Exhibit 13

           GCI LOGO
           1998 Annual Report



                       [Large GCI logo with three photos]

Corporate Profile

Goran Capital Inc. owns subsidiaries engaged in a number of business activities.
The most  important of these is the property  and  casualty  insurance  business
conducted  in 42  U.S.  states,  Canada  and  Barbados,  on  both a  direct  and
reinsurance basis through a number of subsidiaries  collectively  referred to in
this report as Goran. Goran owns 67% of Symons International Group, Inc. ("SIG")
which began trading on the NASDAQ on November 5, 1996 under the symbol SIGC. SIG
owns IGF Insurance Company of Des Moines,  Iowa which is the fourth largest crop
insurer in the United States. SIG also owns Superior Insurance Company of Tampa,
Florida and Pafco General  Insurance  Company of  Indianapolis,  Indiana.  These
insurers provide nonstandard  automobile  insurance and combined are the twelfth
largest  writers of such insurance in the United States.  The other  subsidiary,
Granite Reinsurance  Company Ltd.  underwrites finite (limited risk) reinsurance
in Bermuda, the United States and Canada.

Goran is a public  company listed on The Toronto Stock Exchange under the symbol
GNC and NASDAQ under the symbol GNCNF.

All dollar amounts shown in this report are in U.S.  currency  unless  otherwise
indicated.  The  conversion  rates  for 1998 and as of  December  31,  1998 were
$1.4826 and $1.5310, respectively.


Table of Contents


Financial Highlights
Chairman's Report
Management's Discussion and Analysis
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Auditors' Report
Corporate Directory
Subsidiaries and Branch Offices
Shareholder Information



[Bar Graph to be included]

                                        1

<PAGE>

Financial Highlights
(dollars in thousands, except per share amounts)
For the Years Ended December 31,
<TABLE>
<CAPTION>

                                                        1998       1997        1996       1995(1)    1994(1)

<S>                                                   <C>        <C>         <C>         <C>        <C>     
Gross premium revenue                                 $546,771   $448,982    $299,376    $146,303   $126,978

Earnings (loss) from continuing operations             $(8,999)   $15,983     $14,127    $6,652       $5,214

Earnings (loss) per share from continuing operations    $(1.54)     $2.86       $2.67     $1.33        $1.07

Shareholders' Equity                                   $49,725    $60,332     $47,258   $12,761       $5,695 

Book Value per share                                     $8.48     $10.53       $8.74     $2.52        $1.16

Market Value per share                                  $10.38     $29.41      $20.08     $8.57        $5.20

</TABLE>
(1)  1994 and 1995  figures  have been  restated to reflect accounting  policy 
     changes adopted in 1998 (see Note 2(l) to the financial statements); 1996
     and 1997 figures were not materially impacted by the changes.


                               CORPORATE STRUCTURE

Goran Capital, Inc.
Toronto, Ontario
("Goran" or the "Company")
|
------------------------------------------------------------------------
|
|
67%  Owned              100% Owned            100% Owned      100% Owned
Symons International    Granite Reinsurance   Granite         Symons
Group, Inc.             Company, Ltd.         Insurance       International
Indianapolis, Indiana   Barbados              Company         Group, Inc.
("SIG")                 ("Granite Re")        ("Granite")     Florida
|------------------------------|
IGF Holdings            GGS Management, Inc.
("IGFH")                ("GGSH" or "GGS Management")
|                                         |
IGF Insurance
Company
("IGF")      ---------------------------------------------------
             |                                       |
             Pafco General                     Superior Insurance
             Insurance Company                 Company
             ("Pafco")                         ("Superior")
                                                      |
                                      -----------------------------
                                      |                           |
                                      Superior Guaranty    Superior American
                                      Insurance Company    Insurance Company




                                        2

<PAGE>

Chairman's Report to our Shareholders

Greetings:

GORAN MILESTONES:

Usually I am in a good frame of mind when I sit down to rough out the Chairman's
comments  for the  annual  report.  This year I am far less happy for as you are
aware, our results, at least with respect to the profit aspects, are less than I
would have liked.

You will be aware of that, yet many of our shareholders are "profit" trained and
while that is not a bad formula for investing,  it is not the only criterion for
considering the merits of an insurance company.  Scattered in among our results,
there is a statement to the effect that Gross Premium rose to $546.8  million in
1998,  up 22% from $449 million in 1997.  We have  concentrated  on  eliminating
those factors that had such a negative effect on our results.

When we acquired  the crop  insurance  book of CNA, we had to close  offices and
take other  measures to reduce  redundant  personnel at a cost of $3.5  million.
During 1998 we upgraded our computer and reporting  systems at an operating cost
in excess of $5  million.  Adding to these  non-recurring  items,  a further $12
million in reserve  increases for years prior due to projected  increases in the
cost of auto repairs, and higher liability  settlements.  As new business cures,
it becomes  better with age. At the same time,  the cost to put the  business on
the books reduces thus improving our profitability. Today we have a company with
one of the lowest operating costs in both non-standard  automobile insurance and
crop  insurance.  With this low operating  cost, we can compete with the best of
our competition.

Those added expenses are in part, the cost of acquisition.  What happened to our
crop insurers in 1998 was catastrophic. In the year of the worst loss record for
the industry, we took our share of hail and hurricane damage with losses in 1998
exceeding premiums by $16 million. We do not expect to see anything like that in
1999, in fact we are optimistic about the crop year ahead.

There have been a number of changes in the crop insurance  industry with respect
to legislation put into effect by the U.S.  government to increase the subsidies
to farmers.  The effect on the crop  insurance  sector will increase the federal
government  MPCI.  insurance  program  from $1.8 billion to  approximately  $2.2
billion for 1999.  This has a direct  effect on the premium  revenues we receive
and with the  acquisition  of new  business in 1998 our  premium  levels will be
proportionately higher. The effect of this is to proportionately reduce costs as
a result of the size of the  business  we are  handling.  We have taken an ultra
conservative  approach to the  underwriting  of the business  through the use of
broader  terms and scope of coverage  available to us now from the  re-insurance
markets.

As you may recall,  up to the end of the second  quarter of 1998, we were moving
along nicely, anticipating good results represented by volume gains in both crop
and  non-standard  auto insurance.  Halfway  through the year, the  non-standard
automobile  insurance writers took a very competitive  attitude to the business,
forcing  many of the  smaller  insurers to cut rates to remain  competitive  and
protect  their market share.  There is no sure reason for this action,  but many
felt that the leading  underwriter of non-standard auto,  Progressive  Insurance
Company's decision to go direct,  cutting out many agents and reducing rates had
some effect on the psyche of the underwriting fraternity.

The summer months  brought in the most severe  weather  patterns to hit the crop
insurance  companies.   Devastating  heat  and  drought  in  Texas  followed  by
hurricanes and storms with large hail losses  throughout the U.S. To add to this
burden,  world commodity prices tumbled,  leading us to the end of the crop year
with  very  poor  underwriting  results  despite  a large  gain  in our  book of
business.

A little more information on our crop insurance  business.  When we acquired IGF
Insurance  Company in 1990,  it wrote $23 million of premiums  and there were 55
crop insurers.  In 1999 we will write in excess of approximately $300 million of
crop  business  and  are the  fourth  ranked  company  in the  field  of 17 crop
insurers. The Gross Premium for the industry has grown from $1.3 billion in 1990
to $2.2  billion  in  1998.  With the  recently  announced  federal  legislation
increasing the support for farmers buying crop insurance by $400 million in 1999
and an additional $1.5 billion for the crop year 2001 onward,  a large number of
farmers who  heretofore did not buy crop insurance will find the incentive to do
so through the generosity of their  government.  We will also be the benefactors
of this largesse for our share of the business should be  considerably  enhanced
in view of the gains we have made in our share of the market.  Oh yes, we expect
to see better underwriting results in 1999.


                                        3

<PAGE>

We have some cause for optimism in 1999, for among other factors:

  o   Our crop insurance  sales are showing the result early in the year that
      would signal a banner year income.

  o   We increased  the  amount  of  re-insurance  applicable  to our  crop
      insurance enterprise to reduce exposure to catastrophic losses.

  o   Crop insurance has two components,  fee income and premium  income.  We
      developed Geo AgPLUS, a fee based innovative soil analysis service using
      GPS (global positioning system) and through the advent of other fee based
      products, we are increasing our fee income as it relates to our risk
      income.

  o   We improved our operational staff by several new appointments and added
      an in-house senior actuary to our professional staff.

  o   At considerable but necessary expense,  we developed and are installing a
      state of the art computer system to replace one that was proving costly
      and non-compatible to our increased needs.

I anticipate that I will have a happier time writing the next Chairman's Report,
probably my last,  but I must not forget to thank those ladies and gentlemen who
have helped our companies  through the rough passage of 1998,  our Board members
and our loyal staff.

Ladies and gentlemen, my heartfelt thanks to all of you.


                                        4

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

     Goran  Capital  Inc.  (the  "Company" or "Goran")  underwrites  and markets
nonstandard  private  passenger  automobile  insurance and crop  insurance.  The
Company also provides finite risk, stop loss and quota share reinsurance.
Acquisitions and Public Offerings

        On April 30, 1996,  the Company  purchased  the  operations  of Superior
Insurance Company for $66.6 million in cash (the  "Acquisition").  Funds for the
Acquisition  were provided from funds  affiliated  with Goldman Sachs and a bank
term loan of $48  million.  Goldman  Sachs was bought out and the bank term loan
was repaid in August 1997.

     On  November  5, 1996,  SIG issued  3,450,000  shares in an initial  public
offering of 33% of its stock at $12.50 per share.

     On November 12, 1997, SIG issued $135 million of Trust Preferred Securities
at 9.50%.  The proceeds of this  offering  were used to purchase  Goldman  Sachs
minority interest share of the nonstandard automobile operations, repay the term
loan used to acquire Superior and provide capital to the nonstandard  automobile
division for future growth.

        On March 2, 1998, the Company  announced that it had signed an agreement
with  CNA to  assume  its  multi-peril  and  crop  hail  operations.  CNA  wrote
approximately  $80 million of multi-peril  and crop hail  insurance  business in
1997. The Company will reinsure a small portion of the Company's total crop book
of business  (approximately  22% MPCI and 15% crop hail) to CNA. Starting in the
year 2000,  assuming no event of change in control as defined in the  agreement,
the Company can purchase this  reinsurance  from CNA through a call provision or
CNA can require the Company to buy the premiums reinsured to CNA.  Regardless of
the method of takeout  of CNA,  CNA must not  compete in MPCI or crop hail for a
period of time.  There was no purchase price.  The formula for the buyout in the
year 2000 is based on a multiple of average  pre-tax  earnings that CNA received
from reinsuring the Company's book of business.

Nonstandard Automobile Insurance Operations

        The Company,  through Pafco and  Superior,  is engaged in the writing of
insurance  coverage on automobile  physical  damage and  liability  policies for
"nonstandard  risks".  Nonstandard insureds are those individuals who are unable
to obtain  insurance  coverage  through  standard market carriers due to factors
such as poor  premium  payment  history,  driving  experience,  record  of prior
accidents or driving violations,  particular  occupation or type of vehicle. The
Company offers several  different  policies which are directed towards different
classes of risk within the  nonstandard  market.  Premium rates for  nonstandard
risks are higher than for standard  risks.  Since it can be viewed as a residual
market,  the size of the  nonstandard  private  passenger  automobile  insurance
market  changes  with the  insurance  environment  and grows  when the  standard
coverage becomes more  restrictive.  Nonstandard  policies have relatively short
policy  periods and low limits of liability.  Due to the low limits of coverage,
the period of time that elapses  between the occurrence and settlement of losses
under nonstandard policies is shorter than many other types of insurance.  Also,
since the nonstandard  automobile insurance business typically experiences lower
rates of  retention  than  standard  automobile  insurance,  the  number  of new
policyholders  underwritten by nonstandard  automobile  insurance  carriers each
year is substantially greater than the number of new policyholders  underwritten
by standard carriers.


                                       5

<PAGE>

                    [photographs of crops down right margin]

Crop Insurance Operations

General

        The two principal  components of the Company's crop  insurance  business
are Multi-Peril Crop Insurance ("MPCI") and private named peril,  primarily crop
hail  insurance.  Crop  insurance  is purchased by farmers to reduce the risk of
crop loss  from  adverse  weather  and other  uncontrollable  events.  Farms are
subject to drought, floods and other natural disasters that can cause widespread
crop losses and, in severe cases,  force farmers out of business.  Historically,
one out of every twelve acres planted by farmers has not been harvested  because
of adverse  weather or other  natural  disasters.  Because  many farmers rely on
credit  to  finance  their  purchases  of  such  agricultural  inputs  as  seed,
fertilizer,  machinery  and fuel,  the loss of a crop to a natural  disaster can
reduce their ability to repay these loans and to find sources of funding for the
following year's operating expenses.

        The  Company,  like other  private  insurers  participating  in the MPCI
program,  generates  revenues  from the MPCI  program  in two  ways.  First,  it
markets,  issues and administers policies, for which it receives  administrative
fees; and second,  it participates in a  profit-sharing  arrangement in which it
receives  from the  government  a portion  of the  aggregate  profit,  or pays a
portion of the aggregate loss, in respect of the business it writes. The Company
writes MPCI and crop hail  insurance  through 2,007  independent  agencies in 43
states.

        In addition to MPCI, the Company offers stand alone crop hail insurance,
which insures growing crops against damage  resulting from hail storms and which
involves no federal  participation,  as well as its  proprietary  product  which
combines the application and  underwriting  process for MPCI and hail coverages.
This  product  tends to produce less  volatile  loss ratios than the stand alone
product since the combined product  generally insures a greater number of acres,
thereby  spreading the risk of damage over a larger insured area.  Approximately
half of the  Company's  hail  policies  are  written in  combination  with MPCI.
Although  both crop hail and MPCI provide  coverage  against hail damage,  under
crop hail coverages farmers can receive payments for hail damage which would not
be severe enough to require a payment under an MPCI policy. The Company believes
that  offering  crop hail  insurance  enables it to sell more  policies  than it
otherwise would.

        In  addition  to crop hail  insurance,  the  Company  also sells a small
volume of insurance against crop damage from other specific named perils.  These
products  cover  specific  crops and are  generally  written  on terms  that are
specific to the kind of crop and  farming  practice  involved  and the amount of
actuarial  data   available.   The  Company  plans  to  seek  potential   growth
opportunities  in this niche market by  developing  basic  policies on a diverse
number of named crops grown in a variety of geographic  areas and to offer these
policies primarily to large producers through certain select agents.

        AgPI(R) is business interruption insurance that protects businesses that
depend  upon a  steady  flow of a crop  (or  crops)  to stay in  business.  This
protection is available to those involved in agribusiness  who are a step beyond
the farm gate, such as elevator  operators,  custom harvesters,  cotton gins and
other  processing  businesses  that  are  dependent  upon a single  supplier  of
products, (i.e., popping corn).

        These  businesses  have been able to buy  normal  business  interruption
insurance to protect  against  on-site  calamities such as a fire, wind storm or
tornado.  But until now,  they have been totally  unprotected  by the  insurance
industry if they  encounter  a  production  shortfall  in their trade area which
limited their ability to bring raw materials to their operation.  AgPI(R) allows
the agricultural business to protect against a disruption in the flow of the raw
materials it depends on. AgPI(R) was formally introduced at the beginning of the
1998 crop year.

        Geo  AgPLUS(TM)  provides  to the farmer  measuring,  gridding  and soil
sampling  services  combined  with  fertility  maps  and  the  software  that is
necessary to run their  precision  farming  program.  Grid soil  sampling,  when
combined with precision farming technology,  allows the farmer to apply just the
right amount of fertilization,  thus balancing soil nutrients for a maximum crop
yield.  Precision farming technology increases the yield to the farmer,  reduces
the cost of unnecessary  fertilization  and enhances the environment by reducing
overflows  of  fertilization  into  the  ecosystem.  Geo  AgPLUS(TM)  is an  IGF
Insurance Company  trademarked  precision farming division that is now marketing
its fee based services to the farmer.



                                        6

<PAGE>

Certain Accounting Policies for Crop Insurance Operations

        MPCI is a  government-sponsored  program with accounting treatment which
differs in certain  respects  from the more  traditional  property  and casualty
insurance  lines.  For  income  statement   purposes  under  generally  accepted
accounting principles, gross premiums written consist of the aggregate amount of
MPCI premiums paid by farmers for buy-up  coverage  (MPCI  coverage in excess of
CAT Coverage - the minimum  available level of MPCI  Coverage),  and any related
federal premium subsidies,  but do not include MPCI premium on CAT Coverage.  By
contrast,  net premiums  written do not include any MPCI  premiums or subsidies,
all of which are deemed to be ceded to the Federal  Crop  Insurance  Corporation
("FCIC") as a reinsurer.  The Company's profit or loss from its MPCI business is
determined  after the crop season ends on the basis of a complex  profit sharing
formula  established  by law and the FCIC.  For  generally  accepted  accounting
principles income statement purposes,  any such profit or loss sharing earned or
payable by the Company is treated as an adjustment to commission  expense and is
included in policy acquisition and general and administrative expenses.

