Exhibit 13

 1997 Symons International Group, Inc. Annual Report

                 SIG LOGO
                 1997 Annual Report



                [Large SIG logo with three photos]


<PAGE>

[small SIG logo]

Corporate Profile

Symons International  Group, Inc. owns niche insurance companies  principally in
the crop and nonstandard  automobile insurance markets. IGF Insurance Company of
Des Moines, Iowa is the fourth largest crop insurer in the United States.  Pafco
General  Insurance  Company of  Indianapolis,  Indiana  and  Superior  Insurance
Company  of  Tampa,  Florida,   combined  are  the  tenth  largest  provider  of
nonstandard  automobile insurance in the United States. The crop segment markets
and sells crop insurance to farmers.  This is the fastest  growing sector of the
commercial  insurance market.  The nonstandard  automobile  division markets and
sells insurance through the independent  agency system to drivers who are unable
to obtain coverage from insurers at standard or preferred rates.  This market is
the fastest growing segment of the personal lines market.

The common stock of Symons  International  Group,  Inc. was initially offered to
the public on November 5, 1996 and trades on The NASDAQ Stock Market's  National
Market under the symbol "SIGC".


Table of Contents


Financial Highlights                                                   1

Chairman's Report                                                      2

Selected Financial Data                                                4

Management's Discussion and Analysis                                   5

Consolidated Financial Statements                                     17

Notes to Consolidated Financial Statements                            21

Report of Independent Accountants                                     45

Stockholder Information                                               46

Board of Directors and Executive Officers                             47

Subsidiary and Branch Offices                                        IBC


GRAPH        1993      1994       1995       1996       1997
           $88,936   $103,134   $124,634   $305,499   $460,600

           Gross Premiums Written By Year



<PAGE>

                                                                [small SIG logo]

<TABLE>
Financial Highlights
(in thousands, except per share data)
For the years ended December 31,
<CAPTION>

----------------------------------------------------------------------------------------------------------------------------
                                                         1997       1996        1995        1994        1993
----------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>        <C>         <C>         <C>         <C>

Gross premiums written                                 $460,600   $305,499    $124,634    $103,134    $88,936
----------------------------------------------------------------------------------------------------------------------------
Net operating earnings (loss) (1)                       $11,845    $13,916      $5,048      $2,222     $(244)
---------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) (2)                                 $16,305    $13,256      $4,821      $2,117     $(323)
----------------------------------------------------------------------------------------------------------------------------
Basic operating earnings (loss) per share (1) (2)         $1.11      $1.85       $0.72       $0.32    $(0.03)
----------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share                           $1.56      $1.76       $0.69       $0.30    $(0.05)
----------------------------------------------------------------------------------------------------------------------------
Stockholders' equity                                    $78,363    $60,900      $9,535      $4,255     $2,219
----------------------------------------------------------------------------------------------------------------------------
Return on average equity                                  21.9%      61.4%       69.9%       65.4%    (18.9%)
---------------------------------------------------------------------------------------------------------------------------
Book value per share                                      $7.50      $5.83       $1.36       $0.61      $0.32
----------------------------------------------------------------------------------------------------------------------------
Market value per share (3)                               $19.22     $16.75         N/A         N/A        N/A
----------------------------------------------------------------------------------------------------------------------------
Weighted average outstanding shares-basic                10,450      7,537       7,000       7,000      7,000
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Operating  earnings and per share  amounts  exclude the after tax effects of
realized capital gains and losses.
(2) In 1993, the Company recognized an increase to net earnings as a result of a
cumulative  effect of a change in accounting  principle of $1,175.  Earnings and
operating earnings per share excluding this effect were $(0.20).
(3) The Company's shares were first publicly traded on November 5, 1996.

                              CORPORATE STRUCTURE
[graphic omitted]

            Symons International Group, Inc.
                  Indianapolis, Indiana
                 ("SIG or the "Company")
               Wholly-owned subsidiaries
                       |
     ----------------------------------
     |                                 |
 IGF Holdings, Inc.            GGS Management, Inc.
   ("IGFH")                     ("GGS Management")
     |                                 |
                              ----------------------------
     |                          |                        |
IGF Insurance Company      PAFCO General         Superior Insurance
   ("IGF")              Insurance Company             Company
                            ("Pafco")               ("Superior")
                                                         |
                                          ----------------------------
                                          |                           |
                                     Superior Guaranty        Superior American
                                     Insurance Company        Insurance Company



                                       -1-

<PAGE>

[small SIG logo]

Chairman's Report to Our Shareholders

SYMONS INTERNATIONAL GROUP, INC. MILESTONES

Greetings:

As has been my  practice  in the past,  I have used  "milestones"  to  provide a
comparison  of our  development.  I have taken a broader  approach this year and
carried the results into an appraisal of our efforts as I see it.

I am much encouraged with the future and I feel certain you will be too when you
digest the information assembled below.

<TABLE>
<CAPTION>

    YEAR:    No. of Employees   Gross Revenue   Pre-Tax Earnings   Net Earnings

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

    1994        240               $106,187          $1,375            $2,117

    1995        315               $127,977          $7,440            $4,821

    1996        665               $321,518         $23,703           $13,256

    1997        764               $492,356          $33,94            $16,305

(1) 1998        800               $730,000            N/A                N/A
</TABLE>


(1)  1998 information is an estimate based on stated  corporate  goals.
     Revenue is gross premiums, interest and fee income.

While I don't always agree with analysts, generally they do a good job. But as a
person who has been in the  business of insurance  for more than fifty years,  I
have an advantage in assessing  the true value of an insurance  enterprise  over
those that do not have my  experience.  I have a better  tuned  antenna and feel
many  analysts  miss some  important  aspects of the true worth of an  insurance
company.

Over the years I have been the instigator and closer in the sale and purchase of
many insurance  entities.  The true value of those  businesses was somewhat more
than a mere multiplication of the Earnings Per Share, (EPS).

We believe that our  companies  are grossly  undervalued  in the market place in
that it does not  appreciate  the cost  and  value  added  for  growth  in gross
revenue.  To help you  understand  what I mean,  let's  look at  values  paid by
knowing  buyers for recent  acquisitions  in fields of insurance  similar to our
companies.

Note  that  the  price  paid  for  these  entities  doesn't  follow  a  straight
multiplication of EPS, in fact the most constant number that parallels the price
is the Gross Written Premium.

<TABLE>
<CAPTION>

                                                                      Premium
                             Mean        Purchase      Trailing     to Purchase
                            Premiums      Price      EPS Multiple   Price Ratio

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

Omni Insurance              $140M        $185M          30             132%
(sold to Hartford)
10/16/97

Guaranty National           $510M        $469M          16             91%
(sold to Orion Capital
9/18/97

Titan                       $172M        $240M          17             140%
(sold to U.S.F.&G.
8/8/97

Integon                     $783M        $519M          N/A            62%
(sold to G.M.A.C.           -----        -----          ---            ---
6/3/97

Average                                                   21           88%
                                                          ==           ===

</TABLE>
                                      -2-

<PAGE>

                                                                [small SIG logo]

In today's  world,  the value of an insurer is more closely  linked to its gross
written premiums. Depending on the class of business, this value multiple should
be between 75% and 100% of the insurers premium volume. We have outperformed all
the above companies in every worthwhile category. Yet, I ponder why no value has
been attributed to our $150M of premium growth in 1997.

In the past several  years we have acquired  businesses in the industry  sectors
that we felt had the most  potential  for growth:  Crop  insurance  (the fastest
growing  segment  of  the  Commercial   insurance   industry)  and  Non-Standard
automobile  insurance  (the growth leader in the Personal line  component).  You
will note that our growth  parallels this pattern and that we have  consistently
demonstrated our ability to grow faster than our industry peer group.

Let me  recall  for you our two most  recent  acquisitions,  Superior  Insurance
Group,  and CNA Crop Book.  When we bought  Superior  Insurance  Group on May 1,
1996,  it was coming off a year in which it had produced  $95M of Gross  Written
Premiums and earned about $5M of pre-tax income. For 1997,  Superior wrote $250M
of premiums  and earned a pre-tax  profit of $20M.  This growth came through the
repositioning  of Superior in its markets and changing the way it did  business.
This rate of growth is continuing in 1998.

On March 2, 1998 we took over  CNA's  book of MPCI and Crop Hail  insurance.  In
return,  CNA gets a share of our crop reinsurance  business that would otherwise
be placed with other reinsurers.  We feel we can use our marketing expertise and
varied products to grow this approximately  $110M of business in the same way we
have grown our previous  acquisition in the past,  outpacing other crop insurers
in the process.

Over the last 5 years, we have seen our performance as follows:

      annual gross revenue average compound growth:   43%
      annual net income average compound growth:   148%
      annual ROE average compound growth:   40%

This growth and  performance is the result of attracting a competent work force,
excelling in niche markets and making  acquisitions  that others look at and say
are insightful  purchases (oddly,  only after we have turned these  acquisitions
into great producers). We are continuing to look at growth and acquisitions with
enthusiasm.

During the second half of 1997, we retained Donaldson, Lufkin & Jenrette ("DLJ")
to lead a $135M,  thirty-year  issue of Trust Preferred  Securities.  As part of
this successful issue, we did a road show to tell the story of our company.  DLJ
prepared  the  presentations  for that  road  show and  commented,  among  other
positive statements,  that we have "a proven management team." This team has the
ability,  experience and the tools to continue our growth and  performance  into
the future.

The  commendations  on the quality of our  personnel  by the firm of  Donaldson,
Lufkin & Jenrette is self evident and  anything I might add on the  professional
standing of our managers and  employees  would be  redundant.  I would be remiss
however if I didn't thank them all for their efforts and  professional  interest
in the company's welfare and success.

It has been  said  that a  business  is,  at its  inception,  "Desperate,"  then
"Honest"   and   finally   "Respectable."   We  have   worked   hard  to   reach
"respectability"  and it is this that motivates us. We have made profits for our
shareholders  and have  greatly  enhanced  the  company's  corporate  governance
function.  Our growth in the business of insurance,  measured by premium income,
profits and professionalism has been outstanding.  This has come about primarily
through the efforts and  dedication of our personnel and I extend to all of them
the thanks of the Board of Directors.

We have two public companies,  Goran Capital Inc. and Symons International Group
Inc.,  and as a public  organization  we must  maintain  larger and more diverse
Boards.  As Chairman,  I rely on these gentlemen for their help and advice.  Our
meetings  are often  lengthy  and diverse  and we wrestle  with many  additional
factors  because the company is growth  oriented.  I wish to thank each of these
gentlemen for their  contribution  over the past year and assure them that their
efforts are greatly appreciated.

Thanks Board, thanks employees.

                                      -3-

<PAGE>

[small SIG logo]
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
Years Ended December 31,
--------------------------------------------------------------------------
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
--------------------------------------------------------------------------
OF SYMONS INTERNATIONAL GROUP, INC.

The selected  consolidated  financial data  presented  below is derived from the
consolidated financial statements of the Company and its Subsidiaries and should
be read in conjunction with the consolidated financial statements of the Company
and the notes thereto, included elsewhere in this Report.

Consolidated Statement of Operations Data:
(in thousands, except per share amounts and ratios)

<TABLE>
<CAPTION>
                                                          1997           1996         1995         1994       1993
------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>          <C>          <C>         <C>
Gross Premiums Written                                 $ 460,600      $ 305,499    $ 124,634    $ 103,134   $ 88,936
------------------------------------------------------------------------------------------------------------------------------
Net Premiums Earned                                      271,814        191,759       49,641       32,126     31,428
------------------------------------------------------------------------------------------------------------------------------
Fee Income                                                20,309          9,286        2,170        1,632        886
------------------------------------------------------------------------------------------------------------------------------
Net Investment Income                                     11,447          6,733        1,173        1,241      1,489
------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS)                                    $  16,305      $  13,256    $   4,821    $   2,117    $  (323)
                                                         =======        =======      =======      =======       =====
------------------------------------------------------------------------------------------------------------------------------
Per Common Share Data:
------------------------------------------------------------------------------------------------------------------------------
Basic Earnings (Loss) Before Extraordinary Item          $  1.63        $  1.76     $   0.69    $    0.30    $ (0.05)
                                                         -------         ------       ------        -----      -----
------------------------------------------------------------------------------------------------------------------------------
BASIC NET EARNINGS (LOSS)                                $  1.56        $  1.76     $   0.69    $    0.30    $ (0.05)
                                                         =======         ======       ======        =====      ======

------------------------------------------------------------------------------------------------------------------------------
Basic Weighted Average Shares Outstanding                 10,450          7,537        7,000        7,000      7,000
------------------------------------------------------------------------------------------------------------------------------
GAAP Ratios:
------------------------------------------------------------------------------------------------------------------------------
Loss and LAE Ratio                                         78.0%          71.5%        72.5%         82.4%      79.8%
------------------------------------------------------------------------------------------------------------------------------
Expense Ratio                                              23.0           24.0         18.6          21.7       31.5
                                                           ----           ----         ----          ----        ---
------------------------------------------------------------------------------------------------------------------------------
COMBINED RATIO                                            101.0%          95.5%        91.1%        104.1%     111.3%
                                                          =====           ====         ====         =====      =====

------------------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheet Data:
------------------------------------------------------------------------------------------------------------------------------
Investments                                           $ 216,518       $ 168,137     $ 25,902     $ 18,572    $ 21,497
------------------------------------------------------------------------------------------------------------------------
Total Assets                                            529,875         344,679      110,516       66,628      81,540
------------------------------------------------------------------------------------------------------------------------
Losses and Loss Adjustment Expenses                     136,772         101,719       59,421       29,269      54,143
------------------------------------------------------------------------------------------------------------------------
Total Debt or Preferred Securities                      135,000          48,000       11,776       10,683       9,341
------------------------------------------------------------------------------------------------------------------------
Total Shareholders Equity                                78,363          60,900        9,535        4,255       2,219
------------------------------------------------------------------------------------------------------------------------
Book Value Per Share                                   $   7.50       $    5.83     $   1.36     $   0.61    $   0.32
------------------------------------------------------------------------------------------------------------------------
Statutory Capital and Surplus:
------------------------------------------------------------------------------------------------------------------------
Pafco                                                 $  19,924       $  18,112     $ 11,875      $ 7,848     $ 8,132
------------------------------------------------------------------------------------------------------------------------
IGF                                                   $  42,809       $  29,412     $  9,219      $ 4,512     $ 2,789
------------------------------------------------------------------------------------------------------------------------
Superior                                              $  65,146       $  57,121
------------------------------------------------------------------------------------------------------------------------
</TABLE>

The statutory surplus of Pafco includes Pafco's share of IGF's statutory surplus
prior to April  30,  1996.  Pafco  owned  the  following  percentages  of IGF at
December 31, 1994,  98.8%;  1995, 100%. At April 30, 1996, Pafco transferred IGF
to SIG.  Prior to the transfer,  IGF also paid a dividend in the form of cash of
$7,500,000 and a promissory note of $3,500,000 which have been repaid in full.

                                       -4-

<PAGE>

                                                                [small SIG logo]

          [photographs of automobiles on freeway down left margin]

MANAGEMENT'S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF THE COMPANY
------------------------------------------------------------
Overview

Symons International Group, Inc. (the "Company" or "SIG") is a 67% subsidiary of
Goran Capital Inc.  ("Goran").  Prior to the Company's Initial Public Offering
(the "Offering") on November 5, 1996, it was a wholly-owned subsidiary of Goran.
The Company underwrites and markets nonstandard private passenger automobile
insurance and crop insurance.

Acquisitions and Public Offerings

      On April 30 ,1996 the Company purchased the operations of Superior
Insurance Company for $66.6 million in cash (the  "Acquisition").  Funds for the
Acquisition  were provided from funds  affiliated  with Goldman Sachs and a bank
term loan of $48 million.  Both Goldman  Sachs and the bank term loan were taken
out in August 1997.

      On  November  5, 1996 the Company  issued  3,450,000  shares in an initial
public offering of 33% of its stock at $12.50 per share.

      On November 12, 1997 the Company  issued $135  million of Trust  Preferred
Securities at 9.50%. The proceeds of this offering were used to purchase Goldman
Sachs minority interest share of the nonstandard  automobile  operations,  repay
the term loan used to acquire  Superior and provide  capital to the  nonstandard
automobile division for future growth. The Preferred  Securities carry a 30 year
term  with  a  noncallable  period  of  10  years.   Distributions  are  payable
semiannually  at 9.5% with all principal paid at maturity.  The Company also has
the ability to forego distributions for periods of up to five years, although it
has no intention to do so, and the Preferred  Securities have limited covenants.
The  Company  believed  the time was proper to obtain the benefit of 100% of the
nonstandard  automobile  operations,  provide longer term financing at favorable
terms and provide additional capital for future growth.

Nonstandard Automobile Insurance Operations

      GGS Holdings, through its wholly-owned  subsidiaries,  Pafco and Superior,
is engaged in the  writing of  automobile  insurance  for  "nonstandard  risks."
Nonstandard  insureds are those  individuals who are unable to obtain  insurance
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.  Premium rates for nonstandard  risks
are higher than for

                                      -5-



<PAGE>

[small SIG logo]
MANAGEMENT'S DISCUSSION AND ANALYSIS


standard risks.  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.  The
nonstandard  automobile  market is the fastest  growing  sector of the  personal
lines market.

Crop Insurance Operations

General

      Crop insurance consists of three main products.  Hail insurance,  which is
controlled  by the private  insurance  industry,  receives  no subsidy  from the
government.  Multi-Peril  Crop  Insurance  ("MPCI"),  is a government  sponsored
product,  administered through the Federal Crop Insurance  Corporation ("FCIC").
Named perils  insurance  covers  farmers for specific  risks to specific  crops.
Farmers  who  purchase  insurance  receive  subsidies  to reduce  their cost and
provide  protection for major  catastrophic  loss. When a farmer wants to borrow
money to buy his seed, the bank wants insurance on the harvest so the bank knows
the loan can be repaid  either  through  normal  harvest or through an insurance
policy  covering the yield on the crop.  There are many types of  coverages  and
percentages that farmers can  purchase.  The Company works with independent
agents to meet the insurable needs of the farmer which includes the best
coverage and premium for the farm.  The government supports this effort through
commissions it pays the Company to do this work and through premium subsidy for
the farmer's insurance costs. The government also provides back-up risk
protection to the 18 or so crop insurance  providers  in the event of major loss
Based on the results for any given year,  the Company and the  government share
in the results of profit and loss.  In order to  protect  IGF from the loss part
of this equation, IGF buys third party reinsurance to reduce the downside from a
loss year.

Certain Accounting Policies for Crop Insurance Operations

      The majority of the Company's  crop insurance  business  consists of MPCI.
MPCI is a  government-sponsored  program with accounting treatment which differs
in certain respects from more traditional property and casualty insurance lines.
Farmers  may  purchase  "CAT  Coverage"  (the  minimum  available  level of MPCI
coverage) upon payment of a fixed administrative fee of $50 per policy (the "CAT
Coverage  Fee")  instead of a premium.  This fee is  included  in other  income.
Commissions paid to agents to write CAT policies are partially offset by the CAT
Coverage Fee. For purposes of the profit-sharing  formula under the MPCI program
referred to below,  the Company is credited  with an imputed  premium (its "MPCI
Imputed  Premium")  for  all CAT  Coverage  policies  it  sells,  determined  in
accordance with the profit-sharing  formula  established by the FCIC. For income
statement  purposes under GAAP,  Gross Premiums Written consist of the aggregate
amount of  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 any MPCI Imputed  Premium  credited on CAT  Coverage.  By contrast,  Net
Premiums  Written and Net  Premiums  Earned do not include any MPCI  Premiums or
premium  subsidies,  all of which are  deemed to be ceded to the  United  States
Government as reinsurer.  The Company's profit or loss from its MPCI business is
determined after the crop season ends on the basis of a  profit-sharing  formula
established  by  federal  regulation  and the FCIC.  For GAAP  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. Amounts receivable from the
FCIC are reflected on the Company's  consolidated  balance sheet as  reinsurance
recoverables.

