<PAGE> 1
             UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, DC 20549
--------------------------------------------------------------------------
                                 FORM 10-Q

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

           For the Quarterly Period Ended September 30, 2003

                                   OR

/ /   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
      For the transition period from                  to
                    -------------------------------------
                     Commission File Number   33-94670-01
                    -------------------------------------
                              FARMERS GROUP, INC.
           (Exact name of registrant as specified in its charter)

                                   NEVADA
                       (State or other jurisdiction of
                       incorporation or organization)

                                  95-0725935
                      (IRS Employer Identification No.)

           4680 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90010
             (Address of principal executive offices)(Zip Code)

                                (323) 932-3200
             (Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes  /X/   No  / /

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act 12b-2).
Yes  /X/   No  / /

Registrant's Common Stock outstanding on September 30, 2003 was 1,000 shares.

<PAGE> 2

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE> 3

                               FARMERS GROUP, INC.
                                AND SUBSIDIARIES

                           TABLE OF CONTENTS FORM 10-Q

                        FOR THE PERIOD ENDED SEPTEMBER 30, 2003


PART I.   FINANCIAL INFORMATION                                             PAGE
                                                                            ----
  ITEM 1. Financial Statements (Unaudited)

          Consolidated Balance Sheets - Assets
             September 30, 2003 (Unaudited) and December 31, 2002 (Audited)   4

          Consolidated Balance Sheets - Liabilities
          and Stockholders' Equity
             September 30, 2003 (Unaudited) and December 31, 2002 (Audited)   5

          Unaudited Consolidated Statements of Income
             Nine Month Periods ended September 30, 2003 and
             September 30, 2002                                               6

          Unaudited Consolidated Statements of Comprehensive Income
             Nine Month Periods ended September 30, 2003 and
             September 30, 2002                                               7

          Unaudited Consolidated Statements of Income
             Three Month Periods ended September 30, 2003 and
             September 30, 2002                                               8

          Unaudited Consolidated Statements of Comprehensive Income
             Three Month Periods ended September 30, 2003 and
             September 30, 2002                                               9

          Unaudited Consolidated Statement of Stockholders' Equity
             Nine Month Period ended September 30, 2003                      10

          Unaudited Consolidated Statements of Cash Flows
             Nine Month Periods ended September 30, 2003 and
             September 30, 2002                                              11

          Notes to Unaudited Interim Financial Statements                    12

  ITEM 2. Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                       23

  ITEM 3. Quantitative and Qualitative Disclosures about Market Risks        39

  ITEM 4. Controls and Procedures                                            39

PART II.  OTHER INFORMATION                                                  40

SIGNATURES                                                                   41

<PAGE> 4

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
                                 FARMERS GROUP, INC.
                                  AND SUBSIDIARIES
                             CONSOLIDATED BALANCE SHEETS
                   (Amounts in thousands, except for per share data)
                                       ASSETS
<TABLE>
<CAPTION>
                                                                 (Unaudited)
                                                                September 30, December 31,
                                                                    2003          2002
                                                                ------------- ------------
<S>                                                             <C>           <C>
Current assets, Farmers Management Services:
 Cash and cash equivalents                                      $     217,959 $    383,527
 Marketable securities, at market value
  (cost: $47,722 and $13,711)                                          48,203       13,832
 Accrued interest                                                      13,315       14,488
 Accounts receivable, principally from the P&C Group Companies         13,060       76,109
 Deferred taxes                                                        50,527       49,865
 Prepaid expenses and other                                            52,526       26,042
                                                                ------------- ------------
                                                                      395,590      563,863
                                                                ------------- ------------
Investments, Farmers Management Services:
 Fixed maturities available-for-sale, at market value
  (cost: $869,594 and $144,282)                                       873,358      150,773
 Common stocks available-for-sale, at market value
  (cost: $101,075 and $144,773)                                       109,881      132,089
 Certificates of contribution of the P&C Group Companies              546,830      546,830
 Real estate, at cost (net of accumulated depreciation:
  $48,791 and $45,374)                                                 82,827       85,338
 Notes receivable - affiliates                                        255,000      415,000
                                                                ------------- ------------
                                                                    1,867,896    1,330,030
                                                                ------------- ------------
Other assets, Farmers Management Services:
 Goodwill                                                           1,621,183    1,621,183
 Attorney-in-fact relationships                                     1,153,605    1,153,605
 Other assets                                                         200,299      244,706
                                                                ------------- ------------
                                                                    2,975,087    3,019,494
                                                                ------------- ------------
Properties, plant and equipment, at cost: (net of accumulated
 depreciation: $533,925 and $489,799)                                 408,017      412,406
                                                                ------------- ------------
Investments of Insurance Subsidiaries:
 Fixed maturities available-for-sale, at market value
  (cost: $5,788,837 and $5,231,305)                                 6,081,547    5,524,070
 Mortgage loans on real estate                                         11,152        8,219
 Non-redeemable preferred stocks available-for-sale, at market
  value (cost: $10,346 and $10,346)                                    12,517       10,203
 Common stocks available-for-sale, at market value
  (cost: $186,655 and $230,296)                                       201,315      213,664
 Certificates of contribution and surplus note of the
  P&C Group Companies                                                 490,500      490,500
 Policy loans                                                         246,910      241,591
 Real estate, at cost (net of accumulated depreciation:
  $37,027 and $34,448)                                                 76,072       78,240
 Joint ventures, at equity                                              1,048        1,884
 S&P 500 call options, at fair value (cost: $38,150 and $37,951)        1,641        1,845
 Marketable securities, at market value
  (cost: $5,013 and $2,712)                                             5,169        2,594
 Other investments                                                     22,435       22,435
                                                                ------------- ------------
                                                                    7,150,306    6,595,245
                                                                ------------- ------------
Other assets of Insurance Subsidiaries:
 Cash and cash equivalents                                             30,109      233,143
 Accounts receivable, unsettled securities                              8,695            0
 Life reinsurance receivable                                          146,357       99,128
 Reinsurance premiums receivable from the P&C Group Companies          43,581            0
 Funds held by or deposited with reinsured companies                        0       18,971
 Accrued investment income                                             73,545       74,956
 Income taxes                                                          29,489       38,692
 Life deferred policy acquisition costs                               602,294      580,195
 Value of life business acquired                                      238,488      254,510
 Securities lending collateral                                        257,183      219,213
 Non-life deferred acquisition costs                                   33,987       33,859
 Other assets                                                          28,151       20,556
 Assets held in Separate Accounts                                     136,012       86,632
                                                                ------------- ------------
                                                                    1,627,891    1,659,855
                                                                ------------- ------------
   Total assets                                                 $  14,424,787 $ 13,580,893
                                                                ============= ============

    The accompanying notes are an integral part of these interim financial statements.

</TABLE>

<PAGE> 5

                                  FARMERS GROUP, INC.
                                   AND SUBSIDIARIES
                              CONSOLIDATED BALANCE SHEETS
                    (Amounts in thousands, except for per share data)
                         LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                (Unaudited)
                                                               September 30, December 31,
                                                                   2003          2002
                                                               ------------- -------------
<S>                                                            <C>           <C>
Current liabilities, Farmers Management Services:
 Accounts Payable                                              $      32,230 $      44,095
 Profit sharing                                                       54,501        70,485
 Income taxes                                                        177,796       142,027
 Other                                                                22,519        11,688
                                                               ------------- -------------
                                                                     287,046       268,295
                                                               ------------- -------------
Other liabilities, Farmers Management Services:
 Non-current deferred taxes                                          521,427       518,669
 Other                                                                83,042        77,995
                                                               ------------- -------------
                                                                     604,469       596,664
                                                               ------------- -------------
Liabilities of Insurance Subsidiaries:
 Life policy liabilities:
  Future policy benefits                                           4,428,774     4,191,202
  Claims                                                              70,571        40,656
  Policyholders dividends                                                 30            21
  Other policyholders funds                                          349,144       329,858
  Death benefits payable                                              74,210        70,301
 Provision for non-life losses and loss adjustment expenses          138,405        18,971
 Non-life unearned premiums                                          160,775       160,273
 Deferred taxes                                                      226,366       199,031
 Unearned investment income                                              829           829
 Reinsurance payable to the P&C Group Companies                       26,716             0
 Securities lending liability                                        257,183       219,213
 Unsettled security purchases                                              0        45,314
 Other liabilities                                                    67,662        73,486
 Liabilities related to Separate Accounts                            136,012        86,632
                                                               ------------- -------------
                                                                   5,936,677     5,435,787
                                                               ------------- -------------
Company obligated mandatorily redeemable preferred
  securities of subsidiary trusts holding solely junior
  subordinated debentures                                            500,000             0
                                                               ------------- -------------
   Total liabilities                                               7,328,192     6,300,746
                                                               ------------- -------------
Company obligated mandatorily redeemable preferred
  securities of subsidiary trusts holding solely junior
  subordinated debentures                                                  0       500,000
                                                               ------------- -------------
Stockholders' Equity:
 Class A common stock, $1 par value per share; authorized, issued
  and outstanding: as of September 30, 2003 and
  December 31, 2002 - 450 shares                                        0.45          0.45
 Class B common stock, $1 par value per share; authorized, issued
  and outstanding: as of September 30, 2003 and
  December 31, 2002 - 500 shares                                        0.50          0.50
 Class C common stock, $1 par value per share; authorized, issued
  and outstanding: as of September 30, 2003 and
  December 31, 2002 - 50 shares                                         0.05          0.05
 Additional capital                                                5,227,049     5,227,049
 Accumulated other comprehensive income (net of deferred
  taxes: $88,618 and $70,128)                                        164,577       130,237
 Retained earnings                                                 1,704,968     1,422,860
                                                               ------------- -------------
   Total stockholders' equity                                      7,096,595     6,780,147
                                                               ------------- -------------
     Total liabilities and stockholders' equity                $  14,424,787 $  13,580,893
                                                               ============= =============

    The accompanying notes are an integral part of these interim financial statements.

</TABLE>

<PAGE> 6

                               FARMERS GROUP, INC.
                                AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                             (Amounts in thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                       Nine month period
                                                                      ended September 30,
                                                                  ------------------------
                                                                      2003         2002
                                                                  -----------  -----------
<S>                                                               <C>          <C>
Consolidated operating revenues                                   $ 2,461,211  $ 2,067,374
                                                                  ===========  ===========
Farmers Management Services:
  Operating revenues                                              $ 1,409,233  $ 1,344,446
                                                                  -----------  -----------
  Salaries and employee benefits                                      337,678      332,115
  Building and equipment expenses                                      84,956       86,400
  General and administrative expenses                                 213,654      254,372
                                                                  -----------  -----------
    Total operating expenses                                          636,288      672,887
                                                                  -----------  -----------
    Operating income                                                  772,945      671,559
  Net investment income                                                61,133       47,991
  Net realized gains                                                    2,796        4,198
  Impairment losses on investments                                     (8,069)     (31,888)
  Dividends on preferred securities of subsidiary trusts              (31,553)     (31,553)
                                                                  -----------   ----------
    Income before provision for taxes                                 797,252      660,307
  Provision for income taxes                                          302,237      252,361
                                                                  -----------   ----------
    Farmers Management Services net income                            495,015      407,946
                                                                  -----------   ----------
Insurance Subsidiaries:
  Life and annuity premiums                                           143,720      195,537
  Non-life reinsurance premiums earned                                463,698      150,000
  Life policy charges                                                 171,003      167,311
  Net investment income                                               289,324      285,168
  Net realized gains/(losses)                                          16,098      (28,167)
  Impairment losses on investments                                    (31,865)     (46,921)
                                                                  -----------  -----------
    Total revenues                                                  1,051,978      722,928
                                                                  -----------  -----------
  Non-life losses and loss adjustment expenses                        284,777       96,306
  Life policy benefits                                                137,489      127,952
  Increase in liability for future life policy benefits                25,489       80,028
  Interest credited to life policyholders                             132,901      134,597
  Amortization of life deferred policy acquisition costs
    and value of life business acquired                                85,612       66,632
  Life commissions                                                    (14,169)      (5,460)
  Amortization of non-life deferred policy acquisition costs           65,899            0
  Non-life reinsurance commissions                                    105,426       49,944
  General and administrative expenses                                  46,214       45,211
                                                                  -----------  -----------
    Total operating expenses                                          869,638      595,210
                                                                  -----------  -----------
    Income before provision for taxes                                 182,340      127,718
  Provision for income taxes                                           62,247       43,677
                                                                  -----------  -----------
    Insurance Subsidiaries net income                                 120,093       84,041
                                                                  -----------  -----------

Consolidated net income                                           $   615,108  $   491,987
                                                                  ===========  ===========

    The accompanying notes are an integral part of these interim financial statements.
</TABLE>

<PAGE> 7

                               FARMERS GROUP, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF
                              COMPREHENSIVE INCOME
                             (Amounts in thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                      Nine month period
                                                                     ended September 30,
                                                                  ------------------------
                                                                      2003        2002
                                                                  -----------  -----------
<S>                                                               <C>          <C>
Consolidated net income                                           $   615,108  $   491,987
                                                                  -----------  -----------
Other comprehensive income, net of tax:

  Net unrealized holding gains on securities,
      net of tax of $18,257 and $59,783                                33,908      111,028
  Change in effect of unrealized gains/(losses) on other
      insurance accounts, net of tax of $233 and ($15,668)                432      (29,099)
                                                                  -----------  -----------
  Other comprehensive income                                           34,340       81,929
                                                                  -----------  -----------
Comprehensive income                                              $   649,448  $   573,916
                                                                  ===========  ===========

    The accompanying notes are an integral part of these interim financial statements.

