Exhibit 13

           SIG LOGO
           1998 Annual Report



                       [Large SIG logo with three photos]

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  is  the  twelfth  largest  provider  of
nonstandard  automobile insurance in the United States. The crop segment markets
and sells crop  insurance and other fee based  services 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
Chairman's Report
Selected Financial Data
Management's Discussion and Analysis of Results of Operations
  and Financial Condition
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Report of Independent Accountants
Stockholder Information
Board of Directors and Executive Officers
Subsidiary and Branch Offices


GRAPH             1994        1995        1996        1997        1998
                $103,134    $124,634    $305,499    $460,600    $553,190

                Gross Premiums Written By Year



                                        1

<PAGE>

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

<TABLE>
<CAPTION>
                                                 1998        1997        1996       1995        1994

<S>                                            <C>         <C>         <C>        <C>         <C>     
Gross premiums written                         $553,190    $460,600    $305,499   $124,634    $103,134

Net operating earnings (loss) (1)              $(17,239)    $11,845     $13,916     $5,048      $2,222

Net earnings (loss)                            $(14,417)    $16,305     $13,256     $4,821      $2,117 

Basic operating earnings (loss) per share (1)    $(1.66)      $1.11       $1.85      $0.72       $0.32

Basic earnings (loss) per share                  $(1.39)      $1.56       $1.76      $0.69       $0.30

Stockholders' equity                            $61,995     $78,363     $60,900     $9,535      $4,255

Return on average equity                          (20.5%)      21.9%       61.4%      69.9%       65.4%

Book value per share                              $5.97       $7.50       $5.83      $1.36       $0.61

Market value per share (2)                        $7.25      $19.22      $16.75        N/A         N/A

Weighted average outstanding shares-basic        10,402      10,450       7,537      7,000       7,000

</TABLE>

(1)  Operating earnings and per share amounts  exclude the after tax effects of
     realized capital gains and losses and any extraordinary items.
(2)  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        PAFCO General        Superior Insurance
  Company              Insurance Company    Company
  ("IGF")              ("PAFCO")            ("Superior")
                                             |                      |
                                     Superior Guaranty       Superior American
                                     Insurance Company       Insurance Company


                                        2

<PAGE>

Chairman's Report to our Shareholders

Greetings:

SYMONS INTERNATIONAL GROUP, INC. MILESTONES:

Usually I am in a good frame of mind when I sit down to rough out the Chairman's
comments  for the  annual  report.  This year I am far less happy for as you are
aware, our results, at least with respect to the profit aspects, are less than I
would have liked.

You will be aware of that, yet many of our shareholders are "profit" trained and
while that is not a bad formula for investing,  it is not the only criterion for
considering the merits of an insurance company.  Scattered in among our results,
there is a statement to the effect that Gross Premium rose to $546.8  million in
1998,  up 22% from $449 million in 1997.  We have  concentrated  on  eliminating
those factors that had such a negative effect on our results.

When we acquired  the crop  insurance  book of CNA, we had to close  offices and
take other  measures to reduce  redundant  personnel at a cost of $3.5  million.
During 1998 we upgraded our computer and reporting  systems at an operating cost
in excess of $5  million.  Adding to these  non-recurring  items,  a further $12
million in reserve  increases for years prior due to projected  increases in the
cost of auto repairs, and higher liability  settlements.  As new business cures,
it becomes  better with age. At the same time,  the cost to put the  business on
the books reduces thus improving our profitability. Today we have a company with
one of the lowest operating costs in both non-standard  automobile insurance and
crop  insurance.  With this low operating  cost, we can compete with the best of
our competition.

Those added expenses are in part, the cost of acquisition.  What happened to our
crop insurers in 1998 was catastrophic. In the year of the worst loss record for
the industry, we took our share of hail and hurricane damage with losses in 1998
exceeding premiums by $16 million. We do not expect to see anything like that in
1999, in fact we are optimistic about the crop year ahead.

There have been a number of changes in the crop insurance  industry with respect
to legislation put into effect by the U.S.  government to increase the subsidies
to farmers.  The effect on the crop  insurance  sector will increase the federal
government  MPCI.  insurance  program  from $1.8 billion to  approximately  $2.2
billion for 1999.  This has a direct  effect on the premium  revenues we receive
and with the  acquisition  of new  business in 1998 our  premium  levels will be
proportionately higher. The effect of this is to proportionately reduce costs as
a result of the size of the  business  we are  handling.  We have taken an ultra
conservative  approach to the  underwriting  of the business  through the use of
broader  terms and scope of coverage  available to us now from the  re-insurance
markets.

As you may recall,  up to the end of the second  quarter of 1998, we were moving
along nicely, anticipating good results represented by volume gains in both crop
and  non-standard  auto insurance.  Halfway  through the year, the  non-standard
automobile  insurance writers took a very competitive  attitude to the business,
forcing  many of the  smaller  insurers to cut rates to remain  competitive  and
protect  their market share.  There is no sure reason for this action,  but many
felt that the leading  underwriter of non-standard auto,  Progressive  Insurance
Company's decision to go direct,  cutting out many agents and reducing rates had
some effect on the psyche of the underwriting fraternity.

The summer months  brought in the most severe  weather  patterns to hit the crop
insurance  companies.   Devastating  heat  and  drought  in  Texas  followed  by
hurricanes and storms with large hail losses  throughout the U.S. To add to this
burden,  world commodity prices tumbled,  leading us to the end of the crop year
with  very  poor  underwriting  results  despite  a large  gain  in our  book of
business.

A little more information on our crop insurance  business.  When we acquired IGF
Insurance  Company in 1990,  it wrote $23 million of premiums  and there were 55
crop insurers.  In 1999 we will write in excess of approximately $300 million of
crop  business  and  are the  fourth  ranked  company  in the  field  of 17 crop
insurers. The Gross Premium for the industry has grown from $1.3 billion in 1990
to $2.2 billion in 1998. With the recently announced


                                        3

<PAGE>

federal legislation  increasing the support for farmers buying crop insurance by
$400  million  in 1999 and an  additional  $1.5  billion  for the crop year 2001
onward, a large number of farmers who heretofore did not buy crop insurance will
find the incentive to do so through the generosity of their government.  We will
also be the benefactors of this largesse for our share of the business should be
considerably  enhanced  in view of the  gains we have  made in our  share of the
market. Oh yes, we expect to see better underwriting results in 1999.

We have some cause for optimism in 1999, for among other factors:

   o   Our crop insurance  sales are showing the result early in the year that
       would signal a banner year income.

   o   We  increased  the  amount  of  re-insurance  applicable  to our  crop
       insurance enterprise to reduce exposure to catastrophic losses.

   o   Crop insurance has two components, fee income and premium  income.  We
       developed Geo AgPLUS, a fee based innovative soil analysis service using
       GPS (global positioning system) and through the advent of other fee based
       products, we are increasing our fee income as it relates to our risk
       income.

   o   We improved our operational staff by several new appointments and added
       an in-house senior actuary to our professional staff.

   o   At considerable but necessary expense, we developed and are installing
       a state of the art computer system to replace one that was proving costly
       and non-compatible to our increased needs.

I anticipate that I will have a happier time writing the next Chairman's Report,
probably my last,  but I must not forget to thank those ladies and gentlemen who
have helped our companies  through the rough passage of 1998,  our Board members
and our loyal staff.

Ladies and gentlemen, my heartfelt thanks to all of you.



                                        4

<PAGE>

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>
                                                     1998         1997      1996       1995        1994

<S>                                                <C>          <C>       <C>        <C>         <C>     
Gross Premiums Written                             $553,190     $460,600  $305,499   $124,634    $103,134

Net Premiums Earned                                 324,923     271,814    191,759     49,641      32,126

Fee Income                                           20,203      17,821      9,286      2,170       1,632

Net Investment Income                                12,373      11,447      6,733      1,173       1,241

NET EARNINGS (LOSS)                                $(14,417)    $16,305    $13,256     $4,821      $2,117
                                                     ======      ======     ======      =====       =====
Per Common Share Data:

Basic Earnings (Loss) Before
  Extraordinary Item                                $(1.39)       $1.63      $1.76      $0.69       $0.30

BASIC NET EARNINGS (LOSS)                           $(1.39)       $1.56      $1.76      $0.69       $0.30
                                                      ====         ====       ====       ====        ====
Basic Weighted Average Shares Outstanding           10,402       10,450      7,537      7,000       7,000
                                                    ======       ======      =====      =====       =====
GAAP Ratios:

Loss and LAE Ratio                                    83.2%        78.2%      71.5%      72.5%       82.4%

Expense Ratio                                         29.8%        22.0%      24.0%      18.6%       21.7%
                                                     -----        -----      -----       ----       -----
COMBINED RATIO                                       113.0%       100.2%      95.5%      91.1%      104.1%
                                                     =====        =====      =====       ====       =====
Consolidated Balance Sheet Data:

Investments                                       $222,853     $216,518   $168,137    $25,902     $18,572 

Total Assets                                       569,437      526,293    344,679    110,516      66,628

Losses and Loss Adjustment Expenses                200,972      136,772    101,719     59,421      29,269

Total Long-term Debt or Preferred
  Securities                                       135,000      135,000     48,000     11,776      10,683

Total Shareholders Equity                           61,995       78,363     60,900      9,535       4,255

Book Value Per Share                                 $5.97        $7.50      $5.83      $1.36       $0.61

Statutory Capital and Surplus:
Pafco                                              $16,275      $19,924    $18,112    $11,875      $7,848
IGF                                                $31,234      $42,809    $29,412     $9,219      $4,512
Superior                                           $57,571      $65,146    $57,121

</TABLE>

                                        5

<PAGE>

            [photograph of crop field and automobiles down left side]

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. Goldman Sachs was bought
out and the bank term loan was repaid 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.

On March 2, 1998, the Company announced that it had signed an agreement with CNA
to assume its multi-peril and crop hail
operations.  CNA wrote  approximately  $80 million of multi-peril  and crop hail
insurance  business in 1997.  The Company will  reinsure a small  portion of the
Company's total crop book of business (approximately 22% MPCI and 15% crop hail)
to CNA.  Starting  in the year 2000,  assuming  no event of change in control as
defined in the  agreement,  the Company can purchase this  reinsurance  from CNA
through a call  provision  or CNA can require  the  Company to buy the  premiums
reinsured  to CNA.  Regardless  of the method of  takeout  of CNA,  CNA must not
compete in MPCI or crop hail for a period of time.  There was no purchase price.
The  formula  for the buyout in the year 2000 is based on a multiple  of average
pre-tax  earnings  that CNA  received  from  reinsuring  the  Company's  book of
business.

Nonstandard Automobile Insurance Operations

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



                                        6

<PAGE>

Crop Insurance Operations

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

The Company,  like other  private  insurers  participating  in the MPCI program,
generates revenues from the MPCI program in two ways. First, it markets,  issues
and administers policies, for which it receives administrative fees; and second,
it  participates in a  profit-sharing  arrangement in which it receives from the
government a portion of the aggregate profit, or pays a portion of the aggregate
loss,  in respect of the  business it writes.  The Company  writes MPCI and crop
hail insurance through 2,007 independent agencies in 43 states.

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

In addition to crop hail  insurance,  the Company also sells  insurance  against
crop damage from other  specific  named perils.  These  products  cover specific
crops and are  generally  written on terms that are specific to the kind of crop
and farming  practice  involved and the amount of actuarial data available.  The
Company plans to seek  potential  growth  opportunities  in this niche market by
developing  basic policies on a diverse number of named crops grown in a variety
of geographic  areas and to offer these  policies  primarily to large  producers
through certain select agents.
                                                                               
AgPI(R) is business interruption  insurance that protects businesses that depend
upon a steady flow of a crop (or crops) to stay in business.  This protection is
available to those involved in agribusiness who are a step beyond the farm gate,
such as elevator operators, custom harvesters,  cotton gins and other processing
businesses that are dependent upon a single supplier of products, (i.e., popping
corn).
         
