FORM 10-Q

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(Mark one)

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

          For the quarterly period ended March 31, 1998

         OR

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

          For the transition period from               to

          Commission file number 0-27462


                                  RISCORP, INC.
             (Exact name of registrant as specified in its charter)

            FLORIDA                                    65-0335150
   (State or other jurisdiction of                (I.R.S. Employer
    incorporation or organization)              Identification No.)

   One Sarasota Tower Suite 608
   2 North Tamiami Trail
   Sarasota, Florida                                             34236
   (Address of principal executive offices)                    (Zip Code)

                                 (941) 366-5015
                         (Registrant's telephone number,
                              including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. X Yes No .

Number of shares outstanding of the issuer's Common Stock:

 Class                                           Outstanding at April 30, 1998

Class A Common Stock, $.01 par value                        14,258,671
Class B Common Stock, $.01 par value                        24,334,443


                                         1
<PAGE>


<TABLE>
<CAPTION>


                                                        INDEX



                                                                                                          Page No.
Part I     Financial Information

           Item 1.         Financial Statements
<S>                       <C>                                                                             <C>
                           Consolidated Balance Sheets -
                               March 31, 1998 and December 31, 1997                                        3-4


                           Consolidated Statements of Income -
                               For the three months ended March 31, 1998 and 1997                            5


                           Consolidated Statements of Cash Flows -
                               For the three months ended March 31, 1998 and 1997                            6


                           Notes to Consolidated Financial Statements                                     7-13


           Item 2.         Management's Discussion and Analysis of Financial                             14-22
                           Condition and Results of Operations


Part II    Other Information

           Item 1.         Legal Proceedings                                                             22-26

           Item 2.         Changes to Securities                                                            26

           Item 3.         Defaults Upon Senior Securities                                                  26

           Item 4.         Submission of Matters to a Vote of Security Holders                              26

           Item 5.         Other Information                                                                26

           Item 6.         Exhibits and Reports on Form 8-K                                                 27



</TABLE>



                                       2
<PAGE>


Part I   Financial Information
Item 1.  Financial Statements
<TABLE>
<CAPTION>

                         RISCORP, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets
                      March 31, 1998 and December 31, 1997
                                 (in thousands)


                                                                                         March 31, 1998     December 31, 1997
Assets                                                                                   (Unaudited)

Investments:
<S>                                                                                     <C>                  <C>
   Fixed maturities available for sale, at fair value (amortized cost $226,240
      $114,974 in 1998 and $142,876 in 1997)                                            $     117,590         $     145,571
   Fixed maturities available for sale, at fair value (amortized cost
      $59,448 in 1998 and $53,437 in 1997)-restricted                                          59,844                53,820
   Fixed maturities held to maturity, at amortized cost (fair value $24,008
      in 1998 and $24,347 in 1997)                                                             23,751                24,090
                                                                                          -----------           -----------
      Total investments                                                                       201,185               223,481


Cash and cash equivalents                                                                      15,261                16,858
Cash and cash equivalents-restricted                                                           13,833                13,295
Premiums receivable, net                                                                       89,340               100,183
Accounts receivable--other                                                                     13,054                16,720
Recoverable from Florida Special Disability Trust Fund, net                                    43,887                45,211
Reinsurance recoverables                                                                      208,253               184,251
Prepaid reinsurance premiums                                                                   21,740                29,982
Prepaid managed care fees                                                                       6,182                 8,420
Accrued reinsurance commissions                                                                39,483                37,188
Deferred income taxes                                                                          23,386                22,120
Property and equipment, net                                                                    25,331                26,665
Goodwill                                                                                       14,569                15,286
Other assets                                                                                    6,959                 9,990
                                                                                           ----------          ------------

Total assets                                                                             $    722,463         $     749,650
                                                                                         ============         =============










See accompanying notes to consolidated financial statements.
</TABLE>


                                       3
<PAGE>



<TABLE>
<CAPTION>

                         RISCORP, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets
                      March 31, 1998 and December 31, 1997
                                 (in thousands)


                                                                                            March 31,      December 31, 1997
                                                                                              1998
Liabilities and Shareholders' Equity                                                     (Unaudited)

Liabilities:
<S>                                                                                     <C>                 <C>
   Losses and loss adjustment expenses                                                  $     452,096       $      437,038
   Unearned premiums                                                                           44,089               56,324
   Notes payable of parent company                                                             15,000               15,000
   Notes payable of subsidiaries                                                                  527                  609
   Deposit balances payable                                                                     3,913                5,512
   Accrued expenses and other liabilities                                                      41,295               65,885
   Net assets in excess of cost of business acquired                                            5,544                5,749
                                                                                        -------------      ---------------
                                                                                              562,464              586,117
                                                                                        -------------      ---------------

Shareholders' equity:
   Class A Common Stock, $.01 par value, 100,000,000 shares authorized; shares
       issued and outstanding:  12,646,253 in 1998 and 11,855,917 in 1997
                                                                                                  129                  120
   Class B Common Stock, $.01 par value,  100,000,000 shares authorized;  shares
       issued and outstanding; 24,334,443 in 1998 and 1997
                                                                                                  243                  243
   Preferred stock, $.01 par value, 10,000,000 shares authorized; 0 shares
       issued and outstanding                                                                      --                   --
   Additional paid-in capital                                                                 136,609              135,974
   Retained earnings                                                                           21,061               25,195
   Treasury stock - at cost, 112,582 shares
                                                                                                   (1)                  (1)
   Accumulated Other Comprehensive Income:
      Net unrealized gains on investments                                                       1,958                2,002
                                                                                        -------------      ---------------

          Total shareholders' equity                                                          159,999              163,533
                                                                                        -------------      ---------------

          Total liabilities and shareholders' equity                                     $    722,463       $      749,650
                                                                                         ============       ==============
</TABLE>











See accompanying notes to consolidated financial statements.


                                       4
<PAGE>


<TABLE>
<CAPTION>
                         RISCORP, INC. AND SUBSIDIARIES

                      Consolidated Statements of Operations
               For the three months ended March 31, 1998 and 1997
                 (in thousands, except share and per share data)


                                                                                            1998                1997
                                                                                       ----------------    ----------------
                                                                                         (Unaudited)         (Unaudited)
   Revenue:
<S>                                                                                    <C>                       <C>     
       Premiums earned                                                                 $       23,625            $ 46,814
       Fee income                                                                               5,204               5,146
       Net realized gains                                                                       1,461                  --
       Net investment income                                                                    3,306               3,946
                                                                                                -----               -----
          Total revenue
                                                                                               33,596              55,906
                                                                                               ------              ------

   Expenses:
       Losses and loss adjustment expenses                                                     20,204              32,547
       Unallocated loss adjustment expenses                                                     2,232               4,019
       Commissions, underwriting and administrative expenses                                   11,761              14,437
       Interest expense                                                                           469                 482
       Depreciation and amortization
                                                                                                3,064               1,933
                                                                                                -----               -----
          Total expenses
                                                                                               37,730              53,418
                                                                                               ------              ------

   (Loss) Income before income taxes                                                          (4,134)               2,488

   Income taxes
                                                                                                   --               1,009

   Net (loss) income                                                                          -------               -----
                                                                                              (4,134)               1,479
                                                                                              =======               =====

   Per share data:
      Net (loss) income per common share-basic                                             $    (0.11)            $  0.04
                                                                                                =====                ====

      Net (loss) income per common share-diluted                                           $    (0.11)            $  0.04
                                                                                                =====                ====


   Weighted average common shares outstanding                                              36,868,114          37,467,000
                                                                                         ============       =============

   Weighted average common shares and common
        share equivalents outstanding                                                      36,868,114          37,775,562
                                                                                         ============       =============







</TABLE>











See accompanying notes to consolidated financial statements.