        The Company  also  receives  from the FCIC (i) an expense  reimbursement
payment equal to a percentage of gross premiums written for each Buy-Up Coverage
policy  it  writes  ("Buy-Up  Expense  Reimbursement  Payment")  and (ii) an LAE
reimbursement  payment  equal  to 13.0% of MPCI  Imputed  Premiums  for each CAT
Coverage policy it writes (the "CAT LAE  Reimbursement  Payment").  For 1998 and
1997,  the Buy-Up  Expense  Reimbursement  Payment  has been set at 27% and 29%,
respectively,  of the MPCI Premium. For generally accepted accounting principles
income statement purposes,  the Buy-Up Expense  Reimbursement Payment is treated
as  a  contribution  to  income  and  reflected  as  an  offset  against  policy
acquisition and general and administrative  expenses.  The CAT LAE Reimbursement
Payment is, for income statement purposes, recorded as an offset against LAE, up
to the actual amount of LAE incurred by the Company in respect of such policies,
and the remainder of the payment, if any, is recorded as Other Income.

        In June 1998,  the  United  States  Congress  passed  legislation  which
provided permanent funding for the crop insurance industry.  However,  beginning
with the 1999 crop year, the Buy-Up Expense Reimbursement Payment was reduced to
24.5%,  the CAT LAE  Reimbursement  Payment  was  reduced to 11% and the $60 CAT
coverage fee will no longer go to the insurance companies.

        The Company expects to more than offset these reductions  through growth
in fee income from  non-federally  subsidized  programs  such as AgPI(R) and Geo
AgPLUS(TM)  initiated  in 1998.  The Company has also been working to reduce its
costs.  While  the  Company  fully  believes  it  can  more  than  offset  these
reductions,  there is no assurance the Company will be successful in its efforts
or that further reductions in federal reimbursements will not continue to occur.

        In 1996, the Company  instituted a policy of recognizing  (i) 35% of its
estimated MPCI gross premiums written for each of the first and second quarters,
20% for the  third  quarter  and 10% for the  fourth  quarter,  (ii)  commission
expense at the  applicable  rate of MPCI gross premiums  written  recognized and
(iii) Buy-Up Expense Reimbursement at the applicable rate of MPCI gross premiums
written  recognized along with normal operating  expenses incurred in connection
with  premium  writings.  In  the  third  quarter,  if a  sufficient  volume  of
policyholder  acreage  reports have been  received and processed by the Company,
the Company's  policy is to recognize MPCI gross premiums  written for the first
nine  months  based on a  re-estimate  which  takes into  account  actual  gross
premiums  processed.  If an insufficient  volume of policies has been processed,
the  Company's  policy is to recognize in the third quarter 20% of its full year
estimate of MPCI gross premiums written,  unless other  circumstances  require a
different approach. The remaining amount of gross premiums written is recognized
in the fourth  quarter,  when all  amounts  are  reconciled.  The  Company  also
recognizes the MPCI  underwriting  gain or loss during each quarter,  reflecting
the Company's  best estimate of the amount of such gain or loss to be recognized
for the full year,  based on, among other  things,  historical  results,  plus a
provision  for  adverse  developments.  In the  third  and  fourth  quarters,  a
reconciliation  amount is recognized for the underwriting  gain or loss based on
final premium and latest available loss information.

                 [photographs of automobiles down right margin]

                                        7

<PAGE>

Selected Segment Data of the Company

        The following table presents  historical  segment data for the Company's
nonstandard automobile and crop insurance operations. This data does not reflect
results of operations  attributable  to corporate  overhead,  interest costs and
amortization of intangibles or commercial or reinsurance  insurance  operations,
nor does it include the results of operations of Superior prior to May 1, 1996.

<TABLE>
<CAPTION>                                                                                                       
Nonstandard - Automobile Insurance Operations:                                     Year ended December 31,
(in thousands, except ratios)                                                     1998       1997       1996

<S>                                                                              <C>        <C>        <C>     
Gross premiums written                                                           $303,737   $323,915   $187,176
                                                                                  =======    =======    =======
Net premiums written                                                             $269,741   $256,745   $186,579
                                                                                  =======    =======    =======
Net premiums earned                                                              $264,022   $251,020   $168,746

Fee income                                                                         16,431     15,515      7,578

Net investment income                                                              11,958     10,969      6,489

Net realized capital gain (loss)                                                    4,124      9,462     (1,014)
                                                                                  -------    -------    -------
Total Revenues                                                                    296,535    286,966    181,799
                                                                                  -------    -------    -------
Losses and loss adjustment expenses                                               217,916    195,900    124,385

Policy acquisition and general and administrative expenses                         73,346     72,463     46,796
                                                                                  -------    -------    -------
Total Expenses                                                                    291,262    268,363    171,181
                                                                                  -------    -------    -------
Earnings before income taxes                                                       $5,273    $18,603    $10,618
                                                                                  =======    =======    =======
GAAP RATIOS (Nonstandard Automobile Only)

Loss and LAE ratio                                                                   82.5%      78.0%      73.7%
                     
Expense ratio, net of billing fees                                                   21.6%      22.7%      23.2%
                                                                                    -----      -----      -----
Combined ratio                                                                      104.1%     100.7%      96.9%
                                                                                    =====      =====      =====
Crop Insurance Operations:

Gross premiums written                                                           $243,026    $126,401  $110,059
                                                                                  =======     =======   =======
Net premiums written                                                              $62,467     $20,796   $23,013
                                                                                  =======     =======   =======
Net premiums earned                                                               $60,901     $20,794   $23,013

Fee income                                                                          3,772       2,276     1,672

Net investment income                                                                 275         191       181

Net realized capital gain (loss)                                                      217         (18)       (1)
                                                                                  -------     -------    ------
Total Revenues                                                                     65,165      23,243    24,865
                                                                                  -------     -------    ------
Losses and loss adjustment expenses                                                52,550      16,550    12,724

Policy acquisition and general and administrative expenses (1)                     21,906     (14,404)   (6,095)

Interest and amortization of intangibles                                              502         235       551
                                                                                  -------     -------    ------
Total Expenses                                                                     74,958       2,381     7,180
                                                                                  -------     -------    ------
Earnings (loss) before income taxes                                               $(9,793)    $20,862   $17,685
                                                                                  =======     =======   =======
Statutory Capital and Surplus:

Pafco                                                                             $16,275     $19,924   $18,112
IGF                                                                               $31,234     $42,809   $29,412
Superior                                                                          $57,571     $65,146   $57,121

</TABLE>

(1)  Negative  crop   expenses   are  caused  by  inclusion  of  MPCI  expense
     reimbursements and underwriting gain.


                                        8

<PAGE>

RESULTS OF OPERATIONS

Overview

1998 Compared To 1997

The Company  recorded a net loss from  continuing  operations of $(8,999,000) or
$(1.54) per share (basic) compared to net earnings from continuing operations of
$15,983,000  or $2.86 per share in 1997.  In the  fourth  quarter  of 1997,  the
Company  discontinued  the  operations  of SIGFL and sold this book of  business
January  1, 1999.  The sale  results  from the  Company's  decision  to focus on
nonstandard automobile,  crop and reinsurance operations. The Company recorded a
loss from  discontinued  operations  of $2,937,000 in 1998 compared to a loss of
$3,545,000  in 1997.  The loss  from  continuing  operations  in 1998 was due to
reduced earnings in both crop and nonstandard automobile operations. Results for
1998 for the crop operations were  significantly  impacted by catastrophic  crop
hail losses  primarily from Hurricane Bonnie and other weather related events of
approximately $14 million pre-tax. Contributing to the lower results were higher
than expected commission and integration costs related to the CNA transaction of
approximately  $3.0 million pre-tax and a lower underwriting gain on MPCI (11.2%
in 1998 versus 25.0% in 1997) due  primarily  to severe  drought  conditions  in
certain  parts of the  country,  overly  wet  conditions  in other  parts of the
country and higher  frequency of Crop  Revenue  Coverage  ("CRC")  claims due to
extremely low commodity prices.  Results for 1998 for the nonstandard automobile
operations were impacted by a higher loss ratio and lower premium volume.  These
were the result of problems encountered with timely rate filings, implementation
of the Company's new operating system and competitive pressure. The Company also
increased loss reserves for prior accident years by approximately $13 million in
1998 due to adverse loss development.

1997 Compared To 1996

The Company recorded earnings from continuing operations of $15,983,000 or $2.86
per share, respectively in 1997. This is approximately a 13.1% and 7.1% increase
from 1996  comparable  amounts of  $14,127,000  or $2.67 per share.  The Company
recorded a loss from discontinued operations of $3,545,000 in 1997 compared to a
loss of $1,000,000 in 1996.  The Company also recorded a gain of  $18,169,000 in
1996 from the sale of SIG stock in its IPO. That gain is not included as part of
earnings  from  continuing  operations.  The  nonstandard  automobile  insurance
segment demonstrated improved earnings due to continued premium growth, improved
expense ratios and higher realized gains from investment  sales.  Premium growth
in nonstandard  automobile  was generated  from increased  pressure on uninsured
motorists to obtain  insurance,  expansion into new states and increased  market
share penetration.  During 1997, the Company increased nonstandard auto reserves
for both prior and current accident years. The total increase for prior accident
years was  approximately  $10  million  due to  adverse  loss  development.  The
improvement  in crop  insurance  earnings  relates to growth in market share and
favorable  underwriting results.  Growth in market share occurred in all product
lines  for crop and is the  result  of  improved  marketing  and  agent  service
efforts.  Record underwriting  results were due to favorable crop conditions and
continued improvement in risk selection.

Years Ended December 31, 1998 and 1997

Gross Premiums Written

        Consolidated  Gross  Premiums  Written  increased  21.8%  in 1998 due to
growth in the crop operations  from the integration of CNA,  internal growth and
introduction  of a new  product  line,  AgPI(R).  Crop  Gross  Premiums  Written
increased  92.3% in 1998 from 1997.  The following  represents  the breakdown of
crop Gross Premiums Written by line:

<TABLE>
<CAPTION>

                                                1998           1997

<S>                                           <C>            <C>    
CAT imputed                                   $50,127        $33,294
MPCI                                          157,225         88,052
Crop hail and named perils                     76,198         38,349
Named perils                                    2,074            -
AgPI(R)                                         7,529            -  
                                              -------        -------
                                              293,153        159,695
Less CAT imputed                              (50,127)       (33,294)
                                              -------        -------
Total                                        $243,026       $126,401
                                              =======        =======
</TABLE>

                                        9

<PAGE>

    Nonstandard  automobile  Gross  Premiums  Written  decreased 6.2% in 1998 as
compared to 1997 due  primarily  to reduced  volume in the states of Florida and
California for the reasons previously cited.

Net Premiums Written

    Net Premiums Written increased in 1998 as compared to 1997 due to the growth
in Gross Premiums Written offset by quota share reinsurance.

    In 1998,  the Company ceded 10% of its  nonstandard  automobile  premiums as
part of a quota share treaty.  This treaty and all previous quota share treaties
for 1997 and 1998 were  commuted  effective  October  1,  1998 with the  Company
receiving back the unearned premiums on those treaties as of that date and their
respective  loss  reserves.  For the first three  quarters of 1997,  the Company
ceded 20% of nonstandard  automobile  premiums and ceded 25% of such premiums in
the fourth  quarter of 1997.  In 1998,  the  Company  ceded 25% of its crop hail
premiums as part of a quota share treaty as compared to 40% in 1997. Named peril
premiums  were  ceded at a 50% rate in both  1998 and 1997  under a quota  share
treaty.  In the fourth  quarter of 1999,  SIG ceded  $22,250,000  of nonstandard
automobile premiums to Granite Re.

Net Premiums Earned

    Net  Premiums  Earned  increased  in  1998 as  compared  to the  prior  year
reflecting  growth in Gross and Net  Premiums  Written and  reduced  quota share
reliance.  The ratio of Net  Premiums  Earned to Net  Premiums  Written  for the
nonstandard automobile segment was 97.9% in 1998 as compared to 97.8% in 1997.

Fee Income

    Fee  income  increased  13.4%  in 1998  compared  to  1997.  Fee  income  on
nonstandard  automobile  operations  increased  as a result of higher  fees as a
percentage of gross premiums written, 5.41% in 1998 and 4.79% in 1997, offset by
lower premium volume.  Crop fees primarily  include CAT fees. CAT fees increased
in 1998 as compared to 1997 due to growth in premium  volume.  Fees in 1998 also
increased due to introduction of Geo AgPLUS(TM) and other processing fees.

Net Investment Income

    Net investment income increased 4.9% in 1998 compared to 1997. Such increase
was due to greater  invested assets offset  somewhat by declining  yields due to
market conditions.

Net Realized Capital Gains

    Capital  transaction  activity  primarily reflects activity in the Company's
equity  portfolio.  The higher level of gains in 1997 reflects the strong market
conditions  during  that  year.  Gains  decreased  in 1998 as a result of market
conditions. In the fourth quarter of 1998, the Company significantly reduced its
exposure to equities  reflecting  the Company's  concern with the market and its
desire to increase investment income.

Losses and LAE

    The Loss and LAE Ratio for the nonstandard  automobile segment was 82.5% for
1998 as compared  to 78.0% for 1997.  The Crop Hail Loss and LAE Ratio was 79.4%
in 1998  compared to 75.1% in 1997.  The  increase in the Loss and LAE Ratio for
the nonstandard  automobile segment reflects adverse  development on prior years
of  approximately  5.0%. The Company  estimates its nonstandard  automobile 1998
accident  year loss ratio was 77.5% as compared to 76.1% in accident  year 1997.
The  increase in the accident  year loss ratio  results from product and pricing
decisions and increases in frequency in certain  product lines.  The increase in
the Crop Hail Loss and LAE Ratio  includes  $10.7  million  for the  effects  of
catastrophic  events net of reinsurance  recoveries.  The Crop Hail Loss and LAE
Ratio prior to reinsurance  recoveries  was 100.6%.  The named perils loss ratio
was 100% and the  AgPI(R)  loss  ratio was 100% in 1998 due to losses on certain
coverages due to unusual weather related events estimated to be $3.3 million.


                                       10

<PAGE>

Policy Acquisition and General and Administrative Expenses

    Policy acquisition and general and administrative expenses have increased as
a result of the  increased  volume of business  produced by the Company.  Policy
acquisition  and general and  administrative  expenses rose to  $103,926,000  or
30.4% of Net Premiums  Earned in 1998  compared to  $63,344,000  or 22.9% of Net
Premiums  Earned for 1997. The increase in the Company's  overall  expense ratio
reflects certain changes in the Company's crop operations as follows:

<TABLE>
<CAPTION>
                                                    1998           1997

<S>                                               <C>            <C>      
MPCI expense reimbursements                       $(37,982)      $(24,788)
MPCI underwriting gain, net of stop loss
   and CNA reinsurance in 1998                     (14,902)       (26,589)
Commissions                                         50,089         25,713
Ceding commission income                            (6,899)        (5,030)
Operating expenses                                  31,600         16,290
                                                    ------         ------
                                                   $21,906       $(14,404)
                                                    ======         ======
</TABLE>

    MPCI expense  reimbursements  declined to 24.2% of MPCI premiums for 1998 as
compared  to  28.2%  in 1997  due to  federally  mandated  reductions.  The MPCI
underwriting  gain,  net of stop loss costs,  decreased  to 9.5% of CAT and MPCI
premiums in 1998 (after adding back CNA share of $4,861,000 in 1998) compared to
21.9% in 1997 due to severe  drought  in certain  sections  of the  country  and
overly wet  conditions in other sections of the country.  The Company  considers
the 1998 underwriting gain to be well below average while the 1997 gain was well
above  average.  Commission  expense as a percentage of gross  written  premiums
(including CAT) increased in 1998 to 17.1% of gross written premiums compared to
16.1% in 1997 due to the integration of CNA and competitive  industry  pressure.
Ceding commission income increased in 1998 compared to 1997 due to a increase in
ceded  premiums.  Operating  expenses as a percentage of gross written  premiums
(including  CAT)  increased in 1998 to 10.8%  compared to 10.2% 1997.  Operating
expenses  in  1998  include  $3  million,  or  1.0% of  gross  written  premiums
(including CAT), of one time costs primarily  related to the integration of CNA.
Operating expenses in 1998 also include a $3.2 million reserve, or 1.1% of gross
written premiums (including CAT), for potential processing errors during 1998 on
assumed premiums from CNA.

    Nonstandard  automobile  expenses  net of fee  income  were  21.6% of earned
premiums in 1998 compared to 22.7% in 1997.

Amortization of Intangibles

    Amortization  of  intangibles  includes  goodwill  from the  acquisition  of
Superior,  additional  goodwill from the  acquisition  of the minority  interest
portion of GGSH and the acquisition of NACU, debt or preferred security issuance
costs and  organizational  costs. The increase in 1998 over 1997 reflects a full
year's impact of  amortization  of goodwill  associated with the purchase of the
minority  interest  position in GGSH and a full year's  amortization of deferred
issuance costs on the Preferred Securities.

Interest Expense

    Interest  expense in 1998  represents the crop  segment's  borrowings on its
seasonal  line of credit.  Interest  expense for 1997 includes both interest for
the crop  segment  and  interest on the GGSH Senior  Credit  Facility  which was
repaid in 1997 from the proceeds of the Preferred Securities Offering.

Income Tax Expense (Benefit)

    The variance in the effective tax rate from the U.S. federal  statutory rate
of 35% is due primarily to tax-exempt income and nondeductible costs,  primarily
goodwill amortization.