</TABLE>

<PAGE> 8

                               FARMERS GROUP, INC.
                                AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                             (Amounts in thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                      Three month period
                                                                      ended September 30,
                                                                  ------------------------
                                                                      2003         2002
                                                                  -----------  -----------
<S>                                                               <C>          <C>
Consolidated operating revenues                                   $   828,394  $   695,813
                                                                  ===========  ===========
Farmers Management Services:
  Operating revenues                                              $   473,821  $   459,224
                                                                  -----------  -----------
  Salaries and employee benefits                                      114,341      112,642
  Building and equipment expenses                                      29,019       28,120
  General and administrative expenses                                  70,225      101,340
                                                                  -----------  -----------
    Total operating expenses                                          213,585      242,102
                                                                  -----------  -----------
    Operating income                                                  260,236      217,122
  Net investment income                                                20,022       14,877
  Net realized gains                                                      381          232
  Impairment losses on investments                                          0      (10,993)
  Dividends on preferred securities of subsidiary trusts              (10,518)     (10,518)
                                                                  -----------   ----------
    Income before provision for taxes                                 270,121      210,720
  Provision for income taxes                                           97,691       77,262
                                                                  -----------   ----------
    Farmers Management Services net income                            172,430      133,458
                                                                  -----------   ----------
Insurance Subsidiaries:
  Life and annuity premiums                                            47,395       69,808
  Non-life reinsurance premiums earned                                153,593       50,000
  Life policy charges                                                  57,539       56,077
  Net investment income                                                96,326       96,516
  Net realized losses                                                     (63)     (17,896)
  Impairment losses on investments                                       (217)     (17,916)
                                                                  -----------  -----------
    Total revenues                                                    354,573      236,589
                                                                  -----------  -----------
  Non-life losses and loss adjustment expenses                         91,129       28,879
  Life policy benefits                                                 49,314       43,633
  Increase in liability for future life policy benefits                 8,545       31,002
  Interest credited to life policyholders                              44,554       43,811
  Amortization of life deferred policy acquisition costs
    and value of life business acquired                                26,932       19,927
  Life commissions                                                     (5,232)      (2,425)
  Amortization of non-life deferred policy acquisition costs           21,767            0
  Non-life reinsurance commissions                                     37,709       19,870
  General and administrative expenses                                  15,329       14,801
                                                                  -----------  -----------
    Total operating expenses                                          290,047      199,498
                                                                  -----------  -----------
    Income before provision for taxes                                  64,526       37,091
  Provision for income taxes                                           22,019       12,594
                                                                  -----------  -----------
    Insurance Subsidiaries net income                                  42,507       24,497
                                                                  -----------  -----------

Consolidated net income                                           $   214,937  $   157,955
                                                                  ===========  ===========

    The accompanying notes are an integral part of these interim financial statements.
</TABLE>

<PAGE> 9

                               FARMERS GROUP, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF
                              COMPREHENSIVE INCOME
                             (Amounts in thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                     Three month period
                                                                     ended September 30,
                                                                  ------------------------
                                                                      2003         2002
                                                                  -----------  -----------
<S>                                                               <C>          <C>
Consolidated net income                                           $   214,937  $   157,955
                                                                  -----------  -----------
Other comprehensive income, net of tax:

  Net unrealized holding gains/(losses) on securities,
      net of tax of ($25,489) and $56,522                             (47,335)     104,972
  Change in effect of unrealized gains/(losses) on other
      insurance accounts, net of tax of $7,734 and
      ($15,434)                                                        14,362      (28,664)
                                                                  -----------  -----------
  Other comprehensive income/(loss)                                   (32,973)      76,308
                                                                  -----------  -----------
Comprehensive income                                              $   181,964  $   234,263
                                                                  ===========  ===========

    The accompanying notes are an integral part of these interim financial statements.
</TABLE>

<PAGE> 10

                                   FARMERS GROUP, INC.
                                    AND SUBSIDIARIES
                     CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                      For the nine month period ended September 30, 2003
                                 (Amounts in thousands)
                                       (Unaudited)
<TABLE>
<CAPTION>
                                                     Accumulated Other                    Total
                                Common    Additional   Comprehensive      Retained     Stockholders'
                                Stock      Capital        Income          Earnings        Equity
                               --------  -----------  ---------------   -----------   -------------
<S>                            <C>       <C>          <C>               <C>           <C>
Balance, December 31, 2002     $      1  $ 5,227,049  $       130,237   $ 1,422,860   $   6,780,147

Net income                                                                  615,108         615,108

Net unrealized holding gains
  on securities, net of tax
  of $18,257                                                   33,908                        33,908

Change in effect of unrealized
  gains on other insurance
  accounts, net of tax of $233                                    432                           432

Cash dividends paid                                                        (333,000)       (333,000)
                               -------- ------------  ---------------   -----------   -------------
Balance, September 30, 2003    $      1 $  5,227,049  $       164,577   $ 1,704,968   $   7,096,595
                               ======== ============  ===============   ===========   =============

        The accompanying notes are an integral part of these interim financial statements.
</TABLE>

<PAGE> 11

                                 FARMERS GROUP, INC.
                                  AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (Amounts in thousands)
                                     (Unaudited)
<TABLE>
<CAPTION>
                                                                     Nine month period
                                                                    ended September 30,
                                                                  -----------------------
                                                                     2003         2002
                                                                  ----------   ----------
<S>                                                               <C>          <C>
Cash Flows from Operating Activities:
 Consolidated net income                                          $  615,108   $  491,987
 Non-cash and operating activities adjustments:
  Depreciation and amortization                                       87,538       82,912
  Amortization of life deferred policy acquisition costs and
    value of life business acquired                                   85,612       66,632
  Amortization of non-life deferred policy acquisition costs          65,899            0
  Life policy acquisition costs deferred                             (91,024)     (88,732)
  Non-life policy acquisition costs deferred                         (66,027)           0
  Life insurance policy liabilities                                  102,840      160,722
  Provision for non-life losses and loss adjustment liability        119,434        2,953
  Non-life unearned premiums                                             503            0
  Interest credited on universal life and annuity contracts          115,544      106,983
  Equity in earnings of joint ventures                                    53        1,935
  (Gains)/losses on sales of assets                                  (17,540)      23,992
  Impairment losses on investments                                    39,934       78,810
 Changes in assets and liabilities:
  Current assets and liabilities                                     (43,537)      90,537
  Non-current assets and liabilities                                 (12,479)     (85,959)
 Other, net                                                           40,642       30,198
                                                                  ----------   ----------
 Net cash provided by operating activities                         1,042,500      962,970
                                                                  ----------   ----------
Cash Flows from Investing Activities:
 Purchases of investments available-for-sale                      (2,669,108)  (1,535,492)
 Purchases of properties and equipment                               (25,160)     (40,394)
 Purchases of note receivable - affiliate                           (100,000)           0
 Purchases of mortgage loans                                          (6,400)           0
 Proceeds from sales and maturities of investments
  available-for-sale                                               1,386,976      988,977
 Proceeds from other investments                                           0       50,000
 Proceeds from sales of properties and equipment                       9,046       46,811
 Proceeds from redemption of notes receivable - affiliates           260,000       30,000
 Mortgage loan collections                                             3,467       16,818
 Increase in policy loans                                             (5,319)      (6,231)
 Other, net                                                                0          250
                                                                  ----------   ----------
 Net cash used in investing activities                            (1,146,498)    (449,261)
                                                                  ----------   ----------
Cash Flows from Financing Activities:
 Dividends paid to stockholders                                     (333,000)    (350,250)
 Deposits received from universal life and annuity contracts         426,304      390,282
 Withdrawals from universal life and annuity contracts              (357,906)    (349,545)
 Payment of long-term notes payable                                       (2)          (2)
                                                                  ----------   ----------
 Net cash used in financing activities                              (264,604)    (309,515)
                                                                  ----------   ----------

Increase/(decrease) in cash and cash equivalents                    (368,602)     204,194
Cash and cash equivalents - at beginning of year                     616,670      397,402
                                                                  ----------   ----------
Cash and cash equivalents - at end of period                      $  248,068   $  601,596
                                                                  ==========   ==========

   The accompanying notes are an integral part of these interim financial statements.
</TABLE>

<PAGE> 12

                                    FARMERS GROUP, INC.
                                     AND SUBSIDIARIES
                          NOTES TO INTERIM FINANCIAL STATEMENTS
                                        (Unaudited)


1.   Basis of presentation and summary of significant accounting policies

     The accompanying consolidated balance sheet and statement of stockholders'
equity of Farmers Group, Inc. ("FGI") and its subsidiaries (together, the
"Company"; references to attorney-in-fact ("AIF"), as applicable in context,
are to FGI, dba Farmers Underwriters Association, attorney-in-fact of Farmers
Insurance Exchange; or Fire Underwriters Association, attorney-in-fact of Fire
Insurance Exchange; or Truck Underwriters Association, attorney-in-fact of
Truck Insurance Exchange) as of September 30, 2003, the related consolidated
statements of income and comprehensive income for the three and nine month
periods ended September 30, 2003 and September 30, 2002 and consolidated
statements of cash flows for the nine month periods ended September 30, 2003
and September 30, 2002, have been prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP") for
interim periods and are unaudited.  However, in management's opinion, the
consolidated financial statements include all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation of results for
such interim periods.  These statements do not include all of the information
and footnotes required by GAAP for complete financial statements and should be
read in conjunction with the consolidated balance sheets of the Company as of
December 31, 2002 and 2001, and the related consolidated statements of income,
comprehensive income, stockholders' equity and cash flows for each of the three
years reported in the SEC Form 10-K for the period ended December 31, 2002.

     Interim results are not necessarily indicative of results for the full
year.  All material inter-company transactions have been eliminated.  Certain
amounts applicable to prior years have been reclassified to conform to the
2003 presentation.

     The preparation of the Company's financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements as well as the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.

     In December 1988, B.A.T Industries p.l.c. ("B.A.T") acquired 100%
ownership of the Company for $5.2 billion through its wholly owned subsidiary
BATUS Financial Services.  Immediately thereafter, BATUS Financial Services
was merged into FGI.  The acquisition was accounted for as a purchase and,
accordingly, the acquired assets and liabilities were recorded in the
Company's consolidated balance sheets based on their estimated fair values at
December 31, 1988.

     In September 1998, the financial businesses of B.A.T, which included the
Company, were merged with Zurich Insurance Company ("ZIC").  The businesses of
ZIC and the financial services businesses of B.A.T were transferred to Zurich
Group Holding ("ZGH"), formerly known as Zurich Financial Services, a Swiss
holding company with headquarters in Zurich, Switzerland.  This merger was
accounted for by ZGH as a pooling of interests under International Financial
Reporting Standards ("IFRS"), formerly International Accounting Standards
("IAS").

     As a result of a unification of the holding structure of the Zurich
Financial Services Group in October 2000, Zurich Financial Services was
renamed Zurich Group Holding, as noted above, and a new group holding company,
Zurich Financial Services, was formed.  As such, references to "Zurich" are to
the group holding company, Zurich Financial Services ("ZFS").

     The Company has AIF relationships with three inter-insurance exchanges:
Farmers Insurance Exchange, Fire Insurance Exchange and Truck Insurance
Exchange (collectively the "Exchanges"), which operate in the property and
casualty insurance industry.  Each policyholder of each Exchange appoints the
AIF to provide non-claims related management services to each Exchange.  For
such services, the Company earns management fees based primarily on a

<PAGE> 13

percentage of gross premiums earned by the Exchanges, their respective
subsidiaries, Farmers Texas County Mutual Insurance Company, Foremost County
Mutual Insurance Company and Foremost Lloyds of Texas (collectively the "P&C
Group Companies").  The P&C Group Companies are owned by the respective
policyholders of the Exchanges, Farmers Texas County Mutual Insurance Company
and Foremost County Mutual Insurance Company as well as the underwriters of
Foremost Lloyds of Texas.  Accordingly, the Company has no ownership interest
in the P&C Group Companies.

     Farmers New World Life Insurance Company ("Farmers Life"), a Washington
domiciled insurance company, is a wholly owned subsidiary of FGI.  Farmers
Life markets a broad line of individual life insurance products, including
universal life, term life and whole life insurance and fixed annuity products,
predominately flexible premium deferred annuities, as well as variable
universal life insurance and variable annuity products.  These products are
sold directly by the Farmers Agency Force.  Farmers Life also marketed
structured settlement annuities sold by independent brokers.  As of December
2002, Farmers Life exited the business of writing structured settlements.  The
5,200 structured settlement cases in force as of September 30, 2003 will
continue to be serviced by Farmers Life.  For the nine months ended September
30, 2003 and September 30, 2002, the structured settlement business
represented 1.1% and 2.2% of Farmers Life's income before provision for taxes,
respectively.  For the three months ended September 30, 2003 and September 30,
2002, the structured settlement business represented 1.0% and 1.2% of Farmers
Life's income before provision for taxes, respectively.

     Farmers Reinsurance Company ("Farmers Re"), a wholly owned subsidiary of
FGI which was formed and licensed to conduct business in December 1997,
provides reinsurance coverage to the P&C Group Companies.  As of September 30,
2003, Farmers Re participates in three reinsurance treaties: 1) an Auto
Physical Damage ("APD") reinsurance agreement, 2) a 10% All Lines Quota Share
reinsurance treaty and 3) a 20% Personal Lines Auto Quota Share reinsurance
treaty (see Note 5 to Consolidated Financial Statements, "Note 5").

     References to the "Insurance Subsidiaries" within the consolidated
financial statements are to Farmers Life and Farmers Re.  References to
"Farmers Management Services" are to the Company excluding the Insurance
Subsidiaries.

2.   Recent accounting pronouncements

     In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others".  This Interpretation identifies characteristics of certain guarantee
contracts and requires that a liability be recognized at fair value at the
inception of such guarantees for the obligations undertaken by the guarantor.
Additional disclosures also are prescribed for certain guarantee contracts.
The initial recognition and initial measurement provisions of this
Interpretation are effective for these guarantees issued or modified after
December 31, 2002.  The disclosure requirements of this Interpretation are
effective for the Company as of December 31, 2002.  The adoption of this
Interpretation did not have a material impact on the Company's consolidated
financial statements.

     In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities".  This Interpretation provides guidance on the
identification of entities for which control is achieved through means other
than through voting rights, variable interest entities ("VIEs"), and how to
determine when and which business enterprises should consolidate VIEs.  This
Interpretation applies immediately to VIEs created after January 31, 2003.  For
a VIE created before February 1, 2003, the provisions of FIN 46 were to be
applied at the beginning of the first interim or annual period beginning after
June 15, 2003.  However, the FASB, at its meeting on October 8, 2003, issued
FASB staff position 46-6, "Effective Date of FASB Interpretation No. 46,
Consolidation of VIEs" ("FSP 46-6").  FSP 46-6 delayed implementation of
provisions of FIN 46 for entities created before February 1, 2003 to the first
interim or annual period ending after December 15, 2003.  Based on the current
Interpretation, the Company does not believe they have VIEs.

     In April 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities".  This Statement amends and

<PAGE> 14

clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities".  This Statement is effective for contracts
entered into or modified after June 30, 2003.  The adoption of this
Statement did not have a material impact on the Company's consolidated
financial statements.


In May 2003, the FASB issued SFAS No. 150, "Accounting of Certain Financial
Instruments with Characteristics of both Liabilities and Equity".  This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity.  Under this Statement, a financial instrument issued in the form of
shares that are mandatorily redeemable that embodies an unconditional
obligation requiring the issuer to redeem it by transferring its assets at a
specified or determinable date or upon an event that is certain to occur shall
be classified as a liability at the amount of cash that would be paid under
the conditions specified in the contract.  The provisions of this Statement
are effective at the beginning of the first interim period beginning after
June 15, 2003.  The adoption of this Statement had an impact on presentation
of the Company's consolidated balance sheet as the "Company obligated
mandatorily redeemable preferred securities of subsidiary trusts holding
solely junior subordinated debentures" line of the balance sheet was
reclassified to the liability section for the period ended September 30, 2003.

