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: 000-24366

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

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

                              181 University Avenue
                               Box 11, Suite 1101
                            Toronto, Ontario M5H 3M7

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

Registrant's telephone number, including area code: (416) 594-1155 (Canada)
                                                    (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 5,839,466  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 I   FINANCIAL INFORMATION

Item 1   Financial Statements

         Unaudited Consolidated Financial Statements:
         Unaudited Consolidated Balance Sheets at
         September 30, 1998 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 Shareholders'
         Equity ............................................................6

         Unaudited Consolidated Statements of Changes in
         Cash Resources for the Three and 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 II  OTHER INFORMATION ................................................21

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

INDEX TO EXHIBITS
         Exhibit 11 - Computation of Per Share Earnings ...................24



<PAGE>

                         PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
GORAN CAPITAL INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(Canadian GAAP, stated in thousands of U.S. dollars)
<TABLE>
<CAPTION>

                                                   September 30,   December 31,
ASSETS                                                 1998           1997

<S>                                                  <C>            <C>     
Cash and investments                                 $256,170       $247,124

Accounts receivable:

  Premiums receivable                                 209,773         89,762

  Due from insurance companies                         16,421         13,782

  Due from associated companies                         1,959          1,442

  Accrued and other receivables                         2,481          2,658
                                                      -------        -------
        TOTAL ACCOUNTS RECEIVABLE                     230,634        107,644

Reinsurance recoverable on outstanding claims         236,390         94,424

Prepaid reinsurance premiums                           42,693         36,607

Capital assets, net of accumulated depreciation        18,722         12,230

Deferred policy acquisition costs                      15,232         11,849

Deferred income taxes                                   5,185          2,098

Intangibles                                            45,287         42,562

Other assets                                           14,102          6,310
                                                      -------        -------
        TOTAL ASSETS                                 $864,415       $560,848
                                                      =======        =======
LIABILITIES

Accounts Payable:

  Due to insurance companies                         $164,773        $37,350

  Accrued and other payables                           20,817         27,266
                                                      -------        -------
                                                      185,590         64,616

Outstanding claims                                    301,103        152,871

Unearned premiums                                     146,009        118,616

Bank loans                                             13,600          4,182
                                                      -------        -------
                                                      646,302        340,285
                                                      -------        -------
Minority interest:

  Equity in net assets of subsidiaries                 23,856         25,231

  Preferred securities                                135,000        135,000
                                                      -------        -------
                                                      158,856        160,231
                                                      -------        -------
SHAREHOLDERS' EQUITY

Capital stock                                          18,376         18,010

Contributed surplus                                     2,775          2,775

Retained earnings                                      37,898         39,839

Cumulative translation adjustment                         208          (292)
                                                      -------       -------
        TOTAL SHAREHOLDERS' EQUITY                     59,257         60,332
                                                      -------        -------
        TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $864,415       $560,848
                                                      =======        =======
</TABLE>
See notes to consolidated financial statements

                                       -3-

<PAGE>

GORAN CAPITAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(Canadian GAAP, stated in thousands of U.S. dollars, except per share data)
<TABLE>
<CAPTION>
                                                                                   Three Months Ended
                                                                                      September 30,
                                                                                  1998           1997

<S>                                                                             <C>            <C>     
Gross premiums written                                                          $95,887        $100,455

Less ceded premiums                                                             (23,418)        (18,979)
                                                                                -------         -------
Net premiums written                                                             72,469          81,476

Change in net unearned premiums                                                  21,699          (6,750)
                                                                                -------          ------
Net premiums earned                                                              94,168          74,726

Fee income                                                                        3,813           4,199

Net investment income                                                             3,281           3,669

Net realized capital gain                                                         1,145           3,683
                                                                                -------          ------
      Total Revenues                                                            102,407          86,277
                                                                                -------          ------
Net claims incurred                                                              92,490          55,644

General and administrative expenses                                              27,468          18,154

Interest expense                                                                    129             540

Amortization of intangibles                                                         698             393
                                                                                -------          ------
      Total expenses                                                            120,785          74,731
                                                                                -------          ------
      Earnings before undernoted items                                          (18,378)         11,546

Provision for income taxes                                                       (5,902)          3,864

Distribution of preferred securities, net of tax                                  2,101             687

Minority interest                                                                (4,344)          2,586
                                                                                -------          ------
Earnings from continuing operations                                             (10,233)          4,409

Loss from discontinued operations                                                    --             286
                                                                                -------          ------
      Net Earnings (Loss)                                                      $(10,233)        $ 4,123
                                                                                =======          ======

