================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-K

                                   ----------

        (Mark One)
        [X] ANNUAL  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
            EXCHANGE ACT OF 1934

            For the fiscal year ended December 31, 1998

                                       OR

        [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934
            For the Transition period from              to

                           ---------------------------
                           Commission file no. 0-28188
                           ---------------------------

                        Chartwell Re Holdings Corporation
             (Exact name of registrant as specified in its charter)

            DELAWARE                                     06-1438493
 (State or other jurisdiction of                     (I.R.S. Employer
 incorporation or organization)                      Identification No.)

                       Four Stamford Plaza, 107 Elm Street
                           Stamford, Connecticut 06902
              (Address of principal executive offices and zip code)

                                   ----------

       Registrant's telephone number, including area code: (203) 705-2500



        Securities registered pursuant to Section 12(b) of the Act: None



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

                                   ----------

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]

                    Documents Incorporated by Reference: None

The Registrant  meets the conditions set forth in General  Instruction I (1) (a)
and (b) of Form 10-K and is therefore  filing this Annual Report on Form 10-K in
the reduced disclosure format.

================================================================================

<PAGE>

================================================================================

                        CHARTWELL RE HOLDINGS CORPORATION
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                  Page
         Item                                                                                    Number
         ----                                                                                    ------
<S>                                                                                                <C>
PART I
     1.  Business-----------------------------------------------------------------------------      1
     2.  Properties---------------------------------------------------------------------------     18
     3.  Legal Proceedings--------------------------------------------------------------------     18
     4.  Submission of Matters to a Vote of Security Holders----------------------------------     18

PART II
     5.  Market for the Registrant's Common Stock and Related Stockholder Matters-------------     18
     6.  Selected Financial Data--------------------------------------------------------------     19
     7.  Management's Discussion and Analysis of Financial Condition and Results of
         Operations---------------------------------------------------------------------------     19
     7A. Quantitative and Qualitative Disclosures About Market Risk---------------------------     32
     8.  Financial Statements and Supplementary Data------------------------------------------     32
     9.  Changes in and Disagreements with Accountants on Accounting and Financial
         Disclosures -------------------------------------------------------------------------     32

PART III
     10 - 13. --------------------------------------------------------------------------------     33

PART IV
     14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K---------------------     33
</TABLE>


                                       i
<PAGE>

                                     PART I

Item 1. Business

Overview
     Chartwell  Re Holdings  Corporation  ("Chartwell"  or the  "Company")  is a
wholly-owned  subsidiary  of  Chartwell  Re  Corporation  ("Chartwell  Re"),  an
insurance holding company with global  underwriting and service operations which
conducts its business in the United States and in the Lloyd's market.  Chartwell
was formed in 1995 to act as an intermediate level holding company for Chartwell
Re and, as such,  it conducts  its  business  through  its  principal  operating
subsidiaries,  Chartwell  Reinsurance  Company  ("Chartwell  Reinsurance"),  The
Insurance Corporation of New York ("INSCORP"), Chartwell Managing Agents Limited
("CMA") and Dakota Specialty  Insurance Company  ("Dakota").  As of December 31,
1998,  Chartwell had over $1.5 billion of total assets and stockholder's  equity
of $307.9  million.  For the year ended  December  31, 1998,  Chartwell's  gross
premiums written amounted to $343.0 million. Of such amount,  $159.2 million, or
46.4%,  represented  gross  reinsurance  premiums,  $111.1  million,  or  32.4%,
represented gross insurance  premiums and $72.6 million,  or 21.2%,  represented
premiums  from Oak  Dedicated  Limited,  Oak  Dedicated Two Limited and ADIT One
Limited,  CMA's dedicated  Lloyd's  corporate  capital  vehicles (the "Dedicated
CCV's").
     Chartwell  Reinsurance is a broker market  reinsurer with $302.9 million of
policyholders'  surplus  which  underwrites  treaty  reinsurance  for  casualty,
property, marine and aviation risks. INSCORP is a primary insurance company with
$131.7  million of  policyholders'  surplus that develops  property and casualty
insurance  programs through specialty  production sources focusing on a specific
line of business and geographic region.  Chartwell and INSCORP are each licensed
or  authorized  to transact  business in 49 states and the District of Columbia.
INSCORP is also approved to transact business in Canada. CMA is the 12th largest
managing  agency at  Lloyd's,  managing  seven  Lloyd's  syndicates  with  total
underwriting capacity of approximately (pound)300 million ($500 million) for the
1999 year of account.  Approximately  46% of CMA  syndicates'  1999  capacity is
supplied by Chartwell,  and it is estimated that approximately 65% of CMA's 1999
premium volume will be derived from non-U.S. sources.

History
     Chartwell  Reinsurance was founded in 1979 as a wholly-owned  subsidiary of
Northwestern  National Life Insurance Company ("NWNL").  Chartwell Re was formed
in 1989 to act as the parent company of Chartwell Reinsurance,  and, in March of
1992, Chartwell Re was acquired (the "1992 Acquisition") by an acquisition group
including members of Chartwell Re's senior management.
     INSCORP was acquired by Chartwell Re as a result of the merger of INSCORP's
former parent,  Piedmont  Management  Company Inc.  ("Piedmont"),  with and into
Chartwell Re, with  Chartwell Re as the  surviving  corporation  (the  "Piedmont
Merger").  The  Piedmont  Merger  was  completed  in  December,  1995,  and upon
consummation  of the Piedmont  Merger,  Chartwell  Re assumed all of  Piedmont's
obligations under its Contingent  Interest Notes due 2006 (the "CI Notes") which
were issued by Piedmont to its stockholders just prior to the Piedmont Merger.
     In November,  1996,  Chartwell  Holdings Limited  ("Holdings  Limited"),  a
newly-formed,  indirect wholly-owned subsidiary of Chartwell,  acquired CMA in a
cash tender  offer for all of the  outstanding  ordinary  shares of Chartwell UK
plc,  formerly Archer Group Holdings plc  ("Chartwell  UK"), the holding company
for CMA.  Chartwell UK was publicly traded on the London Stock Exchange prior to
its acquisition by Chartwell.

Ratings
     Chartwell  Reinsurance  is rated  "A"  (Excellent)  by A.M.  Best  Company.
INSCORP  and  Dakota,  its  surplus  lines  subsidiary,   are  both  rated  "A-"
(Excellent) by A.M. Best Company.  All three  companies are assigned an A-claims
paying ability rating by Standard & Poor's.  All of CMA's  syndicates  enjoy the
benefit of the ratings of Lloyd's,  which is rated "A"  (Excellent) by A.M. Best
Company and has an A+ claims paying ability rating from Standard & Poor's. These
ratings  are based upon  factors  that may be of  concern to policy or  contract
holders,  agents and  intermediaries,  but may not  reflect  the  considerations
applicable  to an equity  investment in a reinsurance  or insurance  company.  A
change  in any  such  rating  is at the  discretion  of  the  respective  rating
agencies.


                                       1
<PAGE>

Corporate Structure

                         [GRAPHIC OF FLOWCHART OMITTED]


Property and Casualty Reinsurance
     Reinsurance is an arrangement in which an insurance company, the reinsurer,
agrees to indemnify another insurance company,  the ceding company, for all or a
portion of the insurance  risks  underwritten by the ceding company under one or
more insurance policies. Reinsurance can benefit a ceding company in a number of
ways,  including reducing net liability exposure on individual risks,  providing
catastrophe  protection  from large or multiple  losses,  stabilizing  financial
results and  assisting in  maintaining  acceptable  operating  leverage  ratios.
Reinsurance also provides a ceding company with additional underwriting capacity
by permitting it to accept larger risks and underwrite a greater number of risks
without a corresponding increase in its capital and surplus.
     Reinsurance   is  contracted   either   through   treaties  or  facultative
certificates. A reinsurance treaty is an agreement whereby the ceding company is
obligated to cede, and the reinsurer is obligated to assume, a specified portion
or category of risk under all qualifying  policies  issued by the ceding company
during  the  term  of  the  treaty.  Facultative  reinsurance  arrangements  are
separately  negotiated for each insurance policy to be reinsured and result in a
facultative  certificate under which the ceding company cedes, and the reinsurer
assumes, all or part of the risk under a specific insurance policy.  Facultative
reinsurance is normally  purchased by insurance  companies for individual  risks
not  covered  under  reinsurance  treaties or for amounts in excess of limits on
risks  covered  under  reinsurance  treaties.  In  the  underwriting  of  treaty
reinsurance, the reinsurer does not evaluate each individual risk assumed, as it
must in the underwriting of facultative  reinsurance,  and generally accepts the
original underwriting decisions made by the ceding insurer.
     Both treaty and facultative reinsurance can be written on either a pro rata
(also known as quota share or proportional)  or excess of loss basis.  Under pro
rata reinsurance, the reinsurer indemnifies the ceding company against an agreed
upon  portion  or  share of the  losses  and loss  adjustment  expenses  ("LAE")
incurred by the ceding company under the reinsured policy or policies.  Premiums
that the ceding  company  pays to the  reinsurer  for pro rata  reinsurance  are
proportional to the premiums that the ceding company  receives,  consistent with
the proportional sharing of risk, generally less a ceding commission. The ceding
commission  is  negotiated  between  the  reinsurer  and the  ceding  company to
reimburse  the  ceding  company  for  its  acquisition  costs  relating  to  the
underlying policies and may include a contingent component that varies depending
upon the loss  experience of the  underlying  business.  As a  consequence,  the
underwriting  results of the reinsurer may not parallel the underwriting results
of the ceding company.
     Under excess of loss  reinsurance,  the  reinsurer  indemnifies  the ceding
company  against all or a specified  portion of losses and LAE on the  reinsured
policy or policies in excess of a specified  dollar amount,  known as the ceding
company's  retention or reinsurance  attachment  point,  generally  subject to a
negotiated limit. Such reinsurance can cover losses from a single risk or from a
variety of risks in connection with a single occurrence  (generally  referred to
as  catastrophe  coverage).  Excess  of loss  reinsurance  is often  written  in
multiple layers. One or a group of reinsurers  typically assumes that portion of
the risk  immediately  above the ceding  company's  retention  up to a specified
amount, at which point another reinsurer or group of reinsurers  assumes, or the
ceding company retains,  the excess liability.  The reinsurer  assuming the risk
immediately above the ceding company's  retention point is said to write working
layer (or low  layer)  reinsurance. A loss  that is greater  in amount than the
ceding company's retention will result in a loss to the working layer reinsurer,
but may  not result in a loss to the reinsurers  on  higher  layers.  Since  the
probability of loss for the reinsurer  providing excess of loss coverage differs
from that to which the ceding company is subject,  such reinsurance  coverage is
priced separately from the pricing set by the ceding company with respect to its
own risks.

                                       2
<PAGE>
     Reinsurers  may  also  purchase   reinsurance,   known  as   retrocessional
reinsurance,  to cover their own risks  assumed from primary  ceding  companies.
Reinsurance  companies enter into retrocessional  agreements for reasons similar
to those for which ceding companies purchase reinsurance.

Underwriting
     Underwriting  opportunities presented to Chartwell are evaluated based upon
a number of factors including an historical  analysis of results,  an estimation
of future  loss costs  based upon an  analysis  of  exposure,  a review of other
programs  displaying  similar exposure  characteristics,  the primary  insurer's
underwriting  and  claims  experience  and  the  primary   insurer's   financial
condition.
     In general, prior to authorization,  underwriting  submissions are reviewed
by at least two underwriters, including the manager of the relevant underwriting
unit.  Large,  complex or unusual  submissions are generally further reviewed by
senior management.

Client Segments
     Chartwell has organized its  marketing  and  underwriting  activities  into
client  segments  differentiated  from one  another  based on the  nature of the
clientele  and  their  businesses  or  products.   Accordingly,   Chartwell  has
established three principal underwriting units - Reinsurance,  Controlled Source
Insurance and CMA Dedicated Facilities.  The Reinsurance unit is further divided
based upon client  characteristics into four units:  Specialty Accounts,  Global
Accounts,  Regional Accounts and Marine & Aviation Accounts.  Each unit consists
of  specialized,   dedicated  underwriters  who  are  supported  by  Chartwell's
technical  resources  and  personnel,   including  its  actuarial,   claims  and
accounting departments. Chartwell employs a focused cycle management approach to
marketing  and  underwriting  pursuant to which it seeks to emphasize  different
types of business during various phases of the underwriting  cycle.  During soft
markets,   Chartwell  concentrates  on  identifying  and  pursuing  underwriting
opportunities  in  areas   exhibiting   adequate  profit  potential  and  ceding
additional business upon advantageous  terms.  During hard markets,  Chartwell's
general strategy is to expand its premium writings in all market segments.
     The table set forth  below  shows gross  premiums  written by  underwriting
client segment for the periods indicated:

              Gross Premiums Written by Underwriting Client Segment
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                   -------------------------------------------------------------------------
                                                            1998                       1997                     1996
                                                   ---------------------     ---------------------     ---------------------
                                                   Amount     % of Total     Amount     % of Total     Amount     % of Total
                                                   ------     ----------     ------     ----------     ------     ----------
<S>                                               <C>           <C>         <C>           <C>         <C>            <C>
Reinsurance Operations
   Specialty Accounts ....................        $110,829       32.3%      $140,965       38.9%      $100,817        38.2%
   Global Accounts
      Domestic ...........................          12,461        3.6         19,658        5.4         19,818         7.5
      International ......................          10,530        3.1         22,723        6.3         24,120         9.2
                                                  --------      -----       --------      -----       --------       -----
   Subtotal Global Accounts ..............          22,991        6.7         42,381       11.7         43,938        16.7
   Regional Accounts .....................          15,069        4.4         24,718        6.8         25,967         9.8
   Marine & Aviation Accounts ............          10,358        3.0         28,050        7.7         27,780        10.5
                                                  --------      -----       --------      -----       --------       -----
      Total Reinsurance ..................         159,247       46.4        236,114       65.1        198,502        75.2
                                                  --------      -----       --------      -----       --------       -----
Non-Reinsurance Operations
   Controlled Source Insurance ...........         111,131       32.4        106,543       29.4         58,752        22.3
   INSCORP Run-off .......................              --         --             --         --          6,584         2.5
   CMA Dedicated Facilities ..............          72,573       21.2         20,113        5.5             --        --
                                                  --------      -----       --------      -----       --------       -----
      Total Non-Reinsurance ..............         183,704       53.6        126,656       34.9         65,336        24.8
                                                  --------      -----       --------      -----       --------       -----
TOTAL ....................................        $342,951      100.0%      $362,770      100.0%      $263,838       100.0%
                                                  ========      =====       ========      =====       ========       =====
</TABLE>
     The growth of 30.0% in gross  premiums  written for the period from 1996 to
1998 is due  principally to the development of the Controlled  Source  Insurance
portfolio,   as  well  as  the  addition  of  premium  income  from  Chartwell's
participation on CMA's syndicates through support of its Dedicated CCV's.

                                       3
<PAGE>

Reinsurance Business
     Chartwell  segments its reinsurance  marketing and underwriting  activities
into four specific client units Specialty  Accounts,  Global Accounts,  Regional
Accounts and Marine & Aviation Accounts.

     Specialty  Accounts.  Specialty  Accounts  primarily  covers  non-standard,
non-traditional  risks  that  require  specialized   underwriting,   claims  and
actuarial  skills.  Currently,  these coverages  include  workers  compensation,
professional  liability,  directors'  and officers'  liability,  surety/fidelity
programs, non-standard automobile, accident & health, political risk, employment
practices  liability  and managing  general  agencies,  as well as coverages for
excess and surplus lines insurers and start-up companies. In addition, Specialty
Accounts writes business arising from the alternative risk transfer segment with
a particular  emphasis in the  professional  liability  and medical  malpractice
areas.

     Global Accounts.  Global Accounts is principally engaged in two activities.
Global  Accounts  provides  reinsurance to large U.S.  based domestic  insurance
companies with $100 million or more in surplus which write business in more than
10 states and writes  specific  reinsurance  programs for  international  ceding
companies  including  reinsurance of select  syndicates at Lloyd's and for other
insurers and reinsurers writing non-U.S. risks.

     Regional Accounts.  Regional Accounts includes  reinsurance of the standard
risks of insurance companies that either operate in 10 or fewer states or have a
surplus of $100 million or less.

     Marine  and  Aviation   Accounts.   Marine  &  Aviation  Accounts  includes
reinsurance of domestic and  international  ceding  companies,  managing general
agencies and select Lloyd's syndicates,  as well as Chartwell's participation in
certain marine & aviation pools. The majority of Chartwell's  marine reinsurance
business  is in the  bluewater  hull  and  energy  areas.  Chartwell's  aviation
business is derived  primarily from  reinsuring  general  aviation and satellite
business.  Business  emanating from INSCORP's  participation  in the marine pool
managed by Navigators Group, Inc. is also included in this client segment.

     Mix of Reinsurance  Business.  Chartwell writes excess of loss and pro rata
reinsurance as well as casualty clash and property catastrophe coverages, all on
a treaty basis.  Chartwell  typically  focuses on the working layers of a ceding
company's  reinsurance  program.  Chartwell does not currently write facultative
reinsurance  but  may  commence  writing  such  coverages  depending  on  market
conditions.


                                       4
<PAGE>
     Chartwell's  mix of  reinsurance  business,  on the  basis of gross and net
reinsurance  premiums  written,  is set  forth in the  following  table  for the
periods indicated:
<TABLE>
<CAPTION>
                                                                      Mix of Reinsurance Business
                                                                        (dollars in thousands)
                                                                        Year Ended December 31,
                                          1998                1997                1996                1995                1994
                                   -----------------   ------------------  ------------------  ------------------  -----------------
                                   Amount   %of Total  Amount  % of Total  Amount  % of Total  Amount  % of Total  Amount  %of Total
                                   ------   ---------  ------  ----------  ------  ----------  ------  ----------  ------  ---------
<S>                               <C>         <C>     <C>         <C>     <C>         <C>     <C>         <C>     <C>         <C>
Gross Premiums Written
Casualty:
   Excess of Loss ..............  $ 29,559     18.6%  $ 36,659     15.5%  $ 32,679     16.5%  $ 40,089     31.6%  $ 32,674     28.1%
   Pro Rata ....................    88,899     55.8    134,495     57.0     94,223     47.5     41,570     32.7     43,328     37.2
   Clash .......................     1,267      0.8      1,983      0.8      1,816      0.8      2,704      2.1      3,498      2.9
                                  --------    -----   --------    -----   --------    -----   --------    -----   --------    -----
Total Casualty .................   119,725     75.2    173,137     73.3    128,718     64.8     84,363     66.4     79,500     68.2
                                  --------    -----   --------    -----   --------    -----   --------    -----   --------    -----
Property:
   Excess of Loss ..............     4,435      2.8     12,912      5.5      6,267      3.2      4,730      3.7      2,656      2.3
   Pro Rata ....................    34,772     21.8     49,583     21.0     62,455     31.5     35,841     28.2     31,030     26.7
   Catastrophe .................       315      0.2        482      0.2      1,062      0.5      2,034      1.7      3,210      2.8
                                  --------    -----   --------    -----   --------    -----   --------    -----   --------    -----
Total Property .................    39,522     24.8     62,977     26.7     69,784     35.2     42,605     33.6     36,896     31.8
                                  --------    -----   --------    -----   --------    -----   --------    -----   --------    -----
 Total Gross Premiums Written ..  $159,247    100.0%  $236,114    100.0%  $198,502    100.0%  $126,968    100.0%  $116,396    100.0%
                                  ========    =====   ========    =====   ========    =====   ========    =====   ========    =====
Net Premiums Written
Casualty:
   Excess of Loss ..............  $ 23,740     22.6%  $ 35,413     17.4%  $ 32,567     18.6%  $ 40,043     32.5%  $ 32,680     28.7%
   Pro Rata ....................    56,950     54.3    118,446     58.1     81,349     46.6     40,727     33.0     43,319     38.0
   Clash .......................       919      0.9      1,920      0.9      1,807      1.0      2,691      2.2      3,492      3.1
                                  --------    -----   --------    -----   --------    -----   --------    -----   --------    -----
Total Casualty .................    81,609     77.8    155,779     76.4    115,723     66.2     83,461     67.7     79,491     69.8
                                  --------    -----   --------    -----   --------    -----   --------    -----   --------    -----
Property:
   Excess of Loss ..............     2,930      2.8     11,456      5.6      5,941      3.4      4,440      3.6      2,476      2.2
   Pro Rata ....................    20,161     19.2     36,251     17.8     51,978     29.8     33,667     27.3     28,928     25.4
   Catastrophe .................       211      0.2        472      0.2      1,016      0.6      1,746      1.4      3,067      2.6
                                  --------    -----   --------    -----   --------    -----   --------    -----   --------    -----
Total Property .................    23,302     22.2     48,179     23.6     58,935     33.8     39,853     32.3     34,471     30.2
                                  --------    -----   --------    -----   --------    -----   --------    -----   --------    -----
Total Net Premiums Written .....  $104,911    100.0%  $203,958    100.0   $174,658    100.0%  $123,314    100.0%  $113,962    100.0%
                                  ========    =====   ========    =====   ========    =====   ========    =====   ========    =====
</TABLE>
     Chartwell's  percentage of property writings in its overall mix of business
decreased  for the year ended  December  31,  1998 as compared to the year ended
December  31, 1997,  principally  as a result of  increased  competition  in the
property market.
     Ceding  Companies.  During  the year ended  December  31,  1998,  Chartwell
received approximately 37.9% of its gross reinsurance premiums written from four
groups of ceding companies, of which LDG Reinsurance  Underwriters accounted for
approximately  14.4%,  American  International Group accounted for approximately
11.0%,  Clarendon  Insurance Group accounted for approximately 6.9% and Somerset
Marine  accounted for  approximately  5.6%. No other ceding  company or group of
affiliated  ceding  companies  accounted for more than 5% of  Chartwell's  gross
reinsurance premiums written for the year ended December 31, 1998.
     Brokers.  During the year  ended  December  31,  1998,  Chartwell  received
approximately  51.8%  of its  gross  reinsurance  premiums  written  from  three
reinsurance brokers, of which AON Reinsurance Agency accounted for approximately
24.2%,  Guy Carpenter & Co., Inc.  accounted for  approximately  15.4%, and E.W.
Blanch Co. accounted for approximately 12.2%. No other broker accounted for more
than 5% of the company's gross  reinsurance  premiums written for the year ended
December 31, 1998.
     In  order  to  reduce  the  potential   adverse  effect  arising  from  the
termination of any specific business relationship, Chartwell seeks business from
a large number of reinsurance  brokers and ceding  companies.  While  management
believes  that its  relationships  with  these  reinsurance  brokers  and ceding
companies are  satisfactory,  the termination of all or a substantial  number of
these  relationships  could have a material  adverse  effect on the business and
operations of Chartwell.

Insurance Operations
     Controlled Source Insurance. Controlled Source Insurance develops insurance
programs through specialty production sources with a focus on a specific line or
lines of business,  with a limited  geographic  emphasis,  and where the program
administrator's  compensation is adjusted based on the  underwriting  results of
the business.
     Controlled  Source Insurance gross written  premiums grew 4.3%,  81.3%, and
9.8% for the years ended December 31, 1998, 1997, and 1996,  respectively,  over
the prior year.  The increases in premium  reflect the  geographic  expansion of
existing  programs as well as the development of new programs during the periods
shown.
                                        5
<PAGE>

                               
     The table set forth below shows the gross  premiums  written for Controlled
Source Insurance by INSCORP for the periods indicated:

                           Controlled Source Insurance
                   Gross premiums Written by Line of Business
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                               --------------------------------------------------------------------------
                                                        1998                       1997                       1996
                                               --------------------       --------------------       --------------------
                                                Amount        Total        Amount        Total        Amount        Total
                                               --------       -----       --------       -----       --------       -----
<S>                                            <C>             <C>        <C>             <C>        <C>             <C>
Commercial Multiple Peril ................     $ 45,737        41.2%      $ 48,404        45.4%      $ 33,014        56.2%
General Liability ........................       31,575        28.4         30,418        28.6         14,889        25.3
Automobile ...............................       23,354        21.0         22,267        20.9         10,849        18.5
Workers Compensation .....................        4,224         3.8          4,169         3.9             --          --
Homeowners and Other .....................        6,241         5.6          1,285         1.2             --          --
                                               --------       -----       --------       -----       --------       -----
Total ....................................     $111,131       100.0%      $106,543       100.0%      $ 58,752       100.0%
                                               ========       =====       ========       =====       ========       =====
</TABLE>
     During the year ended  December 31,  1998,  Chartwell  wrote  approximately
88.7% of its Controlled  Source gross insurance  premiums  through four managing
general  agents,  of  which  Florida  Intracoastal  Underwriters  accounted  for
approximately  41.6%, HDR Insurance Services accounted for approximately  24.5%,
Inter-Reco   accounted  for  approximately  11.7%  and  Professional   Insurance
Underwriters  accounted for approximately 10.9%. No other managing general agent
accounted  for more than 5% of  Chartwell's  Controlled  Source gross  insurance
premiums written for such period.
     In  order  to  reduce  the  potential   adverse  effect  arising  from  the
termination of any specific business  relationship,  Chartwell continues to seek
to establish and develop  relationships  with a large number of managing general
agents.  While  management  believes  that its  relationships  with its managing
general agents are satisfactory,  the termination of all or a substantial number
of these  relationships could have a material adverse effect on the business and
operations of Chartwell.

CMA Dedicated Facilities
     Classes of business covered by CMA's syndicates include marine,  non-marine
property,  non-marine  liability,  aviation,  motor and life.  CMA manages seven
Lloyd's syndicates with total underwriting capacity of approximately  (pound)300
million ($500  million) for the 1999 year of account.  Approximately  46% of CMA
syndicates' 1999 capacity is supplied by Chartwell.

                   CMA Dedicated Corporate Capital Facilities
                Gross Premiums Written by Lloyd's Market Segment
                            (Dollars in thousands)(1)

                                             Year Ended December 31,
                              --------------------------------------------------
                                     1998                          1997
                              -------------------          ---------------------
                              Amount   % of Total          Amount     % of Total
                              ------   ----------          ------     ----------
Motor ..................     $36,212      49.9%            $ 7,445       37.0%

Non-Marine .............      31,121      42.9               9,969       49.6
Aviation ...............       3,194       4.4               1,569        7.8

Marine .................       1,757       2.4                 984        4.9

Life ...................         289       0.4                 146        0.7
                             -------     -----             -------      -----
Total ..................     $72,573     100.0%            $20,113      100.0%
                             =======     =====             =======      =====

(1) Business at CMA is conducted in pounds  sterling.  The dollar  amounts shown
here have been converted from pounds  sterling at the average  exchange rate for
each of the years  presented.  Data is not shown for years prior to 1997 because
Chartwell  acquired CMA in November 1996, and Chartwell's  consolidated  results
prior to 1997 did not  include  amounts  attributable  to CMA.  All  amounts are
presented in accordance with U.S. GAAP.


                                       6
<PAGE>
Retrocessional Arrangements
     Chartwell utilizes retrocessions primarily to provide protection from large
or  multiple  losses  and may in the  future  use  additional  retrocessions  to
increase   underwriting   capacity.   Chartwell  seeks  to  establish  long-term
relationships with its leading  retrocessionaires in order to achieve continuity
and stability of coverage. Chartwell purchases property catastrophe coverage for
its Global,  Regional and Specialty  Accounts  business to provide  coverage for
losses arising from an aggregation  of claims under various  insurance  policies
from a single event. Chartwell's current property catastrophe program, effective
January 1, 1999,  provides  100% coverage for $9.5 million of exposure
in excess of a $2.5 million  retention,  with  additional  coverage  provided by
reinstatement  provisions.  In  addition,  during  1998,  Chartwell  purchased a
property  catastrophe  program to protect  against an accumulation of losses for
Chartwell and INSCORP from the same event;  this program  provides 100% coverage
for $2.5  million of exposure in excess of a combined  $2.0  million  retention,
with additional coverage provided by reinstatement provisions. INSCORP purchases
specific reinsurance programs for each of the programs underwritten.
     Chartwell renewed its retrocessional  marine program,  as of April 1, 1998,
which provides $1.45 million of coverage,  per risk or per event, in excess of a
$0.3 million  retention,  with  additional  coverage  provided by  reinstatement
provisions.
     In 1997 and  1998,  the  Company  entered  into  aggregate  excess  of loss
treaties.  These treaties provide the Company with a layer of protection against
adverse  results in all lines of business in excess of  specified  loss  ratios.
Liabilities held by the Company under such treaties were $37.0 million and $10.5
million at December 31, 1998 and 1997, respectively.
     Since Chartwell is contingently liable with respect to reinsurance ceded in
the event  that a  retrocessionaire  is unable to meet its  obligations  assumed
under a retrocession agreement,  the financial strength of each retrocessionaire
is evaluated.  As of December 31, 1998, the reinsurance  recoverable  balance of
Chartwell  Reinsurance  of  $86.5  million  is  attributable  to  retrocessional
arrangements with over 140  retrocessionaires.  At December 31, 1998,  Chartwell
Reinsurance had a reserve for uncollectable reinsurance of $3.4 million.
     As of December 31, 1998, the reinsurance  recoverable balance of INSCORP of
$156.8 million was  attributable to  retrocessional  arrangements  with over 290
retrocessionaires. At December 31, 1998, INSCORP had a reserve for uncollectable
reinsurance of approximately $3.0 million.