Distributions on Preferred Securities

    Distributions on Preferred  Securities are calculated at 9.5% net of federal
income taxes from the offering date of August 12, 1997.

                                       11

<PAGE>

Years Ended December 31, 1997 and 1996

Gross Premiums Written

    Consolidated Gross Premiums Written increased 50.0% in 1997 due to growth in
both the nonstandard  automobile and crop segments.  Gross Premiums  Written for
the nonstandard  automobile  segment increased 73.1% in 1997. While a portion of
this increase relates to four additional  months of premium in 1997 of Superior,
additional  premium growth relates to internal  growth due to improved  service,
certain product improvements,  tougher uninsured motorist laws in states such as
California  and Florida and entrance  into new states such as Nevada and Oregon.
Such increase was primarily due to volume rather than rate  increases,  although
the Company  adjusts rates on an ongoing basis.  Gross Premiums  Written for the
crop  segment  increased  14.5%  in 1997.  Such  increase  was due to  continued
industry privatization and aggressive marketing efforts,  resulting in continued
increase in market share. Remaining gross written premiums represent reinsurance
business.

Net Premiums Written

    Net Premiums Written increased in 1997 as compared to 1996 due to the growth
in Gross Premiums Written offset by quota share reinsurance.

    For the first three  quarters of 1997 the Company  ceded 20% of  nonstandard
automobile  premiums and ceded 25% of such  premiums in the fourth  quarter.  No
such treaty was in effect  during 1996.  In 1997,  the Company ceded 40% of crop
hail premiums as part of a quota share treaty.  In 1996, crop hail premiums were
ceded  at a rate of  10%.  Granite  Re  participated  in 10% of the  nonstandard
automobile  quota share treaties but did not  participate in the crop hail quota
share treaties.

Net Premiums Earned

    Net  Premiums  Earned  increased  in 1997 as  compared  to the  prior  year,
reflecting the strong growth in Gross Written  Premiums offset by the effects of
the  nonstandard  automobile  and crop hail quota share  treaties.  Net premiums
earned to net premiums written for the nonstandard  automobile segment was 97.8%
in 1997 as compared to 90.4% in 1996. The increase in the earned ratio is due to
higher premium growth earlier in 1997.

Fee Income

    Fee income increased  $8,535,000 in 1997 compared to 1996. Such increase was
due to billing fee income on nonstandard automobile business from an increase in
in-force policy count. There was also an increase in the receipt of CAT Coverage
Fees and CAT LAE Reimbursement Payments due to higher premium volume.

Net Investment Income

    Net investment  income  increased  $5,032,000 in 1997 compared to 1996. Such
increase was due primarily  from  additional  months of  investment  income from
Superior but also due to greater  invested assets  resulting from premium growth
and higher profitability.

Net Realized Capital Gains (Loss)

    Realized gains of $9,393,000 in 1997 were due to the significant strength of
the  equity  markets in 1997 and the  Company's  position  to  realize  gains as
securities had reached targeted pricing levels.

Losses and LAE

    The Loss and LAE Ratio for the nonstandard  automobile segment was 78.0% for
1997 as compared to 73.7% for 1996. The Crop Hail Loss and LAE Ratio in 1997 was
75.1%  compared to 59.2% in 1996. The increase in the Loss and LAE Ratio for the
nonstandard  automobile  segment  reflects  the growth in  premium  volume in an
effort to  increase  market  share and  improve  economies  of scale,  increased
physical damage  severity costs and certain  pending rate  increases.  Deficient
reserve  development was  approximately $10 million in 1997. The increase in the
crop hail loss  ratio was the  result of storm  damage in the third  quarter  in
certain eastern states on new business obtained in 1997.

                                       12

<PAGE>

Policy Acquisition and General and Administrative Expenses

    Policy  acquisition and general and  administrative  expenses increased as a
result of the  increased  volume of  business  produced by the  Company.  Policy
acquisition and general and administrative expenses rose to $63,344,000 or 22.9%
of Net Premiums Earned for 1997 compared to $48,647,000 or 23.3% of Net Premiums
Earned in 1996.  The Expense  Ratio,  net of billing fees,  for the  nonstandard
automobile segment improved to 22.7% for 1997 as compared to 23.2% for 1996.

    Due to the accounting for the crop insurance segment, operating expenses for
1997  includes  a  contribution  to  earnings  of  $14,404,000  as  compared  to
$6,095,000   for  1996.   Such  increase  was  due  to  greater  Buy-up  Expense
Reimbursement  Payments  and MPCI  underwriting  gain due to  increased  premium
volumes and more favorable underwriting results.

Amortization of Intangibles

    The  increase  in 1997 over  1996  reflects  the  effects  of the  Preferred
Securities Offering.

Interest Expense

    Interest expense primarily represents interest incurred since April 30, 1996
on the GGS Senior Credit  Facility.  The GGS Senior  Credit  Facility was repaid
with the proceeds from the Preferred Securities Offering.

Income Tax Expense

    Income tax expense was 30.6% of pre-tax  income from  continuing  operations
for 1997 as compared to 32.2% in 1996.

Distributions on Preferred Securities

    Distributions  on Preferred  Securities are calculated at a rate of 9.5% net
of federal income taxes from the offering date of August 12, 1997.

Symons International Group, Inc. - Florida ("SIGF")

    Goran's wholly-owned subsidiary,  Symons International Group, Inc. - Florida
is a  specialized  surplus  lines  underwriting  unit.  The  Company  decided to
discontinue  the  operations of this unit in 1997 and sold this book of business
on January 1,  1999.  Such  operations  no longer  fit the  Company's  strategic
operating  plan  of  concentrating  on  the  business  segments  of  nonstandard
automobile, crop and reinsurance.  Goran wrote third party property and casualty
coverage  using Pafco,  IGF and other  insurance  companies  under contract with
SIGF.  The volume of business was  $6,427,000  in 1998,  $9,560,000  in 1997 and
$8,258,000 in 1996, however,  the underwriting  profits continued to deteriorate
in 1997 and 1998.  SIGF produced an overall loss to the Company of $2,937,000 in
1998, $3,545,000 in 1997 and $1,000,000 in 1996.

Non-U.S. Operations

Granite Insurance Company ("Granite")

    Granite  is  a  Canadian  federally  licensed  insurance  company  which  is
presently servicing its investment  portfolio and a very few outstanding claims.
Granite  stopped  writing  business  on  December  31, 1989 and sold its book of
Canadian business in June 1990. The outstanding claims continue to be settled in
accordance with actuarial  estimates with some deficiencies  showing in the most
recent year. Granite's invested assets reduced to $2.6 million from $3.4 million
in 1997.  This is the result of the  administration  and  settlement  of claims.
Total net  outstanding  claims  decreased  to $400,000 in 1998 from  $700,000 in
1997.  It is expected  that the run-off of  outstanding  claims will continue at
least through 1999. Granite recorded a net loss of $403,000 in 1998, compared to
a $261,000 net loss in 1997 and $50,000  earnings in 1996. This is reflective of
the reduction in investment income.

Granite Reinsurance Company Limited ("Granite Re")

    Granite Re is managed by Atlantic  Security Ltd. of Bermuda and Colybrand in
Barbados. Granite Re underwrites finite risk reinsurance,  stop loss reinsurance
and quota share reinsurance. This reinsurance involves a defined maximum risk at
the time of  entering  into a  contract.  Granite  Re  participates  in  various
programs in Bermuda, the United States and Canada.

                                       13

<PAGE>

On December 31, 1995, its Canadian quota share  terminated and is now in run-off
which is expected to yield  investment  revenue for the next four to five years.
During  1998,  1997 and 1996,  Granite  Re  participated  in  certain  stop loss
programs  for Goran's  crop  insurance  subsidiary,  IGF.  These  covers were in
accordance  with third party  placements  where  Granite Re took a portion after
terms having been established by substantial third party reinsurers. In 1998 and
1997,  Granite Re participated in Goran's  nonstandard  automobile  subsidiaries
quota share treaty. On January 1, 1996, it assumed all of the outstanding losses
and the book of  business of Pafco's  premium  writings  from the surplus  lines
operation in Florida,  which was sold on January 1, 1999. Gross premiums written
during  the 12  months  ended  November  30,  1998  (Granite  Re has a  year-end
different  from Goran)  were $26.6  million  compared  to $10.5  million for the
corresponding  period in 1997 and $12.3  million in 1996,  composed  entirely of
premiums  from SIG.  Earnings  were,  excluding  discontinued  operations,  $1.9
million, $3.3 million and $3.7 million in 1998, 1997 and 1996, respectively. The
decline in Granite  Re's  earnings in 1998 was due to its  participation  in the
crop hail stop loss treaty and its related share of catastrophic  losses of $1.2
million.

     Total  capital and surplus of Granite Re decreased to $16.2 million in 1998
from $18.0  million in 1997.  Granite Re  initially  started July 1, 1990 with a
capital base of $825,000.

Liquidity and Capital Resources

    The primary  sources of funds available to Goran are from the management fee
arrangements with Granite. At this time SIG pays no dividends to Goran or any of
its  shareholders.  The primary  source of funds  available  to SIG as a holding
company are dividends from its primary  subsidiaries,  IGF, IGF Holdings and GGS
Management.  SIG also receives $150,000  quarterly pursuant to an administration
agreement  with IGF to cover  the  costs of  executive  management,  accounting,
investing, marketing, data processing and reinsurance.

    GGS Management  collects  billing fees charged to policyholders of Pafco and
Superior  who  elect  to  make  their  premium  payments  in  installments.  GGS
Management  also receives  management  fees under its management  agreement with
Pafco  and  Superior.   When  the  Florida  Department  of  Insurance  ("Florida
Department") approved the acquisition of Superior by GGS Holdings, it prohibited
Superior from paying any dividends (whether extraordinary or not) for four years
from the date of Acquisition  without the prior written  approval of the Florida
Department. Extraordinary dividends, within the meaning of the Indiana Insurance
Code,  cannot  be paid by  Pafco  without  the  prior  approval  of the  Indiana
Insurance Commissioner. The management fees charged to Pafco and Superior by GGS
Management  are  subject to review by the Indiana  and  Florida  Departments  of
Insurance.

    The nonstandard automobile insurance  subsidiaries' primary sources of funds
are  premiums,  investment  income and  proceeds  from the  maturity  or sale of
invested  assets.  Such funds are used  principally  for the  payment of claims,
operating expenses (primarily management fees),  commissions,  dividends and the
purchase  of  investments.  There is  variability  to cash  outflows  because of
uncertainties  regarding  settlement  dates for  liabilities  for unpaid losses.
Accordingly,  the  Company  maintains  investment  programs  intended to provide
adequate  funds to pay claims  without  forced  sales of  investments.  As claim
payments tend to lag premium  receipts and due to the growth in premium  volume,
the Company has experienced an increase in its investment  portfolio and has not
experienced  any problems with meeting its  obligations  for claims  payments or
management fees.

    As of December 31, 1998,  IGF has the ability to pay $3,123,000 in dividends
without prior regulatory approval.

    Cash  flows in the  Company's  MPCI  business  differ  from cash  flows from
certain more  traditional  lines.  The Company pays insured losses to farmers as
they are  incurred  during  the  growing  season,  with the full  amount of such
payments being reimbursed to the Company by the federal  government within three
business  days.  MPCI premiums are not received from farmers until covered crops
are harvested.  Such premiums are required to be paid in full to the FCIC by the
Company, with interest, if not paid by a specified date in each crop year.

    During 1998, IGF continued the practice of borrowing funds under a revolving
line of  credit to  finance  premium  payables  to the FCIC on  amounts  not yet
received from farmers (the "IGF Revolver").  The maximum  borrowing amount under
the IGF Revolver is  $12,000,000.  The IGF Revolver  carried a weighted  average
interest  rate of 8.6%,  8.75% and 6.96% in 1996,  1997 and 1998,  respectively.
Payables  to the FCIC accrue  interest  at a rate of 15%, as do the  receivables
from farmers. By utilizing the IGF Revolver,  which bears interest at a floating
rate equal to the prime rate minus 1.00% in 1998 (prime rate plus .25% in 1997),
IGF avoids incurring  interest expense at the rate of 15% on interest payable to
the FCIC while  continuing to earn 15% interest on the  receivables due from the
farmer.  The IGF Revolver  contains certain  covenants which (i) restricts IGF's
ability to accumulate  common stock, (ii) sets minimum standards for investments
and policyholder surplus and (iii) limits

                                       14

<PAGE>

ratio of net written  premiums to surplus.  The IGF Revolver also contains other
customary  covenants  which,  among other  things,  restricts  IGF's  ability to
participate  in  mergers,  acquire  another  enterprise  or  participate  in the
organization or creation of any other business entity. At December 31, 1998, IGF
had borrowed the full amount available.

    On August 12, 1997,  SIG issued $135 million in Trust  Originated  Preferred
Securities  (the  "Preferred  Securities  Offering")  at a  rate  of  9.5%  paid
semi-annually.  These  Preferred  Securities were offered through a wholly-owned
trust subsidiary of SIG and are backed by Senior Subordinated Notes to the Trust
from  SIG.  The  proceeds  of the  Preferred  Securities  Offering  were used to
repurchase the remaining  minority  interest in GGSH for $61 million,  repay the
balance of the GGS Senior Credit Facility of $44.9 million and contribute  $10.5
million to the nonstandard automobile insurers with the balance held for general
corporate  purposes.  Expenses  of the issue  aggregated  $5.1  million  and are
amortized  over the term of the Preferred  Securities  (30 years).  In the third
quarter of 1997, SIG wrote off the remaining unamortized costs of the GGS Senior
Credit Facility of approximately $1.1 million pre-tax or approximately $0.09 per
share (basic).

    The  Preferred   Securities  have  a  term  of  30  years  with  semi-annual
distribution  payments  at 9.5% per annum  commencing  February  15,  1998.  The
Preferred Securities may be redeemed in whole or in part after 10 years.

    The Preferred Security  obligations of approximately $13 million per year is
funded  from  SIG's  nonstandard  automobile  management  company  and  dividend
capacity from the crop operations.  The nonstandard auto funds are the result of
management and billing fees in excess of operating  costs. For calendar 1998 and
1997,  the  coverage  ratio of  nonstandard  automobile  cash flows to Preferred
Security  costs  was 2.1x and  2.2x,  respectively.  Coverage  from  SIG's  crop
operations  entailed  a  dividend  capacity  of $13.4  million in 1998 that will
reduce to approximately $3.1 million in 1999 as a result of SIG's operations and
statutory  limitations.  SIG also has  approximately $10 million in excess funds
for debt  service.  Surplus  needs at the  insurance  companies  will be handled
primarily by reinsurance  for which SIG believes it has good  relationships  and
numerous  alternatives.  SIG believes it can continue to meet its obligations in
1999 and that coverage  will  increase  through  higher  nonstandard  automobile
premium volumes and more profitable crop operations.

    The  Trust  Indenture  for  the  Preferred   Securities   contains   certain
preventative  covenants.  These  covenants  are based  upon  SIG's  Consolidated
Coverage Ratio of earnings before interest, taxes, depreciation and amortization
(EBITDA)  whereby if SIG's  EBITDA falls below 2.5 times  Consolidated  Interest
Expense (including  Preferred  Security  distributions) for the most recent four
quarters the following restrictions become effective:

 o  SIG  may  not  incur  additional  Indebtedness  or  guarantee   additional
    Indebtedness.
 o  SIG may not make certain Restricted  Payments including loans or advances to
    affiliates, stock repurchases and a limitation on the amount of dividends is
    inforce.
 o  SIG may not increase its level of Non-Investment  Grade Securities defined
    as equities,  mortgage  loans,  real  estate,  real estate loans and
    non-investment grade fixed income securities.

    These restrictions  currently apply as SIG's Consolidated Coverage Ratio was
(.15x)% in 1998,  and will continue to apply until SIG's  Consolidated  Coverage
Ratio is in  compliance  with the  terms of the Trust  Indenture.  This does not
represent a Default by SIG on the  Preferred  Securities.  SIG is in  compliance
with these preventative covenants as of December 31, 1998.

    Net cash  provided by operating  activities in 1998  aggregated  $10,685,000
compared to  $14,027,000 in 1997 due to reduced cash provided by operations as a
result of the net loss offset  primarily by funds provided by the commutation of
the nonstandard automobile quota share treaty.

    Net cash used in investing activities decreased from $100,208,000 in 1997 to
$10,346,000 in 1998. Such decrease was due to the purchase of minority  interest
in 1997 and less investing  activities in 1998 due to lower  earnings  offset by
increased fixed asset expenditures from continued technological improvements and
the purchase of a new building for the crop operations and the purchase of NACU.
In  1998,   financing   activities  provided  cash  of  $5,863,000  compared  to
$89,007,000  in 1997.  Such  decrease was due to the  proceeds of the  Preferred
Securities  Offering  in  1997  net of  payments  on  term  debt  and  increased
borrowings  on the  seasonal  crop line of credit due to hail  losses and use of
cash for loans to affiliates and repurchase of stock.