      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 (the  "Buy-up  Expense  Reimbursement  Payment"),

                                      -6-

<PAGE>
                                                                [small SIG logo]

            [photographs of crops down right margin]

(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")
and (iii) a small  excess LAE  Reimbursement  Payment of two  hundredths  of one
percent  (0.02%) of MPCI  Retention to the extent the Company's MPCI Loss Ratios
on a per state basis exceed certain  levels (the "MPCI Excess LAE  Reimbursement
Payment").  For GAAP 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 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,
(ii) commission  expense on MPCI Gross Premiums Written at contractual rates and
(iii)  Buy-up  Expense  Reimbursement  at the  contractual  rate of  MPCI  Gross
Premiums  Written 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.  If an insufficient  volume of policies have
been  processed,  the  Company's  policy  is to  recognize  20% of its full year
estimate of MPCI Gross  Premiums  Written in the third  quarter.  The  remaining
amount of MPCI Gross Premiums Written is recognized in the fourth quarter,  when
all amounts are reconciled.  In prior years,  recognition of MPCI Gross Premiums
Written  was 30%,  30%,  30% and 10%,  for the first,  second,  third and fourth
quarters, respectively.  Commencing with its June 30, 1995 financial statements,
the Company also began  recognizing  MPCI  underwriting  gain or loss during the
first, second and third quarters,  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 fourth quarter,  a reconciliation  amount is recognized for the underwriting
gain or loss based on final premium and loss information.


                                       -7-

<PAGE>

[small SIG logo]
MANAGEMENT'S DISCUSSION AND ANALYSIS

Selected Segment Data of the Company

      The following  table  presents  historical  segment data for the Company's
nonstandard automobile and crop insurance operations. This data does not reflect
results of operations  attributable  to corporate  overhead,  interest costs and
amortization  of  intangibles  nor does it include the results of  operations of
Superior prior to May 1, 1996.

<TABLE>
<CAPTION>

                                                                                      Year ended December 31,
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>            <C>           <C>
Nonstandard - Automobile Insurance Operations:
(in thousands, except ratios)                                                      1997           1996          1995
-----------------------------------------------------------------------------------------------------------------------
     Gross premiums written                                                      $323,915       $187,176       $49,005
                                                                                  =======        =======        ======
-----------------------------------------------------------------------------------------------------------------------
     Net premiums written                                                        $256,745       $186,579       $37,302
                                                                                  =======        =======        ======
-----------------------------------------------------------------------------------------------------------------------
     Net premiums earned                                                         $251,020       $168,746       $34,460
-----------------------------------------------------------------------------------------------------------------------
     Fee income                                                                    15,515          7,578         1,787
-----------------------------------------------------------------------------------------------------------------------
     Net investment income                                                         10,969          6,489           624
-----------------------------------------------------------------------------------------------------------------------
     Net realized capital gain (loss)                                               9,462         (1,014)         (508)
                                                                                    -----         ------          ----
-----------------------------------------------------------------------------------------------------------------------
Total Revenues                                                                    286,966        181,799        36,363
                                                                                  -------        -------        ------
-----------------------------------------------------------------------------------------------------------------------
     Losses and loss adjustment expenses                                          195,900        124,385        25,423
-----------------------------------------------------------------------------------------------------------------------
     Policy acquisition and general and administrative expenses                    72,463         46,796        12,929
                                                                                   ------         ------        ------
-----------------------------------------------------------------------------------------------------------------------
Total Expenses                                                                    268,363        171,181        38,352
                                                                                  -------        -------        ------
-----------------------------------------------------------------------------------------------------------------------
     Earnings (loss) before income taxes                                          $18,603        $10,618       $(1,989)
                                                                                   ======         ======        ======
-----------------------------------------------------------------------------------------------------------------------
GAAP RATIOS (Nonstandard Automobile Only)
-----------------------------------------------------------------------------------------------------------------------
     Loss ratio                                                                     70.2%          65.1%         65.8%
-----------------------------------------------------------------------------------------------------------------------
     LAE ratio                                                                       7.8%           8.6%          8.0%
-----------------------------------------------------------------------------------------------------------------------
     Expense ratio, net of billing fees                                             22.7%          23.2%         32.3%
                                                                                    ----           ----          ----
-----------------------------------------------------------------------------------------------------------------------
     Combined ratio                                                                100.7%          96.9%        106.1%
                                                                                   =====           ====         =====
-----------------------------------------------------------------------------------------------------------------------
Crop Insurance Operations:
-----------------------------------------------------------------------------------------------------------------------
     Gross premiums written                                                      $126,401       $110,059       $70,374
                                                                                  =======        =======        ======
-----------------------------------------------------------------------------------------------------------------------
     Net premiums written                                                         $20,796        $23,013       $11,608
                                                                                   ======         ======        ======
-----------------------------------------------------------------------------------------------------------------------
     Net premiums earned                                                          $20,794        $23,013       $11,608
-----------------------------------------------------------------------------------------------------------------------
     Fee income                                                                     4,764          1,672           384
-----------------------------------------------------------------------------------------------------------------------
     Net investment income                                                            191            181           674
-----------------------------------------------------------------------------------------------------------------------
     Net realized capital gain (loss)                                                 (18)            (1)          164
                                                                                     ---             --            ---
-----------------------------------------------------------------------------------------------------------------------
Total Revenues                                                                     25,731         24,865        12,830
                                                                                   ------         ------        ------
-----------------------------------------------------------------------------------------------------------------------
     Losses and loss adjustment expenses                                           16,185         12,724         8,629
-----------------------------------------------------------------------------------------------------------------------
     Policy acquisition and general and administrative expenses(1)                (11,551)        (6,095)       (7,466)
-----------------------------------------------------------------------------------------------------------------------
     Interest and amortization of intangibles                                         235            551           627
                                                                                      ---            ---           ---
-----------------------------------------------------------------------------------------------------------------------
Total Expenses                                                                      4,869          7,180         1,790
                                                                                    -----          -----         -----
-----------------------------------------------------------------------------------------------------------------------
     Earnings before income taxes                                                 $20,862        $17,685       $11,040
                                                                                   ======         ======        ======
-----------------------------------------------------------------------------------------------------------------------
Statutory Capital and Surplus:
-----------------------------------------------------------------------------------------------------------------------
     Pafco                                                                        $19,924        $18,112       $11,875
-----------------------------------------------------------------------------------------------------------------------
     IGF                                                                           42,809         29,412         9,219
-----------------------------------------------------------------------------------------------------------------------
     Superior                                                                      65,146         57,121        49,277
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   Negative   crop   expenses   are  caused  by  inclusion  of  MPCI  expense
reimbursements and underwriting gain


                                       -8-

<PAGE>

                                                                [small SIG logo]

            [photographs of cars on freeway down left margin]

Results of Operations

Overview

1997 Compared To 1996

The Company  recorded net earnings of  $16,305,000  or $1.56 per share  (basic),
respectively  in 1997.  This is  approximately  a 23.0% increase in net earnings
from 1996  comparable  amounts of $13,256,000  or $1.76 per share  (basic).  The
reduction  in earnings per share  reflects the increase in the weighted  average
shares  outstanding  from the Company's IPO in November  1996.  The  nonstandard
automobile  insurance  segment  demonstrated  improved earnings due to continued
premium  growth,   improved  expense  ratios  and  higher  realized  gains  from
investment  sales.  Premium growth in nonstandard  automobile was generated from
increased  pressure on uninsured  motorists to obtain insurance,  expansion into
new states and  increased  market share  penetration.  During 1997,  the Company
increased reserves for both prior and current accident years at Pafco. The total
increase for prior accident years at Pafco was approximately  $7.5 million.  The
improvement  in crop  insurance  earnings  relates to growth in market share and
favorable  underwriting results.  Growth in market share occurred in all product
lines  for crop and is the  result  of  improved  marketing  and  agent  service
efforts.  Record  underwriting  results are due to favorable crop conditions and
continued improvement in risk selection.

1996 Compared To 1995

Net earnings and earnings per share  increased  175.0% to $13,256,000 and 155.1%
to $1.76 (basic) in 1996 from  $4,821,000  and $0.69  (basic) in 1995.  Improved
earnings in 1996 were  attributable to both the nonstandard  automobile and crop
segments. The nonstandard automobile segment benefitted from significant premium
growth from the acquisition of Superior,  elimination of quota share reinsurance
and internal  growth.  The nonstandard  automobile  segment also benefitted from
lower loss and expense ratios due to improved claims management, introduction of
multi-tiered   products  and  operating   efficiencies  through   reengineering,
management changes and gains from technological advancements. The crop insurance
segment also  benefitted from  significant  premium growth in both crop hail and
MPCI premiums.  The crop  insurance  segment's  profitability  was enhanced by a
lower crop hail loss ratio and improved MPCI underwriting gains.

Years Ended December 31, 1997 and 1996

Gross Premiums Written

      Consolidated  Gross Premiums Written increased 50.8% in 1997 due to growth
in both the nonstandard  auto and crop segments.  Gross Premiums Written for the
nonstandard  auto  segment  increased  73.1% in 1997.  While a  portion  of this
increase  relates to four  additional  months of  premium  in 1997 of  Superior,
additional  premium growth relates to internal  growth due to improved  service,
certain product improvements,  tougher uninsured motorist laws in states such as
California  and Florida and entrance  into new states such as Nevada and Oregon.
Such increase was primarily due to volume rather than rate  increases,  although

                                      -9-
<PAGE>

[small SIG logo]

the Company  adjusts rates on an ongoing basis.  Gross Premiums  Written for the
crop  segment  increased  14.8%  in 1997.  Such  increase  was due to  continued
industry privatization and aggressive marketing efforts,  resulting in continued
increase in market share.  Remaining gross written premiums represent commercial
business which is ceded 100% to an affiliate.

Net Premiums Written

      Net  Premiums  Written  increased  in 1997 as  compared to 1996 due to the
growth in Gross Premiums Written offset by quota share reinsurance.

      In 1997, the Company ceded $67,170,000 of nonstandard  automobile premiums
as part of a quota share treaty instituted  January 1, 1997. For the first three
quarters of 1997 the Company ceded 20% of  nonstandard  automobile  premiums and
ceded 25% of such premiums in the fourth  quarter.  In 1998 the Company plans to
cede 10% of  nonstandard  automobile  premiums  with  adjustments  as needed for
surplus leverage. No such treaty was in effect during 1996. In 1997, the Company
ceded  $15,640,000  of crop hail  premiums as part of a 40% quota  share  treaty
instituted  January 1, 1997. In 1996, crop hail premiums were ceded at a rate of
10%.

Net Premiums Earned

      Net  Premiums  Earned  increased  in 1997 as  compared  to the prior year,
reflecting the strong growth in Gross Written  Premiums offset by the effects of
the  nonstandard  automobile  and crop hail quota share  treaties.  Net premiums
earned to net premiums written for the nonstandard  automobile segment was 97.8%
in 1997 as compared to 90.4% in 1996. The increase in the earned ratio is due to
higher premium growth earlier in 1997.

Fee Income

      Fee income  increased  $11,023,000 in 1997 compared to 1996. Such increase
was due to  billing  fee  income  on  nonstandard  automobile  business  from an
increase in in-force policy count.  There was also an increase in the receipt of
CAT  Coverage  Fees and CAT LAE  Reimbursement  Payments  due to higher  premium
volume.

Net Investment Income

      Net investment income increased  $4,714,000 in 1997 compared to 1996. Such
increase was due partially to four additional  months of investment  income from
Superior but also due to greater  invested assets  resulting from premium growth
and higher profitability.

Net Realized Capital Gains (Loss)

      Realized gains of $9,444,000 in 1997 were due to the significant  strength
of the equity  markets in 1997 and the  Company's  position to realize  gains as
securities had reached targeted pricing levels.

Losses and LAE

      The Loss and LAE Ratio for the  nonstandard  automobile  segment was 78.0%
for 1997 as  compared  to 73.7% for 1996.  The Crop Hail Loss  Ratio in 1997 was
77.8%  compared to 55.3% in 1996. The increase in the Loss and LAE Ratio for the
nonstandard  automobile  segment reflects the recent growth in premium volume in
an effort to increase  market share and improve  economies  of scale,  increased
physical damage  severity costs and certain pending rate increases.  The Company
increased  1996  and  prior  nonstandard  automobile  reserves  at Pafco by $6.0
million in the first two quarters and $1.5 million in the fourth  quarter  which
increased the Loss and LAE Ratio 3.0% in 1997.  Deficient reserve development at
Superior was  approximately  $2.5 million in 1997. The increase in the crop hail
loss ratio is the result of storm damage in the third quarter in certain eastern
states on new business  obtained in 1997. The Company  continues to aggressively
address  ways to decrease  the  nonstandard  automobile  loss  ratios  including
elimination  of  unprofitable   agents,   rate  increases  and  improved  claims
management and closure  rates.  The Company is also reviewing the pricing of the
crop hail business to improve future loss experience.

Policy Acquisition and General and Administrative Expenses

      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 $62,631,000 or 23.0%
of Net Premiums  Earned for 1997 compared to $42,013,000 or 21.9% of Net Premium
Earned in 1996. Such increase was due to a higher mix of nonstandard  automobile
premiums in 1997 as compared to 1996.  The Expense  Ratio,  net of billing fees,
for the nonstandard automobile segment improved to 22.7% for 1997 as compared to
23.2% for 1996.

      Due to the accounting for the crop insurance

                                      -10-

<PAGE>

                                                                [small SIG logo]

segment, operating expenses for 1997 includes a contribution to earnings of
$11,551,000 as compared to $6,095,000 for 1996.  Such increase was due to
greater Buy-up Expense Reimbursement Payments and MPCI underwriting gain due to
increased premium volumes and more favorable underwriting results.

Amortization of Intangibles

      Amortization  of  intangibles  includes  goodwill from the  acquisition of
Superior,  additional  goodwill from the  acquisition  of the minority  interest
position in GGSH, debt or preferred  security issuance costs and  organizational
costs.  The increase in 1997  reflects the effects of the  Preferred  Securities
Offering and the purchase of the minority interest position in GGSH.

Interest Expense

      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

      Income tax expense was 35.3% of pre-tax income for 1997 as compared to
33.9% in 1996.  The increased rate is due to the higher amount of nondeductible
goodwill amortization expense.

Distributions on Preferred Securities

      Distributions on Preferred Securities are calculated at a rate of 9.5% net
of federal income taxes from the offering date of August 12, 1997.

Years Ended December 31, 1996 and 1995

Gross Premiums Written

      Gross Premiums Written in 1996 increased to $305,499,000 from $124,634,000
in 1995  reflecting a 282% increase in nonstandard  automobile  insurance and an
increase of 56.4% in crop  insurance.  Other Gross Premiums  Written  consist of
premiums on  commercial  business  which were 100% ceded to Granite Re Insurance
Company  Ltd.  ("Granite  Re")  effective  January  1,  1996.  The  increase  in
nonstandard automobile Gross Premiums Written was due to the Acquisition,  which
generated Gross Premiums Written of $118,661,000  subsequent to the Acquisition,
as well as a 21% increase in policies  in-force issued by Pafco. The increase in
Pafco policies  in-force  primarily  resulted from improved  service and product
improvements.  The  increase  in  crop  insurance  Gross  Premiums  Written  was
primarily due to (i) farmers electing higher  percentage of crop price levels to
be insured  under MPCI  Buy-up  Coverages,  (ii) an  increase  in MPCI  policies
in-force,  and (iii) increase in the number of acres  insured,  together with an
increase of  $10,990,000,  or 64.8%,  in crop hail  premiums in 1996 compared to
1995.

Net Premiums Written

      The  Company's  Net  Premiums   Written  in  1996   increased   292.1%  to
$209,592,000  from $53,447,000 in 1995 due to the  Acquisition,  which generated
Net Premiums Written for Superior of $118,298,000 subsequent to the Acquisition,
and the increase in Gross  Premiums  Written in Pafco's  nonstandard  automobile
insurance business.  In addition,  the increase in Net Premiums Written resulted
from the Company's  election not to renew,  as of January 1, 1996, its 25% quota
share  reinsurance  on its  nonstandard  automobile  business.  As a  result  of
increases over time in its statutory capital,  the Company determined that it no
longer  required the additional  capacity  provided by this coverage in order to
maintain  acceptable  premium to surplus  ratios.  Since all MPCI  premiums  are
reported  as 100%  ceded,  MPCI  Gross  Premiums  Written  have no effect on Net
Premiums Written.

Net Premiums Earned

      The Company's Net Premiums Earned in 1996 increased 286.3%  reflecting the
increase  in Net  Premiums  Written.  The  ratio of Net  Premiums  Earned to Net
Premiums  Written in 1996 decreased to 90.4% from 92.4% in 1995 due to growth in
Net Premiums Written in 1996 exceeding growth in Net Premiums Written in 1995.

Fee Income

      The Company's fee income in 1996 increased  327.9% due  principally to (i)
billing fee revenue of  $4,655,000 at Superior  subsequent  to the  Acquisition,
(ii)  increased  billing  fee  revenue  at Pafco of  $998,000  from  nonstandard
automobile  insurance  policies,  resulting  from the  increase in the  in-force
policy count described above, and an increase in fees charged per installment in
late 1995, and

                                      -11-

<PAGE>

[small SIG logo]

(iii)  increased  CAT  Coverage  Fees and CAT LAE  Reimbursement
Payments  resulting from the  introduction  of CAT Coverages in the Federal Crop
Insurance Reform Act of 1994 (the "1994 Reform Act").

Net Investment Income

      The  Company's  net  investment  income  in 1996  increased  474.0%.  This
increase was due primarily to the investment  earnings of $4,996,000 at Superior
subsequent  to  the  Acquisition.  Also  contributing  to  the  increase  in net
investment  income is an increase  in average  invested  assets  (not  including
Superior) to $30,911,000 in 1996 from $22,653,000 in 1995.

Net Realized Capital Gain (Loss)

      The  Company  recorded  a net  realized  capital  loss  from  the  sale of
investments  of $1,015,000 in 1996 compared to a net realized  capital loss from
the sale of investments  of $344,000 in 1995.  The net realized  capital loss in
1996 was the result of sales of  securities to shorten the  portfolio's  overall
maturity to provide a better duration match with claims payments.

Losses and LAE

      The Loss and LAE Ratio for the nonstandard  automobile segment in 1996 was
73.7% as compared to 73.8% in 1995.  The reduction in the Loss and LAE Ratio for
1996 was a function of rate  increases and improved claim closure  ratios.  Crop
hail  loss  ratios  decreased  in 1996 to 55.3%  from  74.3% in 1995 due to more
favorable  weather  conditions  and a broader  geographic  expansion of premiums
which serves to reduce exposure.