These businesses have been able to buy normal business interruption insurance to
protect  against on-site  calamities such as a fire, wind storm or tornado.  But
until now, they have been totally  unprotected by the insurance industry if they
encounter a production shortfall in their trade area which limited their ability
to bring raw  materials  to their  operation.  AgPI(R)  allows the  agricultural
business to protect  against a  disruption  in the flow of the raw  materials it
depends on.  AgPI(R) was formally  introduced  at the beginning of the 1998 crop
year.

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

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


                                        7

<PAGE>

Coverage  - the  minimum  available  level of MPCI  Coverage),  and any  related
federal premium subsidies,  but do not include MPCI premium on CAT Coverage.  By
contrast,  net premiums  written do not include any MPCI  premiums or subsidies,
all of which are deemed to be ceded to the Federal  Crop  Insurance  Corporation
(FCIC) as a reinsurer.  The  Company's  profit or loss from its MPCI business is
determined  after the crop season ends on the basis of a complex  profit sharing
formula  established  by law and the FCIC.  For  generally  accepted  accounting
principles income statement purposes,  any such profit or loss sharing earned or
payable by the Company is treated as an adjustment to commission  expense and is
included in policy acquisition and general and administrative expenses.
                                                                                
Company also receives from the FCIC (i) an expense  reimbursement  payment equal
to a percentage of gross  premiums  written for each Buy-Up  Coverage  policy it
writes ("Buy-Up Expense  Reimbursement  Payment") and (ii) an LAE  reimbursement
payment equal to 13.0% of MPCI Imputed  Premiums for each CAT Coverage policy it
writes  (the "CAT LAE  Reimbursement  Payment").  For 1998 and 1997,  the Buy-Up
Expense Reimbursement Payment has been set at 27% and 29%, respectively,  of the
MPCI Premium.  For generally  accepted  accounting  principles  income statement
purposes,  the Buy-Up Expense Reimbursement Payment is treated as a contribution
to income and reflected as an offset against policy  acquisition and general and
administrative  expenses.  The CAT LAE  Reimbursement  Payment  is,  for  income
statement  purposes,  recorded as an offset against LAE, up to the actual amount
of LAE incurred by the Company in respect of such policies, and the remainder of
the payment, if any, is recorded as Other Income.
                           
In June 1998,  the United States  Congress  passed  legislation  which  provided
permanent funding for the crop insurance industry.  However,  beginning with the
1999 crop year, the Buy-Up Expense  Reimbursement  Payment was reduced to 24.5%,
the CAT LAE  Reimbursement  Payment was reduced to 11% and the $60 CAT  coverage
fee will no longer go to the insurance companies.
                 
The Company expects to more than offset these  reductions  through growth in fee
income from non-federally subsidized programs such as AgPI(R) and Geo AgPLUS(TM)
initiated in 1998. The Company has also been working to reduce its costs.  While
the Company fully believes it can more than offset these reductions, there is no
assurance  the  Company  will be  successful  in its  efforts  or  that  further
reductions in federal reimbursements will not continue to occur.
                 
In 1996, the Company instituted a policy of recognizing (i) 35% of its estimated
MPCI gross premiums written for each of the first and second  quarters,  20% for
the third quarter and 10% for the fourth quarter, (ii) commission expense at the
applicable  rate of MPCI gross  premiums  written  recognized  and (iii)  Buy-Up
Expense  Reimbursement  at the applicable  rate of MPCI gross  premiums  written
recognized  along with normal  operating  expenses  incurred in connection  with
premium writings.  In the third quarter,  if a sufficient volume of policyholder
acreage  reports have been received and processed by the Company,  the Company's
policy is to  recognize  MPCI gross  premiums  written for the first nine months
based on a re-estimate which takes into account actual gross premiums processed.
If an insufficient  volume of policies has been processed,  the Company's policy
is to recognize in the third quarter 20% of its full year estimate of MPCI gross
premiums written,  unless other circumstances require a different approach.  The
remaining  amount of gross premiums written is recognized in the fourth quarter,
when  all  amounts  are  reconciled.   The  Company  also  recognizes  the  MPCI
underwriting  gain or loss during each quarter,  reflecting  the Company's  best
estimate of the amount of such gain or loss to be recognized  for the full year,
based on, among other things,  historical results,  plus a provision for adverse
developments.  In the third and  fourth  quarters,  a  reconciliation  amount is
recognized for the  underwriting  gain or loss based on final premium and latest
available loss information.


                                       8

<PAGE>

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>

Nonstandard - Automobile Insurance Operations:                                     Year ended December 31,
(in thousands, except ratios)                                                     1998       1997       1996

<S>                                                                              <C>        <C>        <C>     
Gross premiums written                                                           $303,737   $323,915   $187,176
                                                                                  =======    =======    =======
Net premiums written                                                             $269,741   $256,745   $186,579
                                                                                  =======    =======    =======
Net premiums earned                                                              $264,022   $251,020   $168,746

Fee income                                                                         16,431     15,515      7,578

Net investment income                                                              11,958     10,969      6,489

Net realized capital gain (loss)                                                    4,124      9,462     (1,014)
                                                                                  -------    -------    -------
Total Revenues                                                                    296,535    286,966    181,799
                                                                                  -------    -------    -------
Losses and loss adjustment expenses                                               217,916    195,900    124,385

Policy acquisition and general and administrative expenses                         73,346     72,463     46,796
                                                                                  -------    -------    -------
Total Expenses                                                                    291,262    268,363    171,181
                                                                                  -------    -------    -------
Earnings before income taxes                                                       $5,273    $18,603    $10,618
                                                                                  =======    =======    =======
GAAP RATIOS (Nonstandard Automobile Only)

Loss and LAE ratio                                                                   82.5%      78.0%      73.7%
                     
Expense ratio, net of billing fees                                                   21.6%      22.7%      23.2%
                                                                                    -----      -----      -----
Combined ratio                                                                      104.1%     100.7%      96.9%
                                                                                    =====      =====      =====
Crop Insurance Operations:

Gross premiums written                                                           $243,026    $126,401  $110,059
                                                                                  =======     =======   =======
Net premiums written                                                              $62,467     $20,796   $23,013
                                                                                  =======     =======   =======
Net premiums earned                                                               $60,901     $20,794   $23,013

Fee income                                                                          3,772       2,276     1,672

Net investment income                                                                 275         191       181

Net realized capital gain (loss)                                                      217         (18)       (1)
                                                                                  -------     -------    ------
Total Revenues                                                                     65,165      23,243    24,865
                                                                                  -------     -------    ------
Losses and loss adjustment expenses                                                52,550      16,550    12,724

Policy acquisition and general and administrative expenses (1)                     21,906     (14,404)   (6,095)

Interest and amortization of intangibles                                              502         235       551
                                                                                  -------     -------    ------
Total Expenses                                                                     74,958       2,381     7,180
                                                                                  -------     -------    ------
Earnings (loss) before income taxes                                               $(9,793)    $20,862   $17,685
                                                                                  =======     =======   =======
Statutory Capital and Surplus:

Pafco                                                                             $16,275     $19,924   $18,112
IGF                                                                               $31,234     $42,809   $29,412
Superior                                                                          $57,571     $65,146   $57,121

</TABLE>

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


                                        9

<PAGE>

           [photograph of automobiles and crop field down left side]

Results of Operations

Overview

1998 Compared To 1997

The Company  recorded a net loss of  $(14,417,000)  or $(1.39) per share (basic)
compared to net earnings of  $16,305,000 or $1.56 per share in 1997. The loss in
1998  was due to  reduced  earnings  in both  crop  and  nonstandard  automobile
operations. Results for 1998 for the crop operations were significantly impacted
by  catastrophic  crop hail losses  primarily  from  Hurricane  Bonnie and other
weather related events of approximately $14 million pre-tax. Contributing to the
lower results were higher than expected commission and integration costs related
to the  CNA  transaction  of  approximately  $3.0  million  pre-tax  and a lower
underwriting  gain on MPCI (11.2% in 1998 versus 25.0% in 1997) due primarily to
severe drought conditions in certain parts of the country, overly wet conditions
in other parts of the  country and higher  frequency  of Crop  Revenue  Coverage
("CRC") claims due to extremely low commodity  prices.  Results for 1998 for the
nonstandard automobile operations were impacted by a higher loss ratio and lower
premium volume.  These were the result of problems  encountered with timely rate
filings,  implementation  of the Company's new operating  system and competitive
pressure.  The Company also  increased loss reserves for prior accident years by
approximately $13.0 million in 1998 due to adverse loss development.

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  nonstandard  auto reserves for prior accident years by  approximately
$10 million due to adverse loss  development.  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
were  due to  favorable  crop  conditions  and  continued  improvement  in  risk
selection.

Years Ended December 31, 1998 and 1997

Gross Premiums Written

Consolidated Gross Premiums Written increased 20.1% in 1998 due to growth in the
crop operations from the integration of CNA, internal growth and introduction of
a new product line, AgPI(R). Crop Gross Premiums Written increased 92.3% in 1998
from 1997.
The following represents the breakdown of crop Gross Premiums Written by line:

<TABLE>
<CAPTION>
                                                   1998            1997

<S>                                               <C>             <C>    
CAT imputed                                       $50,127         $33,294
MPCI                                              157,225          88,052
Crop hail                                          76,198          38,349
Named perils                                        2,074            -
AgPI(R)                                             7,529            -   
                                                  -------         -------
                                                  293,153         159,695
Less CAT imputed                                  (50,127)        (33,294)
                                                  -------         -------
Total                                            $243,026        $126,401
                                                  =======         =======
</TABLE>

Nonstandard automobile Gross Premiums Written decreased 6.2% in 1998 as compared
to 1997 due primarily to reduced  volume in the states of Florida and California
for the reasons  previously  cited.  Remaining Gross Premiums Written  represent
commercial business which is ceded 100% to an affiliate, Granite Re.


                                       10

<PAGE>

Net Premiums Written

Net Premiums Written  increased in 1998 as compared to 1997 due to the growth in
Gross Premiums Written offset by quota share reinsurance.

In 1998, the Company ceded 10% of its nonstandard automobile premiums as part of
a quota share treaty. This treaty and all previous quota share treaties for 1997
and 1998 were commuted effective October 1, 1998 with the Company receiving back
the  unearned  premiums on those  treaties as of that date and their  respective
loss  reserves.  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 of 1997.  In 1998,  the Company  ceded 25% of its crop hail  premiums as
part of a quota share  treaty as compared to 40% in 1997.  Named peril  premiums
were ceded at a 50% rate in both 1998 and 1997 under a quota share treaty.

Net Premiums Earned

Net Premiums  Earned  increased in 1998 as compared to the prior year reflecting
growth in Gross and Net Premiums  Written.  The ratio of Net Premiums  Earned to
Net Premiums Written for the nonstandard automobile segment was 97.9% in 1998 as
compared to 97.8% in 1997.

Fee Income

Fee income  increased  13.4% in 1998 compared to 1997. Fee income on nonstandard
automobile  operations  increased as a result of higher fees as a percentage  of
gross premiums written, 5.41% in 1998 and 4.79% in 1997, offset by lower premium
volume.  Crop fees  primarily  include CAT fees.  CAT fees  increased in 1998 as
compared to 1997 due to growth in premium  volume.  Fees in 1998 also  increased
due to introduction of Geo AgPLUS(TM) and other processing fees.

