SECURITIES AND EXCHANGE COMMISSION     
                           Washington, D.C. 20549 
                           ----------------------
     
                                 FORM 10-K 
             ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF 
                   THE SECURITIES EXCHANGE ACT OF 1934 
          For the fiscal year ended        Commission file number 
              December 31, 1997                    1-7801    
                              ----------------
                         ORION CAPITAL CORPORATION 
           (Exact name of registrant as specified in its charter)

                Delaware                            95-6069054 
         (State or other jurisdiction of           (I.R.S. Employer 
           incorporation or organization)           Identification Number)
       
         9 Farm Springs Road, Farmington, Connecticut   06032 
         (Address of principal executive offices)      (Zip Code)

         Registrant's telephone number, including area code:  860-674-6600

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

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

                                                     Name of each exchange
  Title of each class                                 on which registered
  -------------------                                ---------------------
  Common Stock, $1 par value                         New York Stock Exchange

         Securities registered pursuant to Section 12(g) of the Act:
                              (Title of Class)
                9.125% Senior Notes due September 1, 2002
                7.25%  Senior Notes due July 15, 2005
                8.73%  Trust Preferred Capital Securities due January 1, 2037
                      (issued by a wholly-owned Trust of the Registrant)      

 
    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
amendments to this Form 10-K. [ ]
 
     The aggregate market value of the voting stock of the registrant held by
non-affiliates was $1,445,510,000 as of March 24, 1998.

     As of March 24, 1998, 27,533,525 Shares of Common Stock, $1.00 par value,
of registrant were outstanding exclusive of shares held by registrant and its
subsidiaries.

 
<PAGE>               DOCUMENTS INCORPORATED BY REFERENCE

     The information required by Part III is incorporated by reference from
registrant's definitive proxy statement for its Annual Meeting to be held on
May 28, 1998.  Registrant intends to file the proxy material, which involves
the election of directors, not later than 120 days after the close of its
fiscal year.

Table of Contents                                                       
Page

Part I
Item 1:    Business                                                       3
              General                                                     3
              Regional Operations                                        10
              Special Programs                                           11
              Guaranty National Companies                                16
              Insurance Industry Characteristics                         17
              Miscellaneous Operations                                   29

Item 2:    Properties                                                    29
Item 3:    Legal Proceedings                                             29
Item 4:    Submission of Matters to a Vote of Security Holders           29
           Information concerning Executive Officers of the Company      29
Part II
Item 5:    Market for Registrant's Common Equity and Related             32
             Stockholder Matters
Item 6:    Selected Financial Data                                       33
Item 7:    Management's Discussion and Analysis of Financial             
             Condition and Results of Operations                         34
Item 7A:   Quantitative and Qualitative Disclosures About Market Risk    47
Item 8:    Financial Statements and Supplementary Data                   48
Item 9:    Changes in and Disagreements with Accountants on              
             Accounting and Financial Disclosure                         82

Part III
Item 10:   Directors and Executive Officers of the Registrant            82
Item 11:   Executive Compensation                                        82
Item 12:   Security Ownership of Certain Beneficial Owners              
             and Management                                              82
Item 13:   Certain Relationships and Related Transactions                82

Part IV
Item 14:   Exhibits, Financial Statement Schedules,     
             and Reports on Form 8-K                                     82

Signatures                                                               88
Exhibit Index                                                            91

Forward-Looking Statements

     All statements made in this Annual Report on Form 10-K that do not
reflect historical information are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.  Such
forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or
achievements of Orion Capital Corporation and its consolidated subsidiaries
to be materially different from any future results, performance or
achievements, expressed or implied by the forward-looking statements.  Such
risks, uncertainties and other factors include, among other things, (i)
general economic and business conditions; (ii) interest rate and financial
market changes; (iii) competition and the regulatory environment in which
we operate (iv) claims frequency; (v) claims severity; (vi) medical cost
inflation; (vii) increases in the cost of property repair; (viii) the
number of new and renewal policy applications submitted to us; and (ix)
other factors over which we have little or no control.   Orion Capital 

                                  2   



<PAGE>
Corporation disclaims any obligation to update or to publicly announce the
impact of any such factors or revisions to any forward-looking statements
to reflect future events or developments.  Some of these factors are
discussed further in this report in Part I, Item 1: Business, and Part II,
Item 7: Managements' Discussion and Analysis of Financial Condition and
Results of Operations.
     
                                                                            
                                 PART I
ITEM 1.  BUSINESS
                                GENERAL

Our Operations

      Orion Capital Corporation is an insurance holding company.  We have
the ability, through our seventeen wholly-owned insurance subsidiaries and
investments in other insurance companies, to write almost all types of
property and casualty insurance nation-wide and throughout Canada. 
However, our operations are highly specialized.  We currently only
underwrite and sell the following specialized insurance products and
services:

      - workers compensation products and related services primarily        
         through EBI Companies;

      - professional liability coverage for architects, engineers, 
         environmental consultants, lawyers and accountants through DPIC
         Companies;

      - special property and casualty insurance programs tailored to the
         risks associated with selected types of businesses, including 
         commercial nonstandard automobile insurance, through Orion         
         Specialty;

      - personal nonstandard automobile insurance through Guaranty          
         National; and

      - underwriting management of insurance pools focusing on ocean cargo,
         inland marine and related property coverage through Wm. H. McGee.

      As of December 1997, we own 100% of Guaranty National Corporation. 
Guaranty National and its subsidiaries sell nonstandard automobile
insurance, and specialty property and casualty insurance coverages which
are not readily available in traditional insurance markets.  Prior to
December 1997, we owned slightly more than 80% of Guaranty National, but
during that month we brought all the remaining shares of Guaranty National
we did not own at $36.00 per share in a public tender offer.  The total
cost of the new shares was $116,082,000, of which $104,429,000 was paid in
cash.                                
                                     
      After completion of the acquisition of Guaranty National, in January
1998 the Company shifted Guaranty National's commercial lines to a newly
formed unit, Orion Specialty.  At that same time, we also shifted the
company's program business specialist unit, Connecticut Specialty Group, 
to the new unit and began the integration of the two operations.  This
action transformed Guaranty National into a personal lines only company.
                      
     In November 1996, we exited the assumed reinsurance business when we
sold the ongoing operations of our subsidiary, Security Reinsurance
Company.  The purchaser was Hartford Fire Insurance Company acting for
HartRe, the Hartford Insurance Group's reinsurance operation.  As a result
of the sale, Security Reinsurance Company discontinued actively writing
business and became an inactive company.    


                                      3


<PAGE>
     We have also invested in a publicly traded insurance holding company
called Intercargo Corporation.  We own 24.7% of Intercargo.  Intercargo's
subsidiaries are insurance companies that specialize in international trade
and transportation coverages.  Intercargo operates as an independent 
company and we select one member of its seven-member board of directors.
We have agreed with Intercargo that, without its approval, until June 30,
2000, we will not increase our ownership above 35%, and until June 30,
2005, we will not increase our ownership above 49%.

     We own insurance companies, as well as brokerage companies and
insurance management and service companies.  Those companies have licenses
to transact business nationwide and in all Canadian provinces.  In general
we do not sell our insurance products directly to our policyholders.  We
obtain substantially all our business through independent insurance agents
and brokers.  We have approximately 3,600 employees.  Substantially all of
our employees work in our insurance or insurance-related operations.  The
Company is not a party to any collective bargaining agreements and believes
its relationship with its employees to be good.

     Orion Capital Corporation was incorporated in the State of Delaware in
1960, and its wholly-owned insurance subsidiaries are incorporated in the
States of California, Connecticut, Colorado, Oklahoma, South Carolina,
Texas and Wisconsin.  Our principal executive offices are located 9 Farm
Springs Road, Farmington, Connecticut 06032 and the telephone numbers are
(860) 674-6600 and (800) 243-7060.

Orion Capital Corporation - Capital Structure

     We have simplified our debt and capital structure over the past
several years.  This simplified structure has permitted us to take
advantage of lower interest rates, reduce the cost of capital and eliminate
sinking fund payments until the maturity of our senior notes. In June 1997,
to increase the trading liquidity and affordability of our common stock, we
declared a 2-for-1 stock split. At year end, the only securities that Orion
Capital Corporation had outstanding were:

          - 27,605,544 shares of Common Stock;

          - $110,000,000 face amount of 9.125% Senior Notes, due            
            September 1, 2002;

          - $100,000,000 face amount of 7.25% Senior Notes, due July 15,    
            2005; and

          - $125,000,000 of 8.73% Trust Preferred Capital Securities, due   
            January 1, 2037.
 
     On January 13, 1997, Orion Capital Corporation issued $125,000,000 of
8.73% Junior Subordinated Deferrable Interest Debentures, due January 1,
2037, to Orion Capital Trust I, a Delaware statutory business trust we
sponsored.  The Trust simultaneously sold, in a private placement,
$125,000,000 of the Trust's 8.73% Preferred Capital Securities, which have
substantially the same terms as the 8.73% Debentures.  The proceeds from
the sale of the securities were used, in part, to purchase Guaranty
National in December 1997.  The securities were registered with the
Securities and Exchange Commission in April, 1997.

     On February 2, 1998, similar to the prior year's issuance of trust
preferred securities, Orion Capital Corporation issued $125,000,000 of 
7.701% Junior Subordinated Deferrable Interest Debentures, due April 15,
2028, to Orion Capital Trust II, a Delaware statutory business trust we 

                                 4

<PAGE>
sponsored.  Trust II then simultaneously sold $125,000,000 of the Trust's
7.701% Preferred Capital Securities, which have substantially the same
terms as the 7.701% Debentures, in a private placement.  Approximately
$100,000,000 of the net proceeds from the sale were used to retire the bank
indebtedness of Guaranty National.  We agreed to register the 7.701%
Preferred Capital Securities under the Securities Act of 1933, and will
file a registration statement with the Securities and Exchange Commission.

     While the two trust preferred issuances have complicated structures,
they give us all the advantages of preferred stock with the tax
deductibility feature of debt. The securities provide a low after-tax cost
of financing for our business growth.  See Notes H and R to the
consolidated Financial Statements.

Segment Reporting

     The Securities and Exchange Commission requires registered companies
to report their results in segments by type of business, geographic 
distribution or other meaningful breakdown.  Our insurance operations are
divided into three insurance segments.  In addition, the miscellaneous
income and expenses of our parent company are reported as a fourth segment. 
The four segments are as follows:

      I.  Regional Operations - this segment includes the workers           
            compensation insurance products and services sold by the EBI
          Companies.

     II.  Special Programs - this segment includes five operations:

           1. DPIC Companies, which markets our professional liability
              insurance;

           2. Orion Specialty (formerly known as Connecticut
              Specialty through December 31, 1997) which writes our         
                specialty insurance programs and our commercial nonstandard 
                 automobile insurance;
                                      
           3. Wm. H. McGee & Co., Inc., our underwriting management
              company that specializes in ocean marine, inland marine
              and related property insurance; 

           4. our 24.7% interest in Intercargo Corporation, which sells
              insurance coverages for international trade; and

           5. SecurityRe - the run-off operations of our assumed            
              reinsurance business.     

     III. Guaranty National Companies - which specializes primarily in
          personal nonstandard automobile insurance and other property
          insurance. 

      IV. Other - miscellaneous income and expenses of the parent           
          company.
         







                                     5 


<PAGE>
Net Earnings

     Our net earnings and per share amounts for the past three years, were
as follows:
                              1997            1996            1995
                             
Net earnings............   $115,806,000    $86,631,000     $67,622,000
Net earnings per basic     
  share.................   $       4.24    $      3.16     $      2.41
Net earnings per diluted         
  share.................   $       4.15    $      3.12     $      2.38

     Earnings per share has been calculated based upon a new accounting
standard, SFAS No. 128 "Earnings per Share."  Diluted earnings per share is
the same as per share amounts previously reported.  Additionally, all
shares and per share amounts have been restated for the 2-for-1 stock split
issued on July 7, 1997.

     The above basic per share figures were based on weighted average 
common shares outstanding of 27,333,000 in 1997, 27,400,000 in 1996 and
28,110,000 in 1995.                                    
                   
     The above diluted per share figures were based on weighted average
common shares and diluted equivalent outstanding of 27,900,000 in 1997,
27,788,000 in 1996 and 28,374,000 in 1995.  See "Management's Discussion
and Analysis of Financial Conditions and Results of Operations."

     In the following pages of this report, Orion Capital Corporation is
referred to as "Orion" or the "parent corporation," while Orion and its
consolidated subsidiaries are collectively referred to as the "Company."

     The following tables present condensed financial information showing
revenues, pre-tax earnings (loss) and other financial data and ratios of
the four segments for each of the three years in the period ended December
31, 1997.  Identifiable assets, by segment, are included in Note O to the
Consolidated Financial Statements, "Industry Segment Information."





        



















                                      6 
                                
<PAGE>
<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                             ------------------------------ 
                                             1997        1996        1995
                                             ----        ----        ----
                                                       (000s omitted)
<S>                                     <C>         <C>           <C>
REVENUES:
  Regional Operations -
    Premiums earned ................... $  362,127  $  356,809    $322,098
    Net investment income .............     41,787      38,226      35,750
    Realized investment gains .........     13,776       6,804       4,636
    Other income ......................        338         176         188
                                        ----------  ----------    -------- 
      
      Total Regional Operations........    418,028     402,015     362,672 
                                        ----------  ----------    -------- 


  Special Programs -
    Premiums earned ...................    448,923     462,295     426,905  
    Net investment income .............     68,700      62,646      59,584  
    Realized investment gains .........     22,222      11,066       7,781
    Other income ......................     19,726      22,658      13,564
                                        ----------  ----------    --------
      Total Special Programs ..........    559,571     558,665     507,834
                                        ----------  ----------    --------

  Guaranty National Companies -
    Premiums earned ...................    546,630     481,648          -
    Net investment income .............     43,613      39,439          -
    Realized investment gains .........     11,984       8,455          -
                                        ----------  ----------    --------
      Total Guaranty National 
      Companies........................    602,227     529,542          -   
                                        ----------  ----------    --------
  Other ...............................     10,709       3,227       3,774  
                                        ----------  ----------    -------- 
                                        $1,590,535  $1,493,449    $874,280
                                        ==========  ==========    ========
EARNINGS (LOSS):                                 
  Regional Operations ................. $   86,807  $   68,371    $ 57,830
  Special Programs ....................     49,700      44,052      43,241
  Guaranty National Companies..........     56,249      35,727       4,466
                                        ----------  ----------    --------
    Total property and casualty 
    operations.........................    192,756     148,150     105,537 
  Other................................    (16,576)    (20,794)    (17,502) 
                                        ----------  ----------    -------- 
                                           176,180     127,356      88,035  
  Federal income taxes.................    (46,481)    (32,033)    (20,413) 
  Minority interest expense............    (13,893)     (8,692)         -   
                                        ----------  ----------    --------
Net earnings........................... $  115,806  $   86,631    $ 67,622  
                                        ==========  ==========    ========  
                                     
                      

                    

 




                                       7


<PAGE> <CAPTION>
 
      The following table sets forth, on a consolidated basis, certain
insurance ratios for the Company:
                                                  Year Ended December 31,
                                             --------------------------------
                                               1997        1996        1995
                                               ----        ----        ----
  <S>                                         <C>         <C>         <C>
  Loss and loss adjustment expenses to        
    premiums earned .......................    66.7%       67.9%       68.4%  
  Policy acquisition and other insurance
    expenses to premiums earned ...........    31.2        30.1        29.0
                                              -----       -----       -----
    Total before policyholders' dividends..    97.9        98.0        97.4
  Policyholders' dividends to premiums
    earned ................................     1.8         1.8         2.9
                                              -----       -----       ----- 
    Combined ratio.........................    99.7%       99.8%      100.3%
                                              =====       =====       =====
</TABLE>
     One or more of Orion's insurance subsidiaries are licensed to transact
business in each of the 50 states of the United States, the District of
Columbia, Puerto Rico and all provinces of Canada.  In 1997, approximately
14.8% of the Company's consolidated direct premiums written was generated in
California, 7.7% in Pennsylvania, 6.4% in New York, 5.6% in Texas and 5.5% in
Florida.  The large increase in California premiums in 1997 and 1996 is from
nonstandard private passenger automobile coverages written by Guaranty
National.  Also significant in California is architects and engineers
professional liability insurance.  The primary line of business in
Pennsylvania and Texas is workers compensation.  New York's primary line is
ocean and inland marine business written by McGee.  The primary lines of
business in Florida are private passenger and commercial automobile, and
commercial multiple peril.  The following table shows the geographical
distribution of direct premiums written by the Company in 1997, 1996 and 1995,
including Guaranty National's premiums for 1997 and 1996:
<TABLE> <CAPTION>
                       Geographical Distribution of Direct Premiums Written
                                      Year Ended December 31,
                      -------------------------------------------------------
State                    1997      Pct.       1996     Pct.     1995     Pct.  
-----                    ----      ----       ----     ----     ----     ----
                           (000s omitted - except for percentages)
<S>                 <C>           <C>     <C>         <C>     <C>       <C>
California ........ $  226,028     14.8%  $  171,962   12.0%  $ 45,308    5.7%
Pennsylvania ......    116,745      7.7      130,786    9.1    110,993   13.9 
New York ..........     96,754      6.4      106,090    7.4     37,667    4.7 
Texas .............     85,250      5.6       84,939    5.9     62,426    7.8 
Florida............     84,149      5.5       52,307    3.7     36,226    4.5
All others (1) ....    912,389     60.0      885,366   61.9    506,664   63.4
                    ----------    -----   ----------  -----   --------  -----
                    $1,521,315    100.0%  $1,431,450  100.0%  $799,284  100.0%
                    ==========    =====   ==========  =====   ========  =====
<FN>
(1)   In 1997, no other single state or country accounts for more than 5% of
      total direct premiums written.       
                                                
</TABLE>                           

                                   





                                     8  


<PAGE>
     For 1997, 27.8% of the Company's net premiums written was derived from
workers compensation insurance written primarily in twenty-four states; 27.3%
came from private passenger automobile insurance; 18.3% related to liability
insurance other than automobile, primarily professional liability insurance;
11.4% came from commercial automobile insurance and 5.1% was from marine
insurance coverages.  No other line of business contributed in excess of 5% to
1997 net premiums written.  The following table shows net premiums written for
the Company, including Guaranty National for 1997 and 1996, by major statutory
lines of business:
<TABLE>
<CAPTION>
                                       Net Premiums Written

                                        Year Ended December 31,
                        -------------------------------------------------------
                            1997     Pct.       1996     Pct.     1995     Pct.
                            ----     ----       ----     ----     ----     ----
                                (000s omitted - except for percentages)
<S>                     <C>         <C>     <C>         <C>     <C>       <C>
Workers compensation .. $  380,789   27.8%  $  383,615   28.8%  $355,691   47.0%
Private passenger          
  automobile ..........    373,076   27.3      307,533   23.0     33,161    4.4  
Liability other than
  automobile ..........    250,013   18.3      249,425   18.7    210,679   27.8  
Commercial automobile .    155,646   11.4      147,287   11.0     64,874    8.6   
Marine ................     69,125    5.1       67,587    5.1     49,152    6.5    
Commercial multiple
  peril ...............     65,796    4.8       46,401    3.5      5,654     .7    
All others ............     72,623    5.3      132,273    9.9     38,225    5.0 
                        ----------  -----   ----------  -----   --------  -----
                        $1,367,068  100.0%  $1,334,121  100.0%  $757,436  100.0%   
                        ==========  =====   ==========  =====   ========  =====
</TABLE> 
   













                                         



   










                                     9
                                                                              


<PAGE>
                          REGIONAL OPERATIONS

     The Regional Operations segment is mainly comprised of the EBI Companies
("EBI"), which provides workers compensation insurance as well as alternative
workers compensation services and related products.  Through the addition of
alternative products and pricing approaches, entry into new states and
continued emphasis on its value-added services, EBI expects to further expand
its presence in the workers compensation market.
   
     EBI is a specialist in workers compensation on a regional and national
basis.  EBI continues to expand its nationwide presence in this market by
bringing its distinctive value-added approach to new states and a new customer
focus in the multi-state/national accounts segment.  EBI operates on a
nationwide basis through 44 offices located in 24 states and plans further
expansion into new states in the coming year.  It ranks among the 20 largest
writers of workers compensation insurance in the United States based on net
premiums written and has the lowest three year average loss ratio within this
group.  Its headquarters is in Itasca, Illinois, a suburb of Chicago. 
Information about EBI is available on the Internet at http://www.ebico.com.

     EBI's competitive edge stems from its distinctive service-oriented
approach. EBI offices are staffed with underwriters, marketing
representatives, claim representatives, accident prevention consultants,
lawyers, medical and rehabilitation experts and other technical and
administrative personnel who work in a multidisciplinary team environment. 
The team approach starts with the underwriting process.  EBI's method of
underwriting is not merely to evaluate the risk, but also to assess and reduce
the likelihood of injury through accident prevention services. Accident
prevention and claims management personnel, as well as underwriters, have
direct responsibility for account selection and in underwriting each client.  

Zero Accident Culture R
-----------------------

     The EBI team then works directly with the client and its employees to
identify the factors that affect their insurance costs, and to provide
services designed to reduce the frequency and severity of injuries. EBI's
approach to accident prevention requires insureds to establish and maintain a
Zero Accident Culture R, ("ZAC") designed to keep the work environment free of
accidents.  EBI manages worker injuries through its team of claims personnel
and rehabilitation nurses to minimize the employee's disability and related
medical costs.

     With a desire to influence and impact the work place environment to
reduce losses and long-range insurance costs, EBI's marketing targets
businesses where its ZAC philosophy and service-oriented approach can have the
greatest impact.  EBI has concentrated its efforts on an ever-broadening array
of businesses in selected industries, including manufacturers, nursing homes,
hospitals, hotels, and school districts.  EBI's expansion in recent years has
given it a much broader base of operations.  Today, EBI is recognized as a
national workers compensation niche insurance carrier.
                                     
Continued Expansion
-------------------
     
     As EBI has continued to grow, it has refined its agency force by
strengthening relationships with large, regional and national insurance agents
and brokers.  Approximately 1,000 independent agents and brokers produce all
of the direct business written in 1997 by EBI.  These agents and brokers
receive commissions on the sale of insurance.  No single independent agent or
broker contributed more than 10% of this segment's net written premiums.  

     EBI has recorded profitable underwriting results for the past five years
which has led it to continue its plan of geographic expansion.  In 1997, it
added five new branch offices and expanded into three new states.  It intends
to expand into five new states in 1998 utilizing a multi-disciplinary team
approach to select the states in which it operates.  EBI's expansion strategy
has been, in part, to anticipate reform initiatives in various states and
establish a foothold in such new markets before reform benefits have been
realized.  Expansion opportunities now also include multi-state/national
clients.  EBI has been able to gain a strong reputation for service.
                                  
                                  10
<PAGE>   
     Alternative workers compensation products and services are designed to
capitalize on EBI's expertise in traditional workers compensation.  EBI
applies those skills to writing workers compensation for large accounts and
clients desiring large deductibles.  Among the alternative products EBI offers
is a workers compensation excess coverage and an accompanying self-insured
administration program and an integrated employee benefit program.  

What is Workers Compensation Insurance ?
----------------------------------------

     A workers compensation policy obligates an insurance company to pay all
disability, medical, and other benefits for injured workers as may be required
by applicable state laws.  The insurance policies currently written by EBI
provide workers compensation coverage with limits of liability set by the
provisions of state workers compensation laws.  The benefits provided by these
laws vary with the nature and severity of the injury or disease, as well as
with the wage level, occupation, and age of the employee.  Employers'
liability coverage is also provided to employers who may be subject to claims
for damages (not workers compensation benefits) due to an injury to a worker.  

     The amount of workers compensation premiums earned is directly dependent
upon wage levels as well as the number of employees on the payroll of each
policyholder and the job classifications of those employees.  Premium rates
are revised annually in most states in which EBI does business.  EBI uses the
rates and rating plans filed in the states where it does business.  See
Industry Characteristics - Rates."
                       
                         
                              SPECIAL PROGRAMS

     The Company's Special Programs segment is made up of five operations, all
of which are concentrated in highly specialized lines of business in the
property and casualty insurance field. The components are:

             - DPIC Companies, 
             - Orion Specialty (formerly Connecticut Specialty  
               through December 31, 1997),
             - Wm. H. McGee & Co., Inc., 
             - the Company's 24.7% interest in Intercargo Corporation, and
             - the run-off operations of SecurityRe.
                                       
 DPIC
 ----

     DPIC Companies ("DPIC") writes professional liability insurance for its
niche markets: architects, engineers, environmental consultants, accountants
and lawyers.  It is the second largest underwriter of architect, engineer and
environmental consultants in North America.  DPIC operates in offices
throughout the United States and Canada.  It is headquartered in Monterey,
California.  Information about DPIC can be found on the Internet at
http://www.dpic.com.

New Organizational Structure
----------------------------

     DPIC's operations are organized to be directly aligned with its various
client markets, both geographically and by profession.  Since its inception,
DPIC's claims operations have been set up in strategic geographical locations. 
In July, 1997, DPIC's underwriting operations were decentralized, linking up
with its major regional claims offices to serve clients and agency
representatives more efficiently and effectively.  DPIC underwriting/claims
offices are in New York City/Clifton, NJ; Norcross, GA; Itasca, IL; Denver, CO
and Toronto, ONT; DPIC claims offices can also be found in San Francisco, CA;
Newport Beach, CA, and Montreal, Quebec.

     Professional liability insurance covers liability arising out of alleged
negligent performance of professional services.  Underwriting and claims
management require a high level of knowledge and expertise. To limit risk
exposure, DPIC's specialized underwriters evaluate a great number of factors,
including the experience of an applicant firm's professional personnel, the
loss history of the firm, the employees covered, the type of work performed
and the firm's utilization of loss prevention measures.  DPIC actively rewards

                                 11

<PAGE>
firms that participate in loss prevention education, risk management and
business practice improvement programs.  It offers a series of client focused
professional liability education programs and provides financial incentives
for resolving disputes through mediation.

     The professional liability coverage offered by DPIC is on a "claims-made"
policy form, a form which generally insures only those claims reported by the
insured during the policy term.  With some exceptions in Canada, DPIC's
policies cap defense costs, primarily legal fees within the insured's stated
policy limits.  This has resulted in a favorable impact in controlling legal
costs.  

     DPIC offers general liability insurance to architect, engineer and
environmental consulting firms that, in most cases, maintain their
professional liability coverage with DPIC.  Coverage is usually written on an
occurrence basis, the industry standard, although some claims-made policies
exist when warranted by DPIC's underwriting.
   
ADR Emphasis
------------
     
      DPIC's specialized claims staff stresses early intervention in disputes
to avoid litigation whenever mitigated loss is possible.  DPIC has pioneered
the use of alternative dispute resolution ("ADR"), mediation in particular, to
resolve disputes promptly.  Because of mediation's proven success in reducing
the costs of claims-time, money, relationships - over 25% of DPIC's claim
files are resolved through this technique.  Additionally, DPIC has instituted
a program with a selected group of panel counsel to investigate alternative
fee structures and then channel more work to this group.  As a result, there
has been a favorable impact on DPIC's operating results.  
                                          
      DPIC markets its products through 55 specialized agencies, each highly
knowledgeable about loss prevention and risk management for the professions
served.  The agents are active in continuing education programs, sponsored by
DPIC and their professional association Professional Liability Agents Network
(PLAN) and participate extensively in their clients' professional societies. 
Exclusive territory assignments and extensive support from DPIC lead to an
uncommon commitment to meet the insurance and loss prevention needs of the
professions served.   
    
Orion Specialty - A New Unit
----------------------------

     Upon completion of the December 1997 merger of Guaranty National into a
wholly-owned subsidiary of the Company, the Company formed a new business unit
in January 1998, Orion Specialty Group, Inc. ("Orion Specialty").  Orion
Specialty is the result of the consolidation of Connecticut Specialty
Insurance Group, Inc. ("Connecticut Specialty"), the Company's program
business specialist unit, and the commercial lines of Guaranty National. 
Orion Specialty focuses exclusively on specialty commercial insurance,
utilizing three distinct underwriting divisions to allow its business partners
multiple options for placement of their business.  This strategic initiative
by Orion Specialty creates a national commercial company capable of writing
and servicing virtually every line of business in every state.  Through the
integration of Connecticut Specialty and Guaranty National's commercial lines,
Orion Specialty gains additional capabilities and efficiencies that enable it
to add more value to specialty commercial market producers and their
customers.  Furthermore, the integration provides Orion Specialty the
opportunity for growth through leveraging its existing agency relationships to
expand the geographic and coverage scope of its products.  Orion Specialty
maintains operations in Farmington, Connecticut and Englewood, Colorado.  

Contracts and Brokerage Division
--------------------------------
     
      The Contracts and Brokerage Division of Orion Specialty serves, through
approximately 70 wholesale agents, the excess and surplus lines market for a
wide range of standard and nonstandard product lines and classes, including
commercial liability, property, transportation and umbrella risks.  While in
the past the emphasis of this division's business has been commercial
automobile, it is moving rapidly toward a more balanced book.  The non-

                                12

<PAGE>
standard commercial automobile risks are generally comprised of insurance for
local and intermediate trucking, such as sand and gravel haulers; garages,
such as used car dealers and automobile repair facilities; and public
vehicles, such as buses and limousines.
                                                         
     In addition  to the automobile line, the Contracts and Brokerage Division
offers general liability coverage for premises liability protection needed by
business in higher risk classes and small artisan contractors.  This division
writes property coverages on risks such as vacant buildings, bars, restaurants
and motor-truck cargo.  It also writes commercial umbrella and excess coverage
across a broad spectrum of business classes, and standard commercial package
policies for small businesses in small cities and rural areas.
                                       
     In addition to writing through general agents, the Contracts and
Brokerage Division is also an "open market" for submissions from other
producers.

Program Division
----------------

     The Program Division of Orion Specialty develops customized programs of
insurance for affinity groups.  It operates through general agents and program
administrators.  This division administers the operation of approximately 28
specialized programs in industries as diverse as energy, emergency services,
professional services and transportation.  Its lines of business include
general liability, property, contract surety, directors and officers
liability, professional liability, commercial auto, workers compensation and
umbrella coverages.  The Program Division defines a "program" as the writing
of risks in a class of business not widely pursued, utilizing coverage,
pricing methodologies and risk management techniques tailored to the needs of
the customer.

     A key aspect to the business of the Program Division is the strategic
alliances it has formed with what it believes are knowledgeable and well
respected agents in the specialty insurance field.  Each of its general agents
has superior knowledge of its markets and has earned customer loyalty by
providing quality services and support.  To compliment the services and
support provided by its producers, the Program Division adds value to its
products with services ranging from loss control expertise to administrative,
actuarial and legal support, from forms and filing services to risk management
analysis and reports, each in a mix that best fits the particular program or
customer.

Alternative Risk Transfer Insurance Strategies
----------------------------------------------

     Orion Specialty's third division, ARTIS (Alternative Risk Transfer
Insurance Strategies), offers an alternative market approach, allowing
producers and/or their clients to participate in the underwriting risk of
their insurance programs.  ARTIS custom designs its alternative programs
utilizing traditional captives, rent-a-captives, joint equity captives, self-
insured retentions, large deductibles, portfolio transfers and finite
reinsurance. 

     While workers compensation is the largest component of its business,
Artis also offers coverage in general liability, automobile liability,
property, inland marine, surety, and professional liability lines of business.
   