                                       5
<PAGE>


<TABLE>
<CAPTION>


                         RISCORP, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows For the three months
                  ended March 31, 1998 and 1997
                                 (in thousands)

                                                                                               1998             1997
                                                                                          ---------------   --------------
                                                                                            (Unaudited)       (Unaudited)

<S>                                                                                        <C>               <C>
Net cash used in operating activities                                                      $  (21,561)       $  (13,557)
                                                                                           ----------        ----------

Cash flows from investing activities:
     Purchase of property and equipment                                                          (473)           (2,069)
     Proceeds from the sale of equipment                                                           --                23
     Purchase of fixed maturities--available for sale                                         (14,684)           (8,465)
     Purchase of fixed maturities--held to maturity                                            (2,903)               --
     Proceeds from sale of fixed maturities--available for sale                                31,623            27,297
     Proceeds from maturities of fixed maturities--available for sale                           5,369             2,452
     Proceeds from maturities of fixed maturities--held to maturity                             3,250             1,000
                                                                                          ------------     -------------

       Net cash provided by investing activities                                               22,182            20,238
                                                                                          -----------      ------------

Cash flows from financing activities:
     Principal repayments of notes payable                                                        (82)              (59)
     Increase in deposit balances payable                                                      (1,598)              205
     Unearned compensation--stock options                                                          --               173
     Purchase of treasury stock                                                                    --            (2,100)
     Other, net                                                                                    --              (222)
     Transfer of cash and cash equivalents to restricted                                         (538)               --
                                                                                        -------------   ---------------

       Net cash used in financing activities                                                   (2,218)           (2,003)
                                                                                         ------------      ------------

Net (decrease) increase in cash and cash equivalents                                           (1,597)            4,678

Cash and cash equivalents, beginning of period                                                 16,858            26,307
                                                                                          -----------      ------------
Cash and cash equivalents, end of period                                                   $   15,261       $    30,985
                                                                                           ==========       ===========


Supplemental disclosures of cash flow information:

     Cash paid during the period for:
           Interest                                                                      $        460     $         462
                                                                                         ============     =============
           Income taxes                                                                   $     1,585      $      3,057
                                                                                          ===========      ============
</TABLE>





See accompanying notes to consolidated financial statements.


                                       6
<PAGE>

                         RISCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Condensed Financial Statements
                                   (Unaudited)


(1)    Basis of Presentation

       RISCORP,  Inc.'s (the  "Company"  or  "RISCORP")  consolidated  unaudited
       interim financial statements have been prepared on the basis of generally
       accepted   accounting   principles   ("GAAP")  and,  in  the  opinion  of
       management, reflect all adjustments,  consisting only of normal recurring
       adjustments, necessary for a fair presentation of the Company's financial
       condition,   results  of  operations  and  cash  flows  for  the  periods
       presented.  The  preparation of financial  statements in conformity  with
       GAAP requires  management to make estimates and  assumptions  that affect
       the  reported  amounts  of assets  and  liabilities  and  disclosures  of
       contingent assets and liabilities at the date of the financial statements
       and the  reported  revenues  and expenses  during the  reporting  period.
       Actual results could differ from those  estimates.  On April 1, 1998, the
       Company  and  certain  of  its  subsidiaries   consummated  the  sale  of
       substantially all of their assets to Zenith Insurance Company  ("Zenith")
       and ceased  substantially  all of their former business  operations.  See
       Note  5  below  for  further   discussion  of  the  Zenith   transaction.
       Accordingly,  the results of operations  for the three months ended March
       31, 1998 will not be  indicative of the results that are expected for the
       full  year  ending  December  31,  1998.  These  consolidated   financial
       statements  and notes should be read in  conjunction  with the  financial
       statements  and notes  included  in the  audited  consolidated  financial
       statements of RISCORP,  Inc. and subsidiaries for the year ended December
       31, 1997  contained in the  Company's  Statement on Form 10-K,  which was
       filed with the Securities and Exchange Commission on March 27, 1998.

       The consolidated financial statements include the accounts of the Company
       and each of its subsidiaries.  All significant intercompany balances have
       been eliminated.


(2)    Sale of Joint Venture

       Joint Venture Arrangement

       In January  1996,  the  Company,  through  its  wholly-owned  subsidiary,
       RISCORP of Illinois, entered into a joint venture arrangement with Health
       Care Service  Corporation  ("HCSC"),  a subsidiary of Blue Cross and Blue
       Shield  of  Illinois,  to  underwrite  and  sell  managed  care  workers'
       compensation  insurance  in  Illinois.  The Company and HCSC each held 50
       percent  ownership  in the joint  venture  known as Third  Coast  Holding
       Company  ("Third  Coast").   The  Company  contributed  the  use  of  its
       expertise,  insurance  systems  and  intellectual  property,  while  HCSC
       contributed cash of $10.0 million. The Company's  contributed property in
       Third Coast was valued at $10.0  million;  however,  the  Company's  cost
       basis in the contributed property was $0 and as of December 31, 1996, the
       Company  recorded  its  initial  investment  in Third  Coast  at $0.  The
       Company's investment in Third Coast at December 31, 1997 was $0.

       The Company accounts for its 50 percent  investment in Third Coast on the
       equity basis of accounting,  whereby the Company's recorded investment is
       adjusted  for its  proportionate  share of  earnings  or  losses of Third
       Coast.  The  Company  discontinued  the  use  of  the  equity  method  of


                                       7
<PAGE>

       accounting  for  Third  Coast  in the  first  quarter  of 1997  when  the
       cumulative losses reduced the Company's  investment in Third Coast to $0.
       In addition,  the Company has not made any financial  guarantees relating
       to Third Coast and has not made any financial  commitments to provide any
       future funding to Third Coast.

       The Company and HCSC entered  into an agreement  dated March 11, 1998 for
       the purchase of the Company's 50% interest in Third Coast for $1,324,001.
       The effective  date of the  transaction  was January 1, 1998. The gain on
       the sale of Third Coast of $1,324,001  was included in net realized gains
       at March 31, 1998.  The Company  received all the funds due in connection
       with this transaction on April 3, 1998. In connection with the closing of
       the sale to Zenith, the Company received notice that Zenith believes that
       it is entitled to the proceeds from the sale of Third Coast.  The Company
       disputes Zenith's entitlement to these proceeds and intends to vigorously
       defend  any  claim   asserted  by  Zenith  related  to  the  Third  Coast
       transaction.


(3)    Issuance of Additional Shares of Stock

       In September 1996, the Company  purchased all of the outstanding stock of
       Independent Association Administrators,  Inc. ("IAA") and Risk Inspection
       Services and  Consulting,  Inc.  ("RISC") in exchange  for  approximately
       $11.5  million,  consisting  primarily of 790,336 shares of the Company's
       Class A Common Stock valued at approximately $10.9 million on the date of
       acquisition.  IAA and RISC are workers' compensation  management services
       companies offering services in Alabama.

       Under the IAA acquisition agreement, the former IAA shareholders received
       790,336  shares of the Company's  Class A Common  Stock.  Pursuant to the
       acquisition  agreement,  if the former IAA  shareholders  own all of such
       Class A Common Stock on September  17, 1998,  the Company is obligated to
       issue  additional  shares  of the  Company's  Class A Common  Stock in an
       amount  sufficient to make the value of all shares of the Company's Class
       A Common Stock held by the former IAA shareholders  equal to an aggregate
       fair market value of $10.9 million on September 17, 1998.  However, in no
       event  will the  number of  additional  shares  issued to the  former IAA
       shareholders  exceed 790,336 shares. Due to decreases in the market value
       of the Company's Class A Common Stock,  790,336  additional shares of the
       Company's Class A Common Stocks valued at $642,148 were issued on January
       9, 1998 to the former shareholders of IAA. The market value of the stocks
       on January 9, 1998 was $0.8125 per share.

       The  $642,148  fair market  value of the stock issued was recorded by the
       Company as  goodwill  amortization  in the  accompanying  March 31,  1998
       financial statements. This amount was recorded as an amortization expense
       because it could not be recovered from the  profitability of the workers'
       compensation business that was still under contract on January 9, 1998.


(4)    Commitments and Contingencies

       Between  November 20, 1996 and January 31, 1997, nine  shareholder  class
       action lawsuits were filed against RISCORP,  Inc. and other defendants in
       the United States  District Court for the Middle District of Florida (the
       "Securities  Litigation").  In March 1997, the court  consolidated  these
       lawsuits  and  appointed  co-lead  plaintiffs  and co-lead  counsel.  The
       plaintiffs subsequently filed a consolidated complaint.  The consolidated
       complaint  named as  defendants  RISCORP,  Inc.,  three of its  executive
       officers,  one  non-officer  director and three of the  underwriters  for
       RISCORP,   Inc.'s  initial  public   offering.   The  plaintiffs  in  the
       consolidated complaint purport to represent the class of shareholders who
       purchased  RISCORP,  Inc. Class A Common Stock between  February 28, 1996
       and November 14, 1996. The consolidated  complaint  alleges that RISCORP,
       Inc.'s  Registration  Statement  and  Prospectus of February 28, 1996, as


