FORM 10-K
                       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, 1997.

(   ) 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, including
area code:                                  (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
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 Issuer's Common Stock held by  nonaffiliates,
as of March 20, 1998 was $28.50 (US).

The  number of shares of Common  Stock of the  Registrant,  without  par  value,
outstanding as of March 20, 1998 was 10,419,332.

Documents Incorporated By Reference:
Portions of the Annual Report to  Shareholders  and the Proxy  Statement for the
1998 Annual Meeting of Shareholders are incorporated into Parts II and III.

Exhibit Index on Page 46.                                          Page 1 of 55


<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>

                       1993    1994     1995     1996     1997

<S>                   <C>     <C>      <C>      <C>      <C>

Average               .7733   .7322    .7287    .7339    .7222

Period End            .7544   .7129    .7325    .7301    .6995

High                  .8046   .7642    .7465    .7472    .7351

Low                   .7439   .7097    .7099    .7270    .6938
</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, 1997
                                                                          Page
PART I

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

           Forward Looking Statements - Safe Harbor Provisions.............  35

ITEM 2.    Properties......................................................  41

ITEM 3.    Legal Proceedings...............................................  42

ITEM 4.    Submission of Matters to a Vote of Security Holders.............  42

PART II

ITEM 5.    Market For Registrant's Common Equity And Related
           Shareholder Matters.............................................  43

ITEM 6.    Selected Consolidated Financial Data............................  44

ITEM 7.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations.............................  45

ITEM 8.    Financial Statements and Supplementary Data.....................  45

ITEM 9.    Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure.............................  45

PART III

ITEM 10.   Directors and Executive Officers of the Registrant..............  45

ITEM 11.   Executive Compensation..........................................  45

ITEM 12.   Security Ownership of Certain Beneficial Owners and Management..  45

ITEM 13.   Certain Relationships and Related Transactions..................  45

PART IV

ITEM 14.   Exhibits, Financial Statement Schedules, and Reports Form 8-K...  46

SIGNATURES ................................................................  55



<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 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
discontinued  the operations of SIGF with a sale of such operations  expected in
early 1998.

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.

                                       -4-

<PAGE>



         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.   The  Company  had   consolidated   Gross  Premiums  Written  of
approximately  $449 million for the twelve months ended December 31, 1997. Based
on the Company's Gross Premiums Written in 1997, the Company believes that it is
the tenth largest underwriter of nonstandard  automobile insurance in the United
States.  Based on premium information  compiled in 1996 by the NCIS, the Company
believes  that  IGF is the  fourth  largest  underwriter  of MPCI in the  United
States.

The following table sets forth the premiums  written by line of business for the
periods  indicated  (amounts  exclude  commercial   premiums  from  discontinued
operations):

<TABLE>
GORAN CAPITAL INC.
For The Years Ended December 31,

<CAPTION>
(In Thousands)                       1995            1996              1997

<S>                               <C>              <C>               <C>
Nonstandard Automobile (1)

  Gross Premiums Written           $49,005         $187,176          $323,915

  Net Premiums Written              37,302          186,579           256,745

Crop Hail

  Gross Premiums Written           $16,966          $27,957           $38,349

  Net Premiums Written              11,608           23,013            20,796

MPCI (2)

  Gross Premiums Written           $53,408          $82,102           $88,052

  Net Premiums Written                 ---              ---                --

Finite Reinsurance

  Gross Premiums Written           $27,224           $2,141          $(1,334)

  Net Premiums Written              32,912            4,186             4,355

Total (3)

  Gross Premiums Written          $146,603         $299,376          $448,982

  Net Premiums Written             $81,822         $213,778          $281,896
</TABLE>


(1) Does not  reflect  net  premiums  written  for  Superior  for the year ended
December  31, 1995 and for the four months  ended April 30,  1996.  For the year
ended December 31,1995, Superior and its subsidiaries had gross premiums written
of $94.8 million and net premiums written of $94.1 million.  For the four months
ended April 30, 1996,  Superior and its  subsidiaries had gross premiums written
of $44.0 million and net premiums written of $43.6 million.

(2)  For a  discussion  of  the  accounting  treatment  of  MPCI  premiums,  see
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations of the Company".

(3) For  additional financial segment information  concerning the Company's
nonstandard  automobile  and  crop  insurance  operations,  see "Management's
Discussion and Analysis of Financial  Condition and Results of Operations of the
Company".

                                       -5-

<PAGE>


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  Company  believes  that the  voluntary
nonstandard  market  has  accounted  for  approximately  15%  of  total  private
passenger  automobile  insurance premiums written in recent years.  According to
statistical  information derived from insurer annual statements compiled by A.M.
Best,  the  nonstandard  automobile  market  accounted for $19 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.

         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. Of the approximately 300,218 combined policies of Pafco and
Superior in force on December 31, 1997, fewer than  approximately 10% had policy
limits in excess of these basic  limits of coverage.  Of the 72,626  policies of
Pafco in force on December 31, 1997,  approximately  81.9% had policy periods of
six months or less. Of the  approximately  227,592 policies of Superior in force
as of December 31, 1997,  approximately  62.5% had policy  periods of six months
and approximately 37.5% had policy periods of twelve months.

         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

                                       -6-

<PAGE>


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 14 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.

                                       -7-

<PAGE>


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

<TABLE>
<CAPTION>

State                         1995           1996          1997
-----                         ----           ----          ----
<S>                       <C>            <C>           <C>
Arkansas                    $1,796         $2,004        $1,539
California                  15,350         25,131        59,819
Colorado                     9,257         10,262         9,865
Florida                     54,535         97,659       141,907
Georgia                      5,927          7,398        11,858
Illinois                     2,483          2,994         3,541
Indiana                     13,842         16,599        17,227
Iowa                         3,832          5,818         7,079
Kentucky                     7,840         11,065         9,538
Mississippi                  2,721          2,250         2,830
Missouri                     8,513         13,423         9,705
Nebraska                     3,660          5,390         6,613
Nevada                         ---            ---         4,273
Ohio                         3,164          3,643         3,731
Oklahoma                       317          2,559         3,418
Oregon                         ---            ---         2,302
Tennessee                      332             (2)          ---
Texas                        3,464         10,122         7,192
Virginia                     5,035         14,733        21,446
Washington                   1,693            106            32
                           -------        -------       -------
Total                     $143,761       $231,154      $323,915
                           =======        =======       =======
</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 27
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 deliver 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."