Claims
         Chartwell's  claims  department  analyzes  loss  exposure  in  order to
establish case reserves,  pays claims and assists in the underwriting process by
reviewing the claims activities of prospective  ceding companies.  In performing
these functions,  the claims department  consults with Chartwell's  underwriting
and actuarial  departments.  The claims  department  also assists the accounting
department  in  reporting  Chartwell's  retrocessional  claims  and  in  seeking
collection of such claims on a timely basis.
     In evaluating loss exposure,  Chartwell's  claims  department  reviews loss
reports  received  from ceding  companies to confirm that  submitted  claims are
covered under the contract  terms,  establishes  reserves on an individual  case
basis and monitors the adequacy of such  reserves.  The  department  also tracks
industry  loss  activity  as  well  as  other  industry   trends  to  facilitate
management's evaluation of Chartwell's overall risk profile.  Chartwell also has
an  environmental  claims  unit to evaluate  the  complex  toxic tort and latent
injury claims inherited through the Piedmont Merger.

Reserves
     General.  A significant  period of time may elapse between each of: (i) the
occurrence of an event  causing an insured loss;  (ii) the reporting of the loss
to the ceding company;  (iii) the reporting of the loss by the ceding company to
Chartwell; (iv) the ceding company's adjustment and payment of the loss; and (v)
payment to the ceding company by Chartwell.  To recognize liabilities for unpaid
losses,  Chartwell  establishes loss and loss expense reserves which are balance
sheet liabilities  representing estimates of future amounts needed to pay claims
and related expenses with respect to insured events.  Loss and LAE reserves have
two components:  case loss and LAE reserves,  which are estimates of future loss
and LAE with respect to insured events that have been reported to the reinsurer,
and incurred but not reported reserves  ("IBNR").  IBNR reserves are actuarially
determined  and reflect (i) an estimate of the ultimate loss amount that will be
paid by the  reinsurer  on  claims  that  have  occurred  but  have not yet been
reported to the  reinsurer  and (ii) the  expected  change in the value of those
claims that have already been reported to the reinsurer.
     When a claim is  reported  to the  ceding  company,  its  claims  personnel
establish a liability for the estimated  amount of the ultimate  settlement cost
of the reported claim. The estimate reflects the judgment of the ceding company,
based on the  experience  and knowledge of its claims  personnel,  regarding the
nature and value of the claim.  The ceding company may  periodically  adjust the
amount of case  reserves  as  additional  information  becomes  known or partial
payments are made.
     Upon notification of loss from a ceding company, Chartwell establishes case
reserves,  including LAE, based upon Chartwell's share of the amount of reserves
established by the ceding company and Chartwell's  independent evaluation of the
loss. Where  appropriate,  Chartwell  establishes case reserves in excess of its
share of the reserves  established  by the ceding  company.  These  reserves are
periodically  reviewed by Chartwell's  claims department based on its evaluation
of reports from the ceding  company and its audits of claims  activities  of the
ceding company.

                                    7
<PAGE>  
                  
     During the claims  settlement  period,  which may extend over a  protracted
period of time,  additional  facts regarding claims and trends may become known.
As Chartwell  becomes aware of new  information,  it may adjust its estimates of
its ultimate liability. The revised estimates of ultimate liability may prove to
be less than or greater than the actual settlement or award amount for which the
claim is finally discharged.

     Actuarial  Methods.  Chartwell  utilizes  the two most  common  methods  of
actuarial    evaluation    used    within   the    insurance    industry,    the
Bornhuetter-Ferguson    method   and   the   loss   development    method.   The
Bornhuetter-Ferguson  method involves the application of selected loss ratios to
Chartwell's earned premiums to determine estimates of ultimate expected loss and
LAE for each underwriting year. Multiplying expected losses by underwriting year
by a  selected  loss  reporting  pattern  gives  an  estimate  of  reported  and
unreported IBNR losses.  When the IBNR is added to the loss and LAE amounts with
respect  to claims  that have  been  reported  to date,  an  estimated  ultimate
expected loss results.  This method provides a more stable estimate of IBNR that
is insulated  from wide  variations in reported  losses.  In contrast,  the loss
development method extrapolates the current value of reported losses to ultimate
expected  losses by using selected  reporting  patterns of losses over time. The
selected reporting patterns are based on historical  information (organized into
loss   development   triangles)   and  are  adjusted  to  reflect  the  changing
characteristics of the book of business written by Chartwell.
     Chartwell  employs a combination of both methods  outlined  above.  For the
older years,  when reported  losses have generally  stabilized,  Chartwell gives
greater weight to the loss development  result.  For the more recent years, when
reported loss activity is either less reliable in the aggregate or non-existent,
Chartwell  gives  greater  weight to the  Bornhuetter-Ferguson  method.  Because
losses  are  reported  relatively  earlier  for  property  and other  short tail
coverages,   the  weighting  for  those  types  of  coverages  shifts  from  the
Bornhuetter-Ferguson  method to the loss development  method at an earlier point
than for casualty and other long tail coverages.
     In the reserve setting process, Chartwell includes provisions for inflation
and "social  inflation" if  appropriate,  as losses are generally not determined
until  some  time in the  future.  Chartwell  continually  monitors  legislative
activity and evaluates the potential  effect of any  legislative  changes on its
reserve liabilities.
     Chartwell's  reserves are carried at the full amount estimated for ultimate
expected  losses and LAE without any discount to reflect the time value of money
in accordance  with both Statutory  Accounting  Practices  ("SAP") and Generally
Accepted Accounting Principles ("GAAP").
     Chartwell's  actuarial  department regularly performs loss reserve analyses
for Chartwell  Reinsurance and INSCORP.  Such loss reserves are also reviewed by
Milliman & Robertson,  Inc. ("M&R"), an independent  actuarial  consulting firm,
which prepared a Statement of Actuarial Opinion as of December 31, 1998 for each
of Chartwell Reinsurance and INSCORP (the "M&R Statements").  The M&R Statements
were prepared  solely for the use of and only to be relied upon by Chartwell and
the various  state  insurance  departments  with which  Chartwell  files  annual
statements. The M&R Statements were not prepared for the use of investors.
     Chartwell  provides  capital  to its  Dedicated  CCV's  which  support  the
underwriting  capacity of the Lloyd's  syndicates  managed by CMA. Loss reserves
for this  business  are  established  using  methods  similar  to those  used by
Chartwell Reinsurance and INSCORP.  CMA, a subsidiary of Chartwell,  has engaged
Bacon & Woodrow London Market Services Ltd.  ("B&W"),  an independent  actuarial
consulting  firm, to review the loss  reserves and prepare an actuarial  opinion
for each of its syndicates,  including the actuarial opinion required by Lloyd's
solvency regulations. The B&W opinions, which are prepared solely for the use of
Lloyd's  regulators and are only to be relied upon by CMA, assist its syndicates
in establishing  appropriate reserve estimates for both the reinsurance to close
and the open years of account.
     Analysis  of  Reserve   Development.   The  following  table  presents  the
development of reserves of Chartwell Reinsurance for losses and LAE for calendar
years 1988 through  1998.  The first line of the table sets forth the  estimated
liability for losses and LAE for claims  arising in each of the indicated  years
as recorded on the balance sheet of Chartwell Reinsurance as of the end of years
1988-1994, including IBNR. For the years ended December 31, 1995, 1996, 1997 and
1998, the first line includes the consolidated reserves of Chartwell Reinsurance
and INSCORP.  For the years ended December 31, 1997 and 1998 the first line also
includes the loss reserves  associated with the capital provided by Chartwell to
the Dedicated CCV's. The upper portion of the table shows the cumulative amounts
paid as of the end of each successive  year for such claims.  The bottom portion
of the table  also  shows the  re-estimated  amount of the  previously  recorded
liability based on experience as of the end of each succeeding  year,  including
cumulative  payments.  The estimates are readjusted as more information  becomes
known about the  frequency  and  severity of claims for each year.  A redundancy
(deficiency)  exists when the original liability estimate is greater (less) than
the  re-estimated  liability  at the end of a year.  The  cumulative  redundancy
(deficiency) shown in the table is the aggregate net change in estimate over the
period of years  subsequent  to the  calendar  year  reflected at the top of the
particular columns.

                                       8

<PAGE>

     In evaluating the  information  in the table,  it should be noted that each
amount entered  incorporates  the effects of all changes in amounts  entered for
prior  periods.  Thus, if the 1998  estimate for a previously  incurred loss was
$150,000 and the loss was reserved at $100,000 in 1988,  the $50,000  deficiency
(later  estimate  minus original  estimate)  would be included in the cumulative
redundancy (deficiency) in each of the years 1988-1998 shown in table. It should
further  be noted  that the table  does not  present  accident  or  policy  year
development  data.  In addition,  conditions  and trends that have  affected the
development  of liability in the past may not  necessarily  recur in the future.
Accordingly,  it may not be appropriate to extrapolate  future  redundancies  or
deficiencies from the table.











                                        9

<PAGE>

                            Analysis of Loss and LAE
                               Reserve Development
                             (Dollars in thousands)
                             Year Ended December 31,

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                              1988       1989       1990        1991       1992        1993       1994       1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>        <C>        <C>         <C>        <C>         <C>        <C>         <C>
Reserves for Loss and LAE(1)              $ 156,869  $ 130,939  $ 126,746   $ 126,292  $ 189,386   $ 201,013  $ 232,733   $741,467
Cumulative paid as of:
         One year later                      39,084     15,946     19,745       9,074     31,354      30,085     46,363    157,172
         Two years later                     53,101     34,928     26,338      24,227     49,686      57,368     73,462    255,876
         Three years later                   69,914     40,622     39,933      37,935     68,147      73,926     90,999    334,819
         Four years later                    75,034     52,514     52,436      51,135     78,135      84,281    101,430
         Five years later                    86,463     63,479     62,922      56,822     84,402      90,577
         Six years later                     97,020     72,347     68,070      60,207     88,111
         Seven years later                  104,840     76,481     70,839      62,689
         Eight years later                  108,913     78,808     73,147
         Nine years later                   111,223     80,976
         Ten years later                    113,341
Reserves re-estimated as of:
         One year later                     158,048    129,333    125,919     126,926    192,496     204,094    233,738    754,286
         Two years later                    156,185    128,655    127,627     126,193    192,363     206,965    232,964    764,432
         Three years later                  155,224    132,406    128,740     127,102    194,876     205,369    229,253    735,913
         Four years later                   161,868    132,783    129,707     127,459    193,369     201,458    224,428
         Five years later                   159,912    133,112    129,989     126,004    188,594     197,919
         Six years later                    160,195    132,474    129,996     122,525    186,298
         Seven years later                  162,142    133,808    127,239     119,309
         Eight years later                  163,268    131,627    124,279
         Nine years later                   161,525    129,273
         Ten years later                    159,171
Cumulative redundancy (deficiency)           (2,302)     1,666      2,467       6,983      3,088       3,094      8,305      5,554
Cumulative %                                  (1.5%)      1.3%       1.9%        5.5%       1.6%        1.5%       3.6%       0.7%


<CAPTION>
---------------------------------------------------------------------------
                                              1996       1997       1998
---------------------------------------------------------------------------
<S>                                       <C>        <C>         <C>
Reserves for Loss and LAE(1)              $ 747,858  $ 788,240   $ 878,617
Cumulative paid as of:
         One year later                     196,470    154,697
         Two years later                    297,598
         Three years later
         Four years later
         Five years later
         Six years later
         Seven years later
         Eight years later
         Nine years later
         Ten years later
Reserves re-estimated as of:
         One year later                     758,748    766,462
         Two years later                    730,954
         Three years later
         Four years later
         Five years later
         Six years later
         Seven years later
         Eight years later
         Nine years later
         Ten years later
Cumulative redundancy (deficiency)           16,904     21,778
Cumulative %                                   2.3%       2.8%
</TABLE>

---------------

(1) Reserves for loss and LAE are presented net of reinsurance  recoverables for
the periods 1988 through  1991. In 1992,  Chartwell  adopted SFAS No. 113 which,
among other things,  requires Chartwell to record its reserves for unpaid losses
and  LAE  without   reduction   for  amounts  that  would  be   recovered   from
retrocessionaires.  The amount recoverable from retrocessionaires is recorded as
an asset on Chartwell's  balance  sheet.  The net of such asset and the reserves
for loss and LAE is $639.6, $585.6, $575.5, $561.6, $197.3 and $167.4 million at
December 31, 1998, 1997, 1996, 1995, 1994, 1993, respectively.

                                       10
<PAGE>

     Net  reserves  on  accident   years  since  1988  have   developed   modest
redundancies or deficiencies.  The gross redundancy of $21.8 million at December
31,  1998  becomes  a net  redundancy  of  $7.4  million  after  accounting  for
reinsurance  recoverables.  (See Note 12 of the Notes to Consolidated  Financial
Statements contained herein).
     Commutation  of  treaties  and large  loss  payments  distort  the  payment
patterns  represented in the table. In 1989,  Chartwell  Reinsurance commuted an
assumed treaty for $18.0 million affecting calendar years from 1986 to 1989. The
commutation  ensured that no further adverse development on that treaty occurred
in subsequent  years.  In 1992,  Chartwell  Reinsurance  commuted a retrocession
arrangement  which  resulted  in a  reduction  of net paid  losses for the prior
calendar  years  of  $4.4  million.   In  1993,   Chartwell   Reinsurance   paid
approximately  $12.0 million in gross losses  related to  Hurricanes  Andrew and
Iniki. In 1995,  Chartwell  Reinsurance paid $10.9 million to settle three large
claims  from  business  written  prior to 1986 and to commute a group of assumed
contracts from business written prior to 1995.
     At December 31, 1998, the GAAP basis reserves,  before  reduction for ceded
reinsurance,  were  $878.6  million  compared  to  SAP  basis  reserves,  before
reduction for ceded  reinsurance,  of $878.3  million.  The difference is due to
adjustments for foreign  currency  transactions.  At December 31, 1998, 1997 and
1996, GAAP basis reserves,  net of amounts  recoverable from  retrocessionaires,
were $639.6 million, $585.6 million and $575.5 million,  respectively,  compared
to SAP net  reserves  of $598.9  million,  $548.0  million  and $537.2  million,
respectively.  The  significant  differences  between  GAAP and SAP  amounts are
mainly due to the implementation of Statement of Financial  Accounting Standards
No. 113,  "Accounting  and  Reporting  for  Reinsurance  of  Short-Duration  and
Long-Duration  Contracts" ("SFAS No. 113") (approximately $39.5 million for each
of 1998, 1997 and 1996). The remaining difference relates principally to foreign
exchange adjustments.
     Activity  for loss and loss  adjustment  expenses as of December  31, 1998,
1997 and 1996 is herein incorporated by reference to Note 12 of the consolidated
financial statements of Chartwell included elsewhere herein.
     Management believes that Chartwell's  reserves are adequate.  However,  the
process  of  estimating  reserves  is  inherently   imprecise  and  involves  an
evaluation of many variables,  including  potentially  unpredictable  social and
economic  conditions.  Accordingly,  there can be no assurance that  Chartwell's
ultimate  liability  will not vary  significantly  from  amounts  reserved.  The
inherent  uncertainties  of estimating  such reserves are greater for reinsurers
than for primary insurers,  primarily due to the longer-term reporting nature of
the reinsurance business,  the diversity of development patterns among different
types of reinsurance, the necessary reliance on ceding companies for information
regarding  reported  claims  and  differing  reserving  practices  among  ceding
companies.  Reserves  also include  provisions  for latent  injury or toxic tort
claims that cannot be estimated with traditional reserving  techniques.  Because
of inconsistent court decisions in federal and state  jurisdictions and the wide
variation  among  insureds  with  respect  to  underlying  facts  and  coverage,
uncertainty  exists with  respect to these  claims as to  liabilities  of ceding
companies and,  consequently,  reinsurance  coverage.  Management  believes that
Chartwell  Reinsurance's  exposure to such latent losses is lessened  because of
its  relatively  recent  entry into the  reinsurance  business in 1979,  its low
historical  levels  of  premium  volume  prior  to 1985  and its  retrocessional
programs.  In addition,  management  believes that INSCORP's exposure to adverse
development  related to latent losses is lessened because a significant  portion
of the $25 million net reserve strengthening  recorded by INSCORP in 1995 was in
respect of such losses.  In addition,  the amount  payable under  Chartwell Re's
Contingent  Interest  Notes due 2006 (the "CI Notes") is subject to reduction in
the event of such adverse reserve development.
     Reserves for Chartwell's  participation in Lloyd's  syndicates  through its
Dedicated CCV's are included in the 1997 and 1998 year end reserves. Part of the
reserve  represents  reinsurance to close balances  brought  forward to the open
years of  account  (for  example,  1995  reinsured  into the  1996  open  year).
Favorable or unfavorable  development of the prior year's reserves can influence
the results of the open years of 1996, 1997 and 1998. Consequently, there can be
no assurance as to the adequacy of reserves and the risk of future developments,
both favorable and unfavorable, exists.


                                       11
<PAGE>

     The  following  table  presents a  three-year  development  of  Chartwell's
reserves  for losses and LAE  associated  with  environmental  and other  latent
injury claims. All of the development relates to business written prior to 1984.

<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                                  (Dollars in thousands)
                                                       -----------------------------------------------------------------------------
                                                                1998                       1997                        1996
                                                       -----------------------------------------------------------------------------
                                                        Gross           Net         Gross          Net          Gross          Net
                                                       -------       -------       -------       -------       -------       -------
<S>                                                    <C>           <C>           <C>           <C>           <C>           <C>
Liability, beginning of year ...................       $70,923       $48,052       $65,717       $46,958       $66,936       $46,450
Incurred during the year .......................        15,387        13,244        19,851         8,660         9,482         6,538
Less amount paid during the year ...............         7,336         6,370        14,645         7,566        10,701         6,030
                                                       -------       -------       -------       -------       -------       -------
Liability, end of year .........................       $78,974       $54,926       $70,923       $48,052       $65,717       $46,958
                                                       =======       =======       =======       =======       =======       =======
Deficiency for year ............................       $15,387       $13,244       $19,851       $ 8,660       $ 9,482       $ 6,538
                                                       =======       =======       =======       =======       =======       =======
</TABLE>

     At December 31, 1998,  Chartwell  Reinsurance carried loss and LAE reserves
of $351.2 million ($268.1 million after reduction for reinsurance  recoverable),
of which $10.8  million gross ($6.6  million  after  reduction  for  reinsurance
recoverable),  were loss  reserves and allocated  LAE  attributable  to asbestos
claims and environmental  pollution  claims.  For the three years ended December
31, 1998,  the effect of asbestos  and  environmental  pollution  claims was not
material to Chartwell Reinsurance's results of operations.
     At December  31,  1998,  INSCORP  carried  loss and LAE  reserves of $394.3
million ($253.8 million after reduction for reinsurance  recoverable),  of which
$68.2 million ($48.3 million after reduction for reinsurance  recoverable)  were
case   reserves  and  allocated  LAE   attributable   to  asbestos   claims  and
environmental pollution claims.
     Of the 1998 net deficiency of $13.2 million for asbestos and  environmental
reserves,  $11.3 million  results from  development on business  underwritten by
INSCORP  prior  to  the  Piedmont  Merger  and,  therefore,  is  subject  to the
protection  provided by the CI Notes, as described  below.  However,  due to the
favorable  development on non-asbestos  and  non-environmental  exposed business
underwritten by INSCORP prior to the Piedmont  Merger,  there was no net adverse
development on the reserves  covered by the CI Notes for the year ended December
31, 1998.

     Reserve Indemnification Agreement. In connection with the 1992 Acquisition,
Chartwell  Re entered into a reserve  indemnification  agreement  (the  "Reserve
Indemnification   Agreement")  with  NWNL  and  its  parent  company,  ReliaStar
Financial Corporation ("RLR"), pursuant to which NWNL and RLR agreed jointly and
severally to provide to Chartwell Re limited  indemnification  and reimbursement
for adverse  development  of the net loss and LAE reserves and related  accounts
(the "Covered  Reserves") of Chartwell  Reinsurance for accident years ending on
or before  December  31,  1991 (the  "Covered  Years").  Pursuant to the Reserve
Indemnification  Agreement as  originally  drafted,  if Chartwell  Reinsurance's
Covered Reserves as of December 31, 1996 for the Covered Years were greater than
its Covered  Reserves as of December  31, 1991,  RLR and NWNL would  jointly and
severally  indemnify and reimburse  Chartwell Re at that time in an amount equal
to (i) 85% of the first $20  million of such  difference  in excess of  $100,000
plus (ii) 60% of the next $10 million of such difference, up to a maximum amount
of $23 million,  representing  18% of loss  reserves as of December 31, 1991. If
Chartwell Reinsurance's Covered Reserves as of December 31, 1996 for the Covered
Years were less than its Covered Reserves as of December 31, 1991,  Chartwell Re
agreed to reimburse  NWNL at that time in an amount equal to fifty percent (50%)
of the first $10  million  of such  difference  in excess of  $100,000,  up to a
maximum amount of $5 million. The Reserve  Indemnification  Agreement,  which by
its terms was  scheduled to be settled as of the end of 1996,  was settled early
by mutual  agreement  with RLR. On June 28,  1996,  Chartwell  Re received  $7.9
million as a final  settlement  of the Reserve  Indemnification  Agreement.  The
settlement did not materially affect operating results for the year.

     Contingent  Interest  Notes.  Upon  consummation  of the  Piedmont  Merger,
Chartwell Re assumed all of Piedmont's obligations under the CI Notes which were
issued by Piedmont to its stockholders just prior to the Piedmont Merger. The CI
Notes,  which mature on June 30, 2006, are designed to provide Chartwell Re with
protection against adverse development of INSCORP's reserves for losses and loss
adjustment expenses. In the event there is no adverse development,  Chartwell Re
will be required to pay the holders of the CI Notes approximately $55 million in
contingent  interest.  This contingent interest payment is in addition to the $1
million  principal  amount of the CI Notes and interest on such principal amount
at 8% per annum  (collectively,  the "Fixed  Amount") which  Chartwell Re in any
event must pay at maturity or earlier redemption of the CI Notes.

                                       12
<PAGE>

     In general,  assuming the CI Notes are settled at maturity,  the contingent
interest will be equal to $55 million (a) less an amount equal to (i) the amount
of any adverse  development  of the loss and LAE reserves  and related  accounts
(including certain reinsurance  recoverable,  commissions and unearned premiums)
of INSCORP recorded as of March 31, 1995,  minus (ii) $25 million,  (b) plus the
amount of certain tax benefits  received or recorded by Chartwell Re as a result
of the amount determined  pursuant to clause (a) above. The amount so calculated
may not be greater than $55 million nor less than a minimum  amount equal to the
lesser  of (a) $10  million  less  the  Fixed  Amount  and (b) the tax  benefits
referred to above. In the event that the CI Notes are settled prior to maturity,
the foregoing formula will in general apply, except that the $55 million maximum
amount  of the CI Notes  will be  reduced  to an  amount  equal  to $55  million
discounted  back  from  June  30,  2006  at a  discount  rate  of 8% per  annum,
compounded  annually,  and the tax benefits  will be  calculated in a prescribed
manner.
     The carrying value of the CI Notes on Chartwell Re's consolidated financial
statements at December 31, 1998 was $32.1 million,  representing  the sum of the
aggregate principal amount of the CI Notes and the present value as of such date
of the maximum  amount of contingent  interest  payable on the CI Notes at their
stated  maturity  in 2006.  During  the  term of the CI  Notes,  the  discounted
carrying  value of the CI Notes will be  increased  to reflect  accretion of (i)
interest on the principal amount and (ii) the discounted contingent interest. To
the extent that  adverse  development  of  INSCORP's  reserves  (including  IBNR
reserves)  occurs  prior to the  maturity  or  redemption  of the CI Notes,  the
contingent  interest payable on the CI Notes (and,  therefore,  the then-current
carrying  value  of such CI  Notes)  will be  reduced.  Such  reductions  in the
carrying value of the CI Notes would offset in part, in the period in which such
adverse  development occurs, any reduction in Chartwell Re's GAAP net income and
stockholders'  equity  resulting  from such adverse  reserve  development  (that
would,  however,  still be reflected  in the  Company's  statutory  underwriting
results and in the  policyholders'  surplus of INSCORP and, if INSCORP continues
to be a subsidiary thereof, of Chartwell Reinsurance).
     At its option,  Chartwell  Re may settle the CI Notes with shares of Common
Stock of Chartwell Re instead of payment of cash.  For purposes of settlement of
the CI Notes,  such Common  Stock would be valued at 85% of its average  closing
market price over a specified  period  prior to the  settlement  date.  However,
Chartwell  Re may not settle the CI Notes in Common  Stock unless (i) such stock
is registered  under the Securities Act (or is otherwise  freely tradeable other
than by certain  affiliates  of  Chartwell  Re),  (ii) such stock is listed on a
national  securities  exchange  or NASDAQ and (iii) all CI Notes are  settled in
such Common Stock. Moreover,  Chartwell Re may not settle the CI Notes in Common
Stock if the CI Notes are being settled following acceleration thereof due to an
event of default under the CI Notes.

Investments
     Chartwell's  investment  policies are established and approved by its Board
of Directors.  Chartwell's  investment policy is to maintain a portfolio with an
average rating of A or better from Moody's Investors Service  ("Moody's") and to
retain such  securities  for sale in  response to changes in interest  rates and
liquidity needs. However, it is not Chartwell's policy to sell securities merely
to generate  profits on short-term  differences  in price.  The  performance  of
Chartwell's advisors and the fees associated therewith are periodically reviewed
by both  management  and the Board of Directors  of  Chartwell.  Investments  by
Chartwell Reinsurance, INSCORP and Dakota must comply with the insurance laws of
the States of Minnesota, New York and North Dakota, their respective domiciliary
states.
     Chartwell's  investment  portfolio consists  primarily of  investment-grade
fixed maturity debt securities.  As of December 31, 1998, approximately 92.2% of
the  fixed  income  portfolio  (exclusive  of cash and  investments  held by CMA
managed syndicates) was rated A or better by Moody's.


                                       13
<PAGE>

     The following  table  summarizes the  investments of Chartwell (at carrying
value):

<TABLE>
<CAPTION>
                                                                               Composition of Investment Portfolio
                                                                                       (Dollars in thousands)
                                                                                           December 31,
                                                             -----------------------------------------------------------------------
                                                                     1998                     1997                      1996
                                                             --------------------     --------------------     ---------------------
                                                              Amount   % of Total      Amount   % of Total      Amount    % of Total
                                                             --------  ----------     --------  ----------     --------   ----------
<S>                                                          <C>         <C>          <C>         <C>          <C>          <C>
Fixed Income Securities
    Corporate ...........................................    $240,442     29.5%       $225,587     30.8%       $200,899      29.8%
    U.S. Government & Government Agency (1) .............     212,088     26.0         240,226     32.8         249,416      37.0
    Obligations of States & Political Subdivisions ......     171,883     21.0         161,544     22.1         134,769      20.0
    Foreign Government & Government Agency ..............      28,456      3.5          28,867      3.9          23,807       3.5
    Redeemable Preferred Stocks .........................      37,422      4.6          38,379      5.2          33,773       5.0
Other (2) ...............................................      36,358      4.5          38,043      5.2          30,896       4.7
Investments Held by CMA Managed Syndicates ..............      89,228     10.9              --       --              --        --
                                                             --------    -----        --------    -----        --------     -----
Total Investments .......................................    $815,877    100.0%       $732,646    100.0%       $673,560     100.0%
                                                             ========    =====        ========    =====        ========     =====

Cash & Cash Equivalents .................................    $ 60,319                 $ 29,534                 $ 50,343
                                                             ========                 ========                 ========
</TABLE>


----------
(1) At December 31, 1998,  1997 and 1996,  $98.7,  $107.1 and $170.2  million of
these securities were backed by the full faith and credit of the U.S. Government
and $113.4,  $133.1 and $79.2 million were obligations of issuing agencies.
(2) Other investments  include equity securities and partnership  interests.  In
1996,  Chartwell  made a  commitment  to invest $15 million in a private  equity
fund, High Ridge Capital  Limited  Partnership,  which makes  investments in the
insurance  industry.  Chartwell has  contributed a total of $9.8 million to this
fund as of December 31, 1998.

         The following table reflects  investment  results for Chartwell for the
periods indicated:

                               Investment Results
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                      --------------------------------------
                                                                         1998          1997           1996
                                                                      ---------     ---------      ---------
<S>                                                                   <C>           <C>            <C>
Average Invested Assets .........................................     $ 792,921     $ 723,174      $ 716,004
Net Investment Income (1) .......................................     $  48,824     $  43,457      $  43,598
Net Effective Yield (2) .........................................          6.2%          5.9%           6.2%
Net Realized Capital Gains (Losses)..............................     $      29     $     (3)      $   1,157
Effective Yield Including Realized Capital Gains (Losses)(3).....          6.2%          5.9%           6.3%
</TABLE>

----------
(1) After investment expenses, excluding net realized investment gains (losses).
(2) Net investment  income for the year-end  period divided by average  invested
assets for the same period.
(3) Net  investment  income for the year-end  period plus net  realized  capital
gains  (losses) for the period divided by average  invested  assets for the same
period.


                                       14
<PAGE>

     The following table  indicates the composition of Chartwell's  fixed income
portfolio (at carrying value),  excluding cash and cash equivalents and cash and
investments held by CMA managed syndicates, by rating:

                      Composition of Fixed Income Portfolio
                                  By Rating (1)
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                       December 31, 1998
                                                                    ----------------------
                                                                     Amount        Percent
                                                                    --------       -------
<S>                                                                 <C>              <C>
U.S. Government and Government Agency Fixed Income Securities ..... $212,088         30.7%
Aaa ...............................................................  164,399         23.8
Aa ................................................................   92,856         13.5
A .................................................................  163,331         23.7
Baa ...............................................................   57,617          8.3
                                                                    --------        -----
    Total ......................................................... $690,291        100.0%
                                                                    ========        =====
</TABLE>

(1) Rating as assigned by Moody's.  Such ratings are generally assigned upon the
issuance  of the  securities  and  subject to  revision  on the basis of ongoing
evaluations. Ratings in the table are as of the date indicated. Those government
guaranteed   securities  that  are  specifically   rated  are  included  in  the
appropriate rating category.

