<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 March 31, 2000

                                   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  / /

Registrant's Common Stock outstanding on March 31, 2000 was 1,000 shares.

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[THIS PAGE INTENTIONALLY LEFT BLANK]

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                               FARMERS GROUP, INC.
                                AND SUBSIDIARIES

                           TABLE OF CONTENTS FORM 10-Q

                        FOR THE PERIOD ENDED MARCH 31, 2000


PART I.   FINANCIAL INFORMATION                                             PAGE
                                                                            ----
  ITEM 1. Financial Statements

          Consolidated Balance Sheets - Assets
             March 31, 2000 and December 31, 1999                             4

          Consolidated Balance Sheets - Liabilities and Stockholders'
             Equity March 31, 2000 and December 31, 1999                      5

          Consolidated Statements of Income
             Three Month Periods ended March 31, 2000 and
             March 31, 1999                                                   6

          Consolidated Statements of Comprehensive Income
             Three Month Periods ended March 31, 2000 and
             March 31, 1999                                                   7

          Consolidated Statement of Stockholders' Equity
             Three Month Period ended March 31, 2000                          8

          Consolidated Statement of Stockholders' Equity
             Three Month Period ended March 31, 1999                          9

          Consolidated Statements of Cash Flows
             Three Month Periods ended March 31, 2000 and
             March 31, 1999                                                  10

          Notes to Interim Financial Statements                              11

  ITEM 2. Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                       16

  ITEM 3. Quantitative and Qualitative Disclosures about Market Risks        19

PART II.  OTHER INFORMATION                                                  20

SIGNATURES                                                                   21

<PAGE>   4

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
                                 FARMERS GROUP, INC.
                                  AND SUBSIDIARIES
                             CONSOLIDATED BALANCE SHEETS
                               (Amounts in thousands)
                                     (Unaudited)
                                       ASSETS
<TABLE>
<CAPTION>
                                                                   March 31,  December 31,
                                                                     2000         1999
                                                                ------------- ------------
<S>                                                             <C>           <C>
Current assets, excluding Insurance Subsidiaries:
 Cash and cash equivalents                                      $     182,529 $    217,466
 Marketable securities, at market value                                36,543       66,558
 Accrued interest                                                      18,417       30,825
 Accounts receivable, principally from the P&C Group                   89,018       44,021
 Notes receivable - affiliate                                          25,000      200,000
 Deferred taxes                                                        38,139       36,895
 Prepaid expenses and other                                            19,848       21,950
                                                                ------------- ------------
  Total current assets                                                409,494      617,715
                                                                ------------- ------------
Investments, excluding Insurance Subsidiaries:
 Fixed maturities available-for-sale, at market value
  (cost: $381,672 and $516,001)                                       375,838      511,708
 Mortgage loans on real estate                                            133          146
 Common stocks available-for-sale, at market value
  (cost: $318,246 and $299,251)                                       343,391      334,212
 Certificates of contribution and surplus notes of the
  P&C Group                                                           368,330       23,330
 Real estate, at cost (net of accumulated depreciation:
  $24,048 and $23,505)                                                 71,213       49,459
 Joint ventures, at equity                                              3,341          840
                                                                ------------- ------------
                                                                    1,162,246      919,695
                                                                ------------- ------------
Other assets, excluding Insurance Subsidiaries:
 Notes receivable - affiliates                                      1,107,000    1,107,000
 Goodwill (net of accumulated amortization:
  $675,495 and $660,484)                                            1,726,260    1,741,271
 Attorney-in-fact contracts (net of accumulated amortization:
  $480,667 and $469,986)                                            1,228,376    1,239,057
 Securities lending collateral                                              0        4,150
 Other assets                                                         241,199      244,088
                                                                ------------- ------------
                                                                    4,302,835    4,335,566
                                                                ------------- ------------
Properties, plant and equipment, at cost: (net of accumulated
 depreciation: $333,382 and $324,902)                                 425,737      422,311
                                                                ------------- ------------
Investments of Insurance Subsidiaries:
 Fixed maturities available-for-sale, at market value
  (cost: $4,430,177 and $4,514,104)                                 4,300,245    4,376,320
 Mortgage loans on real estate                                         34,760       35,834
 Non-redeemable preferred stocks available-for-sale, at market
  value (cost: $1,153 and $1,153)                                       1,103        1,158
 Common stocks available-for-sale, at market value
  (cost: $216,299 and $188,851)                                       237,620      212,274
 Certificate of contribution and surplus note of the
  P&C Group                                                           319,000      119,000
 Policy loans                                                         206,323      201,687
 Real estate, at cost (net of accumulated depreciation:
  $27,973 and $27,292)                                                 66,163       66,672
 Joint ventures, at equity                                              6,585        6,662
 S&P 500 call options, at fair value (cost: $22,611 and $19,521)       36,378       32,718
 Other investments                                                      1,000            0
                                                                ------------- ------------
                                                                    5,209,177    5,052,325
                                                                ------------- ------------
Other assets of Insurance Subsidiaries:
 Cash and cash equivalents                                             82,270       96,034
 Reinsurance premiums receivable - P&C Group                           49,504       86,245
 Accrued investment income                                             68,300       61,040
 Deferred policy acquisition costs and value of life business
  acquired                                                            870,945      879,625
 Securities lending collateral                                        328,204      303,379
 Other assets                                                          29,156       22,350
                                                                ------------- ------------
                                                                    1,428,379    1,448,673
                                                                ------------- ------------
   Total assets                                                  $ 12,937,868 $ 12,796,285
                                                                ============= ============
    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)
                                      (Unaudited)
                         LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                  March 31,   December 31,
                                                                    2000          1999
                                                                ------------- -------------
<S>                                                             <C>           <C>
Current liabilities, excluding Insurance Subsidiaries:
 Notes and accounts payable:
  P&C Group                                                      $        879 $         303
  Other                                                                36,880        55,730
 Accrued liabilities:
  Profit sharing                                                       16,422        51,621
  Income taxes                                                        156,567        77,173
  Other                                                               125,138        10,109
                                                                 ------------ -------------
   Total current liabilities                                          335,886       194,936
                                                                 ------------ -------------
Other liabilities, excluding Insurance Subsidiaries:
 Real estate mortgages payable                                             21            21
 Non-current deferred taxes                                           571,691       579,902
 Securities lending liability                                               0         4,150
 Other                                                                137,832       136,487
                                                                 ------------ -------------
                                                                      709,544       720,560
                                                                 ------------ -------------
Liabilities of Insurance Subsidiaries:
 Policy liabilities:
  Future policy benefits                                            3,446,494     3,412,452
  Claims                                                               31,897        28,396
  Policyholder dividends                                                    2             1
  Other policyholders funds                                            92,362        83,478
 Provision for non-life losses and loss adjustment expenses           189,225       106,444
 Income taxes (including deferred taxes: $90,811 and $88,723)         118,469        98,880
 Unearned investment income                                               972           936
 Reinsurance payable - P&C Group                                       81,628       166,716
 Securities lending liability                                         328,204       303,379
 Other liabilities                                                     78,410        80,868
                                                                 ------------ -------------
                                                                    4,367,663     4,281,550
                                                                 ------------ -------------
   Total liabilities                                                5,413,093     5,197,046
                                                                 ------------ -------------