      Orion Specialty strives to provide its customers with services ranging
from loss control expertise to administrative, actuarial and legal support and
from forms and filing services to risk management analysis reports, each in a
mix that best fits a particular program or customer.

      Orion Specialty utilizes a profit-sharing approach in writing its
special programs whereby a portion of the agent's compensation is tied to the 
                                     
                                  13 
<PAGE>
profitability of the program.  Orion Specialty closely monitors its programs
throughout their existence to ensure that profit potential is maximized.
                                  
     The specialty nature of Orion Specialty's business provides some
insulation against the competitive pressures of the overall insurance market. 
Enhanced automation designed for each general agent promotes efficiency and
effectiveness for both the agent and Orion Specialty.  This relationship with
the general agent creates a competitive advantage in the insurance marketplace
and also directly impacts the cost of entry by competitors.

     Orion Specialty is aggressively streamlining its processes and upgrading
its technology in order to better serve its customer base and expand in its
strongest programs.

McGee  
-----

     In 1995, the Company acquired Wm. H. McGee & Co., Inc. ("McGee"), a
leading ocean cargo, inland marine and commercial property insurance
underwriter.  McGee has been in business for over 110 years.  Security
Insurance Company of Hartford ("Security"), a subsidiary of the Company, has
been represented by McGee since 1894.  McGee provides all related services in
connection with this business, including policy issuance, claim settlement,
accounting and placement of reinsurance.  Operations are conducted in the
United States, through its headquarters in New York and twenty branch offices
throughout the country.  Activities in Canada, Bermuda and Puerto Rico are
managed by McGee's subsidiaries located in those jurisdictions and they
perform substantially similar services.  

     In the United States, McGee ranks among the top 10 writers of ocean cargo
insurance and among the 20 largest writers of inland marine insurance.  Ocean
cargo insurance covers cargo against the perils of the sea and is usually
broadened to include loss or damage to the goods while in transit until they
arrive at the destination specified in the policy.  Inland marine insurance
covers property while being transported, property of a movable nature and
property instrumental to transportation or communication.  Some common
examples of property covered by inland marine insurance are cargo being
shipped by train, truck or airplane; mobile equipment; bridges and tunnels;
radio and television transmitting equipment; personal jewelry and furs; art
collections; livestock and medical equipment.

      Each insurer represented by McGee participates in either the United
States or Canadian Inter-Office Reinsurance Agreement (the "McGee Pools").  It
is through these underwriting pooling agreements that premiums and risk 
are allocated among the various participating insurers.  The insurers
participating in the McGee Pools and the percentage allocated to each insurer
is reviewed and revised annually.  Security is a member and clearing company
in both the United States and Canadian pools.  For the year ending December
31, 1997, McGee underwrote approximately $200 million of premiums on behalf of
the insurers participating in the McGee Pools.  The Company's participation in
the United States pool was 52%, 37% and 15% in 1997, 1996 and 1995,
respectively.  Participation in the Canadian pool was approximately 61% in
1997, 49% in 1996 and 15% in 1995.  The Company will increase its
participation in the McGee Pools during 1998 to approximately 72% in both the
United States and Canadian pools.

                                    







                                   14 


<PAGE>

     In addition to its long standing prominence in the ocean and inland
marine markets, McGee provides innovative coverages that respond to the often 
distinctive exposures of the property being insured.  McGee's strategy is to
identify and serve those clients which require strong technical problem 
solving and risk management support.  McGee's strong underwriting and claim
capabilities allow it to tackle unusual risks, such as armored car and jewelry
store chains, bringing a highly specialized resource to those markets.
     
     McGee, as an underwriting manager, does not directly solicit business
from insureds but instead relies on a production force consisting of insurance
brokers and agents appointed to represent the portion of the insurers'
business which McGee manages.  McGee is compensated for its services by the
insurers it represents based upon a combination of factors, including a
percentage of the premiums written, the profitability of the business written
and the management services provided.

Intercargo Corporation   
---------------------- 

     The Special Programs segment also includes the Company's 24.7% interest
in Intercargo Corporation ("Intercargo").  Intercargo is an insurance holding
company whose subsidiaries specialize in international trade and
transportation coverages.  Its principal product lines are U.S. customs bonds
and marine cargo insurance sold to importers and exporters through customs
brokers and other service firms engaged in the international shipment of
goods.  Intercargo operates as an independent entity and a pro rata share of
any profit or loss is reflected in the Company's consolidated financial
statements, based on the Company's equity interest in Intercargo.  

SecurityRe Companies
-------------------- 

     In November 1996, the Company exited the assumed reinsurance business and
sold for cash the ongoing business of its subsidiary, Security Reinsurance
Company ("SecurityRe").  SecurityRe primarily underwrote a diverse book of
casualty business, using reinsurance intermediaries, with exposures largely
concentrated in the domestic market.  SecurityRe's premiums in recent years
had been principally concentrated in the treaty segment reinsuring small to
medium-sized regional and specialty companies in various lines of business
(primarily automobile and commercial coverages).  Facultative coverage was
provided on an excess of loss basis for casualty and property exposures. 
Generally, the largest net amount insured by SecurityRe was $1,000,000.  As a
result of the sale, SecurityRe discontinued writing business.  The Company
kept the reserves with respect to the outstanding business and will continue
to manage the settlement of claims arising out of that business.
               


                                 15
<PAGE>
GUARANTY NATIONAL COMPANIES

     Guaranty National Companies ("Guaranty National") writes nonstandard
personal automobile insurance, surplus lines insurance, and specialty property
and casualty coverages which are not readily available in traditional
insurance markets.  Information about Guaranty National Companies can be found
on the Internet at http://www.gnic.com.

     On December 10, 1997, the Company purchased the remaining 19.7% or
2,970,000 shares of Guaranty National common stock that it did not already own
for $36 per share in cash.  Immediately following that purchase, Guaranty
National was merged into a wholly-owned subsidiary of the Company and delisted
as a publicly traded company on the New York Stock Exchange.  In January 1998,
the Company shifted Guaranty National's commercial insurance operations to its
new unit, Orion Specialty.  After that transfer, Guaranty National became
substantially only a personal nonstandard automobile insurance carrier.
      
     Approximately 84% of Guaranty National's net premiums written during 1997
was derived from writing personal and commercial automobile insurance.  Other
types of insurance products which were sold by Guaranty National include
general liability, standard multi-peril, umbrella, excess insurance and
property.   Guaranty National has historically focused their operations on the
nonstandard markets.  Nonstandard risks require specialized underwriting,
claims management and other skills and experience.  Approximately 7 percent of
the Guaranty National net premiums written consists of standard commercial
coverage.

     Nonstandard risks generally involve a potential for poor claims
experience because of increased risk exposure.  Premium levels for nonstandard
risks are substantially higher than for preferred or standard risks.  In
personal lines, Guaranty National's loss exposure is limited by the fact that
its insureds typically purchase low liability limits, often at a state's
statutory minimum.  The nonstandard insurance industry is also characterized
by the insurer's ability to minimize its exposure to unprofitable business by
effecting timely changes in premium rates and policy terms in response to
changing loss and other experiences.
     
     Guaranty National's personal lines principally writes nonstandard
automobile insurance, insurance (i) for drivers usually unacceptable to other
insurers for, among other reasons, adverse driving or accident history, age or
vehicle type, or (ii) for customers who can only afford a low down payment or
are transitioning from an uninsured to an insured status.  This insurance
coverage is sold primarily in the State of California and the Rocky Mountain
and Pacific Northwest regions and the Southeastern United States.  In general,
this insurance is sold through approximately 8,600 independent agents located
in 28 states.  

     Overall, Guaranty National seeks to distinguish itself from its personal
lines competitors by providing a superior, highly automated and responsive
level of service to its agents and insureds.  In addition to high quality
service, the Guaranty National personal lines business unit provides ease of
payment for insureds through low monthly installments.

      In underwriting nonstandard automobile risks, Guaranty National sets
premium rates which are substantially higher than standard rates.  Policy
coverage periods are generally one or six months on personal automobile
policies.  The business of Guaranty National is not materially dependent upon
any single customer, group of customers, or group of agents.                   
         
     Customer service and policy processing operations are a critical part of
the personal lines business unit.  Operation centers are currently located in
Freeport, Illinois; Denver, Colorado; Salt Lake City, Utah; and Salem, Oregon. 

                                  16

<PAGE>
Multiple locations in multiple time zones contribute to efficient volume
routing, as well as providing a convenient disaster recovery mechanism.  In
the customer service area, use of the Interactive Voice Response system
permits efficient, automated answering of routine agent and customer
questions.

     Colorado Casualty Insurance Company ("CCIC"), an insurance subsidiary of
Guaranty National, writes primarily standard commercial lines business.  CCIC
writes small, standard commercial package policies.  The standard commercial
business is primarily written in the Rocky Mountain region, but has recently
expanded to states mainly in the southeast region of the United States.  CCIC
has been successful in serving a niche market of approximately 600 small to
medium retail agents.  In addition, CCIC utilizes seven general agents as
branch offices.       

New Acquisitions
-----------------

     On December 16, 1997, Guaranty National purchased Unisun Insurance
Company ("Unisun") from Michigan Mutual Insurance Company for $26,000,000 in
cash and incurred acquisition expenses of $170,000.  Unisun is the largest
automobile insurance facility carrier in South Carolina.  Total net premiums
written by Unisun for 1997 were approximately $20,000,000.  

     In November 1997, Guaranty National entered in an agreement to acquire
the nonstandard private passenger automobile insurance business of North
Carolina-based Strickland Insurance Group ("Strickland") for $42,600,000 in
cash. Pursuant to the agreement, Guaranty National made a nonrefundable
purchase price deposit of $2,000,000 to Strickland and incurred acquisition
costs of $94,000 as of December 31, 1997.  In 1997, Strickland had total
private passenger automobile net premiums written of approximately
$46,000,000.  The acquisition is expected to be completed in the second
quarter of 1998, subject to regulatory approval.
 


                      INSURANCE INDUSTRY CHARACTERISTICS                      
Loss Reserves
-------------

     The Company establishes reserve liabilities for reported losses, incurred
but not reported ("IBNR") losses, and claim settlement and administration
expenses.  Reserves for reported losses and loss adjustment expenses are
estimates of the ultimate costs of claims reported to the Company but not
settled.  IBNR loss reserves are estimates for both unreported claims and
additional development of previously reported claims.  Reserves are based on
the circumstances surrounding each claim, the Company's historical experience
with losses arising from claims not yet reported and the particular experience
associated with the line of business and type of risk involved.  Consideration
is also given to expected changes in costs for property, repairs to property,
benefit changes for injured workers, medical care, and litigation and other
legal costs. The Company regularly monitors the factors affecting its reserves
to better control claim costs, which also provides a base of information to
reevaluate reserve estimates.  Reserve estimates are regularly reviewed and
adjusted to consider all pertinent information as it becomes available.  Such
reevaluation is a normal, recurring activity that is inherent in the process
of loss reserve estimation. 

     Several methods are used for reviewing reserves, including paid and
incurred loss development, and incurred claim counts and average claim costs. 
These methods can be subject to variability in reserve estimation for a number
of reasons, including improved claims department operating procedures, 
accelerated claims settlement due to the use of alternate dispute resolution,
and expedited resolution of civil suits in litigation.  Other factors that are

                                 17

<PAGE>
analyzed and are considered in the determination of loss reserves include:(i)
claim emergence and settlement patterns and changes in these patterns from
year to year, (ii) trends in the frequency and severity of paid and incurred
losses, (iii) changes in policy limits and changes in reinsurance coverages,
(iv) changes in the mix and classes of business, and (v) changes in claims
handling procedures.

     Management revises its reserve estimates as appropriate and believes that
the loss and loss adjustment expense reserves of the Company's insurance
subsidiaries make reasonable and sufficient provision for the ultimate cost of
all losses and claims incurred.  However, no assurances can be given that
reserve development will not occur in the future.
                           
Accident Year Loss and Loss Adjustment Expense Analysis
-------------------------------------------------------

     Accident year is a period of exposure that is used to accumulate loss and
loss adjustment experience by the year in which an incident giving rise to a
claim occurs.  Accident year information is used for loss reserving and in
establishing premium rates.  The accident year loss experience is updated in
subsequent calendar years until all losses and loss adjustment expenses
related to that given accident year have been settled.  Accident year loss
ratio relates losses associated with incidents giving rise to claims occurring
within a given calendar year to premiums earned during the same calendar year. 
Presented below are loss reserve development tables for the five years ended
December 31, 1997 prepared in accident year format.
<TABLE>
<CAPTION>
     For each accident year, the following table presents premiums earned, and
the provision for loss and loss adjustment expenses as a percentage of
premiums earned (the "loss ratios") as established in the initial accident
year and cumulative as of December 31, 1997: 

                                            Loss and Loss Adjustment
                                               Expense Development
                                         -------------------------------
Accident            Premiums
  Year               Earned              Initial              Cumulative
--------            --------             -------              ----------
                 (000s omitted)
<S>               <C>                      <C>                   <C>
1993              $  617,404               70.4%                 68.5%
1994                 691,223               69.6                  69.0
1995                 749,003               66.8                  67.3
1996               1,300,752               67.2                  67.7
1997               1,357,680               66.0                    -
<CAPTION>
     The table set forth below indicates premiums earned, the cumulative loss
ratio for each accident year, the ratio of policy acquisition costs and other
insurance expenses to premiums earned (the "expense ratio"), the ratio of
policyholders' dividends to premiums earned (the "policyholders' dividend
ratio") and the total of the ratios (the "combined ratio") at December 31,
1997:

Accident   Premiums      Loss        Expense     Policyholders'    Combined
  Year      Earned       Ratio        Ratio      Dividend Ratio     Ratio
--------   --------      -----       -------     --------------    --------
        (000s omitted)
<S>      <C>              <C>          <C>             <C>           <C>
1993     $  617,404       68.5%        26.8%           2.0%          97.3%
1994        691,223       69.0         27.0            2.1           98.1
1995        749,003       67.3         29.0            2.9           99.2
1996      1,300,752       67.7         30.1            1.8           99.6
1997      1,357,680       66.0         31.2            1.8           99.0

                                      18                                       
                          
<PAGE>                               
<CAPTION>
Calendar Year Loss Reserve Analysis
-----------------------------------

     An analysis of the Company's calendar year loss and loss adjustment
expense reserves, net of reinsurance, is presented in the following table. 
The 1996 current year provision includes favorable loss development for
Guaranty National of $995,000 and 1996 current year payments include
$144,775,000 attributable to periods prior to the consolidation of Guaranty
National's results in the Company's financial statements.

                                                Year Ended December 31,   
                                         ------------------------------------
                                            1997         1996         1995     
                                            ----         ----         ----
                                                    (000s omitted)
<S>                                      <C>          <C>          <C>  
Beginning of year .....................  $1,368,420   $  993,978   $  891,542
            
Effect of acquisitions.................       8,996      286,339            -
                                         ----------   ----------   ----------
                                          1,377,416    1,280,317      891,542  
                                         ----------   ----------   ----------
Provision:
  Current year ........................     896,226      874,123      500,514 
  Prior years .........................       9,232        8,869       11,719 
                                         ----------   ----------   ----------
                                            905,458      882,992      512,233 
                                         ----------   ----------   ---------- 
Payments:
  Current year ........................     370,907      499,176      146,540
  Prior years .........................     521,240      295,713      263,257
                                         ----------   ----------   ----------
                                            892,147      794,889      409,797  
                                         ----------   ----------   ----------
End of year ...........................  $1,390,727   $1,368,420   $  993,978  
                                         ==========   ==========   ==========
<CAPTION>
Cumulative reserve development for the Company's majority-owned insurance subsidiaries 
(including Guaranty National for 1997 and 1996) as of December 31, 1997 for the calendar 
years 1992 through 1997 is shown in the table that follows:          
    
                                          December 31,
                   ----------------------------------------------------------------------
                       1992        1993        1994        1995        1996        1997
                       ----        ----        ----        ----        ----        ----
                                          (000s omitted)

<S>                <C>         <C>         <C>         <C>         <C>         <C>      
Gross liability..  $1,081,396  $1,140,403  $1,181,329  $1,274,982  $1,785,664  $1,871,711 
Reinsurance
  recoverable....     335,098     309,598     289,787     281,004     417,244     480,984
                   ----------  ----------  ----------  ----------  ----------  ----------
Net liability....  $  746,298  $  830,805  $  891,542  $  993,978  $1,368,420  $1,390,727
                   ==========  ==========  ==========  ==========  ==========  ==========        
Gross re-estimated
  liability......  $1,155,675  $1,153,751  $1,196,821  $1,283,304  $1,805,102  $       -
Re-estimated  
  recoverable....     333,036     297,781     293,704     280,073     427,450          -
                   ----------  ----------  ----------  ----------  ----------  ---------- 
Net re-estimated
  liability......  $  822,639  $  855,970  $  903,117  $1,003,231  $1,377,652  $       -
                   ==========  ==========  ==========  ==========  ==========  ==========
Gross deficiency.  $  (74,279) $  (13,348) $  (15,492) $   (8,322) $  (19,438) $       -
                   ==========  ==========  ==========  ==========  ==========  ==========
                                            
                                         19
<PAGE>
<CAPTION>
     Cumulative reserve development, net of reinsurance, for the Company's majority-owned insurance 
subsidiaries (including Guaranty National for 1997 and 1996) as of December 31, 1997 for the calendar 
years 1987 through 1997 is shown in the table that follows:

December 31,          1987    1988    1989    1990    1991   1992   1993   1994   1995     1996     1997
--------------------  ----    ----    ----    ----    ----   ----   ----   ----   ----     ----     ----
(000,000s omitted)
<S>                   <C>     <C>     <C>     <C>     <C>    <C>    <C>    <C>   <C>       <C>      <C>
Net liability for 
  unpaid loss and 
  loss adjustment 
  expenses..........  $401.7  $520.3  $602.5  $595.5  $668.5 $746.3 $830.8 $891.5 $  994.0 $1,368.4 $1,390.7

Paid (cumulative) 
  as of:        
  One year later ....  178.1   236.7   281.2   261.5   240.3  249.6  303.3  263.3    295.7    521.2        -
  Two years later....  318.9   403.1   438.3   408.6   378.5  429.5  445.4  434.7    495.6        -        -
  Three years later..  414.6   488.4   526.2   493.2   484.3  514.2  543.7  553.4        -        -        -
  Four years later ..  457.2   544.4   581.9   567.1   540.3  577.5  625.7      -        -        -        -
  Five years later ..  491.0   582.5   633.4   605.0   580.1  634.2      -      -        -        -        -
  Six years later ...  515.5   624.4   660.6   629.7   625.0      -      -      -        -        -        -
  Seven years later..  551.1   643.4   676.9   666.5       -      -      -      -        -        -        -
  Eight years later..  564.0   653.8   706.7       -       -      -      -      -        -        -        -
  Nine years later ..  577.8   680.6       -       -       -      -      -      -        -        -        -
  Ten years later ...  595.4       -       -       -       -      -      -      -        -        -        -

Net liability 
  reestimated as of:
  One year later ....  469.1   573.6   647.6   657.1   694.9  770.6  848.1  903.3  1,002.8  1,377.7        -
  Two years later ...  504.8   624.3   695.2   685.7   715.0  782.3  855.0  903.0  1,003.2        -        -
  Three years later..  548.9   658.0   722.6   705.5   732.0  786.0  855.3  903.1        -        -        -
  Four years later ..  568.1   687.8   741.8   741.1   744.3  801.2  856.0      -        -        -        -
  Five years later ..  597.1   705.5   770.4   756.5   763.7  822.6      -      -        -        -        -
  Six years later ...  610.1   733.8   788.3   786.6   782.5      -      -      -        -        -        -
  Seven years later..  637.3   747.5   812.4   802.7       -      -      -      -        -        -        -
  Eight years later..  651.4   771.4   831.5       -       -      -      -      -        -        -        -
  Nine years later ..  677.3   794.7       -       -       -      -      -      -        -        -        -
  Ten years later ...  700.0       -       -               -      -      -      -        -        -        -

Net deficiency ...... (298.3) (274.4) (229.0) (207.3) (114.0) (76.3) (25.2) (11.6)    (9.3)    (9.2)       -
</TABLE>
      









                                           20                           
                                                                       
<PAGE>
     The preceding loss reserve development tables indicate the aggregate year-
end liability for loss and loss adjustment expenses net of reinsurance, the cu-
mulative amounts paid attributable to those reserves through December 31, 1997
, the re-estimate of the aggregate liability as of December 31 of each subsequ-
ent year and the cumulative development of prior years' reserves.  Information 
is also provided on a gross basis for 1992 through 1997. Consistent with indu-
stry practice, certain claims for long-term disability workers compensation
benefits are carried at discounted values. At December 31, 1997 and 1996, long-
term disability workers compensation loss reserves are carried at $52,907,000 
and $54,832,000, respectively, in the consolidated financial statements at net
present value using a statutory interest rate of 3.5%.  

  The Company's IBNR loss and loss adjustment expense reserves and other bulk 
reserves for losses and loss adjustment expenses for which claim files have not 
been established, net of reinsurance, were $686,352,000, $690,574,000 and 
$508,872,000 as of December 31, 1997, 1996 and 1995, respectively.  The in-
crease in IBNR for 1996 includes $132,280,000 from the consolidation of
Guaranty National's reserves.

     During 1997, the Company strengthened loss reserves and experienced 
development for prior years' business of $9,232,000.  Adverse development for 
various pools and associations of $11,358,000 (other than from the McGee opera-
tions), reinsurance of $12,173,000 and certain cancelled program business of 
$20,889,000 in 1997 was partly offset by favorable development from workers
compensation of $34,348,000 and other lines of business of $840,000.  Adverse 
development relating to the Company's pools and associations business is based 
on their experience, which is generally recorded as the information is reported
to the Company and relates primarily to environmental reserves. The development
from reinsurance relates to the Company's assumed reinsurance business. In 1996
the Company sold the renewal book of business of its reinsurance operations.  
The adverse development from cancelled programs is largely due to an ocean 
marine program cancelled in 1997 which experienced high claim frequency and 
severity.  The favorable development from the workers compensation and other 
lines of business is the result of continued improvement from the application
ofloss prevention and loss control procedures.

     Loss reserve estimates are based on forecasts of the ultimate settlement
   of claims and are subject to uncertainty with respect to future events.
   Loss reserve amounts are based on management's informed estimates and judg-
   ments, using data currently available.  Reserve amounts and the underlying
   actuarial factors and assumptions are regularly analyzed and adjusted to
   reflect new information.  The significantly decreased level of adverse
   development during more recent years is consistent with the strengthening of
   loss reserves and the strong performance of the Company's ongoing lines of
   business.  Current operations are more focused on underwriting risks where
   the Company has specialized knowledge and can provide enhanced service to
   reduce loss costs.  This concentration, and the specialized knowledge and
   growing experience in its selected lines of business arising from such con-
   centration, have enabled the Company to implement improvements in its claims
   administration and underwriting procedures which have enhanced the Company's
   ability to analyze data and project reserve trends.


                              












                                 





                                         21


<PAGE>                 
     The following table presents the differences between loss and loss adjust-
ment expense reserves reported in the consolidated financial statements in 
accordance with generally accepted accounting principles ("GAAP"), and those 
reported in the combined annual statement filed with state insurance depart-
ments in accordance with statutory accounting practices ("SAP"): 
<TABLE>
<CAPTION>
                                                     December 31,     
                                                ----------------------
                                                   1997        1996
                                                   ----        ----
                                                    (000s omitted)
<S>                                             <C>         <C>
Liability on SAP basis ......................   $1,380,612  $1,357,813  
  Estimated salvage and subrogation
    recoveries recorded on a cash basis for
    SAP and on an accrual basis for 
    GAAP (related to acquisition of Unisun)..       (1,160)          -   
     
  Foreign subsidiary reserves ...............       11,275      10,607 
                                                ----------  ----------
Liability on GAAP basis, net of reinsurance..    1,390,727   1,368,420  
Reinsurance and deductible recoverables            
  on GAAP reserves...........................      480,984     417,244
                                                 ---------   ---------
                                         
Liability on GAAP basis .....................   $1,871,711  $1,785,664  
                                                ==========  ==========
</TABLE>

                                
Investments
-----------

     The Company derives a significant part of its income from its investments.
The investment portfolio of the Company's insurance subsidiaries must comply 
with applicable insurance laws and regulations of the respective states in 
which such companies are domiciled and other jurisdictions in which they con-
duct business.  Neither Orion nor any of its non-insurance subsidiaries is con-
strained by investment restrictions set forth in state insurance laws.

     The Company maintains a diversified portfolio representing a broad spec-
trum of industries and types of securities.  Investments are managed to achieve
a superior total return after taxes, while maintaining a proper balance of 
safety, liquidity, maturity and marketability.  Investments are made based on 
long-term economic value rather than short-term market conditions.  Approximate-
ly 50% of the Company's fixed maturity portfolio is invested in tax advantaged 
securities at December 31, 1997.  Except for investments in securities of the 
United States Government and its agencies,  the Company did not have any
other investments in any one issuer that exceeded $25,000,000 at December 31,
1997.





                                 22 
<PAGE>
       The Company has the ability to hold its fixed maturity investments to 
term since its operating cash flow and its short-term investment portfolio pro-
vide the Company with substantial liquidity.  Fixed maturity investments that 
the Company has the positive intent to hold to maturity are recorded at amortiz-
ed cost.  Fixed maturity investments which may be sold in response to, among 
other things, changes in interest rates, prepayment risk, income tax strategies
, or liquidity needs are classified as available-for-sale and are carried at 
market value, with unrealized gains and losses reflected in stockholders' 
equity.  Equity securities are stated at market value.  Both the fixed
maturities and the equity investments consist primarily of readily marketable 
securities. 

     The following table shows the composition of the investment portfolio of 
the Company as of December 31, 1997 and 1996, and the quality ratings for the 
Company's fixed maturity investments. The investments shown below are listed at
their cost, market and financial statement (book) values.

<TABLE>
<CAPTION>
December 31, 1997          Cost            Market Value         Book Value    
-----------------   ------------------  ------------------  ------------------
                             (000s omitted - except for percentages)
<S>                 <C>         <C>     <C>         <C>     <C>         <C>
Fixed Maturities:
  AAA ............. $  700,796   29.5%  $  730,574   28.7%  $  725,595   28.7% 
  AA ..............    417,005   17.5      441,247   17.3      437,564   17.3
  A ...............    198,910    8.4      212,231    8.3      211,855    8.3
  BBB .............    147,392    6.2      151,384    5.9      150,857    5.9
  BB ..............     73,429    3.1       76,883    3.0       76,848    3.0
  B and Below .....    137,585    5.8      145,699    5.7      145,699    5.7
  Not Rated .......     33,074    1.3       34,223    1.3       34,198    1.3
                    ----------  -----   ----------  -----   ----------  -----
    Sub-total .....  1,708,191   71.8    1,792,241   70.2    1,782,616   70.2
Equity Securities..    346,597   14.6      438,501   17.2      438,501   17.2
Other Long-Term
  Investments .....     94,339    4.0       94,339    3.7       94,339    3.7
Short-Term
  Investments .....    228,277    9.6      228,277    8.9      228,277    8.9
                    ----------  -----   ----------  -----   ----------  -----
                    $2,377,404  100.0%  $2,553,358  100.0%  $2,543,733  100.0%
                    ==========  =====   ==========  =====   ==========  =====


<CAPTION>
December 31, 1996          Cost            Market Value         Book Value    
-----------------   ------------------  ------------------  ------------------ 
                             (000s omitted - except for percentages)
<S>                 <C>         <C>     <C>         <C>     <C>         <C>
Fixed Maturities:
  AAA ............. $  610,930   27.7%  $  622,076   26.9%  $  618,338   26.8%
  AA ..............    369,190   16.8      385,071   16.6      381,548   16.5
  A ...............    170,853    7.8      176,308    7.6      175,896    7.6
  BBB .............    133,756    6.1      137,135    5.9      136,894    5.9
  BB ..............     76,156    3.5       77,348    3.3       77,348    3.4
  B and Below .....    102,080    4.6      107,122    4.6      107,122    4.6
  Not Rated .......     33,688    1.5       35,003    1.5       35,003    1.5
                    ----------  -----   ----------  -----   ----------  -----
    Sub-total .....  1,496,653   68.0    1,540,063   66.4    1,532,149   66.3
Equity Securities..    288,070   13.1      361,593   15.6      361,593   15.7
Other Long-Term
  Investments .....     90,129    4.1       90,144    3.9       90,129    3.9
Short-Term
  Investments .....    325,896   14.8      325,896   14.1      325,896   14.1
                    ----------  -----   ----------  -----   ----------  -----
                    $2,200,748  100.0%  $2,317,696  100.0%  $2,309,767  100.0%
                    ==========  =====   ==========  =====   ==========  =====

                                      23


<PAGE>
<CAPTION>
                               Year Ended December 31,
                               -----------------------
                                  1997         1996
                                  ----         ----
<S>                               <C>          <C>
Yield on average  
  investments:     
  Pre-tax .........               7.0%         6.9%
                                  ===          ===
  After-tax .......               5.3%         5.4% 
                                  ===          ===

</TABLE>
      Included in other long-term investments on December 31, 1997 were
investments in limited partnerships carried at $90,791,000.  The assets of
these partnerships are managed by outside entities.  Individual partnerships
may invest in a variety of investment vehicles, including but not limited to
U.S. and foreign bonds and equities, both public and private, and real estate. 
Such partnerships are carried at the Company's interest in the underlying net
assets of the limited partnerships.  The Company's portion of the
partnerships' earnings or losses are recorded in net investment income in the
Company's statement of earnings.  Net investment income from these
partnerships was $17,074,000, $15,954,000 and $9,065,000 for 1997, 1996 and
1995, respectively.

      The Company strives to enhance the average return of its portfolio by
investing a small percentage of it in a diversified group of non-investment
grade fixed maturity securities, or securities that are not rated.  In the
non-investment grade segment of the investment portfolio, the Company
maintains a high degree of diversity, with an average investment per issuer of
approximately $1,740,000 at December 31, 1997.

      The Company closely monitors the financial stability of issuers of
securities that it owns.  When conditions are deemed appropriate, the Company
ceases to accrete discount, or accrue interest and dividends.  In cases where
the value of investments are deemed to be other than temporarily impaired, the
Company recognizes losses.  During 1997 provisions for such losses were
$400,000 for equity securities and $2,018,000 for fixed maturity investments. 
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Net Investment Income and Realized Investment Gains."

Reinsurance
-----------

      In the ordinary course of business, the Company's insurance subsidiaries
enter into reinsurance contracts with other insurers which serve to provide
greater diversification of business and to limit the Company's maximum loss
from catastrophes, large risks or unusually hazardous risks.  Ceding
reinsurance reduces an insurer's operating leverage ratio.

      A large portion of the Company's reinsurance protection is provided by
reinsurance contracts or treaties under which all risks meeting prescribed
criteria are automatically covered.  In other instances, reinsurance is
obtained by negotiation for individual risks, or facultative reinsurance.  The
Company's insurance subsidiaries have certain excess-of-loss and catastrophe
treaties with unaffiliated insurers or reinsurers which provide protection
against a specified part or all of certain types of losses over stipulated
dollar amounts arising from one or more occurrences.  The amount of each risk
retained by an insurer is subject to maximum limits which vary by line of
business and type of coverage.  Retention limits are periodically revised as
the capacity of the Company's insurance subsidiaries to retain risk varies and
as reinsurance prices change.  Reinsurance contracts do not relieve the
Company of its obligation to the policyholders.  The collectibility of
reinsurance is subject to the solvency of the reinsurers.  The Company is very
selective as to its reinsurers, placing reinsurance with only those reinsurers
considered to be in sound financial condition and having satisfactory
underwriting ability.  Many of the Company's reinsurance agreements are
subject to annual renewal as to coverage, limits and price.  The financial
strength of its reinsurers is continually monitored by the Company.  The
Company's insurance subsidiaries, to their knowledge, have no material 

                                  24   

<PAGE>
exposure to potential unrecognized losses due to reinsurers that are in known
financial difficulties.