     Moody's  rating  system  utilizes  nine  symbols to indicate  the  relative
investment quality of a rated bond. Aaa rated bonds are judged to be of the best
quality and are considered to carry the smallest  degree of investment  risk. Aa
rated bonds are also  judged to be of high  quality by all  standards.  Together
with Aaa bonds,  these bonds  comprise  what are  generally  known as high grade
bonds.  Bonds  rated A possess  many  favorable  investment  attributes  and are
considered to be upper medium grade obligations.  Baa rated bonds are considered
as medium  grade  obligations;  they are  neither  highly  protected  nor poorly
secured.  Bonds rated Ba or lower (those rated B, Caa, Ca and C) are  considered
to be too speculative to be of investment quality.
     National Association of Insurance Commissioners ("NAIC") investment ratings
are provided  annually at December 31 of each year. At December 31, 1998,  88.6%
of Chartwell's  fixed maturity  investments  (excluding  investments held by CMA
managed  syndicates)  were  rated  "Class  1," and  11.4% of  Chartwell's  fixed
maturity investments (excluding investments held by CMA managed syndicates) were
rated "Class 2," the two highest ratings assigned by the NAIC.
     The following table  indicates the composition of Chartwell's  fixed income
portfolio (at carrying value),  excluding cash and cash equivalents and cash and
investments held by CMA managed syndicates,  by time to maturity (1) (dollars in
thousands):

                                                        December 31, 1998
                                                    -----------------------
                                                     Amount         Percent
                                                    --------        -------
One year or less .............................      $ 33,918          4.9%
Over 1 year through 5 years ..................       194,558         28.2
Over 5 years through 10 years ................       198,138         28.7
Over 10 years through 20 years ...............        46,381          6.7
Over 20 years ................................        79,815         11.6
Mortgage backed securities ...................       137,481         19.9
                                                    --------        -----
    Total ....................................      $690,291        100.0%
                                                    ========        =====

(1) Based on stated maturity dates without prepayment assumptions.

     Certain mortgage backed securities are subject to prepayment risk. Mortgage
backed  securities  represent 15.7% of Chartwell's total cash and investments at
December 31, 1998. During periods of significant  interest rate volatility,  the
underlying mortgages may prepay more quickly than anticipated.  If the repayment
of  principal  occurs  earlier  than  anticipated  during  periods of  declining
interest rates,  investment  income may decline due to the reinvestment of these
funds at the lower current  market rates.  Management  does not believe that the
prepayment  risk  associated  with  Chartwell's  portfolio  of  mortgage  backed
securities is significant.

                                       15
<PAGE>

     The following table sets forth certain information  concerning  Chartwell's
mortgage backed investments:

              Distribution of Mortgage Backed Securities Portfolio
                                   By Type (1)
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                       December 31, 1998
                                                          --------------------------------------------
                                                          Estimated
                                                            Market          Amortized
                                                            Value              Cost          Par Value
                                                          --------          --------          --------
<S>                                                       <C>               <C>               <C>
Collateralized Mortgage Obligations ....................  $ 22,563          $ 22,112          $ 22,754
Pass-throughs (primarily GNMA, FNMA and FHLMC) .........   114,918           112,733           112,314
                                                          --------          --------          --------
    Total ..............................................  $137,481          $134,845          $135,068
                                                          ========          ========          ========
</TABLE>

----------
(1) At  December  31,  1998,  agency  backed  securities  represented  97.0%  of
Chartwell's  mortgage  backed  investments.  Other  mortgage  backed  securities
represented 3.0%. These other mortgage backed securities are rated either Aaa or
A which is the highest rating category used by the SVO.

Competition
     The property  and casualty  reinsurance  and  insurance  business is highly
competitive.  Competition with respect to the types of reinsurance and insurance
in which  Chartwell  is engaged  is based on many  factors  including  perceived
overall financial  strength of the insurer,  ratings of the insurer by A.M. Best
Company and Standard & Poor's, underwriting expertise, reputation and experience
in the lines  written,  premiums  charged,  other  terms and  conditions  of the
insurance  or  reinsurance  offered,  services  offered,  and  speed  of  claims
payments.
     Chartwell competes with numerous international and domestic reinsurance and
insurance companies. These competitors, many of which have substantially greater
financial and staff resources than Chartwell,  include independent insurance and
reinsurance  companies,  as well as  subsidiaries,  affiliates  or  insurance or
reinsurance  departments of  established  insurance  companies and  underwriting
syndicates.

Insurance Regulation
     General.  Chartwell  Reinsurance,  INSCORP  and Dakota  are  subject to the
insurance  laws  and  regulations  of  Minnesota,  New York  and  North  Dakota,
respectively, their domiciliary states, and to administrative supervision by the
regulatory  authorities of such states. In addition,  each is subject to similar
laws,  regulations and supervision in the various states in which it is licensed
or  authorized  to  transact  business,   primarily  with  regard  to  solvency,
accounting practices, reports on financial condition and operations, investments
and reserves.  Under state insurance law,  property and casualty  reinsurers and
surplus lines  insurers are generally not subject to filing or other  regulatory
requirements  applicable to primary insurers with respect to rates, policy forms
or contract  wording.  Licensed  insurers such as INSCORP are required to comply
with all  applicable  filing or  regulatory  requirements.  In  supervising  and
regulating insurance companies,  including reinsurers,  state agencies,  charged
primarily with  protecting  policyholders  and the public rather than investors,
enjoy broad authority and discretion in applying  applicable  insurance laws and
regulations for the protection of policyholders and the public.

     Lloyd's.  Both CMA and the Dedicated  CCV's, as a Lloyd's  managing general
agent and Lloyd's corporate members, respectively, are subject to regulation and
supervision by the Council of Lloyd's.  Lloyd's operates under a self-regulatory
regime under the Lloyd's Act 1982 and has the power to set, interpret and change
the  rules  which  govern  the  operation  of the  Lloyd's  market,  subject  to
regulation for solvency purposes by the Financial  Services  Authority  ("FSA").
Lloyd's  prescribes,  in respect of its managing  agents and corporate  members,
certain minimum standards relating to their management and control, solvency and
various other requirements.  In addition,  Lloyd's imposes  restrictions against
persons  becoming  controllers  and major  shareholders  of managing  agents and
corporate members without the consent of Lloyd's first having been obtained. The
United  Kingdom  government  has  established  the FSA as a single  regulator to
supervise  securities,  banking and insurance business,  including Lloyd's. When
the Financial  Services and Market Bill becomes law,  probably in late 2000, the
FSA will have wide authorization and intervention powers in relation to Lloyd's.
A  consultation   process  has  commenced  in  relation  to  Lloyd's  regulatory
framework.


                                       16
<PAGE>

     Insurance  Holding  Company  Systems  Regulations.  Chartwell  Reinsurance,
INSCORP and Dakota and their  affiliates  are subject to regulation  pursuant to
the insurance holding company systems statutes of Minnesota,  New York and North
Dakota.  While the insurance  holding company systems laws and regulations  vary
from state to state,  they generally  require an insurance  holding  company and
insurers and  reinsurers  that are members of such insurance  holding  company's
system to register  with the state  regulatory  authorities,  to file with those
authorities  certain  reports  disclosing  information  including  their capital
structure,  ownership,  financial condition,  certain intercompany  transactions
including material transfers of assets and intercompany business agreements, and
to report material changes in such information.  Such laws may also require that
intercompany   transactions  be  fair  and  reasonable  and  that  an  insurer's
policyholder   surplus   following  a  dividend   distribution   to   affiliated
stockholders be adequate to meet its financial needs.
     In general,  state insurance  holding company systems statutes also require
prior notice to, or regulatory agency approval of, direct or indirect changes in
control of ownership of a domestic insurer or reinsurer.  Under  Minnesota,  New
York and North Dakota law, no person,  corporation  or other entity may acquire,
directly  or  indirectly,  a  controlling  interest  in the  capital  stock of a
domestic  insurer or reinsurer  unless such person,  corporation or other entity
has obtained prior approval from the insurer's domestic regulator  ("Regulator")
for such acquisition of control.  Pursuant to the Minnesota,  New York and North
Dakota insurance  holding company systems statutes,  any person,  corporation or
other entity acquiring,  controlling or holding with the power to vote, directly
or  indirectly,  ten percent or more of the voting  securities  of an  insurance
company (or reinsurer), is presumed to have "control" of such company. The party
may rebut  this  presumption  by  filing  with the  Regulator  a  disclaimer  of
affiliation. Other jurisdictions where Chartwell Reinsurance,  INSCORP or Dakota
are  licensed  to  transact  business  may  have  similar  requirements  for  an
acquisition of control of insurers or reinsurers  licensed or authorized in such
jurisdictions.   Additional  requirements  in  such  jurisdictions  may  include
relicensing  or  subsequent  approval for renewal of existing  licenses  upon an
acquisition of control.

     Restrictions on Dividends. The principal source of funds for servicing debt
of the Company and paying dividends to stockholders of Chartwell is derived from
receipt  of  dividends   from  its  insurance   subsidiaries.   While   dividend
restrictions  vary from state to state,  they  generally  require  insurers  and
reinsurers  to pay  dividends  only from  earned  surplus,  which is  defined as
unassigned  funds  (surplus) as reported in the  statutory  financial  statement
filed by the insurer or reinsurer with the Regulator for the most recent period.
Subject to such  constraints,  the  insurer or  reinsurer  may  declare  and pay
non-extraordinary  dividends,  subject to  certain  notice  requirements  to the
Regulator, and extraordinary dividends to stockholders subject to certain notice
and approval requirements by the Regulator.  Lastly, with respect to payments of
all  dividends  to  affiliated  shareholders,  following  the  payment of such a
dividend, an insurer's or reinsurer's  policyholders' surplus must be reasonable
in relation to its outstanding liabilities and adequate for its financial needs.
See Item 7,  "Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations--Liquidity and Capital Resources."
     On November 25, 1997, Chartwell Reinsurance paid a $3.0 million dividend to
Chartwell and on February 24, 1999,  Chartwell  Reinsurance  paid a $5.5 million
dividend to Chartwell. No dividends were paid in 1996 or 1998.

     Investment Limitations.  State insurance laws and regulations prescribe the
kind,  quality  and  concentration  of  investments  that  are  permissible  for
insurance  and  reinsurance  companies  domiciled in such state.  The purpose of
these laws is to protect the interests of  policyholders,  claimants,  creditors
and the general public by promoting the safety, yield and growth of an insurance
company's  investment  principal,  the liquidity necessary to meet the insurance
company's expected business needs, and investment diversification.  For example,
under Minnesota,  New York and North Dakota law, non-life  insurance  companies,
such as Chartwell  Reinsurance,  INSCORP and Dakota are  authorized to invest in
specifically  prescribed  investments.   Subject  to  certain  conditions,  such
investments include federal,  state and municipal government  obligations,  bank
obligations,  obligations and stocks of corporations and business  trusts,  real
estate and  mortgages on real estate,  collateral  loans,  options,  foreign and
other investments.  Such investment obligations,  however, may not be in default
as to payments of principal  and interest.  Property and casualty  insurance and
reinsurance  companies are subject to risk-based  capital guidelines which could
influence  investment   decisions.   See  "Risk-Based  Capital."  Management  of
Chartwell  believes  that  Chartwell  Reinsurance,  INSCORP  and  Dakota  are in
compliance  with all applicable  state  insurance  investment  laws for non-life
insurance companies.

                                       17
<PAGE>

     Regulatory   Examinations.   The  business  and   operations  of  Chartwell
Reinsurance,  INSCORP  and Dakota are  subject to  periodic  examination  by the
insurance  departments  of the  jurisdictions  in  which  each  is  licensed  or
authorized to transact business.  The Regulators have broad authority to conduct
examinations  at any time.  The  report  made with  respect  to the most  recent
periodic  examination of Chartwell  Reinsurance is dated as of December 31, 1994
and contained no material adverse findings. The most recent periodic examination
of  INSCORP  was as of  December  31,  1993,  and  the  report  related  to such
examination has not yet been released.  The most recent report of examination of
Dakota is dated as of  November  21,  1996 and  contained  no  material  adverse
findings.

     Risk-Based Capital. In order to enhance the regulation of insurer solvency,
the NAIC  adopted  risk-based  capital  ("RBC")  requirements  for  property and
casualty  insurance and  reinsurance  companies  commencing with filings made in
1995  covering  the 1994 year.  These RBC  requirements  are designed to monitor
capital  adequacy and to raise the level of protection  that  statutory  surplus
provides for  policyholders.  The RBC formula  measures four major areas of risk
facing property and casualty insurers:  (i) underwriting risk, which is the risk
of errors in pricing and reserves;  (ii) asset risk,  which is the risk of asset
default  for fixed  income  assets and loss in market  value for equity  assets;
(iii) credit risk,  which is the risk of losses from  unrecoverable  reinsurance
and the inability of insurers to collect agents' balances and other receivables;
and (iv)  off-balance  sheet  risk,  which is  primarily  the  risk  created  by
excessive  growth.  Insurers and reinsurers  having less statutory  surplus than
that  required  by the RBC  formula  will  be  subject  to  varying  degrees  of
regulatory action depending on the level of capital inadequacy.
     The RBC formula  provides a mechanism for the  calculation  of an insurance
company's  Authorized  Control  Level RBC and its total  adjusted  capital.  The
formula sets forth the points at which a commissioner of insurance is authorized
and expected to take regulatory  action. The first level is known as the Company
Action Level RBC,  which is set at twice the  Authorized  Control Level RBC. The
second level is the Regulatory Action Level RBC, set at 1.5 times the Authorized
Control Level RBC. The third is the Authorized Control Level RBC, and the fourth
is the Mandatory Control Level RBC, set at 70 percent of the Authorized  Control
Level RBC.
     If an insurance  company's  adjusted capital is higher than or equal to the
Regulatory  Action  Level  RBC but below  the  Company  Action  Level  RBC,  the
insurance company must submit to its commissioner of insurance an RBC plan which
shall  contain,  among other  things,  proposals  of  corrective  action.  If an
insurance  company's  adjusted capital is higher than or equal to the Authorized
Control  Level  RBC  but  lower  than  the  Regulatory  Action  Level  RBC,  the
commissioner  of insurance  shall perform any  examination or analysis as deemed
necessary of the insurer's  business and  operations  and issue any  appropriate
corrective orders to address the insurance company's  financial problems.  If an
insurer's  adjusted  capital is higher  than or equal to the  Mandatory  Control
Level RBC but lower than the Authorized  Control Level RBC, the commissioner may
place the insurer under regulatory  control. If the insurance company's adjusted
capital falls below the Mandatory  Control Level RBC, the  commissioner  will be
required to place the insurer under  regulatory  control.  At December 31, 1998,
the adjusted  capital of each of Chartwell  Reinsurance,  INSCORP and Dakota was
higher than the Company Action Level RBC, and as a result,  no regulatory action
is required.  Should a future deficiency occur,  Chartwell will be subject to an
increased  level  of  regulatory   attention  and,   depending  on  the  capital
deficiency,   possibly  to  actual   control  by  the   appropriate   regulatory
authorities.  There can be no assurance that any such  deficiency will not occur
in the future.

     NAIC-IRIS  Ratios.  The  NAIC's  Insurance  Regulatory  Information  System
("IRIS")  was  developed  by a committee of state  insurance  regulators  and is
primarily  intended to assist state  insurance  departments  in executing  their
statutory  mandates to oversee the  financial  condition of insurance  companies
operating in their  respective  states.  IRIS  identifies 11 industry ratios and
specifies "usual values" for each ratio.  Departure by an insurer from the usual
values  on  four or  more  of the  ratios  generally  leads  to  inquiries  from
individual state insurance commissioners as to certain aspects of such insurer's
business.  Departure from a usual value does not necessarily indicate an adverse
condition, but rather a deviation from the norm.
     For the year ended December 31, 1998,  Chartwell  Reinsurance  fell outside
the range of usual IRIS  values  with  respect to two  ratios and  INSCORP  fell
outside the range of usual IRIS values  with  respect to one ratio.  The Company
does not believe such 1998 ratios are  indicative of an adverse  condition.  For
the year ended December 31, 1998, Dakota did not fall outside the range of usual
IRIS values with respect to any ratio.


                                       18
<PAGE>

Employees

     As of  December  31,  1998,  Chartwell  had 326  employees,  including  the
employees of its  subsidiary,  CMA. None of these  employees is represented by a
labor union, and Chartwell believes that its employee relations are excellent.

Item 2.  Properties.
     Chartwell  leases  approximately  53,000  square  feet  of  space  for  its
principal  executive  offices in Stamford,  Connecticut.  Chartwell  also leases
approximately 39,000 square feet of space in London,  England for the operations
of CMA. INSCORP is located in Jericho, New York,  occupying  approximately 1,150
square feet of office space.  Management  believes  Chartwell's  current  office
space is adequate for its needs.

Item 3.  Legal Proceedings.
     In 1996 and early 1997,  the Company  entered  into certain  assumption  of
liability  endorsements  ("ALEs")  pursuant to an agreement  with American Eagle
Insurance  Company  ("American  Eagle"),  which  provided for the  assumption of
certain  policy  liabilities  by the  Company in the event of an  insolvency  of
American Eagle. As part of such arrangements, the Company obtained from American
Eagle a trust fund to collateralize any potential obligations arising out of the
issuance of the ALEs by the  Company.  On December 3, 1997,  American  Eagle was
placed in receivership by the Texas Department of Insurance.
     On June 16, 1998, the California  Insurance Guarantee  Association ("CIGA")
filed suit in the Superior Court of California,  County of Los Angeles,  against
INSCORP  seeking,  among other  things,  a  declaratory  judgment  that the ALEs
covered  claims  arising prior to the dates upon which the ALEs were issued.  On
September 1, 1998, the Superior Court of California  granted INSCORP's motion to
strike those  portions of CIGA's  complaint  which sought a general  declaratory
judgment that all claims under  American  Eagle  policies with ALEs attached are
the obligation of INSCORP  rather than CIGA.  CIGA's claim is now solely related
to the specific American Eagle policy and accompanying ALE initially giving rise
to the dispute.
     On December  2, 1998,  CIGA filed a second  suit in the  Superior  Court of
California,  County  of Los  Angeles,  against  INSCORP  seeking  a  declaratory
judgment  with respect to the  obligation  of INSCORP on a second claim  arising
prior  to the  effective  date of the  applicable  ALE.  The  Superior  Court of
California  has found  that the two CIGA cases are  related  cases and they have
been assigned to the same judge.
     The Company believes, and has been so advised by counsel handling the case,
that it has a number of valid  defenses to the  litigation  pending  against it.
Such cases are, and will continue to be, vigorously defended. However, it is not
possible to predict the  outcome of such  cases.  Litigation  is subject to many
uncertainties,  and it is  possible  that such cases could be decided or settled
unfavorably.  At this time,  the Company  does not believe  that an  unfavorable
decision or  settlement  of such cases  would  materially  adversely  affect the
Company's results of operations or financial position.
     In  addition  to the  foregoing  lawsuits,  the  Company  is subject to the
litigation of disputes and  arbitration in the normal course of their  business.
The Company does not believe that any such pending  litigation or arbitration to
which it is a party, or of which any of its properties or assets are subject, is
likely to have a materially  adverse effect on its current financial position or
results of operations.

Item 4.  Submission of Matters to a Vote of Security Holders.
     There were no matters  submitted to a vote of security  holders  during the
fourth quarter of 1998.

                                     PART II

Item 5.  Market  for the  Registrant's  Common  Stock  and  Related  Stockholder
Matters.
     There is no  established  public  trading  market for the Company's  common
stock. All of the outstanding  shares of the Company's common stock are owned by
Chartwell Re.
     The Company  pays  dividends  from time to time upon the  direction  of its
Board of  Directors;  however,  the  agreements  governing  the Senior Notes (as
hereinafter  defined) and the Credit Facility (as hereinafter  defined) restrict
the  ability  of the  Company  to  pay  dividends  based  upon  the  operational
performance and liquidity of the Company.


                                       19
<PAGE>

Item 6.  Selected Financial Data.
     Information  required by Item 6 has been  omitted  because  the  Registrant
meets the conditions set forth in General  Instruction I (1) (a) and (b) of Form
10-K and is  therefore  filing  this  Annual  Report on Form 10-K in the reduced
disclosure format.

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations
     The  following  discussion  of  the  financial  condition  and  results  of
operations  of Chartwell  should be read in  conjunction  with the  consolidated
financial  statements and notes thereto of Chartwell  included elsewhere herein.
The  following  discussion  does not include any  information  relating to CMA's
historical  results  of  operations  prior to  November  19,  1996 or  INSCORP's
historical  results of operations  prior to December 13, 1995.  CMA's results of
operations  for the period from  November  19,  1996 to  December  31, 1996 were
immaterial  to  Chartwell  and,  therefore,  have not been  included.  INSCORP's
results of operations for the period from December 13, 1995 to December 31, 1995
were immaterial to Chartwell; Chartwell has accounted for the Piedmont Merger as
though it had occurred on December 31, 1995.

Recent Industry Performance
     The  property  and  casualty   insurance  and   reinsurance   industry  has
historically  been  highly  cyclical.   Demand  for  reinsurance  is  influenced
significantly  by  prevailing  market  conditions,  including  the  underwriting
results of primary  insurers.  The supply of reinsurance is primarily related to
levels of  underwriting  capacity in the  reinsurance  industry and the relative
cost and terms of reinsurance  coverage.  The industry's  profitability  and the
cyclical  trends in the industry can be affected  significantly  by volatile and
unpredictable developments, including the occurrence of natural disasters, other
catastrophic   events,   competitive   pressures  on  pricing  (premium  rates),
fluctuations in interest rates, other variations in the investment  environment,
changes in the judicial system regarding tort law,  general economic  conditions
and trends, such as inflationary pressures,  that may tend to affect the size of
profits and losses experienced by ceding primary insurers and other factors such
as  changes  in tax laws and  regulations.  Many  sectors  of the  industry  are
currently  in a cyclical  downturn  and it cannot be predicted if or when market
conditions will improve or when other sectors may experience a deterioration  in
pricing and terms.
     Commencing  in the later part of the 1980s,  primary  property and casualty
insurers began to retain more of their business. This reduction in the amount of
business ceded to reinsurers,  combined with the growth in reinsurance capacity,
resulted  in  renewed  price   competition  and  less  attractive   pricing  for
reinsurers.  This caused a downturn for the reinsurance  industry,  resulting in
increased underwriting losses which have continued to the present.
     The following table presents the statutory combined ratios of Chartwell and
the property and casualty  reinsurance  industry  during the 1994 to 1998 years.
The  combined  ratio  is the sum of the loss  ratio  (incurred  losses  and loss
adjustment expenses divided by net premiums earned) and the underwriting expense
ratio (underwriting  expenses divided by net premiums written). A combined ratio
of  over  100%  indicates  unprofitable  underwriting.   Although  an  insurance
company's underwriting may be unprofitable,  the company may be profitable after
including investment income.

<TABLE>
<CAPTION>
                                                                              Statutory Combined Ratios
                                                                               Year Ended December 31,
                                                            -----------------------------------------------------------------
                                                             1998           1997           1996           1995           1994
                                                            -----          -----          -----          -----          -----
<S>                                                         <C>            <C>            <C>            <C>            <C>
Chartwell (1)
Loss Ratio ............................................      53.8%          65.5%          71.9%          72.9%          75.4%
Underwriting expense ratio ............................      41.2           36.2           35.2           32.5           30.3
                                                            -----          -----          -----          -----          -----
Combined ratio ........................................      95.0%         101.7%         107.1%         105.4%         105.7%
                                                            =====          =====          =====          =====          =====

Property and Casualty Reinsurance Industry (2)
Loss Ratio ............................................      70.7%          69.6%          72.7%          78.2%          76.8%
Underwriting expense ratio ............................      33.7           32.7           30.8           30.1           29.9
                                                            -----          -----          -----          -----          -----
Combined ratio ........................................     104.4%         102.3%         103.5%         108.3%         106.7%
                                                            =====          =====          =====          =====          =====
</TABLE>
-----------------------------------------
(1) Beginning in 1996, the combined  ratio  includes both Chartwell  Reinsurance
and INSCORP.
(2) Source: RAA Underwriting Report for the year ended December 31,
1998.

                                       20
<PAGE>

Consolidated Results of Operations

     Year Ended December 31, 1998 Compared With Year Ended December 31, 1997

     Revenues:  Total  revenues for the year ended  December 31, 1998  decreased
7.5% to $298.0 million,  compared to $322.3 million for the comparable period in
1997. The following table  summarizes  gross and net premiums  written and total
revenues for the periods indicated:

                                                               Revenues
                                                              Year Ended
                                                             December 31,
                                                     --------------------------
                                                        1998             1997
                                                     ---------        ---------
                                                       (Dollars in thousands)
Gross premiums written ......................        $ 342,951        $ 362,770
                                                     =========        =========
Net premiums written ........................        $ 217,054        $ 268,260
                                                     =========        =========
Premiums earned .............................          229,504          245,700
Net investment income .......................           48,824           43,457
Net realized capital gains (losses) .........               29               (3)
Service and other revenue ...................           14,289           28,322
Equity in net earnings of investees .........            5,327            4,794
                                                     ---------        ---------
      Total .................................        $ 297,973        $ 322,270
                                                     =========        =========

Underwriting Operations
     Gross Premiums Written;  Net Premiums Written;  Net Premiums Earned.  Gross
premiums  written for the year ended  December 31, 1998 were $343.0  million,  a
decrease  of 5.5%  compared to the same  period in 1997.  The  decrease in gross
premiums written was principally attributable to the opportunistic  underwriting
of certain  reinsurance  accounts in 1997, which did not renew for 1998, as well
as Chartwell's  response to the persistence of intense price  competition in the
reinsurance  industry. On a consolidated basis, pro forma for the elimination of
the opportunistic  accounts underwritten in 1997, gross premiums written grew by
approximately 16.2% in 1998 compared to 1997.
     Net premiums  written for the year ended December 31, 1998 decreased  19.1%
to $217.1  million,  compared to $268.3 million for the same period in 1997. The
decrease in net premiums  written was  principally  attributable  to the reasons
described above for the decrease in gross premiums written.  Net premiums earned
for the year ended  December  31, 1998 were $229.5  million,  a decrease of 6.6%
compared to the same period in 1997.

     Loss and Loss Adjustment  Expenses.  The Company's principal expense,  loss
and LAE  related to the  settlement  of claims was $135.3  million  for the year
ended  December 31, 1998, a 15.9%  decrease  compared to $160.8  million for the
comparable  period in 1997.  The  decrease is  principally  attributable  to the
decrease in net premiums  written and the benefits of new reinsurance  programs,
including an aggregate  excess of loss  reinsurance  treaty.  Net losses and LAE
expressed  as a  percentage  of net  earned  premiums  (the loss and LAE  ratio)
improved to 58.9% for the year ended December 31, 1998,  from 65.5% recorded for
the same period in 1997. The  improvement  of 6.6 percentage  points in the loss
and LAE ratio for the year ended  December  31, 1998 was a result of a change in
the mix of business,  the  benefits of the new  reinsurance  programs  described
above and the enhancement of existing reinsurance programs.

     Policy Acquisition Costs. Policy acquisition costs, consisting primarily of
commissions  paid to ceding  companies  and  agents and  brokerage  fees paid to
intermediaries, less commissions received on business ceded to other reinsurers,
were $61.6  million  for the year ended  December  31,  1998,  compared to $72.7
million for the same period in 1997.  Policy  acquisition  costs  expressed as a
percentage of net earned premiums (the  acquisition  expense ratio) decreased to
26.8% from 29.6% in 1997.  The  decrease is  primarily  due to the effect of the
1998 aggregate excess of loss reinsurance treaty.

                                       21
<PAGE>

     Other Expenses.  Other expenses related to underwriting  operations,  which
include  underwriting and  administrative  expenses,  were $24.0 million for the
year ended  December 31, 1998  compared to $16.5  million for the same period in
1997. Other expenses  expressed as a percentage of net earned premiums increased
to 10.5% for the year ended  December  31,  1998  compared  to 6.7% for the same
period in 1997. The increase reflects the reduced level of premium volume and an
increased share of expenses related to Chartwell's underwriting participation on
syndicates managed by CMA.

     Net Underwriting  Results. The Company produced an underwriting profit (net
premiums earned minus losses, LAE and underwriting expenses) of $8.7 million for
the year ended  December  31, 1998 as compared to an  underwriting  loss of $4.3
million for the same period in 1997.  The combined  ratio computed in accordance
with GAAP for the year ended  December  31, 1998  decreased to 96.2% from 101.9%
for 1997. Although the loss ratio component improved to 58.9% for the year ended
December 31, 1998 from 65.5%  recorded for the same period in 1997,  the expense
ratio  increased  to 37.3% for the year  ended  December  31,  1998  from  36.4%
recorded for the same period in 1997, for the reasons noted above.

Service Operations
     Revenue  from  service  operations,  exclusive  of net  investment  income,
decreased  to $19.6  million for the year ended  December  31, 1998  compared to
$33.1 million for the same period in 1997. The decline principally  reflects the
decrease in profit commissions, advisory fee revenues and equity in the earnings
of investee  companies.  In March 1998, New London Capital plc ("NLC")  notified
Chartwell Advisers Limited ("Chartwell Advisers") that it chose not to renew the
Advisory Agreement between NLC and Chartwell Advisers (the "Advisory Agreement")
after its  contractual  expiration  on December 31,  1998.  In 1997 and 1998 the
Advisory  Agreement  produced base fees of $1.7 and $1.3 million,  respectively,
and profit commissions of $0.7 and $(0.3) million,  respectively,  for Chartwell
Advisers.  Following  expiration of the Advisory  Agreement,  Chartwell Advisers
will  continue to earn profit  commissions  on the open years of account  (1996,
1997 and 1998) to the extent such years are profitable.