Commitments and contingencies

Company obligated mandatorily redeemable preferred
  securities of subsidiary trusts holding solely junior
  subordinated debentures                                             500,000       500,000
                                                                 ------------ -------------
Stockholders' Equity:
 Class A common stock, $1 par value per share; authorized, issued
  and outstanding:   as of March 31, 2000 and
  December 31, 1999 - 500 shares                                          0.5           0.5
 Class B common stock, $1 par value per share; authorized, issued
  and outstanding: as of March 31, 2000 and
  December 31, 1999 - 500 shares                                          0.5           0.5
 Additional capital                                                 5,212,618     5,212,618
 Accumulated other comprehensive loss (net of deferred
  taxes: ($21,105) and ($18,307))                                     (39,195)      (33,999)
 Retained earnings                                                  1,851,351     1,920,619
                                                                 ------------ -------------
   Total stockholders' equity                                       7,024,775     7,099,239
                                                                 ------------ -------------
     Total liabilities and stockholders' equity                  $ 12,937,868  $ 12,796,285
                                                                 ============ =============
    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>
                                                                     Three month period
                                                                       ended March 31,
                                                                  ------------------------
                                                                      2000        1999
                                                                  -----------  -----------
<S>                                                               <C>          <C>
Consolidated operating revenues                                   $   825,132  $   802,153
                                                                  ===========  ===========
Management services to property and casualty
insurance companies; and other:
  Operating revenues                                              $   375,332  $   365,778
                                                                  -----------   ----------
  Operating expenses                                                  206,621      196,761
  Merger related expenses                                                   0          244
                                                                  -----------   ----------
    Total expenses                                                    206,621      197,005
                                                                  -----------   ----------
    Operating income                                                  168,711      168,773
  Net investment income                                                33,950       28,762
  Net realized gains/(losses)                                          17,765         (233)
  Dividends on preferred securities of subsidiary trusts              (10,518)     (10,518)
                                                                  -----------   ----------
    Income before provision for taxes                                 209,908      186,784
  Provision for income taxes                                           86,039       76,778
                                                                  -----------   ----------
    Management services income                                        123,869      110,006
                                                                  -----------   ----------
Insurance Subsidiaries:
  Life and annuity premiums                                            51,927       47,810
  Non-life reinsurance premiums                                       250,000      250,000
  Life policy charges                                                  53,739       52,056
  Net investment income                                                85,817       81,241
  Net realized gains                                                    8,317        5,268
                                                                  -----------  -----------
    Total revenues                                                    449,800      436,375
                                                                  -----------  -----------
  Non-life losses and loss adjustment expenses                        164,426      167,916
  Life policyholders' benefits and charges                             89,778       86,233
  Non-life reinsurance commissions                                     79,341       75,843
  General operating expenses                                           42,951       38,991
                                                                  -----------  -----------
    Total operating expenses                                          376,496      368,983
                                                                  -----------  -----------
    Income before provision for taxes                                  73,304       67,392
  Provision for income taxes                                           25,091       22,353
                                                                  -----------  -----------
    Insurance Subsidiaries income                                      48,213       45,039
                                                                  -----------  -----------

Consolidated net income                                           $   172,082  $   155,045
                                                                  ===========  ===========
    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>
                                                                     Three month period
                                                                       ended March 31,
                                                                  ------------------------
                                                                      2000        1999
                                                                  -----------  -----------
<S>                                                               <C>          <C>
Consolidated net income                                           $   172,082  $   155,045
                                                                  -----------  -----------
Other comprehensive loss, net of tax:

  Net unrealized holding losses on securities,
      net of tax of ($1,819) and ($31,916)                             (3,378)     (59,350)
  Change in effect of unrealized gains/(losses) on other
      insurance accounts, net of tax of ($979) and
      $8,145                                                           (1,818)      15,127
                                                                  -----------  -----------
  Other comprehensive loss                                             (5,196)     (44,223)
                                                                  -----------  -----------
Comprehensive income                                              $   166,886  $   110,822
                                                                  ===========  ===========

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

<PAGE>   8

                                 FARMERS GROUP, INC.
                                  AND SUBSIDIARIES
                   CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                   For the three month period ended March 31, 2000
                               (Amounts in thousands)
                                     (Unaudited)
<TABLE>
<CAPTION>
                                                     Accumulated Other                  Total
                                Common    Additional  Comprehensive      Retained    Stockholders'
                                Stock      Capital         Loss          Earnings       Equity
                               --------  ----------- ----------------   ----------  ---------------
<S>                            <C>       <C>          <C>                <C>           <C>
Balance, December 31, 1999     $      1  $ 5,212,618  $       (33,999)  $1,920,619     $  7,099,239