Net Investment Income

Net investment income increased 8.1% in 1998 compared to 1997. Such increase was
due to greater invested assets offset somewhat by declining yields due to market
conditions.

Net Realized Capital Gains

Capital transaction activity primarily reflects activity in the Company's equity
portfolio.  The  higher  level of  gains  in 1997  reflects  the  strong  market
conditions  during  that  year.  Gains  decreased  in 1998 as a result of market
conditions. In the fourth quarter of 1998, the Company significantly reduced its
exposure to equities  reflecting  the Company's  concern with the market and its
desire to increase investment income.

Losses and LAE

The Loss and LAE Ratio for the nonstandard automobile segment was 82.5% for 1998
as  compared  to 78.0% for  1997.  The Crop Hail Loss and LAE Ratio was 79.4% in
1998  compared to 75.1% in 1997.  The increase in the Loss and LAE Ratio for the
nonstandard  automobile  segment reflects adverse  development on prior years of
approximately  5.0%.  The Company  estimates  its  nonstandard  automobile  1998
accident  year loss ratio was 77.5% as compared to 76.1% in accident  year 1997.
The  increase in the accident  year loss ratio  results from product and pricing
decisions and increases in frequency in certain  product lines.  The increase in
the Crop Hail Loss and LAE Ratio  includes  $10.7  million  for the  effects  of
catastrophic  events net of reinsurance  recoveries.  The Crop Hail Loss and LAE
Ratio prior to reinsurance  recoveries  was 100.6%.  The named perils loss ratio
was 100% and the  AgPI(R)  loss  ratio was 100% in 1998 due to losses on certain
coverages due to unusual weather related events estimated to be $3.3 million.


                                       11

<PAGE>

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 $96,876,000 or 29.8%
of Net Premiums  Earned in 1998 compared to $59,778,000 or 22.0% of Net Premiums
Earned for 1997.  The increase in the Company's  overall  expense ratio reflects
certain changes in the Company's crop operations as follows:

<TABLE>
<CAPTION>

                                                    1998           1997

<S>                                              <C>             <C>      
MPCI expense reimbursements                      $(37,982)       $(24,788)
MPCI underwriting gain, net of stop loss
   and CNA reinsurance in 1998                    (14,902)        (26,589)
Commissions                                        50,089          25,713
Ceding commission income                           (6,899)         (5,030)
Operating expenses                                 31,600          16,290
                                                   ------          ------
                                                  $21,906        $(14,404)
                                                   ======          ======

</TABLE>

MPCI  expense  reimbursements  declined  to 24.2% of MPCI  premiums  for 1998 as
compared  to  28.2%  in 1997  due to  federally  mandated  reductions.  The MPCI
underwriting  gain,  net of stop loss costs,  decreased  to 9.5% of CAT and MPCI
premiums in 1998 (after adding back CNA share of $4,861,000 in 1998) compared to
21.9% in 1997 due to severe  drought  in certain  sections  of the  country  and
overly wet  conditions in other sections of the country.  The Company  considers
the 1998 underwriting gain to be well below average while the 1997 gain was well
above  average.  Commission  expense as a percentage of gross  written  premiums
(including CAT) increased in 1998 to 17.1% of gross written premiums compared to
16.1% in 1997 due to the integration of CNA and competitive  industry  pressure.
Ceding commission income increased in 1998 compared to 1997 due to a increase in
ceded  premiums.  Operating  expenses as a percentage of gross written  premiums
(including  CAT)  increased in 1998 to 10.8%  compared to 10.2% 1997.  Operating
expenses  in  1998  include  $3  million,  or  1.0% of  gross  written  premiums
(including CAT), of one time costs primarily  related to the integration of CNA.
Operating expenses in 1998 also include a $3.2 million reserve, or 1.1% of gross
written premiums (including CAT), for potential processing errors during 1998 on
assumed premiums from CNA.

Nonstandard  automobile expenses net of fee income were 21.6% of earned premiums
in 1998 compared to 22.7% in 1997.

Amortization of Intangibles

Amortization of intangibles  includes goodwill from the acquisition of Superior,
additional  goodwill from the  acquisition of the minority  interest  portion of
GGSH and the acquisition of NACU, debt or preferred  security issuance costs and
organizational  costs.  The  increase  in 1998 over 1997  reflects a full year's
impact of amortization of goodwill  associated with the purchase of the minority
interest  position in GGSH and a full year's  amortization of deferred  issuance
costs on the Preferred Securities.

Interest Expense

Interest  expense  in 1998  represents  the  crop  segment's  borrowings  on its
seasonal  line of credit.  Interest  expense for 1997 includes both interest for
the crop  segment  and  interest on the GGSH Senior  Credit  Facility  which was
repaid in 1997 from the proceeds of the Preferred Securities Offering.

Income Tax Expense (Benefit)

The variance in the rate from the federal statutory rate of 35% is primarily due
to nondeductible goodwill amortization.

Distributions on Preferred Securities

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


                                       12

<PAGE>

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
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.

              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.  No such treaty was in effect during 1996.  In 1997,  the Company ceded
40% of crop hail  premiums as part of a quota share treaty.  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.  The
ratio  of 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  $8,535,000 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 and LAE Ratio
in 1997 was 75.1%  compared to 59.2% in 1996.  The  increase in the Loss and LAE
Ratio for the  nonstandard  automobile  segment  reflects  the 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.
Deficient  reserve  development  was  approximately  $10  million  in 1997.  The
increase in the crop hail loss ratio was the result of storm damage in the third
quarter in certain eastern states on new business obtained in 1997.


                                       13

<PAGE>

Policy Acquisition and General and Administrative Expenses

              Policy  acquisition  and  general  and   administrative   expenses
increased  as a result of the  increased  volume  of  business  produced  by the
Company.  Policy  acquisition  and general and  administrative  expenses rose to
$59,778,000 or 22.0% 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  segment,  operating
expenses for 1997 includes a contribution to earnings of $14,404,000 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

              The  increase  in 1997  over  1996  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.

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, 1998,  IGF has the ability to pay $3,123,000 in
dividends without prior regulatory approval.


                                       14

<PAGE>

              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 1998, 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  is  $12,000,000.  The IGF  Revolver  carried a weighted
average  interest  rate of  8.6%,  8.75%  and  6.96% in  1996,  1997  and  1998,
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 minus  1.00% in 1998  (prime  rate plus
 .25% in 1997),  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.  The IGF Revolver  contains  certain  covenants
which (i) restricts IGF's ability to accumulate  common stock, (ii) sets minimum
standards for investments and policyholder surplus and (iii) limits ratio of net
written  premiums to surplus.  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, 1998, IGF had borrowed
the full amount available.

              On August 12,  1997,  the  Company  issued  $135  million in Trust
Originated Preferred Securities (the "Preferred  Securities Offering") at a rate
of 9.5% paid  semi-annually.  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.  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  contribute  $10.5  million  to the  nonstandard  automobile
insurers with the balance held for general corporate  purposes.  Expenses of the
issue  aggregated  $5.1 million and are amortized over the term of the Preferred
Securities  (30 years).  In the third quarter of 1997, 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)  as  an
extraordinary item.

              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 Preferred  Security  obligations of approximately  $13 million
per year is funded from the Company's nonstandard  automobile management company
and dividend  capacity from the crop operations.  The nonstandard auto funds are
the result of  management  and billing  fees in excess of operating  costs.  For
calendar 1998 and 1997, the coverage ratio of nonstandard  automobile cash flows
to Preferred Security costs was 2.1x and 2.2x,  respectively.  Coverage from the
Company's crop operations  entailed a dividend capacity of $13.4 million in 1998
that  will  reduce  to  approximately  $3.1  million  in 1999 as a result of the
Company's   operations   and  statutory   limitations.   The  Company  also  has
approximately $10 million in excess funds for debt service. Surplus needs at the
insurance  companies  will be handled  primarily  by  reinsurance  for which the
Company  believes  it has good  relationships  and  numerous  alternatives.  The
Company  believes  it can  continue  to meet  its  obligations  in 1999 and that
coverage will increase through higher nonstandard automobile premium volumes and
more profitable crop operations.

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

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


                                       15

<PAGE>

              These restrictions  currently apply as the Company's  Consolidated
Coverage  Ratio  was  (.15x)  in 1998,  and will  continue  to apply  until  the
Company's  Consolidated  Coverage  Ratio is in compliance  with the terms of the
Trust  Indenture.  This does not  represent  a  Default  by the  Company  on the
Preferred  Securities.  The  Company is in  compliance  with these  preventative
covenants as of December 31, 1998.

              Net cash  provided  by  operating  activities  in 1998  aggregated
$15,328,000  compared to  $15,945,000  in 1997 due to reduced  cash  provided by
operations as a result of the net loss offset primarily by funds provided by the
commutation of the nonstandard automobile quota share treaty.

              Net cash used in investing  activities decreased from $106,164,000
in 1997 to  $15,650,000  in  1998.  Such  decrease  was due to the  purchase  of
minority  interest in 1997 and less  investing  activities  in 1998 due to lower
earnings   offset  by  increased   fixed  asset   expenditures   from  continued
technological  improvements  and the  purchase  of a new  building  for the crop
operations and the purchase of NACU. In 1998, financing activities provided cash
of  $3,846,000  compared to  $88,400,000  in 1997.  Such decrease was due to the
proceeds of the  Preferred  Securities  Offering in 1997 net of payments on term
debt and  increased  borrowings  on the seasonal crop line of credit due to hail
losses and use of cash for loans to affiliates and repurchase of stock.

              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.

              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  $61,995,000 at December 31,
1998, 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,  1998  of  $16,275,000,   $57,571,000  and
$31,234,000, 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.

                                       16

<PAGE>

New Accounting Standards

              In 1998,  the  Company  adopted  the  provisions  of SFAS No. 130,
"Reporting  Comprehensive  Income" and SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related  Information."  There was no material impact on the
consolidated  financial  statements from adoption of these statements.  Refer to
Note 1 to the Company's "Consolidated Financial Statements."

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

              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, 1999,  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.

              In 1998,  the  National  Association  of  Insurance  Commissioners
("NAIC") adopted the Codification of Statutory  Accounting  Principles guidance,
which will replace the current Accounting Practices and Procedures manual as the
NAIC's primary  guidance on statutory  accounting.  The NAIC is now  considering
amendments  to the  Codification  guidance  that  would also be  effective  upon
implementation.  The NAIC has  recommended an effective date of January 1, 2001.
The Codification provides guidance for areas where statutory accounting has been
silent and changes current statutory accounting in some areas.

              It  is  not  known  whether  the  Indiana  and  Florida  Insurance
Departments will adopt the  Codification,  and whether the Departments will make
any changes to the guidance.  The Company has not estimated the potential effect
of the Codification guidance if adopted by the Departments.  However, the actual
effect  of  adoption  could  differ  as  changes  are  made to the  Codification
guidance, prior to its recommended effective date of January 1, 2001.