Policy Acquisition and General and Administrative Expenses

      The Expense  Ratio for the  nonstandard  automobile  segment  decreased to
29.6% in 1996 from 37.5% in 1995. Excluding interest on the Acquisition debt and
amortization of goodwill and other  intangibles  associated with the Acquisition
would  reduce  this  ratio to 27.7% in 1996.  This  decrease  was due to several
factors including:  (i) lower commission expense at Superior through utilization
of  multi-tier  products,  (ii)  lower  staff  expenses  as a result  of  higher
utilization and work flow re-engineering,  and (iii) technological  advancements
in the  underwriting,  premium  processing and claims areas.  As a result of the
accounting  for  the  crop  insurance  segment,   such  segment   experienced  a
contribution  to income  reflected  in the policy  acquisition  and  general and
administrative   expense  line  item  of   $6,095,000  in  1996  compared  to  a
contribution  to income of  $7,466,000 in 1995.  This  decrease in  contribution
resulted from a combination of several  factors.  The primary  difference is the
decrease in ceding  commission  income of $2,036,000  which is due to only a 10%
quota  share  agreement  for crop hail in 1996 versus a 25% quota share in 1995.
Other items include a commission  expense  increase of $6,217,000  due to higher
premium writings and an increase in other operating expenses of $4,153,000. This
net increase in expense of $10,370,000  was reduced by an increase of $8,490,000
in Buy-up Expense Reimbursement and an increase in the MPCI underwriting gain of
$2,624,000.

Interest Expense

      The  Company's  interest  expense in 1996  increased  to  $3,938,000  from
$1,248,000  in 1995 due  primarily to interest of  $2,774,000 on the $48 million
indebtedness  incurred by a subsidiary of GGSH to partially fund the Acquisition
(the "GGS Senior Credit Facility").

Income Tax Expense

      The effective tax rate in 1996  reflects a 33.9%  provision  compared to a
35.2%  provision  in 1995.  The  reduction in the  effective  tax rate is due to
higher tax-exempt interest and dividend income.


                                      -12-

<PAGE>

                                                                [small SIG logo]

            [photograph of wheat down left margin]

Liquidity and Capital Resources

      The primary  source of funds  available to the Company are dividends  from
its primary subsidiaries, IGF, IGF Holdings and GGS Management. The Company also
receives $150,000 quarterly pursuant to an administration  agreement with IGF to
cover the costs of executive management,  accounting, investing, marketing, data
processing and reinsurance.

      GGS Management collects billing fees charged to policyholders of Pafco and
Superior  who  elect  to  make  their  premium  payments  in  installments.  GGS
Management  also receives  management  fees under its management  agreement with
Pafco  and  Superior.   When  the  Florida  Department  of  Insurance  ("Florida
Department") approved the acquisition of Superior by GGS Holdings, it prohibited
Superior from paying any dividends (whether extraordinary or not) for four years
from the date of Acquisition  without the prior written  approval of the Florida
Department. Extraordinary dividends, within the meaning of the Indiana Insurance
Code,  cannot  be paid by  Pafco  without  the  prior  approval  of the  Indiana
Insurance Commissioner. The management fees charged to Pafco and Superior by GGS
Management  are  subject to review by the Indiana  and  Florida  Departments  of
Insurance.

      The nonstandard automobile insurance subsidiaries' primary source of funds
are  premiums,  investment  income and  proceeds  from the  maturity  or sale of
invested  assets.  Such funds are used  principally  for the  payment of claims,
operating expenses (primarily management fees),  commissions,  dividends and the
purchase  of  investments.  There is  variability  to cash  outflows  because of
uncertainties  regarding  settlement  dates for  liabilities  for unpaid losses.
Accordingly,  the  Company  maintains  investment  programs  intended to provide
adequate  funds to pay claims  without  forced  sales of  investments.  As claim
payments  tend to lag premium  receipts and due to the growth in premium  volume
the Company has experienced an increase in its investment  portfolio and has not
experienced  any problems with meeting its  obligations  for claims  payments or
management fees.

      As of  December  31,  1997,  IGF has the  ability  to pay  $13,404,000  in
dividends without prior regulatory approval.

      Cash flows in the  Company's  MPCI  business  differ  from cash flows from
certain more  traditional  lines.  The Company pays insured losses to farmers as
they are  incurred  during  the  growing  season,  with the full  amount of such
payments being reimbursed to the Company by the federal  government within three
business  days.  MPCI premiums are not received from farmers until covered crops
are harvested.  Such premiums are required to be paid in full to the FCIC by the
Company, with interest, if not paid by a specified date in each crop year.

      During  1997,  IGF  continued  the  practice  of  borrowing  funds under a
revolving line of credit to finance premium  payables to the FCIC on amounts not
yet received from farmers (the "IGF  Revolver").  The maximum  borrowing  amount
under the IGF  Revolver  was  $6,000,000  until July 1, 1996,  at which time the
maximum  borrowing  amount  increased to $7,000,000.  The IGF Revolver carried a

                                      -13-

<PAGE>

[small SIG logo]

weighted  average interest rate of 9.7%, 8.6%, and 8.75% in 1995, 1996 and 1997,
respectively.  Payables to the FCIC accrue  interest at a rate of 15%, as do the
receivables from farmers. By utilizing the IGF Revolver, which bears interest at
a floating rate equal to the prime rate plus .25%, IGF avoids incurring interest
expense at the rate of 15% on interest  payable to the FCIC while  continuing to
earn 15% interest on the receivables due from the farmer. Subsequent to December
31, 1997,  IGF had reduced its  contractual  borrowing rate to prime minus .75%.
The IGF Revolver  contains certain covenants which restrict IGF's ability to (i)
incur indebtedness or (ii) make loans to others,  including affiliates.  The IGF
Revolver also contains  other  customary  covenants  which,  among other things,
restricts IGF's ability to participate in mergers, acquire another enterprise or
participate in the  organization  or creation of any other business  entity.  At
December 31, 1997, $2,918,000 remains available under the IGF Revolver.

      On August 12, 1997,  the Company  issued $135 million in Trust  Originated
Preferred  Securities (the  "Preferred  Securities  Offering").  These Preferred
Securities were offered through a wholly-owned  trust  subsidiary of the Company
and are backed by Senior Subordinated Notes to the Trust from the Company. These
Preferred  Securities  were offered under Rule 144A of the SEC and,  pursuant to
the Registration Rights Agreement executed at closing,  the Company filed a Form
S-4  Registration  Statement  with the SEC on  September  16, 1997 to effect the
Exchange  Offer.  The S-4  Registration  Statement  was  declared  effective  on
September  30, 1997 and the Exchange  Offer  successfully  closed on October 31,
1997. The proceeds of the Preferred  Securities Offering were used to repurchase
the remaining  minority  interest in GGSH for $61 million,  repay the balance of
the GGS Senior  Credit  Facility of $44.9  million  and the  Company  expects to
contribute the balance,  after  expenses,  of  approximately  $24 million to the
nonstandard  automobile insurers of which $10.5 million was contributed in 1997.
Expenses of the issue aggregated $5.1 million and will be amortized  over the
term of the Preferred  Securities  (30 years).  In the third quarter the Company
wrote off the remaining  unamortized costs of the GGS Senior Credit Facility of
approximately $1.1 million pre-tax or approximately $0.07 per share (basic).

      The Preferred Securities have a term of 30 years with semi-annual interest
payments commencing February 15, 1998. The Preferred  Securities may be redeemed
in whole or in part after 10 years.

      The  Company  shall not,  and shall not permit  any  subsidiary,  to incur
directly or indirectly,  any indebtedness unless, on the date of such incurrence
( and after giving effect thereto),  the consolidated coverage ratio exceeds 2.5
to 1. The  coverage  ratio  is the  aggregate  of net  earnings,  plus  interest
expense, income taxes, depreciation and amortization divided by interest expense
for the same period.

      The Company plans to fund the  distributions  on the Preferred  Securities
from the excess  management  and billing fees which are paid by the  nonstandard
automobile insurers to their management company. The Company believes such funds
are  adequate  to pay the  distributions  on the  Preferred  Securities  for the
foreseeable  future.  Additionally,  the Company has available dividend capacity
from IGF to also meet this funding.

      Net cash provided by operating  activities in 1997 aggregated  $15,945,000
compared to $10,003,000  in 1996.  This increase in funds provided was caused by
continued  premium growth which results in increased cash flows as loss payments
lag receipt of premiums.  Net cash used in investing  activities  increased from
$92,769,000 in 1996 to $106,164,000  in 1997 reflecting  investment of remaining
proceeds from the Preferred  Securities  Offering and cash flow from operations.
In 1997,  financing  activities  provided cash of  $88,400,000  compared to cash
provided of $93,550,000 in 1996, with funds in 1997 primarily from the Preferred
Securities  Offering  while  funds  provided  in 1996  were  primarily  from the
financing of the acquisition of Superior.

      Net cash provided by operating activities in 1996 was $10,003,000 compared
to  $9,654,000  in 1995 for an increase of  $349,000.  This  increase was due to
improved  profitability  and growth in written  premiums.  Loss  payments in the
nonstandard automobile insurance business tend to lag behind receipt of premiums
thus  providing  cash for  operations.  Net cash  used in  investing  activities
increased from $8,835,000 in 1995 to $92,769,000 in 1996. Included in 1996 was a
$66,590,000 use of cash for the Acquisition. The remaining increase in cash used
in  investing  activities  in 1996 related to the growth in  investments  due

                                      -14-
<PAGE>

                                                                [small SIG logo]

to increased cash provided by operating activities. The primary items comprising
the  $93,550,000  of cash  provided  by  financing  activities  in 1996 were the
$48,000,000  of  proceeds  from  the GGS  Senior  Credit  Facility,  $21,200,000
minority interest  investment  received as part of the formation of GGS Holdings
and the funding of the  Acquisition and $37,969,000 of proceeds from the Initial
Public Offering.

      The Company believes cash flows in the nonstandard automobile segment from
premiums,  investment  income  and  billing  fees are  sufficient  to meet  that
segment's obligations to policyholders,  operating expenses and debt service for
the foreseeable future. This is due primarily to the lag time between receipt of
premiums  and  claims  payments.  Therefore,  the  Company  does not  anticipate
additional   borrowings  for  this  segment  other  than  in  the  event  of  an
acquisition.  The Company  also  believes  cash flows in the crop  segment  from
premiums  and  expense  reimbursements  are  sufficient  to meet  the  segment's
obligations for the foreseeable  future.  Due to the more seasonal nature of the
crop segment's  operations,  it may be necessary to obtain short term funding at
times during a calendar  year by drawing on an existing  line of credit.  Except
for this short term  funding  and normal  increases  therein  resulting  from an
increase  in the  business  in  force,  the  Company  does  not  anticipate  any
significant  short or long term  additional  borrowing  needs for this  segment.
Accordingly,  while  there  can be no  assurance  as to the  sufficiency  of the
Company's cash flow in future periods,  the Company  believes that its cash flow
will be  sufficient  to meet all of the  Company's  operating  expenses and debt
service  for  the  foreseeable  future  and,  therefore,   does  not  anticipate
additional borrowings except as may be necessary to finance acquisitions.

      While GAAP  shareholders'  equity was $78,363,000 at December 31, 1997, it
does not  reflect the  statutory  equity  upon which the  Company  conducts  its
various insurance operations. Pafco, Superior and IGF individually had statutory
surplus at  December  31,  1997 of  $19,924,000,  $65,146,000  and  $42,809,000,
respectively.

Effects of Inflation

      Due to the short term that claims are outstanding in the two product lines
the  Company  underwrites,  inflation  does not pose a  significant  risk to the
Company.

Primary Differences Between GAAP and SAP

      The financial statements contained herein have been prepared in conformity
with  Generally  Accepted  Accounting  Principles  ("GAAP")  which  differ  from
statutory  accounting  practices  ("SAP")  prescribed or permitted for insurance
companies by  regulatory  authorities  in the  following  respects:  (i) certain
assets are excluded as  "Nonadmitted  Assets" under statutory  accounting;  (ii)
costs  incurred by the Company  relating to the  acquisition of new business are
expensed  for  statutory   purposes,   (iii)  the  investment  in  wholly  owned
subsidiaries is consolidated for GAAP rather than valued on the statutory equity
method.  The net  income  or loss  and  changes  in  unassigned  surplus  of the
subsidiaries  is  reflected  in net income for the period  rather than  recorded
directly to unassigned surplus,  (iv) fixed maturity investments are reported at
amortized cost or market value based on their National  Association of Insurance
Commissioners  ("NAIC") rating; (v) the liability for losses and loss adjustment
expenses and  unearned  premium  reserves  are  recorded net of their  reinsured
amounts for statutory  accounting  purposes,  (vi) deferred income taxes are not
recognized on a statutory  basis and (vii) credits for  reinsurance are recorded
only to the extent considered realizable.

New Accounting Standards

      During  1996,  the  Company   adopted  the  provisions  of  SFAS  No.  121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and SFAS No. 123,  "Accounting for  Stock-Based  Compensation."
The Company has adopted SFAS No. 128, "Earnings Per Share" in 1997. There was no
material impact on the consolidated  financial statements from adoption of these

                                      -15-

<PAGE>

[small SIG logo]

statements.  The  Company  will adopt  SFAS No.  130,  "Reporting  Comprehensive
Income" and SFAS No. 131,  "Disclosures  About A Segments of and  Enterprise and
Related  Information" in 1998. The Company does not expect the adoption of these
statements to have a material impact on the financial statements.  Refer to Note
1 to the Company's "Consolidated Financial Statements."

      The NAIC is considering the adoption of a recommended statutory accounting
standard  for crop  insurers,  the impact of which is  uncertain  since  several
methodologies are currently being examined.  Although the Indiana Department has
permitted  the  Company to  continue,  for its  statutory  financial  statements
through  March 31, 1998,  its practice of  recording  its MPCI  business as 100%
ceded  to  the  FCIC  with  net  underwriting   results   recognized  in  ceding
commissions,  the Indiana  Department  has indicated  that in the future it will
require the Company to adopt the MPCI  accounting  practices  recommended by the
NAIC or any similar  practice  adopted by the Indiana  Department.  Since such a
standard  would be adopted  industry wide for crop  insurers,  the Company would
also be required to conform its future GAAP financial  statements to reflect the
new MPCI statutory  accounting  methodology  and to restate all historical  GAAP
financial  statements  consistent with this methodology for  comparability.  The
Company  cannot  predict  what   accounting   methodology   will  eventually  be
implemented or when the Company will be required to adopt such methodology.  The
Company  anticipates  that any such new  crop  accounting  methodology  will not
affect GAAP net income.

      The NAIC currently has a project under way to codify SAP, as existing SAP
does not address all accounting  issues and may differ from state to state. Upon
completion,  the codification is expected to replace prescribed or permitted SAP
in each  state  as the new  comprehensive  statutory  basis  of  accounting  for
insurance  companies.  The final format of the codification is uncertain at this
time, yet  implementation  could be required as early as January 1, 1999. Due to
the project's  uncertainty,  the Company has not yet  quantified  the impact any
such  changes  would have on the  statutory  capital  and  surplus or results of
operations of the Company's insurance subsidiaries.  The impact of adopting this
new comprehensive statutory basis of accounting may, however,  materially impact
statutory capital and surplus.

Impact of the Year 2000 Issue

         The Year 2000 issue is the result of computer  programs  being  written
using two digits  rather  than four to define the  applicable  year.  This could
result in  recognizing  data using  "00" as 1900  rather  than 2000 which  could
result in system failures or miscalculations.  This could create a disruption in
business activities.

      The Company's  nonstandard  automobile operations have been in the process
of developing a completely new array of information technology services.  During
1998 the Company will be testing and implementing  these new systems and expects
to be fully  operational with these new systems in 1998. The new systems will be
completely Year 2000 compliant. However, the intention of the new systems was to
improve  transaction  processing and the Company's expense ratio rather than any
Year 2000 issue. The Company has expended most of the funds necessary for
implementation of these new systems prior to January 1, 1998 and does not expect
expenditures in 1998 to be material.  There is no assurance that such systems
will be implemented without a disruption to the Company's operations.

      The  Company's  crop   operations  have  been   implementing   changes  to
incorporate  Year 2000 concerns for the past two years and expect  completion of
such efforts in 1998.  Expenditures for these changes have not been material and
are not expected to be material in the future.

      While  implementation  of these new systems or changes to existing systems
carries  risks that  modifications  will need to be made in order for them to be
completely effective,  the Company believes at this time that such modifications
will not require material funds and will not be extensive subsequent to December
31, 1998.



                                      -16-

<PAGE>

                                                                [small SIG logo]
                                               CONSOLIDATED FINANCIAL STATEMENTS
                                                as of December 31, 1997 and 1996
                                               (in thousands, except share data)
                                                     CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                 ASSETS                                                   1997       1996
----------------------------------------------------------------------------------------------
<S>                                                                    <C>        <C>

ASSETS:
----------------------------------------------------------------------------------------------
Investments:
----------------------------------------------------------------------------------------------
Available for sale:
----------------------------------------------------------------------------------------------
   Fixed maturities, at market                                         $ 169,385  $ 127,681
----------------------------------------------------------------------------------------------
   Equity securities, at market                                           35,542     27,920
----------------------------------------------------------------------------------------------
   Short-term investments, at amortized cost,
     which approximates market                                             8,871      9,565
----------------------------------------------------------------------------------------------
   Real estate, at cost                                                      450        466
----------------------------------------------------------------------------------------------
   Mortgage loans, at cost                                                 2,220      2,430
----------------------------------------------------------------------------------------------
   Other                                                                      50         75
                                                                         -------    -------
----------------------------------------------------------------------------------------------
   TOTAL INVESTMENTS                                                     216,518    168,137
----------------------------------------------------------------------------------------------
   Investments in and advances to related parties                            839      1,152
----------------------------------------------------------------------------------------------
   Cash and cash equivalents                                              11,276     13,095
----------------------------------------------------------------------------------------------
    Receivables (net of allowance for doubtful accounts of
     $1,993 and $1,480 in 1997 and 1996, respectively)                    91,730     65,194
----------------------------------------------------------------------------------------------
    Reinsurance recoverable on paid and unpaid losses, net                93,832     48,294
----------------------------------------------------------------------------------------------
    Prepaid reinsurance premiums                                          36,606     14,983
----------------------------------------------------------------------------------------------
    Federal income taxes recoverable                                       1,505        319
----------------------------------------------------------------------------------------------
    Deferred policy acquisition costs                                     10,740     12,800
----------------------------------------------------------------------------------------------
    Deferred income taxes                                                  4,722      3,329
----------------------------------------------------------------------------------------------
    Property and equipment, net of accumulated depreciation               12,051      8,137
----------------------------------------------------------------------------------------------
    Intangible assets                                                     43,756      4,881
----------------------------------------------------------------------------------------------
    Other assets                                                           6,300      4,358
                                                                         -------    -------
----------------------------------------------------------------------------------------------
    TOTAL ASSETS                                                       $ 529,875  $ 344,679
                                                                         =======    =======
----------------------------------------------------------------------------------------------
                 LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------------------------
LIABILITIES:
----------------------------------------------------------------------------------------------
    Losses and loss adjustment expenses                                $ 136,772  $ 101,719
----------------------------------------------------------------------------------------------
    Unearned premiums                                                    114,635     87,285
----------------------------------------------------------------------------------------------
    Reinsurance payables                                                  35,692      6,508
----------------------------------------------------------------------------------------------
    Payables to affiliates                                                   ---        366
---------------------------------------------------------------------------------------------
    Line of credit                                                         4,182        ---
---------------------------------------------------------------------------------------------
    Term debt                                                                ---     48,000
---------------------------------------------------------------------------------------------
    Distributions Payable on Preferred Securities                          4,801        ---
---------------------------------------------------------------------------------------------
    Other                                                                 20,430     18,291
                                                                         -------     ------
---------------------------------------------------------------------------------------------
    TOTAL LIABILITIES                                                    316,512    262,169
                                                                         -------    -------
---------------------------------------------------------------------------------------------
    Minority interest:
---------------------------------------------------------------------------------------------
       Preferred Securities                                              135,000       ----
---------------------------------------------------------------------------------------------
       Equity in net assets of subsidiary                                    ---     21,610
                                                                         -------     ------
---------------------------------------------------------------------------------------------
  Stockholders' equity:
    Common stock, no par value, 100,000,000 shares
     authorized, 10,451,667 and 10,450,000 shares
     issued and outstanding in 1997 and 1996, respectively                39,019     38,969
---------------------------------------------------------------------------------------------
  Additional paid-in capital                                               5,925      5,905
---------------------------------------------------------------------------------------------
  Unrealized gain on investments, net of deferred tax
    of $1,008 in 1997 and $625 in 1996                                     1,908        820
--------------------------------------------------------------------------------------------
  Retained earnings                                                       31,511     15,206
                                                                          ------     ------
--------------------------------------------------------------------------------------------