    Net cash  provided by operating  activities in 1997  aggregated  $14,027,000
compared to $12,728,000 in 1996,  excluding the sale of subsidiary stock in 1996
of $18,169,000. This increase in funds provided was caused by additional cash of
$15,508,000 from net earnings  adjusted for non-cash expenses and realized gains
or losses and continued  premium growth which results in increased cash flows as
loss  payments  lag receipt of premiums.  Net cash used in investing  activities
increased

                                       15

<PAGE>

from  $80,482,000  in 1996 to  $100,208,000  in 1997  reflecting  investment  of
remaining  proceeds  from the Preferred  Securities  Offering and cash flow from
operations.  In 1997, financing activities provided cash of $89,007,000 compared
to cash provided of $72,703,000  in 1996,  with funds in 1997 primarily from the
Preferred  Securities  Offering while funds provided in 1996 were primarily from
the financing of the acquisition of Superior.

    The Company believes cash flows in the nonstandard  automobile  segment from
premiums,  investment  income  and  billing  fees are  sufficient  to meet  that
segment's obligations to policyholders,  operating expenses and debt service for
the foreseeable future. This is due primarily to the lag time between receipt of
premiums  and  claims  payments.  Therefore,  the  Company  does not  anticipate
additional   borrowings  for  this  segment  other  than  in  the  event  of  an
acquisition.  The Company  also  believes  cash flows in the crop  segment  from
premiums  and  expense  reimbursements  are  sufficient  to meet  the  segment's
obligations for the foreseeable  future.  Due to the more seasonal nature of the
crop segment's  operations,  it may be necessary to obtain short term funding at
times during a calendar  year by drawing on an existing  line of credit.  Except
for this short term  funding  and normal  increases  therein  resulting  from an
increase  in the  business  in  force,  the  Company  does  not  anticipate  any
significant  short or long term  additional  borrowing  needs for this  segment.
Accordingly,  while  there  can be no  assurance  as to the  sufficiency  of the
Company's cash flow in future periods,  the Company  believes that its cash flow
will be  sufficient  to meet all of the  Company's  operating  expenses and debt
service  for  the  foreseeable  future  and,  therefore,   does  not  anticipate
additional borrowings except as may be necessary to finance acquisitions.

    While GAAP  shareholders'  equity was  $49,725,000  at December 31, 1998, it
does not  reflect the  statutory  equity  upon which the  Company  conducts  its
various insurance operations. Pafco, Superior and IGF individually had statutory
surplus at  December  31,  1998 of  $16,275,000,  $57,571,000  and  $31,234,000,
respectively.

Effects of Inflation

    Due to the short term that claims are  outstanding  in the two product lines
the  Company  underwrites,  inflation  does not pose a  significant  risk to the
Company.

Primary Differences Between GAAP and SAP

    The financial  statements  contained herein have been prepared in conformity
with  Generally  Accepted  Accounting  Principles  ("GAAP")  which  differ  from
Statutory  Accounting  Practices  ("SAP")  prescribed or permitted for insurance
companies by  regulatory  authorities  in the  following  respects:  (i) certain
assets are excluded as  "Nonadmitted  Assets" under statutory  accounting;  (ii)
costs  incurred by the Company  relating to the  acquisition of new business are
expensed  for  statutory   purposes;   (iii)  the  investment  in   wholly-owned
subsidiaries is consolidated for GAAP rather than valued on the statutory equity
method.  The net  income  or loss  and  changes  in  unassigned  surplus  of the
subsidiaries  is  reflected  in net income for the period  rather than  recorded
directly to unassigned surplus;  (iv) fixed maturity investments are reported at
amortized cost or market value based on their National  Association of Insurance
Commissioners  ("NAIC") rating; (v) the liability for losses and loss adjustment
expenses and  unearned  premium  reserves  are  recorded net of their  reinsured
amounts for statutory  accounting  purposes;  (vi) deferred income taxes are not
recognized on a statutory  basis; and (vii) credits for reinsurance are recorded
only to the extent considered realizable.

New Accounting Standards

    The NAIC is considering the adoption of a recommended  statutory  accounting
standard  for crop  insurers,  the impact of which is  uncertain  since  several
methodologies are currently being examined.  Although the Indiana Department has
permitted  the  Company to  continue,  for its  statutory  financial  statements
through  March 31, 1999,  its practice of  recording  its MPCI  business as 100%
ceded  to  the  FCIC  with  net  underwriting   results   recognized  in  ceding
commissions,  the Indiana  Department  has indicated  that in the future it will
require the Company to adopt the MPCI  accounting  practices  recommended by the
NAIC or any similar  practice  adopted by the Indiana  Department.  Since such a
standard  would be adopted  industry wide for crop  insurers,  the Company would
also be required to conform its future GAAP financial  statements to reflect the
new MPCI statutory  accounting  methodology  and to restate all historical  GAAP
financial  statements  consistent with this methodology for  comparability.  The
Company  cannot  predict  what   accounting   methodology   will  eventually  be
implemented or when the Company will be required to adopt such methodology.  The
Company  anticipates  that any such new  crop  accounting  methodology  will not
affect GAAP net earnings.

    In 1998,  the  National  Association  of  Insurance  Commissioners  ("NAIC")
adopted the Codification of Statutory Accounting Principles guidance, which will
replace the current  Accounting  Practices and  Procedures  manual as the NAIC's
primary guidance on statutory accounting. The NAIC is now considering amendments
to the Codification guidance that would

                                       16

<PAGE>

also be effective  upon  implementation.  The NAIC has  recommended an effective
date of January 1, 2001.  The  Codification  provides  guidance  for areas where
statutory accounting has been silent and changes current statutory accounting in
some areas.

    It is not known whether the Indiana and Florida  Insurance  Departments will
adopt the Codification, and whether the Departments will make any changes to the
guidance. The Company has not estimated the potential effect of the Codification
guidance if adopted by the Departments.  However,  the actual effect of adoption
could  differ as changes  are made to the  Codification  guidance,  prior to its
recommended effective date of January 1, 2001.

Impact of the Year 2000 Issue

    The Year 2000 Project  ("Project")  is addressing  the inability of computer
software and hardware to distinguish between the year 1900 and the year 2000. In
1996,  the Company  began a  company-wide  replacement  of hardware and software
systems to address this and other issues. This replacement is using systems from
Dell,  Hewlett  Packard,  Sun  Systems,  Compaq,  Oracle and ZIM as well as some
software conversions using Java. The new hardware is in place and operational at
all  subsidiaries.  The software  systems are in place in our  nonstandard  auto
operations and are being  implemented  on a  state-by-state  basis.  The Company
began  implementing the new nonstandard auto operating system in those states in
which the Company writes annual policies (annual  states).  100% of those annual
states  are  currently  in  production.  The  remaining  non-annual  states  are
scheduled  to be  completed  by June 30,  1999.  The Y2K issue  does not have an
effect on the crop  operations  until October 1, 1999. The Company is converting
non-compliant  crop systems,  through  programmatic  means, into a Y2K compliant
environment.  The crop  operations are at 70% of completion for this  conversion
and are  scheduled  to be  completed  by the end of June  1999.  A number of the
Company's  other IT projects are being delayed or completely  eliminated  due to
the  implementation  of the  Project.  Additionally,  the Company  continues  to
experience  certain  processing  concerns related to its nonstandard  automobile
operating system. The delay and/or elimination of these projects and the current
processing  concerns  has  caused or could  cause a loss of market  share in the
nonstandard auto market.

Project

    The Company has  divided  the  Project  into three  sections-Infrastructure,
Applications/Business  Systems  and Third  Party  Suppliers.  There  are  common
portions of each of these divisions  which are: (1)  identifying Y2K items,  (2)
assigning a priority  for those items  identified,  (3)  repairing  or replacing
those items, (4) testing the fixes, and (5) designing a contingency and business
continuation plan for each subsidiary.

    In  February  1998,  all  items  had  been  identified  and  the  plans  for
replacement or repair were proposed to management. These plans were approved and
the process began.

    The infrastructure section of the Project was quickly implemented and tested
by the Company's IT staff and has been completed since May of 1998. All desktop,
mini  and  midrange  systems  as well as phone  switches,  phones  and  building
security  systems have been tested for Y2K compliance.  Any new systems required
by the Company are being tested and certified  prior to purchase with completion
by June 30, 1999. Two mainframes being used by the Company are not Y2K certified
or compliant.  These machines have been replaced by Sun and HP compliant systems
and are being kept in production  until new applications are put in place on the
new machines.

    The  applications   systems  section  of  the  Project  includes:   (1)  the
replacement  of  nonstandard  auto companies  Policy  Administration  and Claims
systems,  (2) the  conversion  of crop  operations  systems  in  total,  and (3)
replacement  of non  compliant  business  systems  company-wide  (this  includes
wordprocessors,  network operating systems,  spreadsheet programs,  presentation
systems, etc.).

    The Company  had already  made the  decision  to  transition  off all of its
nonstandard  auto legacy  systems and this  process had been in work since 1996.
These systems are Y2K  compliant and are scheduled for  completion by the end of
June 30,  1999.  The  conversion  of crop  systems  began in August  1998 and is
scheduled  for  completion by the end of June 1999.  Business  systems are being
replaced as vendors certify their  compliance.  The Company is at 75% compliance
in this area.

    The Company  relies on third  party  vendors  for  investments,  reinsurance
treaties and banking.  The Company began inquiring about Y2K compliance with its
third party  vendors  beginning  in July 1998.  To date all vendors have replied
regarding their compliance efforts.  Those that are not in compliance have until
the end of second quarter 1999 to do so, or they will be replaced.

                                       17

<PAGE>

Costs

    The Company  considers the cost  associated with the Project to be material.
The Company has  estimated  the total cost to be $5.7  million,  the majority of
which has been  capitalized as hardware or software costs.  The Company has also
incurred  substantial costs for carrying two systems  including  personnel costs
and outside service fees. The component of these costs  specifically  associated
with Y2K cannot be  reasonably  estimated.  The total  amount  expended  through
December 31, 1998 on all  infrastructure  and software upgrades is approximately
$4.6 million.  The Company  expects to spend another $1.1 million in its efforts
to complete the Project.  This does not include  additional  annual  maintenance
costs that will be  incurred  as we move  forward.  Funding for these costs will
continue to be provided by funds from operations.  The Company believes that the
new nonstandard auto system will  significantly  enhance service  capability and
reduce future operating costs.

Risks

    Failure  to  correct  the  Y2K   problem   through   efficient   and  timely
implementation  of the Company's  new operating  system could cause a failure or
interruption  of normal  business  operations.  These failures could  materially
affect the  Company's  operational  results,  financial  condition and liquidity
through  reduction  of premium  volume and an increase in  operating  costs as a
percentage of premium volume or  deterioration  of loss  experience.  Due to the
nature of the Y2K  problem,  the  Company  is  uncertain  whether it will have a
material affect or the potential  magnitude of any financial impact. The Company
believes that the possibility of significant  business  interruptions  should be
reduced by successful implementation of the Project.



                                       18

<PAGE>

CONSOLIDATED FINANCIAL STATEMENTS
As at December 31 (in thousands of U.S. dollars, except per share data)
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
ASSETS                                                        1998       1997

<S>                                                         <C>        <C>     
Cash and investments (note 5)                               $253,718   $247,124
Accounts Receivable 
  Premiums receivable                                        121,328     89,762
  Income taxes recoverable                                    12,711      1,505
  Due from related parties                                     3,495      1,442
  Accrued and other receivables                                2,362      2,658
                                                             -------    -------
                                                             139,896     95,367
  Reinsurance recoverable on paid and unpaid claims           67,885    108,206
  Prepaid reinsurance premiums                                17,486     36,607
  Capital assets (note 6)                                     19,350     12,230
  Deferred policy acquisition costs                           16,332     11,849
  Deferred income taxes                                        5,825      2,098
  Intangibles (note 7)                                        46,300     42,562
  Other assets                                                 4,197      4,805
                                                             -------    -------
                                                            $570,989   $560,848
                                                             =======    =======
LIABILITIES
Accounts Payable
  Due to insurance companies                                $ 12,353   $ 37,350
  Accrued and other payables                                  22,283     27,266
                                                             -------    -------
                                                              34,636     64,616
  Outstanding claims (notes 2(e) and 4)                      207,432    152,871
  Unearned premiums (note 4)                                 110,665    118,616
  Notes payable (note 8)                                      13,744      4,182
                                                             -------    -------
                                                             366,477    340,285
                                                             -------    -------
Minority interest:
  Equity in net assets of subsidiaries                        19,787     25,231
  Preferred Securities (note 9)                              135,000    135,000
                                                             -------    -------   
                                                             154,787    160,231
                                                             -------    -------
Contingent liabilities and commitments (note 13)

SHAREHOLDERS' EQUITY                                          49,725     60,332
                                                             -------    -------
                                                            $570,989   $560,848
                                                             =======    =======
</TABLE>

See accompanying Notes to Consolidated Financial Statements


                                       19

<PAGE>

CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31
(in thousands of U.S. Dollars, except per share
data) CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

<TABLE>
<CAPTION>

REVENUE                                        1998        1997       1996

<S>                                          <C>         <C>        <C>
Gross premiums written                       $546,771    $448,982   $299,376
                                              =======     =======    =======
Net premiums written                         $362,106    $281,896   $213,778
                                              =======     =======    =======
Net premiums earned                          $342,177    $276,540   $208,883 

Fee income                                     20,203      17,821      9,286

Net investment income                           13,401     12,777      7,745

Net realized capital gains (losses)              4,104      9,393       (637)
                                               -------    -------    -------
Total Revenue                                  379,885    316,531    225,277
                                               -------    -------    -------
EXPENSES  

Net claims incurred                            280,892    210,999     146,274

Commissions and operating expenses (note 15)   103,926     63,344      48,647

Amortization of intangibles                      2,379      1,197         411

Interest expense                                   163      3,087       4,961
                                               -------    -------     -------
Total Expenses                                 387,360    278,627     200,293
                                               -------    -------     -------
Earnings (loss) before undernoted items         (7,475)    37,904      24,984

Provision for income taxes (note 11)            (2,038)    11,596       8,056

Preferred security distributions, net of tax     8,411      3,120          --

Minority interest                               (4,849)     7,205       2,801
                                               -------    -------     -------
Earnings (loss) from continuing operations      (8,999)    15,983      14,127

Net earnings (loss) from discontinued
  operations (note 3)                           (2,937)    (3,545)     (1,000)

Gain on sale of subsidiary stock (note 3)           --         --      18,169
                                               -------    -------     -------
Net earnings (loss)                           $(11,936)   $12,438     $31,296
                                               =======    =======     =======
Earnings (loss) per share from continuing
  operations                                    $(1.54)     $2.86      $2.67

Earnings (loss) per share from continuing
  operations - fully diluted                    $(1.54)     $2.70      $2.48

Net earnings (loss) per share                   $(2.04)     $2.22      $5.92

Net earnings (loss) per share - fully diluted   $(2.04)     $2.12      $5.28
                                                  ====       ====       ====
</TABLE>

See accompanying Notes to Consolidated Financial Statements

                                       20

<PAGE>

CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31
(in thousands of U.S. Dollars,  except per share data)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                           Capital                    Cumulative      Retained     Total
                                                           Stock       Contributed    Translation     Earnings     Shareholders'
                                                          (Note 10)    Surplus        Adjustment      (Deficit)    Equity

<S>                <C>                                     <C>             <C>           <C>           <C>         <C>    
Balance at January 1, 1996                                 $16,817         $--           $(300)        $(3,895)    $12,622
Issuance of common shares                                      599          --              --              --         599
Increase in contributed surplus                                 --       2,775              --              --       2,775
Change in cumulative translation adjustment                     --          --             (34)             --         (34)
Net earnings                                                    --          --              --          31,296      31,296
                                                            ------       -----             ---          ------      ------
Balance at December 31, 1996                                17,416       2,775            (334)         27,401      47,258
Issuance of common shares                                      594          --              --              --         594
Change in cumulative translation adjustment                     --          --              42              --          42
Net earnings                                                    --          --              --          12,438      12,438
                                                            ------       -----             ---          ------      ------
Balance at December 31, 1997                                18,010       2,775            (292)         39,839      60,332
Issuance of common shares                                    1,533          --              --              --       1,533
Purchase of common shares                                     (226)         --              --            (522)       (748)
Change in cumulative translation adjustment                     --          --             544              --         544
Net earnings (loss)                                             --          --              --         (11,936)    (11,936)
                                                             ------       -----            ---          ------      ------
Balance at December 31, 1998                                $19,317      $2,775           $252         $27,381     $49,725
                                                             ======       =====            ===          ======      ======
</TABLE>

See accompanying Notes to Consolidated Financial Statements

                                       21

<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31
(in thousands of U.S. Dollars,  except per share data)
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          1998       1997      1996
<S>                                                                    <C>         <C>       <C>
Cash provided by (used in):
Operating activities
  Net earnings (loss)                                                  $(11,936)   $12,438   $31,296
  Items not involving cash:
    Amortization                                                          6,032      5,258     2,438
    Minority interest share in net earnings                              (4,849)     7,205     2,801
    Loss (gain) on sale of investments                                   (4,104)    (9,393)      637
    Gain on sale of capital assets                                         (267)        --        (4)
                                                                         ------     ------    ------
  Working capital provided (used) by operating activities               (15,124)    15,508    37,168
  Changes in working capital relating to operations (note 16)            25,809     (1,481)   (6,271)
                                                                         ------     ------    ------
                                                                         10,685     14,027    30,897
                                                                         ------     ------    ------    
Financing activities, net of assets acquired
  Proceeds from issuance of preferred securities                             --    129,877        --
  Repayment of debentures                                                    --         --   (11,085)
  Increase (decrease) in notes payable                                    7,855    (43,818)   42,189
  Cost of shares acquired                                                  (748)        --        --
  Proceeds from consolidated subsidiary minority interest owners             --      2,354    41,000
  Loans to related parties                                               (1,600)        --        --
  Issue of share capital                                                    356        594       599
                                                                         ------     ------    ------
                                                                          5,863     89,007    72,703
                                                                         ------     ------    ------
Investing activities, net of assets acquired
  Purchase of minority interest                                          (1,208)   (61,000)      --
  Acquisition of Superior                                                    --         --   (66,590)
  Net purchase of marketable securities                                   3,210    (34,535)  (11,996)
  Net purchase of capital assets                                         (9,348)    (5,803)   (2,459)
  Cash paid for NACU                                                     (3,000)        --        --
  Other, net                                                                 --      1,130       563
                                                                         ------    -------    ------
                                                                        (10,346)  (100,208)  (80,482)
                                                                         ------    -------    ------
Increase in cash resources during the year                                6,202      2,826    23,118

Cash resources, beginning of year                                        36,557     33,731    10,613
                                                                         ------     ------    ------
Cash resources, end of year                                             $42,759    $36,557   $33,731
                                                                         ======     ======    ======
Cash resources are comprised of:
  Cash                                                                  $15,123    $13,324   $4,679
  Short-term investments                                                 27,636     23,233   29,052
                                                                         ------     ------   ------
                                                                        $42,759    $36,557  $33,731
                                                                         ======     ======   ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements

                                       22

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(in thousands of U.S. dollars, except share and per share data)

1.  ORGANIZATION

Goran Capital Inc. ("Goran" or the "Company") is the parent company of the Goran
group of companies.  The consolidated  financial statements include the accounts
of all subsidiary companies of Goran, as follows:

1. Symons  International Group, Inc. ("SIG") is a 67% owned subsidiary of Goran.
SIG is primarily  involved in the sale of nonstandard  automobile  insurance and
crop  insurance.  Its  products  are  marketed  through  independent  agents and
brokers, in 42 states, primarily in the Midwest and Southern United States.