Earnings (loss) per share from continuing operations - basic                     $(1.76)          $0.79
                                                                                   ====            ====

Earnings (loss) per share from continuing operations - fully diluted             $(1.76)          $0.74
                                                                                   ====            ====

Net earnings (loss) per share - basic                                            $(1.76)          $0.74
                                                                                   ====            ====

Net earnings (loss) per share - fully diluted                                    $(1.76)          $0.69
                                                                                   ====            ====

See notes to consolidated financial statements
</TABLE>

                                       -4-

<PAGE>

GORAN CAPITAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(Canadian GAAP, stated in thousands of U.S. dollars, except per share data)
<TABLE>
<CAPTION>
                                                                                    Nine Months Ended
                                                                                      September 30,
                                                                                  1998            1997

<S>                                                                             <C>              <C>     
Gross premiums written                                                          $443,588         $375,814

Less ceded premiums                                                             (163,029)        (147,514)
                                                                                 -------          -------
Net premiums written                                                             280,559          228,300

Change in net unearned premiums                                                  (14,888)         (14,304)
                                                                                 -------         --------
Net premiums earned                                                              265,671          213,996

Fee income                                                                        15,203           14,990

Net investment income                                                             10,177           10,453

Net realized capital gain                                                          3,959            5,466
                                                                                 -------          -------
      Total Revenues                                                             295,010          244,905
                                                                                 -------          -------
Net claims incurred                                                              218,979          160,159

General and administrative expenses                                               67,734           50,644

Interest expense                                                                     361            2,991

Amortization of intangibles                                                        1,719              687
                                                                                 -------          -------
      Total expenses                                                             288,793          214,481
                                                                                 -------          -------
      Earnings before undernoted items                                             6,217           30,424

Provision for income taxes                                                         2,536           10,105

Distribution of preferred securities, net of tax                                   6,327              687

Minority interest                                                                   (890)           7,309
                                                                                 -------          -------
Earnings from continuing operations                                               (1,756)          12,323

Loss from discontinued operations                                                   (185)            (858)
                                                                                 -------          -------
      Net Earnings (Loss)                                                       $ (1,941)        $ 11,465
                                                                                 =======          =======

Earnings (loss) per share from continuing operations - basic                       $(.30)           $2.21
                                                                                     ===             ====

Earnings (loss) per share from continuing operations - fully diluted               $(.30)           $2.10
                                                                                     ===             ====

Net earnings (loss) per share - basic                                              $(.33)           $2.06
                                                                                     ===             ====

Net earnings (loss) per share - fully diluted                                      $(.33)           $1.95
                                                                                     ===             ====

</TABLE>
See notes to consolidated financial statements


                                       -5-

<PAGE>

GORAN CAPITAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Canadian GAAP, stated in thousands of U.S. dollars)
<TABLE>
<CAPTION>
                                                                   Cumulative     Retained          Total
                                        Common      Contributed    Translation    Earnings      Shareholders'
                                        Stock         Surplus      Adjustment     (Deficit)         Equity

<S>                                    <C>            <C>            <C>           <C>            <C>    
Balance at December 31,  1996          $17,416        $2,775         $(334)        $27,401        $47,258

Issuance of common shares                   43           ---           ---             ---             43

Change in cumulative
translation adjustment                     ---           ---            76             ---             76

Net earnings                               ---           ---           ---          11,465         11,465
                                           ---           ---           ---          ------         ------
Balance at September 30, 1997          $17,459        $2,775         $(258)        $38,866        $58,842
                                        ======         =====           ===          ======         ======

Balance at December 31, 1997           $18,010        $2,775         $(292)        $39,839        $60,332

Issuance of common shares                  366           ---           ---             ---            366

Change in cumulative
translation adjustment                     ---           ---           500             ---            500

Net earnings (loss)                        ---           ---           ---          (1,941)        (1,941)
                                        ------         -----           ---          ------        -------
Balance at September 30, 1998          $18,376        $2,775          $208         $37,898        $59,257
                                        ======         =====           ===          ======         ======

</TABLE>
See notes to consolidated financial statements

                                       -6-

<PAGE>

GORAN CAPITAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN CASH RESOURCES
(Canadian GAAP, stated in thousands of U.S. dollars)
<TABLE>
<CAPTION>
                                                                          Nine Months Ended
                                                                             September 30,
                                                                          1998         1997
<S>                                                                    <C>          <C>
CASH PROVIDED BY OPERATING ACTIVITIES

  Net earnings (loss) for the period                                   $(1,941)     $11,465

  Items not affecting cash resources:

    Amortization and depreciation                                        3,210        1,192