Impact of the Year 2000 Issue

              The Year 2000 Project  ("Project")  is addressing the inability of
computer software and hardware to distinguish between the year 1900 and the year
2000. In 1996,  the Company  began a  company-wide  replacement  of hardware and
software  systems to address this and other issues.  This  replacement  is using
systems from Dell, Hewlett Packard, Sun Systems,  Compaq, Oracle and ZIM as well
as some  software  conversions  using  Java.  The new  hardware  is in place and
operational  at all  subsidiaries.  The  software  systems  are in  place in our
nonstandard auto operations and are being implemented on a state-by-state basis.
The Company began  implementing  the new  nonstandard  auto operating  system in
those states in which the Company writes annual policies (annual  states).  100%
of those annual states are  currently in  production.  The remaining  non-annual
states are  scheduled to be  completed by June 30, 1999.  The Y2K issue does not
have an effect on the crop  operations  until  October 1, 1999.  The  Company is
converting  non-compliant crop systems,  through  programmatic means, into a Y2K
compliant  environment.  The crop  operations  are at 70% of completion for this
conversion  and are  scheduled to be completed by the end of June 1999. A number
of the Company's  other IT projects are being  delayed or completely  eliminated
due to the implementation of the Project. Additionally, the Company continues to
experience  certain  processing  concerns related to its nonstandard  automobile
operating system. The delay and/or elimination of these projects and the current
processing  concerns  has  caused or could  cause a loss of market  share in the
nonstandard auto market.

Project

              The    Company    has    divided    the    Project    into   three
sections-Infrastructure,   Applications/Business   Systems   and   Third   Party
Suppliers.  There are common  portions of each of these divisions which are: (1)
identifying Y2K items; (2) assigning a priority for those items identified;  (3)
repairing or replacing those items;  (4) testing the fixes;  and (5) designing a
contingency and business continuation plan for each subsidiary.
 
                                       17

<PAGE>

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

              The infrastructure  section of the Project was quickly implemented
and tested by the Company's IT staff and has been  completed  since May of 1998.
All desktop,  mini and midrange  systems as well as phone  switches,  phones and
building  security systems have been tested for Y2K compliance.  Any new systems
required by the Company are being tested and  certified  prior to purchase  with
completion by June 30, 1999.  Two  mainframes  being used by the Company are not
Y2K  certified or  compliant.  These  machines  have been replaced by Sun and HP
compliant  systems and are being kept in production  until new  applications are
put in place on the new machines.

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

              The Company had already made the decision to transition off all of
its  nonstandard  auto legacy  systems  and this  process had been in work since
1996.  These systems are Y2K  compliant and are scheduled for  completion by the
end of June 30, 1999. The conversion of crop systems began in August 1998 and is
scheduled  for  completion by the end of June 1999.  Business  systems are being
replaced as vendors certify their  compliance.  The Company is at 75% compliance
in this area.

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

Costs

              The Company  considers the cost  associated with the Project to be
material.  The  Company has  estimated  the total cost to be $5.7  million,  the
majority  of which has been  capitalized  as hardware  or  software  costs.  The
Company has also incurred  substantial  costs for carrying two systems including
personnel  costs  and  outside  service  fees.  The  component  of  these  costs
specifically  associated  with Y2K  cannot be  reasonably  estimated.  The total
amount expended  through  December 31, 1998 on all  infrastructure  and software
upgrades is  approximately  $4.6 million.  The Company  expects to spend another
$1.1  million in its  efforts to  complete  the  Project.  This does not include
additional  annual  maintenance  costs that will be incurred as we move forward.
Funding for these costs will  continue to be provided by funds from  operations.
The Company  believes that the new  nonstandard  auto system will  significantly
enhance service capability and reduce future operating costs.

Risks

              Failure to correct the Y2K problem  through  efficient  and timely
implementation  of the Company's  new operating  system could cause a failure or
interruption  of normal  business  operations.  These failures could  materially
affect the  Company's  operational  results,  financial  condition and liquidity
through  reduction  of premium  volume and an increase in  operating  costs as a
percentage of premium volume or  deterioration  of loss  experience.  Due to the
nature of the Y2K  problem,  the  Company  is  uncertain  whether it will have a
material affect or the potential  magnitude of any financial impact. The Company
believes that the possibility of significant  business  interruptions  should be
reduced by successful implementation of the Project.


                                       18

<PAGE>

CONSOLIDATED  FINANCIAL  STATEMENTS
as of December 31, 1998 and 1997
(in thousands, except share data)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                     ASSETS                                        1998        1997
<S>                                                                              <C>         <C>
ASSETS:
Investments:
Available for sale:
  Fixed maturities, at market                                                    $191,002    $169,385
  Equity securities, at market                                                     13,264      35,542
  Short-term investments, at amortized cost, which approximates market             15,597       8,871
  Mortgage loans, at cost                                                           2,100       2,220
  Other invested assets                                                               890         500
                                                                                  -------     -------
TOTAL INVESTMENTS                                                                 222,853     216,518 
Investments in and advances to related parties                                      3,545         839
Cash and cash equivalents                                                          14,800      11,276
Receivables (net of allowance for doubtful accounts of
  $6,393 in 1998 and $1,993 in 1997)                                              120,559      91,730
Reinsurance recoverable on paid and unpaid losses, net                             71,640      90,250
Prepaid reinsurance premiums                                                       31,172      36,606
Federal income taxes recoverable                                                   12,672       1,505
Deferred policy acquisition costs                                                  16,332      10,740
Deferred income taxes                                                               5,146       4,722
Property and equipment, net of accumulated depreciation                            18,863      12,051
Intangible assets                                                                  45,781      43,756
Other assets                                                                        6,074       6,300
                                                                                  -------     -------
TOTAL ASSETS                                                                     $569,437    $526,293
                                                                                  =======     =======
                      LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Losses and loss adjustment expenses                                              $200,972    $136,772
Unearned premiums                                                                 110,664     114,635
Reinsurance payables                                                               25,484      32,110
Notes payable                                                                      13,744       4,182
Distributions payable on preferred securities                                       4,809       4,801
Other                                                                              16,769      20,430
                                                                                  -------     -------
TOTAL LIABILITIES                                                                 372,442     312,930
                                                                                  -------     -------
Minority interest:
Preferred Securities                                                              135,000     135,000
                                                                                  -------     -------
Stockholders' equity:                                                              
  Common stock, no par value, 100,000,000 shares authorized,
    10,385,399 and 10,451,667 shares issued and outstanding
    in 1998 and 1997, respectively                                                 38,136      39,019
  Additional paid-in capital                                                        5,851       5,925
  Unrealized gain on investments, net of deferred tax of
    $680 in 1998 and $1,008 in 1997                                                 1,261       1,908
  Retained earnings                                                                16,747      31,511
                                                                                  -------     -------
TOTAL STOCKHOLDERS' EQUITY                                                         61,995      78,363
                                                                                  -------     -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                       $569,437    $526,293
                                                                                  =======     =======
</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
                                       19

<PAGE>

CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1998, 1997, and 1996
(in thousands, except per share data)
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
<TABLE>
<CAPTION>
                                             1998          1997          1996

<S>                                        <C>           <C>           <C>     
Gross premiums written                     $553,190      $460,600      $305,499

Less ceded premiums                        (220,982)     (183,059)      (95,907)
                                            -------       -------       -------
NET PREMIUMS WRITTEN                       $332,208      $277,541      $209,592
                                            =======       =======       =======
NET PREMIUMS EARNED                        $324,923      $271,814      $191,759

Fee income                                   20,203        17,821         9,286

Net investment income                        12,373        11,447         6,733

Net realized capital gain (loss)              4,341         9,444        (1,015)
                                            -------       -------       -------
TOTAL REVENUES                              361,840       310,526       206,763
                                            -------       -------       -------
Expenses:

Losses and loss adjustment expenses         270,466       212,450       137,109

Policy acquisition and general and
  administrative expenses                    96,876        59,778        42,013

Interest expense                                163         3,158         3,527

Amortization of intangibles                   2,379         1,197           411
                                            -------       -------       -------
TOTAL EXPENSES                              369,884       276,583       183,060
                                            -------       -------       -------
EARNINGS (LOSS) BEFORE INCOME TAXES,
MINORITY INTEREST, AND EXTRAORDINARY ITEM    (8,044)       33,943        23,703

Income taxes:

Current income tax expense (benefit)         (1,706)       13,105         7,982

Deferred income tax expense (benefit)          (332)       (1,124)           64
                                            -------       -------       -------
TOTAL INCOME TAXES                           (2,038)       11,981         8,046
                                            -------       -------       -------
NET EARNINGS (LOSS) BEFORE MINORITY
INTEREST AND EXTRAORDINARY ITEM              (6,006)       21,962        15,657

Minority interest:

Earnings in consolidated subsidiary              --        (1,824)       (2,401)

Distributions on preferred securities,
net of tax                                   (8,411)       (3,120)           --
                                            -------       -------       -------
NET EARNINGS (LOSS) BEFORE EXTRAORDINARY
ITEM                                        (14,417)       17,018        13,256

Extraordinary item, net of tax                   --          (713)           --
                                            -------       -------       -------
NET EARNINGS (LOSS)                        $(14,417)      $16,305       $13,256
                                            =======       =======       =======
Weighted average shares outstanding - 
Basic                                        10,402        10,450         7,537
                                             ======        ======        ======
Weighted average shares outstanding -
Fully Diluted                                10,708        10,699         7,537
                                             ======        ======        ======
Net earnings (loss) per share - Basic        $(1.39)        $1.56         $1.76
                                               ====          ====          ====
Net earnings (loss) per share - Fully
Diluted                                      $(1.39)        $1.52         $1.76
                                               ====          ====          ====
</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
                                       20

<PAGE>

CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1998, 1997, and 1996
in thousands, except number of shares)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                        Shares            Total
                                                                        Common        Stockholders'    Retained
                                                                        Stock           Equity         Earnings

<S>                <C>                                                <C>                <C>             <C>   
BALANCE AT JANUARY 1, 1996                                            7,000,000          $9,535          $5,450

Comprehensive income:
   Net earnings                                                              -           13,256          13,256
   Change in unrealized gains (losses) on securities                         -              865             --
                                                                                         ------
Comprehensive income                                                         -           14,121             --
                                                                                         ------
Sale of subsidiary stock                                                     -            2,775              -
Issuance of common stock                                              3,450,000          37,969              -
Dividend to parent                                                          --           (3,500)         (3,500)
                                                                     ----------          ------          ------
BALANCE AT DECEMBER 31, 1996                                         10,450,000          60,900          15,206
                                                                     ----------          ------          ------
Comprehensive income:
   Net earnings                                                              -           16,305          16,305
   Change in unrealized gains (losses) on securities                         -            1,088              -
                                                                                         ------
Comprehensive income                                                         -           17,393              -
                                                                                         ------
Adjustment of offering costs                                                 -               50              -
Exercise of stock options                                                 1,667              20              - 
                                                                     ----------          ------          ------
BALANCE AT DECEMBER 31, 1997                                         10,451,667          78,363          31,511
                                                                     ----------          ------          ------
Comprehensive income:
   Net earnings (loss)                                                       -          (14,417)        (14,417)
   Change in unrealized gains (losses) on securities                         -             (647)            -
                                                                                         ------
Comprehensive income (loss)                                                  -          (15,064)            -
                                                                                         ------
Exercise of stock options                                                 4,332              37             -
Shares acquired                                                         (70,600)         (1,341)          (347)
                                                                     ----------          ------          ------
BALANCE AT DECEMBER 31, 1998                                         10,385,399         $61,995         $16,747
                                                                     ==========          ======          ======