Corporate
     Interest and  Amortization.  Interest and amortization  expenses were $10.7
million for the year ended  December  31, 1998  compared to $9.6 million for the
same period in 1997.  Interest and  amortization on the Chartwell  10.25% Senior
Notes  due 2004 (the  "Senior  Notes")  was $5.2  million  for the  years  ended
December 31, 1998 and 1997. Also included in interest and  amortization  expense
for the years ended December 31, 1998 and 1997 is $4.3 million and $3.4 million,
respectively,  related to a credit  facility  with  First  Union  National  Bank
("First  Union")  established  to fund the  acquisition  of CMA and  replace  an
existing $20 million credit facility.

Consolidated
     Net Investment Income and Net Realized Capital Gains (Losses). Consolidated
net investment  income,  exclusive of realized and unrealized  capital gains and
losses, for 1998 was $48.8 million,  an increase of $5.4 million, or 12.4%, over
1997.  The  improvement   principally  reflects  the  positive  cash  flow  from
operations of $33.8 million. The average annual tax equivalent yield on invested
assets (excluding  investment income from the Dedicated CCV's) before investment
expenses was 6.5% for 1998, as compared to 6.7% for 1997.  The Company  realized
net capital gains of $29,000 for 1998  compared to net capital  losses of $3,000
for the same period in 1997.

     Income Before Income Taxes,  Minority Interest and Extraordinary  Item. Net
income  before  income  taxes  increased  to $48.6  million  for the year  ended
December  31, 1998  compared to $40.5  million for the same period in 1997.  The
increase  resulted  primarily  from the favorable  results in both loss and loss
adjustment expense and from the increase in net investment income.

     Income Tax Expense.  The  provision  for Federal  income taxes for the year
ended December 31, 1998  increased to $15.4 million  compared with $12.2 million
for the same period in 1997.  The effective tax rate was 31.6% and 30.1% for the
years ended December 31, 1998 and 1997,  respectively.  The principal  factor in
the decline  below the statutory  rate of 35% for both periods  results from the
benefit recognized on investments in tax-exempt securities.


                                       22

<PAGE>

     Net Income Before Minority  Interest.  Net income before minority  interest
increased to $33.2  million for the year ended  December 31, 1998 as compared to
$28.3 million for the same period in 1997.

     Minority Interest. The Company recognized $1.9 million of minority interest
during the year ended December 31, 1998 and $(0.5) million during the year ended
December 31, 1997, in each case representing  Chartwell Re's ownership  interest
in the net income of Holdings Limited.

     Net Income. The Company realized a net profit of $35.2 million for the year
ended  December  31, 1998  compared  with a net profit of $27.8  million for the
comparable 1997 period because of the factors discussed above.

     Year Ended December 31, 1997 Compared With Year Ended December 31, 1996
     Revenues:  Total  revenues for the year ended  December 31, 1997  increased
23.4% to $322.3 million, compared to $261.2 million for the comparable period in
1996. The following table  summarizes  gross and net premiums  written and total
revenues for the periods indicated:

                                                               Revenues
                                                              Year Ended
                                                             December 31,
                                                     ---------------------------
                                                        1997              1996
                                                     ---------------------------
                                                        (Dollars in thousands)
Gross premiums written ......................        $ 362,770         $ 263,838
                                                     =========         =========
Net premiums written ........................          268,260           192,251
                                                     =========         =========
Premiums earned .............................          245,700           209,503
Net investment income .......................           43,457            43,598
Net realized capital gains (losses) .........               (3)            1,157
Service and other revenue ...................           28,322             3,367
Equity in net earnings of investees .........            4,794             3,559
                                                     ---------         ---------
         Total ..............................        $ 322,270         $ 261,184
                                                     =========         =========

Underwriting Operations
     Gross Premiums Written;  Net Premiums Written;  Net Premiums Earned.  Gross
premiums  written for the year ended December 31, 1997 were $362.8  million,  an
increase of 37.5%  compared to the same  period in 1996.  The  increase in gross
premiums  written  reflects new programs and products  developed during the year
with  ceding  companies  in the  Specialty  Reinsurance  and  Controlled  Source
Insurance  client  segments and the addition of gross premiums  written  through
CMA's two  Dedicated  CCV's.  Gross  premiums  written by the  Global  Accounts,
Regional Accounts and Marine & Aviation Accounts client segments either declined
or remained constant as a result of continued competitive pressures.
     Net premiums  written for the year ended December 31, 1997 increased  39.5%
to $268.3  million,  compared to $192.3 million for the same period in 1996. The
increase in net premiums  written was  principally  attributable  to the reasons
described above for the increase in gross premiums written.  Net premiums earned
for the year ended December 31, 1997 were $245.7  million,  an increase of 17.3%
compared to the same period in 1996.

     Loss and Loss Adjustment  Expenses.  The Company's principal expense,  loss
and LAE related to the  settlement  of claims,  was $160.8  million for the year
ended  December  31, 1997, a 6.8%  increase  compared to $150.6  million for the
comparable  period in 1996.  The  increase is  principally  attributable  to the
increase in net premiums written as noted above. Net losses and LAE expressed as
a percentage of net earned premiums (the loss and LAE ratio)  decreased to 65.5%
for the year ended  December 31, 1997 from 71.9% recorded for the same period in
1996. The improvement of 6.4 percentage points in the loss and LAE ratio for the
year ended  December 31, 1997 was a result of a change in the mix of business as
well as the benefits of new reinsurance programs,  including aggregate excess of
loss reinsurance treaties, and the enhancement of existing reinsurance programs.
In addition,  the 1997 results  were not  materially  affected by the run-off of
reinsurance  programs  written by INSCORP prior to December 1995, a factor which
impacted the 1996 results.

                                       23

<PAGE>

     Policy Acquisition Costs. Policy acquisition costs, consisting primarily of
commissions  paid to ceding  companies  and  agents and  brokerage  fees paid to
intermediaries, less commissions received on business ceded to other reinsurers,
were $72.7  million  for the year ended  December  31,  1997,  compared to $52.0
million for the same period in 1996.  Policy  acquisition  costs  expressed as a
percentage of net earned premiums (the  acquisition  expense ratio) increased to
29.6% from 24.8% in 1996.  The increase was  primarily  due to the effect of the
aggregate excess of loss reinsurance treaties entered into in 1997 which reduced
net earned  premium for the year without  providing  any reduction in commission
expenses.  Also  contributing to the increase was the modestly higher commission
structure, as noted above, for proportional business.

     Other Expenses.  Other expenses related to underwriting  operations,  which
include  underwriting and  administrative  expenses,  were $16.5 million for the
year ended  December 31, 1997  compared to $15.8  million for the same period in
1996. Other expenses  expressed as a percentage of net earned premiums decreased
to 6.7% for the year  ended  December  31,  1997  compared  to 7.5% for the same
period in 1996.

     Net Underwriting  Results.  The Company incurred an underwriting  loss (net
premiums earned minus losses, LAE and underwriting expenses) of $4.3 million for
the year ended  December  31, 1997 as compared to an  underwriting  loss of $8.9
million for the same period in 1996.  The combined  ratio computed in accordance
with GAAP for the year ended  December 31, 1997  decreased to 101.9% from 104.2%
for 1996.  Although  the loss ratio  component  improved  to 65.5 % for the year
ended  December 31, 1997 from 71.9 % recorded  for the same period in 1996,  the
expense ratio  increased to 36.4% for the year ended  December 31, 1997 from the
32.3 % recorded for the same period in 1996, for the reasons noted above.

Service Operations
     Revenue  from  service  operations,  exclusive  of net  investment  income,
increased to $33.1 million for the year ended December 31, 1997 compared to $6.9
million for the same  period in 1996.  The  improvement  reflects  increases  in
advisory  fee  revenues,  equity in the earnings of investee  companies  and the
inclusion,  for the  first  time,  of  profit  commissions  and  fees  from  CMA
operations.  In March 1998, NLC notified Chartwell Advisers that it chose not to
renew the Advisory  Agreement after its  contractual  expiration on December 31,
1998. In 1997, the Advisory  Agreement  produced base fees of $1.7 million and a
profit commission of $0.7 million for Chartwell Advisers.  Following  expiration
of the  Advisory  Agreement,  Chartwell  Advisers  will  continue to earn profit
commissions  on the open  years of account  (1996,  1997 and 1998) to the extent
such years are profitable.

Corporate
     Interest and  Amortization.  Interest and  amortization  expenses were $9.6
million for the year ended  December  31, 1997  compared to $7.8 million for the
same period in 1996.  Interest  and  amortization  on the Senior  Notes was $5.2
million for the year ended December 31, 1997 and $6.0 million for the comparable
period in 1996. Also included in interest and amortization  expense for the year
ended December 31, 1997 is $3.4 million  related to a credit facility with First
Union  established  to fund the  acquisition  of CMA and replace an existing $20
million credit facility.

Consolidated
     Net Investment Income and Net Realized Capital Gains (Losses). Consolidated
net investment  income,  exclusive of realized and unrealized  capital gains and
losses,  for 1997 was $43.5  million,  compared  to $43.6  million in 1996.  The
average  annual  tax  equivalent  yield on  invested  assets  before  investment
expenses for 1997 and 1996 was 6.7%.

     The Company  realized net capital losses of $3,000 for 1997 compared to net
capital gains of $1.2 million in 1996.  The 1996 net capital gains were realized
principally  to  reposition  certain  sectors of the portfolio and to modify the
portfolio to improve credit quality without sacrificing yield.

     Income Before Income Taxes,  Minority Interest and Extraordinary  Item. Net
income before income taxes and  extraordinary  items  increased to $40.5 million
for the year ended  December  31, 1997  compared  to $31.7  million for the same
period in 1996.  The  increase  resulted  primarily  from the increase in earned
premiums,  the favorable  results in both loss and loss  adjustment  expense and
other  expenses,   and  the  contributions  from  CMA  to  income  from  service
operations.


                                       24
<PAGE>

     Income Tax Expense.  The  provision  for Federal  income taxes for the year
ended  December 31, 1997  increased to $12.2 million  compared with $9.3 million
for the same period in 1996.  The effective tax rate was 30.1% and 29.4% for the
years ended December 31, 1997 and 1996,  respectively.  The principal  factor in
the decline below the  statutory  rate of 35.0% for both periods was the benefit
of an increase during late 1996 and early 1997 of investments in  tax-advantaged
securities.

     Net Income Before  Minority  Interest and  Extraordinary  Item.  Net income
before minority interest and  extraordinary  item increased to $28.3 million for
the year ended  December  31,  1997 as  compared  to $22.4  million for the same
period in 1996.

     Minority Interest.  The Company recognized  $(525,000) of minority interest
during the year ended December 31, 1997,  representing  Chartwell Re's ownership
interest in the net income of Holdings Limited.

     Extraordinary  Item,  Net of  Income  Tax.  The  Company  recognized  a net
after-tax  extraordinary expense of $1.9 million for the year ended December 31,
1996 for the  write-off  of  unamortized  debt  issuance  costs and a redemption
premium associated with the redemption of 35% of the Senior Notes.

     Net Income. The Company realized a net profit of $27.8 million for the year
ended  December  31, 1997  compared  with a net profit of $20.5  million for the
comparable 1996 period because of the factors discussed above.

Liquidity and Capital Resources
     Chartwell  is a  wholly-owned  subsidiary  of  Chartwell  Re.  As a holding
company,  Chartwell's  assets  consist  primarily of the stock of its direct and
indirect  operating  subsidiaries,   Chartwell  Reinsurance,  INSCORP  and  CMA.
Chartwell's  cash  flow,  therefore,  depends  largely  on  dividends  and other
statutorily  permissible payments from its operating  subsidiaries.  Chartwell's
sources of funds  consist  primarily of net  premiums,  reinsurance  recoveries,
investment income and proceeds from sales and redemptions of investments.  Funds
are applied primarily to payments of claims, operating expenses and income taxes
and to the purchase of investments,  largely fixed income  securities.  Cash and
short-term investments are maintained for the payment of claims and expenses.
     For  the  years  ended  December  31,  1998,  1997  and  1996,  Chartwell's
consolidated  cash flow provided by operations was $33.8 million,  $25.5 million
and $14.7 million, respectively. The increase in 1998 is due to the inclusion of
Chartwell's  share of the  operating  cash flow of  syndicates  managed  by CMA,
offset  by a  decline  in cash  provided  by the  reinsurance  segment  due to a
reduction  in  premiums  written  and the  collection  of  premiums on a monthly
installment  basis  on  certain  accounts  in the  Controlled  Source  Insurance
segment. The cash flow from operations in 1997 was greater than that in 1996 due
to improved  underwriting  cash flows  comprising  premiums  received  less paid
losses and LAE and underwriting expenses. The 1996 cash flow from operations was
reduced as a result of the run-off of INSCORP's reinsurance reserves.
     Sales of available for sale investments were $158.4 million, $200.8 million
and  $500.7  million  for the years  ended  December  31,  1998,  1997 and 1996,
respectively.  Trading  activity  increased  during 1996 primarily to modify the
portfolio by sector and to capitalize on some opportunities to improve on credit
quality without  sacrificing yield. There was no unusual trading activity during
1997 and 1998.
     At December 31, 1998,  the carrying value of total  investments,  including
cash and cash equivalents, increased 15.0%, to $876.2 million compared to $762.2
million at December 31, 1997. The primary reasons for the increase were cash and
investments  acquired  through the purchase of Oak Dedicated Two Limited and the
remainder of Archer  Dedicated  plc (the holding  company for ADIT One Limited),
positive  cash flow from  operations  and an increase in the market value of the
investment portfolio.
     Financing activities have also been a source of liquidity for Chartwell and
its  subsidiaries.  On March 17, 1994,  Chartwell  Re completed  the offering of
$75.0  million  principal  amount  of the  Senior  Notes.  The net  proceeds  to
Chartwell Re after transaction  expenses were $71.9 million.  As of December 31,
1998,  $48.8 million in principal  amount of the Senior Notes were  outstanding.
The  Senior  Notes bear  interest  at a rate of 10 1/4% per annum and are due on
March 1, 2004. In conjunction with the Piedmont Merger,  the Company assumed all
of Chartwell Re's obligations with respect to the Senior Notes.
     In the first half of 1996,  Chartwell  Re  completed  a public  offering of
2,725,000  shares of common  stock at $23.00  per  share.  The net  proceeds  to
Chartwell Re were $58.5 million  after  deduction of  underwriting  discount and
expenses. Of the net proceeds,  $48.5 million was contributed by Chartwell Re to
the Company of which $20.0 million was  contributed to the statutory  surplus of
Chartwell  Reinsurance  and $28.5  million  was used to retire 35% of the Senior
Notes plus  accrued  interest.  The  remaining  funds were  retained for general
corporate  purposes.  This  redemption  reduced  Chartwell's  annual expense for
interest and  amortization of debt issuance costs under the Senior Notes by $2.8
million per year.
                                       25
<PAGE>

     In connection  with the  acquisition of CMA,  stockholders  of Chartwell UK
could elect to receive  Loan Notes in the amount of one Pound  Sterling for each
Pound Sterling of cash consideration.  The aggregate amount of Loan Notes issued
in connection  with the  consummation of the acquisition of CMA was $9.4 million
(denominated in Pounds Sterling).  The Loan Notes, which are guaranteed by First
Union as  described  below,  pay  interest  semi-annually  at the rate per annum
calculated  as one percent  below the  Sterling  London  Interbank  Offered Rate
("LIBOR") and will mature in June,  2002 unless  redeemed at an earlier date. As
of December 31, 1998, $3.8 million of the Loan Notes have been redeemed.
     Also in connection  with the acquisition of CMA,  Chartwell  entered into a
new credit  facility  with First Union,  as agent (the "Credit  Facility").  The
Credit  Facility  provides  for (i) a Tranche  A-1 $20.0  million  loan,  (ii) a
Tranche  A-2  $10.0  million  loan,   (iii)  a  Tranche  B  $22.0  million  loan
(denominated  in  Pounds  Sterling)  (Tranche  A-1,  Tranche  A-2 and  Tranche B
collectively,  the "First  Union  Loans"),  and (iv) a $25.0  million  revolving
credit  facility  (subsequently  increased to $60.0  million)  (the "First Union
Revolver").
     The First Union Loans have six-year  terms and the First Union Revolver has
a five-year  term but may be extended  with the consent of the lenders.  Tranche
A-1 and A-2 require  repayment  of principal  starting in year 3, $6.0  million;
year 4, $7.5 million;  year 5, $7.5 million and year 6, $9.0 million.  Tranche B
requires repayment of principal  starting in year 3, $4.2 million;  year 4, $5.3
million;  year 5, $5.3 million and year 6, $6.4  million.  Borrowings  under the
First Union  Revolver are  available  at any time prior to maturity,  subject to
minimum funding amounts. Both the First Union Loans and the First Union Revolver
will bear interest at a rate selected by Chartwell  equal to either (1) the Base
Rate (as defined below) or (2) U.S.  dollar or Sterling LIBOR plus a margin (the
"Margin"), as applicable.  The amount of the Margin will depend on the higher of
Chartwell's  senior  debt  rating by  Standard & Poor's or Moody's and can range
from 0.75% to 1.125%.  Based on  Chartwell's  current  senior debt ratings,  the
Margin over LIBOR is currently at 1.00%. The U.S. dollar Base Rate is the higher
of (1) First Union's prime commercial lending rate or (2) the federal funds rate
plus 0.5%.  The  Sterling  Base Rate is the rate per annum  announced by Midland
Bank plc plus the Margin.  Chartwell will also pay (1) an unused  commitment fee
equal to 0.25% on the aggregate unused portion of the revolver,  (2) utilization
fees for the issuance of letters of credit and guarantees of Loan Notes,  issued
in  connection  with the  acquisition  of CMA, at a rate per annum of 0.375% (if
secured)  or the Margin  (if  unsecured)  plus a 0.075%  facing  fee,  currently
totaling  1.075% (if unsecured) on the  outstanding  amount of potential  credit
exposure,  and (3) certain other fees  customary in connection  with  syndicated
loans of this nature.  All payments of interest and fees with respect to each of
the First Union Loans shall be made in the same  currency in which the principal
of such loan is required.
     At December 31, 1998,  $20.0 million,  $10.0 million and $15.9 million were
outstanding   under  the  Tranche   A-1,   Tranche  A-2  and  Tranche  B  loans,
respectively.  During 1998, the Tranche B loan increased by $1.8 million to fund
the redemption of Loan Notes for the same amount, resulting in a balance of $5.5
million  used to guarantee  the Loan Notes.  A $5.0 million line of credit and a
total of $53.6 million in letters of credit were extended  under the First Union
Revolver.  All amounts  denominated  in Pounds  Sterling were  converted to U.S.
dollars at the rate of  (pound)1=$1.66,  the exchange rate in effect at December
31, 1998.
     On June 30, 1998, the Company  entered into an interest rate swap agreement
(the  "Swap")  for other than  trading  purposes  with First  Union to convert a
specific  portion  of the  floating  rate  loans  outstanding  under the  Credit
Facility  to a fixed  rate.  The Swap  requires  the  Company to pay First Union
interest  on  a  notional  amount   equivalent  to  the  principal   outstanding
((pound)10,280,000  at December 31, 1998) at a fixed annual rate  throughout the
term of the  related  debt  obligation  of 6.85% and for First  Union to pay the
Company  interest equal to the three month LIBOR interest rate determined at the
commencement of each calendar quarter. The Swap terminates on December 31, 2002.
The  weighted  average  LIBOR rate payable by First Union in 1998 under the Swap
was 7.62%.
     The  notional  amount  set forth in the Swap does not  represent  an amount
exchanged by the Company and First Union,  and thus is not a measure of exposure
of  the  Company.  Since  First  Union  is not  required  to  collateralize  its
obligations  under the Swap,  the Company is exposed to loss if First Union were
to default on its obligations  under the Swap. The Company does not believe that
any  reasonably  likely change in interest  rates would cause the Swap to have a
material adverse effect on the financial position,  the results of operations or
cash  flows of the  Company.  The Swap was  reviewed  with and  approved  by the
Company's Board of Directors.

                                       26
<PAGE>
     Upon consummation of the Piedmont Merger, Chartwell Re became the successor
to  Piedmont  under  the CI Notes.  The CI Notes  were  issued  in an  aggregate
principal amount of $1 million, which principal amount will accrue interest at a
rate of 8% per annum,  compounded  annually.  Such  interest will not be payable
until maturity or earlier redemption of the CI Notes. In addition,  the CI Notes
will entitle the holders  thereof to receive at maturity,  in  proportion to the
principal  amount of the CI Notes held by them, an aggregate of from $10 million
up to $55 million in contingent interest. Settlement of the CI Notes may be made
by payment of cash or, under certain specified conditions, by delivery of shares
of Chartwell Re's common stock. The CI Notes mature on June 30, 2006.
     Chartwell and its  subsidiaries  may incur  additional  indebtedness in the
future, subject to the limitations contained in the Senior Notes indenture,  the
agreements governing the Credit Facility and the CI Notes indenture.
     Chartwell  is  largely  dependent  upon  receipt  of  dividends  and  other
statutorily  permissible payments from its subsidiaries to meet its obligations,
including the  obligations to pay interest and principal on the Senior Notes and
under the Credit Facility.  Further,  dividend payments by Chartwell Reinsurance
and INSCORP are subject to limits under the laws of the States of Minnesota  and
New York, respectively. Under the applicable provisions of the insurance holding
company laws of the State of  Minnesota,  Chartwell  Reinsurance  may, upon five
days notice to the  Commissioner  of Insurance  of the State of Minnesota  ("the
Commissioner") following the declaration of dividends to stockholders,  and upon
at least ten days notice to the  Commissioner  prior to dividend  payments,  pay
dividends  without the  approval  of the  Commissioner,  unless such  dividends,
together with other  dividends paid within the preceding  twelve months,  exceed
the greater of (i) 10% of Chartwell  Reinsurance's  policyholders' surplus as of
the end of the prior calendar year or (ii) Chartwell Reinsurance's statutory net
income,  excluding  realized  capital  gains,  for the prior  calendar year. Any
dividend in excess of the amount  determined  pursuant to the foregoing  formula
would be  characterized  as an  "extraordinary  dividend"  requiring  the  prior
approval  of the  Commissioner.  In any case,  the maximum  amount of  dividends
Chartwell  Reinsurance may pay is limited to its earned  surplus,  also known as
unassigned  funds.  As of December  31,  1998,  Chartwell  Reinsurance  reported
unassigned  funds,  as  defined,  in the amount of $103.8  million.  Up to $30.3
million is available under the foregoing formula for the payment of dividends by
Chartwell Reinsurance without regulatory approval in 1999. On November 25, 1997,
Chartwell  Reinsurance paid a $3.0 million dividend to Chartwell and on February
24,  1999,  Chartwell  Reinsurance  paid a $5.5 million  dividend to  Chartwell.
Chartwell Reinsurance paid no dividends in 1996 or 1998.
     Under New York law,  which is applicable to INSCORP,  the maximum  ordinary
dividend  payable  in any  twelve  month  period  without  the  approval  of the
Superintendent may not exceed the lesser of (a) 10% of policyholders  surplus as
shown on the  company's  last  annual  statement  or any more  recent  quarterly
statement or (b) the  company's  adjusted net  investment  income.  Adjusted net
investment  income is defined  as net  investment  income for the twelve  months
preceding  the  declaration  of the  dividend  plus the  excess,  if any, of net
investment  income  over  dividends  declared or  distributed  during the period
commencing  thirty-six  months prior to the  declaration or  distribution of the
current  dividend and ending twelve months prior thereto.  In any case, New York
law permits the payment of an ordinary  dividend by an insurer or reinsurer only
out of earned  surplus.  Moreover,  notwithstanding  the receipt of any dividend
from INSCORP, Chartwell Reinsurance may make dividend payments to Chartwell only
to the extent permitted under the Minnesota provisions described above.
     In addition to the foregoing limitation, the New York Insurance Department,
as is its  practice in any change of control  situation,  required  Chartwell to
commit to preclude the acquired New York-domiciled insurer, INSCORP, from paying
any dividends for two years after the Piedmont  Merger without prior  regulatory
approval.  The foregoing  restriction expired on December 13, 1997. INSCORP paid
no dividends in 1997 or 1998.
     The maximum  dividend  permitted by law is not  indicative  of an insurer's
actual  ability to pay  dividends,  which may be  constrained  by  business  and
regulatory  considerations,  such as the impact of dividends  on surplus,  which
could  affect an  insurer's  ratings  or  competitive  position,  the  amount of
premiums  that  can  be  written  and  the  ability  to  pay  future  dividends.
Furthermore,  beyond  the  limits  described  in the  preceding  paragraph,  the
Commissioner  and  Superintendent  have  discretion  to  limit  the  payment  of
dividends  by  insurance   companies   domiciled  in  Minnesota  and  New  York,
respectively.
     Management  believes that current  levels of cash flow from  operations and
assets held at the holding  company  level  provide the Company with  sufficient
liquidity  to meet its  operating  needs in the  short  term  (over  the next 12
months).  Management  expects  Chartwell  to be able  to  continue  to meet  its
operating needs after the next 12 months from internally  generated funds. Since
the ability of Chartwell to meet its  obligations  in the long term (beyond such
12-month  period) is dependent  upon such factors as market  changes,  insurance
regulatory changes and economic  conditions,  no assurance can be given that the
available  net cash flow will be sufficient  to meet its  operating  needs.  The
Company expects that, in order to repay the principal amount of the Senior Notes
on maturity or otherwise,  it will be required to seek  additional  financing or
engage in asset  sales or similar  transactions,  and would be  required to take
similar actions in order to repay the CI Notes on maturity or otherwise,  in the
event it chose or was required to settle the CI Notes in cash rather than common
stock.  There can be no assurance that sufficient funds for any of the foregoing
purposes would be available to the Company at such time.

                                       27
<PAGE>

Market Risk Disclosures
     Chartwell's  primary market risk exposures are: foreign  currency  exchange
risk, in particular the U.S. dollar to the British pound sterling; interest rate
risk on  fixed  and  variable  rate  U.S.  dollar  and  British  pound  sterling
denominated short and long-term instruments; and equity price risk.

     Foreign Currency Exchange Rate Risk: Foreign currency risk is the risk that
Chartwell will incur economic losses due to adverse changes in foreign  currency
exchange rates. This risk arises from Chartwell's international operations, debt
obligations denominated in foreign currencies and foreign equity investments. At
December 31, 1998, Chartwell had a net investment of approximately $33.2 million
in foreign  subsidiaries,  $26.8  million  in debt  obligations  denominated  in
foreign currencies and $3.3 million in foreign equity investments.
     A  portion  of  Chartwell's   reinsurance   operations  is  denominated  in
international  currencies,  particularly  the  British  pound  sterling  and the
Canadian dollar.  This exchange rate exposure is somewhat mitigated by investing
the premiums received in currencies in which the liabilities are denominated.
     Based upon data as at December 31, 1998,  management  estimates  that a 10%
immediate  unfavorable  change in each of the foreign currency exchange rates to
which  Chartwell  is  exposed  would  decrease  the fair  value  of its  foreign
denominated instruments by approximately $2.9 million.  Chartwell's net exposure
to exchange rates consist of $19.7 million to the British pound  sterling,  $5.3
million to the  Canadian  dollar and an  aggregate  of $3.7 million to all other
foreign currencies.

     Interest Rate Risk: Chartwell's fixed maturity investments and indebtedness
are  subject to  interest  rate risk.  Increases  and  decreases  in  prevailing
interest  rates  generally  translate  into  decreases and increases in the fair
value of fixed  maturity  investments  and the interest  payable on  Chartwell's
outstanding  variable rate debt.  On occasion,  Chartwell  utilizes  stand-alone
derivatives  to manage and mitigate the  volatility of interest rates on certain
of its interest  rate  sensitive  instruments.  Additionally,  the fair value of
interest rate sensitive  instruments may be affected by the  creditworthiness of
the issuer,  prepayment  option,  relative  values of  alternative  investments,
liquidity of the investment and other general market conditions.
     The table below summarizes the estimated effects of hypothetical  increases
and  decreases  in  interest  rates.  It  is  assumed  that  the  changes  occur
immediately  and uniformly to each category of  instrument  containing  interest
rate risks. The hypothetical changes in market interest rates reflect what could
be  deemed  best or worst  case  scenarios.  Significant  variations  in  market
interest  rates  could  produce  changes  in the  timing  of  repayments  due to
prepayment  options  available.  The  fair  value of such  instruments  could be
affected and therefore  actual results might differ from those  reflected in the
table, which follows:

<TABLE>
<CAPTION>
                                                                       Estimated Fair Value      Hypothetical
                                                Hypothetical Change     After Hypothetical    Percentage Increase
                              Fair Value at       in Interest Rate         Change in              (Decrease) in
                             December 31, 1998   (bp=basis points)       Interest Rate        Stockholders' Equity
Assets: (1)                  -----------------   -----------------       -------------        --------------------
--------------------------                                  (dollars in thousands)
<S>                             <C>              <C>                        <C>                       <C>
U.S Treasury Securities         $212,467         100 bp decrease            $221,863                   3.2%
and Obligations of US                            100 bp increase             202,243                  (3.5)
Government Corporation                           200 bp increase             191,429                  (7.2)
and Agencies                                     300 bp increase             172,585                  (13.6)

Other fixed maturity            $479,071         100 bp decrease            $504,577                   8.7%
investments                                      100 bp increase             451,318                  (9.5)
                                                 200 bp increase             421,962                  (19.5)
                                                 300 bp increase             370,807                  (37.0)
Liabilities:
--------------------------
Borrowings Under                $112,162         100 bp decrease            $112,315                   0.3%
Investment Agreements                            100 bp increase             112,012                  (0.3)
and other debt                                   200 bp increase             111,862                  (0.5)
                                                 300 bp increase             111,713                  (0.8)
</TABLE>

(1) Excludes investments held by CMA managed syndicates.