                                       -8-

<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  reenforcing  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%. The following table
sets forth Loss and LAE  Ratios,  Expense  Ratios  and  Combined  Ratios for the
periods  indicated  for the  nonstandard  automobile  insurance  business of the
Company.  The ratios exclude the effects of Superior prior to the acquisition by
the Company on April 30, 1996.  The Ratios shown in the table below are computed
based upon GAAP.


                                       -9-

<PAGE>

<TABLE>

                                               Years Ended December 31,
                                             ----------------------------
<CAPTION>
                                             1995        1996       1997

<S>                                         <C>          <C>       <C>
Loss and LAE Ratio                           73.8%       73.7%      78.0%

Underwriting Expense Ratio, net of
billing fees                                 32.3%       23.2%      22.7%
                                             -----       -----      -----

Combined Ratio                              106.1%       96.9%     100.7%
                                            ======       =====     ======
</TABLE>

         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
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.

                                      -10-

<PAGE>

         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 a minimum of 10% and includes the same reinsurers.

         In  1997,  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, 1997 follows:

<TABLE>
<CAPTION>

                                                              Reinsurance
                                                           Recoverables as of
                                        A.M. Best         December 31, 1997 (1)
Reinsurers                                Rating             (in thousands)

<S>                                        <C>                  <C>

Everest Reinsurance Company                A (2)                 1,880

Federal Government                         A+ (3)                1,248

Sentinel Reinsurance Company, Ltd.                                 345

Vesta Fire Insurance Company               A                    12,939

</TABLE>

(1) Only  recoverable  greater  than  $200,000  are  shown.  Total  third  party
nonstandard  automobile  reinsurance  recoverables  as of December 31, 1997 were
approximately $31,932,000.
(2) An A.M. Best Rating of "A" is the third  highest of 15 ratings.
(3) An A.M. Best Rating of "A+" is the second highest of 15 ratings.

         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

                                      -11-

<PAGE>

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  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.

         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 been  eliminated  for the 1998 crop
year.

         The Federal  Agriculture  Improvement and Reform Act of 1996 ("the 1996
Reform Act"),  signed into law by President  Clinton in April 1996,  limited the
role of the USDA  offices in the  delivery of MPCI  coverage  beginning  in July
1996,  which was the commencement of the 1997 crop year, and also eliminated the
linkage between CAT Coverage and  qualification for certain federal farm program
benefits.  This  limitation  should provide the Company with the  opportunity to
realize  increased  revenues  from the  distribution  and  servicing of its MPCI
product.  In  accordance  with the 1996 Reform Act,  the USDA  announced in July
1996,  the following 14 states in which CAT Coverage will no longer be available
through  USDA  offices  but  rather  will be solely  available  through  private
companies:  Arizona,  Colorado,  Illinois,  Indiana,  Iowa,  Kansas,  Minnesota,
Montana,  Nebraska, North Carolina,  North Dakota, South Dakota,  Washington and
Wyoming.  Through June 1996, the FCIC  transferred to the Company  approximately
8,900 insureds for CAT Coverage who previously purchased such coverage from USDA
field offices. The Company believes that any

                                      -12-

<PAGE>


future  potential  negative impact of the delinkage  mandated by the 1996 Reform
Act will be mitigated by, among other factors,  the likelihood that farmers will
continue to purchase MPCI to provide basic protection  against natural disasters
since ad hoc federal  disaster  relief programs have been reduced or eliminated.
In addition,  the Company  believes  that (i) lending  institutions  will likely
continue to require  this  coverage as a condition to crop lending and (ii) many
of the farmers  who entered the MPCI  program as a result of the 1994 Reform Act
have come to appreciate the reasonable  price of the protection  afforded by CAT
Coverage and will remain with the program  regardless of  delinkage.  There can,
however, be no assurance as to the ultimate effect which the 1996 Reform Act may
have on the business or operations of the Company.

         On June 9, 1997, the Secretary of  Agriculture  announced that the USDA
would no longer provide CAT Coverage through USDA offices in any state effective
for the 1998 crop  year.  This is to be  implemented  by a  transferring  of CAT
policies to the various  members of the crop insurance  industry.  At this time,
the Company has been preliminarily  informed that it will receive  approximately
17,000 policies that were formerly  written by USDA offices,  although there can
be no assurance that the Company will receive this number of policies.  Based on
historical, per-policy averages, the Company has preliminarily estimated that it
will  receive an  additional  approximate  $2 to $3 million in premium from such
transferred policies,  however,  there can be no assurance that this number will
be realized.


                                      -13-

<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 89 full-time claims adjusters,  most of whom are
               agronomy-trained,  to reduce the cost of losses experienced by
               IGF.

         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 Crop Revenue Coverage (CRC) and specific named peril
               crop  insurance.  Further,  IGF is in the  initial  stages  of
               opening new markets and attracting new customers by developing
               timber,   crop   completion   and   agricultural    production
               interruption coverages.

         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 1994
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 $50 per
policy instead of any premium.  CAT Coverage  insures 50% of historic crop yield
at 60% of the FCIC-set crop price for the applicable  commodities  standard unit
of measure,  i.e., bushel, pound, etc. CAT Coverage can be obtained from private
insurers such as the

                                      -14-

<PAGE>


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, 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 following  discussion  provides more
detail about the implementation of this profit sharing formula.

         The Company recently began offering a new product in its crop insurance
business  called 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 has  been  available  for corn and
soybeans  in all  counties  in  Iowa  and  Nebraska  since  1996.  CRC  policies
represented  approximately  30% of the combined corn policies  written by IGF in
Iowa and Nebraska since 1996. Since July 1996, CRC was made available for winter
wheat in the entire states of Kansas,  Michigan,  Nebraska,  South Dakota, Texas
and Washington and in parts of Montana. In May 1997, the FCIC announced that CRC
will be expanded to include wheat in twenty-five  additional states.  Currently,
CRC represents approximately 7% of all of the Company's wheat policies.

         Revenue insurance coverage plans such as CRC are the result of the 1994
Reform Act, which  directed the FCIC to develop a pilot 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  auspices of this pilot  program,  which  authorizes  private
companies to design  alternative  revenue  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 1997 Crop Year, the Company received
from the FCIC an expense reimbursement payment equal to 25% of Gross

                                      -15-

<PAGE>



Premiums  Written  in respect  of each CRC  policy it  writes.  The MPCI  Buy-up
Expense Reimbursement Payment is currently administratively  established by FCIC
in the absence of a applicable  legislation.  This expense reimbursement payment
was reduced from 27% in 1996 to 23.25% in 1998.