3.   Intangible assets

     As of September 30, the Company held the following intangible assets:
assets:

<TABLE>
<CAPTION>
                                                            Net Book Value
                                                    -----------------------------
                                                        2003             2002
                                                    ------------     ------------
                                                         (Amounts in thousands)
<S>                                                 <C>              <C>
Amortized intangible assets:
  Insurance Subsidiaries:
     Value of life business acquired ("VOLBA")
        Balance, January 1                          $    254,510     $    274,531
        Amortization related to operations               (11,810)          (9,029)
        Interest accrued                                   4,332            4,621
        Amortization related to net
           unrealized gains                                  375            3,103
                                                    ------------     ------------
        Balance, March 31                                247,407          273,226
        Amortization related to operations                (8,623)          (9,134)
        Interest accrued                                   4,263            4,548
        Amortization related to net
           unrealized losses                              (3,357)          (3,236)
                                                    ------------     ------------
        Balance, June 30                                 239,690          265,404
        Amortization related to operations                (8,166)          (7,588)
        Interest accrued                                   4,207            4,511
        Amortization related to net
           unrealized gains/(losses)                       2,757          (7,024)
                                                    ------------     ------------
        Balance, September 30                       $    238,488     $    255,303
                                                    ============     ============
</TABLE>

<TABLE>
<CAPTION>
                                                              Gross Carrying Amounts
                                                    -----------------------------------------
                                                          As of                   As of
                                                    September 30, 2003      December 31, 2002
                                                    ------------------      -----------------
                                                              (Amounts in thousands)
<S>                                                 <C>                     <C>
Unamortized intangible assets:
  Farmers Management Services:
     Goodwill                                       $        1,621,183      $       1,621,183
     AIF relationships                                       1,153,605              1,153,605

</TABLE>

<PAGE> 15

     For the three and nine months ended September 30, 2003, amortization
expense, net of accrued interest, related to the VOLBA asset totaled $4.0
million and $15.8 million, respectively.  Estimated amortization, net of
accrued interest, related to the VOLBA asset for each of the years in the
five-year period ended December 31, 2007 follows:

<TABLE>
<CAPTION>
                                                    Annual
                                                 Amortization
                                                    Expense
                                                 ------------
                                            (Amounts in thousands)
          <S>                                    <C>
          2003                                   $     19,000
          2004                                         18,000
          2005                                         17,000
          2006                                         16,000
          2007                                         16,000
                                                 ------------
                                                 $     86,000
                                                 ============

</TABLE>

4.   Management fees

     FGI and its subsidiaries, through their AIF relationships with the
Exchanges, provide non-claims related management services to the P&C Group
Companies and receive management fees for the services rendered.  As a result,
the Company received management fees from the P&C Group Companies of $1,310.1
million and $1,256.3 million for the nine month periods ended September 30,
2003 and September 30, 2002, respectively.  For the three month periods ended
September 30, 2003 and September 30, 2002, the Company received management
fees from the P&C Group Companies of $441.3 million and $428.7 million,
respectively.

     Management fees earned for the nine month periods ended September 30 are
as follows:

<TABLE>
<CAPTION>
                                                     2003             2002
                                                 ----------        ----------
                                                    (Amounts in thousands)
<S>                                              <C>               <C>
AIF fees:
   Auto                                          $  679,186        $  673,200
   Homeowners                                       257,618           249,272
   Commercial                                       167,929           163,207
   Specialty Lines                                  128,337           106,793
   Other                                              8,621             6,832
                                                 ----------        ----------
Total AIF fees                                    1,241,691         1,199,304
Other fees                                           68,359            56,946
                                                 ----------        ----------
Total management fees                            $1,310,050        $1,256,250
                                                 ==========        ==========

</TABLE>

<PAGE> 16

     Management fees earned for the three month periods ended September 30 are
as follows:

<TABLE>
<CAPTION>
                                                     2003             2002
                                                 ----------        ----------
                                                    (Amounts in thousands)
<S>                                              <C>               <C>
AIF fees:
   Auto                                          $  225,360        $  227,855
   Homeowners                                        86,736            86,811
   Commercial                                        55,226            54,097
   Specialty Lines                                   46,180            37,261
   Other                                              3,097             2,495
                                                 ----------        ----------
Total AIF fees                                      416,599           408,519
Other fees                                           24,700            20,200
                                                 ----------        ----------
Total management fees                            $  441,299        $  428,719
                                                 ==========        ==========

</TABLE>

5.   Non-life reinsurance

     Farmers Re, a wholly owned subsidiary of FGI, reinsures a percentage of
the business written by the P&C Group Companies through three quota share
reinsurance agreements.  Under an APD Quota Share agreement, Farmers Re assumes
$200.0 million annually of the APD premiums written by the P&C Group Companies.
An additional $1.8 billion is assumed by the Zurich affiliates and outside
reinsurance companies identified in the agreement.  As a result of this APD
agreement, on a monthly basis, Farmers Re assumes $16.7 million of premiums
written.  Farmers Re assumes a quota share percentage of ultimate net losses
sustained by the P&C Group Companies in their APD lines of business.  The
agreement, which can be terminated after 30 days notice by any of the parties,
also provides for the P&C Group Companies to receive a ceding commission of 18%
of premiums, with additional experience commissions that depend on loss
experience.  This experience commission arrangement limits Farmers Re's
potential underwriting gain on the assumed business to 2.5% of premiums
assumed.  As a result of this APD reinsurance agreement, Farmers Re assumes an
underwriting risk.

     In December 2002, Farmers Re paid the P&C Group Companies a total of $45.2
million in full settlement of 2002 accident year related activities.  This
amount consisted of $25.8 million of net balances due on 4th quarter 2002
transactions, $19.0 million of advance settlement of losses and loss adjustment
expense reserves, and $0.4 million of accrued interest.  In May 2003, a final
commutation of the 2002 accident year loss and loss adjustment expense reserves
was made.  Under this commutation, Farmers Re and the P&C Group Companies
ultimately commuted $19.0 million of loss and loss adjustment expense reserves
related to the 2002 accident year.  Reinsurance recoverables relating to the
2003 accident year losses and loss adjustment expenses will be settled in
December 2003 per terms of the APD agreement.

     Effective December 31, 2002, Farmers Re and a Zurich affiliate entered
into a 10% All Lines Quota Share reinsurance treaty under which they assume a
percentage of all lines of business written by the P&C Group of Companies,
prospectively.  Under this treaty, Farmers Re assumes a 2% quota share of the
premiums written and the ultimate net losses sustained in all lines of business
written by the P&C Group Companies after the APD reinsurance agreement is
applied.  Underwriting results assumed are subject to a maximum combined ratio
of 112.5% and a minimum combined ratio of 93.5%.  In addition, catastrophe
losses subject to this reinsurance treaty are limited to a pro-rata share of
$800.0 million annually.  The reinsurance agreement, which can be terminated
after 60 days notice by any of the parties beginning with the quarter ending
December 31, 2003, also provides for the P&C Group Companies to receive a
provisional ceding commission of 22% of premiums for acquisition expenses and
14.1% of premiums for other expenses with additional experience commissions
that depend on loss experience.  As a result of this quota share
reinsurance treaty, Farmers Re assumes an underwriting risk.

     In addition, effective December 31, 2002, Farmers Re and a Zurich
affiliate entered into a 20% Personal Lines Auto Quota Share reinsurance treaty
under which they assume a percentage of the personal lines auto business
written

<PAGE> 17

by the P&C Group of Companies, prospectively.  Under this treaty, Farmers Re
assumes a 4% quota share of the premiums written and the ultimate net losses
sustained in the personal lines auto business written by the P&C Group
Companies after all other reinsurance treaties are applied.  Underwriting
results assumed are subject to a maximum and minimum combined ratio of 112.5%
and 97.0%, respectively.  In addition, catastrophe losses subject to this
reinsurance treaty are limited to a pro-rata share of $150.0 million. The
reinsurance agreement, which can be terminated after 60 days notice by any of
the parties beginning with the quarter ending December 31, 2003, also provides
for the P&C Group Companies to receive a provisional ceding commission of 20%
of premiums for acquisition expenses and 17.2% of premiums for other expenses
with additional experience commissions that depend on loss experience.  As a
result of this quota share reinsurance treaty, Farmers Re assumes an
underwriting risk.

6.   Material contingencies

     Due to its AIF relationships, the Company is a party to lawsuits in which
the Exchanges are the primary defendants.  The Company is also party to
lawsuits arising from its other normal business activities.  In addition, the
Company is, from time to time, involved as a party in various governmental and
administrative proceedings.  These actions are in various stages of discovery
and development, and some seek punitive as well as compensatory damages.  In
the opinion of management, the Company has not engaged in any conduct which
should warrant the award of material punitive or compensatory damages.  The
Company intends to vigorously defend its position in each case, and management
believes that, while it is not possible to predict the outcome of such matters
with absolute certainty, ultimate disposition of these proceedings should not
have a material adverse effect on the Company's consolidated results of
operations or financial position.

     On August 5, 2002, the Texas Attorney General and Texas Department of
Insurance ("TDI") initiated a legal action against Farmers Insurance Exchange,
Fire Insurance Exchange and certain of their affiliates which alleged certain
improprieties in the pricing of a portion of their homeowners insurance
policies written in the state of Texas.  FGI and certain of its subsidiaries
were also named as parties in that action.  On December 18, 2002, the parties
executed a Settlement Agreement respecting this litigation, which, when
approved by the court, will provide for certain rate reductions and refunds to
Texas policyholders.  No fines or penalties are included, and there is no
admission of wrongdoing.  The settlement also allows Farmers Insurance Exchange
and Fire Insurance Exchange, which had previously sent notices terminating all
of their homeowner policies, to continue operating in the homeowners insurance
market in Texas.  Although it was a defendant in the initial lawsuit, the
settlement imposes no direct financial burdens on FGI.  There is a possible
indirect financial impact on FGI because of lower renewal rates.  The timetable
for final court approval of the settlement is unclear.  Certain additional
parties have intervened in the approval process, objecting to the settlement.
Although the settlement did receive preliminary approval from the trial court,
the intervenors sought and obtained an order from the Court of Appeals staying
further actions in the trial court until the appeal of the intervenors can be
heard.  Oral argument of the intervenors' appeal has been scheduled for
December 2003.

     In addition to the rate reductions agreed upon in the settlement, on
August 8, 2003, the TDI, pursuant to recent insurance legislation affecting
all major homeowners insurers in the state, determined that Farmers Insurance
Exchange and Fire Insurance Exchange homeowners insurance rates should be
further reduced by 17.5%.  Farmers Insurance Exchange and Fire Insurance
Exchange requested a public hearing before the Commissioner of Insurance
appealing the TDI's determination.  On September 12, 2003, the Commissioner
issued an order that the base rates for Farmers Insurance Exchange shall be
reduced by 17.5% for homeowners coverage for all new and renewed business
issued effective on or after September 7, 2003, and the base rates for Fire
Insurance Exchange shall be reduced by 17.5% for homeowners coverage and 5% for
residential fire and allied lines coverage for all new and renewed business
issued effective on or after September 7, 2003.  Farmers Insurance Exchange and
Fire Insurance Exchange subsequently filed an appeal with the District Court in
Texas, which is currently pending.

7.   Related parties

     As of September 30, 2003, the Company held a $160.0 million note
receivable from ZGA US Limited ("ZGAUS"), a subsidiary of Zurich, formerly
known as Orange Stone (Delaware) Holdings Limited.  The Company loaned $250.0
million to ZGAUS on December 15, 1999 and, in return, received a medium-term
note with a 7.50%

<PAGE> 18

fixed interest rate that matures on December 15, 2004.  Subsequently, on April
9, 2002, $30.0 million of the note receivable was redeemed.  Also on March 17,
2003 and June 16, 2003, $25.0 million and $35.0 million of the note receivable
were redeemed, respectively.  Interest on this note is paid semi-annually.
Interest income totaled $10.6 million and $13.0 million for each of the nine
months periods ended September 30, 2003 and September 30, 2002, respectively.
For each of the three months periods ended September 30, 2003 and September
30, 2002, interest income totaled $3.0 million and $4.1 million, respectively.

     Subsequently, on October 2, 2003, the Company assigned the remaining
balance of the $160.0 million note receivable to ZIC for its principal value
plus accrued interest in exchange for cash.

      On September 3, 2002, $95.0 million of notes receivable, $25.0 million of
which had a fixed coupon rate of 6.80% and $70.0 million of which had a coupon
rate of 5.67%, from Zurich Financial Services (UKISA) Limited ("UKISA"), a
subsidiary of Zurich, matured.  These notes were renewed for two short-term
notes receivables of $12.5 million each and a $70.0 million note receivable,
each of which had a 2.75% fixed coupon rate and matured on September 2, 2003.
Interest on the notes was paid semi-annually.  Interest income totaled $1.8
million and $4.0 million for each of the nine months periods ended September
30, 2003 and September 30, 2002, respectively.  For each of the three months
periods ended September 30, 2003 and September 30, 2002, interest income
totaled $0.5 million and $1.2 million, respectively.

     On September 2, 2003, the $95.0 million principal repayment of the UKISA
notes was loaned to ZIC.  In return, the Company received a short-term note
with a 1.40% fixed interest rate that matures on October 29, 2003.  For the
nine and three month periods ended September 30, 2003, interest income totaled
$0.1 million.

     Subsequently, on October 2, 2003, ZIC redeemed the $95.0 million note, and
the full $95.0 million of principal and $0.1 million of interest were paid to
the Company.

     In addition, on December 27, 2002, the Company loaned $100.0 million to
ZIC and, in return, received a short-term note with a 1.50% fixed interest rate
that matured on February 14, 2003.  On February 14, 2003, the full $100.0
million of principal and $0.2 million of interest were paid to the Company.

     On March 24, 2003, the Company loaned $100.0 million to ZCM Matched
Funding Corp ("ZCM"), a subsidiary of Zurich and, in return, received a
short-term note with a 1.95% fixed interest rate that matured on May 30, 2003.
On May 30, 2003, $100.0 million of principal and $0.3 million of interest were
paid to the Company.

8.   Certificates of contribution and surplus note of the P&C Group Companies

     From time to time, the Company has purchased certificates of contribution
or surplus notes of the P&C Group Companies in order to supplement the
policyholders' surplus of the P&C Group Companies.

     As of September 30, 2003 and December 31, 2002, the Company held the
following certificates of contribution and surplus note of the P&C Group
Companies:

-    An $87.5 million surplus note, issued in March 2000, bearing interest at
     8.50% annually and maturing in February 2005.

-    $370.0 million of certificates of contribution, issued in March 2000,
     bearing interest at 7.85% annually and maturing in March 2010.

-    $350.0 million of certificates of contribution, issued in November 2001,
     bearing interest at 6.00% annually and maturing in September 2006.

<PAGE> 19

-    $206.5 million of certificates of contribution, issued in December 2001,
     bearing interest at 6.00% annually and maturing in September 2006.

-    Other certificates of contribution totaling $23.3 million which bear
     interest at various rates.

     Interest income related to the certificates of contribution and surplus
note of the P&C Group Companies totaled $53.2 million and $53.3 million for
each of the nine month periods ended September 30, 2003 and September 30, 2002,
respectively.  For each of the three months ended September 30, 2003 and
September 30, 2002, interest income related to the certificates of contribution
and surplus note of the P&C Group Companies totaled $17.7 million.

     Conditions governing payment of interest and repayment of principal are
outlined in the certificates of contribution and the surplus note.  Generally,
repayment of principal may be made only when the issuer has an appropriate
amount of surplus and then only after approval is granted by the issuer's
governing board and the appropriate state insurance regulatory department.  In
addition, payment of interest may generally be made only when the issuer has an
appropriate amount of surplus and then only after approval is granted by the
appropriate state insurance regulatory department.

9.   Operating segments

     The Company provides management services to the P&C Group Companies and
owns and operates the life and reinsurance subsidiaries.  These activities are
managed separately as each offers a unique set of services.  As a result, the
Company is comprised of the following three reportable operating segments as
defined in SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information": the management services segment, the life insurance
segment and the reinsurance segment.