Net income                                                                 172,082          172,082

Net unrealized holding losses
  on securities, net of tax
  of ($1,819)                                                  (3,378)                       (3,378)

Change in effect of unrealized
  losses on other insurance
  accounts, net of tax of ($979)                               (1,818)                       (1,818)

Cash dividends declared and/or
  paid                                                                    (241,350)        (241,350)
                               --------  -----------  ----------------  ----------     ------------
Balance, March 31, 2000        $      1  $ 5,212,618  $       (39,195)  $1,851,351     $  7,024,775
                               ========  ===========  ================  ==========     ============

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

</TABLE>

<PAGE>   9

                                   FARMERS GROUP, INC.
                                    AND SUBSIDIARIES
                     CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                     For the three month period ended March 31, 1999
                                 (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, 1998     $      1  $ 5,212,618 $         144,742  $1,677,046     $  7,034,407

Net income                                                                 155,045          155,045

Net unrealized holding losses
  on securities, net of tax
  of ($31,916)                                                 (59,350)                     (59,350)

Change in effect of unrealized
  gains on other insurance
  accounts, net of tax of $8,145                                15,127                       15,127

Cash dividends paid                                                        (98,500)         (98,500)
                               -------- ------------   ---------------  ----------     ------------
Balance, March 31, 1999        $      1 $  5,212,618   $       100,519  $1,733,591     $  7,046,729
                               ======== ============   ===============  ==========     ============

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

<PAGE>   10

                                 FARMERS GROUP, INC.
                                  AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (Amounts in thousands)
                                     (Unaudited)
<TABLE>
<CAPTION>
                                                                    Three month period
                                                                      ended March 31,
                                                                  -----------------------
                                                                     2000         1999
                                                                  ----------   ----------
<S>                                                               <C>          <C>
Cash Flows from Operating Activities:
 Consolidated net income                                          $  172,082   $  155,045
 Non-cash and operating activities adjustments:
  Depreciation and amortization                                       40,683       39,900
  Amortization of deferred policy acquisition costs and
    value of life business acquired                                   29,674       23,731
  Policy acquisition costs deferred                                  (23,791)     (22,876)
  Life insurance policy liabilities                                   26,545       15,883
  Provision for non-life losses and loss adjustment expenses          82,781      (10,519)
  Universal life type contracts:
     Deposits received                                                76,380       75,279
     Withdrawals                                                     (67,616)     (61,821)
     Interest credited                                                18,425       17,690
  Equity in earnings of joint ventures                                 3,163       (2,210)
  Gains on sales of assets                                           (26,173)      (4,922)
 Changes in assets and liabilities:
  Current assets and liabilities                                     (49,990)      99,466
  Non-current assets and liabilities                                 (12,279)     (12,356)
 Other, net                                                           (3,978)      (5,832)
                                                                  ----------  -----------
 Net cash provided by operating activities                           265,906      306,458
                                                                  ----------  -----------
Cash Flows from Investing Activities:
 Purchases of investments available-for-sale                        (279,009)    (471,084)
 Purchases of properties                                             (34,719)      (7,403)
 Purchase of surplus notes of the P&C Group                         (175,000)           0
 Purchase of certificates of contribution of the P&C Group          (370,000)           0
 Proceeds from sales and maturities of investments
  available-for-sale                                                 500,604      311,893
 Proceeds from sales of properties                                     1,015        2,664
 Proceeds from redemption of notes receivable - affiliate            175,000            0
 Mortgage loan collections                                             1,086        9,032
 Increase in policy loans                                             (4,636)      (3,923)
 Other, net                                                             (969)        (170)
                                                                  ----------  -----------
 Net cash used in investing activities                              (186,628)    (158,991)
                                                                  ----------  -----------
Cash Flows from Financing Activities:
 Dividends paid to stockholders                                     (120,675)     (98,500)
 Annuity contracts:
    Deposits received                                                 38,528       36,783
    Withdrawals                                                      (66,688)     (45,819)
    Interest credited                                                 20,856       21,891
                                                                   ---------  -----------
 Net cash used in financing activities                              (127,979)     (85,645)
                                                                   ---------  -----------

Increase/(decrease) in cash and cash equivalents                     (48,701)      61,822
Cash and cash equivalents - at beginning of year                     313,500      327,552
                                                                  ----------  -----------
Cash and cash equivalents - at end of period                      $  264,799   $  389,374
                                                                  ==========  ===========

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

<PAGE>   11

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


A.   Basis of presentation and summary of significant accounting policies

    The accompanying consolidated balance sheet of Farmers Group, Inc. ("FGI")
and its subsidiaries (together, the "Company") as of March 31, 2000, the
related consolidated statements of income, comprehensive income, stockholders'
equity and cash flows for the three month periods ended March 31, 2000 and
March 31, 1999, have been prepared in accordance with generally accepted
accounting principles ("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, 1999 and
1998, and the related consolidated statements of income, comprehensive income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999.

     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
2000 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.

     The Company is attorney-in-fact ("AIF") for 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.  As AIF, FGI, or its subsidiaries,
as applicable, provides certain management services to the Exchanges, their
respective subsidiaries and Farmers Texas County Mutual Insurance Company
(collectively the "P&C Group") and receives compensation based on a percentage
of gross premiums earned.  The P&C Group is owned by the policyholders of the
Exchanges and Farmers Texas County Mutual Insurance Company.  Accordingly, the
Company has no ownership interest in the P&C Group.