SIG's wholly-owned subsidiaries are as follows:

GGS Management  Holdings,  Inc. ("GGSH") - a holding company for the nonstandard
automobile  operations  which  includes  GGS  Management,  Inc.,  Pafco  General
Insurance Company and the Superior Insurance Company entities;

GGS  Management,  Inc.  ("GGS")  - a  management  company  for  the  nonstandard
automobile operations domiciled in Delaware;

Superior  Insurance  Company  ("Superior") - an insurance  company  domiciled in
Florida;

Superior American Insurance Company ("Superior American") - an insurance company
domiciled in Florida;

Superior Guaranty Insurance Company ("Superior Guaranty") - an insurance company
domiciled in Florida;

Pafco General Insurance Company ("Pafco") - an insurance company domiciled in
Indiana; and

IGF Holdings,  Inc.  ("IGFH") - a holding company for the crop operations  which
includes  IGF  Insurance  Company  ("IGF") - an insurance  company  domiciled in
Indiana  and North  American  Crop  Underwriters  ("NACU") - a managing  general
agency with exclusive focus on crop insurance.

2. Granite  Reinsurance  Company Ltd. ("Granite Re") - a finite risk reinsurance
company based in Barbados.

3.  Granite  Insurance  Company  ("Granite")  - a  Canadian  federally  licensed
insurance  company  which ceased  writing new  insurance  policies on January 1,
1990.

4. Symons  International  Group,  Inc. of Ft.  Lauderdale,  Florida ("SIGF") - a
Florida based surplus lines insurance agency. (See Note 3.)

On January 31, 1996,  Goran and SIG entered  into an  agreement  with GS Capital
Partners II, L.P.  ("Goldman Sachs") to create a company,  GGSH, to be owned 52%
by SIG and 48% by Goldman Sachs. GGSH created GGS, a management  company for the
nonstandard   automobile  operations  which  includes  Pafco  and  the  Superior
entities. (See Note 3.)

On April 30,  1996,  GGSH  acquired  the  Superior  entities  through a purchase
business combination.  The Company's  Consolidated Statement of Earnings for the
year ended  December 31, 1996 includes the results of operations of the Superior
entities  subsequent to April 30, 1996, the date of the  acquisition.  (See Note
3.)

On August 12, 1997, SIG acquired the 48% minority  interest in GGSH from Goldman
Funds through a purchase business combination. (See Note 3.)

On July 8, 1998,  SIG  acquired  NACU through a purchase  business  combination.
SIG's  Consolidated  Statement of Earnings for the year ended  December 31, 1998
includes the results of operations of NACU subsequent to July 8, 1998.
(See Note 3.)

                                       23

<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These  consolidated  financial  statements have been prepared in conformity with
accounting principles generally accepted in Canada ("Canadian GAAP").

(a) Basis of Consolidation

    The consolidated  financial statements include the accounts of Goran and its
    subsidiary companies.

    All significant intercompany transactions and balances have been eliminated.

(b) Premiums

    Premiums  are  taken  into  income  evenly  over the  lives  of the  related
    policies.

(c) Commissions

    Commission  expenses  and  related  reinsurance  commission  recoveries  are
    recorded at the effective date of the respective insurance policy.

(d) Deferred Policy Acquisition Costs

    Deferred  policy  acquisition  costs are  comprised of agents'  commissions,
    premium taxes and certain general expenses which are related directly to the
    acquisition of premiums. These costs, to the extent that they are considered
    recoverable,  are  deferred  and  amortized  over the same  period  that the
    related premiums are taken into income.

(e) Outstanding Claims

    The reserve for outstanding  claims  includes  estimates for reported unpaid
    losses and losses  incurred but not reported.  These  reserves have not been
    discounted.   Reserves  are  established  using  case-basis  valuations  and
    statistical analysis as claims are reported.  Those estimates are subject to
    the  effects of trends in loss  severity  and  frequency.  While  management
    believes the reserves are adequate, the provision for losses are necessarily
    based on estimates and are subject to considerable  variability.  Changes in
    the estimated  reserves are charged and credited to operations as additional
    information  on the  estimated  amount of a claim  becomes  known during the
    course of its  settlement.  The  reserve  for  outstanding  claims  has been
    reported on by independent actuaries. (See also Note 2(l)).

(f) Investments

    Investments in bonds, mortgages and debentures are carried at amortized cost
    providing for the  amortization of the discount or premium to maturity date.
    Investments in short-term investments, real estate, and equities are carried
    at cost.  Gains and losses on disposal of investments  are taken into income
    when realized.  When there has been a loss in value of an investment that is
    other than a temporary decline,  the investment is written down to recognize
    the loss.

(g) Capital Assets

    Capital  assets  are  recorded  at cost,  net of  accumulated  amortization.
    Amortization is provided at rates  sufficient to amortize the costs over the
    estimated useful lives of the assets.

(h) Foreign Currency Translation

    Foreign currency  transaction gains and losses are included in the statement
    of earnings.  Goran and each of its subsidiaries  have been determined to be
    self-sustaining foreign operations and are translated using the current rate
    method whereby all assets and liabilities  are translated into U.S.  dollars
    at the  year  end  rate of  exchange  and  revenue  and  expense  items  are
    translated  at the average  rate of  exchange  for the year.  The  resulting
    unrealized  translation  gain or loss is deferred  and shown  separately  in
    shareholders' equity. These adjustments are not included in operations until
    realized  through  a  reduction  in the  Company's  net  investment  in such
    operations.

                                       24

<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

(i) Use of Estimates

    The  preparation  of  financial   statements  requires  management  to  make
    estimates  and  assumptions  that affect  amounts  reported in the financial
    statements and  accompanying  notes.  Such estimates and  assumptions  could
    change in future as more  information  becomes  known which could impact the
    amounts reported and disclosed herein.

(j) Comparative Figures

    Certain  comparative  figures have been reclassified to conform to the basis
    of presentation adopted in 1997.

(k) Preferred Securities

    Preferred  securities represent  SIG-obligated  mandatorily  redeemable
    securities of  subsidiary  holding  solely  parent  debentures and are
    reported  at  their  liquidation  value  under  minority  interest.
    Distributionson these securitiesare charged against consolidated earnings.

(l) Accounting Changes

    In the consolidated financial statements, the Company has adopted the
    following pronouncements:

Segmented  Information - Canadian  Institute of Chartered  Accountants  ("CICA")
Handbook  Section 1701 and United States  Financial  Accounting  Standards Board
("FASB")  Statement  of  Accounting  Standard  No.  131;  the  adoption of these
standards  is  consistent  with the  Company's  previously  established  segment
disclosures.

Income Taxes - CICA Handbook  Section 3465; the standard is consistent with FASB
Statement  of  Financial  Accounting  Standard  No. 109  "Accounting  for Income
Taxes".  These standards require an asset and liability approach that takes into
account  changes in tax rates when valuing the deferred tax amounts  reported in
the balance sheet.  Valuation  allowances are  established  when  necessary,  to
reduce  deferred tax assets to the amount  expected to be  realized.  Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.

Outstanding  Claims  - the  Company's  accounting  policy  prior  to 1998 was to
discount the reserves for direct  claims for the time value of money.  Effective
January 1, 1998,  the Company  adopted its current policy (see Note 2 (e)) which
does not take into the  account  the  impact of  discounting.  The new policy is
consistent with United States generally accepted accounting principles ("GAAP").

The net impact of the changes in  accounting  for income  taxes and  outstanding
claims has been applied prospectively in the accounts with no material effect in
the current year. The impact of the previously  applied policies on prior years'
financial  statements is presented in the  reconciliation of Canadian and United
States GAAP in Note 18.

3.      CORPORATE REORGANIZATION, ACQUISITIONS AND PUBLIC OFFERINGS

In April 1996, Pafco contributed all of the outstanding  shares of capital stock
of IGF to IGFH, a  wholly-owned  and newly formed  subsidiary of Pafco,  and the
Board of Directors of IGFH declared an $11,000 distribution to Pafco in the form
of cash or $7,500 and a note payable of $3,500 ("Pafco Note"). IGFH borrowed the
$7,500 portion of the  distribution  from a bank ("IGFH  Note").  The notes were
paid in full  from the  proceeds  of the  Offering.  Immediately  following  the
distribution,  Pafco distributed all of the outstanding  common stock of IGFH to
SIG.

                                       25

<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

On January 31, 1996, the Company and SIG entered into an agreement ("Agreement")
with GS Capital  Partners II, L.P. (the  "Goldman  Funds") to create GGSH, to be
owned 52% by the Company and 48% by the Goldman  Funds.  In accordance  with the
Agreement,  on April 30, 1996, the Company  contributed certain fixed assets and
Pafco with a combined  book  value,  determined  in  accordance  with  generally
accepted accounting  principles,  of $17,186, to GGSH. Goldman Funds contributed
$21,200  to GGSH,  in  accordance  with the  Agreement.  In return  for the cash
contribution  of $21,200,  Goldman Funds  received a minority  interest share in
GGSH at the date of contribution  of $18,425,  resulting in a $2,775 increase to
additional paid-in capital.

In connection with the above transactions, GGSH acquired (the "Acquisition") all
of the  outstanding  shares of common  stock of  Superior  and its  wholly-owned
subsidiaries, domiciled in Florida, (collectively referred to as "Superior") for
cash of $66,590. In conjunction with the Acquisition,  the Company's funding was
through a senior bank facility of $48,000 and a cash  contribution  from Goldman
Funds of $21,200.

The  acquisition  of Superior  was  accounted  for as a purchase and recorded as
follows:

<TABLE>
<CAPTION>

          <S>                                      <C>     
          Assets acquired                          $165,826
          Liabilities assumed                       100,566
                                                    -------
          Net assets acquired                        65,260
          Purchase price                             66,590
                                                    -------
          Goodwill                                 $  1,330
                                                    =======
</TABLE>

The  Company's  results  from  operations  for the year ended  December 31, 1996
include the results of Superior subsequent to April 30, 1996.

On August 12, 1997,  the Company  purchased the remaining  minority  interest in
GGSH for $61  million  in cash.  The  excess of the  acquisition  price over the
minority interest liability of $25,355 aggregated  approximately $35,645 and was
assigned  to  goodwill  as the fair  market  value  of  assets  and  liabilities
approximated their carrying value.

In July 1998,  IGFH  acquired all of the  outstanding  shares of common stock of
North American Crop Underwriters  ("NACU"), a Henning,  Minnesota based managing
general agency which focuses  exclusively  on crop  insurance.  The  acquisition
price for NACU was  $4,000 of which  $3,000  was paid in cash and the  remaining
$1,000 payable July 1, 2001 without interest.

The acquisition of NACU was accounted for as a purchase and recorded as follows:

<TABLE>
<CAPTION>

          <S>                                      <C>    
          Assets acquired                          $21,035
          Liabilities assumed                       19,705
                                                    ------
          Net assets acquired                        1,330
          Purchase price                             4,000
                                                    ------
          Excess purchase price (goodwill)         $ 2,670
                                                    ======
</TABLE>

The  Company's  results  from  operations  for the year ended  December 31, 1998
include the results of NACU subsequent to July 8, 1998.

Goodwill is amortized over a 25-year period on a straight-line  basis based upon
management's estimate of the expected benefit period.


                                       26

<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

On November 5, 1996, SIG sold 3,000,000 shares at $12.50 per share in an initial
public offering ("IPO") of common stock. An additional  450,000 shares were sold
in December 1996  representing  the exercise of the  overallotment  option.  SIG
generated net proceeds  after  underwriter's  discount and expenses,  of $37,969
from the  offering,  the proceeds of which were used to repay the IGFH and Pafco
Notes,  repay  indebtedness to Goran and Granite Re of approximately  $7,500 and
pay Goran a dividend  of $3,500.  The Company  used its  proceeds to pay off the
balance of its debentures.

Assuming that these  transactions  took place  (including the IPO) at January 1,
1996,  the  pro-forma  effect of these  transactions  would result in summarized
company consolidated statements of earnings as follows:

<TABLE>
<CAPTION>

                                                                  1996
                                                               (unaudited)
        <S>                                                      <C>     
        Revenues                                                 $269,362
        Earnings from continuing operations                       $16,318
        Earnings per share from continuing operations               $3.08
</TABLE>

As a result of the IPO,  the Company  effectively  disposed of a 33% interest in
SIG. The change in the Company's share of SIG's net  identifiable  assets at the
time of the IPO, represented by the Company's 67% proportionate  interest in the
net IPO  proceeds  over the 33%  proportionate  share  of the book  value of SIG
disposed,  amounts to a gain of $18,169  and is  reported  as unusual  income in
1996.

In December 1997, the Company  discontinued the operations of SIGF whose book of
business was subsequently sold on January 1, 1999.  Accordingly,  the results of
these  operations have been accounted for separately from the results of ongoing
operations.  The net loss from  discontinued  operations was $2,937,  $3,545 and
$1,000 for the years ended December 31, 1998, 1997 and 1996, respectively.

4.    REINSURANCE

The  Company's  insurance  subsidiaries  follow a  policy  of  underwriting  and
reinsuring  contracts  of insurance  which  limits their  liability to a maximum
amount on any one claim for nonstandard  automobile of $250 with the result that
claims  incurred  are stated net of  reinsurance.  The crop  division  reinsures
losses through stop loss in excess of 80% loss ratio for crop hail and 100% loss
ratio for MPCI. As the primary insurers,  the Company's  insurance  subsidiaries
maintain the principal liability to the policyholder.

On March 2, 1998,  SIG  announced  that it had signed an  agreement  with CNA to
assume its multi-peril and crop hail  operations.  CNA wrote  approximately  $80
million of multi-peril and crop hail insurance business in 1997. SIG reinsured a
small portion of the Company's  total crop book of business  (approximately  22%
MPCI and 15% crop hail) to CNA. Starting in the year 2000,  assuming no event of
change in control as defined in the  agreement,  SIG can  purchase  the premiums
reinsured  from CNA through a call  provision  or CNA can require SIG to buy the
premiums reinsured to CNA.  Regardless of the method of takeout of CNA, CNA must
not  compete  in MPCI or crop hail for a period of time.  There was no  purchase
price.  The  formula  for the buyout in the year 2000 is based on a multiple  of
average  pre-tax  earnings  that CNA  received  from  reinsuring  SIG's  book of
business.


