FORM 10-K
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(MARK ONE)
( X )  Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
       Act of 1934 for the year ended December 31, 1998.

(   )  Transition Report pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934 for the transition period from ________ to ________.

Commission File Number:  000-24366

                               GORAN CAPITAL INC.
             (Exact name of registrant as specified in its charter)

CANADA                                       Not Applicable
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or organization)

181 University Avenue, Suite 1101             M5H 3M7
Toronto, Ontario Canada
(Address of Principal Executive Offices)     (Zip Code)

Registrant's telephone number:               (416) 594-1155 (Canada)
                                             (317) 259-6400 (U.S.A.)

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

Securities registered pursuant to             None
Section 12(g) of the Act:                    (Title of Class)

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of  Registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)

The aggregate  market value of the 2,813,654 shares of the Issuer's Common Stock
held by nonaffiliates, as of March 22, 1999 was $26,729,713 (US).

The  number of shares of Common  Stock of the  Registrant,  without  par  value,
outstanding as of March 22, 1999 was 5,876,398.

Documents Incorporated By Reference:
Portions of the Annual Report to  Shareholders  and the Proxy  Statement for the
1999 Annual Meeting of Shareholders are incorporated into Parts II and III.

Exhibit Index on Page 42                                           Page 1 of 49


<PAGE>

Exchange Rate Information

The Company's accounts and financial  statements are maintained in U.S. Dollars.
In this Report all dollar  amounts are  expressed in U.S.  Dollars  except where
otherwise indicated.

The following table sets forth, for each period indicated,  the average exchange
rates for U.S.  Dollars  expressed  in Canadian  Dollars on the last day of each
month during such period,  the high and the low exchange rate during that period
and the exchange rate at the end of such period, based upon the noon buying rate
in New York City for cable  transfers in foreign  currencies,  as certified  for
customs  purposes  by the  Federal  Reserve  Bank of New York (the "Noon  Buying
Rate").

Foreign Exchange Rates
U.S. to Canadian Dollars
For The Years Ended December 31,

<TABLE>
<CAPTION>
                                  1994    1995    1996    1997    1998

<S>                              <C>     <C>     <C>     <C>     <C>  
Average                          .7322   .7287   .7339   .7222   .6745

Period End                       .7129   .7325   .7301   .6995   .6532

High                             .7642   .7465   .7472   .7351   .7061

Low                              .7097   .7099   .7270   .6938   .6376 


</TABLE>

Accounting Principles

The financial  information  contained in this document is stated in U.S. Dollars
and is expressed in  accordance  with  Canadian  Generally  Accepted  Accounting
Principles unless otherwise stated.



<PAGE>

GORAN CAPITAL INC.
ANNUAL REPORT ON FORM 10-K
December 31, 1998
                                                                             
PART I                                                                   Page  

ITEM 1.       Business ..................................................  4

              Forward Looking Statements - Safe Harbor Provisions.......  33

ITEM 2.       Properties................................................  38

ITEM 3.       Legal Proceedings.........................................  39

ITEM 4.       Submission of Matters to a Vote of Security Holders.......  39

PART II

ITEM 5.       Market For Registrant's Common Equity And
              Related Shareholder Matters...............................  39

ITEM 6.       Selected Consolidated Financial Data......................  40

ITEM 7.       Management's Discussion and Analysis of Financial
              Condition and Results of Operations.......................  41

ITEM 8.       Financial Statements and Supplementary Data...............  41

ITEM 9.       Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure.......................  41

PART III

ITEM 10.      Directors and Executive Officers of the Registrant........  41

ITEM 11.      Executive Compensation....................................  41

ITEM 12.      Security Ownership of Certain Beneficial
              Owners and Management.....................................  41

ITEM 13.      Certain Relationships and Related Transactions............  41

PART IV

ITEM 14.      Exhibits, Financial Statement Schedules, and
              Reports Form 8-K..........................................  42

SIGNATURES    ..........................................................  49



<PAGE>

ITEM 1 - BUSINESS
(figures stated in U.S. dollars)

General

     Goran  Capital  Inc.  ("Goran" or the  "Company")  is a Canadian  federally
incorporated holding company principally engaged in the business of underwriting
property and casualty insurance through its insurance subsidiaries Pafco General
Insurance Company  ("Pafco"),  Superior  Insurance Company  ("Superior") and IGF
Insurance  Company ("IGF"),  which maintain their  headquarters in Indianapolis,
Indiana,  Atlanta,  Georgia  and Des  Moines,  Iowa,  respectively.  Goran  owns
approximately 67% of a U.S. holding company,  Symons  International  Group, Inc.
("SIG"). SIG owns IGF and GGS Management Holdings, Inc. ("GGS Holdings") and GGS
Management,  Inc.  ("GGS") which are the holding company and management  company
for Pafco and Superior.  Goran sold 33% of SIG in an Initial Public  Offering in
November,  1996. The Company's other  subsidiaries  include Granite  Reinsurance
Company Ltd. ("Granite Re"), Granite Insurance Company  ("Granite"),  a Canadian
federally  licensed  insurance  company and Symons  International  Group, Inc. -
Florida ("SIGF"),  a surplus lines underwriter  located in Florida. In 1997, the
Company  announced its intention to  discontinue  the  operations of SIGF with a
sale of such operations completed effective January 1, 1999.

         Granite Re is a specialized  reinsurance company that underwrites niche
products such as nonstandard automobile, crop, property casualty reinsurance and
offers  (on a  non-risk  bearing,  fee  basis),  rent-a-captive  facilities  for
Bermudian, Canadian and U.S. reinsurance companies.

         Through a  rent-a-captive  program,  Granite  Re offers  the use of its
capital and its underwriting  facilities to write specific programs on behalf of
its clients,  including  certain  programs ceded from IGF and Pafco.  Granite Re
alleviates the need for its clients to establish their own insurance company and
also offers this facility in an offshore environment.

         Granite sold its book of business in January 1990 to an affiliate which
subsequently  sold  to  third  parties  in  June  1990.  Granite  currently  has
approximately  40  outstanding  claims and  maintains  an  investment  portfolio
sufficient  to support  those  claim  liabilities  which will  likely be settled
between now and the year 2000.

         Goran  Capital  Inc.,  a  specialty   property  and  casualty  insurer,
underwrites and markets nonstandard private passenger  automobile  insurance and
crop  insurance.  Through its  Subsidiaries,  the Company writes business in the
United States exclusively through independent  agencies and seeks to distinguish
itself by offering high quality,  technology  based  services for its agents and
policyholders.  Based on the  Company's  Gross  Premiums  Written  in 1998,  the
Company  believes  that it is the twelfth  largest  underwriter  of  nonstandard
automobile insurance in the United States. Based on premium information compiled
in 1997 by the  NCIS,  the  Company  believes  that  IGF is the  fourth  largest
underwriter of crop insurance in the United States.

Nonstandard Automobile Insurance

Industry Background

         The Company,  through its Subsidiaries,  Pafco and Superior, is engaged
in the writing of insurance coverage on automobile physical damage and liability
policies  for  "nonstandard   risks."  The  nonstandard   market  accounted  for
approximately  19% of total  private  passenger  automobile  insurance  premiums
written in 1997.  According  to  statistical  information  derived  from insurer
annual  statements  compiled by A.M. Best,  the  nonstandard  automobile  market
accounted for $22 billion in annual premium volume for 1997.

Strategy

         The Company has multiple  strategies  with  respect to its  nonstandard
automobile insurance operations, including:

         o        The  Company   seeks  to  achieve   profitability   through  a
                  combination  of internal  growth and the  acquisition of other
                  insurers  and  blocks  of  business.   The  Company  regularly
                  evaluates acquisition opportunities.
         
                                        4

<PAGE>


         o        The Company will seek to expand the multi-tiered marketing
                  approach currently employed in certain states in order to
                  offer to its independent agency network a broader range of
                  products with different premium and commission structures.

         o        The Company is committed to the use of integrated technologies
                  which permit it to rate,  issue,  bill and service policies in
                  an efficient and cost effective manner.

         o        The Company  competes  primarily on the basis of  underwriting
                  criteria and service to agents and insureds and generally does
                  not match price decreases implemented by competitors which are
                  directed towards obtaining market share.

         o        The  Company  encourages  agencies  to place a large  share of
                  their  profitable  business with its subsidiaries by offering,
                  in  addition to fixed  commissions,  a  contingent  commission
                  based on a combination of volume and profitability.

         o        The Company  responds to claims in a manner designed to reduce
                  the costs of claims  settlements  by  reducing  the  number of
                  pending  claims and uses  computer  databases to verify repair
                  and vehicle replacement costs and to increase  subrogation and
                  salvage recoveries.

Products

         The Company offers both liability and physical  damage  coverage in the
insurance  marketplace,  with policies  having terms of three to twelve  months,
with the  majority of policies  having a term of six  months.  Most  nonstandard
automobile insurance policyholders choose the basic limits of liability coverage
which, though varying from state to state,  generally are $25,000 per person and
$50,000 per  accident  for bodily  injury and in the range of $10,000 to $20,000
for property damage.

         The Company offers several different policies which are directed toward
different  classes of risk within the  nonstandard  market.  The Superior Choice
policy  covers  insureds  whose prior  driving  record,  insurability  and other
relevant  characteristics  indicate a lower risk profile than other risks in the
nonstandard  marketplace.  The  Superior  Standard  policy is intended for risks
which do not qualify for Superior Choice but which  nevertheless  present a more
favorable risk profile than many other nonstandard risks. The Superior Specialty
policies cover risks which do not qualify for either the Superior  Choice or the
Superior Standard. Pafco offers a product similar to the Superior product.

Marketing

         The Company's nonstandard automobile insurance business is concentrated
in the states of  Florida,  California,  Virginia,  Indiana and Georgia and also
writes nonstandard  automobile  insurance in 16 additional states, with plans to
continue to expand  selectively into additional  states. The Company will select
states for  expansion  based on a number of criteria,  including the size of the
nonstandard  automobile insurance market,  state-wide loss results,  competition
and the  regulatory  climate.  The  following  table sets  forth the  geographic
distribution of Gross Premiums Written for the Company for the periods indicated
including  Gross Premiums  Written for Superior prior to its  acquisition by the
Company on April 30, 1996.

                                        5

<PAGE>

Goran Capital Inc. and Superior Insurance Company (Combined)
Year Ended December 31,
(in thousands)

<TABLE>
<CAPTION>

State                               1996        1997        1998

<S>                                <C>         <C>        <C>   
Arizona                            $  --       $  --      $6,228
Arkansas                           2,004       1,539       1,383
California                        25,131      59,819      48,181 
Colorado                          10,262       9,865       8,115
Florida                           97,659     141,907     107,746
Georgia                            7,398      11,858      21,575
Illinois                           2,994       3,541       2,908
Indiana                           16,599      17,227      18,735
Iowa                               5,818       7,079       6,951
Kentucky                          11,065       9,538       8,108
Mississippi                        2,250       2,830       5,931
Missouri                          13,423       9,705       8,669
Nebraska                           5,390       6,613       6,803
Nevada                                --       4,273       8,849
Ohio                               3,643       3,731       2,106
Oklahoma                           2,559       3,418       3,803
Oregon                                --       2,302       6,390
Tennessee                             (2)         --       1,443
Texas                             10,122       7,192       7,520
Virginia                          14,733      21,446      22,288
Washington                           106          32           5
                                 -------     -------     -------
Total                           $231,154    $323,915    $303,737
                                 =======     =======     =======
</TABLE>

         The  Company  markets  its  nonstandard  products  exclusively  through
approximately  6,000  independent  agencies and focuses its marketing efforts in
rural areas and the peripheral  areas of  metropolitan  centers.  As part of its
strategy, management is continuing its efforts to establish the Company as a low
cost provider of nonstandard automobile insurance while maintaining a commitment
to provide  quality  service to both agents and  insureds.  This  element of the
Company's  strategy is being  accomplished  primarily  through the automation of
certain  marketing,  underwriting  and  administrative  functions.  In  order to
maintain  and enhance its  relationship  with its agency  base,  the Company has
several  territorial  managers,  each of whom  resides in a  specific  marketing
region  and has  access to the  technology  and  software  necessary  to provide
marketing,  rating  and  administrative  support to the  agencies  in his or her
region.

         The Company  attempts to foster strong service  relationships  with its
agencies and customers.  The Company is currently  completing its development of
computer software that will provide on-line communication with its agency force.
In  addition,   to  delivering   prompt   service  while   ensuring   consistent
underwriting,  the Company  offers rating  software to its agents in some states
which  permits  them to  evaluate  risks in their  offices.  The  agent  has the
authority to sell and bind  insurance  coverages in accordance  with  procedures
established  by the  Company,  which is a  common  practice  in the  nonstandard
automobile  insurance  business.  The Company reviews all coverages bound by the
agents promptly and generally accepts all coverages which fall within its stated
underwriting criteria. In most jurisdictions, the Company has the right within a
specified  time  period to cancel any policy  even if the risk falls  within its
underwriting  criteria.  See "Business --  Nonstandard  Automobile  Insurance --
Underwriting."

                                        6

<PAGE>

         The Company  compensates  its agents by paying a commission  based on a
percentage of premiums produced. The Company also offers its agents a contingent
commission based on volume and profitability,  thereby encouraging the agents to
enhance the placement of profitable business with the Company.

         The Company  believes that the  combination  of Pafco with Superior and
its  two  Florida-domiciled   insurance  subsidiaries  allows  the  Company  the
flexibility to engage in  multi-tiered  marketing  efforts in which  specialized
automobile  insurance  products are  directed  toward  specific  segments of the
market.  Since  certain  state  insurance  laws  prohibit a single  insurer from
offering  similar  products with  different  commission  structures  or, in some
cases,  premium  rates,  it is  necessary to have  multiple  licenses in certain
states in order to obtain the  benefits of market  segmentation.  The Company is
currently  offering  multi-tiered  products  in its major  states.  The  Company
intends to continue the expansion of the marketing of its multi-tiered  products
into other states and to obtain multiple  licenses for its subsidiaries in these
states to permit maximum flexibility in designing commission structures.

Underwriting

         The Company  underwrites its nonstandard  automobile  business with the
goal of achieving  adequate  pricing.  The Company seeks to classify  risks into
narrowly defined segments through the utilization of all available  underwriting
criteria.  The  Company  maintains  an  extensive,  proprietary  database  which
contains  statistical records with respect to its insureds on driving and repair
experience  by  location,  class of driver  and type of  automobile.  Management
believes this  database  gives the Company the ability to be more precise in the
underwriting  and  pricing of its  products.  Further,  the  Company  uses motor
vehicle  accident  reporting  agencies to verify  accident  history  information
included in applications.

         The Company utilizes many factors in determining its rates. Some of the
characteristics  used are  type,  age and  location  of the  vehicle,  number of
vehicles per policyholder,  number and type of convictions or accidents,  limits
of  liability,  deductibles,  and,  where  allowed by law,  age, sex and marital
status of the insured.  The rate  approval  process  varies from state to state;
some states, such as Indiana, Colorado,  Kentucky and Missouri, allow filing and
use of rates, while others,  such as Florida,  Arkansas and California,  require
approval of the insurance department prior to the use of the rates.

         The Company has integrated its automated  underwriting process with the
functions  performed by its agency force. For example,  the Company has a rating
software  package  for use by agents in some  states.  In many  instances,  this
software package, combined with agent access to the automated retrieval of motor
vehicle reports, ensures accurate underwriting and pricing at the point of sale.
The Company  believes the automated  rating and  underwriting  system provides a
significant  competitive  advantage because it (i) improves efficiencies for the
agent  and the  Company,  thereby  reinforcing  the  agents'  commitment  to the
Company, (ii) makes more accurate and consistent underwriting decisions possible
and  (iii)  can  be  changed  easily  to  reflect  new  rates  and  underwriting
guidelines.

         Underwriting  results of insurance companies are frequently measured by
their Combined  Ratios.  However,  investment  income,  federal income taxes and
other  non-underwriting  income or expense  are not  reflected  in the  Combined
Ratio. The profitability of property and casualty insurance companies depends on
income  from  underwriting,  investment  and  service  operations.  Underwriting
results are generally  considered  profitable  when the Combined  Ratio is under
100%  and  unprofitable   when  the  Combined  Ratio  is  over  100%.  Refer  to
"Management's  Discussion  and Analysis of Results of  Operations  and Financial
Condition" for a further discussion on the Combined Ratio.

         In  an  effort  to  maintain  and  improve  underwriting  profits,  the
territorial  managers  regularly  monitor  loss ratios of the  agencies in their
regions and meet  periodically with the agencies in order to address any adverse
trends in Loss Ratios.

Claims

         The Company's  nonstandard  automobile claims department handles claims
on a regional basis from its Indianapolis,  Indiana;  Atlanta,  Georgia;  Tampa,
Florida  and  Anaheim,  California  locations.   Management  believes  that  the
employment of salaried claims  personnel,  as opposed to independent  adjusters,
results in reduced  ultimate  loss  payments,  lower LAE and  improved  customer
service.  The Company generally retains independent  appraisers and adjusters on
an as needed basis for estimation of physical damage claims and limited elements
of  investigation.  The  Company  uses  the  Audapoint,  Audatex  and  Certified

                                        7

<PAGE>

Collateral  Corporation computer programs to verify, through a central database,
the cost to repair a vehicle and to eliminate  duplicate or "overlap" costs from
body  shops.  Autotrak,  which is a national  database of  vehicles,  allows the
Company to locate vehicles nearly  identical in model,  color and mileage to the
vehicle damaged in an accident,  thereby reducing the frequency of disagreements
with claimants as to the replacement value of damaged vehicles.

         Claims settlement authority levels are established for each adjuster or
manager based on the employee's  ability and level of experience.  Upon receipt,
each  claim  is  reviewed  and  assigned  to an  adjuster  based on the type and
severity of the claim.  All  claim-related  litigation  is  monitored  by a home
office  supervisor  or  litigation  manager.  The claims  policy of the  Company
emphasizes  prompt  and  fair  settlement  of  meritorious  claims,  appropriate
reserving for claims and controlling claims adjustment expenses.

Reinsurance

         The Company  follows the  customary  industry  practice of reinsuring a
portion of its risks and paying for that protection based upon premiums received
on all policies subject to such  Reinsurance.  Insurance is ceded principally to
reduce  the  Company's  exposure  on  large  individual  risks  and  to  provide
protection  against  large  losses,   including  catastrophic  losses.  Although
Reinsurance  does not  legally  discharge  the ceding  insurer  from its primary
obligation to pay the full amount of losses  incurred under policies  reinsured,
it does render the reinsurer liable to the insurer to the extent provided by the
terms of the Reinsurance treaty. As part of its internal procedures, the Company
evaluates the financial condition of each prospective  reinsurer before it cedes
business  to that  carrier.  Based on the  Company's  review of its  reinsurers'
financial  health and  reputation  in the  insurance  marketplace,  the  Company
believes its reinsurers are  financially  sound and that they therefore can meet
their obligations to the Company under the terms of the Reinsurance treaties.

         Effective  January  1,  1997,  Pafco  and  Superior  ceded  20%  of its
nonstandard  automobile business written during the first three quarters of 1997
and 25% during the fourth quarter in accordance  with a quota share  Reinsurance
agreement.  90% of the cession was with Vesta Fire Insurance  Company (rated "A"
by A.M.  Best) and 10% was with  Granite  Re.  Effective  January 1,  1998,  the
cession rate was changed to 10%. These treaties were commuted  effective October
1, 1998,  thereby  completely and fully  discharging Vesta and Granite Re of any
obligations relative to this business for payments of $7,698,977 and $1,123,294,
respectively.

         In 1998, 1997 and 1996, Pafco and Superior  maintained  casualty excess
of loss reinsurance on its nonstandard  automobile  insurance  business covering
100% of losses on an individual  occurrence  basis in excess of $200,000 up to a
maximum of $5,000,000.