     Farmers New World Life Insurance Company ("Farmers Life"), a Washington
based insurance company, is a wholly owned subsidiary of the Company.  Farmers
Life markets a broad line of individual life insurance products, including
universal life, term life and whole life insurance and structured settlement
and annuity products, predominately flexible premium deferred annuities.
Additionally, in March 2000, Farmers Life entered the variable universal life
and annuities market.  These products and services are sold directly by the
P&C Group's agents.

     Farmers Reinsurance Company ("Farmers Re"), a wholly owned subsidiary of
the Company, reinsures a percentage of the auto physical damage business
written by the P&C Group.  Under a quota share reinsurance treaty, Farmers Re
assumes monthly premiums of $83,333,000 and a quota share percentage of
ultimate net losses sustained by the P&C Group in its auto physical damage
lines of business.  This treaty, which will remain in effect until terminated
by either party, also provides for the P&C Group to receive a provisional
ceding commission of 20% 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.

     On March 31, 2000, Farmers Re and the P&C Group commuted $106,444,000 of
losses and loss adjustment expenses associated with the 1999 accident year.
As a result, in May 2000, Farmers Re will pay the P&C Group $106,444,000 of
losses and loss adjustment expenses and $8,975,000 of accrued interest in
settlement of this commutation.


<PAGE> 12

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

     In December 1988, B.A.T Industries p.l.c. ("B.A.T"), acquired 100%
ownership of the Company through its wholly owned subsidiary BATUS
Financial Services. Immediately thereafter, BATUS Financial Services was
merged into Farmers Group, Inc..  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, B.A.T's Financial Services Businesses, which included
the Company, were merged with Zurich Insurance Company ("ZIC").  The businesses
of ZIC and B.A.T's Financial Services Businesses were transferred to Zurich
Financial Services ("Zurich"), a new Swiss company with headquarters in Zurich.
As a result, each two shares of the Company's prior outstanding stock were
recapitalized into one share of Class A Common Stock, par value $1.00 per share
("Ordinary Shares"), and one share of Class B Common Stock, par value $1.00 per
share ("Income Shares").  Under the merger agreement, all Ordinary Shares
became wholly owned by Zurich and all Income Shares became wholly owned by
Allied Zurich Holdings Limited, an affiliated company created during the
restructuring of B.A.T.  This merger was accounted for by Zurich as a pooling
of interests and, therefore, no purchase accounting adjustments were made to
the Company's assets and liabilities.

     In June 1999, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards ("SFAS") No. 137, "Deferral of the
Effective Date of FASB Statement No. 133", which defers the effective date of
SFAS No. 133 to fiscal years beginning after June 15, 2000.  In 1998, the
FASB released SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities".  This Statement establishes accounting and reporting standards for
derivative instruments (including certain derivative instruments embedded in
other contracts) and for hedging activities.  SFAS No. 133 requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at market value.
The Company does not expect the adoption of these Statements to have a material
impact on its consolidated financial statements.

B.   Material contingencies

     The Company is a party to numerous lawsuits arising from its normal
business activities. 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 any 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.

C.   Company Obligated Mandatorily Redeemable Preferred Securities of
     Subsidiary Trusts Holding Solely Junior Subordinated Debentures

     In 1995, Farmers Group Capital and Farmers Group Capital II (the
"Subsidiary Trusts"), consolidated wholly owned subsidiaries of Farmers Group,
Inc., issued $410 million of 8.45% Cumulative Quarterly Income Preferred
Securities ("QUIPS"), Series A and $90 million of 8.25% QUIPS, Series B,
respectively.  In connection with the Subsidiary Trusts' issuance of the QUIPS
and the related purchase by Farmers Group, Inc. of all of the Subsidiary
Trusts' Common Securities ("Common Securities"), Farmers Group, Inc. issued to
Farmers Group Capital $422,680,399 principal amount of its 8.45% Junior
Subordinated Debentures, Series A due on December 31, 2025, (the "Junior
Subordinated Debentures, Series A") and issued to Farmers Group Capital II
$92,783,505 principal amount of its 8.25% Junior Subordinated Debentures,
Series B due on December 31, 2025 (the "Junior Subordinated Debentures,
Series B" and, together with the Junior Subordinated Debentures,
Series A, the "Junior Subordinated Debentures").  The sole assets of Farmers
Group Capital are the Junior Subordinated Debentures, Series A.  The sole
assets of Farmers Group Capital II are the Junior Subordinated Debentures,
Series B.  In addition, these arrangements are governed by various agreements
between Farmers Group, Inc. and the Subsidiary Trusts (the Guarantee
Agreements, the Trust Agreements, the Expense Agreements, the Indentures and
the Junior Subordinated

<PAGE> 13

Debentures) which considered together constitute a full and unconditional
guarantee by Farmers Group, Inc. of the Subsidiary Trusts' obligations under
the Preferred Securities.

     Under certain circumstances, the Junior Subordinated Debentures may be
distributed to holders of the QUIPS and holders of the Common Securities in
liquidation of the Subsidiary Trusts.  The QUIPS are subject to mandatory
redemption upon repayment of the Junior Subordinated Debentures at maturity,
or upon their earlier redemption, at a redemption price of $25 per Preferred
Security, plus accrued and unpaid distributions thereon to the date fixed for
redemption.  Farmers Group, Inc. will have the option at any time on or after
September 27, 2000 to redeem, in whole or part, the Junior Subordinated
Debentures.

     As of March 31, 2000 and 1999, a total of 20,000,000 shares of QUIPS
were outstanding.

D.   Management fees

     As AIF, the Company, or its subsidiaries, as applicable, provides
management services to the P&C Group and receives management fees for the
services rendered.  As a result, the Company received management fees from
the P&C Group of $352,392,000 and $343,617,000 for the three month periods
ended March 31, 2000 and March 31, 1999, respectively.