TOTAL STOCKHOLDERS' EQUITY                                                78,363     60,900
                                                                          ------     ------
--------------------------------------------------------------------------------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $ 529,875  $ 344,679
                                                                         =======    =======
--------------------------------------------------------------------------------------------
</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      -17-

<PAGE>


[small SIG logo]
CONSOLIDATED  FINANCIAL  STATEMENTS
for the years ended December 31, 1997, 1996, and 1995
(in  thousands,  except  per share  data)
CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>

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

Gross premiums written                                                        $ 460,600          $ 305,499          $ 124,634
-------------------------------------------------------------------------------------------------------------------------------
Less ceded premiums                                                            (183,059)           (95,907)           (71,187)
                                                                                -------            -------            -------
-------------------------------------------------------------------------------------------------------------------------------
            NET PREMIUMS WRITTEN                                                277,541            209,592             53,447
-------------------------------------------------------------------------------------------------------------------------------
Change in unearned premiums                                                     (5,727)           (17,833)            (3,806)
                                                                                -------           --------            -------
-------------------------------------------------------------------------------------------------------------------------------
            NET PREMIUMS EARNED                                                 271,814            191,759             49,641
-------------------------------------------------------------------------------------------------------------------------------
Fee income                                                                       20,309              9,286              2,170
-------------------------------------------------------------------------------------------------------------------------------
Net investment income                                                            11,447              6,733              1,173
-------------------------------------------------------------------------------------------------------------------------------
Net realized capital gain (loss)                                                  9,444             (1,015)              (344)
                                                                                -------            -------            -------
-------------------------------------------------------------------------------------------------------------------------------
            TOTAL REVENUES                                                      313,014            206,763             52,640
                                                                                -------            -------            -------
-------------------------------------------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------------------------------------------
        Losses and loss adjustment expenses                                     212,085            137,109             35,971
-------------------------------------------------------------------------------------------------------------------------------
        Policy acquisition and general and administrative expenses               62,631             42,013              7,981
-------------------------------------------------------------------------------------------------------------------------------
        Interest expense                                                          3,158              3,527              1,248
-------------------------------------------------------------------------------------------------------------------------------
        Amortization of intangibles                                               1,197                411                ---
                                                                                -------            -------             ------
-------------------------------------------------------------------------------------------------------------------------------
        TOTAL EXPENSES                                                          279,071            183,060             45,200
                                                                                -------            -------            -------
-------------------------------------------------------------------------------------------------------------------------------
        EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST,
             AND EXTRAORDINARY ITEM                                              33,943             23,703              7,440
                                                                                -------            -------            -------
-------------------------------------------------------------------------------------------------------------------------------
Income taxes:
-------------------------------------------------------------------------------------------------------------------------------
        Current income tax expense                                               13,105              7,982              2,275
-------------------------------------------------------------------------------------------------------------------------------
        Deferred income tax expense (benefit)                                   (1,124)                 64                344
                                                                                -------            -------            -------
-------------------------------------------------------------------------------------------------------------------------------
        TOTAL INCOME TAXES                                                       11,981              8,046              2,619
                                                                                -------            -------            -------
-------------------------------------------------------------------------------------------------------------------------------
        NET EARNINGS BEFORE MINORITY INTEREST AND
                 EXTRAORDINARY ITEM                                              21,962             15,657              4,821
-------------------------------------------------------------------------------------------------------------------------------
Minority interest:
-------------------------------------------------------------------------------------------------------------------------------
         Earnings in consolidated subsidiary                                    (1,824)            (2,401)                ---
-------------------------------------------------------------------------------------------------------------------------------
         Distributions on Preferred Securities, net of tax                      (3,120)                ---                ---
                                                                                -------            -------            -------
-------------------------------------------------------------------------------------------------------------------------------
        NET EARNINGS BEFORE EXTRAORDINARY ITEM                                   17,018             13,256              4,821
-------------------------------------------------------------------------------------------------------------------------------
        Extraordinary Item, net of tax                                            (713)                ---                ---
                                                                                -------             -------           -------
-------------------------------------------------------------------------------------------------------------------------------
        NET EARNINGS                                                           $ 16,305           $ 13,256           $ 4,821
                                                                                =======            =======            ======
-------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding - Basic                                      10,450              7,537              7,000
                                                                                 ======              =====              =====
-------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding - Fully Diluted                              10,699              7,537              7,000
                                                                                 ======              =====              =====
-------------------------------------------------------------------------------------------------------------------------------
Net earnings per share - Basic                                                 $   1.56           $   1.76           $   0.69
                                                                                =======            =======            =======
-------------------------------------------------------------------------------------------------------------------------------
Net earnings per share - Fully Diluted                                         $   1.52           $   1.76           $   0.69
                                                                                =======            =======            =======
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      -18-

<PAGE>


                                                                [small SIG logo]
                                               CONSOLIDATED FINANCIAL STATEMENTS
                          for the years ended December 31,  1997,  1996 and 1995
                                                                 (in  thousands)
                      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                             Unrealized
                                                              Additional     Gain/(Loss)                    Total
                                                   Common      Paid-in          on           Retained    Stockholders'
                                                   Stock       Capital       Investments     Earnings       Equity
--------------------------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>            <C>          <C>            <C>

BALANCE AT JANUARY 1, 1995                       $ 1,000       $ 3,130        $  (504)        $ 629        $ 4,255
--------------------------------------------------------------------------------------------------------------------
Change in unrealized loss on investments,
  net of deferred taxes                              ---           ---            459           ---            459
--------------------------------------------------------------------------------------------------------------------
Net earnings                                         ---           ---            ---         4,821          4,821
                                                  ------         -----          -----         -----          -----
--------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995                       1,000         3,130           (45)         5,450          9,535
--------------------------------------------------------------------------------------------------------------------
Sale of subsidiary stock                             ---         2,775            ---           ---          2,775
--------------------------------------------------------------------------------------------------------------------
Change in unrealized loss on investments,
  net of deferred taxes                              ---           ---            865           ---            865
--------------------------------------------------------------------------------------------------------------------
Issuance of common stock                          37,969           ---            ---           ---         37,969
--------------------------------------------------------------------------------------------------------------------
Dividend to parent                                   ---           ---            ---        (3,500)        (3,500)
--------------------------------------------------------------------------------------------------------------------
Net earnings                                         ---           ---            ---        13,256         13,256
                                                  ------        ------          -----        ------        -------
--------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996                      38,969         5,905            820        15,206         60,900
--------------------------------------------------------------------------------------------------------------------
Adjustment of offering costs                          50           ---            ---           ---             50
--------------------------------------------------------------------------------------------------------------------
Change in unrealized gain on investments,
  net of deferred taxes                              ---           ---          1,088           ---          1,088
--------------------------------------------------------------------------------------------------------------------
Exercise of stock options                            ---            20            ---           ---             20
--------------------------------------------------------------------------------------------------------------------
Net earnings                                         ---           ---            ---        16,305         16,305
                                                  ------       -------          -----        ------         ------
--------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997                    $ 39,019       $ 5,925        $ 1,908      $ 31,511       $ 78,363
                                                 =======        ======         ======       =======        ======
--------------------------------------------------------------------------------------------------------------------
</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


                                      -19-

<PAGE>


[small SIG logo]
CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1997, 1996 and 1995
(in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

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

Cash flows from operating activities:
-------------------------------------------------------------------------------------------------------------------------
   Net earnings                                                              $16,305      $13,256      $4,821
-------------------------------------------------------------------------------------------------------------------------
   Adjustments to reconcile net earnings to net
     cash provided from (used in) operations:
-------------------------------------------------------------------------------------------------------------------------
       Minority interest                                                       1,824        2,401         ---
-------------------------------------------------------------------------------------------------------------------------
       Depreciation, amortization and other                                    5,136        2,194         742
-------------------------------------------------------------------------------------------------------------------------
       Deferred income tax expense (benefit)                                  (1,124)          64         344
-------------------------------------------------------------------------------------------------------------------------
       Net realized capital (gain) loss                                       (9,444)       1,015         344
-------------------------------------------------------------------------------------------------------------------------
        Net changes in operating assets and liabilities
         (net of assets acquired):
-------------------------------------------------------------------------------------------------------------------------
            Receivables                                                      (27,050)     (22,673)      6,462
-------------------------------------------------------------------------------------------------------------------------
            Reinsurance recoverable on losses, net                           (45,538)       5,842     (41,250)
-------------------------------------------------------------------------------------------------------------------------
            Prepaid reinsurance premiums                                     (21,624)      (8,720)        725
-------------------------------------------------------------------------------------------------------------------------
            Federal income taxes recoverable (payable)                        (1,186)      (1,270)        325
--------------------------------------------------------------------------------------------------------------------------
            Deferred policy acquisition costs                                  2,060       (2,496)       (900)
-------------------------------------------------------------------------------------------------------------------------
            Other assets                                                       2,860       (2,923)      1,019
-------------------------------------------------------------------------------------------------------------------------
            Losses and loss adjustment expenses                               35,053       (2,125)     30,152
-------------------------------------------------------------------------------------------------------------------------
            Unearned premiums                                                 27,350       24,508       3,081
-------------------------------------------------------------------------------------------------------------------------
            Reinsurance payables                                              29,184       (1,978)      2,133
-------------------------------------------------------------------------------------------------------------------------
            Other liabilities                                                  2,139        2,908       1,656
                                                                              ------       ------      ------
-------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED FROM (USED IN) OPERATIONS                                   15,945       10,003       9,654
                                                                              ------       ------      ------
-------------------------------------------------------------------------------------------------------------------------
   Cash flow from investing activities:
-------------------------------------------------------------------------------------------------------------------------
      Purchase of minority interest                                          (61,000)         ---         ---
-------------------------------------------------------------------------------------------------------------------------
      Cash paid for Superior                                                     ---      (66,590)        ---
-------------------------------------------------------------------------------------------------------------------------
      Net sales (purchases) of short-term investments                            694        8,026      (4,493)
-------------------------------------------------------------------------------------------------------------------------
      Proceeds from sales, calls and maturities of fixed maturities          224,037       56,903       8,603
-------------------------------------------------------------------------------------------------------------------------
      Purchases of fixed maturities                                         (263,560)     (73,503)    (12,517)
-------------------------------------------------------------------------------------------------------------------------
      Proceeds from sales of equity securities                                34,475       19,796      29,599
-------------------------------------------------------------------------------------------------------------------------
      Purchase of equity securities                                          (35,358)     (34,157)    (28,173)
-------------------------------------------------------------------------------------------------------------------------
      Purchases of mortgage loans                                                ---          ---        (100)
-------------------------------------------------------------------------------------------------------------------------
      Proceeds from repayment of mortgage loans                                  210          490         120
-------------------------------------------------------------------------------------------------------------------------
      Purchase of property and equipment                                      (5,662)      (3,734)     (1,874)
                                                                             -------      -------      ------
-------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES                                       (106,164)     (92,769)     (8,835)
                                                                             -------      -------      ------
-------------------------------------------------------------------------------------------------------------------------
   Cash flow from financing activities:
-------------------------------------------------------------------------------------------------------------------------
      Proceeds from issuance of preferred securities                         129,947          ---         ---
-------------------------------------------------------------------------------------------------------------------------
      Proceeds from initial public offering, net of expenses                     ---       37,969         ---
-------------------------------------------------------------------------------------------------------------------------
      Proceed from exercise of stock options                                      20          ---         ---
-------------------------------------------------------------------------------------------------------------------------
      Net proceeds (payments) from line of credit                              4,182       (5,811)        370
-------------------------------------------------------------------------------------------------------------------------
      Proceeds from/payments made on term debt                               (48,000)      48,000         ---
-------------------------------------------------------------------------------------------------------------------------
      Proceeds from consolidated subsidiary minority interest owner            2,304       21,200         ---
-------------------------------------------------------------------------------------------------------------------------
      Payment of dividend to parent                                              ---       (3,500)         ---
-------------------------------------------------------------------------------------------------------------------------
      Loans from and (repayments to) related parties                             (53)      (4,308)      1,080
                                                                               -----      -------      ------
-------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES                                   88,400       93,550       1,450
                                                                              ------       ------      ------
-------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents                              (1,819)      10,784       2,269
-------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year                                  13,095        2,311          42
                                                                              ------        -----      ------
-------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                       $11,276      $13,095     $ 2,311
                                                                              ======       ======      ======
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      -20-

<PAGE>


                                                                [small SIG logo]
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                (Dollars in thousands) Continued

SYMONS INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------

1.   Nature of Operations and Significant Accounting Policies:

Symons International Group, Inc. (the "Company") is a 67% owned subsidiary of
Goran Capital,  Inc. (Goran).  The Company is primarily involved in the sale of
personal nonstandard automobile insurance and crop insurance.  Nonstandard
automobile represents approximately 70% of the Company's premium volume.  The
Company's products are marketed through independent agents and brokers and is
licensed in 38 states, primarily in the Midwest and Southern United States.

The  following  is a  description  of the  significant  accounting  policies and
practices employed:

a. Principles of Consolidation:  The consolidated  financial  statements include
the  accounts,  after  intercompany   eliminations,   of  the  Company  and  its
wholly-owned subsidiaries as follows:

GGS Management  Holdings,  Inc.  (GGSH)-a  holding  company for the  nonstandard
automobile  operations  which  includes  GGS  Management,  Inc.,  Pafco  General
Insurance Company,  Pafco Premium Finance Company and the Superior entities,  as
described below:

  GGS Management, Inc. (GGS)-a management company for the nonstandard automobile
     operations;

  Superior Insurance Company (Superior)-an insurance company domiciled in
     Florida;

  Superior American Insurance Company  (Superior American)-an insurance company
     domiciled in Florida;

  Superior Guaranty Insurance Company (Superior Guaranty)-an insurance company
     domiciled in Florida;

  Pafco General Insurance Company (Pafco)-an insurance company domiciled in
     Indiana;

IGF Holdings, Inc. (IGFH)-a holding company for the crop operations which
includes IGF and Hail Plus Corp.;

  IGF Insurance Company (IGF)-an insurance company domiciled in Indiana.

On January 31,  1996,  the Company  entered  into an  agreement  with GS Capital
Partners II, L.P. (Goldman Funds) to create a company,  GGSH, to be owned 52% by
the Company and 48% by Goldman Funds. GGSH created GGS, a management company for
the  nonstandard  automobile  operations  which  include  Pafco and the Superior
entities. (See Note 2.)

On April 30,  1996,  GGSH  acquired  the  Superior  entities  through a purchase
business combination.  The Company's  Consolidated Results of Operations for the
year ended  December 31, 1996 include the results of  operations of the Superior
entities subsequent to April 30, 1996. (See Note 2.)

On August 12, 1997, the Company acquired the 48% minority  interest in GGSH from
Goldman Funds through a business purchase combination. (See Note 2.)

b.  Basis of  Presentation:  The  accompanying  financial  statements  have been
prepared in conformity  with generally  accepted  accounting  principles  (GAAP)
which differ from statutory  accounting  practices (SAP) prescribed or permitted
for insurance companies by regulatory authorities in the following respects:

Certain assets are excluded as "Nonadmitted Assets" under statutory accounting.

Costs incurred by the Company relating to the acquisition of new business are
expensed for statutory purposes.

                                      -21-

<PAGE>

[small SIG logo]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands) Continued

The investment in wholly owned subsidiaries is consolidated for GAAP rather than
valued on the  statutory  equity  method.  The net income or loss and changes in
unassigned surplus of the subsidiaries is reflected in net income for the period
rather than recorded directly to unassigned surplus.

Fixed maturity  investments are reported at amortized cost or market value based
on their National Association of Insurance Commissioners' (NAIC) rating.

The  liability  for losses and loss  adjustment  expenses and  unearned  premium
reserves are recorded net of their  reinsured  amounts for statutory  accounting
purposes.

Deferred income taxes are not recognized on a statutory basis.

Credits for reinsurance are recorded only to the extent  considered  realizable.
Under Statutory Accounting Principles ("SAP"),  credit for reinsurance ceded are
allowed to the extent the  reinsurers  meet the  statutory  requirements  of the
Insurance Departments of the States of Indiana and Florida.

Net earnings and capital and surplus for the insurance  subsidiaries reported on
the statutory accounting basis is as follows:

<TABLE>
<CAPTION>

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

Capital and surplus:
---------------------------------------------------------------------------
   Superior entities             $65,146        $57,121            N/A
---------------------------------------------------------------------------
   Pafco                          19,924         18,112        $11,875
---------------------------------------------------------------------------
   IGF                            42,809         29,412          9,219
---------------------------------------------------------------------------
Net earnings (losses):
---------------------------------------------------------------------------
   Superior entities                 379          1,978            N/A
---------------------------------------------------------------------------
   Pafco                          (6,080)         5,151           (553)
---------------------------------------------------------------------------
   IGF                            13,404         12,122          6,574
---------------------------------------------------------------------------
</TABLE>

c. Use of Estimates: The preparation of financial statements requires management
to make estimates and assumptions  that affect amounts reported in the financial
statements and accompanying  notes.  Such estimates and assumptions could change
in the future as more  information  becomes known which could impact the amounts
reported and disclosed herein.

d.  Premiums:  Premiums are  recognized  as income  ratably over the life of the
related  policies and are stated net of ceded  premiums.  Unearned  premiums are
computed on the semimonthly pro rata basis.

e. Investments: Investments are presented on the following bases:

Fixed maturities and equity  securities are classified as available for sale and
are carried at market value with the  unrealized  gain or loss as a component of
stockholders' equity, net of deferred tax, and accordingly, has no effect on net
income.

Real estate-at cost, less allowances for depreciation.

Mortgage loans-at outstanding principal balance.

Realized gains and losses on sales of investments are recorded on the trade date
and are recognized in net income on the specific  identification basis. Interest
and dividend income are recognized as earned.