     Through its AIF relationships with the Exchanges, the Company's management
services segment (Farmers Management Services) is primarily responsible for
providing non-claims management services to the P&C Group Companies.  The P&C
Group Companies collectively represent the Company's largest customer.
Management fees earned from the P&C Group Companies totaled $1,310.1 million
and $1,256.3 million for the nine month periods ended September 30, 2003 and
September 30, 2002, respectively, which represented 53.2% and 60.8% of the
Company's consolidated operating revenues for the same periods.  For the three
month periods ended September 30, 2003 and September 30, 2002, the Company
received management fees from the P&C Group Companies of $441.3 million and
$428.7 million, respectively, which represented 53.3% and 61.6% of the
Company's consolidated operating revenue for the same periods.  The Company has
no ownership interest in the P&C Group Companies and, therefore, excluding the
impact of the three quota share reinsurance treaties, is not directly affected
by the underwriting results of the P&C Group Companies.  However, as management
fees comprise a significant part of the Company's revenues, the ongoing
financial performance of the Company depends on the volume of business written
by and the operating performance and financial strength of the P&C Group
Companies.  In addition, a lack of appropriate surplus could impact the P&C
Group Companies' ability to make interest payments and repay the principal on
the certificates of contribution or the surplus note purchased by the Company.
The life insurance segment provides individual life insurance products,
including universal life, term life and whole life insurance and annuity
products, as well as variable universal life and annuity products.  The
reinsurance segment provides reinsurance coverage to a percentage of the
business written by the P&C Group Companies.

     The Company's management uses an IFRS basis of accounting for evaluating
segment performance and determining how resources should be allocated, as this
is the basis upon which ZFS, the Company's parent company, measures its
performance.  This differs from the basis used in preparing the Company's
financial statements included in the SEC Form 10-K and 10-Q reports, which is
based on GAAP and therefore excludes the effects of all IFRS adjustments.

<PAGE> 20

     The Company accounts for intersegment transactions as if they were to
third parties and, as such, records the transactions at current market prices.
There were no intersegment revenues among the Company's three reportable
operating segments for the nine month and three month periods ended September
30, 2003 and September 30, 2002.

     The Company operates throughout the U.S. and does not earn revenues or
hold assets in any foreign countries.

     Information regarding the Company's reportable operating segments follows:

<TABLE>
<CAPTION>
                                                     Nine month period ended September 30, 2003
             ---------------------------------------------------------------------------------------------------------------------
                                   IFRS basis                                          Adjustments                    Consolidated
             ------------------------------------------------------  ------------------------------------------------
              Management      Life                                   Management     Life                                 GAAP
               services    insurance      Reinsurance       Total     services    insurance    Reinsurance    Total      basis
             ------------------------------------------------------  ------------------------------------------------  -----------
                                                         (Amounts in thousands)
<S>          <C>          <C>            <C>            <C>          <C>          <C>          <C>           <C>        <C>
Revenues     $1,409,233   $ 563,175 (a)  $ 492,425 (a)  $ 2,464,833  $      0     $   (6,310)  $     2,688   $ (3,622)  $2,461,211

Net investment
 income          64,225     258,677         32,905          355,807    (3,092)        (2,258)            0     (5,350)  $  350,457

Net realized
 losses (c)      (4,597)    (10,225)        (4,178)         (19,000)     (676)        (4,052)        2,688     (2,040)  $  (21,040)

Dividends
 on preferred
 securities of
 subsidiary
 trusts         (31,553)          0              0          (31,553)        0              0             0          0   $  (31,553)

Depreciation and
 amortization   111,077      80,063         65,899          257,039   (28,953)(b)     10,963             0    (17,990)  $  239,049

Income before
 provision for
 taxes          767,758     158,281         35,945          961,984    29,494 (b)    (14,574)        2,688     17,608   $  979,592

Provision for
 income taxes   291,049      55,737         10,670          357,456    11,188         (5,101)          941      7,028   $  364,484

Net income      476,709     102,544         25,275          604,528    18,306         (9,473)        1,747     10,580   $  615,108
-----------------------
</TABLE>

(a) Revenues for the insurance operating segments include net investment
    income, net realized losses and impairment losses on investments.

(b) Amount includes adjustment associated with the amortization of the AIF
    relationships ($32.1 million).

(c) Amounts include impairment losses on investments.


<TABLE>
<CAPTION>
                                                     Nine month period ended September 30, 2002
             ---------------------------------------------------------------------------------------------------------------------
                                 IFRS basis                                           Adjustments                     Consolidated
             ------------------------------------------------------  ------------------------------------------------
              Management      Life                                   Management     Life                                 GAAP
               services    insurance      Reinsurance       Total     services    insurance    Reinsurance    Total      basis
             ------------------------------------------------------  ------------------------------------------------  -----------
                                                         (Amounts in thousands)
<S>          <C>          <C>            <C>            <C>          <C>         <C>           <C>           <C>        <C>
Revenues     $1,344,446   $ 571,912 (a)  $ 170,184 (a)  $ 2,086,542  $      0    $   (16,094)  $    (3,074)  $(19,168)  $2,067,374

Net investment
 income          51,054     257,092         30,363          338,509    (3,063)        (2,287)            0     (5,350)  $  333,159

Net realized
 losses (c)     (18,060)    (48,028)       (10,179)         (76,267)   (9,630)       (13,807)       (3,074)   (26,511)  $ (102,778)

Dividends
 on preferred
 securities of
 subsidiary
 trusts         (31,553)          0              0          (31,553)        0              0             0          0   $  (31,553)

Depreciation and
 amortization   106,594      69,645              0          176,239   (28,982)(b)      2,287             0    (26,695)  $  149,544

Income before
 provision for
 taxes          640,504     122,894         23,772          787,170    19,803 (b)    (15,874)       (3,074)       855   $  788,025

Provision for
 income taxes   244,565      43,305          7,004          294,874     7,796         (5,556)       (1,076)     1,164   $  296,038

Net income      395,939      79,589         16,768          492,296    12,007        (10,318)       (1,998)      (309)  $  491,987
-----------------------
</TABLE>

(a) Revenues for the insurance operating segments include net investment
    income, net realized losses and impairment losses on investments.

(b) Amount includes adjustment associated with the amortization of the AIF
    relationships ($32.1 million).

(c) Amounts include impairment losses on investments.


<PAGE> 21

<TABLE>
<CAPTION>
                                                  Three month period ended September 30, 2003
             ---------------------------------------------------------------------------------------------------------------------
                                 IFRS basis                                          Adjustments                      Consolidated
             ------------------------------------------------------  ------------------------------------------------
              Management      Life                                   Management     Life                                 GAAP
               services    insurance      Reinsurance       Total     services    insurance    Reinsurance    Total      basis
             ------------------------------------------------------  ------------------------------------------------  -----------
                                                       (Amounts in thousands)
<S>          <C>          <C>            <C>            <C>          <C>          <C>          <C>           <C>        <C>
Revenues     $ 473,821    $ 185,623 (a)  $ 164,137 (a)  $   823,581  $      0     $    3,038   $     1,775   $  4,813   $  828,394

Net investment
 income         21,054       85,912         11,158          118,124    (1,032)          (744)            0     (1,776)  $  116,348

Net realized
 gains/
 (losses) (c)   (2,689)      (5,223)          (615)          (8,527)    3,071          3,782         1,775      8,628   $      101

Dividends
 on preferred
 securities of
 subsidiary
 trusts        (10,518)           0              0          (10,518)        0              0             0          0   $  (10,518)

Depreciation and
 amortization   37,240       26,735         21,767           85,742    (9,651)(b)      2,009             0     (7,642)  $   78,100

Income before
 provision for
 taxes         256,995       47,523         13,299          317,817    13,126 (b)      1,929         1,775     16,830   $  334,647

Provision for
 income taxes   92,809       16,783          3,940          113,532     4,882            675           621      6,178   $  119,710

Net income     164,186       30,740          9,359          204,285     8,244          1,254         1,154     10,652   $  214,937
-----------------------
</TABLE>

(a) Revenues for the insurance operating segments include net investment
    income, net realized losses and impairment losses on investments.

(b) Amount includes adjustment associated with the amortization of the AIF
    relationships ($10.7 million).

(c) Amounts include impairment losses on investments.


<TABLE>
<CAPTION>
                                                   Three month period ended September 30, 2002
             ---------------------------------------------------------------------------------------------------------------------
                                 IFRS basis                                            Adjustments                    Consolidated
             ------------------------------------------------------  ------------------------------------------------
              Management      Life                                   Management     Life                                 GAAP
               services    insurance      Reinsurance       Total     services    insurance    Reinsurance    Total      basis
             ------------------------------------------------------  ------------------------------------------------  -----------
                                                         (Amounts in thousands)
<S>          <C>          <C>            <C>            <C>          <C>          <C>          <C>           <C>        <C>
Revenues     $ 459,224    $ 184,938 (a)  $  52,987 (a)  $   697,149  $      0     $   (2,897)  $     1,561   $ (1,336)  $  695,813

Net investment
 income         15,916       86,903         10,376          113,195    (1,038)          (764)            0     (1,802)  $  111,393

Net realized
 losses (c)    (13,640)     (27,851)        (7,388)         (48,879)    2,878         (2,133)        1,561      2,306   $  (46,573)

Dividends
 on preferred
 securities of
 subsidiary
 trusts        (10,518)           0              0          (10,518)        0              0             0          0   $  (10,518)

Depreciation and
 amortization   35,231       20,965              0           56,196    (9,644)(b)        764             0     (8,880)  $   47,316

Income before
 provision for
 taxes         198,046       34,244          4,179          236,469    12,673 (b)     (2,892)        1,561     11,342   $  247,811

Provision for
 income taxes   72,539       12,076            983           85,598     4,724         (1,012)          546      4,258   $   89,856

Net income     125,507       22,168          3,196          150,871     7,949         (1,880)        1,015      7,084   $  157,955
-----------------------
</TABLE>

(a) Revenues for the insurance operating segments include net investment
    income, net realized losses and impairment losses on investments.

(b) Amount includes adjustment associated with the amortization of the AIF
    relationships ($10.7 million).

(c) Amounts include impairment losses on investments.


10.   Impairment losses on investments

     The Company regularly reviews its investment portfolio to determine
whether declines in the value of investments are other than temporary as
defined by SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities".  The Company's review for declines in value includes reviewing
historical and forecasted financial information as well as analyzing the market
performance of similar types of investments.  As a result of the Company's
review, the Company determined that some of its investments had declines in
value that were other than temporary as of September 30, 2003 and September
30, 2002 due to unfavorable market and economic conditions.

<PAGE> 22

     Impairment losses on investments for the nine months ended September 30
are as follows:

<TABLE>
<CAPTION>
                                                         2003
                                   -----------------------------------------------
                                     Farmers
                                    Management    Farmers     Farmers
                                     Services       Life        Re         Total
                                   -----------   ---------   ---------   ---------
                                                          (Amounts in thousands)
<S>                                <C>           <C>         <C>         <C>
Bonds                              $         0   $  21,183   $       0   $  21,183
Common stocks                            8,069       7,105       3,360      18,534
Investment real estate                       0         217           0         217
                                   -----------   ---------   ---------   ---------
  Total                            $     8,069   $  28,505   $   3,360   $  39,934
                                   ===========   =========   =========   =========
</TABLE>

<TABLE>
<CAPTION>
                                                         2002
                                   -----------------------------------------------
                                     Farmers
                                    Management    Farmers     Farmers
                                     Services       Life        Re         Total
                                   -----------   ---------   ---------   ---------
                                                          (Amounts in thousands)
<S>                                <C>           <C>         <C>         <C>
Common stocks                      $    31,888   $  33,997   $  12,924   $  78,809
                                   -----------   ---------   ---------   ---------
  Total                            $    31,888   $  33,997   $  12,924   $  78,809
                                   ===========   =========   =========   =========
</TABLE>

     Impairment losses on investments for the three months ended September 30
are as follows:

<TABLE>
<CAPTION>
                                                         2003
                                   -----------------------------------------------
                                     Farmers
                                    Management    Farmers     Farmers
                                     Services       Life        Re         Total
                                   -----------   ---------   ---------   ---------
                                                          (Amounts in thousands)
<S>                                <C>           <C>         <C>         <C>
Investment real estate             $         0   $     217   $       0   $     217
                                   -----------   ---------   ---------   ---------
  Total                            $         0   $     217   $       0   $     217
                                   ===========   =========   =========   =========
</TABLE>

<TABLE>
<CAPTION>
                                                         2002
                                   -----------------------------------------------
                                     Farmers
                                    Management    Farmers     Farmers
                                     Services       Life        Re         Total
                                   -----------   ---------   ---------   ---------
                                                          (Amounts in thousands)
<S>                                <C>           <C>         <C>         <C>
Common stocks                      $    10,993   $  13,858   $   4,058   $  28,909
                                   -----------   ---------   ---------   ---------
  Total                            $    10,993   $  13,858   $   4,058   $  28,909
                                   ===========   =========   =========   =========
</TABLE>

11.   Merger of the AIF

     On October 31, 2002, the Board of Directors approved the merger into FGI
of certain FGI subsidiaries (Fire Underwriters Association and Truck
Underwriters Association) that act as AIF to the Exchanges.  However, for the
merger to become effective, it first needs to be approved by the California
Department of Insurance ("DOI") and then must be filed with the appropriate
Secretaries of State.  The Company filed the AIF merger request with the DOI
on December 30, 2002 and is currently awaiting the DOI's approval.

12.   Revolving credit agreement

     On September 23, 2003, the Company's existing $250.0 million revolving
credit agreement that was scheduled to expire on September 25, 2003 was
cancelled.  At the same time, the Company entered into a new 364 day senior
revolving credit agreement with certain financial institutions.  Under this
agreement, the Company has an aggregate borrowing facility of $250.0 million.
The proceeds of the facility are available to the Company for general corporate
purposes, including loans to the P&C Group Companies.  Facility fees are
payable on the aggregate

<PAGE> 23

borrowing facility in the amount of 6 basis points per annum.  In the case of
a draw on the facility, the Company has the option to borrow at an annual rate
equal to (i) London Interbank Offered Rate ("LIBOR") plus an Applicable Margin
of 19 basis points or (ii) the Alternate Base Rate (to be defined as the higher
of (a) the Bank of America prime rate or (b) the Federal Funds rate plus 50
basis points).

     As of September 30, 2003, the Company did not have any outstanding
borrowings under the revolving credit agreement.  Facility fees paid under the
two agreements for the period ended September 30, 2003 were $0.3 million, of
which $0.2 million were reimbursed by the P&C Group Companies.

13.   Subsequent Event

     On October 22, 2003, FGI announced that it will redeem all of its
outstanding 8.45% Junior Subordinated Debentures, Series A and 8.25% Junior
Subordinated Debentures, Series B.  The proceeds will be applied by Farmers
Group Capital and Farmers Group Capital II (the "Subsidiary Trusts"),
consolidated wholly owned subsidiaries of FGI, to simultaneously redeem all
outstanding 8.45% Cumulative Quarterly Income Preferred Securities ("QUIPS"),
Series A and all outstanding 8.25% QUIPS, Series B at a price of $25 per share
plus accrued unpaid dividends.  The redemption date will be November 25, 2003.
Following the anticipated redemption, the Company, including the Subsidiary
Trusts, would have no publicly traded securities, would no longer be an SEC
registrant and would not file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.