                                       28
<PAGE>


   Equity Price Risk: The carrying values of investments subject to equity price
risks are based on quoted market prices or management's  estimates of fair value
as of the balance  sheet date.  Market  prices are subject to  fluctuation  and,
consequently,  the amount  realized in the subsequent  sale of an investment may
significantly  differ from the reported market value.  Fluctuation in the market
price of a security may result from perceived changes in the underlying economic
characteristics of the investee,  the relative price of alternative  investments
and general market  conditions.  Furthermore,  amounts realized in the sale of a
particular  security  may be affected by the  relative  quantity of the security
being sold.

     Chartwell's  common equity portfolio of $36.4 million primarily consists of
long term strategic minority positions in illiquid equity securities of managing
general agents of Controlled Source Insurance.  A 10% immediate  decrease in the
market prices of all equity  securities  held by Chartwell at December 31, 1998,
would  result in an  approximate  1.2%  decrease  in  Chartwell's  stockholders'
equity.

     The above analyses do not take into account any  correlation  among foreign
currency  exchange rates, or any  correlation  among various markets (i.e.,  the
fixed  income  markets and foreign  exchange  and equity  markets).  Chartwell's
actual experience may differ from the results noted above due to the correlation
assumptions  utilized,  or if  events  occur  that  were  not  included  in  the
methodology,  such as significant  liquidity or market events.  The selection of
the amount of increases or decreases in currency exchange rates,  interest rates
and equity values in the above analyses  should not be construed as a prediction
of future market events,  but rather, to illustrate the potential impact of such
an event.

Year 2000 Compliance
     The Year 2000 issue is the result of computer  programs being written using
two  digits  rather  than four to define  the  applicable  year.  The  Company's
computer equipment,  software and devices with imbedded technology that are time
sensitive  may recognize a date using "00" as the year 1900 rather than the year
2000.  This  could  result  in  a  system  failure  or  miscalculations  causing
disruptions of operations,  including, among other things, a temporary inability
to process  transactions  or engage in other  normal  business  activities.  The
consequences   to  the  Company  of  such  failures   could   include   business
interruption, lost revenue or illiquidity. The magnitude of the financial impact
of such potential failures on the Company is not known at this time.
     The  Company  believes  that it has  identified  all  significant  computer
hardware and software  applications  and devices with  imbedded  time  sensitive
technology  that are employed by the Company in its operations that will require
modification to ensure Year 2000 Compliance.  The Company is using both internal
and external resources to test all significant computer systems and applications
and to make the  modifications  necessary for Year 2000 Compliance.  The testing
and modification  process,  which is proceeding on schedule, is 95% complete and
is expected to be fully completed by June 30, 1999. The testing and modification
process has not materially interfered with the Company's Information  Technology
operations or the operations of the Company .
     In addition,  the Company has  contacted  all of its  significant  business
partners and service vendors to determine their Year 2000 Compliance  readiness,
as well as the extent to which the Company is vulnerable to any third party Year
2000  issues.  However,  there can be no  guarantee  that the  systems  of other
companies on which the Company's systems rely will become Year 2000 compliant in
a timely  manner,  or that the  failure  by a third  party to  become  Year 2000
compliant would not have a material adverse effect on the Company.
     The Company is revising its existing disaster recovery contingency plans to
address issues  specific to the Year 2000 problem.  These revisions are expected
to be completed by June 30, 1999.  Such plans are intended to enable the Company
to  continue  to operate by  performing  certain  processes  manually,  changing
vendors and repairing or replacing existing systems, where feasible.
     The total cost to the  Company  to test and  modify all  systems to be Year
2000  compliant  has  not  been,  and is not  expected  to be,  material  to its
financial  position or results of  operations  in any given year.  To date,  the
Company has budgeted $50,000 to accomplish its Year 2000 testing and remediation
goals  and   approximately  50%  of  the  amount  budgeted  has  been  expended.
Expenditures  to fund Year 2000 testing and  modification  have to date and will
continue to be funded from operating cash flows.
     The anticipated completion dates for Year 2000 compliance and the Company's
contingency  plans and the cost  estimates  for the  completion of the Company's
Year 2000 compliance program are based on management's best estimates  utilizing
current data regarding available resources,  coordination with third parties and
other relevant factors and information about systems conversion.  However, there
can be no assurance that these  estimates  will be achieved,  and actual results
could differ from the current plan.

                                       29

<PAGE>

     In addition,  the Company may also have  material  exposure in its property
and casualty  operations to claims related to the Year 2000 issue. It is not yet
possible to determine  whether  such claims  might be made against  insurance or
reinsurance  contracts in which the Company  participates or if such claims will
be held to have merit.
     Readers are cautioned  that  forward-looking  statements  contained in this
description of the Company's  treatment of the Year 2000 issue should be read in
conjunction with the Company's  disclosures  under the heading  "Cautionary Note
Regarding Forward-Looking Statements" below.

Accounting Standards

Accounting for Derivative Instruments and Hedging Activities - SFAS No. 133
     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards ("SFAS") No. 133,  "Accounting for
Derivative  Instruments and Hedging Activities," which becomes effective for the
Company  January 1, 2000.  SFAS No. 133  establishes  accounting  and  reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other  contracts,  and for hedging  activities.  The Company will be
required to recognize all  derivatives  as either assets or  liabilities  in the
statement of financial position and measure those instruments at fair value. The
accounting  for a change in the fair value of a derivative  in earnings or other
comprehensive  income will depend on the intended use of the  derivative and the
resulting  designation.  Derivatives  can be  designated  as (a) a hedge  of the
exposure to changes in the fair value of a  recognized  asset or  liability or a
firm  commitment,  (b) a hedge  of the  exposure  to  variable  cash  flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment  in  foreign   operations,   an  unrecognized  firm  commitment,   an
available-for-sale  security,  or  a  foreign  currency  denominated  forecasted
transaction.
     The difference between a derivative's previous carrying amount and its fair
value at the date of  implementation  of SFAS No.  133  shall be  reported  as a
transition adjustment.  Such adjustment shall be reported in net income or other
comprehensive  income  as the  effect of a change in  accounting  principle  and
presented in a manner similar to the cumulative effect of a change in accounting
principle  in  accordance  with APB Opinion No. 20,  "Accounting  Changes."  The
Company is currently  reviewing the impact of the implementation of SFAS No. 133
on its financial statements.

Disclosures About Segments of an Enterprise and Related Information  Footnotes -
SFAS No. 131
     In June 1997, the FASB issued SFAS No. 131,  "Disclosures About Segments of
an Enterprise and Related Information Footnotes," which became effective for the
Company  beginning  January 1, 1998. SFAS No. 131 establishes  standards for the
way that public business enterprises report information about operating segments
in annual  financial  statements  and  requires  that those  enterprises  report
selected  information  about  operating  segments in interim  financial  reports
issued to shareholders.  It also establishes  standards for related  disclosures
about products and services,  geographic areas and major customers. The adoption
of SFAS No. 131 had no impact on the Company's  financial position or results of
operations.  Prior year segment  information has been reclassified to conform to
the SFAS No. 131 requirements.

Reporting Comprehensive Income - SFAS No. 130
     In June  1997,  the FASB  issued  SFAS No.  130,  "Reporting  Comprehensive
Income," which became effective for the Company  beginning January 1, 1998. SFAS
No. 130 establishes  standards for reporting and display of comprehensive income
and its  components  (revenues,  expenses,  gains and  losses)  in a full set of
general-purpose  financial  statements.  This Statement  requires that all items
that are required to be recognized under  accounting  standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same  prominence  as other  financial  statements.  It does  not  require  a
specific  format for that  financial  statement  but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement. The adoption of SFAS No. 130 had no impact on the Company's
financial  position or results of operations.  Prior year  financial  statements
have been reclassified to conform to the SFAS No. 130 requirements.


Regulatory Accounting Practices
     In March 1998, the National Association of Insurance  Commissioners adopted
the  Codification  of  Statutory  Accounting  Principles  ("Codification").  The
Codification,  which  is  intended  to  standardize  regulatory  accounting  and
reporting for the  insurance  industry,  is proposed to be effective  January 1,
2001. However,  statutory accounting  principles will continue to be established
by individual  state laws and permitted  practices and it is uncertain  when, or
if, the states of Minnesota,  New York and North Dakota will require adoption of
Codification for the preparation of statutory financial statements.  The Company
has not  finalized  the  quantification  of the effects of  Codification  on its
statutory financial statements.


                                      30
<PAGE>

Effects of Inflation
     The  effects of  inflation  on  Chartwell  are  considered  in pricing  and
estimating reserves for unpaid losses and loss adjustment  expenses.  The actual
effects of inflation on  Chartwell's  results  cannot be  accurately  determined
until ultimate losses are settled. However, based on the actual results reported
to date,  management  believes that premium rates and loss  reserves,  including
reserves  for  losses  that  have been  incurred  but not  reported,  adequately
incorporate the effects of inflation. See Item 1, "Business--Reserves."

Cautionary Note Regarding Forward-Looking Statements
     This Annual Report on Form 10-K contains  statements that may be considered
to be  "forward-looking  statements"  within the  meaning of Section  27A of the
Securities Act of 1933, as amended,  and Section 21E of the Securities  Exchange
Act of 1934, as amended.
     Such  statements may include,  without  limitation,  insofar as they may be
considered  to  be  forward-looking   statements,   certain  statements  in  (i)
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations--Consolidated  Results of  Operations - Year Ended  December 31, 1998
Compared  With Year Ended  December  31,  1997" and  "--Consolidated  Results of
Operations - Year Ended  December 31, 1997 Compared With Year Ended December 31,
1996" concerning (A) certain  relationships  among gross premiums  written,  net
premiums  written and net premiums earned and (B) the development of reserves in
respect of all or a portion of the Company's insurance and reinsurance business;
(ii) "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" concerning the potential effects of
certain events on the Company's  indebtedness and portfolios of fixed income and
equity instruments, foreign currency exposure, derivatives positions and certain
other types of  instruments;  (iii)  "Management's  Discussion  and  Analysis of
Financial  Condition  and  Results  of   Operations--Market   Risk  Disclosures"
concerning  the  potential  effects of changes in the equity  markets,  interest
rates and currency exchange rates; (iv) "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance"  concerning
the costs  and  effects  of Year  2000  compliance;  (v) such  other  statements
contained in this Annual  Report that may be  considered  to be  forward-looking
statements; and (vi) variations of the foregoing statements wherever they appear
in this Annual Report.
     All  forward-looking  statements  address  matters that  involve  risks and
uncertainties.  Accordingly,  there are or will be important  factors that could
cause  actual  results  to  differ  materially  from  those  indicated  in  such
statements.  The Company believes that these include the following non-exclusive
factors:

i.      the impact of  changing  market  conditions  on the  Company's  business
        strategy;
ii.     the  effects  of  increased  competition  on  pricing,  coverage  terms,
        retention of customers and ability to attract new customers;
iii.    greater  severity  or  frequency  of the types of large or  catastrophic
        losses which the Company's  subsidiaries insure or reinsure;  iv. faster
        or more  adverse  loss  development  experience  than  that on which the
        Company's underwriting, reserving and investment practices are based;
v.      changes in the Company's retrocessional arrangements;
vi.     developments in global  financial  markets which could adversely  affect
        the performance of the Company's investment portfolio;
vii.    litigation,  regulatory or tax developments  that could adversely affect
        the Company's business;
viii.   risks associated with the introduction of new products and services; and
ix.     the impact of mergers and acquisitions.

     The facts set forth  above  should be  considered  in  connection  with any
forward-looking statement contained in this Annual Report. The important factors
that could affect such forward-looking statements are subject to change, and the
Company does not intend to update any forward-looking statement or the foregoing
list of important factors. By this cautionary note, the Company intends to avail
itself  of the safe  harbor  from  liability  with  respect  of  forward-looking
statements provided by Section 27A and Section 21E referred to above.


                                       31
<PAGE>

Item 7A.  Quantitative and Qualitative disclosures About Market Risk

     See "Market Risk Disclosures" contained in Item 7. Management's  Discussion
and Analysis of Financial Condition and Results of Operations.

Item 8.  Financial Statements and Supplementary Data.

     See  the  Consolidated  Financial  Statements  and  Notes  thereto  and the
Schedules  on pages F-1 through  F-26 and S-1  through S-7  included in Part IV,
Item 14.

Item  9.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosures.

     None.








                                       32

<PAGE>

                                    PART III

Items  10-13.  Information  required  by Items 10  through  13 has been  omitted
because the Registrant  meets the conditions set forth in General  Instruction I
(1) (a) and (b) of Form 10-K and is therefore  filing this Annual Report on Form
10-K in the reduced disclosure format.

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

          (a) Financial  Statements and Schedules--The  financial statements and
     schedules  listed in the  accompanying  Index to Financial  Statements  and
     Schedules on page F-1 are filed as part of this Annual Report on Form 10-K.

          (b)  Exhibits--The  exhibits  listed  in  the  accompanying  Index  to
     Exhibits are filed as part of this Annual Report on Form 10-K.

          (c) Reports on Form 8-K-- None






                                       33
<PAGE>

                                   SIGNATURES

     Pursuant to the  requirements of Section 13 or 15(d) of the Exchange Act of
1934,  the  registrant has duly caused this report to be signed on its behalf by
the undersigned,  thereunto duly authorized,  in the City of Stamford,  State of
Connecticut, on March 26, 1999.

                                     CHARTWELL RE HOLDINGS CORPORATION

                                     By  /s/ Charles E. Meyers
                                        --------------------------------
                                        Charles E. Meyers
                                        Senior Vice President and
                                        Chief Financial Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed by the  following  persons in the  capacities  and on the
dates indicated.

<TABLE>
<CAPTION>
Signatures                                 Title                                       Date
----------                                 -----                                       ----
<S>                              <C>                                              <C>
/s/ Richard E. Cole              Chief Executive Officer and Chairman of the      March 26, 1999
----------------------------     Board of Directors (Principal Executive
    Richard E. Cole              Officer)

/s/ Charles E. Meyers            Senior Vice President and Chief Financial        March 26, 1999
----------------------------     Officer (Principal Financial Officer)
    Charles E. Meyers

/s/ Richard B. Primerano         Vice President and Controller (Principal         March 26, 1999
----------------------------     Accounting Officer)
    Richard B. Primerano

/s/ Steven J. Bensinger          Director                                         March 26, 1999
----------------------------
    Steven J. Bensinger

/s/ Jacques Q. Bonneau           Director                                         March 26, 1999
----------------------------
    Jacques Q. Bonneau
</TABLE>


                                       34
<PAGE>

                        CHARTWELL RE HOLDINGS CORPORATION

<TABLE>
<CAPTION>
Index to Financial Statements
<S>                                                                                                       <C>
Independent Auditors' Report.........................................................................     F-2
Consolidated Balance Sheets at December 31, 1998 and 1997............................................     F-3
Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996...........     F-4
Consolidated Statements of  Stockholder's Equity for the Years Ended
     December 31, 1998, 1997 and 1996................................................................     F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 ..........     F-6
Notes to Consolidated Financial Statements for the Years Ended December 31, 1998, 1997 and 1996......     F-7


Index to Schedules
Schedule I   --  Summary of Investments--Other than Investments in Related Parties....................    S-1
Schedule II  --  Condensed Financial Information of Registrant-Balance Sheets........................     S-2
Schedule II  --  Condensed Financial Information of Registrant-Statements of Operations..............     S-3
Schedule II  --  Condensed Financial Information of Registrant-Statements of Cash Flows..............     S-4
Schedule IV  --  Reinsurance.........................................................................     S-5
Schedule V   --  Valuation and Qualifying Accounts...................................................     S-6
Schedule VI  --  Supplemental Information Concerning Property/Casualty Insurance Operations..........     S-7
</TABLE>



                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholder
Chartwell Re Holdings Corporation
Stamford, Connecticut

     We have audited the accompanying  consolidated  balance sheets of Chartwell
Re Holdings  Corporation and  subsidiaries as of December 31, 1998 and 1997, and
the related  consolidated  statements of operations,  stockholder's  equity, and
cash flows for each of the three years in the period  ended  December  31, 1998.
Our audits also included the financial  statement  schedules listed in the Index
on page F-1. These financial  statements and financial  statement  schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial  statements and financial  statement schedules based
on our audits.

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

     In our opinion,  such consolidated  financial statements present fairly, in
all  material  respects,   the  financial  position  of  Chartwell  Re  Holdings
Corporation  and  subsidiaries as of December 31, 1998 and 1997, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended December 31, 1998 in conformity with generally accepted  accounting
principles.  Also, in our opinion,  such  financial  statement  schedules,  when
considered in relation to the basic consolidated financial statements taken as a
whole,  present  fairly  in all  material  respects  the  information  set forth
therein.


DELOITTE & TOUCHE LLP
Parsippany, New Jersey

February 2, 1999


                                      F-2
<PAGE>

                        CHARTWELL RE HOLDINGS CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1997
                  (dollars in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                                         1998                1997
                                                                                                      ----------          ----------
<S>                                                                                                   <C>                 <C>
ASSETS:
Investments:
  Fixed maturities:
     Held to maturity (market value 1998, $31,786; 1997, $37,421) ..........................          $   30,539          $   36,630
     Available for sale (amortized cost 1998, $637,747; 1997, $645,108) ....................             659,752             657,973
  Other investments ........................................................................              36,358              38,043
Investments held by managed syndicates .....................................................              89,228
Cash and cash equivalents ..................................................................              49,388              29,534
Cash and cash equivalents held by managed syndicates .......................................              10,931
                                                                                                      ----------          ----------
           Total investments and cash ......................................................             876,196             762,180
Accrued investment income ..................................................................              10,723              10,667
Premiums in process of collection ..........................................................             143,879             126,537
Reinsurance recoverable:   on paid losses ..................................................              19,746              34,502
                           on unpaid losses ................................................             239,059             202,593
Prepaid reinsurance ........................................................................              40,933              29,929
Goodwill ...................................................................................              51,902              54,259
Deferred policy acquisition costs ..........................................................              24,084              26,100
Deferred income taxes ......................................................................              23,159              29,847
Deposits ...................................................................................              19,975              19,040
Other assets ...............................................................................              78,898              69,406
                                                                                                      ----------          ----------
           Total assets ....................................................................          $1,528,554          $1,365,060
                                                                                                      ==========          ==========
LIABILITIES:
Loss and loss adjustment expenses ..........................................................          $  878,617          $  788,240
Unearned premiums ..........................................................................             108,495             111,149
Other reinsurance balances .................................................................              53,323              33,723
Accrued expenses and other liabilities .....................................................              64,143              49,345
Long term debt .............................................................................             108,477             104,126
                                                                                                      ----------          ----------
           Total liabilities ...............................................................           1,213,055           1,086,583
                                                                                                      ----------          ----------

COMMITMENTS AND CONTINGENCIES (Note 14)
MINORITY INTEREST ..........................................................................               7,576               9,425
                                                                                                      ----------          ----------
STOCKHOLDER'S EQUITY
Common stock, par value $1.00 per share; authorized 1,000 shares; shares
  issued and outstanding 100
Additional  paid-in capital ................................................................             217,866             217,866
Accumulated other comprehensive income:
  Net unrealized appreciation of investments ...............................................              12,534               8,741
  Foreign currency translation adjustment ..................................................                 217                 296
Retained earnings ..........................................................................              77,306              42,149
                                                                                                      ----------          ----------
           Total stockholder's equity ......................................................             307,923             269,052
                                                                                                      ----------          ----------
           Total liabilities and stockholder's equity ......................................          $1,528,554          $1,365,060
                                                                                                      ==========          ==========
</TABLE>

                 See notes to consolidated financial statements.


                                      F-3
<PAGE>

                        CHARTWELL RE HOLDINGS CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                                     1998                1997                1996
                                                                                  ---------           ---------           ---------
<S>                                                                               <C>                 <C>                 <C>
UNDERWRITING OPERATIONS:
Premiums earned ........................................................          $ 229,504           $ 245,700           $ 209,503
Net investment income ..................................................             47,545              42,228              42,995
Net realized capital gains (losses) ....................................               (339)                 (3)              1,106
                                                                                  ---------           ---------           ---------
           Total revenues ..............................................            276,710             287,925             253,604
                                                                                  ---------           ---------           ---------
Loss and loss adjustment expenses ......................................            135,265             160,848             150,621
Policy acquisition costs ...............................................             61,564              72,655              52,030
Other expenses .........................................................             23,989              16,473              15,774
                                                                                  ---------           ---------           ---------
           Total expenses ..............................................            220,818             249,976             218,425
                                                                                  ---------           ---------           ---------
Income before taxes - underwriting operations ..........................             55,892              37,949              35,179
                                                                                  ---------           ---------           ---------
SERVICE OPERATIONS:
Service and other revenue ..............................................             14,289              28,322               3,367
Equity in net earnings of investees ....................................              5,327               4,794               3,559
Net investment income ..................................................              1,092               1,104                   9
                                                                                  ---------           ---------           ---------
           Total revenues ..............................................             20,708              34,220               6,935
                                                                                  ---------           ---------           ---------
Other expenses .........................................................             12,888              18,084               2,233
Amortization of goodwill ...............................................              2,298               2,297
                                                                                  ---------           ---------           ---------
           Total expenses ..............................................             15,186              20,381               2,233
                                                                                  ---------           ---------           ---------
Income before taxes - service operations ...............................              5,522              13,839               4,702
                                                                                  ---------           ---------           ---------
CORPORATE:
Net investment income ..................................................                187                 125                 594
Net realized capital gains .............................................                368                                      51
General and administrative expenses ....................................              2,668               1,776               1,043
Interest expense .......................................................              9,858               9,057               7,367
Amortization expense ...................................................                859                 579                 410
                                                                                  ---------           ---------           ---------
Loss before taxes - corporate ..........................................            (12,830)            (11,287)             (8,175)
                                                                                  ---------           ---------           ---------
Consolidated income before taxes, minority interest and ................             48,584              40,501              31,706
      extraordinary item
Income tax expense .....................................................             15,351              12,202               9,337
                                                                                  ---------           ---------           ---------
Net income before minority interest and extraordinary item .............             28,299              22,369
                                                                                                                             33,233
Minority interest ......................................................              1,924                (525)
Extraordinary item, net of tax .........................................                                                     (1,874)
                                                                                  ---------           ---------           ---------
Net income .............................................................          $  35,157           $  27,774           $  20,495
                                                                                  =========           =========           =========
</TABLE>

                 See notes to consolidated financial statements.


                                      F-4
<PAGE>
                        CHARTWELL RE HOLDINGS CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                                                                                  Accumulated Other
                                                                                                 Comprehenisive Income
                                                                                              ----------------------------
                                                                                              Net Unrealized   Foreign
                                                          Common Stock                         Appreciation/   Currency
                                                  ---------------------------    Additional   (Depreciation)  Translation
                                                     Shares          Amount    Paid-in-Capital of Investments  Adjustment
                                                  ------------   ------------   ------------   ------------   ------------
<S>                                                        <C>   <C>            <C>            <C>            <C>
Balance, December 31, 1995 .....................                 $              $    169,320   $      5,219   $          9
Comprehensive income:
  Net income for the period ....................
  Unrealized appreciation/(depreciation)
    during the period (net of tax of ($4,176) ..                                                     (7,755)
  Reclassification adjustment for gains
    included in net income (net of tax of ($623)                                                      1,157
  Foreign currency translation adjustment ......                                                                     1,282
                                                  ------------   ------------   ------------   ------------   ------------
Total comprehensive income .....................                                                     (6,598)         1,282

Issuance of common stock .......................           100                        48,546
                                                  ------------   ------------   ------------   ------------   ------------
Balance, December 31, 1996 .....................           100   $              $    217,866   $     (1,379)  $      1,291
                                                  ============   ============   ============   ============   ============
Balance, December 31, 1996 .....................           100   $              $    217,866   $     (1,379)  $      1,291

Comprehensive income:
  Net income for the period ....................
  Unrealized appreciation/(depreciation)
    during the period (net of tax of $5,451) ...                                                     10,123
  Reclassification adjustment for gains
    included in net income (net of tax of $(2) .                                                         (3)
  Foreign currency translation adjustment ......                                                                      (995)
                                                  ------------   ------------   ------------   ------------   ------------
Total comprehensive income .....................                                                     10,120           (995)
                                                  ------------   ------------   ------------   ------------   ------------
Balance, December 31, 1997 .....................           100   $              $    217,866   $      8,741   $        296
                                                  ============   ============   ============   ============   ============
Balance, December 31, 1997 .....................           100   $              $    217,866   $      8,741   $        296
Comprehensive income:
  Net income for the period ....................
  Unrealized appreciation/(depreciation)
    during the period (net of tax of $2,037) ...                                                      3,783
  Reclassification adjustment for gains
    included in net income (net of tax of ($5) .                                                         10
  Foreign currency translation adjustment ......                                                                       (79)
                                                  ------------   ------------   ------------   ------------   ------------
Total comprehensive income .....................                                                      3,793            (79)
                                                  ------------   ------------   ------------   ------------   ------------
Balance, December 31, 1998 .....................           100   $              $    217,866   $     12,534   $        217
                                                  ============   ============   ============   ============   ============
<CAPTION>
                                                                      Total
                                                      Retained     Stockholder's
                                                      Earnings        Equity
                                                    ------------   ------------
<S>                                                 <C>            <C>
Balance, December 31, 1995 .....................    $     (6,120)  $    168,428
Comprehensive income:
  Net income for the period ....................          20,495         20,495
  Unrealized appreciation/(depreciation)
    during the period (net of tax of ($4,176) ..                         (7,755)
  Reclassification adjustment for gains
    included in net income (net of tax of ($623)                          1,157
  Foreign currency translation adjustment ......                          1,282
                                                    ------------   ------------
Total comprehensive income .....................          20,495         15,179

Issuance of common stock .......................                         48,546
                                                    ------------   ------------
Balance, December 31, 1996 .....................    $     14,375   $    232,153
                                                    ============   ============
Balance, December 31, 1996 .....................    $     14,375   $    232,153

Comprehensive income:
  Net income for the period ....................          27,774         27,774
  Unrealized appreciation/(depreciation)
    during the period (net of tax of $5,451) ...                         10,123
  Reclassification adjustment for gains
    included in net income (net of tax of $(2) .                             (3)
  Foreign currency translation adjustment ......                           (995)
                                                    ------------   ------------
Total comprehensive income .....................          27,774         36,899
                                                    ------------   ------------
Balance, December 31, 1997 .....................    $     42,149   $    269,052
                                                    ============   ============
Balance, December 31, 1997 .....................    $     42,149   $    269,052
Comprehensive income:
  Net income for the period ....................          35,157         35,157
  Unrealized appreciation/(depreciation)
    during the period (net of tax of $2,037) ...                          3,783
  Reclassification adjustment for gains
    included in net income (net of tax of ($5) .                             10
  Foreign currency translation adjustment ......                            (79)
                                                    ------------   ------------
Total comprehensive income .....................          35,157         38,871
                                                    ------------   ------------
Balance, December 31, 1998 .....................    $     77,306   $    307,923
                                                    ============   ============
</TABLE>
                 See notes to consolidated financial statements.


                                      F-5
<PAGE>

                        CHARTWELL RE HOLDINGS CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                                           1998             1997             1996
                                                                                        ---------        ---------        ---------
<S>                                                                                     <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net premiums collected ....................................................       $ 203,434        $ 174,864        $ 126,456
      Net losses and loss adjustment expenses ...................................        (172,771)        (150,682)        (136,753)
      Overhead expenses .........................................................         (27,813)         (21,052)         (17,166)
      Service and other revenue .................................................           1,868           (4,479)           3,190
      Net income taxes paid .....................................................         (11,190)          (7,173)          (5,168)
      Interest received on investments ..........................................          51,671           44,763           43,158
      Interest paid .............................................................          (9,963)          (9,071)          (7,415)
      Other, net ................................................................          (1,421)          (1,643)           8,443
                                                                                        ---------        ---------        ---------
           Net cash provided by operating activities ............................          33,815           25,527           14,745
                                                                                        ---------        ---------        ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of held to maturity securities ..................................                             (596)          (8,105)
      Purchases of available for sale securities ................................        (164,082)        (275,794)        (640,182)
      Maturities of held to maturity securities .................................           7,280            1,850              430
      Maturities of available for sale securities ...............................           8,639           31,415           20,729
      Sales of available for sale securities ....................................         158,416          200,792          500,706
      Investment in Oak Dedicated Two Limited, net of cash acquired .............         (23,048)
      Investment in Archer Dedicated plc, net of cash acquired ..................          (4,600)
      Net cash from sale of Syndicate 866 .......................................          10,041
      Investment in Chartwell UK plc, net of cash acquired ......................                                           (39,156)
                                                                                        ---------        ---------        ---------
           Net cash used in investing activities ................................          (7,354)         (42,333)        (165,578)
                                                                                        ---------        ---------        ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Capital contribution from Parent ..........................................                                            48,546
      Issuance of long term debt ................................................           5,624              693           48,057
      Redemption of long term debt ..............................................          (1,710)          (3,476)         (48,280)
                                                                                        ---------        ---------        ---------
           Net cash provided by (used in) financing activities ..................           3,914           (2,783)          48,323
                                                                                        ---------        ---------        ---------
           Effect of exchange rate on cash ......................................             410           (1,220)             346
                                                                                        ---------        ---------        ---------
Net increase (decrease) in cash and cash equivalents ............................          30,785          (20,809)        (102,164)
Cash and cash equivalents at beginning of year ..................................          29,534           50,343          152,507
                                                                                        ---------        ---------        ---------
Cash and cash equivalents at end of year ........................................       $  60,319        $  29,534        $  50,343
                                                                                        =========        =========        =========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
      Net income ................................................................       $  35,157        $  27,774        $  20,495
      Adjustments to reconcile net income to net cash provided by
         operating activities:
           Extraordinary item ...................................................                                             1,874
           Equity in net earnings of investees ..................................          (3,445)          (4,794)          (3,559)
           Net realized capital (gains) losses ..................................             (29)               3           (1,158)
           Minority interest ....................................................          (1,924)             525
           Deferred policy acquisition costs ....................................           2,016           (8,197)             906
           Unpaid loss and loss adjustment expenses .............................          (1,045)          40,382            6,391
           Unearned premiums ....................................................          (2,654)          29,550           (8,974)
           Other reinsurance balances ...........................................           8,596           10,438            6,475
           Reinsurance recoverable ..............................................         (21,710)         (34,951)          (6,710)
           Amortization of goodwill .............................................           2,198            2,294              (12)
           Deferred income taxes ................................................           6,688           12,313           (2,643)
           Net change in receivables and payables ...............................           8,792          (44,815)             500
           Other net ............................................................           1,175           (4,995)           1,160
                                                                                        ---------        ---------        ---------
           Net cash provided by operating activities ............................       $  33,815        $  25,527        $  14,745
                                                                                        =========        =========        =========
</TABLE>

                 See notes to consolidated financial statements.