      The Company's insurance subsidiaries have reinsurance protection for
workers compensation losses in excess of $1,500,000 up to $100,000,000.  DPIC
has reinsurance for 85% of losses from architect and engineer liability in
excess of $1,000,000 up to $5,000,000.  Policy limits greater than $5,000,000
up to $10,000,000 for DPIC are reinsured by a facultative agreement.  Most of
the Company's program business is protected by per event coverage for 85% of
losses over $1,000,000 up to $5,000,000 and 100% of losses above $5,000,000 up
to $10,000,000.  Certain commercial auto and general liability program
policies are also reinsured for losses in excess of $500,000 up to $1,000,000. 
Guaranty National has coverages for losses above $400,000 on casualty losses,
$300,000 on property losses and $600,000 on catastrophe losses through
December 31, 1997.  In addition to the foregoing, the Company's insurance
subsidiaries also maintain other reinsurance arrangements in support of their
specific business needs. 

Government Regulation 
---------------------
 
     Similar to other insurance companies, the Company's insurance
subsidiaries are subject to comprehensive regulation by insurance authorities. 
In particular, the Company is subject to regulation by the insurance
departments of the states of incorporation of all of the Company's insurance
subsidiaries.  These states include California, Connecticut, Colorado,
Oklahoma, Texas, Wisconsin  and South Carolina.  All insurance companies must
file annual statements and other reports with state regulatory agencies and
are subject to regular and special examinations by those agencies.  Regular
periodic examinations of the Company's insurance subsidiaries, covering their
operations and statutory financial statements are conducted on a regular basis
by the state of domicile of each insurance company and may include other
states insurance departments in which they are licensed. The last periodic
examinations of the Company's insurance subsidiaries were completed for
periods ending from December 31, 1993 to December 31, 1996.  No significant
adjustments resulted from the examinations of any of the Company's insurances
subsidiaries.  

     Each of the Company's insurance subsidiaries is also subject to
regulation by other jurisdictions in which it sells insurance, including
Puerto Rico, certain Canadian provinces and Bermuda.  States regulate the
insurance business through supervisory agencies which have broad
administrative powers, including powers relating to, among other things

       - the standards of solvency which must be met and maintained; 
       - the licensing of insurers and their agents; 
       - restrictions on the amount of risk which may be insured under a       
         single policy; 
       - the approval of premium rates; 
       - the form and content of the insurance policy and sales literature;    
       - the form and content of financial statements; 
       - reserve requirements; 
       - the imposition of monetary penalties for rules violation; and 
       - the nature of and limitations on permitted investments. 

In general, such regulations are for the protection of policyholders rather
than stockholders.
  
    In some instances, particularly in connection with workers compensation
insurance, various states routinely require deposits of assets for the
protection of policyholders and their employee claimants located in those
states.  As of December 31, 1997 and 1996, securities representing
approximately 9% and 10%, respectively, of the book value of the Company's
investment portfolio were on deposit with various state treasurers or
custodians.  Such deposits consist of securities of the types which comply
with standards established by each state.
  
     The Company is also subject to state laws regulating insurance holding
company systems.  Most states have enacted legislation and adopted 

                                  25

<PAGE>
administrative regulations affecting insurance holding companies and the
acquisition of control of insurance companies, as well as transactions between
insurance companies and their affiliates.  The nature and extent of 
such legislation and regulations currently in effect vary from state to
state.  Most states currently require administrative approval of the
acquisition of 10% or more of the outstanding shares of an insurance 
company incorporated in the state or the acquisition of 10% or more of an
insurance holding company whose insurance subsidiary is incorporated in the 
state.  The acquisition of 10% of such shares is deemed to be the acquisition
of "control" for the purpose of most holding company statutes
and requires the filing of detailed information concerning the acquiring
parties and the plan of acquisition and administrative approval prior to such
acquisition.  Material transactions between insurance companies and affiliated
members of the holding company system are generally required to be "fair and
reasonable" and in some cases are subject to administrative approval. 

     Other states, in addition to an insurance company's state of domicile,
may regulate affiliated transactions and the acquisition of control of
licensed insurers.  The State of California, for example, presently treats
certain insurance subsidiaries of the Company which are not domiciled in
California as though they were domestic insurers for insurance holding company
purposes.  Such subsidiaries are required to comply with the holding company
provisions of the California Insurance Code, certain of which provisions may
be more restrictive than the comparable laws of the insurance company's state
of domicile.

     All state jurisdictions in which the Company is authorized to transact
business require participation in guaranty funds.  Insurers authorized to
transact business in those jurisdictions can be assessed by a state guaranty
fund a percentage (usually from 1% to 2%) of direct premiums written in that
jurisdiction each year to pay claims on behalf of insolvent insurers.  The
likelihood and amount of any future assessment cannot be estimated until after
an insolvency has occurred.  For the years ended December 31, 1997 and 1996
the Company's insurance subsidiaries were assessed approximately $708,000 and
$543,000, respectively (net of estimated future recoveries) as a result of
known insolvencies.  Insurance companies are required by certain states in
which they do business to participate in automobile insurance plans and
workers compensation plans.  These plans provide insurance on risks which are
not written in the voluntary market. Participation in these plans has usually
been unprofitable for the Company.

     A number of state legislatures and the United States Congress have for
years been considering, or have now enacted, some type of legislative
proposals which alter the rules for tort claims and increase the states'
authority to regulate insurance companies.  These initiatives have ex-      
panded, in some instances, the states' regulation over rates (See "Rates"
below) and also have increased data reporting requirements.  In recent years
the state insurance regulatory framework has come under federal scrutiny, and
certain state legislatures have considered or enacted laws that alter, and in
many cases increase, state authority to regulate insurance companies and
insurance holding company systems.                   

     The National Association of Insurance Commissioners ("NAIC") and state
regulators are re-examining existing laws and regulations relating to the
solvency of insurers.  The NAIC has adopted risk based capital ("RBC")
requirements for property and casualty insurers.  RBC refers to the
determination of the amount of statutory capital required for an insurer    
based on the risks assumed by the insurer (including, for example, investment
risks, credit risks relating to reinsurance recoverables and underwriting
risks) rather than just the amount of net premiums written by the insurer.  A
formula that applies prescribed factors to the various risk elements in an
insurer's business is used to determine the minimum statutory capital
requirement for the insurer.  The statutory capital of each of the Company's 
active insurance subsidiaries at December 31, 1997 exceeds the RBC
requirements.

     Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the

                                 26

<PAGE>
business in a variety of ways.  There are various current, proposed and
tabled federal measures which may significantly affect the Company's 
insurance business, including, among other proposals:

          - Superfund reform; 
          - tort liability reform, including limitation on punitive damages    
            and "loser pays" litigation expense costs;
          - regulatory reform concerning financial services modernization;     
          - revocation of the antitrust exemption provided by the              
            McCarran-Ferguson Act and the ensuing federal regulation of        
            the business of insurance; and
          - suggested changes of the nation's health care system that, if      
            enacted, might negatively affect the Company's workers             
            compensation and automobile liability businesses 

The economic and competitive effects of any such proposals upon the Company
would depend upon the final form such legislation might take.  The Company is
unable to predict what regulatory proposals may be adopted in the future or
the effect any such proposals might have on the Company's businesses if
adopted.

Limitations on Payments from Insurance Subsidiaries
---------------------------------------------------
          
     The principal sources of cash available to Orion are dividends,
reimbursement of various administrative charges, and tax payments from its
subsidiaries.  The payment of dividends to Orion by its insurance subsidiaries
is subject to state regulation.  No state restricts dividend payments by Orion
or Guaranty National to its stockholders.

     The ability of the Company's insurance subsidiaries to declare dividends
is governed primarily by the insurance laws of such subsidiaries state of
domicile.  Generally, such laws currently provide that, unless prior approval
is obtained, dividends of a property and casualty insurance company in any
consecutive 12-month period shall not exceed the greater of its net income for
the preceding calendar year or 10% of its policyholders' surplus as of the
preceding December 31, determined on a statutory accounting basis.  Dividends
and distributions by the Company's insurance subsidiaries are also subject to
a requirement that statutory policyholders' surplus be reasonable in relation
to outstanding liabilities and adequate to meet the companies' financial needs
following the declaration of any dividends or distributions.  State insurance
regulators, however, have broad discretionary authority with respect to
approving the payment of dividends by insurance companies.  Under current
regulations, the maximum dividends permitted at December 31, 1997 for the
ensuing twelve months, without prior approval, aggregated $129,342,000.  Orion
received $42,822,000 in the aggregate in dividends from its subsidiaries in
1997.  Since it is difficult to predict future levels of statutory
policyholders' surplus or earnings, the amount of dividends that could be paid
in the future without prior approval cannot be determined at this time.

Rates
-----

     The Company's insurance subsidiaries are generally subject to regulation
as to rates.  Most states have insurance laws requiring that rate schedules
and other information be filed with or made available to the state's
regulatory authority, either directly or through a rating organization with
which the insurer is affiliated.  The regulatory authority may, in most
states, disapprove a rate filing if it finds that the rates are inadequate,
excessive or unfairly discriminatory.  Rates, which are not necessarily
uniform for all insurers, vary by class of business, hazard assumed and size
of risk.  Subject to regulatory requirements, the Company's management
determines the prices charged for its policies based on a variety of factors
including recent historical claims experience, inflation, competition, tax law
and anticipated changes in the legal environment, both judicial and 
legislative.  Methods for arriving at rates vary by type of business, exposure
assumed and size of risk.  Underwriting profitability is affected by the
accuracy of these assumptions, by the willingness of insurance regulators to 
                                27
<PAGE>
approve changes in those rates which they control and by such other matters as
underwriting selectivity and expense control.  

     Some states have adopted open rating systems for workers compensation
which permit insurers to set premium rates independently without the prior
approval of the insurance commissioners.  A number of other states permit
insurers to deviate from standard rates for workers compensation insurance
after receiving prior approval.  In insuring professional liability risks DPIC
is generally not limited to the standard rates of a rating organization but
establishes its own rates because of the unique nature of the risks being
underwritten.  Ocean marine insurance rates are exempt from regulation. 
Nonstandard and special risks, including nonstandard automobile insurance
rates, are generally not limited to the standard rates of national rating
bureaus.  Guaranty National is permitted to file rates which are usually
higher than those charged for standard risks, reflecting the higher
probability of loss.  Several states have recently adopted laws or their
legislatures are considering proposed laws which, among other things, limit
the ability of insurance companies to effect rate increases and to cancel,
reduce or not renew coverage with respect to existing policies, particularly
personal auto insurance.

Competition
-----------

     The insurance industry is highly competitive.  Over 3,000 property and
casualty insurance companies write business in the United States, but most of
the business is written by about 900 companies.  No single company or    
group has more than 10% of the market.  The Company's insurance subsidiaries
are in competition with numerous stock and mutual property and casualty
insurance companies, as well as state-run workers compensation insurance
funds, many of which are substantially larger and have significantly greater
resources than the Company.  
           
     Competition may take the form of lower premiums, specialized products,
more complete and complex product lines, greater pricing flexibility, 
superior service, different marketing methods, higher policyholder dividend
rates or better agent compensation.  Superior service and marketing methods
are of particular importance in workers compensation.  Competition might also
come from service organizations which administer self-insured workers
compensation programs.
                                     
     The Company relies on multiple distribution channels to market its
insurance products.  The Company's insurance subsidiaries sell their insurance
principally through independent agents, brokers and general agents, who
typically also represent one or more competing insurance companies.  They are
paid commissions based on premiums collected from insureds.  Commission rates
vary according to the type and amount of insurance sold.  Some competitors in
certain lines obtain their business at a lower direct cost through the use of
salaried personnel rather than independent agents and brokers.  

Rating
------

     A.M. Best Company rates the Company's active insurance subsidiaries "A
(Excellent)," and it rates Viking Insurance Company of Wisconsin and its
affiliate as "A- (Excellent)."  In general, A.M. Best Company's ratings are
based on an analysis of the financial condition and operation of an insurance
company as it relates to the industry.  These ratings are not primarily
designed for investors and do not constitute recommendations to buy, sell or
hold any security.  A.M. Best Company has upgraded the ratings of the
Company's wholly-owned subsidiaries three times in the last eight years.  

     Management believes that a significant change in its A.M. Best ratings
could affect the business of the subsidiary where ratings were altered,
including its relationship with its independent agents, positive in the case
of an upgrade or negative in the case of a downgrade.
                  
                                 28
<PAGE>
                       MISCELLANEOUS OPERATIONS

     The Company's fourth business segment consists primarily of the
miscellaneous income and expense (principally interest and general and
administrative expenses) of Orion Capital itself.  For financial reporting
purposes, the Company applies federal income taxes and benefits, as if fully
utilizable, to its segments.  Any consolidating elimination entries are
accounted for in this fourth segment. 

ITEM 2. PROPERTIES             

     The Company's executive office is located at 9 Farm Springs Road,
Farmington, Connecticut.  The Company's executive office facility consists of
approximately 140,000 square feet and is leased at an annual rental of
approximately $4,100,000.  DPIC owns its office building, which consists of
approximately 42,000 square feet, in Monterey, California.  Guaranty National
owns facilities in Englewood, Colorado; Salem, Oregon; and Freeport, Illinois. 
Those facilities consist, in the aggregate, of approximately 208,000 square
feet.

     All of the other insurance operations of the Company are conducted from
leased premises in or adjacent to major urban centers throughout the
United States, Puerto Rico, Canada and in Bermuda.  These operations, in the
aggregate, occupy approximately 903,000 square feet, at an annual rental of
approximately $13,650,000.

     The Company believes that its current facilities are suitable and
adequate for their present use and anticipated requirements.

ITEM 3. LEGAL PROCEEDINGS

     In August of 1997, several of the Company's subsidiaries were named as
defendants in a class action lawsuit titled Bristol Hotel Management
Corporation, et al., vs. Aetna Casualty & Surety Company, a/k/a Aetna Group,
et al., which was filed in the U.S. District Court for the Southern District
of Florida.  The suit also named many other workers compensation insurers who
did business in Florida.  The lawsuit, brought on behalf of an alleged class
of retrospectively rated workers compensation purchasers, claims among other
allegations, a conspiracy among insurers to charge illegally high prices for
workers compensation insurance, breach of contract and fraud.  Since that
time, additional class action lawsuits with similar allegations have been
brought against various subsidiaries of the Company in Georgia, Illinois, New
Jersey, Pennsylvania and Tennessee as well as many other insurers who did
business in those states.  The Company intends to vigorously defend these
lawsuits.
                     
     The Company is routinely engaged in litigation incidental to its
businesses. In the judgment of the Company's management, there are no
significant legal proceedings pending against the Company which, net of
reserves established therefor, are likely to result in judgments for amounts
that are material to the financial condition, liquidity or results of
operations of Orion and its consolidated subsidiaries, taken as a whole.  

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
          
         None.

INFORMATION CONCERNING EXECUTIVE OFFICERS OF THE COMPANY          

     The following is a summary of certain information regarding the current 
executive officers of Orion Capital.  All officers of Orion Capital and its 

                                   29

<PAGE>
subsidiaries serve at the pleasure of their respective Boards of Directors.

      W. Marston Becker, Chairman and Chief Executive Officer of Orion Capital
since January 1997; Vice Chairman of the Board from March, 1996 to December
1996; President and Chief Executive Officer of the DPIC Companies from July
1994 to June 1996; and Senior Vice President of Orion Capital and the Orion
Capital Companies ("OC Companies") from July 1994 to March 1996; President and
Chief Executive Officer of McDonough Caperton Insurance Group, an insurance
brokerage firm, from March 1987 to July 1994; age 45.

     Donald W. Ebbert, Jr., Executive Vice President and Chief Financial
Officer of Orion Capital effective March 25, 1998; Senior Vice President -
Comprehensive Risk Management of PNC Bank Corp. from 1996 to March 1998;
Senior Vice President, Treasurer and Director of Investor Relations of
Midlantic Corporation form 1990 to 1995; age 53.

     Raymond W. Jacobsen, Executive Vice President of Orion Capital since
December 1997; Senior Vice President of Orion Capital from July 1994 to
December 1997; Vice President of Orion from March 1990 to July 1994; Chairman
of EBI since July 1996; President and Chief Executive Officer of EBI from June
1993 to July 1996; Acting President and Chief Executive Officer of Connecticut
Specialty from October 1995 to November 1996; Executive Vice President of EBI
from December 1989 to May 1993; Senior Vice President of the OC Companies
since March 1990; age 45.

     James R. Pouliot, Executive Vice President of Orion Capital since
December 1997; President and Chief Executive Officer of Guaranty National
Corporation since December 1996; President and Chief Executive Officer of
Viking Insurance Company from October 1992 to December 1996; age 44.

     Stephen M. Mulready, Senior Vice President of Orion Capital since
December 1997; President of Orion Specialty Group, Inc., previously known as
Connecticut Specialty, since November 1996; Vice President of Orion Capital
from January 1997 to December 1997; Senior Vice President - Strategic
Underwriting and Product Development of Travelers/Aetna Property Casualty
Corporation from January 1996 to November 1996; Senior Vice President -
National Commercial Accounts of Aetna Life & Casualty from 1994 to 1996; Vice
President, Field Operations - National Commercial Accounts of Aetna Life &
Casualty from 1991 to 1994; age 48. 

     Thomas M. Okarma, Senior Vice President of Orion Capital since December,
1997; Vice President of Orion Capital from January 1997 to December, 1997;
President and Chief Executive Officer of DPIC Companies since July 1996; Chief
Claims Officer of DPIC Companies from December 1995 to June 1996; President of
Professional Concepts Insurance Agency and Executive Vice President of AVA
Insurance Agency Inc. from February 1989 to September 1994; age 48.
                                    
     Claudia F. Lindsey, Senior Vice President of Orion Capital since December
1997; Vice President of Orion Capital from January 1997 to December 1997; Vice
President - Business Development of the OC Companies since September 1996;
President of Strategic Marketing & Research, Inc. and Vice President of Anthem
Financial from 1994 to 1996; Director, Managing Partner & Chief Financial
Officer of McDonough Caperton Insurance Group from 1985 to 1994; age 42.

     Michael P. Maloney, Senior Vice President, General Counsel and Secretary
of Orion Capital since January 1997;  Vice President, General Counsel and
Secretary from August 1979 to December 1996; Senior Vice President of OC
Companies since March 1987; age 53.

     William G. McGovern, Senior Vice President and Chief Actuary of Orion
Capital since December 1997; Vice President and Chief Actuary of Orion Capital
from March 1990 to December 1997; Senior Vice President and Chief Actuary of
OC Companies since October 1989; age 45.

     



                                  30 


<PAGE>
Vincent T. Papa, Senior Vice President of Orion Capital since January 1997;
Vice President and Treasurer of Orion Capital from June 1985 to December 1996;
Chairman and Chief Executive Officer of McGee since September 1995; Senior
Vice President of OC Companies since March 1987 and Treasurer from December
1990 to March 1996; age 51.
                                     
    Raymond J. Schuyler, Senior Vice President and Chief Investment Officer of
Orion Capital since January 1997; Vice President-Investments from June 1984 to
December 1996; Senior Vice President of OC Companies since March 1986; age 62. 
                                
      David B. Semeraro, Senior Vice President of Orion Capital since December
1997; Vice President of Orion Capital from January 1997 to December 1997; Vice
President and Chief Information Officer of OC Companies since April 1996; Vice
President - Business & Technology Solutions of Connecticut Mutual Life
Insurance Company from November 1990 to April 1996; age 50.

     Philip H. Urban, Senior Vice President of Orion Capital since December
1997; President-Personal Lines of Guaranty National Corporation since November
1996; Senior Vice President-Personal Lines of Great American Insurance from
September 1990 to October 1996; age 45.

     Robert T. Claiborne, Vice President, Portfolio Manager and Director of
Investment Research of Orion Capital since January 1997; Assistant Vice
President and Portfolio Manager, Director of Research from March 1994 to
December 1996; Investment Analyst from September 1990 to March 1994; age 42.

     Craig A. Nyman, Vice President and Treasurer of Orion Capital since
January 1997; Assistant Vice President and Assistant Treasurer from June 1988
to December 1996; Vice President and Treasurer of OC Companies since March
1996; Vice President and Assistant Treasurer of OC Companies from January 1991
to March 1996; Assistant Vice President and Assistant Treasurer of OC
Companies from March 1987 to January 1991; Assistant Treasurer of OC Companies
from March 1985 to March 1987; age 42.

     Michael L. Pautler, Vice President of Corporate Development of Orion
Capital since December 1997; Senior Vice President-Finance and Treasurer of
Guaranty National Corporation from September 1988 to February 1998; age 43.   

     Kevin W. Sullivan,  Vice President and Assistant Chief Investment Officer
of Orion Capital since January 1997; Assistant Vice President and Assistant
Chief Investment Officer from 1989 to December 1996; age 42.

     Susan B. Sweeney, Vice President-Finance of Orion Capital since March 2,
1998; Independent Consultant from 1997 to 1998; Vice President Planning and
Analysis of Travelers Property and Casualty Corporation in Hartford, from 1996
to 1997; Managing Director, Strategic Planning Property/Casualty Finance of
Aetna Life & Casualty Company from 1994 to 1996; Managing Director of
Corporate Finance of Aetna Life & Casualty Company from 1991 to 1994; age 45.
  
     Peter M. Vinci, Vice President, Chief Accounting Officer and Controller
of Orion Capital since December 1997; Vice President and Controller of OC
Companies since January 1997; Vice President of OC Companies from July 1988 to
January 1997; age 45.
                                      

                              





                                   31   



<PAGE>
                                  PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS
       
          (a) Principal Market.  The principal market on which Orion's Common
Stock is traded is the New York Stock Exchange.
         
          (b)  Stock Price and Dividend Information.  The table below presents
the high and low market prices and dividend information for Orion's Common
Stock for 1997 and 1996.

                                                       Cash
                                    Stock Prices       Dividends
                                    High     Low       Declared 
                                    ----     ---       ---------
1997:

Quarter Ended December 31........ $51.000  $42.375     $  .16
Quarter Ended September 30.......  45.750   36.720        .16
Quarter Ended June 30............  37.625   30.813        .16 
Quarter Ended March 31...........  33.875   30.000        .14
                                                       ------
    Total........................                      $  .62
                                                       ======
                                  
1996:             
                                                              
Quarter Ended December 31........ $31.500  $25.125     $ .140    
Quarter Ended September 30.......  25.938   23.938       .125
Quarter Ended June 30............  25.500   21.313       .125
Quarter Ended March 31...........  23.875   21.250       .125
                                                       ------ 
    Total........................                      $ .515
                                                       ====== 
                                                             
     Note: Stock prices and cash dividends declared are restated for the 2-
for-1 stock split of the Company's common stock issued on July 7, 1997.
                                                       
     Cash dividends have been paid on Orion's Common stock in every quarter
since the fourth quarter of 1978, when dividends were first commenced.  
          
     (c)  Approximate Number of Holders of Common Stock.  The number of
holders of record of Orion's Common Stock as of March 19, 1998 was 1,900.



                     












                                   32
                                              
<PAGE> 
<TABLE>
ITEM 6.  SELECTED FINANCIAL DATA

     The following table summarizes information with respect to the operations and
financial condition of Orion and its subsidiaries.  Common stock and per common share data
have been restated to give effect to the 2-for-1 stock split issued on July 7, 1997 and
the 5-for-4 stock split issued on November 15, 1993.  All of Orion's $2.125 Preferred
Stock and Adjustable Rate Preferred Stock were converted into common stock or redeemed
during 1993.  The Company owned slightly less than 50% of Guaranty National until the
Company increased its ownership to 81% in July 1996 and 100% in December 1997.  Guaranty
National is included in the financial statements of the Company on a consolidated basis
beginning on January 1, 1996 with recognition of minority interest expense for the portion
of Guaranty National's earnings attributable to shares not owned by the Company.  For 1993
through 1995 the Company's investment in Guaranty National was accounted for using the
equity method.   
<CAPTION>
                                   1997        1996        1995        1994        1993    
                                   ----        ----        ----        ----        ----
                                         (000s omitted-except for per share data)
<S>                            <C>         <C>         <C>         <C>         <C>       
Year ended December 31:
  Total revenues ..............$1,590,535  $1,493,449 $  874,280  $  780,947   $  720,155  
  After-tax investment gains...    30,115      13,687      7,708       2,427        5,888  
  Operating earnings...........    85,691      72,944     59,914      52,818       51,100  
  Earnings before cumulative 
    effect of change in  
    accounting principles......   115,806      86,631     67,622      55,245       56,988  
  Net earnings.................   115,806      86,631     67,622      55,245       68,813  
  Operating earnings per
    diluted common share ......      3.07        2.63       2.11        1.84         1.74  
  Earnings per diluted common 
    share before cumulative   
    effect of changes in 
    accounting principles .....      4.15        3.12       2.38        1.93         1.94
  Net earnings per common share
    Basic .....................      4.24        3.16       2.41        1.94         2.37
    Diluted ...................      4.15        3.12       2.38        1.93         2.34  
  Dividends declared-
    Adjustable rate preferred
      share ...................        -           -          -           -          1.10  
    $2.125 preferred share ....        -           -          -           -           .12
    Common share ..............       .62         .51        .43         .38          .34  
  Weighted average number of
    common shares and diluted
    equivalents outstanding....    27,900      27,788     28,374      28,696       29,196

As of December 31:
  Total cash and investments...$2,553,008  $2,321,374 $1,606,445  $1,325,241   $1,328,969
  Total assets ................ 3,884,058   3,464,357  2,473,588   2,112,761    2,117,454
  Total policy liabilities .... 2,443,796   2,304,402  1,596,033   1,450,835    1,412,285
  Notes payable and debentures    310,228     310,904    209,148     152,382      160,372  
  Minority interest............        -       45,231         -           -            - 
  Trust preferred securities...   125,000          -          -           -            - 
  Stockholders' equity.........   723,110     576,733    490,903     365,088      394,195  
  Common shares outstanding....    27,606      27,538     27,906      28,082       28,744  
  Book value per common share..$    26.19  $    20.94 $    17.59  $    13.00   $    13.71
     
</TABLE> 
                                              



                                           33

<PAGE>                                
      
ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS
GENERAL
      Orion Capital Corporation ("Orion") and its wholly-owned subsidiaries
(collectively the "Company") operate principally in the property and casualty
insurance business.  The Company reports its insurance operations in three
segments.  In addition, the miscellaneous income and expenses (primarily
interest, general and administrative expenses and other consolidating
elimination entries) of the parent company are reported as a fourth segment. 
The three insurance segments as of December 31, 1997 are as follows:

      Regional Operations - this segment includes the workers compensation 
      insurance products and services sold by the EBI Companies ("EBI").

      Special Programs - this segment comprises the following:

      - DPIC Companies ("DPIC"), which markets professional liability          
        insurance;

      - Connecticut Specialty, a specialty insurance program writer;

      - Wm. H. McGee ("McGee"), an underwriting management company that        
        specializes in ocean marine, inland marine and commercial property     
        insurance; and

      - the Company's 24.7% interest in Intercargo Corporation ("Intercargo"), 
        which sells insurance coverages for international trade.

      Guaranty National Companies ("Guaranty National") - this segment
      specializes primarily in nonstandard automobile insurance and other
      property and casualty insurance.

     The Company completed two tender offers which increased its ownership of
Guaranty National from 49.5% to 81.0% in July 1996 and to 100% in December
1997.  The Company has increased its ownership in Guaranty National to 100% to
provide Guaranty National with additional financing options, on terms that may
not be available to it as an independent entity, so that it can continue its
expansion in the nonstandard personal automobile business.  

      All revenues and expenses of Guaranty National from the beginning of
1996 have been consolidated with those of the Company. Minority interest
expense has been recorded for the portion of Guaranty National's earnings that
is attributable to the shares not owned by the Company in 1996 and 1997 until
Guaranty National became a wholly-owned subsidiary of the Company.  For 1995
the Company's investment in Guaranty National is accounted for using the
equity method.

      In 1997, Guaranty National completed the acquisition of a nonstandard
personal automobile insurance company and announced the acquisition of
another.  On December 16, 1997, Guaranty National purchased Unisun Insurance
Company ("Unisun") from Michigan Mutual Insurance Company for $26,170,000 in
cash including expenses.  Unisun is the largest servicing carrier for the
automobile insurance facility in South Carolina and also writes personal
automobile insurance in the states of Alabama, Georgia and North Carolina. 
Unisun has been included in the Company's consolidated financial statements
from the date of acquisition.  Total net premiums written by Unisun for 1997
are approximately $20,000,000.

      In November 1997, Guaranty National entered into an agreement to acquire
the nonstandard personal automobile insurance business of North Carolina-based
Strickland Insurance Group ("Strickland") for $42,600,000 in cash.  Strickland
is the second largest writer of nonstandard personal automobile insurance in
North Carolina and also writes business in Florida, Arkansas, Tennessee and
Virginia.  In 1997, Strickland had total personal automobile net premiums
written of approximately $46,000,000.  The Strickland acquisition is expected
to be completed by the second quarter of 1998, subject to regulatory approval. 
The Strickland and Unisun acquisitions will permit the Company to begin
writing nonstandard personal automobile insurance in the southeastern region
of the United States, which is a new region for the Company.

      

                                  34

<PAGE>
Beginning in 1998, the commercial business lines of Guaranty National has 
merged with Connecticut Specialty to form a new company named Orion Specialty. 
The Company believes that the integration of the closely related operations
will strengthen its commercial specialty insurance programs.  Orion Specialty
has dual headquarters in Connecticut and Colorado.
                           
RESULTS OF OPERATIONS

     The Company's insurance operations have experienced favorable trends for
the past several years, as indicated by its combined ratio which has continued
to improve from 103.2% in 1993 to 101.2% in 1994, 100.3% in 1995, 99.8% in
1996 and 99.7% in 1997.  The Company's operating earnings (earnings after
taxes excluding after-tax realized investment gains) are $85,691,000 for 1997,
$72,944,000 for 1996 and $59,914,000 for 1995.  On a per share diluted basis,
operating earnings are $3.07, $2.63 and $2.11 for 1997, 1996 and 1995,
respectively.  For the five year period ended December 31, 1997, the Company's
return on equity from operating earnings has averaged 13.8% per year.
                              
     Net earnings are $115,806,000 for 1997, $86,631,000 for 1996 and
$67,622,000 for 1995.  On a per share diluted basis, net earnings are $4.15,
$3.12 and $2.38 for 1997, 1996 and 1995, respectively.  Net earnings for 1997
include after-tax realized investment gains of $30,115,000, or $1.08 per
share, compared to $13,687,000, or $0.49 per share, in 1996 and $7,708,000 or
$0.27 per share in 1995.     