     On October 2, 2003, the Company assigned the remaining balance of the
$160.0 million ZGAUS note receivable to ZIC.  In addition, on October 2, 2003,
ZIC redeemed the $95.0 million note receivable (see Note 7).

ITEM 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations

General

     The Company provides non-claims related management services to the P&C
Group Companies and owns and operates the Insurance Subsidiaries.  Revenues and
expenses relating to these principal business activities are reflected in the
Company's Consolidated Financial Statements prepared in accordance with GAAP,
which differs from statutory accounting practices ("SAP"), which the Insurance
Subsidiaries are required to use for regulatory reporting purposes.  Unless
otherwise indicated, financial information, operating statistics and ratios
applicable to the P&C Group Companies set forth in this document are also
based on SAP.  Under SAP, the financial results of the P&C Group Companies are
combined with the results of Farmers Re.  This is known as a "Statutory
Combined Basis".  Unless otherwise specified, the financial information of the
P&C Group Companies is on a Statutory Combined Basis.

     Farmers Life, a Washington domiciled insurance company, is a wholly owned
subsidiary of FGI.  Farmers Life markets a broad line of individual life
insurance products, including universal life, term life and whole life
insurance and fixed annuity products, predominantly flexible premium deferred
annuities, as well as variable universal life and variable annuity products.
Revenues attributable to traditional life insurance products, such as whole
life or term life contracts, as well as structured settlements with life
contingencies are classified as premiums as they become due.  Future benefits
are associated with such premiums (through increases in liabilities for future
policy benefits) and prior period capitalized costs are amortized (through
amortization of Deferred Policy Acquisition Costs ("DAC")) so that profits are
generally recognized over the same period as revenue income.  Revenues
attributable to universal life, variable life and variable annuity products
consist of policy charges for the cost of insurance, policy administration
charges, surrender charges and investment income on assets allocated to
support policyholder account balances on deposit.  Revenues for deferred
annuity products consist of surrender charges and investment income on assets
allocated to support policyholder account balances.  Expenses on universal life
and annuity policies as well as on variable products include interest credited
to policyholder on policy balances as well as benefit claims incurred in excess
of policy account balances.  Revenues attributable to structured settlements
without life contingencies consist of investment income on assets allocated to
support the policyholder benefits schedule and expenses consist of interest
credited to policyholders on policy balances.

<PAGE> 24

     As of December 2002, Farmers Life exited the business of writing
structured settlements.  The 5,200 structured settlement cases in force as of
September 30, 2003 continue to be serviced by Farmers Life.  For the three
months ended September 30, 2003 and September 30, 2002, the structured
settlement business represented 1.0% and 1.2% of Farmers Life's income before
provision for taxes, respectively.  For the nine months ended September 30,
2003 and September 30, 2002, the structured settlement business represented
1.1% and 2.2% of Farmers Life's income before provision for taxes,
respectively.

     Farmers Re, a wholly owned subsidiary of FGI which was formed and licensed
to conduct business in December 1997, provides reinsurance coverage to the P&C
Group Companies.  As of September 30, 2003, Farmers Re participates in three
reinsurance treaties: 1) an APD reinsurance agreement, 2) a 10% All Lines Quota
Share reinsurance treaty and 3) a 20% Personal Lines Auto Quota Share
reinsurance treaty (see Note 5).

Major Customer and Related Matters

     The P&C Group Companies collectively represent the Company's largest
customer.  Management fees earned by the Company as AIF for the Exchanges
totaled $1,310.1 million and $1,256.3 million for the nine months ended
September 30, 2003 and September 30, 2002, respectively, which represented
53.2% and 60.8%, respectively, of the Company's consolidated operating revenues
for the same periods.  Management fees earned by the Company as AIF for the
Exchanges totaled $441.3 million and $428.7 million, respectively, for the
three months ended September 30, 2003 and September 30, 2002, which represented
53.3% and 61.6%, respectively, of the Company's consolidated operating revenues
for the same periods.  On a Statutory Combined Basis, as of September 30, 2003,
the P&C Group Companies had surplus of $3.6 billion, and for the nine months
ended September 30, 2003, had gross premiums earned of $10.2 billion.  The
Company has no ownership interest in the P&C Group Companies and, therefore,
excluding the impact of the three quota share reinsurance treaties, is not
directly affected by the underwriting results of the P&C Group Companies.
However, as management fees comprise a significant part of the Company's
revenues, the ongoing financial performance of the Company depends on the
volume of business written by and the operating performance and financial
strength of the P&C Group Companies.

     In 2003, the P&C Group Companies have shown continued improvement in their
underwriting results.  Their combined ratio, excluding the quota share
reinsurance agreements, decreased 6.0 percentage points from 106.8% for the
nine months ended September 30, 2002 to 100.8% for the nine months ended
September 30, 2003.  The 100.8% combined ratio for the nine months ended
September 30, 2003 also compares favorably to the 105.6% combined ratio for the
year ended December 31, 2002.

     On December 31, 2002, two new prospective quota share reinsurance treaties
were implemented.  These treaties not only increased the Statutory Combined
Basis surplus as of December 31, 2002, but also provide additional protection
for the year 2003.  The Statutory Combined Basis surplus increased $140.9
million from December 31, 2002 and amounted to $3.6 billion as of September 30,
2003.  In addition, the ratio of Statutory Combined Basis surplus to net
premiums written ("surplus ratio") improved from 28.7% as of September 30, 2002
to 32.5% as of December 31, 2002 and to 37.9% as of September 30, 2003 due to
the reduced risk profile created by the new reinsurance treaties.

     Future operating losses suffered by the P&C Group Companies and any
corresponding reduction in surplus could impact their ability to grow written
premiums which, in turn, would impact the amount of management fees earned by
the Company.  In addition, a lack of adequate surplus could impact the P&C
Group Companies' ability to make interest payments and repay principal on the
certificates of contribution or the surplus note purchased by the Company.

     On August 5, 2002, the Texas Attorney General and TDI initiated a legal
action against Farmers Insurance Exchange, Fire Insurance Exchange and certain
of their affiliates which alleged certain improprieties in the pricing of a
portion of their homeowners insurance policies written in the state of Texas.
FGI and certain of its subsidiaries were also named as parties in that action.
On December 18, 2002, the parties executed a Settlement Agreement respecting
this litigation, which, when approved by the court, will provide for certain
rate reductions and refunds to Texas

<PAGE> 25

policyholders.  No fines or penalties are included, and there is no admission
of wrongdoing.  The settlement also allows Farmers Insurance Exchange and Fire
Insurance Exchange, which had previously sent notices terminating all of their
homeowner policies, to continue operating in the homeowners insurance market
in Texas.  Although it was a defendant in the initial lawsuit, the settlement
imposes no direct financial burdens on FGI.  There is a possible indirect
financial impact on FGI because of lower renewal rates.  The timetable for
final court approval of the settlement is unclear.  Certain additional parties
have intervened in the approval process, objecting to the settlement.
Although the settlement did receive preliminary approval from the trial court,
the intervenors sought and obtained an order from the Court of Appeals staying
further actions in the trial court until the appeal of the intervenors can be
heard.  Oral argument of the intervenors' appeal has been scheduled for
December 2003.

     In addition to the rate reductions agreed upon in the settlement, on
August 8, 2003, the TDI, pursuant to recent insurance legislation affecting all
major homeowners insurers in the state, determined that Farmers Insurance
Exchange and Fire Insurance Exchange homeowners insurance rates should be
further reduced by 17.5%.  Farmers Insurance Exchange and Fire Insurance
Exchange requested a public hearing before the Commissioner of Insurance
appealing the TDI's determination.  On September 12, 2003, the Commissioner
issued an order that the base rates for Farmers Insurance Exchange shall be
reduced by 17.5% for homeowners coverage for all new and renewed business
issued effective on or after September 7, 2003, and the base rates for Fire
Insurance Exchange shall be reduced by 17.5% for homeowners coverage and 5% for
residential fire and allied lines coverage for all new and renewed business
issued effective on or after September 7, 2003.  Farmers Insurance Exchange and
Fire Insurance Exchange subsequently filed an appeal with the District Court in
Texas, which is currently pending.

     Effective September 19, 2003, the P&C Group Companies discontinued writing
new malpractice business.  In addition, effective January 1, 2004, the P&C
Group Companies will begin to non-renew existing malpractice policies.  This
decision is not expected to have a material impact on the revenues received by
the Company.

     The P&C Group Companies have been impacted by the fires which broke out
in California in late October.  As of November 3, 2003, the P&C Group
Companies have received approximately 1,960 homeowners claims in the region,
nearly 430 of which are considered large losses.  The P&C Group Companies
insure 19% of California homes which amounts to approximately 1.5 million
policies.  The impact on the Company is not expected to be material as the
losses incurred by the P&C Group Companies would only affect Farmers Re
through its 2% participation in the 10% All Lines Quota Share Reinsurance
treaty (see Note 5).

Critical Accounting Policies

     The consolidated financial statements of the Company have been prepared in
accordance with GAAP.  The preparation of these financial statements requires
the Company to make estimates and judgments that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements as well as the reported amounts of
revenues and expenses during the reporting periods.  Actual results could
differ from those estimates.

     The Company's critical accounting policies relate to revenue recognition,
valuation of intangible assets, loss and loss adjustment expense reserves,
impairment of investments, the fair value of financial instruments and
accounting for internally developed software.

     Revenue Recognition.  Through its AIF relationships with the Exchanges,
the Company provides non-claims related management services to the P&C Group
Companies' business and receives management fees for the services rendered.
The Company recognizes management fee revenue according to the revenue
recognition criteria established by Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements".

     The Company, through its AIF relationships with the Exchanges, is
contractually permitted to receive an AIF fee based on the gross premiums
earned by the P&C Group Companies.  The range of fees has varied by line of
business over time.  During the past five years, aggregate AIF fees have
averaged between 12% and 13% of gross premiums earned by the P&C Group
Companies.  In order to enable the P&C Group Companies to maintain

<PAGE> 26

appropriate capital and surplus while offering competitive insurance rates,
each AIF has historically charged a lower AIF fee than the contractually
permitted fee of 20% (25% in the case of the Fire Insurance Exchange).

     As the P&C Group Companies earn gross premiums ratably over the life of
the underlying insurance policies, the Company receives and recognizes the
corresponding AIF fee ratably over the life of the underlying policies for
which it is providing services.  The risk of uncollectable premiums is borne
by the P&C Group Companies and collectability of the premiums does not affect
the amount of revenues the Company recognizes in a given period.

     Premiums for traditional life insurance policies, structured settlement
contracts involving life contingencies and other annuity contracts with life
contingencies are recognized as revenues when due from policyholders.  Accident
and health insurance premiums are recognized as revenue pro rata over the terms
of the contract.

     Revenues associated with universal life, variable universal life products
and other investment type contracts consist of policy charges for the cost of
insurance, policy administration fees, surrender charges, and investment income
on assets allocated to support policyholder account balances on deposit.
Revenues for deferred fixed and variable annuity products and structured
settlement contracts not involving life contingencies ("SSNILC") consist of
surrender charges, investment income on assets allocated to support
policyholder account balances on deposit, and administrative charges for
equity-indexed annuities.  Consideration received for interest-sensitive
insurance, SSNILC, and annuity products are recorded as a liability when
received.  Policy withdrawal and other charges are recognized as revenue when
assessed.

     Farmers Re reinsures a percentage of the business written by the P&C Group
Companies.  Under the APD reinsurance agreement, Farmers Re assumes $200.0
million of annual premiums.  Under the 10% All Lines Quota Share reinsurance
treaty, Farmers Re assumes a 2% quota share of premiums written in all lines of
business written by the P&C Group Companies after the APD contract is applied.
Under the 20% Personal Lines Quota Share reinsurance treaty, Farmers Re assumes
a 4% quota share of the personal lines auto business written by the P&C Group
Companies after all other reinsurance treaties are applied.  Premiums assumed
by Farmers Re are earned ratably over the life of the underlying insurance
policies.

     Intangible Assets.  The Company's critical accounting policies related to
the valuation of intangible assets include the AIF relationships, Goodwill,
VOLBA and DAC.

     AIF Relationships.  Through its AIF relationships, the Company receives a
substantial portion of its revenues and profits through the management services
the Company provides to the P&C Group Companies.  Therefore, the Company's
ongoing financial performance depends on the volume of business written by and
operating performance and financial strength of the P&C Group Companies.  As a
result, a portion of the purchase price ($1.7 billion) associated with B.A.T's
acquisition of the Company in 1988 was assigned to these AIF relationships.

     Effective January 1, 2002, the Company adopted the provisions of SFAS No.
142, "Goodwill and Other Intangible Assets", and identified the AIF
relationships as intangible assets with indefinite useful lives.  Under SFAS
No. 142, intangible assets with indefinite useful lives are no longer
amortized, and as such, the Company no longer records $42.8 million of pretax
annual amortization relating to the AIF relationships.  In addition, SFAS No.
142 requires that intangible assets not subject to amortization be tested for
impairment annually, or more frequently if events or changes in circumstances
indicate that the asset might be impaired.  The Company performed impairment
tests of the AIF relationships balance of $1.2 billion as of January 1, 2002,
as part of the implementation of SFAS No. 142, and then as of December 31,
2002, in accordance with the annual impairment test, using discounted future
cash flows.  Such tests did not indicate any impairment of the recorded AIF
relationships.

     Goodwill.  Through December 31, 2001, the excess of the purchase price
over the fair value of the net assets ("Goodwill") of the Company at the date
of the Company's acquisition by B.A.T ($2.4 billion) was amortized on a
straight-line basis over forty years.

<PAGE> 27

     Effective January 1, 2002, the Company adopted the provisions of SFAS No.
142.  Under SFAS No. 142, goodwill is no longer amortized, and as such, the
Company no longer records $60.0 million of annual amortization relating to
goodwill.  In addition, SFAS No. 142 requires goodwill to be tested for
impairment on an annual basis and between annual tests in certain circumstances
(e.g., a significant adverse change in legal factors or the business climate of
the Company, an adverse action by a regulator, a loss of key personnel, etc.)
using a two-step process.  The first step of the goodwill impairment test
identifies a potential impairment by comparing the fair value of a reporting
unit with its carrying value, including goodwill.  The second step measures the
amount of the impairment by comparing the implied fair value of the goodwill
with the carrying amount of that goodwill.  The Company performed impairment
tests of its Goodwill balance of $1.6 billion as of January 1, 2002, as part of
the implementation of SFAS No. 142, and then as of December 31, 2002, in
accordance with the annual impairment test, using discounted future cash flows.
Such tests did not indicate any impairment of recorded goodwill.

     VOLBA.  At the date of B.A.T's acquisition of the Company, a portion of
the purchase price ($662.8 million) was assigned to the VOLBA asset, which
represented an actuarial determination of the expected profits from the life
business in force at that time.  The amount so assigned is being amortized over
its actuarially determined useful life with the unamortized amount included in
the "Value of life business acquired" line in the accompanying consolidated
balance sheets, which amounted to $238.5 million and $254.5 million for the
period ended September 30, 2003 and the year ended December 31, 2002,
respectively.

     Life DAC.  Costs that vary with, and are related primarily to, the
production of new business have been deferred to the extent that they are
deemed recoverable.  Such costs include commissions, certain costs of policy
and underwriting, and certain agency expenses.  For universal life insurance
contracts and investment-type products, such costs are being amortized
generally in proportion to the present value of expected gross profits arising
principally from surrender charges and investment results, and mortality and
expense margins. Interest rates are based on rates in effect during the period.
The effects on the amortization of deferred policy acquisition costs of
revisions to estimated gross margins and profits are reflected in earnings in
the period such estimated gross margins and profits are revised.