                                       8
<PAGE>

       well as subsequent statements,  contained false and misleading statements
       of material fact and omissions, in violation of sections 11 and 15 of the
       Securities  Act and sections 10(b) and 20(a) of the Exchange Act and Rule
       10b-5   promulgated   thereunder.   The   consolidated   complaint  seeks
       unspecified  compensatory  damages.  Pursuant to court ordered mediation,
       counsel  for the  parties  have  engaged in  discussions  in an effort to
       resolve the Securities  Litigation.  On January 14, 1998, counsel for the
       Company,  counsel for William D.  Griffin and counsel for the  plaintiffs
       reached  an oral  agreement  on terms to  recommend  to their  clients to
       settle  this  litigation.  This  agreement  was  confirmed  in a  written
       Memorandum  of  Understanding  executed  by  counsel  for the  respective
       parties as of April 29, 1998. The proposed  settlement is contingent upon
       the  following:  execution  of  a  definitive  settlement  agreement  and
       implementing  pleadings  and  other  documentation;  consummation  of the
       transactions   contemplated  by  the  Purchase   Agreement  with  Zenith;
       disclosure of certain documents to plaintiff's  counsel and interviews by
       them  of  various  individuals  to  verify  information  relating  to the
       settlement;  certification  of a settlement  class;  satisfaction  of all
       requirements  for settlement  under Rule 23 of the Federal Rules of Civil
       Procedures;  payment by RISCORP of $21.0  million into a settlement  fund
       for the benefit of the  settlement  class;  and release by members of the
       settlement  class of all claims  against the  defendants.  Counsel to the
       parties  are  in  the  process  of  finalizing  the  initial   settlement
       documents.  Under  Rule  23,  the  settlement  will  require  preliminary
       approval by the court as to the fairness of the terms of the  settlement,
       notice to the settlement  class and an opportunity to object to the terms
       of the settlement or to exclude themselves from the settlement class, and
       final  approval by the court  following a hearing on the  fairness of the
       settlement.

       The Company  estimates  that $8.0 million of insurance  proceeds  will be
       available for contribution to the settlement  amount,  as well as related
       costs and expenses.  The Company  recognized  the $21.0 million  proposed
       settlement  and the related  insurance  proceeds in the December 31, 1997
       financial statements. Given the preliminary nature of this settlement and
       the various contingencies  relating to its consummation,  there can be no
       assurance that this litigation will be ultimately settled on this basis.

       In April  1996,  RISCORP  Insurance  Company  and  certain  officers  and
       directors were named as defendants in a purported class action suit filed
       in the United States District Court for the Southern  District of Florida
       (the "Vero Cricket  Litigation").  In this action, the plaintiffs claimed
       that  the  defendants  violated  the  Racketeer  Influenced  and  Corrupt
       Organizations Act ("RICO"),  breached fiduciary duties and were negligent
       in  the  Company's  acquisition  of  Commerce  Mutual  Insurance  Company
       ("CMIC") in 1995. The plaintiffs sought compensatory and punitive damages
       and equitable  relief and treble  damages for the RICO counts.  The named
       plaintiffs,  Vero Cricket Shop,  Inc.,  Vero Cricket Shop Too,  Inc., and
       Falls Company of Longboat Key, Inc.,  claimed to be former  policyholders
       of CMIC and claimed to represent others similarly situated. In June 1997,
       the  plaintiffs  amended the  complaint to add as  additional  defendants
       Zenith  Insurance  Company and the Florida  Department of Insurance.  The
       plaintiffs seek only equitable relief against the two new defendants.

       On December 5, 1997,  counsel for the  parties  reached an  agreement  to
       recommend to their respective clients a settlement of the claims asserted
       in the Vero Cricket  litigation.  Plaintiff's  counsel has confirmed that
       the terms of the settlement are acceptable to the named  plaintiffs.  The
       Company's  Board of Directors  has approved the terms of the  settlement.
       The settlement is contingent upon preliminary approval by the court as to
       the fairness of the  settlement,  certification  of a  settlement  class,
       notice to the  settlement  class,  opportunity  of the  settlement  class
       members to object and withdraw,  no termination by either party and final
       approval by the court.  The  court's  preliminary  approval  was given on
       April  16,  1998,  and the  Settlement  and  Fairness  Hearing  has  been
       scheduled  for June 22,  1998.  Pursuant  to the terms of the  settlement
       agreement and subject to the satisfaction of the contingencies  discussed


                                       9
<PAGE>

       above,  RISCORP Insurance Company will pay to the plaintiffs a settlement
       amount  of  $475,000.  The  Company  estimates  that  75  percent  of the
       settlement  amount will be covered by insurance.  The Company  recognized
       the  $475,000  settlement  and  the  related  insurance  proceeds  in the
       accompanying financial statements as of December 31, 1997.

       On September 18, 1997, the United States  Attorney's office in Pensacola,
       Florida  announced that a United States grand jury had indicted  RISCORP,
       Inc., RISCORP Management  Services,  Inc. (a wholly owned,  non-regulated
       subsidiary of RISCORP, Inc.) and five former officers,  including William
       D.  Griffin,  Founder  and  Chairman of the Board,  for  various  charges
       stemming  from  alleged  illegal  political  campaign  contributions.  On
       September 18, 1997, the Board of Directors  approved a guilty plea by RMS
       to a single count of conspiracy to commit mail fraud. The guilty plea was
       entered  by RMS  and  accepted  by the  court  on  October  9,  1997.  No
       sentencing  date  for RMS has  been  set.  As a  result  of an  agreement
       negotiated  with the United  States  Attorney,  the court  dismissed  the
       indictment  against  RISCORP,  Inc.  on the same  day.  Mr.  Griffin  has
       resigned  from the  Board  of  Directors  of the  Company  and all  other
       positions  with the  Company.  RMS  agreed to cease to operate as a third
       party administrator  effective October 31, 1997. As of December 31, 1996,
       RMS recorded  $1.0 million for the  estimated  fines and costs related to
       this matter.  On February 18, 1998, a second  superseding  indictment was
       issued against the five former officers  including Mr.  Griffin.  Neither
       the Company nor any of its  subsidiaries  were named as defendants in the
       second indictment.  The charges asserted in the second  indictment,  like
       those in the  first  indictment,  stem  from  alleged  illegal  political
       campaign contributions.

       On July 17,  1997,  plaintiffs  Thomas K.  Albrecht  and Peter D.  Norman
       filed,  in the Circuit Court of  Montgomery  County,  Alabama,  an action
       against the  Company,  Mr.  William D.  Griffin and several  other former
       officers of the Company. The suit alleged violations of federal and state
       securities laws,  common law fraud and breach of contract  resulting from
       the purchase by the Company of shares of IAA from  Albrecht and Norman in
       1996, as described above. The plaintiffs sought compensatory and punitive
       damages and equitable relief.  On or about December 2, 1997,  counsel for
       the Company and counsel for  plaintiffs  negotiated a settlement  of this
       action.  Settlement  documents  have been  approved  and  executed by all
       parties.  As part of the  settlement  agreement,  the  Company  paid $2.0
       million to plaintiffs,  RISCORP, Inc. advanced $2.3 million to plaintiffs
       against an anticipated  final  distribution to shareholders  and RISCORP,
       Inc.  accelerated a distribution of 790,336  additional shares of Class A
       Common Stock to the plaintiffs.  Such shares were contemplated  under the
       terms of the  Agreement  and Plan of Merger  by and  among  the  Company,
       RISCORP-IAA,  Inc., IAA, Thomas K. Albrecht and Peter D. Norman, dated as
       of  September  17,  1996.  The  Company  estimates  that $2.0  million of
       insurance  proceeds  will be  available  to offset  the total  settlement
       amount as well as related costs and expenses.  The Company recognized the
       $2.0  million  settlement  and  the  related  insurance  proceeds  in the
       accompanying financial statements as of December 31, 1997. As part of the
       settlement  agreement,  the plaintiffs agreed to vote all their shares of
       Class  A  Common  Stock  in  favor  of the  Purchase  Agreement  and  the
       transaction  contemplated  therein.  Plaintiffs  are  record  holders  of
       1,580,672  shares of Class A Common Stock,  and, thus,  these  plaintiffs
       hold 13 percent of the outstanding shares of Class A Common Stock.

       On August 20, 1997,  Occupational  Safety Association of Alabama Workers'
       Compensation  Fund  (the  "Fund")  filed a breach of  contract  and fraud
       action  against the Company and  others.  The Fund is an  association  of
       self-insured  employers  who  agreed  to  transfer,  in a Loss  Portfolio
       Transfer Agreement (the "Agreement") dated August 26, 1996, substantially
       all of its assets and liabilities to the Company. Co-defendant,  Peter D.
       Norman,  was a principal and officer of IAA. The  complaint  alleges that
       Normal and IAA  breached  certain  fiduciary  duties  owed to the Fund in
       connection with the subject agreement and transfer. The complaint alleges
       that the Company has breached  certain  provisions  of the  Agreement and
       owes the Fund monies under the terms of the  Agreement.  The Fund claims,
       per a Loss Portfolio  Evaluation  dated February 26, 1998,  that the Fund
       overpaid   RISCORP  by   approximately   $6.0   million  in  the  subject
       transaction.