         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,  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.  IGF is currently in the initial stages of opening new
markets and attracting new customers by developing  timber,  crop completion and
agricultural production interruption coverages.

  Gross Premiums

         For 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 $50 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

                                      -16-

<PAGE>


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 three  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.  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 three
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 three
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
profit  according  to a schedule  set by the FCIC for each year.  The profit and
loss sharing  percentages are different for risks allocated to each of the three
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 and  generally is adjusted from year to year.  For 1995,  1996 and 1997
crop years,  the FCIC  increased the maximum  potential  profit share of private
insurers for risks allocated to the Commercial Pool above the maximum  potential
profit share set for 1994,  without  increasing the maximum  potential  share of
loss for risks  allocated  to that  pool for 1995.  This  change  increased  the
potential  profitability  of risks  allocated to the Commercial  Pool by private
insurers.


                                      -17-

<PAGE>

         The following table presents MPCI Premiums,  MPCI Imputed  Premiums and
underwriting gains or losses of IGF for the periods indicated:

<TABLE>

(in thousands)                                   Years Ended December 31,
                                               ---------------------------
<CAPTION>

                                              1995         1996         1997
<S>                                         <C>          <C>          <C>

MPCI premiums                               $53,408      $82,102      $88,052

MPCI imputed premiums                       $19,552      $38,944      $33,294


Gross underwriting gain                     $10,870      $15,801      $30,325

Net private third party reinsurance
expense and other                            (1,217)      (3,524)      (3,736)
                                              ------      ------       ------

Net underwriting gain                        $9,653      $12,277      $26,589
                                              =====       ======       ======
</TABLE>


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
1995, 1996 and 1997, the maximum Buy-up Expense Reimbursement Payment was set at
31%, 31% and 29%, 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  1998  crop  year,  the  Buy-up  Expense
Reimbursement payment has been set at 27%.

         Farmers  are  required  to pay a  fixed  administrative  fee of $50 per
policy (maximum of $100 per county) in order to obtain CAT Coverage. This fee is
retained  by the  Company  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 in
respect  of each CAT  Coverage  policy it writes  and a small  MPCI  Excess  LAE
Reimbursement  Payment. In general, fees and payments received by the Company in
respect of CAT Coverage are  significantly  lower than those received for Buy-up
Coverage.

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

<TABLE>

(in thousands)                                     Years Ended December 31,
                                                  -------------------------
<CAPTION>

                                                  1995      1996       1997
<S>                                            <C>       <C>        <C>

CAT Coverage Fees (1)                           $1,298    $1,181     $1,191

Buy-up Expense Reimbursement Payments           16,366    24,971     24,788

CAT LAE Reimbursement Payments and
MPCI Excess LAE Reimbursement Payments           3,427     5,753      4,565
                                                 -----     -----      -----

Total                                          $21,091   $31,905    $30,544
                                                ======    ======     ======
</TABLE>



                                      -18-

<PAGE>


(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.

Third-Party Reinsurance In Effect for 1997

         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 has in effect quota share  Reinsurance of 40% of business,  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.

         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.



                                      -19-

<PAGE>


Year Ended December 31, 1997 (1)
(in thousands, except footnotes)

<TABLE>

<CAPTION>
                                                      A.M. Best        Ceded
Reinsurers                                             Rating         Premiums

<S>                                                   <C>             <C>
Folksam International Insurance Co. Ltd. (2)              A-            $746

Frankona Ruckversicherungs AG (3)                         A             $415

Insurance Corporation of Hannover                         A-            $268

Liberty Mutual Insurance Co. (UK) Ltd.                    A             $433

Monde Re (4)                                          Not Rated       $4,213

Munich Re (5)                                             A+          $3,004

National Grange                                           A-            $736

Partner Reinsurance Company Ltd.                          A           $1,112

R & V Versicherung AG (4)                             Not Rated       $1,286

Reinsurance Australia Corporation, Ltd. (REAC) (4)    Not Rated       $4,956

Scandinavian Reinsurance Company Ltd.                     A+             ---

--------

(1) For the twelve months ended December 31, 1997, total ceded premiums were
    $17,169.
(2) An A.M. Best rating of "A-" is the fourth highest of 15 ratings.
(3) An A.M. Best rating of "A" is the third highest of 15 ratings.
(4) Monde Re is owned by REAC.
(5) An A.M. Best rating of "A+" is the second highest of 15 ratings.

</TABLE>
         As of December  31, 1997,  IGF's  Reinsurance  recoverables  aggregated
approximately $268,766 excluding recoverables from the FCIC.

  Marketing; Distribution Network

         IGF markets its  products  to the owners and  operators  of farms in 42
states through  approximately  2,400 agents  associated with  approximately  925
independent insurance agencies, with its primary geographic concentration in the
states of Iowa, Texas, Illinois, Kansas and Minnesota. The Company has, however,
diversified  outside  of the  Midwest  and  Texas in order  to  reduce  the risk
associated  with  geographic  concentration.  IGF is  licensed  in 23 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 1997. 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.


                                      -20-

<PAGE>



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

<TABLE>


                                                (in thousands)
                    -----------------------------------------------------------------------
<CAPTION>
                                Year Ended                                 Year Ended
                             December 31, 1996                           December 31, 1997
                    --------------------------------      ---------------------------------

State               Crop Hail       MPCI       Total      Crop Hail       MPCI        Total
-----               ---------       ----       -----      ---------       ----        -----

<S>                 <C>          <C>         <C>           <C>         <C>         <C>
Alabama                $97        $2,951      $3,048        $144        $1,707       $1,851

Arkansas               314         1,784       2,098         652         2,270        2,922

California           1,164         1,992       3,156       1,062         4,418        5,480

Colorado             1,651         3,334       4,985       1,309         3,183        4,492

Florida                ---         1,738       1,738          19         1,809        1,828

Illinois                526       11,228      11,754         655        12,221       12,876

Indiana                 115        3,870       3,985          92         4,540        4,632

Iowa                  6,590       15,205       21,795      7,628        12,949       20,577

Kansas                  662        5,249        5,911        832         6,278        7,110

Louisiana                28        1,674        1,702         41           856          897

Minnesota             2,300        2,244        4,544      4,405         3,469        7,874

Mississippi             482        2,222        2,704        509         2,711        3,220

Missouri                556        2,427        2,983        383         1,711        2,094

Montana               5,632        1,554        7,186      2,879         1,854        4,733