         Amounts recoverable from reinsurers relating to nonstandard  automobile
operations as of December 31, 1998 follows:

<TABLE>
<CAPTION>
                                                              Reinsurance
                                                A.M. Best   Recoverable as of
Reinsurers                                       Rating    December 31, 1998 (1)
                                                               (in thousands)

<S>                                            <C>                   <C> 
Everest Reinsurance Company                       A+ (2)             $315
Q.B.I. Insurance (UK) Ltd.                     Not Rated             $249
Constitution Reinsurance Corporation              A+                 $251
Federal Emergency Management Administration    Not Rated             $463

</TABLE>

(1)   Only  recoverable  greater than  $200,000 are shown.  Total  nonstandard
      automobile  reinsurance  recoverables  as  of  December  31,  1998  were
      approximately $2,292,000.
(2)   An A.M. Best Rating of "A+" is the second highest of 15 ratings.


                                        8

<PAGE>

         On April 29,  1996,  Pafco  retroactively  ceded all of its  commercial
business  relating to 1995 and  previous  years to Granite Re, with an effective
date of January 1, 1996.  Approximately  $3,519,000  and  $2,380,000 of loss and
loss adjustment  expense reserves and unearned premium  reserves,  respectively,
were ceded and no gain or loss recognized. Effective January 1, 1998, Granite Re
ceded  the 1995 and  prior  commercial  business  back to  Pafco.  Approximately
$1,803,000 in loss and loss adjustment expense reserves were ceded back to Pafco
and no gain or loss was recognized.

         On  April  29,  1996,  Pafco  also  entered  into  a 100%  quota  share
reinsurance  agreement  with  Granite  Re,  whereby  all of  Pafco's  commercial
business from 1996 and thereafter was ceded effective January 1, 1996.

         Neither Pafco nor Superior has any facultative Reinsurance with respect
to its nonstandard automobile insurance business.

Competition

         The Company  competes  with both large  national  and smaller  regional
companies in each state in which it operates.  The Company's competitors include
other companies  which,  like the Company,  serve the agency market,  as well as
companies  which sell insurance  directly to customers.  Direct writers may have
certain  competitive  advantages over agency writers,  including  increased name
recognition,  increased loyalty of their customer base and, potentially, reduced
acquisition  costs. The Company's primary  competitors are Progressive  Casualty
Insurance  Company,  Guaranty National Insurance  Company,  Integon  Corporation
Group,  Deerbrook  Insurance Company (a member of the Allstate  Insurance Group)
and the companies of the American Financial Group. Generally,  these competitors
are  larger  and  have  greater  financial  resources  than  the  Company.   The
nonstandard  automobile  insurance  business  is  price  sensitive  and  certain
competitors of the Company have, from time to time, decreased their prices in an
apparent  attempt  to gain  market  share.  Although  the  Company's  pricing is
inevitably  influenced to some degree by that of its competitors,  management of
the Company  believes that it is generally not in the Company's best interest to
match  such  price  decreases,  choosing  instead  to  compete  on the  basis of
underwriting criteria and superior service to its agents and insureds.

Crop Insurance

Industry Background

         The two principal  components of the Company's crop insurance  business
are 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  weather 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.  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.

         MPCI was  initiated  by the  federal  government  in the  1930s to help
protect farmers  against loss of their crops as a result of drought,  floods and
other natural disasters.  In addition to MPCI, farmers whose crops are lost as a
result of natural  disasters have, in the past,  occasionally  been supported by
the federal government in the form of ad hoc relief bills providing low interest
agricultural  loans and direct payments.  Prior to 1980, MPCI was available only
on major crops in major producing  areas. In 1980,  Congress  expanded the scope
and coverage of the MPCI program. In addition,  the delivery system for MPCI was
expanded to permit private  insurance  companies and licensed agents and brokers
to sell MPCI  policies and the FCIC was  authorized  to reimburse  participating
companies for their  administrative  expenses and to provide federal Reinsurance
for the majority of the risk assumed by such private companies.

         Although  expansion of the federal crop  insurance  program in 1980 was
expected to make crop  insurance  the  farmer's  primary risk  management  tool,
participation  in the MPCI program was only 32% of eligible  acreage in the 1993
crop  year.  Due in part to low  participation  in the  MPCI  program,  Congress
provided an average of $1.5  billion per year in ad hoc disaster  payments  over
the six years prior to 1994.  In view of the  combination  of low  participation
rates in the MPCI  program and large  federal  payments  on both crop  insurance
(with an average  loss ratio of 147%) and ad hoc disaster  payments  since 1980,
Congress  has,  since 1990,  considered  major reform of its crop  insurance and
disaster  assistance  policies.  The 1994  Reform  Act was  enacted  in order to
increase  participation  in the MPCI program and  eliminate  the need for ad hoc
federal disaster relief payments to farmers.

                                        9

<PAGE>

         The 1994 Reform Act required  farmers for the first time to purchase at
least CAT Coverage (i.e., the minimum available level of MPCI providing coverage
for 50% of  farmers'  historic  yield at 60% of the price per unit for such crop
set by the FCIC) in order to be  eligible  for other  federally  sponsored  farm
benefits,  including,  but not  limited  to, low  interest  loans and crop price
supports.  The 1994 Reform Act also  authorized the marketing and selling of CAT
Coverage  by the local  USDA  offices  which has since  been  eliminated  by the
Federal Agriculture  Improvement and Reform Act of 1996 ("the 1996 Reform Act").
The 1996 Reform Act was signed into law by  President  Clinton in April 1996 and
also eliminated the linkage between CAT Coverage and  qualification  for certain
federal farm program benefits.

         In June  1998,  President  Clinton  signed the  Agricultural  Research,
Extension and Education  Reform Act of 1998 into law ("Ag Research  Act").  That
Act contained a number of changes in the crop insurance program,  the largest of
which was the conversion of funding for the MPCI Expense  Reimbursement  subsidy
that had previously  been 50% permanent  (mandatory  spending) under the federal
budget and 50% discretionary (dependent on annual Congressional  appropriations)
to 100% permanent/mandatory  funding. Thus, the program and the companies are no
longer  subject  to the annual  budget  battles in  Washington  with  respect to
administrative  funding. This is a major positive change in the stability of the
program.

         Other  changes  included  a  reduction  in the  rate  of  MPCI  Expense
Reimbursement  from the  general  27% in the 1998  reinsurance  year to 24.5% in
1999.  The  reinsurance  terms of the 1998 (and now 1999 and 2000) SRA were also
frozen for  subsequent  reinsurance  years thereby  providing  another aspect of
stability  to  the  program.   Two  other  changes  were  made  related  to  the
Catastrophic  (CAT)  level  of  insurance  under  the  MPCI  program.   The  law
significantly changed the administrative fee structure attached to such policies
(farmers pay no premium only administrative fees for CAT) - the previous $50 per
crop per county (with $200/county, $600 overall limit) was changed to the higher
of $50 or 10% of the imputed  premium for such  policies plus $10 and no part of
the fees would be retained  by the  participating  reinsured  company any longer
(previously up to $100 per county could be retained). Starting in 1999, all fees
would  go  directly  to the  Federal  Government  rather  than the  Company.  In
addition,  the CAT LAE  Reimbursement  was lowered from  approximately  13.7% of
imputed premium in 1998 to 11% of premium in 1999.

         In October 1998,  President Clinton signed the Fiscal Year 1999 Omnibus
Consolidated  and  Emergency  Supplemental  Appropriations  Act into  law.  This
provided a total of $2.375  billion in  disaster  assistance  to help  producers
weather 1998 and multi-year  disasters.  Any producer  receiving a payment under
that program who did not have crop  insurance in 1998 will be required to secure
coverage (CAT or MPCI Buy-up) for the 1999 and 2000 crop years. In addition,  on
December 12, 1998, President Clinton and the USDA announced that $400 million of
the $2.375 billion would be set aside as a 1999 crop year crop insurance premium
incentive to encourage  producers  to secure  additional  coverage on their 1999
crops. In addition,  on January 8, 1999, the FCIC announced that it would accept
additional  applications  for insurance or accept changes in insurance  coverage
from  producers  for their 1999 crops (2000 crop of citrus) in cases where sales
closing dates had already passed and it would extend upcoming spring application
periods across the country to allow producers  additional time to take advantage
of  the  premium  incentive.  Additional  options  for  allowing  the  reinsured
companies to manage the risk associated with these actions were also provided.

         The Company expects to more than offset these reimbursement  reductions
through  growth in fee income from  non-federally  subsidized  programs  such as
AgPI(R) and GEO Ag Plus(R)  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  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 MPCI policies than it otherwise would.

                                       10

<PAGE>

Strategy

         The Company has multiple strategies for its crop insurance  operations,
including the following:

       o     The Company  seeks to enhance  underwriting  profits and reduce the
             volatility  of  its  crop  insurance  business  through  geographic
             diversification  and the appropriate  allocation of risks among the
             federal  reinsurance  pools and the  effective  use of federal  and
             third-party catastrophic Reinsurance arrangements.

       o     The Company also limits the risks  associated  with crop  insurance
             through   selective   underwriting  of  crop  risks  based  on  its
             historical loss experience data base.

       o     The  Company  continues  to  develop  and  maintain  a  proprietary
             knowledge-based  underwriting  system which  utilizes a database of
             Company-specific underwriting rules.

       o     The Company has further strengthened its independent agency network
             by using  technology  to  provide  fast,  efficient  service to its
             agencies  and  providing  application  documentation  designed  for
             simplicity and convenience.

       o     Unlike many of its competitors,  the Company employs  approximately
             135 full-time claims adjusters,  most of whom are agronomy-trained,
             to reduce  the cost of  losses  experienced  by IGF and to  provide
             opportunity to produce fee based income.

       o     The Company  stops  selling its crop hail  policies  after  certain
             selected dates to prevent farmers from adversely  selecting against
             IGF when a storm is forecast or hail damage has already occurred.

       o     The Company  continues to explore growth  opportunities and product
             diversification   through  new   specialty   coverages,   including
             Agriculture  Production  Interruption  (AgPI),  Agriculture Revenue
             Interruption  (AgRI)  and  specific  named  peril  crop  insurance.
             Further,  IGF has recently  released  new products  such as timber,
             fresh market vegetables and environmental ("green") coverages.

       o     The Company has recently launched a new fee based service for
             farmers called Geo AgPLUS(TM).

       o     The   Company   continues   to   explore   new   opportunities   in
             administrative  efficiencies and product underwriting made possible
             by advances  in  Precision  Farming  software,  Global  Positioning
             System (GPS)  software and  Geographical  Information  System (GIS)
             technology,  all of which  continue  to be adopted by  insureds  in
             their farming practices.

Products

         MPCI is a  federally  subsidized  program  which is designed to provide
participating  farmers  who suffer  insured  crop  damage  with funds  needed to
continue  operating  and plant  crops for the next  growing  season.  All of the
material terms of the MPCI program and of the participation of private insurers,
such as the Company,  in the program are set by the FCIC under  applicable  law.
MPCI  provides  coverage for insured  crops  against  substantially  all natural
perils.  Purchasing an MPCI policy  permits a farmer to insure  against the risk
that his crop  yield  for any  growing  season  will be less than 50% to 75% (as
selected  by the farmer at the time of policy  application  or  renewal)  of his
historic  crop yield.  If a farmer's crop yield for the year is greater than the
yield  coverage  he  selected,  no payment is made to the farmer  under the MPCI
program.  However,  if a farmer's crop yield for the year is less than the yield
coverage  selected,  MPCI  entitles  the farmer to a payment  equal to the yield
shortfall  multiplied  by 60% to 100% of the price for such crop (as selected by
the farmer at the time of policy  application or renewal) for that season as set
by the FCIC.

         In order to encourage  farmers to  participate  in the MPCI program and
thereby reduce  dependence on traditional  disaster  relief  measures,  the 1996
Reform Act  established  CAT Coverage as a new minimum  level of MPCI  coverage,
which farmers may purchase upon payment of a fixed administrative fee of $60 per
policy instead of any premium.  CAT Coverage  insures 50% of historic crop yield
at 55% of the FCIC-set crop price for the applicable  commodities  standard unit


                                       11

<PAGE>

of measure,  i.e., bushel, pound, etc. CAT Coverage can be obtained from private
insurers such as the Company.

     In addition to CAT Coverage,  MPCI policies that provide a greater level of
protection  than the CAT Coverage  level are also offered  ("Buy-up  Coverage").
Most farmers  purchasing  MPCI have  historically  purchased at Buy-up  Coverage
levels,  with the most  frequently  sold policy  providing  coverage  for 65% of
historic  crop  yield at 100% of the  FCIC-set  crop  price per  bushel.  Buy-up
Coverages  require payment of a premium in an amount determined by a formula set
by the FCIC.  Buy-up Coverage can only be purchased from private  insurers.  The
Company  focuses its marketing  efforts on Buy-up  Coverages,  which have higher
premiums and which the Company  believes  will continue to appeal to farmers who
desire, or whose lenders encourage or require production and revenue protection.

         The number of MPCI Buy-up policies written has  historically  tended to
increase  after a year in which a major  natural  disaster  adversely  affecting
crops  occurs  and to  decrease  following  a year in  which  favorable  weather
conditions prevail.

         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's share of profit or loss on the MPCI business it writes is
determined under a complex profit sharing formula established by the FCIC. Under
this formula,  the primary  factors that  determine the Company's MPCI profit or
loss share are (i) the gross  premiums  the  Company  is  credited  with  having
written, (ii) the amount of such credited premiums retained by the Company after
ceding  premiums  to  certain  federal  reinsurance  pools  and  (iii)  the loss
experience of the Company's insureds.

         The Company also offers Crop Revenue Coverage  ("CRC").  In contrast to
standard MPCI  coverage,  which  features a yield  guarantee or coverage for the
loss of production, CRC provides the insured with a guaranteed revenue stream by
combining both yield and price  variability  protection.  CRC protects against a
grower's  loss of revenue  resulting  from  fluctuating  crop prices  and/or low
yields  by  providing  coverage  when any  combination  of crop  yield and price
results in  revenue  that is less than the  revenue  guarantee  provided  by the
policy.  CRC was approved by the FCIC as a pilot  program for revenue  insurance
coverage  plans  for the 1996  Crop  Year and  since  then it has been  expanded
virtually  nationwide on corn, soybeans and wheat and to additional crops in new
pilot areas. Currently, CRC represents approximately 20% of all of the Company's
MPCI policies.

         Revenue insurance  coverage plans such as CRC are largely the result of
the 1996 Reform Act, which directed the FCIC to develop a crop insurance program
providing  coverage  against loss of gross  income as a result of reduced  yield
and/or price.  CRC was developed by a private  insurance  company other than the
Company under the Federal Crop Insurance Act, which authorizes private companies
to design alternative coverage plans and to submit them for review, approval and
endorsement by the FCIC. As a result, although CRC is administered and reinsured
by the FCIC and  risks are  allocated  to the  federal  reinsurance  pools,  CRC
remains partially influenced by the private sector, particularly with respect to
changes in its rating structure.

         CRC  plans  to use  the  policy  terms  and  conditions  of the  Actual
Production  History  ("APH") plan of MPCI as the basic  provisions for coverage.
The APH provides the yield  component by utilizing the insured's  historic yield
records.  The CRC revenue  guarantee  is the  producer's  approved APH times the
coverage level,  times the higher of the spring futures price or harvest futures
price (in each case,  for  post-harvest  delivery)  of the insured crop for each
unit of farmland. The coverage levels and exclusions in a CRC policy are similar
to those in a standard MPCI policy. For the 1998 Crop Year, the Company received
from the FCIC an expense  reimbursement payment equal to 23.5% of Gross Premiums
Written  in  respect  of each CRC  policy it  writes.  The MPCI  Buy-up  Expense
Reimbursement  Payment is  currently  established  by  legislation.  The expense
reimbursement  payment on CRC was 31% in 1996,  29% in 1997,  23.25% in 1998 and
21.1% in 1999.


                                       12

<PAGE>

         CRC protects  revenues by extending crop insurance  protection based on
APH to include  price as well as yield  variability.  Unlike MPCI,  in which the
crop price  component  of the  coverage  is set by the FCIC prior to the growing
season and generally does not reflect actual crop prices, CRC uses the commodity
futures market as the basis for its pricing  component.  Pricing occurs twice in
the CRC plan.  The spring  futures price is used to establish the initial policy
revenue  guarantee  and  premium,  and  the  harvest  futures  price  is used to
establish the crop value to count against the revenue guarantee and to recompute
the revenue guarantee (and resulting  indemnity payments) when the harvest price
is higher than the spring price.

         In addition to MPCI  (including  CRC),  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  HAILPLUS(R) product which combines the application and underwriting
process for MPCI and hail coverages.  The  HAILPLUS(R)  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  50% of IGF's hail policies
are written in combination  with MPCI.  Although both crop hail and MPCI provide
insurance  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 MPCI 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, including hybrid seed corn, cranberries,  cotton,
sugar cane, sugar beets,  citrus,  tomatoes and onions and are generally written
on terms that are specific to the kind of crops and farming  practices  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 polices  primarily to large producers through certain select agents.
The Company's experienced product development team will develop the underwriting
criteria  and  actuarial  rates  for the  named  peril  coverages.  As with  the
Company's other crop insurance  products,  loss adjustment  procedures for named
peril policies are handled by full-time  professional  claims adjusters who have
specific  agronomy  training  with  respect  to the  crop and  farming  practice
involved in the coverage.

         AgPI(R) protects agriculture based 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  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  mapping  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 the soil for a maximum crop yield.  Precision
farming  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
products to the farmer.

                                       13

<PAGE>

Gross Premiums

         Each year the FCIC  sets the  formulas  for  determining  premiums  for
different  levels of Buy-up  Coverage.  Premiums  are based on the type of crop,
acreage planted, farm location,  price per bushel for the insured crop as set by
the FCIC for that year and other factors.  The federal government will generally
subsidize a portion of the total premium set by the FCIC and require  farmers to
pay the  remainder.  Cash premiums are received by the Company from farmers only
after the end of a growing season and are then promptly  remitted to the federal
government. Although applicable federal subsidies change from year to year, such
subsidies  will range up to  approximately  40% of the Buy-up  Coverage  premium
depending on the crop  insured and the level of Buy-up  Coverage  purchased,  if
any.  Federal  premium  subsidies  are recorded on the  Company's  behalf by the
government.  For purposes of the profit sharing formula, the Company is credited
with  having  written  the full  amount of  premiums  paid by farmers for Buy-up
Coverages,  plus the amount of any related federal premium subsidies (such total
amount, its "MPCI Premium").

         As  previously  noted,  farmers  pay an  administrative  fee of $60 per
policy but are not required to pay any premium for CAT  Coverage.  However,  for
purposes of the profit sharing formula,  the Company is credited with an imputed
premium (its "MPCI Imputed  Premium") for all CAT Coverages it sells. The amount
of such MPCI Imputed Premium credited is determined by formula. In general, such
MPCI Imputed  Premium will be less than 50% of the premium that would be payable
for a Buy-up  Coverage policy that insured 65% of historic crop yield at 100% of
the  FCIC-set  crop  price  per  standard  unit of  measure  for the  commodity,
historically  the most frequently  sold Buy-up  Coverage.  For income  statement
purposes under GAAP, the Company's Gross Premiums  Written for MPCI consist only
of its MPCI Premiums and do not include MPCI Imputed Premiums.

Reinsurance Pools

         Under the MPCI  program,  the Company must allocate its MPCI Premium or
MPCI Imputed  Premium in respect of a farm to one of seven  federal  reinsurance
pools,  at its discretion.  These pools provide private  insurers with different
levels  of  Reinsurance  protection  from the  FCIC on the  business  they  have
written.  The seven  pools  have  three  fundamental  designations;  Commercial,
Developmental  and Assigned Risk. For insured farms allocated to the "Commercial
Pool," the Company,  at its election,  generally retains 50% to 100% of the risk
and  the  FCIC  assumes  0% - 50%  of  the  risk;  for  those  allocated  to the
"Developmental Pool," the Company generally retains 35% of the risk and the FCIC
assumes 65%; and for those  allocated to the  "Assigned  Risk Pool," the Company
retains  20% of the  risk and the  FCIC  assumes  80%.  The  MPCI  Retention  is
protected by private third-party stop-loss treaties.