                                      F-6
<PAGE>

                        CHARTWELL RE HOLDINGS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (a) Basis of  Presentation--Chartwell  Re Holdings Corporation ("Chartwell"
or the  "Company")  is a  wholly-owned  subsidiary  of Chartwell Re  Corporation
("Chartwell Re") and, as such, acts as an intermediate  level insurance  holding
company  for  Chartwell  Re,  conducting  its  business  through  its  principal
operating subsidiaries, Chartwell Reinsurance Company ("Chartwell Reinsurance"),
The Insurance  Corporation  of New York  ("INSCORP")  (formerly The  Reinsurance
Corporation  of New York) and  Chartwell  Managing  Agents  Limited  ("CMA"),  a
managing agency in the Lloyd's marketplace which is a wholly-owned subsidiary of
Chartwell UK plc ("Chartwell UK").
     The consolidated  financial  statements include the accounts of the Company
and all subsidiaries.  All significant  inter-company  transactions and accounts
have been eliminated in consolidation.
     Due to custom and practice in the Lloyd's  market,  the fiscal year end for
Chartwell UK is September 30. Therefore, the Company consolidates the results of
Chartwell  UK and  subsidiaries  on a one  quarter  lag.  There  were no  events
affecting  Chartwell UK during the period from October 1, 1998 through  December
31, 1998 which  would have a material  impact on the  financial  position of the
Company.
     Investments  in companies in which the Company owns 20 to 50 percent of the
voting common stock or has the ability to exercise  significant  influence  over
the operating  and  financial  policies of the investees are accounted for under
the equity method.
     (b) Investments--Fixed maturity securities are categorized as either assets
held to maturity or as  available  for sale.  Securities  on deposit  with state
regulatory  authorities  are  designated as held to maturity and are recorded at
amortized  cost.  The  Company  has both the  ability  and  intent to hold these
securities  until their maturity.  All  investments  designated as available for
sale are stated at  aggregate  market  value with  unrealized  appreciation  and
depreciation  reported as a separate  component of stockholders'  equity, net of
applicable deferred income taxes.
     Realized  gains and losses on sales of  securities  are  determined  on the
specific identification method. Investment income is recognized when earned.
     (c) Investments and Cash and Cash Equivalents Held By Managed  Syndicates -
The Company has included in the consolidated balance sheet its pro-rata share of
the investments and cash and cash  equivalents  held by CMA managed  syndicates.
Such pro-rata share is determined based on the Company's  percentage of capacity
owned through its dedicated corporate capital vehicles.
     (d) Cash and Cash  Equivalents--The  Company  considers  all highly  liquid
investments  with a maturity of three  months or less when  purchased to be cash
equivalents.
     (e) Premiums Earned and Unearned  Premiums--  Premiums,  net of reinsurance
ceded,  are  recognized  as  income  ratably  during  the  terms of the  related
insurance and reinsurance  contracts.  Unearned and prepaid  reinsurance premium
reserves are  established  to cover the unexpired  portion of premiums  written.
Such  reserves  are  computed by pro rata  methods for direct  business  and are
established based on reports received from ceding companies for reinsurance.
     The Company  estimates and accrues for unreported  premiums and losses,  as
well as premium and  commission  adjustments on  retrospectively  rated or other
experience rated reinsurance  contracts,  based on the difference  between total
costs before and after the experience  under the contract (the  with-and-without
method).  These  estimates of experience to date are based on  statistical  data
with subsequent adjustments recorded in the period in which they become known.
     (f) Profit  Commissions--Profit  commissions  earned on business  emanating
from Lloyd's syndicates are estimated,  earned and recorded using studies of the
profitability  of the business  underwritten.  Profit  commission  estimates are
continually monitored and reviewed. As new information is received,  changes are
reflected  in current  operations  with final  settlement  three years after the
underwriting year to which it relates.
     (g)  Deferred  Policy  Acquisition   Costs--Acquisition   costs,  comprised
primarily of  commissions,  are deferred and amortized  over the period in which
the related premiums are earned.  Deferred policy acquisition costs are reviewed
to determine  that they do not exceed  recoverable  amounts,  after  considering
investment income.
     (h)  Deposits--Deposits  are those premiums paid in relation to reinsurance
contracts  which do not  qualify  as a  transfer  of risk  under  the  Company's
accounting  policies.  The deposits earn interest at the contractual amounts set
forth in the reinsurance contracts.

                                      F-7
<PAGE>

     (i) Loss  and Loss  Adjustment  Expenses--The  liability  for loss and loss
adjustment  expenses  ("LAE") is based on reports and individual  case estimates
and  additional  estimates  provided by the Company's  claims  department.  This
liability  also  includes an amount for loss and LAE  incurred  but not reported
based on past  experience  of the  Company  and the  reinsurance  and  insurance
industries.  These  estimates  are regularly  reviewed  and, as new  information
becomes known, the liability is adjusted as necessary. Such adjustments, if any,
are reflected in results of operations in the period in which they become known.
     (j)  Income  Taxes--Income  taxes  are  accounted  for  using the asset and
liability  method  pursuant  to  Statement  of  Financial  Accounting  Standards
("SFAS") No. 109,  "Accounting for Income Taxes."  Deferred taxes are recognized
for  the  tax  consequences  of  "temporary  differences"  by  applying  enacted
statutory tax rates  applicable to future years to differences  arising  between
the financial  statement  carrying  amounts and the tax bases of existing assets
and liabilities. SFAS No. 109 requires the recognition of future tax benefits to
the extent that realization of such benefits is "more likely than not."
     Provision  for U.S.  income  taxes on  undistributed  earnings  of  foreign
subsidiaries is made only on those amounts in excess of the funds  considered to
be permanently  reinvested.  Repatriation of undistributed  earnings of non-U.S.
subsidiaries is done only when it is tax efficient to do so.
     (k) Goodwill--Goodwill  represents the unamortized excess of purchase price
over the fair value of net assets of acquired  entities.  Goodwill is  amortized
generally on a straight-line  basis over periods not to exceed forty years. On a
periodic basis, the Company estimates the future  undiscounted cash flows of the
business  to which it  relates  in order to ensure  that the  carrying  value of
goodwill has not been impaired. If impairment exists, the carrying amount of the
goodwill  is reduced by the  estimated  shortfall  of cash  flows.  Amortization
charged to operations  for each of the years ended  December 31, 1998,  1997 and
1996  was  $2,198,000,  $2,294,000  and  ($12,000),  respectively.   Accumulated
amortization  of  goodwill  at December  31,  1998 and 1997 was  $5,910,000  and
$4,179,000 respectively.  Approximately $1,575,000 and $2,042,000, respectively,
of accumulated amortization at December 31, 1998 and 1997 reflects the effect of
foreign currency fluctuations on goodwill related to Chartwell UK.
     (l) Insurance  Brokerage  Assets and Liabilities - The following  fiduciary
assets and liabilities maintained by the Company's insurance agency subsidiaries
on  behalf of the  insureds  are  presented  net in the  consolidated  financial
statements at December 31, 1998 and 1997 (in thousands):

                                              1998            1997
                                              ----            ----

Cash ..................................    $  6,132        $  6,397
Accounts receivable ...................    $ 20,566        $ 19,559
Accounts payable ......................    $(26,698)       $(25,956)

     (m) Comprehensive  Income--In June 1997, the Financial Accounting Standards
Board  ("FASB")  issued SFAS No. 130,  "Reporting  Comprehensive  Income," which
became  effective  for the  Company  beginning  January  1,  1998.  SFAS No. 130
established  standards for reporting and display of comprehensive income and its
components   (revenues,   expenses,   gains  and   losses)  in  a  full  set  of
general-purpose  financial  statements.  Comprehensive  income  consists  of net
income, foreign currency translation adjustment and net unrealized  appreciation
(depreciation) of investments and is presented in the Consolidated  Statement of
Stockholder's  Equity.  The  adoption  of  SFAS  No.  130 had no  impact  on the
Company's  financial  position or results of  operations.  Prior year  financial
statements have been reclassified to conform to the SFAS No. 130 requirements.
     (n) Minority  Interest--Minority  interest primarily  represents  Chartwell
Re's 35% share of the equity of Chartwell Holdings Limited ("Holdings Limited").
     (o)   Foreign   Currency   Translation--Adjustments   resulting   from  the
translation of the financial statements of non-U.S. subsidiaries to U.S. dollars
are  reported  as a  separate  component  of  stockholder's  equity.  Assets and
liabilities denominated in foreign currency are translated at the exchange rates
in effect at the balance  sheet date.  Results of operations  are  translated at
average exchange rates during each period.
     (p)  Disclosure  about Fair Value of Financial  Instruments - SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments," requires disclosures of
the estimated fair market value of certain financial instruments. In cases where
quoted  market  prices  are not  readily  available,  fair  values  are based on
estimates that use present value or other valuation techniques.
     (q) Management  Estimates--The  consolidated financial statements have been
prepared  in  accordance  with  generally  accepted  accounting  principles.  In
preparing the consolidated financial statements,  management is required to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the consolidated  statements of the financial condition and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those  estimates.  The Company's  most  significant  estimates  concern the
liability for loss and LAE, described above.

                                      F-8
<PAGE>

     (r) New Accounting  Standards--In  June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative  Instruments and Hedging  Activities,"  which becomes
effective for the Company January 1, 2000.  SFAS No. 133 establishes  accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
will be required to recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair value.
The  accounting  for a change in the fair value of a  derivative  in earnings or
other comprehensive income will depend on the intended use of the derivative and
the resulting  designation.  Derivatives can be designated as (a) a hedge of the
exposure to changes in the fair value of a  recognized  asset or  liability or a
firm  commitment,  (b) a hedge  of the  exposure  to  variable  cash  flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment  in  foreign   operations,   an  unrecognized  firm  commitment,   an
available-for-sale  security,  or  a  foreign  currency  denominated  forecasted
transaction.
     The difference between a derivative's previous carrying amount and its fair
value at the date of  implementation  of SFAS No.  133  shall be  reported  as a
transition adjustment.  Such adjustment shall be reported in net income or other
comprehensive  income as the effect of a change in  accounting  principle and be
presented in a manner similar to the cumulative effect of a change in accounting
principle in accordance with APB Opinion No. 20, "Accounting Changes."
     The Company is currently reviewing the impact of the implementation of SFAS
No. 133 on its financial statements.
     (s)   Reclassification--Certain   account   balances   from  prior   years'
presentations   have  been   reclassified  to  conform  with  the  current  year
presentation.

2.   ACQUISITIONS AND DISPOSITIONS

Chartwell UK Acquisition

     On  November  19,  1996,   Holdings  Limited,   a  newly-formed,   indirect
wholly-owned  subsidiary of Chartwell Re acquired 100% of the outstanding  stock
(the  "Acquisition")  of Chartwell UK (formerly  Archer Group  Holdings  plc) in
exchange for cash and loan notes ("Loan Notes").  The Loan Notes,  guaranteed by
First Union National Bank N.A., pay interest  semi-annually at one percent below
the Sterling  London  Interbank  Offered  Rate  ("Sterling  LIBOR") and,  unless
previously  redeemed  or  purchased,  mature in June  2002.  The Loan  Notes are
transferable,  subject  to  certain  restrictions,  but  are not  listed  on any
exchange.  Prior to the  Acquisition,  Chartwell UK was  publicly  traded on the
London Stock Exchange.
     The  Acquisition  has been  accounted  for  under  the  purchase  method of
accounting.  Accordingly,  the  purchase  price was  allocated to the net assets
acquired based on the preliminary determination of the respective fair values at
the date of acquisition,  which were estimated based upon information  available
at December  31,  1996.  During 1997,  the Company  decreased  the fair value of
tangible net assets acquired by  approximately  $6,642,000,  as more information
became available. Goodwill of approximately $58,936,000,  representing the final
determination  of the fair value of net assets acquired over the purchase price,
is being amortized on a straight-line basis over twenty-five years.
     The purchase price presented at the U.S.  Dollar  equivalent at the date of
acquisition,  was  determined  to  be  $60,289,000  and  was  allocated  to  the
respective net assets and liabilities received as follows (in thousands):

Historical book value of Chartwell UK ........    $  6,044
                                                  --------
Acquisition adjustments:
      Deferred taxes .........................      (1,666)
      Accrued expenses .......................      (8,072)
      Other assets ...........................       5,047
                                                  --------
                                                    (4,691)
Fair value adjustment - Goodwill .............      58,936
                                                  --------
Total purchase price .........................    $ 60,289
                                                  ========

     Results  of  Chartwell  UK's  operations  from the date of  acquisition  to
December 31, 1996 were not material to the consolidated  financial statements of
the  Company  and,  accordingly,  have  not  been  included  in  such  financial
statements.
     Chartwell Re directly owns 35% of Holdings Limited.  Such minority interest
is  presented  in  the  consolidated   balance  sheet.  The  Company  recognized
$1,924,000 and ($525,000) of minority  interest  during the years ended December
31, 1998 and 1997, respectively,  representing Chartwell Re's ownership interest
in the net income of Holdings Limited.

                                      F-9
<PAGE>

Other Transactions

     On  September  30,  1998,  Chartwell   Reinsurance  acquired  100%  of  the
outstanding  stock of Oak Dedicated Two Limited (formerly LIMIT (No. 8) Limited)
in exchange for cash of  (pound)3.3  million ($5.4  million).  Oak Dedicated Two
Limited is a corporate  member of Lloyd's which  underwrote a total  capacity of
(pound)41.7  million ($69.2  million) for the 1998 year of account on syndicates
managed by CMA.
     On October 28, 1998,  Holdings  Limited  commenced the  acquisition  of the
remaining 70.8% of the Ordinary Shares and the remaining 69.3% of the Preference
Shares of Archer  Dedicated  plc  ("Archer")  in exchange for cash of (pound)5.7
million  ($9.5  million).  Archer is a holding  company for ADIT One Limited,  a
Lloyd's  dedicated  corporate  capital vehicle formed in 1994 to provide a means
for investors to participate  exclusively in underwriting on syndicates  managed
by CMA.  ADIT One Limited  underwrote a total  capacity of  (pound)45.4  million
($75.4 million) for the 1998 year of account on syndicates managed by CMA.
     On  September  10,  1998,  Chartwell  UK sold the  business  of Shead Motor
Policies at Lloyd's  ("Syndicate 866") and Archer Personal Lines in exchange for
cash of (pound)6.1 million ($10.0 million).

Pro Forma Information
     The following pro forma unaudited consolidated income statement information
for the Company for the year ended  December 31, 1996 is presented as though the
acquisition of Chartwell UK and the redemption of 35% of the outstanding  10.25%
Senior Notes due 2004 ("Senior  Notes") (See Note 13) had occurred on January 1,
1996 (in thousands):

                                                                  1996
                                                                  ----
Total revenues................................................ $ 289,336
Net income....................................................    24,990

     This pro forma financial  information  has been prepared for  informational
purposes only and includes certain adjustments such as amortization expense as a
result of goodwill and certain other  adjustments,  together with related income
tax effects. The pro forma financial  information is not necessarily  indicative
of the results of operations as they would have been had the  transactions  been
consummated on the assumed dates.

3.   BUSINESS SEGMENTS

     In June 1997, the FASB issued SFAS No. 131,  "Disclosures About Segments of
an Enterprise and Related Information Footnotes," which became effective for the
Company  beginning  January 1, 1998. SFAS No. 131 establishes  standards for the
way public business  enterprises  report  information about operating  segments,
products and services,  geographic areas and major customers in annual financial
statements and related footnote disclosures. The adoption of SFAS No. 131 had no
impact on the Company's financial position or results of operations.  Prior year
segment  information  has been  reclassified  to  conform  to the  SFAS No.  131
requirements.
     The Company's  operations  have been  classified  into four  segments.  The
Reinsurance,  Controlled Source Insurance and CMA Dedicated  Facilities segments
include the pre-tax results of the insurance and reinsurance entities over which
management of the Company is responsible for making all underwriting  decisions,
including Chartwell  Reinsurance,  INSCORP, Oak Dedicated Limited, Oak Dedicated
Two Limited and ADIT One Ltd. The insurance and reinsurance  operations of these
entities have been  separated  among the three segments based upon the nature of
the clientele and their business or products.
     The  Reinsurance   products  include  treaty  reinsurance  written  through
reinsurance brokers for casualty and, to a lesser extent, property risks as well
as for marine and aviation  risks.  The  Controlled  Source  Insurance  products
include  property and  casualty  insurance  written  through  specialty  program
administrators. The CMA Dedicated Facilities products include marine, non-marine
property,  non-marine liability,  aviation, motor and life business underwritten
by Lloyd's syndicates.
     The Service  Operations  segment includes the pre-tax results from services
or  capital  provided  to  or  investments  in  insurance  entities  over  which
management of the Company does not influence the underwriting  decisions and the
pre-tax results of Chartwell  Advisers  Limited and CMA, net of related goodwill
amortization.  Corporate items relate primarily to capital costs associated with
the  Company's  debt  as well  as  unallocated  employee  expenses  incurred  in
connection with the investigation of possible acquisition targets.
     The  accounting  policies of the  operating  segments are the same as those
described in Note 1 of Notes to Consolidated  Financial Statements.  The measure
of profitability  of the insurance  segments is composite  underwriting  result,
which  represents  gross profit margin on insurance  products  before  insurance
administrative expenses and consists of premiums, less loss and LAE, acquisition
costs and commissions.  The measure of  profitability of the service  operations
segment is net income (loss) before taxes,  excluding  non-recurring  investment
and foreign exchange gains and losses.


                                      F-10
<PAGE>

     Assets for each  segment are  reported  based on a specific  identification
basis. The insurance segments' assets primarily consist of cash and investments,
premiums  in  process  of  collection,   reinsurance  recoverable  and  deferred
acquisition costs. The service operations  segment's assets primarily consist of
cash and investments, goodwill and service receivables.
















                                      F-11
<PAGE>

     Summarized  financial   information   concerning  the  Company's  operating
segments is shown in the following table (in thousands):

<TABLE>
<CAPTION>
                                                       Controlled         CMA
                                                         Source        Dedicated        Service
                                       Reinsurance      Insurance      Facilities      Operations    Corporate      Total
                                       -----------      ---------      ----------      ----------    ---------      -----
<S>                                    <C>              <C>            <C>             <C>            <C>        <C>
1998
Segment profit or loss:
  Total revenues                       $  156,234       $  48,681      $  71,795       $  20,708      $   555    $ 297,973
  Net investment income                    34,541           6,125          6,879           1,092          187       48,824
  Composite underwriting result            20,859           5,988          5,828                                    32,675
  Income (loss) before taxes               44,582           6,016          5,294           5,522      (12,830)      48,584
Segment assets:
  Deferred acquisition costs               17,592           6,492                                                   24,084
  Goodwill                                                                 8,122          43,780                    51,902
  Total assets                            671,991         591,341        195,169          45,887       24,166    1,528,554

1997
Segment profit or loss:
  Total revenues                       $  227,814       $  39,787      $  20,324       $  34,220      $   125    $ 322,270
  Net investment income                    36,053           5,851            324           1,104          125       43,457
  Composite underwriting result             9,467           2,013            717                                    12,197
  Income (loss) before taxes               35,097           3,047           (195)         13,839      (11,287)      40,501
Segment assets:
  Deferred acquisition costs               18,201           7,899                                                   26,100
  Goodwill                                                                                54,259                    54,259
  Total assets                            676,263         575,534         14,950          59,511       38,802    1,365,060

1996
Segment profit or loss:
  Total revenues                       $  233,264       $  20,340                      $   6,935      $   645    $ 261,184
  Net investment income                    37,093           5,902                              9          594       43,598
  Composite underwriting result             5,323           1,529                                                    6,852
  Income (loss) before taxes               34,160           1,019                          4,702       (8,175)      31,706
Segment assets:
  Deferred acquisition costs               11,928           5,975                                                   17,903
  Goodwill                                                                                52,609                    52,609
  Total assets                            696,042         444,094                         87,800       17,288    1,245,224
</TABLE>

     Because of the nature of the  insurance  and  reinsurance  industries,  the
Company has no individual  or group which would be considered a major  customer.
The Company's principle areas of operation include the United States, the United
Kingdom and, to a limited  extent,  Canada and  continental  Europe.  Geographic
information is presented below (in thousands):

<TABLE>
<CAPTION>
                                                           United         United            Other
                                                           States         Kingdom          Foreign     Consolidated
                                                           ------         -------          -------     ------------
<S>                                                     <C>              <C>             <C>            <C>
                        1998
Total revenue........................................   $  210,289       $  85,390       $   2,294      $  297,973
Income before taxes..................................       45,957             380           2,247          48,584
Net income (loss)....................................       34,411           (616)           1,362          35,157
Identifiable net assets..............................    1,289,303         211,175          28,076       1,528,554
                        1997
Total revenue........................................   $  270,682       $  48,130       $   3,458      $  322,270
Income before taxes..................................       31,480           5,057           3,964          40,501
Net income...........................................       22,774           2,310           2,690          27,774
Identifiable net assets..............................    1,240,053          97,281          27,726       1,365,060
                        1996
Total revenue........................................   $  256,136       $   2,124       $   2,924      $  261,184
Income before taxes..................................       27,142             992           3,572          31,706
Net income...........................................       17,217             699           2,579          20,495
Identifiable net assets..............................    1,156,747          60,755          27,722       1,245,224
</TABLE>


                                      F-12
<PAGE>

4.   INVESTMENTS

     The amortized cost and estimated market values of investments in securities
with fixed maturities were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                        Gross Unrealized       Estimated
                                                        Amortized     ---------------------      Market      Carrying
                                                           Cost         Gains       Losses       Value        Amount
                                                        ---------     --------     --------    ---------    ---------
<S>                                                     <C>           <C>          <C>         <C>          <C>
December 31, 1998
Held to maturity:
  U.S. Treasury securities and obligations of U.S.
      government and government agencies.............   $  19,248     $    379     $           $  19,627    $  19,248
  Obligations of states and political subdivisions...       1,862           16                     1,878        1,862
  Debt securities issued by foreign governments......       8,376          807                     9,183        8,376
  Corporate securities...............................       1,053           45                     1,098        1,053
                                                        ---------     --------     --------    ---------    ---------
Subtotal.............................................      30,539        1,247                    31,786       30,539
                                                        ---------     --------     --------    ---------    ---------
Available for sale:
  U.S. Treasury securities and obligations of U.S.
      government and government agencies.............      56,841        2,618            6       59,453       59,453
  Obligations of states and political subdivisions...     163,369        6,652                   170,021      170,021
  Debt securities issued by foreign governments......      19,144          940            4       20,080       20,080
  Corporate securities...............................     227,775        8,224          704      235,295      235,295
  Redeemable preferred stock.........................      35,773        1,732           83       37,422       37,422
  Mortgage backed securities.........................     134,845        2,728           92      137,481      137,481
                                                        ---------     --------     --------    ---------    ---------
Subtotal.............................................     637,747       22,894          889      659,752      659,752
                                                        ---------     --------     --------    ---------    ---------
Total ...............................................   $ 668,286     $ 24,141     $    889    $ 691,538    $ 690,291
                                                        =========     ========     ========    =========    =========

December 31, 1997
Held to maturity:
  U.S. Treasury securities and obligations of U.S.
      government and government agencies.............   $  20,594     $     95     $    107    $  20,582    $  20,594
  Obligations of states and political subdivisions...       1,868           11                     1,879        1,868
  Debt securities issued by foreign governments......      13,013          773           26       13,760       13,013
  Corporate securities...............................       1,155           45                     1,200        1,155
                                                        ---------     --------     --------    ---------    ---------
Subtotal.............................................      36,630          924          133       37,421       36,630
                                                        ---------     --------     --------    ---------    ---------

Available for sale:
  U.S. Treasury securities and obligations of U.S.
      government and government agencies.............      58,922          604           77       59,449       59,449
  Obligations of states and political subdivisions...     155,109        4,578           11      159,676      159,676
  Debt securities issued by foreign governments......      15,342          513            1       15,854       15,854
  Corporate securities                                    212,143        4,415          461      216,097      216,097
  Redeemable preferred stock.........................      36,780        1,602            3       38,379       38,379
  Mortgage backed securities.........................     166,812        2,064          358      168,518      168,518
                                                        ---------     --------     --------    ---------    ---------
Subtotal.............................................     645,108       13,776          911      657,973      657,973
                                                        ---------     --------     --------    ---------    ---------
Total ...............................................   $ 681,738     $ 14,700     $  1,044    $ 695,394    $ 694,603
                                                        =========     ========     ========    =========    =========
</TABLE>

                                      F-13
<PAGE>
     The  amortized  cost and estimated  market value of  securities  with fixed
maturities at December 31, 1998 and 1997,  by  contractual  maturity,  are shown
below (in thousands). Expected maturities may differ from contractual maturities
because  borrowers  may have the  right to call or  prepay  obligations  with or
without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                                    Held to Maturity         Available for Sale
                                                                 ----------------------    ----------------------
                                                                               Estimated                 Estimated
                                                                 Amortized       Market     Amortized      Market
                                                                   Cost          Value         Cost        Value
                                                                 --------      --------    ---------    ---------
<S>                                                              <C>           <C>         <C>          <C>
December 31, 1998
Due in one year or less.......................................   $ 11,287      $ 11,334    $  22,516    $  22,631
Due after one year through five years.........................     13,538        14,350      176,799      181,020
Due after five years through ten years........................      1,172         1,436      189,474      196,966
Due after ten years...........................................      4,542         4,666      114,113      121,654
Mortgage backed securities....................................                               134,845      137,481
                                                                 --------      --------    ---------    ---------
                                                                 $ 30,539      $ 31,786    $ 637,747    $ 659,752
                                                                 ========      ========    =========    =========
December 31, 1997
Due in one year or less.......................................   $  8,763      $  8,856    $  13,106    $  13,187
Due after one year through five years.........................     17,332        17,566      170,525      172,485
Due after five years through ten years........................      6,007         6,514      175,901      180,650
Due after ten years...........................................      4,528         4,485      118,764      123,133
Mortgage backed securities....................................                               166,812      168,518
                                                                 --------      --------    ---------    ---------
                                                                 $ 36,630      $ 37,421    $ 645,108    $ 657,973
                                                                 ========      ========    =========    =========
</TABLE>

     Proceeds  from sales of  available  for sale  securities  (excluding  fixed
income  security   paydowns  and  calls)  during  1998,   1997,  and  1996  were
$90,588,000,   $77,339,000  and  $281,712,000,   respectively.  Gross  gains  of
$788,000,  $523,000 and $3,421,000 and gross losses of $759,000,  $526,000,  and
$2,264,000  were  realized on those sales  during the years ended  December  31,
1998, 1997 and 1996, respectively.

     Sources of net  investment  income for the years ended  December  31, 1998,
1997 and 1996 were as follows (in thousands):


                                               1998         1997         1996
                                             --------     --------     --------
Investment income:
  Fixed maturities ......................    $ 40,684     $ 39,752     $ 43,344
  Equity securities .....................       2,618        2,841        1,150
  Other .................................       6,501        1,867           96
                                             --------     --------     --------
Total investment income .................      49,803       44,460       44,590
Investment expenses .....................        (979)      (1,003)        (992)
                                             --------     --------     --------
Net investment income ...................    $ 48,824     $ 43,457     $ 43,598
                                             ========     ========     ========

Realized gains (losses) on investments:
  Fixed maturities ......................    $    232     $     (4)    $    373
  Equity securities .....................        (203)           1          784
                                             --------     --------     --------
Net realized capital gains (losses) .....    $     29     $     (3)    $  1,157
                                             ========     ========     ========


     The net unrealized appreciation (depreciation) of investments included as a
separate  component of stockholder's  equity at December 31, 1998 and 1997 is as
follows (in thousands):

                                                               1998       1997
                                                            --------   --------
Difference  between  market value and amortized cost of
  available for sale portfolio:
  Fixed maturities ......................................   $ 22,005   $ 12,865
  Equity securities .....................................     (2,721)       583
                                                            --------   --------
                                                              19,284     13,448
Deferred tax benefit (expense) ..........................     (6,750)    (4,707)
                                                            --------   --------
Net unrealized appreciation (depreciation)
  of investments ........................................   $ 12,534   $  8,741
                                                            ========   ========

                                      F-14
<PAGE>

     Unrealized appreciation  (depreciation) of investments in equity securities
at December 31, 1998 and 1997 includes gross  unrealized gains of $1,026,000 and
$1,513,000,   respectively,  and  gross  unrealized  losses  of  $3,747,000  and
$930,000, respectively.