Nebraska              1,567        3,206        4,773      1,597         3,160        4,757

North Dakota          2,294        2,796        5,090        787         3,014        3,801

Oklahoma                403        1,436        1,839        451         1,127        1,578

South Dakota          1,457        1,106        2,563        932         1,541        2,473

Texas                 1,262       12,361       13,623       3,211        1,593        4,804

Wisconsin               370        2,187        2,557         407        1,479        1,886

All Other               487        1,538        2,025       10,354      16,162       26,516
                      -----        -----        -----       ------      ------       ------

Total               $27,957      $82,102     $110,059      $38,349     $88,052     $126,401
                     ======       ======      =======       ======      ======      =======

</TABLE>

                                      -21-

<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,  APlus, 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.  In order to  promote a rapid  claims  response,  the  Company  has
available several small four wheel drive vehicles for use by its adjusters.  The
adjusters  report  to a field  service  representative  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 service  office claims
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 use Global  Positioning  System Units,  which are hand
held devices using navigation satellites 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 six  regional
service offices to assist in heavy claim work load situations.

                                      -22-

<PAGE>


  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 1997 crop  year,  the  number of  insurance  companies
having  agreements  with the FCIC to sell and service MPCI policies has declined
from fifty to  thirty-six.  The Company  believes that IGF is the fourth largest
MPCI crop insurer in the United States based on premium information  compiled in
1996 by the FCIC and NCIS.  The Company's  primary  competitors  are Rain & Hail
Insurance  Service,  Inc.  (affiliated  with  Cigna  Insurance  Company),  Rural
Community  Insurance  Services,  Inc.  (which is owned by Norwest  Corporation),
American Growers  Insurance Company  (Redland),  Crop Growers  Insurance,  Inc.,
Great  American  Insurance  Company,  Blakely Crop Hail (an affiliate of Farmers
Alliance Mutual  Insurance  Company) and North Central Crop Insurance,  Inc. 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.

         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

                                      -23-

<PAGE>


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,  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  coupled  with the growth in premium  volume
produced  sufficient  volatility  in prior year loss  patterns  to  warrant  the
Company to re-estimate  its 1996 reserve for losses and loss expenses and record
an  additional  reserve  during  1997.  The  effects of  changes  in  settlement
patterns, costs, inflation, growth and other factors have all been considered in
establishing the current year reserve for unpaid losses and loss expenses.



                                      -24-

<PAGE>


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

<TABLE>
<CAPTION>

                                 1987    1988     1989      1990      1991     1992    1993   1994    1995(A)    1996     1997
                                 ----    ----     ----      ----      ----     ----    ----   ----    -------    ----     ----

<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

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

Reserve for unpaid losses and
LAE, net of reinsurance          $4,687  $10,747  $13,518   $15,923  $15,682  $17,055 $14,822  14,321   61,827    71,427   84,807

Paid cumulative as of:

One Year Later                    2,708    5,947    7,754     7,695    7,519   10,868   8,875   7,455   42,183    59,410

Two Years Later                   4,448    7,207   10,530    10,479   12,358   15,121  11,114  10,375   53,350        --

Three Years Later                 4,570    7,635   11,875    12,389   13,937   16,855  13,024  12,040       --        --

Four Years Later                  4,310    7,824   12,733    13,094   14,572   17,744  13,886      --       --        --

Five Years Later                  4,331    8,009   12,998    13,331   14,841   18,195      --      --       --        --

Six Years Later                   4,447    8,135   13,095    13,507   14,992       --      --      --       --        --

Seven Years Later                 4,448    8,154   13,202    13,486       --       --      --      --       --        --

Eight Years Later                 4,447    8,173   13,216        --       --       --      --      --       --        --

Nine Years Later                  4,447    8,174       --        --       --       --      --      --       --        --

Ten Years Later                   4,447       --       --        --       --       --      --      --       --        --

Liabilities re-estimated as of:

One Year Later                    5,352    8,474   13,984    13,888   14,453   17,442  14,788  13,365   59,626    82,011

Two Years Later                   4,726    8,647   13,083    13,343   14,949   18,103  13,815  12,696   60,600        --

Three Years Later                 4,841    8,166   13,057    13,445   15,139   18,300  14,051  13,080       --        --

Four Years Later                  4,474    8,108   13,152    13,514   15,218   18,313  14,290      --       --        --

Five Years Later                  4,412    8,179   13,170    13,589   15,198   18,419      --      --       --        --

Six Years Later                   4,471    8,165   13,246    13,612   15,114       --      --      --       --        --

Seven Years Later                 4,448    8,196   13,260    13,529       --       --      --      --       --        --

Eight Years Later                 4,462    8,198   13,248        --       --       --      --      --       --        --

Nine Years Later                  4,447    8,199       --        --       --       --      --      --       --        --

Ten Years Later                   4,447       --       --        --       --       --      --      --       --        --

Net cumulative (deficiency)
or redundancy                       240    2,548      270     2,394      568  (1,364)     532   1,241    1,227   (10,584)

Expressed as a percentage of
unpaid losses and LAE              5.1%    23.7%     2.0%     15.0%     3.6%   (8.0%)    3.6%    8.7%     2.0%    (14.8%)
</TABLE>


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

                                      -25-

<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  investment  policies are determined by
the  Company's  Board of  Directors  and are  reviewed on a regular  basis.  The
Company's  investment  strategy  is to  maximize  the  after-tax  yield  of  the
portfolio  while  emphasizing  the stability and  preservation  of the Company's
capital base.  Further,  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,  and the Company's  fixed maturity and common equity
investments are substantially all in public companies. The Company's investments
in real estate and mortgage  loans  represent  1.1% of the  Company's  aggregate
investments. The investment portfolios of the Company are managed by third-party
professional  administrators,  in  accordance  with  pre-established  investment
policy guidelines  established by the Company. The investment  portfolios of the
Company at December 31, 1997, consisted of the following:

(in thousands)

<TABLE>

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

Fixed maturities:

<S>                                                      <C>          <C>
  U.S. and Canadian Treasury securities and
  obligations of U.S. and Canadian government
  corporation and agencies                                $84,371      $84,801

  Obligations of states, provinces and political
  subdivisions                                              1,082        1,082

  Corporate securities                                     86,948       88,332
                                                           ------       ------

Total Fixed Maturities                                    172,401      174,215

Equity Securities:

  Common stocks                                            35,446       36,631

Short-term investments                                     23,233       23,233

Real estate                                                   450          450

Mortgage loans                                              2,220        2,220

Other loans                                                    50           50
                                                           ------       ------