     Management periodically updates these estimates and evaluates the
recoverability of deferred policy acquisition costs.  When appropriate,
management revises its assumptions of the estimated gross margins or profits of
these contracts, and the cumulative amortization is re-estimated and adjusted
by a cumulative charge or credit to current operations.

     Deferred policy acquisition costs for non-participating traditional life
and annuity policies with life contingencies are amortized in proportion to
anticipated premiums.  Assumptions as to anticipated premiums are made at the
date of policy issuance or acquisition and are consistently applied during the
lives of the contracts.  Deviations from estimated experience are included in
operations when they occur.  For these contracts, the amortization period is
typically the estimated life of the policy.

     Deferred policy acquisition costs include amounts associated with the
unrealized gains and losses recorded as other comprehensive income, a component
of stockholder's equity.  Accordingly, deferred policy acquisition costs are
increased or decreased for the impact of estimated future gross profits as if
net unrealized gains or losses on securities had been realized at the balance
sheet date.  Net unrealized gains or losses on securities within other
comprehensive income also reflect this impact.

     Non-life DAC.  Acquisition costs, consisting primarily of commissions
incurred on business related to the two new prospective quota share reinsurance
treaties, are deferred and amortized over the period in which the related
premiums are earned.  Anticipated losses and loss adjustment expenses as well
as any estimated remaining costs associated with the treaties are considered
in determining acquisition costs to be deferred.  Anticipated investment income
is not considered in the deferral of acquisition costs.

     Loss and Loss Adjustment Expense Reserves.  Under the three reinsurance
treaties, Farmers Re assumes a percentage of the ultimate net losses sustained
by the P&C Group Companies.  Loss and loss adjustment expense reserves for all
claims outstanding of the P&C Group Companies are established as of the
reporting date.  Reserves

<PAGE> 28

include a provision for claims incurred but not yet reported, as well as
development of known claims. The Company's actuaries review the reserves on a
regular basis and make any necessary changes to the estimates in the current
period.

     Loss and loss adjustment expense reserve estimates are uncertain by their
very nature.  Although reserves are established on the basis of a reasonable
estimate, it is probable that reserves will differ from their related
subsequent developments.  Underlying causes for this uncertainty include, but
are not limited to, changes in judicial interpretation of coverage, statutory
and other changes in the regulation of insurance and unanticipated inflationary
trends.  This uncertainty can result in both adverse as well as favorable
development of actual subsequent activity when compared to the reserves
established.

     Impairment of Investments.  The Company regularly reviews its investment
portfolio to determine whether declines in the value of investments are other
than temporary as defined by SFAS No. 115.  The Company's review for declines
in value includes analyzing historical and forecasted financial information as
well as reviewing the market performance of similar types of investments.  As a
result of the Company's review, the Company determined that some of its
investments had declines in value that were other than temporary as of
September 30, 2003 and September 30, 2002 due to unfavorable market and
economic conditions.  Accordingly, for the three month periods ended September
30, 2003 and September 30, 2002, the Company recorded $0.2 million and $28.9
million, respectively, of impairment losses on investments in the equity
portfolio and investment real estate.  For the nine month periods ended
September 30, 2003 and September 30, 2002, the Company recorded $39.9 million
and $78.8 million, respectively, of impairment losses on investments in the
equity and fixed income portfolios and investment real estate.

     Fair Value of Financial Instruments.  The fair values of financial
instruments have been determined using available market information and
appropriate valuation methodologies.  However, considerable judgment is
required to interpret market data to develop the estimates of fair value.
Accordingly, these estimates may not be indicative of the amounts the Company
could realize in a current market exchange.  The use of different market
assumptions and/or estimation methodologies could have a significant effect on
the estimated fair value amounts.

     Cash Equivalents.  The Company considers all investments with original
maturities of 90 days or less as cash equivalents.

     Accounting for Internally Developed Software.  The Company follows the
provisions of Statement of Position No. 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use".  The Company
expenses costs incurred in the preliminary project stage and, thereafter,
capitalizes costs incurred in developing or obtaining internal use software.
Certain costs, such as maintenance and training, are expensed as incurred.
Capitalized costs are amortized on a straight-line basis over the useful life
of the software once it is placed into service.  The Company regularly reviews
its existing capitalized software assets in order to determine if any should
be considered impaired or abandoned.

Three Months Ended September 30, 2003 Compared to Three Months Ended September
30, 2002

Farmers Management Services

     Operating Revenues.  Operating revenues, which primarily consist of AIF
fees paid to Farmers Management Services as a percentage of gross premiums
earned by the P&C Group Companies and other fees, increased $14.6 million, or
3.2%, from $459.2 million for the three months ended September 30, 2002 to
$473.8 million for the three months ended September 30, 2003.  This growth in
operating revenues was primarily attributable to an increase in the AIF fee
rate which became effective in March 2003 for some of the specialty lines, a
slight increase in the gross premiums earned by the P&C Group Companies between
periods and a shift in the mix of business.

     Operating Expenses.  Operating expenses decreased from $242.1 million for
the three months ended September 30, 2002 to $213.6 million for the three
months ended September 30, 2003, a decrease of $28.5 million, or 11.8%.  This
decrease was due primarily to a $27.5 million write-down of internally
developed software in the

<PAGE> 29

quarter ended September 30, 2002.  Excluding the effects of the software
write-down, operating expenses decreased $1.0 million, or 0.4%, between
periods.

          Salaries and Employee Benefits.  Salaries and employee benefits
     expenses increased $1.7 million, or 1.5%, from $112.6 million for the
     three months ended September 30, 2002 to $114.3 million for the three
     months ended September 30, 2003 due primarily to an increase in pension
     expenses.  This increase was partially offset by a decrease in outside
     contractor and salary expenses.

          Buildings and Equipment Expenses.  Buildings and equipment expenses
     increased from $28.1 million for the three months ended September 30,
     2002 to $29.1 million for the three months ended September 30, 2003, an
     increase of $1.0 million, or 3.6%, due primarily to an increase in the
     amortization expense related to internally developed software.

          General and Administrative Expenses.  General and administrative
     expenses decreased from $101.4 million for the three months ended
     September 30, 2002 to $70.2 million for the three months ended September
     30, 2003, a decrease of $31.2 million, or 30.8%, due primarily to a $27.5
     million write-down of internally developed software in September 2002.
     Also contributing to the decrease between periods was the decrease in
     certain general and administrative expenses resulting from a lower number
     of policies in-force as well as a continued focus on cost controls and
     efficiencies.

     Net Investment Income.  Net investment income increased from $14.9 million
for the three months ended September 30, 2002 to $20.1 million for the three
months ended September 30, 2003, an increase of $5.2 million, or 34.9%.  This
increase was due to improved equity markets and to growth in higher return
invested assets, primarily fixed income securities including mortgage-backed
securities.  These increases were offset in part by lower interest income on
the UKISA notes which were reissued in September 2002 at a lower interest rate
as well as lost income resulting from partial redemption of the ZGAUS notes
(see Note 7).

     Net Realized Gains.  Net realized gains increased from $0.2 million for
the three months ended September 30, 2002 to $0.4 million for the three months
ended September 30, 2003, an increase of $0.2 million, or 100.0%, due primarily
to favorable market conditions.

     Impairment Losses on Investments.  Impairment losses on investments were
$11.0 million for the three months ended September 30, 2002.  No impairment
losses were recorded for the three months ended September 30, 2003.

     Dividends on Preferred Securities of Subsidiary Trusts.  Dividend expense
related to the $500.0 million of QUIPS issued in 1995 was $10.6 million in each
of the three months ended September 30, 2003 and September 30, 2002.

     Provision for Income Taxes.  Provision for income taxes increased from
$77.2 million for the three months ended September 30, 2002 to $97.7 million
for the three months ended September 30, 2003, an increase of $20.5 million,
or 26.6%, due mainly to an increase in pretax income between periods.

     Farmers Management Services Income.  As a result of the foregoing, Farmers
Management Services income increased from $133.4 million for the three months
ended September 30, 2002 to $172.4 million for the three months ended September
30, 2003, an increase of $39.0 million, or 29.2%.

FGI Insurance Subsidiaries

Farmers Re

     Total Revenues.  Total revenues increased $111.4 million, or 204.0%, from
$54.6 million for the three months ended September 30, 2002 to $166.0 million
for the three months ended September 30, 2003.

<PAGE> 30

          Non-life Reinsurance Premiums.  Non-life reinsurance premiums
     increased $103.6 million, or 207.2%, from $50.0 million for the three
     months ended September 30, 2002 to $153.6 million for the three months
     ended September 30, 2003.  Under the APD quota share reinsurance
     agreement, Farmers Re assumed $50.0 million of premiums in each of the
     three month periods ended September 30, 2003 and September 30, 2002.
     Under the 10% All Lines Quota Share treaty, which took effect December 31,
     2002, Farmers Re assumed $52.4 million of premiums for the three month
     period ended September 30, 2003.  In addition, under the 20% Personal
     Lines Auto Quota Share treaty which took effect December 31, 2002, Farmers
     Re assumed $51.2 million of premiums for the three month period ended
     September 30, 2003.

          Net Investment Income.  Net investment income increased $0.8 million,
     or 7.7%, from $10.4 million for the three months ended September 30, 2002
     to $11.2 million for the three months ended September 30, 2003.  The
     increase was due primarily to higher average invested assets between
     periods resulting substantially from the increase in unearned premiums
     transferred from the P&C Group Companies to Farmers Re as a result of the
     two new quota share reinsurance agreements.

          Net Realized Gains/(Losses).  Net realized gains/(losses) increased
     from a $1.8 million loss for the three months ended September 30, 2002 to
     a $1.2 million gain for the three months ended September 30, 2003, an
     increase of $3.0 million, or 166.7%.  This increase was due mainly to an
     increase in gains realized from sales of fixed income securities.

          Impairment Losses on Investments.  Impairment losses on investments
     were $4.0 million for the three months ended September 30, 2002.  No
     impairment losses were recorded for the three months ended September 30,
     2003.

     Total Operating Expenses.  Total operating expenses increased $102.2
million, or 209.4%, from $48.8 million for the three months ended September 30,
2002 to $151.0 million for the three months ended September 30, 2003.

          Non-life Losses and Loss Adjustment Expenses.  Non-life losses and
     loss adjustment expenses increased $62.3 million, or 215.6%, from $28.9
     million for the three months ended September 30, 2002 to $91.2 million for
     the three months ended September 30, 2003 due primarily to the two
     quota share reinsurance treaties.

          Non-life Reinsurance Commissions.  Non-life reinsurance commissions
     increased $17.9 million, or 90.4%, from $19.8 million for the three months
     ended September 30, 2002 to $37.7 million for the three months ended
     September 30, 2003 due primarily to the two quota share reinsurance
     treaties.

          Amortization of Non-life DAC.  Amortization of non-life DAC resulting
     from the two quota share reinsurance treaties which became effective on
     December 31, 2002 was $21.8 million for the three months ended September
     30, 2003.

          General and Administrative Expenses.  General and administrative
     expenses increased $0.2 million, or 200.0%, from $0.1 million for the
     three months ended September 30, 2002 to $0.3 million for the three months
     ended September 30, 2003.

     Provision for Income Taxes.  Provision for income taxes increased $3.0
million from $1.5 million for the three months ended September 30, 2002 to
$4.5 million for the three months ended September 30, 2003 due primarily to an
increase in pretax income between periods.

     Farmers Re Income.  As a result of the foregoing, Farmers Re's income
increased $6.2 million, or 144.2%, from $4.3 million for the three months ended
September 30, 2002 to $10.5 million for the three months ended September 30,
2003.  Farmers Re's underwriting gain increased $1.5 million from $1.2 million
for the three months ended September 30, 2002 to $2.7 million for the three
months ended September 30, 2003.

<PAGE> 31

Farmers Life

     Total Revenues.  Total revenues increased from $182.0 million for the
three months ended September 30, 2002 to $188.7 million for the three months
ended September 30, 2003 an increase of $6.7 million, or 3.7%.

          Life and Annuity Premiums.  Life and annuity premiums decreased from
     $69.8 million for the three months ended September 30, 2002 to $47.4
     million for the three months ended September 30, 2003, a decrease of
     $22.4 million, or 32.1%.  This decrease was primarily due to a $23.1
     million, or 99.8%, decrease in premiums for structured settlements
     involving life contingencies compared to the three months ended September
     30, 2002.  Farmers Life exited the business of writing structured
     settlements as of December 31, 2002 (see Note 1).  Excluding structured
     settlements, life premiums increased from $46.6 million for the three
     months ended September 30, 2002 to $47.4 million for the three months
     ended September 30, 2003, an increase of $0.8 million, or 1.7%.  Direct
     premium increased 8.2% between the three month periods ended September 30,
     2002 and September 30, 2003, partially offset by an increase in reinsured
     term premium between the same periods.

          Life Policy Charges.  Life policy charges increased from $56.1
     million for the three months ended September 30, 2002 to $57.5 million for
     the three months ended September 30, 2003, an increase of $1.4 million, or
     2.5%, reflecting growth in universal life-type insurance in-force.

          Net Investment Income.  Net investment income decreased from $86.1
     million for the three months ended September 30, 2002 to $85.1 million for
     the three months ended September 30, 2003, a decrease of $1.0 million, or
     1.2%.  This decrease was primarily due to a decline in fixed income yields
     partially offset by growth in invested assets, principally fixed income
     instruments.

          Net Realized Losses.  Net realized losses decreased from $16.1
     million for the three months ended September 30, 2002 to $1.1 million for
     the three months ended September 30, 2003, a decrease of $15.0 million, or
     93.2%.  This decrease was primarily due to a decrease between periods in
     net realized losses generated from the sale of corporate bonds.

          Impairment Losses on Investments.  Impairment losses on investments
     decreased from $13.9 million for the three months ended September 30, 2002
     to $0.2 million for the three months ended September 30, 2003, a decrease
     of $13.7 million, or 98.6%.  No significant impairment losses were
     recorded for the three months ended September 30, 2003.

     Total Operating Expenses.  Total operating expenses decreased from $150.7
million for the three months ended September 30, 2002 to $139.3 million for the
three months ended September 30, 2003, a decrease of $11.4 million, or 7.6%.

          Life Policyholders' Benefits and Charges.  Life policyholders'
     benefits expense and charges decreased from $118.5 million for the three
     months ended September 30, 2002 to $102.5 million for the three months
     ended September 30, 2003, a decrease of $16.0 million, or 13.5%.

               Policy Benefits.  Policy benefits, which consist primarily of
          death and surrender benefits on life products, increased from $43.7
          million for the three months ended September 30, 2002 to $49.3
          million for the three months ended September 30, 2003, an increase
          of $5.6 million, or 12.8%, as Farmers Life experienced unfavorable
          claim volatility in the three months ended September 30, 2003.

