UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For The Quarterly Period Ended September 30, 1998

                         Commission File Number: 1-12369

                        SYMONS INTERNATIONAL GROUP, INC.
             (Exact name of registrant as specified in its charter)

INDIANA                                                            35-1707115
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                             Identification No.)


                               4720 Kingsway Drive
                           Indianapolis, Indiana 46205
                    (Address of Principal Executive Offices)

Registrant's telephone number, including area code: (317) 259-6400 (U.S.)

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


As of September 30, 1998,  there were 10,382,732  shares of Registrant's  common
stock issued and outstanding exclusive of shares held by Registrant.


<PAGE>

                                 Form 10-Q Index
                    For The Quarter Ended September 30, 1998

                                                                        Page
                                                                       Number

PART 1  FINANCIAL INFORMATION

Item 1  Financial Statements

        Consolidated Financial Statements:
        Consolidated Balance Sheets at September 30, 1998
        (unaudited) and December 31, 1997 . . ............................3

        Unaudited Consolidated Statements of Earnings for the
        Three and Nine Months Ended September 30, 1998 and 1997 ........4-5

        Unaudited Consolidated Statements of Stockholders'
        Equity ...........................................................6

        Unaudited Consolidated Statements of Cash Flows for the
        Nine Months Ended September 30, 1998 and 1997 ....................7

        Condensed Notes to Unaudited Consolidated Financial
        Statements .......................................................8

Item 2  Management's Discussion and Analysis of Financial
        Condition and Results of Operations .............................12

PART 2  OTHER INFORMATION ...............................................22

SIGNATURES ..............................................................23



<PAGE>

                         PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
SYMONS INTERNATIONAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (in thousands)
<TABLE>
<CAPTION>
                                                               September 30,    December 31,
                                                                   1998            1997
                                                                (unaudited)
<S>                                                               <C>            <C>
ASSETS
Investments
  Available for sale:

  Fixed maturities, at market                                     $181,310       $169,385

  Equity securities, at market                                      37,216         35,542

  Short-term investments, at amortized cost which approximates
    market                                                           9,860          8,871

Mortgage loans, at cost                                              2,130          2,220

Other                                                                  807            500
                                                                   -------        -------
         TOTAL INVESTMENTS                                         231,323        216,518

Investment in and advances to related parties                        4,668            839

Cash and cash equivalents                                            5,068         11,276

Receivables, net of allowance for doubtful accounts                209,069         91,730

Reinsurance recoverable on paid and unpaid losses, net             235,826         93,832

Prepaid reinsurance premiums                                        42,693         36,606

Federal income taxes recoverable                                     7,297          1,505

Deferred policy acquisition costs                                   14,423         10,740

Deferred income taxes                                                5,635          4,722

Property and equipment, net of accumulated depreciation             18,230         12,051

Intangible assets                                                   45,596         43,756

Other assets                                                        11,527          6,300
                                                                   -------        -------
         TOTAL ASSETS                                             $831,355       $529,875
                                                                   =======        =======
LIABILITIES

Losses and loss adjustment expenses                               $285,052       $136,772

Unearned premiums                                                  141,161        114,635

Reinsurance payables                                               163,323         35,692

Notes payable                                                       13,600          4,182

Distributions payable on preferred securities                        1,603          4,801

Other                                                               18,630         20,430
                                                                   -------        -------
         TOTAL LIABILITIES                                         623,369        316,512
                                                                   -------        -------
Minority interest:

  Preferred securities                                             135,000        135,000
                                                                   -------        -------
STOCKHOLDERS' EQUITY

Common stock                                                        38,136         39,019

Additional paid-in capital                                           5,946          5,925

Unrealized gain on investments                                         474          1,908

Retained earnings                                                   28,430         31,511
                                                                   -------        -------
         TOTAL STOCKHOLDERS' EQUITY                                 72,986         78,363
                                                                   -------        -------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY               $831,355       $529,875
                                                                   =======        ======= 
</TABLE>
See notes to consolidated financial statements

                                      -3-

<PAGE>

SYMONS INTERNATIONAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                    Three Months Ended
                                                                      September 30,
                                                                   1998           1997

<S>                                                              <C>             <C>     
Gross premiums written                                           $97,353         $103,919

Less ceded premiums                                              (26,659)         (37,554)
                                                                  ------          -------
Net premiums written                                             $70,694          $66,365
                                                                  ======           ======

Net premiums earned                                              $93,912          $72,044

Fee income                                                         3,815            4,199

Net investment income                                              3,091            2,900

Net realized gain                                                  1,168            3,782
                                                                 -------           ------
      Total Revenues                                             101,986           82,925
                                                                 -------           ------
Loss and loss adjustment expenses                                 91,901           53,903

Policy acquisition and general and administrative expenses        26,385           15,803

Interest expense                                                     129              540

Amortization of intangibles                                          698              393
                                                                 -------           ------
      Total Expenses                                             119,113           70,639
                                                                 -------           ------
      Earnings (loss) before income taxes and minority interest  (17,127)          12,286

Provision for income taxes                                        (5,902)           4,271
                                                                 -------           ------
      Net earnings (loss) before minority interest               (11,225)           8,015

Minority interest:

  Distributions on preferred securities, net of tax                2,101            1,025

  Equity in earnings of subsidiary                                    --              264
                                                                  ------           ------
      Net earnings (loss) before extraordinary item              (13,326)           6,726

Extraordinary item, net of tax ($0.07 per share)                     --               713
                                                                  ------           ------
      Net Earnings (Loss)                                       $(13,326)        $  6,013
                                                                  ======           ======

Net earnings (loss) per share - basic                             $(1.28)           $0.56
                                                                    ====             ====