                                       10
<PAGE>

       The court has granted  defendant's  Motion to Compel  Arbitration per the
       terms  and  provisions  of  the  Agreement.  The  other  parties  to  the
       litigation  have agreed to attempt to mediate their  disputes on May 28 -
       29, 1998, and have invited the Company to participate in that  mediation.
       Assuming  mediation  fails,  the dispute between the Company and the Fund
       will be resolved through  arbitration.  The Company intends to vigorously
       defend  this  claim,   and  believes  that   application  of  appropriate
       accounting and actuarial  principles and methodologies to the calculation
       at issue may indicate  that monies are instead owed to the Company by the
       Fund.

       On or about  April 13,  1998,  the Fund  filed a Motion  for  Preliminary
       Injunction  which  seeks to enjoin  the  Company  from  distributing  any
       dividends  or  making  any  type  of   distributions   to   shareholders,
       withdrawing any proceeds from the escrow account established with certain
       proceeds  received  from Zenith,  or  dissolving  the  Company.  Although
       somewhat confusing,  the motion appears to be based on the failure of the
       Company to  specifically  identify  this  lawsuit in its proxy  statement
       issued in connection  with the sale to Zenith.  The Company  believes the
       motion to be completely  without merit and will be filing an  appropriate
       response in the near future. The motion was originally set for hearing on
       May 14, 1998, but has been continued.

       In June 1997, the Company  terminated a number of employees in connection
       with the workforce reduction.  As a result of the workforce reduction and
       the  sale  to  Zenith,  a  number  of  former  employees  have  initiated
       proceedings,  including  arbitration,  against  the  Company  for certain
       severance benefits. The Company intends to vigorously defend these suits;
       however,  there  can be no  assurance  that  it  will  prevail  in  these
       proceedings.

       On March 13, 1998,  RIC and RPC were added as  defendants  in a purported
       class action filed in the United District Court for the Southern District
       of Florida,  styled  Bristol Hotel  Management  Corporation,  et. al., v.
       Aetna  Casualty & Surety  Company,  a/k/a Aetna  Group,  et. al. Case No.
       97-2240-CIV-MORENO. The plaintiffs purport to bring this action on behalf
       of  themselves  and a class  consisting  of all employers in the State of
       Florida  who  purchased  or  renewed  retrospectively  rated or  adjusted
       workers'  compensation  policies in the voluntary  market since 1985. The
       suit was originally  filed on July 17, 1997,  against  approximately  174
       workers'   compensation   insurers  as  defendants.   The  complaint  was
       subsequently amended to add the RISCORP defendants. The amended complaint
       named a total of approximately  161 insurer  defendants.  The suit claims
       that the defendant  insurance  companies  violated the Sherman  Antitrust
       Act, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), the
       Florida Antitrust Act and committed breach of contract,  civil conspiracy
       and were  unjustly  enriched by  unlawfully  adding  improper and illegal
       charges  and fees  onto  retrospectively  rated  premiums  and  otherwise
       charging  more for those  policies  than  allowed by law.  The suit seeks
       compensatory and punitive damages, treble damages under the Antitrust and
       RICO claims,  and equitable relief. RIC and RPC have moved to dismiss the
       amended  complaint and the Company has provided  notice to Zenith that it
       believes  this cause of action is included in the  insurance  liabilities
       assumed by Zenith in connection with the asset sale.

       The  Company,  in the  normal  course of  business,  is party to  various
       lawsuits  which  management  believes  will  not  materially  affect  the
       financial  position  of the  Company.  Based upon  information  presently
       available,  and in light of legal and  other  defenses  available  to the
       Company,  contingent  liabilities  arising  from  threatened  and pending
       litigation  are not  presently  considered  by management to be material.
       However, no assurance can be given, or may be taken that material adverse
       judgments  will not be  rendered  against  the Company as a result of the
       aforementioned matters.

                                       11
<PAGE>

       Other than as noted above,  no provision  had been made in the  Company's
       financial statements for the above matters at December 31, 1997 and 1996.
       In addition,  certain of the lawsuits and related  legal  expenses may be
       covered under directors and officers'  insurance  coverage  maintained by
       the Company.

       During  February 1998, the FDOI completed an examination of the statutory
       books and records of RIC and RPC as of December  31,  1996.  The FDOI has
       not yet issued a report;  however,  based on the February 5, 1998 closing
       conference with the FDOI  examiners,  the resolution of the impact of the
       matters  raised  by the  FDOI  will  not have a  material  impact  on the
       December 31, 1996 statutory financial statements of RIC and RPC. However,
       because the FDOI has not released the final results of their examination,
       Management   cannot   determine  the  materiality  or  dollar  amount  of
       adjustments,  if  any,  to the  December  31,  1996  statutory  financial
       statements  resulting from the FDOI's 1996  examinations  of RIC and RPC.
       Management  believes  that any  adjustments  arising out of the statutory
       examinations  of  RIC  and  RPC  will  have  no  material  impact  on the
       accompanying GAAP financial statements.

       The Company has historically  met its cash  requirements and financed its
       growth through cash flow generated from  operations and  borrowings.  The
       Company's  primary sources of cash flow from operations were premiums and
       investment  income,  and its cash  requirements  consisted  primarily  of
       payment of losses and loss adjustment expenses,  support of its operating
       activities  including  various  reinsurance  agreements  and managed care
       programs  and   services,   capital   surplus  needs  for  its  insurance
       subsidiaries, and other general and administrative expenses. As discussed
       more fully in Note 5, the Company and  certain of its  subsidiaries  have
       sold   substantially   all  of  their  assets  and  transferred   certain
       liabilities  to  Zenith  in  exchange  for  cash on  April  1,  1998.  In
       connection  with this sale to Zenith,  the Company  and its  subsidiaries
       ceased   substantially  all  of  its  former  business   operations  and,
       accordingly,  after April 1, 1998,  the Company's  primary source of cash
       flow will be generated from investment  income. The Company's future cash
       requirements  will  be  satisfied  through   investment  income  and  the
       liquidation of investments.


(5)    Sale to Zenith Insurance Company

       On June 17, 1997, RISCORP and certain of its subsidiaries entered into an
       Asset Purchase  Agreement for the sale of substantially all of the assets
       and the assumption of certain liabilities of RISCORP and its subsidiaries
       to Zenith in exchange for cash. The Asset Purchase  Agreement was amended
       on June 26, 1997,  July 11, 1997 and March 30,  1998.  On March 26, 1998,
       the Company  held a Special  Meeting of  Shareholders  for the purpose of
       voting  upon the  proposal  to  approve  and  adopt  the  Asset  Purchase
       Agreement.  The  shareholders  approved the Asset  Purchase  Agreement on
       March 26, 1998 and the transaction closed on April 1, 1998.

       In accordance with the Asset Purchase Agreement, on April 2, 1998, Zenith
       transferred  $25.0 million to the Company and an additional $10.0 million
       into  an  interest-bearing  escrow  account  as  payment  of the  initial
       purchase  price.  The  remaining  purchase  price  for the net  assets of
       RISCORP and its  subsidiaries  acquired by Zenith has not been determined
       at this time but will be based on the  difference  between the book value
       of the assets purchased and the book value of the liabilities  assumed by
       Zenith on April 1, 1998, the closing date for this transaction. Within 70
       days of April 1, 1998,  the  Company's  representatives  are  required to
       deliver to Zenith a proposed  business  balance  sheet  representing  the
       audited  statement of Transferred  Assets and Transferred  Liabilities of
       the business (as such terms are defined in the Asset Purchase  Agreement)
       as of the  closing  date.  If Zenith and the Company are able to agree on
       the manner in which  items  should be treated  on the  proposed  business
       balance sheet, the proposed business balance sheet shall become the final
       business  balance  sheet,  with  Zenith to pay,  subject to amounts to be
       deposited in escrow,  any excess in the value of the  Transferred  Assets


                                       12
<PAGE>

       over  the  Transferred  Liabilities  as the  final  purchase  price.  If,
       however,  the  Company  and  Zenith  are unable to agree on the manner in
       which  any  items  should  be  treated  in the  preparation  of the final
       business balance sheet,  such disputed items will be submitted to neutral
       auditors  or  actuaries,   as  appropriate,   for  a  final  and  binding
       determination of such issues. Pursuant to the terms of the Asset Purchase
       Agreement,  Zenith is required to pay the remaining purchase price to the
       Company in cash,  less the amount  required  to be  deposited  in escrow,
       within approximately 135 days from April 1, 1998.