                                       27

<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

The effect of  reinsurance  on the  activities of the Group can be summarized as
follows:
<TABLE>
<CAPTION>

                  1998                            Gross     Ceded       Net
<S>                                             <C>       <C>         <C>     
Premiums written                                $546,771  $(184,665)  $362,106

Premiums earned                                  554,722   (212,545)   342,177

Incurred losses and loss adjustment expenses     521,476   (240,584)   280,892

Commission expense (note 15)                      94,818    (80,272)    14,546

Outstanding claims                               207,432    (69,541)   137,891

Unearned premiums                                110,665    (17,486)    93,179

                  1997                            Gross     Ceded       Net
<S>                                             <C>       <C>         <C>     
Premiums written                                $448,982  $(167,086)  $281,896

Premiums earned                                  422,200   (145,660)   276,540

Incurred losses and loss adjustment expenses     312,079   (101,080)   210,999

Commission expense (note 15)                      65,529    (77,279)   (11,750)

Outstanding claims                               152,871    (94,424)    58,447

Unearned premiums                                118,616    (36,607)    82,009

                  1996                            Gross     Ceded       Net
<S>                                             <C>       <C>         <C>     
Premiums written                                $299,376  $ (85,598)  $213,778

Premiums earned                                  303,187    (94,304)   208,883

Incurred losses and loss adjustment expenses     237,882    (91,608)   146,274

Commission expense (note 15)                      48,601    (44,096)     4,505

Outstanding claims                               127,045    (33,113)    93,932

Unearned premiums                                 91,207    (14,983)    76,224

</TABLE>
                                       28

<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

5.    CASH AND INVESTMENTS

<TABLE>
<CAPTION>
                                     1998               1997
                                Book      Market    Book      Market
                                Value     Value     Value     Value

<S>                            <C>       <C>       <C>       <C>    
Cash and cash equivalents      $15,123   $15,123   $13,324   $13,324

Short-term investments          27,637    27,637    23,233    23,233

Equities                        13,691    12,988    35,446    36,631

Bonds and debentures           194,277   197,251   172,401   174,215

Mortgages                        2,100     2,100     2,220     2,220

Real Estate                        890       890       450       450

Other loan receivable               --        --        50        50
                               -------   -------   -------   -------         
Total Cash & Investments      $253,718  $255,989  $247,124  $250,123
                               =======   =======   =======   =======
</TABLE>

At December 31, 1998, cash and investments  with a market value of approximately
$31,201  (1997 - $42,367)  are on deposit or held in trust by cedents,  and to a
limited amount  regulatory  authorities,  to secure  certain of the  outstanding
claims of the Company.

6.   CAPITAL ASSETS

<TABLE>
<CAPTION>
                                               1998 
                                            Accumulated               1997
                                    Cost    Depreciation     Net       Net

<S>                                <C>          <C>          <C>       <C> 
Land                               $  260       $--          $260      $226

Buildings                           7,397       1,049       6,348     4,098

Furniture, fixtures and equipment    6,621      3,439       3,182     1,970

Computer equipment                  14,683      5,193       9,490     5,907

Automobiles                            108         38          70        29
                                    ------      -----      ------    ------
Total                              $29,069     $9,719     $19,350   $12,230
                                    ======      =====      ======    ======
</TABLE>

Depreciation  expense related to capital assets for the years ended December 31,
1998, 1997 and 1996 was $3,151, $1,754 and $1,811, respectively.

                                       29

<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

7.    INTANGIBLES

Intangible assets at December 31 are as follows:

<TABLE>
<CAPTION>
                                               1998 
                                            Accumulated               1997
                                    Cost    Depreciation     Net       Net

<S>                                <C>          <C>          <C>       <C> 
Goodwill                           $42,372      $2,521    $39,851   $36,321

Deferred debt costs                  5,131         242      4,889     5,053

Organization costs                   2,494         934      1,560     1,188
                                    ------       -----     ------    ------
Total                              $49,997      $3,697    $46,300   $42,562
                                    ======       =====     ======    ======
</TABLE>

Amortization  expense related to intangible  assets for the years ended December
31, 1998, 1997 and 1996 was $2,379, $1,197 and $411, respectively.

8.    NOTES PAYABLE

At December 31,  1998,  IGF  maintained  a revolving  bank line of credit in the
amount of $12,000.  At December 31, 1998 and 1997, the  outstanding  balance was
$12,000 and $4,182, respectively. Interest on this line of credit was at the New
York prime rate (7.75% at December 31, 1998) minus 1% adjusted  daily.  Prior to
December  31,  1997 this rate was  adjusted  to prime  plus  .25%.  This line is
collateralized by the crop-related uncollected premiums, reinsurance recoverable
on paid losses, Federal Crop Insurance Corporation (FCIC) annual settlement, and
a first lien on the real estate owned by IGF. The IGF Revolver  contains certain
covenants  which (i) restricts  IGF's ability to accumulate  common stock,  (ii)
sets minimum standards for investments and policyholder surplus and (iii) limits
ratio of net written  premiums to surplus.  At  December  31,  1998,  IGF was in
compliance  with all covenants  associated  with the line or had received proper
waivers.

The weighted  average  interest rate on the line of credit was 6.96%,  8.75% and
8.6% during 1998, 1997, and 1996, respectively.

Notes payable at December 31, 1998 also  includes a $1,000,000  note due 2001 on
the  purchase of NACU at no interest.  The balance of notes  payable at December
31, 1998 includes  three smaller notes (less than $300,000  each) assumed in the
acquisition  of NACU due  2002-2006  with  periodic  payments at interest  rates
ranging from 7% to 9.09%.

9.    PREFERRED SECURITIES

On August 12,  1997,  SIG issued  $135  million  in Trust  Originated  Preferred
Securities ("Preferred Securities") at a rate of 9.5% paid semi-annually.  These
Preferred Securities were offered through a wholly-owned trust subsidiary of SIG
and are  backed  by Senior  Subordinated  Notes to the  Trust  from  SIG.  These
Preferred  Securities  were  offered  under  Rule  144A of the  SEC  ("Preferred
Securities  Offering")  and,  pursuant  to  the  Registration  Rights  Agreement
executed at closing, SIG filed a Form S-4 Registration Statement with the SEC on
September 16, 1997 to effect the Exchange Offer. The S-4 Registration  Statement
was declared effective on September 30, 1997 and the Exchange Offer successfully
closed on October 31, 1997.  The proceeds of the Preferred  Securities  Offering
were used to repurchase the remaining minority interest in GGSH for $61 million,
repay  the  balance  of the  term  debt of  $44.9  million  and SIG  expects  to
contribute the balance,  after  expenses,  of  approximately  $24 million to the
nonstandard  automobile insurers of which $10.5 million was contributed in 1997.
Expenses of the issue aggregated $5.1 million and are amortized over the term of
the Preferred Securities (30 years). In the third quarter of 1997, SIG wrote off
the remaining  unamortized costs of the term debt of approximately  $1.1 million
pre-tax or approximately $0.09 per share.

The  Preferred  Securities  have a term of 30 years  with  semi-annual  interest
payments commencing February 15, 1998. The Preferred  Securities may be redeemed
in whole or in part  after 10  years.  The  Preferred  Security  obligations  of
approximately $13 million per year is funded from SIG's  nonstandard  automobile
management  company  and  dividend  capacity  from  the  crop  operations.   The
nonstandard  auto funds are the result of management  and billing fees in excess
of operating costs.

                                       30

<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

For calendar 1998 and 1997, the coverage ratio of  nonstandard  automobile  cash
flows to Preferred Security costs was 2.1x and 2.2x, respectively. Coverage from
SIG's crop operations entailed a dividend capacity of $13.4 million in 1998 that
will  reduce  to  approximately  $3.1  million  in 1999  as a  result  of  SIG's
operations and statutory limitations.
SIG also has approximately $10 million in excess funds for debt service.

The Trust Indenture for the Preferred  Securities contains certain  preventative
covenants.  These covenants are based upon SIG's Consolidated  Coverage Ratio of
earnings before interest,  taxes, depreciation and amortization (EBITDA) whereby
if SIG's EBITDA falls below 2.5 times  Consolidated  Interest Expense (including
Preferred  Security  distributions)  for  the  most  recent  four  quarters  the
following restrictions become effective:

  o  SIG may not incur additional  Indebtedness or guarantee additional
     Indebtedness.
  o  SIG may not make certain Restricted Payments including loans or advances
     to affiliates, stock repurchases and a limitation on the  amount of
     dividends is inforce.
  o  SIG may not increase its level of Non-Investment Grade Securities defined
     as equities, mortgage loans, real estate, real estate loans and
     non-investment grade fixed income securities.

These  restrictions  currently  apply as SIG's  Consolidated  Coverage Ratio was
(.15x) in 1998,  and will  continue to apply until SIG's  Consolidated  Coverage
Ratio is in  compliance  with the  terms of the Trust  Indenture.  This does not
represent a Default by SIG on the  Preferred  Securities.  SIG is in  compliance
with these preventative covenants as of December 31, 1998.

Assuming the Preferred  Securities  Offering took place at January 1, 1997,  the
proforma  effect of this  offering on the  Company's  consolidated  statement of
earnings from  continuing  operations for the year ended December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
                                                     Unaudited
                                                   (In thousands)
       <S>                                            <C>     
       Revenues                                       $319,019
       Net earnings                                    $11,163
       Net earnings per common share                     $1.99

</TABLE>

Proforma  results for the Preferred  Securities  Offerings for 1996 would not be
meaningful due to the Acquisition and IPO in 1996.

The pro forma results are not necessarily indicative of what actually would have
occurred  if  these  transactions  had been in  effect  for the  entire  periods
presented.  In  addition,  they are not  intended to be a  projection  of future
results.

10.    CAPITAL STOCK

The Company's authorized share capital consists of:

            (a)   First Preferred Shares

            An  unlimited  number of first  preferred  shares of which  none are
            outstanding at December 31, 1998 (1997 NIL).

            (b)   Common Shares

            An  unlimited  number  of  common  shares  of  which  5,876,398  are
            outstanding as at December 31, 1998 (1997 - 5,730,276).

During the year,  pursuant to the exercise of warrants and options,  the Company
issued 215,922 (1997 - 324,456) common shares for aggregate consideration in the
amount of $1,533 (1997 - $594) of which $1,177 of the  consideration  was in the
form of a loan.  During the year,  the  Company  purchased  69,800 of its common
shares for an aggregate consideration of $748.

                                       31

<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

Information  regarding  the Goran  Stock  Option  Plan is  summarized  below (in
Canadian dollars):
<TABLE>
<CAPTION>
                                                       1998                1997             1996
                                                     Weighted           Weighted          Weighted
                                                     average            average           average
                                                     exercise           exercise          exercise
                                            Shares    price    Shares    price   Shares    price

<S>                                         <C>       <C>      <C>      <C>      <C>       <C>
Outstanding at the beginning of the year    546,856   $17.86   526,899   $8.76   499,129   $2.87
Granted                                     363,970    36.57   188,355   29.57   213,986   16.50
Exercised                                  (215,254)   10.53  (166,831)   2.26  (186,216)   1.88
Forfeited                                        --       --    (1,567)  25.45        --     --
                                            -------            -------           -------
Outstanding at the end of the year          695,572   $29.92   546,856  $17.86   526,899   $8.76
                                            =======            =======           =======
Options exercisable at year end             569,126            349,141           449,082

Available for future grant                  175,428             40,062           60,019

</TABLE>

The weighted average remaining life of the Goran options as of December 31, 1998
is 8.3 years.

On November 1, 1996, SIG adopted the Symons International Group, Inc. 1996 Stock
Option Plan (the "SIG Stock Option  Plan").  The SIG Stock Option Plan  provides
SIG authority to grant nonqualified stock options and incentive stock options to
officers and key employees of SIG and its subsidiaries  and  nonqualified  stock
options to nonemployee  directors of SIG and Goran. Options have been granted at
an  exercise  price  equal to the fair  market  value of SIG's  stock at date of
grant.  The options granted to SIG's Chairman  (633,900  shares) vest and become
exercisable  in full on the  first  anniversary  of the grant  date.  All of the
remaining  outstanding stock options vest and become  exercisable in three equal
installments on the first,  second and third anniversaries of the date of grant.
On October 14, 1998 all SIG options were repriced to $6.3125 per share.

Information regarding the SIG Stock Option Plan is summarized below:

<TABLE>
<CAPTION>
                                                       1998                1997               1996
                                                     Weighted            Weighted           Weighted
                                                     average             average            average
                                                     exercise            exercise           exercise
                                            Shares    price     Shares    price    Shares    price

<S>                                         <C>       <C>       <C>      <C>      <C>       <C>
Outstanding at the beginning of the year  1,000,000   $6.3125   830,000  $12.50        --     $--
Granted                                     478,000    6.3125   185,267   15.35    830,000   12.50
Exercised                                    (4,332)   6.3125    (1,667)  12.50        --     --
Forfeited                                   (15,835)   6.3125   (13,600)  12.50        --     --
                                          ---------           ---------            -------
Outstanding at the end of the year        1,457,833   $6.3125 1,000,000  $13.03    830,000  $12.50
                                          =========           =========            =======
Options exercisable at year end             760,289   $6.3125   521,578  $12.50

Available for future grant                   42,167                 --             170,000

</TABLE>

The weighted  average  remaining life of the SIG options as of December 31, 1998
is 8.5 years.

                                       32

<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

The Board of Directors of GGSH adopted the GGS Management  Holdings,  Inc. Stock
Option Plan (the "GGS Stock Option  Plan"),  effective  April 30, 1996.  The GGS
Stock Option Plan  authorizes the granting of  nonqualified  and incentive stock
options to such  officers and other key  employees as may be  designated  by the
Board of Directors of GGSH. Options granted under the GGS Stock Option Plan have
a term of ten years and vest at a rate of 20% per year for the five years  after
the date of the grant.  The exercise price of any options  granted under the GGS
Stock Option Plan shall be subject to the following  formula:  50% of each grant
of options having an exercise price determined by the Board of Directors of GGSH
at its discretion,  with the remaining 50% of each grant of options subject to a
compound  annual increase in the exercise price of 10%, with a limitation on the
exercise price escalation as such options vest.

Information regarding the GGS Stock Option Plan is summarized below:

<TABLE>
<CAPTION>
                                                       1998                1997               1996
                                                     Weighted            Weighted           Weighted
                                                     average             average            average
                                                     exercise            exercise           exercise
                                            Shares    price     Shares    price    Shares    price

<S>                                          <C>     <C>         <C>     <C>        <C>       <C>
Outstanding at the beginning of the year     54,022  $51.75      55,972  $51.75        --     $--
Granted                                          --     --           --     --      55,972    51.75
Forfeited                                      (150) $51.75      (1,950)  51.75        --      --
                                             ------              ------             ------   
Outstanding at the end of the year           53,872  $51.75      54,022  $51.75     55,972    $51.75
                                             ======              ======             ======
Options exercisable at year end              21,549              10,804                --

Available for future grant                   57,239              57,089             55,139

</TABLE>

<TABLE>
<CAPTION>
                                                                Options                   Options
                                                    Weighted    outstanding               exercisable
                                                    average     weighted                  weighted
                                                    remaining   average                   average
                                        Number      life (in    exercise    Number        exercise
Range of exercise prices              outstanding   years       price       exercisable   price

<S>                                     <C>          <C>        <C>           <C>          <C>   
$44.17-$53.45                           37,710       7.3        $46.13        21,549       $47.60
$58.79-$71.14                           16,162       7.3         64.87            --          --
                                        ------                                ------
                                        53,872                                21,549
                                        ======                                ======
</TABLE>


                                       33

<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

11.   INCOME TAXES

The provision for (recovery of) income taxes is analyzed as follows:

<TABLE>
<CAPTION>
                                                           1998        1997       1996

<S>                                                      <C>         <C>        <C>
Consolidated net earnings (loss) before income taxes
  and discontinued operations                            $(7,475)    $37,904    $43,153
                                                           =====      ======     ======
Incomes taxes at Canadian statutory rates                $(3,326)    $16,867    $19,203

Effect on taxes resulting from:     
  Tax exempt income                                         (958)     (1,714)    (1,495)
  U.S. statutory rate differential                         1,518      (3,262)    (2,566)
  Application of losses carried forward and reserves          --        (292)        --
  Nontaxable gain on IPO                                      --          --     (8,085)
  Operating loss for which no current income tax
     benefit is recognized                                   728         116      1,027
  Timing differences                                         332       1,124        (73)
  Other, net                                                  --        (119)       (28)

Current tax provision                                     (1,706)     12,720      7,983

Deferred tax provision (recovery)                           (332)     (1,124)        73
                                                           -----      ------     ------
                                                         $(2,038)    $11,596    $ 8,056
                                                           =====      ======     ======
</TABLE>

At December 31, 1998, the Company's Canadian subsidiary had reserves,  unclaimed
for income tax purposes, of $424 (1997 - $677). In addition, the Company and its
consolidated  subsidiaries  have operating loss carry forwards of  approximately
$11,459 (1997 - $8,909) for tax purposes which expire  primarily after 1998. The
Company also has net capital  losses  carried  forward of  approximately  $7,607
(1997 -  $8,052)  which can be  applied  to reduce  income  taxes on any  future
taxable  capital  gains.  The  potential  tax benefit of the reserves and losses
carried forward have not been recorded in these financial statements.


                                       34

<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

12.    RELATED PARTY TRANSACTIONS

In 1989,  the Company  wrote off a loan of $5,135 owed by a subsidiary of Symons
International  Group Ltd.  ("SIGL").  SIGL,  the majority  shareholder of Goran,
guaranteed  this loan and pledged 1.2 million  escrowed  common  shares of Goran
(the "escrowed shares") as security for the loan. During 1994, SIGL entered into
agreements with Goran whereby as consideration for the release of 766,600 of the
escrowed shares,  SIGL repaid $1,465 of the loan. During 1997, SIGL entered into
an agreement with Goran whereby as  consideration  for release of 333,400 of the
escrowed  shares,  SIGL repaid  $1,444 of the loan.  The balance due to Goran of
$2,226  continues  to be  guaranteed  by  SIGL  and is  secured  by the  100,000
remaining escrowed shares.