Total Investments                                        $233,800     $236,799
                                                          =======      =======
---------------
</TABLE>



                                      -26-

<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>

(in thousands)                                                  1996                     1997
                                                        --------------------      --------------------
<CAPTION>

                                                         Market      Percent        Market     Percent
Time To Maturity                                         Value       Market         Value      Market

<S>                                                    <C>           <C>          <C>          <C>
1 year or less                                           $9,169        6.6%         $3,678       2.1%

More than 1 year through 5 years                         79,042       57.1%         60,008      34.4%

More than 5 years through 10 years                       43,404       31.4%         31,599      18.1%

More than 10 years                                        6,768        4.9%          8,390       4.8%
                                                        -------       -----          -----       ----

                                                        138,383      100.0%        103,675      59.4%

Mortgage-backed securities                                  ---         ---         70,540      40.6%
                                                        -------       -----         ------      -----

Total                                                  $138,383      100.0%       $174,215     100.0%
                                                        =======      ======        =======     ======
</TABLE>


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

<TABLE>

(in thousands)                                                  1996                     1997
                                                        --------------------      -------------------
<CAPTION>

                                                         Market      Percent       Market     Percent
Rating (1)                                               Value       Value         Value      Value

<S>                                                    <C>           <C>          <C>           <C>
Aaa or AAA                                              $50,444       36.5%       $112,920      64.8%

Aa or AA                                                  2,976        2.1%          4,145       2.4%

A                                                        50,365       36.4%         20,679      11.9%

Baa or BBB                                               11,671        8.4%         19,116      11.0%

Ba or BB                                                  2,840        2.1%         16,519       9.5%

Other below investment grade                              2,091        1.5%             82       0.1%

Not rated (2)                                            17,996       13.0%            754       0.3%
                                                         ------       -----            ---       ----
Total                                                  $138,383      100.0%       $174,215      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.


                                      -27-

<PAGE>



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

<TABLE>

(in thousands)                                       Years Ended December 31,
                                                     ------------------------
<CAPTION>

                                                      1995     1996      1997

<S>                                                 <C>      <C>       <C>
Net investment income (1)                            $3,868    $7,745   $12,777

Average investment portfolio (2)                    $45,101  $122,363  $215,694

Pre-tax return on average investment portfolio          8.6%      6.3%      5.9%

Net realized gains (losses)                           ($198)    ($637)   $9,393

---------------
</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.

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

                                      -28-

<PAGE>


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 will be amortized over the term of the Preferred Securities (30
years).  In the third quarter 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.

         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.

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 and each of the final reports are
pending. The Company does not expect 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, its affiliates and IGF, Pafco
and Superior  (the  "Insurers"),  including  the amount of  dividends  and other
distributions  , SIG and (iii) restrict the ability of any one person to acquire
certain  levels of the Company's  voting  securities  without  prior  regulatory
approval.


                                      -29-

<PAGE>


         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.

         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, 1997, IGF and Pafco
had earned surplus of $27,952,000 and $(4,713,000),  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 1998 by IGF and Pafco  without  prior  regulatory
approval are  $13,404,000  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

                                      -30-

<PAGE>


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.

         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 the Company 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.  The most recent significant  changes to the MPCI
program  came as a result of the  passage by Congress of the 1994 Reform Act and
the 1996 Reform Act.

         Certain  provisions  of the 1994 Reform Act,  when  implemented  by the
FCIC, may increase  competition  among private insurers in the pricing of Buy-up
Coverage.  The 1994  Reform Act  authorizes  the FCIC to  implement  regulations
permitting  insurance  companies  to pass on to  farmers  in the form of reduced
premiums certain cost efficiencies  related to any excess expense  reimbursement
over the insurer's actual cost to administer the program,  which could result in
increased  price  competition.  To date,  the FCIC has not  enacted  regulations
implementing these provisions but is currently  collecting  information from the
private sector regarding how to implement these provisions.

         The 1994 Reform Act required  farmers for the first time to purchase at
least CAT Coverage 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 for the first time the marketing
and selling of CAT Coverage by the local USDA offices. Partly as a result of the
increase in the size of the MPCI market  resulting from the 1994 Reform Act, the
Company's MPCI Premium  increased to $53.4 million in 1995 from $44.3 million in
1994.  However,  the 1996 Reform Act,  signed into law by  President  Clinton in
April 1996,  eliminated the linkage between CAT Coverage and  qualification  for
certain  federal  farm  program  benefits  and also limited the role of the USDA
offices in the delivery of MPCI  coverage.  In  accordance  with the 1996 Reform
Act, the USDA announced in July 1996 the following 14

                                      -31-

<PAGE>


states where CAT Coverage  will no longer be available  through USDA offices but
rather would solely be available  through private agencies:  Arizona,  Colorado,
Illinois,  Indiana, Iowa, Kansas, Minnesota,  Montana, Nebraska, North Carolina,
North Dakota, South Dakota, Washington and Wyoming. The limitation of the USDA's
role in the  delivery  system  for MPCI  should  provide  the  Company  with the
opportunity to realize increased revenues from the distribution and servicing of
its MPCI product.  The Company has not experienced any material  negative impact
in 1996 from the delinkage mandated by the 1996 Reform Act. In addition, through
June 30, 1996, the FCIC transferred to the Company  approximately 8,900 insureds
for CAT Coverage who previously purchased such coverage from USDA field offices.
The Company believes that any future potential  negative impact of the delinkage
mandated by the 1996 Reform Act will be mitigated by, among other  factors,  the
likelihood  that  farmers  will  continue  to  purchase  MPCI to  provide  basic
protection  against  natural  disasters  since ad hoc  federal  disaster  relief
programs have been reduced or eliminated. In addition, the Company believes that
(i) lending  institutions  will likely  continue to require  this  coverage as a
condition  to crop  lending  and (ii) many of the  farmers  who entered the MPCI
program  as a  result  of the  1994  Reform  Act  have  come to  appreciate  the
reasonable price of the protection afforded by CAT Coverage and will remain with
the program regardless of delinkage.  There can, however,  be no assurance as to
the  ultimate  effect  which the 1996  Reform  Act may have on the  business  or
operations of the Company.