Net earnings (loss) per share - fully diluted                     $(1.25)           $0.55
                                                                    ====             ====
Weighted average shares outstanding:

  Basic                                                           10,390           10,773
                                                                  ======           ======
  Fully diluted                                                   10,699           10,843
                                                                  ======           ======
</TABLE>

See notes to consolidated financial statements

                                      -4-

<PAGE>

SYMONS INTERNATIONAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                    Nine Months Ended
                                                                       September 30,
                                                                  1998             1997

<S>                                                             <C>              <C>     
Gross premiums written                                          $448,843         $382,984

Less ceded premiums                                             (173,874)        (166,096)
                                                                 -------          -------
Net premiums written                                            $274,969         $216,888
                                                                 =======          =======
Net premiums earned                                             $261,354         $208,056

Fee income                                                        15,205           14,990

Net investment income                                              9,355            8,176

Net realized gain                                                  3,979            5,466
                                                                 -------          -------
      Total Revenues                                             289,893          236,688
                                                                 -------          -------
Loss and loss adjustment expenses                                217,287          157,196

Policy acquisition and general and administrative expenses        64,397           46,200

Interest expense                                                     361            2,991

Amortization of intangibles                                        1,719              687
                                                                 -------          -------
      Total Expenses                                             283,764          207,074
                                                                 -------          -------
      Earnings before income taxes and minority interest           6,129           29,614

Provision for income taxes                                         2,536           10,454
                                                                  ------          -------
      Net earnings before minority interest                        3,593           19,160

Minority interest:

  Distributions on preferred securities, net of tax               (6,327)           1,025

  Equity in earnings of subsidiary                                    --            1,824
                                                                 -------          -------
      Net earnings (loss) before extraordinary item               (2,734)          16,311

Extraordinary item ($0.07 per share)                                  --              713
                                                                 -------          -------
      Net Earnings (Loss)                                       $ (2,734)        $ 15,598
                                                                 =======          =======

Net earnings (loss) per share - basic                              $(.26)           $1.46
                                                                     ===             ====
Net earnings (loss) per share - fully diluted                      $(.26)           $1.46
                                                                     ===             ====
Weighted average shares outstanding:

  Basic                                                           10,409           10,669
                                                                  ======           ======
  Fully diluted                                                   10,710           10,705
                                                                  ======           ======
</TABLE>

See notes to consolidated financial statements


                                      -5-

<PAGE>

SYMONS INTERNATIONAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except number of shares)
<TABLE>
<CAPTION>

                                                              Shares           Total
                                                              Common       Stockholders'     Retained
                                                              Stock          Equity          Earnings
<S>                                                        <C>               <C>             <C>
BALANCE AT DECEMBER 31, 1996                               10,450,000        $60,900         $15,206

Comprehensive income:
   Net earnings                                                               15,598          15,598
   Change in unrealized gains (losses) on securities                           5,070              --
                                                                              ------
Comprehensive income                                                          20,668              --
Adjustment of offering costs                                                      50              --
                                                                              ------           -----
BALANCE AT SEPTEMBER 30, 1997                              10,450,000        $81,618         $30,804
                                                           ==========         ======          ======

BALANCE AT DECEMBER 31, 1997                               10,451,667        $78,363         $31,511

Comprehensive income:
   Net earnings (loss)                                                        (2,734)         (2,734)
   Change in unrealized gains (losses) on securities                          (1,434)
                                                                              ------
Comprehensive income                                                          (4,168)

Exercise of stock options                                       1,665             20

Shares acquired                                               (70,600)        (1,229)           (347)
                                                           ----------         ------          ------
BALANCE AT SEPTEMBER 30, 1998                              10,382,732        $72,986         $28,430
                                                           ==========         ======          ======

</TABLE>

See notes to consolidated financial statements


                                      -6-

<PAGE>
SYMONS INTERNATIONAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(in thousands)
<TABLE>
<CAPTION>
                                                                                      Nine Months Ended
                                                                                         September 30,
                                                                                    1998            1997
<S>                                                                               <C>             <C>
Cash Flows from Operating Activities:
  Net earnings (loss) for the period                                              $(2,734)        $15,598

Adjustments to reconcile net earnings (loss) to net cash provided from
   operations:

   Equity in earnings of subsidiary                                                    --           1,824

   Depreciation and amortization                                                    3,210           1,192

   Deferred income tax expense                                                       (170)         (1,074)

   Net realized gain                                                               (3,979)         (5,466)

Net changes in operating assets and liabilities:

  Receivables                                                                    (117,339)        (98,357)

  Reinsurance recoverable on paid and unpaid losses, net                         (141,994)        (99,805)

  Prepaid reinsurance premiums                                                     (6,087)        (19,380)

  Deferred policy acquisition costs                                                (3,683)          1,031

  Losses and loss adjustment expenses                                             148,280          91,924

  Unearned premiums                                                                26,526          28,212

  Reinsurance payables                                                            127,631         103,296

  Distributions payable on preferred securities                                    (3,198)             --

  Federal income taxes                                                             (5,792)          1,877

  Other assets and liabilities                                                     (6,960)           (262)
                                                                                  -------         -------
NET CASH PROVIDED FROM OPERATIONS                                                  13,711          20,610
                                                                                  -------         -------
Cash flow used in investing activities:

  Cash paid for minority interest                                                      --         (61,000)

  Net purchases of short-term investments                                            (989)         (8,733)

  Purchases of fixed maturities                                                  (120,913)       (198,314)

  Proceeds from sales, calls and maturities of fixed maturities                   113,110         162,132

  Purchase of equity securities                                                   (22,427)        (26,676)

  Proceeds from sales of equity securities                                         17,555          22,256

  Net proceeds from sales and purchases of real estate                                267              --