Included in due from  related  parties are $1,377 (1997 - $346) due from certain
shareholders  and directors which relate to the purchase of common shares of the
Company.  Approximately  $1,157 of the amounts due bear interest and are subject
to principal  repayment  schedules.  Other receivables at December 31, 1998 also
includes $1,414 due from certain shareholders unrelated to stock purchases,  the
majority of which bear interest and are subject to principal repayment terms.

The Company paid  $2,832,000,  $1,034,000  and $692,000 in 1998,  1997 and 1996,
respectively,  for consulting  and other services  relative to the conversion to
the Company's new  non-standard  automobile  operating  system.  The Company has
capitalized  these costs as part of its new  non-standard  automobile  operating
system.  Approximately  90% of  these  payments  are for  services  provided  by
consultants   and  vendors   unrelated  to  the  Company.   Stargate   Solutions
("Stargate") manages the work of each unrelated  consultants and vendors and, as
compensation  for such work,  has  retained  approximately  10% of the  payments
referred  to above in return for  management  services  provided.  During  1998,
Stargate was owned generally by certain  directors of the Company and a relative
of those directors.  The Company also paid consulting fees to related parties of
$270 and $86 in 1998 and 1997,  respectively,  for  payments to Onex,  Inc.,  an
officer of whom is on the Company's Board of Directors,  for employment  related
matters.

13.    CONTINGENT LIABILITIES AND COMMITMENTS

The Company,  and its subsidiaries,  are named as defendants in various lawsuits
relating to their business. Legal actions arise from claims made under insurance
policies  issued by the  subsidiaries.  These  actions  were  considered  by the
Company  in  establishing  its loss  reserves.  The  Company  believes  that the
ultimate  disposition of these lawsuits will not materially affect the Company's
operations or financial position.

As part of the  agreement  by the  Company  to assume the  multi-peril  and crop
operations  of CNA,  the Company  agreed to  reimburse  CNA for  certain  direct
overhead  costs  incurred  by CNA  during the first  quarter of 1998  before the
Company assumed the book of business.  CNA has requested  reimbursement  of $2.0
million in expenses  which the  Company  believes  should only be $1.1  million.
Negotiations  are in process to settle this  reimbursement.  The  Company  fully
expects the ultimate settlement will approximate $1.1 million and has therefore,
accrued this amount in its consolidated financial statements.  In the unforeseen
event the ultimate  settlement  is greater than $1.1  million,  the Company will
accrue the full additional amount at that time.

The California  Department of Insurance (CDOI) has advised the Company that they
are reviewing a possible  assessment  which could total $3 million.  The Company
does  not  believe  it will owe  anything  for this  possible  assessment.  This
possible  assessment relates to the charging of brokers fees to policyholders by
independent agents who have placed business for one of the Company's nonstandard
automobile  carriers,  Superior Insurance  Company.  The CDOI has indicated that
such broker  fees  charged by the  independent  agent to the  policyholder  were
improper  and has  requested  reimbursement  to the  policyholders  by  Superior
Insurance Company.  The Company did not receive any of these broker fees. As the
ultimate outcome of this potential assessment is not deemed probable the Company
has not accrued any amount in its consolidated  financial  statements.  Although
the  assessment has not been formally made by the CDOI at this time, the Company
believes it will prevail and will vigorously defend any potential assessment.

The Company began writing a new crop insurance product in 1998,  AgPI(R),  which
provides business interruption  coverage to agricultural product processors.  At
December  31, 1998  certain  coverages  exist,  the results of which will not be
fully  known  until the second  quarter of 1999.  The  Company  believes  it has
sufficient reserves at December 31, 1998;  however,  ultimate results could vary
materially.

At  December  31,  1998,  the  Company  provided an  allowance  of $3.2  million
associated  with  discrepancies  identified in connection with the processing of
premiums from the assumption of the CNA business and the related premiums

                                       35

<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

receivable  balance.  The Company has been unable to resolve these discrepancies
and  has  fully   provided  for  this  amount  as  the  Company   continues  its
investigation.  Ultimate resolution of this matter may result in a change in the
$3.2  million  allowance.  Ultimate  resolution  of this  matter may result in a
change in the $3.2 million allowance.

An assertion has been made in Florida  alleging that service  charges or finance
charges are in violation of Florida law. The plaintiff is attempting to obtain a
class   certification  in  this  action.   The  Company  believes  that  it  has
substantially  complied  with  the  premium  financing  statue  and  intends  to
vigorously defend any potential loss. The ultimate outcome is uncertain.

14.   SEGMENTED INFORMATION

<TABLE>
<CAPTION>
                                                                  United States
                                                 United States     Nonstandard
1998                                                 Crop             Auto         Other    Consolidated

<S>                                                <C>              <C>               <C>       <C>     
Gross premiums written                             $243,026         $303,737           $8       $546,771
                                                    =======          =======            =        =======
Net premiums written                                $62,467         $269,741       $29,898      $362,106
                                                     ======          =======        ======       =======
Net premiums earned                                 $60,901         $264,022        17,254      $342,177
Fee income                                            3,772           16,431            --        20,203
Net investment income                                   275           11,958         1,168        13,401
Net realized capital gains (losses)                     217            4,124          (237)        4,104
                                                     ------          -------        ------       -------
Total revenue                                        65,165          296,535        18,185       379,885
                                                     ------          -------        ------       -------
Net claims incurred                                  52,550          217,916        10,426       280,892
Commission and operating expenses                    21,906           73,346         8,674       103,926
Interest and amortization of intangibles                502               --         2,040         2,542
                                                     ------          -------        ------       -------
Total expenses                                       74,958          291,262        21,140       387,360
                                                     ------          -------        -------      -------
Earnings (loss) before income taxes, minority   
  interest and discontinued operations              $(9,793)          $5,273       $(2,955)      $(7,475)
                                                     ======            =====        ======        ======
Identifiable assets                                $143,434         $376,831       $50,724      $570,989
                                                    =======          =======        ======       =======
</TABLE>

<TABLE>
<CAPTION>
                                                                  United States
                                                 United States     Nonstandard
1997                                                 Crop             Auto         Other    Consolidated

<S>                                                <C>              <C>            <C>          <C>     
Gross premiums written                            $126,401          $323,915       $(1,334)     $448,982
                                                   =======           =======         =====       =======
Net premiums written                               $20,796          $256,745        $4,355      $281,896
                                                    ======           =======         =====       =======
Net premiums earned                                $20,794          $251,020        $4,726      $276,540
Fee income                                           2,276            15,515            30        17,821
Net investment income                                  191            10,969         1,617        12,777
Net realized capital gains (losses)                    (18)            9,462           (51)        9,393
                                                    ------           -------         -----       -------
Total revenue                                       23,243           286,966         6,322       316,531
                                                    ------           -------         -----       -------
Net claims incurred                                 16,550           195,900        (1,451)      210,999
Commission and operating expenses                  (14,404)           72,463         5,285        63,344
Interest and amortization of intangibles               235                --         4,049         4,284
                                                    ------           -------         -----       -------
Total expenses                                       2,381           268,363         7,883       278,627
                                                    ------           -------         -----       -------
Earnings (loss) before income taxes, minority
  interest and discontinued operations             $20,862           $18,603       $(1,561)      $37,904
                                                    ======           =======         =====        ======
Identifiable assets                               $119,660          $363,864       $77,324      $560,848
                                                   =======           =======        ======       =======
</TABLE>

<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

<TABLE>
<CAPTION>
                                                                  United States
                                                 United States     Nonstandard
1996                                                 Crop             Auto         Other    Consolidated

<S>                                                <C>              <C>            <C>          <C>     
Gross premiums written                            $110,059          $187,176       $2,141      $299,376
                                                   =======           =======        =====       =======
Net premiums written                               $23,013          $186,569       $4,196      $213,778
                                                    ======           =======        =====       =======
Net premiums earned                                $23,013          $168,746      $17,124      $208,883
Fee income                                           1,672             7,578           36         9,286
Net investment income                                  181             6,489        1,075         7,745
Net realized capital gains (losses)                     (1)           (1,014)         378          (637)
                                                    ------           -------       ------       -------
Total revenue                                       24,865           181,799       18,613       225,277
                                                    ------           -------       ------       -------
Net claims incurred                                 12,724           124,385        9,165       146,274
Commission and operating expenses                   (6,095)           46,796        7,946        48,647
Interest and amortization of intangibles               551                --        4,821         5,372
                                                    ------           -------       ------       -------
Total expenses                                       7,180           171,181       21,932       200,293
                                                    ------           -------       ------       -------
Earnings (loss) before income taxes, minority
  interest and discontinued operations             $17,685           $10,618      $(3,319)      $24,984
                                                    ======            ======       ======        ======
Identifiable assets                                $72,916          $260,332      $48,094      $381,342
                                                    ======           =======       ======       =======
</TABLE>

Other  results  are  comprised  of the  operations  of  Granite,  Granite Re and
corporate  operations  of Goran and SIG. In 1998  results for Granite Re include
the following for assumed nonstandard auto premiums from SIG:

<TABLE>
<CAPTION>

        <S>                                        <C>    
        Net premiums written                       $27,767
                                                    ======
        Net premiums earned                        $14,874
        Net claims incurred                         11,080
        Commissions                                  3,492
                                                    ------
        Pre-tax income to Granite Re               $   302
                                                    ======
</TABLE>

The  negative  premiums  for other in 1997 result from return  premiums on prior
periods for  reinsurance  transactions  which has no  significant  impact on net
earnings.

See also Note 1.

15.   REGULATORY MATTERS

Goran's  insurance   subsidiaries  are  subject  to  certain   requirements  and
restrictions   in  accordance   with  the   regulations   of  their   respective
jurisdictions.  Statutory  regulations require that the subsidiaries  maintain a
minimum  amount of  capital to support  outstanding  insurance  in force and new
premium  writing.  This  requirement  and other  regulations  in the  respective
jurisdictions,  restricts  the  amount of  dividends  payable in any year by the
subsidiaries  to the  parent.  The  statutory  surplus of the  Company's  active
insurance  subsidiaries  at  December  31, 1998  amounted  to  $121,447  (1997 -
$145,859).

Superior,  Pafco and IGF,  domiciled  in  Florida  and  Indiana,  prepare  their
statutory   financial   statements  in  accordance  with  accounting   practices
prescribed or permitted by the Indiana  Department of Insurance  ("IDOI") or the
Florida  Department  of  Insurance  ("FDOI").  Prescribed  statutory  accounting
practices  include a variety of  publications  of the  National  Association  of
Insurance Commissioner ("NAIC"), as well as state laws, regulations, and general
administrative  rules.  Permitted statutory  accounting  practices encompass all
accounting practices not so prescribed.

                                          37

<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

IGF received  written  approval  through March 31, 1999 from the IDOI to reflect
its  business  transacted  with  the  FCIC  as  a  100%  cession  with  any  net
underwriting  results recognized in ceding commissions for statutory  accounting
purposes,  which differs from prescribed statutory accounting  practices.  As of
December 31, 1998, that permitted practice had no effect on statutory surplus or
net earnings.

The net underwriting  results,  included in commissions and operating  expenses,
for the years  ended  December  31,  1998,  1997 and 1996 were gains of $19,763,
$26,589 and $12,277, respectively.

As of December 31, 1998, IGF and the Superior  entities had  risk-based  capital
ratios  that were in  excess of the  minimum  requirements.  Pafco's  risk-based
capital ratio was 186% or $1.2 million less than the Company Active Level. Pafco
has filed its plan of corrective action with the IDOI.

16.    CHANGES IN WORKING CAPITAL RELATING TO OPERATIONS

The undernoted amounts are net of assets acquired on purchase of NACU:

<TABLE>
<CAPTION>
                                                  1998       1997       1996

<S>                                            <C>         <C>        <C>
Decrease (increase) in accounts receivable     $(11,427)   $(6,395)   $(19,448)

Decrease (increase) in reinsurance recoverable
  paid and unpaid claims                          40,321   (61,311)      8,464

Decrease (increase) in prepaid reinsurance
  premiums                                        19,121   (21,624)     (8,785)

Decrease (increase) in deferred policy
  acquisition costs                               (4,483)    2,011       1,649

Decrease (increase) in deferred income taxes      (3,727)   (1,124)         73

Increase in other assets                         (11,836)   (4,083)     (2,433)

Increase (decrease) in accounts payable          (48,770)   37,810       5,576

Increase (decrease) in outstanding claims         54,561    25,826      (4,545)

Increase (decrease) in unearned premiums          (7,951)   27,409      13,178
                                                  ------    ------      ------
                                                 $25,809   $(1,481)    $(6,271)
                                                  ======    ======      ======
</TABLE>

17.   LEASES

The Company has  certain  commitments  under  long-term  operating  leases for a
branch office and sales offices for Superior Insurance  Company.  Rental expense
under these  commitments was $2,939 in 1998 and $1,176 for 1997.  Future minimum
lease  payments  required  under these  noncancellable  operating  leases are as
follows:
<TABLE>
<CAPTION>

          <S>                               <C>   
          1999                              $3,087
          2000                               1,522 
          2001                               1,291
          2002                               1,099
          2003 and thereafter                  284
                                             -----
             TOTAL                          $7,283
                                             =====
</TABLE>


                                       38

<PAGE>
[Header]
(in thousands of U.S. dollars, except share and per share data)

18.   RECONCILIATION OF CANADIAN GAAP AND UNITED STATES GENERALLY ACCEPTED
      ACCOUNTING PRINCIPLES ("U.S. GAAP") AND ADDITIONAL INFORMATION

The consolidated  financial  statements are prepared in accordance with Canadian
GAAP.  Material  differences between Canadian and U.S. GAAP are described below.
There were no material differences in 1998:
<TABLE>
<CAPTION>
            (a)  Earnings and retained earnings
                                                               1997      1996

                 <S>                                          <C>       <C>
                 Net earnings in accordance with
                  Canadian GAAP                               $12,438   $31,296

                 Add effect of difference in accounting for:
                   Deferred income taxes (see note (d))          177       (64)
                   Minority interest                             107      (177)
                   Outstanding claims (see note (e))            (504)       62
                                                              ------    ------
                 Net earnings in accordance with U.S. GAAP   $12,218   $31,117
                                                              ======    ======
</TABLE>
                 Applying  U.S.  GAAP,  deferred  income  tax  assets  would be
                 increased by $1,975 and outstanding  claims would be increased
                 by  $1,765,  as at  December  31,  1997.  As a result of these
                 adjustments,  retained  earnings  would be  increased by $140,
                 which  is net of  related  minority  interest  of  $70,  as at
                 December 31, 1997.  The effect of the above noted  differences
                 on other individual balance sheet items and on working capital
                 is not significant.

            (b)  Earnings per share

                  Earnings per share, as determined in accordance with U.S. GAAP
                  are set out below. Basic earnings per share are computed based
                  on the weighted  average  number of common shares  outstanding
                  during  the  year.   Fully  diluted  earnings  per  share  are
                  calculated   using  the  Treasury   Stock  method  and  assume
                  conversion of securities when the result is dilutive.

                  The  following  average  number  of  shares  were used for the
                  compilation of basic and fully diluted earnings per share:

<TABLE>
<CAPTION>
                  
                                                            1997        1998
                    <S>                                   <C>         <C>
                    Basic                                 5,590,576   5,286,270
                    Fully Diluted                         5,886,211   5,724,476
</TABLE>

                  Earnings per share,  as  determined  in  accordance  with U.S.
                  GAAP, are as follows (no differences for 1998):

<TABLE>
<CAPTION>
                  
                                                            1997        1998
                    <S>                                   <C>         <C>
                    Basic earnings per share from
                      continuing operations               $2.82       $2.67
  
                    Fully diluted earnings per share
                      from continuing operations          $2.68      $2.47

                    Basic earnings per share              $2.19      $5.89

                    Fully diluted earnings per share      $2.08      $5.44
</TABLE>


                                       39
<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

            (c)   Supplemental cash flow information

                  Cash paid for interest and income taxes is summarized as
                  follows:

<TABLE>
<CAPTION>
                                                        1998    1997     1996
                   <S>                                <C>     <C>       <C>
                   Cash paid for interest               $260   $3,467   $4,005
                   Cash paid for income taxes,
                    net of refunds                    $5,351  $10,979   $9,825
</TABLE>

            (d)   Income taxes

                  The  difference  in  accounting  for  deferred   income  taxes
                  reflects  the  adoption for U.S.  GAAP,  effective  January 1,
                  1993, of Statement of Financial  Accounting  Standards No. 109
                  ("SFAS No. 109"), "Accounting for Income Taxes." This standard
                  requires  an asset and  liability  approach  that  takes  into
                  account  changes in tax rates when  valuing the  deferred  tax
                  amounts to be reported in the balance sheet.
                  (See Note (a) and see Note 2 (l))

            (e)   Outstanding claims

                  The difference in accounting for  outstanding  claims reflects
                  the application for U.S. GAAP of SEC Staff Accounting Bulletin
                  No.   62,   "Discounting   by   Property/Casualty    Insurance
                  Companies". This standard does not allow discounting of unpaid
                  claim  liabilities  by public  companies,  except in  specific
                  circumstances that are not applicable to the Company.

            (f)   Receivables from sale of capital stock

                  The SEC Staff  Accounting  Bulletins  require that accounts or
                  notes receivable  arising from transactions  involving capital
                  stock  should be presented as  deductions  from  shareholders'
                  equity and not as assets. Accordingly, in order to comply with
                  U.S. GAAP, shareholders' equity would be reduced by $1,377 and
                  $346 as at  December  31,  1998  and  1997,  respectively,  to
                  reflect the loans due from certain  shareholders  which relate
                  to the purchase of common shares of the Company.