                                      -22-

<PAGE>

                                                                [small SIG logo]
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                (Dollars in thousands) Continued

f. Cash and Cash  Equivalents:  For purposes of the statement of cash flows, the
Company  includes  in cash and  cash  equivalents  all  cash on hand and  demand
deposits with original maturities of three months or less.

g. Deferred Policy  Acquisition  Costs:  Deferred policy  acquisition  costs are
comprised of agents'  commissions,  premium  taxes and certain other costs which
are related  directly to the  acquisition  of new and renewal  business,  net of
expense  allowances  received in connection with reinsurance  ceded,  which have
been  accounted for as a reduction of the related policy  acquisition  costs and
are deferred and amortized  accordingly.  These costs are deferred and amortized
over the terms of the  policies  to which they  relate.  Acquisition  costs that
exceed estimated losses and loss adjustment  expenses and maintenance  costs are
charged to expense in the period in which those excess costs are determined.

h.  Property  and  Equipment:  Property  and  equipment  are  recorded  at cost.
Depreciation for buildings is based on the straight-line method over 31.5 years
and the declining  balance method for other property and equipment over their
estimated  useful lives ranging from five to seven years.  Asset and accumulated
depreciation accounts are relieved for dispositions, with resulting gains or
losses reflected in net income.

i. Intangible  Assets:  Intangible assets consists  primarily of goodwill,  debt
acquisition costs, and organization costs.  Goodwill is amortized over a 25-year
period on a straight-line basis based upon management's estimate of the expected
benefit period.  Deferred debt acquisition  costs are amortized over the term of
the debt. Organization costs are amortized over five years.

j. Losses and Loss Adjustment Expenses:  Reserves for losses and loss adjustment
expenses  include  estimates  for  reported  unpaid  losses and loss  adjustment
expenses and for estimated losses incurred but not reported. These reserves have
not been  discounted.  The Company's loss and loss adjustment  expense  reserves
include an  aggregate  stop-loss  program.  The Company  retains an  independent
actuarial firm to estimate  reserves.  Reserves are established using individual
case-basis  valuations and  statistical  analysis as claims are reported.  Those
estimates are subject to the effects of trends in loss  severity and  frequency.
While management  believes the reserves are adequate,  the provisions for losses
and loss adjustment  expenses are necessarily based on estimates and are subject
to considerable  variability.  Changes in the estimated  reserves are charged or
credited to operations as additional  information  on the estimated  amount of a
claim becomes known during the course of its settlement. The reserves for losses
and loss adjustment expenses are reported net of the receivables for salvage and
subrogation of  approximately  $8,099 and $ 4,766 at December 31, 1997 and 1996,
respectively.

k.  Preferred  Securities:   Preferred  securities  represent  Company-obligated
mandatorily redeemable securities of subsidiary holding solely parent debentures
and  are  reported  at  their   liquidation   value  under  minority   interest.
Distributions on these securities are charged against consolidated earnings.

l. Income Taxes:  The Company  utilizes the liability  method of accounting  for
deferred income taxes.  Under the liability  method,  companies will establish a
deferred  tax  liability  or asset  for the  future  tax  effects  of  temporary
differences  between book and taxable  income.  Changes in future tax rates will
result in immediate  adjustments  to deferred  taxes.  (See Note 11.)  Valuation

                                      -23-

<PAGE>

[small SIG logo]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands) Continued

allowances are  established  when necessary to reduce deferred tax assets to the
amount  expected  to be  realized.  Income  tax  expense  is the tax  payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.

m. Reinsurance:  Reinsurance premiums, commissions, expense reimbursements,  and
reserves  related to reinsured  business are accounted  for on bases  consistent
with those used in  accounting  for the  original  policies and the terms of the
reinsurance contracts.
Premiums  ceded to other  companies have been reported as a reduction of premium
income.

n. Certain  Accounting  Policies for Crop  Insurance  Operations:  In 1996,  IGF
instituted a policy of  recognizing  (i) 35% of its  estimated  Multi Peril Crop
Insurance  (MPCI)  gross  premiums  written  for each of the  first  and  second
quarters,  (ii)  commission  expense  at a rate  of 16% of MPCI  gross  premiums
written  recognized and (iii) Buy-up Expense  Reimbursement  at a rate of 29% in
1997 and 31% in 1996 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 IGF,  IGF's policy is to recognize MPCI gross premiums
written for the first nine months based on a reestimate which takes into account
actual gross premiums processed.  If an insufficient volume of policies has been
processed,  IGF'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.  In prior
years, recognition of MPCI gross premiums written was 30%, 30%, 30% and 10%, for
the first, second, third and fourth quarters, respectively.  Commencing with its
June 30, 1995 financial statements, IGF also began recognizing MPCI underwriting
gain or loss during the first and second quarters, as well as the third quarter,
reflecting  IGF'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.

o.  Accounting  Changes:  In  December  1995,  SFAS  No.  123,  "Accounting  for
Stock-Based  Compensation",  was  issued.  It  introduces  the  use  of  a  fair
value-based  method of accounting for stock-based  compensation.  It encourages,
but  does  not  require,   companies  to  recognize   compensation  expense  for
stock-based  compensation  to employees  based on the new fair value  accounting
rules.  Companies  that choose not to adopt the new rules will continue to apply
the existing  accounting rules contained in Accounting  Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees. However, SFAS No. 123 requires
companies  that  choose  not to adopt  the new fair  value  accounting  rules to
disclose pro forma net income and  earnings per share under the new method.  The
Company adopted the disclosure provisions of SFAS No. 123 (see Note 22) in 1996.

On January  1,  1996,  the  Company  adopted  the  provisions  of SFAS No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed  Of". SFAS No. 121 requires  that  long-lived  assets to be held and
used by an entity be  reviewed  for  impairment  whenever  events or  changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable. Adoption of SFAS No. 121 in 1996, did not have a material impact on
the Company's results of operations.

In 1997,  the Company  adopted the  provision  of SFAS No.  128,  "Earnings  per
Share." This  statement  establishes  standards  for  computing  and  presenting
earnings per share (EPS) and applies to entities with publicly held common stock
or potential common stock. This statement simplifies the standards for computing
earnings per share previously found in APB Opinion No. 15, "Earnings per Share",
and makes them  comparable  to  international  EPS  standards.  It replaces  the
presentation  of primary EPS with a presentation  of basic EPS. It also requires
dual  presentation of basic and diluted EPS on the face of the income  statement
for all entities with complex capital structures, and requires a reconciliation
of the numerator and  denominator of the basic EPS

                                      -24-

<PAGE>

                                                                [small SIG logo]
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                (Dollars in thousands) Continued

computation to the numerator and denominator of the diluted EPS computation. The
only item  impacting  the  Company's  fully  diluted EPS is the  inclusion  of a
portion of the Company's stock options which aggregated  249,000 shares in 1997.
Prior to 1997, there was no dilutive impact on EPS computations.  The provisions
of SFAS No. 128 were retroactively applied to all periods presented.

Basic EPS  excludes  dilution  and is computed by dividing  income  available to
common stockholders by the weighted-average  number of common shares outstanding
for the period.  Diluted EPS reflects the potential dilution that could occur if
securities or other  contracts to issue common stock were exercised or converted
into common  stock or resulted in the  issuance of common stock that then shared
in the  earnings of the  entity.  Diluted  EPS is  computed  similarly  to fully
diluted EPS pursuant to Opinion 15.

In June 1997, the FASB issued  Statement of Financial  Accounting  Standards No.
130,  "Reporting  Comprehensive  Income" ("SFAS 130") and Statement of Financial
Accounting  Standards No. 131,  "Disclosures About Segments of an Enterprise and
Related  Information"  ("SFAS  131"),  both of which are effective for financial
statements  issued for periods  beginning after December 15, 1997. SFAS 130 will
require   companies  to  disclose   comprehensive   income  in  their  financial
statements.  In addition to items included in net income,  comprehensive  income
will  include  items  currently  charged or credited  directly to  shareholders'
equity,  such  as  the  change  in  unrealized  appreciation  (depreciation)  of
securities.  Implementing  SFAS 130 is not expected to have a material impact on
the financial statements.

SFAS 131 establishes new standards for reporting  operating  segments,  products
and services,  geographic areas and major customers.  Segments are to be defined
consistent with the basis  management uses internally to assess  performance and
allocate  resources.  Implementing  SFAS 131 is not  expected to have a material
impact on the financial statements.

p. Vulnerability from  Concentration:  At December 31, 1997, the Company did not
have a  material  concentration  of  financial  instruments  in an  industry  or
geographic  location.  Also at  December  31,  1997,  the Company did not have a
concentration of (1) business transactions with a particular customer, lender or
distributor,  (2) revenues from a particular product or service,  (3) sources of
supply of labor or services used in the business,  or (4) a market or geographic
area in which business is conducted that makes it vulnerable to an event that is
at least  reasonably  possible to occur in the near term and which could cause a
serious impact to the Company's financial condition.

q. Earnings Per Share:  The Company's basic earnings per share  calculations are
based upon the weighted  average  number of shares of common  stock  outstanding
during each period,  as restated for the 7,000-for-1  stock split.  The weighted
average shares  outstanding in 1996 have been increased by 44,000 shares for the
$3.5  million  dividend  paid to Goran from the  proceeds of the Initial  Public
Offering,  ("IPO") in accordance with generally accepted accounting  principles.
The  fully  diluted  earnings  per share for 1997  were  computed  using  actual
weighted  average shares  outstanding of 10,450,000  plus 249,000 assumed shares
from stock option proceeds based upon the treasury stock method.

r.  Reclassifications:  Amounts  from prior  periods have been  reclassified  to
conform to the 1997 presentation. Net earnings and stockholders' equity have not
been affected by these reclassifications.

                                      -25-


<PAGE>

[small SIG logo]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands) Continued

2.   Corporate Reorganization and Acquisitions:

In April 1996, Pafco contributed all of the outstanding  shares of capital stock
of IGF to IGF Holdings, a wholly owned and newly formed subsidiary of Pafco, and
the Board of Directors of IGF Holdings declared an $11,000 distribution to Pafco
in the form of cash of $7,500 and a note payable of $3,500  (Pafco  Note).  IGFH
borrowed the $7,500  portion of the  distribution  from a bank (IGFH Note).  The
notes were paid in full from the proceeds of the Offering. Immediately following
the distribution,  Pafco distributed all of the outstanding  common stock of IGF
Holdings to the Company,  collectively  referred to as the "IGF Reorganization".
Although  the Company  believes the plan of  reorganization  or spin off did not
result in gain or loss,  no  assurance  can be given that the  Internal  Revenue
Service will not challenge the transaction.

On January 31, 1996, the Company entered into an agreement  (Agreement)  with GS
Capital Partners II, L.P. to create GGSH, to be owned 52% by the Company and 48%
by the Goldman Funds. In accordance  with the Agreement,  on April 30, 1996, the
Company  contributed  certain fixed assets and Pafco with a combined book value,
determined in accordance  with  generally  accepted  accounting  principles,  of
$17,186,  to GGSH. Goldman Funds contributed $21,200 to GGSH, in accordance with
the Agreement.  In return for the cash  contribution  of $21,200,  Goldman Funds
received  a  minority  interest  share  in GGSH at the date of  contribution  of
$18,425,  resulting  in a $2,775  increase to  additional  paid-in  capital.  At
December 31, 1996,  Goldman  Funds'  minority  interest  share  consisted of the
following:

<TABLE>
<S>                                                 <C>

   Contribution, April 30, 19                       $ 18,425
   GGSH earnings                                       2,401
   Unrealized gains, net of deferred tax of $599         784
                                                      ------
                                                    $ 21,610
                                                      ======
</TABLE>

In connection with the above transactions, GGSH acquired (the "Acquisition") all
of the outstanding  shares of common stock of Superior Insurance Company and its
wholly owned subsidiaries,  domiciled in Florida,  (collectively  referred to as
"Superior")  for cash of  $66,590.  In  conjunction  with the  Acquisition,  the
Company's  funding  was  through a senior  bank  facility  of $48,000 and a cash
contribution from Goldman Funds of $21,200.

The  acquisition  of Superior  was  accounted  for as a purchase and recorded as
follows:

<TABLE>
<S>                                                 <C>
   Assets acquired                                  $ 163,605
   Liabilities assumed                                100,566
                                                      -------
   Net assets required                                 63,039
   Purchase price                                      66,590
                                                      -------
   Excess purchase price                                3,551
   Less amounts allocated to deferred income
      taxes on unrealized gains on investments          1,334
                                                      -------
   Goodwill                                         $   2,217
                                                      =======
</TABLE>

The  Company's  results  from  operations  for the year ended  December 31, 1996
include the results of Superior subsequent to April 30, 1996.

On August 12, 1997,  the Company  purchased the remaining  minority  interest in
GGSH for $61  million  in cash.  The  excess of the  acquisition  price over the
minority  interest  liability  aggregated  approximately   $36,045,000  and  was
assigned to goodwill as the fair market value of acquired  assets  approximately
their carrying value.

                                      -26-


<PAGE>

                                                                [small SIG logo]
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                (Dollars in thousands) Continued

3.   Public Offerings:

On November 5, 1996, the Company sold 3,000,000 shares at $12.50 per share in an
initial public offering of common stock. An additional  450,000 shares were sold
in December 1996  representing  the exercise of the over allotment  option.  The
Company generated net proceeds,  after underwriter's  discount and expenses,  of
$37,900 from the IPO.  The  proceeds  were used to repay the IGFH Note and Pafco
Note  totaling  $11,000,   repay   indebtedness  to  Goran  and  Granite  Re  of
approximately  $7,500,  pay Goran a dividend of $3,500 and contribute capital to
IGF of  $9,000.  The  remainder  will be used for  general  corporate  purposes,
including acquisitions. After completion of the IPO, Goran owns 67% of the total
common stock outstanding.

Assuming  that  these  transactions,  described  in  Notes 2 and 3,  took  place
(including  the IPO) at January  1, 1995 or at  January  1, 1996,  the pro forma
effect  of  these  transactions  on the  Company's  Consolidated  Statements  of
Earnings is as follows:

<TABLE>
<CAPTION>

                                                       1996          1995
                                                           (unaudited)
<S>                                                 <C>            <C>
   Revenues                                         $ 250,848      $159,899
                                                      =======       =======
   Net Income                                        $ 15,238       $ 6,701
                                                       ======         =====
   Net Income per common share                         $ 1.42        $ 0.65
                                                         ====          ====
</TABLE>

Assuming that these  transactions  took place  (including the IPO) at January 1,
1995 or January 1, 1996 and that shares  outstanding only included shares issued
in connection with the IPO whose proceeds were used to repay  indebtedness,  the
pro forma effect of these  transactions  on the  Company's net income per common
share is as follows:

<TABLE>
<CAPTION>
                                                        1996         1995
                                                           (unaudited)
<S>                                                    <C>           <C>
   Net Income per common share                         $ 1.86        $ 0.81
                                                         ====          ====
</TABLE>

Outstanding  shares used in the above  calculation  include the 7,000,000 shares
outstanding  before the Offering plus 1,200,000 shares issued in connection with
the IPO  whose  proceeds  were used to pay  external  indebtedness.  The  latter
calculation was determined by dividing the aggregate  amount of the repayment of
the $7.5 million IGFH Note and the $7.5 million repayment of parent indebtedness
by the IPO price of $12.50 per share.

On August  12,  1997,  the  Company  issued  $135  million  in Trust  Originated
Preferred Securities ("Preferred  Securities").  These Preferred Securities were
offered through a wholly-owned trust subsidiary of the Company and are backed by
Senior  Subordinated  Notes to the  Trust  from  the  Company.  These  Preferred
Securities  were  offered  under  Rule  144A of the SEC  ("Preferred  Securities
Offering")  and,  pursuant  to the  Registration  Rights  Agreement  executed at
closing,  the Company filed a Form S-4  Registration  Statement  with the SEC on
September 16, 1997 to effect the Exchange Offer. The S-4 Registration  Statement
was declared effective on September 30, 1997 and the Exchange Offer successfully
closed on October 31, 1997.  The proceeds of the Preferred  Securities  Offering
were used to repurchase the remaining minority interest in GGSH for $61 million,
repay the balance of the term debt of $44.9  million and the Company  expects to
contribute the balance,  after  expenses,  of  approximately  $24 million to the
nonstandard  automobile insurers of which $10.5 million was contributed in 1997.
Expenses of the issue  aggregated  $5.1 million and will be  amortized  over the
term of the Preferred  Securities  (30 years).  In the third quarter the Company
wrote off the remaining unamortized costs of the term debt of approximately $1.1
million  pre-tax  or  approximately  $0.07 per share  which was  recorded  as an
extraordinary item.

The  Preferred  Securities  have a term of 30 years  with  semi-annual  interest
payments commencing February 15, 1998.

                                      -27-


<PAGE>

[small SIG logo]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands) Continued

The Preferred Securities may be redeemed in whole or in part after 10 years.

The Company shall not, and shall not permit any subsidiary, to incur directly or
indirectly,  any indebtedness  unless, on the date of such incurrence (and after
giving effect thereto),  the  Consolidated  Coverage Ratio exceeds 2.5 to 1. The
Coverage Ratio is the aggregate of net earnings,  plus interest expense,  income
taxes,  depreciation,  and amortization divided by interest expense for the same
period.

Assuming the Preferred  Securities  Offering took place at January 1, 1997,  the
proforma  effect of this  offering on the  Company's  consolidated  statement of
earnings from  continuing  operations for the year ended December 31, 1997 is as
follows:

<TABLE>
<CAPTION>
                                                               Unaudited
                                                             (In thousands)

<S>                                                             <C>
Revenues                                                        $313,014
Net earnings from continuing operations                          $15,314
Net earnings from continuing operations per common share
  (fully diluted)                                                  $1.43
</TABLE>

Proforma results for the Preferred  Securities Offerings for 1996 and 1995 would
not be meaningful due to the Acquisition and IPO in 1996.

The pro forma results are not necessarily indicative of what actually would have
occurred  if  these  transactions  had been in  effect  for the  entire  periods
presented.  In  addition,  they are not  intended to be a  projection  of future
results.