         Although the Company in general must agree to insure any eligible farm,
it is not  restricted  in its  decision  to  allocate a risk to any of the seven
pools,  subject to a minimum aggregate retention of 35% of its MPCI Premiums and
MPCI Imputed  Premiums  written.  The Company uses a  sophisticated  methodology
derived from a comprehensive  historical data base to allocate MPCI risks to the
federal  reinsurance  pools in an effort to  enhance  the  underwriting  profits
realized from this business. The Company has crop yield history information with
respect to over 100,000 farms in the United  States.  Generally,  farms or crops
which,  based on historical  experience,  location and other factors,  appear to
have a favorable net loss ratio and to be less likely to suffer an insured loss,
are placed in the Commercial Pool. Farms or crops which appear to be more likely
to suffer a loss are placed in the Developmental Pool or Assigned Risk Pool. The
Company  has  historically  allocated  the  bulk  of its  insured  risks  to the
Commercial Pool.

         The Company's  share of profit or loss depends on the aggregate  amount
of MPCI Premium and MPCI Imputed Premium on which the Company retains risk after
allocating  farms to the foregoing pools (its "MPCI  Retention").  As previously
described,  the Company purchases  Reinsurance from third parties other than the
FCIC to further reduce its MPCI loss exposure.

Loss Experience of Insureds

         Under the MPCI  program  the Company  pays losses to farmers  through a
federally  funded escrow account as they are incurred during the growing season.
The Company  requests  funding of the escrow account when a claim is settled and
the escrow  account is funded by the federal  government  within three  business
days.  After a  growing  season  ends,  the  aggregate  loss  experience  of the
Company's  insureds  in each  state  for  risks  allocated  to each of the seven
Reinsurance  pools is  determined.  If, for all risks  allocated to a particular
pool in a particular  state, the Company's share of losses incurred is less than
its aggregate  MPCI  Retention,  the Company  shares in the gross amount of such

                                       14

<PAGE>

profit  according to a schedule set by the FCIC Standard  Reinsurance  Agreement
(SRA). The profit and loss sharing percentages are different for risks allocated
to each of the seven  Reinsurance pools and private insurers will receive or pay
the greatest  percentage of profit or loss for risks allocated to the Commercial
Pool. The percentage split between private  insurers and the federal  government
of any profit or loss that emerges  from an MPCI  Retention is set by the FCIC's
SRA. The FCIC has extended the SRA for the 1999 reinsurance year to 2000.

MPCI Fees and Reimbursement Payments

         The Company  receives  Buy-up Expense  Reimbursement  Payments from the
FCIC for writing and  administering  Buy-up  Coverage  policies.  These payments
provide funds to  compensate  the Company for its  expenses,  including  agents'
commissions and the costs of administering  policies and adjusting  claims.  For
1996, 1997 and 1998, the maximum Buy-up Expense Reimbursement Payment was set at
31%, 29% and 27%, respectively, of the MPCI Premium.  Historically, the FCIC has
paid the maximum MPCI Buy-up Expense  Reimbursement Payment rate allowable under
law,  although  no  assurance  can be given that this  practice  will  continue.
Although the 1994 Reform Act directs the FCIC to alter  program  procedures  and
administrative  requirements so that the  administrative  and operating costs of
private insurance companies participating in the MPCI program will be reduced in
an amount that corresponds to the reduction in the expense  reimbursement  rate,
there can be no assurance  that the  Company's  actual costs will not exceed the
expense  reimbursement  rate.  For  the  1999  crop  year,  the  Buy-up  Expense
Reimbursement payment has been set at 24.5%.

         Farmers  are  required  to pay a  fixed  administrative  fee of $60 per
policy in order to obtain CAT  Coverage.  This fee through  1998 was retained by
the Company  (maximum  of $100 per county) to defray the cost of  administration
and policy  acquisition.  The Company also receives from the FCIC a separate CAT
LAE Reimbursement  Payment equal to approximately 13.0% of MPCI Imputed Premiums
(11.0% for the 1999 crop year) in respect of each CAT Coverage  policy it writes
and a small MPCI Excess LAE Reimbursement Payment.  Beginning with the 1999 crop
year,  the Company will no longer  receive the CAT  Coverage  Fee. All such fees
will now go to the federal government.

         In addition to premium  revenues,  the Company  received the  following
Federally  funded fees and commissions  from its crop insurance  segment for the
periods indicated:

<TABLE>
<CAPTION>

(in thousands)                                       Year Ended December 31,
                                                    1996      1997      1998

<S>                                               <C>       <C>       <C>   
CAT Coverage Fees (1)                             $1,181    $1,191    $2,346

Buy-up Expense Reimbursement Payments             24,971    24,788    37,982

CAT LAE Reimbursement Payments and MPCI Excess
   LAE Reimbursement Payments                      5,753     4,565     6,520
                                                  ------    ------    ------
Total                                            $31,905   $30,544   $46,848
                                                  ======    ======    ======
</TABLE>

(1)    See  "Management's  Discussion  and Analysis of Financial  Condition  and
       Results of Operations of the Company" for a discussion of the  accounting
       treatment accorded to the crop insurance business.



                                       15

<PAGE>

Third-Party Reinsurance

         In order to reduce the Company's potential loss exposure under the MPCI
program,  the  Company  purchases  stop  loss  Reinsurance  from  other  private
reinsurers in addition to Reinsurance obtained from the FCIC. In addition, since
the FCIC and state  regulatory  authorities  require IGF to limit its  aggregate
writings  of MPCI  Premiums  and MPCI  Imputed  Premiums to no more than 900% of
capital,  and retain a net loss exposure of not in excess of 50% of capital, IGF
may also obtain  Reinsurance  from private  reinsurers  in order to permit it to
increase its premium writings.  Such private Reinsurance would not eliminate the
Company's  potential  liability  in the event a  reinsurer  was unable to pay or
losses  exceeded the limits of the stop loss coverage.  For crop hail insurance,
the Company had in effect  quota share  Reinsurance  of 40% of business for 1996
and 1997 and 25% for 1998,  although the reinsurer is only liable to participate
in losses of the Company up to a 150% pure loss ratio. The Company also has stop
loss treaties for its crop hail business  which reinsure net losses in excess of
an 80% pure Loss Ratio to 130% at 95% coverage  with IGF retaining the remaining
5%. With respect to its MPCI business,  the Company has stop loss treaties which
reinsure  93.75% of the  underwriting  losses  experienced by the Company to the
extent that aggregate losses of its insureds nationwide are in excess of 100% of
the Company's MPCI Retention up to 125% of MPCI Retention.  The Company also has
an  additional  layer of MPCI  stop loss  Reinsurance  which  covers  95% of the
underwriting  losses  experienced  by the Company to the extent  that  aggregate
losses of its insureds  nationwide are in excess of 125% of MPCI Retention up to
160% of MPCI  Retention.  The Company  maintains  a 50% quota share  reinsurance
treaty for its named peril product.  For 1999, the Company plans to increase its
crop hail and AgPI quota share portion to 80% and add AgPI to its MPCI stop loss
coverage.

         Based on a review of the reinsurers' financial health and reputation in
the insurance marketplace, the Company believes that the reinsurers for its crop
insurance  business are financially  sound and that they therefor can meet their
obligations to the Company under the terms of the Reinsurance treaties. Reserves
for uncollectible  Reinsurance are provided as deemed  necessary.  The following
table provides  information with respect to ceded premiums in excess of $250,000
on crop hail and named perils and for any affiliates.


                                       16

<PAGE>

Year Ended December 31, 1998 (1)
(in thousands, except footnotes)

<TABLE>
<CAPTION>

                                                          A.M. Best   Ceded
Reinsurers                                                 Rating    Premiums

<S>                                                       <C>         <C>    
Continental Casualty Insurance Co. (CNA)(2)                  A        $10,796
Muchener Ruckversicherungs-Gesellschaft                   Not Rated    $2,532
New Cap Re                                                Not Rated    $1,056
Monde Re (3)                                              Not Rated    $2,844
Partner Reinsurance Company Ltd.                          Not Rated      $832
R & V Versicherung AG                                     Not Rated    $1,451
Reinsurance Australia Corporation, Ltd. (REAC) (3)        Not Rated    $2,848
Swiss Reinsurance Company (4)                                A+          $384

</TABLE>

---------------
(1)  For the twelve months ended December 31, 1998, total ceded premiums were
     $200,658.
(2)  An A.M. Best rating of "A" is the third highest of 15 ratings.
(3)  Monde Re is owned by REAC.
(4)  An A.M. Best rating of "A+" is the second highest of 15 ratings.

         As of December  31, 1998,  IGF's  Reinsurance  recoverables  aggregated
approximately $5,305 excluding  recoverables from the FCIC and recoverables from
affiliates on nonstandard automobile business.

Marketing; Distribution Network

     IGF markets its products to the owners and  operators of farms in 43 states
through   approximately   4,670  agents  associated  with  approximately   2,007
independent insurance agencies, with its primary geographic concentration in the
states of Texas, North Dakota, Iowa, Minnesota, Illinois, California,  Nebraska,
Mississippi, Arkansas and South Dakota. IGF is licensed in 30 states and markets
its  products  in  additional  states  through  a  fronting   agreement  with  a
third-party  insurance company.  IGF has a stable agency base and it experienced
negligible  turnover in its agencies in 1998. Through its agencies,  IGF targets
farmers  with an  acreage  base of at  least  1,000  acres.  Such  larger  farms
typically  have a lower risk exposure  since they tend to utilize better farming
practices and to have noncontiguous acreage,  thereby making it less likely that
the entire farm will be affected by a particular  occurrence.  Many farmers with
large farms tend to buy or rent acreage which is  increasingly  distant from the
central farm location.  Accordingly, the likelihood of a major storm (wind, rain
or hail) or a freeze affecting all of a particular farmer's acreage decreases.

                                       17

<PAGE>

         The following table presents MPCI and crop hail premiums written by IGF
by state for the periods indicated.

<TABLE>
<CAPTION>
                                      (in thousands)
                        Year Ended                       Year Ended
                     December 31, 1997                 December 31, 199
State          Crop Hail  MPCI/CAT  Total   Crop Hail  MPCI/CAT  Other(1)  Total

<S>               <C>     <C>      <C>         <C>     <C>       <C>      <C>   
Alabama           $144    $1,958   $2,102      $83     $2,714    $---     $2,797
Arkansas           652     7,455    8,107    1,460     11,141     ---     12,601
California       1,062     8,498    9,560      661      9,754   7,797     18,212
Colorado         1,309     3,322    4,631    1,626      3,024       7      4,657
Florida             19     5,730    5,749        6      1,994     ---      2,000
Illinois           655    14,023   14,678    2,409     20,407     151     22,967
Indiana             92     4,971    5,063      244      7,031     ---      7,275
Iowa             7,628    13,798   21,426    9,724     16,554     ---     26,278
Kansas             832     6,881    7,713    1,904      4,703      57      6,664
Louisiana           41     3,630    3,671       36      5,486      35      5,557
Minnesota        4,405     4,088    8,493    4,222     16,017     497     20,736
Mississippi        509     9,025    9,534      445     10,382     ---     10,827
Missouri           383     2,116    2,499    1,228      5,822     ---      7,050
Montana          2,879     2,122    5,001    4,280      5,338     ---      9,618
Nebraska         1,597     3,315    4,912    5,752      6,635     ---     12,387
North Dakota       787     3,363    4,150   10,131     20,423     254     30,808
Oklahoma           451     1,727    2,178      857      2,232     ---      3,089
South Dakota       932     1,575    2,507    5,320      6,017     ---     11,337
Texas            3,211    18,071   21,282    9,492     35,212     306     45,010
Wisconsin          407     1,887    2,294      269      3,219     288      3,776
All Other       10,354     3,791   14,145   16,049     13,247     211     29,507
                ------   -------   -------   ------    -------   -----   -------
Total          $38,349  $121,346  $159,695  $76,198   $207,352  $9,603  $293,153
                ======   =======   =======   ======    =======   =====   =======
</TABLE>

(1)  Includes  named peril and  AgPI(R).  There is a small amount of named peril
premiums  included with crop hail in 1997. No AgPI(R) I policies were written in
1997.

                                       18

<PAGE>

         The Company seeks to maintain and develop its agency  relationships  by
providing  agencies  with faster,  more  efficient  service as well as marketing
support.  IGF  owns an IBM  AS400  along  with  all  peripheral  and  networking
equipment and has developed its own  proprietary  software  package,  AgentPlus,
which allows  agencies to quote and examine  various levels of coverage on their
own personal computers.  The Company's regional managers are responsible for the
Company's field operations within an assigned  geographic  territory,  including
maintaining and enhancing relationships with agencies in those territories.  IGF
also  uses  application  documentation  which is  designed  for  simplicity  and
convenience.  The Company  believes  that IGF is the only crop insurer which has
created a single application for MPCI, crop hail and named peril coverage.

         IGF generally  compensates its agents based on a percentage of premiums
produced and, in the case of CAT Coverage and crop hail insurance,  a percentage
of  underwriting  gain  realized  with  respect  to  business   produced.   This
compensation  structure  is designed  to  encourage  agents to place  profitable
business  with IGF (which tends to be insurance  coverages for larger farms with
respect  to  which  the  risk  of  loss  is  spread  over   larger,   frequently
noncontiguous insured areas).

Underwriting Management

         Because of the highly regulated nature of the MPCI program and the fact
that rates are  established  by the FCIC,  the  primary  underwriting  functions
performed  by the  Company's  personnel  with  respect to MPCI  coverage are (i)
selecting  of  marketing  territories  for MPCI based on the type of crops being
grown in the area, typical weather patterns and loss experience of both agencies
and farmers within a particular  area,  (ii)  recruiting  agencies  within those
marketing  territories which service larger farms and other more desirable risks
and (iii) ensuring that policies are  underwritten  in accordance  with the FCIC
rules.

         With  respect  to  its  hail  coverage,   IGF  seeks  to  minimize  its
underwriting losses by maintaining an adequate geographic spread of risk by rate
group.  In  addition,  IGF  establishes  sales  closing  dates  after which hail
policies will not be sold. These dates are dependent on planting schedules, vary
by  geographic  location  and  range  from  May 15 in  Texas to July 15 in North
Dakota.  Prior to these  dates,  crops are  either  seeds in the ground or young
growth newly emerged from the ground and hail damage to crops in either of these
stages of growth is minimal.  The cut-off dates prevent  farmers from  adversely
selecting  against IGF by waiting to  purchase  hail  coverage  until a storm is
forecast or damage has occurred.  For its hail coverage, IGF also sets limits by
policy ($400,000 each) and by township ($2.0 million per township).  The Company
also uses a daily report  entitled  "Severe Weather Digest" which shows the time
and geographic  location of all  extraordinary  weather events to check incoming
policy applications against possible previous damage.

Claims/Loss Adjustments

         In contrast to most of its competitors who retain independent adjusters
on a  part-time  basis  for  loss  adjusting  services,  IGF  employs  full-time
professional  claims adjusters,  most of whom are agronomy  trained,  as well as
part-time  adjusters.  Management  believes that the  professionalism of the IGF
full-time  claims staff coupled with their exclusive  commitment to IGF helps to
ensure  that claims are handled in a manner  designed to reduce  overpayment  of
losses  experienced by IGF. The adjusters are located throughout IGF's marketing
territories.  As an aid to promote a rapid  claims  response,  the  Company  has
available  numerous  all  terrain  four  wheel  drive  vehicles  for  use by its
adjusters.  The adjusters  report to a Field Service  Manager in their territory
who manages adjusters'  assignments,  assures that all preliminary estimates for
loss reserves are accurately reported and assists in loss adjustment.  Within 72
hours of reported  damage,  a loss  notice is  reviewed by an IGF Field  Service
Manager  and a  preliminary  loss  reserve is  determined  which is based on the
representative's and/or adjuster's knowledge of the area or the particular storm
which caused the loss. Generally,  within approximately two weeks, hail and MPCI
claims are examined and reviewed on site by an adjuster and the insured  signs a
proof  of loss  form  containing  a  final  release.  As part of the  adjustment
process,  IGF's adjusters may use Global  Positioning  System Units to determine
the  precise  location  where a  claimed  loss has  occurred.  IGF has a team of
catastrophic  claims  specialists who are available on 48 hours notice to travel
to any of IGF's  seven  regional  service  offices to assist in heavy claim work
load situations.

                                       19

<PAGE>

     In September of 1998, IGF restructured its loss adjustment  services. A new
Field Service Department was created with an organization  structure designed to
provide  better  efficiency  and  accountability  at the point of service in the
field.   The   restructuring   eliminated  one  middle  level  management  layer
stimulating quicker response and more accurate communication.  The new structure
placed claim distribution and coordination in the field. It also coordinated the
activities of loss adjustment and precision  agriculture  support services.  The
new structure was also designed to establish  better  information  flow for loss
reserving.

Competition

         The crop insurance industry is highly competitive. The Company competes
against other private  companies for MPCI,  crop hail and named peril  coverage.
Many of the Company's competitors have substantially greater financial and other
resources  than the Company and there can be no assurance  that the Company will
be able to compete  effectively  against  such  competitors  in the future.  The
Company competes on the basis of the commissions paid to agents,  the speed with
which  claims  are paid,  the  quality  and  extent  of  services  offered,  the
reputation  and  experience  of its agency  network  and, in the case of private
insurance,  policy  rates.  Because the FCIC  establishes  the rates that may be
offered for MPCI  policies,  the Company  believes  that  quality of service and
level of  commissions  offered to agents are the  principal  factors on which it
competes in the area of MPCI. The Company  believes that the crop hail and other
named peril crop insurance industry is extremely  rate-sensitive and the ability
to offer  competitive  rate  structures  to agents is a  critical  factor in the
agent's  ability to write crop hail and other named peril  premiums.  Because of
the varying  state laws  regarding  the ability of agents to write crop hail and
other named peril premiums prior to completion of rate and form filings (and, in
some cases, state approval of such filings),  a company may not be able to write
its expected premium volume if its rates are not competitive.

         The crop insurance industry has become increasingly consolidated.  From
the 1985 crop year to the 1998 crop  year,  the  number of  insurance  companies
having  agreements  with the FCIC to sell and service MPCI policies has declined
from fifty to seventeen.  The Company  believes  that IGF is the fourth  largest
MPCI crop insurer in the United States based on premium information  compiled in
1997 by the FCIC and NCIS. The Company's primary competitors are Rain & Hail LLC
(affiliated with Cigna Insurance  Company),  Rural Community Insurance Services,
Inc.  (which is owned by  Norwest  Corporation),  Acceptance  Insurance  Company
(Redland),  FF Agribusiness  (affiliated  with Fireman's  Fund),  Great American
Insurance  Company,  Blakely Crop Hail (an affiliate of Farmers  Alliance Mutual
Insurance  Company) and North  Central  Crop  Insurance,  Inc. (an  affiliate of
Farmers Alliance Mutual Insurance  Company).  The Company believes that in order
to compete  successfully  in the crop insurance  business it will have to market
and  service a volume of  premiums  sufficiently  large to enable the Company to
continue to realize  operating  efficiencies  in  conducting  its  business.  No
assurance can be given that the Company will be able to compete  successfully if
this market further consolidates.

Reserves for Losses and Loss Adjustment Expenses

         Loss Reserves are estimates, established at a given point in time based
on  facts  then  known,  of what  an  insurer  predicts  its  exposure  to be in
connection  with  incurred  losses.  LAE Reserves are  estimates of the ultimate
liability  associated  with  the  expense  of  settling  all  claims,  including
investigation  and  litigation  costs  resulting  from such  claims.  The actual
liability  of an insurer  for its Losses and LAE  Reserves  at any point in time
will be greater or less than these estimates.