               Increase in Liability for Future Benefits.  Increase in
          liability for future benefits expense decreased from $31.0 million
          for the three months ended September 30, 2002 to $8.6 million for the
          three months ended September 30, 2003, a decrease of $22.4 million,
          or 72.3%.  This decrease was primarily attributable to a $23.1
          million, or 99.8%, decrease in deposits for structured settlements
          involving life contingencies compared to the three months ended
          September 30, 2002.  Farmers Life exited the business of writing
          structured settlements as of December 31, 2002 (see Note 1).

<PAGE> 32

          Excluding structured settlements, the increase in liability for
          future benefits expense decreased from $8.2 million for the three
          months ended September 30, 2002 to $7.9 million for the three months
          ended September 30, 2003, a decrease of $0.3 million, or 3.7%.  This
          decrease was attributed to changes in product mix, as Farmers Life
          now writes more term business, which carries lower overall reserves
          than whole life products.

               Interest Credited to Policyholders.  Interest credited to
          policyholders, which represents the amount credited under universal
          life-type contracts, deferred annuities and structured settlements
          not involving life contingencies to policyholder funds on deposit,
          increased from $43.8 million for the three months ended September 30,
          2002 to $44.6 million for the three months ended September 30, 2003,
          an increase of $0.8 million, or 1.8%.  This increase was due
          primarily to growth in policyholder funds that credit interest
          partially offset by crediting rate reductions.

          General Operating Expenses.  General operating expenses increased
     from $32.2 million for the three months ended September 30, 2002 to $36.8
     million for the three months ended September 30, 2003, an increase of $4.6
     million, or 14.3%.

               Amortization of DAC and VOLBA.  Amortization expense increased
          from $19.9 million for the three months ended September 30, 2002 to
          $26.9 million for three months ended September 30, 2003, an increase
          of $7.0 million, or 35.2%.  During 2002, there was a reduction in the
          rate at which DAC is amortized due to increases in expected long term
          future profit margins.  This rate change was also applied to the
          calculation of the outstanding DAC back to product inception and
          created a one-time favorable impact in the year of change.  In 2003,
          the slower amortization is reflected, however the one-time favorable
          impact in 2002 is not repeated, resulting in more amortization in the
          current period.  The DAC amortization rate is determined using profit
          margin projections, which include current period realized gains and
          losses.

               Life Commissions.  Life commissions expense decreased from
          ($2.5) million for the three months ended September 30, 2002 to
          ($5.3) million for the three months ended September 30, 2003, a
          change of $2.8 million, due primarily to a $2.5 million, or 34.3%,
          growth in the reinsurance expense allowance between periods, as
          Farmers Life is selling more reinsured term business.  Commissions
          are reported net of expense reimbursements related to reinsured
          business.

               General and Administrative Expenses.  General and administrative
          expenses increased from $14.8 million for the three months ended
          September 30, 2002 to $15.2 million for the three months ended
          September 30, 2003, an increase of $0.4 million, or 2.7%.  This
          increase was due to higher employee benefits expenses.

     Provision for Income Taxes.  Provision for income taxes increased from
$11.0 million for the three months ended September 30, 2002 to $17.4 million
for the three months ended September 30, 2003, an increase of $6.4 million, or
58.2%, as a result of an increase in pretax income between periods.  The
effective tax rate remained flat between periods.

     Farmers Life Income.  As a result of the foregoing, Farmers Life income
increased from $20.3 million for the three months ended September 30, 2002 to
$32.0 million for the three months ended September 30, 2003, an increase of
$11.7 million, or 57.6%.

Consolidated Net Income

     Consolidated net income of the Company increased from $158.0 million for
the three months ended September 30, 2002 to $214.9 million for the three
months ended September 30, 2003, an increase of $56.9 million, or 36.0%.

<PAGE> 33

Nine Months Ended September 30, 2003 Compared to Nine Months Ended September
30, 2002

Farmers Management Services

     Operating Revenues.  Operating revenues increased $64.8 million, or 4.8%,
from $1,344.4 million for the nine months ended September 30, 2002 to $1,409.2
million for the nine months ended September 30, 2003.  This growth in operating
revenues was primarily attributable to higher gross premiums earned by the P&C
Group Companies, which benefited from a rising premium rate environment.  Gross
premiums earned increased $0.3 billion, or 3.0%, from $9.9 billion for the nine
months ended September 30, 2002 to $10.2 billion for the nine months ended
September 30, 2003.

     Operating Expenses.  Operating expenses decreased from $672.9 million for
the nine months ended September 30, 2002 to $636.3 million for the nine months
ended September 30, 2003, a decrease of $36.6 million, or 5.4%.  This decrease
was due primarily to a $27.5 million write-down of internally developed
software in the quarter ended September 30, 2002.  Excluding the effects of the
software write-down, operating expenses decreased $9.1 million, or 1.4%,
between periods.

          Salaries and Employee Benefits.  Salaries and employee benefits
     expenses increased $5.6 million, or 1.7%, from $332.1 million for the nine
     months ended September 30, 2002 to $337.7 million for the nine months
     ended September 30, 2003 due primarily to an increase in pension and
     medical insurance expenses, partially offset by a decrease in outside
     contractor expenses mainly in the information technology function.

          Buildings and Equipment Expenses.  Buildings and equipment expenses
     decreased from $86.4 million for the nine months ended September 30, 2002
     to $85.0 million for the nine months ended September 30, 2003, a decrease
     of $1.4 million, or 1.6%, due primarily to a decrease in software and
     hardware maintenance and rental expenses.  This decrease was offset in
     part by an increase between periods in the amortization expense related
     to software.

          General and Administrative Expenses.  General and administrative
     expenses decreased from $254.4 million for the nine months ended September
     30, 2002 to $213.6 million for the nine months ended September 30, 2003, a
     decrease of $40.8 million, or 16.0%, due primarily to a $27.5 million
     write-down of internally developed software in the quarter ended September
     30, 2002.  Also contributing to the decrease between periods was a
     decrease in certain general and administrative expenses resulting from a
     lower number of policies in-force as well as a continued focus on cost
     controls and efficiencies.

     Net Investment Income.  Net investment income increased from $48.0 million
for the nine months ended September 30, 2002 to $61.2 million for the nine
months ended September 30, 2003, an increase of $13.2 million, or 27.5%.  This
increase was due to improved equity markets and to growth in higher return
invested assets, primarily fixed income securities including mortgage-backed
securities.  These increases were offset in part by lower interest income on
the UKISA notes which were reissued in September 2002 at a lower interest rate
as well as lost income resulting from partial redemption of the ZGAUS notes
(see Note 7).

     Net Realized Gains.  Net realized gains decreased from $4.2 million for
the nine months ended September 30, 2002 to $2.8 million for the nine months
ended September 30, 2003, a decrease of $1.4 million, or 33.3%, due mainly to
$2.4 million of gains recognized on the sale of real estate in 2002, offset in
part by favorable market conditions in the nine month period ended September
30, 2003.

     Impairment Losses on Investments.  Impairment losses on investments
decreased from $31.9 million for the nine months ended September 30, 2002 to
$8.1 million for the nine months ended September 30, 2003, a decrease of $23.8
million, or 74.6%, due to a decrease in impairments related to common stock
resulting from improved market conditions.

     Dividends on Preferred Securities of Subsidiary Trusts.  Dividend expense
was $31.6 million in each of the nine month periods ended September 30, 2003
and September 30, 2002.

<PAGE> 34

     Provision for Income Taxes.  Provision for income taxes increased from
$252.3 million for the nine months ended September 30, 2002 to $302.2 million
for the nine months ended September 30, 2003, an increase of $49.9 million, or
19.8%, due mainly to an increase in pretax income between periods.

     Farmers Management Services Income.  As a result of the foregoing,
Farmers Management Services income increased from $407.9 million for the nine
months ended September 30, 2002 to $495.0 million for the nine months ended
September 30, 2003, an increase of $87.1 million, or 21.4%.

Insurance Subsidiaries

Farmers Re

     Total Revenues.  Total revenues increased $328.0 million, or 196.3%, from
$167.1 million for the nine months ended September 30, 2002 to $495.1 million
for the nine months ended September 30, 2003.

          Non-life Reinsurance Premiums.  Non-life reinsurance premiums
     increased $313.7 million, or 209.1%, from $150.0 million for the nine
     months ended September 30, 2002 to $463.7 million for the nine months
     ended September 30, 2003.  Under the APD quota share reinsurance
     agreement, Farmers Re assumed $150.0 million of premiums in each of the
     nine month periods ended September 30, 2003 and September 30, 2002.  Under
     the 10% All Lines Quota Share treaty which took effect December 31, 2002,
     Farmers Re assumed $158.0 million of premiums for the nine month period
     ended September 30, 2003.  In addition, under the 20% Personal Lines Auto
     Quota Share treaty which took effect December 31, 2002, Farmers Re assumed
     $155.7 million of premiums for the nine month period ended September 30,
     2003.

          Net Investment Income.  Net investment income increased $2.5 million,
     or 8.2%, from $30.4 million for the nine months ended September 30, 2002
     to $32.9 million for the nine months ended September 30, 2003.  The
     increase was due primarily to higher average invested assets between
     periods resulting substantially from the increase in unearned premiums
     transferred from the P&C Group Companies to Farmers Re as a result of the
     two quota share reinsurance agreements.

          Net Realized Gains/(Losses).  Net realized gains/(losses) increased
     from a $0.4 million loss for the nine months ended September 30, 2002 to
     a $1.9 million gain for the nine months ended September 30, 2003, an
     increase of $2.3 million, or 575.0%.  This increase was due mainly to an
     increase in gains realized from sales of fixed income securities partially
     offset by a decrease in gains realized from common stock sales.

          Impairment Losses on Investments.  Impairment losses on investments
     decreased $9.5 million, or 73.6%, from $12.9 million for the nine months
     ended September 30, 2002 to $3.4 million for the nine months ended
     September 30, 2003.  The decrease was due to lower impairment losses
     recognized in the equity portfolio between periods.

     Total Operating Expenses.  Total operating expenses increased $310.1
million, or 211.8%, from $146.4 million for the nine months ended September 30,
2002 to $456.5 million for the nine months ended September 30, 2003.

          Non-life Losses and Loss Adjustment Expenses.  Non-life losses and
     loss adjustment expenses increased $188.5 million, or 195.7%, from $96.3
     million for the nine months ended September 30, 2002 to $284.8 million for
     the nine months ended September 30, 2003 due primarily to the two
     quota share reinsurance treaties.

          Non-life Reinsurance Commissions.  Non-life reinsurance commissions
     increased $55.5 million, or 111.2%, from $49.9 million for the nine months
     ended September 30, 2002 to $105.4 million for the nine months ended
     September 30, 2003 due primarily to the two quota share reinsurance
     treaties.

<PAGE> 35

          Amortization of Non-life DAC.  Amortization of non-life DAC resulting
     from the two quota share reinsurance treaties which became effective on
     December 31, 2002 was $65.9 million for the nine months ended September
     30, 2003.

          General and Administrative Expenses.  General and administrative
     expenses increased $0.2 million, or 100.0%, from $0.2 million for the nine
     months ended September 30, 2002 to $0.4 million for the nine months ended
     September 30, 2003.

     Provision for Income Taxes.  Provision for income taxes increased $5.7
million, or 96.6%, from $5.9 million for the nine months ended September 30,
2002 to $11.6 million for the nine months ended September 30, 2003 due
primarily to an increase in pretax income between periods.

     Farmers Re Income.  As a result of the foregoing, Farmers Re's income
increased $12.2 million, or 82.4%, from $14.8 million for the nine months ended
September 30, 2002 to $27.0 million for the nine months ended September 30,
2003.  Farmers Re's underwriting gain increased $3.6 million from $3.6 million
for the nine months ended September 30, 2002 to $7.2 million for the nine
months ended September 30, 2003.

Farmers Life

     Total Revenues.  Total revenues increased from $555.8 million for the nine
months ended September 30, 2002 to $556.9 million for the nine months ended
September 30, 2003, an increase of $1.1 million, or 0.2%.

          Life and Annuity Premiums.  Life and annuity premiums decreased from
     $195.5 million for the nine months ended September 30, 2002 to $143.7
     million for the nine months ended September 30, 2003, a decrease of $51.8
     million, or 26.5%.  This decrease was primarily due to a $54.2 million, or
     99.0%, decrease in premiums for structured settlements involving life
     contingencies compared to the nine months ended September 30, 2002 (see
     Note 1).  Excluding structured settlements, life premiums increased from
     $140.7 million for the nine months ended September 30, 2002 to $143.2
     million for the nine months ended September 30, 2003, and increase of $2.5
     million, or 1.8%.  Direct premium grew 9.4% between periods, partially
     offset by growth in reinsured term premiums.  As such, Farmers Life's term
     business in-force grew $15.4 billion, or 33.5%, between periods.

          Life Policy Charges.  Life policy charges increased from $167.3
     million for the nine months ended September 30, 2002 to $171.0 million for
     the nine months ended September 30, 2003, an increase of $3.7 million, or
     2.2%, reflecting a 2.0% growth in universal life-type insurance in-force.

          Net Investment Income.  Net investment income increased from $254.8
     million for the nine months ended September 30, 2002 to $256.4 million for
     the nine months ended September 30, 2003, an increase of $1.6 million, or
     0.6%. This increase was primarily due to growth in invested assets,
     principally fixed income instruments, partially offset by a decline in
     fixed income yields.

          Net Realized Gains/(Losses).  Net realized gains/(losses) increased
     from a $27.8 million loss for the nine months ended September 30, 2002 to
     a $14.3 million gain for the nine months ended September 30, 2003, an
     increase of $42.1 million, or 151.4%.  This increase was due primarily to
     gains generated from fixed income sales during the nine months ended
     September 30, 2003.  The most significant disposals were of collateralized
     mortgage obligations vulnerable to accelerated prepayment risk, previously
     impaired securities that have since appreciated in price and corporate
     bonds.

          Impairment Losses on Investments.  Impairment losses on investments
     decreased from $34.0 million for the nine months ended September 30, 2002
     to $28.5 million for the nine months ended September 30, 2003, a decrease
     of $5.5 million, or 16.2%.  This decrease was primarily due to a $26.9
     million decrease in equity impairments between periods offset in part by
     $21.2 million of fixed income impairments taken during the nine months
     ended September 30, 2003 on securities issued by major U.S. airlines.

<PAGE> 36

     Total Operating Expenses.  Total operating expenses decreased from $448.8
million for the nine months ended September 30, 2002 to $413.2 million for the
nine months ended September 30, 2003, a decrease of $35.6 million, or 7.9%.

          Life Policyholders' Benefits and Charges.  Life policyholders'
     benefits expense and charges decreased from $342.6 million for the nine
     months ended September 30, 2002 to $295.9 million for the nine months
     ended September 30, 2003, a decrease of $46.7 million, or 13.6%.

               Policy Benefits.  Policy benefits increased from $128.0 million
          for the nine months ended September 30, 2002 to $137.5 million for
          the nine months ended September 30, 2003, an increase of $9.5
          million, or 7.4%, as life insurance in-force has grown 11.0% between
          periods, partially offset by an increase in reinsured term product
          mortality.

