
-----------                       -----    -----    ----     ----    ----      ----    ----    -----
<S>                              <C>      <C>       <C>    <C>       <C>     <C>       <C>      <C>
Debt - Fixed Rate
Interest rate of 7.8%            $3,631   $4,033  $1,623   $1,622    $788

Weighted average                            8.3%    8.4%     8.8%    6.0%
interest rate


Debt - Variable Rate
Interest rates
ranging from prime to             1,048    1,158     460      411     287
prime +1/2%

Weighted average                            7.6%    8.1%     7.7%    4.3%
interest rate


Total Debt                       $4,679   $5,191  $2,083   $2,033  $1,075

Weighted average
interest rate                               8.1%    8.3%     8.5%   5. 5%
</TABLE>


Dividends

     On December 21, 1999 the Board of Directors  declared a quarterly  dividend
of $.025 per  share,  payable  January  20,  2000 to  stockholders  of record on
December 31, 1999.  The Company is largely  dependent  upon  dividends  from the
Insurance  Companies  to  pay  dividends  to  the  stockholders.  The  Company's
Insurance  Companies are subject to  regulations  that restrict their ability to
pay dividends.

     Under Rhode Island  Insurance  Law, OLRI may pay cash  dividends  only from
earned surplus  determined on a statutory  basis,  subject to the maintenance of
minimum capital and surplus of $3,000,000.  Further,  OLRI is restricted (on the
basis  of the  lesser  of 10% of  OLRI's  statutory  surplus  at the  end of the
preceding  twelve-month period or 100% of OLRI's net income,  excluding realized
capital  gains,  for the  preceding  twelve-month  period)  as to the  amount of
dividends  it  may  declare  or pay in any  twelve-month  period  without  prior
approval of the  Department  of Business  Regulation  of Rhode  Island.  Without
special  permission,   at  December  31,  1999,  $3,110,000  was  available  for
distribution.

     OLB is required to maintain a minimum  statutory  capital and surplus based
upon the higher of $1,000,000  or an amount  derived by applying a variable rate
to its current  premium  volume or  outstanding  losses at December 31, 1999. At
December 31, 1999,  $414,000 was  available  for  distribution  from OLB and its
subsidiary, Park Brokerage Ltd.



                                       34
<PAGE>



     The  continued  payment  and the amount of any cash  dividends  will depend
upon, among other factors,  the Company's  operating results,  overall financial
condition, capital requirements and general business conditions.

Newly Adopted Accounting Standards

     In March 1998,  the  American  Institute of  Certified  Public  Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, Accounting for the Costs of
Computer  Software  Developed  or Obtained  for  Internal  Use,  which  requires
capitalization  of external  and certain  internal  costs  incurred to obtain or
develop internal-use computer software during the application development stage.
SOP 98-1 is effective for fiscal years  beginning  after December 15, 1998. This
statement  did  not  materially  impact  the  Company's  consolidated  financial
statements.

     In late 1998, the AICPA issued SOP 98-7, Deposit Accounting: Accounting for
Insurance and  Reinsurance  Contracts that Do Not Transfer  Insurance Risk. This
SOP effective for fiscal years beginning after June 15, 1999,  provides guidance
to both the insured and insurer on how to apply the deposit method of accounting
when it is required for insurance and reinsurance contracts that do not transfer
insurance  risk. This SOP did not materially  impact the Company's  consolidated
financial statements.

Accounting Standards Not Yet Adopted

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards  ("SFAS") No. 133 (as amended),  Accounting for
Derivative  Instruments  and Hedging  Activities.  This  statement  requires all
derivatives to be recognized as either assets or liabilities in the statement of
financial position and to be measured at fair value. This statement is effective
for all fiscal  quarters  and fiscal years  beginning  after  December  31,2000.
Management  believes that the statement  will not have a material  impact on the
financial position of the Company.




                                       35
<PAGE>



Year 2000 Compliance

     Many computers,  software programs and microprocessors  embedded in certain
equipment (collectively,  "systems") were designed to accommodate only two-digit
date fields to  represent  a given year (e.g.,  "98"  represents  1998).  It was
thought possible that such systems would not be able to accurately  process data
containing  information relating to dates before, during or after the year 2000.
It was thought possible that such systems could fail entirely,  although in many
instances  the  consequences  of a system not being "year 2000  complaint"  were
unknown.

     Testing  conducted  by a team of  informational  technology  personnel  and
operational  line staff  from  January  1, 2000  through  January 3, 2000 on its
application  operating  software and hardware  determined that the Company's Y2K
remediation efforts had been successful. This has been confirmed by post January
3, 2000 normal operations being unimpeded by Y2K related issues.

     The total cost to modify these existing production systems,  which includes
both  internal  and  external  costs  of   programming,   coding,   testing  and
software/hardware  and equipment  purchases was  approximately  $473,000 and has
been reflected in the financial statements.

     A  comprehensive  review was  performed  by the  Company  of the  insurance
policies written by its Insurance Companies and their underwriting guidelines to
determine year 2000 exposure.  The Insurance Companies primarily issued policies
covering  all or  part  of an  insured's  self-insured  retention,  with  limits
generally  up to $25,000  that follow the form of the  policies  for coverage in
excess of the Insurance  Companies'  policies.  The Insurance  Companies did not
issue exclusions on these policies. The Insurance Companies also issued a number
of policies with greater limits of coverage,  and included a year 2000 exclusion
on such policies.  The Company is aware that year 2000 liabilities may be deemed
not to be  fortuitous in nature and,  therefore,  not covered under the policies
underwritten  by the Insurance  Companies.  Moreover,  based upon the classes of
insurance  primarily  underwritten  by  the  Insurance  Companies,  the  Company
believes that its coverage exposure with respect to year 2000 losses will not be
material.  However,  changes in social and legal trends may  establish  coverage
unintended for Year 2000 exposures by  re-interpreting  insurance  contracts and
exclusions.




                                       36
<PAGE>



Safe Harbor Disclosure

     The  Private  Securities  Litigation  Reform  Act of 1995  provides a "safe
harbor" for forward-looking  statements. This SEC Form 10-K or any other written
or  oral   statements   made  by  or  on  behalf  of  the  Company  may  include
forward-looking  statements,  which  reflect the  Company's  current  views with
respect  to future  events  and  financial  performance.  These  forward-looking
statements  are subject to certain  uncertainties  and other  factors that could
cause  actual  results  to  differ   materially  from  such  statements.   These
uncertainties and other factors (which are described in more detail elsewhere in
documents  filed by the Company with the  Securities  and  Exchange  Commission)
include,  but are not limited  to,  uncertainties  relating to general  economic
conditions  and  cyclical  industry   conditions,   uncertainties   relating  to
government  and regulatory  policies,  volatile and  unpredictable  developments
(including storms and catastrophes), the legal environment, the uncertainties of
the  reserving  process  and the  competitive  environment  in which the Company
operates. The words "believe",  "expect",  "anticipate",  "project", "plan", and
similar expressions,  identify forward-looking statements. Readers are cautioned
not to place undue  reliance on these  forward-looking  statements,  which speak
only as of their dates. The Company  undertakes no obligation to publicly update
or  revise  any  forward-looking   statements,   whether  as  a  result  of  new
information, future events or otherwise.



Item 8. Financial Statements and Supplementary Data

     See page F-1.


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

     None.



                                    PART III


Item 10. Directors and Executive Officers of the Registrant

     Reference is made to the Registrant's  definitive  proxy  statement,  which
will be filed with the Securities and Exchange  Commission within 120 days after
December  31,  1999,  and  which is  incorporated  herein by  reference.  If the
definitive  proxy statement is not filed within that time, the Company will file
an amendment to the Form 10-K within that time frame.



                                       37
<PAGE>



Item 11. Executive Compensation

     Reference is made to the Registrant's  definitive  proxy  statement,  which
will be filed with the Securities and Exchange  Commission within 120 days after
December  31,  1999,  and  which is  incorporated  herein by  reference.  If the
definitive  proxy statement is not filed within that time, the Company will file
an amendment to the Form 10-K within that time frame.


Item 12. Security Ownership of Certain Beneficial Owners and Management

     Reference is made to the Registrant's  definitive  proxy  statement,  which
will be filed with the Securities and Exchange  Commission within 120 days after
December  31,  1999,  and  which is  incorporated  herein by  reference.  If the
definitive  proxy statement is not filed within that time, the Company will file
an amendment to the Form 10-K within that time frame.


Item 13. Certain Relationships and Related Transactions

     Reference is made to the Registrant's  definitive  proxy  statement,  which
will be filed with the Securities and Exchange  Commission within 120 days after
December  31,  1999,  and  which is  incorporated  herein by  reference.  If the
definitive  proxy statement is not filed within that time, the Company will file
an amendment to the Form 10-K within that time frame.



                                     PART IV

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

(a)  Financial statements and schedules.

     1.   Financial Statements:

               Report of Independent Accountants

               Consolidated Balance Sheets as of December 31, 1999 and 1998

               Consolidated  Statements  of Income for the years ended  December
               31, 1999, 1998 and 1997

               Consolidated  Statements  of  Cash  Flows  for  the  years  ended
               December 31, 1999, 1998 and 1997



                                       38
<PAGE>



               Consolidated  Statements  of  Stockholders'  Equity for the years
               ended December 31, 1999, 1998 and 1997

               Consolidated  Statements  of  Comprehensive  Income for the years
               ended December 31, 1999, 1998 and 1997

               Notes to Consolidated Financial Statements


     2.   Financial Statement Schedules:

               Schedule II -- Condensed Financial Information of Registrant:

                    Balance Sheets as of December 31, 1999 and 1998

                    Statements of Income for the years ended  December 31, 1999,
                    1998 and 1997

                    Statements  of Cash Flows for the years ended  December  31,
                    1999, 1998 and 1997

                    Notes to Condensed Financial Statements

               Schedule IV -- Reinsurance for the years ended December 31, 1999,
               1998 and 1997

               Schedule VI -- Supplemental  Information  Concerning Property and
               Casualty  Insurance  Operations  for the years ended December 31,
               1999, 1998 and 1997

               The  information  for Schedule I is contained in the Notes to the
               Consolidated  Financial Statements.  The information for Schedule
               III is included in Schedule VI.

               The information required for Schedule V is not applicable.



                                       39
<PAGE>



     3.   Exhibits:

Exhibit
Number         Description
------         -----------

2              Acquisition  Agreement,  dated as of August 3,  1995,  among Kaye
               Group Inc. (formerly known as Old Lyme Holding Corporation), Kaye
               International, L.P., certain individuals and Kaye Holding Corp.(a
               copy of which was filed  with the  Commission  on March 31,  1995
               (Registration No. 33-64664),  and which is incorporated herein by
               this reference).

3 (i)          Certificate of Incorporation  of Kaye Group Inc.  (formerly known
               as Old Lyme Holding  Corporation) (a copy of which was filed with
               the  Commission  on June 17, 1993 as Exhibit 3.1 to the Company's
               Registration  Statement on Form S-1  (Registration No. 33-64664),
               and which is incorporated herein by this reference).

3 (ii)         By-laws of Kaye Group Inc.  (formerly  known as Old Lyme  Holding
               Corporation)  (a copy of which was filed with the  Commission  on
               June  17,  1993  as  Exhibit  3.2 to the  Company's  Registration
               Statement on Form S-1 (Registration  No. 33-64664),  and which is
               incorporated herein by this reference).

4.1            Form of  certificate  representing  shares of Common Stock of the
               Company (a copy of which was filed with the  Commission  on March
               31, 1995  (Registration No. 33-64664),  and which is incorporated
               herein by this reference).

10.1           Kaye Group Inc. (formerly known as Old Lyme Holding  Corporation)
               1993  Stock  Option  Plan (a copy of  which  was  filed  with the
               Commission  on August 17, 1993 as Exhibit 10.6 to Amendment No. 3
               to the Company's Registration Statement on Form S-1 (Registration
               No.  33-64664),   and  which  is  incorporated   herein  by  this
               reference).

10.1 (i)       Kaye Group Inc.  Supplemental  Stock Option Plan (a copy of which
               was filed with the Commissioner on March 31, 1997)  (Registration
               No.33- 64664), as Exhibit 10.1(i) to the Company's Form 10-K, and
               which is incorporated herein by this reference).

10.1 (ii)      Kaye Group Inc. Restated Supplementa1 Stock Option Plan.

10.2           Registration  Agreement among Kaye Group Inc.  (formerly known as
               Old Lyme Holding Corporation),  Kaye International,  L.P. and Old
               Lyme  Holdings of Rhode  Island,  Inc. (a copy of which was filed
               with  the  Commission  on  August  17,  1993 as  Exhibit  10.7 to
               Amendment No. 3 to



                                       40
<PAGE>



               the Company's  Registration  Statement on Form S-1  (Registration
               No.  33-  64664),  and  which  is  incorporated  herein  by  this
               reference).

10.11          Loan Agreement among Summit Bank and Kaye Group Inc.,  dated June
               24, 1998 (a copy of which was filed with the  Commission on March
               30, 1999, on Exhibit 10.11 to the Company's  Form 10-K, and which
               is incorporated herein by reference).

10.11 (i)      First  Amendment  to Loan  Agreement  among  Summit Bank and Kaye
               Group Inc., dated July 31, 1999.

10.11 (ii)     Second  Amendment  to Loan  Agreement  among Summit Bank and Kaye
               Group Inc., dated November 1, 1999.

10.17          Executive  Employment Agreement between Kaye Group Inc. and Bruce
               D.  Guthart,  dated as of  January  2,  1997 (a copy of which was
               filed  with the  Commission  on  March  31,  1997,  (Registration
               No.33-64664),  as Exhibit 10.17 to the Company's  Form 10-K,  and
               which is incorporated herein by this reference).