      Earnings per share has been calculated based upon a new accounting
standard, SFAS No. 128, "Earnings per Share."  Additionally, all common stock
and per common share data presented in this document has been restated to give
effect to the 2-for-1 split of the Company's common stock issued on July 7,
1997.
<TABLE>
<CAPTION>
     
      Earnings (loss) by segment before federal income taxes and minority
interest expense are summarized as follows: 
                                                                               
                                          1997         1996         1995
                                          ----         ----         ----
                                                  (000s omitted)
<S>                                     <C>          <C>          <C>
Regional Operations ..................  $ 86,807     $ 68,371     $ 57,830 
Special Programs .....................    49,700       44,052       43,241
Guaranty National.....................    56,249       35,727        4,466
                                        --------     --------     --------
                                         192,756      148,150      105,537
Other ................................   (16,576)     (20,794)     (17,502)
                                        --------     --------     --------
                                        $176,180     $127,356     $ 88,035 
                                        ========     ========     ========





















                                     35 
<PAGE>
REVENUES

Premiums

The Company's net premiums written by segment are as follows:
<CAPTION>                                                                     
                                                              Percent Change   
                                                              --------------  
                                 1997      1996      1995     97/96    96/95
                                 ----      ----      ----     -----    -----
                                         (000s omitted)
<S>                         <C>        <C>         <C>       <C>      <C>
Regional Operations........ $  365,050 $  353,041  $332,598    3.4%     6.1%
Special Programs...........    436,898    489,848   424,838  (10.8)    15.3
Guaranty National..........    565,120    491,232       -     15.0      n/a
                            ---------- ----------  --------                 
                            $1,367,068 $1,334,121  $757,436    2.5%    76.1%
                            ========== ==========  ========                    
Pro forma excluding assumed
  reinsurance business..... $1,356,501 $1,255,118  $684,990    8.1%     n/a 
                            ========== ==========  ========                   
</TABLE>                                  
     In November 1996, the Company sold the renewal book of business of its    
     assumed reinsurance operation to concentrate on businesses where the      
     Company can better service its specialized niche markets.  Excluding      
     premiums from this operation, the Company's net premiums written          
     increased by 8.1% in 1997. The consolidation of Guaranty National         
     increased the Company's 1996 net premiums written by $491,232,000.        
     Excluding Guaranty National, the Company's net premiums written 
     increased by 11.3% in 1996.

     Regional Operations 

     Net premiums written for Regional Operations increased by 3.4% for 1997  
     and 6.1% for 1996 from EBI's selective geographic expansion and         
     penetration, including a net increase of thirteen branch offices in       
     1995 through 1997.  The offices were opened in territories where the      
     Company believes it will benefit from its service-oriented approach.      
         
     Additionally, the increase in net premiums written in 1997 includes       
     approximately $26,000,000 of growth generated by a national account       
     program started by EBI in the first quarter of 1997.  The increases in    
     net premiums written are mitigated in part by the effects of legislative  
     reforms in certain states that have led to an increasingly competitive    
     workers compensation marketplace with lower premium rates as well as a    
     reduction in losses.  As a result of the increasingly competitive workers 
     compensation marketplace, the 1997 premium rates have averaged 8% lower   
     than the 1996 levels.                                                  
     
     Special Programs

     Net premiums written from Special Programs are as follows:
  
                                                           Percent Change
                                                           -------------- 
                                1997      1996      1995    97/96  96/95 
                                ----      ----      ----    -----  ----- 
                                     (000s omitted)

     Connecticut Specialty... $170,463  $173,724  $153,285  (1.9)%  13.3%
     DPIC....................  198,765   195,546   184,130   1.7     6.2
     McGee...................   57,103    41,575    14,977  37.4   177.6
                              --------  --------  --------              
                               426,331   410,845   352,392   3.8    16.6
     Assumed reinsurance.....   10,567    79,003    72,446 (86.6)    9.0
                              --------  --------  --------  
                              $436,898  $489,848  $424,838 (10.8)%  15.3%
                              ========  ========  ========  
                             
     
                                         36 

<PAGE>
     Excluding premiums from the assumed reinsurance business sold in November
     1996, this segment's net premiums written increased 3.8% and 16.6% for    
     1997 and 1996, respectively.  Net premiums written by DPIC for            
     professional liability insurance, the largest special program,
     increased 1.7% in 1997 and 6.2% in 1996.  The increase in 1997 and 1996   
     is primarily attributable to continued high levels of policy renewals and 
     new business offset in part by rate reductions in a very competitive      
     professional liability insurance market.    
     
     Connecticut Specialty's net premiums written decrease of 1.9% is          
     primarily attributable to a cancelled ocean marine program resulting in   
     lower premiums in 1997 as compared to 1996 by $11,300,000, partly         
     offset by increases in premiums from transportation programs, and low     
     exposure professional liability programs. Further, net premiums written   
     for most Connecticut Specialty programs increased in 1997 from 1996 due   
     to higher retentions after a change in reinsurance effective May 1996.    
     Connecticut Specialty's premiums increase of 13.3% in 1996 is             
     attributable to higher premiums written in low exposure professional      
     liability programs and higher retention for most programs after a change  
     in reinsurance, partly reduced by lower premiums from its inland marine   
     programs.

     Starting in 1998, Connecticut Specialty and the commercial lines of      
     Guaranty National have merged to form Orion Specialty.  On a pro forma   
     basis, Orion Specialty's net written premiums decreased by $6,813,000 to
     $402,809,000 in 1997 from $409,622,000 in 1996.  As noted above, this     
     decrease is primarily due to management's efforts to eliminate under-     
     performing programs. 
     
     McGee's net premiums written increased 37.4% for 1997 and 177.6%          
     for 1996 reflecting the Company's greater participation in the
     underwriting pools managed by McGee.  The Company's participation in      
     McGee's United States pool is approximately 15%, 37% and 52% in 1995,     
     1996 and 1997, respectively.  Participation in McGee's Canadian pool is   
     approximately 15% in 1995, 49% in 1996 and 61% in 1997. The Company has
     agreed to increase its rate of participation for 1998 to 71% in
     the United States pool and 72% in the Canadian pool.
 
     The percentage of treaty and facultative reinsurance assumed to total net 
     premiums written for this segment is 2.4%, 16.1% and 17.1% in 1997, 1996 
     and 1995, respectively.  This decline is due to the sale of the assumed 
     reinsurance business.
     
     Guaranty National  

     Net premiums written for Guaranty National are as follows:
                                      
                                                            Percent Change
                                                            -------------- 
                                     1997       1996       97/96     96/95
                                     ----       ----       -----     ----- 
                                     (000s omitted)

     Personal Lines..............  $332,774   $ 255,334     30.3%     30.4%
     Commercial Lines............   140,598     157,033    (10.5)      5.9
     Collateral Protection.......    91,748      78,865     16.3      46.3%
                                   --------   ---------                    
                                   $565,120   $ 491,232     15.0%     23.5%
                                   ========   =========     

     The 30.3% net premiums written growth for Personal Lines in 1997 is due   
     to newly-enacted legislation in the state of California which requires  
     all drivers to maintain liability insurance.  This change in
     California law resulted in a 75% increase in the Personal
     Lines one-month product business to approximately $155,000,000 in 1997.   
   
                                     37

<PAGE>
     Commercial Lines net premiums written decreased by 10.5% in 1997 due to   
     lower production in nonstandard business, increased competition by        
     standard carriers in the nonstandard marketplace, and the effect of both  
     agent and program cancellations.  The 16.3% premium volume growth for     
     Collateral Protection in 1997 comes from increased writing in mortgage    
     fire insurance and mechanical breakdown programs.  Starting in 1998,      
     Commercial Lines and Collateral Protection will be part of Orion          
     Specialty and Guaranty National will be comprised of Personal Lines. 
      
     Guaranty National's net premiums written for 1996 were included in 
     the Company's consolidated financial statements as a result of the        
     Company's increase in ownership of Guaranty National to over 80% in 1996.
     Net premiums written for Guaranty National are $397,899,000 in 1995.  The 
     30.4% increase for Personal Lines in 1996 is the result of Guaranty
     National's acquisition of Viking Insurance Company of Wisconsin in July   
     1995. The Commercial Lines premium increase of 5.9% in 1996, which        
     resulted from the expansion of automobile physical damage and property
     programs, were partially offset by a planned reduction in commercial      
     automobile liability premiums. The 46.3% increase in Collateral           
     Protection for 1996 is primarily from two new products, automobile        
     financing GAP and mortgage fire insurance. 

      The Company's premiums earned increased 4.4% ($56,928,000) to       
$1,357,680,000 in 1997 and increased 73.7% ($551,749,000) to $1,300,752,000 in
1996 from $749,003,000 in 1995. Premiums earned reflect the recognition of
income from the changing levels of net premium writings, as well as the
inclusion of Guaranty National's premiums earned of $481,648,000 in
1996.
      
INVESTMENT PERFORMANCE
    
      The performance of the Company's investments, including net investment  
income, net realized gains (losses) and unrealized appreciation              
(depreciation) is as follows:                               
                                                                               
                                                1997        1996        1995   
                                                ----        ----        ----
                                                      (000s omitted)
Net investment income .....................  $164,908    $145,391    $ 99,040 
                                             --------    --------    --------
Net realized gains (losses):
  Fixed maturities ........................     3,986       2,067      (4,361)
  Equity securities .......................    43,789      22,113      16,246 
                                             --------    --------    --------  
                                               47,775      24,180      11,885 
                                             --------    --------    --------
Net unrealized appreciation (depreciation):
  Fixed maturities ........................    40,640     (16,414)     89,932
  Equity securities .......................    18,381      18,461      34,002  
                                             --------    --------    --------
                                               59,021       2,047     123,934
                                             --------    --------    --------
                                             $271,704    $171,618    $234,859
                                             ========    ========    ========
Net Investment Income

     Pre-tax net investment income is $164,908,000, $145,391,000 and
$99,040,000 in 1997, 1996 and 1995, respectively.  The pre-tax yields on the
average investment portfolio are 7.0% in 1997, 6.9% in 1996 and 7.1% in
1995, with after-tax yields of 5.3%, 5.4% and 5.5%, respectively.  Net       
investment income increased 13.4% in 1997 primarily due to a higher investment
base and a slight increase in pre-tax investment yields. The higher investment
base for 1997 reflects the proceeds from the issuance of $125,000,000 of trust
preferred securities in January 1997 and the effects of positive operating
cash flow.  These increases have been offset in part by the July 1996 cash
outlay of approximately $88,000,000 for the purchase of Guaranty National
common shares.  Net investment income increased 46.8% in 1996 from the 
inclusion of Guaranty National's net investment income of $40,089,000, as well
as by increased earnings on a higher investment base from positive operating 
                                    38

<PAGE>
cash flow.  This increase occurred notwithstanding a growing portfolio of
lower yielding tax-advantaged securities and the cash outlay to acquire
Guaranty National common stock.  

      The year-to-year changes in net investment income also reflect increases
from limited partnership investment equity earnings of $1,120,000, or 7.0%,
from 1996 to 1997 and $6,889,000, or 76.0%, from 1995 to 1996.  Limited
partnership earnings increased in 1996 due to higher earnings from the largest
limited partnership investment and the inclusion of Guaranty National's
partnership earnings.  The increase in limited partnership earnings for 1997
is primarily attributable to favorable performance for a majority of the
limited partnership investments partly offset by lower 1997 earnings as
compared to 1996 from the largest investment.  Earnings from limited
partnership investments can vary considerably from year-to-year.  The
Company's long-term experience with limited partnership investments has been 
quite favorable; however, they represent only 3.6% and 3.8% of total
investments at December 31, 1997 and 1996, respectively.  Net investment
income has also increased in both years by income generated from the
deployment of operating cash flow.  The carrying value of the Company's
investment portfolio amounted to $2,543,733,000 at December 31, 1997 and
$2,309,767,000 at December 31, 1996. 

     Fixed maturity investments which the Company has both the positive intent
and the ability to hold to maturity are recorded at amortized cost.  Fixed
maturity investments which may be sold in response to, among other things,
changes in interest rates, prepayment risk, income tax strategies or liquidity
needs are classified as available-for-sale and are carried at market value. 
The carrying value of fixed maturity and short-term investments is
$2,010,893,000 and $1,858,045,000 at December 31, 1997 and 1996, respectively,
or approximately 78.8% and 80.0% of the Company's cash and investments.  

     The Company's investment philosophy is to achieve a superior rate of
return after taxes, while maintaining a proper balance of safety, liquidity,
maturity and marketability.  The Company invests primarily in investment grade
securities and strives to enhance the average return of its portfolio through
limited investment in a diversified group of non-investment grade fixed
maturity securities or securities that are not rated.  The risk of loss due to
default is generally considered greater for non-investment grade securities
than for investment grade securities because the former, among other things,
are often subordinated to other indebtedness of the issuer and are often
issued by highly leveraged companies.  At December 31, 1997 and 1996, the
Company's investment in non-investment grade and non-rated fixed maturity
securities were carried at $256,745,000 and $219,473,000, respectively.  These
investments represented a total of 10.1% and 9.5% of cash and investments and
6.6% and 6.3% of total assets at December 31, 1997 and 1996, respectively.  

     The Company monitors the financial condition of the issuers of securities
that it owns.  When conditions are deemed appropriate, the Company ceases to
accrete discounts, or accrue interest and dividends and, in cases where the
value of such investments is deemed to be other than temporarily impaired, 
recognizes losses.  The Company's non-investment grade securities are highly
diversified, with an average investment per issuer of approximately $1,740,000
at December 31, 1997.  The largest non-investment grade security had a
carrying value of $13,159,000 at December 31, 1997.
                                 
Realized Investment Gains

     Net realized investment gains are $47,775,000 in 1997, $24,180,000 in
1996 and $11,885,000 in 1995.  Sales of equity securities have resulted in net
gains of $44,189,000, $22,428,000 and $16,531,000 and sales of fixed maturity
investments have resulted in net gains (losses) of $6,004,000, $3,186,000 and
$(311,000) in 1997, 1996 and 1995, respectively.  Realized investment gains 
are reduced by provisions for losses on securities deemed to be other-than-
temporarily impaired.  These provisions amounted to $400,000 in 1997, $315,000

                                   39

<PAGE>
in 1996 and $285,000 in 1995 for equity securities and $2,018,000, $1,119,000
and $4,050,000 in 1997, 1996 and 1995, respectively, for fixed maturity
investments.  Such provisions, based on available information at the time, are
made in consideration of the decline in the financial condition of the issuers
of these securities.
 
     Realized gains (losses) vary from period to period, depending on market
conditions relative to the Company's investment holdings, the timing of
investment sales generating gains and losses, the occurrence of events which
give rise to other than temporary impairment of investments, and other
factors.  At December 31, 1997 the Company held equity securities with
unrealized appreciation of $91,904,000 and the market value of the fixed
maturities portfolio exceeds amortized cost by $84,050,000.  Such amounts can
vary significantly depending upon fluctuations in the financial markets.
Equity securities and fixed maturities had unrealized appreciation of 
$18,381,000 and $40,640,000, respectively, for 1997, even after taking
$50,193,000 of realized net gains excluding impairment adjustments.  The
increase in market values of fixed maturities during 1997 is primarily
attributable to a decline in interest rates during the year.  The average
maturity of the Company's fixed maturities has increased from 7.1 years at
December 31, 1996 to 8.1 years at December 31, 1997.
                                      
                             
EXPENSES AND OTHER

Operating Ratios

     The following table sets forth certain ratios of insurance operating
expenses to premiums earned:
                                                 Year Ended December 31,
                                             -------------------------------   
                                               1997        1996        1995
                                               ----        ----        ----
  Loss and loss adjustment expenses .......    66.7%       67.9%       68.4% 
  Policy acquisition and other insurance
    expenses...............................    31.2        30.1        29.0
                                               ----        ----       ----- 
  Total before policyholders' dividends....    97.9        98.0        97.4
  Policyholders' dividends ................     1.8         1.8         2.9
                                               ----        ----       ----- 
  Combined ratio...........................    99.7%       99.8%      100.3%
                                               ====        ====       ===== 
  Loss and loss adjustment expenses:
    Regional Operations....................    53.7%       58.8%       62.4%
    Special Programs.......................    73.7        72.6        72.9
    Guaranty National......................    69.5        70.1        75.3
    
      The decrease in the 1997 ratio of loss and loss adjustment expense to
premiums earned (the "loss ratio") is attributed to improvements in both the
Regional Operations and Guaranty National segments, offset in part by higher
losses for Special Programs.  The decrease in the 1996 loss ratio is
attributable to improvements in both the Regional Operations and Special
Programs segments, offset in part by the consolidation of Guaranty National in
1996.  The Company's efforts to reduce its loss costs have had a positive
impact on profitability.      

     The continued improvement in the loss ratio for Regional Operations
results from the favorable loss development and loss experience achieved by
EBI through its service-oriented approach. EBI's service oriented approach is
to work with its customers to prevent losses and reduce claim costs.  

     The increase in the 1997 loss ratio for Special Programs is mainly
attributable to losses from certain programs cancelled by Connecticut
Specialty.  The 1997 loss ratio increase has been partly offset by the
favorable effect of a change in this segment's mix of business, particularly
the lower premiums and losses from the assumed reinsurance business that the
Company exited in November 1996. The improvement in the 1996 loss ratio for 

                                   40

<PAGE>
this segment is primarily attributable to a lower loss ratio for Connecticut
Specialty, both from the change in its reinsurance during 1996 and the impact
on 1995 results of certain cancelled programs which had unfavorable loss
experience in 1995.  These improvements are offset in part by reserve
strengthening for the Company's pools and associations and reinsurance
business in 1997 and 1996.  As discussed above, the Company formed Orion
Specialty through the merger of Connecticut Specialty and the Commercial Lines
of Guaranty National.  On a pro forma basis, Special Programs loss ratio for
1997 would be 72.1% with restatement to include Orion Specialty.

     Guaranty National's loss ratio has declined due to an improvement in its
Personal Lines loss ratio to 70.0% for 1997 from 71.3% for 1996 and from the
more favorable effect of a change in this segments mix of business to Personal
Lines.  This improvement has been partly offset by an increase in the
Commercial Line loss ratio from 72.1% for 1996 to 73.2% for 1997. The
improvement in the Personal Lines loss ratio for 1997 is primarily
attributable to lower claims frequency.  This improvement has been offset in
part by costs incurred to improve claim handling and reduce insurance fraud in
Personal Lines and by higher estimates for losses and loss adjustment expenses
for the commercial automobile line of business.  The lower loss ratio for 1996
as compared to 1995 was primarily attributable to Guaranty National having
significantly strengthened its loss reserves for both Personal and Commercial
Lines in 1995 in response to adverse claim trends during 1995.  The 1995
adverse claims trends resulted in higher than expected development due to
higher claims severity in 1992 through 1994 for commercial automobile and
higher claims frequency for personal automobile lines of business.  Also
during 1996, Personal Lines experienced lower claims severity and Commercial
Lines had lower overall claims severity and frequency.  
                                     
     The ratio of policy acquisition costs and other insurance expenses to
premiums earned (the "expense ratio") is 31.2%, 30.1% and 29.0% in 1997, 1996
and 1995, respectively.  Policy acquisition costs include direct costs, 
such as commissions, premium taxes, and salaries, that relate to and vary with
the production of new and renewal business.  These costs are deferred and
amortized as the related premiums are earned, subject to a periodic test for 
recoverability.  The increases in the expense ratio are attributable to the
Company's continued investment in building its loss prevention competencies
and the costs of expanding in new territories and changing the EBI office
operations.  Additionally, the increases are the result of higher commissions
for EBI and Connecticut Specialty, including a change in reinsurance in 1996
which provides for lower ceding commissions.  The increase for 1996 also
reflects the consolidation of Guaranty National. The ratio of policyholders'
dividends to premiums earned (the "dividend ratio") is 1.8%, 1.8% and 2.9% in
1997, 1996 and 1995, respectively.  The decrease in the dividend ratio for
1996 results from the consolidation of premiums from Guaranty National, which
does not have participating policies.  The Company's consolidated combined
ratio is 99.7% in 1997, 99.8% in 1996 and 100.3% in 1995.

     Provisions for losses and loss adjustment expenses include development of
loss and loss adjustment expense reserves relating to prior accident years,
which increased the calendar year combined ratio by 0.7 percentage points in
both 1997 and 1996 and 1.6 percentage points in 1995.  The loss ratios are
adversely affected by loss development in the pools and associations, 
reinsurance, certain discontinued lines and program business, reduced by 
favorable development in the workers compensation insurance line of business
from the improved application of loss prevention and loss control procedures.

     The Company's environmental claims principally relate to asbestos and
hazardous waste, arising from certain liability business written prior to the
mid 1980's, which business was never a major element of the Company's
operations.  Environmental claims are also received from certain reinsurance
pools and associations where reserves are established based on information 
reported to the Company by the managers of those pools and associations.  The
Company discontinued its participation in these reinsurance pools and
associations in the mid 1980's.
                                    41
<PAGE>     
     Establishing reserve liabilities for environmental claims is subject to
significant uncertainties that make reserve estimation difficult.  Legal
decisions have tended to expand insurance coverage beyond the intent of the
policies.  The disposition of such claims often requires lengthy and costly
litigation.  Uncertainties as to required clean-up remedies and difficulties
in identifying the responsible parties add further to the complexity of
reserve estimation for these claims.  In recent years, the Company has
intensified its efforts to settle and close environmental claims.  In
recognition of these efforts, reserves have also been increased to provide for
the costs related to settling claims.  To help minimize the cost of losses and
claims, the Company maintains a dedicated environmental claims staff which
administers and continually evaluates each claim and its defense and
settlement possibilities.  In 1997, 1996 and 1995 (1995 excludes Guaranty
National), the Company paid $6,833,000, $4,771,000 and $5,675,000,
respectively, for the costs of defending and settling such claims.  Payments
in 1997, 1996 and 1995 related to 209, 160 and 213 claims, respectively, for
the Company's direct business.  Claim counts have been aggregated by year of
coverage for each occurrence for which policyholders are being defended, and
often include numerous claimants.
    
      As of December 31, 1997 and 1996, the Company has environmental claims-
related loss and loss adjustment expense reserves, net of reinsurance 
recoverables, of $67,879,000 and $57,028,000, respectively. Claims counts are
551 and 632 at December 31, 1997 and 1996, respectively, for direct business
written by the Company which excludes reinsurance pools and associations. 
Following industry practice, claim counts are generally established for each
insured for each policy.  For workers compensation claims, individual
claimants are counted in claim counts.  Changes in claims counts for 1997 and
1996 are primarily attibutable to EBI, which is not a significant component of
the Company's environmental reserves.  In estimating liabilities for
environmental-related claims, the Company considers all pertinent information
as it becomes available.  The net reserve for environmental claims and IBNR
increased $10,851,000 in 1997 and $22,469,000 in 1996 primarily due to higher 
claims reported to the Company by certain reinsurance pools and associations,
which is the basis of establishing such reserve, and higher loss reserve
estimates.  The 1996 reserve increase also reflects the inclusion of Guaranty
National.

     Management believes that the Company's reserves for loss and loss
adjustment expenses make reasonable and sufficient provision for the ultimate
cost of all losses on claims incurred.  However, there can be no assurance
that changes in loss trends will not result in additional development of prior
years' reserves in the future.  Variability in claim emergence and settlement
patterns and other trends in loss experience can result in future development
patterns different than expected.  The Company believes that any such
development will continue at the low levels experienced in recent years,
considering actions that have been taken to increase reserving levels, improve
underwriting standards and emphasize loss prevention and control.  The 
Company's loss ratios in recent years, including development of prior years'
losses, have compared favorably with loss ratios experienced by the industry.

      The Company limits both current losses and future development of losses
by ceding business to reinsurers.  The Company continually monitors the
financial strength of its reinsurers and, to the Company's knowledge, has no
material exposure with regard to potential unrecognized losses due to
reinsurers having known financial difficulties.

Interest Expense

     Interest expense is $24,704,000 in 1997, $24,687,000 in 1996 and
$15,943,000 in 1995, increasing 0.1% in 1997 and 54.8% in 1996.  Interest
expense increased in 1996 due to the inclusion of interest on Guaranty
National's $100,000,000 bank debt, and higher average debt outstanding after
the issuance of $100,000,000 of Senior Notes by Orion on July 17, 1995, offset
in part by the repayment of Orion's bank debt at that time.

                                    42

<PAGE>
Other Expenses

     Other expenses are $45,002,000, $42,932,000 and $24,740,000 in 1997, 1996
and 1995, respectively. The increases in both other income and other expenses
for 1996 are primarily attributable to the inclusion of McGee's pool
management revenue and expenses after it was acquired by the Company on June
30, 1995.

Equity in Earnings of Affiliates
     
      Equity in earnings of affiliates consists of earnings of $8,619,000 for
1997, a loss of $389,000 for 1996, and includes earnings of $1,038,000 for
1995 from the Company's investment in Intercargo. The Company records its
share of Intercargo's results in the subsequent quarter. The 1997 earnings
reflect a pre-tax gain of $6,988,000 from Intercargo's sale of Kingsway
Financial Services. In 1995, Guaranty National was a non-majority owned 
affiliate of the Company and was therefore accounted for using the equity
method. Included in equity in net earnings of affiliates from Guaranty
National was $4,466,000 in 1995.         
                      
Earnings Before Federal Income Taxes and Minority Interest Expense

     Earnings before federal income taxes and minority interest expense are
$176,180,000, $127,356,000 and $88,035,000 for 1997, 1996 and 1995,
respectively.  The increases in pre-tax earnings of 38.3% and 44.7% for 1997
and 1996 reflect the increase in ownership of Guaranty National and 
improvement in insurance operations profitability of $25,229,000 and
$27,026,000 and increases in realized investment gains of $23,595,000 and
$12,295,000, respectively.  

Minority Interest Expense

      Guaranty National became a majority-owned subsidiary in July 1996, and
its results have been consolidated in the Company's financial statements since
the beginning of 1996.  In December 1997, Guaranty National became a wholly-
owned subsidiary of the Company.  Minority interest expense of $7,036,000 and 
$8,692,000 is recorded for the after-tax portion of Guaranty National's 1997
and 1996, respectively, earnings attributable to stockholders of Guaranty
National other than the Company.

      Minority interest expense in subsidiary trust preferred securities of
$6,857,000 for 1997 represents the financing cost, after the federal income
tax deduction, on Orion's $125,000,000 of 8.73% trust preferred securities
issued in January 1997.

Federal Income Taxes

     Federal income taxes on pre-tax operating results and the related
effective tax rates are 25.8% for 1997, 25.2% for 1996 and 23.2% for 1995. 
The Company's effective tax rates for 1997, 1996 and 1995 are less than the
statutory tax rate of 35% primarily because of income derived from tax-
advantaged securities.

      In October 1996 the Internal Revenue Service ("IRS") completed an
examination of the Company's federal income tax returns through 1992.  As
described in previously issued financial statements of the Company, certain
tax benefits from tax attributes existing at the date of the Company's
reorganization in 1976 were not recognized pending completion of the IRS
examination.  Accordingly, the Company recorded a credit to capital surplus in
1996 for tax benefits of $11,900,000 with respect to the 1976 reorganization. 
The recording of this credit had no impact on the Company's earnings. 
                             
     The Company has included Guaranty National in its consolidated tax return
since 1996, as a result of acquiring over 80% ownership. The liability for
deferred taxes established by the Company through June 30, 1996 for its share 
of Guaranty National's undistributed earnings has been reversed, resulting in 
a reduction of $21,547,000 in the amount of goodwill recorded from the
purchase of Guaranty National shares, with no effect on net income.

                                  43

<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

     Cash provided by operating activities decreased by $67,781,000 to
$99,960,000 in 1997 from $167,741,000 in 1996 and increased $19,724,000 in
1996 from $148,017,000 in 1995.  The decrease in operating cash flow for 1997
is the result of higher payments for losses, policy acquisition costs,
policyholders' dividends and minority interest from subsidiary trust preferred
capital securities, consistent with the Company's growth in recent years and
including the payment of losses for the assumed reinsurance business the
Company exited in November 1996 and certain cancelled program business. 
Partially offsetting these increased cash outflows are higher premiums
collected, reflective of the Company's current rate of growth, as well as 
higher investment income collected.  The increase for 1996 is attributable to
including Guaranty National's cash flow in the Company's consolidated
financial statements.    

      Cash used in investment activities increased by $75,001,000 to
$207,370,000 in 1997 from $132,369,000 in 1996 and decreased $56,079,000 in
1996 from $188,448,000 in 1995.  Cash is used in investment activities 
primarily for purchases of investments and acquisition activities.  Investment
purchases are funded by maturities and sales of investments, as well as by the
net cash from positive operating cash flows after cash provided by or used in
financing activities.  Cash used in acquisition activities in 1997 includes
$104,429,000 for the purchase of Guaranty National common stock, $24,464,000
for the purchase of Unisun (net of cash acquired), and a $2,000,000 purchase 
price deposit for the 1998 planned acquisition of Strickland. The total
purchase price for Strickland is $42,600,000.  In July 1996 the Company
purchased Guaranty National common stock for cash of $88,206,000.  In June
1995 Orion paid $22,000,000 in cash plus acquisition costs to acquire McGee.

     Cash provided by financing activities is $105,078,000 for 1997 and
$37,814,000 for 1995.  Cash used in financing activities is $27,349,000 for
1996. The net proceeds from the issuance of trust preferred securities by the
Company in January 1997 provided $123,026,000 of cash in 1997.  Orion borrowed
$12,000,000 under its bank line of credit in June 1995 to finance part of the
McGee acquisition.  In July 1995 Orion issued $100,000,000 of senior debt and
repaid all of its outstanding bank debt.  Cash used in financing activities
includes dividend payments, debt repayments and payments related to the
Company's common stock repurchase program.  Orion has increased the quarterly
dividend rate on its common stock by 15.0% in the third quarter of 1995, by an
additional 8.7% and 12.0% in the first and fourth quarters of 1996,
respectively, and by 14.3% in the second quarter of 1997.
                
      Orion's uses of cash consist of debt service, dividends to stockholders
and overhead expenses.  These cash uses are funded from existing available
cash, financing transactions and receipt of dividends, reimbursement of
overhead expenses and amounts in lieu of federal income taxes from Orion's
insurance subsidiaries.  Orion has received $42,822,000, $35,286,000 and
$30,546,000 in dividends, $8,114,000, $7,410,000 and $6,232,000 for overhead
expenses and federal tax payments of $9,525,000, $7,455,000 and $4,500,000 
from its insurance subsidiaries in 1997, 1996 and 1995, respectively. 
Payments of dividends by Orion's insurance subsidiaries must comply with
insurance regulatory limitations concerning stockholder dividends and capital
adequacy.  State insurance regulators have broad discretionary authority with
respect to limitations on the payment of dividends by insurance companies. 
Limitations under current regulations are well in excess of Orion's cash
requirements.  
                              
      Orion's insurance subsidiaries maintain liquidity in their investment
portfolios substantially in excess of that required to pay claims and
expenses.  The insurance subsidiaries held cash and short-term investments of
$160,444,000 and $293,477,000 at December 31, 1997 and 1996, respectively. 
These balances consider consolidated cash and short-term investment balances,
which includes balances held by Orion.  The consolidated policyholders'
surplus of Orion's insurance subsidiaries is $789,036,000 and $670,572,000 at 
                                   
                                    44  
<PAGE>
December 31, 1997 and 1996, respectively.  The Company's statutory operating
leverage ratios of net premiums written to policyholders' surplus is 1.8:1 and
2.0:1 at December 31, 1997 and 1996, respectively. 

     On July 17, 1995, Orion issued 7 1/4% Senior Notes due 2005 with a face
value of $100,000,000 in a public offering pursuant to a shelf registration
filed with the Securities and Exchange Commission in 1994.  The senior notes 
issued are non-callable to maturity, and were sold at 99.23% of par to yield
7.36% per annum.  The net proceeds from the offering were $98,113,000, of
which $46,500,000 was used to repay all of Orion's debt under its bank loan
agreement.