    Loss (gain) on disposal of investments                              (3,959)      (5,465)

    Minority interest in net income of consolidated subsidiary            (890)       7,138

    Decrease (increase) in other assets                               (156,251)    (136,511)

    Decrease (increase) in deferred policy acquisition costs            (3,383)         762

    Increase (decrease) in deferred income taxes                        (3,087)          --

    Increase (decrease) in unearned premiums                            27,393       29,259

    Increase (decrease) in outstanding losses                          148,232       93,384

    Decrease (increase) in accounts receivable                        (122,650)     (88,021)

    Increase (decrease) in accounts payable                            120,974      105,153
                                                                       -------      -------
                                                                         7,648       18,356
                                                                       -------      -------
FINANCING ACTIVITIES:

  Increase (reduction) of borrowed funds                                 9,418      (41,363)

  Proceeds from consolidated minority interest owners                       --        2,474

  Issue of preferred securities                                             --      130,100

  Issue of share capital                                                   366          199
                                                                       -------      -------
                                                                         9,784       91,410
                                                                       -------      -------
INVESTING ACTIVITIES:

  Net purchase of marketable securities                                (15,543)     (49,912)

  Acquisition of subsidiary                                             (3,000)          --

  Net purchase of minority interest shares                              (1,208)     (61,000)

  Net purchase of capital assets                                        (7,690)      (3,807)

  Other                                                                     --           30
                                                                       -------      -------
                                                                       (27,441)    (114,689)

Change in cash resources during the period                             (10,009)      (4,923)

Cash resources, beginning of period                                     36,557       33,731
                                                                       -------      -------
Cash resources, end of period                                         $ 26,548     $ 28,808
                                                                       =======      =======

</TABLE>
See notes to consolidated financial statements

                                       -7-

<PAGE>

                               GORAN CAPITAL 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.

         These unaudited consolidated financial statements have been prepared by
         the Company in accordance with accounting  principles  generally
         accepted in Canada ("CDN  GAAP").  These  principles  also  conform in
         all material respects with accounting principles generally accepted in
         the United States ("US GAAP") except as disclosed in Note 4. All
         material intercompany amounts have been eliminated.

(2)      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 of 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.

(3)      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.

                                       -8-

<PAGE>

(4)      UNITED STATES ACCOUNTING PRINCIPLES

         These unaudited consolidated financial statements have  been  prepared
         in accordance with CDN GAAP. The differences between CDN GAAP and US
         GAAP are as follows:
<TABLE>
<CAPTION>
                                       For the Three Months Ended                    For the Nine Months Ended
                                      September 30,  September 30,              September 30,         September 30,
                                          1998            1997                     1998                  1997

<S>                                    <C>               <C>                     <C>                   <C>    
Reported net earnings (loss)           $(10,233)         $4,123                  $(1,941)              $11,465

US/Canada GAAP differences:

  Discounting on outstanding claims          --              --                      --                    38
                                          ------           -----                   -----                -----
Revised net earnings (loss)             $(10,233)         $4,123                 $(1,941)             $11,503
                                          ======           =====                   =====               ======


Earnings (loss) per share - basic         $(1.75)           $.81                   $(.33)               $1.87
                                            ====             ===                     ===                 ====
Earnings (loss) per share -
   fully diluted                          $(1.75)           $.81                   $(.33)               $1.87
                                            ====             ===                     ===                 ====
</TABLE>

<TABLE>
<CAPTION>
                                                                                September 30,         December 31,
                                                                                   1998                  1997

<S>                                                                              <C>                  <C>    
Shareholders' equity in accordance with Canadian GAAP                            $59,257              $60,332

Add (deduct) effect of difference in accounting for:

  Deferred income taxes                                                            1,911                1,975

  Outstanding claims                                                              (1,696)              (1,765)

  Minority interest portion                                                          (71)                 (70)

  Receivables from sale of capital stock                                            (312)                (346)

  Unrealized gain on investments*                                                    316                1,336
                                                                                  ------               ------
Shareholders' equity in accordance with US GAAP                                  $59,405              $61,462
                                                                                  ======               ======
</TABLE>

*Note:   The increase in  shareholders'  equity  attributable  to the unrealized
         gain of $316 and $1,336 at  September  30, 1998 and  December 31, 1997,
         respectively,  are net of deferred taxes of $375 and $1,005 and related
         minority interest of $230 and $658.

(5)      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 $2.8 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 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 fine 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

                                       -9-

<PAGE>


         the policyholders by Superior Insurance Company. The Company did not
         receive any amount 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 can  prevail and will vigorously
         defend any potential assessment.