10.18          Employment  Agreement  between  Kaye  Group Inc.  and  Michael P.
               Sabanos, dated as of May 15, 1996 (a copy of which was filed with
               the Commission on March 31, 1997, (Registration No.33-64664),  as
               Exhibit  10.18  to  the  Company's   Form  10-K,   and  which  is
               incorporated herein by this reference).

10.18 (i)      Amendment  of  Employment  Agreement  between Kaye Group Inc. and
               Michael Sabanos,  dated as of March 18, 1998 (a copy of which was
               filed with the  Commission  on March 30, 1999,  Registration  no.
               33-64664),  as Exhibit 10.18 (i) to the Company's  Form 10-K, and
               which is incorporated herein by this reference.

10.19          Kaye Group Inc. Stock  Performance  Plan,  dated as of October 2,
               1997. (a copy of which was filed with the  Commission on December
               8,  1997,  as  Annex  B to  Schedule  14(a),  Information  to the
               Company's Proxy  Statement,  pursuant to Section 14(a), and which
               is incorporated herein by this reference).

10.20          Asset Purchase Agreement between Kaye Insurance Associates, Inc.,
               Seaman,  Ross & Weiner,  Inc.,  AMSCO  Coverage  Corp. and D.S.I.
               Associates,  Inc.,  dated as of January 1, 1999. (a copy of which
               was filed with the Commission on March 30, 1999, as Exhibit 10.22
               to the Company's Form 10-K, and which is  incorporated  herein by
               this reference).



                                       41
<PAGE>



10.21          1999 Equity Incentive Compensation Plan

10.22          Employment Agreement between Kaye Insurance Associates,  Inc. and
               Robert Munao, dated as of May 25, 1999.

10.23          Employment  Agreement between Program  Brokerage  Corporation and
               Marc Cohen, dated as of February 2, 1998.

10.23(i)       Addendum  to  Employment   Agreement  between  Program  Brokerage
               Corporation and Marc Cohen dated as of March 11, 1999.

11             Statement regarding computation of earnings per share.

27             Financial Data Schedule


(b)  Reports on Form 8-K

There were no reports on Form 8-K for the period October 1, 1999 to December 31,
1999.





                                       42
<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.

                                            KAYE GROUP INC.

                                            By:/ s / Bruce D. Guthart
                                            -------------------------------
                                            Bruce D. Guthart,  Chairman

Dated: March 28, 2000


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

Signature                     Title                           Date
---------                     -----                           ----

/ s / Bruce D. Guthart        Director,  Chairman,            March 28, 2000
-------------------------     President, and
Bruce D. Guthart              Chief Executive Officer
                              (Principal Executive Officer)


/ s / Howard Kaye             Director                        March 28, 2000
-------------------------
Howard Kaye


/ s / Michael P. Sabanos      Director, Executive Vice        March 28, 2000
-------------------------     President, Chief Financial
Michael P. Sabanos            Officer (Principal Financial
                              Officer and Accounting Officer)


/ s / Robert Barbanell        Director                        March 28, 2000
-------------------------
Robert Barbanell


/ s / Richard Butler          Director                        March 28, 2000
-------------------------
Richard Butler


/ s / David Ezekiel           Director                        March 28, 2000
-------------------------
David Ezekiel


/ s / Elliot Cooperstone      Director                        March 28, 2000
-------------------------
Elliot Cooperstone


/ s / Ned Sherwood            Director                        March 28, 2000
-------------------------
Ned Sherwood




                                       43
<PAGE>





Item 8.  Financial Statements and Supplementary Data


                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

                                                                          Page
                                                                          ----

Index to Notes to Consolidated Financial Statements                       F-2

Report of Independent Accountants                                         F-3

Consolidated Balance Sheets as of December 31, 1999
   and 1998                                                               F-4

Consolidated Statements of Income for the years
   ended December 31, 1999, 1998 and 1997                                 F-6

Consolidated Statements of Cash Flows
   for the years ended December 31, 1999,  1998 and 1997                  F-8

Consolidated Statements of Stockholders' Equity
   for the years ended December 31, 1999, 1998 and 1997                   F-9

Consolidated Statements of Comprehensive Income
   for the years ended December 31, 1999, 1998, and 1997                  F-9

Notes to Consolidated Financial Statements                                F-10

Financial Statement Schedules:

Schedule II - Condensed Financial Information of Registrant:
           Balance Sheets as of December 31, 1999 and 1998                F-37

           Statements of Income for the years ended
           December 31, 1999, 1998 and 1997                               F-38

           Statements of Cash Flows for the years ended
           December 31, 1999, 1998 and 1997                               F-39

           Notes to Condensed Financial Statements                        F-40

Schedule IV - Reinsurance for the years ended
   December 31, 1999, 1998 and 1997                                       F-41

Schedule VI - Supplemental Information Concerning
   Property-Casualty Insurance Operations for the
   years ended December 31, 1999, 1998 and 1997                           F-42



The  information  for Schedule I is  contained in the Notes to the  Consolidated
Financial  Statements.  The information for Schedule III is included in Schedule
VI. The information required for Schedule V is not applicable.



                                       F-1

<PAGE>




Index to Notes to Consolidated Financial Statements
---------------------------------------------------

Footnote   Description                                                    Page
--------   -----------                                                    ----

    1      Business                                                       F-10
    2      Organization                                                   F-12
    3      Significant Accounting Policies                                F-13
    4      Changes in Accounting Policies                                 F-18
    5      Acquisitions                                                   F-18
    6      Funds Held in Fiduciary Capacity                               F-20
    7      Investments                                                    F-20
    8      Notes Payable                                                  F-23
    9      Income Taxes                                                   F-24
   10      Lease Commitments and Rentals                                  F-26
   11      Pension and Retirement Plans                                   F-26
   12      Contingent Liabilities                                         F-26
   13      Reinsurance                                                    F-27
   14      Losses and Loss Expenses                                       F-28
   15      Statutory Financial Information and Dividend Restrictions      F-29
   16      Related Party Transactions                                     F-29
   17      Capital Structure                                              F-30
   18      Stock Performance and Stock Option Plans                       F-31
   19      Quarterly Financial Information (Unaudited)                    F-34
   20      Business Segments                                              F-35
   21      Supplemental Cash Flow Disclosures                             F-36





                                      F-2
<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of Kaye Group Inc.:

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material  respects,  the financial position of Kaye
Group Inc. and its  subsidiaries  at December 31, 1999 and 1998, and the 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 of America. In addition, in our opinion,
the  financial  statement  schedules  listed in the  accompanying  index present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.  These financial
statements  and  financial  statement  schedules are the  responsibility  of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements and financial  statement schedules based on our audits. We
conducted our audits of these  statements in accordance with auditing  standards
generally  accepted in the United States of America,  which 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,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion  expressed
above.



PricewaterhouseCoopers LLP
New York, New York
February 22, 2000










                                      F-3
<PAGE>


                                         KAYE GROUP INC.
                                   CONSOLIDATED BALANCE SHEETS
                          As of December 31, 1999 and December 31, 1998
                            (in thousands, except par value per share)


<TABLE>
<CAPTION>

                                                                                           1999                1998
                                                                                        ---------           ---------
<S>                                                                                     <C>                 <C>
ASSETS

INSURANCE BROKERAGE COMPANIES:
Current assets:
     Cash and cash equivalents
          (including short term investments, and funds held in a fiduciary
          capacity of $25,610 and $33,218)                                              $  27,678           $  34,267
     Premiums and other receivables                                                        27,265              40,572
     Prepaid expenses and other assets                                                      1,717               1,895
                                                                                        ---------           ---------
     Total  current assets                                                                 56,660              76,734

Fixed assets (net of accumulated depreciation of $6,922 and $5,662)                         3,770               3,683
Intangible assets (net of accumulated amortization of $3,845 and $2,575)                   10,228               6,795
Other assets                                                                                  195                 205
                                                                                        ---------           ---------
     Total assets - insurance brokerage companies                                          70,853              87,417
                                                                                        ---------           ---------

PROPERTY AND CASUALTY COMPANIES:
Investments available-for-sale:
     Fixed maturities, at market value (amortized cost: 1999,
         $42,273; 1998, $42,980)                                                           41,304              43,597
     Equity securities, at market value
         (cost:1999, $3,873; 1998, $696)                                                    4,496                 782
     Short term investments, at cost, which approximates market value                       5,500               2,950
                                                                                        ---------           ---------
     Total investments                                                                     51,300              47,329

Cash and cash equivalents                                                                   8,827              10,806
Accrued interest and dividends                                                                873                 961
Premiums receivable                                                                         2,333               2,644
Reinsurance recoverable on paid and unpaid losses                                           2,747               3,220
Prepaid reinsurance premiums                                                                  488                 162
Deferred acquisition costs                                                                  4,313               3,921
Deferred income taxes                                                                       1,236                 586
Other assets                                                                                4,520               2,304
                                                                                        ---------           ---------
     Total assets - property and casualty companies                                        76,637              71,933
                                                                                        ---------           ---------

CORPORATE:
Cash and cash equivalents                                                                   1,233                 370
Prepaid expenses and other assets                                                             153                 248
Investments:
     Equity securities, at market value
     (cost:1999, $243, and 1998, $497)                                                        243                 615
Deferred income taxes                                                                          93
                                                                                        ---------           ---------
     Total assets - corporate                                                               1,722               1,233
                                                                                        ---------           ---------

     Total assets                                                                       $ 149,212           $ 160,583
                                                                                        =========           =========
</TABLE>


See notes to consolidated financial statements

                                       F-4

<PAGE>



                                         KAYE GROUP INC.
                                   CONSOLIDATED BALANCE SHEETS
                          As of December 31, 1999 and December 31, 1998
                            (in thousands, except par value per share)


<TABLE>
<CAPTION>

                                                                                           1999                1998
                                                                                        ---------           ---------
<S>                                                                                     <C>                 <C>
LIABILITIES

INSURANCE BROKERAGE COMPANIES:
Current liabilities:
     Premiums payable and unearned commissions                                          $  42,161           $  59,472
     Accounts payable and accrued liabilities                                               8,103               9,045
     Notes payable                                                                            527                 718
                                                                                        ---------           ---------
     Total current liabilities                                                             50,791              69,235
Notes payable                                                                                 841               1,369
Deferred income taxes                                                                         491                 162
Other liabilities                                                                                               1,005
                                                                                        ---------           ---------
     Total liabilities-insurance brokerage companies                                       52,123              71,771
                                                                                        ---------           ---------

PROPERTY AND CASUALTY COMPANIES:
Liabilities:
     Unpaid losses and loss expenses                                                       23,969              21,567
     Unearned premium reserves                                                             13,694              12,327
     Accounts payable and accrued liabilities                                               7,953               7,451
     Other liabilities                                                                        245                 143
                                                                                        ---------           ---------
     Total liabilities - property and casualty companies                                   45,861              41,488
                                                                                        ---------           ---------

CORPORATE:
Current liabilities:
     Accounts payable and accrued liabilities                                                 300                 511
     Loan payable                                                                           1,241               1,153
     Deferred income taxes                                                                                         20
     Income taxes payable                                                                     366                 568
                                                                                        ---------           ---------
     Total current liabilities                                                              1,907               2,252
Loan payable-long-term                                                                      2,070               3,303
                                                                                        ---------           ---------
     Total liabilities-corporate                                                            3,977               5,555
                                                                                        ---------           ---------

     Total liabilities                                                                    101,961             118,814
                                                                                        ---------           ---------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
     Preferred stock, $1.00 par value; 1,000 shares authorized;
          none issued or outstanding
     Common stock, $.01 par value; 20,000 shares authorized;
          shares issued and outstanding (1999, 8,458; 1998, 8,474)                             85                  85
     Paid - in capital                                                                     18,019              17,942
     Accumulated other comprehensive income, net of deferred
          income tax (benefit) liability  (1999, ($118); 1998, $280)                         (228)                541
     Unearned stock grant compensation                                                       (254)
     Retained earnings                                                                     29,858              23,201
     Common stock in Treasury, 28 shares at cost in 1999                                     (229)
                                                                                        ---------           ---------

     Total stockholders' equity                                                            47,251              41,769
                                                                                        ---------           ---------

     Total liabilities and stockholders' equity                                         $ 149,212           $ 160,583
                                                                                        =========           =========
</TABLE>


See notes to consolidated financial statements

                                      F-5
<PAGE>



                                 KAYE GROUP INC.
                        CONSOLIDATED STATEMENTS OF INCOME
              For the years ended December 31, 1999, 1998 and 1997
                    (in thousands, except per share amounts)


<TABLE>
<CAPTION>

                                                                                         1999              1998              1997
                                                                                       --------          --------          --------
<S>                                                                                    <C>               <C>               <C>
INSURANCE BROKERAGE COMPANIES
Revenues:
     Commissions and fees - net                                                        $ 37,379          $ 35,356          $ 32,217
     Investment income                                                                    1,374             1,846             1,565
                                                                                       --------          --------          --------

     Total revenues                                                                      38,753            37,202            33,782
                                                                                       --------          --------          --------
Expenses:
     Salaries and benefits                                                               22,346            21,323            18,905
     Amortization of intangibles                                                          1,095               679               507
     Other operating expenses                                                            12,215            13,446            13,203
                                                                                       --------          --------          --------

     Total operating expenses                                                            35,656            35,448            32,615
                                                                                       --------          --------          --------

     Interest expense                                                                       775                49               400
                                                                                       --------          --------          --------

     Income before income taxes-insurance brokerage companies                             2,322             1,705               767
                                                                                       --------          --------          --------
PROPERTY AND CASUALTY COMPANIES
Revenues:
     Net premiums written                                                                27,821            24,538            22,270
     Change in unearned premiums                                                         (1,041)              151               577
                                                                                       --------          --------          --------