     The  terms of Orion's indentures for its $100,000,000 of 7 1/4% Senior
Notes due 2005 and its $110,000,000 of 9 1/8% Senior Notes due 2002 limit the
amount of liens and guarantees by the Company, and the Company's ability to
incur secured indebtedness without equally and ratably securing the senior
notes.  Management does not believe that these limitations unduly restrict the
Company's operations or limit Orion's ability to pay dividends on its stock.  
At December 31, 1997 the Company is in compliance with the terms of its senior
note indentures.  Management believes that the Company continues to have
substantial sources of capital and liquidity from the capital markets and bank
borrowings.

      On June 2, 1995 Guaranty National entered into a $110,000,000 credit
agreement (the "Credit Agreement") with several participating banks.  The
Credit Agreement provides for an unsecured reducing revolving credit facility,
which was used to fund the Viking acquisition, to retire the outstanding
balance of $29,000,000 under Guaranty National's previous revolving line of
credit, and for working capital and general corporate purposes.  As of
December 31, 1997, the outstanding loan balance under the Credit Agreement was
$100,000,000.  Guaranty National had two interest rate swap agreements with
banks which effectively change the interest rate exposure on $80,000,000 of
this loan to a fixed rate of 6.3%.  As discussed below, this loan was fully
repaid with part of the net proceeds from the 7.701% Trust Preferred 
Securities issued in February 1998.  The interest rate swap agreements 
were also settled at a modest gain upon the repayment of the Guaranty National
loan.   
     
      On January 13, 1997 Orion issued $125,000,000 of 8.73% Junior
Subordinated Deferrable Interest Debentures due January 1, 2037 (the
"Debentures") to Orion Capital Trust I (the "Trust"), a Delaware statutory
business trust sponsored by Orion.  The Trust simultaneously sold $125,000,000
of 8.73% Capital Securities (the "Trust Preferred Securities") which have
substantially the same terms as the Debentures.  The net proceeds from the
sale of the Trust Preferred Securities were used in part for the acquisition
of Guaranty National common stock in December 1997.  The Trust Preferred
Securities may be redeemed without premium on or after January 1, 2007.  

      On February 2, 1998 Orion issued $125,000,000 of 7.701% Junior
Subordinated Debentures due April 15, 2028 to Orion Capital Trust II, a
Delaware statutory business trust sponsored by the Company.  Orion Capital
Trust II then sold $125,000,000 of 7.701% Capital Securities, which mature on
April 15, 2028, in a private placement.  Approximately $100,000,000 of the net
proceeds from the sale of the junior subordinated debentures were used
to retire bank indebtedness of Guaranty National.  The remaining net proceeds
will be used for general corporate purposes.  Orion agreed to register the
capital securities under the Securities Act of 1933, and will file a
registration statement with the Securities and Exchange Commission.

      The 8.73% and 7.701% Capital Securities are subordinated to all
liabilities of the Company.  The Company may defer interest distributions on
these Capital Securities; however, during any period when such cumulative
distributions have been deferred, Orion may not declare or pay any dividends
or distributions on its common stock.
      

                                    45  

<PAGE>
      The Company issued a 2-for-1 split of its common stock on July 7, 1997
to shareholders of record on June 23, 1997. The Company has repurchased 42,916
shares, 482,228 shares and 346,362 shares of its common stock at an aggregate
cost of $1,533,000, $11,148,000 and $7,183,000 in 1997, 1996 and 1995,
respectively.  At December 31, 1997 the Company's remaining stock purchase
authorization from its Board of Directors amounted to $3,169,000.  In February
1998, the Board of Directors increased the authorization for purchases of the
Company's common stock by an additional $25,000,000.  

LEGAL PROCEEDINGS
     
      In August 1997, several of the Company's subsidiaries were named as
defendants in a class action lawsuit titled Bristol Hotel Management
Corporation, et al., vs. Aetna Casualty & Surety Company, which was filed in
the U.S. District Court for the Southern District of Florida.  The lawsuit,
brought on behalf of an alleged class of retrospectively rated workers
compensation purchasers, claims, among other allegations, a conspiracy among
insurers to charge illegally high prices for workers compensation insurance,
breach of contract and fraud.  Since that time, additional class action
lawsuits with similar allegations have been brought against various
subsidiaries of the Company in Georgia, Illinois, New Jersey, Pennsylvania and
Tennessee as well as other insurers who did business in those states.  The
Company intends to vigorously defend these lawsuits.  
     
     The Company settled a previously disclosed complaint naming the Company,
as defendant, in connection with the tender offer of Guaranty National.  The
settlement amount was not material to the financial condition or results of
operations of the Company.              
     
      Orion and its subsidiaries are routinely engaged in litigation
incidental to their businesses.  Management believes that there are no
significant legal proceedings pending against the Company which, net of
reserves established therefor, are likely to result in judgments for amounts
that are material to the financial condition, liquidity or results of
operations of Orion and its consolidated subsidiaries, taken as a whole.  

READINESS FOR YEAR 2000

      The Company has taken actions to understand the nature and extent of the
work required to make its systems, products and infrastructure Year 2000
compliant including assessments of the readiness of external entities which it
interfaces with such as vendors, customers and others.  The Company began work
several years ago to prepare its products and its financial, information and
other computer-based systems for the Year 2000, including replacing and/or
updating systems and is utilizing both internal and external resources.  The
Company continues to evaluate the estimated costs associated with these 
efforts based on actual experience.  While final cost estimates are not
complete, the Company believes, based on available information, that it will
be able to manage its total Year 2000 transition without any material adverse
effect on its business operations, products or financial prospects. The
Company has expensed $2,382,000 of Year 2000 costs through 1997 and expects to
incur between $9,500,000 and $12,500,000 of additional expenses in 1998 and
1999.  

ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED

      In June 1997 the Financial Accounting Standards Board ("FASB")issued
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", which changes the way public companies report information about
segments.  This statement is effective for financial statements for periods
beginning after December 15, 1997.  Financial statement disclosures for prior
periods are required to be restated.  The Company is in the process of
evaluating the disclosure requirements.  The adoption of this standard will
have no impact on the Company's consolidated results of operation, financial
position or cash flows.

                                  46

<PAGE>
      In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income."  This statement establishes standards for reporting and display of
comprehensive income and its components in the financial statements.  The
Company will adopt this statement in first quarter of 1998.  The Company is in
the process of determining its preferred format.  The adoption of this
statement will have no impact on the Company's results of operations,
financial position or cash flows.          

FORWARD-LOOKING STATEMENTS

      All statements made in this Annual Report that do not reflect historical
information are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.  Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements.  Such factors include,
among other things, (i) general economic and business conditions; (ii)
interest rate changes; (iii) competition and regulatory environment in which
the Company operates; (iv) claims frequency; (v) claims severity; (vi) medical
cost inflation; (vii) increases in the cost of property repair; (viii) the
number of new and renewal policy applications submitted to the Company; and
(ix) other factors over which the Company has little or no control.  The
Company disclaims any obligation to update or to publicly announce the impact
of any such factors or any revisions to any forward-looking statements to
reflect future events or developments.
                           
ITEM 7A:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
          
          Not applicable.
                                      






























                                    47


<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                             REPORT OF MANAGEMENT


     The management of Orion Capital Corporation is responsible for the
consolidated financial statements and the information included therein.  The
consolidated financial statements are fairly presented and have been prepared
in accordance with generally accepted accounting principles appropriate in the
circumstances, and, where necessary, include amounts based on management's
informed estimates and judgments.  

     The Company has a system of internal controls which it believes provides
reasonable assurance that assets are safeguarded from loss or unauthorized
use, that transactions are recorded in accordance with management's policies
and that the financial records are reliable for preparing financial
statements.  The system of internal controls includes written policies and
procedures which are communicated to all appropriate personnel and updated as
necessary.  

     Compliance with the system of internal controls is continuously
maintained and monitored by management.  The internal audit staff of the
Company evaluates and reports on the adequacy of and adherence to these
controls, policies and procedures.  In addition, as part of its audit of the
consolidated financial statements, Deloitte & Touche LLP, the independent
auditors for the Company, perform an evaluation of the system of internal
controls to the extent they consider necessary to express an opinion on the
consolidated financial statements.  Recommendations concerning the system of
internal controls are provided by both the internal auditors and Deloitte &
Touche LLP, and management takes actions which are believed to be appropriate
responses to these recommendations.

     The Audit and Information Services Committee of the Board of Directors is
comprised of independent directors, and has general responsibility for
oversight of financial controls and audit activities of the Company and its
subsidiaries.  The Audit and Information Services Committee, which reports to
the Board, annually reviews the qualifications of the independent auditors and
meets periodically with them, the internal auditors and management to review
the plans and results of the audits.  Both internal and independent auditors
have free access to the Audit and Information Services Committee, without
members of management present, to discuss the adequacy of the system of
internal controls and any other matters which they believe should be brought
to the attention of the Committee.



W. Marston Becker                                  Peter M. Vinci        
Chairman & Chief Executive Officer                 Chief Accounting Officer    
                                   












                                    48
                  
<PAGE>

INDEPENDENT AUDITORS' REPORT
                                                  
Board of Directors and Stockholders
Orion Capital Corporation
Farmington, Connecticut

     We have audited the accompanying consolidated balance sheets of Orion
Capital Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997.  Our
audits also included the financial statement schedules listed in the Index at
Item 14(a)2.  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 Orion Capital Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997 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


Hartford, Connecticut
February 11, 1998
                                      


















                                     49
<PAGE> 
<TABLE>  
<CAPTION>          ORION CAPITAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET        
                                 (000s omitted)     

                                     ASSETS 
                                                         December 31,
                                                   ------------------------   
                                                        1997          1996
                                                        ----          ---- 
<S>                                                <C>           <C>   
Investments:
  Fixed maturities at amortized cost (market 
    $322,395 - 1997 and $334,755 - 1996).......... $  312,770    $  326,841

  Fixed maturities at market (amortized cost         
    $1,395,421 - 1997 and $1,169,812 - 1996) .....  1,469,846     1,205,308 
  
  Common stocks at market (cost $163,020 - 1997
    and $136,631 - 1996) .........................    245,399       209,281  

  Non-redeemable preferred stocks at market (cost 
    $183,577 - 1997 and $151,439 - 1996) .........    193,102       152,312  

  Other long-term investments ....................     94,339        90,129  

  Short-term investments .........................    228,277       325,896
                                                   ----------    ----------
     Total investments ...........................  2,543,733     2,309,767

Cash .............................................      9,275        11,607

Accrued investment income ........................     29,650        25,724
 
Investment in affiliate ..........................     31,267        22,170
 
Accounts and notes receivable (less allowance 
  for doubtful accounts $3,526 - 1997 and  
  $3,696 - 1996) .................................    189,321       181,495

Reinsurance recoverables and prepaid reinsurance..    622,214       517,209 

Deferred policy acquisition costs ................    147,124       136,168 

Property and equipment (less accumulated
  depreciation $35,923 - 1997 and $33,953 - 1996).     70,773        68,763
      
Excess of cost over fair value of net assets 
  acquired (less accumulated amortization 
  $27,383 - 1997 and $25,633 - 1996) .............    140,026        81,198

Deferred federal income taxes ....................        907        23,554

Other assets .....................................     99,768        86,702    
                                                   ----------    ----------    
     Total assets................................. $3,884,058    $3,464,357
                                                   ==========    ========== 
 <FN> 
                 See Notes to Consolidated Financial Statements
                                      
                                      

                                      50
<PAGE>             ORION CAPITAL CORPORATION AND SUBSIDIARIES
<CAPTION>                  CONSOLIDATED BALANCE SHEET
                     (000s omitted - except for share data)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                            December 31,
                                                     -------------------------
                                                         1997          1996
                                                         ----          ----
<S>                                                  <C>           <C>
Liabilities:
  Policy liabilities -                              
    Losses ........................................  $1,476,366    $1,421,920
    Loss adjustment expenses ......................     395,345       363,744 
    Unearned premiums .............................     551,590       496,249 
    Policyholders' dividends ......................      20,495        22,489 
                                                     ----------    ----------
      Total policy liabilities ....................   2,443,796     2,304,402 

  Notes payable ...................................     310,228       310,904 
  Other liabilities ...............................     281,924       227,087 
                                                     ----------    ----------
      Total liabilities ...........................   3,035,948     2,842,393 
                                                     ----------    ----------
Commitments and Contingencies (Notes J and K)

Minority interest in subsidiary....................          -         45,231  
                                                     ----------    ----------
Company-obligated mandatorily redeemable
   preferred capital securities of subsidiary 
   trust holding solely the junior subordinated
   debentures of the Company ......................     125,000            -   
                                                     ----------    ----------
Stockholders' equity:
  Preferred stock, authorized 5,000,000 shares;         
    issued and outstanding - none                        
  Common stock, $1 par value; authorized 
    50,000,000 shares; issued 30,675,300 shares ...      30,675        15,338
  Capital surplus .................................     152,114       158,587
  Net unrealized investment gains, net of federal
    income taxes of $53,201 - 1997 and $31,674 -
    1996 ..........................................     113,592        72,260 
  Net unrealized foreign exchange translation 
    losses, net of federal income taxes (benefit)
    of ($786) - 1997 and $414 - 1996...............      (4,398)       (2,164)
  Retained earnings ...............................     469,512       370,793 
  Treasury stock, at cost(3,069,756 shares - 1997
    and 3,138,230 shares - 1996) ..................     (34,332)      (34,980)
  Deferred compensation on restricted stock .......      (4,053)       (3,101)
                                                     ----------    ----------
      Total stockholders' equity ..................     723,110       576,733 
                                                     ----------    ---------- 
      Total liabilities and stockholders' equity...  $3,884,058    $3,464,357 
                                                     ==========    ==========
<FN>   
                 See Notes to Consolidated Financial Statements
                                      
                                      


                                      51       

                                      







                            
<PAGE> <CAPTION>
                        ORION CAPITAL CORPORATION AND SUBSIDIARIES
                            CONSOLIDATED STATEMENT OF EARNINGS
                        (000s omitted - except for per share data)

                                                            Year Ended December 31,
                                                        -------------------------------
                                                          1997        1996       1995
                                                          ----        ----       ----
<S>                                                    <C>          <C>        <C>
Revenues:
  Premiums earned ...................................  $1,357,680  $1,300,752  $749,003
  Net investment income .............................     164,908     145,391    99,040 
  Realized investment gains .........................      47,775      24,180    11,885 
  Other income ......................................      20,172      23,126    14,352 
                                                       ----------  ----------  --------
    Total revenues ..................................   1,590,535   1,493,449   874,280 
                                                       ----------  ----------  --------

Expenses:
  Losses incurred ...................................     701,313     694,534   388,409 
  Loss adjustment expenses ..........................     204,145     188,458   123,824    
  Amortization of deferred policy acquisition costs .     387,165     363,547   195,481   
  Other insurance expenses ..........................      36,645      27,912    21,562 
  Dividends to policyholders ........................      24,000      23,634    21,790 
  Interest expense ..................................      24,704      24,687    15,943 
  Other expenses ....................................      45,002      42,932    24,740 
                                                       ----------  ----------  --------
    Total expenses ..................................   1,422,974   1,365,704   791,749 
                                                       ----------  ----------  --------

Earnings before equity in earnings of affiliates, 
  federal income taxes and minority interest expense.     167,561     127,745    82,531  

Equity in earnings (loss) of affiliates .............       8,619        (389)    5,504    
                                                       ----------  ----------  --------

Earnings before federal income taxes and minority 
  interest expense ..................................     176,180     127,356    88,035 

Federal income taxes ................................      46,481      32,033    20,413 

Minority interest expense:
  Subsidiary net earnings............................       7,036       8,692       -
  Subsidiary trust preferred securities,
    net of federal income taxes......................       6,857         -         -
                                                       ----------  ----------  --------
             
  Net earnings ......................................  $  115,806  $   86,631  $ 67,622
                                                       ==========  ==========  ========

  Net earnings per basic common share................  $     4.24  $     3.16  $   2.41    
                                                       ==========  ==========  ========
  Net earnings per diluted common share..............  $     4.15  $     3.12  $   2.38
                                                       ==========  ==========  ========
<FN>                  
                      See Notes to Consolidated Financial Statements
                                            




                                            52










<PAGE> <CAPTION>                   
                     ORION CAPITAL CORPORATION AND SUBSIDIARIES
                   CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                     (000s omitted)
                                                   Year Ended December 31,
                                              ---------------------------------
                                                  1997       1996       1995
                                                  ----       ----       ----
<S>                                           <C>          <C>        <C>
Common Stock:
  Balance, beginning of year................. $  15,338    $  15,338   $ 15,338
  Stock issued in 2-for-1 common stock split.    15,337           -          -
                                              ---------    ---------   --------     
  Balance, end of year....................... $  30,675    $  15,338   $ 15,338
                                              =========    =========   ========      
Capital surplus:  
  Balance, beginning of year ................ $ 158,587    $ 146,658   $147,598
  Issuance of common stock ..................        -            -         152
  Exercise of stock options and issuance/
    (cancellation) of restricted stock.......       508           29     (1,092)
  Acquisition of Guaranty National (Note B)..     8,356           -          -
  Recognition of pre-reorganization federal
    income tax benefits......................        -        11,900         - 
  Stock issued in 2-for-1 common stock split.   (15,337)          -          -
                                              ---------    ---------   --------
  Balance, end of year ...................... $ 152,114    $ 158,587   $146,658 
                                              =========    =========   ========
Net unrealized investment gains (losses):
  Balance, beginning of year ................ $  72,260    $  63,255   $(11,498)
  Change in unrealized investment gains 
    (losses), net of taxes ..................    41,332        9,005     74,753 
                                              ---------    ---------   -------- 
  Balance, end of year ...................... $ 113,592    $  72,260   $ 63,255
                                              =========    =========   ========
Net unrealized foreign exchange translation
  losses:
  Balance, beginning of year ................ $  (2,164)   $  (3,935)  $ (3,959)
  Change in unrealized foreign exchange    
    translation (losses) gains, net of taxes.    (2,234)       1,771         24 
                                              ---------    ---------   --------
  Balance, end of year ...................... $  (4,398)   $  (2,164)  $ (3,935) 
                                              =========    =========   ======== 
Retained earnings:  
  Balance, beginning of year................. $ 370,793    $ 298,452   $242,908 
  Net earnings...............................   115,806       86,631     67,622 
  Dividends declared.........................   (17,087)     (14,290)   (12,078) 
                                              ---------    ---------   -------- 
  Balance, end of year....................... $ 469,512    $ 370,793   $298,452 
                                              =========    =========   ========     
Treasury Stock:
  Balance, beginning of year................. $ (34,980)   $ (26,534)  $(22,451) 
  Issuance of common stock...................        -            -         770 
  Exercise of stock options and net issuance
    of restricted stock......................     3,174        2,702      2,330 
  Acquisition of treasury stock..............    (2,526)     (11,148)    (7,183) 
                                              ---------    ---------   -------- 
  Balance, end of year....................... $ (34,332)   $ (34,980)  $(26,534)     
                                              =========    =========   ========  
Deferred compensation on restricted stock:  
  Balance, beginning of year................. $  (3,101)   $  (2,331)  $ (2,848) 
  Net issuance of restricted stock...........    (1,860)      (1,827)      (517) 
  Amortization of deferred compensation on
    restricted stock.........................       908        1,057      1,034 
                                              ---------    ---------   --------  
  Balance, end of year....................... $  (4,053)   $  (3,101)  $ (2,331)
                                              =========    =========   ========      

<FN>                See Notes to Consolidated Financial Statements
                                      
                                        53                                                                   
<PAGE> <CAPTION>
                    ORION CAPITAL CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (000s omitted)

                                                     Year Ended December 31,
                                               ----------------------------------
                                                  1997        1996        1995
                                                  ----        ----        ----
<S>                                            <C>         <C>         <C>
Cash flows from operating activities:
  Premiums collected ........................  $1,364,525  $1,330,319  $ 738,083 
  Net investment income collected ...........     140,049     127,036     91,964 
  Losses and loss adjustment expenses paid ..    (892,147)   (794,889)  (409,797)
  Policy acquisition costs paid .............    (401,087)   (387,685)  (204,319)
  Dividends paid to policyholders ...........     (25,995)    (20,091)   (15,495)
  Interest paid .............................     (23,821)    (24,071)   (12,530)
  Federal income tax payments ...............     (28,380)    (30,274)   (18,756)
  Payments on subsidiary trust preferred           
    capital securities.......................      (5,092)         -          -
  Other payments ............................     (28,092)    (32,604)   (21,133)
                                               ----------  ----------  ---------
    Net cash provided by operating 
      activities ............................      99,960     167,741    148,017 
                                               ----------  ----------  ---------
Cash flows from investing activities:
  Maturities of fixed maturity investments 
    held-to-maturity ........................      20,143      34,648     36,804
  Maturities of fixed maturity investments
    available-for-sale ......................     100,376     144,231     12,640 
  Sales of fixed maturities          
    available-for-sale ......................     308,339     250,858    184,501
  Sales of equity securities.................     199,697     153,233     78,351
  Investments in fixed maturities 
    held-to-maturity ........................     (14,312)     (8,609)   (41,709)
  Investments in fixed maturities
    available-for-sale ......................    (595,946)   (449,516)  (278,173)
  Investments in equity securities ..........    (204,109)    (83,427)   (64,450)
  Net sales (purchases) of short-term 
    investments..............................     108,507     (78,096)   (83,617)
  Purchases of Guaranty National common stock    (104,429)    (88,628)         - 
  Acquisitions of Unisun in 1997 and 
    McGee in 1995............................     (26,170)         -     (22,355)    
  Effect on cash of acquisitions.............       1,706       6,794        349
  Deposit for acquisition of Strickland......      (2,000)         -          -
  Other receipts (payments)..................         828     (13,857)   (10,789)
                                               ----------  ----------  ---------
    Net cash used in investing activities ...    (207,370)   (132,369)  (188,448)
                                               ----------  ----------  ---------
Cash flows from financing activities:
  Net proceeds from issuance of trust
    preferred capital securities.............     123,026          -          - 
  Proceeds from issuance of notes payable ...          -           -     110,413 
  Proceeds from exercise of stock options ...         594          42        246 
  Repayment of notes payable ................        (750)     (1,313)   (54,500)
  Dividends paid to stockholders ............     (16,477)    (13,648)   (11,674)
  Dividends paid to minority stockholders....      (1,496)     (1,721)        -  
  Purchases of common stock .................      (1,533)    (10,743)    (6,689)
  Other receipts.............................       1,714          34         18
                                               ----------  ----------  ---------
    Net cash provided by (used in) financing 
      activities ............................     105,078     (27,349)    37,814 
                                               ----------  ----------  ---------
    Net increase (decrease) in cash .........      (2,332)      8,023     (2,617)
Cash balance, beginning of year .............      11,607       3,584      6,201
                                               ----------  ----------  ---------
Cash balance, end of year ...................  $    9,275  $   11,607  $   3,584
                                               ==========  ==========  =========

<FN>                      See Notes to Consolidated Financial Statements                   
                                            
                                              54
 <PAGE>     
 <CAPTION>         ORION CAPITAL CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENT OF CASH FLOWS - (Continued)
                                 (000s omitted)
                                                    Year Ended December 31,
                                                -------------------------------
                                                  1997       1996       1995
                                                  ----       ----       ----
<S>                                             <C>        <C>        <C>
Reconciliation of net earnings to net cash
  provided by operating activities:
Net earnings .................................  $115,806   $ 86,631   $ 67,622 
                                                --------   --------   --------
Adjustments:
  Depreciation and amortization ..............    13,380     12,063      5,900 
  Amortization of excess of cost over fair
    value of net assets acquired .............     3,159      3,096      1,533 
  Deferred federal income taxes ..............     4,541      9,999     (5,165)
  Amortization (accretion)                        
    of fixed maturity investments.............    (2,562)     1,432        815
  Non-cash investment income .................   (18,962)   (17,778)   (11,272)
  Equity in (earnings) loss of affiliates ....    (8,619)       389     (5,504)
  Dividends received from affiliates .........       342        302      2,597 
  Realized investment gains ..................   (47,775)   (24,180)   (11,885)
  Minority interest expense                                                  
    in subsidiary net earnings................     7,036      8,692         -
  Foreign exchange transaction adjustment ....       695      1,083        163 
  Other.......................................       747        952        (43)

Changes in assets and liabilities (net of
  effects of acquiring Unisun - 1997,       
  Guaranty National - 1996, and McGee - 1995): 
  Decrease (increase) in accrued investment 
    income ...................................    (2,266)     1,179       (952)
  Decrease (increase) in accounts and notes 
    receivable ...............................     1,423      7,497    (11,488)
  Increase in reinsurance recoverables
    and prepaid reinsurance...................   (91,038)   (77,999)   (24,020)
  Increase in deferred policy acquisition 
    costs ....................................    (8,104)   (20,858)    (7,536)
  Increase in other assets ...................   (10,759)   (34,302)   (18,405)
  Increase in losses .........................    47,424    115,202     54,485 
  Increase in loss adjustment expenses .......    29,629     32,363     39,168 
  Increase in unearned premiums...............    45,567     58,906     45,250 
  Increase (decrease) in policyholders' 
    dividends.................................    (1,994)     3,543      6,295 
  Increase (decrease) in other liabilities ...    22,290       (471)    20,459
                                                --------   --------   --------
    Total adjustments and changes ............   (15,846)    81,110     80,395 
                                                --------   --------   --------
  Net cash provided by operating activities ..  $ 99,960   $167,741   $148,017 
                                                ========   ========   ========

<FN>                   See Notes to Consolidated Financial Statements                   
</TABLE>                                    





                                            55 








<PAGE>
                  ORION CAPITAL CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 Years Ended December 31, 1997, 1996 and 1995

Note A - Significant Accounting Policies

     Basis of Financial Statement Presentation - Orion Capital Corporation
("Orion") and its majority-owned subsidiaries (collectively the "Company")
operate principally in the property and casualty insurance business.  The
Company reports its insurance operations in three segments - Regional
Operations, Special Programs and Guaranty National Corporation.  Regional
Operations provides workers compensation insurance products through EBI
Companies.  Special Programs includes: (i) DPIC Companies ("DPIC"), which
markets professional liability insurance, (ii) Connecticut Specialty, which
writes specialty insurance programs, (iii) Wm. H. McGee & Co., Inc. ("McGee"),
an underwriting management company that specializes in ocean marine, inland
marine and commercial property insurance and (iv) a 24.7% interest in
Intercargo Corporation ("Intercargo") which underwrites insurance coverages
for international trade.  The third segment, Guaranty National Corporation
("Guaranty National"), specializes in nonstandard commercial and personal
automobile insurance.  The miscellaneous income and expenses (primarily
interest, general and administrative expenses and other consolidating
elimination entries) of the parent company are reported as a fourth segment. 
The consolidated financial statements and notes thereto are presented in
accordance with generally accepted accounting principles ("GAAP") for property
and casualty insurance companies and include the accounts of Orion and its
majority-owned subsidiaries.  The Company's investments in unconsolidated
affiliates are accounted for using the equity method (See Note C).  All
material intercompany balances and transactions have been eliminated.  The
preparation of the Company's consolidated financial statements in conformity
with GAAP requires Company management to make estimates and assumptions that
affect the amounts reported in these consolidated financial statements and
accompanying notes.  Actual results could differ from those estimates.

     Regulation - The Company's insurance subsidiaries are subject to
comprehensive regulation by various state insurance departments including
regulations limiting dividend payments to Orion and intercompany transactions. 
Under these regulations, the maximum dividends permitted at December 31, 1997
for the ensuing twelve months, without prior approval, aggregated
$129,342,000.  However, state insurance regulators have broad discretionary
authority with respect to approving the payment of dividends by insurance
companies.  Policyholders' surplus of Orion's insurance subsidiaries
determined in accordance with prescribed statutory accounting practices
amounted to $789,036,000 and $670,572,000 at December 31, 1997 and 1996,
respectively.  Statutory net income amounted to $146,093,000, $107,866,000 and
$83,842,000 for 1997, 1996 and 1995, respectively.  

     Cash - For purposes of the consolidated statement of cash flows, the
Company considers only demand deposit accounts to be cash.
    
     Investments - Fixed maturity investments include bonds, preferred stocks
with mandatory redemption features, and certificates of deposit that mature
more than one year after the balance sheet date.  Fixed maturity investments
that the Company has both the positive intent and the ability to hold to
maturity are recorded at amortized cost.  Fixed maturity investments which may
be sold in response to, among other things, changes in interest rates,
prepayment risk, income tax strategies or liquidity needs, are classified as
available-for-sale and are carried at market value.  Common stocks and non-
redeemable preferred stocks are also carried at market value.  Fluctuations in

                                   
                                     56  

<PAGE>         ORION CAPITAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                 
the market value of these available-for-sale securities are recorded as
unrealized investment gains or losses and credited or charged to stockholders'
equity.  Other long-term investments principally include equity ownership
interests in limited partnerships, which are recorded using the equity method
of accounting.  Short-term investments include certificates of deposit and
commercial paper which mature within one year of the balance sheet date, money
market accounts and United States Treasury Bills.  Short-term investments are
recorded at market value which approximates cost.  Market values are generally
based on quoted market prices or dealer quotes.  Realized investment gains and
losses, including provision for other than temporary impairment of investment
securities, are recognized on the specific identification method.  

     Deferred Policy Acquisition Costs - Costs that vary with, and are
directly related to, the production of new and renewal business are deferred
and amortized as the related premiums are earned.  These costs primarily
comprise commissions, premium taxes and salaries. The test for recoverability
of such deferred costs includes the consideration of net investment income.

     Excess of Cost Over Fair Value of Net Assets Acquired - The excess of the
cost of acquiring subsidiaries over the fair value of their net assets
("goodwill") is amortized on a straight-line basis over periods of 25 to 40
years.  The Company evaluates the recoverability of goodwill from expected
future cash flows, and impairments would be recognized in operating results if
a permanent diminution in value were to occur.

     Revenue Recognition - Premiums are earned on a daily pro rata basis over
the policy period.  A provision is made for anticipated retrospective premium
adjustments and audit premiums.  Direct and assumed premiums are reduced for
reinsurance ceded to other insurers.

     Policy Liabilities and Reinsurance - Loss and loss adjustment expense
liabilities are established in consideration of individual cases for reported
losses and past experience for incurred but not yet reported losses ("IBNR"). 
Estimated reinsurance receivables are recognized in a manner consistent with
the liabilities relating to the underlying reinsured contracts.  At December
31, 1997 and 1996, long-term disability workers compensation loss reserves are
carried at $52,907,000 and $54,832,000, respectively, in the consolidated
financial statements at net present value using a statutory interest rate of
3.5%.  Policyholders' dividends on participating policies are accrued at
estimated payment rates as the related premiums are earned.  Participating
business represented 18% and 17% of premiums in-force at December 31, 1997 and
1996, respectively.  As a percent of premiums earned, participating business
amounted to 18% in 1997, 16% in 1996 and 24% in 1995.
                
     Federal Income Taxes - The Company recognizes taxes payable or refundable
for the current year, and deferred taxes for the future tax consequences of
differences between the financial reporting and tax basis of assets and
liabilities.  Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years the temporary
differences are expected to reverse.  

     Earnings Per Common Share - In the fourth quarter of 1997, the Company
adopted Statement of Financial Accounting Standards No. 128, "Earnings per
Share," for all periods presented.  Basic earnings per share computations are
based on the average number of shares of common stock outstanding during the
year.  Diluted earnings per share reflects the assumed exercise and conversion
of all securities, including stock options.  All common stock and per common 

                                  
                                   57  

<PAGE>         ORION CAPITAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

stock data presented has been restated to give effect to the 2-for-1 stock
split of the Company's common stock issued on July 7, 1997.