  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  1997,  Pafco had  unusual  values for three IRIS  tests.  These
included  two-year overall  operating ratio where Pafco's ratio was 107 compared
to the IRIS  upper  limit of 100,  change in  surplus  where  Pafco's  ratio was
(26.7%)  compared  to the  IRIS  lower  limit  of  (10%)  and one  year  reserve
development  to surplus  where Pafco's ratio was 31.2 compared to the IRIS upper
limit of 20.  Pafco failed  these tests due to the  additional  reserves of $7.5
million booked in 1997 on accident years 1996 and prior due to deficient reserve
development.  Pafco does not expect such results to continue.  However, reserves
are  subjective  and based on estimates  and there is no guarantee  such results
will not continue.

         During 1997 IGF had unusual values for three IRIS tests.  IGF continued
to have unusual values in the  liabilities to liquid assets and agents  balances
to surplus  tests.  IGF generally has an unusual value in these tests due to the
reinsurance  program  mandated  by the  FCIC  for the  distribution  of the MPCI
program  and the fact that  agents'  balances  at  December  31 are  usually not
settled until late February.  IGF's  investment  yield exceeded the upper end of
the IRIS range due to the fact the  calculation  is based on a simple average of
beginning and ending investment balances.

         During 1997,  the IRIS ratios for Superior  were within the  acceptable
range.


                                      -32-

<PAGE>


  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, 1997, the
RBC ratios of the Insurers were in excess of the Company Action Level, the first
trigger level that would require regulatory action.

  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.

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

                                      -33-

<PAGE>


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.

         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.


                                      -34-

<PAGE>



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.
Employees

         At  December  31,  1997  the  Company  and  its  subsidiaries  employed
approximately  950  persons.  The  Company  believes  that  relations  with  its
employees are excellent.

FORWARD LOOKING STATEMENTS - SAFE HARBOR PROVISIONS

         The statements contained in this Annual Report which are not historical
facts, including but not limited to,

                                      -35-

<PAGE>


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.

         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

                                      -36-

<PAGE>



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.

         The 1994 Reform Act also reduced the expense reimbursement rate payable
to the Company for its costs of servicing  MPCI  policies  that exceed the basic
CAT Coverage level (such  policies,  "Buy-up  Coverage") for the 1997,  1998 and
1999  crop  years to 29%,  28% and  27.5%,  respectively,  of the  MPCI  Premium
serviced,  a decrease from the 31% level established for the 1994, 1995 and 1996
crop years.  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. The FCIC has appointed several
committees   comprised   of  members   of  the   insurance   industry   to  make
recommendations  concerning  this  matter.  The 1994 Reform Act also directs the
FCIC to establish  adequate premiums for all MPCI coverages at such rates as the
FCIC  determines  are  actuarially  sufficient  to attain a targeted loss ratio.
Since 1980,  the average MPCI loss ratio has exceeded this target  ratio.  There
can be no assurance that the FCIC will not increase rates to farmers in order to
achieve  the  targeted  loss  ratio  in a manner  that  could  adversely  affect
participation by farmers in the MPCI program above the CAT Coverage level.

         The 1996 Reform Act,  signed  into law by  President  Clinton in April,
1996,  provides  that,  MPCI  coverage is not  required for federal farm program
benefits  if  producers  sign a  written  waiver  that  waives  eligibility  for
emergency  crop  loss  assistance.  The  1996  Reform  Act also  provides  that,
effective for the 1997 crop year, the Secretary of  Agriculture  may continue to
offer  CAT  Coverage  through  USDA  offices  if the  Secretary  of  Agriculture
determines that the number of approved insurance  providers operating in a state
is insufficient to adequately provide  catastrophic risk protection  coverage to
producers.  There can be no assurance  as to the ultimate  effect which the 1996
Reform Act may have on the business or operations of the Company.

         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.

         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.


                                      -37-

<PAGE>


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.

         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 16. 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 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 1998, 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,   Indiana,  Missouri  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 Iowa,  Texas,  Illinois,  Kansas and
Minnesota and the Company will be significantly  affected by weather conditions,
natural perils and other factors affecting the crop insurance  business in those
states.


                                      -38-

<PAGE>



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
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.

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

                                      -39-

<PAGE>


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
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 ome
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 the 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

                                      -40-

<PAGE>


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 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.

ITEM 2 - PROPERTIES

         The  headquarters  for the  Company,  SIG,  GGS  Holdings and Pafco are
located at 4720 Kingsway Drive, Indianapolis, Indiana. The 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 and

                                      -41-

<PAGE>


subleases an additional 3,303 square feet to third-party tenants.  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 June 2000.

         IGF owns a 17,500  square  foot office  building  located at 2882 106th
Street,  Des  Moines,  Iowa  which  serves as its  corporate  headquarters.  The
building is fully  occupied by IGF.  IGF also owns certain  improved  commercial
property which is adjacent to its corporate headquarters.

         IGF  bought  an  office  building  in Des  Moines,  Iowa,  as its  crop
insurance division home office. The purchase price was $2.6 million. The sale of
the old building is expected to close on April 1, 1998 for $1.35 million.

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.

         IGF  instituted  litigation  against  the FCIC on March 23, 1995 in the
United  States  District  Court for the  Southern  District of Iowa seeking $4.3
Million as reimbursement for certain  expenses.  IGF alleges the FCIC wrongfully
sought to hold IGF responsible for those expenses.  The FCIC  counterclaimed for
approximately $1.2 Million in claims payments for which the FCIC contends IGF is
responsible  for as successor  to the run-off  book of business.  On October 27,
1997,  IGF  reached an  agreement  with the FCIC to settle  the case,  with both
parties  dismissing  all claims  against one another  which were  subject to the
litigation. The FCIC has agreed to pay IGF a lump sum payment of $60,000.

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

         No matters were submitted  during 1997 to a vote of security holders of
the Registrant, through the solicitation of proxies or otherwise.

                                      -42-

<PAGE>



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     39     Vice President, General Counsel and Secretary of
                          the Company

Gary P. Hutchcraft 36     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
from July, 1988 to July, 1996.