       In accordance with the terms of the Asset Purchase Agreement,  15% of the
       ultimate  purchase price is required to be held in escrow for a period of
       two years  from the  closing  date.  The  escrowed  funds will be used to
       indemnify Zenith against liabilities (other than transferred liabilities)
       it  incurs  as a result of this  transaction  and any  misrepresentation,
       breach or non-fulfillment by the Company of any agreement contemplated in
       the Asset Purchase Agreement. The escrow funds will be invested in United
       States  government  debt  obligations or in money market funds secured by
       such debt obligations. Interest income on the escrowed funds will be paid
       to the Company at the end of each calendar quarter.


(6)    Comprehensive Income

       As of  January  1, 1998,  the  Company  adopted  Statement  of  Financial
       Standards No. 130,  "Reporting  Comprehensive  Income" ("SFAS 130"). This
       Standard   establishes  new  rules  for  the  reporting  and  display  of
       comprehensive  income and its components;  however,  the adoption of this
       standard  had no  impact on the  Company's  net  income or  shareholders'
       equity.  In  addition to certain  other  adjustments,  SFAS 130  requires
       unrealized   gains  or  losses  on  the  Company's   available  for  sale
       securities,   which  prior  to  adoption  were  reported   separately  in
       shareholders'  equity to be included in other  comprehensive  income. The
       components of comprehensive  income, net of related income taxes, for the
       three months ended March 31, 1998 and 1997,  respectively  are as follows
       (in thousands):

                                               1998             1997
                                            ------------     ------------

Net (loss) income                             $  (4,134)      $   1,479
   Unrealized (losses) gains on securities          (44)         (1,555)
                                            -----------       ---------

Comprehensive loss                            $  (4,178)       $    (76)
                                              =========        =========

(7)Reclassifications

       Certain  amounts  in  the  financial   statements   presented  have  been
       reclassified from amounts  previously  reported in order to be comparable
       between  periods.  These  reclassifications  have no effect on previously
       reported shareholders' equity or net income during the periods involved.


                                       13
<PAGE>




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

Forward-Looking Statements

       This quarterly report on Form 10-Q contains  forward-looking  statements,
       particularly  with respect to the Liquidity and Capital Resources section
       of  Management's  Discussion  and  Analysis of  Financial  Condition  and
       Results  of  Operations.   Additional  written  or  oral  forward-looking
       statements  may be made by the Company from time to time, in filings with
       the Securities and Exchange Commission or otherwise. Such forward-looking
       statements  are within the  meaning of that term in  Sections  27A of the
       Securities  Act of 1933 (the  "Securities  Act") and  Section  21E of the
       Securities Exchange Act of 1934 (the "Exchange Act"). Such statements may
       include, but not be limited to, projections of revenues,  income, losses,
       cash flows, capital expenditures,  plans for future operations, financing
       needs or plans,  plans  relating to products or services of the  Company,
       estimates concerning the effects of litigation or other disputes, as well
       as assumptions to any of the foregoing.

Recent Developments

       Asset Purchase Agreement with Zenith

       See Part 1, Item 1, Notes to Consolidated  Financial  Statements,  Note 5
for further discussion of the Zenith transaction.

       The Phoenix Management Company, Ltd.

       In contemplation of the sale to Zenith, on February 18, 1998, the Company
       entered into a Management Agreement (the "Management Agreement") with The
       Phoenix Management Company, Ltd. ("Phoenix") for the provision of various
       management services to the Company  immediately  following the closing of
       such  transaction,   including   undertaking  the  day-to-day   operating
       responsibilities  of the Company and its  subsidiaries.  Mr. Frederick M.
       Dawson  owns  a  majority   interest  in  Phoenix,   a  Florida   limited
       partnership,  and will control its operations as president of the general
       partner.  Mr. Walter E. Riehemann owns a minority interest in Phoenix and
       will serve as vice president and secretary of the general  partner.  With
       the closing of the asset sale,  the Company and its  subsidiaries  ceased
       substantially all of their former business  operations and no longer have
       any employees;  however, the Management Agreement  specifically  provides
       that Mr.  Dawson will hold the titles of  President  and Chief  Executive
       Officer of the  Company and Mr.  Riehemann  will hold the titles of Chief
       Investment Officer, Treasurer and Secretary of the Company.

       Pursuant to the terms of the Management  Agreement,  Phoenix will be paid
       $100,000 per month,  plus  expenses,  and was granted a restricted  stock
       award for  1,725,000  shares of Class A Common Stock  (subject to certain
       vesting  provisions) in consideration  for its management  services.  The
       Management  Agreement  has an  initial  term of  three  years  commencing
       immediately  following the  consummation  of the sale to Zenith,  and the
       Company  has the right to extend  the term for an  additional  year.  The
       Company paid  Phoenix a retainer of $600,000  immediately  following  the
       consummation  of the sale which will be  applied by Phoenix  against  the
       fees  payable by the  Company  during the final six months of the initial
       term. The restricted  stock grant will vest monthly over the initial term
       of the Management  Agreement,  and Phoenix will be entitled to all rights
       applicable  to holders of shares of Class A Common  Stock with respect to
       all such shares from the date of grant including, without



                                       14
<PAGE>

       limitation,  the right to receive any dividends or distributions  payable
       on the  restricted  stock.  Pursuant  to  the  terms  of  the  Management
       Agreement,  the Company will pay Phoenix an amount which, on an after-tax
       basis, is sufficient to reimburse the partners of the Management  Company
       for all taxes  (exclusive of state taxes) incurred in connection with the
       Section 83(b) election which was filed with respect to such grant.  It is
       currently   anticipated   that  the  amount  of  this   payment  will  be
       approximately  $2,900,000,  payable in installments as the taxes are due.
       In the event the Management  Agreement is terminated by the Company prior
       to  the   expiration  of  its  initial  term  due  to  (i)  the  complete
       liquidation,  dissolution  and  winding  up of all of  the  business  and
       affairs  of  the  Company  including,   without  limitation,   the  final
       distribution  to all  shareholders  of the  Company,  or (ii)  the  final
       distribution  to the holders of the Class A Common  Stock of the Company,
       the vesting under the restricted stock grant will accelerate  immediately
       prior to such  event  and the  Company  will make a lump sum  payment  to
       Phoenix equal to the unpaid  balance of the amount it would have received
       in monthly  management  fees  during the initial  term of the  Management
       Agreement.

    Other Events That Have Impacted the Company During the First Quarter of 1998

       The unfavorable publicity related to the inability of the Company and its
       subsidiaries to file timely  financial  statements,  the delisting of the
       Company's stock, the pending litigation and subsequent indictments,  A.M.
       Best's letter  rating,  and delays in  completion  of the Company's  1996
       audit negatively  impacted the Company's  ability to retain customers and
       add new  business  prior to the sale to Zenith.  The  overall  effects of
       these  and  other  factors  are  discussed  in more  detail  below in the
       "Results of Operations".

       Legal Developments

       See "Part II, Item 1, Legal Proceedings."

Overview

       General

       Prior to 1996, the Company's at-risk  operations were focused in Florida.
       During 1996,  the Company  acquired  RNIC and its 19 licenses and assumed
       business  from  several self  insurance  funds  outside of Florida  which
       allowed the Company to diversify its at-risk operations outside the state
       of Florida. A comparison of the Company's direct written premiums for the
       three months ended March 31, 1998 and the  calendar  year ended  December
       31, 1997, 1996 and 1995 (prior to reinsurance cessions or assumptions) by
       state is presented below:

                                      Direct Premiums Written (a)
(Dollars in millions)   1998          1997           1996          1995

Florida                $ 29.2       $ 180.8        $ 270.8       $ 284.8
Alabama                   4.1          39.1           21.7            --
North Carolina            4.4          32.2           41.4            --
Other                     1.0          28.4           22.8            --
                      -------     ---------      ---------      --------
Total                  $ 38.7       $ 280.5        $ 356.7       $ 284.8
                       ======       =======        =======       =======

  (a)  Includes  RIC,  RPC and RNIC for 1996,  RIC and RPC for 1995.




                                       15
<PAGE>




       Direct  written  premiums were reduced by specific  reinsurance  cessions
       (1996 and 1995),  the 50 percent AmRe quota share  reinsurance  agreement
       for the Company's Florida workers'  compensation business (1996 and 1995)
       and the 65 percent quota share reinsurance  agreement  (effective October
       1, 1996), with another reinsurer for certain non-Florida  business.  This
       quota share  reinsurance  agreement  was reduced to 60 percent  effective
       January 1, 1997 and was  cancelled  on a run-off  basis on  December  31,
       1997.