         The Company  maintains  reserves for the eventual payment of Losses and
LAE with respect to both reported and unreported claims.  Nonstandard automobile
reserves  for reported  claims are  established  on a  case-by-case  basis.  The
reserving  process  takes  into  account  the type of claim,  policy  provisions
relating  to the  type of loss and  historical  paid  Loss  and LAE for  similar
claims.  Reported  crop  insurance  claims are reserved  based upon  preliminary
notice to the Company and  investigation  of the loss in the field. The ultimate
settlement  of a crop loss is based  upon  either  the value or the yield of the
crop.

         Loss and LAE  Reserves  for  claims  that  have been  incurred  but not
reported  are  estimated  based  on  many  variables  including  historical  and
statistical  information,  inflation,  legal developments,  economic conditions,
trends in claim  severity and  frequency and other factors that could affect the
adequacy of loss reserves.

                                       20

<PAGE>

         The  Company's  reserves  are  reviewed by  independent  actuaries on a
semi-annual  basis.  The  Company's  recorded  Loss Reserves are certified by an
independent actuary for each calendar year.

         The following loss reserve  development  table  illustrates  the change
over time of reserves  established  for loss and loss  expenses as of the end of
the  various  calendar  years  for the  nonstandard  automobile  segment  of the
Company.  The table includes the loss reserves  acquired from the acquisition of
Superior in 1996 and the related loss reserve development thereafter.  The first
section shows the reserves as originally reported at the end of the stated year.
The second section,  reading down,  shows the cumulative  amounts paid as of the
end of  successive  years  with  respect  to the  reserve  liability.  The third
section,  reading down, shows the re-estimates of the original  recorded reserve
as of the end of each  successive  year  which  is a result  of sound  insurance
reserving  practices of addressing  new emerging facts and  circumstances  which
indicate  that a  modification  of the prior  estimate  is  necessary.  The last
section  compares  the latest  re-estimated  reserve to the  reserve  originally
established,  and indicates  whether or not the original reserve was adequate or
inadequate to cover the estimated costs of unsettled claims.

         The loss reserve development table is cumulative and, therefore, ending
balances  should not be added since the amount at the end of each  calendar year
includes activity for both the current and prior years.

         The reserve  for losses and loss  expenses  is an  accumulation  of the
estimated amounts necessary to settle all outstanding  claims as of the date for
which the reserve is stated.  The reserve and payment data shown below have been
reduced for estimated  subrogation and salvage recoveries.  The Company does not
discount its reserves for unpaid losses and loss expenses. No attempt is made to
isolate  explicitly  the  impact of  inflation  from the  multitude  of  factors
influencing the reserve estimates though inflation is implicitly included in the
estimates.  The Company regularly updates its reserve forecasts by type of claim
as new facts become known and events occur which affect unsettled claims.

         During  1997 and 1998,  the  Company,  as part of its efforts to reduce
costs and combine the  operations of the two  nonstandard  automobile  insurance
companies,  emphasized a unified claim settlement  practice as well as reserving
philosophy  for  Superior  and  Pafco.   Superior  had   historically   provided
strengthened  case reserves and a level of IBNR which  reflected the strength of
the case reserves.  Pafco had historically carried case reserves which generally
did not reflect the level of future payments but yet a higher IBNR reserve. This
change in claims  management  philosophy  during 1997 and 1998  coupled with the
growth in  premium  volume  produced  sufficient  volatility  in prior year loss
patterns  to warrant the Company to  re-estimate  its 1996 and 1997  reserve for
losses and loss expenses and record an additional  reserve during 1997 and 1998.
The effects of changes in  settlement  patterns,  costs,  inflation,  growth and
other factors have all been  considered in  establishing  the current year serve
for unpaid losses and loss expenses.

                                       21

<PAGE>

Symons International Group, Inc.
Nonstandard Automobile Insurance Only
For The Years Ended December 31, (in thousands)

<TABLE>
<CAPTION>

                                    1988     1989    1990     1991     1992     1993    1994     1995(A)  1996     1997      1998

<S>                                <C>      <C>     <C>      <C>      <C>      <C>     <C>      <C>      <C>      <C>      <C>   
Gross reserves for unpaid
  losses and LAE                                                                       $25,248  $71,748  $79,551  $101,185 $121,333

Deduct reinsurance
  recoverable                                                                           10,927    9,921    8,124    16,378    6,515

Reserve for unpaid losses
  and LAE, net of reinsurance      $10,747  $13,518 $15,923  $15,682  $17,055  $14,822  14,321   61,827   71,427    84,807  114,818

Paid cumulative as of:
One Year Later                       5,947    7,754   7,695    7,519   10,868    8,875   7,455   42,183   59,410    62,962 
Two Years Later                      7,207   10,530  10,479   12,358   15,121   11,114  10,375   53,350   79,319
Three Years Later                    7,635   11,875  12,389   13,937   16,855   13,024  12,040   58,993      --
Four Years Later                     7,824   12,733  13,094   14,572   17,744   13,886  12,822       --      --
Five Years Later                     8,009   12,998  13,331   14,841   18,195   14,229      --       --      --
Six Years Later                      8,135   13,095  13,507   14,992   18,408       --      --       --      --
Seven Years Later                    8,154   13,202  13,486   15,099       --       --      --       --      --
Eight Years Later                    8,173   13,216  13,567       --       --       --      --       --      --
Nine Years Later                     8,174   13,249      --       --       --       --      --       --      -- 
Ten Years Later                      8,175       --      --       --       --       --      --       --      -- 

Liabilities re-estimated as of:
One Year Later                       8,474   13,984  13,888   14,453   17,442   14,788  13,365   59,626   82,011   97,905
Two Years Later                      8,647   13,083  13,343   14,949   18,103   13,815  12,696   60,600   91,735
Three Years Later                    8,166   13,057  13,445   15,139   18,300   14,051  13,080   63,812       --
Four Years Later                     8,108   13,152  13,514   15,218   18,313   14,290  13,561       --       --  
Five Years Later                     8,179   13,170  13,589   15,198   18,419   14,586      --       --       --
Six Years Later                      8,165   13,246  13,612   15,114   18,651       --      --       --       --
Seven Years Later                    8,196   13,260  13,529   15,321       --       --      --       --       --
Eight Years Later                    8,198   13,248  13,738       --       --       --      --       --       --
Nine Years Later                     8,199   13,374      --       --       --       --      --       --       --
Ten Years Later                      8,217       --      --       --       --       --      --       --       --

Net cumulative (deficiency)
  or redundancy                      2,548      270    2,394      568  (1,364)     532   1,241    1,227  (10,584) (13,098)

Expressed as a percentage
  of unpaid losses and LAE            23.7%     2.0%    15.0%     3.6%  (8.0%)     3.6%    8.7%     2.0%  (14.8%)  (15.4%)

</TABLE>

(A)  Includes Superior loss and loss expense reserves of $44,423 acquired on
     April 29, 1996 and subsequent development thereon.

                                       22

<PAGE>

Investments

         Insurance  company  investments  must comply with  applicable  laws and
regulations which prescribe the kind,  quality and concentration of investments.
In general,  these laws and regulations  permit  investments,  within  specified
limits and subject to certain  qualifications,  in federal,  state and municipal
obligations,  corporate  bonds,  preferred  and common  securities,  real estate
mortgages and real estate. The Company's investments in real estate and mortgage
loans  represent  1.3% of the Company's  aggregate  investments.  The investment
portfolios of the Company at December 31, 1998, consisted of the following:

(in thousands)

<TABLE>
<CAPTION>
                                                               Cost or
                                                              Amortized   Market
Type of Investment                                              Cost      Value

<S>                                                            <C>       <C> 
Fixed maturities:
  U.S. and Canadian Treasury securities and obligations
  of U.S. and Canadian government corporation and agencies     $74,060   $76,079
  Obligations of states, provinces and political subdivisions    7,080     6,968
  Corporate securities                                         113,137   114,204
                                                               -------   -------
Total Fixed Maturities                                         194,277   197,251

Equity Securities:
  Common stocks                                                 13,691    12,988
Short-term investments                                          27,636    27,636
Mortgage loans                                                   2,100     2,100
Real estate                                                        890       890
                                                               -------   -------
Total Investments                                             $238,594  $240,865
                                                               =======   =======

---------------
</TABLE>


                                       23

<PAGE>

         The following  table sets forth the  composition  of the fixed maturity
securities portfolio of the Company by time to maturity as of December 31:

<TABLE>
<CAPTION>

(in thousands)                                1997                  1998
                                        Market   Percent      Market   Percent
Time To Maturity                        Value     Market      Value     Market

<S>                                     <C>         <C>       <C>         <C> 
1 year or less                          $3,678      2.1%      $7,937      4.0%
More than 1 year through 5 years        60,008     34.4%      53,327     27.0%
More than 5 years through 10 years      31,599     18.1%      38,236     19.4%
More than 10 years                       8,390      4.8%      23,034     11.7%
                                       -------    -----      -------    ----- 
                                       103,675     59.4%     122,534     62.1%
Mortgage-backed securities              70,540     40.6%      74,717     37.9%
                                       -------    -----      -------    -----
Total                                 $174,215    100.0%    $197,251    100.0%
                                       =======    =====      =======    =====
</TABLE>

         The  following  table  sets  forth the  ratings  assigned  to the fixed
maturity securities of the Company as of December 31:

<TABLE>
<CAPTION>

(in thousands)                                1997                  1998
                                        Market   Percent      Market   Percent
Rating (1)                              Value     Market      Value     Market

<S>                                    <C>         <C>       <C>         <C> 
Aaa or AAA                             $112,920    64.8%     $76,484     38.8%
Aa or AA                                  4,145     2.4%       2,256      1.1%
A                                        20,679    11.9%      81,270     41.2%
Baa or BBB                               19,116    11.0%      23,504     11.9%
Ba or BB                                 16,519     9.5%      13,737      7.0%
Other below investment grade                 82     0.1%          --      0.0%
Not rated (2)                               754     0.3%          --      0.0%
                                        -------   -----      -------    -----
Total                                  $174,215   100.0%    $197,251    100.0%
                                        =======   =====      =======    =====

</TABLE>

(1)   Ratings are assigned by Moody's Investors Service, Inc., and when not
      available, are based on ratings assigned by Standard & Poor's
      Corporation.
(2)   These securities were not rated by the rating agencies.  However, these
      securities are designated as Category 1 securities by the NAIC, which is
      the equivalent rating of "A" or better.


                                       24

<PAGE>

         The investment results of the Company for the periods indicated are set
forth below:

<TABLE>
<CAPTION>

(in thousands)                                          Years Ended December 31,
                                                        1996     1997      1998

<S>                                                    <C>      <C>      <C>    
Net investment income (1)                              $7,745   $12,777  $13,401
Average investment portfolio (2)                     $122,363  $215,694 $236,197
Pre-tax return on average investment portfolio           6.3%      5.9%     5.7%
Net realized gains (losses)                             ($637)   $9,393   $4,104

</TABLE>
---------------
(1)  Includes dividend income received in respect of holdings of common stock.
(2)  Average investment portfolio represents the average (based on amortized
     cost) of the  beginning  and ending  investment  portfolio and excludes
     cash. For 1996, the average  investment  portfolio was adjusted for the
     effect of the Acquisition.

Market-Sensitive Instruments and Risk Management

         The Company's  investment  strategy is to invest  available  funds in a
manner that will maximize the after-tax yield of the portfolio while emphasizing
the  stability  and  preservation  of the capital  base.  The  Company  seeks to
maximize the total return on investment  through  active  investment  management
utilizing   third-party   professional   administrators,   in  accordance   with
pre-established  investment policy guidelines established and reviewed regularly
by the Board of Directors of the Company.  Accordingly,  the entire portfolio of
fixed  maturity  securities  is  available  to be sold in response to changes in
market interest rate;  changes in relative  values of individual  securities and
asset sectors; changes in prepayment risks; changes in credit quality; liquidity
needs and other factors.

         The  portfolio is invested in types of  securities  and in an aggregate
duration  which  reflect the nature of the  Company's  liabilities  and expected
liquidity needs diversified among industries,  issuers and geographic locations.
The Company's fixed maturity and common equity investments are substantially all
in public companies.

         The following table provides  information about the Company's financial
instruments  that are  sensitive to changes in interest  rates.  For  investment
securities and debt  obligations,  the table  presents  principal cash flows and
related weighted-average interest rates by expected maturity date. Additionally,
the Company has assumed its available for sale  securities are similar enough to
aggregate those securities for presentation purposes.

                           Interest Rate Sensitivity
                     Principal Amount by Expected Maturity
                             Average Interest Rate
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                                                            Fair
                                                                                      There-                Value
                           1999        2000         2001        2002        2003      after      Total    12/31/98
                           ----        ----         ----        ----        ----      -----      -----    --------

<S>                        <C>        <C>         <C>          <C>         <C>        <C>        <C>        <C>    
Assets:
Available for sale         $7,883     $5,363      $22,787      $19,705     $13,970    $137,998   $207,706   $197,251
Average interest rate         6.1%       6.5%         7.2%         8.1%        7.1%        5.9%       6.4%       6.7%

Liabilities:
IGF line of credit        $12,000       $  -        $  -         $   -         $ -        $  -    $12,000    $12,000
Preferred securities         $  -       $  -        $  -         $   -         $ -    $135,000   $135,000   $135,000
Average interest rate        7.75%         -%          -%            -%          -%        9.5%       9.4%       9.4%

</TABLE>

                                       25

<PAGE>

         The Company has the ability to hold its fixed  maturity  securities  to
maturity.  If interest  rates were to increase  10% from the  December  31, 1998
levels,  the decline in fair value of the fixed  maturity  securities  would not
significantly   affect  the  Company's   ability  to  meet  its  obligations  to
policyholders and debtors.

Ratings

         A.M. Best has currently assigned a "B+" rating to Superior and a "B-" 
rating to Pafco.

         A.M.  Best's  ratings  are  based  upon  a  comprehensive  review  of a
company's  financial  performance,   which  is  supplemented  by  certain  data,
including  responses  to A.M.  Best's  questionnaires,  phone  calls  and  other
correspondence between A.M. Best analysts and company management, quarterly NAIC
filings,  state insurance department  examination reports, loss reserve reports,
annual  reports,  company  business  plans and other  reports  filed  with state
insurance  departments.  A.M. Best undertakes a quantitative  evaluation,  based
upon profitability,  leverage and liquidity, and a qualitative evaluation, based
upon the  composition  of a company's  book of  business or spread of risk,  the
amount,   appropriateness   and   soundness   of   reinsurance,   the   quality,
diversification  and estimated  market value of its assets,  the adequacy of its
loss reserves and policyholders'  surplus,  the soundness of a company's capital
structure,  the extent of a company's  market  presence and the  experience  and
competence of its  management.  A.M.  Best's  ratings  represent an  independent
opinion of a company's financial strength and ability to meet its obligations to
policyholders.  A.M.  Best's  ratings are not a measure of  protection  afforded
investors. "B+" and "B-" ratings are A.M. Best's sixth and eighth highest rating
classifications,  respectively,  out of 15 ratings.  A "B+" rating is awarded to
insurers which, in A.M. Best's  opinion,  "have  demonstrated  very good overall
performance when compared to the standards established by the A.M. Best Company"
and "have a good ability to meet their obligations to policyholders  over a long
period of time." A "B-"  rating is awarded to  insurers  which,  in A.M.  Best's
opinion,  "have demonstrated  adequate overall  performance when compared to the
standards established by the A.M. Best Company" and "have an adequate ability to
meet  their  obligations  to  policyholders,  but their  financial  strength  is
vulnerable to unfavorable changes in underwriting or economic conditions." There
can be no assurance that such ratings or changes  therein will not in the future
adversely affect the Company's competitive position.

Recent Acquisitions

         On January 31, 1996,  Goran,  SIG,  Fortis,  Inc. and its  wholly-owned
subsidiary, Interfinancial, Inc., a holding company for Superior, entered into a
Stock Purchase Agreement (the "Superior Purchase  Agreement")  pursuant to which
SIG agreed to purchase Superior from  Interfinancial,  Inc. for a purchase price
of  approximately  $66.6  million.  Simultaneously  with  the  execution  of the
Superior  Purchase  Agreement,  Goran,  SIG, GGS  Holdings  and the GS Funds,  a
Delaware limited partnership, entered into an agreement (the "GGS Agreement") to
capitalize  GGS Holdings and to cause GGS Holdings to issue its capital stock to
SIG and to the GS Funds,  so as to give SIG a 52% ownership  interest and the GS
Funds a 48% ownership  interest (the "Formation  Transaction").  Pursuant to the
GGS Agreement (a) SIG contributed to GGS Holdings (i) all the outstanding common
stock of Pafco,  with a book value of $16.9  million,  (ii) its right to acquire
Superior  pursuant to the Superior  Purchase  Agreement  and (iii) certain fixed
assets,   including   office   furniture  and  equipment,   having  a  value  of
approximately  $350,000 and (b) the GS Funds  contributed  to GGS Holdings $21.2
million in cash. The Formation Transaction and the Acquisition were completed on
April 30, 1996.  On August 12, 1997,  SIG acquired the remaining 48% interest in
GGS Holdings  that had been owned by the GS funds for $61 million with a portion
of the proceeds from the sale of the Preferred Securities.

         On August  12,  1997,  SIG  issued  $135  million  in Trust  Originated
Preferred Securities ("Preferred  Securities").  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  ("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 to Goran after income taxes and minority interest.

                                       26

<PAGE>

     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.

         SIG shall not, and shall not permit any  subsidiary,  to incur directly
or indirectly,  any  indebtedness  unless,  on the date of such  incurrence (and
after giving effect thereto),  the Consolidated Coverage Ratio exceeds 2.5 to 1.
The Coverage  Ratio is the  aggregate of net earnings,  plus  interest  expense,
income taxes, depreciation, and amortization divided by interest expense for the
same period.  See "Management's  Discussion and Analysis of Financial  Condition
and Results of  Operations  of the Company"  for a  discussion  of the impact of
these covenants on the Company's operations.

         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.

         On July 8, 1998, the Company acquired North American Crop  Underwriters
(NACU)  a  Henning,  Minnesota  based  managing  general  agency  which  focuses
exclusively  on crop  insurance.  The  acquisition  price was $4 million with $3
million paid at closing and $1 million due July 1, 2000 without  interest.  This
acquisition   captures  100%  of  the  MPCI   underwriting   gain  and  fees  on
approximately $27 million of premiums. Prior to this transaction,  NACU received
all fees and 50% of the underwriting  gain with the balance going to the Company
through the CNA transaction.

Regulation

General

         The  Company's  insurance  businesses  are  subject  to  comprehensive,
detailed regulation  throughout the United States, under statutes which delegate
regulatory,   supervisory   and   administrative   powers  to  state   insurance
commissioners.  The primary  purpose of such  regulations and supervision is the
protection of  policyholders  and claimants  rather than  stockholders  or other
investors.  Depending on whether the insurance company is domiciled in the state
and whether it is an admitted or non-admitted insurer, such authority may extend
to such things as (i) periodic reporting of the insurer's  financial  condition,
(ii)  periodic  financial  examination,  (iii)  approval  of  rates  and  policy
forms,(iv) loss reserve adequacy,  (v) insurer  solvency,  (vi) the licensing of
insurers and their agents,  (vii)  restrictions  on the payment of dividends and
other distributions, (viii) approval of changes in control and (ix) the type and
amount of permitted investments.

         Pafco,  IGF and Superior and its insurance  subsidiaries are subject to
triennial  examinations  by state insurance  regulators.  All of these Companies
have been examined  through  December 31, 1996.  The Company did not receive any
material findings from the examinations of its insurance subsidiaries.

Insurance Holding Company Regulation

         The  Company  also is  subject  to  laws  governing  insurance  holding
companies in Florida and Indiana, where the insurers are domiciled.  These laws,
among other things,  (i) require the Company to file periodic  information  with
state  regulatory  authorities  including  information  concerning  its  capital
structure,  ownership, financial condition and general business operations, (ii)
regulate certain transactions between the Company,  SIG, its affiliates and IGF,
Pafco and Superior (the "Insurers"), including the amount of dividends and other
distributions  , and (iii)  restrict  the  ability  of any one person to acquire
certain levels of SIG's voting securities without prior regulatory approval.