     Net premiums earned                                                                 26,780            24,689            22,847
     Net investment income                                                                2,949             2,920             2,692
     Net realized (loss) gain on investments                                                (16)               85                21
     Other income                                                                            72               146               245
                                                                                       --------          --------          --------

     Total revenues                                                                      29,785            27,840            25,805
                                                                                       --------          --------          --------
Expenses:
     Losses and loss expenses                                                             9,754             8,496             8,716
     Acquisition costs and general and administrative expenses                           11,205             9,707             9,370
                                                                                       --------          --------          --------

     Total expenses                                                                      20,959            18,203            18,086
                                                                                       --------          --------          --------

     Income before income taxes-property and casualty companies                           8,826             9,637             7,719
                                                                                       --------          --------          --------
CORPORATE
Revenues:
     Net investment income (loss)                                                           206               (31)               55

Expenses:
     Other operating expenses                                                               309               314               438

     Interest expense                                                                       316               443               548
                                                                                       --------          --------          --------

     Net expenses before income taxes-corporate                                            (419)             (788)             (931)
                                                                                       --------          --------          --------
</TABLE>


See notes to consolidated financial statements

                                      F-6

<PAGE>



                                 KAYE GROUP INC.
                        CONSOLIDATED STATEMENTS OF INCOME
              For the years ended December 31, 1999, 1998 and 1997
                    (in thousands, except per share amounts)


<TABLE>
<CAPTION>

                                                                         1999              1998              1997
                                                                       --------          --------          --------
<S>                                                                    <C>               <C>               <C>
Income before income taxes and minority interest                       $ 10,729          $ 10,554          $  7,555
                                                                       --------          --------          --------
Provision (benefit) for income taxes

     Current                                                              3,261             3,422             1,921
     Deferred                                                               (36)             (150)              346
                                                                       --------          --------          --------

     Total provision for income taxes                                     3,225             3,272             2,267
                                                                       --------          --------          --------

Income before minority interest                                           7,504             7,282             5,288

Minority interest                                                                                               931
                                                                       --------          --------          --------

Net income                                                             $  7,504          $  7,282          $  4,357
                                                                       ========          ========          ========
EARNINGS PER SHARE

     Basic                                                             $   0.89          $   0.86          $   0.62
                                                                       ========          ========          ========

     Diluted                                                           $   0.87          $   0.85          $   0.62
                                                                       ========          ========          ========

Weighted average of shares outstanding - basic                            8,460             8,474             7,024
                                                                       ========          ========          ========

Weighted average shares outstanding and
share equivalents outstanding - diluted                                   8,630             8,593             7,083
                                                                       ========          ========          ========
</TABLE>


See notes to consolidated financial statements

                                      F-7
<PAGE>



                                 KAYE GROUP INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
           For the years ended ended December 31, 1999, 1998 and 1997
                                 (in thousands)



<TABLE>
<CAPTION>

                                                                                       1999               1998               1997
                                                                                     --------           --------           --------
<S>                                                                                  <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                           $  7,504           $  7,282           $  4,357
Adjustments to reconcile net income to net
     cash provided by (used in) operating activities:
     Deferred acquisition costs                                                          (392)                18                134
     Amortization of bond premium - net                                                   695                599                650
     Deferred income taxes                                                                (36)              (150)               346
     Net realized loss (gains) on investments                                             290                (85)               (21)
     Depreciation and amortization expense                                              2,381              1,813              1,667
     Minority interest                                                                                                          931
     Change in assets and liabilities:
        Accrued interest and dividends                                                     88                (79)                87
        Premiums and other receivables                                                 14,071             (8,125)            23,011
        Prepaid expenses and other assets                                              (2,263)            (1,253)            (1,785)
        Premiums payable and unearned commissions                                     (17,235)            18,371            (21,870)
        Accounts payable and accrued liabilities                                         (311)             2,055              5,116
        Unpaid losses and loss expenses                                                 2,402              2,441              3,899
        Unearned premium reserves                                                       1,367               (251)              (598)
        Income taxes payable                                                             (202)               552                (79)
                                                                                     --------           --------           --------

        Net cash provided by operating activities                                       8,359             23,188             15,845
                                                                                     --------           --------           --------

CASH FLOWS FROM INVESTING ACTIVITIES
Investments available - for - sale :
   Purchase of fixed maturities                                                       (11,560)           (15,012)           (11,907)
   Purchase of equity securities                                                       (4,049)              (200)              (500)
   Purchase of short term investments                                                  (2,550)                               (2,094)
   Maturities of fixed securities                                                       5,474              4,861              4,487
   Sales of fixed securities                                                            6,094              8,158              5,297
   Sales of of short term investments                                                                        480
   Sales of equity securities                                                             832                425              1,100
Purchase of fixed assets                                                               (1,347)            (2,089)            (1,481)
Acquisition payments                                                                   (5,203)            (1,239)              (777)
Funds held under deposit contracts:
   Purchase of fixed maturities                                                                                                (976)
   Sales of short term investments                                                                           173              2,344
   Sales of fixed maturities                                                                                                  1,851
   Maturities of fixed maturities                                                                                               452
                                                                                     --------           --------           --------

        Net cash used in investing activities                                         (12,309)            (4,443)            (2,204)
                                                                                     --------           --------           --------

CASH FLOWS FROM FINANCING ACTIVITIES
Acquisition debt-repayment                                                               (375)              (657)
Notes and loan payable-repayment                                                       (1,489)            (7,981)            (6,757)
Proceeds from issuance of common stock                                                     35
Acquisition of treasury stock                                                          (1,079)
Payment of dividends                                                                     (847)              (849)              (702)
Proceeds from borrowings                                                                                   5,000                642
Payment of dividends to minority stockholders                                                               (150)
Payments under deposit contracts                                                                            (122)            (3,326)
                                                                                     --------           --------           --------

        Net cash used in financing activities                                          (3,755)            (4,609)           (10,293)
                                                                                     --------           --------           --------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                                (7,705)            14,136              3,348
Cash and cash equivalents at beginning of period                                       45,443             31,307             27,959
                                                                                     --------           --------           --------

Cash and cash equivalents at end of period                                           $ 37,738           $ 45,443           $ 31,307
                                                                                     ========           ========           ========
</TABLE>


See notes to consolidated financial statements

                                      F-8
<PAGE>



                                 KAYE GROUP INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              For the years ended December 31, 1999, 1998 and 1997
                    (in thousands, except per share amounts)


<TABLE>
<CAPTION>

                                                                           Common Stock
                                                                     ------------------------        Common          Unearned
                                                                     Outstanding         Par          Stock         Stock Grant
                                                                        Shares          Value      in Treasury     Compensation
                                                                     -----------        -----      -----------     ------------
<S>                                                                       <C>               <C>           <C>               <C>
Balance, January 1, 1997                                                  7,020             $70

Change in unrealized appreciation, net of deferred
    income tax of ($174)
Net income
Dividends declared (per share-$0.10)
Shares issued to purchase minority interest, net of
   deferred income tax of ($34)                                           1,454              15
                                                                        -------           -----         -------           -------
Balance, December 31, 1997                                                8,474              85

Change in unrealized appreciation, net of deferred
    income tax of ($88)
Net income
Dividends declared (per share-$0.10)
                                                                        -------           -----         -------           -------
Balance, December 31, 1998                                                8,474              85

Change in unrealized depreciation, net of deferred
    income tax of $398
Shares issued - employee stock option plan                                    7
Shares issued - stock performance plan                                        5                                              (264)
Amortization of unearned restricted stock                                                                                      10
Net income
Dividends declared (per share-$0.10)
Acquisition of treasury stock net of reissuances                            (28)                           (229)
                                                                        -------           -----         -------           -------
Balance, December 31, 1999                                                8,458             $85           ($229)            ($254)
                                                                        =======           =====         =======           =======
</TABLE>



<TABLE>
<CAPTION>

                                                                                     Accumulated
                                                                                        Other                            Total
                                                                        Paid-In     Comprehensive     Retained        Stockholders'
                                                                        Capital         Income        Earnings           Equity
                                                                        -------     -------------     --------        ------------
<S>                                                                     <C>               <C>           <C>               <C>
Balance, January 1, 1997                                                 $7,776            ($31)        $17,169           $24,984

Change in unrealized appreciation, net of deferred
    income tax of ($174)                                                                    338                               338
Net income                                                                                                4,357             4,357
Dividends declared (per share-$0.10)                                                                       (702)             (702)
Shares issued to purchase minority interest, net of
   deferred income tax of ($34)                                          10,166              66          (4,056)            6,191
                                                                        -------           -----         -------           -------

Balance, December 31, 1997                                               17,942             373          16,768            35,168

Change in unrealized appreciation, net of deferred
    income tax of ($88)                                                                     168                               168
Net income                                                                                                7,282             7,282
Dividends declared (per share-$0.10)                                                                       (849)             (849)
                                                                        -------           -----         -------           -------

Balance, December 31, 1998                                               17,942             541          23,201            41,769

Change in unrealized depreciation, net of deferred
    income tax of $398                                                                     (769)                             (769)
Shares issued - employee stock option plan                                   35                                                35
Shares issued - stock performance plan                                       42                                              (222)
Amortization of unearned restricted stock                                                                                      10
Net income                                                                                                7,504             7,504
Dividends declared (per share-$0.10)                                                                       (847)             (847)
Acquisition of treasury stock net of reissuances                                                                             (229)
                                                                        -------           -----         -------           -------

Balance, December 31, 1999                                              $18,019           ($228)        $29,858           $47,251
                                                                        =======           =====         =======           =======
</TABLE>




                                 KAYE GROUP INC.
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
              For the years ended December 31, 1999, 1998 and 1997
                                 (in thousands)


<TABLE>
<CAPTION>

                                                                                          1999            1998         1997
                                                                                         ------          ------       ------
<S>                                                                                      <C>             <C>          <C>
NET INCOME                                                                               $7,504          $7,282       $4,357

Other comprehensive income:

      Unrealized (depreciation) appreciation of
      investments available -for-sale, net of
      deferred income tax (benefit) liability
      (1999, ($482); 1998, $116; 1997, $214)                                               (932)            221          417

      Less: reclassification adjustment for loss
      (gains) included in net income, net of
      deferred income tax (benefit) liability
      (1999, ($84); 1998, $28; 1997, $6)                                                    163             (53)         (13)
                                                                                         ------          ------       ------

      Total other comprehensive income                                                     (769)            168          404
                                                                                         ------          ------       ------

COMPREHENSIVE INCOME                                                                     $6,735          $7,450       $4,761
                                                                                         ======          ======       ======
</TABLE>




See notes to consolidated financial statements




                                      F-9
<PAGE>



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 1999, 1998 and 1997

1) Business

Kaye Group Inc. (the "Company"),  a Delaware  corporation,  is a holding company
which,  through  its  subsidiaries,  is  engaged in a broad  range of  insurance
brokerage,  underwriting  and related  activities.  The Company  operates in two
insurance  business  segments - the  Insurance  Brokerage  Companies  Operations
("Brokerage  Operations"),  comprised of the Retail  Brokerage  Business and the
Program Brokerage Business, and the Property and Casualty Companies Operations.

In addition,  Corporate  Operations  include those  activities  that benefit the
Company in its  entirety  and cannot be  specifically  identified  to either the
Insurance Brokerage Companies or the Property and Casualty Companies Operations.
Such activities  include debt servicing and public company  expenses,  including
investor relations costs.

Insurance Brokerage Companies Operations

The Retail Brokerage  Business operates an insurance  brokerage business through
four subsidiaries of the Company,  the "Retail Brokerage  Companies".  It offers
commercial  clients  a full  range of  insurance  brokerage  services  including
procurement of property/casualty insurance, risk management consulting, bonding,
loss prevention engineering,  and group employee benefit consulting services. In
addition,  personal lines and life and health  insurance  coverage are placed on
behalf of individuals.

The Retail  Brokerage  Business'  primary  strategy is to service  middle market
companies  and  organizations  just below the  Fortune 500 level for which other
national brokers  intensely  compete.  Within this market,  the Retail Brokerage
Business has developed  particular expertise and knowledge of the risks facing a
number of industry sectors  including  health care, real estate,  manufacturing,
churches, law firms, homes for the aged and fine arts.

During  1999,  the  Retail  Brokerage  Business  serviced  approximately  17,000
insureds.  The  Retail  Brokerage  Business  is  compensated  for  its  services
primarily in the form of commissions paid by insurance companies. The commission
is usually a percentage  of the premium paid by the  insured.  Commission  rates
depend upon the type of insurance,  the particular  insurance  company,  and the
role in which the Retail Brokerage  Business acts. In some cases a commission is
shared  with other  agents or brokers  who have  acted  jointly  with the Retail
Brokerage  Business in connection  with the  transaction.  The Retail  Brokerage
Business may also receive from an insurance company a contingent commission that
is generally based on the profitability and volume of business placed with it by
the Retail Brokerage  Business over a given period of time. The Retail Brokerage
Business may also receive fees in connection with consulting  services  relating
to the marketing of insurance.



                                      F-10
<PAGE>



Program Brokerage  Corporation or "PBC" (the "Program Brokerage  Business") is a
subsidiary of the Company and operates a wholesale  insurance brokerage business
which offers retail  insurance  agents and brokers  innovative  solutions to the
twin insurance  problems of price and availability of coverage.  It accomplishes
this by organizing pools of similar risks into specially designed Affinity Group
Insurance Programs (the "Programs").

Approximately  69% of PBC's  premium  volume is generated by  approximately  600
unrelated  retail  insurance  agents and  brokers  serving  approximately  8,000
insureds  during 1999.  The remaining  31% is derived from the Retail  Brokerage
Business.  Approximately  41% of PBC's premium  volume is directly or indirectly
placed with two  affiliates,  Old Lyme Insurance  Company of Rhode Island,  Inc.
("OLRI") and Old Lyme Insurance Company, Ltd. (Bermuda) ("OLB").