       The majority of the Company's  premiums  have been written in Florida,  a
       regulated  pricing state where premiums for guaranteed  cost products are
       based on state-approved rates. However,  prior to the sale to Zenith, the
       Company also offered policies which were subject to premium reductions as
       high  deductible  plans,  participating  dividend  plans,  or other  loss
       sensitive plans.  Pricing for these plans tended to be more competitively
       based, and the Company experienced  increased competition during 1997 and
       1998 in pricing these plans.  In addition,  in October 1996,  the Florida
       Insurance  Commissioner ordered workers' compensation providers to reduce
       rates by an average of 11.2 percent for new and renewal  policies written
       on or after  January 1, 1997.  Concurrently,  with the premium  reduction
       effective  January 1, 1997, the 10 percent managed care credit was phased
       out. This credit had been offered since 1994 to employers who met certain
       criteria for participating in a qualified workers'  compensation  managed
       care  arrangement.  In  addition,  on October 9,  1997,  Florida  further
       reduced premium rates by 1.7 percent for new and renewal policies written
       on or after January 1, 1998. The State of North Carolina approved a 13.7%
       decrease in loss costs  effective  April 1, 1997. The Company adopted the
       loss costs in October 1997,  which resulted in an overall  effective rate
       reduction of 8.4%.

       The Company  experienced  increased pricing pressures during 1997. During
       1997,  the Company made the  strategic  decision to  discontinue  writing
       business owners' protection, commercial multiple peril and auto and focus
       on its core workers' compensation business. Net written premiums on these
       lines of business  were less than $1.0 million  during 1997 and were less
       than $0.5 million in 1996.

          In addition, in June 1997, the Company implemented a strategic plan to
       consolidate  several of its field  offices and announced its intention to
       close all field offices,  except Charlotte and Birmingham,  by the end of
       1997,  and to cease  writing  new  business in certain  states  including
       Oklahoma,  Virginia,  Missouri,  Mississippi,  Louisiana and Kansas.  The
       estimated impact of the decision to discontinue writing business in these
       states was a reduction of approximately  $16.0 million in direct premiums
       written.

       The Company  attempted  to lower  claims  costs by applying  managed care
       techniques and programs to workers' compensation claims,  particularly by
       providing prompt medical intervention,  integrating claims management and
       customer  service,  directing care of injured employees through a managed
       care provider network,  and availing itself of potential recoveries under
       subrogation and other programs.

       Part of the Company's claims management philosophy was to seek recoveries
       for claims which were reinsured or which could be subrogated or submitted
       for reimbursement  under various states' recovery programs.  As a result,
       the  Company's  losses  and  loss  adjustment  expenses  were  offset  by
       estimated  recoveries from  reinsurers  under specific excess of loss and
       quota share  reinsurance  agreements,  subrogation from third parties and
       state "second disability" funds, including the Florida Special Disability
       Trust Fund ("SDTF").




                                       16
<PAGE>





Results of Operations

       Three months ended March 31, 1998 compared to three months
       ended March 31, 1997

       The following table shows direct,  assumed, ceded and net earned premiums
by quarter for 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>

                                                                       Three Months Ended
                                          ------------------------------------------------------------------------------

                                            3-31-98         3-31-97          6-30-97         9-30-97         12-31-97
                                          ------------    -------------    ------------    -------------    ------------

<S>                                         <C>              <C>              <C>             <C>              <C>     
         Direct premiums earned             $ 46,222         $ 91,516         $ 91,761        $ 77,169         $ 67,800
         Assumed premiums earned                  79            2,827            2,064           1,118           12,500
         Premiums ceded to reinsurers        (22,676)         (47,529)         (47,173)        (37,870)         (34,700)
                                           ----------       ---------        ---------       ---------        ---------

         Net premiums earned                $ 23,625         $ 46,814         $ 46,652        $ 40,417         $ 45,600
                                            ========         ========         ========        ========         ========

</TABLE>

       The number of inforce policies were:

       Quarter Ended                           1996        1997        1998
  
       March 31                               22,777      30,141     18,145
       June 30                                26,002      29,602        N/A
       September 30                           28,772      25,649        N/A
       December 31                            30,081      22,357        N/A

       Direct  premiums  earned  decreased to $46.2 million for the three months
       ended  March 31, 1998 from $91.5  million for the same period in 1997,  a
       net decrease of $45.3 million.  Direct earned premiums have been steadily
       decreasing since June 1997.

       The  decrease in direct  earned  premiums for the last six months of 1997
       and the first  quarter of 1998 was  primarily  due to the decrease in new
       and renewal  premiums that the Company  experienced in the second,  third
       and fourth quarters of 1997 from the adverse publicity  pertaining to the
       A.M. Best ratings of the Company's insurance subsidiaries,  the Company's
       inability  to file its 1996  Form  10-K,  1997  10-Q's  and 1996  audited
       statutory  financial  statements in a timely manner, and the delisting of
       the Company's stock by NASDAQ.

       Direct  premiums  earned  increased to $91.5 million for the three months
       ended  March 31, 1997 from $74.6  million for the same period in 1996,  a
       net increase of $16.9 million. The increase in the direct premiums earned
       for the three months ended March 31, 1997 was primarily the result of the
       following factors:

                   The infusion of  approximately  $68.9 million of capital into
                  the  Company's  insurance  subsidiaries  from the IPO proceeds
                  allowed the insurance  subsidiaries  to increase their premium
                  writing  capacity  and,  as a result,  the Company was able to
                  increase  premiums  during the last nine months of 1996 due to
                  its expanded  premium writing  capabilities.  Written premiums
                  are earned pro rata over the policy period (usually 12 months)
                  therefore,  increased  premiums  written  during the last nine
                  months of 1996 will have a positive  impact on earned premiums
                  in 1996 and 1997.

                                       17
<PAGE>

                   Written  premiums  increased in the third and fourth quarters
                  of 1996 and the  first  quarter  of 1997  from the  assumption
                  reinsurance and loss portfolio  agreements entered into by the
                  Company and from the  acquisitions  made by the Company during
                  1996.

                   Enhanced  marketing  initiatives  implemented  by the Company
                  after the IPO to increase  the number of policies and to write
                  accounts with larger premiums.

       In September  1995,  the Company  entered into a fronting  agreement with
       another  insurer which enabled the Company to begin expansion into states
       where  its  insurance   subsidiaries  were  not  licensed.  The  fronting
       agreement was cancelled  effective December 31, 1997. The cancellation of
       the fronting  agreement was the primary reason that the assumed  premiums
       decreased  to $79 from $2,827 for the three  months  ended March 31, 1998
       from the same period in 1997.  The  increase in assumed  premiums  earned
       during the fourth  quarter of 1997 from  previous  quarters was primarily
       the result of the Company recording $11.4 million of earned premiums from
       the  National  Council on  Compensation  Insurance,  Inc.  ("NCCI")  pool
       participation. The assumed premiums from the fronting agreement increased
       from  approximately  $1.1 million at March 31, 1996 to approximately $2.3
       million at March 31, 1997,  which primarily  accounts for the increase in
       assumed premiums of approximately $1.4 million during this period.

       For the years  ended  December  31,  1997 and  1996,  the  Company  ceded
       approximately  50 percent of its  Florida  premiums to AmRe under a quota
       share  reinsurance  agreement  and 60 percent of the business  written by
       RNIC under a separate quota share agreement (65 percent during 1996) with
       Chartwell.  The  Company  terminated  the  agreement  with  Chartwell  at
       December 31, 1997;  however,  the reinsurer continues to receive premiums
       and to be  responsible  for  their  portion  of all  losses  incurred  on
       policies  effective  before the  termination  date. The decrease in ceded
       premiums to $22.7  million for the three months ended March 31, 1998 from
       $47.5  million  for the same  period  in 1996,  a net  decrease  of $24.8
       million,  was due  primarily  to the decrease in direct  premiums  earned
       discussed  above.  The increase in premiums  ceded in 1997 was  primarily
       related to the increase in direct premiums earned.

       Fee income for the three  months  ended March 31,  1998 was $5.2  million
       compared to $5.1  million for the same period in 1997,  a net increase of
       $0.1 million.  The amount and  composition  of fee income was  comparable
       between periods. Fee income for the three months ended March 31, 1997 was
       $5.1 million  compared to $7.1 million for the same period in 1996, a net
       decrease  of $2.0  million.  The  decrease  between  1996  and  1997  was
       primarily due to the loss of service fees from the conversion of the NARM
       self  insurance   funds  of  North  Carolina  and  Virginia  (which  were
       previously managed by the Company) to at-risk business via loss portfolio
       transfers and decreases in RWI service fee income from the termination of
       RWI's  Mississippi and Louisiana service  contracts.  The decrease in fee
       income was partially  offset by new fees  generated  from the  CompSource
       acquisition, the fronting agreement, the new service agreement with Third
       Coast Insurance Company and growth in other existing fee products.