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,  1997 and 1996 with  respect to the  Common  Shares and the
approximate  number of  holders of Common  Shares as of  December  31,  1997 the
Common Shares and other matters is included under the caption Market Information
on Page 35 of the 1997 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:

                                      -43-

<PAGE>



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

<TABLE>
<CAPTION>

                                                    1993           1994          1995           1996            1997

<S>                                               <C>            <C>           <C>            <C>             <C>
Gross Premium Revenue                              $114,135       $126,978      $146,603       $299,376        $448,982

Reported Net Earnings-Continuing Operations           1,397          3,940         7,171         14,127          15,983

Reported Net Earnings                                 1,397          3,940         7,171         31,296          12,438

U.S./Canada GAAP Differences:

   Discounting on Outstanding Claims                     49             88          (161)            62            (504)

   Deferred Income Taxes                                562          1,180          (344)           (64)            177

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

Revised Net Earnings-Continuing Operations            2,008          5,208         6,666         14,125          15,763

Revised Net Earnings                                  2,008          5,208         6,666         31,117          12,218

Basic Earnings Per Share-Continuing Operations        $0.38          $0.96         $1.33          $2.67           $2.82

Basic Earnings Per Share                              $0.38          $0.96         $1.33          $5.87           $2.19

EPS Continuing Operations-Fully Diluted               $0.38          $0.96         $1.20          $2.47           $2.68

EPS-Fully Diluted                                     $0.38          $0.96         $1.20          $5.44           $2.08

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

Reported Total Assets                               128,690        115,240       160,816        381,342         560,848

U.S./Canada GAAP Differences:

   Loans to Purchase Shares                            (741)          (593)         (563)          (595)           (346)

   Deferred Income Taxes                                548          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

Revised Total Assets                                128,497        115,006       161,498        383,365         563,813

Long Term Bonds and Debentures                       12,936         10,787         9,237            ---             ---

Reported Shareholders' Equity                         1,088          5,067        12,622         47,258          60,332

U.S./Canada GAAP Differences:

   Deferred Income Taxes                                548          1,742         1,466          1,798           1,975

   Discounting on Claims                             (1,292)        (1,134)       (1,327)        (1,260)         (1,765)

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

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

   Loans to Purchase Shares                            (741)          (593)         (563)          (595)           (346)

Revised Shareholders' Equity                           (397)         3,699        11,977         47,843          61,462

Shares Outstanding-Fully Diluted                  5,242,101      5,399,463     5,567,644      5,724,476       5,886,211

</TABLE>


                                      -44-

<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 1997 Annual  Report on
pages 5 through 14 included as Exhibit 13 is incorporated herein by reference.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The  consolidated  financial  statements  included  in the 1997  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 1997  annual  meeting of common  stockholders  filed with the
Commission pursuant to Regulation 14A (the "1997 Proxy Statement").

ITEM 11 - EXECUTIVE COMPENSATION

         The  information  required  by this  Item  is  incorporated  herein  by
reference to the Company's 1997 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 1997 Proxy Statement.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  information  required  by this  Item  is  incorporated  herein  by
reference to the Company's 1997 Proxy Statement.

                                      -45-

<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 1997 Annual Report indicated below
   are incorporated into Item 8 of this Report by reference.

   Description of Financial Statement Item                                Page

   Report of Independent Auditors.........................................34-35

   Consolidated Balance Sheets, December 31, 1997 and 1996...................15

   Consolidated Statements of Earnings,
   Years Ended December 31, 1997, 1996 and 1995..............................16

   Consolidated Statements of Changes in Shareholders' Equity,
   Years Ended December 31, 1997, 1996 and 1995..............................17

   Consolidated Statements of Changes in Cash Resources,
   Years Ended December 31, 1997, 1996 and 1995..............................18

   Notes to Consolidated Financial Statements,
   Years Ended December 31, 1997, 1996 and 1995...........................19-23

   2.     Financial Statement Schedules.

   The following financial statement schedules are included herein.

   Description of Financial Statement Item     Page

   Report of Independent Accountant On Differences
   Between Canadian and United States Generally
   Accepted Accounting Principles and
   Supplementary Schedules...................................................

   Exhibit 2 - Amounts Due From Insurance Companies
   In Excess of 10% of Shareholders' Equity..................................48

   Description of Financial Statement Item                                Page

   Schedule II - Condensed Financial Information Of Registrant............49-52

   Schedule IV - Reinsurance.................................................52

   Schedule V - Valuation And Qualifyi53 Accounts............................53

   Schedule VI - Supplemental Information Concerning
   Property-Casualty Insurance Operations....................................54

         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.

                                      -46-

<PAGE>




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

4.       Reports on Form 8-K.  None


                                      -47-

<PAGE>

                                                                      Exhibit 2

GORAN CAPITAL INC.
CONCENTRATION OF CREDIT RISK AMOUNTS DUE FROM
OTHER INSURANCE COMPANIES PAID AND UNPAID CLAIMS
As At December 31, 1996
(In Thousands of U.S. Dollars)
<TABLE>


Company Name                                        Amount
<S>                                                 <C>

Vesta Fire Insurance Company                        $12,939

</TABLE>

Notes:  Accounts  listed above are amounts  greater than $6,146  (U.S.) which is
approximately 10% of Shareholders'  Equity at December 31, 1997. Amounts are net
of trust accounts  posted as collateral with original  cedents,  with respect to
certain retrocession agreements in which the Company is a retrocessionnaire.


                                      -48-

<PAGE>


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

<TABLE>
<CAPTION>
                                                                (Unaudited)
                                                          1996         1997
<S>                                                       <C>          <C>
Assets

Cash                                                         $319       $1,166

Accounts Receivable                                           420          334

Capital and Other Assets                                      543          597

Investment in Subsidiaries                                 10,772       10,321
                                                           ------       ------

Total Assets                                              $12,054      $12,418
                                                           ======       ======

Liabilities and Shareholders' Equity

Accounts Payable                                            9,758        9,324

Other Payables                                                973          540

Subordinated Debenture                                        ---          ---
                                                           ------      -------

Total Liabilities                                          10,731        9,864
                                                           ------      -------

Shareholders' Equity

Common Shares                                              18,473       19,067

Deficit                                                   (17,150)     (16,513)
                                                           ------       ------

Total Shareholders' Equity                                  1,323        2,554
                                                           ------       ------

Total Liabilities and Shareholders' Equity                $12,054      $12,418
                                                           ======       ======
</TABLE>


                                     -49-

<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)

<TABLE>

                                                                        (Unaudited)
<CAPTION>
                                                               1995       1996        1997

<S>                                                        <C>        <C>         <C>
Revenues

Management Fees                                                $796       $352        $336

Royalty Income                                                  ---        ---         ---

Dividend Income                                                 ---      3,500         ---

Other Income                                                    ---        ---          52

Net Investment Income                                           448        264          15
                                                              -----      -----         ---

Total Revenues                                                1,244      4,116         403
                                                              -----      -----         ---

Expenses

Debenture Interest Expense                                      998        868         ---