(6)      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

                                      -10-

<PAGE>


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.

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

                                      -12-

<PAGE>


premiums  paid by farmers for buy-up  coverage  (MPCI  coverage in excess of CAT
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

                                      -13-

<PAGE>

actuarial  data   available.   The  Company  plans  to  seek  potential   growth
opportunities  in this niche market by  developing  basic  policies on a diverse
number of named crops grown in a variety of geographic  areas and to offer these
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

                                      -14-

<PAGE>

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 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  $(10,233,000)  and  $(1,941,000)  or  $(1.76)  and  $(.33)  per share
(basic).  This is approximately a decrease of 348% and 117% from 1997 comparable
amounts of $4,123,000 and $11,465,000 or $0.74 and $2.06 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 4.5% and increased 18.0% 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>
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  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

                                      -18-

<PAGE>

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  decreased  10.6% and 2.6% for the three and nine months
ended September 30, 1998 as compared to the  corresponding  periods of the prior
year.  Such  decrease was due primarily to greater  invested  assets offset 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  $27,468,000  and
$67,734,000  or 29.2% and  25.5% of net  premium  earned  for the three and nine
months ended September 30, 1998 compared to $18,154,000 and $50,644,000 or 24.3%
and  23.7% 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 Superior,
additional  goodwill from the acquisitions of the minority  interest position in
GGSH and NACU, debt or preferred security issuance costs and

                                      -19-

<PAGE>

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 (32.1%) and 40.8% of pre-tax  income  (losses)
for the three and nine months  ended  September  30, 1998  compared to 33.5% and
33.2% 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.

Operations  of Granite Re continue to be  profitable  with net  earnings of $0.9
million in 1998  compared to $1.4  million in 1997.  The decrease in earnings in
1998  compared  to 1997  resulted  primarily  from  claims  on crop  reinsurance
provided to IGF.

Financial Condition

The Company's  total assets of  $864,415,000  at September 30, 1998 increased by
$303,567,000 from $560,848,000 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. The Company has not substantially changed its investment portfolio.

Net  cash  from  operating  activities  declined  to  $7,648,000  in  1998  from
$18,356,000  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.

SIG'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

                                      -20-

<PAGE>

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 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.  SIG  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 SIG's Consolidated  Coverage Ratio of
earnings before interest,  taxes, depreciation and amortization (EBITDA) whereby
if SIG'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:

         SIG may not  incur  additional  Indebtedness  or  guarantee  additional
         Indebtedness.
         SIG may not make certain  Restricted  Payments including
         loans or advances to affiliates,  stock repurchases and a limitation on
         the amount of dividends  is inforce.
         SIG 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 SIG's
Consolidated  Coverage  Ratio  is in  compliance  with the  terms  of the  Trust
Indenture. This does not represent a Default by SIG on the Preferred Securities.
SIG 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(a).  EXHIBITS
            (11) Statement Regarding Computation of Per Share Earnings

ITEM 6(b).  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
                                                 President



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



                                      -23-

<PAGE>


GORAN CAPITAL INC. - Consolidated                                  Exhibit 11.01
Analysis of Earnings Per Share

<TABLE>
<CAPTION>
                                                     Nine                        Nine
                                                 Months Ended                 Months Ended
                                                 September 30,                September 30,
                                                     1998                        1997

<S>                                               <C>             <C>           <C>   
Average Price (US $)                                 $26.72         (A)            $29.34

Proceeds from Exercise of Warrants and Options
   (US $)                                         $15,031,886       (B)         $3,551,952
                                                   ==========                    =========

Shares Repurchased - Treasury Method                 $562,477     (B)/(A)          121,060
                                                      =======                      =======

Shares Outstanding - Weighted Average               5,825,930                    5,552,097

Add:  Options and Warrants Outstanding                802,304                      733,148

Less:  Treasury Method - Shares Repurchased          (562,477)                    (121,060)
                                                      -------                      -------

Shares Outstanding for US GAAP Purposes             6,065,757       (C)          6,164,185
                                                    =========                    =========

Net Earnings in Accordance with US GAAP           $(1,941,000)      (D)        $11,465,000
                                                   ==========                   ==========

Earnings Per Share - US GAAP - Basic                    $(.33)                       $2.06
                                                          ===                         ====

Earnings Per Share - US GAAP - Fully Diluted            $(.33)    (D)/(C)            $1.86
                                                          ===                         ====


</TABLE>
Note:  The calculation of fully diluted earnings per share is non dilutive in
1998 and therefore is shown as the same as the basic earnings per share.



                                      -24-
<PAGE>