         Any purchaser of 10% or more of the outstanding  shares of Common Stock
of SIG would be  presumed to have  acquired  control of Pafco and IGF unless the
Indiana Commissioner,  upon application,  has determined otherwise. In addition,
any  purchaser  of 5% or more of the  outstanding  shares of Common Stock of SIG
will be  presumed  to have  acquired  control of  Superior  unless  the  Florida
Commissioner, upon application, has determined otherwise.

                                       27

<PAGE>

     Indiana law defines as "extraordinary"  any dividend or distribution which,
together with all other dividends and  distributions to shareholders  within the
preceding twelve months, exceeds the greater of: (i) 10% of statutory surplus as
regards  policyholders  as of the end of the  preceding  year or (ii) the  prior
year's net income.  Dividends which are not "extraordinary" may be paid ten days
after  the   Indiana   Department   receives   notice   of  their   declaration.
"Extraordinary"  dividends  and  distributions  may  not be paid  without  prior
approval of the Indiana  Commissioner or until the Indiana Commissioner has been
given thirty days prior notice and has not disapproved  within that period.  The
Indiana Department must receive notice of all dividends, whether "extraordinary"
or not, within five business days after they are declared.  Notwithstanding  the
foregoing  limit, a domestic  insurer may not declare or pay a dividend of funds
other than earned surplus without the prior approval of the Indiana  Department.
"Earned  surplus" is defined as the amount of unassigned  funds set forth in the
insurer's most recent annual statement,  less surplus attributable to unrealized
capital gains or reevaluation of assets.  As of December 31, 1998, IGF and Pafco
had earned surplus of $16,377 and $(8,362),  respectively.  Further,  no Indiana
domiciled  insurer may make  payments in the form of  dividends  or otherwise to
shareholders as such unless it possesses assets in the amount of such payment in
excess of the sum of its liabilities  and the aggregate  amount of the par value
of all shares of its capital  stock;  provided,  that in no instance  shall such
dividend  reduce the total of (i) gross paid-in and  contributed  surplus,  plus
(ii) special surplus funds,  plus (iii)  unassigned  funds,  minus (iv) treasury
stock at cost,  below an amount equal to 50% of the aggregate  amount of the par
value of all shares of the insurer's capital stock.

         Under  Florida  law, a domestic  insurer  may not pay any  dividend  or
distribute cash or other property to its stockholders except out of that part of
its available and  accumulated  surplus funds which is derived from realized net
operating  profits on its  business and net realized  capital  gains.  A Florida
domestic insurer may not make dividend payments or distributions to stockholders
without prior approval of the Florida Department if the dividend or distribution
would  exceed  the  larger of (i) the  lesser of (a) 10% of  surplus  or (b) net
income, not including realized capital gains, plus a two-year carryforward, (ii)
10% of surplus with dividends payable  constrained to unassigned funds minus 25%
of unrealized capital gains or (iii) the lesser of (a) 10% of surplus or (b) net
investment  income  plus  a  three-year   carryforward  with  dividends  payable
constrained  to  unassigned  funds  minus  25%  of  unrealized   capital  gains.
Alternatively,  a Florida  domestic  insurer may pay a dividend or  distribution
without the prior written approval of the Florida  Department if the dividend is
equal to or less than the greater of (i) 10% of the insurer's surplus as regards
policyholders  derived from realized net  operating  profits on its business and
net realized  capital gains or (ii) the insurer's  entire net operating  profits
and realized net capital gains derived during the immediately preceding calendar
year; (2) the insurer will have policyholder  surplus equal to or exceeding 115%
of the minimum  required  statutory  surplus after the dividend or distribution,
(3) the  insurer  files a  notice  of the  dividend  or  distribution  with  the
department  at  least  ten  business  days  prior  to the  dividend  payment  or
distribution  and (4) the notice includes a  certification  by an officer of the
insurer  attesting that, after the payment of the dividend or distribution,  the
insurer  will  have  at  least  115%  of  required   statutory   surplus  as  to
policyholders.  Except as provided above, a Florida  domiciled  insurer may only
pay a dividend  or make a  distribution  (i)  subject to prior  approval  by the
Florida Department or (ii) thirty days after the Florida Department has received
notice of such dividend or  distribution  and has not disapproved it within such
time. In the consent order approving the Acquisition, the Florida Department has
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.

         Under these laws, the maximum aggregate amounts of dividends  permitted
to be paid to the  Company  in 1999 by IGF and Pafco  without  prior  regulatory
approval are $3,123 and $0, respectively, none of which have been paid. Although
the Company  believes  that amounts  required for it to meet its  financial  and
operating  obligations  will be  available,  there can be no  assurance  in this
regard.  See  "Management's  Discussion and Analysis of Financial  Condition and
Results of  Operations  of the  Company --  Liquidity  and  Capital  Resources."
Further,  there can be no assurance that, if requested,  the Indiana  Department
will approve any request for  extraordinary  dividends from Pafco or IGF or that
the Florida  Department  will allow any dividends to be paid by Superior  during
the four year period described above.

         The  maximum  dividends  permitted  by  state  law are not  necessarily
indicative   of  an  insurer's   actual   ability  to  pay  dividends  or  other
distributions to a parent company, which also may be constrained by business and
regulatory  considerations,  such as the impact of dividends  on surplus,  which
could affect an insurer's competitive position,  the amount of premiums that can
be written and the ability to pay future  dividends.  Further,  state  insurance
                                                          
                                       28

<PAGE>

laws and regulations  require that the statutory surplus of an insurance company
following any dividend or distribution by such company be reasonable in relation
to its outstanding liabilities and adequate for its financial needs.

     While the  non-insurance  company  subsidiaries are not subject directly to
the dividend  and other  distribution  limitations,  insurance  holding  company
regulations  govern the amount  which a  subsidiary  within the holding  company
system may charge any of the Insurers for services  (e.g.,  management  fees and
commissions).  These  regulations may affect the amount of management fees which
may be paid by Pafco and Superior to GGS  Management.  The management  agreement
between  SIG  and  Pafco  has  been  assigned  to  GGS  Management,  Inc.  ("GGS
Management")  and  provides for an annual  management  fee equal to 15% of gross
premiums.  A similar management  agreement with a management fee of 17% of gross
premiums has been entered into between GGS Management and Superior. Employees of
SIG relating to the nonstandard  automobile  insurance business and all Superior
employees  became  employees of GGS Management  effective April 30, 1996. In the
consent order approving the  Acquisition,  the Florida  Department has reserved,
for three years, the right to reevaluate the reasonableness of fees provided for
in the Superior  management  agreement at the end of each  calendar  year and to
require Superior to make adjustments in the management fees based on the Florida
Department's  consideration  of the  performance  and operating  percentages  of
Superior and other  pertinent  data.  There can be no assurance  that either the
Indiana  Department or the Florida  Department  will not in the future require a
reduction in these management fees.

Federal Regulation

         The Company's MPCI program is federally  regulated and supported by the
federal   government  by  means  of  premium   subsidies  to  farmers,   expense
reimbursement and federal reinsurance pools for private insurers.  Consequently,
the MPCI  program is subject  to  oversight  by the  legislative  and  executive
branches  of the  federal  government,  including  the  FCIC.  The MPCI  program
regulations generally require compliance with federal guidelines with respect to
underwriting,  rating and claims  administration.  The  Company is  required  to
perform continuous  internal audit procedures and is subject to audit by several
federal  government  agencies.  No material  compliance issues were noted during
IGF's most recent FCIC compliance review.

         The MPCI program has historically been subject to change by the federal
government at least  annually  since its  establishment  in 1980,  some of which
changes have been significant. See Industry Background for further discussion of
Federal Regulations impacting crop insurance.

Underwriting and Marketing Restrictions

         During the past  several  years,  various  regulatory  and  legislative
bodies  have  adopted  or  proposed  new laws or  regulations  to deal  with the
cyclical  nature of the insurance  industry,  catastrophic  events and insurance
capacity  and  pricing.  These  regulations  include (i) the creation of "market
assistance plans" under which insurers are induced to provide certain coverages,
(ii)  restrictions  on the ability of insurers  to rescind or  otherwise  cancel
certain policies in mid-term,  (iii) advance notice  requirements or limitations
imposed for certain policy  non-renewals  and (iv) limitations upon or decreases
in rates permitted to be charged.

Insurance Regulatory Information System

         The NAIC Insurance Regulatory Information System ("IRIS") was developed
primarily to assist state  insurance  departments in executing  their  statutory
mandate to oversee the  financial  condition of insurance  companies.  Insurance
companies  submit data on an annual basis to the NAIC,  which  analyzes the data
using  ratios  concerning  various  categories  of financial  data.  IRIS ratios
consist of twelve  ratios with defined  acceptable  ranges.  They are used as an
initial  screening  process  for  identifying  companies  that may be in need of
special  attention.  Companies that have several ratios that fall outside of the
acceptable  range are  selected  for  closer  review  by the  NAIC.  If the NAIC
determines  that  more  attention  may  be  warranted,   one  of  five  priority
designations  is assigned and the insurance  department of the state of domicile
is then responsible for follow-up action.

         During  1998,  Pafco had  unusual  values for three IRIS  tests.  These
included two-year overall operating ratio where Pafco's ratio was 116.7 compared
to the IRIS  upper  limit of 100,  change in  surplus  where  Pafco's  ratio was
(24.4%)  compared  to the  IRIS  lower  limit  of  (10%)  and  two-year  reserve
development  where  Pafco's  ratio was 39.1%  compared to 20%.  Pafco failed the
first two tests due primarily to a high loss ratio.  Pafco failed the third test

                                       29

<PAGE>

due to adverse  development  on  accident  year 1996 due to higher  than  normal
severity as a result of a disruption in claims  management in early 1997.  Pafco
does not  expect  such  results  to  continue  due to  improvements  in  product
development and rate filing, hiring of a chief actuary, focus on improved claims
management  and  continued  consolidation  of  operations  with  its  affiliate,
Superior Insurance Company.  Pafco expects these actions will improve loss ratio
which will lead to a reduction in the combined ratio,  stabilization  of surplus
and  elimination of  significant  adverse  reserve  development.  However,  such
projections involve a high degree of subjectivity in a competitive  marketplace.
Therefore, there is no assurance such results will not continue.

         During 1998,  Superior had unusual  values for three IRIS tests.  These
included  two-year  overall  operating  ratio  where  Superior's  ratio  was 108
compared  to the IRIS upper  limit of 100,  change in surplus  where  Superior's
ratio was (10%) compared to the IRIS lower limit of (10%) and estimated  current
reserve  deficiency to surplus where  Superior's  ratio was (5%) compared to the
IRIS lower limit of 0. Superior failed these tests for the same reasons as Pafco
and expects  results to improve in 1999 for the same reasons as Pafco.  However,
such  projections  involve  a  high  degree  of  subjectivity  in a  competitive
marketplace. Therefore, there is no assurance such results will not continue.

         During  1998,  IGF had  unusual  values  for seven  IRIS  tests.  These
included  gross  premiums to surplus where IGF's ratio was 1,006 compared to the
IRIS upper limit of 900,  net  premiums  to surplus  where IGF's ratio was 359.9
compared  to the IRIS upper  limit of 300,  change in net  writings  where IGF's
ratio was 440.6 compared to the IRIS upper limit of 33,  investment  yield where
IGF's ratio was 195.5  compared to the IRIS upper limit of 10, change in surplus
where IGF's ratio was (27) compared to the IRIS lower limit of (10), liabilities
to liquid assets where IGF's ratio was 735.7 compared to the IRIS upper limit of
105 and agent's  balances to surplus where IGF's ratio was 235.8 compared to the
IRIS upper limit of 40. IGF failed the first three premium  writing tests due to
the assumption of the CNA book of business and the fourth quarter  assumption of
auto premiums from Pafco and Superior combined with the reduction in surplus due
to catastrophic  losses. IGF expects to maintain compliance with these covenants
in 1999 through a return to profitability and greater utilization of quota share
reinsurance.  IGF failed the  investment  test in a positive way due to the high
amount of interest  received from farmers which is generally  offset by interest
expense to the FCIC.  IGF generally  fails the final two tests due to the nature
of its business whereby such amounts are settled in full subsequent to year end.
IGF's  projections  involve  a high  degree  of  subjectivity  in a  competitive
marketplace.  Therefore, there is no assurance such results will not continue.

Risk-Based Capital Requirements

         In order to enhance the  regulation of insurer  solvency,  the NAIC has
adopted  a  formula  and  model  law to  implement  risk-based  capital  ("RBC")
requirements for property and casualty  insurance  companies  designed to assess
minimum capital requirements and to raise the level of protection that statutory
surplus  provides  for  policyholder  obligations.   Indiana  and  Florida  have
substantially  adopted  the NAIC model law,  and Indiana  directly,  and Florida
indirectly,  have adopted the NAIC model  formula.  The RBC formula for property
and  casualty  insurance  companies  measures  four major  areas of risk  facing
property and casualty insurers: (i) underwriting,  which encompasses the risk of
adverse loss developments and inadequate pricing,  (ii) declines in asset values
arising from credit risk, (iii) declines in asset values arising from investment
risks and (iv)  off-balance  sheet risk  arising from  adverse  experience  from
non-controlled  assets,  guarantees for affiliates,  contingent  liabilities and
reserve and premium  growth.  Pursuant  to the model law,  insurers  having less
statutory  surplus than that required by the RBC calculation  will be subject to
varying  degrees  of  regulatory  action,  depending  on the  level  of  capital
inadequacy.

         The RBC model law provides for four levels of  regulatory  action.  The
extent of regulatory  intervention  and action increases as the level of surplus
to RBC falls.  The first  level,  the  Company  Action  Level (as defined by the
NAIC),  requires  an  insurer  to  submit a plan of  corrective  actions  to the
regulator if surplus falls below 200% of the RBC amount.  The Regulatory  Action
Level (as defined by the NAIC)  requires an insurer to submit a plan  containing
corrective actions and requires the relevant  insurance  commissioner to perform
an examination  or other analysis and issue a corrective  order if surplus falls
below 150% of the RBC amount.  The  Authorized  Control Level (as defined by the
NAIC) gives the relevant  insurance  commissioner  the option either to take the
aforementioned  actions or to  rehabilitate  or liquidate the insurer if surplus
falls below 100% of the RBC amount.  The fourth  action  level is the  Mandatory
Control  Level (as defined by the NAIC) which  requires the  relevant  insurance
commissioner to rehabilitate or liquidate the insurer if surplus falls below 70%
of the RBC amount. Based on the foregoing formulae, as of December 31, 1998, the
RBC ratios of the Insurers were in excess of the Company Action Level, the first
trigger level that would require  regulatory action except for Pafco,  which was
                                       
                                       30

<PAGE>

1.2 million  below the Company  Action  Level as its ratio of surplus to the RBC
amount was 186%.  The  required  plan of action has been filed by Pafco with the
IDOI.  Pafco expects to be in compliance in 1999 through  either  greater use of
unaffiliated  quota share  reinsurance  or a  contribution  of capital  from its
parent.

Guaranty Funds; Residual Markets

     The Insurers  also may be required  under the solvency or guaranty  laws of
most  states  in  which  they do  business  to pay  assessments  (up to  certain
prescribed  limits) to fund  policyholder  losses or liabilities of insolvent or
rehabilitated insurance companies. These assessments may be deferred or forgiven
under most guaranty laws if they would threaten an insurer's  financial strength
and, in certain  instances,  may be offset against  future  premium taxes.  Some
state laws and  regulations  further  require  participation  by the Insurers in
pools or funds to provide some types of insurance coverages which they would not
ordinarily  accept.  The Company  recognizes its  obligations  for guaranty fund
assessments  when it receives  notice that an amount is payable to the fund. The
ultimate amount of these assessments may differ from that which has already been
assessed.

         It is not possible to predict the future  impact of changing  state and
federal  regulation  on the Company's  operations  and there can be no assurance
that laws and  regulations  enacted in the future  will not be more  restrictive
than existing laws.

Contingencies

         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.

Canadian Federal Income Tax Considerations

         This summary is based upon the current provisions of the Income Tax Act
(Canada)  (the  "Canadian  Tax  Act"),  the  regulations  thereunder,   proposed
amendments thereto publicly announced by the Department of Finance, Canada prior
to the date hereof and the provisions of the  Canada-U.S.  Income Tax Convention
(1980) (the "Convention") as amended by the Third Protocol (1995).

         Amounts in respect of common  shares  paid or  credited or deemed to be
paid or credited as, on account or in lieu of payment of, or in satisfaction of,
dividends to a shareholder who is not a resident in Canada within the meaning of
the  Canadian  Tax Act  will  generally  be  subject  to  Canadian  non-resident
withholding tax. Such withholding tax is levied at a basic rate of 25% which may
be reduced  pursuant to the terms of an applicable tax treaty between Canada and
the country of resident of the non-resident.

         Currently,  under the  Convention,  the rate of  Canadian  non-resident
withholding tax on the gross amount of dividends  beneficially owned by a person
who is a resident of the United States for the purpose of the Convention and who
does not have a  "permanent  establishment"  or  "fixed  base" in Canada is 15%.
However, where such beneficial owner is a company which owns at least 10% of the
voting stock of the company, the rate of such withholding is 5%.

         A purchase for cancellation of common shares by the Company (other than
a purchase of common shares by the Company on the open market) will give rise to
a deemed  dividend  under the  Canadian  Tax Act equal to the amount paid by the
Company  on the  purchase  in  excess  of the  paid-up  capital  of such  shares
determined in accordance  with the Canadian Tax Act. Any such dividend deemed to
have been  received  by a person  not  resident  in Canada  will be  subject  to
nonresident  withholding tax as described  above.  The amount of any such deemed
dividend  will reduce the proceeds of  disposition  to a holder of common shares
for  purposes  of  computing  the amount of his  capital  gain or loss under the
Canadian Tax Act.

                                       31

<PAGE>

         A holder of common  shares who is not a resident  of Canada  within the
meaning of the  Canadian  Tax Act will not be subject to tax under the  Canadian
Tax Act in  respect  of any  capital  gain on a  disposition  of  common  shares
(including on a purchase by the Company) unless such shares  constitute  taxable
Canadian  property of the  shareholder  for purposes of the Canadian Tax Act and
such  shareholder  is not  entitled to relief  under an  applicable  tax treaty.
Common  shares will  generally not  constitute  taxable  Canadian  property of a
shareholder who is not a resident of Canada for purposes of the Canadian Tax Act
in any taxation year in which such  shareholder  owned common shares unless such
shareholder  uses or holds or is deemed to use or hold such  shares in or in the
course of carrying  on business in Canada or, a share of the capital  stock of a
corporation  resident  in  Canada,  that is not  listed  on a  prescribed  stock
exchange or a share that is listed on prescribed stock exchange,  if at any time
during the five year period immediately  preceding the disposition of the common
shares  owned,  either alone or together with persons with whom he does not deal
at arm's  length,  not less  than 25% of the  issued  shares of any class of the
capital stock of the Company. In any event, under the Convention,  gains derived
by a resident of the United  States from the  disposition  of common shares will
generally not be taxable in Canada unless 50% or more of the value of the common
shares is derived principally from real property situated in Canada.

U.S. Federal Income Tax Considerations

         The following is a general  summary of certain U.S.  federal income tax
consequence to U.S. Holders of the purchase, ownership and disposition of common
shares.  This summary is based on the U.S.  Internal  Revenue  Code of 1986,  as
amended (the "Code"), Treasury Regulations promulgated thereunder,  and judicial
and administrative  interpretations thereof, all as in effect on the date hereof
and all of which are  subject to  change.  This  summary  does not  address  all
aspects of U.S.  federal  income  taxation  that may be relevant to a particular
U.S. Holder based on such U.S. Holder's particular circumstances. In particular,
the following summary does not address the tax treatment of U.S. Holders who are
broker  dealers  or who  own,  actually  or  constructively,  10% or more of the
Company's outstanding voting stock, and certain U.S. Holders (including, but not
limited   to,   insurance   companies,   tax-exempt   organizations,   financial
institutions and persons subject to the alternative  minimum tax) may be subject
to special rules not discussed below.