Property and Casualty Companies Operations

The Company conducts its property and casualty underwriting business through its
two insurance company  subsidiaries (the "Insurance  Companies"),  OLRI and OLB.
OLRI is a property and casualty  insurance  company licensed in Rhode Island and
eligible  as a  surplus  lines  insurer  in New  York and New  Jersey.  OLB is a
property and casualty insurance company organized and licensed under the laws of
Bermuda.  In states where the Insurance  Companies are not admitted  insurers or
surplus lines insurers, the Insurance Companies underwrite risks through various
reinsurance agreements.

The Insurance  Companies  underwrite  property risks (loss or physical damage to
property)  and OLRI  underwrites  casualty  risks (legal  liability for personal
injury or  damaged  property  of others)  for  insureds  in the  United  States.
Insurance is sold principally  through the Programs marketed by PBC which insure
various   types  of   businesses   and   properties   that  have   similar  risk
characteristics,  such as apartments, condominiums,  cooperatives,  restaurants,
building  maintenance  companies,  automobile  service stations,  retail stores,
funeral homes and pharmacies, among others.

The Insurance Companies' strategy is to underwrite only the first "layer" of the
property and casualty  insurance  provided  under the Programs.  Its exposure to
individual insureds on individual losses is thereby generally limited to between
$10,000 and $25,000 per claim, depending on the Program. Under the Programs, the
Insurance  Companies'  policies are sold in conjunction  with policies issued by
unaffiliated  Program  insurers that provide coverage for losses above the first
layer of risk underwritten by the Insurance Companies. OLRI also issues policies
on a selected  basis with limits up to  $25,000,000  , retaining up to the first
$50,000 of exposure  and  reinsuring  the  remaining  limits  with  unaffiliated
reinsurers, rated A or better by A.M. Best Company ("A.M. Best"), a major rating
agency.



                                      F-11
<PAGE>



The Property and Casualty Companies  Operations  includes Claims  Administration
Corporation  ("CAC"),  a subsidiary of the Company which is responsible  for the
administration  of a large  majority of the claims  submitted  to the  Insurance
Companies.  The administration of claims includes  investigation,  engagement of
legal  counsel,  approval of  settlements  and the making of payments  to, or on
behalf of insureds.  CAC also provides claims administration  service to certain
of the unaffiliated Program insurers for a fee.

2) Organization

In 1994 the Retail  Brokerage  Business  completed the  integration  of its 1992
acquisition   of  Amalgamated   Programs   Corporation   and  related   entities
("Amalgamated")  and  continued  to downsize to adjust to the  continuing  "soft
market" in property and casualty premium rates. At the time, the officers of the
general partners of Kaye  International L.P. ("KILP") (which included members of
Old Lyme Holding  Corporation's  ("Holding") Board of Directors)  concluded that
the  combination  of  Holding  and  the  Retail  Brokerage   Business  would  be
advantageous for both OLRI and KILP. This conclusion was based on three factors:
(a) improved  operating  results  derived from the  Amalgamated  integration and
"soft  market"  downsizing,  (b) the improved  outlook for the Retail  Brokerage
Business  and (c) the fact that the  Retail  Brokerage  Business  accounted  for
approximately half of the PBC's premium volume.

The  combination  was  effective  October  2,  1995 and was  accounted  for as a
transfer and exchange between companies under common control.  Accordingly,  the
assets and liabilities of the Retail Brokerage Business were combined with those
of  Holding  at their  historical  cost in a manner  similar  to a  "pooling  of
interests". The combination was accomplished as follows:

     1. Holding  transferred to Kaye Holding Corp. ("KHC") (a subsidiary) all of
the outstanding stock of the Insurance Companies and its two other subsidiaries,
PBC and CAC and its other assets in exchange for (i) 82,400 shares of KHC common
stock,  representing  82.4% of the total  outstanding KHC common stock, and (ii)
the assumption by KHC of certain of Holding's liabilities.

     2.  KILP  transferred  all of its  interest  in  the  limited  partnerships
conducting the Retail Brokerage Business (the "Retail Partnerships") and certain
related  assets to KHC in exchange  for (i) 17,200  shares of KHC common  stock,
representing  17.2% of the total  outstanding  KHC  common  stock,  and (ii) the
assumption by KHC of certain KILP liabilities.

     3. Certain  individuals  transferred  to KHC all of their  interests in the
corporate  general partners of the Retail  Partnerships  (the "Retail  Brokerage
Companies") in exchange for 400 shares of KHC common stock, representing 0.4% of
the total outstanding KHC common stock.



                                      F-12
<PAGE>



     4. KHC contributed  its interests in the Retail  Partnerships to the Retail
Brokerage Companies thereby causing the dissolution of the Retail  Partnerships.
As a result, the Retail Brokerage Companies, as a group, owned all of the assets
and were subject to all of the liabilities, of the Retail Brokerage Business.

On December 30, 1997, the  stockholders of the Company  approved a restructuring
that merged KHC into the Company.  This eliminated  KILP's minority  interest in
KHC of $6,191,000 as of December 31, 1997 and increased  stockholders' equity of
the Company by the same amount. KILP was the Company's largest shareholder.  The
merger was  accounted  for as a transfer and  exchange  between  entities  under
common control. Accordingly,  common stock of Kaye Group Inc. issued in exchange
for the KHC shares was accounted for by using the closing NASDAQ market price on
(the effective date of the merger) October 24, 1997 ($7.00).  This increased the
number of shares of common stock by 1,454,435 at the par value $.01,  per share,
or  $14,544.  Paid-in  capital  was  increased  by  $10,166,000  which  was  the
difference between the market value price per share and the par value per share.
Minority  interest in KHC was  eliminated as a result of the merger and retained
earnings of Kaye Group Inc.  was reduced to account for the  difference  between
the  market  value of the  shares  issued,  and the book  value of the  minority
interest in KHC.

Effective  May 12, 1998,  KILP,  the  Company's  then largest  stockholder,  was
dissolved, and its shares in the Company were distributed to its partners.

3) Significant Accounting Policies

(a) Basis of Presentation

The accompanying  Consolidated Balance Sheets, Statements of Income, Cash Flows,
Stockholders' Equity and Comprehensive Income (the "financial  statements") have
been  prepared in  accordance  with  generally  accepted  accounting  principles
("GAAP") and predominant industry practice.

The  Consolidated  Balance  Sheets  are  presented  on a  segmented  basis  with
intercompany balances eliminated.

The Statements of Income are segmented and present the  consolidated  results of
the Insurance Brokerage  Companies segment,  the Property and Casualty Companies
segment  and the  Corporate  segment.  Intersegment  transactions  have not been
eliminated.  However,  transactions  within  each  segment are  eliminated.  For
details on segment activity refer to Note 20.

The  preparation  of  financial  statements  in  conformity  with GAAP  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial statements and



                                      F-13
<PAGE>



the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

Certain prior year  information  has been  reclassified to conform with the 1999
presentation.

(b) Segment Reporting

The  accompanying  consolidated  financial  statements  have been  prepared on a
segmented basis. See Note 1 for segments and their respective operations. Income
before income taxes of the two operating  segments includes expenses incurred by
Corporate on behalf of the  segments,  which are  allocated to operations of the
segments. The allocation is based upon total revenues of each segment except for
the allocation of the incentive bonus which is allocated based on the percentage
of profits contributed to the Company.  Identifiable assets by segment are those
assets used in the  Company's  operations in each  business  segment.  Corporate
assets are principally  cash and cash equivalents and an investment in an equity
security.

(c) Commission Income

Commission income together with the related accounts receivable from clients and
premiums  payable to  insurance  carriers,  is  recorded  principally  as of the
billing date.  Commission income related to installment billing  arrangements is
recorded  at the  date  of  the  initial  billing.  Contingent  commissions  and
commissions on premiums billed directly by insurance  carriers are recorded when
collected  or  known.  Commission  adjustments  (including   cancellations)  are
recorded when they occur.

Unearned commissions  represent commission income that is earned in installments
on multiyear policies.

(d) Fixed Assets

Furniture, equipment, computer hardware and software, and leasehold improvements
are carried at cost, less accumulated  depreciation  and  amortization  computed
using the  straight-line  method.  Fixed  assets are  depreciated  over  periods
ranging from three to seven years, and leasehold improvements are amortized over
the remaining terms of the leases which expire through 2002.

(e) Intangible Assets

Acquired expiration lists, covenants not to complete and goodwill are carried at
cost, less accumulated  amortization  which is computed using the  straight-line
method over the estimated useful life of the asset not to exceed twenty years.



                                      F-14
<PAGE>



(f) Investments

Fixed  maturity  securities,  and equity  securities,  which include  common and
preferred stocks held by the Property and Casualty Companies, are stated at fair
value as they are considered available for sale. The difference between the cost
and fair  value  of  fixed  maturity  and  equity  securities  is  reflected  as
unrealized  appreciation  or  depreciation,  net of applicable  deferred  income
taxes, as a separate component of stockholders' equity. Realized gains or losses
from  the  sale  of  investments   are  determined  on  the  basis  of  specific
identification  and are reflected as a component of revenues.  Investment income
is recognized when earned.

The fair value of fixed maturities and equity securities is based on the closing
price of the investments on December 31.

If a decline  in fair  value of an  investment  is  considered  to be other than
temporary,  the  investment  is  reduced  to its net  realizable  value  and the
reduction is accounted for as a realized  investment loss. In evaluating whether
a decline is other than temporary,  management considers the duration and extent
to which the market value has been less than cost,  the financial  condition and
near-term prospects of the issuer, including events that may impact the issuer's
operations and impair the earnings potential of the investment, and management's
ability and intent to hold an investment for a sufficient period to allow for an
anticipated recovery in fair value.

Investments in equity securities in which the Company does not exert significant
influence  and there is no readily  determinable  fair value are  carried at the
lower of cost or market.

(g) Insurance Premiums Earned

Insurance  premiums  are  recognized  as revenues  ratably over the terms of the
related  policies  in force.  Unearned  premiums  are  established  to cover the
unexpired  portion of premiums  written and are  calculated  using the daily pro
rata method. Premiums earned are net of reinsurance ceded.

(h) Deferred Acquisition Costs

Deferred  acquisition  costs  include  commissions  incurred  by  the  Insurance
Companies that vary and are attributed to new and renewal insurance  policies or
contracts.  These costs are deferred and amortized over the  applicable  premium
recognition  period,  generally one year. These deferred costs have been limited
to the amount expected to be recovered from future earned premiums.  Acquisition
costs of  $8,292,000,  $7,630,000  and  $7,269,000  were amortized to expense in
1999, 1998 and 1997, respectively.



                                      F-15
<PAGE>



(i) Unpaid Losses and Loss Expenses

The  estimated  liability  for unpaid  losses and loss  expenses  is based on an
evaluation of claims  reported by  policyholders.  A provision which is based on
historical  experience  and modified for current  trends,  is also  included for
losses and loss expenses which have been incurred but not reported.  The methods
of  determining  such  estimates and  establishing  the  resulting  reserves are
continually  reviewed  and  modified  to  reflect  current  conditions,  and any
adjustments are reflected currently in results of operations.

The Company has received claims related to lead paint exposures it insures under
various residential real estate programs.  There are uncertainties in estimating
the  amount  of  reserves  due to  factors  including:  difficulty  in  properly
allocating responsibility and/or liability for the lead paint exposure;  changes
in the  underlying  laws and the  judicial  interpretation  of those  laws;  and
questions   regarding  the  interpretation  and  application  of  insurance  and
reinsurance coverage. The Company has reserves established for these claims on a
case basis and an incurred but not reported  basis.  The reserves  provided were
established  based  on  Management's  best  estimate  of  ultimate  liabilities.
However, due to the nature of the exposures such reserves cannot be, and are not
established using standard actuarial techniques.

(j) Reinsurance

Assumed  reinsurance  premiums  written,   commission,  and  unpaid  losses  are
accounted  for  based  principally  on the  reports  received  from  the  ceding
insurance  companies  and in a manner  consistent  with the terms of the related
reinsurance  agreements.  Liabilities  for  unpaid  losses,  loss  expenses  and
unearned premiums are stated gross of ceded reinsurance  recoverables.  Deferred
acquisition  costs are stated net of the amounts of  reinsurance  ceded,  as are
premiums written and earned,  losses and loss expenses  incurred,  and amortized
acquisition costs.

(k) Income Taxes

The  Company  recognizes  deferred  tax  assets  or  liabilities  for  temporary
differences  between  the  financial  reporting  and tax  basis  of  assets  and
liabilities  based on enacted tax rates.  The  principal  temporary  differences
relate to  deferred  acquisition  costs,  unearned  premiums,  discount  for tax
purposes  of the  unpaid  losses  and loss  expense  reserves,  amortization  of
expiration lists,  accrual adjustment for commission income and unrealized gains
or losses on investments (see Note 9).

(l) Cash and Cash Equivalents

Cash and cash  equivalents  include  money  market  funds  and  certificates  of
deposit,  including  funds  held  in a  fiduciary  capacity  for  the  Insurance
Brokerage  Companies,  with a  maturity  of three  months or less.  The  Company
maintains  cash with banks in excess of federally  insured limits and is exposed
to the credit risk from this concentration of cash.