            (g)   Unrealized gain (loss) on investments

                  U.S.  GAAP  require  that  unrealized   gains  and  losses  on
                  investment   portfolios   be  included   as  a  component   in
                  determining  shareholders'  equity. In addition,  SFAS No. 115
                  permits   prospective   recognition  of  unrealized  gains  on
                  investment  portfolios for year-ends commencing after December
                  15, 1993. As a result, shareholders' equity would be increased
                  by $1,176 and by $1,336,  which is net of deferred tax of $679
                  and $1,005 and related minority  interest of $416 and $658, as
                  at December  31, 1998 and 1997,  respectively.  As the Company
                  classifies  its debt and equity  securities  as available  for
                  sale,  the  adoption  of SFAS No. 115 in 1994 has no effect on
                  net earnings.


                                       40

<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

            (h)   Changes in shareholders' equity

                  A reconciliation of shareholders' equity from Canadian GAAP to
                  U.S. GAAP is as follows:

<TABLE>
<CAPTION>
                                                              1998      1997

                  <S>                                        <C>       <C>
                  Shareholders' equity in accordance
                   with Canadian GAAP                        $49,725   $60,332
 
                  Add (deduct) effect of difference in
                   accounting for:
                     Deferred income taxes (see note (a))        --      1,975
                     Outstanding claims (see note (a))           --     (1,765)
                     Minority interest portion                   --        (70)
                     Receivables from sale of capital stock
                      (see note (f))                          (1,377)     (346)
                     Unrealized gain on investments
                      (see note (g))                           1,176     1,336
                                                              ------    ------
                  Shareholders' equity in accordance
                   with U.S. GAAP                            $49,524   $61,462
                                                              ======    ======
</TABLE>

        (i)    Comprehensive income

               In June  1997,  FASB  issued  Statement  No.  130  ("SFAS  130"),
               "Reporting  Comprehensive Income". SFAS 130 requires companies to
               disclose  comprehensive income in their financial statements.  In
               addition to items  included in net income,  comprehensive  income
               will  include  items  currently  charged or credited  directly to
               shareholders'  equity,  such as the change in unrealized gains or
               losses   of   securities   and   foreign   currency   translation
               adjustments.  For  the  years  presented,   comprehensive  income
               adjustments  have no material  impact on the  Company's  reported
               consolidated  financial  position,  results of operations or cash
               flows.

        (j)    Stock-Based Compensation

               The Company applies  Accounting  Principles Board Opinion No. 25,
               "Accounting   for  Stock   Issued  to   Employees"   and  related
               interpretation   in  accounting   for  its  stock  option  plans.
               Accordingly,  no  compensation  cost has been recognized for such
               plans. Had compensation cost been determined, based on fair value
               at the grant dates for options  granted  under the Company  stock
               option plan as well under both the SIG Stock  Option Plan and the
               GGS Stock Option Plan during 1998,  1997 and 1996 consistent with
               the  method  of  SFAS  No.  123,   "Accounting   for  Stock-Based
               Compensation", the Company's pro-forma net earnings and pro-forma
               earnings per share for the years ended  December  31, 1998,  1997
               and 1996 would have been as follows:

<TABLE>
<CAPTION>
                                                1998         1998     1997        1997    1996        1996
                                                As           Pro-     As          Pro-    As          Pro-
                                                Reported     Forma    Reported    Forma   Reported    Forma

<S>                                             <C>        <C>         <C>       <C>       <C>       <C>    
Earnings (loss) from continuing operations      $(8,999)   $(11,941)   $15,763   $10,047   $13,948   $13,369
Basic EPS from continuing operations             $(1.54)     $(2.04)     $2.82     $1.80     $2.67     $2.53
Fully diluted EPS continuing operations          $(1.54)     $(2.04)     $2.68     $1.71     $2.47     $2.41
Net earnings (loss)                            $(11,936)   $(14,678)   $12,218    $6,502   $31,117   $30,538
Basic EPS                                        $(2.04)     $(2.54)     $2.19     $1.16     $5.89     $5.78
Fully diluted EPS                                $(2.04)     $(2.54)     $2.08     $1.11     $5.44     $5.50

</TABLE>

                                       41

<PAGE>

[Header]
(in thousands of U.S. dollars, except share and per share data)

The  fair  value of each  option  grant  used for  purposes  of  estimating  the
pro-forma  amounts  summarized  above is  estimated  on the grant date using the
Black-Scholes  option-pricing  model with the weighted  average  assumptions for
1998, 1997 and 1996 shown on the following table:

<TABLE>
<CAPTION>

                                          Goran      SIG        Goran      SIG        Goran      SIG
                                          1998       1998       1997       1997       1996       1996
                                          Grants     Grants     Grants     Grants     Grants     Grants   

<S>                                        <C>        <C>        <C>        <C>        <C>        <C>  
Risk-free interest rates                   5.53%      5.40%      6.03%      6.40%      6.00%      6.27%

Dividend yields                             --         --         --         --         --         --

Volatility factors                         0.41       0.41       0.40       0.39       0.40       0.40

Weighted average expected life        2.5 years  3.2 years  2.0 years  3.3 years  2.5 years  3.1 years

Weighted average fair value per share     $7.20      $5.73      $5.28      $5.54      $3.27      $4.27

</TABLE>

The Goran stock options are granted and  denominated  in Canadian  dollars.  The
pro-forma  stock based  compensation  for these  options are  translated  at the
average  rate for the  year.  The  weighted  average  fair  value  per  share is
translated at the year end rate.

                                       42

<PAGE>

FORWARD-LOOKING STATEMENTS

All statements,  trend analyses,  and other information contained in this Annual
Report and elsewhere  (such as in other filings by the Company or its affiliates
with the Securities and Exchange  Commission,  press releases,  presentations by
the Company or its  management or oral  statements)  relative to markets for the
Company's  products  and/or  trends in the  Company's  operations  or  financial
results,  as well as other  statements  including  words  such as  "anticipate,"
"could,"  "feel(s),"   "believe,"   "believes,"  "plan,"  "estimate,"  "expect,"
"should,"  "intend" and other similar  expressions,  constitute  forward-looking
statements  under the Private  Securities  Litigation  Reform Act of 1995. These
forward-looking statements are subject to known and unknown risks, uncertainties
and other factors which may cause actual results to be materially different from
those  contemplated by the  forward-looking  statements.  Such factors  include,
among  other  things:  (i) general  economic  conditions,  including  prevailing
interest rate levels and stock market  performance;  (ii) factors  affecting the
Company's crop operations such as weather-related events, final harvest results,
commodity price levels, governmental program changes, new product acceptance and
commission  levels paid to agents;  and (iii)  factors  affecting  the Company's
nonstandard  automobile  operations such as premium volume,  levels of operating
expenses as compared to premium  volume,  ultimate  development of loss reserves
and  implementation of the Company's  operating  system.  The Company desires to
take advantage of the "safe harbor"  afforded such statements  under the Private
Securities Litigation Reform Act of 1995 when they are accompanied by meaningful
cautionary  statements  identifying  important  factors  that could cause actual
results to differ materially from those in the forward-looking  statements. Such
cautionary  statements which discuss certain risks associated with the Company's
business  are set forth under the heading  "Forward-Looking  Statements  -- Safe
Harbor  Provisions" in Item 1 - Business in the Company's  Annual Report on Form
10-K for the Year Ended December 31, 1998.

MANAGEMENT RESPONSIBILITY

Management recognizes its responsibility for conducting the Company's affairs in
the  best  interests  of  all  its  shareholders.   The  consolidated  financial
statements and related  information in this Annual Report are the responsibility
of  management.  The  consolidated  financial  statements  have been prepared in
accordance with generally accepted  accounting  principles which involve the use
of judgement and estimates in applying the accounting principles selected. Other
financial  information  in this  Annual  Report is  consistent  with that in the
consolidated financial statements.

The Company maintains systems of internal controls which are designed to provide
reasonable  assurance that accounting records are reliable and to safe-guard the
Company's assets. The independent  accounting firm of Schwartz Levitsky Feldman,
LLP Chartered  Accountants  has audited and reported on the Company's  financial
statements.  Their opinion is based upon audits  conducted by them in accordance
with generally accepted auditing  standards to obtain reasonable  assurance that
the consolidated financial statements are free of material misstatements.

The Audit  Committee  of the Board of  Directors,  the members of which  include
outside directors,  meets with the independent  external auditors and management
representatives  to review the internal  accounting  controls,  the consolidated
financial  statements  and other  financial  reporting  matters.  In addition to
having  unrestricted  access  to the  books  and  records  of the  Company,  the
independent  external  auditors  also  have  unrestricted  access  to the  Audit
Committee. The Audit Committee reports its findings and makes recommendations to
the Board of Directors.




/s/ Alan G. Symons
Alan G. Symons
Chief Executive Officer and President
April 13, 1999

                                       43

<PAGE>

AUDITORS' REPORT


To the Shareholders of Goran Capital Inc.


We have  audited the  consolidated  balance  sheets of Goran  Capital Inc. as at
December  31,  1998  and  1997  and the  consolidated  statements  of  earnings,
shareholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 1998. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion,  these consolidated  financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1998
and 1997 and the results of its  operations and cash flows for each of the three
years in the  period  ended  December  31,  1998 in  accordance  with  generally
accepted accounting principles.





/s/ SCHWARTZ LEVITSKY FELDMAN, LLP
Chartered Accountants
Toronto, Ontario
April 13, 1999


                                       44

<PAGE>

MARKET INFORMATION


The Company's  common shares began trading on the Toronto Stock  Exchange  under
the symbol "GNC" in 1986.  The  Company's  common  shares  began  trading on the
NASDAQ National Market under the symbol "GNCNF" on November 8, 1994.

As of December  31, 1998 there were  approximately  100 Common  shareholders  of
record,  including many brokers holding shares for the individual  clients.  The
number of individual shareholders on the same date is estimated at 1,000.

The number of common shares  outstanding on December 31, 1998 totaled 5,876,398.
Information  relating  to the  common  shares is  available  through  the NASDAQ
National Market system and the Toronto Stock Exchange.  The following table sets
forth the high and low  closing  sale  prices  for the  common  shares  for each
quarter of 1998, 1997 and 1996.

<TABLE>
<CAPTION>
                                      TORONTO STOCK EXCHANGE

                                 1998           1997           1996
Quarter Ended                High   Low     High   Low     High    Low

<S>   <C>                    <C>    <C>     <C>    <C>     <C>      <C>  
March 31                     31.93  25.84   29.15  18.98   14.02    8.76

June 30                      29.61  23.89   26.05  19.31   14.05   10.59

September 30                 28.10  20.38   39.35  24.27   19.35   11.32

December 31                  21.40   8.04   39.32  27.75   20.26   16.79
</TABLE>


<TABLE>
<CAPTION>
                                            NASDAQ

                                 1998           1997           1996
Quarter Ended                High   Low     High   Low     High    Low

<S>   <C>                    <C>    <C>     <C>    <C>     <C>      <C>  
March 31                     31.50  25.25   29.25  18.75   13.125   8.625

June 30                      30.50  23.50   26.25  19.75   13.125  10.75

September 30                 28.50  19.75   40.00  24.50   19.375  11.125

December 31                  21.06   8.00   39.50  27.75   22.00   17.00
</TABLE>


DIVIDEND POLICY

Since 1988, the Company has not paid a dividend on its stock. The Company has no
present intention to pay dividends on its common stock.

                                       45

<PAGE>

Directors

G. Gordon Symons
Hamilton, Bermuda
Chairman of the Board
Goran Capital Inc.

J. Ross Schofield
Toronto, Ontario
President
Schofield Insurance Brokers

*David B. Shapira
Toronto, Ontario
President
Medbers Limited

Douglas H. Symons
Indianapolis, Indiana
Vice President and Chief Operating Officer

*James G. Torrance, Q.C.
Toronto, Ontario
Partner Emeritus
Smith, Lyons, Barristers & Solicitors

John K. McKeating
Montreal, Quebec
Partner
Vision 2120, Inc.

*Alan G. Symons
Indianapolis, Indiana
President and Chief Executive Officer
Goran Capital Inc.

*Members of Audit Committee

Officers

G. Gordon Symons
Chairman of the Board

Alan G. Symons
President and Chief Executive Officer

Douglas H. Symons
Vice-President and Chief Operating Officer

Gary P. Hutchcraft, C.P.A.
Vice President and Chief Financial Officer

David L. Bates, J.D., C.P.A.
Vice President, General Counsel and Secretary


                                       46

<PAGE>

Actuaries

Tillinghast
Philadelphia, Pennsylvania

J.S. Cheng & Partners Inc.
Toronto, Ontario

Trustee and Registrar
CIBC Mellon Trust Company
Toronto, Ontario

Auditors
Schwartz Levitsky Feldman LLP
Chartered Accountants
Toronto, Ontario

PricewaterhouseCoopers LLP
Indianapolis, Indiana

Managers -
Granite Reinsurance Company Ltd.

Atlantic Security Ltd.
Hamilton, Bermuda

                                       47

<PAGE>

SUBSIDIARIES AND BRANCH OFFICES

HEAD OFFICE CANADA

Goran Capital Inc.
181 University Avenue
Box 11, Suite 1101
Toronto, Ontario Canada M5H 3M7
Tel:  416-594-1155
Fax:  416-594-0711

HEAD OFFICE U.S.

Goran Capital Inc.
4720 Kingsway Drive
Indianapolis, Indiana 46205
Tel:  317-259-6400
Fax:  317-259-6395

SHAREHOLDER INFORMATION

Stock  Exchange  Listings
The common shares are listed on
The Toronto Stock Exchange (GNC)
and on NASDAQ (GNCNF)

Annual Meeting
The Annual Meeting of Shareholders
will be held on June 15, 1999
at 10:00 a.m.
181 University Avenue, Suite 1101,
Toronto, Ontario Canada

Shareholder Inquiries
Inquiries should be directed to:

Alan G. Symons
President and Chief Executive Officer
Goran Capital Inc.
Tel: 416-594-1155 (Canada)
     317-259-6302 (U.S.)
Email:  AGSymons@AOL.com

SUBSIDIARIES AND BRANCHES

Granite Insurance Company
181 University Avenue
Box 11, Suite 1101
Toronto, Ontario Canada M5H 3M7
Tel:  416-594-1155
Fax:  416-594-0711

                                       48

<PAGE>

Symons International Group, Inc.
4720 Kingsway Drive
Indianapolis, Indiana 46205
Tel:  317-259-6300
Fax:  317-259-6395
Website:  SIGINS.com

Pafco General Insurance Company
4720 Kingsway Drive
Indianapolis, Indiana 46205
Tel:  317-259-6300
Fax:  317-259-6395

Symons International Group, Inc. (Florida)
5900 North Andrews Drive, Suite 800
Fort Lauderdale, Florida 33309
Tel:  954-772-5061
Fax:  954-772-9873

Superior Insurance Company
280 Interstate North Circle N.W.
Atlanta, Georgia 30339
Tel:  770-952-4885
Fax:  770-988-8583

Superior Insurance Company
3030 N. Rocky Point Drive, Suite 770
Tampa, Florida 33607
Tel:  813-281-2444
Fax:  813-281-8036

Superior Insurance Company
1745 W. Orangewood Road
Orange, California 92868
Tel:  714-978-6811
Fax:  714-978-0353

IGF Insurance Company
Corporate Office
6000 Grand Avenue
Des Moines, Iowa 50312
Tel:  515-633-1000
Fax:  515-633-1010

IGF Mid West
6000 Grand Avenue
Des Moines, Iowa 50312
Tel:  515-633-1000
Fax:  515-633-1012

IGF Mid East
3900 Wood Duck Drive, Suite B
Springfield, Illinois 62707
Tel:  217-726-2450
Fax:  217-726-2451


                                       49

<PAGE>

IGF Southwest
7914 Abbeville Avenue
Lubbock, Texas 79424
Tel:  806-783-3010
Fax:  806-783-3017

IGF South
101 Business Park Drive, Suite C
Jackson, Mississippi 39213
Tel:  601-957-9780
Fax:  601-957-9793

IGF West
1750 Bullard Avenue, Suite 106
Fresno, California 93710
Tel:  209-432-0196
Fax:  209-432-0294

IGF North
116 South Main, Box 1090
Stanley, North Dakota 58784
Tel:  701-628-3536
Fax:  701-628-3537

IGF - NACU
Highway 210 West, Box 375
Henning, Minnesota 56551
Tel:  218-583-4800
Fax:  218-583-4852

Granite Reinsurance Company Ltd.
Bishop's Court Hill
St. Michael, Barbados, W.I.
(Managers: Atlantic Security Ltd.)
Tel:  441-295-5425
Fax:  441-295-5444


                                       50

<PAGE>
































BACK PAGE

Goran logo

GORAN CAPITAL INC.

181 University Avenue 4720 Kingsway Drive
Box 11, Suite 1101    Indianapolis, Indiana
Toronto, Ontario                          46205
Canada  M5H 3M7

Tel:  416-594-1155    Tel:  317-259-6400
Fax: 416-594-0711     Fax:  317-259-6395


                                       51

<PAGE>