     Reclassifications - The 1996 and 1995 consolidated financial statements
have been reclassified to conform to the classifications used in 1997.  

Note B - Acquisitions

     On July 2, 1996, the Company completed a tender offer for 4,600,000
shares of Guaranty National common stock ("1996 GNC Purchase").  Together with
the open-market purchase of 120,000 additional shares on July 17, 1996, the
Company increased its ownership of Guaranty National by 31.5% from 49.5% to
approximately 81%.  The aggregate purchase price of approximately $88,206,000,
including expenses, was paid in cash.

     The 1996 GNC Purchase was recorded as a step acquisition using the
purchase method of accounting as of June 30, 1996.  The assets and liabilities
of Guaranty National were consolidated in the Company's financial statements
and minority interest for approximately 19% of Guaranty's shareholders        
equity was recorded. Beginning in 1996, all revenues and expenses of           
Guaranty National have been consolidated with those of the Company, and        
minority interest expense has been recorded for the portion of Guaranty        
National's earnings that was attributable to the shares not owned by the       
Company.  

     The increase in the Company's ownership in 1996 to over 80% of
Guaranty National allows the inclusion of Guaranty National in Orion's
consolidated federal income tax return, as well as the reversal of a
deferred tax liability previously established by the Company for its share
of the undistributed earnings of Guaranty National.  The excess of cost
over the estimated fair value of the 31.5% interest in Guaranty National's
net assets acquired during 1996 was $9,080,000, after the reversal of
$21,547,000 of deferred taxes, and will be amortized over 28 years, which
was the remaining amortization period for goodwill recorded upon Orion's
initial investment in Guaranty National.  

     On December 10, 1997, the Company purchased the remaining 19.7% or
2,970,000 shares of Guaranty National common stock that were held by
minority interest shareholders for $36 per share in cash ("1997 GNC
Purchase").  Immediately following the 1997 GNC Purchase, Guaranty National
was merged into a wholly-owned subsidiary of the Company and delisted as a
publicly traded company on the New York Stock Exchange.  As part of the
merger, 450,238 outstanding stock options granted by Guaranty National were
converted into 358,090 stock options of the Company, with equivalent terms
as the Guaranty National options except for the exercise price, which was
adjusted to reflect the difference between the then current stock prices.
  
     The 1997 GNC Purchase was recorded as a step acquisition using the
purchase method of accounting. The aggregate purchase price was
$116,082,000, including stock options converted of $8,356,000 and
acquisition expenses of $800,000.  The Company recorded the excess of the
cost over the estimated fair value of the 19.7% interest in Guaranty
National's net assets acquired during 1997 of $59,470,000 and eliminated
the related minority interest.  The excess of the cost over fair value will
be amortized over 27 years, which is the remaining amortization period for
goodwill recorded upon the Company's initial investment in Guaranty
National.

     
                                   58 


<PAGE>         ORION CAPITAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     Pro forma information, as if Guaranty National was 100% owned as of
the beginning of 1996, is as follows for the year ended December, 31:
                                                
                                                1997         1996        
                                                ----         ----        
Total revenues ......................        $1,590,535   $1,491,212    
                                             ==========   ==========  
Net earnings ........................        $  116,930   $   93,815  
                                             ==========   ==========  
Net earnings per diluted share.......        $     4.16   $     3.35   
                                             ==========   ==========  
                                                                           
     On December 16, 1997, Guaranty National purchased Unisun Insurance
Company ("Unisun") from Michigan Mutual Insurance Company for $26,000,000
in cash and incurred acquisition expenses of $170,000.  Unisun is the
largest automobile insurance facility carrier in South Carolina and also
writes personal automobile insurance in the states of Alabama, Georgia and
North Carolina.  Total net premiums written by Unisun for 1997 were
approximately $20,000,000.  The acquisition of Unisun was accounted for as
a purchase.  The financial results of Unisun have been included in the
Company's financial statements since the date of acquisition.  The total
consideration exceeded the estimated fair value of net assets of Unisun by
$2,182,000, which is being amortized over 40 years.  The pro forma
consolidated results of the Company's operations, as if the Unisun purchase
had been made as of the beginning of the year, would not be materially
different than reported herein. 

     In November 1997, Guaranty National entered into an agreement to
acquire the nonstandard private passenger automobile insurance business of
North Carolina-based Strickland Insurance Group ("Strickland") for
$42,600,000 in cash.  Pursuant to the agreement, Guaranty National made a
nonrefundable purchase price deposit of $2,000,000 to Strickland and
incurred acquisition costs of $94,000 as of December 31, 1997.  In 1997,
Strickland had total private passenger automobile net premiums written of
approximately $46,000,000.  The acquisition is expected to be completed in
the second quarter of 1998, subject to regulatory approval.

     On July 18, 1995 Guaranty National acquired Viking Insurance Holdings,
Inc., and its subsidiaries ("Viking"), in a business combination accounted
for as a purchase.  Viking is a property and casualty insurance company
writing nonstandard personal automobile insurance, primarily in the state
of California.  The results of operations of Viking are included in
Guaranty National's financial statements since the date of acquisition. 
The total cost of the acquisition was $97,225,000, with total cash paid of
approximately $95,559,000, including acquisition expenses.  The total
consideration exceeded the fair value of the net assets of Viking by
approximately $10,612,000, which is being amortized over 40 years.
     
     On June 30, 1995, Orion purchased all of the capital stock of McGee
for $22,000,000 in cash, and incurred acquisition expenses of $355,000. 
McGee specializes in underwriting ocean marine, inland marine and
commercial property insurance through an underwriting pool in the United
States and one in Canada.  The business is written by McGee on behalf of
the insurance companies that comprise the pools.  The Company's
participation in the United States pool was approximately 15% and 37% in
1995 and 1996, respectively.  Participation in the Canadian pool was 15% in 
1995 and approximately 49% in 1996.  The Company's rate of participation
for 1997 is 52% in the United States and 61% in Canada.  The acquisition
was accounted as a purchase, and McGee's operations have been included in
the Company's results of operations since July 1, 1995. The Company
recorded $22,317,000 for the excess of cost over the estimated fair value
of the net assets acquired, which is being amortized over a 30 year period. 
                                     
                                    59


 <PAGE>            ORION CAPITAL CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

  

Note C - Investments in Affiliates

     Investments in affiliates include the Company's interest in Guaranty
National through December 31, 1995, and the Company's 24.7% interest in
Intercargo, a publicly-held company.  The Company's financial statements
include the portion of Guaranty National's 1995 earnings and Intercargo's
results attributable to the Company's ownership on an equity accounting
basis for applicable periods. The Company records its share of Intercargo's
operating results in the subsequent quarter, after Intercargo has reported
its financial results. The carrying values of the Company's investment in
affiliates was $31,267,000 at December 31, 1997 and $22,170,000 at December
31, 1996, with market values of $25,165,000 and $16,262,000, respectively. 
The carrying value included $10,530,000 and $11,022,000 of goodwill at
December 31, 1997 and 1996, respectively.  In August, 1997, Intercargo
recognized a gain before taxes of $49,443,000 from the sale of
substantially all of its interest in Kingsway Financial Services.  The
Company reflected its portion of the Kingsway sale by recording a gain
before taxes of $6,988,000 in the fourth quarter of 1997.

                                          








































                                   60


<PAGE> [CAPTION]      ORION CAPITAL CORPORATION AND SUBSIDIARIES
<TABLE>         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


     Summarized financial information for the Company's affiliates is set
forth below:                    
                                                              
                                            Year Ended December 31,    
                                     -------------------------------------
                                         1997         1996         1995
                                         ----         ----         ----
                                                (000s omitted)
<S>                                  <C>          <C>          <C>
Revenues:
  Premiums earned ................   $   56,894   $   66,324   $  474,534
  Realized investment gains ......           -             -        3,291
  Investment and other income ....       56,555        5,688       38,422
                                     ----------   ----------   ----------
                                        113,449       72,012      516,247 
                                     ----------   ----------   ----------
Expenses:
  Insurance expenses .............       64,426       74,019      490,952 
  Interest and other .............          753          785        7,452 
                                     ----------   ----------   ----------
                                         65,179       74,804      498,404 
                                     ----------   ----------   ----------
Earnings (loss) before equity in 
  earnings of affiliate and 
  federal income taxes ...........       48,270       (2,792)      17,843
Equity in earnings of affiliate ..        4,320        2,469           - 
Federal income (taxes) benefit ...      (15,878)         225       (1,482)
                                     ----------   ----------   ----------
  Net earnings (loss) ............   $   36,712   $      (98)  $   16,361 
                                     ==========   ==========   ==========
The Company's proportionate share,
  including amortization of 
  goodwill .......................   $    8,619   $     (389)  $    5,504
                                     ==========   ==========   ==========
<CAPTION>
                                                        December 31,    
                                                  -----------------------
                                                      1997         1996
                                                      ----         ----
                                                       (000s omitted)
<S>                                               <C>          <C>
Cash and investments ............................ $  131,791   $   75,269 
Other assets ....................................     54,000       49,560      
                                                  ----------   ----------
                                                     185,791      124,829
 
Policy liabilities ..............................    (72,683)     (57,608)
Notes payable ...................................         -        (9,735)
Other liabilities ...............................    (29,185)     (12,541)     
                                                  ----------   ----------
Stockholders' equity ............................ $   83,923   $   44,945
                                                  ==========   ==========
                                      






                                     







                                 61          


<PAGE>
<CAPTION>           ORION CAPITAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note D - Investments

     The amortized cost and estimated market values of investments in fixed
maturities, equity securities and short-term investments are as follows:

                                              Gross        Gross     Estimated
                                Amortized   Unrealized   Unrealized    Market
December 31, 1997                  Cost       Gains        Losses      Value  
-----------------               ----------  ----------   ---------- ---------- 
                                               (000s omitted)
<S>                             <C>          <C>         <C>        <C>
Held-to-maturity securities:
  United States Government
    and government agencies
    and authorities ........... $  122,616   $  1,795    $   (403)  $  124,008
  States, municipalities and
    political subdivisions ....    166,895      7,598         (35)     174,458
  Foreign governments .........         50         -            -           50
  Corporate securities ........     23,209        670           -       23,879
                                ----------   --------    --------   ----------
                                $  312,770   $ 10,063    $   (438)  $  322,395
                                ==========   ========    ========   ==========
Available-for-sale securities:
  United States Government
    and government agencies
    and authorities ........... $  381,747   $ 22,433    $ (2,868)  $  401,312
  States, municipalities and
    political subdivisions ....    439,480     30,540        (151)     469,869
  Foreign governments .........      4,590        530          -         5,120
  Corporate securities ........    526,495     27,444      (4,525)     549,414
  Mortgage-backed securities 
    (exclusive of government
     agencies) ................     43,109      1,032         (10)      44,131
  Equity securities ...........    346,597    101,419      (9,515)     438,501
  Short-term investments.......    228,277         -           -       228,277
                                ----------   --------    --------   ---------- 
                                $1,970,295   $183,398    $(17,069)  $2,136,624
                                ==========   ========    ========   ==========
December 31, 1996
-----------------    
Held-to-maturity securities:
  United States Government
    and government agencies
    and authorities ........... $  119,058   $  1,917    $ (1,131)  $  119,844
  States, municipalities and
    political subdivisions ....    179,465      6,273        (172)     185,566
  Foreign governments .........         50          -           -           50
  Corporate securities ........     28,268      1,030          (3)      29,295
                                ----------   --------    --------   ----------
                                $  326,841   $  9,220    $ (1,306)  $  334,755
                                ==========   ========    ========   ==========

Available-for-sale securities:
  United States Government
    and government agencies
    and authorities ........... $  321,087   $  9,553    $ (3,970)  $  326,670
  States, municipalities and
    political subdivisions ....    395,732     19,646        (524)     414,854
  Foreign governments .........      5,855        678           -        6,533
  Corporate securities ........    407,541     14,712      (5,240)     417,013
  Mortgage-backed securities 
    (exclusive of government
     agencies) ................     39,597        747        (106)      40,238
  Equity securities ...........    288,070     86,171     (12,648)     361,593
  Short-term investments.......    325,896          -           -      325,896
                                ----------   --------    --------   ----------
                                $1,783,778   $131,507    $(22,488)  $1,892,797 
                                ==========   ========    ========   ==========
                                       
                                            62

















<PAGE>
<CAPTION>
                  ORION CAPITAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     Net investment income for the three years ended December 31, 1997 was as
follows:
                                                Year Ended December 31,
                                           ---------------------------------
                                              1997        1996        1995
                                              ----        ----        ----
                                                     (000s omitted)
<S>                                        <C>         <C>         <C>
Net investment income:
  Fixed maturities ......................  $115,823    $ 98,213    $ 69,453
  Equity securities .....................    18,389      19,901      15,410
  Other long-term investments ...........    17,348      16,084       9,125
  Short-term investments ................    16,308      13,224       6,311
  Accounts and notes receivable .........       491         309         113
  Other .................................       121         310         353    
                                           --------    --------    --------
    Total investment income .............   168,480     148,041     100,765 
  Less investment expenses ..............     3,572       2,650       1,725 
                                           --------    --------    --------
    Net investment income ...............  $164,908    $145,391    $ 99,040 
                                           ========    ========    ========
<CAPTION>
     Certain information concerning realized and unrealized gains (losses) for
fixed maturities and equity securities is set forth below:

                                                Year Ended December 31,
                                           ---------------------------------
                                              1997        1996        1995
                                              ----        ----        ----
                                                     (000s omitted)
<S>                                        <C>         <C>         <C>
Fixed maturities available-for-sale:
  Gross realized gains ..................  $ 12,028    $ 10,257    $  7,891 
  Gross realized losses .................    (7,372)     (7,045)     (8,372)
  Provision for other than temporary
    impairment ..........................    (2,018)     (1,119)     (4,050)
                                           --------    --------    --------
                                           $  2,638    $  2,093    $ (4,531)
                                           ========    ========    ========
  Change in unrealized gains (losses) 
    recorded in stockholders' equity ....  $ 38,929    $(11,089)   $ 70,317
                                           ========    ========    ========
Equity securities:
  Gross realized gains ..................  $ 51,492    $ 29,007    $ 17,879
  Gross realized losses .................    (7,303)     (6,579)     (1,348)
  Provision for other than temporary
    impairment ..........................      (400)       (315)       (285)
                                           --------    --------    --------
                                           $ 43,789    $ 22,113    $ 16,246
                                           ========    ========    ========
  Change in unrealized gains (losses) 
    recorded in stockholders' equity ....  $ 18,381    $ 18,461    $ 34,002
                                           ========    ========    ========
                                      









                                        63                                     
<PAGE>
                  ORION CAPITAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)              

      
     The amortized cost and estimated market values of fixed maturity and short-
term investments at December 31, 1997, by contractual fiscal maturity, are shown
below.  Expected maturities will differ from contractual maturities because
issuers of securities may have the right to call or prepay obligations with or
without call or prepayment penalties.

<CAPTION>                           Fixed Maturities       Fixed Maturities
                                    Held-to-Maturity      Available-for-Sale
                                   ------------------   -----------------------
                                              Estimated              Estimated
                                   Amortized   Market    Amortized    Market 
                                     Cost      Value        Cost      Value 
                                   ---------  ---------  ----------  ----------
                                                  (000s omitted)
<S>                                <C>        <C>       <C>         <C>  
Due in one year or less .......... $ 67,760    $ 68,483  $  265,333   $ 264,640
Due after one year through five 
  years ..........................  145,228     148,456     198,210     201,574
Due after five years through ten 
  years ..........................   46,905      49,117     247,237     260,823
Due after ten years ..............   52,877      56,339     676,552     728,391
                                   --------    --------  ----------  ----------
                                    312,770     322,395   1,387,332   1,455,428
Mortgage-backed securities .......       -           -      236,366     242,695
                                   --------    --------  ----------  ----------
                                   $312,770    $322,395  $1,623,698  $1,698,123
                                   ========    ========  ==========  ==========
</TABLE>
     
     Other long-term investments had aggregate carrying values of $94,339,000 at
December 31, 1997 and $90,129,000 at December 31, 1996 including mortgage loans
on real estate of $2,249,000 and $1,187,000, respectively.  Estimated market
values of mortgage loans and other long-term investments approximate their
carrying values.  The carrying value of the Company's investments in principal-
only securities and interest-only securities totalled approximately $12,400,000,
or 0.5% of total invested assets at December 31, 1997.  

     The carrying value of securities on deposit with state regulatory
authorities in accordance with statutory requirements totalled $223,423,000 and
$236,328,000 at December 31, 1997 and 1996, respectively.  Excluding investments
in securities of the United States Government and its agencies, the Company did
not have any investments in securities of any one issuer that exceeded
$25,000,000.  The Company had $214,000 and $2,227,000 of fixed maturity
investments for which it was not accruing income for the years ended December
31, 1997 and 1996, respectively.   
                                       











                                     64<PAGE>
                                    
<PAGE>
                    ORION CAPITAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note E - Reinsurance

     In the normal course of business, the Company's insurance subsidiaries
reinsure certain risks, generally on an excess-of-loss or pro rata basis, with
other companies to limit losses.  Reinsurance does not discharge the primary
liability of the original insurer.  As of December 31, 1997 and 1996,
recoverables for reinsurance ceded to the Company's two largest reinsurers
were an aggregate of $132,797,000 and $106,168,000, respectively.  As of
December 31, recoverables for reinsurance ceded to the two largest McGee pool
members other than the Company aggregated $54,720,000 for 1997, and
$104,857,000 for 1996, and the Company had ceded balances payable to these
pool members of $21,010,000 and $31,007,000, respectively.  The table below
illustrates the effect of reinsurance on premiums written and premiums earned:

<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                         -------------------------------------
                                             1997         1996         1995
                                             ----         ----         ----
                                         (000s omitted-except for percentages)
<S>                                       <C>          <C>          <C>
Direct premiums written ................  $1,521,315   $1,431,450   $ 799,284
Reinsurance assumed ....................      71,989      174,681     127,445 
                                          ----------   ----------   ---------
Gross premiums written .................   1,593,304    1,606,131     926,729 
Reinsurance ceded ......................    (226,236)    (272,010)   (169,293) 
                                          ----------   ----------   ---------
Net premiums written ...................  $1,367,068   $1,334,121   $ 757,436  
                                          ==========   ==========   =========
Percentage of amount assumed to net ....         5.3%        13.1%       16.8% 
                                          ==========   ==========   =========

Direct premiums earned .................  $1,500,830   $1,388,893   $ 754,927
Reinsurance assumed ....................     106,072      182,482     126,552  
                                          ----------   ----------   --------- 
Gross premiums earned ..................   1,606,902    1,571,375     881,479 
Reinsurance ceded ......................    (249,222)    (270,623)   (132,476) 
                                          ----------   ----------   ---------
Net premiums earned ....................  $1,357,680   $1,300,752   $ 749,003  
                                          ==========   ==========   =========
Loss and loss adjustment expenses
  incurred recoverable from reinsurers..  $  165,369   $  174,344   $  70,872 
                                          ==========   ==========   =========
</TABLE>

     Reinsurance recoverables and prepaid reinsurance includes prepaid
reinsurance of $125,462,000 at December 31, 1997 and $86,916,000 at December
31, 1996.
                            
                                     










                                    65
<PAGE>              ORION CAPITAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note F - Loss and Loss Adjustment Expense Reserves

     An analysis of the Company's calendar year net loss and loss adjustment
expense reserves is summarized in the following table. The 1996 current year
provision and payments include favorable loss development for Guaranty
National of $995,000 and payments of $144,775,000 attributable to periods
prior to the consolidation of Guaranty National's results in the Company's
financial statements.
<TABLE>
<CAPTION>                                      Year Ended December 31,
                                        ------------------------------------
                                           1997         1996         1995
                                           ----         ----         ----
                                                   (000s omitted)
<S>                                     <C>          <C>          <C>
Net balance, beginning of year .......  $1,368,420   $  993,978   $  891,542 
                                          
Effect of acquisitions................       8,996      286,339            -
                                        ----------   ----------   ----------
                                         1,377,416    1,280,317      891,542
                                        ----------   ----------   ----------
Provision:
  Current year .......................     896,226      874,123      500,514  
  Prior years ........................       9,232        8,869       11,719  
                                        ----------   ----------   ----------
                                           905,458      882,992      512,233  
                                        ----------   ----------   ----------
Payments:
  Current year .......................     370,907      499,176      146,540
  Prior years ........................     521,240      295,713      263,257
                                        ----------   ----------   ----------
                                           892,147      794,889      409,797
                                        ----------   ----------   ----------
Net balance, end of year .............   1,390,727    1,368,420      993,978
  Add reinsurance recoverables .......     480,984      417,244      281,004
                                        ----------   ----------   ----------
Balance, end of year .................  $1,871,711   $1,785,664   $1,274,982
                                        ==========   ==========   ==========
</TABLE>

     Loss reserve estimates are based on forecasts of the ultimate settlement
of claims and are subject to uncertainty with respect to future events.  Loss
reserve amounts are based on management's informed estimates and judgments,
using data currently available.  Reserve amounts and the underlying actuarial
factors and assumptions are regularly analyzed and adjusted to reflect new
information.  Such reevaluation is a normal, recurring activity that is
inherent in the process of loss reserve estimation and therefore, no
assurances can be given that reserve development will not occur in the future. 
A substantial portion of the loss development experienced by the Company
during the three years ended December 31, 1997 resulted from pools and
associations, reinsurance, certain discontinued lines and program business,
reduced by favorable development in workers compensation and other lines of
insurance.   
                                
                                     










                                   66

 <PAGE>             ORION CAPITAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     An analysis of the Company's loss and loss adjustment expense
environmental reserves and claim counts is presented below.  Claim counts 
(excluding reinsurance pools and associations) have been aggregated by year of
coverage for each occurrence for which policyholders are being defended, and
often include numerous claimants.
<TABLE>
<CAPTION>
                                        Year Ended December 31,
                         -----------------------------------------------------
                               1997               1996               1995
                         ---------------    ---------------    --------------- 
                                  Claim              Claim              Claim
                         Amount   Counts    Amount   Counts    Amount   Counts
                         ------   ------    ------   ------    ------   ------
                                   (000s omitted for dollar amounts)
<S>                      <C>        <C>     <C>        <C>     <C>        <C>
Net balance, beginning 
  of year .............  $57,028     632    $34,559     474    $20,601     467 
Consolidation of
  Guaranty National....       -               2,817      70         -    
  Provision ...........   17,684             24,423             19,633         
  Payments ............   (6,833)            (4,771)            (5,675)        
                         -------            -------            -------
Net balance, end of 
  year ................   67,879     551     57,028     632     34,559     474
  Add reinsurance 
    recoverables ......   12,271             12,457             10,509 
                         -------            -------            -------
Balance, end of year ..  $80,150            $69,485            $45,068
                         =======            =======            =======
</TABLE>

     The Company's environmental claims principally relate to asbestos and
hazardous waste, arising from certain liability business written prior to the
mid 1980's, which business was never a major element of the Company's
operations.  Environmental claims are also received from certain reinsurance
pools and associations where reserves are established based on information
reported to the Company by the managers of those pools and associations.  In
view of the lines of insurance that the Company has traditionally written,
environmental claims have not represented, and are not expected to represent
in the future, a material portion of the Company's total claims.  

     Establishing reserve liabilities for environmental claims is subject to
significant uncertainties that make reserve estimation difficult.  Legal
decisions have tended to expand insurance coverage beyond the intent of the
policies. The Company does not use discounting in determining its reserves for
environmental claims.  IBNR of $50,977,000 and $38,699,000 is included in net
reserves for environmental claims at December 31, 1997 and 1996, respectively.
The net reserve for environmental claims and IBNR increased $10,851,000 in
1997 and $22,469,000 in 1996 primarily due to higher claims reported to the
Company by certain reinsurance pools and associations, which is the basis of
establishing such reserve, and higher loss reserve estimates.  The 1996
reserve increase also reflects the inclusion of Guaranty National.
 









                                    67 

<PAGE>
                    ORION CAPITAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note G - Notes Payable

     On July 17, 1995, Orion issued 7 1/4% Senior Notes due 2005 with a face
value of $100,000,000 ("7 1/4% Senior Notes") in a public offering.  The net
proceeds from the offering were approximately $98,113,000, of which
$46,500,000 was used to repay Orion's debt under a bank loan agreement and the
balance was used for general corporate purposes.  The indentures for 
the 7 1/4% Senior Notes and for Orion's 9 1/8% Senior Notes due 2002 limit the
amount of liens and guarantees by the Company, and the Company's ability to
incur secured indebtedness without equally and ratably securing the senior
notes.  

     On June 2, 1995, Guaranty National entered into a $110,000,000 credit
agreement ("Credit Agreement") with several participating banks.  The Credit
Agreement provided for an unsecured reducing revolving credit facility, which
was used to fund the Viking acquisition, to retire the outstanding balance of
$29,000,000 under Guaranty National's previous revolving line of credit, and
for working capital and general corporate purposes.  At both December 31, 1997
and 1996, the outstanding loan balance under the Credit Agreement was
$100,000,000, with an effective interest rate of 6.27%. As discussed in Note
R, this loan was fully repaid in February, 1998.      

     As of December 31, 1997, maturities of the Company's notes payable are as
follows: 1998 - $563,000;  1999 - $22,375,000;  2000 - $24,000,000;  2001 -
$26,000,000;  2002 - $138,000,000; and 2005 - $100,000,000.  After giving
effect for the bank loan repayment, as discussed above and in Note R, the
maturities of the Company's notes payable will be as follows:  1998 -
$563,000; 1999 - $375,000; 2002 - $110,000,000; and 2005 - $100,000,000.

     Notes payable are recorded at face value less unamortized discount.  The
carrying value and estimated market value of notes payable consist of the
following:
<TABLE>
<CAPTION>
                                                                   Estimated
                                             Carrying Value       Market Value  
                                           ------------------  ------------------
               December 31,                  1997      1996      1997      1996
               ------------                  ----      ----      ----      ----
                                                     (000s omitted)
  <S>                                      <C>       <C>       <C>       <C>
  $110,000,000 face amount, 9 1/8% Senior
    Notes, due September 1, 2002 ........  $109,919  $109,906  $121,231  $120,703
  $100,000,000 face amount, 7 1/4% Senior    
    Notes, due July 15, 2005 ............    99,371    99,310   103,160    97,660
  Borrowings under loan agreement with
    banks (variable interest rate) ......   100,000   100,000   100,000   100,000
  Collateralized term loan - 6.5% .......       938     1,688       938     1,696
                                           --------  --------  --------  --------
                                           $310,228  $310,904  $325,329  $320,059
                                           ========  ========  ========  ========
</TABLE>














                                      68


<PAGE>
                    ORION CAPITAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note H - Company-Obligated Mandatorily Redeemable Preferred Capital Securities
of Subsidiary Trust Holding Solely the Junior Subordinated Debentures of the
Company.

      On January 13, 1997, the Company issued $125,000,000 of 8.73% Junior
Subordinated Deferrable Interest Debentures due January 1, 2037 (the
"Debentures") to Orion Capital Trust I (the "Trust"), a Delaware statutory
business trust sponsored by Orion.  The Trust simultaneously sold $125,000,000
of 8.73% Capital Securities (the "Trust Preferred Securities") which have
substantially the same terms as the Debentures.  The Trust Preferred Securities
are subordinate to all liabilities of the Company, and may be redeemed without
premium on or after January 1, 2007.  The Company may defer interest distri-
butions on the Trust Preferred Securities; however, during any period when such
cumulative distributions have been deferred, Orion may not declare or pay any
dividends or distributions on its common stock.  The Company registered the
Trust Preferred Securities under the Securities Act of 1933 in April 1997.
The Trust is consolidated in the Company's financial statements because it is
wholly-owned by the Company.  The sole assets of the Trust are the Debentures
issued by Orion.  Orion has given its partial guarantee, which when taken to-
gether with the Company's obligations under the declaration of the Trust,
the Debentures, and the indenture pursuant to which the Trust Preferred
Securities are issued including its obligations to pay costs, expenses,
debts and liabilities of the Trust (other than with respect to the Trust
Preferred Securities), provides a full and unconditional guarantee of amounts
due on the Trust Preferred Securities.  The carrying value and estimated
market value of the Trust Preferred Securities are $125,000,000 and
$137,525,000, respectively, at December 31, 1997.
                                         



































                                        69


                                                                       
<PAGE>
                    ORION CAPITAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note I - Federal Income Taxes

     Orion and its wholly-owned subsidiaries file a consolidated federal
income tax return, including Guaranty National from July 2, 1996.  The
consolidated federal income tax current provisions for 1997, 1996 and 1995
were based on the regular tax method.  Substantially all federal income
taxes incurred by Orion and its subsidiaries relate to domestic operations. 

     In October 1996 the Internal Revenue Service ("IRS") completed an
examination of the Company's federal income tax returns through 1992.  As
described in previously issued financial statements of the Company, certain
tax benefits from tax attributes existing at the date of the Company's
reorganization in 1976 were not recognized pending completion of the IRS
examination.  Accordingly, the Company recorded a credit to capital surplus
in 1996 for tax benefits of $11,900,000 with respect to the 1976 quasi
reorganization.  The recording of this credit had no impact on the
Company's earnings. 

     The components of the provision (benefit) for federal income taxes on
income from operations, and allocations of taxes (benefits) to other items
for the three years ended December 31, 1997 are as follows:

<TABLE>
 <CAPTION>                                       Year Ended December 31,
                                            --------------------------------
                                              1997        1996        1995
                                              ----        ----        ----
                                                     (000s omitted)
<S>                                         <C>         <C>         <C>
Taxes on income from continuing 
  operations:
  Current ...............................   $38,248     $22,034     $25,578
  Deferred ..............................     4,541       9,999      (5,165)
                                            -------     -------     ------- 
                                             42,789      32,033      20,413 
Taxes allocated to stockholders'equity 
  for:  
  Unrealized appreciation of securities..    22,835       1,971      40,837
  Foreign exchange translation gains 
    (losses).............................    (1,200)        954          13
  Pre-reorganization income tax benefits.        -      (11,900)         -
  Other..................................      (826)       (386)         -
                                            -------     -------     -------    
                                            $63,598     $22,672     $61,263
                                            =======     =======     =======    
                                                          
Taxes on income from continuing operations in 1997 includes a tax benefit of  
$3,692,000 from minority interest on subsidiary trust preferred securities.    