E.   Related parties

     As of March 31, 2000, the Company held a $250,000,000 note receivable from
Old Stone (Delaware) Holdings Limited ("OSDH"), a subsidiary of Zurich.  The
Company loaned $250,000,000 to OSDH on December 15, 1999 and, in return,
received a medium-term note with a 7.50% fixed interest rate that matures on
December 15, 2004.  Interest on this note is paid semi-annually and, through
March 31, 2000, income earned on this note totaled $4,688,000.

     In addition, as of March 31, 2000, the Company held $882,000,000 of notes
receivable from British American Financial Services (UK and International),
Ltd. ("BAFS"), a subsidiary of Zurich.  The Company purchased $1,057,000,000
of notes from BAFS on September 3, 1998.  Subsequently, on March 1, 2000, Eagle
Star Life Assurance Company Limited ("Eagle Star"), also an affiliate of
Zurich, assigned $175,000,000 of matured surplus notes of the P&C Group to the
Company and, in return, the Company reduced the outstanding balance of the
notes receivable from BAFS by $175,000,000.  The remaining notes receivable
from BAFS are fixed rate medium-term notes with maturity dates as follows:
$25,000,000 in September 2000, $207,000,000 in September 2001, $200,000,000 in
September 2002, $200,000,000 in September 2003 and $250,000,000 in September
2004. Interest on these notes is paid semi-annually at coupon rates of 5.44%,
5.48%, 5.67%, 5.71% and 5.78%, respectively.  Income earned on these notes
through March 31, 2000 and March 31, 1999 was $14,065,000 and $14,858,000,
respectively.

F.   Certificates of contribution and surplus notes of the P&C Group

     On March 7, 2000, to help fund the Exchanges' acquisition of Foremost
Corporation of America ("Foremost"), the Company purchased $370,000,000 of
certificates of contribution of the P&C Group bearing interest at 7.85%
annually.  As of March 31, 2000, the Company continued to hold $142,330,000 of
miscellaneous other certificates of contribution of the P&C Group, which bear
interest at various rates, and a surplus note of the P&C Group, which bears
interest at 6.10% annually.

     Additionally, on March 1, 2000, in connection with the assignment of the
$175,000,000 of matured surplus notes of the P&C Group from Eagle Star
(see Note E), the P&C Group issued new surplus notes of $175,000,000 to the
Company.  These notes bear interest at 8.50% annually and mature in March 2005.

     Conditions governing repayment of these amounts are outlined in the
certificates of contribution and the surplus notes.  Generally, repayment may
be made only when the surplus balance of the issuer reaches a certain

<PAGE> 14

specified level, and then only after approval is granted by the issuer's
governing Board and the appropriate state insurance regulatory department.

G.   Supplemental cash flow information

     For financial statement purposes, the Company considers all investments
with original maturities of 90 days or less as cash equivalents.  Following is
a reconciliation of the balance sheet cash and cash equivalent totals to the
consolidated cash flow total:

<TABLE>
<CAPTION>
                                                    Excluding
                                                    Insurance      Insurance
                                                  Subsidiaries   Subsidiaries  Consolidated
                                                  ------------   ------------  ------------
                                                          (Amounts in thousands)
<S>                                               <C>            <C>           <C>
Cash and cash equivalents  -- December 31, 1998   $    253,828     $    73,724   $  327,552
                              Activity through March 1999                            61,822
                                                                                  ---------
Cash and cash equivalents  -- March 31, 1999           315,718          73,656   $  389,374
                                                                                  =========

Cash and cash equivalents  -- December 31, 1999   $    217,466    $     96,034   $  313,500
                              Activity through March 2000                           (48,701)
                                                                                  ---------
Cash and cash equivalents  -- March 31, 2000           182,529          82,270   $  264,799
                                                                                  =========
</TABLE>

     Cash payments for interest were $1,671,000 and $1,415,000 for the three
month periods ended March 31, 2000 and March 31, 1999, respectively, while the
cash payment for dividends to the holders of the Company's QUIPS was
$10,518,000 for each of the three month periods ended March 31, 2000 and
March 31, 1999.  Cash payments for income taxes were $18,809,000 and
$22,395,000 for the three month periods ended March 31, 2000 and March 31,
1999, respectively.

     On March 7, 2000, the Company purchased $370,000,000 of certificates of
contribution of the P&C Group to help fund the Exchanges' acquisition of
Foremost (see Note F).

H.   Operating segments

     The Company's principal activities are the provision of management
services to the P&C Group and the ownership and operation of 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.

     As the Company is the exclusive AIF of the P&C Group, the management
services segment is primarily responsible for providing management services to
the P&C Group.  Management fees earned from the P&C Group totaled $352,392,000
and $343,617,000 for the three month periods ended March 31, 2000 and
March 31, 1999, respectively.  The life insurance segment provides individual
life insurance products, including universal life, term life and whole life
insurance and structured settlement and annuity products, as well as variable
universal life and annuity products.  Finally, the reinsurance segment provides
reinsurance coverage to a percentage of the auto physical damage business
written by the P&C Group.

     The basis of accounting used by the Company's management in evaluating
segment performance and determining how resources should be allocated is
referred to as the Company's GAAP historical basis, which excludes the effects
of the purchase accounting ("PGAAP") adjustments related to the acquisition of
the Company by B.A.T in December 1988 (see Note A).  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 incorporates the effects of these
adjustments.

<PAGE> 15

     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 three month periods ended March 31,
2000 and March 31, 1999.