               Increase in Liability for Future Benefits.  Increase in
          liability for future benefits expense decreased from $80.0 million
          for the nine months ended September 30, 2002 to $25.5 million for the
          nine months ended September 30, 2003, a decrease of $54.5 million, or
          68.1%.  This decrease was primarily attributable to a $54.2 million,
          or 99.0%, decrease in deposits for structured settlements involving
          life contingencies compared to the nine months ended September 30,
          2002 (see Note 1).  Excluding structured settlements, the increase in
          liability for future benefits expense decreased from $25.9 million
          for the nine months ended September 30, 2002 to $23.2 million for the
          nine months ended September 30, 2003, a decrease of $2.7 million, or
          10.4%.  This decrease was due to changes in product mix, as Farmers
          Life issued more term business, which carries a lower overall reserve
          than whole life products.

               Interest Credited to Policyholders.  Interest credited to
          policyholders decreased from $134.6 million for the nine months ended
          September 30, 2002 to $132.9 million for the nine months ended
          September 30, 2003, a decrease of $1.7 million, or 1.3%.  This
          decrease was due primarily to reductions in crediting rates related
          to the deferred annuity and universal life products.  The effect of
          the reductions was offset by a 7.6% growth in policyholder funds that
          credit interest.

          General Operating Expenses.  General operating expenses increased
     from $106.2 million for the nine months ended September 30, 2002 to $117.3
     million for the nine months ended September 30, 2003, an increase of $11.1
     million, or 10.5%.

               Amortization of DAC and VOLBA.  Amortization expense increased
          from $66.6 million for the nine months ended September 30, 2002 to
          $85.6 million for the nine months ended September 30, 2003, an
          increase of $19.0 million, or 28.5%.  During this period in 2002,
          there was a reduction in the rate at which DAC is amortized due to
          increases in expected long term future profit margins.  This rate
          change was also applied to the calculation of the outstanding DAC
          back to product inception and created a one-time favorable impact in
          the year of change.  In 2003, the slower amortization is reflected,
          however the one-time favorable impact in 2002 is not repeated,
          resulting in more amortization in the current period.  The DAC
          amortization rate is determined using profit margin projections,
          which include current period realized gains and losses.

               Life Commissions.  Life commissions decreased from ($5.5)
          million for the nine months ended September 30, 2002 to ($14.2)
          million for the nine months ended September 30, 2003, a change of
          $8.7 million, or 158.2%, due primarily to a $7.3 million, or 35.8%,
          growth in the reinsurance expense allowance between periods, as
          reinsured term premium has grown $19.5 million, or 18.0%, between
          periods.  Commissions are reported net of expense reimbursements
          related to reinsured business.

               General and Administrative Expenses.  General and administrative
          expenses increased from $45.1 million for the nine months ended
          September 30, 2002 to $45.9 million for the nine months ended

<PAGE> 37

          September 30, 2003, an increase of $0.8 million, or 1.8%.  The
          increase was primarily due to higher employee benefits expense.

     Provision for Income Taxes.  Provision for income taxes increased from
$37.7 million for the nine months ended September 30, 2002 to $50.6 million for
the nine months ended September 30, 2003, an increase of $12.9 million, or
34.2%, as a result of an increase in pretax income between periods.  The
effective tax rate remained flat between periods.

     Farmers Life Income.  As a result of the foregoing, Farmers Life income
increased from $69.3 million for the nine months ended September 30, 2002 to
$93.1 million for the nine months ended September 30, 2003, an increase of
$23.8 million, or 34.3%.

Consolidated Net Income

     Consolidated net income of the Company increased from $492.0 million for
the nine months ended September 30, 2002 to $615.1 million for the nine months
ended September 30, 2003, an increase of $123.1 million, or 25.0%.

Liquidity and Capital Resources

     As of September 30, 2003 and September 30, 2002, the Company held cash and
cash equivalents of $248.1 million and $601.6 million, respectively.  In
addition, as of September 30, 2003, the Company had an aggregate borrowing
facility of $250.0 million (see Note 12).  As such, the Company believes that,
combined with cash generated from operations, its total invested assets,
including cash and short-term investments, are more than sufficient to satisfy
the liquidity needs of the Company.

     The principal uses of funds by Farmers Management Services are: (i)
operating expenses, (ii) dividends to the shareholders of the Company's QUIPS,
(iii) capital expenditures and (iv) dividends to its stockholders.  The
principal uses of funds by Farmers Life are: (i) policy benefits and claims,
(ii) loans to policyholders, (iii) capital expenditures, (iv) life commissions,
(v) operating expenses and (vi) stockholder's dividends.  The principal uses of
funds by Farmers Re are: (i) the payment of non-life losses and loss adjustment
expenses, (ii) the payment of reinsurance commissions and (iii) operating
expenses.

     The principal sources of funds available to Farmers Management Services
are: (i) the management fees that it receives for providing non-claims related
management services to the P&C Group Companies, (ii) investment income and
(iii) dividends from its subsidiaries.  The principal sources of funds
available to Farmers Life are premiums and amounts earned from the investment
of premiums and deposits.  The principal sources of funds available to Farmers
Re are premiums assumed from the P&C Group Companies and investment income.

     In order to maintain the policyholders' surplus of the P&C Group
Companies, the Company has, from time to time, purchased surplus notes or
certificates of contribution of the P&C Group Companies, receiving
certificates of contribution or surplus notes which bear interest at various
rates.  As of September 30, 2003, the Company held $949.8 million of
certificates of contribution and an $87.5 million surplus note of the P&C Group
Companies.  The Company is under no obligation to purchase these certificates
of contribution from the P&C Group Companies.  However, the Company believes
that these purchases of certificates of contribution and the surplus note have
helped to support the historical growth in premiums earned by the P&C Group
Companies and the related growth in management fees paid to the Company.  The
Company also believes that it is receiving a fair rate of return on its
certificates of contribution and surplus note.

     On October 22, 2003, FGI announced that it will redeem all of its
outstanding 8.45% Junior Subordinated Debentures, Series A and 8.25% Junior
Subordinated Debentures, Series B.  The proceeds will be applied by the
Subsidiary Trusts, consolidated wholly owned subsidiaries of FGI, to
simultaneously redeem all outstanding 8.45% QUIPS, Series A and all
outstanding 8.25% QUIPS, Series B at a price of $25 per share plus accrued
unpaid dividends.  The redemption date will be November 25, 2003.

<PAGE> 38

     Net cash provided by operating activities increased from $963.0 million
for the nine months ended September 30, 2002 to $1,042.5 million for the nine
months ended September 30, 2003, an increase of $79.5 million, or 8.3%.  The
resulting increase in cash was due in part to a $116.5 million increase between
periods in reserves for non-life losses and loss adjustment expenses resulting
from the Farmers Re quota share reinsurance treaties that became effective
December 31, 2002.  In addition, the increase in cash was due in part to a
$46.8 million decrease between periods in cash contributed to the Company's
pension plan ($70.0 million vs. $23.2 million for the nine months ended
September 30, 2002 and September 30, 2003, respectively).  The Company also
received $35.4 million in January 2003 from the P&C Group Companies related to
a reimbursement of pension costs.  Also contributing to the increase in cash
was a $35.4 million increase in current income tax liability between periods
and an increase in cash of $25.2 million due to a decrease between periods in
cash used for software development.  Furthermore, consolidated net income
increased by $123.1 million between periods.  This increase in consolidated net
income was partially offset by the following non-cash items: a $41.5 million
increase in gains on the sale of assets between periods and a $38.9 million
decrease in impairment losses between periods.  Partially offsetting the
aforementioned increases in net cash provided by operating activities were:  1)
a $119.0 million decrease in cash as a result of the January 2002 settlement of
a $119.0 million surplus note of the P&C Group Companies that was redeemed in
December 2001, 2) a $57.9 million decrease in cash between periods due to a
decrease in the future policy benefits liability and 3) a $47.2 million
decrease in cash resulting from higher premiums in collection.

     Net cash used in investing activities increased from $449.3 million of
cash used for the nine months ended September 30, 2002 to $1,146.5 million of
cash used for the nine months ended September 30, 2003, resulting in a decrease
in cash of $697.2 million, or 155.2%.  This decrease in cash was the result of
a $1,133.6 million increase in purchases of investments available-for-sale in
the nine month period ended September 30, 2003, compared to the same period in
2002 due in part to a decision to improve investment returns by investing a
larger portion of the available cash in liquid and highly rated fixed income
securities.  Also contributing to the decrease in cash was the purchase of a
$100.0 million note receivable - affiliate for the nine months ended September
30, 2003.  Partially offsetting the aforementioned increase in net cash used
in investing activities was a $398.0 million increase in cash provided by
proceeds from sales and maturities of investments available-for-sale between
the nine month periods ended September 30, 2003 and September 30, 2002 and a
$230.0 million increase in proceeds from the redemption of notes receivable -
affiliates (see Note 7).

     Net cash used in financing activities decreased from $309.5 million for
the nine months ended September 30, 2002 to $264.6 million for the nine months
ended September 30, 2003, resulting in an increase in cash of $44.9 million
between periods.  This increase was due primarily to a reduction in the net
cash outflows associated with universal life and annuity contracts between
periods.

Recent Accounting Pronouncements.

     The following is a summary of recent FASB pronouncements.  Please refer
to Note 2 for further information related to these pronouncements.

-    In November 2002, the FASB issued Interpretation ("FIN") No. 45,
     "Guarantor's Accounting and Disclosure Requirements for Guarantees,
     Including Indirect Guarantees of Indebtedness of Others".  This
     Interpretation identifies characteristics of certain guarantee contracts
     and requires that a liability be recognized at fair value at the inception
     of such guarantees for the obligations undertaken by the guarantor.  The
     initial recognition and initial measurement provisions of this
     Interpretation are effective for these guarantees issued or modified after
     December 31, 2002.  The disclosure requirements of this Interpretation are
     effective for the Company as of December 31, 2002.  The adoption of this
     Interpretation did not have a material impact on the Company's
     consolidated financial statements.

-    In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
     Interest Entities".  This Interpretation provides guidance on the
     identification of entities for which control is achieved through means
     other than through voting rights, variable interest entities ("VIEs"), and
     how to determine when and which business enterprises should consolidate
     VIEs.  This Interpretation applies immediately to VIEs created after

<PAGE> 39

     January 31, 2003.  For a VIE created before February 1, 2003, the
     provisions of FIN 46 were to be applied at the beginning of the first
     interim or annual period beginning after June 15, 2003.  However, the
     FASB, at its meeting on October 8, 2003, issued FASB staff position 46-6,
     "Effective Date of FASB Interpretation No. 46, Consolidation of VIEs"
     ("FSP 46-6").  FSP 46-6 delayed implementation of the provisions of FIN
     46 for entities created before February 1, 2003 to the first interim or
     annual period ending after December 15, 2003.  Based on the current
     Interpretation, the Company does not believe they have VIEs.

-    In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
     on Derivative Instruments and Hedging Activities".  This Statement amends
     and clarifies financial accounting and reporting for derivative
     instruments, including certain derivative instruments embedded in other
     contracts and for hedging activities under FASB Statement No. 133,
     "Accounting for Derivative Instruments and Hedging Activities".  This
     Statement is effective for contracts entered into or modified after June
     30, 2003.  The adoption of this Statement did not have a material impact
     on the Company's consolidated financial statements.


-    In May 2003, the FASB issued SFAS No. 150, "Accounting of Certain
     Financial Instruments with Characteristics of both Liabilities and
     Equity".  This Statement establishes standards for how an issuer
     classifies and measures certain financial instruments with characteristics
     of both liabilities and equity.  Under this Statement, a financial
     instrument issued in the form of shares that are mandatorily redeemable
     that embodies an unconditional obligation requiring the issuer to redeem
     it by transferring its assets at a specified or determinable date or upon
     an event that is certain to occur shall be classified as a liability at
     the amount of cash that would be paid under the conditions specified in
     the contract.  The provisions of this Statement are effective at the
     beginning of the first interim period beginning after June 15, 2003.  The
     adoption of this Statement had an impact on presentation of the Company's
     consolidated balance sheet as the "Company obligated mandatorily
     redeemable preferred securities of subsidiary trusts holding solely junior
     subordinated debentures" line on the balance sheet was reclassified to
     the liability section for the period ended September 30, 2003.

Item 3.  Quantitative and Qualitative Disclosures about Market Risks

     The market risks associated with the Company's investment portfolios have
not changed materially from those disclosed at year-end 2002.

ITEM 4.  Controls and Procedures

     (a) Evaluation of Disclosure Controls and Procedures.  The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
quarterly report (the "Evaluation Date").  Based on such evaluation, such
officers have concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures are effective in alerting them on a timely
basis to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Company's reports
filed or submitted under the Exchange Act.

     (b) Changes in Internal Controls.  Since the Evaluation Date, there have
not been any significant changes in the Company's internal controls that could
significantly affect such controls.

<PAGE> 40


                       PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings.

               Due to its AIF relationships, the Company is a party to lawsuits
          in which the Exchanges are the primary defendants.  The Company is
          also party to lawsuits arising from its other normal business
          activities.  In addition, the Company is, from time to time, involved
          as a party to various governmental and administrative proceedings.
          These actions are in various stages of discovery and development, and
          some seek punitive as well as compensatory damages.  In the opinion
          of management, the Company has not engaged in any conduct which
          should warrant the award of material punitive or compensatory
          damages.  The Company intends to vigorously defend its position in
          each case, and management believes that, while it is not possible to
          predict the outcome of such matters with absolute certainty, ultimate
          disposition of these proceedings should not have a material adverse
          effect on the Company's consolidated results of operations or
          financial position.

Item 2.  Changes in Securities.  None.

Item 3.  Defaults upon Senior Securities.  None.

Item 4.  Submission of Matters to a Vote of Security Holders.  None.

Item 5.  Other Information.  None.

               On October 19, 2003, the Company's Board of Directors (the
          "Board") increased the number of Directors on the Board to 14 and
          unanimously elected Peter Eckert, an officer of Zurich, to serve on
          the Board.  On October 19, 2003 the Board also restructured its
          Audit and Compliance Committee into two separate committees, the
          Audit Committee and the Risk and Compliance Committee, in order to
          give greater focus and attention to each respective area.

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

             (a)  Exhibits.

              31.1  Certification of Chief Executive Officer Pursuant to Rule
                    13a-15(e) or Rule 15d-15(e), as adopted pursuant to
                    Section 302 of the Sarbanes-Oxley Act of 2002.

              31.2  Certification of Chief Financial Officer Pursuant to Rule
                    13a-15(e) or Rule 15d-15(e), as adopted pursuant to Section
                    302 of the Sarbanes-Oxley Act of 2002.

              32.1  Certification of Chief Executive Officer Pursuant to 18
                    U.S.C. Section 1350, as adopted pursuant to Section 906
                    of the Sarbanes-Oxley Act of 2002.

              32.2  Certification of Chief Financial Officer Pursuant to 18
                    U.S.C. Section 1350, as adopted pursuant to Section 906
                    of the Sarbanes-Oxley Act of 2002.

             (b)  Reports on Form 8-K.  None.

<PAGE> 41

                             FARMERS GROUP, INC.
                              AND SUBSIDIARIES

                                 SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                                     Farmers Group, Inc.
                                                            (Registrant)

                           November 5, 2003     /s/  Martin D. Feinstein
                           ---------------------------------------------
                           Date                      Martin D. Feinstein
                                                  Chairman of the Board,
                                   President and Chief Executive Officer


                           November 5, 2003      /s/     Pierre Wauthier
                           ---------------------------------------------
                           Date                          Pierre Wauthier
                                               Executive Vice President,
                                                 Chief Financial Officer
                                                            and Director