         For U.S.  federal income tax purposes,  a U.S.  Holder of common shares
generally will realize,  to the extent of the Company's  current and accumulated
earnings and profits,  ordinary  income on the receipt of cash  dividends on the
common  shares equal to the U.S.  dollar value of such  dividends on the date of
receipt  (based on the exchange  rate on such date)  without  reduction  for any
Canadian  withholding  tax.  Dividends  paid on the  common  shares  will not be
eligible for the dividends received deduction available in certain cases to U.S.
corporations. In the case of foreign currency received as a dividend that is not
converted  by the  recipient  into U.S.  dollars on the date of receipt,  a U.S.
Holder will have a tax basis in the foreign  currency equal to its U.S.  dollars
value on the date of receipt. Any gain or loss recognized upon a subsequent sale
or other  disposition  of the foreign  currency,  including an exchange for U.S.
dollars,  will be ordinary income or loss.  Subject to certain  requirements and
limitations  imposed by the Code, a U.S.  Holder may elect to claim the Canadian
tax withheld or paid with respect to dividends on the common  shares either as a
deduction  or as a foreign  tax  credit  against  the U.S.  federal  income  tax
liability of such U.S. Holder.  The requirements and limitations  imposed by the
Code with  respect to the foreign tax credit are complex and beyond the scope of
this summary, and consequently,  prospective  purchasers of common shares should
consult with their own tax advisors to determine whether and to what extent they
would be entitled to such credit.

         For U.S.  federal  income tax  purposes,  upon a sale or  exchange of a
common share, a U.S.  Holder will recognize gain or loss equal to the difference
between the amount  realized on such sale or exchange  and the tax basis of such
common  share.  If a common share is held as a capital  asset,  any such gain or
loss will be capital gain or loss, and will be long-term capital gain or loss if
the U.S. Holder has held such common share for more than one year.

     Under current Treasury  regulations,  dividends paid on the common share to
U.S.  Holders  will not be  subject  to the 31%  U.S.  backup  withholding  tax.
Proposed  Treasury  regulations  which are not yet in effect and which will only
apply prospectively,  however, would subject dividends paid on the common shares
through a U.S. or U.S.  related broker to the 31% U.S.  backup  withholding  tax
unless certain  information  reporting  requirements are satisfied.  Whether and
when  such  proposed  Treasury  regulations  will  become  effective  cannot  be
determined at this time. The payment of proceeds of a sale or other  disposition
of common shares in the U.S.  through a U.S. or U.S.  related  broker  generally
will be  subject  to U.S.  information  reporting  requirements  and may also be
subject to the 31% U.S. backup withholding tax, unless the U.S. Holder furnishes
the broker with a duly completed and signed Form W-9. Any amounts withheld under
the U.S. backup  withholding  tax rules may be refunded or credited  against the
U.S.  Holder's U.S.  federal  income tax  liability,  if any,  provided that the
required information is furnished to the U.S. Internal Revenue Service.

                                       32

<PAGE>

Employees

         At  December  31,  1998  the  Company  and  its  subsidiaries  employed
approximately  1,270  persons.  The Company  believes  that  relations  with its
employees are excellent.

Recent Developments

     On March 4, 1999,  Gary  Hutchcraft  and James Lund,  the  Company's  Chief
Financial  Officer  and Chief  Accounting  Officer,  resigned  from the  Company
effective  April 9, 1999. The Company has hired Mr. Thomas Kaehr effective April
19, 1999 as the Company's new Chief  Financial  Officer.  Mr. Kaehr was formerly
Second Vice President of Lincoln National Corporation, Fort Wayne.

FORWARD LOOKING STATEMENTS - SAFE HARBOR PROVISIONS

         The statements contained in this Annual Report which are not historical
facts,  including but not limited to,  statements  concerning  (i) the impact of
federal and state laws and  regulations,  including but not limited to, the 1994
Reform  Act and 1996  Reform  Act,  on the  Company's  business  and  results of
operations, (ii) the competitive advantage afforded to IGF by approaches adopted
by  management  in the areas of  information,  technology,  claims  handling and
underwriting,  (iii)  the  sufficiency  of the  Company's  cash flow to meet the
operating  expenses,  debt service  obligations and capital needs of the Company
and its  subsidiaries,  and (iv) the impact of  declining  MPCI  Buy-up  Expense
Reimbursements  on the  Company's  results of  operations,  are  forward-looking
statements  within the meanings of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended. From
time to time the  Company may also issue other  statements  either  orally or in
writing,  which are  forward  looking  within  the  meaning  of these  statutory
provisions.  Forward  looking  statements are typically  identified by the words
"believe",  "expect",  "anticipate",  "intend",  "estimate",  "plan" and similar
expressions.  These  statements  involve a number  of risks  and  uncertainties,
certain of which are beyond the Company's  control.  Actual results could differ
materially from the forward  looking  statements in this Form 10-K or from other
forward  looking  statements  made by the Company.  In addition to the risks and
uncertainties  of  ordinary  business  operations,  some of the facts that could
cause actual results to differ materially from the anticipated  results or other
expectations expressed in the Company's forward-looking statements are the risks
and uncertainties  (i) discussed  herein,  (ii) contained in the Company's other
filings with the Securities and Exchange  Commission and public  statements from
time to time, and (iii) set forth below.

Uncertain Pricing and Profitability

         One  of  the  distinguishing  features  of the  property  and  casualty
industry is that its products generally are priced,  before its costs are known,
because premium rates usually are determined before losses are reported. Premium
rate levels are related in part to the availability of insurance coverage, which
varies  according to the level of surplus in the industry.  Increases in surplus
have generally been  accompanied by increased price  competition  among property
and casualty insurers.  The nonstandard  automobile insurance business in recent
years has experienced  very competitive  pricing  conditions and there can be no
assurance as to the Company's  ability to achieve adequate  pricing.  Changes in
case law,  the  passage  of new  statutes  or the  adoption  of new  regulations
relating to the  interpretation  of insurance  contracts can  retroactively  and
dramatically  affect  the  liabilities  associated  with  known  risks  after an
insurance  contract is in place.  New products  also present  special  issues in
establishing  appropriate  premium levels in the absence of a base of experience
with such products' performance.

         The number of competitors  and the similarity of products  offered,  as
well as  regulatory  constraints,  limit the  ability of property  and  casualty
insurers to increase prices in response to declines in profitability.  In states
which require prior approval of rates,  it may be more difficult for the Company
to achieve premium rates which are commensurate with the Company's  underwriting
experience  with respect to risks  located in those  states.  In  addition,  the
Company does not control  rates on its MPCI  business,  which are instead set by
the FCIC.  Accordingly,  there can be no  assurance  that  these  rates  will be
sufficient to produce an underwriting profit.

                                       33

<PAGE>

         The reported  profits and losses of a property  and casualty  insurance
company are also determined,  in part, by the  establishment of, and adjustments
to, reserves reflecting  estimates made by management as to the amount of losses
and loss  adjustment  expenses  ("LAE") that will  ultimately be incurred in the
settlement of claims.  The ultimate  liability of the insurer for all losses and
LAE  reserved  at any given  time  will  likely be  greater  or less than  these
estimates, and material differences in the estimates may have a material adverse
effect on the  insurer's  financial  position or results of operations in future
periods.

Nature of Nonstandard Automobile Insurance Business

         The  nonstandard  automobile  insurance  business  is  affected by many
factors  which  can cause  fluctuation  in the  results  of  operations  of this
business.  Many of these  factors are not subject to the control of the Company.
The size of the nonstandard market can be significantly affected by, among other
factors,  the  underwriting  capacity  and  underwriting  criteria  of  standard
automobile insurance carriers.  In addition,  an economic downturn in the states
in which the Company  writes  business  could  result in fewer new car sales and
less demand for  automobile  insurance.  Severe  weather  conditions  could also
adversely  affect the Company's  business  through  higher losses and LAE. These
factors,  together  with  competitive  pricing and other  considerations,  could
result in fluctuations in the Company's underwriting results and net income.

Nature of Crop Insurance Business

         The Company's  operating  results from its crop  insurance  program can
vary  substantially  from  period  to period  as a result  of  various  factors,
including timing and severity of losses from storms,  drought,  floods,  freezes
and other natural perils and crop production cycles.  Therefore, the results for
any  quarter or year are not  necessarily  indicative  of results for any future
period.  The underwriting  results of the crop insurance business are recognized
throughout  the year  with a  reconciliation  for the  current  crop year in the
fourth quarter.

         The Company expects that for the  foreseeable  future a majority of its
crop insurance will continue to be derived from MPCI business.  The MPCI program
is  federally  regulated  and  supported by the federal  government  by means of
premium  subsidies to farmers,  expense  reimbursement  and federal  reinsurance
pools for private insurers. As such,  legislative or other changes affecting the
MPCI program could impact the Company's business prospects. The MPCI program has
historically   been  subject  to   modification  at  least  annually  since  its
establishment in 1980, and some of these modifications have been significant. No
assurance  can be given that future  changes will not  significantly  affect the
MPCI program and the Company's crop insurance business.

         Total MPCI  Premium  for each  farmer  depends  upon the kinds of crops
grown,  acreage planted and other factors determined by the FCIC. Each year, the
FCIC sets, by crop, the maximum per unit commodity  price ("Price  Election") to
be used in computing MPCI  Premiums.  Any reduction of the Price Election by the
FCIC will  reduce the MPCI  Premium  charged per policy,  and  accordingly  will
adversely impact MPCI Premium volume.

         AgPI is a new  insurance  product for 1998 and the  Company  expects to
significantly  expand  this new  product  in future  years.  While  the  Company
believes  there  is  adequate   information  to  establish  pricing  and  little
competition  exits,  there is no  assurance  such  pricing  will be adequate and
competition will not develop.

         The  Company's  crop  insurance  business  is also  affected  by market
conditions in the agricultural  industry which vary depending on such factors as
federal  legislation  and  administration  policies,  foreign  country  policies
relating  to  agricultural  products  and  producers,  demand  for  agricultural
products,  weather,  natural  disasters,  technologic  advances in  agricultural
practices,  international  agricultural  markets and general economic conditions
both in the United  States and abroad.  For  example,  the number of MPCI Buy-up
Coverage  policies written has  historically  tended to increase after a year in
which a major natural disaster adversely affecting crops occurs, and to decrease
following a year in which favorable weather conditions prevail.

Highly Competitive Businesses

         Both the nonstandard automobile insurance and crop insurance businesses
are  highly  competitive.   Many  of  the  Company's  competitors  in  both  the
nonstandard  automobile  insurance  and crop  insurance  business  segments have
substantially  greater financial and other resources than the Company, and there
can be no assurance that the Company will be able to compete effectively against
such competitors in the future.

                                       34

<PAGE>

         In its nonstandard  automobile business, the Company competes with both
large national writers and smaller regional companies. The Company's competitors
include other companies which,  like the Company,  serve the independent  agency
market, as well as companies which sell insurance directly to customers.  Direct
writers may have certain competitive  advantages over agency writers,  including
increased name  recognition,  loyalty of the customer base to the insurer rather
than an independent  agency and,  potentially,  reduced  acquisition  costs.  In
addition,  certain  competitors  of the Company have from time to time decreased
their  prices in an apparent  attempt to gain  market  share.  Also,  in certain
states,  state assigned risk plans may provide nonstandard  automobile insurance
products at a lower price than private insurers.

         In the crop insurance business, the Company competes against other crop
insurance  companies  and,  with  respect to CAT  Coverage,  USDA field  service
offices in certain  areas.  In addition the crop  insurance  industry has become
increasingly  consolidated.  From the 1985 crop year to the 1996 crop year,  the
number of insurance companies that have entered into agreements with the FCIC to
sell and service MPCI policies has declined from 50 to 17. The Company  believes
that to compete  successfully  in the crop  insurance  business  it will have to
market and service a volume of premiums sufficiently large to enable the Company
to continue to realize  operating  efficiencies  in conducting its business.  No
assurance can be given that the Company will be able to compete  successfully if
this market consolidates further.

Importance of Ratings

         A.M. Best has currently  assigned  Superior a B+ (Very Good) rating and
Pafco a B-  (Adequate)  rating.  Subsequent  to the  Acquisition,  the rating of
Superior  was reduced  from A- to B+ as a result of the leverage of GGS Holdings
resulting from  indebtedness  in connection with the  Acquisition.  A "B+" and a
"B-" rating are A.M.  Best's sixth and eighth  highest  rating  classifications,
respectively,  out of 15 ratings. A "B+" rating is awarded to insurers which, in
A.M. Best's  opinion,  "have  demonstrated  very good overall  performance  when
compared to the standards established by the A.M. Best Company" and "have a good
ability to meet their obligations to policyholders  over a long period of time".
A "B-"  rating is awarded to  insurers  which,  in A.M.  Best's  opinion,  "have
demonstrated  adequate  overall  performance  when  compared  to  the  standards
established by the A.M. Best Company" and "generally have an adequate ability to
meet  their  obligations  to  policyholders,  but their  financial  strength  is
vulnerable to unfavorable  changes in underwriting or economic  conditions." IGF
recently  received  an "NA-2"  rating (a  "rating  not  assigned"  category  for
companies that do not meet A.M. Best's minimum size requirement) from A.M. Best.
IGF intends to seek a revised rating in 1999, although there can be no assurance
that a revised  rating will be  obtained or as to the level of any such  rating.
A.M. Best bases its ratings on factors that concern policyholders and agents and
not upon factors  concerning  investor  protection.  Such ratings are subject to
change and are not  recommendations to buy, sell or hold securities.  One factor
in an insurer's ability to compete effectively is its A.M. Best rating. The A.M.
Best  ratings for the  Company's  rated  Insurers are lower than for many of the
Company's  competitors.  There can be no  assurance  that such ratings or future
changes therein will not affect the Company's competitive position.

Geographic Concentration

         The Company's nonstandard automobile insurance business is concentrated
in  the  states  of  Florida,   California,   Georgia,   Indiana  and  Virginia;
consequently  the  Company  will be  significantly  affected  by  changes in the
regulatory  and business  climate in those states.  The Company's crop insurance
business is concentrated in the states of Texas, North Dakota, Iowa,  Minnesota,
Illinois, California,  Nebraska, Mississippi,  Arkansas and South Dakota and the
Company will be significantly affected by weather conditions, natural perils and
other factors affecting the crop insurance business in those states.

Future Growth and Continued Operations Dependent on Access to Capital

         Property and casualty  insurance is a capital intensive  business.  The
Company  must  maintain  minimum  levels of surplus in the  Insurers in order to
continue to write  business,  meet the other related  standards  established  by
insurance  regulatory  authorities  and  insurance  rating  bureaus  and satisfy
financial ratio covenants in loan agreements.

         Historically,  the Company has achieved  premium  growth as a result of
both  acquisitions  and  internal  growth.  It  intends  to  continue  to pursue

                                       35

<PAGE>

acquisition and new internal growth opportunities.  Among the factors which may
restrict the Company's  future growth is the  availability of capital.  Such
capital  will likely have to be obtained  through  debt or equity  financing  or
retained  earnings.  There  can be no  assurance  that the  Company's  insurance
subsidiaries will have access to sufficient capital to support future growth and
also  satisfy  the  capital  requirements  of rating  agencies,  regulators  and
creditors.  In addition,  the Company will require additional capital to finance
future acquisitions.

         The Company's ability to borrow additional funds has been limited under
the terms of the Indenture for the Preferred Securities.

Uncertainty Associated with Estimating Reserves for Unpaid Losses and LAE

         The reserves for unpaid losses and LAE  established  by the Company are
estimates of amounts  needed to pay reported and  unreported  claims and related
LAE based on facts and  circumstances  then known.  These  reserves are based on
estimates of trends in claims severity, judicial theories of liability and other
factors.

         Although the nature of the  Company's  insurance  business is primarily
short-tail,  the establishment of adequate  reserves is an inherently  uncertain
process,  and there can be no  assurance  that the ultimate  liability  will not
materially exceed the Company's  reserves for losses and LAE and have a material
adverse effect on the Company's  results of operations and financial  condition.
Due to the  inherent  uncertainty  of  estimating  these  amounts,  it has  been
necessary,  and may over time continue to be necessary,  to revise  estimates of
the Company's reserves for losses and LAE. The historic  development of reserves
for losses and LAE may not necessarily  reflect future trends in the development
of  these  amounts.  Accordingly,  it may  not  be  appropriate  to  extrapolate
redundancies or deficiencies based on historical information.

Reliance Upon Reinsurance

         In order to reduce risk and to increase its underwriting  capacity, the
Company  purchases  reinsurance.  Reinsurance  does not  relieve  the Company of
liability  to its  insureds  for the risks  ceded to  reinsurers.  As such,  the
Company is subject to credit risk with respect to the risks ceded to reinsurers.
Although the Company places its reinsurance with reinsurers, including the FCIC,
which the Company  generally  believes to be financially  stable,  a significant
reinsurer's  insolvency  or  inability  to make  payments  under  the terms of a
reinsurance  treaty  could  have a  material  adverse  effect  on the  Company's
financial condition or results of operations.

         The amount and cost of reinsurance available to companies  specializing
in property and casualty  insurance  are subject,  in large part,  to prevailing
market conditions beyond the control of such companies. The Company's ability to
provide  insurance  at  competitive  premium  rates  and  coverage  limits  on a
continuing  basis  depends upon its ability to obtain  adequate  reinsurance  in
amounts and at rates that will not adversely affect its competitive position.

         Due to continuing market uncertainties  regarding reinsurance capacity,
no assurances  can be given as to the Company's  ability to maintain its current
reinsurance  facilities,  which generally are subject to annual renewal.  If the
Company  is  unable  to renew  such  facilities  upon  their  expiration  and is
unwilling to bear the associated increase in net exposures, the Company may need
to reduce the levels of its underwriting commitments.

Risks Associated with Investments

         The Company's  results of operations  depend in part on the performance
of its invested  assets.  Certain  risks are inherent in  connection  with fixed
maturity securities including loss upon default and price volatility in reaction
to changes in  interest  rates and general  market  factors.  Equity  securities
involve risks arising from the financial  performance of, or other  developments
affecting,  particular  issuers as well as price volatility arising from general
stock market conditions.

Comprehensive State Regulation

         The  Company's  insurance  subsidiaries  are  subject to  comprehensive
regulation  by  government  agencies  in the states in which they  operate.  The
nature and extent of that regulation vary from  jurisdiction to jurisdiction but
typically  involve prior approval of the  acquisition of control of an insurance

                                       36

<PAGE>

company or of any  company  controlling  an  insurance  company,  regulation  of
certain  transactions  entered  into by an  insurance  company  with  any of its
affiliates,  limitations  on dividends,  approval or filing of premium rates and
policy forms for many lines of insurance, solvency standards, minimum amounts of
capital and surplus which must be  maintained,  limitations on types and amounts
of  investments,  restrictions  on the size of risks  which may be  insured by a
single company,  limitation of the right to cancel or non-renew policies in some
lines,   regulation   of  the  right  to  withdraw  from  markets  or  agencies,
requirements  to  participate  in residual  markets,  licensing  of insurers and
agents, deposits of securities for the benefit of policyholders, reporting with
respect to financial  condition,  and other matters. In addition,  state 
insurance  department  examiners  perform  periodic  financial and market
conduct  examinations  of  insurance  companies.  Such  regulation  is generally
intended for the protection of policyholders  rather than security  holders.  No
assurance can be given that future  legislative  or regulatory  changes will not
adversely affect the Company.