  Purchases of property and equipment                                              (7,690)         (3,807)

  (Purchases) sales of other investments                                             (213)            180

  Cash paid for NACU                                                               (3,000)             --
                                                                                   ------         -------
NET CASH USED IN INVESTING ACTIVITIES                                             (24,300)       (113,962)
                                                                                   ------         -------
Cash flow provided from financing activities:

  Cost of shares acquired                                                          (1,229)             --

  Net proceeds on line of credit and notes payable                                  9,418          41,794

  Contribution from minority interest owner                                            --           2,304

  Loans to related parties                                                         (3,829)         (1,198)

  Additional paid-in capital                                                           21              --

  Proceeds from preferred securities, net                                              --         130,100
                                                                                  -------         -------
NET CASH PROVIDED FROM FINANCING ACTIVITIES                                         4,381          89,412
                                                                                  -------         -------
Decrease in cash and cash equivalents                                              (6,208)         (3,940)

Cash and cash equivalents, beginning of period                                     11,276          13,095
                                                                                  -------         -------
Cash and cash equivalents, end of period                                         $  5,068        $  9,155
                                                                                  =======         =======
</TABLE>
See notes to consolidated financial statements

                                      -7-

<PAGE>

                        SYMONS INTERNATIONAL GROUP, INC.
            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
             For The Three and Nine Months Ended September 30, 1998

NOTES TO THE CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1)      The accompanying  unaudited  condensed  financial  statements have been
         prepared in accordance  with the  instructions  to Form 10-Q and do not
         include all of the  information  and  footnotes  required by  generally
         accepted accounting  principles for complete financial  statements.  In
         the  opinion  of  management,  all  adjustments  (consisting  of normal
         recurring  accruals)  considered  necessary for fair  presentation have
         been  included.  Operating  results  for the  interim  periods  are not
         necessarily indicative of the results that may be expected for the year
         ended December 31, 1998. Interim financial statements should be read in
         conjunction with the Company's annual audited financial statements.

(2)      In June  1997,  the  FASB  issued  Statement  of  Financial  Accounting
         Standards No. 131,  Disclosures  about  Segments of an  Enterprise  and
         Related  Information (SFAS 131), which is effective for years beginning
         after  December 15, 1997.  SFAS 131  established  standards for the way
         that public business  enterprises  report  information  about operating
         segments  in  annual  financial  statements  and  requires  that  those
         enterprises  report selected  information  about operating  segments in
         interim financial  reports.  It also established  standards for related
         disclosures  about products and services,  geographic  areas, and major
         customers.  The  Company  will  adopt  the new  requirements  effective
         December 31, 1998. Management has not completed its review of SFAS 131,
         but does not anticipate that the adoption of this statement will have a
         significant effect on the Company's reported segments.

         On March 4, 1998, the AICPA Accounting Standards Executive Committee
         issued Statement of Position No. 98-1 (SOP 98-1), Accounting for the
         Cost of Computer Software Developed or Obtained for Internal Use. SOP
         98-1 was issued to address diversity in practice regarding whether and
         under what conditions the costs of internal-use software should be
         capitalized. SOP 98-1 is effective for financial statements for years
         beginning after December 15, 1998. The Company will adopt the new
         requirements of the SOP in 1999. Management has not completed its
         review of SOP 98-1, but does not anticipate that the adoption of this
         SOP will have significant effect on net earnings during 1999.

(3)      On March 2, 1998, the Company announced that it had signed an agreement
         with CNA to assume its multi-peril and crop hail operations.  CNA wrote
         approximately  $110  million  of  multi-peril  and crop hail  insurance
         business in 1997. The Company will reinsure 100% of all multi-peril and
         crop hail premiums  written by CNA during 1998 and cede a small portion
         of the Company's  total crop book of business  (approximately  22% MPCI
         and 15% crop hail) back to CNA. Starting in the year 2000,  assuming no
         event of change in control as defined in the agreement, the Company can
         purchase  the  insurance  premiums  reinsured  to  CNA  through  a call
         provision or CNA can require the Company to buy the insurance  premiums
         reinsured to CNA.  Regardless of the method of takeout of CNA, CNA must
         not  compete  in MPCI or crop hail for a period  of time.  There was no
         purchase price. The formula for the buyout in the year 2000 is based on
         a  multiple  of  average  pre-tax   earnings  that  CNA  received  from
         reinsuring the Company's book of business.

                                      -8-

<PAGE>


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

(5)      Basic and  diluted net income per share are  computed  by dividing  net
         income as  reported  by the  average  number of shares  outstanding  as
         follows:
<TABLE>
<CAPTION>
                                                                Three Months Ended         Nine Months Ended
                                                                   September 30,             September 30,
                                                               1998          1997        1998            1997
<S>                                                         <C>           <C>           <C>             <C>
         Basic:
           Weighted-average common shares
              outstanding                                   10,390,000    10,773,000    10,409,000     10,669,000
                                                            ==========    ==========    ==========     ==========

         Diluted:
           Weighted-average common shares
              outstanding                                   10,390,000    10,773,000    10,409,000     10,669,000
           Dilutive effect of stock options                    309,000        70,000       301,000         36,000
                                                            ----------    ----------    ----------     ----------

         Average common shares outstanding
           assuming dilution                                10,699,000    10,843,000    10,710,000     10,705,000
                                                            ==========    ==========    ==========     ==========

</TABLE>

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

         The Company expects  to  receive a  proposed  assessment  from the
         California Department of Insurance (CDOI) which the Company  estimates
         could approximate $3 million.  This expectation is  based on ongoing
         discussions with the CDOI, although no formal written  notification has
         been received by the Company.  This assessment relates to the charging
         of brokers fees to policyholders by independent agents who have placed
         business for one of the Company's nonstandard automobile  carriers,
         Superior Insurance Company.  The CDOI has indicated that such  broker
         fees  were  improper  and  has  requested   reimbursement  to  the
         policyholders by Superior Insurance Company.  The Company did not
         receive any of these broker fees. As the ultimate  outcome of this
         potential assessment is not deemed probable the Company has not accrued
         any amount in its consolidated financial statements.  Although the
         assessment has not been formally made by the CDOI at this time,  the
         Company believes it will prevail and will vigorously defend any
         potential assessment.