Amortization                                                    114        199         ---

General, Administrative and Acquisition Expenses              1,338      1,879        (234)
                                                              -----      -----         ---

Total Expenses                                                2,450      2,946        (234)
                                                              -----      -----         ---

Net Income (Loss)                                            (1,206)      1,170        637

Deficit, Beginning of Year                                  (17,114)   (18,320)    (17,150)
                                                             ------     ------      ------

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

</TABLE>


                                      -50-

<PAGE>


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

<TABLE>

                                                                        (Unaudited)
<CAPTION>
                                                               1995       1996        1997

<S>                                                        <C>        <C>         <C>
Cash Flows from Operations

Net Income (Loss)                                           $(1,206)    $1,170        $637

Items Not Involving Cash:

   Amortization and Depreciation                                114        199         ---

   Gain on Sale of Capital Assets                                (7)        (4)        ---

   Decrease (Increase) in Accounts Receivable                 1,822        (40)         86

   Decrease (Increase) in Other Assets                          (29)        (3)        (54)

   Increase (Decrease) in Accounts Payable                    1,227      8,749        (434)

   Increase (Decrease) in Other Payables                       (141)       ---        (433)
                                                              -----      ------      -----
Net Cash Provided (Used) by Operations                        1,780      10,071       (198)
                                                              -----      ------      -----
Cash Flows From Financing Activities:

   Redemption of Share Capital by Subsidiary                    ---        ---         ---

   Proceeds on Sale of Capital Assets                            11         14         ---

   Issue of Common Shares                                       305        599         594
                                                              -----      -----       -----
Net Cash Provided by Financing Activities                       316        613         594
                                                              -----      -----       -----
Cash Flows From Investing Activities:

   Purchase of Fixed Assets                                     (3)        ---         ---

   Other, net                                                    3         (93)        451

   Reduction of Debentures                                  (1,454)    (11,084)        ---
                                                             -----      ------       -----
Net Cash Used by Investing Activities                       (1,454)    (11,177)        451
                                                             -----      ------       -----
Net Increase (Decrease) in Cash                                642        (493)        847

Cash at Beginning of Year                                      170         812         319
                                                             -----       -----       -----
Cash at End of Year                                           $812        $319      $1,166
                                                             =====       =====       =====

Cash Resources are Comprised of:

Cash                                                          109          187          78

Short-Term Investments                                        703          132       1,088
                                                            -----        -----       -----
                                                             $812         $319      $1,166
                                                            =====        =====       =====

</TABLE>


                                      -51-

<PAGE>



GORAN CAPITAL INC. - CONSOLIDATED
SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
For The Years Ended December 31, 1997, 1996 and 1995

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)                     1995          1996          1997

<S>                                    <C>           <C>           <C>
Direct Amount                          $116,202      $290,355      $420,443

Assumed from Other Companies            $30,401        $9,021       $28,539

Ceded to Other Companies               $(64,781)     $(85,598)    $(167,086)

Net Amount                              $81,822      $213,778      $281,896

Percentage of Amount Assumed to Net        37.2%          4.2%         10.1%
</TABLE>


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


                                      -52-

<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>

                                                     1995           1996           1997
                                                 Allowance for  Allowance for  Allowance for
                                                   Doubtful        Doubtful      Doubtful
                                                   Accounts        Accounts      Accounts

<S>                                                  <C>           <C>          <C>
Additions:

Balance at Beginning of Period                       $1,209          $927       $1,480

Reserves Acquired in the Superior Acquisition           ---           500          ---

Charged to Costs and Expenses (1)                     2,523         5,034        9,519

Charged to Other Accounts                               ---           ---          ---

Deductions from Reserves                             (2,805) (2)   (4,981) (2)  (9,006)
                                                      -----         -----        -----

Balance at End of Period                               $927        $1,480       $1,993
                                                        ===         =====        =====
</TABLE>


(1) In 1993, the Company began to direct bill  policyholders  rather than agents
for  premiums.  During  late 1994 and into  1995,  the  Company  experienced  an
increase in premiums written.  During 1995, the Company  experienced an increase
in premiums written and further  evaluated the  collectibility  of this business
and  incurred a bad debt  expense of  approximately  $2.5  million.  The Company
continually  monitors the adequacy of its  allowance  for doubtful  accounts and
believes the balance of such  allowance at December 31, 1997,  1996 and 1995 was
adequate.
(2) Uncollectible accounts written off, net of recoveries.


                                      -53-

<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>

                                                             1995        1996      1997

<S>                                                        <C>          <C>       <C>
Deferred Policy Acquisition Costs                           $7,641      $13,860   $11,849

Reserves for Losses and Loss Adjustment Expenses            87,655      127,045   152,871

Unearned Premiums                                           33,159       91,207   118,616

Earned Premiums                                             72,530      208,883   276,540

Net Investment Income                                        3,868        7,745    12,777

Losses and Loss Adjustment Expenses
Incurred Related to:

Current Years                                               50,666      146,844   201,118

Prior Years                                                    787         (570)    9,516

Paid Losses and Loss Adjustment Expenses                    44,749      139,441   203,012

Amortization of Deferred Policy Acquisition Costs            7,150       27,657    19,356

Premiums Written                                           146,603      299,376   448,982

</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.


                                      -54-

<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.


March 23, 1998                                         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 March 23, 1998, 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

                                      -55-

<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.

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.

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.

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.

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.

2.6       The Crop Hail 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.

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.

2.8       The Stock Purchase Agreement between Symons International Group, Inc.
          and GS Capital Partners II, L.P. dated July 23, 1998.

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.

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. 33-35713.

                                      -56-

<PAGE>


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.

10.9      The Employment Agreement between Superior Insurance Company and Roger
          C. Sullivan, Jr. effective April 23, 1997.

10.10     The Employment Agreement between Registrant and Gary P. Hutchcraft
          effective May 1, 1997.

                                      -57-

<PAGE>



10.11     The Employment Agreement between Registrant and David L. Bates
          effective April 1, 1997.

10.12     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.

10.13     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.

10.14     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.

10.15     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.

10.16     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.

10.17(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.

10.17(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.

10.17(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.

10.17(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.

10.17(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     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.

10.19     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.

                                      -58-

<PAGE>



10.20     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.

10.21     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.

10.22(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.

10.19(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.

10.19(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.

10.19(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, Reg. No. 333-35713.

11        Statement re Computation of Per Share Earnings

13        Annual Report to Security Holders, 1997, 1996 and 1995

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.

                                      -59-