       Net  realized  gains for the three  months  ended March 31, 1998 was $1.5
       million  compared  to $0 for the same  period in 1997.  The net  realized
       gains  consist  primarily  of the $1.3  million gain on the sale of Third
       Coast,  more  fully  discussed  in Note 2 of the  consolidated  financial
       statements  contained in this document,  and $0.2 million in gains on the
       sale of available for sale  securities.  There were no realized  gains or
       losses during the first quarter of 1997.

       Net investment  income for the three months ended March 31, 1998 was $3.3
       million  compared  to $3.9  million  for the same  period in 1997,  a net
       decrease of $0.6 million.  The decline in investment  income was due to a
       decline in invested assets of  approximately  $30.0 million for the three
       month  period  ended March 31, 1998  compared to the same period in 1997.


                                       18
<PAGE>

       Net investment  income for the three months ended March 31, 1997 was $3.9
       million  compared  to $1.6  million  for the same  period in 1996,  a net
       increase of $2.3 million. Investment income consists entirely of earnings
       from the investment  portfolio,  excluding realized gains and losses. The
       actual yield on invested assets is comparable between quarters.

       The  decrease in accounts  payable  and other  accrued  expenses of $24.6
       million in the first  quarter of 1998 was due primarily to the payment of
       $3.6  million of accounts  payable and accrued  expenses,  the payment of
       $1.6 million of federal income taxes,  the transfer of security  deposits
       of $2.9  million to premiums  receivable,  the payment of $6.2 million of
       accrued  commissions,  the  payment of $1.7  million  of accrued  premium
       taxes,  a decrease  in the FPA accrual of $1.2  million,  payment of $7.6
       million of reinsurance  balances and an increase in various other accrual
       balances of $0.2  million.  The decrease in the invested  assets of $22.3
       million  during the first  quarter of 1998 was  caused  primarily  by the
       liquidation of investments to pay these items.

       The decrease in premiums  receivables  of $10.8 million  during the first
       quarter of 1998 was  primarily due to the  significant  decline in direct
       written premiums as discussed above.

       Losses and loss adjustment  expenses for the three months ended March 31,
       1998 were $20.2 million  compared to $32.5 million for the same period in
       1997, a net decrease of $12.3  million.  The $12.3  million  decrease was
       primarily due to a  significant  decrease in earned  premiums  during the
       first  quarter  combined  with reserve  increases of  approximately  $4.2
       million.  Losses and loss adjustment  expenses for the three months ended
       March 31, 1997, were $32.5 million compared to $24.4 million for the same
       period in 1996, a net increase of $8.1 million. The $8.1 million increase
       was primarily due to loss portfolio  transfers and writings in new states
       licensed  through RNIC,  as well as growth in the Company's  core Florida
       operations.

       The loss ratio for the three months  ended March 31, 1998,  1997 and 1996
       was 85.5  percent,  69.5  percent  and 63.5  percent,  respectively.  The
       increase  in the 1998  loss  ratio of 16  percent  was due  primarily  to
       adverse loss  development  in 1997 and prior  accident years from certain
       business written in Florida of approximately $2.15 million,  adverse loss
       development in Alabama and North Carolina of  approximately  $0.9 million
       and adverse loss  development of $1.2 million in business written by RNIC
       and RPC in several  smaller  states.  The increase in the 1997 loss ratio
       was due to adverse loss development in 1996 and prior accident years from
       certain  business  written  in  Alabama of  approximately  $4.0  million,
       adverse  loss  development  of  approximately  $1.8  million  in  certain
       business  written by RNIC in several smaller  states,  and favorable loss
       development of $2.5 million from business written in North Carolina.

       Unallocated loss adjustment expenses for the three months ended March 31,
       1998 were $2.2  million  compared to $4.0  million for the same period in
       1997, a net decrease of $1.8 million. The decrease was primarily due to a
       significant  decrease  in premium  volume.  Unallocated  loss  adjustment
       expenses for the three  months  ended March 31,  1997,  were $4.0 million
       compared to $2.8  million for the same period in 1996,  a net increase of
       $1.2 million.  This  increase was primarily due to the increased  premium
       volume and increased loss reserves  during this period.  The  unallocated
       loss adjustment  expense ratio for the three months ended March 31, 1998,
       1997 and 1996 was 9.4 percent, 8.5 percent and 7.3 percent, respectively.
       The 9.4 percent ratio at March 31, 1998 is comparable to the December 31,
       1997 year to date ratio of 10.7 percent.  The 1.2 percent increase in the
       1997 ratio was primarily due to increased personnel and personnel related
       costs.

       Commissions,  general and  administrative  expenses  for the three months
       ended March 31, 1998 were $11.8 million compared to $14.4 million for the
       same period in 1997.  The net  decrease of $2.6 million from 1997 to 1998


                                       19
<PAGE>

       was  primarily  attributable  to a $4.3  million  decrease  in  personnel
       expenses, a $3.6 million increase in legal and consulting expenses, and a
       $1.9  million  decrease  in premium  taxes,  agents  commissions,  ceding
       commission income and underwriting  expenses.  Commissions,  underwriting
       and  administrative  expenses  for the three  months ended March 31, 1997
       were $14.4 million compared to $13.0 million for the same period in 1996.
       The net increase of $1.4 million  from 1996 to 1997 was  attributable  to
       increases in commissions  and personnel  costs caused by higher  premiums
       generated from acquisitions and new and renewal premium growth, increased
       operating  expenses from the addition of employees to support the premium
       growth and increases in legal  expenses  from actions  initiated in 1996.
       The net increase in those  expenses  were  partially  offset by increased
       ceding  commission  income of $4.0 million received from reinsurers under
       the quota share  reinsurance  agreements.  The Company's  total employees
       were 561, 820 and 739 at March 31, 1998, 1997 and 1996, respectively.

       Interest  expense  for the three  months  ended  March 31,  1998 was $0.5
       million  compared to $0.5 million for the same period in 1997. The amount
       and  composition of  outstanding  debt was also  comparable  during these
       periods.  Interest  expense for the three months ended March 31, 1997 was
       $0.5 million  compared to $1.1  million for the same period in 1996.  The
       decrease was due to the repayment of approximately  $28.6 million of debt
       in March 1996 using the proceeds from the initial public offering.

       Depreciation  and  amortization  expense for the three months ended March
       31, 1998 was $3.1 million compared to $1.9 million for the same period in
       1997,  a net  increase  of  $1.2  million.  The  increase  was due to the
       issuance  of the  additional  stock  during  the  first  quarter  of 1998
       relating  to  the  IAA   acquisition   of  $0.6  million  and   increased
       depreciation  expense  of $0.6  million.  Depreciation  and  amortization
       expense  for the three  months  ended  March 31,  1997 were $1.9  million
       compared to $1.0  million for the same period in 1996,  a net increase of
       $0.9 million.  The increase was primarily the result of  amortization  of
       goodwill  related to the  acquisitions of CompSource and IAA in 1996, and
       additions to property and equipment  during 1996 necessary to support the
       Company's growth.  This increase in depreciation and amortization in 1997
       was  partially  offset by the  reduction  in  recurring  amortization  of
       goodwill from a $3.0 million  writedown of goodwill  associated  with RWI
       and a  $2.8  million  writedown  of  goodwill  associated  with  the  IAA
       acquisition in the fourth quarter of 1996.

       The  effective  tax rate for the three  months ended March 31, 1998 was 0
       percent compared to 40.6 percent for the same period in 1997. The decline
       in the tax rate was  primarily due to the  Company's  uncertainty  of its
       ability to recover the tax benefit pertaining to the March 31, 1998 loss.
       The effective tax rate for the three months ended March 31, 1997 was 40.6
       percent  compared  to 36.8  percent  for the same  period  in  1996.  The
       increase  in the  tax  rate is  principally  due to the  increase  in the
       amortization of goodwill, which is non-deductible for tax purposes.