     Information regarding the Company's reportable operating segments follows:


<TABLE>
<CAPTION>
                                         Three month period ended March 31, 2000
             ---------------------------------------------------------------------------------------------------------
                        GAAP historical basis                                PGAAP adjustments             Consolidated
             ------------------------------------------------------  -------------------------------------
              Management      Life                                   Management      Life                     PGAAP
               services    insurance      Reinsurance       Total     services     insurance     Total        basis
             ------------------------------------------------------  ------------------------------------- -----------
                                             (Amounts in thousands)
<S>          <C>           <C>            <C>            <C>         <C>           <C>         <C>         <C>
Revenues     $  375,332    $  189,876 (a) $  260,153 (a) $  825,361  $        0    $   (229)   $     (229) $  825,132

Investment
 income          34,105        81,200          7,567        122,872        (155)       (229)         (384)    122,488

Investment
 expenses             0        (2,721)             0         (2,721)          0           0             0      (2,721)

Net realized
 gains           17,765         5,731          2,586         26,082           0           0             0      26,082

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

Income before
 provision for
 taxes          236,880        59,139         16,330        312,349     (26,972)     (2,165)      (29,137)    283,212

Provision for
 income taxes    90,623        20,959          5,063        116,645      (4,584)       (931)       (5,515)    111,130

Depreciation and
 amortization    13,763        28,504              0         42,267      26,065 (b)   2,025 (c)    28,090      70,357
-----------------------
</TABLE>

(a)  Revenues for the insurance operating segments include net investment
     income and net realized gains/(losses).

(b)  Amount includes PGAAP adjustments associated with the amortization of the
     AIF contracts ($10.7 million) and goodwill ($15.0 million).

(c)  Amount includes PGAAP adjustments associated with the amortization of the
     Value of Life Business Acquired ("VOLBA") asset and the reversal of
     amortization associated with the pre-1988 DAC asset.

<TABLE>
<CAPTION>
                                        Three month period ended March 31, 1999
             ---------------------------------------------------------------------------------------------------------
                           GAAP historical basis                             PGAAP adjustments             Consolidated
             ------------------------------------------------------  -------------------------------------
              Management      Life                                   Management      Life                    PGAAP
               services     insurance      Reinsurance     Total      services     insurance     Total       basis
             ------------------------------------------------------  ------------------------------------- -----------
                                                (Amounts in thousands)
<S>          <C>           <C>            <C>            <C>         <C>           <C>       <C>          <C>
Revenues     $  365,778    $  179,219 (a) $  257,402 (a) $  802,399  $        0    $   (246)   $     (246) $  802,153

Investment
 income          29,123        77,880          6,528        113,531        (361)       (246)         (607)    112,924

Investment
 expenses             0        (2,921)             0         (2,921)          0           0             0      (2,921)

Net realized
 gains/(losses)    (233)        4,394            874          5,035           0           0             0       5,035

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

Income before
 provision for
 taxes          213,925        77,215         13,591        304,731     (27,141)    (23,414)      (50,555)    254,176

Provision for
 income taxes    81,426        27,086          3,639        112,151      (4,648)     (8,372)      (13,020)     99,131

Depreciation and
 amortization    12,748         1,314 (b)          0         14,062      26,295 (c)  23,274 (d)    49,569      63,631
-----------------------
</TABLE>

(a)  Revenues for the insurance operating segments include net investment
     income and net realized gains/(losses).

(b)  Amount includes the historical basis amortization associated with the DAC
     asset which included a $23.3 million adjustment, reducing expense, due to
     favorable persistency experience on the fixed universal life business.

(c)  Amount includes PGAAP adjustments associated with the amortization of the
     AIF contracts ($10.7 million) and goodwill ($15.0 million).

(d)  Amount includes PGAAP adjustments associated with the amortization of the
     VOLBA asset and the reversal of amortization associated with the pre-1988
     DAC asset.  Included in this amount are adjustments totaling $23.1
     million, increasing expense, due to unfavorable persistency experience on
     the pre-1988 business.

<PAGE>   16


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

General

     The Company's principal activities are the provision of management
services to the P&C Group and the ownership and operation of 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.

     On March 7, 2000, the Exchanges acquired Foremost Corporation of America
("Foremost").  Foremost is the country's leading writer of manufactured homes
and a prominent insurer of recreational vehicles and other specialty lines.
The Company provides management services in respect of this business and
receives compensation based on a percentage of gross premiums earned.

     Farmers Life, a wholly owned subsidiary of the Company, underwrites life
insurance, structured settlement and annuity products. Revenues attributable to
traditional life insurance products, such as whole life or term life contracts,
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 DAC) so that profits are generally recognized over the same
period as revenue income.  Revenues attributable to universal life 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 include interest credited to policyholders on policy balances
as well as benefit claims incurred in excess of policy account balances.
Revenues attributable to structured settlement products consist of investment
income on assets allocated to support the policyholder benefits schedule and
expenses consist of interest credited to policyholders on policy balances.

     Farmers Re, a wholly owned subsidiary of the Company, reinsures a
percentage of the auto physical damage business written by the P&C Group.
Under a quota share reinsurance treaty, Farmers Re assumes monthly premiums of
$83.3 million and a quota share percentage of ultimate net losses sustained by
the P&C Group in its auto physical damage lines of business.  This treaty,
which will remain in effect until terminated by either party, also
provides for the P&C Group to receive a provisional ceding commission of 20%
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.

Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999

Management Services to Property and Casualty Insurance Companies; and Other

     Operating Revenues.  Operating revenues increased from $365.8 million for
the three months ended March 31, 1999 to $375.3 million for the three months
ended March 31, 2000, an increase of $9.5 million, or 2.6%.  Operating
revenues primarily consist of management fees paid to the Company as a
percentage of gross premiums earned by the P&C Group.  Such premiums increased
from $2,678.5 million in the first quarter of 1999 to $2,734.6 million in the
first quarter of 2000 due primarily to growth within the Fire and
Commercial books of business coupled with $38.2 million of premiums earned as
a result of business assumed from Foremost.

     Operating Expenses.  Operating expenses as a percentage of operating
revenues increased from 53.8% in the first quarter of 1999 to 55.1% in the
first quarter of 2000, an increase of 1.3 percentage points due primarily to
expenses incurred in the first quarter of 2000 in connection with providing
management services to the business assumed from Foremost.  Excluding this
item, operating expenses as a percentage of operating revenues decreased 0.6
percentage points between periods.