                                      -9-

<PAGE>

(7)  Year 2000 Compliance

General

The Year 2000  Project  (Project)  is  proceeding  on  schedule.  The Project is
addressing  the  inability  of computer  software  and  hardware to  distinguish
between  the  year  1900  and the  year  2000.  In  1996,  the  Company  began a
company-wide  replacement  of hardware and software  systems to address this and
other issues. This replacement is using systems from Dell, Hewlett Packard,  Sun
Systems, Compaq, Oracle and ZIM as well as some software conversions using Java.
The new hardware is in place and operational at all  subsidiaries.  The software
systems  are  in  place  in  our  nonstandard  auto  operations  and  are  being
implemented on a state-by-state  basis.  The Company began  implementing the new
nonstandard  auto  operating  system in those states in which the Company writes
annual  policies  (annual  states).  60% of those annual states are currently in
production with the remaining 40% scheduled to be in place by December 31, 1998.
The  remaining  non-annual  states are on schedule to be  completed by March 31,
1999.  The Company has  developed a  contingency  plan for use in the event that
there is a delay. A decision to adopt the contingency  plan, if necessary,  will
be made by December  1, 1998.  The Y2K issue does not have an effect on the crop
operations  until  October 1, 1999.  The  Company  is  converting  non-compliant
systems,   through   programmatic   means,  into  a  Java  based  Y2K  compliant
environment.  The crop  operations are at 38% of completion for this  conversion
and are scheduled to be completed by the end of January 1999.  Contingency plans
for crop operations are being considered at this time. A number of the Company's
other  IT  projects  are  being  delayed  or  completely  eliminated  due to the
implementation  of the Project.  The delay and/or  elimination of these projects
has caused or could cause a loss of market share in the nonstandard auto market.

Project

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

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

The infrastructure  section of the Project was quickly implemented and tested by
the Company's IT staff and has been  completed  since May of 1998.  All desktop,
mini  and  midrange  systems  as well as phone  switches,  phones  and  building
security systems have been tested for Y2K compliance. The only outstanding issue
is a security  system in one of the  Company's  buildings,  which may need to be
disconnected.  This issue is addressed by business continuance.  Any new systems
required by the Company are being tested and  certified  prior to purchase.  Two
mainframes  being used by the Company are not Y2K certified or compliant.  These
machines have been  replaced by Sun and HP compliant  systems and are being kept
in production until new applications are put in place on the new machines.


                                      -10-

<PAGE>

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

The  Company  had  already  made  the  decision  to  transition  off all of it's
nonstandard  auto legacy  systems and this  process had been in work since 1996.
These systems are Y2K compliant and are on schedule for completion by the end of
March 31,  1999.  The  conversion  of crop  systems  began in August 1998 and is
scheduled for completion by the end of January 1999.  Business systems are being
replaced as vendors certify their  compliance.  The Company is at 80% compliance
in this area.

The Company relies on third party vendors for investments,  reinsurance treaties
and banking.  The Company began  inquiring  about Y2K compliance  with its third
party vendors beginning in July 1998. To date all vendors have replied regarding
their compliance efforts. Those that are not in compliance have until the end of
1Q, 1999 to do so, or they will be replaced.

Costs

The Company  considers the cost associated with the Project to be material.  The
Company  has  estimated  the total  cost to be $5.7  million.  The total  amount
expended through September 1998 on all  infrastructure  and software upgrades is
approximately $4.5 million. The Company expects to spend another $1.2 million in
its efforts to complete the  Project.  This does not include  additional  annual
maintenance  costs that will be incurred as we move  forward.  Funding for these
costs will continue to be provided by funds from operations. The Company expects
that  the  new  nonstandard  auto  system  will  significantly  enhance  service
capability and reduce future operating costs.

Risks

Failure to correct the Y2K  problem  could  cause a failure or  interruption  of
normal business operations. These failures could materially affect the Company's
operational results, financial condition and liquidity. Due to the nature of the
Y2K problem,  the Company is uncertain  whether it will have a material  affect.
The Company believes that the possibility of significant business  interruptions
should be reduced by implementation of the Project.


                                      -11-

<PAGE>

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
       RESULTS OF OPERATIONS OF THE COMPANY

The Company  underwrites and markets  nonstandard  private passenger  automobile
insurance and crop insurance.

Nonstandard Automobile Insurance Operations

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

Crop Insurance Operations

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

The Company,  like other  private  insurers  participating  in the MPCI program,
generates revenues from the MPCI program in two ways. First, it markets,  issues
and administers policies, for which it receives administrative fees; and second,
it  participates in a  profit-sharing  arrangement in which it receives from the
government a portion of the aggregate profit, or pays a portion of the aggregate
loss,  in respect of the  business it writes.  The Company  writes MPCI and crop
hail insurance through approximately 1,118 independent agencies in 42 states.