                                      F-16
<PAGE>



(m) Earnings Per Share

Basic  earnings per share is  calculated  by dividing net income by the weighted
average number of common shares outstanding.  Diluted earnings per share include
the effect of all potentially dilutive securities. Earnings per common share has
been compiled below (in thousands, except per share amounts):


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

Net income (numerator)                            $7,504     $7,282     $4,357
                                                  ------     ------     ------

Weighted  average  common  shares  and  effect of
dilutive  shares  used in the computation of
earnings per share:

  Average shares outstanding-basic                 8,460      8,474      7,024
  Effect of dilutive shares                          170        119         59
                                                  ------     ------     ------
  Average shares outstanding - diluted
  (denominator)                                    8,630      8,593      7,083
                                                  ------     ------     ------
Earnings per common share:
  Basic                                            $0.89      $0.86      $0.62
  Diluted                                          $0.87      $0.85      $0.62

A warrant that expired in February 1998,  (relating only to 1997) and options to
purchase  219,250,  161,450 and 284,000,  common  shares at prices from $7.88 to
$11.63,  $7.06 to  $11.63,  and $7.06 to $11.63 per share  were  outstanding  at
December 31,  1999,  1998 and 1997,  respectively,  but were not included in the
computation  of earnings per diluted  share for the  respective  years,  because
their  exercise  price was greater  than the average  market price of the common
shares.  The options,  which expire through November 1, 2000,  December 10, 2008
and December 31, 2007 respectively, were still outstanding at the end of 1999.

(n) Capitalized Software Policy

Capitalized   computer   software  costs   (included  in  fixed  assets  on  the
Consolidated  Balance Sheets) consist of costs to purchase and develop software.
All  capitalized  software  costs are amortized on a straight line method over a
period of five years. Amortization expense charged to operations was $425,265 in
1999, $199,272 in 1998 and $81,061 in 1997.

(o) Accounting Policy for Stock Compensation Plans

The Company applies Accounting  Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees"  and related  interpretations  in accounting  for its
stock based compensation plans.  Accordingly,  no compensation  expense has even
recognized  for its  Stock  Option  Plan as the  exercise  price of the  options
equaled the market price of the



                                      F-17
<PAGE>



stock at the date of grant.  Compensation  expense has been  recognized  for the
Stock Performance Plan based on the market price at the date of the award.

(p) Fair Value of Financial Instruments

The carrying amounts  reported in the  Consolidated  Balance Sheets for cash and
cash equivalents, receivable and premiums payable and long-term debt approximate
those assets and liabilities fair values.

4) Changes in Accounting Policies

(a) Newly Adopted Accounting Standards

In March 1998, the American Institute of Certified Public Accountants  ("AICPA")
issued Statement of Position ("SOP") 98-1,  Accounting for the Costs of Computer
Software  Developed or Obtained for Internal Use, which requires  capitalization
of  external  and  certain   internal   costs  incurred  to  obtain  or  develop
internal-use  computer  software during the application  development  stage. SOP
98-1 is  effective  for fiscal years  beginning  after  December 15, 1998.  This
statement  did  not  materially  impact  the  Company's  consolidated  financial
statements.

In late 1998,  the AICPA issued SOP 98-7.  Deposit  Accounting:  Accounting  for
Insurance and  Reinsurance  Contracts that Do Not Transfer  Insurance Risk. This
SOP effective for fiscal years beginning after June 15, 1999,  provides guidance
to both the insured and insurer on how to apply the deposit method of accounting
when it is required for insurance and reinsurance contracts that do not transfer
insurance  risk. This SOP did not materially  impact the Company's  consolidated
financial statements.

(b) Accounting Standards Not Yet Adopted

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  ("SFAS") No. 133 (as amended),  Accounting for
Derivative  Instruments  and Hedging  Activities.  This  statement  requires all
derivatives to be recognized as either assets or liabilities in the statement of
financial position and to be measured at fair value. This statement is effective
for all fiscal  quarters and fiscal  years  beginning  after  December 31, 2000.
Management  believes that the statement  will not have a material  impact on the
financial position of the Company.

5) Acquisitions

Effective January 1, 1999, the Company,  through one of its insurance  brokerage
subsidiaries,  Kaye Insurance  Associates,  Inc. ("KIA"),  purchased the assets,
including  customer  lists,  and certain  liabilities of Woodbury,  N.Y. - based
broker Seaman,  Ross & Wiener,  Inc. ("SRW") and related entities for an initial
purchase  price of  $2,422,000  in cash and  $500,000  in stock of the  Company.
Additional payments of $1,972,000 in cash



                                      F-18
<PAGE>



and $125,000 in stock of the Company  have been made through  December 31, 1999.
The total  purchase  price is  contingent  on  future  billings  related  to the
acquired  customer  lists  and will  increase  significantly  from  the  initial
purchase  price.  This  acquisition  is being  accounted  for using the purchase
method of accounting.  Accordingly, intangible assets (including customer lists)
of  approximately  $5,019,000,  resulting from the allocation of the preliminary
purchase price and payments made through  December 31, 1999, are being amortized
by using the straight-line method over a period of not more than fifteen years.

The above acquisition has been included in the Company's  consolidated financial
statements  from the effective  date. The following  unaudited pro forma summary
presents the  consolidated  results of  operations  of the Company as if the SRW
acquisition had occurred on January 1, 1998. The pro forma results are shown for
illustrative  purposes  only and do not purport to be  indicative of the results
which would have been  reported  if the  acquisition  had  occurred on the dates
indicated or which may occur in the future.

                                                    Unaudited
                                        (in thousands except per share amounts)

                                                1999           1998
                                                ----           ----

Pro forma revenues -
  Insurance Brokerage Companies               $38,753        $40,568

Pro forma net income                           $7,504        $ 7,647

Pro forma earnings per share - basic            $0.89        $  0.90

Pro forma earnings per share- diluted           $0.87        $  0.89

During 1998,  the Company  acquired  certain  assets and  liabilities of Florida
Insurance  Associates,  Inc. ("FIA"),  Daniel V. Keane Agency, Inc. ("DVK"), and
Laub Group of  Florida,  Inc.  ("LGF")  for cash of  $275,000,  $1,077,000,  and
$201,000,  respectively,  paid through  December 31, 1999 and estimated  amounts
payable in future periods of $1,031,000  (DVK).  The total  acquired  intangible
assets (including expiration lists) were $275,000,  $2,108,000, and $201,000 for
FIA, DVK, and LGF, respectively. These acquisitions were accounted for under the
purchase method. During the first quarter of 2000, the Brokerage Operations sold
the  operations of LGF at no gain or loss. The Company is finalizing the sale of
FIA.

During 1997,  the Company  acquired  certain  assets and  liabilities of Western
Insurance Associates,  Inc. ("WIA") for cash of $2,350,000 paid through December
31, 1999 and amounts  contingently  payable in future  periods of $547,000.  The
amounts payable are the Company's estimate of the costs it will incur. The total
acquired  expiration  list was  2,897,000  at December  31, 1999 and 1998.  This
acquisition was accounted for as a purchase.



                                      F-19
<PAGE>



6) Funds Held in Fiduciary Capacity

Premiums collected by the Insurance  Brokerage Companies but not yet remitted to
insurance carriers are approximately $25,610,000 and $33,218,000 at December 31,
1999 and 1998,  respectively,  some of which are  restricted as to use by law in
certain  states  in which  the  Insurance  Brokerage  Companies  operate.  These
balances are held in cash and cash  equivalents or short term  investments.  The
offsetting obligation is recorded in premiums payable.

7) Investments

Net investment  income for the years ended  December 31, 1999,  1998 and 1997 is
derived from the following sources (in thousands):

                                    1999              1998             1997
                                   ------            ------           ------
Insurance Brokerage Companies
Short term investments             $1,374            $1,846           $1,565
                                   ------            ------           ------

Property and Casualty Companies
Fixed maturities                    2,176             2,031            2,083
Equity securities                      45                67              119
Short term investments                532               791              382
Other                                 259                98              143
                                   ------            ------           ------
Total investment income             3,012             2,987            2,727
Investment expenses                   (63)              (67)             (35)
                                   ------            ------           ------
                                    2,949             2,920            2,692
                                   ------            ------           ------
Corporate
Short term investments                206               (31)              55
                                   ------            ------           ------

Net investment income              $4,529            $4,735           $4,312
                                   ======            ======           ======










                                      F-20
<PAGE>



Net  realized  gains  or  losses  and  the  change  in  unrealized  appreciation
(depreciation)  on investments  for the years ended December 31, 1999,  1998 and
1997 are summarized below (in thousands):

                                                 1999        1998       1997
                                               -------     -------    -------
Net realized gains (losses):
   Fixed maturities:
         Gross realized gains                      $37          $85        $26
         Gross realized losses                     (13)                     (5)

    Equity securities:
         Gross realized gains                        4
         Gross realized losses                     (44)
                                               -------         ----       ----
Net realized gain (loss) on investments           $(16)         $85        $21
                                               -------         ----       ----

Change in unrealized
appreciation (depreciation):
   Fixed maturities                            $(1,586)        $ 47       $636
   Equity securities                               419          209        (14)
                                               -------         ----       ----
   Net change in unrealized appreciation
   (depreciation)                              $(1,167)        $256       $622
                                               =======         ====       ====

The composition, cost (amortized cost for fixed maturities) and estimated market
values of the Company's  investments at December 31, 1999 and 1998 are presented
below.

<TABLE>
<CAPTION>

                                                                           Aggregate
                                              Gross Unrealized Holding        Fair
                                      Cost      Gains        Losses          Value
                                    -------    -------       -------        -------
                                                    (in thousands)
<S>                                 <C>        <C>           <C>            <C>
1999
Investments available for sale:
      Fixed Maturities:
           U.S. Government (a)      $ 3,351    $     6       $  (132)       $ 3,225
           States (b)                35,247         53          (836)        34,464
           Corporate                  3,675          7           (67)         3,615
                                    -------    -------       -------        -------

      Total fixed maturities        $42,273    $    66       $(1,035)       $41,304
                                    -------    -------       -------        -------

      Equity Securities:
           Common Stock             $ 4,066        838       $  (215)       $ 4,689
           Preferred Stock               50                                      50
                                    -------    -------       -------        -------

      Total equity securities       $ 4,116    $   838       $  (215)       $ 4,739
                                    =======    =======       =======        =======
</TABLE>



                                      F-21
<PAGE>



<TABLE>
<CAPTION>

                                                                           Aggregate
                                              Gross Unrealized Holding        Fair
                                      Cost      Gains        Losses          Value
                                    -------    -------       -------        -------
                                                    (in thousands)
<S>                                 <C>        <C>           <C>            <C>
1998
Investments available for sale:
      Fixed Maturities:
           U.S. Government (a)      $ 2,144    $    18                      $ 2,162
           States (b)                36,144        643       $   (75)        36,712
           Corporate                  4,692         42           (11)         4,723
                                    -------    -------       -------        -------

      Total fixed maturities        $42,980    $   703       $   (86)       $43,597
                                    -------    -------       -------        -------

      Equity Securities:
           Common Stock             $   643    $   204                      $   847
           Preferred Stock              500                                     500
                                    -------    -------                      -------

      Total equity securities       $ 1,143    $   204                      $ 1,347
                                    =======    =======                      =======
</TABLE>


(a)  Includes U.S. Government agencies and authorities

(b)  Includes municipalities and subdivisions


The amortized  cost and estimated  market value of fixed  maturities at December
31, 1999, by contractual  maturity date, are listed below.  Expected  maturities
may differ from contractual  maturities  because borrowers may have the right to
call or prepay obligations with or without penalties.

                                                  Investments Available
                                                         for Sale
                                                 ------------------------
                                                      (in thousands)
                                                 Amortized      Aggregate
                                                    Cost       Fair Value
                                                 ---------     ----------

Due in one year or less                           $ 3,231       $ 3,218

Due after one year through five years              19,687        19,414

Due after five years through ten years             15,171        14,654

Due after ten years                                 4,184         4,018
                                                  -------       -------

Total                                             $42,273       $41,304
                                                  =======       =======

Fixed  maturities and cash carried at market value of $3,422,000 and $3,560,000,
in 1999 and 1998, respectively, were on deposit for governmental authorities, as
required by law. Fixed maturities and cash  equivalents  carried at market value
of  $22,270,000  and  $13,747,000  in 1999 and  1998,  respectively,  have  been
deposited in trust funds or pledged to collateralize  the obligations of OLB and
OLRI to ceding companies under reinsurance agreements.



                                      F-22
<PAGE>




The Company's short term investment of cash is maintained principally with seven
banks and two  institutional  money  market  funds.  To control  this risk,  the
Company utilizes only high credit quality financial institutions.  Additionally,
under the insurance laws of the State of Rhode Island,  where OLRI is domiciled,
insurers and reinsurers  are restricted as to the types of investments  they may
purchase  and the  concentration  of risk they may  accept in any one  issuer or
group of issuers.  The  Company  complies  with such laws which  insure that the
concentration  of risk  in its  investment  portfolio  is at an  acceptable  and
authorized level.

8) Notes Payable

Notes payable consist of the following in thousands at December 31,:

                                                                  1999     1998
                                                                 ------   ------
Insurance Brokerage:
Note payable, due through 7/1/2002, interest
    at prime                                                     $1,031   $1,406
Finance company note, due through 2000, interest at
    prime rate plus 1/2%                                             17       86
Finance company note, due through 2002, interest at 7.75%           320      445
Capital lease due through 8/30/99, interest at 7.375%                --      150
                                                                 ------   ------
                                                                  1,368    2,087
Less current portion                                                527      718
                                                                 ------   ------
Notes payable - long term                                        $  841   $1,369
                                                                 ------   ------

Corporate:
Term loan, due through 2002, interest at 7.8%                    $3,311   $4,456
Less current portion                                              1,241    1,153
                                                                 ------   ------
Notes payable- long term                                         $2,070   $3,303
                                                                 ======   ======

The note payable, due through July 1, 2002,  represents debt incurred related to
the DVK acquisition.