<PAGE> 17

          Salaries and Employee Benefits.  Salaries and employee benefits
     increased from $89.9 million for the three months ended March 31, 1999 to
     $96.9 million for the three months ended March 31, 2000, an increase of
     $7.0 million, or 7.8%.  This increase was primarily the result of $4.2
     million of expenses incurred in the first quarter of 2000 in connection
     with providing management services to the business assumed from Foremost.

          Buildings and Equipment Expenses.  Buildings and equipment expenses
     decreased from $24.3 million for the three months ended March 31, 1999 to
     $22.8 million for the three months ended March 31, 2000, a decrease of
     $1.5 million, or 6.2%, due primarily to savings generated by renegotiated
     lease contracts.

          Amortization of Attorney-In-Fact Contracts and Goodwill.  Purchase
     accounting entries related to the acquisition of the Company by B.A.T in
     December 1988 include goodwill (capitalized at $2.4 billion) and the value
     of the AIF contracts of the P&C Group (capitalized at $1.7 billion).
     Amortization of these two items, which is being taken on a straight-line
     basis over forty years, reduced pretax income by approximately $25.7
     million in each of the three month periods ended March 31, 2000 and March
     31, 1999.

          General and Administrative Expenses.  General and administrative
     expenses increased from $56.9 million for the three months ended March 31,
     1999 to $61.2 million for the three months ended March 31, 2000, an
     increase of $4.3 million, or 7.6%.  This increase was a result of a $4.7
     million increase in expenses between periods related to a project to
     implement a new financial accounting and reporting system for the Company
     and the P&C Group coupled with an increase in expenses incurred in
     connection with providing management services to the business assumed
     from Foremost.  Partially offsetting these increases in expense between
     periods were $1.4 million of Year 2000 project expenses incurred in the
     first quarter of 1999.  No similar expenses were incurred through
     March 2000.

     Merger Related Expenses.  Expenses incurred by the Company as a result of
the merger between B.A.T's Financial Services Businesses and ZIC amounted to
$0.2 million in the three month period ended March 31, 1999.

     Net Investment Income.  Net investment income increased from $28.8 million
for the three months ended March 31, 1999 to $33.9 million for the three months
ended March 31, 2000, an increase of $5.1 million, or 17.7%, due mainly to an
increase in investment yields together with an increase in the average invested
asset base.

     Net Realized Gains/(Losses).  Net realized gains/(losses) increased $18.0
million, from a $0.2 million loss for the three months ended March 31, 1999 to
a $17.8 million gain for the three months ended March 31, 2000, due primarily
to common stock gains realized within the context of FGI's overall equity
investment strategy.

     Dividends on Preferred Securities of Subsidiary Trusts.   Dividend expense
related to the $500.0 million of QUIPS issued in 1995 was $10.5 million for the
three months ended March 31, 2000 and March 31, 1999.

     Provision for Income Taxes.  Provision for income taxes increased from
$76.8 million for the three months ended March 31, 1999 to $86.0 million for
the three months ended March 31, 2000, an increase of $9.2 million, or 12.0%,
due mainly to an increase in pretax income between periods.

     Management Services Income.  As a result of the foregoing, management
services income increased from $110.0 million for the three months ended March
31, 1999 to $123.9 million for the three months ended March 31, 2000, an
increase of $13.9 million, or 12.6%.

Insurance Subsidiaries

Farmers Re

     Under the quota share reinsurance treaty, Farmers Re assumed $250.0
million of premiums in both the three month periods ended March 31, 2000 and
March 31, 1999.  Losses and loss adjustment expenses incurred under this
treaty were $164.4 million for the three months ended March 31, 2000 and
$167.9 million for the three months ended March 31, 1999 and non-life
reinsurance commissions were $79.3 million for the three months ended March

<PAGE> 18

31, 2000 and $75.8 million for the three months ended March 31, 1999.  Income
before taxes increased $2.7 million from $13.6 million for the three months
ended March 31, 1999 to $16.3 million for the three months ended March 31, 2000
due primarily to increased investment income and realized capital gains.  For
the three month periods ended March 31, 2000 and March 31, 1999,  Farmers Re's
contribution to net income was $11.3 million and $9.9 million, respectively.

Farmers Life

     Total Revenues. Total revenues increased from $179.0 million for the
three months ended March 31, 1999 to $189.6 million for the three months
ended March 31, 2000, an increase of $10.6 million, or 5.9%.

          Life and Annuity Premiums.  Life premiums increased $4.1 million for
     the three months ended March 31, 2000, or 8.6%, over the three months
     ended March 31, 1999.  This increase was due to a 13.3% growth in the
     volume of traditional life insurance in-force.

          Life Policy Charges.  Life policy charges increased $1.7 million for
     the three months ended March 31, 2000, or 3.2%, over the three months
     ended March 31, 1999, reflecting a 2.2% growth in universal life-type
     insurance in-force.

          Net Investment Income.  Net investment income increased $3.5 million
     for the three months ended March 31, 2000, or 4.7%, over the three months
     ended March 31, 1999.  The increase was due to higher bond interest income
     resulting from a 9.8% growth in mean invested assets.

          Net Realized Gains.  Net realized gains increased by $1.3 million,
     from $4.4 million for the three months ended March 31, 1999 to $5.7
     million for the three months ended March 31, 2000.  This increase was due
     to higher gains realized on stock sales.

     Total Operating Expenses.  Total operating expenses increased $7.5 million
for the three months ended March 31, 2000, or 6.0%, over the three months ended
March 31, 1999.

          Life Policyholders' Benefits and Charges.  Life policyholders'
     benefits expense and charges increased $3.5 million for the three months
     ended March 31, 2000, or 4.1%, over three months ended March 31, 1999.