Holding Company Structure; Dividend And Other Restrictions; Management Fees

         Holding  Company  Structure.  The  Company is a holding  company  whose
principal  asset is the capital stock of the  subsidiaries.  The Company  relies
primarily on dividends and other payments from its  subsidiaries,  including its
insurance  subsidiaries,  to  meet  its  obligations  to  creditors  and  to pay
corporate  expenses.  The  Insurers  are  domiciled in the states of Indiana and
Florida  and each of these  states  limits the  payment of  dividends  and other
distributions  by insurance  companies.  The Company's  reinsurance  subsidiary,
Granite Re is also  limited in its ability to make  payments to the Company as a
result  of  restrictions  imposed  by the  regulatory  bodies  that  govern  the
companies that ceded business to it.

         Dividend and Other Restrictions. Indiana law defines as "extraordinary"
any  dividend or  distribution  which,  together  with all other  dividends  and
distributions to shareholders  within the preceding  twelve months,  exceeds the
greater of: (i) 10% of statutory surplus as regards  policyholders as of the end
of the preceding year, or (ii) the prior year's net income.  Dividends which are
not  "extraordinary"  may be paid ten  days  after  the  Indiana  Department  of
Insurance   ("Indiana   Department")   receives  notice  of  their  declaration.
"Extraordinary"  dividends and  distributions  may not be paid without the prior
approval of the Indiana  Commissioner of Insurance (the "Indiana  Commissioner")
or until the Indiana  Commissioner  has been given thirty days' prior notice and
has not  disapproved  within that period.  The Indiana  Department  must receive
notice of all dividends,  whether  "extraordinary"  or not, within five business
days after they are declared.  Notwithstanding  the foregoing  limit, a domestic
insurer  may not  declare or pay a dividend  from any source of funds other than
"Earned Surplus" without the prior approval of the Indiana  Department.  "Earned
Surplus" is defined as the amount of unassigned funds set forth in the insurer's
most recent annual statement,  less surplus  attributable to unrealized  capital
gain or re-evaluation of assets.  Further, no Indiana domiciled insurer may make
payments in the form of dividends or  otherwise  to its  shareholders  unless it
possesses  assets  in the  amount of such  payments  in excess of the sum of its
liabilities  and the aggregate  amount of the par value of all shares of capital
stock; provided, that in no instance shall such dividend reduce the total of (I)
gross paid-in and contributed  surplus,  plus (ii) special  surplus funds,  plus
(iii) unassigned funds, minus (iv) treasury stock at cost, below an amount equal
to 50% of the  aggregate  amount of the par value of all shares of the insurer's
capital stock.

         Under  Florida  law, a domestic  insurer  may not pay any  dividend  or
distribute cash or other property to its stockholders except out of that part of
its available and  accumulated  surplus funds which is derived from realized net
operating  profits on its  business and net realized  capital  gains.  A Florida
domestic  insurer may make dividend  payments or  distributions  to stockholders
without  prior  approval  of  the  Florida  Department  of  Insurance  ("Florida
Department") if the dividend or distribution  does not exceed the larger of: (i)
the lesser of (a) 10% of surplus or (b) net  investment  income,  not  including
realized  capital gains,  plus a 2-year  carryforward,  (ii) 10% of surplus with
dividends  payable  constrained  to  unassigned  funds  minus 25% of  unrealized
capital  gains,  or (iii) the lesser of (a) 10% of surplus or (b) net investment
income  plus  a  3-year  carryforward  with  dividends  payable  constrained  to
unassigned funds minus 25% of unrealized capital gains. Alternatively, a Florida
domestic  insurer may pay a dividend or  distribution  without the prior written
approval of the Florida  Department if (1) the dividend is equal to or less than
the greater of (i) 10% of the insurer's surplus as regards policyholders derived
from net operating  profits on its business and net realized  capital gains,  or
(ii) the insurer's entire net operating profits  (including  unrealized gains or
losses) and realized net capital gains derived during the immediately  preceding
calendar  year;  (2) the  insurer  will have  policyholder  surplus  equal to or
exceeding 115% of the minimum required  statutory  surplus after the dividend or
distribution;  (3) the insurer  files a notice of the  dividend or  distribution
with the Florida  Department  at least ten  business  days prior to the dividend
payment or  distribution;  and (4) the notice  includes  a  certification  by an
officer of the insurer  attesting  that,  after the  payment of the  dividend or
distribution,  the insurer will have at least 115% of required statutory surplus
                                      
                                       37

<PAGE>

as to  policyholders.  Except as provided above, a Florida domiciled insurer may
only pay a dividend or make a distribution  (i) subject to prior approval by the
Florida  Department,  or (ii)  thirty  days  after the  Florida  Department  has
received  notice of such dividend or  distribution  and has not  disapproved  it
within such time. In the consent order approving the  Acquisition  (the "Consent
Order"),  the  Florida  Department  has  prohibited  Superior  from  paying  any
dividends (whether extraordinary or not) for four years from date of acquisition
without the prior written approval of the Florida Department.

     Although  the  Company  believes  that  funds  required  for it to meet its
financial and operating obligations will be available, there can be no assurance
in this regard.  Further,  there can be no assurance  that,  if  requested,  the
Indiana  Department  will approve any request for  extraordinary  dividends from
Pafco or IGF or that the Florida  Department will allow any dividends to be paid
by Superior during the four year period described above.

         The  maximum  dividends  permitted  by  state  law are not  necessarily
indicative   of  an  insurer's   actual   ability  to  pay  dividends  or  other
distributions to a parent company, which also may be constrained by business and
regulatory  considerations,  such as the impact of dividends  on surplus,  which
could affect an insurer's competitive position,  the amount of premiums that can
be written and the ability to pay future  dividends.  Further,  state  insurance
laws and regulations  require that the statutory surplus of an insurance company
following any dividend or distribution by such company be reasonable in relation
to its outstanding liabilities and adequate for its financial needs.

         Management  Fees.  The  management  agreement  originally  entered into
between  SIG  and  Pafco  was  assigned  as of  April  30,  1996  by  SIG to GGS
Management,  a wholly-owned  subsidiary of GGS Holdings. This agreement provides
for an annual management fee equal to 15% of gross premiums  written.  A similar
management  agreement with a management fee of 17% of gross premiums written has
been entered into between GGS Management and Superior. Employees of SIG relating
to the  nonstandard  automobile  insurance  business and all Superior  employees
became  employees of GGS  Management  effective  April 30, 1996.  In the Consent
Order  approving the  Acquisition,  the Florida  Department has reserved,  for a
period of three  years,  the right to  re-evaluate  the  reasonableness  of fees
provided for in the Superior  management  agreement at the end of each  calendar
year and to require Superior to make adjustments in the management fees based on
the  Florida  Department's   consideration  of  the  performance  and  operating
percentages of Superior and other pertinent data. There can be no assurance that
either the Indiana  Department or the Florida  Department will not in the future
require a reduction in these management fees.

Y2K

Please  refer to the  section,  "Impact of Year 2000  Issue",  in  "Management's
Discussion and Analysis of Results and Operations" in the 1998 Annual Report for
a discussion on this topic.

ITEM 2 - PROPERTIES

     The headquarters for the Company is leased space at 181 University  Avenue,
Suite 1101, Toronto,  Ontario,  while SIG, GGS Holdings and Pafco are located at
4720 Kingsway Drive,  Indianapolis,  Indiana.  The  Indianapolis  building is an
80,000 square foot multilevel  structure  approximately 50% of which is utilized
by  Pafco.  The  remaining  space  is  leased  to  third  parties  at a price of
approximately $10 per square foot.

         Pafco also owns an investment  property located at 2105 North Meridian,
Indianapolis, Indiana. The property is a 21,700 square foot, multilevel building
leased out entirely to third parties.

         Superior's  operations  are conducted at leased  facilities  located in
Atlanta,  Georgia;  Tampa, Florida; and Orange,  California.  Under a lease term
which  extends  through  February  2003,  Superior  leases  office  space at 280
Interstate North Circle,  N.W., Suite 500, Atlanta,  Georgia.  Superior occupies
43,448 square feet at this location. Superior also has an office located at 3030
W. Rocky Pointe Drive,  Suite 770,  Tampa,  Florida  consisting of 18,477 square
feet of space leased for a term  extending  through  February 2000. In addition,
Superior  occupies  an  office  at  1745  West  Orangewood,  Orange,  California
consisting of 3,264 square feet under a lease extending through May 1999.

         IGF owns a 57,799  square  foot office  building  located at 6000 Grand
Avenue,  Des  Moines,  Iowa  which  serves as its  corporate  headquarters.  The
building is fully occupied by IGF.

                                       38

<PAGE>

ITEM 3 - LEGAL PROCEEDINGS

         The Company's insurance  subsidiaries are parties to litigation arising
in the  ordinary  course of  business.  The Company  believes  that the ultimate
resolution  of these  lawsuits  will not have a material  adverse  effect on its
financial  condition or results of operations.  The Company,  through its claims
reserves,  reserves for both the amount of  estimated  damages  attributable  to
these lawsuits and the estimated costs of litigation.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted  during 1998 to a vote of security holders of
the Registrant, through the solicitation of proxies or otherwise.

SEPARATE ITEM, EXECUTIVE OFFICERS OF THE REGISTRANT

         Presented below is certain information regarding the executive officers
of the  Company  who are not also  directors.  Their  respective  ages and their
respective positions with the Company are listed as follows:

Name                       Age          Position
David L. Bates             40           Vice President, General Counsel and
                                        Secretary of the Company

Gary P. Hutchcraft         37           Vice President, Chief Financial Officer
                                        and Treasurer of the Company

         Mr. Bates, J.D., C.P.A., has served as Vice President,  General Counsel
and Secretary of SIG since November, 1995 after having been named Vice President
and General Counsel of the Company in April,  1995. Mr. Bates served as a member
of the Fort Howard  Corporation  Legal  Department from September,  1988 through
March, 1995. Prior to that time, Mr. Bates served as a Tax Manager with Deloitte
& Touche.

         Mr. Hutchcraft,  C.P.A., has served as Vice President,  Chief Financial
Officer and  Treasurer of SIG and the Company  since July,  1996.  Prior to that
time, Mr. Hutchcraft served as an Assurance Manager with KPMG Peat Marwick, LLP.

ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

         Information  regarding  the  trading  market for the  Company's  Common
Shares,  the range of  selling  prices for each  quarterly  period for the years
ended  December  31,  1998 and 1997 with  respect to the  Common  Shares and the
approximate  number of  holders of Common  Shares as of  December  31,  1998 the
Common Shares and other matters is included under the caption Market Information
on Page 42 of the 1998 Annual Report,  included as Exhibit 13, which information
is incorporated herein by reference.

         The  Company  currently  intends  to  retain  earnings  for  use in the
operation and expansion of its business and therefore does not anticipate paying
cash  dividends on its Common Stock in the  foreseeable  future.  The payment of
dividends is within the  discretion  of the Board of Directors  and will depend,
among other things, upon earnings, capital requirements, any financing agreement
covenants and the financial  condition of the Company.  In addition,  regulatory
restrictions and provisions of the Preferred  Securities limit  distributions to
shareholders.

ITEM 6 - SELECTED FINANCIAL DATA

Selected Financial Data of the Company follows:


                                       39

<PAGE>

GORAN CAPITAL INC.
Selected Financial Data
As of the Year Ended December 31,
(In Thousands of U.S. Dollars)

<TABLE>
<CAPTION>
                                                                         1994       1995        1996        1997         1998 
<S>                                                                    <C>        <C>         <C>         <C>          <C>     
Gross Premium Revenue                                                  $126,978   $146,603    $299,376    $448,982     $546,771

Net Earnings (Loss)-Continuing Operations - CDN GAAP                      3,940      7,171      14,127      15,983       (8,999)

Net Earnings (Loss) - CDN GAAP                                            3,940      7,171      31,296      12,438      (11,936) 

U.S./Canada GAAP Differences:

  Discounting on Outstanding Claims                                          88       (161)         62        (504)          --
  
  Deferred Income Taxes                                                   1,180       (344)        (64)        177           -- 

  Minority Interest                                                          --         --        (177)        107           --

Net Earnings (Loss)-Continuing Operations - US GAAP                       5,208      6,666      14,125      15,763       (8,999)

Net Earnings (Loss) - US GAAP                                             5,208      6,666      31,117      12,218      (11,936)

Basic Earnings Per Share-Continuing Operations - US GAAP                  $0.96      $1.33       $2.67       $2.82       $(1.54)

Basic Earnings Per Share - US GAAP                                        $0.96      $1.33       $5.87       $2.19       $(2.04)

EPS Continuing Operations-Fully Diluted - US GAAP                         $0.96      $1.20       $2.47       $2.68       $(1.54)

EPS-Fully Diluted - US GAAP                                               $0.96      $1.20       $5.44       $2.08       $(2.04)

Dividends Per Share                                                       $0.00      $0.00       $0.00       $0.00        $0.00

Total Assets - CDN GAAP                                                 115,240    160,816     381,342     560,848       570,989

U.S./Canada GAAP Differences: 

   Loans to Purchase Shares                                                (593)      (563)       (595)       (346)      (1,377)

   Deferred Income Taxes                                                  1,742      1,466       1,798       1,975           --

   Outstanding Claims Ceded                                                  --         --          --          --           --

   Unearned Premiums Ceded                                                   --         --          --          --           --

   Unrealized Gain (Loss) on Investments                                 (1,383)       (221)       820       1,336        1,630

Total Assets - US GAAP                                                  115,006     161,498    383,365     563,813      571,242

Long Term Bonds and Debentures                                           10,787       9,237         --          --           -- 

Shareholders' Equity - CDN GAAP                                           5,067      12,622     47,258      60,332       49,725

U.S./Canada GAAP Differences:
   
   Deferred Income Taxes                                                  1,742       1,466      1,798       1,975           --

   Discounting on Claims                                                 (1,134)     (1,327)    (1,260)     (1,765)          --

   Unrealized Gain (Loss) on Investments                                 (1,383)       (221)       820       1,336        1,176

   Minority Interest Portion                                                 --          --       (177)        (70)          --

   Loans to Purchase Shares                                                (593)        (563)     (595)       (346)      (1,377)

Shareholders' Equity - US GAAP                                            3,699       11,977     47,843     61,462       49,524

Shares Outstanding-Fully Diluted - US GAAP                            5,399,463    5,567,644   5,724,476   5,886,211  5,841,329
</TABLE>
                                       40

<PAGE>

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF 0PERATIONS

     The discussion  entitled  "Management  Discussion and Analysis of Financial
Condition  and  Results  of  Operations"  in the 1998  Annual  Report on pages 5
through 19 included as Exhibit 13 is incorporated herein by reference.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated  financial  statements included in the 1998 Annual Report,
included as Exhibit  13, and listed in Item 14 of this  Report are  incorporated
herein by reference.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this Item regarding Directors of the Company is
incorporated herein by reference to the Company's definitive proxy statement for
its 1999  annual  meeting  of  common  stockholders  filed  with the  Commission
pursuant to Regulation 14A (the "1999 Proxy Statement").

ITEM 11 - EXECUTIVE COMPENSATION

     The information  required by this Item is incorporated  herein by reference
to the Company's 1999 Proxy Statement.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information  required by this Item is incorporated  herein by reference
to the Company's 1999 Proxy Statement.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information  required by this Item is incorporated  herein by reference
to the Company's 1999 Proxy Statement.

                                       41

<PAGE>

PART IV

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

The  documents  listed  below  are  filed  as a part of this  Report  except  as
otherwise indicated:
   1. Financial  Statements.  The following described  consolidated  financial
      statements found on the pages of the 1998 Annual Report indicated below 
      are incorporated into Item 8 of this Report by reference.

      Description of Financial Statement Item                              Page

         Report of Independent Auditors                                      41

         Consolidated Balance Sheets, December 31, 1998 and 1997             20

         Consolidated Statements of Earnings,
         Years Ended December 31, 1998, 1997 and 1996                        21

         Consolidated Statements of Changes in Shareholders' Equity,
         Years Ended December 31, 1998, 1997 and 1996                        22

         Consolidated Statements of Cash Flows, 
         Years Ended December 31, 1998, 1997 and 1996                        23

         Notes to Consolidated Financial Statements,
         Years Ended December 31, 1998, 1997 and 1996                     24-39

   2. Financial Statement Schedules.

         The following financial statement schedules are included herein.

         Description of Financial Statement Item                           Page

         Schedule II - Condensed Financial Information Of Registrant         43

         Schedule IV - Reinsurance                                           46

         Schedule V - Valuation And Qualifying Accounts                      47

         Schedule VI - Supplemental Information Concerning
         Property-Casualty Insurance Operations                              48

         Schedules  other than those listed above have been omitted  because the
required  information is contained in the financial statements and notes thereto
or because such schedules are not required or applicable.

   3. Exhibits. The Exhibits set forth on the Index to Exhibits are incorporated
      herein by reference.

   4. Reports on Form 8-K.  None

                                       42

<PAGE>

GORAN CAPITAL INC.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT (PARENT COMPANY)
BALANCE SHEET
As At December 31,
(In Thousands U.S. Dollars)
(Unaudited)

<TABLE>
<CAPTION>

                                                              1997      1998

<S>                                                         <C>        <C>
Assets:
  Cash and Short-term Investments                           $1,166      $233
  Loans to Related Parties                                     334     1,982
  Capital and Other Assets                                     597       503
  Investment in Subsidiaries, at Cost                       10,321     9,636
                                                            ------    ------
Total Assets                                               $12,418   $12,354
                                                            ======    ======
Liabilities and Shareholders' Equity:
  Loans from Related Parties                                 9,324     9,937
                                                            ------    ------
Total Liabilities                                            9,324     9,937
                                                            ------    ------
Shareholders' Equity:
  Common Shares                                             18,010    19,317
  Cumulative Translation Adjustment                          1,597     1,367
  Deficit                                                  (16,513)  (18,267)
                                                            ------    ------
Total Shareholders' Equity                                   3,094     2,417
                                                            ------    ------
Total Liabilities and Shareholders' Equity                 $12,418   $12,354
                                                            ======    ======

</TABLE>

                                       43

<PAGE>

GORAN CAPITAL INC.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
STATEMENT OF EARNINGS (LOSS)
For The Years Ended December 31,
(In Thousands of U.S. Dollars)
(Unaudited)

<TABLE>
<CAPTION>

                                                      1996     1997      1998

<S>                                                   <C>     <C>        <C>
Revenues:
  Management Fees                                     $352     $336      $108
  Dividend Income                                    3,500       --        --
  Other Income                                          --       52        --
  Net Investment Income                                264       15        40
                                                    ------    -----    ------
Total Revenues                                       4,116      403       148
                                                    ------    -----    ------
Expenses:
  Debenture Interest Expense                           868       --        --
  Amortization                                         199       --        --
  General, Administrative and Acquisition Expenses   1,879     (234)    1,380
                                                    ------    -----    ------
Total Expenses                                       2,946     (234)    1,380
                                                    ------    -----    ------
Net Income (Loss)                                    1,170      637    (1,232)

Other - Purchase of Common Shares                       --       --      (522)

Deficit, Beginning of Year                         (18,320) (17,150)  (16,513)
                                                    ------   ------    ------
Deficit, End of Year                              $(17,150) (16,513)  (18,267)
                                                    ======   ======    ======


</TABLE>

                                       44

<PAGE>

GORAN CAPITAL INC.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
STATEMENT OF CASH FLOWS
For The Years Ended December 31,
(In Thousands of U.S. Dollars)
(Unaudited)

<TABLE>
<CAPTION>

Cash Flows from Operations                              1996     1997     1998

<S>                                                    <C>       <C>    <C>     
Net Income (Loss)                                      $1,170    $637   $(1,232)

Items Not Involving Cash:

   Amortization and Depreciation                          199      --        --

   Gain on Sale of Capital Assets                          (4)     --        --

   Decrease (Increase) in Accounts Receivable (1)         (40)     86      (471)

   Decrease (Increase) in Other Assets                     (3)    (54)      779

   Increase (Decrease) in Accounts Payable              8,749    (867)      613

   Translation Adjustment                                  --      --      (230)
                                                       ------     ---       ---
Net Cash Provided (Used) by Operations                 10,071    (198)     (541)   
                                                       ------     ---       ---
Cash Flows From Financing Activities:

   Proceeds on Sale of Capital Assets                      14      --        --

   Purchase of Common Shares                               --      --      (748)

   Issue of Common Shares (1)                             599     594       356
                                                          ---     ---       ---
Net Cash Provided by Financing Activities                 613     594      (392)
                                                          ---     ---       ---
Cash Flows From Investing Activities:

   Other, net                                             (93)    451        --

   Reduction of Debentures                            (11,084)     --        --
                                                       ------     ---       ---
Net Cash Used by Investing Activities                 (11,177)    451        --
                                                       ------     ---       ---
Net Increase (Decrease) in Cash                          (493)    847      (933)

Cash at Beginning of Year                                 812     319     1,166
                                                          ---     ---     -----
Cash at End of Year                                      $319   $1,166     $233
                                                          ===    =====      ===

Cash Resources are Comprised of:

Cash                                                      187      78       104

Short-Term Investments                                    132   1,088       129
                                                          ---   -----       ---
                                                         $319  $1,166      $233
                                                          ===   =====       ===
</TABLE>

(1) Amounts for 1998 exclude consideration of $1, 177 for the issuance of common
    shares received in the form of share purchase loans.