The Term Loan due  through  2002 is  secured  by the stock of the  Property  and
Casualty  Companies.  Certain covenants exist on this loan, the most significant
being the  requirement to maintain a minimum GAAP net worth,  minimum  statutory
surplus in the insurance companies, a fixed ratio of net premiums to surplus and
a minimum  debt  service  coverage.  At December  31,  1999,  the Company was in
compliance with the convenants under the loan agreement.

In addition,  the Company has  available a $4,500,000  revolving  line of credit
through  2001 at a rate of LIBOR plus 175 basis  points or the banks' base rate.
The line is also secured by the stock of the  Property  and Casualty  Companies.
The proceeds are  available for general  operating  needs and  acquisitions.  At
December 31, 1999, no amount was outstanding on the revolving line of credit.  A
quarterly fee is assessed in the amount of .05% on the unused balance.



                                      F-23
<PAGE>



The  aggregate  maturities  of all  notes  payable  by year are as  follows  (in
thousands):

       2000    ..........................     $1,768
       2001    ..........................      1,864
       2002    ..........................      1,047
       Thereafter     ...................          0

Based on the borrowing rates  currently  available to the Company for bank loans
with similar terms and average  maturities,  the fair value of the notes payable
at December 31, 1999 and 1998 approximates their carrying value.

Interest expense in the accompanying  consolidated  statements of income for the
years ended  December  31, 1999,  1998 and 1997 was  $1,091,000,  $492,000,  and
$948,000, respectively.

9) Income Taxes

The Company's  effective  income tax rate for the years ended December 31, 1999,
1998 and 1997 differs from the statutory  rate on ordinary  income before income
taxes as follows (in thousands, except percentages):


<TABLE>
<CAPTION>
                                                                    1999                      1998                      1997
                                                             ------------------        ------------------        ------------------
                                                                    % of                      % of                      % of
                                                                   Pretax                    Pretax                    Pretax
                                                             Amount      Income        Amount      Income        Amount      Income
                                                             ------      ------        ------      ------        ------      ------
<S>                                                         <C>           <C>         <C>           <C>         <C>           <C>
Income taxes computed at the  statutory rate                $ 3,648       34.0%       $ 3,588       34.0%       $ 2,569       34.0%

Increase (decrease) in taxes resulting from:

Tax-exempt investment income                                   (507)      (4.7)          (456)      (4.3)          (516)      (6.8)

State and local income taxes and other                           84        0.8            140        1.3            214        2.8
                                                            -------       ----        -------       ----        -------       ----

Provision for income taxes                                  $ 3,225       30.1%       $ 3,272       31.0%       $ 2,267       30.0%
                                                            =======       ====        =======       ====        =======       ====
</TABLE>



The source of the significant temporary differences and the related deferred tax
effects are as follows:

                                                   1999        1998        1997
                                                  -----       -----       -----
                                                         (in thousands)
Expiration lists                                  $ 395       $ 394       $ 394
Deferred acquisition costs                          133          (6)        (46)
Accrual adjustment                                   60         (85)        (59)
Unearned premium reserves                           (71)         10          40
Other                                              (200)       (217)         47
Loss reserve discount                              (353)       (246)        (30)
                                                  -----       -----       -----
Deferred tax (benefit) expense                    $ (36)      $(150)      $ 346
                                                  =====       =====       =====



                                      F-24
<PAGE>



The  components  of  the  net  deferred  tax  assets  and  liabilities,  in  the
accompanying  consolidated  balance sheets at December 31, 1999 and 1998, are as
follows:

                                                   1999             1998
                                                   ----             ----
                                                       (in thousands)
Deferred tax assets:
           Loss and loss expense reserves        $1,649           $1,296
           Unearned premium reserves                898              827
           Other                                    525              325
           Expiration lists                         152              547
           Unrealized losses on investments         118
                                                 ------           ------
           Total deferred tax asset               3,342            2,995
                                                 ------           ------

Deferred tax liabilities:
           Deferred acquisition costs             1,466            1,333
           Other accrual adjustments              1,038              978
           Unrealized gains on investments                           280
                                                 ------           ------
           Total deferred tax liability           2,504            2,591
                                                 ------           ------
Net deferred tax asset                           $  838           $  404
                                                 ======           ======

Management  believes it is more likely than not that all deferred tax assets are
realizable based upon the past earnings history of the Company.

OLB, as a Bermuda  domiciled company is not subject to federal income taxes but,
rather,  the Company is subject to federal  income taxes based on OLB's  taxable
income for the entire year. Accordingly, the Company includes the taxable income
of OLB in its  separate  company  income  for  tax  purposes,  but  for  segment
reporting the income is included with the Property and Casualty  Companies.  OLB
has received an undertaking  from the Bermuda  Government  exempting it from all
taxes  computed on profit or income,  or  computed on any capital  asset gain or
appreciation until 2016.

The  Company  and its  wholly  owned  domestic  subsidiaries  are party to a Tax
Allocation  Agreement (the "Agreement").  The Agreement requires these companies
to file a U.S.  consolidated income tax return. The Agreement provides that each
member of the group will  compute its  separate  tax  liability  or benefit on a
separate return basis and pay or receive such amounts to or from the Company.



                                      F-25
<PAGE>



10) Lease Commitments and Rentals

Minimum annual rental commitments under various non-cancelable  operating leases
for office space and equipment are as follows (in thousands):


                      Years Ending December 31,

            2000  .............................  $2,856
            2001  .............................   2,475
            2002  .............................     486
            2003  .............................      43
            Thereafter  .......................       1
                                                 ------
                                                  5,861
     Sub-lease rental income...................     (91)
                                                 ------
     Net rental commitments..................    $5,770
                                                 ======


Leases  for office  space  include  various  escalation  clauses,  none of which
individually or in the aggregate are material.  Escalation clauses are accounted
for on a  straight-line  basis over the remaining life of the lease.  The leases
also contain  provisions for the payment of certain operating  expenses and real
estate taxes.

Rent expense for the years ended December 31, 1999,  1998 and 1997,  amounted to
approximately  $3,242,000  $2,928,000  and  $2,992,000,   respectively,  net  of
sublease rental income of $48,000, $48,000 and $128,000, respectively.

11) Pension and Retirement Plans

Substantially  all  officers  and  employees  of the  Company  are  entitled  to
participate in a qualified  retirement savings plan (defined  contribution plan)
and prior to 1995 were  entitled to  participate  in a defined  benefit  pension
plan.  The cost to the Company to  participate  in these  plans  included in the
accompanying  consolidated  statements  of income  was  approximately  $406,000,
$255,000 and $385,000 for 1999, 1998 and 1997, respectively.

12) Contingent Liabilities

In the ordinary course of business, the Company and its subsidiaries are subject
to various  claims  and  lawsuits  consisting  primarily  of alleged  errors and
omissions in connection  with the  placement of insurance.  Subject to specified
limits,  the stockholders of predecessors to the Retail  Brokerage  Business are
responsible for any costs arising from those claims which were asserted prior to
November  1,  1991,  the  date on which  KILP  was  formed.  In the  opinion  of
management,  the ultimate  resolution of all asserted and potential  claims both
prior and subsequent to the formation of KILP,  will not have a material  effect
on the consolidated financial position and results of operations of the Company.



                                      F-26
<PAGE>



As licensed brokers,  the Insurance  Brokerage Companies are or may become party
to administrative inquiries and at times to administrative proceedings commenced
by state insurance  regulatory bodies.  Certain subsidiaries were involved in an
administrative  investigation  commenced  in  1992  by the  New  York  Insurance
Department  ("Department")  relating to how  property  insurance  policies  were
issued for the Residential Real Estate Program. As a result, the manner in which
policies are structured for certain  clients in this Program was altered,  which
has not had a material  adverse  effect on this  Program.  While the Company had
discussions with the Department regarding settlement of such investigation, this
matter has not been  pursued for several  years.  If the matter is not closed or
settled,   the  Department  could  institute  formal  proceedings   against  the
subsidiaries  seeking fines or license  revocation.  Management does not believe
the resolution of this issue will have a material adverse effect on the Company.

13)  Reinsurance

The components of net written and net earned insurance  premiums were as follows
for the years ended December 31, 1999, 1998 and 1997:

                                         1999            1998            1997
                                       --------        --------        --------
Written premiums:
Direct                                 $ 12,120        $ 11,586        $ 11,106
Assumed                                  16,668          13,207          11,700
Ceded                                      (967)           (255)           (536)
                                       --------        --------        --------

Net written premiums                   $ 27,821        $ 24,538        $ 22,270
                                       --------        --------        --------

Earned premiums
Direct                                 $ 11,576        $ 11,652        $ 11,496
Assumed                                  15,846          13,392          11,909
Ceded                                      (642)           (355)           (558)
                                       --------        --------        --------
Net earned premiums                    $ 26,780        $ 24,689        $ 22,847
                                       ========        ========        ========

OLRI  assumes   reinsurance  under  arrangements  with  unaffiliated   insurance
companies. The Insurance Brokerage Companies of the Company produce the business
assumed under these  arrangements.  The business has limits varying from $25,000
to $100,000 per occurrence. Claim liabilities under these agreements are secured
with  fixed  maturity  securities  and  cash  and cash  equivalents,  which  are
deposited  in trust  funds.  Approximately  $22,270,000  and  $13,747,000  as of
December  31,  1999 and  1998,  respectively,  are held in  these  trust  funds.
Premiums  earned  for the years  ended  December  31,  1999,  1998 and 1997 from
assumed  premiums  relating to insurance  agreements  with RLI were  $7,318,000,
$6,229,000 and $4,272,000, respectively.

With respect to the assumed  business OLRI retains the first $25,000 of exposure
and cedes  the  remaining  $75,000  to PXRE  Reinsurance  Company  ("PXRE").  In
addition,  OLRI  purchases  annual stop loss  policies to limit its  exposure to
adverse claim  experience.



                                      F-27
<PAGE>



On direct business written,  OLRI cedes risk on an excess of loss basis to PXRE.
OLRI underwrites  direct business with limits up to $25,000,000  retaining up to
the first $50,000 of exposure and  reinsuring  the balances to other insurers or
reinsurers.

Under the terms of the reinsurance agreements, loss and loss adjustment expenses
(incurred)  recovered  in 1999,  1998 and 1997  were  $(451,000),  $409,000  and
$1,929,000,  respectively.  Commissions  received on reinsurance  ceded in 1999,
1998 and 1997 were $148,000, $45,000 and $88,000, respectively.

A contingent  liability  exists with respect to reinsurance  ceded,  which would
become an ultimate  liability of OLRI in the event that the  assuming  companies
were unable to meet their obligations under the reinsurance  agreements in force
at December 31, 1999.

14) Losses and Loss Expenses

The following table sets forth a  reconciliation  of the changes in the reserves
for  outstanding  losses  and loss  expenses,  including  paid  losses  and loss
expenses, for each year in the three year period ended December 31, 1999.


                                                   Years Ended December 31,
                                               --------------------------------
                                                 1999        1998        1997
                                               --------    --------    --------
                                                        (in thousands)

Balance at January 1,                          $ 21,567    $ 19,126    $ 15,227
           Less: reinsurance recoverables        (3,220)     (2,811)       (882)
                                               --------    --------    --------
           Net balance                           18,347      16,315      14,345
                                               --------    --------    --------
Incurred related to:
           Current year                          10,410       8,461       8,824
           Prior years                             (656)         35        (108)
                                               --------    --------    --------
           Total incurred                         9,754       8,496       8,716
                                               --------    --------    --------
Paid related to:
           Current year                           2,188       1,877       1,802
           Prior years                            4,622       4,587       4,944
                                               --------    --------    --------
           Total paid                             6,810       6,464       6,746
                                               --------    --------    --------
Net balance at December 31,                      21,291      18,347      16,315
           Add: reinsurance recoverables          2,678       3,220       2,811
                                               --------    --------    --------
           Balance                             $ 23,969    $ 21,567    $ 19,126
                                               ========    ========    ========



                                      F-28
<PAGE>



15) Statutory Financial Information and Dividend Restrictions

The  Company's  Insurance  Subsidiaries  file separate  financial  statements in
accordance  with accounting  practices  prescribed or permitted by the insurance
regulatory  authorities  where they are domiciled.  These  statutory  accounting
practices  ("SAP") differ in certain respects from GAAP.  These  differences are
primarily  comprised of the accounting for prepaid  acquisition costs,  deferred
income taxes, and fixed maturity and equity investments.

The  following  is  a  reconciliation   of  net  income  and  surplus  regarding
policyholders in accordance with SAP as reported to the Rhode Island and Bermuda
insurance  regulatory  authorities  to net income and capital as  determined  in
conformity with GAAP.

<TABLE>
<CAPTION>

                                                              Statutory Surplus /
                                                              Stockholders' Equity              Net Income for years ended
                                                               as of December 31,                        December 31,
                                                            -------------------------       ---------------------------------------
                                                              1999            1998            1999            1998            1997
                                                            --------        --------        --------        --------        -------
                                                                                   (in thousands)
<S>                                                         <C>             <C>             <C>             <C>             <C>
Consolidated amount in accordance with GAAP                 $ 47,251        $ 41,769        $  7,504        $  7,282        $  4,357

Deficit (equity) in net assets and net loss
(income) of non-insurance companies                          (10,083)         (7,273)           (226)           (141)          2,086
                                                            --------        --------        --------        --------        --------

Combined amount in accordance with GAAP                       37,168          34,496           7,278           7,141           6,443

Deferred acquisition costs                                    (4,313)         (3,921)           (392)             18             134

Non-admitted assets, deferred
income taxes and other                                          (341)         (1,289)           (292)           (241)             54
                                                            --------        --------        --------        --------        --------

Combined amount in accordance with SAP                      $ 32,514        $ 29,286        $  6,594        $  6,918        $  6,631
                                                            ========        ========        ========        ========        ========
</TABLE>


The Insurance  Subsidiaries  are currently  subject to various  regulations that
limit the  maximum  amount of  dividends  ultimately  available  to the  Company
without  prior  approval  of  insurance  regulatory   authorities.   Under  SAP,
approximately  $3,524,000 of statutory  surplus is available for distribution in
2000 without prior regulatory approval.