MPCI is a  government-sponsored  program with accounting treatment which differs
in certain  respects from the more traditional  property and casualty  insurance
lines.  For  income  statement  purposes  under  generally  accepted  accounting
principles,  gross  premiums  written  consist of the  aggregate  amount of MPCI
premiums paid by farmers for buy-up coverage (MPCI coverage in excess of CAT

                                      -12-

<PAGE>

Coverage),  and any related federal premium  subsidies,  but do not include MPCI
premium on CAT  Coverage  (the minimum  available  level of MPCI  Coverage).  By
contrast,  net premiums  written do not include any MPCI  premiums or subsidies,
all of which are deemed to be ceded to the FCIC as a  reinsurer.  The  Company's
profit or loss from its MPCI business is  determined  after the crop season ends
on the basis of a complex  profit  sharing  formula  established  by law and the
FCIC. For generally accepted  accounting  principles income statement  purposes,
any such profit or loss  sharing  earned or payable by the Company is treated as
an adjustment to commission  expense and is included in policy  acquisition  and
general and administrative expenses.

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

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

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

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

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

                                      -13-

<PAGE>

number of named crops grown in a variety of geographic  areas and to offer these
policies primarily to large producers through certain select agents.

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

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

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

In order to reduce the Company's potential loss exposure under the MPCI program,
in  addition  to  reinsurance  obtained  from the FCIC,  the  Company  purchases
stop-loss  reinsurance from other private  reinsurers.  Such private reinsurance
would not eliminate the Company's  potential  liability in the event a reinsurer
was unable to pay or losses exceeded the limits of the stop-loss  coverage.  For
crop hail  insurance,  the Company  has in effect  various  layers of  stop-loss
reinsurance.

Certain other  conditions of the Company's crop business may affect  comparisons
of the  Company's  results and  operating  ratios with those of other  insurers,
including: (i) the seasonal nature of the business whereby profits are generally
recognized  predominantly  in the second half of the year,  (ii) the  short-term
nature of crop business whereby losses are known within a short time period, and
(iii) the limited amount of investment income associated with crop business.  In
addition,  cash flows from the crop business differ from cash flows from certain
more traditional lines.

In 1996, the Company instituted a policy of recognizing (i) 35% of its estimated
MPCI gross premiums written for each of the first and second  quarters,  20% for
the third quarter and 10% for the fourth quarter, (ii) commission expense at the
applicable  rate of MPCI gross  premiums  written  recognized  and (iii)  Buy-Up
Expense  Reimbursement  at the applicable  rate of MPCI gross  premiums  written
recognized  along with normal  operating  expenses  incurred in connection  with
premium writings.  In the third quarter,  if a sufficient volume of policyholder
acreage  reports have been received and processed by the Company,  the Company's
policy is to  recognize  MPCI gross  premiums  written for the first nine months
based on a re-estimate which takes into account actual gross premiums processed.
If an insufficient  volume of policies has been processed,  the Company's policy
is to recognize in the third quarter 20% of its full year estimate of MPCI gross
premiums written,  unless other circumstances require a different approach.  The
remaining amount of
                                      -14-

<PAGE>

gross premiums written is recognized in the fourth quarter, when all amounts are
reconciled.  The Company  also  recognizes  the MPCI  underwriting  gain or loss
during each quarter,  reflecting  the  Company's  best estimate of the amount of
such gain or loss to be  recognized  for the full year,  based on,  among  other
things,  historical results, plus a provision for adverse  developments.  In the
third  and  fourth  quarters,  a  reconciliation  amount is  recognized  for the
underwriting gain or loss based on final premium and loss information.

Results of Operations

For the three and nine months ended September 30, 1998, the Company recorded net
losses of  $(13,326,000)  and  $(2,734,000)  or  $(1.28)  and  $(.26)  per share
(basic).  This is approximately a decrease of 322% and 118% from 1997 comparable
amounts of $6,013,000 and $15,598,000 or $0.56 and $1.46 per share (basic).

The loss in the third  quarter  of 1998 was due to losses in both the  Company's
crop and  nonstandard  automobile  operations.  The  Company's  loss in its crop
operations was due primarily to crop hail losses from Hurricane Bonnie and other
weather related events and higher than expected commission  expenses,  primarily
from the integration of the crop business acquired from CNA. As compared to 1997
the  Company's  crop results were also  impacted by a much smaller  underwriting
gain on MPCI due primarily to severe drought  conditions in certain parts of the
country and overly wet  conditions in other parts of the country.  However,  the
Company accrues a low estimated  underwriting gain until results become known in
the third and fourth  quarters  and the Company did not have to reverse  profits
previously  booked for MPCI in the third quarter of 1998.  The Company's loss in
its  nonstandard  automobile  operations  was due  primarily  to recently  noted
reserve development and management taking a more conservative reserve assumption
for its nonstandard  operations.  Falling nonstandard  automobile premium volume
also lead to a higher than normal expense ratio in the quarter.

                                      -15-

<PAGE>
<TABLE>
<CAPTION>
                                                                        For the three months
                                                                         ended September 30,
                                                                        1998            1997

<S>                                                                  <C>             <C>
NONSTANDARD AUTOMOBILE INSURANCE OPERATIONS:

  Gross premiums written                                             $61,536         $77,505
                                                                      ======          ======
  Net premiums written                                               $55,381         $61,789
                                                                      ======          ======
  Net premiums earned                                                $64,742         $61,059

  Fee income                                                           3,827           4,380

  Net investment income                                                2,960           2,702

  Net realized gain                                                    1,121           3,837
                                                                      ------          ------
        TOTAL REVENUES                                                72,650          71,978
                                                                      ------          ------
  Losses and loss adjustment expenses                                 57,589          44,873

  Policy acquisition and general and administrative expenses          19,563          18,170
                                                                      ------          ------
        TOTAL EXPENSES                                                77,152          63,043
                                                                      ------          ------
  Earnings (loss) before income taxes                                $(4,502)        $ 8,935
                                                                      ======          ======
GAAP RATIOS (Nonstandard Automobile Only):

  Loss and LAE Ratio                                                   88.95%           73.5%