                                       45

<PAGE>

GORAN CAPITAL INC. - CONSOLIDATED
SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
For The Years Ended December 31, 1998, 1997 and 1996

Basis of Presentation

The  condensed  financial  information  should be read in  conjunction  with the
consolidated  financial statements of Goran Capital Inc. The condensed financial
information  includes the accounts and  activities  of the Parent  Company which
acts as the holding company for the insurance subsidiaries.


GORAN CAPITAL INC. - CONSOLIDATED
SCHEDULE IV - REINSURANCE
For The Years Ended December 31,
(In Thousands of U.S. Dollars)

<TABLE>
<CAPTION>

Premiums Written (1)                             1996       1997        1998

<S>                                            <C>        <C>         <C>     
Direct Amount                                  $290,355   $420,443    $419,966
Assumed from Other Companies                     $9,021    $28,539    $126,805
Ceded to Other Companies                       $(85,598) $(167,086)  $(184,665)
Net Amount                                     $213,778   $281,896    $362,106
Percentage of Amount Assumed to Net                 4.2%      10.1%       35.0%

</TABLE>

(1) Excludes premiums written with respect to discontinued operations.


                                       46

<PAGE>

GORAN CAPITAL INC. - CONSOLIDATED
SCHEDULE V - VALUATION AND
QUALIFYING ACCOUNTS
For The Years Ended December 31,
(In Thousands of U.S. Dollars)

<TABLE>
<CAPTION>
                                       1996            1997            1998
                                   Allowance for   Allowance for   Allowance for
                                     Doubtful        Doubtful        Doubtful
                                     Accounts        Accounts        Accounts

Additions:

<S>                                     <C>            <C>             <C>   
Balance at Beginning of Period          $927           $1,480          $1,993

Reserves Acquired in the Superior
  Acquisition                            500               --              --

Charged to Costs and Expenses (1)      5,034            9,519          12,690

Charged to Other Accounts                 --               --              --

Deductions from Reserves              (4,981)(2)       (9,006)         (8,290)
                                       -----            -----           -----   
Balance at End of Period              $1,480           $1,993          $6,393
                                       =====            =====           =====

</TABLE>

(1)  The Company continually monitors the adequacy of its allowance for doubtful
     accounts and believes the balance of such allowance at December 31, 1998,
     1997 and 1996 was adequate.
(2)  Uncollectible accounts written off, net of recoveries.





                                       47

<PAGE>

GORAN CAPITAL INC. - CONSOLIDATED
SCHEDULE VI - SUPPLEMENTAL
INFORMATION CONCERNING PROPERTY -
CASUALTY INSURANCE OPERATIONS
For The Years Ended December 31,
(In Thousands of U.S. Dollars)

<TABLE>
<CAPTION>
                                        
                                                      1996      1997      1998

<S>                                                  <C>       <C>       <C>    
Deferred Policy Acquisition Costs                    $13,860   $11,849   $16,332

Reserves for Losses and Loss Adjustment Expenses     127,045   152,871   218,233

Unearned Premiums                                     91,207   118,616   110,665

Earned Premiums                                      208,883   276,540   342,177

Net Investment Income                                  7,745    12,777    13,401

Losses and Loss Adjustment Expenses Incurred Related to:

Current Years                                        146,844   201,483   268,750

Prior Years                                             (570)    9,516    12,142

Paid Losses and Loss Adjustment Expenses             139,441   203,012   236,179

Amortization of Deferred Policy Acquisition Costs     27,657    19,356    51,558

Premiums Written                                     299,376   448,982   546,771

</TABLE>

Note:  All amounts in the above table are net of the effects of reinsurance
and related commission  income,  except for net investment income regarding
which  reinsurance is not  applicable,  premiums  written,  liabilities for
losses and loss adjustment expenses, and unearned premiums which are stated
on a gross  basis.  The amounts in the above  table  exclude  amounts  with
respect to discontinued operations.

                                       48

<PAGE>

SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, as amended,  the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereto duly authorized.

                                                   GORAN CAPITAL INC.


April 13, 1999                                     By:  /s/ Alan G. Symons
                                                       Chief Executive Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been  signed  below by the  following  persons on April 13, 1999, on
behalf of the registrant in the capacities indicated:

(1) Principal Executive Officer:


/s/ Alan G. Symons
Chief Executive Officer


(2) Principal Financial/Accounting Officer:


/s/Gary P. Hutchcraft
Vice President and Chief Financial Officer


(3) The Board of Directors:


/s/G. Gordon Symons                                    /s/David B. Shapira
Chairman of the Board                                  Director


/s/John K. McKeating                                  /s/James G. Torrance
Director                                              Director


/s/J. Ross Schofield                                  /s/Douglas H. Symons
Director                                              Director


/s/Alan G. Symons
Director

                                       49

<PAGE>

                                  EXHIBIT INDEX
Reference to
Regulation S-K
Exhibit No.       Document

1                 Final Draft of the Underwriting Agreement dated November 4,
                  1996 among Registrant, Symons International Group, Inc.,
                  Advest, Inc. and Mesirow Financial, Inc. is incorporated by
                  reference in the Registrant's 1996 Form 10-K.

2.1               The Strategic Alliance Agreement by and between Continental
                  Casualty Company and IGF Insurance Company, IGF Holdings, Inc.
                  and Symons International Group, Inc. dated February 28, 1998
                  is incorporated by reference to Exhibit 2.1 of the
                  Registrant's 1997 Form 10-K.

2.2               The MPCI Quota Share Reinsurance Contract by and between
                  Continental Casualty Company and IGF Insurance Company, IGF
                  Holdings, Inc. and Symons International Group, Inc. dated
                  February 28, 1998 is incorporated by reference to Exhibit 2.2
                  of the Registrant's 1997 Form 10-K.

2.3               The MPCI Quota Share Reinsurance Agreement by and between
                  Continental Casualty Company and IGF Insurance Company, IGF
                  Holdings, Inc. and Symons International Group, Inc. dated
                  February 28, 1998 is incorporated by reference to Exhibit 2.3
                  of the Registrant's 1997 Form 10-K.

2.4               The Crop Hail Insurance Quota Share Contract by and between
                  Continental Casualty Company and IGF Insurance Company, IGF
                  Holdings, Inc. and Symons International Group, Inc. dated
                  February 28, 1998 is incorporated by reference to Exhibit 2.4
                  of the Registrant's 1997 Form 10-K.

2.5               The Crop Hail Insurance Quota Share Agreement by and between
                  Continental Casualty Company and IGF Insurance Company, IGF
                  Holdings, Inc. and Symons International Group, Inc. dated
                  February 28, 1998 is incorporated by reference to Exhibit 2.5
                  of the Registrant's 1997 Form 10-K.

2.6               The Crop Hail Insurance Services and Indemnity Agreement by
                  and between Continental Casualty Company and IGF Insurance
                  Company, IGF Holdings, Inc. and Symons International Group,
                  Inc. dated February 28, 1998 is incorporated by reference to
                  Exhibit 2.6 of the Registrant's 1997 Form 10-K.

2.7               The Multiple Peril Crop Insurance Service and Indemnity
                  Agreement by and between Continental Casualty Company and IGF
                  Insurance Company, IGF Holdings, Inc. and Symons International
                  Group, Inc. dated February 28, 1998 is incorporated by
                  reference to Exhibit 2.7 of the Registrant's 1997 Form 10-K.

2.8               The Stock Purchase Agreement between Symons International
                  Group, Inc. and GS Capital Partners II, L.P. dated July 23,
                  1997 is incorporated by reference to Exhibit 2.8 of the
                  Registrant's 1997 Form 10-K.

2.9               The Stock Purchase Agreement between IGF Holdings, Inc. and
                  1911 CORP. dated July 7, 1998.

2.10              The Asset Purchase Agreement between the Registrant and
                  Florida International Underwriters dated January 1, 1999.

3.1               The Registrant's Articles of Incorporation are incorporated
                  by reference to Exhibit 1 of the Registrant's Form 20-F,
                  filed October 31, 1994.

3.2               Registrant's Restated Bylaw 1 is incorporated by reference in
                  the Registrant's 1996 Form 10-K.

<PAGE>

4.1               Sample Share Certificate and Articles of Amalgamation defining
                  rights attaching to common shares are incorporated by
                  reference to Exhibit 2 of Registrant's Form 20-F filed
                  October 31, 1994.

4.2(1)            The  Senior  Subordinated  Indenture  between  Symons
                  International  Group,  Inc. as issuer and  Wilmington
                  Trust  Company as  trustee  for SIG  Capital  Trust I
                  dated August 12, 1997 is incorporated by reference in
                  the Registrant's  Registration Statement on Form S-4,
                  Reg. No. 333-35713.

4.2(2)            First Supplemental Senior Subordinated Indenture between
                  Symons International Group, Inc. and Wilmington Trust Company
                  Related to SIG Capital Trust I dated January 15, 1998.

10.1              The Stock Purchase Agreement among Registrant, Symons
                  International Group, Inc., Fortis, Inc. and Interfinancial,
                  Inc. dated January 31, 1996 is incorporated by reference to
                  Exhibit 10.1 of Symons International Group, Inc.'s
                  Registration Statement on Form S-1, Reg. No. 333-9129.

10.2              The Management Agreement among Superior Insurance Company,
                  Superior American Insurance Company, Superior Guaranty
                  Insurance Company and GGS Management, Inc. dated April 30,
                  1996 is incorporated by reference to Exhibit 10.5 of Symons
                  International Group, Inc.'s Registration Statement on
                  Form S-1, Reg. No. 333-9129.

10.3              The Management Agreement between Pafco General Insurance
                  Company and Symons International Group, Inc. dated May 1,
                  1987, as assigned to GGS Management, Inc. effective April 30,
                  1996, is incorporated by reference to Exhibit 10.6 of Symons
                  International Group, Inc.'s Registration Statement on
                  Form S-1, Reg. No. 333-9129.

10.4              The Administration Agreement between IGF Insurance Company and
                  Symons International Group, Inc. dated February 26, 1990, as
                  amended, is incorporated by reference to Exhibit 10.7 of the
                  Symons International Group, Inc.'s Registration Statement on
                  Form S-1, Reg. No. 333-9129.

10.5              The Agreement between IGF Insurance Company and Symons
                  International Group, Inc. dated November 1, 1990 is
                  incorporated by reference to Exhibit 10.8 of Symons
                  International Group, Inc.'s Registration Statement on
                  Form S-1, Reg. No. 333-9129.

10.6              The Registration Rights Agreement between Registrant and
                  Symons International Group, Inc. dated May 29, 1996 is
                  incorporated by reference to Exhibit 10.13 of Symons
                  International Group, Inc.'s Registration Statement on
                  Form S-1, Reg. No. 333-9129.

10.7(1)           The Employment Agreement between GGS Management Holdings, Inc.
                  and Alan G. Symons dated January 31, 1996 is incorporated by
                  reference to Exhibit 10.16(1) of Symons International Group,
                  Inc.'s Registration Statement on Form S-1, Reg. No. 333-9129.

10.7(2)           The Employment Agreement between GGS Management Holdings, Inc.
                  and Douglas H. Symons dated January 31, 1996 is
                  incorporated by reference to Exhibit 10.16(2) of Symons
                  International Group, Inc.'s Registration Statement on
                  Form S-1, Reg. No. 333-9129.

10.8(1)           The Employment Agreement between IGF Insurance Company and
                  Dennis G. Daggett effective February 1, 1996 is incorporated
                  by reference to Exhibit 10.17(1) of Symons International
                  Group, Inc.'s Registration Statement on Form S-1,
                  Reg. No. 333-9129.

10.8(2)           The Employment Agreement between IGF Insurance Company and
                  Thomas F. Gowdy effective February 1, 1996 is incorporated by
                  reference to Exhibit 10.17(2) of Symons International Group,
                  Inc.'s Registration Statement on Form S-1, Reg. No. 333-9129.


<PAGE>

10.9              The Employment Agreement between Superior Insurance Company
                  and Roger C. Sullivan, Jr. effective April 23, 1997 is
                  incorporated by reference to Exhibit 10.9 of the
                  Registrant's 1997 Form 10-K.

10.10             The Employment  Agreement between Registrant and Gary
                  P.  Hutchcraft  effective May 1, 1997 is incorporated
                  by  reference  to Exhibit  10.10 of the  Registrant's
                  1997 Form 10-K.

10.11             The Employment Agreement between Registrant and David
                  L. Bates  effective  April 1, 1997 is incorporated by
                  reference to Exhibit 10.11 of the  Registrant's  1997
                  Form 10-K.

10.12             The Employment Agreement between Symons International Group,
                  Inc. and Carl F. Schnaufer effective August 14, 1998.

10.13             The Goran Capital Inc. Stock Option Plan is incorporated by
                  reference to Exhibit 10.20 of Symons International Group,
                  Inc.'s Registration Statement of Form S-1,
                  Reg. No. 333-9129.

10.14             The GGS Management Holdings, Inc. 1996 Stock Option Plan is
                  incorporated by reference to Exhibit 10.21 of Symons
                  International Group, Inc.'s Registration Statement on
                  Form S-1, Reg. No. 333-9129.

10.15             The Symons International Group, Inc. 1996 Stock Option Plan is
                  incorporated by reference to Exhibit 10.22 of Symons
                  International Group, Inc.'s Registration Statement on
                  Form S-1, Reg. No. 333-9129.

10.16             The Symons International Group, Inc. Retirement Savings Plan 
                  is incorporated by reference to Exhibit 10.24 of Symons
                  International Group, Inc.'s Registration Statement on
                  Form S-1, Reg. No. 333-9129.

10.17             The Insurance Service Agreement between Mutual Service
                  Casualty Company and IGF Insurance Company dated May 20, 1996
                  is incorporated by reference to Exhibit 10.25 of Symons
                  International Group, Inc.'s Registration Statement on
                  Form S-1, Reg. No. 333-9129.

10.18(1)          The Automobile Third Party Liability and Physical Damage Quota
                  Share Reinsurance.  Contract between Pafco General Insurance
                  Company and Superior Insurance Company is incorporated by
                  reference to Exhibit 10.27(1) of Symons International Group,
                  Inc.'s Registration  Statement on Form S-1, Reg. No. 333-9129.

10.18(2)          The  Crop  Hail  Quota  Share  Reinsurance  Contract  and Crop
                  Insurance  Service  Agreement  between Pafco General Insurance
                  Company and IGF Insurance Company is incorporated by reference
                  to Exhibit  10.27(2)  of Symons  International  Group,  Inc.'s
                  Registration Statement on Form S-1, Reg. No. 333-9129.

10.18(3)          The Automobile Third Party Liability and Physical Damage Quota
                  Share  Reinsurance  Contract between IGF Insurance Company and
                  Pafco General  Insurance  Company is incorporated by reference
                  to Exhibit  10.27(3)  of Symons  International  Group,  Inc.'s
                  Registration Statement on Form S-1, Reg. No. 333-9129.

10.18(4)          The Multiple Line Quota Share Reinsurance Contract between IGF
                  Insurance  Company  and Pafco  General  Insurance  Company  is
                  incorporated  by  reference  to  Exhibit  10.27(4)  of  Symons
                  International  Group,  Inc.'s  Registration  Statement on Form
                  S-1, Reg. No.
                  333-9129.

10.18(5)          The Standard Revenue Agreement between Federal Crop Insurance
                  Corporation and IGF Insurance Company is incorporated by
                  reference to Exhibit 10.27(5) of Symons International Group,
                  Inc.'s Registration Statement on Form S-1, Reg. No. 333-9129.

10.18(6)          The  Automobile  Variable  Quota Share  Reinsurance  Agreement
                  between The Superior  Group and IGF  Insurance  Company  dated
                  October 1, 1998.


<PAGE>

10.18(7)          The  Automobile  Variable  Quota Share  Reinsurance  Agreement
                  between  The  Pafco  Group  and IGF  Insurance  Company  dated
                  October 1, 1998.

10.18(8)          The Automobile Variable Quota Share Reinsurance Agreement
                  between The Pafco Group and Granite Reinsurance Company, Ltd.
                  dated October 1, 1998.

10.19             The Commitment Letter, effective October 24, 1996, between 
                  Fifth Third Bank of Central Indiana and Symons International
                  Group, Inc. is incorporated by reference to Exhibit 10.28 of
                  Symons International Group, Inc.'s Registration Statement on
                  Form S-1, Reg. No. 333-9129.

10.20             The Reinsurance Agreement No. 1000-91 (Quota Share Agreement)
                  and Reinsurance Agreement No. 1000-90 (Stop Loss Reinsurance
                  and Reserves Administration Agreement) are incorporated by
                  reference to Exhibit 3(c) of Registrant's Form 20-F filed
                  October 31, 1994.

10.21             The Form of Share Option Agreement is incorporated by
                  reference to Exhibit 10.05 of Registrant's Form 10-K for the
                  year ended December 31, 1994.

10.22             The Share Pledge Agreement between Symons International Group,
                  Ltd and Registrant is incorporated by reference to Exhibit
                  10.06 of Registrant's Form 10-K for the year ended
                  December 31, 1994.

10.23(1)          The SIG Capital Trust I 91/2% Trust Preferred Securities
                  Purchase Agreement dated August 7, 1997 is incorporated by 
                  reference in the Registrant's Registration Statement on
                  Form S-4, Reg. No. 333-35713.

10.23(2)          The Registration Rights Agreement among Symons International
                  Group, Inc., SIG Capital Trust I and Donaldson, Lufkin &
                  Jenrette Securities Corporation, Goldman, Sachs & Co., CIBC
                  Wood Gundy Securities Corp. and Mesirow Financial, Inc. dated
                  August 12, 1997 is incorporated by reference in the
                  Registrant's Registration Statement on Form S-4,
                  Reg. No. 333-35713.

10.23(3)          The Declaration of Trust of SIG Capital Trust 1 dated
                  August 4, 1997 is incorporated by reference in the
                  Registrant's Registration Statement on Form S-4,
                  Reg. No. 333-35713.

10.23(4)          The Amended and Restated Declaration of Trust of SIG Capital
                  Trust I dated August 12, 1997 is incorporated by reference in
                  the Registrant's Registration Statement on Form S-4,
                  333-35713.

11                Statement re Computation of Per Share Earnings

13                Annual Report to Security Holders, 1998, 1997 and 1996

21                The  Subsidiaries of the Registrant are  incorporated
                  by  reference  to  Footnote  1  of  the  Registrant's
                  consolidated  financial  statements  contained in its
                  Annual Report to Security  Holders filed hereunder as
                  Exhibit 13.

99                Management Proxy Circular with respect to 1998 Annual Meeting
                  of Shareholders of Registrant


<PAGE>