                                      -28-

<PAGE>

                                                                [small SIG logo]
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                (Dollars in thousands) Continued

4.   Investments:

Investments are summarized as follows:

<TABLE>
<CAPTION>

                                                          Cost or
                                                         Amortized          Unrealized        Estimated
December 31, 1997                                           Cost        Gain         Loss    Market Value
-----------------------------------------------------------------------------------------------------------
<S>                                                     <C>         <C>         <C>          <C>
Fixed Maturities:
U.S. Treasury securities and obligations of U.S.
   government corporations and agencies                  $ 83,661   $   910     $    (48)     $ 84,523
-----------------------------------------------------------------------------------------------------------
Foreign governments                                           537         11          ---          548
-----------------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions            1,000        ---          ---        1,000
-----------------------------------------------------------------------------------------------------------
Corporate securities                                       82,628        746          (60)      83,314
                                                           ------      -----         ----       ------
-----------------------------------------------------------------------------------------------------------
      TOTAL FIXED MATURITIES                              167,826      1,667         (108)     169,385
                                                          -------      -----         ----      -------
-----------------------------------------------------------------------------------------------------------
Equity securities                                          34,220      4,427       (3,105)      35,542
-----------------------------------------------------------------------------------------------------------
Short-term investments                                      8,871         --          ---        8,871
-----------------------------------------------------------------------------------------------------------
Real estate                                                   450         --          ---          450
-----------------------------------------------------------------------------------------------------------
Mortgage Loans                                              2,220         --          ---        2,220
-----------------------------------------------------------------------------------------------------------
Other loans                                                    50         --          ---           50
                                                          -------      -----        -----      -------
-----------------------------------------------------------------------------------------------------------
      TOTAL  INVESTMENTS                                $ 213,637     $6,094     $ (3,213)    $ 216,518
                                                          =======     ======        ======      =======
-----------------------------------------------------------------------------------------------------------

                                                          Cost or
                                                         Amortized          Unrealized        Estimated
December 31, 1996                                           Cost        Gain         Loss    Market Value
-----------------------------------------------------------------------------------------------------------
Fixed Maturities:
U.S. Treasury securities and obligations of U.S.
   government corporations and agencies                  $ 55,034   $    343     $   (233)     $ 55,144
-----------------------------------------------------------------------------------------------------------
Foreign governments                                         1,515        ---          (30)        1,485
-----------------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions            2,945         11           (4)        2,952
-----------------------------------------------------------------------------------------------------------
Corporate securities                                       67,545        977         (422)       68,100
                                                          -------     ------        -----        ------
-----------------------------------------------------------------------------------------------------------
      TOTAL FIXED MATURITIES                              127,039      1,331         (689)      127,681
                                                          -------      -----        -----       -------
-----------------------------------------------------------------------------------------------------------
Equity securities                                          25,734      2,884         (698)       27,920
-----------------------------------------------------------------------------------------------------------
Short-term investments                                      9,565        ---          ---         9,565
-----------------------------------------------------------------------------------------------------------
Real estate                                                   466        ---          ---           466
-----------------------------------------------------------------------------------------------------------
Mortgage Loans                                              2,430        ---          ---         2,430
----------------------------------------------------------------------------------------------------------
Other loans                                                    75        ---          ---            75
                                                            -----      -----        -----         ------
-----------------------------------------------------------------------------------------------------------
      TOTAL  INVESTMENTS                                $ 165,309     $4,215     $ (1,387)    $ 168,137
                                                          =======     ======       ======       =======
------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -29-

<PAGE>

[small SIG logo]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands) Continued

At December 31, 1997,  90.2% of the Company's  fixed  maturities were considered
investment  grade  by The  Standard  & Poors  Corporation  or  Moody's  Investor
Services,  Inc.  Securities  with quality  ratings Baa and above are  considered
investment grade  securities.  In addition,  the Company's  investments in fixed
maturities did not contain any significant  geographic or industry concentration
of credit risk.

The amortized  cost and estimated  market value of fixed  maturities at December
31,  1997,  by  contractual  maturity,  are  shown in the table  which  follows.
Expected  maturities will differ from contractual  maturities  because borrowers
may have the right to call or prepay obligations with or without penalty:

<TABLE>
<CAPTION>

                                                                              Estimated
                                                               Amortized        Market
                                                                 Cost           Value
------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>
Maturity:
------------------------------------------------------------------------------------------
       Due in one year or less                                   $1,882          $1,880
------------------------------------------------------------------------------------------
       Due after one year through five years                     57,350          57,782
------------------------------------------------------------------------------------------
       Due after five years through ten years                    30,102          30,793
------------------------------------------------------------------------------------------
       Due after ten years                                        8,139           8,390
                                                                 ------          ------
------------------------------------------------------------------------------------------
                                                                 97,473          98,845
------------------------------------------------------------------------------------------
Mortgage-backed securities                                       70,353          70,540
                                                                -------         -------
------------------------------------------------------------------------------------------
                 TOTAL                                         $167,826        $169,385
                                                                =======         =======
------------------------------------------------------------------------------------------
</TABLE>

Gains and losses realized on sales of investments are as follows:

<TABLE>
<CAPTION>

                                                  1997           1996            1995
-----------------------------------------------------------------------------------------
<S>                                             <C>            <C>             <C>
Proceeds from sales                             $254,470       $76,699         $38,202
-----------------------------------------------------------------------------------------
Gross gains realized                              10,639         1,194             653
-----------------------------------------------------------------------------------------
Gross losses realized                              1,195         2,209             997
-----------------------------------------------------------------------------------------
</TABLE>

Net investment income for the years ended December 31 are as follows:

<TABLE>
<CAPTION>

                                                  1997           1996            1995
----------------------------------------------------------------------------------------
<S>                                             <C>             <C>            <C>
Fixed maturities                                $10,061         $5,714           $534
----------------------------------------------------------------------------------------
Equity securities                                   305            756            256
----------------------------------------------------------------------------------------
Cash and short-term investments                   1,385            281            194
----------------------------------------------------------------------------------------
Mortgage loans                                      182            207            231
----------------------------------------------------------------------------------------
Other                                              (39)             76            322
                                                 -----           -----           ----
----------------------------------------------------------------------------------------
Total investment income                          11,894          7,034          1,537
----------------------------------------------------------------------------------------
Investment expenses                                (447)          (301)          (364)
                                                 ------          -----           -----
----------------------------------------------------------------------------------------
Net investment income                           $11,447         $6,733         $1,173
                                                 ======          =====          =====
----------------------------------------------------------------------------------------
</TABLE>

Investments  with a market  value of  $24,067  and  $23,419  (amortized  cost of
$23,913 and  $22,749) as of December  31, 1997 and 1996,  respectively,  were on
deposit in the United  States and Canada.  The  deposits are required by various
insurance  departments and others to support licensing  requirements and certain
reinsurance contracts, respectively.

                                      -30-


<PAGE>

                                                                [small SIG logo]
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                (Dollars in thousands) Continued

5.   Deferred Policy Acquisition Costs:

Policy  acquisition  costs are  capitalized  and amortized  over the life of the
policies.  Policy  acquisition  costs are those  costs  directly  related to the
issuance  of  insurance  policies  including  commissions,  premium  taxes,  and
underwriting  expenses net of  reinsurance  commission  income on such policies.
Policy   acquisition   costs  both  acquired  and  deferred,   and  the  related
amortization charged to income were as follows:

<TABLE>
<CAPTION>

                                                                          1997           1996            1995
----------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>              <C>
Balance, beginning of year                                              $12,800         $2,379          $1,479
----------------------------------------------------------------------------------------------------------------
Deferred policy acquisition costs purchased in
  the Superior acquisition                                                  ---          7,925             ---
----------------------------------------------------------------------------------------------------------------
Costs deferred during year                                               57,155         27,657           8,050
----------------------------------------------------------------------------------------------------------------
Amortization during year                                                (59,215)       (25,161)         (7,150)
                                                                         ------         ------           -----
----------------------------------------------------------------------------------------------------------------
Balance, end of year                                                    $10,740        $12,800          $2,379
                                                                        =======        =======          ======
----------------------------------------------------------------------------------------------------------------
</TABLE>

6.   Property and Equipment:

Property and equipment at December 31 are summarized as follows:

<TABLE>
<CAPTION>

                                                       1997        Accumulated       1997        1996
                                                       Cost        Depreciation       Net         Net
---------------------------------------------------------------------------------------------------------------
<S>                                                <C>              <C>          <C>          <C>
Land                                                $   226           $  --      $    226     $   226
---------------------------------------------------------------------------------------------------------------
Buildings                                             5,421           1,323         4,098       3,156
---------------------------------------------------------------------------------------------------------------
Office furniture and equipment                        3,449           1,636         1,813       1,024
---------------------------------------------------------------------------------------------------------------
Automobiles                                              20              13             7          13
---------------------------------------------------------------------------------------------------------------
Computer equipment                                    8,344           2,437         5,907       3,718
                                                      -----           -----         -----       -----
--------------------------------------------------------------------------------------------------------------
Total                                              $ 17,460         $ 5,409      $ 12,051     $ 8,137
                                                     ======           =====        ======       =====
--------------------------------------------------------------------------------------------------------------
</TABLE>

Accumulated  depreciation at December 31, 1996 was $4,009.  Depreciation expense
related to property and  equipment for the years ended  December 31, 1997,  1996
and 1995 were $1,764, $1,783, and $637, respectively.

7.   Intangible Assets:

Intangible assets at December 31 are as follows:

<TABLE>
<CAPTION>

                                                       1997         Accumulated      1997         1996
                                                       Cost        Amortization       Net          Net
-------------------------------------------------------------------------------------------------------------
<S>                                                <C>              <C>          <C>           <C>
Goodwill                                           $ 38,168           $ 654      $ 37,514      $ 2,122
-------------------------------------------------------------------------------------------------------------
Deferred debt costs                                   5,123              69         5,054        1,232
-------------------------------------------------------------------------------------------------------------
Organization costs                                    1,527             339         1,188        1,527
                                                      -----             ---         -----        -----
-------------------------------------------------------------------------------------------------------------
                                                   $ 44,818         $ 1,062      $ 43,756      $ 4,881
                                                     ======           =====        ======        =====
-------------------------------------------------------------------------------------------------------------
</TABLE>

Accumulated  amortization  at December 31, 1996 was $411.  Amortization  expense
related to intangible  assets for the years ended  December 31, 1997,  1996, and
1995 was $1,197, $411 and $0, respectively.

8.   Line of Credit:

At December 31,  1997,  IGF  maintained  a revolving  bank line of credit in the
amount of  $7,000.  At  December  31,  1997 and 1996,  the  outstanding  balance
including accrued interest of $100, was $4,182 and $0, respectively. Interest on
this line of credit was at the New York prime rate (8.5% at December  31,  1997)
plus  0.25%  adjusted  daily.  Subsequent  to  December  31,  1997 this rate was
adjusted to prime minus .75%. This line is  collateralized  by the  crop-related
uncollected  premiums,  reinsurance  recoverable  on paid  losses,  Federal Crop

                                      -31-


<PAGE>

[small SIG logo]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands) Continued

Insurance  Corporation  (FCIC) annual  settlement,  and a first lien on the real
estate  owned by IGF.  The line  requires  IGF to maintain  its primary  banking
relationship  with the issuing bank,  limits capital  purchases and requires the
maintenance  of certain  financial  ratios.  At December  31,  1997,  IGF was in
compliance  with all covenants  associated  with the line or had received proper
waivers.

The weighted average interest rate on the line of credit was 8.75%, 8.6%, and
9.7% during 1997, 1996, and 1995, respectively.

9.   Term Debt:

The term debt,  with an outstanding  principal  balance of $44,872 was repaid in
full on August 12,  1997.  The interest on the term debt was paid fully at LIBOR
plus 2.75%.

10.   Unpaid Losses and Loss Adjustment Expenses:

Activity in the  liability  for unpaid  losses and loss  adjustment  expenses is
summarized as follows:

<TABLE>
<CAPTION>


                                                                      1997          1996          1995
--------------------------------------------------------------------------------------------------------
<S>                                                                 <C>           <C>           <C>
Balance at January 1                                                $101,719       $59,421      $29,269
--------------------------------------------------------------------------------------------------------
Less reinsurance recoverables                                         29,459        37,798       12,542
                                                                      ------        ------       ------
--------------------------------------------------------------------------------------------------------
       NET BALANCE AT JANUARY 1                                       72,260        21,623       16,727
                                                                      ------        ------       ------
--------------------------------------------------------------------------------------------------------
Reserves acquired in connection with the Superior Acquisition             --        44,423           --
--------------------------------------------------------------------------------------------------------
Incurred related to:
--------------------------------------------------------------------------------------------------------
    Current year                                                     201,118       138,618       35,184
--------------------------------------------------------------------------------------------------------
    Prior years                                                       10,967       (1,509)          787
                                                                      ------       -------     --------
--------------------------------------------------------------------------------------------------------
       TOTAL INCURRED                                                212,085       137,109       35,971
                                                                     -------       -------       ------
--------------------------------------------------------------------------------------------------------
Paid related to:
--------------------------------------------------------------------------------------------------------
     Current year                                                    138,111       102,713       21,057
--------------------------------------------------------------------------------------------------------
     Prior years                                                      60,566        28,182       10,018
                                                                      ------        ------       ------
--------------------------------------------------------------------------------------------------------
       TOTAL PAID                                                    198,677       130,895       31,075
                                                                     -------       -------       ------
--------------------------------------------------------------------------------------------------------
       NET BALANCE AT DECEMBER 31                                     85,668        72,260       21,623
--------------------------------------------------------------------------------------------------------
Plus reinsurance recoverables                                         51,104        29,459       37,798
                                                                      ------        ------       ------
--------------------------------------------------------------------------------------------------------
Balance at December 31                                              $136,772      $101,719      $59,421
                                                                     =======       =======       ======
--------------------------------------------------------------------------------------------------------
</TABLE>

Reserve  estimates  are  regularly  adjusted in  subsequent  reporting  periods,
consistent  with  sound  insurance  reserving   practices,   as  new  facts  and
circumstances  emerge which  indicates a  modification  of the prior estimate is
necessary.  The adjustment,  referred to as "reserve development," is inevitable
given  the  complexities  of  the  reserving  process  and  is  recorded  in the
statements  of  earnings  in the  period  the need for the  adjustments  becomes
apparent.  The foregoing  reconciliation  indicates that  deficient  (redundant)
reserve  developments  of $10,967,  $(1,509)  and $787 in the December 31, 1996,
1995 and 1994 loss and loss adjustment expense reserves,  respectively,  emerged
in the  following  year.  The higher than  anticipated  1996  deficient  reserve
development  occurred  primarily due to volatility in the historical  trends for
the  nonstandard  automobile  business as a result of significant  growth during

                                      -32-


<PAGE>

                                                                [small SIG logo]
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                (Dollars in thousands) Continued

1996.  Reserve  developments  also result from lower or higher than  anticipated
losses resulting from a change in settlement costs relating to those estimates.

The  anticipated  effect of inflation is implicitly  considered  when estimating
liabilities  for  losses  and LAE.  While  anticipated  price  increases  due to
inflation are considered in estimating the ultimate claim costs, the increase in
average severities of claims is caused by a number of factors that vary with the
individual type of policy written. Future average severities are projected based
on historical trends adjusted for implemented changes in underwriting standards,
policy  provisions,  and general economic trends.  Those anticipated  trends are
monitored based on actual development and are modified if necessary.

Liabilities for loss and loss  adjustment  expenses have been  established  when
sufficient  information  has been  developed  to indicate the  involvement  of a
specific  insurance  policy.  In addition,  a liability has been  established to
cover additional  exposure on both known and unasserted  claims.  The effects of
changes in settlement costs,  inflation,  growth and other factors have all been
considered in  establishing  the current year reserve for unpaid losses and loss
adjustment expenses.

11.   Income Taxes:

The Company files a consolidated federal income tax return with its wholly owned
subsidiaries.  GGSH filed a short-period consolidated tax return with its wholly
owned  subsidiaries  through July 31, 1997.  In 1998,  the Company  shall file a
consolidated  federal income tax return which includes  GGSH.  Intercompany  tax
sharing agreements between the Company and its wholly owned subsidiaries provide
that income taxes will be allocated based upon separate  return  calculations in
accordance with the Internal Revenue Code of 1986, as amended.  Intercompany tax
payments are  remitted at such times as estimated  taxes would be required to be
made to the Internal Revenue Service.

The difference between federal tax at the statutory rate of 35% in 1997 and 1996
and 34% in 1995 and actual  income tax  recorded  was  primarily  the effects of
nondeductible goodwill and the dividends received deduction.

The net  deferred  tax asset at December  31, 1997 and 1996 is  comprised of the
following:

<TABLE>
<CAPTION>

                                                      1997           1996
--------------------------------------------------------------------------
<S>                                                  <C>           <C>
Deferred tax assets:
--------------------------------------------------------------------------
   Unpaid losses and loss adjustment expenses        $2,974        $2,705
--------------------------------------------------------------------------
   Unearned premiums and prepaid reinsurance          5,462         5,061
--------------------------------------------------------------------------
   Allowance for doubtful accounts                      698           518
--------------------------------------------------------------------------
   Net operating loss carryforwards                     233           328
--------------------------------------------------------------------------
   Other                                                242           685
                                                        ---         -----
--------------------------------------------------------------------------
          DEFERRED TAX ASSET                          9,609         9,297
                                                      -----         -----
--------------------------------------------------------------------------
Deferred tax liabilities:
--------------------------------------------------------------------------
Deferred policy acquisition costs                    (3,759)       (4,480)
--------------------------------------------------------------------------
Unrealized gains on investments                      (1,008)       (1,224)
--------------------------------------------------------------------------
Other                                                  (120)         (264)
                                                      -----         -----
--------------------------------------------------------------------------
          DEFERRED TAX LIABILITY                      4,887        (5,968)
                                                      -----         -----
--------------------------------------------------------------------------
          NET DEFERRED TAX ASSET                     $4,722        $3,329
                                                      =====         =====
--------------------------------------------------------------------------
</TABLE>

                                      -33-


<PAGE>

[small SIG logo]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands) Continued

The Company is required to establish a "valuation  allowance" for any portion of
its deferred tax assets which is unlikely to be realized. No valuation allowance
has been established as of December 31, 1997 and 1996 since management  believes
it is more  likely  than not that the  Company  will  realize the benefit of its
deferred tax assets  through  utilization  of such amounts  under the  carryback
rules and through future taxable income.

As of December 31, 1997,  the Company has unused net operating  loss  carryovers
available as follows:

<TABLE>
<CAPTION>

                                                                       Amount
-------------------------------------------------------------------------------
<S>                                                                     <C>
Years ending not later than December 31:
-------------------------------------------------------------------------------
       2000                                                             $541
-------------------------------------------------------------------------------
       2002                                                              126
                                                                         ---
-------------------------------------------------------------------------------
            TOTAL                                                       $667
-------------------------------------------------------------------------------
</TABLE>

Federal  income tax filings  attributed to the Company have been examined by the
Internal Revenue Service through 1993.

12.   Leases:

The Company has  certain  commitments  under  long-term  operating  leases for a
branch office and sales offices for Superior Insurance  Company.  Rental expense
under these  commitments  was $1,176 for 1997 and $751 in 1996.  Future  minimum
lease  payments  required  under these  noncancellable  operating  leases are as
follows:

<TABLE>

<S>                                                                     <C>

1998                                                                    $  502
--------------------------------------------------------------------------------
1999                                                                       417
--------------------------------------------------------------------------------
2000                                                                       274
--------------------------------------------------------------------------------
2001                                                                       214
--------------------------------------------------------------------------------
2002 and thereafter                                                        136
                                                                          ----
--------------------------------------------------------------------------------
      TOTAL                                                             $1,543
--------------------------------------------------------------------------------
</TABLE>

13.   Reinsurance:

The Company  limits the  maximum  net loss that can arise from a large risk,  or
risks in concentrated areas of exposure,  by reinsuring  (ceding) certain levels
of risks with other insurers or reinsurers,  either on an automatic  basis under
general  reinsurance   contracts  known  as  "treaties"  or  by  negotiation  on
substantial  individual risks. Such reinsurance  includes quota share, excess of
loss,  stop-loss and other forms of reinsurance on essentially  all property and
casualty lines of insurance.  In addition,  the Company  assumes  reinsurance on
certain  risks.  The  Company  remains   contingently  liable  with  respect  to
reinsurance,  which  would  become an ultimate  liability  of the Company in the
event that such  reinsuring  companies  might be unable,  at some later date, to
meet their obligations under the reinsurance agreements.

Approximately  34% of amounts  recoverable  from reinsurers are with the FCIC, a
branch of the federal  government.  Another 30% of recoverable  amounts are with
Granite  Re  Insurance  Company  Ltd.  ("Granite  Re"),  an  affiliated  foreign
corporation,  which has not applied for an A.M. Best rating.  An additional 3.8%
of  uncollateralized  recoverable amounts are with companies which maintain an

                                      -34-


<PAGE>

                                                                [small SIG logo]
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                (Dollars in thousands) Continued

A.M. Best rating of at least A+. Company management believes amounts recoverable
from reinsurers are collectible.