  Expense ratio, net of billing fees                                   24.31            22.6
                                                                      ------            ----
  Combined ratio                                                      113.26%           96.1%
                                                                      ======            ====
CROP INSURANCE OPERATIONS:

  Gross premiums written(2)                                          $32,423         $23,997
                                                                      ======          ======
  Net premiums written                                               $15,313          $4,576
                                                                      ======           =====
  Net premiums earned                                                $29,170         $10,985

  Fee income                                                             (12)           (181)

  Net investment income                                                   55              52

  Net realized capital gain                                               47             (55)
                                                                      ------          ------
        TOTAL REVENUES                                                29,260          10,801
                                                                      ------          ------
  Losses and loss adjustment expenses                                 34,312           9,030

  Policy acquisition and general and administrative expenses(1)        6,572          (2,609)

  Interest expense and amortization of intangibles                       287              40
                                                                      ------          ------
        TOTAL EXPENSES                                                41,171           6,461
                                                                      ------          ------
  Earnings (loss) before income taxes                               $(11,911)        $ 4,340
                                                                      ======          ======
</TABLE>
(1) Negative crop expenses are caused by inclusion of MPCI expense reimbursement
and underwriting gain. (2) Includes premiums assumed from CNA in accordance with
the Strategic Alliance Agreement.


                                      -16-

<PAGE>
<TABLE>
<CAPTION>

                                                                        For the nine months
                                                                        ended September 30,
                                                                      1998             1997

<S>                                                                 <C>             <C>
NONSTANDARD AUTOMOBILE INSURANCE OPERATIONS:

  Gross premiums written                                            $231,042        $243,052
                                                                     =======         =======
  Net premiums written                                              $206,802        $195,632
                                                                     =======         =======
  Net premiums earned                                               $203,563        $189,303

  Fee income                                                          12,535          11,584

  Net investment income                                                8,894           7,796

  Net realized gain                                                    3,762           5,521
                                                                     -------         -------
        TOTAL REVENUES                                               228,754         214,204
                                                                     -------         -------
  Losses and loss adjustment expenses                                164,237         143,897

  Policy acquisition and general and administrative expenses          56,367          53,662
                                                                     -------         -------
        TOTAL EXPENSES                                               220,604         197,559
                                                                     -------         -------
  Earnings before income taxes                                      $  8,150        $ 16,645
                                                                     =======         =======
GAAP RATIOS (Nonstandard Automobile Only):

  Loss and LAE Ratio                                                   80.68%           76.0%

  Expense ratio, net of billing fees                                   21.53            22.2
                                                                       -----            ----
  Combined ratio                                                      102.21%           98.2%
                                                                      ======            ====
CROP INSURANCE OPERATIONS:

  Gross premiums written(2)                                         $210,618        $132,353
                                                                     =======         =======
  Net premiums written                                               $68,167         $21,256
                                                                      ======          ======
  Net premiums earned                                                $57,791         $18,753

  Fee income                                                           2,670           3,406

  Net investment income                                                  220             144

  Net realized capital gain                                              217             (55)
                                                                      ------          ------
        TOTAL REVENUES                                                60,898          22,248
                                                                      ------          ------
  Losses and loss adjustment expenses                                 53,050          13,299

  Policy acquisition and general and administrative expenses(1)        6,822          (8,635)

  Interest expense and amortization of intangibles                       520              65
                                                                      ------          ------
        TOTAL EXPENSES                                                60,392           4,729
                                                                      ------          ------
  Earnings before income taxes                                       $   506         $17,519
                                                                      ======          ======

</TABLE>
(1) Negative crop expenses are caused by inclusion of MPCI expense reimbursement
and underwriting gain. (2) Includes premiums assumed from CNA in accordance with
the Strategic Alliance Agreement.

Consolidated  gross premiums written  decreased 6.3% and increased 17.2% for the
three and nine months ended September 30, 1998 compared to comparable periods in
1997.

                                      -17-

<PAGE>

Gross premiums written for the nonstandard auto segment  decreased 20.6% for the
three months ended  September  30, 1998 and  decreased  4.9% for the nine months
ended September 30, 1998 compared to comparable periods in 1997. The decrease in
nonstandard  automobile premiums reflects the effects of competitive  pressures,
the results of certain product changes in certain key states and the operational
aspects of implementation of the Company's new operating system. The Company has
addressed the product changes in its key states that  contributed to the falling
premium volume and is working to implement  appropriate product and rate changes
in its other states. The Company has also recently entered South Florida and the
State of Arizona and has launched its Spanish  Language  Policy in Florida.  The
Company's  new  operating  system is  functioning  adequately  in the  States of
Florida,  California  and Arizona with  additional  states coming on line in the
near future.  The Company expects that the results of these efforts will improve
future premium volume and reduce the costs to do business.

Gross premiums  written for the crop segment  increased  35.1% and 59.1% for the
three and nine months ended September 30, 1998 compared to comparable periods in
1997. Such increase was due to the transaction with CNA, internal growth and new
products  such as  AgPI.  Premium  increases  were  noted  in all  lines of crop
insurance. Crop premiums for the three and nine months ended September 30 are as
follows:
<TABLE>
<CAPTION>

                                               Three Months                      Nine Months
                                            Ended September 30,              Ended September 30,
                                           1998            1997              1998          1997

<S>                                       <C>             <C>              <C>           <C>    
CAT imputed                               $1,502          $4,965           $34,140       $31,028
MPCI                                      18,071          15,195           125,368        94,211
Crop hail and named perils                14,356           8,802            77,721        38,142
AgPI                                          (4)             --              7,529           --
                                          ------          ------           -------        ------
                                          33,925          28,962           244,758        163,381
Less: CAT imputed                         (1,502)         (4,965)          (34,140)       (31,028)
                                          ------          ------           -------        -------
                                         $32,423         $23,997          $210,618       $132,353
                                          ======          ======           =======        =======

</TABLE>
Remaining gross written premiums  represent  commercial  business which is ceded
100% to an affiliate, Granite Reinsurance Company Ltd.