In 1998, the National  Association of Insurance  Commissioners  ("NAIC") adopted
the Codification of Statutory Accounting Principles guidance, which will replace
the current  Accounting  Practices and  Procedures  manual as the NAIC's primary
guidance on statutory accounting.  The new accounting guidance becomes effective
January 1, 2001.  The  Company has not  estimated  the  potential  effect of the
Codification guidance.

16) Related Party Transactions

The  administrative  support  for  OLB is  provided  by  International  Advisory
Services,  Ltd. ("IAS"),  an insurance  management company located in Bermuda. A
director  of IAS  is an  officer  of  OLB  and  is a  director  of the  Company.
Management  fees  paid to IAS  under a  service  contract  for the  years  ended
December 31, 1999, 1998 and 1997 were $20,000 $30,000 and $37,500, respectively.



                                      F-29
<PAGE>



The director of IAS, who is a director of the Company,  is also a director of an
insurance  brokerage  company,  H  &  H  Reinsurance  Brokers,   Ltd.  ("H  &  H
Reinsurance").  H & H Reinsurance  has a reinsurance  contract  between OLRI and
unrelated  insurance  carriers  (CNA  Reinsurance  Company  Ltd.,  Transatlantic
Reinsurance  Company and USF Reinsurance  Company).  H & H Reinsurance  received
commissions  of $0, $0 and $38,114 in 1999,  1998 and 1997,  respectively,  as a
result of such contact.

In January 1997, KIA entered into a management  agreement with KILP, whereby KIA
provided  certain  administrative  services  for a fee of $50,000  per year.  At
December  31, 1998 and 1997,  the  Company  recorded  $50,000 for such  services
provided.   This  management  fee  arrangement   terminated  in  1998  with  the
dissolution of KILP.

A  director  of the  Company is also a  director  of, and had shared  beneficial
ownership  of more  than ten  percent  of the  outstanding  common  stock of Sun
Television and Appliances,  Inc. ("Sun TV"). In 1994, Sun TV and a subsidiary of
the Company entered into two agreements whereby the Company's  subsidiary agreed
to assume  certain  service  contracts  that  were sold by Sun TV to its  retail
customers (the  "Agreement")  and contracted  with Sun TV to have Sun TV provide
repair services under certain service contracts. The Board of Directors believes
that the agreements were commercially reasonable.  On September 11, 1998, Sun TV
filed  bankruptcy  petitions  under  Chapter  11 of  the  Bankruptcy  Code.  The
Company's  subsidiary  filed a proof of claim on March 11,  1999 for any and all
amounts that are due and owing under the Agreement.

17) Capital Structure

The Board of  Directors is  authorized  to issue  preferred  stock in classes or
series and to fix the designations, preferences, qualifications,  limitations or
restrictions  of any  class or series  with  respect  to the rate and  nature of
dividends,  the price and terms and  conditions on which shares may be redeemed,
the amount  payable in the event of voluntary or  involuntary  liquidation,  the
terms and  conditions  for conversion or exchange into any other class or series
of stock,  voting rights and other terms. No preferred stock is currently issued
or outstanding.

The Board of Directors of the Company  declared annual dividends of $847,000 and
$849,000  for the years ended  December  1999 and 1998,  respectively,  of which
$212,000 was unpaid at December 31, 1999 and 1998.

In  December  1998,  the  Board  of  Directors  authorized  the  repurchase,  at
management's discretion,  of up to 300,000 shares of the Company's Common Stock.
The  Company's  repurchases  of shares of Common  Stock are recorded as treasury
stock and result in a reduction of  stockholders'  equity.  When treasury shares
are  reissued the Company  uses a first-in,  first-out  method and the excess of
reissuance  price over  repurchase  cost is treated  as an  increase  of paid-in
capital.  Purchases  of  treasury  stock for the year ended  December  31,  1999
amounted to 155,523 shares of which 127,866 shares were used for the SRW



                                      F-30
<PAGE>



acquisition and the Company's 401(k) plan and Stock Performance  Plan.  Treasury
shares at December 31, 1999 amounted to 27,657 shares at a cost of approximately
$229,000.

18) Stock Performance and Stock Option Plans

On December 30, 1997, the Company adopted a Stock  Performance Plan, under which
up to 350,000 shares of the Company's common stock may be granted and awarded to
key  employees.  The grant of stock under this plan is contingent  upon criteria
established by the Company's  Compensation  Committee of the Board of Directors.
Awards  are  based  on  performance  targets  of the  Company's  stock  based on
increases  in the market value of the  Company's  common stock from the price on
the date the stock is initially granted by the Company.  Shares must be granted,
awarded,  and vested  before  participants  take full  title to the  performance
stock. Awards vest on the occurrence of any of the following events, (i) fifteen
years of continuous service with the Company from the date shares are granted to
the participant, (ii) death or disability of the participant,  (iii) immediately
before a change of control (as defined under the plan),  (iv)  attaining the age
of 65, or (v)  immediately  before a sale or merger (as defined under the plan).
During  1999 and 1998,  26,016  and  185,282  shares of  performance  stock were
granted under this plan,  respectively.  During July 1999,  the Company  awarded
33,844 shares of restricted stock from shares previously granted under the Stock
Performance  Plan to certain key  employees.  The market  value of these  shares
awarded totaled  approximately  $264,000 and has been recorded as unearned stock
grant   compensation   (net  of  amortization)   as  a  separate   component  of
stockholders'  equity.  Unearned compensation is being amortized to expense on a
straight line basis over the remaining  vesting period. At December 31, 1999 and
1998, no performance stock under this plan was vested.







                                      F-31
<PAGE>



In addition to the Stock  Performance  Plan the Company has a Stock  Option Plan
and a  Supplemental  Stock  Option Plan (the "Option  Plans").  The terms of the
Option Plans are identical.  Under the Option Plans a total of 1,000,000  shares
of common stock are reserved for issuance. The plans provide for the granting to
directors, executives or other key employees (including officers) of the Company
non-qualified  stock options  (NQO's) or incentive  stock options (ISO's) within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. The
Committee  determines  the terms of the options  including  the exercise  price,
number of shares subject to option and exercisability. The exercise price of all
ISO's and NQO's under the Plans are  generally at least the fair market value of
the common  stock of the  Company  on the date of grant.  A summary of the stock
option activity and related information consists of the following:


<TABLE>
<CAPTION>

                                               1999                           1998                             1997
                                        ==========================================================================================
                                                  Weighted-Average               Weighted-Average                 Weighted-Average
                                                      Exercise                       Exercise                         Exercise
Fixed Options                            Shares        Price          Shares          Price          Shares            Price
-------------                           ==========================================================================================
<S>                                     <C>             <C>           <C>              <C>           <C>               <C>
Outstanding at beginning of year        659,200         $6.15         624,850          $6.12         528,550           $7.53

Granted                                 361,800          7.63          54,500           6.46         450,750            5.14

Exercised                                (6,900)         5.06

Forfeited                               (21,100)         5.93         (20,150)          7.88        (354,450)           6.87
                                        -------                       -------                        -------

Outstanding at end of year              993,000         $6.70         659,200          $6.15         624,850           $6.12
                                        =======                       =======                        =======

Options exercisable at year-end         341,300                       232,900                        143,450
                                        =======                       =======                        =======

Weighted-average fair value of
options granted during the year           $2.34                         $2.17                          $1.29
                                        =======                       =======                        =======
</TABLE>



                                      F-32
<PAGE>



The following table summarizes  information about the stock options  outstanding
at December 31, 1999:


<TABLE>
<CAPTION>

                                                 Options Outstanding                                Options Exercisable
                               ==========================================================   ====================================
                                  Number           Weighted-Average                             Number          Weighted-Average
     Exercise Prices            Outstanding           Remaining          Weighted-Average    Exercisable          Exercise
                                at 12/31/99        Contractual Life      Exercise Price      at 12/31/99           Price
                               ==========================================================   ====================================
         <S>                      <C>                  <C>                   <C>                 <C>               <C>
         $11.63                       500              4.08 years            $11.63                  500           $11.63

         $10.91                     5,000              4.08                   10.91                5,000            10.91

         $10.00                    75,500              3.63                   10.00               75,500            10.00

          $8.43                    39,750              5.83                    8.43               31,800             8.43

          $8.24                    68,500              9.83                    8.24

          $8.03                    15,000              7.83                    8.03                6,000             8.03

          $7.88                    15,000              5.70                    7.88               12,000             7.88

          $7.50                   252,500              9.96                    7.50

          $7.41                       800              9.12                    7.41

          $7.38                    40,000              9.15                    7.38

          $7.06                    10,000              6.37                    7.06                6,000             7.06

          $6.70                     2,000              8.50                    6.70                2,000             6.70

          $6.64                     5,000              8.00                    6.64                2,000             6.64

          $6.60                    23,000              8.94                    6.60                4,600             6.60

          $6.17                    20,000              8.84                    6.17                4,000             6.17

          $5.06                   160,450              7.15                    5.06               64,900             5.06

          $5.00                   250,000              7.20                    5.00              123,000             5.00

          $4.97                    10,000              7.49                    4.97                4,000             4.97
                                  -------                                                        -------
                                  993,000              7.87                   $6.70              341,300            $6.78
                                  =======                                                        =======
</TABLE>

Unless otherwise specified, the options vest and are exerciseable at the rate of
20% per year and terminate  ten years from date of grant.  At December 31, 1999,
1998 and 1997, 341,300,  232,900 and 143,450 options were exerciseable and there
were 0, 40,800 and 75,150 options available for future grants, respectively.



                                      F-33
<PAGE>



Had the compensation cost for the Company's stock based  compensation plans been
determined  based on the fair  value at the grant date for  awards  under  those
plans  consistent  with the method of SFAS No. 123, the Company's net income and
earnings  per share would have been reduced to the pro forma  amounts  indicated
below (in thousands, except per share amounts):

                                               1999      1998      1997
                                               ----      ----      ----
Net Income                     As reported    $7,504    $7,282    $4,357
                               Pro forma       7,361     7,167     4,280

Earnings per share - basic     As reported     .89        .86       .62
                               Pro forma       .87        .85       .61

Earnings per share - diluted   As reported     .87        .85       .62
                               Pro forma       .85        .84       .60

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:  (i) dividend
yield of 1.3%, (ii) expected  volatility range of 30%, (iii) risk-free  interest
rate of 6.18%, and (iv) expected life of 5 years.

19) Quarterly Financial Information (Unaudited)

The following quarterly financial information for each of the three months ended
March 31, June 30,  September 30 and  December  31, 1999 and 1998 is  unaudited.
However,  in the opinion of management,  all  adjustments  (consisting of normal
recurring adjustments) necessary to present fairly the results of operations for
such periods, have been made for a fair presentation of the results shown.

<TABLE>
<CAPTION>

                                                                                For the three months ended
====================================================================================================================================
                                                                            (in thousands, except for per share)
                                                            March 31,           June 30,         September 30,         December 31,
                                                            ---------           --------         -------------       --------------
                                                         1999      1998      1999      1998      1999      1998      1999      1998
====================================================================================================================================
<S>                                                    <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Revenues                                               $16,083   $14,809   $17,739   $15,548   $16,599   $17,230   $18,323   $17,424
------------------------------------------------------------------------------------------------------------------------------------
Net income                                             $ 1,359   $   971   $ 2,123   $ 1,734   $ 1,723   $ 2,296   $ 2,299   $ 2,281
------------------------------------------------------------------------------------------------------------------------------------
Earnings per share:
           Basic                                       $  0.16   $  0.11   $  0.25   $  0.20   $  0.20   $  0.27   $  0.27   $  0.27
           Diluted                                        0.16      0.11      0.25      0.20      0.20      0.27      0.27      0.27
------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding:
           Basic                                         8,460     8,474     8,448     8,474     8,460     8,474     8,464     8,474
           Diluted                                       8,605     8,596     8,590     8,595     8,655     8,591     8,667     8,580
====================================================================================================================================
</TABLE>



                                      F-34
<PAGE>



20) Business Segments

The Company  operates in two  insurance  business  segments,  the  procuring  of
property  and  casualty  insurance  ("Insurance  Brokerage  Companies")  and the
underwriting of property and casualty risks ("Property and Casualty Companies").
In addition,  Corporate  Operations  include those  activities  that benefit the
Company in its  entirety  and cannot be  specifically  identified  to either the
Insurance  Brokerage  Companies or the Property  and  Casualty  Companies.  Such
activities  include  debt  servicing  and  public  company  expenses,  including
investor relations costs. The identifiable segment assets, operating profits and
income before income taxes and minority  interests are shown on the accompanying
consolidated balance sheets and statements of income.

The following  table is a summary of certain other segment  information  for the
years ended December 31, 1999, 1998 and 1997:


                            Business Segments - 1999
-------------------------------------------------------------------------------
                                                    Insurance        Property &
(in thousands)                                      Brokerage        Casualty
-------------------------------------------------------------------------------
Revenue from external sources                        $33,158          $26,780
Revenue from other segments                            4,221               72
Depreciation expense                                   1,260               17
Interest income from other segments                                       192
Amortization expense                                   1,095            8,292
Capital expenditures                                   1,347


                            Business Segments - 1998
-------------------------------------------------------------------------------
                                                    Insurance        Property &
(in thousands)                                      Brokerage        Casualty
-------------------------------------------------------------------------------
Revenue from external sources                        $31,324          $24,689
Revenue from other segments                            4,032               69
Depreciation expense                                   1,114               21
Amortization expense                                     678            7,630
Capital expenditures                                   2,089


                            Business Segments - 1997
-------------------------------------------------------------------------------
                                                    Insurance        Property &
(in thousands)                                      Brokerage        Casualty
-------------------------------------------------------------------------------
Revenue from external sources                        $28,387          $22,847
Revenue from other segments                            3,830               65
Depreciation expense                                   1,123               24
Amortization expense                                     520            7,269
Capital expenditures                                   1,481



                                      F-35
<PAGE>



The foreign operations set forth below,  relate solely to the operations of OLB,
and its wholly owned subsidiary Park Brokerage,  and business assumed from third
party  insurance  companies.  All such  risks  assumed  originate  in the United
States.