On April 29,  1996,  Pafco and IGF entered  into a 100% quota share  reinsurance
agreement,  whereby all of IGF's nonstandard  automobile  business from 1996 and
forward was ceded to Pafco effective January 1, 1996.

On April 29, 1996,  Pafco  retroactively  ceded all of its  commercial  business
relating to 1995 and  previous  years to Granite Re, with an  effective  date of
January 1,  1996.  Approximately  $3,519 and $2,380 of loss and loss  adjustment
expense reserves and unearned premium reserves,  respectively, were ceded and no
gain or loss recognized.  Effective  January 1, 1998,  Granite Re ceded the 1995
and prior commercial  business back to Pafco.  Approximately  $1,803 in loss and
loss  adjustment  expense  reserves were ceded back to Pafco and no gain or loss
was recognized.

On April 29,  1996,  Pafco  also  entered  into a 100% quota  share  reinsurance
agreement with Granite Re, whereby all of Pafco's commercial  business from 1996
and thereafter was ceded effective January 1, 1996.

Reinsurance  activity for 1997, 1996, and 1995, which includes  reinsurance with
related parties, is summarized as follows:

<TABLE>
<CAPTION>


                            1997                    Direct     Assumed      Ceded        Net
-------------------------------------------------------------------------------------------------
<S>                                                <C>         <C>        <C>         <C>
Premiums Written                                   $430,002    $30,598    $(183,059)  $277,541
-------------------------------------------------------------------------------------------------
Premiums Earned                                     400,081     33,209     (161,476)   271,814
-------------------------------------------------------------------------------------------------
Incurred losses and loss adjustment expenses        290,712     35,034     (133,661)   212,085
-------------------------------------------------------------------------------------------------
Commission expenses (income)                         59,951      7,461      (77,898)  (10,486)
-------------------------------------------------------------------------------------------------
                           1996
-------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>        <C>        <C>
Premiums Written                                   $298,596     $6,903     $(95,907)  $209,592
-------------------------------------------------------------------------------------------------
Premiums Earned                                     279,061      6,903      (94,205)   191,759
-------------------------------------------------------------------------------------------------
Incurred losses and loss adjustment expenses        223,879      4,260      (91,030)   137,109
-------------------------------------------------------------------------------------------------
Commission expenses (income)                         44,879      3,663      (46,716)     1,826
-------------------------------------------------------------------------------------------------
                           1995
-------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>        <C>         <C>
Premiums Written                                   $123,381     $1,253     $(71,187)   $53,447
-------------------------------------------------------------------------------------------------
Premiums Earned                                     116,860      1,256      (68,475)    49,641
-------------------------------------------------------------------------------------------------
Incurred losses and loss adjustment expenses        125,382      2,839      (92,250)    35,971
-------------------------------------------------------------------------------------------------
Commission expenses (income)                         17,177        174      (27,092)   (9,741)
-------------------------------------------------------------------------------------------------
</TABLE>

Amounts   recoverable  from  reinsurers  relating  to  unpaid  losses  and  loss
adjustment expenses were $51,104, $29,459, and $37,798, as of December 31, 1997,
1996,  and 1995,  respectively.  These amounts are reported gross of the related
reserves  for unpaid  losses and loss  adjustment  expenses in the  accompanying
Consolidated Balance Sheets.

14.   Related Parties:

The Company and its  subsidiaries  have entered into  transactions  with various
related parties including  transactions  with Goran, and its affiliates,  Symons
International Group, Ltd. (SIG Ltd.), Goran's parent,  Granite Insurance Company
(Granite), and Granite Re, Goran's subsidiaries.

                                      -35-



<PAGE>

[small SIG logo]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands) Continued

The following balances were outstanding at December 31:

<TABLE>
<CAPTION>
                                                                   1997       1996
------------------------------------------------------------------------------------
<S>                                                                <C>      <C>
Investments in and advances to related parties:
------------------------------------------------------------------------------------
    Nonredeemable, nonvoting preferred stock of Granite            $ 702    $   702
------------------------------------------------------------------------------------
    Unsecured mortgage loan from director and officer                 --        278
------------------------------------------------------------------------------------
    Due from directors and officers                                  110        172
------------------------------------------------------------------------------------
    Other receivables from related parties                            27        ---
------------------------------------------------------------------------------------
                                                                   $ 839    $ 1,152
                                                                    ====      =====
------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                   1997       1996
------------------------------------------------------------------------------------
<S>                                                                <C>        <C>
Payable to affiliates:
------------------------------------------------------------------------------------
     Other payables to Goran                                       $ ---      $ 350
------------------------------------------------------------------------------------
     Other payables to related parties                               ---         16
------------------------------------------------------------------------------------
                                                                   $ ---      $ 366
                                                                     ===       ====
------------------------------------------------------------------------------------
</TABLE>

The  following  transactions  occurred  with related  parties in the years ended
December 31:

<TABLE>
<CAPTION>
                                                                    1997        1996      1995
------------------------------------------------------------------------------------------------------------
<S>                                                               <C>         <C>        <C>
Management fees charged by Goran                                  $  ---      $  139     $ 414
------------------------------------------------------------------------------------------------------------
Reinsurance under various treaties, net:
------------------------------------------------------------------------------------------------------------
      Ceded premiums earned                                       13,537       5,463     5,235
------------------------------------------------------------------------------------------------------------
      Ceded losses and loss adjustment expenses incurred          11,876       5,168     2,612
------------------------------------------------------------------------------------------------------------
      Ceded commissions                                            3,523       2,620     1,142
----------------------------------------------------------------------------------------------------------
Consulting fees charged by various related parties                    26         180        26
------------------------------------------------------------------------------------------------------------
Interest charged by Goran                                            ---         196       208
------------------------------------------------------------------------------------------------------------
Interest charged by Granite Re                                       ---         385       346
------------------------------------------------------------------------------------------------------------
</TABLE>

In February 1998,  GGS  Management  loaned Granite Re $3,199 payable in February
2002  with  interest  due  semiannually  at 6.8% to be  used as  collateral  for
reinsurance transactions.

15.   Stockholders' Equity:

On July 29, 1996, the Board of Directors  approved an increase in the authorized
common stock of the Company from 1,000 shares to 100,000,000  shares. The common
stock remains no par value.  On July 29, 1996,  the Board approved a 7,000-for-1
stock split of the Company's  issued and outstanding  shares.  All share and per
share amounts have been restated to  retroactively  reflect the stock split.  On
July 29, 1996,  the Board of  Directors  authorized  the issuance of  50,000,000
shares of preferred stock. No shares of preferred stock have been issued.

16. Effects of Statutory Accounting Practices and Dividend Restrictions:

The minimum capital and surplus required by Indiana statute for Pafco and IGF is
$1,250.  Statutory  requirements  place limitations on the amount of funds which
can be remitted to the Company  from Pafco and IGF. The Indiana  statute  allows

                                      -36-


<PAGE>

                                                                [small SIG logo]
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                (Dollars in thousands) Continued

10% of surplus as regard to  policyholders  or 100% of net income,  whichever is
greater, to be paid as dividends only from earned surplus.

The  minimum  capital and surplus  required by Florida  statute for  Superior is
$1,950 and $2,100 at December  31, 1997 and 1996,  respectively.  In the consent
order approving the Acquisition,  the Florida Department has prohibited Superior
from paying any dividends  for four years without the prior written  approval of
the Florida Department.

Subsequent to Board of Directors and regulatory approval,  IGF declared and paid
in April 1996 and December 1995 extraordinary  dividends to Pafco in the amounts
of $11 million and $2 million on the 2,494,000  shares of convertible  preferred
stock owned by Pafco.  In December  1995,  upon Board of  Directors of Pafco and
regulatory  approval,  Pafco  declared  and paid to the  Company a $1.5  million
extraordinary dividend on the common stock owned by the Company.

17.   Regulatory Matters:

Pafco  and  IGF,  domiciled  in  Indiana,   prepare  their  statutory  financial
statements in accordance  with accounting  practices  prescribed or permitted by
the Indiana Department of Insurance (IDOI). The Superior entities,  domiciled in
Florida,  prepare  their  statutory  financial  statements  in  accordance  with
accounting  practices  prescribed  or  permitted  by the Florida  Department  of
Insurance (FDOI). Prescribed statutory accounting practices include a variety of
publications  of the  NAIC,  as well as state  laws,  regulations,  and  general
administrative  rules.  Permitted statutory  accounting  practices encompass all
accounting practices not so prescribed.

IGF received  written  approval  through March 31, 1998 from the IDOI to reflect
its  business  transacted  with  the  FCIC  as  a  100%  cession  with  any  net
underwriting  results recognized in ceding commissions for statutory  accounting
purposes,  which differs from prescribed statutory accounting  practices.  As of
December 31, 1997, that permitted transaction had no effect on statutory surplus
or net income.  The  underwriting  profit results of the FCIC  business,  net of
reinsurance of $26,589,  $12,277 and $9,653,  are netted with policy acquisition
and general and  administrative  expenses for the years ended December 31, 1997,
1996, and 1995,  respectively,  in the accompanying  Consolidated  Statements of
Earnings.

The NAIC is  considering  the  adoption of a  recommended  statutory  accounting
standard  for crop  insurers,  the impact of which is  uncertain  since  several
methodologies are currently being examined.  Although the Indiana Department has
permitted the Company to continue for its statutory financial statements through
December 31, 1997 its practice of recording  its MPCI  business as 100% ceded to
the FCIC with net underwriting  results  recognized in ceding  commissions,  the
Indiana  Department has indicated that in the future it will require the Company
to adopt the MPCI  accounting  practices  recommended by the NAIC or any similar
practice  adopted by the  Indiana  Department.  Since  such a standard  would be
adopted  industry-wide for crop insurers,  the Company would also be required to
conform its future GAAP  financial  statements to reflect the new MPCI statutory
accounting  methodology and to restate all historical GAAP financial  statements
consistently with this methodology for comparability. The Company cannot predict
what accounting  methodology  will eventually be implemented or when the Company
will be required to adopt such  methodology.  The Company  anticipates  that any
such new crop accounting methodology will not affect GAAP net earnings.

As of December 31, 1997,  IGF,  Pafco and the Superior  entities had  risk-based
capital ratios that were in excess of the minimum requirements.

                                      -37-

<PAGE>

[small SIG logo]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands) Continued

The NAIC  currently  has a project under way to codify SAP, as existing SAP does
not  address  all  accounting  issues and may differ  from state to state.  Upon
completion,  the Codification is expected to replace prescribed or permitted SAP
in each  state  as the new  comprehensive  statutory  basis  of  accounting  for
insurance  companies.  The final format of the Codification is uncertain at this
time, yet  implementation  could be required as early as January 1, 1999. Due to
the project's  uncertainty,  the Company has not yet  quantified  the impact any
such  changes  would have on the  statutory  capital  and  surplus or results of
operations of the Company's insurance subsidiaries.  The impact of adopting this
new  comprehensive  statutory  basis of  accounting  is,  however,  expected  to
materially impact statutory capital and surplus.

18.   Commitments and Contingencies:

The Company,  and its subsidiaries,  are named as defendants in various lawsuits
relating to their business. Legal actions arise from claims made under insurance
policies  issued by the  subsidiaries.  These  actions  were  considered  by the
Company  in  establishing  its loss  reserves.  The  Company  believes  that the
ultimate  disposition of these lawsuits will not materially affect the Company's
operations or financial position.

On October 27, 1997,  IGF reached an agreement with the FCIC to settle a lawsuit
started  March 23, 1995,  with both parties  dismissing  all claims  against one
another which were subject to the  litigation.  The FCIC has agreed to pay IGF a
lump sum payment of $60,000.

The Company bought an office building in Des Moines, Iowa, as its crop insurance
division home office.  The purchase price was $2.6 million.  The sale of the old
building is expected to close on April 1, 1998 for $1,350,000.

19.   Supplemental Cash Flow Information:

Cash paid for interest and income taxes are summarized as follows:

<TABLE>
<CAPTION>
                                                         1997    1996   1995
------------------------------------------------------------------------------
<S>                                                    <C>     <C>     <C>
Cash paid for interest                                 $3,467  $5,178   $553
------------------------------------------------------------------------------
Cash paid for federal income taxes, net of refunds     11,670   9,825  1,953
------------------------------------------------------------------------------
</TABLE>

During 1996,  the Company  contributed  the stock of Pafco and certain assets of
the Company totaling $17,186 to GGSH in exchange for a 52% ownership interest in
GGSH. In addition,  Goldman Funds received a minority  interest share of $18,425
in GGSH  for  its  $21,200  contribution,  resulting  in a  $2,775  increase  to
additional  paid-in  capital  from the sale of Pafco  common  stock and  certain
assets.

20. Disclosures About Fair Values of Financial Instruments:

The following  discussion  outlines the  methodologies  and assumptions  used to
determine  the  estimated  fair value of the  Company's  financial  instruments.
Considerable judgment is required to develop these fair values and, accordingly,
the estimates shown are not necessarily  indicative of the amounts that would be
realized  in a  one-time,  current  market  exchange  of all  of  the  Company's
financial instruments.

   a.  Fixed Maturity and Equity Securities:  Fair values for fixed maturity and
       equity securities are based on quoted market prices.

                                      -38-


<PAGE>

                                                                [small SIG logo]
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                (Dollars in thousands) Continued

   b.  Mortgage  Loan:  The  estimated  fair  value  of the  mortgage  loan  was
       established  using a discounted  cash flow method based on credit rating,
       maturity  and future  income  when  compared  to the  expected  yield for
       mortgages having similar characteristics. The estimated fair value of the
       mortgage loan was $2,130 at December 31, 1997.

   c.  Short-term Investments, and Cash and Cash Equivalents: The carrying value
       for  assets  classified  as  short-term  investments,  and  cash and cash
       equivalents in the accompanying  Consolidated Balance Sheets approximates
       their fair value.

   d.  Short-term Debt: The carrying value for short-term debt approximates fair
       value.

   e.  Preferred Securities:  The December 31, 1997 market value of the
       Preferred Securities was $136,350 based on quoted market prices.

21.   Segment Information:

The  Company  has  two  business  segments:   Nonstandard  automobile  and  Crop
insurance.  The  Nonstandard  automobile  segment  offers  personal  nonstandard
automobile   insurance  coverages  through  a  network  of  independent  general
agencies.  These products are sold by Pafco in eleven  states,  Superior in nine
states,  and IGF in four  states.  The Crop  segment  writes  MPCI and crop hail
insurance in thirty-six  states  through  independent  agencies with its primary
concentration  in the  Midwest.  Activity  which is not  included  in the  major
business segments is shown as "Corporate and Other."

"Corporate and Other" includes  operations not directly  related to the business
segments and unallocated  corporate items (i.e.,  corporate  investment  income,
interest expense on corporate debt and unallocated overhead expenses).

Identifiable  assets  by  business  segment  are those  assets in the  Company's
operations in each segment.  Corporate  and other assets are  principally  cash,
short-term  investments,  related-party assets,  intangible assets, and property
and equipment. Capital expenditures are reported exclusive of the Acquisition.



                                      -39-

<PAGE>

[small SIG logo]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands) Continued


Segment information for 1995 through 1997 is as follows (certain information for
1995 is not available by segment due to general use by all segments of corporate
assets):

<TABLE>

                                                                      Year Ended December 31,
----------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                1997               1996           1995
----------------------------------------------------------------------------------------------------------
<S>                                                          <C>                <C>             <C>
Revenues:
----------------------------------------------------------------------------------------------------------
   Nonstandard automobile                                    $ 286,966          $ 181,799       $ 36,363
----------------------------------------------------------------------------------------------------------
   Crop                                                         25,731             24,865         12,830
----------------------------------------------------------------------------------------------------------
   Corporate and other                                             317                 99          3,447
                                                               -------            -------         ------
----------------------------------------------------------------------------------------------------------
         TOTAL REVENUE                                       $ 313,014          $ 206,763       $ 52,640
                                                               =======            =======         ======

----------------------------------------------------------------------------------------------------------
Earnings (loss) before taxes and minority interest:
----------------------------------------------------------------------------------------------------------
   Nonstandard automobile                                    $  18,603          $  10,618       $ (1,989)
----------------------------------------------------------------------------------------------------------
   Crop                                                         20,862             17,685         11,040
----------------------------------------------------------------------------------------------------------
   Corporate and other                                          (5,522)            (4,600)        (1,611)
                                                               -------             -------         ------
----------------------------------------------------------------------------------------------------------
       TOTAL EARNINGS BEFORE TAXES AND
            MINORITY INTEREST                                $  33,943          $  23,703       $  7,440
                                                               =======            =======        =======
----------------------------------------------------------------------------------------------------------
Identifiable assets:
----------------------------------------------------------------------------------------------------------
   Nonstandard automobile                                    $ 302,795          $ 260,332
----------------------------------------------------------------------------------------------------------
   Crop                                                        108,650             72,916
----------------------------------------------------------------------------------------------------------
   Corporate and other                                         118,430             11,431
                                                               -------            -------
----------------------------------------------------------------------------------------------------------
        TOTAL IDENTIFIABLE ASSETS                            $ 529,875          $ 344,679
                                                               =======            =======
----------------------------------------------------------------------------------------------------------
Depreciation and amortization:
----------------------------------------------------------------------------------------------------------
   Nonstandard automobile                                    $   1,007          $   1,209
----------------------------------------------------------------------------------------------------------
   Crop                                                            754                574
----------------------------------------------------------------------------------------------------------
   Corporate and other                                           1,200                411
                                                               -------            -------
----------------------------------------------------------------------------------------------------------
         TOTAL DEPRECIATION AND AMORTIZATION                 $   2,961          $   2,194
                                                               =======            =======
----------------------------------------------------------------------------------------------------------
Capital expenditures:
----------------------------------------------------------------------------------------------------------
   Nonstandard automobile                                    $   4,409          $   2,058
----------------------------------------------------------------------------------------------------------
   Crop                                                          1,241              1,676
----------------------------------------------------------------------------------------------------------
   Corporate and other                                              12                  -
                                                               -------            -------
----------------------------------------------------------------------------------------------------------
           TOTAL CAPITAL EXPENDITURES                        $   5,662          $   3,734
                                                               =======            =======
----------------------------------------------------------------------------------------------------------
</TABLE>

22.   Stock Option Plans:

On November 1, 1996, the Company adopted the Symons  International  Group,  Inc.
1996 Stock Option Plan (the "SIG Stock Option Plan").  The SIG Stock Option Plan
provides the Company authority to grant nonqualified stock options and incentive

                                      -40-


<PAGE>

                                                                [small SIG logo]
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                (Dollars in thousands) Continued

stock options to officers and key employees of the Company and its  subsidiaries
and  nonqualified  stock  options to  nonemployee  directors  of the Company and
Goran.  Options were granted at an exercise price equal to the Offering price of
the  Company's  common  stock.  The options  granted to the  Company's  Chairman
(436,567 shares) vest and become exercisable in full on the first anniversary of
the grant date. All of the remaining  outstanding  stock options vest and become
exercisable  in  three  equal  installments  on  the  first,  second  and  third
anniversaries  of the date of grant.  All  options  were  granted at an exercise
price equal to the fair market  value of the  Company's  common stock at time of
grant.