MPCI  premiums are  considered  to be 100% ceded to the federal  government  for
accounting purposes.  Quota share cession rates for other lines of insurance for
the three  and nine  months  ended  September  30 are as  follows.  The  Company
canceled its  nonstandard  auto quota share treaty with the intention to commute
the agreement effective October 1, 1998.
<TABLE>
<CAPTION>

                                           1998             1997

<S>                                         <C>              <C>
Nonstandard automobile                      10%              20%
Crop hail                                   25%              40%
Named peril                                 50%              50%

</TABLE>
Fee income  decreased  9.1% for the three  months ended  September  30, 1998 and
increased  1.4% for the nine months ended  September 30, 1998 as compared to the
corresponding  periods of the prior year.  The decrease in the third  quarter of
1998 results from the Company's  practice of  offsetting  CAT fees with crop LAE
costs.  Such offset was greater in 1998.  Fee income on  nonstandard  automobile
operations  also  decreased  in the third  quarter  as a direct  result of lower
premium volume in the quarter.  The small increase in fee income year to date in
1998 compared to 1997 is primarily the result of higher  nonstandard  automobile
fees as a percentage of direct premiums written although premium

                                      -18-

<PAGE>

volume  decreased in that segment.  These fees averaged 5.43% and 4.77% of gross
premiums written in 1998 and 1997,  respectively.  Crop fees, primarily CAT fees
increased  due to growth in premium  volume.  However,  crop fee income  appears
lower due to reclass of CAT LAE fees as an offset to loss costs. This was due to
the higher LAE costs in 1998 due to the higher volume of claims.

Net  investment  income  increased  6.6% and 14.4% for the three and nine months
ended September 30, 1998 as compared to the  corresponding  periods of the prior
year. Such increase was due primarily to greater invested assets offset somewhat
by a declining yield due to market conditions.

The loss ratio for the  nonstandard  automobile  segment  for the three and nine
months  ended  September  30,  1998 was 89.0% and 80.7% as compared to 73.5% and
76.0% in 1997. In the third  quarter of 1998,  the Company  recorded  additional
gross loss reserves of approximately  $8 million.  A mid-year review of reserves
as of June 30, 1998 by the Company's  independent actuaries resulted in recorded
loss  reserve  levels  at  June  30,  1998  approximating   recommended  levels.
Development  since that date and more  conservative  assumptions has resulted in
the reserve adjustment.

The crop hail loss ratio for the nine months ended  September 30, 1998 was 85.5%
compared  to 67.1%  in  1997.  The  loss  ratio  for 1998 is net of  reinsurance
recoveries on its stop loss layer. This loss ratio was dramatically  affected by
Hurricane Bonnie in the third quarter. Excluding the effects of Hurricane Bonnie
and  related  reinsurance  recoveries  the crop hail loss ratio  would have been
75.0%.

Policy acquisition and general and  administrative  expenses have increased as a
result of the  increased  volume of  business  produced by the  Company.  Policy
acquisition  and general and  administrative  expenses rose to  $26,385,000  and
$64,397,000  or 28.1% and  24.6% of net  premium  earned  for the three and nine
months ended September 30, 1998 compared to $15,803,000 and $46,200,000 or 21.9%
and  22.2% of net  premium  earned in the  corresponding  periods  of 1997.  The
increase in the overall expense ratio in the third quarter reflects increases in
both the Company's crop and nonstandard automobile operations. Increases related
to crop  operations  reflect  a much  lower  MPCI  underwriting  gain in 1998 as
compared to 1997, as previously  discussed,  and higher operating and commission
costs due  primarily to the  integration  of the  Company's  crop  acquisitions.
Increases related to nonstandard  automobile  operations reflect the higher than
normal expense ratio in the third quarter due to the declining  premium  volume.
Nonstandard automobile and crop operations have integrated  acquisitions and are
undergoing a restructuring to reduce operating costs.

Crop segment expenses include agent commissions, stop loss reinsurance costs and
operating  expenses  which are offset by MPCI  Expense  Reimbursements  and MPCI
Underwriting  Gain. The increase in expenses  results  primarily from a 2% lower
MPCI Expense  Reimbursement  for 1998 versus  1997,  higher  commissions  due to
competition  and  integration  costs  of the CNA  transaction  and a lower  MPCI
underwriting gain as previously discussed.  Although the third quarter generally
provides more evidence to support this underwriting gain, it remains an estimate
until all harvest results are known in the fourth quarter.  The Company had been
accruing an estimated gain of 10% in the first two quarters of 1998 and adjusted
this estimate in the third  quarter to 12%. In 1997 the Company  realized a MPCI
underwriting  gain in excess of 20% due to the record  harvest  results and more
consistent weather patterns.

Amortization of intangibles includes goodwill from the acquisition of

                                      -19-

<PAGE>

Superior,  additional  goodwill from the  acquisitions of the minority  interest
position  in GGSH and  NACU,  debt or  preferred  security  issuance  costs  and
organizational costs. The increase in 1998 reflects the effects of the Preferred
Securities Offering in late 1997.

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

Income tax expense  (benefit) was 34.5% and 41.4% of pre-tax income (losses) for
the three and nine months ended  September  30, 1998 compared to 34.7% and 35.3%
in 1997. The increased rate is due to higher goodwill amortization.

Distributions  on Preferred  Securities  are calculated at a rate of 9.5% net of
federal income taxes.