</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


                                       21

<PAGE>

CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1998, 1997, and 1996
(in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                    1998       1997       1996
<S>                                                                              <C>         <C>        <C>
Cash flows from operating activities:
Net earnings (loss)                                                              $(14,417)   $16,305    $13,256
Adjustments  to reconcile  net earnings  (loss) to net cash provided from
operations:
  Minority interest                                                                    --      1,824      2,401
  Depreciation, amortization and other                                              5,901      5,136      2,194
  Deferred income tax expense (benefit)                                               326     (1,124)        64
  Net realized capital (gain) loss                                                 (4,341)    (9,444)     1,015
  Net changes in operating  assets and liabilities (net of assets acquired):
    Receivables                                                                    (8,690)   (27,050)   (22,673)
    Reinsurance recoverable on losses, net                                         18,610    (41,956)     5,842
    Prepaid reinsurance premiums                                                    5,434    (21,624)    (8,720)
    Federal income taxes recoverable (payable)                                    (11,167)    (1,186)    (1,270)
    Deferred policy acquisition costs                                              (5,592)     2,060     (2,496)
    Other assets and liabilities                                                  (24,339)     4,999        (15)
    Losses and loss adjustment expenses                                            64,200     35,053     (2,125)
    Unearned premiums                                                              (3,971)    27,350     24,508
    Reinsurance payables                                                           (6,626)    25,602     (1,978)
                                                                                   ------     ------     ------
NET CASH PROVIDED FROM OPERATIONS                                                  15,328     15,945     10,003
                                                                                   ------     ------     ------
Cash flow from investing activities net of assets acquired:
   Purchase of minority interest and subsidiaries                                  (3,000)   (61,000)   (66,590)
   Net sales (purchases) of short-term investments                                 (6,726)       694      8,026
   Proceeds from sales, calls and maturities of fixed maturities                  127,428    224,037     56,903
   Purchases of fixed maturities                                                 (147,428)  (263,560)   (73,503)
   Proceeds from sales of equity securities                                        65,916     34,475     19,796
   Purchase of equity securities                                                  (42,572)   (35,358)   (34,157)
   Net proceeds from (purchases) sales of other investments                            (3)       210        490
   Purchase of property and equipment                                              (9,265)    (5,662)    (3,734)
                                                                                   ------    -------     ------
NET CASH USED IN INVESTING ACTIVITIES                                             (15,650)  (106,164)   (92,769)
                                                                                   ------    -------     ------
Cash flow from financing activities net of assets acquired:
   Proceeds from issuance of preferred securities                                      --    129,947         --
   Proceeds from initial public offering, net of expenses                              --         --     37,969 
   Net proceeds (payments) from line of credit                                      7,855      4,182     (5,811)
   Proceeds from/payments made on term debt                                            --    (48,000)    48,000
   Proceeds from consolidated subsidiary minority interest owner                       --      2,304     21,200
   Other investing activities                                                      (1,303)        20     (3,500)
   Loans from and (repayments to) related parties                                  (2,706)       (53)    (4,308)
                                                                                   ------     ------     ------
NET CASH PROVIDED FROM FINANCING ACTIVITIES                                         3,846     88,400     93,550
                                                                                   ------     ------     ------
Increase (decrease) in cash and cash equivalents                                    3,524     (1,819)    10,784

Cash and cash equivalents, beginning of year                                       11,276     13,095      2,311
                                                                                   ------     ------     ------
Cash and cash equivalents, end of year                                            $14,800    $11,276    $13,095
                                                                                   ======     ======     ======
</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
                                       22

<PAGE>

[HEADER]                                                  (Dollars in thousands)

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.  The Company's
products are marketed through  independent agents and brokers and is licensed in
35 states, primarily in the Midwest and Southern United States.

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

a. Basis of Presentation:  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;

   North  American  Crop  Underwriters  (NACU) - a  managing  general agency
   with exclusive focus on crop insurance.

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 Statement of Earnings for the
year ended  December 31, 1996 includes 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 purchase business combination. (See Note 2.)

On July  8,  1998,  the  Company  acquired  NACU  through  a  purchase  business
combination. The Company's Consolidated Statement of Earnings for the year ended
December 31, 1998 includes the results of operations of NACU  subsequent to July
8, 1998. (See Note 2.)

b. 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.

c.  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.

                                       23

<PAGE>

[HEADER]                                                  (Dollars in thousands)

d. Investments: Investments are presented on the following basis:

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.

e. 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.

f. 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.

g.  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  straight-line  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.

h. 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.

i. 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  $9,927 and $8,099 at December 31, 1998 and 1997,
respectively.

j.  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.

k. 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
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.

l. Reinsurance:  Reinsurance premiums, commissions, expense reimbursements,  and
reserves  related to reinsured  business are accounted  for on basis  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.

m. 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 the applicable rate of MPCI gross premiums
written recognized; and (iii) Buy-up Expense Reimbursement at a rate of 27%

                                       24

<PAGE>

[HEADER]                                                  (Dollars in thousands)

in 1998, 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.  IGF recognizes 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.

n. Accounting  Changes:  In 1998, the Company adopted the provisions of SFAS No.
130,  "Reporting  Comprehensive  Income"  and SFAS No. 131,  "Disclosures  About
Segments of an Enterprise and Related  Information." SFAS 130 requires companies
to disclose  comprehensive income in their financial statements.  In addition to
items included in net income,  comprehensive  income  includes  items  currently
charged or credited  directly  to  stockholders'  equity,  such as the change in
unrealized appreciation  (depreciation) of securities.  SFAS 131 established new
standards for reporting  operating segments,  products and services,  geographic
areas  and major  customers.  Segments  are  defined  consistent  with the basis
management used internally to assess performance and allocate resources.

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

o. 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 was 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.  Due to the net loss in
1998, fully diluted earnings per share is the same as basic earnings per share.

p.  Reclassifications:  Amounts  from prior  periods have been  reclassified  to
conform to the 1998 presentation. Net earnings and stockholders' equity have not
been affected by these reclassifications.

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".

On January 31, 1996,  the Company  entered into an agreement  (the  "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.

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.

                                       25

<PAGE>

[HEADER]                                                  (Dollars in thousands)

The  acquisition  of Superior  was  accounted  for as a purchase and recorded as
follows:
<TABLE>
<CAPTION>
     <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 and was assigned to
goodwill as the fair market value of assets and liabilities  approximated  their
carrying value.

In July 1998,  IGFH  acquired all of the  outstanding  shares of common stock of
North American Crop Underwriters  ("NACU"), a Henning,  Minnesota based managing
general agency which focuses  exclusively  on crop  insurance.  The  acquisition
price for NACU was  $4,000 of which  $3,000  was paid in cash and the  remaining
$1,000 payable July 1, 2001 without interest.

The acquisition of NACU was accounted for as a purchase and recorded as follows:
<TABLE>
<CAPTION>
     <S>                                                            <C>
     Assets acquired                                                $21,035
     Liabilities assumed                                             19,705
                                                                     ------
     Net assets acquired                                              1,330
     Purchase price                                                   4,000
                                                                     ------
     Excess purchase price (goodwill)                               $ 2,670
                                                                     ======
</TABLE>

The  Company's  results  from  operations  for the year ended  December 31, 1998
include the results of NACU subsequent to July 8, 1998.

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  was used for general  corporate  purposes.  After
completion of the IPO, Goran owned 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,  1996,  the pro  forma  effect  of  these
transactions on the Company's Consolidated Statements of Earnings is as follows:

                                                                   1996
                                                                (unaudited)
     Revenues                                                     $250,848
                                                                   =======
     Net income                                                    $15,238
                                                                    ======
     Net income per common share                                     $1.42
                                                                      ====

Assuming that these  transactions  took place  (including the IPO) at 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
                                                                (unaudited)
     <S>                                                           <C>  
     Net income per common share                                   $1.86
                                                                    ====
</TABLE>
                                       26

<PAGE>

[HEADER]                                                  (Dollars in thousands)

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.

4.   Investments:

Investments are summarized as follows:
<TABLE>
<CAPTION>

                                                      Cost or                    Estimated 
                                                     Amortized      Unrealized     Market
December 31, 1998                                      Cost      Gain      Loss    Value
<S>                                                  <C>       <C>       <C>      <C>
Fixed Maturities:
U.S. Treasury securities and obligations
  of U.S. government corporations and agencies       $71,033   $1,956    $(174)   $72,815
Foreign governments                                       --       --       --         --
Obligations of states and political subdivisions       6,765       --     (115)     6,650
Corporate securities                                 110,657    1,579     (699)   111,537
                                                     -------    -----    -----    -------
TOTAL FIXED MATURITIES                               188,455    3,535     (988)   191,002
Equity securities                                     13,918      755   (1,409)    13,264
Short-term investments                                15,597       --       --     15,597
Mortgage loans                                         2,100       --       --      2,100
Other invested assets                                    890       --       --        890
                                                     -------    -----    -----    -------
TOTAL  INVESTMENTS                                  $220,960   $4,290  $(2,397)  $222,853
                                                     =======    =====    =====    =======
</TABLE>

<TABLE>
<CAPTION>

                                                      Cost or                    Estimated 
                                                     Amortized      Unrealized     Market
December 31, 1997                                      Cost      Gain      Loss    Value
<S>                                                  <C>         <C>       <C>    <C>
Fixed Maturities:
U.S. Treasury securities and obligations of
  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
Mortgage loans                                         2,220       --       --      2,220
Other invested assets                                    500       --       --        500
                                                     -------    -----    -----    -------
TOTAL  INVESTMENTS                                  $213,637   $6,094  $(3,213)  $216,518
                                                     =======    =====    =====    =======
</TABLE>

At December 31, 1998,  92.8% 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.

                                       27

<PAGE>

[HEADER]                                                  (Dollars in thousands)

The amortized  cost and estimated  market value of fixed  maturities at December
31,  1998,  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                                       $7,872     $7,937
Due after one year through five years                         49,631     50,099
Due after five years through ten years                        34,013     35,215
Due after ten years                                           22,838     23,034
Mortgage-backed securities                                    74,101     74,717
                                                             -------    -------
TOTAL                                                       $188,455   $191,002
                                                             =======    =======
</TABLE>

Gains and losses realized on sales of investments are as follows:
<TABLE>
<CAPTION>
                                                  1998        1997       1996

<S>                                             <C>         <C>         <C>    
Proceeds from sales                             $194,514    $254,470    $76,699
Gross gains realized                              10,901      10,639      1,194
Gross losses realized                              6,560       1,195      2,209
</TABLE>

Net investment income for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
                                                   1998        1997       1996

<S>                                              <C>         <C>         <C>   
Fixed maturities                                 $11,034     $10,061     $5,714
Equity securities                                    551         305        756
Cash and short-term investments                    1,245       1,385        281
Mortgage loans                                       173         182        207
Other                                                 32         (39)        76
Total investment income                           13,035      11,894      7,034
Investment expenses                                 (662)       (447)      (301)
                                                  ------      ------      -----
Net investment income                            $12,373     $11,447     $6,733
                                                  ======      ======      =====
</TABLE>

Investments  with a market  value of  $14,950  and  $24,067  (amortized  cost of
$14,726 and  $23,913) as of December  31, 1998 and 1997,  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.

                                       28

<PAGE>

[HEADER]                                                  (Dollars in thousands)

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>
                                                      1998      1997      1996

<S>                                                 <C>       <C>        <C>   
Balance, beginning of year                          $10,740   $12,800    $2,379

Deferred policy acquisition costs
purchased in the Superior acquisition                    --       --      7,925

Costs deferred during year                           53,658    57,155    27,657

Amortization during year                            (48,066)  (59,215)  (25,161)
                                                     ------    ------    ------
Balance, end of year                                $16,332   $10,740   $12,800
                                                     ======    ======    ======
</TABLE>

6.   Property and Equipment:

Property and equipment at December 31 are summarized as follows:
<TABLE>
<CAPTION>
                                             1998  Accumulated   1998     1997
                                             Cost  Depreciation   Net      Net

<S>                                           <C>       <C>       <C>      <C> 
Land                                          $260      $--       $260     $226
Buildings                                    7,397     1,049     6,348    4,098
Office furniture and equipment               6,172     3,182     2,990    1,813
Automobiles                                     82        27        55        7
Computer equipment                          14,353     5,143     9,210    5,907
                                            ------     -----    ------   ------
Total                                      $28,264    $9,401   $18,863  $12,051
                                            ======     =====    ======   ======
</TABLE>

Accumulated  depreciation at December 31, 1997 was $5,409.  Depreciation expense
related to property and  equipment for the years ended  December 31, 1998,  1997
and 1996 were $3,109, $1,764 and $1,783, respectively.