     At December 31, 1998 and 1997, bonds with a carrying value of approximately
$35,895,000 and $36,630,000, respectively, were on deposit with state regulatory
authorities, as required by law. The Company also had cash, cash equivalents and
bonds totaling  $16,449,000 and  $18,681,000,  in trusts held for the benefit of
ceding companies at December 31, 1998 and 1997, respectively.

     At December 31, 1998 and 1997, the Company had $17,105,000 and $15,914,000,
respectively,  of  investments  held in collateral  accounts  subject to certain
restrictions  in  conjunction  with a loan  guarantee  and a  letter  of  credit
arrangement (Note 14).

     At  December  31,  1998 and 1997,  the  Company  had loaned  securities  of
approximately  $12,819,000 and $14,443,000,  respectively,  at fair market value
under a security lending agreement administered through U.S. Bank, the Company's
primary custodian.  In connection with these transactions,  the Company holds as
collateral  securities  with a fair value equal to 102% of the fair value of the
securities lent to others. Such collateral  securities are marked to market on a
daily basis and  borrowers  are  required  to supply  additional  collateral  to
prevent any  collateral  from falling below 102% of the fair value of the loaned
securities.

5.   FAIR VALUE AND FINANCIAL INSTRUMENTS

     The following  methods were used in estimating  fair value  disclosures for
significant financial instruments.  Cash equivalents  approximate their carrying
amount due to the short duration of those investments. Fixed maturity securities
are based upon quoted  market  information.  The fair value of long term debt at
December  31, 1998 and 1997 which  bears  interest at a fixed rate is based upon
current rates offered to the company for debt of similar remaining maturity. The
fair value of debt at  December  31,  1998 and 1997 which  bears  interest  at a
variable rate is assumed to equal the carrying  value of the debt.  The carrying
amounts and fair values of the Company's  significant  financial instruments are
as follows (in thousands):

                                           1998                     1997
                                   --------------------    --------------------
                                   Carrying                Carrying
                                    Amount    Fair Value    Amount    Fair Value
                                   --------   ----------   --------   ----------
Assets:
  Cash and cash equivalents ....   $ 60,319    $ 60,319    $ 29,534    $ 29,534
  Fixed maturity securities ....    690,291     691,538     694,603     695,394
Liabilities:
  Long-term debt ...............   $108,477     112,162    $104,126    $109,722
  Interest Rate Swap ...........                    539

     On June 30, 1998, the Company  entered into an interest rate swap agreement
(the  "Swap")  for other than  trading  purposes  with First  Union to convert a
specific  portion  of the  floating  rate  loans  outstanding  under the  Credit
Facility  to a fixed  rate.  The Swap  requires  the  company to pay First Union
interest  on  a  notional  amount   equivalent  to  the  principal   outstanding
((pound)10,280,000  at December 31, 1998) at a fixed annual rate  throughout the
term of the  related  debt  obligation  of 6.85% and for First  Union to pay the
Company  interest equal to the three month LIBOR interest rate determined at the
commencement of each calendar quarter. The Swap terminates on December 31, 2002.
The  weighted  average  LIBOR rate payable by First Union in 1998 under the Swap
was 7.62%.  The Swap is valued based on a mathematical  approximation  of market
values  derived from  proprietary  models as of a given date and calculated on a
mid-market basis excluding any bid/offered  spread that would be reflected in an
actual price quotation.

     The  notional  amount  set forth in the Swap does not  represent  an amount
exchanged by the Company and First Union,  and thus is not a measure of exposure
of  the  Company.  Since  First  Union  is not  required  to  collateralize  its
obligations  under the Swap,  the Company is exposed to loss if First Union were
to default on its obligations  under the Swap. The Company does not believe that
any reasonably  likely change in interest rates would,  as a result of the Swap,
have a  material  adverse  effect on the  financial  position,  the  results  of
operations  or cash flows of the Company.  The Swap was reviewed and approved by
the Company's Board of Directors.





                                      F-15
<PAGE>

6.   FEDERAL INCOME TAXES

     The Company files a consolidated  Federal income tax return with its parent
and all includable  subsidiaries.  The 1998,  1997 and 1996 current income taxes
are based upon regular taxable income.

     Consolidated income before taxes, minority interest and extraordinary item,
for the years ended December 31, 1998,  1997 and 1996 consisted of the following
(in thousands):

                                                  1998        1997        1996
                                               --------    --------    --------
United States ..............................   $ 45,957    $ 31,480    $ 27,142
Foreign ....................................      2,627       9,021       4,564
                                               --------    --------    --------
  Total ....................................   $ 48,584    $ 40,501    $ 31,706
                                               ========    ========    ========

     The components of income tax expense (benefit) for the years ended December
31, 1998, 1997 and 1996 are as follows (in thousands):

                                                  1998        1997        1996
                                               --------    --------    --------
U.S. Taxes:
Current ....................................   $  5,703    $  3,743    $  8,537
Deferred ...................................      4,616       4,942        (213)
                                               --------    --------    --------
                                                 10,319       8,685       8,324
                                               --------    --------    --------
Foreign Taxes:
Current ....................................      5,032       2,183       1,013
Deferred ...................................                  1,334
                                               --------    --------    --------
                                                  5,032       3,517       1,013
                                               --------    --------    --------
Total U.S. and foreign income tax expense ..   $ 15,351    $ 12,202    $  9,337
                                               ========    ========    ========

     The difference between actual income tax expense and the amount computed by
applying  the  statutory  Federal  income  tax rate of 35% for the  years  ended
December 31, 1998, 1997 and 1996, is as follows (in thousands):

                                                  1998        1997        1996
                                               --------    --------    --------
Income tax expense at statutory rate .......   $ 17,004    $ 14,176    $ 11,097
Non-taxable investment income ..............     (2,773)     (2,598)     (1,400)
Foreign operations .........................        219        (682)
Amortization of goodwill ...................        769         769         (35)
Other, net .................................        132         537        (325)
                                               --------    --------    --------
                                               $ 15,351    $ 12,202    $  9,337
                                               ========    ========    ========

     As of December 31, 1998, the Company and all includable  subsidiaries  have
U.S. net operating loss  carryforwards  of  $15,717,000  which will be available
(subject to the annual  limitation  discussed  below) to offset regular  taxable
income during the carryforward  period (expiring 2007). The net operating losses
were generated by INSCORP prior to its  acquisition by the Company.  Due to this
change in ownership, as defined by Section 382 of the Internal Revenue Code, the
amount of net operating loss available to offset future taxable income each year
is limited to a maximum of $3,483,000.

     The Company provides income taxes on the undistributed earnings of non-U.S.
subsidiaries except to the extent that such earnings are considered  permanently
reinvested  outside the United  States.  It is not  practicable to determine the
amount of income or withholding tax that would be payable upon the remittance of
those  earnings.  However,  the Company does not  anticipate  that the income or
withholding  tax that  would be payable  upon  remittance  of the  undistributed
earnings of the non-U.S. subsidiaries would aggregate to a material amount.






                                      F-16
<PAGE>

     The tax effects of the temporary  differences  comprising the Company's net
deferred tax asset at December 31, 1998 and 1997 are as follows (in thousands):

                                                                 1998      1997
                                                               -------   -------
Deferred tax assets:
  Discounting of loss reserves .............................   $32,846   $37,429
  Unearned premiums ........................................     4,729     5,686
  Deposit accounting .......................................       715       980
  Allowance for uncollectible reinsurance ..................     1,225     1,225
  Net operating losses .....................................     5,375     6,802
  Others, net ..............................................     5,085     4,820
                                                               -------   -------
Gross deferred tax assets ..................................    49,975    56,942
                                                               -------   -------

Deferred tax liabilities:
  Deferred acquisition costs ...............................     8,429     9,135
  Earned but not reported premiums net of loss and expense .     3,223     3,141
  Unrealized appreciation of investments ...................     6,750     4,707
  Accrued market discount ..................................        52       609
  Profit commission ........................................       696     3,149
  Others, net ..............................................     1,214     1,534
                                                               -------   -------
Gross deferred tax liabilities .............................    20,364    22,275
                                                               -------   -------
Net deferred asset .........................................   $23,159   $29,847
                                                               =======   =======

     Realization  of  the  deferred  tax  asset  is  dependent  on  the  Company
generating sufficient taxable income to realize the benefits of the net deferred
tax assets. Although realization is not assured,  management believes it is more
likely than not that the entire net  deferred  tax asset will be realized and as
such no valuation allowance has been recorded at December 31, 1998 or 1997.

7.   EMPLOYEE BENEFIT PLANS

     Eligible employees of the Company may participate in a defined contribution
plan (the "Plan") established by Chartwell Re. Under the Plan, the Company makes
a matching contribution equal to 50% of each employee's pretax contribution, not
to exceed 6% of the employee's compensation. Amounts expensed under the Plan for
the years ended  December 31, 1998,  1997 and 1996 were  $209,000,  $188,000 and
$168,000, respectively.

     Certain members of management will receive a supplement to the Plan payable
at the earlier of age 65 or employment termination. The supplement will be equal
to the  aggregate  contributions  made with  respect to the  employee to a trust
established by the Company. Annual contributions to the trust are 13.5% to 20.0%
of the  employee's  base salary as stated in their  employment  agreements.  The
amounts  expensed  in 1998,  1997 and 1996 for the  obligation  under  this plan
amounted to $206,500 each year.

     Chartwell UK operates  contributory defined contribution plans for its U.K.
employees.  The level of the  contribution  varies  between 5% and 20% dependent
upon the age of each  participant  at the beginning of each calendar  year.  The
amount  expensed in 1998 and 1997 for the obligation  under these plans amounted
to $2,305,000 and $2,523,000, respectively.




                                      F-17
<PAGE>

8.   RELATED-PARTY TRANSACTIONS

     The Company holds an equity  investment in certain  managing general agents
("MGAs")  through which it writes  Controlled  Source Insurance  business.  Such
investments are accounted for under the equity method. At December 31, 1998, the
carrying values of the  investments in Florida  Intracoastal  Underwriters  (25%
owned),  HDR  Insurance  Services  (20% owned) and  Inter-Reco  (49% owned) were
$1,281,000,  $894,000 and $181,000,  respectively.  For the years ended December
31, 1998,  1997 and 1996,  the Company  incurred  $21,554,000,  $19,536,000  and
$10,038,000,  respectively,  of  commission  expense  payable to these MGAs.  At
December 31, 1998 and 1997,  the Company's  consolidated  balance sheet includes
$19,332,000 and $10,811,000,  respectively,  of agents' balances receivable from
these MGAs including  installment premiums deferred and not yet due. The current
portion of balances due from these MGAs are settled on a monthly basis.

     During 1992, Chartwell Reinsurance entered into a reinsurance contract with
Old  American  Insurance  Company,  then a related  party.  For the years  ended
December  31,  1997  and  1996,  Chartwell  Reinsurance  earned  $3,819,000  and
$1,716,000  of premium on this  contract  and  incurred,  prior to the effect of
reinsurance  ceded $2,750,000 and $1,506,000 in loss and LAE,  respectively.  At
December 31, 1997,  the loss and LAE liability for this contract was  $1,141,000
and unearned  premiums  were  $569,000,  respectively.  Old  American  Insurance
Company is no longer a related party.

9.   RESTRICTION ON PAYMENT OF DIVIDENDS

     The  ability  of the  Company  to pay cash  dividends  to  Chartwell  Re is
dependent  upon the amount of dividends  received  from  Chartwell  Reinsurance.
Chartwell  Reinsurance's  ability to pay cash  dividends  to the  Company is, in
turn,  restricted  by law or subject to  approval  of the  insurance  regulatory
authorities of Minnesota,  Chartwell Reinsurance's state of domicile.  Insurance
regulatory  authorities recognize statutory accounting practices for the ability
of an insurer to pay dividends to its shareholders.
     Under the insurance laws of the State of Minnesota, payment of dividends by
Chartwell  Reinsurance  in any year is  limited  to the  greater  of: (i) 10% of
capital and surplus as of the prior year end as determined  in  accordance  with
statutory accounting practices;  or (ii) statutory net income from operations of
the next preceding year excluding  realized capital gains.  Notwithstanding  the
foregoing, Chartwell Reinsurance may pay dividends only from its earned surplus,
also known as unassigned  funds.  The maximum  dividend that can be paid without
prior approval of the Minnesota Department of Commerce in 1999 is $30.3 million.
     On November 25, 1997, Chartwell Reinsurance paid a $3.0 million dividend to
the Company.  On February 24, 1999,  Chartwell  Reinsurance  paid a $5.5 million
dividend to the Company. No dividends were paid in 1996 or 1998.
     In addition, under the insurance laws of the State of New York, INSCORP may
pay dividends to Chartwell Reinsurance only out of its statutory earned surplus.
The maximum amount of cash dividends INSCORP may pay out of its statutory earned
surplus, without prior regulatory approval, is subject to statutory restrictions
imposed by New York State Insurance Law. Generally,  the maximum amount that may
be paid in any twelve month period  without prior  approval is the lesser of net
investment income as defined or 10% of statutory surplus to policyholders.
     In  addition  to the  foregoing  limitation,  the New York State  Insurance
Department, as is its practice in any change of control situation,  required the
Company to commit to preclude  INSCORP from paying any  dividends  for two years
from the date of its merger with Chartwell Re without prior regulatory approval.
The two year period  ended on December  13,  1997.  INSCORP paid no dividends in
1997 or 1998.
     The capital and surplus of Chartwell  Reinsurance on the basis of statutory
accounting  practices was $302,871,000 and $262,606,000 at December 31, 1998 and
1997,  respectively.  Net income of  Chartwell  Reinsurance  based on  statutory
accounting principles was $23,791,000,  $10,239,000 and $6,156,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
     The  capital and  surplus of INSCORP on the basis of  statutory  accounting
practices  was  $131,747,000  and  $113,677,000  at December  31, 1998 and 1997,
respectively. Net income of INSCORP based on statutory accounting principles was
$22,627,000,  $14,234,000 and $22,270,000 for the years ended December 31, 1998,
1997 and 1996, respectively.

10.  REINSURANCE ASSUMED AND CEDED

     The   Company   cedes  a  portion  of  its  risks  by   utilizing   various
retrocessional  contracts.  These  contracts do not relieve the Company from its
obligations  to  policyholders.  The Company  regularly  evaluates the financial


                                      F-18
<PAGE>

condition  of its  reinsurers  and  monitors  concentration  of credit risk with
respect to amounts recoverable under these contracts.

     The effect of  reinsurance  on premiums  written and earned at December 31,
1998, 1997 and 1996 is as follows (in thousands):

<TABLE>
<CAPTION>
                                                1998                              1997                              1996
                                     --------------------------        --------------------------        --------------------------
                                       Written          Earned          Written           Earned          Written           Earned
                                     ---------        ---------        ---------        ---------        ---------        ---------
<S>                                  <C>              <C>              <C>              <C>              <C>              <C>
Primary insurance ............       $ 116,853        $ 116,109        $ 105,635        $  86,343        $  68,308        $  66,709
Reinsurance assumed ..........         226,098          228,288          257,135          245,662          195,530          210,871
Reinsurance ceded ............        (125,897)        (114,893)         (94,510)         (86,305)         (71,587)         (68,077)
                                     ---------        ---------        ---------        ---------        ---------        ---------
Net premiums .................       $ 217,054        $ 229,504        $ 268,260        $ 245,700        $ 192,251        $ 209,503
                                     =========        =========        =========        =========        =========        =========
</TABLE>


     Certain  of the  Company's  large  assumed  reinsurance  programs  were not
renewed for 1998.  During 1997, the Company's  earned premiums  related to these
programs were $48.2 million.
     The effect of  reinsurance on loss and LAE for the years ended December 31,
1998, 1997 and 1996 is a decrease of $74,498,000,  $70,135,000 and  $45,908,000,
respectively.
     In 1997 and  1998,  the  Company  entered  into  aggregate  excess  of loss
treaties.  These treaties provide the Company with a layer of protection against
adverse  results in all lines of business in excess of  specified  loss  ratios.
Liabilities held by the Company under such treaties were $37.0 million and $10.5
million at December 31, 1998 and 1997, respectively.

     The reinsurance  recoverable balance on paid and unpaid losses and LAE from
any single  entity or company in excess of 5% of the total at December  31, 1998
were as follows:  London Life and Casualty Company,  $51,009,000 (19.7%), Centre
Reinsurance (Bermuda) Limited, $16,608,000 (6.4%), and Western General Insurance
Ltd., $15,017,000 (5.8%).
     In the normal course of business,  the Company enters into trust agreements
effecting  funds held  arrangements or obtains letters of credit issued by banks
on  behalf of the  retrocessionaires  which are not  registered  as  "authorized
reinsurers"  with the  Minnesota  Department  of  Commerce or the New York State
Insurance  Department.  The  letters  of  credit  or trust  agreements  serve as
collateral  to the  extent of their  limit for the  contingent  liability  which
exists in the event that the  retrocessionaire is unable to meet its obligations
assumed  under  a  retrocession   agreement.   Reinsurance   recoverables   with
"unauthorized  reinsurers" totaled  $153,709,000 and $119,768,000 as of December
31, 1998 and 1997,  respectively.  The respective  portions  collateralized were
$145,815,000 and $111,319,000.
     Included in deposits on the balance sheet at December 31, 1998 and 1997 are
$12,306,000 and $11,548,000, respectively, deposited with European International
Reinsurance Limited and $7,669,000 and $7,492,000,  respectively, deposited with
Centre Reinsurance  (Bermuda)  Limited,  both of which are secured by letters of
credit as described in the preceding paragraph.

11.  PERMITTED STATUTORY ACCOUNTING PRACTICES

     Chartwell  Reinsurance,  INSCORP  and Dakota  prepare  statutory  financial
statements in accordance with accounting  principles and practices prescribed or
permitted  by  their  respective   domiciliary   state  insurance   departments.
Prescribed practices include state laws, regulations, and general administrative
rules,  as well as a variety of  publications  of the  National  Association  of
Insurance  Commissioners  ("NAIC").  Permitted  statutory  accounting  practices
encompass all  accounting  practices  that are not  prescribed;  such  practices
differ from state to state,  may differ from company to company  within a state,
and may change in the future.  In March 1998, the NAIC adopted the  Codification
of Statutory Accounting Principles ("Codification").  The Codification, which is
intended to  standardize  regulatory  accounting and reporting for the insurance
industry,  is  proposed  to be  effective  January 1, 2001.  However,  statutory
accounting  principles will continue to be established by individual  state laws
and  permitted  practices  and it is  uncertain  when,  or  if,  the  states  of
Minnesota,  New York and North Dakota will require  adoption of Codification for
the preparation of statutory financial statements. The Company has not finalized
the  quantification  of the effects of Codification  on its statutory  financial
statements.


                                      F-19
<PAGE>
12.  LOSS AND LAE

     The following table presents the activity in the liability for loss and LAE
for the years indicated (in thousands):
<TABLE>
<CAPTION>
                                                                         1998               1997               1996
                                                                      ---------          ---------          ---------
<S>                                                                   <C>                <C>                <C>
Loss and LAE at beginning of year .................................   $ 788,240          $ 747,858          $ 741,467
Less reinsurance recoverables .....................................     202,593            172,377            179,854
                                                                      ---------          ---------          ---------
  Net balance at beginning of year ................................     585,647            575,481            561,613
                                                                      ---------          ---------          ---------
Add provision for loss and LAE for claims occurring during:
  Current year ....................................................     142,665            163,003            152,338
  Prior years .....................................................      (7,400)            (2,155)            (1,717)
                                                                      ---------          ---------          ---------
  Total incurred loss and LAE .....................................     135,265            160,848            150,621
                                                                      ---------          ---------          ---------
Less losses and LAE payments for claims occurring during:
  Current year ....................................................      42,102             45,286             29,554
  Prior Years .....................................................     130,669            105,396            107,199
                                                                      ---------          ---------          ---------
  Total paid loss and LAE .........................................     172,771            150,682            136,753
                                                                      ---------          ---------          ---------
Loss and LAE acquired as of acquisition date of:
  Oak Dedicated Two Limited .......................................      50,293
  Archer Dedicated PLC ............................................      41,124
                                                                      ---------          ---------          ---------
  Total loss and LAE acquired .....................................      91,417
                                                                      ---------          ---------          ---------
Net balance at end of year ........................................     639,558            585,647            575,481
Plus reinsurance recoverables .....................................     239,059            202,593            172,377
                                                                      ---------          ---------          ---------
Loss and LAE at end of year .......................................   $ 878,617          $ 788,240          $ 747,858
                                                                      =========          =========          =========
</TABLE>

     As a result of changes in estimates of insured  events in prior years,  the
net  provision  for  loss  and LAE  decreased  by  $7,400,000,  $2,155,000,  and
$1,717,000 in 1998, 1997 and 1996, respectively.  These amounts, which represent
a decrease of 1.3%,  0.4% and 0.3% of the net loss and LAE at the  beginning  of
1998, 1997 and 1996, respectively,  are the result of normal reserve development
inherent  in the  uncertainty  of  establishing  loss and LAE  liabilities.  The
slightly larger  redundancy in 1998 is attributable to favorable  development in
asbestos and environmental reserves, which are in runoff.

     The liabilities  include  provisions for latent injury or toxic tort claims
that cannot be estimated with traditional reserving  techniques.  Case reserves,
including  LAE,  have been  established  upon  notification  of loss from ceding
companies. In addition, the Company establishes additional liabilities in excess
of its share of the reserve established by the ceding company to cover exposures
on both known and unasserted claims. These liabilities are periodically reviewed
by the Company's claims department.  In the reserve setting process, the Company
also includes  provisions for social inflation (i.e. awards by judges and juries
that have  progressively  increased in recent years) and evaluates the potential
effect of any legislative changes on its reserve liabilities.  However,  because
of inconsistent court decisions in federal and state  jurisdictions and the wide
variation  among  insureds  with  respect  to  underlying  facts  and  coverage,
uncertainty  exists with  respect to these  claims as to  liabilities  of ceding
companies and, consequently, reinsurance coverage.

     At December 31, 1998,  the Company  carried case reserves and allocated LAE
attributable to asbestos claims and environmental pollution claims in the amount
of $78,974,000  ($54,926,000  after  reduction for  reinsurance  recoverable) of
which  $10,752,000  ($6,645,000  after  reduction for  reinsurance  recoverable)
related to Chartwell  Reinsurance and $68,222,000  ($48,281,000  after reduction
for reinsurance recoverable) related to INSCORP. The net deficiency attributable
to  asbestos  claims and  environmental  pollution  claims  for the years  ended
December  31,  1998,  1997 and 1996 was $13.2  million,  $8.7  million  and $6.5
million, respectively. All of the net deficiency for the 1996 and 1997 years and
$11.3 million of the net deficiency  for the 1998 year results from  development
on business  underwritten  by INSCORP prior to its merger with Chartwell Re (the
"Merger")  and,  therefore,  is  subject  to  the  protection  provided  by  the
Contingent  Interest Notes ("CI Notes") issued  immediately prior to the Merger.
The CI Notes were  issued to protect  Chartwell  Re against the  possibility  of
adverse development of INSCORP's reserves for losses and LAE,  particularly with
respect  to  INSCORP's   potential   exposures  for  environmental   impairment,
asbestos-related and latent injury claims and other long-tail casualty exposure.
Management  believes  that  Chartwell  Reinsurance's  exposure to  asbestos  and
environmental losses is lessened because of its relatively recent entry into the
reinsurance  business in 1979, its low historical levels of premium volume prior
to 1985, and its retrocessional programs

                                      F-20
<PAGE>
     Environmental claims are particularly challenging to a reinsurance company.
Such claims involve  underlying  coverage disputes between the insured party and
its insurer;  substantial  legal defense costs;  questions as to occurrences and
aggregation of claims and "late notice"  issues.  Environmental  liability suits
often  contain  multiple  party and multiple  site actions that result in varied
adjudications  among insureds and their insurers.  Such a complex setting forces
the parties to find a reasonable  basis for  settling  the claims.  These widely
varying  settlements  involving  primary  insurers  force  challenges  upon  the
reinsurer with respect to the extent to which they should follow the settlements
of their  ceding  companies.  Accordingly,  there can be no  assurance  that the
Company's ultimate liability for losses and LAE will not vary significantly from
amounts reserved.

13.  DEBT

     (a) Long-term  debt--The  components of long-term debt at December 31, 1998
and 1997 are as follows (in thousands):

                                                1998           1997
                                             --------        --------
Senior notes .........................       $ 48,750        $ 48,750
Bank loan ............................         56,303          51,198
Other ................................          3,424           4,178
                                             --------        --------
Total ................................       $108,477        $104,126
                                             ========        ========

     On  March  17,  1994,   Chartwell  Re  completed  a  public  offering  (the
"Offering") of 10.25% Senior Notes due 2004,  having a total principal amount of
$75,000,000.   The  net  proceeds  to  Chartwell  Re  from  the  Offering   were
approximately  $71,934,000 after deducting expenses related to the Offering.  Of
the net  proceeds,  $30,000,000  was  contributed  to the  statutory  surplus of
Chartwell  Reinsurance and  $23,400,000  was used to retire  Chartwell Re's then
outstanding  senior term loan. The remaining funds were retained by Chartwell Re
for general  corporate  purposes,  which included the payment of interest on the
Senior Notes.
     On  April 8,  1996,  the  Company  redeemed  35% of the  Senior  Notes  for
$28,300,000,  including the redemption premium. Due to this early extinguishment
of debt, the Company  recognized an  extraordinary  loss of  $1,874,000,  net of
applicable income taxes of $1,000,000.  This extraordinary charge represents the
redemption  premium  and  35% of the  remaining  original  debt  issuance  costs
relating to the Senior Notes.
     On  December  13,  1995,  Chartwell  Re  entered  into a  $20,000,000  loan
agreement  with Fleet Bank (the "Fleet  Loan"),  with a variable  interest  rate
based upon the  Eurodollar  rate plus a margin  based upon the S&P rating of the
Notes,  scheduled  to expire on  December  13,  2002.  The Fleet Loan was repaid
during 1996.
     On November 14, 1996, the Company  entered into a new credit  facility with
First Union National Bank,  N.A.,  ("First Union") as agent. The credit facility
provides for a term loan in two tranches, A & B, (the "First Union Loans"), with
outstanding  balances of  $30,000,000  and  $15,858,000  (denominated  in Pounds
Sterling),  respectively  at  December  31,  1998 and  outstanding  balances  of
$30,000,000 and  $13,983,000 at December 31, 1997. In addition,  at December 31,
1998,  $5,467,000 of the Term B Loan was used to guarantee the Loan Notes.  Both
loans are subject to a quarterly  repayment  schedule,  commencing  on March 31,
1999 and ending on December 31, 2002. The Company used  $20,000,000 of the First
Union  Loans to repay all  outstanding  borrowings  under the  $20,000,000  loan
agreement  with Fleet Bank.  Portions of the  remainder of the First Union Loans
were drawn down in cash by the Company and  contributed to Holdings  Limited for
the  purchase of  Chartwell  UK, and portions  were  utilized to  guarantee  the
obligations  of  Holdings  Limited  under  the  Loan  Notes  (the  "First  Union
Guarantee").  The holders of Loan Notes may require the Company to redeem all or
part of their  holdings in June or December of each year.  As the Loan Notes are
redeemed  ("Loan Note  Redemptions"),  the First Union  Guarantee is reduced and
replaced  with loan  proceeds to fund the Loan Note  Redemptions.  During  1998,
$1,800,000  of Loan  Note  Redemptions  occurred,  resulting  in an  outstanding
balance of Loan Notes of $5,467,000 at December 31, 1998.
     The Company  currently has a $60,000,000  Revolving Credit  Commitment from
First Union (the "First Union  Revolver"),  which was increased from $35,000,000
in October of 1997. The First Union Revolver replaced the Company's  $10,000,000
revolving  credit  facility  from Fleet Bank  (under  which no  borrowings  were
outstanding).  The First Union Revolver may be used to provide  additional  Loan
Note   guarantees,   to  support   underwriting  at  Lloyd's  by  the  Company's
subsidiaries or for other general corporate purposes. At December 31, 1998, $1.4
million of the First Union credit facility was unused, $53.6 million was used to
finance unsecured letters of credit,  and $5.0 million was used to secure a line
of credit.  All obligations of the Company under the First Union credit facility
are guaranteed by Chartwell Re.
     The other  portion of long-term  debt  primarily  represents  capital lease
obligations.

                                      F-21
<PAGE>

     The Company's  long-term  debt  agreement  contains  general  covenants and
restrictions  as well as financial  covenants  relating to, among other  things,
minimum earned surplus,  minimum statutory surplus,  minimum net worth,  certain
financial ratios,  and maintenance of minimum cash and cash equivalent  balances
on the books of the borrower.