Financial Condition

The Company's  total assets of  $831,355,000  at September 30, 1998 increased by
$301,480,000 from $529,875,000 as of December 31, 1997. Such increase was due to
an increase in cash and invested assets primarily from the Company's nonstandard
automobile  operations.  With the  decrease in  nonstandard  automobile  premium
volume  in the  third  quarter  such  increase  has also  slowed.  Increases  in
receivables and reinsurance assets result primarily from the Company's growth in
its crop  operations  which carry higher  balances during the year until harvest
results are complete  and such assets are  collected.  There is a  corresponding
increase in related  liabilities.  The  increase  in fixed  assets is due to the
purchase  of the  Company's  new crop  operation  headquarters  and  substantial
investment in new operating systems to improve  efficiencies.  Increase in notes
payable  primarily  reflects short term  borrowings from a line of credit at the
Company's crop  operations  until harvest results are settled and FCIC funds are
received.  The decrease in  stockholders  equity  results from the Company's net
loss and  unrealized  losses on the  Company's  equity  portfolio  due to market
conditions. The Company has not substantially changed its investment portfolio.

Net  cash  from  operating  activities  declined  to  $13,711,000  in 1998  from
$20,610,000  in  1997  due to the  Company's  loss  from  operations.  Investing
activities  reflect  the  Company's  normal  investment  activities.   Financing
activities  include  normal  activities on the Company's line of credit for crop
operations.

While the Company's crop operations are experiencing  some short term cash needs
due to the  high  volume  of crop  hail  losses,  the  Company  believes  it has
sufficient  resources  to meet its cash flow  needs for this  operation.  In the
event the Company has maximized its borrowing capacity under its line of credit,
the Company can elect to owe the FCIC funds with  interest  until receipt of its
expense  reimbursement and MPCI underwriting gain payments,  the latter of which
is made over a three-year period.

The Company's  Preferred  Security  obligations of approximately $13 million per
year is funded from the Company's nonstandard  automobile management company and
dividend  capacity from the crop operations.  The nonstandard auto funds are the
result of management and billing fees in excess of operating costs. For calendar
1997 the  coverage  ratio of  nonstandard  automobile  cash  flows to  Preferred
Security costs was 2.2x. The Company  estimates this ratio decreased to 1.48x in
the third  quarter of 1998 and expects this ratio to increase to 1.8x for all of
1998 with increasing premium volume and stable costs. Coverage

                                      -20-

<PAGE>

from the Company's crop operations entailed a dividend capacity of $13.4 million
in 1998 that will reduce to  approximately  $4.5  million in 1999 as a result of
the  Company's  operations  and  statutory  limitations.  The  Company  also has
approximately $10 million in excess funds for debt service. Surplus needs at the
insurance  companies  will be handled  primarily  by  reinsurance  for which the
Company believes it has good relationships and numerous alternatives.  It should
be noted that the additional  nonstandard  automobile  reserves did not increase
the  accident  year loss  ratios to levels  that  would  require  recovery  from
reinsurers. The Company believes it can continue to meet its obligations in 1999
and that coverage will increase through higher  nonstandard  automobile  premium
volumes and more profitable crop operations.

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

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

These  restrictions  currently  apply,  and will  continue  to apply  until  the
Company's  Consolidated  Coverage  Ratio is in compliance  with the terms of the
Trust  Indenture.  This does not  represent  a  Default  by the  Company  on the
Preferred  Securities.  The  Company is in  compliance  with these  preventative
covenants as of September 30, 1998.

Forward Looking Statements

All statements,  trend analyses, and other information herein contained relative
to markets for the Company's products and/or trends in the Company's  operations
or  financial  results,  as well as other  statements  including  words  such as
"anticipate,"  "could,"  "feel(s),"  "believe,"  "believes," "plan," "estimate,"
"expect,"   "should,"  "intend"  and  other  similar   expressions,   constitute
forward-looking statements under the Private Securities Litigation Reform Act of
1995. These  forward-looking  statements are subject to known and unknown risks,
uncertainties  and other factors which may cause actual results to be materially
different  from  those  contemplated  by the  forward-looking  statements.  Such
factors include, among other things: (i) general economic conditions,  including
prevailing  interest  rate levels and stock  market  performance;  (ii)  factors
affecting the Company's crop operations such as  weather-related  events,  final
harvest  results,  commodity price levels,  governmental  program  changes,  new
product  acceptance  and  commission  levels paid to agents;  and (iii)  factors
affecting  the  Company's  nonstandard  automobile  operations  such as  premium
volume,  levels of operating  expenses as compared to premium  volume,  ultimate
development  of loss  reserves and  implementation  of the  Company's  operating
system.

                                      -21-

<PAGE>

PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS
          The Company's insurance subsidiaries are parties to litigation arising
in the  ordinary  course of  business.  The Company  believes  that the ultimate
resolution  of these  lawsuits  will not have a material  adverse  effect on its
financial  condition or results of operations.  The Company,  through its claims
reserves,  reserves for both the amount of  estimated  damages  attributable  to
these lawsuits and the estimated costs of litigation.

ITEM 2.   CHANGES IN SECURITIES
          None

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES
          None

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

ITEM 5.   OTHER INFORMATION
          None

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
          None

                                      -22-

<PAGE>

                                  SIGNATURES



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



Dated: November 12, 1998                     By:______________________
                                             Alan G. Symons
                                             Chief Executive Officer



Dated: November 12, 1998                     By:______________________
                                             Gary P. Hutchcraft
                                             Vice President, Treasurer and
                                             Chief Financial Officer



Dated: November 12, 1998                     By:______________________
                                             James J. Lund
                                             Vice President and
                                             Chief Accounting Officer


                                      -23-
<PAGE>