7.   Intangible Assets:

Intangible assets at December 31 are as follows:
<TABLE>
<CAPTION>
                                             1998  Accumulated   1998     1997
                                             Cost  Depreciation   Net      Net

<S>                                           <C>       <C>       <C>      <C> 
Goodwill                                   $41,853    $2,521    $39,332  $37,514
Deferred debt costs                          5,131       242      4,889    5,054
Organization costs                           2,494       934      1,560    1,188
                                            ------     -----     ------   ------
                                           $49,478    $3,697    $45,781  $43,756
                                            ======     =====     ======   =====
</TABLE>

Accumulated  amortization at December 31, 1997 was $1,062.  Amortization expense
related to  intangible  assets for the years ended  December 31, 1998,  1997 and
1996 was $2,379, $1,197 and $411, respectively.

                                       29

<PAGE>

[HEADER]                                                  (Dollars in thousands)

8.   Notes Payable:

At December 31,  1998,  IGF  maintained  a revolving  bank line of credit in the
amount of $12,000.  At December 31, 1998 and 1997, the  outstanding  balance was
$12,000 and $4,182, respectively. Interest on this line of credit was at the New
York prime rate (7.75% at December 31, 1998) minus 1% adjusted  daily.  Prior to
December  31,  1997 this rate was  adjusted  to prime  plus  .25%.  This line is
collateralized by the crop-related uncollected premiums, reinsurance recoverable
on paid losses, Federal Crop Insurance Corporation (FCIC) annual settlement, and
a first lien on the real estate owned by IGF. The IGF Revolver  contains certain
covenants  which (i) restricts  IGF's ability to accumulate  common stock;  (ii)
sets minimum  standards for  investments  and  policyholder  surplus;  and (iii)
limits ratio of net written  premiums to surplus.  At December 31, 1998, 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 6.96%,  8.75% and
8.6% during 1998, 1997 and 1996, respectively.

Notes payable at December 31, 1998 also  includes a $1,000,000  note due 2001 on
the  purchase of NACU at no interest.  The balance of notes  payable at December
31, 1998 includes  three smaller notes (less than $300,000  each) assumed in the
acquisition  of NACU due  2002-2006  with  periodic  payments at interest  rates
ranging from 7% to 9.09%.

9.   Preferred Securities:

On August  12,  1997,  the  Company  issued  $135  million  in Trust  Originated
Preferred   Securities   ("Preferred   Securities")  at  a  rate  of  9.5%  paid
semi-annually.  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 are  amortized  over  the  term of the  Preferred
Securities  (30 years).  In the third quarter of 1997, 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. The Preferred  Securities may be redeemed
in whole or in part  after 10  years.  The  Preferred  Security  obligations  of
approximately  $13  million per year is funded  from the  Company's  nonstandard
automobile  management  company and dividend  capacity from the crop operations.
The  nonstandard  auto funds are the result of  management  and billing  fees in
excess of operating costs.

For calendar 1998 and 1997, the coverage ratio of  nonstandard  automobile  cash
flows to Preferred Security costs was 2.1x and 2.2x, respectively. Coverage from
the Company's crop operations  entailed a dividend  capacity of $13.4 million in
1998 that will reduce to  approximately  $3.1 million in 1999 as a result of the
Company's   operations   and  statutory   limitations.   The  Company  also  has
approximately $10 million in excess funds for debt service.

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

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

These restrictions  currently apply as the Company's Consolidated Coverage Ratio
was (.15x) in 1998, and will continue to apply until the Company's  Consolidated
Coverage Ratio is in compliance with the terms of the Trust Indenture. This does
not represent a Default by the Company on the Preferred Securities.  The Company
is in compliance with these preventative covenants as of December 31, 1998.

                                       30

<PAGE>

[HEADER]                                                  (Dollars in thousands)

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 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.

10.   Unpaid Losses and Loss Adjustment Expenses:

Activity in the  liability  for unpaid  losses and loss  adjustment  expenses is
summarized as follows:
<TABLE>
<CAPTION>
                                                  1998        1997       1996

<S>                                             <C>         <C>         <C>    
Balance at January 1                            $136,772    $101,719    $59,421
Less reinsurance recoverables                     51,104      29,459     37,798
                                                 -------     -------    -------
NET BALANCE AT JANUARY 1                          85,668      72,260     21,623
                                                 -------     -------    -------
Reserves acquired in connection with the
  Superior Acquisition                                --         --      44,423

Incurred related to:
  Current year                                   257,470     201,118    138,618
  Prior years                                     12,996      10,967     (1,509) 
                                                 -------     -------    -------
TOTAL INCURRED                                   270,466     212,085    137,109
                                                 -------     -------    -------
Paid related to:
  Current year                                   167,171     138,111    102,713
  Prior years                                     62,361      60,566     28,182
                                                 -------     -------    -------
TOTAL PAID                                       229,532     198,677    130,895
                                                 -------     -------    -------
NET BALANCE AT DECEMBER 31                       126,602      85,668     72,260
Plus reinsurance recoverables                     74,370      51,104     29,459
                                                 -------     -------    -------
BALANCE AT DECEMBER 31                          $200,972    $136,772   $101,719
                                                 =======     =======    =======
</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 $12,996,  $10,967 and $(1,509) in the December 31, 1998,
1997 and 1996 loss and loss adjustment expense reserves,  respectively,  emerged
in the  following  year.  The higher than  anticipated  1996 and 1997  deficient
reserve  development  occurred  primarily due to  volatility  in the  historical
trends for the nonstandard automobile business as a result of significant growth
during 1996 and 1997. 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

                                       31

<PAGE>

[HEADER]                                                  (Dollars in thousands)

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.

A reconciliation of the differences between federal tax computed by applying the
federal  statutory  rate of 35% to income before income taxes and the income tax
provision is as follows:
<TABLE>
<CAPTION>
                                                      1998       1997     1996

<S>                                                 <C>        <C>       <C>   
Computed income taxes at statutory rate             $(2,815)   $11,880   $8,296
Dividends received deduction                           (130)       (78)    (158)
Goodwill                                                621        229       --
Other                                                   286        (50)     (92)
                                                      -----     ------    ----- 
INCOME TAX EXPENSE (BENEFIT)                        $(2,038)   $11,981   $8,046
                                                      =====     ======    =====
</TABLE>

The net  deferred  tax asset at December  31, 1998 and 1997 is  comprised of the
following:
<TABLE>
<CAPTION>
                                                      1998       1997

<S>                                                  <C>        <C>
Deferred tax assets:
  Unpaid losses and loss adjustment expenses         $3,353     $2,974
  Unearned premiums and prepaid reinsurance           5,972      5,462
  Allowance for doubtful accounts                     1,118        698
  Net operating loss carryforwards                      233        233
  Other                                               1,468        242
                                                     ------      -----
DEFERRED TAX ASSET                                   12,144      9,609
                                                     ------      -----
Deferred tax liabilities:
  Deferred policy acquisition costs                  (5,716)    (3,759)
  Unrealized gains on investments                      (680)    (1,008)
  Other                                                (602)      (120)
                                                      -----      ----- 
DEFERRED TAX LIABILITY                               (6,998)    (4,887)
                                                      -----      -----
NET DEFERRED TAX ASSET                               $5,146     $4,722
                                                      =====      =====
</TABLE>

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, 1998 and 1997 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.

                                       32

<PAGE>

[HEADER]                                                  (Dollars in thousands)

As of December 31, 1998,  the Company has unused net operating  loss  carryovers
available as follows:
<TABLE>
<CAPTION>

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

Federal  income tax filings  attributed to the Company have been examined by the
Internal Revenue Service through 1996.

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 $2,939 in 1998 and $1,176 for 1997.  Future minimum
lease  payments  required  under these  noncancellable  operating  leases are as
follows:
<TABLE>
<CAPTION>

   <S>                                                  <C>   
   1999                                                 $3,087
   2000                                                  1,522
   2001                                                  1,291
   2002                                                  1,099
   2003 and thereafter                                     284
                                                         -----
   TOTAL                                                $7,283
                                                         =====
</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  54.6% of amounts recoverable from reinsurers are with the FCIC, a
branch of the federal government.  Another 34.8% 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,  related primarily to
commercial  business  which  is  ceded  100% to  Granite  Re,  which  are  fully
collateralized.  An additional 1.6% of uncollateralized  recoverable amounts are
with  companies  which  maintain  an A.M.  Best  rating of at least A+.  Company
management believes amounts recoverable from reinsurers are collectible.

In the fourth quarter of 1998, the Company  commuted its nonstandard  automobile
quota share reinsurance  treaties with an unrelated party at no gain or loss and
completely absolved the reinsurer of all future liabilities.

                                       33

<PAGE>

[HEADER]                                                  (Dollars in thousands)

On March 2, 1998, the Company announced that it had signed an agreement with CNA
to assume its multi-peril and crop hail operations.  CNA wrote approximately $80
million of  multi-peril  and crop hail  insurance  business in 1997. The Company
will  reinsure a small  portion  of the  Company's  total crop book of  business
(approximately  22% MPCI and 15% crop hail) to CNA.  Starting  in the year 2000,
assuming no event of change in control as defined in the agreement,  the Company
can  purchase  the  reinsurance  from CNA  through a call  provision  or CNA can
require the Company to buy the  premiums  reinsured  to CNA.  Regardless  of the
method of takeout of CNA, CNA must not compete in MPCI or crop hail for a period
of time.  There was no  purchase  price.  The formula for the buyout in the year
2000 is based on a multiple of average  pre-tax  earnings that CNA received from
reinsuring the Company's book of business.

Reinsurance  activity for 1998, 1997 and 1996,  which includes  reinsurance with
related parties, is summarized as follows:
<TABLE>
<CAPTION>

                 1998                              Direct   Assumed     Ceded      Net

<S>                                              <C>       <C>       <C>         <C>     
Premiums Written                                 $425,526  $127,664  $(220,982)  $332,208
Premiums Earned                                   426,817   125,045   (226,938)   324,923
Incurred losses and loss adjustment expenses      402,093   127,970   (259,597)   270,466
Commission expenses (income)                       65,652    28,900    (85,081)     9,471

                 1997
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   (113,296)   212,450
Commission expenses (income)                       59,951     7,461    (77,898)   (10,486)

                 1996
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

</TABLE>

Amounts   recoverable  from  reinsurers  relating  to  unpaid  losses  and  loss
adjustment  expenses were $74,370 and $51,104, as of December 31, 1998 and 1997,
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,  Granite
Insurance Company (Granite) and Granite Re, Goran's subsidiaries.