                                                                               
                                                             
                                                          





                                    70



<PAGE>
<CAPTION>           
                  ORION CAPITAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     The tax effects of the temporary differences comprising the Company's net
deferred tax asset as of December 31, 1997 and 1996 are as follows:

                                                          December 31,    
                                                     ---------------------
                                                       1997        1996
                                                       ----        ----
                                                        (000s omitted)
<S>                                                  <C>          <C>
Deferred tax assets:
  Loss reserve discounting ......................    $ 72,209     $ 69,306
  Unearned premium reserves .....................      30,065       28,183  
  Policyholders' dividends ......................       7,132        7,830  
  Realized investment losses ....................          -         2,435  
  Deferred income ...............................       2,055        2,226  
  Retiree medical benefits ......................       4,644        5,240  
  Deferred compensation .........................       7,812        4,484  
  Other .........................................      17,651       11,640  
                                                     --------     --------
                                                      141,568      131,344  
                                                     --------     --------
Deferred tax liabilities:                                                      
  Deferred policy acquisition costs .............      51,493       47,659 
  Realized investment gains......................       1,038           -
  Investment income .............................      16,466       12,798
  Unrealized investment gains ...................      58,378       38,131 
  Other .........................................      13,286        9,202 
                                                     --------     --------
                                                      140,661      107,790 
                                                     --------     --------
                                                     $    907     $ 23,554 
                                                     ========     ========
<CAPTION>
     A reconciliation of expected federal income tax expense on pre-tax
earnings at regular corporate rates to actual tax expense is as follows:


                                          Year Ended December 31,
                              ------------------------------------------------
                                   1997             1996             1995     
                                   ----             ----             ----
                               Amount   Rate    Amount   Rate    Amount   Rate 
                               ------   ----    ------   ----    ------   ----
                                     (000s omitted-except for percentages)
<S>                           <C>      <C>    <C>       <C>    <C>       <C>
Expected income tax expense.. $57,971  35.0%  $44,575   35.0%  $30,812   35.0% 
Dividends-received deduction.  (5,565) (3.3)   (6,509)  (5.1)   (5,601)  (6.4)
Tax-exempt interest ......... (11,503) (6.9)  (10,203)  (8.0)   (6,470)  (7.3)
Amortization of goodwill ....   1,058   0.6     1,042     .8       536     .6
Other .......................     828   0.4     3,128    2.5     1,136    1.3
                              -------  ----   -------   ----   -------   ----
Actual income tax expense ... $42,789  25.8%  $32,033   25.2%  $20,413   23.2% 
                              =======  ====   =======   ====   =======   ====
                                    
</TABLE>     









                                      71  

<PAGE>

                    ORION CAPITAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note J - Commitments

     Minimum lease commitments at December 31, 1997, with the majority having
initial lease periods from one to twenty-five years, are as follows:

                                                        (000s omitted)
       1998 .......................................        $ 19,927
       1999 .......................................          16,802 
       2000 .......................................          13,501
       2001 .......................................           9,288
       2002 .......................................           8,948
       2003 and thereafter ........................          53,121
                                                           --------
         Minimum lease commitments ................        $121,587
                                                           ========

     Rent expense amounted to $23,134,000, $19,824,000 and $14,112,000 for
1997, 1996 and 1995, respectively. Substantially all leases are for office
space and equipment.  A number of lease commitments contain renewal options
ranging from one to thirty years.  

Note K - Contingencies

     In August 1997, several of the Company's subsidiaries were named as
defendants in a class action lawsuit titled Bristol Hotel Management
Corporation, et al., vs. Aetna Casualty & Surety Company, which was filed in
the U.S. District Court for the Southern District of Florida.  The lawsuit,
brought on behalf of an alleged class of retrospectively rated workers
compensation purchasers, claims, among other allegations, a conspiracy among
insurers to charge illegally high prices for workers compensation insurance,
breach of contract and fraud,  Since that time, additional class action
lawsuits with similar allegations have been brought against various
subsidiaries of the Company in Georgia, Illinois, New Jersey, Pennsylvania and
Tennessee as well as other insurers who did business in those states.  The
Company intends to vigorously defend these lawsuits.
     
     Orion and its subsidiaries are routinely engaged in litigation incidental
to their businesses.  Management believes that there are no significant legal
proceedings pending against the Company which, net of reserves established
therefore, are likely to result in judgments for amounts that are material to
the financial condition, liquidity or results of operations of Orion and its
consolidated subsidiaries, taken as a whole.

     


                                      










                                     72


<PAGE>              ORION CAPITAL CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note L - Stockholders' Equity and Earnings Per Common Share

     During 1997, the Company repurchased 42,916 shares of its common stock at
an aggregate cost of $1,533,000 under the stock repurchase program authorized
by the Board of Directors.  The Company repurchased 482,228 shares for
$11,148,000 in 1996 and 346,362 shares for $7,183,000 in 1995.  

     Orion declared dividends on its common stock of $17,087,000, $14,290,000
and $12,078,000, or $.62, $.51 and $.43 per share in 1997, 1996 and 1995,
respectively.

     A reconciliation of basic and diluted earnings per share ("EPS") 
for the three years ended December 31, 1997, is as follows:                    
                               
                                  Net        Average    Per Share   
                                Earnings     Shares      Amount 
                                --------     -------    ---------
                             (000s omitted except per shares amounts)        
1997 - 
Basic EPS:             
Net earnings available to
 common stockholders........    $115,806      27,333     $   4.24 
                                                         ========
Stock options and awards....          -          567                        
                                --------      ------                         
Diluted EPS:              
Net earnings available to
 common stockholders with
 assumed exercises..........    $115,806      27,900     $   4.15              
                                ========      ======     ========              
1996 -                                                             
Basic EPS:               
Net earnings available to
 common stockholders.........   $ 86,631      27,400     $   3.16       
                                                         ========
Stock options and awards.....         -          388                   
                                --------      ------                   
Diluted EPS:       
Net earnings available to 
 common stockholders with
 assumed exercises...........   $ 86,631      27,788     $   3.12              
                                ========      ======     ========          
1995 -
Basic EPS:              
Net earnings available to
 common stockholders.........   $ 67,622      28,110     $   2.41        
                                                         ========
Stock options and awards.....         -          264                     
                                --------      ------     
Diluted EPS:
Net earnings available to 
 common stockholders with
 assumed exercises...........   $ 67,622      28,374     $   2.38          
                                ========      ======     ========      

Options to purchase 2,000 shares of common stock at $47.56 per share were
outstanding during 1997 but were not included in the computation of diluted
earnings per share because the options' excercise price was greater than the
average market price of the common shares.    
                                   73                                   
<PAGE>
                    ORION CAPITAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     Effective as of September 11, 1996, Orion redeemed its old stockholder
rights plan and adopted a new Stockholder Rights Plan ("Rights Plan").  Under
the Rights Plan each outstanding share of common stock includes one preferred
stock purchase right ("Rights").  The Rights Plan is designed to assure
stockholders that they will receive equitable treatment in the event of a
proposed takeover.  Under the Rights Plan, each holder of a Right is entitled
to buy two-hundredth of a share of Series B Junior Participating Preferred
Stock.  The Rights become exercisable (i) if an acquiror gains a 15% or
greater beneficial ownership interest in Orion's outstanding common stock, on
other than fair and favorable terms to all stockholders or (ii) following the
commencement of a tender offer or exchange offer that would result in an
acquiror owning 15% or more of Orion's outstanding common stock.  Each Right
not owned by such acquiror will enable the holder to purchase, at an initial
purchase price of $100, common stock having a value of twice the Right's
purchase price.  In addition, under certain circumstances if Orion is involved
in a merger each Right will entitle its holder to purchase, at the Right's
then current purchase price, common shares of such other company having a
value of twice the Right's purchase price.

Note M - Employee Benefit Plans

     The Company maintains a Stock Savings and Profit Sharing Plan ("Plan"),
qualified under Internal Revenue Code Section 401(k), for eligible employees
of the Company (except for employees of Guaranty National and McGee). 
Employee and employer matched contributions to the savings funds are limited
to the extent allowable under the Plan and federal income tax law.  The Plan
also provides for defined contribution savings and retirement benefits that
allow the Company to make annual contributions to the Plan based on a
percentage of employees' compensation and the Company's operating earnings. 
Employees vest in the Company's contributions over a six-year period.  The
Company has adopted a Surplus Benefit Plan which provides deferred benefits
for those employees who received less than the full employer contribution to
the Company's 401(k) plan as a result of federal tax limitations on
participation in the Plan.

     Guaranty National has a defined contribution profit sharing plan
("Guaranty Plan"), which also qualifies under Section 401(k), for which
substantially all of its employees are eligible.  Guaranty National makes
matching contributions to the Guaranty Plan in accordance with the limits of
the Guaranty Plan and federal income tax law.  Guaranty National has a non-
qualified Supplemental Executive Retirement Plan ("SERP") for employees whose
compensation meets a minimum requirement.  The SERP provides deferred benefits
for those employees who received less than the full employer contribution of
the Guaranty Plan as a result of federal tax limitations on participation in
the plan.  











                                      74




<PAGE>              ORION CAPITAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     McGee maintains a Profit Sharing Plan ("McGee Plan") which is also a
401(k) plan for eligible employees of McGee.  Employee and employer
contributions are limited by the McGee Plan and federal income tax law. 
Employer contributions vest over a seven-year period. McGee has
noncontributory defined benefit retirement plans covering all eligible
employees, and a nonqualified supplemental retirement plan for certain key
employees.  At December 31, 1997 and 1996 the accumulated benefit obligation
of McGee's defined benefit plan was approximately $20,252,000 and $20,620,000,
and plan assets were approximately $20,845,000 and $20,695,000, respectively. 

     As of December 31, 1997, Unisun froze its defined benefit pension plan
that covered substantially all of its employees.  Benefits were based on years
of service and the employee's highest consecutive five years' (out of the last
ten calendar years) average annual compensation.  At December 31, 1997 the
plan assets of $7,055,000 exceed the projected benefit obligation of
$5,829,000 by $1,226,000. 
   
     The Company maintains incentive plans for key employees, including the
1982 Long-Term Performance Incentive Plan ("1982 Plan"), and the Equity
Incentive Plan (together the "Incentive Plans").  Orion has awarded both stock
options and restricted stock to members of the Company's management under the
Incentive Plans.  All stock options are granted by Orion with exercise prices
at fair market value at date of grant, and are intended to qualify to the
maximum extent possible as incentive stock options.  Stock options become
exercisable from the first through fourth anniversaries of the date of grant,
and expire ten years after the date of grant.  Restricted stock is considered
issued and outstanding when awarded. There are restrictions as to its
transferability, which restrictions lapse in 25% increments over four or five
year periods from the date of grant.  As of December 31, 1997, the number of
shares of stock reserved under the Incentive Plans is 2,094,481, of which
1,452,355 are for outstanding stock options and 215,567 and 426,559 are
available for future awards under the 1982 Plan and the Equity Incentive Plan,
respectively.  Included in 1997 granted options were 358,090 of stock options
relating to the 1997 GNC Acquisition of Guaranty National.  
                                      
























                                      75
<PAGE>              ORION CAPITAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     A summary of the status of Orion's stock option plans as of December 31,
1997, 1996 and 1995 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
                                        Year Ended December 31,  
                    ----------------------------------------------------------
                             1997              1996               1995        
                    --------------------  -----------------  -----------------
                               Weighted            Weighted           Weighted
                               Average             Average            Average
                               Exercise            Exercise           Exercise
                     Options    Price    Options    Price    Options   Price
                     -------   --------  -------  ---------  ------- ---------
<S>                 <C>         <C>      <C>        <C>      <C>       <C>  
Beginning of year..  893,718    $ 18.07  588,342    $ 12.40  697,604   $ 11.67 
Granted ...........  696,550      32.39  374,042      25.68       -         -
Cancelled..........  (33,145)     29.42  (13,856)     17.14  (10,546)    11.96
Exercised ......... (104,768)     11.41  (54,810)      9.47  (98,716)     7.28
                   ---------             -------             -------          
End of year        1,452,355      25.16  893,718      18.07  588,342     12.40
                   =========    =======  =======    =======  =======   =======
Exercisable at end     
  of year .........  646,120    $ 16.95  402,014    $ 11.48  350,360   $ 10.17
                   =========    =======  =======    =======  =======   =======
<CAPTION>

                          December 31, 1997 
----------------------------------------------------------------------
                            Weighted  Weighted                Weighted
  Range of                  Average    Average                Average
  Exercise       Options    Exercise  Remaining    Options    Exercise
   Prices      Outstanding   Price      Years    Exercisable   Price
-------------  -----------  --------  ---------  -----------  --------
<S>              <C>         <C>         <C>       <C>         <C> 
$ 5.08 - $10.00     78,272    $ 5.46        1.9       78,272   $  5.46
 10.01 -  17.50    346,713     14.80        6.0      288,313     14.47
 17.51 -  25.00    363,092     21.48        8.4      197,875     21.44
 25.01 -  45.03    664,278     34.89        9.3       81,660     25.83
                 ---------                         ---------          
  5.08 -  45.03  1,452,355     25.16        7.9      646,120     16.95
                 =========    ======       ====    =========   =======
</TABLE>  
                














                                 76                    
<PAGE>
                 ORION CAPITAL CORPORATION AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)   

     The weighted average fair value of options granted was $14.08 per
share for 1997 and $14.58 per share for 1996.  The fair value of options
granted was estimated on the date of grant using the binomial option-
pricing model with the following weighted-average assumptions:  dividend
yield of 1.5% - 1997 and 1.9% - 1996, expected volatility of 23% - 1997 and
19% - 1996, risk free interest rate of 5.5% - 1997 and 6.0% - 1996 and
expected life of 7.0 years - 1997 and 7.1 years - 1996.

     The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for stock options granted under the
Incentive Plans.  Accordingly, no compensation cost has been recognized for
stock options awarded to employees.  Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of FASB
Statement No. 123, the Company's net earnings and earnings per share for
the year ended December 31, 1997 and 1996 would have been $114,934,000 or
$4.12 per diluted and $86,477,000 or $3.11 per diluted share, respectively.

     Orion granted 57,202 shares of restricted stock at a weighted average
fair value of $43.95 per share during 1997, 92,636 shares at $25.61 during
1996 and 55,030 shares at $14.03 for 1995.  As of December 31, 1997, the
restrictions have not lapsed on 186,294 shares of restricted stock.  The
fair market value of restricted stock on the date of issuance is amortized
over the vesting period during which the restrictions lapse.  

     Orion maintains a non-qualified defined benefit retirement plan for
members of the Board of Directors who are not employees.  On December 31,
1997, the Company terminated this plan resulting in $294,000 of benefits
payments in January 1998 with the remaining accrued benefits of $438,000 to
be paid with interest in future periods.  Benefits are based on years of
service and director fee levels at retirement.  In 1995, Orion's
stockholders authorized 200,000 shares for a stock option plan for non-
employee directors.  During 1997 and 1996 Orion granted 69,000 and 18,000
stock options, respectively, to directors at fair market value, which
become exercisable one year from the date of grant and expire in ten years.
  
     The total expense for 1997, 1996 and 1995 for the above savings,
retirement and pension benefit plans for employees and directors amounted
to $10,882,000, $9,473,000 and $6,588,000, respectively.

                                     















                                     77
<PAGE>
                 ORION CAPITAL CORPORATION AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)   

Note N - Postretirement Medical Benefits

     The Company provides postretirement medical benefits to full-time
employees (except for employees of Guaranty National), who have attained
age 55 and have 10 years of consecutive service immediately prior to
retirement with an increasing level of benefits for additional years of
service up to 25. The postretirement health care plans are not funded. 
Recent changes to the plans for dependent coverage, coordination with other
coverages and cost sharing arrangements have been reflected in the
accumulated post retirement benefit obligation as of December 31, 1997. 
The accumulated postretirement benefit obligation of these plans included
in other liabilities in the consolidated balance sheet is as follows:
                                
                                                        December 31,
                                                      ----------------
                                                        1997     1996
                                                        ----     ----
                                                       (000s omitted)
       Retirees .................................    $ 3,840   $ 3,864
       Fully eligible active plan participants ..        524     1,352 
       Other active plan participants ...........        846     3,510 
       Unrecognized net gains ...................      8,488     4,275 
                                                     -------   -------  
                                                     $13,698   $13,001 
                                                     =======   =======


     Net postretirement benefit cost for the years ended December 31, 1997,
1996 and 1995 was $1,070,000, $1,072,000 and $1,203,000 consisting of
service cost benefits earned of $936,000, $953,000 and $695,000 and
interest on the accumulated postretirement benefit obligation of $640,000,
$596,000 and $612,000, respectively, and amortization of unrecognized net
gains of $506,000 in 1997, $477,000 in 1996 and $104,000 in 1995.

     The expected health care cost trend rate used as of December 31, 1997
was 15.0% for 1998 and 8.5% for 1999, decreasing linearly each year until
it reaches 5% for 2006 and future years.  At December 31, 1996 the expected
health care cost trend rates used were 15.0% for 1997 and 8.5% for 1998,
ratably reduced to 5% for 2005 and later years.  A one-percentage-point
increase in the assumed health care cost trend rate for each year would
increase the aggregate service cost and interest cost for 1997, 1996 and
1995 by $260,000, $265,000 and $245,000, respectively, and increase the
accumulated postretirement benefit obligation as of December 31, 1997 and
1996 by $477,000 and $1,075,000, respectively.  A one-percentage-point
decrease in the health care cost rate would decrease service and interest
costs and the accumulated post retirement benefit obligation by similar
amounts.  The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% at December 31, 1997 and 7.5% at
December 31, 1996.
                                     








                                      78


                                   
<PAGE>
                    ORION CAPITAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note O - Industry Segment Information

     The Company's industry segments are described above in Note A. 
Guaranty National's results of operations are included on a consolidated
basis for 1997 and 1996 and accounted for using the equity method for 1995. 
Identifiable assets of the Regional Operations and Special Programs
segments are primarily allocated based on the cash flows of these segments. 
Financial information for the Company's segments for 1997, 1996 and 1995 is
shown below:
<TABLE>
<CAPTION>
                                                   Earnings (Loss)
                                                   Before Federal
                                                    Income Taxes
                                                    and Minority
                            Premiums     Total         Interest     Identifiable
                             Earned     Revenues       Expense         Assets
                           ----------  ----------  ---------------  ------------
                                             (000s omitted)
<S>                        <C>         <C>           <C>             <C>     
1997: 
  Regional Operations ...  $  362,127  $  418,028    $  86,807       $  972,834
  Special Programs ......     448,923     559,571       49,700        1,605,476
  Guaranty National           
    Corporation .........     546,630     602,227       56,249        1,216,573
  Other .................          -       10,709      (16,576)          89,175
                           ----------  ----------    ---------       ----------
    Total ...............  $1,357,680  $1,590,535    $ 176,180       $3,884,058
                           ==========  ==========    =========       ==========


1996:
  Regional Operations ...  $  356,809  $  402,015    $  68,371       $  910,579
  Special Programs ......     462,295     558,665       44,052        1,565,454
  Guaranty National      
    Corporation .........     481,648     529,542       35,727          921,852
  Other .................           -       3,227      (20,794)          66,472
                           ----------  ----------    ---------       ----------
    Total ...............  $1,300,752  $1,493,449    $ 127,356       $3,464,357
                           ==========  ==========    =========       ==========


1995:
  Regional Operations....  $  322,098  $  362,672    $  57,830       $  836,089
  Special Programs ......     426,905     507,834       43,241        1,460,435
  Guaranty National
    Corporation .........           -           -        4,466          106,059
  Other .................           -       3,774      (17,502)          71,005
                           ----------  ----------    ---------       ----------
    Total ...............  $  749,003  $  874,280    $  88,035       $2,473,588
                           ==========  ==========    =========       ==========
</TABLE>                        




                                              79
                                   







<PAGE>
                    ORION CAPITAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note P - Selected Quarterly Financial Data (Unaudited)
<TABLE>
     Quarterly results of operations and earnings per common share for 1997 and 1996
are summarized as follows:
<CAPTION>
                                              First     Second      Third     Fourth
                                             Quarter    Quarter    Quarter    Quarter
                                             -------    -------    -------    -------
                                             (000s omitted-except for per share data)
<S>                                         <C>        <C>        <C>        <C>
1997:
  Premiums earned ......................... $323,963   $335,226   $347,450   $351,041
  Net investment income ...................   40,221     41,316     40,754     42,617
  Realized investment gains ...............   15,789      8,358      5,152     18,476
  Other income ............................    4,939      5,180      5,014      5,039
                                            --------   --------   --------   --------
      Total revenues ...................... $384,912   $390,080   $398,370   $417,173
                                            ========   ========   ========   ========
      Net earnings ........................ $ 29,478   $ 25,381   $ 24,526   $ 36,421
                                            ========   ========   ========   ========
  Net earnings per basic common share ..... $   1.08   $   0.93   $   0.90   $   1.33
                                            ========   ========   ========   ======== 
  Net earnings per diluted common share.... $   1.06   $   0.91   $   0.88   $   1.30
                                            ========   ========   ========   ========
  

1996:
  Premiums earned ......................... $302,402   $319,109   $332,936   $346,305
  Net investment income ...................   34,502     36,291     36,028     38,570
  Realized investment gains ...............    5,365      5,761      5,480      7,574
  Other income ............................    5,522      6,011      5,940      5,653
                                            --------   --------   --------   --------
      Total revenues ...................... $347,791   $367,172   $380,384   $398,102
                                            ========   ========   ========   ========
      Net earnings ........................ $ 17,887   $ 20,573   $ 24,361   $ 23,810
                                            ========   ========   ========   ========
  Net earnings per basic common share ..... $   0.65   $   0.75   $   0.89   $   0.87
                                            ========   ========   ========   ========

  Net earnings per diluted common share ....$   0.64   $   0.74   $   0.88   $   0.86
                                            ========   ========   ========   ========

<FN>
     
</TABLE>
                                      








                                       80
<PAGE>             ORION CAPITAL CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note Q - Accounting Standards Not Yet Adopted 

     In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131,"Disclosures About Segments of an Enterprise and Related
Information", which changes the way public companies report information about
segments.  This statement is effective for financial statements for periods
beginning after December 15, 1997.  Financial statement disclosures for prior
periods are required to be restated.  The Company is in the process of
evaluating the disclosure requirements.  The adoption of this standard will
have no impact on the Company's consolidated results of operations, financial
position or cash flows.

     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income."  This statement establishes standards for reporting and display of
comprehensive income and its components in the financial statements.  The
Company will adopt this statement in the first quarter of 1998.  The Company
is in the process of determining its preferred format.  The adoption of this
statement will have no impact on the Company's results of operations,
financial position or cash flows.

Note R - Subsequent Events

     On February 2, 1998 Orion issued $125,000,000 of 7.701% Junior
Subordinated Deferrable Interest Debentures due April 15, 2028 to Orion
Capital Trust II, a Delaware statutory business trust sponsored by the
Company.  Orion Capital Trust II then sold $125,000,000 of 7.701% capital
securities, which mature on April 15, 2028 ("Capital Securities") in a private
placement.  The Capital Securities are subordinate to all liabilities of the
Company.  Approximately $100,000,000 of the net proceeds from the sale of the
junior subordinated debentures were used to retire bank indebtedness of
Guaranty National.  Orion agreed to register the Capital Securities under the
Securities Act of 1933, and will file a registration statement with the
Securities and Exchange Commission.

                                     


















                                   81
<PAGE>
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE
          
          None. 

                             PART III
              
     Pursuant to General Instruction G(3) to this form, the information
required by Part III (Items 10, 11, 12 and 13) hereof is incorporated by
reference from the Company's definitive proxy statement for its Annual Meeting
to be held on May 28, 1998.  The Company intends to file the proxy material,
which involves the election of directors, not later than 120 days after the
close of the Company's fiscal year.

                               PART IV 

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

(a) 1   Financial Statements:
           
        The following financial statements are included in 
        Part II, Item 8.                                                       
                                                                               
                                                                Page
                                                                ----
Report of Management.................................             48

Independent Auditors' Report.........................             49
 
Orion Capital Corporation and Subsidiaries:                       
 
     December 31, 1997 and 1996 

     Consolidated Balance Sheet......................          50-51

     For the years ended December 31, 1997, 1996 and
       1995
          Consolidated Statement of Earnings.........             52
          Consolidated Statement of Stockholders'                              
           Equity...................................              53           
           Consolidated Statement of Cash Flows.......         54-55   

     Notes to the Consolidated Financial Statements..          56-81
  
(a)  2. Financial Statement Schedules:

     Selected Quarterly Financial Data - for the years ended               
December 31, 1997, and 1996 - Included in Part II, Item 8. 
                                                              Page
                                                              ----             
 Schedule        I   Consolidated Summary of             
                        Investments - Other than 
                        Investments in Related 
                        Parties - December 31,                                 
                        1997........................            S-1
 
                II      Condensed Financial 
                        Information of Registrant -        S-2, S-3,
                        December 31, 1997, 1996            S-4, S-5,
                        and 1995....................       S-6, S-7,           
                                                  
                                82


<PAGE>

 Schedule      III      Supplementary Insurance 
                        Information - December 31, 
                        1997, 1996 and 1995..........           S-8

                 V      Valuation and Qualifying 
                        Accounts - December 31, 1997, 
                        1996 and 1995...................        S-9
                  
                VI      Supplemental Information 
                        For Property - Casualty 
                        Insurance Underwriters -
                        December 31, 1997, 1996 and                            
                        1995............................       S-10
                  
     Schedules other than those listed above are omitted for the 
reason that they are not required or are not applicable, or the 
required information is shown in the Financial Statements or notes 
thereto. 


   (a)    3. Exhibits:

   Exhibit 2(i)        Agreement and Plan of Merger dated as of 
                       October 31, 1997 between Guaranty National
                       Corporation and Orion; filed as Exhibit (c)(1) 
                       to the Company's Tender Offer Statement on 
                       Schedule 14D-1; filed on November 5, 1997.

   Exhibit 3(i)        Restated Certificate of Incorporation of Orion,
                       as amended on June 5, 1997; and as restated for
                       filing purposes.                               
                          
   Exhibit 3(ii)       By-Laws of Orion, as amended on September 11, 1996;
                       filed as Exhibit 3(ii) to the Company's Annual
                       Report on Form 10-K for 1996.

   Exhibit 4(i)        Certificate of Designation, Preferences and
                       Rights of Series B Junior Participating
                       Preferred Stock of Orion, dated September 17,
                       1996; filed as Exhibit 4(i) to the Company's 
                       Annual Report on Form 10-K for 1996.

   Exhibit 4(ii)       Specimen certificate representing shares of
                       Orion's Common Stock (proof of March 27, 
                       1989); filed as Exhibit 4(xii) to the
                       Company's Annual Report on Form 10-K for 1988.
                            
   Exhibit 4(iii)      Indenture, dated as of September 8, 1992, 
                       between Orion and the Connecticut National
                       Bank (now known as Fleet Bank Connecticut,  
                       National Association), as Trustee of Orion's
                       9 1/8% Senior Notes due September 1, 2002;
                       filed as Exhibit 4(v) to the Company's Annual
                       Report on Form 10-K for 1992.

   Exhibit 4(iv)       Specimen certificate representing Orion's
                       9 1/8% Senior Notes; filed as Exhibit 4(vi)
                       to the Company's Annual Report on Form 10-K 
                       for 1992.
                                     83
   

<PAGE>
   Exhibit 4(v)        Senior Debt Indenture, dated as of July 17, 1995,
                       between Orion and the State Street Bank and Trust
                       Company of Connecticut, National Association, as 
                       Trustee of Orion's 7 1/4% Senior Notes due July 15,
                       2005; filed as Exhibit 4.9 to the Company's Current
                       Report on Form 8-K, filed on 7/14/95.

   Exhibit 4(vi)       First Supplemental Indenture to the Senior Debt
                       Indenture; filed as Exhibit 4.9(a) to the Company's
                       Current Report on Form 8-K, filed on 7/14/95.

   Exhibit 4(vii)      Specimen Certificate representing Orion's 7 1/4%
                       Senior Notes; filed as Exhibit 4.9(b) to the 
                       Company's Current Report on Form 8-K, filed on
                       7/14/95.

   Exhibit 4(viii)     Indenture, dated as of February 5, 1998, between 
                       Orion and the Bank of New York, as Trustee of Orion's
                       7.701% Junior Subordinated Deferrable Interest
                       Debentures.

   Exhibit 4(ix)       Indenture, dated as of January 13, 1997, between
                       Orion and the Bank of New York, as Trustee of
                       Orion's 8.73% Junior Subordinated Deferrable
                       Interest Debentures; filed as Exhibit 4.1 to the
                       Company's Registration Statement on Form 4 (No. 333-    
                       21205.       
   
   Exhibit 4(x)        Form of Exchange Debenture Certificate representing
                       Orion's 8.73% Junior Subordinated Deferrable 
                       Interest Debentures; filed as Exhibit 4.2 to the
                       Company's Registration Statement on Form S-4 (No.
                       333-21205), filed on February 5, 1997.

   Exhibit 4(xi)       Certifificate of Trust of Orion Capital Trust II,
                       dated as of February 2, 1998.
    
   Exhibit 4(xii)      Certificate of Trust of Orion Capital Trust I, dated
                       as of January 3, 1997; filed as Exhibit 4.3 to the
                       Company's Registration Statement on Form S-4 (No. 333-
                       21205), filed on February 5, 1997.

   Exhibit 4(xiii)     Declaration of Trust of Orion Capital Trust II, dated
                       as of February 2, 1998.

   Exhibit 4(xiv)      Declaration of Trust of Orion Capital Trust I, dated
                       as of January 3, 1997; filed as Exhibit 4.4 to the
                       Company's Registration Statement on Form S-4 (No.
                       333-21205), filed on February 5, 1997.

   Exhibit 4(xv)       Amended and Restated Declaration of Trust of Orion
                       Capital Trust II, dated as of February 5, 1998.

   Exhibit 4(xvi)      Amended and Restated Declaration of Trust of Orion
                       Capital Trust I, dated as of January 13, 1997; filed
                       as Exhibit 4.5 to the Company's Registration
                       Statement on Form S-4 (No. 333-21205), filed on
                       February 5, 1997.

   Exhibit 4(xvii)     Form of Certificate evidencing 8.73% Exchange
                       Capital Securities of Orion Capital Trust I; filed
                       
                                     84  

<PAGE>                 as Exhibit 4.6 to the Company's Registration
                       Statement on Form S-4 (No. 333-21205).

   Exhibit 4(xviii)    Capital Securities Guarantee Agreement, dated as of
                       January 13, 1997, delivered by Orion as Guarantor
                       and relating to the 8.73% Exchange Capital
                       Securities; filed as Exhibit 4.7 to the Company's 
                       Registration Statement on Form S-4 (No. 333-21205).

   Exhibit 4(xix)      Capital Securities Guarantee Agreement, dated as of
                       February 5, 1998, delivered by Orion as Guarantor,
                       and relating to the 7.701% Capital Securities of
                       Orion Capital Trust II.
                          
   Exhibit 4(xx)       Form of Certificate evidencing 7.701% Capital           
                       Securities of Orion Capital Trust II included as part
                       of Exhibit 4(xv).
   
   Exhibit 4(xxi)      Form of Certificate representing Orion's 7.701% Junior
                       Subordinated Deferrable Interest Debentures (filed
                       as Exhibit A to Exhibit 4(viii)).   

   Exhibit 10(xx)      Amendment, dated February 14, 1995, to the Letter
                       Agreement by and between Orion Capital Corporation
                       and Intercargo Corporation; filed as Exhibit
                       10(xxiii) to the Company's Annual Report on Form
                       10-K for 1994.

   Exhibit 10(xxi)     Second Amendment, dated August 12, 1997, to the Letter
                       Agreement by and between Orion Capital Corporation
                       and Intercargo Corporation.
        
   Exhibit 10(i)*      Orion's Deferred Compensation Plan, as
                       amended; filed as Exhibit 10(i) to the 
                       Company's Annual Report on Form 10-K for 
                       1991.

   Exhibit 10(ii)*     Orion's 1982 Long-Term Performance Incentive            
                       Plan, as amended; filed as Exhibit 10(ii) to
                       the Company's Annual Report on Form 10-K for
                       1996.
 
   Exhibit 10(iii)*    Orion's 1994 Stock Option Plan for Non-
                       Employee Directors; filed as Exhibit 10(iii)
                       to the Company's Annual Report on Form 10-K 
                       for 1994.