Information regarding the SIG Stock Option Plan is summarized below:

<TABLE>
<CAPTION>

                                                                              1997                               1996
                                                                            Weighted                           Weighted
                                                                            average                             average
                                                                            exercise                           exercise
                                                           Shares            price            Shares             price
-----------------------------------------------------------------------------------------------------------------------------

<S>                                                      <C>                  <C>             <C>                <C>
Outstanding at the beginning of the year                   830,000            $12.50              ---            $  ---
-----------------------------------------------------------------------------------------------------------------------------
Granted                                                    185,267             15.35          830,000             12.50
-----------------------------------------------------------------------------------------------------------------------------
Exercised                                                   (1,667)            12.50              ---               ---
-----------------------------------------------------------------------------------------------------------------------------
Forfeited                                                  (13,600)            12.50              ---               ---
                                                           -------                                ---
-----------------------------------------------------------------------------------------------------------------------------
Outstanding at the end of the year                       1,000,000            $13.03          830,000            $12.50
                                                         =========                            =======
-----------------------------------------------------------------------------------------------------------------------------
Options exercisable at year end                            521,578                                ---
-----------------------------------------------------------------------------------------------------------------------------
Available for future grant                                     ---                            170,000
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                               Options                             Options
                                                            Weighted         outstanding                         exercisable
                                                             average          weighted                            weighted
                                                            remaining          average                             average
                                           Number           life (in          exercise           Number           exercise
Range of exercise prices                 outstanding         years)             price          exercisable          price
---------------------------------------------------------------------------------------------------------------------------------

<S>                                      <C>                    <C>            <C>              <C>                 <C>
$12.50-$13.75                              933,733              8.9            $12.66           521,578             $12.50
---------------------------------------------------------------------------------------------------------------------------------
$17.75-$19.25                               66,267              9.7             18.23               ---                ---
                                            ------                                                  ---
---------------------------------------------------------------------------------------------------------------------------------
                                         1,000,000                                              521,578
                                         =========                                              =======
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Board of Directors of GGSH adopted the GGS Management  Holdings,  Inc. Stock
Option Plan (the "GGS Stock Option  Plan"),  effective  April 30, 1996.  The GGS
Stock Option Plan  authorizes the granting of  nonqualified  and incentive stock
options to such  officers and other key  employees as may be  designated  by the
Board of Directors of GGSH. Options granted under the GGS Stock Option Plan have
a term of ten years and vest at a rate of 20% per year for the five years  after
the date of the grant.  The exercise price of any options  granted under the GGS
Stock Option Plan shall be subject to the following  formula:  50% of each grant
of options having an exercise price determined by the Board of Directors of GGSH
at its discretion,  with the remaining 50% of each grant of options subject to a
compound  annual increase in the exercise price of 10%, with a limitation on the
exercise price escalation as such options vest.



                                      -41-

<PAGE>


[small SIG logo]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands) Continued

Information regarding the GGS Stock Option Plan is summarized below:

<TABLE>
<CAPTION>
                                                                              1997                               1996
                                                                            Weighted                           Weighted
                                                                            average                             average
                                                                            exercise                           exercise
                                                           Shares            price            Shares             price
-----------------------------------------------------------------------------------------------------------------------------

<S>                                                         <C>               <C>              <C>               <C>
Outstanding at the beginning of the year                    55,972            $51.75              ---            $  ---
-----------------------------------------------------------------------------------------------------------------------------
Granted                                                        ---               ---           55,972             51.75
-----------------------------------------------------------------------------------------------------------------------------
Forfeited                                                   (1,950)            51.75              ---               ---
                                                            ------                             ------
-----------------------------------------------------------------------------------------------------------------------------
Outstanding at the end of the year                          54,022            $51.75           55,972            $51.75
                                                            ======                             ======
-----------------------------------------------------------------------------------------------------------------------------
Options exercisable at year end                             10,804                                ---
-----------------------------------------------------------------------------------------------------------------------------
Available for future grant                                  57,089                             55,139
-----------------------------------------------------------------------------------------------------------------------------

</TABLE>

<TABLE>
<CAPTION>
                                                                               Options                             Options
                                                            Weighted         outstanding                         exercisable
                                                             average          weighted                            weighted
                                                            remaining          average                             average
                                           Number           life (in          exercise           Number           exercise
Range of exercise prices                 outstanding         years)             price          exercisable          price
---------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                 <C>            <C>               <C>                <C>

$44.17-$53.45                               37,815              8.3            $46.13            10,804             $46.38
---------------------------------------------------------------------------------------------------------------------------

$58.79-$71.14                               16,207              8.3             64.87               ---                ---
                                            ------                                                  ---
---------------------------------------------------------------------------------------------------------------------------
                                            54,022                                               10,804
                                            ======                                               ======
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Company applies  Accounting  Principles Board Opinion No. 25, "Accounting of
Stock Issued to Employees"  and related  interpretation  in  accounting  for its
stock option plans.  Accordingly,  no compensation  cost has been recognized for
such plans.  Had compensation  cost been determined,  based on the fair value at
the grant dates for options granted under both the SIG Stock Option Plan and the
GGS Stock Option Plan during 1997 and 1996,  consistent  with the method of SFAS
No. 123, "Accounting for Stock-Based  Compensation," the Company's pro forma net
earnings and pro forma  earnings per share for the years ended December 31, 1997
and 1996 would have been as follows:

<TABLE>
---------------------------------------------------------------------------------------------
<CAPTION>
(Dollars in thousands,                    1997          1997          1996       1996
except per share amounts)              As Reported    Pro forma   As Reported  Pro forma
---------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------
<S>                                      <C>           <C>           <C>        <C>
Net earnings                             $16,305       $14,927       $13,256    $13,021
---------------------------------------------------------------------------------------------
Basic earnings per share                   $1.56         $1.43         $1.76      $1.73
---------------------------------------------------------------------------------------------
Fully diluted earnings per share           $1.52         $1.38         $1.76      $1.73
---------------------------------------------------------------------------------------------
</TABLE>

The fair value of each  option  grant used for  purposes of  estimating  the pro
forma  amounts  summarized  above is  estimated  on the date of grant  using the
Black-Scholes  option-price model with the weighted average assumptions for 1997
and 1996 shown in the following table:

<TABLE>
<CAPTION>


--------------------------------------------------------------------------------------------
                                            SIG             SIG            GGSH
                                        1997 Grants     1996 Grants    1996 Grants
                                        -----------     -----------    -----------
--------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>
Risk-free interest rates                    6.40%          6.27%           6.41%
--------------------------------------------------------------------------------------------
Dividend yields                              ---            ---             ---
---------------------------------------------------------------------------------------------
Volatility factors                          0.39           0.40             ---
---------------------------------------------------------------------------------------------
Weighted average expected life           3.3 years      3.1 years      5.0 years
---------------------------------------------------------------------------------------------
Weighted average fair value per share      $5.54          $4.27           $5.90
---------------------------------------------------------------------------------------------
</TABLE>

                                      -42-


<PAGE>

                                                                [small SIG logo]
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                (Dollars in thousands) Continued

23.   Subsequent Event:

On March  2,  1998,  the  Company  announced  that it had  signed  a  definitive
agreement with CNA to purchase its  multi-peril  and crop hail  operations.  The
Company will reinsure  back to CNA a small  portion of the Company's  total crop
book of business.  CNA wrote  approximately $110 million of multi-peril and crop
hail insurance business in 1997. 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 after the  buyout.  The formula for the buyout is based on a multiple of
average pre-tax earnings that CNA receives from reinsuring the Company's book of
business.

24.   Quarterly Financial Information (unaudited):

Quarterly financial information is as follows:

<TABLE>
                                                                        Quarters
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
                             1997           First          Second         Third           Fourth           Total
-------------------------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>             <C>             <C>            <C>
Gross written premiums                    $129,890        $149,175        $103,919        $77,616        $460,600
-------------------------------------------------------------------------------------------------------------------
Net earnings                                 5,909           3,677           6,013            706          16,305
-------------------------------------------------------------------------------------------------------------------
Basic earnings per share                      0.56            0.35            0.56           0.09            1.56
-------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per share              0.56            0.35            0.55           0.06            1.52
-------------------------------------------------------------------------------------------------------------------
                             1996
-------------------------------------------------------------------------------------------------------------------
Gross written premiums                     $41,422        $105,528         $71,813        $86,736        $305,499
-------------------------------------------------------------------------------------------------------------------
Net earnings                                 1,586           2,718           4,589          4,363          13,256
-------------------------------------------------------------------------------------------------------------------
Basic earnings per share                      0.22            0.39            0.66           0.49            1.76
-------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per share              0.22            0.39            0.66           0.49            1.76
-------------------------------------------------------------------------------------------------------------------
                             1995
-------------------------------------------------------------------------------------------------------------------
Gross written premiums                     $28,272         $67,487         $16,978        $11,897        $124,634
-------------------------------------------------------------------------------------------------------------------
Net earnings                                 1,066             940           1,464          1,351           4,821
-------------------------------------------------------------------------------------------------------------------
Basic earnings per share                      0.15            0.14            0.21           0.19            0.69
-------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per share              0.15            0.14            0.21           0.19            0.69
-------------------------------------------------------------------------------------------------------------------
</TABLE>

During the  fourth  quarter  of 1997,  the  Company  increased  reserves  on its
nonstandard  automobile  business by $1.5  million for  accident  years 1996 and
prior and by $1.5 million for accident year 1997.

As is customary in the crop insurance industry,  insurance company  participants
in the FCIC program receive more precise  financial results from the FCIC in the
fourth quarter based upon business written on spring-planted crops. On the basis
of FCIC-supplied  financial  results,  IGF recorded,  in the fourth quarter,  an
additional  underwriting  gain,  net of  reinsurance,  on its FCIC  business  of
$6,979, $5,572 and $3,139 during 1997, 1996 and 1995, respectively.

                                      -43-

<PAGE>

FORWARD-LOOKING STATEMENTS

The statements contained in this Annual Report which are not historical facts,
including but not limited to, statements concerning (i) the impact of federal
and state laws and regulations on the Company's business and results of
operations, (ii) the competitive advantage afforded to the Company's crop
insurance operations by approaches adopted by management in the areas of
information, technology, claims handling and underwriting, (iii) the
sufficiency of the Company's cash flow to meet the operating expenses, debt
service obligations and capital needs of the Company and its subsidiaries, and
(iv) the impact of declining MPCI Buy-up Expense Reimbursements on the Company's
results of operations, are forward-looking statements.  The Company desires to
take advantage of the  "safe  harbor"  afforded  such  statements  under  the
Private  Securities Litigation Reform Act of 1995 when they are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those in the forward-looking
statements. Such cautionary statements which discuss certain risks associated
with the Company's business including the variability of the results of
operations of the Company's crop insurance business as a result of weather and
natural perils, the highly competitive nature of both the Company's crop
insurance and nonstandard automobile insurance business and the effects of state
and federal regulation, the capital intensive nature of the property and
casualty business and potential limitations on the ability of the Company to
raise additional capital set forth under the heading "Forward-Looking Statements
--Safe Harbor Provisions" in Item 1 - Business in the Company's Annual Report on
Form 10-K for the Year Ended December 31, 1997.
-------------------------------------------------------------------------------
MANAGEMENT RESPONSIBILITY
--------------------------------------------------------------------------------

Management recognizes its responsibility for conducting the Company's affairs in
the  best  interests  of  all  its  shareholders.   The  consolidated  financial
statements and related  information in this Annual Report are the responsibility
of  management.  The  consolidated  financial  statements  have been prepared in
accordance with generally accepted  accounting  principles which involve the use
of judgement and estimates in applying the accounting principles selected. Other
financial  information  in this  Annual  Report is  consistent  with that in the
consolidated financial statements.

The Company maintains systems of internal controls which are designed to provide
reasonable  assurance that accounting records are reliable and to safe-guard the
Company's  assets.  The independent  accounting firm of Coopers & Lybrand L.L.P.
has audited and reported on the Company's financial statements. Their opinion is
based  upon  audits  conducted  by  them in  accordance  that  the  consolidated
financial statements are free of material misstatements.

The Audit  Committee  of the Board of  Directors,  the members of which  include
outside directors,  meets with the independent  external auditors and management
representative  to review the internal  accounting  controls,  the  consolidated
financial  statements  and other  financial  reporting  matters.  In addition to
having  unrestricted  access  to the  books  and  records  of the  Company,  the
independent  external  auditors  also  have  unrestricted  access  to the  Audit
Committee. The Audit Committee reports its findings and makes recommendations to
the Board of Directors.


/s/ Alan G. Symons
Chief Executive Officer


/s/ Gary P. Hutchcraft
Gary P. Hutchcraft
Vice President and Chief Financial Officer

February 27, 1998



                                      -44-

<PAGE>
                                                                [small SIG logo]
                                              REPORTS OF INDEPENDENT ACCOUNTANTS



Board of Directors And Stockholders of Symons International Group, Inc.
  And Subsidiaries

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Symons
International Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of earnings, changes in stockholders' equity
and cash flows for each of the three  years in the  period  ended  December  31,
1997.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of Symons
International Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the  consolidated  results of their  operations and their cash flows for each of
the three  years in the  period  ended  December  31,  1997 in  conformity  with
generally accepted accounting principles.


/s/ Coopers & Lybrand
Indianapolis, Indiana
February 27, 1998 , except as to note 23
   which is as of March 2, 1998



                                      -45-

<PAGE>

[small SIG logo]

Stockholder Information

Corporate Offices
Symons International Group, Inc.
4720 Kingsway Drive
Indianapolis, Indiana  46205
(317) 259-6300

Registrar and Transfer Agent
National City Bank
4100 West 150th Street
3rd Floor
Cleveland, Ohio  44135-1385

Independent Public Accountants
Coopers & Lybrand L.L.P.
Indianapolis, Indiana

Annual Meeting of Stockholders
Wednesday, May 20, 1998
10:00 a.m.
Corporate Offices

Annual Report on Form 10-K
A copy of the Annual Report on Form 10-K for Symons  International  Group,  Inc.
for the year ended  December 31, 1997,  filed with the  Securities  and Exchange
Commission,  may be obtained, without charge, upon request to the individual and
address noted under Shareholder Inquiries.

Market and Dividend Information
Symons International Group, Inc. effected its  initial public offering on
November 5, 1996. Symons International Group, Inc.'s common stock trades on the
NASDAQ Stock Market's National Market under the symbol SIGC.  The initial
offering price of its shares of Common Stock was $12.50 per share.

<TABLE>

                                     NASDAQ

---------------------------------------------------------------------
<CAPTION>
                             1997                    1996
---------------------------------------------------------------------
<S>                   <C>        <C>           <C>         <C>
Quarter Ended          High        Low         High        Low
---------------------------------------------------------------------
March 31              17.625      14.00         N/A         N/A
---------------------------------------------------------------------
June 30               16.625     13.625         N/A         N/A
---------------------------------------------------------------------
September 30           23.25      15.75         N/A         N/A
---------------------------------------------------------------------
December 31            23.75      18.63        16.75       12.50
---------------------------------------------------------------------
</TABLE>

As of March 20, 1998, the Company had  approximately  120 stockholders  based on
the  number of holders of record  and an  estimate  of the number of  individual
participants represented by securities position listings.

Symons  International  Group,  Inc. did not declare or pay cash dividends on its
common stock during the years ended December 31, 1997 and 1996. The Company does
not plan to pay cash  dividends on its common stock in order to retain  earnings
to support the growth of its business.

Shareholder Inquiries

Inquiries should be directed to:
Alan G. Symons
Chief Executive Officer
Symons International Group, Inc.
Tel:  (317) 259-6402


                                      -46-

<PAGE>

                                                                [small SIG logo]

Board of Directors

G. Gordon Symons
Chairman of the Board
Symons International Group, Inc.
Goran Capital Inc.

Alan G. Symons
Chief Executive Officer, Symons International Group, Inc.
President and Chief Executive Officer, Goran Capital Inc.

Douglas H. Symons
President and Chief Operating Officer, Symons International Group, Inc.
Vice President and Chief Operating Officer, Goran Capital Inc.

John K. McKeating
Retired former President and Owner of Vision 2120 Optometric Clinics

Robert C. Whiting
President, Prime Advisors, Ltd

James G. Torrance, Q.C.
Partner Emeritus, Smith, Lyons
Barristers & Solicitors

David R. Doyle
Director and Vice President, Secretary and
Treasurer of ONEX, Inc.

Jerome B. Gordon
Managing Director of Lutine Corporation

Executive Officers

G. Gordon Symons                            Roger C. Sullivan Jr.
Chairman of the Board                       Executive Vice President
Symons International Group, Inc.            Superior Insurance Company

Alan G. Symons                              David L. Bates
Chief Executive Officer                     Vice President, General Counsel and
Symons International Group, Inc.               and Secretary
                                            Symons International Group, Inc.

Douglas H. Symons                          Dennis G. Daggett
President and Chief Operating Officer      President and Chief Operating Officer
Symons International Group, Inc.           IGF Insurance Company

Gary P. Hutchcraft                         Thomas F. Gowdy
Vice President, Chief Financial Officer    Executive Vice Presidenter
   and Treasurer                           IGF Insurance Company
Symons International Group, Inc.

Carl F. Schnaufer
Vice President, Chief Information Officer
Symons International Group, Inc.

Donald E. Barrett
Vice President, Human Resources
Symons International Group, Inc.

Terry E. Diers
Vice President, Marketing
GGS Management, Inc.

                                      -47-

<PAGE>

[small SIG logo]

Company, Subsidiaries and Branch Offices

CORPORATE OFFICE

Symons International Group, Inc.
4720 Kingsway Drive
Indianapolis, Indiana  46205
Tel:  317 259-6300
Fax:  317 259-6395

SUBSIDIARIES AND BRANCHES
Pafco General Insurance Company                 IGF Southwest
4720 Kingsway Drive                             7914 Abbeville Avenue
Indianapolis, Indiana  46205                    Lubbock, Texas  79424
Tel:  317 259-6300                              Tel:  806 783-3010
Fax:  317 259-6395                              Fax:  806 783-3017

Superior Insurance Company                      IGF South
280 Interstate North Circle, N.W.               101 Business Park Drive, Suite C
Atlanta, Georgia  30339                         Jackson, Mississippi  39213
Tel:  770 952-4885                              Tel:  601 957-9780
Fax:  770 952-6616                              Fax:  601 957-9793

Superior Insurance Company                      IGF East
3030 N. Rocky Point Drive                       8000 Regency Park, Suite 280
Suite 770                                       Cary, North Carolina  27511
Tampa, Florida  33607                           Tel:  919 462-7850
Tel:  813 281-2444                              Fax:  919 462-7863
Fax:  813 281-8036
                                                IGF West
Superior Insurance Company                      1750 Bullard Avenue, Suite 106
1745 West Orangewood Road                       Fresno, California  93710
Orange, California  92868                       Tel:  209 432-0196
Tel:  714 978-6811                              Fax:  209 432-0294
Fax:  714 978-0353
                                                IGF North
IGF Insurance Company                           116 South Main, Box 1090
Corporate Office                                Stanley, North Dakota  58784
6000 Grand Avenue                               Tel:  701 628-3536
Des Moines, Iowa  50312                         Fax:  701 628-3537
Tel:  515 633-1000
Fax:  515 633-1010

IGF Mid West
6000 Grand Avenue
Des Moines, Iowa  50312
Tel:  515 633-1000
Fax:  515 633-1012

IGF Mid East
3900 Wood Duck Drive, Suite B
Springfield, Illinois  62707
Tel:  217 726-2450
Fax:  217 726-2451


                                      -48-

<PAGE>








BACK PAGE
[SIG logo]

Symons International Group, Inc.
4720 Kingsway Drive
Indianapolis, Indiana 46205

Tel:  317-259-6300
Fax:  317-259-6395