The following balances were outstanding at December 31:
<TABLE>
<CAPTION>

                                                                1998    1997
<S>                                                           <C>       <C>
Investments in and advances to related parties:
  Nonredeemable, nonvoting preferred stock of Granite           $702    $702
  Due from directors and officers                              1,443     110
  Other receivables from related parties                       1,400      27
                                                               -----     ---
                                                              $3,545    $839
                                                               =====     ===
</TABLE>
                                       34

<PAGE>

[HEADER]                                                  (Dollars in thousands)


The  following  transactions  occurred  with related  parties in the years ended
December 31:
<TABLE>
<CAPTION>
                                                       1998      1997      1996

<S>                                                   <C>       <C>       <C>
Management fees charged by Goran                         $--       $--     $139
Reinsurance under various treaties, net:
  Ceded premiums earned                               21,439    13,537    5,463
  Ceded losses and loss adjustment expenses
    incurred                                          14,069    11,876    5,168
  Ceded commissions                                    4,048     3,523    2,620
Consulting fees charged by various related parties     3,134     1,150      872
Interest charged by Goran                                 --        --      196
Interest charged by Granite Re                            --        --      385
</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.  At December 31, 1998, the amount outstanding on this
loan was  $1,302.  The  amounts  due from  officers  and  directors  is composed
substantially  of interest  bearing loans with  definitive  principal  repayment
schedules.  The Company paid  $2,832,000,  $1,034,000 and $692,000 in 1998, 1997
and 1996,  respectively,  for  consulting  and other  services  relative  to the
conversion to the Company's new non-standard  automobile  operating system.  The
Company has capitalized  these costs as part of its new non-standard  automobile
operating system.  Approximately 90% of these payments are for services provided
by  consultants  and  vendors  unrelated  to  the  Company.  Stargate  Solutions
("Stargate") manages the work of each unrelated  consultants and vendors and, as
compensation  for such work,  has  retained  approximately  10% of the  payments
referred  to above in return for  management  services  provided.  During  1998,
Stargate was owned generally by certain  directors of the Company and a relative
of those directors.  Also included in consulting fees to related parties is $270
and $86 in 1998 and 1997,  respectively,  for payments to Onex, Inc., an officer
of whom is on the Company's Board of Directors, for employment related matters.

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.   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).  Statutory  requirements  place
limitations  on the amount of funds which can be  remitted  to the Company  from
Pafco  and  IGF.  The  Indiana  statute  allows  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 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).
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.  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, 1999 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, 1998, that permitted transaction had no effect on statutory surplus
or net income.  The  underwriting  profit results of the FCIC  business,  net of
reinsurance of $19,763,  $26,589 and $12,277, are netted with policy acquisition
and general and  administrative  expenses for the years ended December 31, 1998,
1997 and 1996,  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

                                       35

<PAGE>
[HEADER]                                                  (Dollars in thousands)

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, 1999 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.

Net income  (loss) of the  insurance  subsidiaries,  as determined in accordance
with statutory accounting practices (SAP), was $(21,459), $7,702 and $19,251 for
1998, 1997 and 1996,  respectively.  Consolidated  statutory capital and surplus
for the  insurance  subsidiaries  was $105,080 and $127,879 at December 31, 1998
and 1997, respectively.

As of December 31, 1998, IGF and the Superior  entities had  risk-based  capital
ratios  that were in  excess of the  minimum  requirements.  Pafco's  risk-based
capital ratio was 186% or $1.2 million less than the Company Active Level. Pafco
has filed its plan of corrective action with the IDOI.

In 1998, the National Association of Insurance  Commissioners (NAIC) adopted the
Codification of Statutory Accounting Principles guidance, which will replace the
current  Accounting  Practices  and  Procedures  manual  as the  NAIC's  primary
guidance on statutory accounting.  The NAIC is now considering amendments to the
Codification guidance that would also be effective upon implementation. The NAIC
has recommended an effective date of January 1, 2001. The Codification  provides
guidance  for areas  where  statutory  accounting  has been  silent and  changes
current statutory accounting in some areas.

It is not known whether the Indiana and Florida Insurance Departments will adopt
the  Codification,  and  whether  the  Departments  will make any changes to the
guidance. The Company has not estimated the potential effect of the Codification
guidance if adopted by the Departments.  However,  the actual effect of adoption
could  differ as changes  are made to the  Codification  guidance,  prior to its
recommended effective date of January 1, 2001.

17.   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.

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

The California  Department of Insurance (CDOI) has advised the Company that they
are reviewing a possible  assessment  which could total $3 million.  The Company
does  not  believe  it will owe  anything  for this  possible  assessment.  This
possible  assessment relates to the charging of brokers fees to policyholders by
independent agents who have placed business for one of the Company's nonstandard
automobile  carriers,  Superior Insurance  Company.  The CDOI has indicated that
such broker  fees  charged by the  independent  agent to the  policyholder  were
improper  and has  requested  reimbursement  to the  policyholders  by  Superior
Insurance Company.  The Company did not receive any of these broker fees. As the
ultimate outcome of this potential assessment is not deemed probable the Company
has not accrued any amount in its consolidated  financial  statements.  Although
the  assessment has not been formally made by the CDOI at this time, the Company
believes it will prevail and will vigorously defend any potential assessment.

The Company began writing a new crop insurance product in 1998,  AgPI(R),  which
provides business interruption coverage to

                                       36

<PAGE>

[HEADER]                                                  (Dollars in thousands)

agricultural  product processors.  At December 31, 1998 certain coverages exist,
the results of which will not be fully  known until the second  quarter of 1999.
The Company  fully  believes it has  sufficient  reserves at December  31, 1998;
however, ultimate results could vary materially.

At  December  31,  1998,  the  Company  provided an  allowance  of $3.2  million
associated  with  discrepancies  identified in connection with the processing of
premiums  from the  assumption  of the CNA  business  and the  related  premiums
receivable  balance.  The Company has been unable to resolve these discrepancies
and  has  fully   provided  for  this  amount  as  the  Company   continues  its
investigation.  Ultimate resolution of this matter may result in a change in the
$3.2 million allowance.

An assertion has been made in Florida  alleging that service  charges or finance
charges are in violation of Florida law. The plaintiff is attempting to obtain a
class   certification  in  this  action.   The  Company  believes  that  it  has
substantially  complied  with  the  premium  financing  statue  and  intends  to
vigorously defend any potential loss. The ultimate outcome is uncertain.

18.   Supplemental Cash Flow Information:

Cash paid for interest and income taxes are summarized as follows:
<TABLE>
<CAPTION>

                                                       1998    1997     1996
<S>                                                    <C>    <C>      <C>
Cash paid for interest                                 $260   $3,467   $5,178
Cash paid for federal income taxes, net of refunds    5,351   11,670    9,825
</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.

19.   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.

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 $2,036 at December 31, 1998.

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, 1998 market value of the Preferred
    Securities was $113,400 based on quoted market prices.

                                       37

<PAGE>

[HEADER]                                                  (Dollars in thousands)

20.   Segment Information:

In  1998,  the  Company  adopted  FAS 131,  "Disclosures  About  Segments  of an
Enterprise  and Related  Information."  The prior  year's  segment data has been
restated to present the  Company's  operating  segments in  accordance  with the
requirement of FAS 131.

The  Company  has  two  reportable  segments  based  on  products:   Nonstandard
automobile  insurance and Crop  insurance.  The Nonstandard  automobile  segment
offers personal nonstandard  automobile insurance coverages through a network of
independent  general  agencies.  The Crop  segment  writes  MPCI  and crop  hail
insurance  through  independent  agencies with its primary  concentration in the
Midwest. The accounting policies of the segments are the same as those described
in "Nature of Operations  and  Significant  Accounting  Policies."  There are no
significant  intersegment  transactions.  The Company evaluates  performance and
allocates  resources  to the  segments  based on profit or loss from  operations
before income taxes.

The following is a summary of the Company's segment data and a reconciliation of
the segment data to the Consolidated  Financial  Statements.  The "Corporate and
Other"  includes  operations  not directly  related to the  reportable  business
segments and unallocated  corporate items (i.e.,  corporate  investment  income,
interest expense on corporate debt and unallocated  overhead expenses).  Segment
assets 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.
<TABLE>
<CAPTION>
                                                     Nonstandard               Segment     Corporate  Consolidated
Year ended December 31, 1998                            Auto         Crop      Totals      and Other     Totals
                                                        ----         ----      ------      ---------     ------
<S>                                                 <C>           <C>        <C>            <C>       <C>     
Premiums earned                                     $264,022      $60,901    $324,923        $-       $324,923
Fee income                                            16,431        3,772      20,203         -         20,203
Net investment income                                 11,958          275      12,233         140       12,373
Net realized capital gain                              4,124          217       4,341         -          4,341
                                                     -------       ------     -------       -----      -------
Total revenue                                        296,535       65,165     361,700         140      361,840
                                                     -------       ------     -------       -----      -------
Loss and loss adjustment expenses                    217,916       52,550     270,466         -        270,466
Operating expenses                                    73,346       21,906      95,252       1,624       96,876
Amortization of intangibles                            -              339         339       2,040        2,379
Interest expense                                       -              163         163         -            163
                                                     -------       ------     -------       -----      -------
Total expenses                                       291,262       74,958     366,220       3,664      369,884
                                                     -------       ------     -------       -----      -------
Earnings (loss) before income taxes, minority
   interest and extraordinary item                  $  5,273      $(9,793)    $(4,520)    $(3,524)     $(8,044)
                                                     =======      =======     =======      ======      =======
Segment assets                                      $376,831     $143,434    $520,265     $49,172     $569,437
                                                     =======      =======     =======      ======      =======
</TABLE>

<TABLE>
<CAPTION>
                                                     Nonstandard               Segment     Corporate  Consolidated
Year ended December 31, 1997                            Auto         Crop      Totals      and Other     Totals
                                                        ----         ----      ------      ---------     ------
<S>                                                 <C>           <C>        <C>           <C>        <C>      
Premiums earned                                     $251,020      $20,794    $271,814      $  -       $271,814
Fee income                                            15,515        2,276      17,791          30       17,821
Net investment income                                 10,969          191      11,160         287       11,447
Net realized capital gain                              9,462          (18)      9,444         -          9,444
                                                     -------       ------     -------      ------      -------
Total revenue                                        286,966       23,243     310,209         317      310,526
                                                     -------       ------     -------      ------      -------
Loss and loss adjustment expenses                    195,900       16,550     212,450         -        212,450
Operating expenses                                    72,463      (14,404)     58,059       1,719       59,778
Amortization of intangibles                              -              2           2       1,195        1,197
Interest expense                                         -            233         233       2,925        3,158
                                                     -------       ------     -------       -----      -------
Total expenses                                       268,363        2,381     270,744       5,839      276,583
                                                     -------       ------     -------       -----      -------
Earnings before income taxes, minority
   interest and extraordinary item                   $18,603      $20,862     $39,465     $(5,522)     $33,943
                                                      ======       ======      ======       =====       ======
Extraordinary item, net of tax                          (713)          --        (713)         --         (713)
                                                         ===      =======         ===       =====          ===
Segment assets                                      $363,864     $119,660    $483,524     $46,351      $529,875
                                                     =======      =======     =======      ======       =======
</TABLE>

                                       38

<PAGE>

[HEADER]                                                  (Dollars in thousands)

<TABLE>
<CAPTION>
                                                     Nonstandard               Segment     Corporate  Consolidated
Year ended December 31, 1996                            Auto         Crop      Totals      and Other     Totals
                                                        ----         ----      ------      ---------     ------
<S>                                                 <C>           <C>        <C>            <C>        <C>     
Premiums earned                                     $168,746      $23,013    $191,759       $ -        $191,759
Fee income                                             7,578        1,672       9,250          36         9,286
Net investment income                                  6,489          181       6,670          63         6,733
Net realized capital gain                             (1,014)          (1)     (1,015)        -          (1,015)
                                                     -------       ------     -------       -----       -------
Total revenue                                        181,799       24,865     206,664          99       206,763
                                                     -------       ------     -------       -----       -------
Loss and loss adjustment expenses                    124,385       12,724     137,109         -         137,109
Operating expenses                                    46,796       (6,095)     40,701       1,312        42,013
Amortization of intangibles                              -             -           -          411           411
Interest expense                                         -            551         551       2,976         3,527
                                                     -------      -------     -------       -----       -------
Total expenses                                       171,181        7,180     178,361       4,699       183,060
                                                     -------      -------     -------       -----       -------
Earnings before income taxes, minority
   interest and extraordinary item                   $10,618      $17,685     $28,303     $(4,600)      $23,703
                                                      ======       ======      ======       =====        ======
Segment assets                                      $264,067      $73,443    $337,510      $7,169      $344,679
                                                     =======       ======     =======       =====       =======
</TABLE>

21.   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
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 have been granted at an exercise  price equal to the fair market
value of the  Company's  stock at date of  grant.  The  options  granted  to the
Company's  Chairman (633,900 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.  On October 14, 1998, all
SIG options were repriced to $6.3125 per share.