   Exhibit 10(iv)*     Employment Agreement between Robert B. Sanborn
                       and Orion, dated as of March 19, 1993; filed
                       as Exhibit 10(vi) to the Company's Annual Report
                       on Form 10-K for 1992.

   Exhibit 10(v)*      Amendment to Employment Agreement between Robert B.
                       Sanborn and Orion, dated as of January 1, 1997;
                       filed as Exhibit 10(vii) to the Company's Annual
                       Report on Form 10-K for 1996.
       
   Exhibit 10(vii)*    Employment Agreement between Raymond W. Jacobsen
                       and Orion, as amended and restated as of December 6
                       1995; filed as Exhibit 10(vii) to the Company's
                       Annual Report on Form 10-K for 1995.

   *Management contract or compensatory plan or arrangement.
                                   85   
<PAGE>                                    

   Exhibit 10(viii)*   Employment Agreement between W. Marston Becker and 
                       Orion, dated as of October 31, 1995; filed as
                       Exhibit 10(viii) to the Company's Annual Report on
                       Form 10-K for 1995.

   Exhibit 10(ix)*     Amendment to Employment Agreement between W. Marston
                       Becker and Orion, dated as of January 1, 1997; filed
                       as Exhibit 10(x) to the Company's Annual Report on
                       Form 10-K for 1996.
  
   Exhibit 10(x)       Lease Agreement between Connecticut UTF, Inc.,
                       as lessor, and Security Insurance Company of 
                       Hartford ("Security"), as lessee, dated as of
                       December 19, 1984; filed as Exhibit 10(xxxiii)
                       to the Company's Annual Report on Form 10-K for 
                       l984.

   Exhibit 10(xi)      Second Assignment of Lease and Agreement from
                       Connecticut UTF, Inc. to Security, dated as of
                       December 19, 1984; filed as Exhibit 10(xxxiv)
                       to the Company's Annual Report on Form 10-K
                       for 1984.
  
   Exhibit 10(xii)     Purchase Money Second Mortgage from Connecticut
                       UTF, Inc., as mortgagor, to Security, as mortgagee,
                       dated as of December 19, 1984; filed as Exhibit
                       10(xxxvi) to the Company's Annual Report on Form 10-K
                       for 1984.

   Exhibit 10(xiii)    Purchase Money Note, in the face amount of
                       $2,800,000, from Connecticut UTF, Inc. to
                       Security, dated December 19, 1984; filed as
                       Exhibit 10(xxxvi) to the Company's Annual
                       Report on Form 10-K for l984.

   Exhibit 10(xiv)     Guarantee from Orion to Connecticut UTF, Inc.,
                       dated as of December 19, 1984, guaranteeing
                       the performance of Security under its lease
                       with Connecticut UTF, Inc.; filed as Exhibit
                       10(xxxvii) to the Company's Annual Report on
                       Form 10-K for 1984.

   Exhibit 10(xv)      Form of Indemnification Agreement, dated as of
                       June 3, 1987, between Orion and each of its
                       Directors and Executive Officers; filed as
                       Exhibit 10(xl) to the Company's Annual Report
                       on Form 10-K for 1987.
   
   Exhibit 10(xvi)     Rights Agreement, dated as of September 11, 1996        
                       between Orion and ChaseMellon Shareholder Services,
                       L.L.C., as Rights Agent; filed as Exhibit 1
                       to the Company's Form 8-A filed on September 20,        
                       1996.

   Exhibit 10(xvii)*   Orion Supplemental Benefits Plan, filed as
                       Exhibit 10(xxv) to the Company's Annual Report
                       on Form 10-K for 1991.

  *Management contract or compensatory plan or arrangement.
 
                                   86 
 
  <PAGE>
   Exhibit 10(xviii)   Orion's Equity Incentive Plan, dated September 11, 
                       1996; filed as Exhibit 10(xx) to the Company's
                       Annual Report on Form 10-K for 1996.                  

   Exhibit 10(xix)     Letter Agreement, dated September 13, 1993, by
                       and between Orion and Intercargo Corporation;
                       filed as Exhibit 10(xxii) to the Company's   
                       Annual Report on Form 10-K for 1993.

   Exhibit 10(xx)      Amendment, dated February 14, 1995, to the Letter
                       Agreement by and between Orion Capital Corporation
                       and Intercargo Corporation; filed as Exhibit
                       10(xxiii) to the Company's Annual Report on Form
                       10-K for 1994.

   Exhibit 10(xxi)     Second Amendment, dated August 12, 1997, to the Letter
                       Agreement by and between Orion Capital Corporation
                       and Intercargo Corporation.

   Exhibit 10(xxii)    Purchase Agreement by and between Sun Alliance USA 
                       Inc. and Orion, dated as of June 30, 1995; filed as
                       Exhibit 10(xxv) to the Company's Annual Report on
                       Form 10-K for 1995. 
 
   Exhibit 11          Statement re:  computation of earnings
                       per common share.

   Exhibit 21          Subsidiaries of Orion.
                              
   Exhibit 23          Consent of Deloitte & Touche LLP

   Exhibit 27          Financial Data Schedules (including restatement of
                       prior periods for FAS No. 128 and 1997 stock split).


    Copies of exhibits may be obtained upon payment of a $.50 per page fee. 
Such requests should be made in writing to: Corporate Secretary, Orion Capital
Corporation, 9 Farm Springs Road, Farmington, CT 06032.

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

   (c)  Filed exhibits:

        See Exhibit Index 












 









                                  87    

 <PAGE>

                                SIGNATURES


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

                            ORION CAPITAL CORPORATION


 
By: /s/ W. Marston Becker                               March 25, 1998
    ----------------------
       W. Marston Becker      
       Chairman of the Board 
       and Chief Executive Officer
       (Principal Executive 
        Officer)                                                               
   


By: /s/ Peter M. Vinci                                  March 25, 1998
    -------------------
        Peter M. Vinci        
        Vice President, Chief               
        Accounting Officer                 
        and Controller
                                              










                                      

















                                      88
<PAGE>    

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons (including a majority of
the members of the Board of Directors of the Registrant) in the capacities and
on the dates indicated:             

  Signature and Title                                    Date 
-------------------------                           --------------


/s/ W. Marston Becker                               March 25, 1998
--------------------------
    W. Marston Becker
    Chairman of the Board


/s/ Gordon F. Cheesbrough                           March 25, 1998
-------------------------
    Gordon F. Cheesbrough
       Director


/s/ Bertram J. Cohn
-------------------------                           March 25, 1998
    Bertram J. Cohn
       Director


/s/ John C. Colman                                  March 25, 1998
-------------------------
    John C. Colman
       Director

/s/David H. Elliott                                 March 25, 1998
-------------------------
    David H. Elliott
       Director

/s/ Victoria R. Fash                                March 25, 1998
-------------------------
    Victoria R. Fash
       Director

       
/s/ Robert H. Jeffrey                               March 25, 1998
----------------------
   Robert H. Jeffrey
     Director


/s/ Warren R. Lyons                                 March 25, 1998
-------------------------
    Warren R. Lyons
       Director


/s/ James K. McWilliams                             March 25, 1998
-------------------------
    James K. McWilliams
       Director
                                     










                                     89




<PAGE>                                                   

Signature and Title                                      Date
-------------------                                     ------                 

/s/ Ronald W. Moore                                 March 25, 1998
-----------------------
     Ronald W. Moore
       Director      
                             
/s/ Robert B. Sanborn                               March 25, 1998 
----------------------
    Robert B. Sanborn 
     Director

/s/ William J. Shepherd                             March 25, 1998
-----------------------
    William J. Shepherd
     Director


/s/ John R. Thorne                                  March 25, 1998
-----------------------
    John R. Thorne
     Director

/s/ William B. Weaver                               March 25, 1998
---------------------
    William B. Weaver
     Director
                                      90
<PAGE>
                                  EXHIBIT INDEX

   Exhibit 3(i)        Restated Certificate of Incorporation of Orion,
                       as amended on June 5, 1997; and as restated for
                       filing purposes. 

   Exhibit 4(viii)     Indenture, dated as of February 5, 1998, between 
                       Orion and the Bank of New York, as Trustee of Orion's
                       7.701% Junior Subordinated Deferrable Interest
                       Debentures.
   
   Exhibit 4(xi)       Certifificate of Trust of Orion Capital Trust II,
                       dated as of February 2, 1998.
   
   Exhibit 4(xiii)     Declaration of Trust of Orion Capital Trust II, dated
                       as of February 2, 1998.
   
   Exhibit 4(xv)       Amended and Restated Declaration of Trust of Orion
                       Capital Trust II, dated as of February 5, 1998.
   
   Exhibit 4(xix)      Capital Securities Guarantee Agreement, dated as of
                       February 5, 1998, delivered by Orion as Guarantor,
                       and relating to the 7.701% Capital Securities of Orion
                       Capital Trust II.

   Exhibit 4(xx)       Form of Certificate evidencing 7.701% Capital           
                       Securities of Orion Capital Trust II included as part
                       of Exhibit 4(xv).
  
   Exhibit 4(xxi)      Form of Certificate representing Orion's 7.701% Junior 
                       Subordinated Deferrable Interest Debentures (filed as
                       Exhibit A to Exhibit 4(viii)).

   Exhibit 10(xxi)     Second Amendment, dated August 12, 1997, to the Letter
                       Agreement by and between Orion Capital Corporation
                       and Intercargo Corporation.
   
   Exhibit 11          Statement re:  computation of earnings              
                       per common share.
  
   Exhibit 21          Subsidiaries of Orion.       

   Exhibit 23          Consent of Deloitte & Touche.

   Exhibit 27          Financial Data Schedules (including restatement of
                       prior periods for FAS No. 128 and 1997 stock split).
                                                           
                                      91
 <PAGE>
 <TABLE>
 <CAPTION>
                                                                  SCHEDULE I
                 ORION CAPITAL CORPORATION AND SUBSIDIARIES
               CONSOLIDATED SUMMARY OF INVESTMENTS-OTHER THAN
                       INVESTMENTS IN RELATED PARTIES
                              December 31, 1997
                               (000s omitted)
========================================================================
              Column A               Column B        Column C        Column D
              --------               --------        --------        --------
                                                                  Amount Shown  
                                                                   on Balance   
         Type of Investment            Cost         Value            Sheet
______________________________________________________________________________
<S>                                 <C>           <C>             <C>  
Fixed maturities held-to-maturity:  
  Bonds -
    United States Government and 
      government agencies and 
      authorities ...............   $  122,616    $  124,008      $  122,616  
    States, municipalities and
      political subdivisions ....      166,895       174,458         166,895
    Foreign governments .........           50            50              50
    All other corporate bonds ...       23,209        23,879          23,209
                                    ----------    ----------      ----------  
                                       312,770    $  322,395         312,770
                                    ----------    ==========      ----------  
Fixed maturities available-for-sale:
  Bonds -
    United States Government and 
      government agencies and 
      authorities ...............      381,747    $  401,312         401,312
    States, municipalities and
      political subdivisions ....      439,480       469,869         469,869 
    Foreign governments .........        4,590         5,120           5,120
    Public utilities ............       11,097        11,777          11,777
    All other corporate bonds ...      458,828       477,930         477,930
  Redeemable preferred stocks ...       99,679       103,838         103,838
                                    ----------    ----------      ----------   
                                     1,395,421    $1,469,846       1,469,846
                                    ----------    ==========      ----------  
Equity securities:
  Common stocks -
    Public utilities ............        3,771    $    6,414           6,414
    Banks, trusts and insurance
      companies .................       23,993        63,170          63,170 
    Industrial, miscellaneous and
      all other .................      135,256       175,815         175,815
  Non-redeemable preferred stocks      183,577       193,102         193,102
                                    ----------    ----------      ----------  
                                       346,597    $  438,501         438,501
                                    ----------    ==========      ----------  

Mortgage loans on real estate ...        2,249                         2,249
Other long-term investments .....       92,090                        92,090
Short-term investments ..........      228,277                       228,277
                                    ----------                    ----------  
      Total investments .........   $2,377,404                    $2,543,733  
                                    ==========                    ==========  

                                     S-1                                     













<PAGE> <CAPTION>                                                  SCHEDULE II
 
                ORION CAPITAL CORPORATION AND SUBSIDIARIES
              CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                        ORION CAPITAL CORPORATION
                              BALANCE SHEET
                              (000s omitted)
  
                                  
                                  ASSETS                     December 31,
                                                         --------------------
                                                           1997        1996
                                                           ----        ----
<S>                                                      <C>         <C>
Fixed maturities held at market (cost $214 - 1997 and
  $347 - 1996) ........................................  $      214  $    347  

Short-term investments ................................      68,725    32,653 
      
Cash ..................................................         379       320  
       
Notes receivable and other assets .....................       5,259     7,232  
       
Deferred federal income taxes .........................       9,416    23,544  
            
Investment in subsidiaries ............................     947,085   729,476  
            
Excess of cost over fair value of net assets acquired..      98,899    47,120  
                                                         ----------  --------

  Total assets ........................................  $1,129,977  $840,692  
                                                         ==========  ========

                     LIABILITIES AND STOCKHOLDERS' EQUITY

Other liabilities .....................................  $   55,787  $ 35,902

Due to affiliates .....................................      16,790    18,841

Notes payable .........................................     209,290   209,216
                                                         ----------  --------
  Total liabilities ...................................     281,867   263,959

Company-obligated mandatorily redeemable preferred 
  capital securities of subsidiary trust holding
  solely the Junior Subordinated Debentures of
  the Company..........................................     125,000        -  

Stockholders' equity ..................................     723,110   576,733
                                                         ----------  --------
  Total liabilities and stockholders' equity ..........  $1,129,977  $840,692
                                                         ==========  ========
 
<FN>         See Notes to Condensed Financial Information of Registrant
                                     
                                         S-2
<PAGE>
                                   

<PAGE>
<CAPTION>
                                                                  SCHEDULE II

                 ORION CAPITAL CORPORATION AND SUBSIDIARIES
               CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                         ORION CAPITAL CORPORATION
                           STATEMENT OF EARNINGS
                              (000s omitted)

                                                    Year Ended December 31,  
                                                 ----------------------------
                                                   1997      1996      1995
                                                   ----      ----      ----
<S>                                              <C>       <C>       <C>
Revenues:
  Net investment income .......................  $  8,414  $  1,898  $  1,770
  Realized investment losses ..................       (34)     (319)     (800) 
  Other income ................................       650       650       595  
                                                 --------  --------  --------
                                                    9,030     2,229     1,565
                                                 --------  --------  --------
Expenses:
  Interest ....................................    18,428    17,835    15,537
  General and administrative ..................     6,130     3,671     3,106  
  Amortization of excess of cost over fair           
    value of net assets acquired ..............     2,022     1,867     1,470 
                                                 --------  --------  --------  
                                                   26,580    23,373    20,113
                                                 --------  --------  --------  
                      
Loss before federal income taxes, equity in
  net earnings of subsidiaries and minority       
  interest expense.............................   (17,550)  (21,144)  (18,548)
Federal income taxes ..........................    45,045    30,059    20,284 
                                                 --------  --------  --------
Loss before equity in net earnings of 
  subsidiaries and minority interest expense...   (62,595)  (51,203)  (38,832)
Equity in net earnings of subsidiaries ........   185,258   137,834   106,454 
Minority interest expense in subsidiary trust                                  
  preferred securities, net of federal 
  income taxes.................................     6,857        -         -   
                                                 --------  --------  -------- 
Net earnings ..................................  $115,806  $ 86,631  $ 67,622
                                                 ========  ========  ========

<FN>

           
         
                                                                    
              See Notes to Condensed Financial Information of Registrant
                                        
                                         S-3
<PAGE>
<CAPTION>
                                                                  SCHEDULE II
                  ORION CAPITAL CORPORATION AND SUBSIDIARIES
                CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                          ORION CAPITAL CORPORATION
                           STATEMENT OF CASH FLOWS
                               (000s omitted)

                                                   Year Ended December 31, 
                                               ------------------------------
                                                 1997       1996       1995
                                                 ----       ----       ----
<S>                                            <C>        <C>        <C>
Cash flows from operating activities:
  Dividends received from subsidiaries ......  $ 42,822   $ 35,286   $ 30,546
  Net investment income collected ...........     7,967      1,919      1,737 
  Federal income taxes received from
    subsidiaries ............................     9,525      7,455      4,500 
  Interest paid .............................   (17,288)   (17,254)   (12,123)
  Payments on subsidiary trust preferred    
    capital securities.......................    (5,092)        -          -
  Other expenses paid .......................    (2,262)    (2,046)    (2,276)
  Other receipts ............................       604        903      1,268 
                                               --------   --------   --------
   Net cash provided by operating activities.    36,276     26,263     23,652 
                                               --------   --------   --------
Cash flows from investing activities:
  Investment in fixed maturity available -
    for-sale.................................      (250)        -          -
  Sale of fixed maturity available - 
    for-sale.................................       133         -          -
  Sales of equity securities.................       216         -          -
  Net sales (purchases) of short-term  
    investments .............................   (36,052)    22,770    (42,587)
  Investments in subsidiaries ...............        -           -      4,476
  Purchase of Guaranty National common stock.  (104,429)   (20,709)         -
  Acquisition of McGee ......................        -           -    (22,355)
  Other payments ............................       (13)    (2,588)       (99)
                                               --------   --------   --------
    Net cash used in investing activities ...  (140,395)      (527)   (60,565)
                                               --------   --------   --------
Cash flows from financing activities:
  Net proceeds from issuance of trust
    preferred capital securities.............   123,026          -         -
  Proceeds from issuance of notes payable ...        -           -    110,413  
  Proceeds from exercise of stock options....       594         42        246 
  Repayment of notes payable ................        -           -    (54,500)
  Dividends paid to stockholders ............   (18,037)   (14,886)   (12,717)
  Purchases of common stock .................    (1,533)   (10,558)    (6,689)
  Other receipts (payments)..................       128        (17)       (17)
                                               --------   --------   --------
    Net cash provided by (used in) financing 
      activities ............................   104,178    (25,419)    36,736 
                                               --------   --------   --------
    Net increase in cash.....................        59        317       (177)
  Cash balance, beginning of year ...........       320          3        180 
                                               --------   --------   --------
  Cash balance, end of year .................  $    379   $    320   $      3
                                               ========   ========   ========
<FN>

           See Notes to Condensed Financial Statements of Registrant
   
                                      S-4
<PAGE>
<PAGE>
<CAPTION>
                                                                  SCHEDULE II

                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                           ORION CAPITAL CORPORATION
                     STATEMENT OF CASH FLOWS - (Continued)
                                (000s omitted)

 
                                                   Year Ended December 31,
                                               ------------------------------
                                                 1997       1996      1995
                                                 ----       ----      ----
<S>                                            <C>        <C>        <C>
Reconciliation of net earnings to net cash 
  provided by operating activities:
Net earnings ................................  $115,806   $ 86,631   $ 67,622  
                                               --------   --------   --------
Adjustments:
  Equity in net earnings of subsidiaries ....  (185,258)  (137,834)  (106,454) 
  Consolidating elimination of subsidiaries
    income taxes ............................    40,057     35,530     30,941  
  Dividends received from subsidiaries ......    42,822     35,286     30,546  
  Depreciation and amortization .............     3,027      3,016      2,594  
  Deferred federal income taxes (benefit) ...     3,097     10,022     (3,881) 
  Realized investment losses ................        34        319        800  
  Amortization of discount on debt ..........        74         68         36 

Change in assets and liabilities:
  Decrease (increase) in notes receivable and
    other assets ............................     1,048     (2,235)        90 
  Increase (decrease) in taxes payable and 
    other liabilities .......................    11,618     (3,746)     7,799
  Increase (decrease) in due to affiliates ..     3,951       (794)    (6,441) 
                                               --------   --------   --------  
    Total adjustments and changes ...........   (79,530)   (60,368)   (43,970)
                                               --------   --------   -------- 
  Net cash provided by operating activities..  $ 36,276   $ 26,263   $ 23,652
                                               ========   ========   ========
<FN> 

          


             

          
           See Notes to Condensed Financial Information of Registrant

                                      S-5                                    

</TABLE>

<PAGE>
                                                                  SCHEDULE II

                  ORION CAPITAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                 Years Ended December 31, 1997, 1996 and 1995

Note A - Notes Payable

     Notes payable consist of the following:
<TABLE>                                                
<CAPTION>
                                                                  Estimated
                                           Carrying Value       Market Value
                                          -----------------  -----------------
          December 31,                      1997     1996      1997     1996
          ------------                      ----     ----      ----     ----
                                                     (000s omitted)
<S>                                       <C>      <C>       <C>      <C>
$110,000,000 face amount, 9 1/8% Senior 
  Notes, due September 1, 2002 .......... $109,919 $109,906  $121,231 $120,703
$100,000,000 face amount, 7 1/4% Senior
  Notes, due July 15, 2005 ..............   99,371   99,310   103,160   97,660
                                          -------- --------  -------- -------- 
                                          $209,290 $209,216  $224,391 $218,363
                                          ======== ========  ======== ========
</TABLE>                                               
     
     As of December 31, 1997, $110,000,000 of the Registrant's debt is
scheduled to be repaid on September 1, 2002 and the remaining $100,000,000 is
due on July 15, 2005.

Note B - Expense Reimbursement and Management Fees

     During 1995 through 1997, the Registrant was reimbursed for payroll,
office rental and other expenses incurred by it to support the operations of
its insurance subsidiaries.  This reimbursement of $8,114,000, $7,410,000 and
$6,232,000 in 1997, 1996 and 1995, respectively, is accounted for as a
reduction of general and administrative expenses.  The Registrant received an
investment management fee from Guaranty National of $650,000 in 1997, $650,000
in 1996 and $595,000 in 1995.





           



           
                                      S-6
 <PAGE>    
                                                            SCHEDULE II

               ORION CAPITAL CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
             Years Ended December 31, 1997, 1996, and 1995
                         
Note C - Company-Obligated Mandatorily Redeemable Capital Securities of
Subsidiary Trust Holding Solely the Junior Subordinated Debentures of the
Registrant.

     On January 13, 1997 the Registrant issued $125,000,000 of 8.73% Junior
Subordinated Deferrable Interest Debentures due January 1, 2037 (the
"Debentures") to Orion Capital Trust I (the "Trust"), a Delaware statutory
business trust sponsored by the Registrant.  The Trust simultaneously sold
$125,000,000 of 8.73% Capital Securities (the "Trust Preferred Securities")
which have substantially the same terms as the Debentures.  The Trust
Preferred Securities are subordinate to all liabilities of the Registrant, 
and may be redeemed without premium on or after January 1, 2007.  The
Registrant may defer interest distributions on the Trust Preferred Securities;
however, during any period when such cumulative distributions have been
deferred, the Registrant may not declare or pay any dividends or distributions
on its common stock.  The Trust Preferred Securities were registered under the
Securities Act of 1933 in April 1997.  The trust is consolidated in the
Registrant financial statements because it is wholly-owned by the Registrant. 
The sole assets of the Trust are the Debentures issued by the Registrant.  
The Registrant has provided a full and unconditional guaranty of the Trust's
obligations under the Trust Preferred Securities, including all costs,
expenses, debts and liabilities of the Trust.  The carrying value and
estimated market value of the Trust Preferred Securities is $125,000,000 
and $137,525,000 at December 31, 1997.

     On February 2, 1998 the Registrant issued $125,000,000 of 7.701% Junior
Subordinated Debentures due April 15, 2028 to Orion Capital Trust II, a
Delaware statutory business trust sponsored by the Registrant.  Orion Capital
Trust II then sold $125,000,000 of 7.701% Capital Securities, which mature on
April 15, 2028 (the "Capital Securities") in a private placement.  The Capital
Securities are subordinate to all liabilities of the Registrant. 
Approximately $100,000,000 of the net proceeds from the sale of the junior
subordinated debentures were used to retire bank indebtedness of Guaranty
National.  The Registrant agreed to register the Capital Securities under the
Securities Act of 1933, and will file a registration statement with the
Securities and Exchange Commission.




                                      


                                    S-7













<PAGE>                                                                  
<TABLE>                                                               SCHEDULE III
<CAPTION>                                ORION CAPITAL CORPORATION AND SUBSIDIARIES
                                              SUPPLEMENTARY INSURANCE INFORMATION
                                                          (000s omitted)
----------------------------------------------------------------------------------------------------------------------------------
  Column A      Column B   Column C   Column D  Column E  Column F   Column G   Column H    Column I  Column J  Column J  Column K
  --------      --------   --------   --------  --------  --------   --------   --------    --------  --------  --------  --------
                        Reserve                                                                           
                        For Unpaid           Dividends                                 Amortization   
              Deferred  Losses               Payable                          Losses   of Deferred           Policy- 
              Policy    and Loss               to                 Net      and Loss    Policy      Other   holders'              
           Acquisition Adjustment  Unearned  Policy-   Premiums  Investment Adjustment Acquisition Insurance Dividend  Premiums
 Segment      Costs     Expenses   Premiums  holders   Earned     Income    Expenses     Costs    Expenses  Expenses  Written
                                                                   (a)      
__________________________________________________________________________________________________________________________________
<S>           <C>       <C>         <C>       <C>      <C>         <C>        <C>         <C>        <C>      <C>      <C>
1997:
Regional
  Operations  $ 41,379  $  417,868  $ 85,953  $ 19,947 $  362,127  $ 41,787   $194,444    $101,802   $13,176  $20,599  $  365,050
Special
  Programs ..   54,923   1,011,339   245,492       548    448,923    68,700    331,010     141,405    10,628    3,401     436,898
Guaranty 
  National...   50,822     442,504   220,145        -     546,630    43,613    380,004     143,958    12,841       -      565,120 
Other .......       -           -         -         -          -     10,808         -           -         -        -           -
              --------  ----------  --------  -------  ----------  --------   --------    --------   -------  -------  ----------
              $147,124  $1,871,711  $551,590  $20,495  $1,357,680  $164,908   $905,458    $387,165   $36,645  $24,000  $1,367,068
              ========  ==========  ========  =======  ==========  ========   ========    ========   =======  =======  ========== 
1996:                                                                                                                      
Regional                                                                                                                     
  Operations  $ 33,160  $  466,022  $ 83,920  $20,489  $  356,809  $ 38,226   $209,705    $ 91,991   $11,244  $18,523  $  353,041
Special
  Programs ..   58,552     955,706   258,103    2,000     462,295    62,646    335,503     137,625     6,246    5,111     489,848
Guaranty
  National ..   44,456     363,936   154,226        -     481,648    39,439    337,784     133,931    10,422        -     491,232
Other .......        -           -         -        -           -     5,080          -           -         -        -           -
              --------  ----------  --------  -------  ----------  --------   --------    --------   -------  -------  ----------
              $136,168  $1,785,664  $496,249  $22,489  $1,300,752  $145,391   $882,992    $363,547   $27,912  $23,634  $1,334,121
              ========  ==========  ========  =======  ==========  ========   ========    ========   =======  =======  ==========
1995:
Regional
  Operations  $ 29,516  $  460,597  $ 84,360  $16,799  $  322,098  $ 35,750   $201,054    $ 73,544   $11,302  $17,231  $  332,598 
Spec.Programs   48,157     814,385   217,745    2,147     426,905    59,584    311,179     121,937    10,260    4,559     424,838
Other .......        -           -         -        -           -     3,706          -           -         -        -           -
              --------  ----------  --------  -------  ----------  --------   --------    --------   -------  -------  ----------
              $ 77,673  $1,274,982  $302,105  $18,946  $  749,003  $ 99,040   $512,233    $195,481   $21,562  $21,790  $  757,436
              ========  ==========  ========  =======  ==========  ========   ========    ========   =======  =======  ==========
<FN>
(a) Net investment income for Regional Operations and Special Programs is allocated on the basis of cash flow.
                                                                      
                                                                      

                                                                            S-8                  
                                              
<PAGE>
<CAPTION>
                                                                    SCHEDULE V

                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS

                                 (000s omitted)


===============================================================================
    Column A          Column B           Column C          Column D   Column E
    --------          --------           --------          --------   --------
                                         Additions
                                  ----------------------
                                      (1)        (2)
                     Balance at   Charged to  Charged to             Balance at
                    Beginning of   Costs and    Other     Deductions   End of
   Description         Period      Expenses    Accounts      (a)       Period
_______________________________________________________________________________
<S>                    <C>          <C>         <C>         <C>        <C>
1997:
Allowance for 
  doubtful accounts-
  Accounts and notes
    receivable         $3,696
  Effects of
      acquisition         322
                       ------
                       $4,018       $1,309      $  -        $1,233     $4,094
                       ======       ======      ======      ======     ======

1996:
Allowance for 
  doubtful accounts-
  Accounts and notes
    receivable         $3,212
  Effect of  
      acquisition         374
                       ------
                       $3,586       $1,517      $    -      $1,407     $3,696
                       ======       ======      ======      ======     ======

1995:
Allowance for 
  doubtful accounts-
  Accounts and notes
    receivable         $1,954       $1,689      $    -      $  431     $3,212
                       ======       ======      ======      ======     ======

<FN>
     (a)  Accounts written off


                                       S-9             
<PAGE>                                                                                                             SCHEDULE VI
<CAPTION>                                               ORION CAPITAL CORPORATION AND SUBSIDIARIES
                                  SUPPLEMENTAL INFORMATION FOR PROPERTY-CASUALTY INSURANCE UNDERWRITERS
                                                          (000s omitted)
================================================================================================================================= 
Column A      Column B   Column C   Column D Column E  Column F   Column G      Column H         Column I    Column J   Column K   
--------      --------   --------   -------- --------  --------   --------      --------         --------    --------   --------
                             Reserve                                              Losses and              
                               for                                              Loss Adjustment                    
                             Unpaid                                            Expenses Incurred  Amortization    Paid          
                 Deferred    Losses    Discount                                    Related to     of Deferred    Losses 
  Affiliation     Policy    and Loss   Deducted                        Net        (1)      (2)       Policy     and Loss 
     with      Acquisition Adjustment in Column Unearned  Premiums  Investment  Current   Prior   Acquisition  Adjustment  Premiums
  Registrant      Costs     Expenses     (C)    Premiums   Earned     Income     Year     Year       Costs      Expenses   Written
                                         (a)                                                                                    
___________________________________________________________________________________________________________________________________
<S>              <C>       <C>          <C>     <C>      <C>         <C>       <C>       <C>        <C>         <C>       <C>  
1997:
 Consolidated 
  property and 
  casualty 
  entities     $147,124  $1,871,711   $4,100  $551,590 $1,357,680  $154,100  $896,226  $9,232     $387,165    $892,147  $1,367,068
               ========  ==========   ======  ======== ==========  ========  ========  =======    ========    ========  ========== 

1996 (b):                                                                                                                    
 Consolidated                                                                                                                
  property and                                                                                                              
  casualty                                                                                                                
  entities      $136,168  $1,785,664   $4,100  $496,249 $1,300,752  $140,311  $874,123  $ 8,869    $363,547    $794,889  $1,334,121
                ========  ==========   ======  ======== ==========  ========  ========  =======    ========    ========  ==========

1995:
 Consolidated
  property and                                              
  casualty 
  entities      $ 77,673  $1,274,982   $4,100  $302,105 $  749,003  $ 95,334  $500,514  $11,719    $195,481    $409,797  $  757,436
                ========  ==========   ======  ======== ==========  ========  ========  =======    ========    ========  ==========
<FN>
(a)  Discount deducted in Column C is computed using a statutory interest rate of 3.5% for certain workers compensation losses.
(b)  1997 and 1996 amounts include Guaranty National Corporation on a consolidated basis.

                                                                     


                                                                              S-10
          









                                                           


     

</TABLE>