     Annual maturities of long-term debt outstanding at December 31, 1998 are as
follows (in thousands):

1999 ........................................    $ 10,799
2000 ........................................      14,271
2001 ........................................      13,845
2002 ........................................      20,812
2003 ........................................           0
Future Years ................................      48,750
                                                 --------
                                                 $108,477
                                                 ========

     (b)  Capital  Leases - During  1996,  the  Company  began  leasing  certain
facilities  and  equipment  under  agreements  which are  classified  as capital
leases. The leases have original terms of 3 to 5 years and have purchase options
at the end of the original  lease term. At the end of the term,  the Company may
purchase the equipment for a mutually agreeable price, renew the lease or return
the equipment to the lessor and enter into a new lease.  Leased  capital  assets
include  the  buildout  costs  of the  Company's  leased  office  space  for its
principal  executive  offices,  furniture and  equipment,  and  electronic  data
processing  hardware  and  software  and are  included  in Other  Assets  in the
consolidated  balance  sheet  at  December  31,  1998 and  1997 as  follows  (in
thousands):

                                                           1998            1997
                                                          ------          ------
Office space build-out costs ...................          $  884          $1,179
Furniture and equipment ........................           2,302           2,648
EDP hardware and software ......................             569           1,137
                                                          ------          ------
                                                          $3,755          $4,964
                                                          ======          ======

     Leased capital assets are amortized to interest  expense on a straight-line
basis over the original  lease term.  For the years ended  December 31, 1998 and
1997,  the Company  recorded  $312,000 and $230,000,  respectively,  of interest
expense  related to such  leased  assets.  Future  minimum  payments,  including
principal  and  interest,  by year and in the  aggregate,  under  non-cancelable
capital leases are as follows (in thousands):

1999 ..................................    $1,771
2000 ..................................     1,440
2001 ..................................     1,014
2002 ..................................       435
                                           ------
                                           $4,660
                                           ======

14.  COMMITMENTS AND CONTINGENCIES

     Operating  leases--The  Company  leases  office  space  for  its  principal
executive offices in the U.S. and U.K. under non-cancelable, renewable operating
leases expiring on July 31, 2006 and December 24, 2008,  respectively.  The rent
expense has been accounted for on a straight-line  basis after amortization of a
rent abatement allowance (on the U.S. lease).  Rental expense for 1998, 1997 and
1996 was $2,521,000, $2,828,000 and $1,386,000, respectively. The future minimum
rental payments,  exclusive of escalation clauses,  under the existing leases as
of December 31, 1998 are as follows (in thousands):

1999 ..................................     $2,489
2000 ..................................      1,450
2001 ..................................      1,560
2002 ..................................      1,628
2003 ..................................      1,725
Future Years ..........................      5,903



                                      F-22
<PAGE>

     Line of credit--The  Company has a $60 million  revolving  credit  facility
with First Union,  of which $1.4 million was unused,  $53.6  million was used to
finance unsecured letters of credit,  and $5.0 million was used to secure a line
of credit as of December 31, 1998.

     Loan  guarantees  and letters of credit--At  December 31, 1998, the Company
has  outstanding   loan  guarantees  and  standby  letters  of  credit  totaling
$4,353,000  and  $68,905,000,  respectively.  The loan  guarantees  and  standby
letters of credit are in force for five years, for which the Company pays annual
fees of $562,000.  The loan  guarantees and letters of credit provide capital to
NLC Name No. 6 Limited, Riverside Underwriters Plc and Oak Dedicated,  corporate
members of Lloyd's,  to participate in certain  Lloyd's  syndicates for the 1995
Underwriting  Year  and  thereafter.  The  investments  in NLC  Name  No.  6 and
Riverside  Underwriters  Plc,  which amount to $16,429,000 at December 31, 1998,
are  included  in other  assets  with  corresponding  amounts  included in other
liabilities for the loan guarantees and letters of credit.

     Limited Partnership  Investment--In  1996, the Company made a commitment to
invest  $15  million  in a private  equity  fund,  High  Ridge  Capital  Limited
Partnership,  which makes  investments  in the insurance  industry.  The Company
contributed a total of $9.8 million and $3.8 million to this fund as of December
31, 1998 and 1997, respectively.

     American  Eagle--In 1996 and early 1997,  the Company  entered into certain
assumption of liability  endorsement  ("ALE")  agreements  with  American  Eagle
Insurance Company ("American  Eagle").  On December 3, 1997,  American Eagle was
placed in  receivership  by the Texas  Department  of  Insurance.  The Company's
contingent liability under these agreements was originally secured by $3,600,000
of funds held in trust.  As of December 31, 1998,  $1,200,000 of such funds have
been paid to the Company as  reimbursement  for losses incurred under the ALE's.
Since a significant  portion of the  Company's  liabilities  in connection  with
American Eagle are  colateralized by this trust fund,  management of the Company
does  not  presently  believe  that any  residual  exposure  resulting  from the
receivership  of American  Eagle is likely to have a material  adverse effect on
its financial position or results of operations.

     Lloyd's Names  exposure--The  Company's  balance sheet at December 31, 1998
includes a  provision  for  potential  exposure  to certain of the Names who had
participated on syndicates  managed by CMA. The provision was established by the
Company based on actuarial  projections  of the expected  deterioration  for the
applicable  years of account.  Management  believes at the present time that the
provisions related to such potential exposure is sufficient.

     Other--The Company,  Chartwell Reinsurance,  INSCORP and CMA are subject to
the  litigation of disputes in the normal course of their  business.  Management
does not believe that any pending  litigation  or  arbitration  to which it is a
party,  or of which any of its  properties  or assets are subject,  is likely to
have a materially adverse effect on its current financial position or results of
operations.

15.  PUBLIC STOCK OFFERING

     Chartwell  Re  completed a public  offering of  2,725,000  shares of common
stock at $23.00 per share  during the first half of 1996.  The net  proceeds  to
Chartwell  Re were  $58,503,000  after  deduction of  underwriting  discount and
expenses.  Of the net proceeds,  $48,500,000 was contributed to the Company,  of
which  $20,000,000  was  contributed  to  the  statutory  surplus  of  Chartwell
Reinsurance and $28,500,000 was used to retire 35% of the Company's  outstanding
Senior Notes plus accrued  interest (Note 13). The remaining funds were retained
for general corporate purposes.

16.  STOCK OPTION PLANS AND COMMON STOCK WARRANTS

     During 1997,  Chartwell Re adopted the 1997 Omnibus  Stock  Incentive  Plan
(the "1997  Plan") as the  successor  to the 1993 Stock  Option  Plan (the "1993
Plan")  which was adopted on October 15, 1993.  Under the 1993 Plan,  options to
acquire  1,000,000  shares of Common Stock of Chartwell Re were authorized to be
granted to  officers,  key  employees  and  directors  of  Chartwell  Re and its
designated subsidiaries. Upon adoption of the 1997 Plan, no further awards shall
be made under the 1993 Plan and  107,000 of  previously  authorized  non-granted
shares under the 1993 Plan became  available  under the 1997 Plan.  Chartwell Re
also authorized an additional  800,000 shares to be granted under the 1997 Plan.
Under both plans, the options become exercisable at various dates.



                                      F-23
<PAGE>

     A  total  of  50,000   shares  are  available  for  grants  of  options  to
non-employee  directors of  Chartwell Re until  December 31, 2006 under the 1996
Non-Employee  Directors Stock Option Plan. An option to purchase 1,000 shares of
Chartwell  Re's  Common  Stock was  granted  to all  non-employee  directors  of
Chartwell  Re in  office  at  January  1,  1996  and  will  be  granted  to  all
non-employee  directors of  Chartwell  Re on the date of each annual  meeting of
stockholders.  The options are exercisable  after six months from the grant date
at a price equal to the fair value of Chartwell Re's stock on the date of grant.
The options expire ten years after the grant date.

     The total number of options  available to purchase shares of Chartwell Re's
Common Stock under the Company's  stock option plans at December 31, 1998,  1997
and 1996 are as follows:

<TABLE>
<CAPTION>
                                                 1998                      1997                       1996
                                       ----------------------   ------------------------     ---------------------
                                                     Weighted                  Weighted                  Weighted
                                                      Average                   Average                   Average
                                                     Exercise                  Exercise                  Exercise
                                        Shares         Price      Shares         Price       Shares        Price
                                      ---------     --------    ---------     ---------      -------     --------
<S>                                   <C>           <C>           <C>          <C>           <C>         <C>
Outstanding, beginning of year......  1,275,300     $  24.55      876,400      $  21.92      672,900     $  21.00
Granted.............................    316,500        29.36      431,000         29.65      203,500        24.95
Exercised...........................    (15,000)       21.43      (22,400)        21.04
Cancelled...........................    (61,750)       29.42       (9,700)        22.01
                                      ---------                 ---------                    -------
Outstanding, end of year............  1,515,050        25.39    1,275,300         24.55      876,400        21.92
                                      =========                 =========                    =======
Options exercisable at end of year..    820,725                   665,040                    554,060
                                      =========                 =========                    =======
</TABLE>

     At December 31, 1998,  there were warrants  outstanding for the purchase of
335,002  shares of  Common  Stock of  Chartwell  Re at prices of $21 and $22 per
share.

17.  EMPLOYEE STOCK PURCHASE PLANS

     Chartwell  Re  established  an Employee  Stock  Purchase  Plan which became
effective  January 1, 1996.  Participating  employees are permitted to purchase,
annually, shares of Chartwell Re's Common Stock through payroll deductions in an
amount  ranging  from 2% to 10% of the  employee's  base pay (as  elected by the
employee).  The purchase price for shares purchased in a particular plan year is
equal to the  lesser of (i) 85 percent  of the fair  market  value of the Common
Stock on the  beginning  of such plan year or (ii) 85 percent of the fair market
value  of the  Common  Stock  at the end of such  plan  year.  Chartwell  Re has
authorized  100,000  shares of common stock for purchase under the plan of which
13,692,  11,587 and 12,381 were  purchased in January  1999,  February  1998 and
January 1997, respectively.
     Chartwell  UK  established  an Employee  Stock  Purchase  Plan which became
effective May 1, 1997.  Participating  employees  contribute savings to the Plan
ranging from (pound)5 to (pound)250 per month (as elected by the  employee).  At
the end of three years,  the  employees  may use their  savings to buy shares in
Chartwell Re at a price equal to 85% of the fair value of Chartwell  Re's Common
Stock as of the inception of the three year period.



                                      F-24

<PAGE>


18.  QUARTERLY FINANCIAL DATA (UNAUDITED)

     Summarized quarterly financial data is as follows (in thousands):

<TABLE>
<CAPTION>
                                                          First             Second              Third            Fourth
                                                         Quarter            Quarter            Quarter           Quarter
                                                       ---------          ---------          ---------         ---------
<S>                                                    <C>                <C>                <C>               <C>
For the year ended December 31, 1998
  Premiums earned ...............................      $  52,743          $  56,430          $  59,333         $  60,998
  Net investment income .........................         11,872             12,157             12,177            12,618
  Net realized capital gains (losses) ...........             99                (39)               199              (230)
  Income tax expense ............................          3,318              3,573              3,725             4,735
  Net income ....................................          8,233              8,405              8,383            10,136
  Stockholder's equity ..........................        278,474            289,429            302,705           307,923

For the year ended December 31, 1997
  Premiums earned ...............................      $  61,785          $  73,890          $  59,002         $  51,023
  Net investment income .........................         10,173             11,189             10,910            11,185
  Net realized capital gains (losses) ...........            (20)               (29)               112               (66)
  Income tax expense ............................          2,799              3,078              3,097             3,228
  Net income ....................................          6,678              6,945              7,225             6,926
  Stockholder's equity ..........................        229,374            244,135            256,825           269,052
</TABLE>






                                      F-25
<PAGE>

                        CHARTWELL RE HOLDINGS CORPORATION
                        SCHEDULE I-SUMMARY OF INVESTMENTS
                    OTHER THAN INVESTMENTS IN RELATED PARTIES
                              At December 31, 1998
                                 (in thousands)
<TABLE>
<CAPTION>

                               Column A                                          Column B     Column C     Column D
-----------------------------------------------------------------------------    --------     --------     --------
                                                                                                           Amount at
                                                                                                          which shown
                                                                                                            in the
                                                                                                Fair        balance
                                                                                    Cost       Value         sheet
                                                                                 --------     --------     --------
<S>                                                                              <C>          <C>          <C>
Fixed Maturities:
  Bonds:
    United States Government and government agencies and
       authorities (1) .......................................................   $206,820     $212,467     $212,088
    States, municipalities and political subdivisions (1) ....................    165,231      171,899      171,883
    Foreign governments ......................................................     27,520       29,263       28,456
    All other corporate bonds ................................................    232,942      240,487      240,442
Redeemable preferred stock ...................................................     35,773       37,422       37,422
                                                                                 --------     --------     --------
       Total fixed maturities ................................................    668,286      691,538      690,291
                                                                                 --------     --------     --------
Equity Securities-Common stocks of insurance
    companies/partnership interests ..........................................     33,637       36,358       36,358
                                                                                 --------     --------     --------
       Total investments (2) .................................................   $701,923     $727,896     $726,649
                                                                                 ========     ========     ========
</TABLE>

----------
(1)  Balance sheet value differs from column B and C because category includes a
     combination of securities  "Held to Maturity" and "Available for Sale." See
     Notes 1b and 4 of the audited consolidated financial statements.
(2)  Excludes investments held by CMA managed syndicates.





                                      S-1
<PAGE>

                        CHARTWELL RE HOLDINGS CORPORATION
           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                 BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                            ---------------------
                                                                              1998         1997
                                                                            --------     --------
<S>                                                                         <C>          <C>
ASSETS:
Investment in and receivable/payable from/to subsidiaries ................  $400,642     $353,726
Cash and cash equivalents ................................................     1,820        3,070
Other assets .............................................................    11,775       18,924
                                                                            --------     --------
                                                                            $414,237     $375,720
                                                                            ========     ========
LIABILITIES:
Long term debt ...........................................................  $101,603     $ 95,940
Other liabilities ........................................................     4,711       10,728
                                                                            --------     --------
      Total liabilities ..................................................   106,314      106,668
                                                                            --------     --------
STOCKHOLDER'S EQUITY:
Common stock, par value $1.00 per share; authorized 1,000 shares;
  shares issued and outstanding 100 ......................................
Additional  paid-in capital ..............................................   217,866      217,866
Net unrealized appreciation of investments ...............................    12,534        8,741
Foreign currency translation adjustment ..................................       217          296
Retained earnings ........................................................    77,306       42,149
                                                                            --------     --------
      Total stockholder's equity .........................................   307,923      269,052
                                                                            --------     --------
                                                                            $414,237     $375,720
                                                                            ========     ========
</TABLE>

The  condensed  financial  statements  should  be read in  conjunction  with the
consolidated financial statements and the accompanying notes thereto.





                                      S-2
<PAGE>

                        CHARTWELL RE HOLDINGS CORPORATION
           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF OPERATIONS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                              1998           1997          1996
                                                                            --------      --------      --------
<S>                                                                         <C>           <C>           <C>
REVENUES:
Net investment income ..................................................    $    589      $  3,879      $    651
Other income ...........................................................       2,545         2,021         1,203
Realized gains .........................................................         368                          51
                                                                            --------      --------      --------
      Total revenues ...................................................       3,502         5,900         1,905
                                                                            --------      --------      --------
EXPENSES:
Interest and amortization ..............................................       7,382         7,347         7,835
General expenses .......................................................       2,668         2,276         2,144
                                                                            --------      --------      --------
      Total expenses ...................................................      10,050         9,623         9,979
                                                                            --------      --------      --------
Loss before federal income taxes, equity in undistributed
  income of subsidiaries and extraordinary item ........................      (6,548)       (3,723)       (8,074)
                                                                            --------      --------      --------

Federal income taxes:
  Current ..............................................................      (1,920)       (2,436)       (2,783)
  Deferred .............................................................        (307)          (74)
                                                                            --------      --------      --------
      Total income tax benefit .........................................      (2,227)       (2,510)       (2,783)
                                                                            --------      --------      --------
Loss before equity in undistributed income of subsidiaries and
  extraordinary item ...................................................      (4,321)       (1,213)       (5,291)
Equity in undistributed income of subsidiaries .........................      39,478        28,987        27,660
                                                                            --------      --------      --------
Income before extraordinary item .......................................      35,157        27,774        22,369
Extraordinary item, net of tax .........................................                                   1,874
                                                                            --------      --------      --------
Net income .............................................................    $ 35,157      $ 27,774      $ 20,495
                                                                            ========      ========      ========
</TABLE>

The  condensed  financial  statements  should  be read in  conjunction  with the
consolidated financial statements and the accompanying notes thereto.



                                       S-3
<PAGE>

                        CHARTWELL RE HOLDINGS CORPORATION
           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                         1998              1997              1996
                                                                                       --------          --------          --------
<S>                                                                                    <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income taxes recovered .................................................         $  5,265          $  2,698          $  1,941
  Interest received on investments ...........................................              104             3,879               485
  Overhead expenses ..........................................................             (416)           (4,682)
  Service and other revenue ..................................................              300               300
  Interest paid ..............................................................           (9,963)           (9,071)           (7,415)
  Other, net .................................................................              217             2,365            (5,766)
                                                                                       --------          --------          --------
      Net cash used in operating activities ..................................           (4,493)           (4,511)          (10,755)
                                                                                       --------          --------          --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital contributions and advances to subsidiaries .........................           (3,871)                            (18,058)
  Proceeds of investments sold expenses paid .................................              343                               4,723
                                                                                       --------          --------          --------
      Net cash used in investing activities ..................................           (3,528)                            (13,335)
                                                                                       --------          --------          --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from issuance of common stock .................................                                               48,546
  Issuance of long term debt .................................................            6,771             2,689            48,057
  Redemption of long term debt ...............................................                             (3,425)          (73,109)
                                                                                       --------          --------          --------
      Net cash provided by (used in) financing activities ....................            6,771              (736)           23,494
                                                                                       --------          --------          --------
      Effect of exchange rate on cash ........................................                                                  206
                                                                                       --------          --------          --------
Net decrease in cash and cash equivalents ....................................           (1,250)           (5,247)             (390)
Cash and cash equivalents at beginning of year ...............................            3,070             8,317             8,707
                                                                                       --------          --------          --------
Cash and cash equivalents at end of year .....................................         $  1,820          $  3,070          $  8,317
                                                                                       ========          ========          ========
RECONCILIATION OF NET INCOME TO NET CASH
  USED IN OPERATING ACTIVITIES:
  Net income .................................................................         $ 35,157          $ 27,774          $ 20,495
  Adjustments to reconcile net income to net cash used in
  operating activities .......................................................
      Equity in undistributed earnings of subsidiaries .......................          (39,478)          (28,987)          (27,660)
      Net realized capital gains .............................................                                                  (51)
      Deferred income taxes ..................................................             (140)              (89)           (1,008)
      Net change in other assets and liabilities .............................              (32)           (3,209)           (2,531)
                                                                                       --------          --------          --------
      Net cash used in operating activities ..................................         $ (4,493)         $ (4,511)         $ 10,755
                                                                                       ========          ========          ========
</TABLE>

The  condensed  financial  statements  should  be read in  conjunction  with the
consolidated financial statements and accompanying notes thereto.




                                      S-4
<PAGE>

                        CHARTWELL RE HOLDINGS CORPORATION
                            SCHEDLE IV - REINSURANCE
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                 (in thousands)

<TABLE>
<CAPTION>

                  Column A                                Column B        Column C        Column D       Column E        Column F
-----------------------------------------------------     --------        --------        --------       --------        --------
                                                                                                                        Percentage
                                                                          Ceded to      Assumed from                    of amount
                                                           Gross           other           other                        assumed to
                                                           amount        companies       companies       Net amount        net
                                                          --------       ---------       ---------       ----------       -----
<S>                                                       <C>             <C>             <C>             <C>             <C>
1998
Premiums earned:
  Property and casualty insurance ...................     $116,109        $114,893        $228,288        $229,504         99.5%
                                                          --------        --------        --------        --------        -----
      Total premiums ................................     $116,109        $114,893        $228,288        $229,504         99.5%
                                                          ========        ========        ========        ========        =====
1997
Premiums earned:
  Property and casualty insurance ...................     $ 86,343        $ 86,305        $245,662        $245,700        100.0%
                                                          --------        --------        --------        --------        -----
      Total premiums ................................     $ 86,343        $ 86,305        $245,662        $245,700        100.0%
                                                          ========        ========        ========        ========        =====
1996
Premiums earned:
  Property and casualty insurance ...................     $ 66,709        $ 68,077        $210,871        $209,503        100.7%
                                                          --------        --------        --------        --------        -----
      Total premiums ................................     $ 66,709        $ 68,077        $210,871        $209,503        100.7%
                                                          ========        ========        ========        ========        =====
</TABLE>





                                      S-5
<PAGE>

                        CHARTWELL RE HOLDINGS CORPORATION
                  SCHEDLE V - VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                 (in thousands)

<TABLE>
<CAPTION>
            Column A                            Column B              Column C               Column D        Column E
                                                                      Additions
                                               Balance at     Charged to     Charged to                      Balance at
                                              Beginning of     Costs and        Other       Deductions         End of
                                                 Period        Expenses       Accounts       Describe          Period
<S>                                              <C>           <C>                                             <C>
Year Ended December 31, 1998
Reinsurance recoverable:
  Allowance for Uncollectible
      Reinsurance (1) .........................  $6,394        $    8                                          $6,402

Year Ended December 31, 1997
Reinsurance recoverable:
  Allowance for Uncollectible
      Reinsurance (1) .........................  $5,731        $  663                                          $6,394


Year Ended December 31, 1996
Reinsurance recoverable:
  Allowance for Uncollectible
      Reinsurance (1) .........................  $5,717        $   14                                          $5,731
</TABLE>


(1)  The Company has a  reinsurance  agreement  which  protects the Company from
     certain uncollectible reinsurance balances. Uncollectible amounts have been
     ceded to said contract and are reflected as reinsurance  recoverable in the
     balance sheet.  Deductions to reserve represent  subsequent  collections of
     amounts deemed uncollectible.






                                      S-6
<PAGE>


                        CHARTWELL RE HOLDINGS CORPORATION
       SCHEDULE VI - SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY
                              INSURANCE OPERATIONS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                         Reserves                                                     Claims and Claim
                                        for Unpaid                                                  Adjustment Expenses
                             Deferred   Claim and     Discount                                      Incurred Related to
                              Policy      Claim        if any,                             Net     ---------------------
 Affiliation with          Acquisition  Adjustment    deducted    Unearned    Earned    Investment   Current      Prior
    Registrant                Costs     Expenses(1)  in Column C  Premiums   Premiums     Income       Year       Year
    ----------                -----     -----------  -----------  --------   --------     ------       ----       ----
<S>                        <C>         <C>           <C>         <C>        <C>          <C>       <C>         <C>
Years Ended:
December 31, 1998.....     $  24,084   $  878,617                $ 108,495  $ 229,504    $ 48,824  $ 142,665   $ (7,400)
December 31, 1997.....        26,100      788,240                  111,149    245,700      43,457    163,003     (2,155)
December 31, 1996.....        17,903      747,858                   81,599    209,503      43,598    152,338     (1,717)


<CAPTION>
                             Amortization
                             of Deferred   Paid Claims
                                 Policy     and Claim      Other         Net
 Affiliation with             Acquisition   Adjustment    Operating   Premiums
    Registrant                   Costs       Expenses     Expenses     Written
    ----------                   -----       --------     --------     -------
<S>                          <C>           <C>            <C>        <C>
Years Ended:
December 31, 1998.....       $   61,564    $  172,771     $ 39,545   $ 217,054
December 31, 1997.....
                                 72,655       150,682       36,333     268,260
December 31, 1996.....           52,030       136,753       19,050     192,251
</TABLE>


(1)  The Company  adopted SFAS No. 113 which,  among other things,  requires the
     Company to record its reserves for unpaid losses and LAE without  reduction
     for amounts  that would be  recovered  from  retrocessionaires.  The amount
     recoverable from retrocessionaires is recorded as an asset on the Company's
     balance  sheet.  The net of such asset and the reserves for loss and LAE is
     $639.6,  $585.6  and  $575.5  million  at  December  1998,  1997 and  1996,
     respectively.





                                      S-7

<PAGE>



                               INDEX TO EXHIBITS

Exhibits
--------


3.1       Certificate  of   Incorporation  of  Chartwell  Re  Holdings
          Corporation.  Incorporated by reference to Exhibit 3.1 to Chartwell Re
          Holdings  Corporation's  Annual Report on Form 10-K for the year ended
          December 31, 1995 (File No. 0-28188).

3.2       By-laws of Chartwell Re Holdings Corporation. Incorporated by
          reference to Exhibit 3.2 to Chartwell Re Holdings Corporation's Annual
          Report on Form 10-K for the year  ended  December  31,  1995 (File No.
          0-28188).

4.1       Indenture,  dated as of March 17, 1994,  between Chartwell Re
          Corporation  and Bankers Trust  Company,  as Trustee,  for the 10 1/4%
          Senior Notes due 2004 (the "Senior Notes").  Incorporated by reference
          to Exhibit 4.1 to Chartwell Re Corporation's Registration Statement on
          Form S-1 (File No. 33-75386).

4.2       First Supplemental Indenture,  dated as of December 12, 1995,
          among Chartwell Re Corporation,  Chartwell Re Holdings Corporation and
          Bankers Trust Company, as Trustee, for the Senior Notes.  Incorporated
          by reference to Exhibit 4.3 to Chartwell Re Corporation's Registration
          Statement on Form S-1 (File No. 333-678).

4.3       Second Supplemental Indenture, dated as of December 12, 1995,
          between  Chartwell Re Holdings  Corporation and Bankers Trust Company,
          as Trustee, for the Senior Notes. Incorporated by reference to Exhibit
          4.4 to Chartwell Re Corporation's  Registration  Statement on Form S-1
          (File No. 333-678).

10.1      First  Amended and Restated  Credit  Agreement,  dated as of
          November 14, 1996 among Chartwell Re Holdings Corporation, the Lenders
          named therein,  First Union National Bank of North Carolina,  as Agent
          and as an Issuing Bank, First Union National Bank, (London Branch), as
          an Issuing Bank as amended by the First Amendment to First Amended and
          Restated Credit Agreement, dated as of January 24, 1997 by and between
          Chartwell Re Holdings  Corporation,  the Lenders named therein,  First
          Union National Bank of North  Carolina,  as Agent and as Issuing Bank,
          and First Union  National  Bank (London  Branch),  as an Issuing Bank.
          Incorporated   by   reference   to  Exhibit   10.1  to   Chartwell  Re
          Corporation's  Annual Report on Form 10-K for the year ended  December
          31, 1996 (File No. 1-12502).

10.2      Second  Amendment  to First  Amended  and  Restated  Credit
          Agreement,  dated as of October 30, 1997,  among Chartwell Re Holdings
          Corporation,  the Lenders named therein, First Union National Bank, as
          Agent and as Issuing  Bank,  and First  Union  National  Bank  (London
          Branch) as an Issuing Bank.  Incorporated by reference to Exhibit 10.3
          to Chartwell Re Holdings  Corporation's Annual Report on Form 10-K for
          the year ended December 31, 1997 (File No. 0-28188).

10.3      Third  Amendment  to  First  Amended  and  Restated  Credit
          Agreement  and  Acknowledgement,  dated as of December 1, 1998,  among
          Chartwell  Re Holdings  Corporation.  Chartwell  Reinsurance  Company,
          Chartwell Re  Corporation,  Chartwell  Holdings  Limited,  the Lenders
          named  therein,  First Union National Bank, as Agent and as an Issuing
          Bank and First Union  National  Bank  (London  Branch),  as an Issuing
          Bank.

10.4      Form of Change of Control  Agreement  between  Chartwell  Re
          Holdings  Corporation  and senior  officers of  Chartwell  Re Holdings
          Corporation.  Incorporated  by Reference to Exhibit 10.32 to Chartwell
          Re  Corporation's  Annual  Report  on Form  10-K  for the  year  ended
          December 31, 1997 (File No. 1-12502).*

10.5      Workers  Compensation  Retrocessional  Stop Loss  Agreement,
          dated  September 30, 1997, by and between both  Chartwell  Reinsurance
          Company and The Insurance  Corporation of New York and Western General
          Insurance Ltd.  Incorporated by Reference to Exhibit 10.4 to Chartwell
          Re  Holdings  Corporation's  Annual  Report  on Form 10-K for the year
          ended December 31, 1997 (File No. 0-28188).

10.6      Aggregate Excess of Loss Reinsurance  Treaty among Chartwell
          Reinsurance Company, Dakota Specialty Insurance Company, The Insurance
          Corporation  of New York and  London  Life  and  Casualty  Reinsurance
          Corporation,  dated as of July 1, 1997.  Incorporated  by Reference to
          Exhibit 10.5 to Chartwell Re Holdings  Corporation's  Annual Report on
          Form 10-K for the year ended December 31, 1997 (File No. 0-28188).


<PAGE>

10.7      Aggregate Excess of Loss Reinsurance  Treaty among Chartwell
          Reinsurance Company, Dakota Specialty Insurance Company, The Insurance
          Corporation  of  New  York,  Drayton  Company  Limited,  Chartwell  Re
          Holdings Corporation, London Life and Casualty Reinsurance Corporation
          of Western General Insurance Ltd, dated October 1, 1998.

10.8      Tax  Allocation  Agreement,  dated December 13, 1995, by and
          among  Chartwell Re  Corporation,  Chartwell Re Holdings  Corporation,
          Drayton  Company   Limited,   Chartwell   Reinsurance   Company,   The
          Reinsurance  Corporation of New York and The ReCor  Insurance  Company
          Inc.  Incorporated  by  Reference  to  Exhibit  10.2 to  Chartwell  Re
          Holdings  Corporation 's Annual Report on Form 10-K for the year ended
          December 31, 1997 (File No. 0-28188).

12.1      Computation of ratio of earnings to fixed charges.

21.       Subsidiaries of Chartwell Re Corporation.

27.1      Financial Data Schedule

-------------------------
*Management contract, compensatory plan or arrangement