Information regarding the SIG Stock Option Plan is summarized below:
<TABLE>
<CAPTION>
                                                           1998                      1997                   1996
                                                           Weighted                  Weighted               Weighted
                                                           average                   average                average
                                                           exercise                  exercise               exercise
                                             Shares        price        Shares       price     Shares       price
<S>                                         <C>           <C>           <C>         <C>        <C>           <C>
Outstanding at the beginning of the year    1,000,000     $6.3125       830,000     $12.50          --       $--
Granted                                       478,000      6.3125       185,267      15.35     830,000      12.50
Exercised                                      (4,332)     6.3125        (1,667)     12.50          --        --
Forfeited                                     (15,835)     6.3125       (13,600)     12.50          --        --
                                            ---------                 ---------                -------
Outstanding at the end of the year          1,457,833     $6.3125     1,000,000     $13.03     830,000     $12.50
                                            =========                 =========                =======
Options exercisable at year end               760,289     $6.3125       521,578     $12.50 
Available for future grant                     42,167                        --                170,000
</TABLE>

The weighted  average  remaining life of the SIG options as of December 31, 1998
is 8.5 years.

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
                                       39

<PAGE>

[HEADER]                                                  (Dollars in thousands)

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.

Information regarding the GGS Stock Option Plan is summarized below:
<TABLE>
<CAPTION>
                                                           1998                      1997                  1996
                                                           Weighted                  Weighted              Weighted
                                                           average                   average               average
                                                           exercise                  exercise              exercise
                                               Shares      price        Shares       price     Shares      price
<S>                                         <C>           <C>           <C>         <C>        <C>          <C>
Outstanding at the beginning of the year       54,022      $51.75        55,972     $51.75        $--        $--
Granted                                            --          --            --         --     55,972        51.75
Forfeited                                        (150)      51.75        (1,950)      51.75        --         --
                                               ------                    ------                ------
Outstanding at the end of the year             53,872      $51.75        54,022      $51.75    55,972       $51.75
                                               ======                    ======                ======
Options exercisable at year end                21,549                    10,804                    --
Available for future grant                     57,239                    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                           37,710       7.3        $46.13        21,549       $47.60
$58.79-$71.14                           16,162       7.3         64.87            --          --
                                        ------                                ------
                                        53,872                                21,549
                                        ======                                ======
</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 1998,  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,
1998, 1997 and 1996 would have been as follows:
<TABLE>
<CAPTION>

(Dollars in thousands,                       1998         1998       1997         1997        1996         1996
except per share amounts)                  As Reported  Pro Form   As Reported  Pro Forma   As Reported  Pro Forma

<S>                                        <C>          <C>         <C>          <C>         <C>          <C>    
Net earnings (loss)                        $(14,417)    $(16,352)   $16,305      $14,927     $13,256      $13,021

Basic earnings (loss) per share              $(1.39)      $(1.57)     $1.56        $1.43       $1.76        $1.73
 
Fully diluted earnings (loss) per share     $(1.39)       $(1.57)     $1.52        $1.38       $1.76        $1.73
</TABLE>

                                       40

<PAGE>

[HEADER]                                                  (Dollars in thousands)

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 shown in
the following table:
<TABLE>
<CAPTION>

                                               SIG            SIG           GGSH          SIG
                                            1998 Grants    1997 Grants   1996 Grants   1996 Grants

<S>                                            <C>         <C>           <C>           <C>  
Risk-free interest rates                           5.4%        6.40%         6.41%        6.27%

Dividend yields                                      --          --           --            --

Volatility factors                                  0.41        0.39          --            0.40

Weighted average expected life                 3.2 years   3.3 years     5.0 years     3.1 years

Weighted average fair value per share              $5.73       $5.54         $5.90         $4.27
</TABLE>

22.   Quarterly Financial Information (unaudited):

Quarterly financial information is as follows:
<TABLE>
<CAPTION>
                                                                                                                   Quarters
                  1998             First    Second     Third     Fourth    Total

<S>                               <C>       <C>        <C>       <C>       <C>     
Gross written premiums            $178,396  $173,094   $97,353   $104,347  $553,190

Net earnings (loss)                  4,924     5,668   (13,326)   (11,683)  (14,417)

Basic earnings (loss) per share       0.47      0.55     (1.28)     (1.13)    (1.39)

Fully diluted earnings (loss) per
  share                               0.46      0.53     (1.28)     (1.13)    (1.39)

                   1997

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
</TABLE>

During the fourth quarters of 1998 and 1997, the Company  increased  reserves on
its  nonstandard  automobile  business by $6.9 million and $3.0 million for both
current and prior accident years.

In the fourth quarter of 1998, the Company  provided a $3.2 million  reserve for
potential  processing  errors in the crop business assumed from CNA. The Company
also increased its reserves on AgPI(R) exposures by approximately  $1.8 million.
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 (loss), net of reinsurance, on its FCIC business of
$(3,506), $6,979 and $5,572 during 1998, 1997 and 1996, respectively.

                                       41

<PAGE>

FORWARD-LOOKING STATEMENTS

All statements,  trend analyses,  and other information contained in this Annual
Report and elsewhere  (such as in other filings by the Company or its affiliates
with the Securities and Exchange  Commission,  press releases,  presentations by
the Company or its  management or oral  statements)  relative to markets for the
Company's  products  and/or  trends in the  Company's  operations  or  financial
results,  as well as other  statements  including  words  such as  "anticipate,"
"could,"  "feel(s),"   "believe,"   "believes,"  "plan,"  "estimate,"  "expect,"
"should,"  "intend" and other similar  expressions,  constitute  forward-looking
statements  under the Private  Securities  Litigation  Reform Act of 1995. These
forward-looking statements are subject to known and unknown risks, uncertainties
and other factors which may cause actual results to be materially different from
those  contemplated by the  forward-looking  statements.  Such factors  include,
among  other  things:  (i) general  economic  conditions,  including  prevailing
interest rate levels and stock market  performance;  (ii) factors  affecting the
Company's crop operations such as weather-related events, final harvest results,
commodity price levels, governmental program changes, new product acceptance and
commission  levels paid to agents;  and (iii)  factors  affecting  the Company's
nonstandard  automobile  operations such as premium volume,  levels of operating
expenses as compared to premium  volume,  ultimate  development of loss reserves
and  implementation of the Company's  operating  system.  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  are 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, 1998.

-------------------------------------------------------------------------------
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 PricewaterhouseCoopers  LLP
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
April 13, 1999

                                       42

<PAGE>

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

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements of earnings,  changes in stockholders'  equity and cash
flows present  fairly,  in all material  respects,  the  consolidated  financial
position of Symons  International  Group, Inc. and subsidiaries (the Company) at
December 31, 1998 and 1997,  and the results of their  operations and their cash
flows for each of the three  years in the  period  ended  December  31,  1998 in
conformity  with  generally  accepted  accounting  principles.  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 of these  statements  in  accordance  with
generally accepted auditing standards which 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,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.




/s/ PricewaterhouseCoopers LLP
Indianapolis, Indiana
April 13, 1999




                                       43

<PAGE>

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
PricewaterhouseCoopers LLP
Indianapolis, Indiana

Annual Meeting of Stockholders
Wednesday, June 16, 1999
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, 1998,  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>
<CAPTION>
                                     NASDAQ
                            1998                 1997
Quarter Ended          High      Low        High     Low

<S>                   <C>       <C>        <C>      <C>  
March 31              20.375    16.125     17.625   14.00

June 30                20.50    16.375     16.625   13.625

September 30           19.875   16.0       23.25    15.75

December 31           15.75      5.375     23.75    18.63

</TABLE>

As of March 22, 1999, 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, 1998 and 1997. 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.


                                       44

<PAGE>

Shareholder Inquiries

Inquiries should be directed to:
Alan G. Symons
Chief Executive Officer
Symons International Group, Inc.
Tel:  (317) 259-6302
E-mail:  AGSymons@AOL.com

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.

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
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 President
  and Treasurer                            IGF Insurance Company
Symons International Group, Inc.

                                       45

<PAGE>

Carl F. Schnaufer                          James J. Lund
Vice President, Chief Information          Vice President, Chief Accounting
  Officer                                    Officer
Symons International Group, Inc.           Symons International Group, Inc.

Mark C. Gozdecki
Vice President, Marketing
GGS Management, Inc.

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
Website:  SIGINS.com

SUBSIDIARIES AND BRANCHES                       IGF Southwest
Pafco General Insurance Company                 7914 Abbeville Avenue
4720 Kingsway Drive                             Lubbock, Texas  79424
Indianapolis, Indiana  46205                    Tel:  806-783-3010
Tel:  317-259-6300                              Fax:  806-783-3017
Fax:  317-259-6395
                                                IGF South
Superior Insurance Company                      101 Business Park Drive, Suite C
280 Interstate North Circle, N.W.               Jackson, Mississippi  39213
Atlanta, Georgia  30339                         Tel:  601-957-9780
Tel:  770-952-4885                              Fax:  601-957-9793
Fax:  770-988-8583
                                                IGF West
Superior Insurance Company                      1750 Bullard Avenue, Suite 106
3030 N. Rocky Point Drive                       Fresno, California  93710
Suite 770                                       Tel:  209-432-0196
Tampa, Florida  33607                           Fax:  209-432-0294
Tel:  813-281-2444
Fax:  813-287-8362                              IGF North
                                                161 South Main, Box 1090
Superior Insurance Company                      Stanley, North Dakota  58784
1745 West Orangewood Road                       Tel:  701-628-3536
Anaheim, California  92868                      Fax:  701-628-3537
Tel:  714-978-6811
Fax:  714-978-0353                              IGF Mid West
                                                6000 Grand Avenue
IGF Insurance Company                           Des Moines, Iowa  50312
Corporate Office                                Tel:  515-633-1000
6000 Grand Avenue                               Fax:  515-633-1012
Des Moines, Iowa  50312
Tel:  515-633-1000                              IGF - NACU
Fax:  515-633-1010                              Highway 210 West, Box 375
                                                Henning, Minnesota  56551
IGF Mid East                                    Tel:  218-583-4800
3900 Wood Duck Drive, Suite B                   Fax:  218-583-4852
Springfield, Illinois  62707
Tel:  217-726-2450
Fax:  217-726-2451

                                       46
<PAGE>




































BACK PAGE

SIG Logo

SYMONS INTERNATIONAL GROUP, INC.

4720 Kingsway Drive
Indianapolis, Indiana  46205

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


                                       47

<PAGE>