                                                          1999
                                          ======================================
                                           Foreign       Domestic        Total
                                          ======================================
                                                     (in thousands)
Consolidated Revenues                     $  1,717       $ 67,027       $ 68,744
Income before minority
interest                                     1,055          9,674         10,729
and income taxes
Identifiable assets                          2,648        146,564        149,212


<TABLE>
<CAPTION>

                                                           1998                                       1997
                                          ======================================      ======================================
                                           Foreign      Domestic       Total           Foreign      Domestic       Total
                                          ======================================      ======================================
                                                                           (in thousands)

<S>                                         <C>           <C>            <C>            <C>         <C>           <C>
Consolidated  Revenues                      $2,092        $62,919        $65,011        $2,246      $57,396       $59,642
Income before minority interest
and income taxes                             1,169          9,385         10,554         1,398        6,157         7,555
Identifiable assets                          2,936        157,647        160,583         3,575      137,450       141,025
</TABLE>

There were no material intercompany revenue transactions between OLB and OLRI.

21)  Supplemental Cash Flow Disclosures

<TABLE>
<CAPTION>

                                                                1999        1998        1997
                                                              --------    --------    --------
<S>                                                           <C>         <C>         <C>
Cash paid during the period for:
           Interest expense                                   $  1,214    $    501    $    948
           Income taxes                                       $  3,463    $  2,870    $  2,000

Non-cash investing and financing activities:
           Stock issued to purchase minority interest                                 $ 10,181
           Stock issued under Stock Performance Plan          $    222

Details of acquisitions:
           Purchase payments including outstanding  payable
                                                              $  7,784    $  5,196    $  3,062
           Amounts contingently payable                         (1,578)     (3,300)     (2,285)
           Less: reissuance of treasury stock                     (628)
           Less acquisition debt repayment                        (375)       (657)
                                                              --------    --------    --------
           Cash paid for acquisitions                         $  5,203    $  1,239    $    777
                                                              ========    ========    ========
</TABLE>



                                      F-36
<PAGE>




                                                                     Schedule II
                                 KAYE GROUP INC.
                              (Parent Company Only)
                            Condensed Balance Sheets
                        As of December 31, 1999 and 1998
                   (in thousands, except par value per share)


<TABLE>
<CAPTION>

                                                                                             1999                1998
                                                                                           ========            ========
<S>                                                                                        <C>                 <C>
ASSETS

Cash and  cash equivalents                                                                 $  1,233            $    370
Prepaid expenses and other assets                                                               153                 248
Investments:
     Equity securities, at market (cost: 1999, $243, and 1998, $497)                            243                 615
Deferred income taxes                                                                            93
Due from subsidiaries                                                                           890               2,118
Investment in subsidiaries                                                                   48,616              43,973
                                                                                           --------            --------

         Total assets                                                                      $ 51,228            $ 47,324
                                                                                           ========            ========


LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Accounts payable and other liabilities                                                     $    300            $    511
Note payable                                                                                  1,241               1,153
Deferred income taxes                                                                             0                  20
Income taxes payable                                                                            366                 568
                                                                                           --------            --------

Total current liabilities                                                                     1,907               2,252
Note payable - long term                                                                      2,070               3,303
                                                                                           --------            --------

         Total liabilities                                                                    3,977               5,555
                                                                                           --------            --------

STOCKHOLDERS' EQUITY

Preferred stock, $1.00 par value; 1,000 shares authorized;
         none issued or outstanding                                                               0                   0
Common stock, $.01 par value; 20,000 shares authorized;
         (1999, 8,458; 1998,  8,474 shares issued and outstanding)                               85                  85
Paid-in capital                                                                              18,019              17,942
Unearned stock grant compensation                                                              (254)
Common stock in Treasury, 28 shares at cost in 1999                                            (229)
Unrealized appreciation (depreciation) of investments, net of deferred
         income tax provision(benefit), (1999, ($118); 1998, $280)                             (228)                541
Retained earnings                                                                            29,858              23,201
                                                                                           --------            --------

         Total stockholders' equity                                                          47,251              41,769
                                                                                           --------            --------


                           Total liabilities and stockholders' equity                      $ 51,228            $ 47,324
                                                                                           ========            ========
</TABLE>



   The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes.



                                      F-37
<PAGE>



                                                                     Schedule II
                                 KAYE GROUP INC.
                              (Parent Company Only)
                         Condensed Statements of Income
              For the years ended December 31, 1999, 1998 and 1997
                                 (in thousands)

<TABLE>
<CAPTION>

                                                             1999               1998                 1997
                                                             ====               ====                 ====
<S>                                                         <C>                <C>                  <C>
REVENUES:
         Net investment income (loss)                          206                (31)
         Equity in income of subsidiaries                   11,148             11,342               7,555

EXPENSES:

         Other operating expenses                              309                314
         Interest expense                                      316                443
                                                            ------             ------               -----

Income before income taxes and minority interest            10,729             10,554               7,555

         Provision for income taxes                          3,225              3,272               2,267
                                                            ------             ------               -----

Income before  minority interest                             7,504              7,282               5,288

         Minority interest                                                                            931
                                                           -------            -------             -------

NET INCOME                                                   7,504              7,282               4,357
                                                            ======             ======               =====
</TABLE>










   The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes.



                                      F-38
<PAGE>



                                                                     Schedule II
                                 KAYE GROUP INC.
                              (Parent Company Only)
                       Condensed Statements of Cash Flows
              For the years ended December 31, 1999, 1998 and 1997
                                 (in thousands)


<TABLE>
<CAPTION>

                                                                                  1999          1998          1997
                                                                                -------       -------       -------
<S>                                                                             <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
         Net income                                                             $ 7,504       $ 7,282       $ 4,357

Adjustment  to reconcile  net income to net cash provided by
(used in) operating activities:
         Deferred income tax benefit                                                (93)         (150)
         Restricted stock compensation                                               10
         Equity in net income of subsidiaries                                    (8,115)       (7,826)       (6,590)
         Dividends received from subsidiaries                                     3,886         4,060         6,350
         Realized loss on investment                                                274
         Minority interest                                                                                      931
         Change in assets and liabilities:
             Prepaid expenses and other assets                                       95           (20)         (199)
             Due from subsidiaries                                                1,228         1,294        (3,892)
             Accounts payable and other liabilities                                (211)         (263)
             Income taxes payable                                                  (202)          552          (137)
                                                                                -------       -------       -------

         Net cash provided by operating activities                                4,376         4,929           820
                                                                                -------       -------       -------

CASH FLOWS FROM FINANCING ACTIVITIES:
         Payment of dividends                                                      (847)         (849)         (852)
         Notes payable-repayment                                                 (1,145)       (7,575)          (69)
         Acquisition of treasury stock                                             (571)
         Proceeds from borrowing                                                                5,000
         Capital contribution to subsidiary                                        (950)       (1,200)         (300)
                                                                                -------       -------       -------
                                                                                      0             0             0
         Net cash used in financing activities                                   (3,513)       (4,624)       (1,221)
                                                                                -------       -------       -------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                             863           305          (401)

Cash and cash equivalents at beginning of period                                    370            65           466
                                                                                -------       -------       -------

Cash and cash equivalents at end of period                                      $ 1,233       $   370       $    65
                                                                                =======       =======       =======


SUPPLEMENTAL CASH FLOW DISCLOSURES

Cash paid during the period for:
         Interest expense                                                       $   316       $   480       $   548
         Income taxes                                                           $ 3,463       $ 2,870       $ 2,000

Noncash investing and financing activities:
         Stock issued to purchase minority interest                                                         $10,181
</TABLE>


   The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes.



                                      F-39
<PAGE>


                                                                     Schedule II

                                 KAYE GROUP INC.
                              (Parent Company Only)
                     Notes to Condensed Financial Statements



1.   Condensed Financial Statements

     Certain information and footnote disclosures normally included in financial
     statements  prepared  in  accordance  with  generally  accepted  accounting
     principles  have been  condensed  or omitted.  It is  suggested  that these
     condensed  financial  statements be read in conjunction  with the Company's
     consolidated financial statements and the notes thereto.

2.   Basis of Presentation

     As  detailed  in Note 2 to the  consolidated  financial  statements  of the
     Company,  Kaye Holding Corp.  ("KHC"),  (a subsidiary)  was merged into the
     Company on December 30, 1997. Accordingly, prior to 1998 corporate expenses
     and  investment  income  were  recorded  by KHC  and are  reflected  in the
     condensed   statements   of  income   included   in  equity  in  income  of
     subsidiaries.

3.   Significant Accounting Policies

     The Company carries its investment in subsidiaries under the equity method.
     All other accounting policies are consistent with those of the Company on a
     consolidated basis.











                                      F-40
<PAGE>



                                                                     Schedule IV


                                 KAYE GROUP INC.
                                   REINSURANCE
              For The Years Ended December 31, 1999, 1998 and 1997
                                 (in thousands)

<TABLE>
<CAPTION>

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

      Column A            Column B           Column C            Column D           Column E            Column F

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

                                                                                                       Percentage
     Insurance             Gross          Ceded To Other       Assumed from                            of Amount
  Premiums Earned          Amount            Companies       Other Companies       Net Amount        Assumed to Net

----------------------------------------------------------------------------------------------------------------------
        <S>               <C>                  <C>               <C>                 <C>                  <C>
        1999              $11,576              $642              $15,846             $26,780              59%

        1998              $11,652              $355              $13,392             $24,689              54%

        1997              $11,496              $558              $11,909             $22,847              52%
</TABLE>




                                      F-41
<PAGE>



                                                                     Schedule VI

                                 KAYE GROUP INC
 SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS
              For the years ended December 31, 1999, 1998 and 1997
                                 (in thousands)



<TABLE>
<CAPTION>

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

   Column A              Column B              Column C             Column D              Column E

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

                                              Reserves For
                                              Unpaid Claims          Discount
  Affiliation             Deferred             And Claim              If Any
      With               Acquisition           Adjustment           Deducted In            Unearned
   Registrant               Costs               Expenses             Column C              Premiums
----------------------------------------------------------------------------------------------------
<S>                         <C>                 <C>                       <C>              <C>
Foreign                     $  152              $   260                   N/A              $   725
Domestic                     4,161               23,709                   N/A               12,969
                       -----------------------------------------------------------------------------

1999                        $4,313              $23,969                   N/A              $13,694
                       =============================================================================
Foreign                     $  193              $   295                   N/A              $   916
Domestic                     3,728               21,272                   N/A               11,411
                       -----------------------------------------------------------------------------

1998                        $3,921              $21,567                   N/A              $12,327
                       =============================================================================

Foreign                     $  240              $   204                   N/A              $ 1,132
Domestic                     3,699               18,922                   N/A               11,446
                       -----------------------------------------------------------------------------

1997                        $3,939              $19,126                   N/A              $12,578
                       =============================================================================
</TABLE>


<TABLE>
<CAPTION>

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

  Column A              Column F              Column G                        Column H

================================================================================================
                                                                           Claims and Claim
                                                                         Adjustment Expenses
                                                                         Incurred Related to
 Affiliation                                    Net                   (1)                  (2)
     With                Earned             Investment              Current               Prior
  Registrant            Premiums              Income                 Year                 Years
------------------------------------------------------------------------------------------------
<S>                      <C>                    <C>                   <C>                 <C>
Foreign                  $1,598                 $119                  $375                ($114)
Domestic                 25,182                2,678                10,035                 (542)
                   -----------------------------------------------------------------------------

1999                    $26,780               $2,797               $10,410                ($656)
                   =============================================================================

Foreign                  $1,957                 $135                  $313                  $95
Domestic                 22,732                2,453                 8,148                  (60)
                   -----------------------------------------------------------------------------

1998                    $24,689               $2,588                $8,461                  $35
                   =============================================================================

Foreign                  $2,118                 $127                  $326                 ($47)
Domestic                 20,729                2,565                 8,498                  (61)
                   -----------------------------------------------------------------------------

1997                    $22,847               $2,692                $8,824                ($108)
                   =============================================================================
</TABLE>


<TABLE>
<CAPTION>

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

  Column A                Column I             Column J             Column K             Column L

=================================================================================================
                                                Paid
                        Amortization           Claims
 Affiliation            Of Deferred           and Claim                                    Other
     With               Acquisition           Adjustment            Premiums             Operating
  Registrant               Costs               Expenses              Written              Expenses
--------------------------------------------------------------------------------------------------
<S>                         <C>                  <C>                 <C>                     <C>
Foreign                     $335                 $296                $1,408                  $66
Domestic                   7,957                6,514                26,414                2,847
                       ---------------------------------------------------------------------------

1999                      $8,292               $6,810               $27,822               $2,913
                       ===========================================================================

Foreign                     $414                 $317                $1,742                 $102
Domestic                   7,216                6,147                22,796                2,178
                       ---------------------------------------------------------------------------

1998                      $7,630               $6,464               $24,538               $2,280
                       ===========================================================================

Foreign                     $456                 $234                $1,938                 $113
Domestic                   6,813                6,512                20,332                1,988
                       ---------------------------------------------------------------------------

1997                      $7,269               $6,746               $22,270               $2,101
                       ===========================================================================
</TABLE>




                                      F-42