               Policy Benefits.  Policy benefits, which consist primarily of
          death and surrender benefits on life products, decreased $2.9
          million, or 7.6%, for the three months ended March 31, 2000, to $35.2
          million, due to a decrease in death benefits per thousand of
          insurance in-force.

               Increase in Liability for Future Benefits.  Increase in
          liability for future benefits expense increased from $9.4 million
          for the three months ended March 31, 1999 to $14.3 million for the
          three months ended March 31, 2000.  This increase was primarily
          attributable to higher sales volumes related to structured
          settlements and the 13.3% growth in the volume of traditional life
          insurance in-force, particularly whole life.

               Interest Credited to Policyholders.  Interest credited to
          policyholders, which represents the amount credited to policyholder
          funds on deposit under universal life-type contracts and deferred
          annuities, increased from $38.8 million for the three months ended
          March 31, 1999 to $40.3 million for the three months ended
          March 31, 2000, or 3.9%, reflecting growth in the universal life
          and annuity fund balances.

          General Operating Expenses.  General operating expenses increased
     from $38.9 million for the three months ended March 31, 1999 to $42.9
     million for the three months ended March 31, 2000, an increase of $4.0
     million, or 10.3%.

<PAGE> 19

               Amortization of DAC and Value of Life Business Acquired.
          Amortization expense increased from $23.8 million for the three
          months ended March 31, 1999 to $29.7 million for the three months
          ended March 31, 2000, reflecting growth in business, as well as
          differences in the mix of business.

               Net Commissions.  Net commissions expense decreased $3.1 million
          from $4.6 million for the three months ended March 31, 1999 to $1.5
          million for the three months ended March 31, 2000 due to higher
          reinsurance activity.

               General and Administrative Expenses.  General and
          administrative expenses increased from $10.5 million for the three
          months ended March 31, 1999 to $11.7 million for the three months
          ended March 31, 2000, an increase of $1.2 million, or 11.4%, due
          primarily to higher premium taxes.

     Provision for Income Taxes.  Provision for income taxes increased from
$18.7 million for the three months ended March 31, 1999 to $20.0 million for
the three months ended March 31, 2000 due to higher pretax operating income.

     Farmers Life Income.  As a result of the foregoing, Farmers Life income
increased from $35.1 million for the three months ended March 31, 1999 to
$36.9 million for the three months ended March 31, 2000, an increase of $1.8
million, or 5.1%.

Consolidated Net Income

     Consolidated net income of the Company increased from $155.0 million for
the three months ended March 31, 1999 to $172.1 million for the three months
ended March 31, 2000, an increase of $17.1 million, or 11.0%.

Liquidity and Capital Resources

     As of March 31, 2000 and March 31, 1999, the Company held cash and cash
equivalents of $264.8 million and $389.4 million, respectively.  In addition,
as of March 31, 2000, the Company had available revolving credit facilities
enabling it to borrow up to $500.0 million in the event such a need should
arise.

     Net cash provided by operating activities decreased from $306.5 million
for the three months ended March 31, 1999 to $265.9 million for the three
months ended March 31, 2000, a decrease of $40.6 million, or 13.2%.  This
decrease in cash was due to a $133.6 million decrease in current liabilities
between periods, $104.0 million of which resulted from a decrease in
reinsurance payables, and a $21.3 million increase in gains on sales of assets.
Partially offsetting these decreases in cash were a $93.3 million increase in
the provision for non-life losses and loss adjustment expenses between periods
coupled with a $17.0 million increase in consolidated net income between
periods.

     Net cash used in investing activities increased from $159.0 million for
the three months ended March 31, 1999 to $186.6 million for the three months
ended March 31, 2000, a decrease in cash of $27.6 million, or 17.4%.  This
decrease in cash is the result of the purchase of the $370.0 million of
certificates of contribution of the P&C Group (see Note F)and a $27.3 million
increase in purchases of properties.  Partially offsetting these decreases in
cash was a $192.1 million decrease in purchases of investments
available-for-sale coupled with a $188.7 million increase in proceeds received
from sales and maturities of investments available-for-sale in 2000.

     Net cash used in financing activities increased from $85.6 million for
the three months ended March 31, 1999 to $128.0 million for the three months
ended March 31, 2000, resulting in a decrease in cash of $42.4 million, or
49.5%.  This decrease was primarily due to a $22.2 million increase in
dividends paid to stockholders coupled with lower cash flows from annuity
contracts.

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 1999.

<PAGE> 20

                       PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

               The Company is a party to numerous lawsuits arising from its
         normal business activities.  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 any
         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.  In
         addition, the Company is, from time to time, involved as a party to
         various governmental and administrative proceedings.

Item 2.  Changes in Securities.  None.

Item 3.  Defaults upon Senior Securities.  None.

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

               The shareholders of the Company held their annual meeting on
         April 24, 2000.  Martin D. Feinstein, Jason L. Katz, John H. Lynch and
         Keitha T. Schofield were re-elected to the Board of Directors
         (the "Board") of the Company.  New directors elected to the Board
         include Cecilia M. Claudio, Gerald E. Faulwell, Stephen J. Feely,
         Leonard H. Gelfand, Paul N. Hopkins, Stephen J. Leaman, and C. Paul
         Patsis.  The election of each director was unanimous and uncontested.
         No other matters were voted upon at this meeting.

Item 5.  Other Information.  None.

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

             (a)  Exhibits.  None.

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

<PAGE>   21

                             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)

                           May 11, 2000         /s/  Martin D. Feinstein
                           ---------------------------------------------
                           Date                      Martin D. Feinstein
                                                  Chairman of the Board,
                                   President and Chief Executive Officer


                           May 11, 2000         /s/   Gerald E. Faulwell
                           ---------------------------------------------
                           Date                       Gerald E. Faulwell
                                               Senior Vice President and
                                                 Chief Financial Officer