       The  weighted  average  common  shares  outstanding  for the three months
       ending  March 31, 1998 was  36,868,114  versus  37,775,562  for the three
       months ending March 31, 1997. The decrease in the weighted average number
       of shares was due  primarily  to the  inclusion  of certain  common stock
       equivalents  for stock  options at March 31, 1997 that were  cancelled in
       October  1997 and no longer  included  at March 31,  1998.  The  weighted
       average common shares  outstanding  for the three months ending March 31,
       1997 was 37,775,562  versus  32,536,343 for the three months ending March
       31, 1996.  The increase in the weighted  average number of shares was due
       primarily to the inclusion of the shares  issued in  connection  with the
       February  29,  1996 IPO for the entire  first  quarter of 1997 versus the
       inclusion of shares issued in connection  with the IPO for only one month
       for the first quarter of 1996,  and the  inclusion of certain  contingent
       shares  reserved  for issuance in  connection  with the  acquisitions  of
       CompSource and IAA, as more fully discussed in Note 3 of the consolidated
       financial  statements  included  in  this  document.   The  increase  was
       partially  offset by a decrease in common  stock  equivalents  for option
       shares assumed to be exercised.

                                       20
<PAGE>

       Liquidity and Capital Resources

       The Company has historically  met its cash  requirements and financed its
       growth through cash flow generated from  operations and  borrowings.  The
       Company's  primary sources of cash flow from operations were premiums and
       investment  income,  and its cash  requirements  consisted  primarily  of
       payment of losses and loss adjustment expenses,  support of its operating
       activities  including  various  reinsurance  agreements  and managed care
       programs  and   services,   capital   surplus  needs  for  its  insurance
       subsidiaries, and other general and administrative expenses. As discussed
       more fully in Note 5, the Company and  certain of its  subsidiaries  have
       sold   substantially   all  of  their  assets  and  transferred   certain
       liabilities  to  Zenith  in  exchange  for  cash on  April  1,  1998.  In
       connection  with this sale to Zenith,  the Company  and its  subsidiaries
       ceased   substantially  all  of  its  former  business   operations  and,
       accordingly,  after April 1, 1998,  the Company's  primary source of cash
       flow will be generated from investment  income. The Company's future cash
       requirements  will  be  satisfied  through   investment  income  and  the
       liquidation of investments.

       Cash flow from  operations  for the quarter  ended March 31, 1998 and for
       the years ended December 31, 1997 and 1996 was $(21.6)  million,  $(22.9)
       million and $28.1  million,  respectively.  The decrease  from January 1,
       1998 to March  31,  1998 was due  primarily  to  reductions  in  unearned
       premiums  resulting  from a  decrease  in  direct  premiums  written  and
       increases  in  losses  and loss  adjustment  expenses,  unallocated  loss
       adjustment  expenses and  commissions,  underwriting  and  administration
       expenses in relation to premiums earned during the first quarter of 1998.
       The  increase  from  1996 to 1997  was  primarily  due to  reductions  in
       unearned  premiums  and  loss  and  loss  adjustment   expense  reserves
       resulting  from a  decrease  in  direct  premiums  written,  as  well  as
       increases  in  commissions,   general  and  administration  expenses  and
       unallocated loss adjustment expenses.

       The Company has projected cash flows through  September 1998 and believes
       it  has  sufficient  liquidity  and  capital  resources  to  support  its
       operations.

       At March 31, 1998,  the Company had recorded $43.9 million in accrued net
       recoverables  from the SDTF, which it anticipates will be reimbursed over
       a number of years. During the first quarter of 1998, the Company received
       net payments from the SDTF  totaling  $0.9  million.  For the years ended
       December 31, 1997, 1996 and 1995, the Company  received net payments from
       the  SDTF  totaling   $5.9  million,   $2.5  million  and  $0.9  million,
       respectively.

     Barring any adverse  legislative  change, the Company believes that it will
     ultimately  collect  the  entire  balance  of SDTF  recoverables  and  that
     periodic  reimbursement will be received  following  submission of proof of
     claim and reimbursement  requests.  During its approximate 40-year history,
     the SDTF  has  historically  paid  reimbursement  requests  for  claims  it
     determined  were eligible for  reimbursement.  The Company does not believe
     that  the  SDTF  will  fail  to  meet  its   obligations  to  pay  eligible
     reimbursement requests,  although there can be no assurance in this regard.
     The failure of the SDTF to meet its obligations  could adversely affect the
     liquidity of the Company.




                                       21
<PAGE>





       As of March 31, 1998 and 1997, the Company's  insurance  subsidiaries had
       combined  statutory  capital  and  surplus  of $101.4  million  and $88.0
       million,  respectively. The individual capital and surplus of each of the
       Company's insurance  subsidiaries  exceeded the minimum statutory capital
       and surplus required by their state of domicile.

       In addition,  the liquidity of the Company could be adversely affected by
       certain legal issues and the final payment of the ultimate purchase price
       to be paid by Zenith. See "Legal Proceedings" and "Recent Developments."

       The  National   Association  of  Insurance   Commissioners   has  adopted
       risk-based capital standards to determine the capital  requirements of an
       insurance  carrier based upon the risks inherent in its  operations.  The
       standards,  which  have not yet been  adopted  in  Florida,  require  the
       computation  of a risk-based  capital  amount which is then compared to a
       carrier's  actual  total  adjusted  capital.   The  computation  involves
       applying factors to various financial data to address four primary risks:
       asset risk,  insurance  underwriting  risk,  credit risk, and off-balance
       sheet risk. These standards provide for regulatory  intervention when the
       percentage  of  total  adjusted  capital  to  authorized   control  level
       risk-based  capital is below certain  levels.  At December 31, 1997,  the
       Company's insurance  subsidiaries' statutory surplus was in excess of any
       risk-based capital action level requirements.


Part II    Other Information

Item 1.    Legal Proceedings

       Between  November 20, 1996 and January 31, 1997, nine  shareholder  class
       action lawsuits were filed against RISCORP,  Inc. and other defendants in
       the United States  District Court for the Middle District of Florida (the
       "Securities  Litigation").  In March 1997, the court  consolidated  these
       lawsuits  and  appointed  co-lead  plaintiffs  and co-lead  counsel.  The
       plaintiffs subsequently filed a consolidated complaint.  The consolidated
       complaint  named as  defendants  RISCORP,  Inc.,  three of its  executive
       officers,  one  non-officer  director and three of the  underwriters  for
       RISCORP,   Inc.'s  initial  public   offering.   The  plaintiffs  in  the
       consolidated complaint purport to represent the class of shareholders who
       purchased  RISCORP,  Inc. Class A Common Stock between  February 28, 1996
       and November 14, 1996. The consolidated  complaint  alleges that RISCORP,
       Inc.'s  Registration  Statement  and  Prospectus of February 28, 1996, as
       well as subsequent statements,  contained false and misleading statements
       of material fact and omissions, in violation of sections 11 and 15 of the
       Securities  Act and sections 10(b) and 20(a) of the Exchange Act and Rule
       10b-5   promulgated   thereunder.   The   consolidated   complaint  seeks
       unspecified  compensatory  damages.  Pursuant to court ordered mediation,
       counsel  for the  parties  have  engaged in  discussions  in an effort to
       resolve the Securities  Litigation.  On January 14, 1998, counsel for the
       Company,  counsel for William D.  Griffin and counsel for the  plaintiffs
       reached  an oral  agreement  on terms to  recommend  to their  clients to
       settle  this  litigation.  This  agreement  was  confirmed  in a  written
       Memorandum  of  Understanding  executed  by  counsel  for the  respective
       parties as of April 29, 1998. The proposed  settlement is contingent upon
       the  following:  execution  of  a  definitive  settlement  agreement  and
       implementing  pleadings  and  other  documentation;  consummation  of the
       transactions   contemplated  by  the  Purchase   Agreement  with  Zenith;
       disclosure of certain documents to plaintiff's  counsel and interviews by
       them  of  various  individuals  to  verify  information  relating  to the
       settlement;  certification  of a settlement  class;  satisfaction  of all
       requirements  for settlement  under Rule 23 of the Federal Rules of Civil
       Procedures;  payment by RISCORP of $21.0  million into a settlement  fund
       for the benefit of the  settlement  class;  and release by members of the
       settlement  class of all claims  against the  defendants.  Counsel to the


                                       22
<PAGE>

       parties  are  in  the  process  of  finalizing  the  initial   settlement
       documents.  Under  Rule  23,  the  settlement  will  require  preliminary
       approval by the court as to the fairness of the terms of the  settlement,
       notice to the settlement  class and an opportunity to object to the terms
       of the settlement or to exclude themselves from the settlement class, and
       final  approval by the court  following a hearing on the  fairness of the
       settlement.

       The Company  estimates  that $8.0 million of insurance  proceeds  will be
       available for contribution to the settlement  amount,  as well as related
       costs and expenses.  The Company  recognized  the $21.0 million  proposed
       settlement  and the related  insurance  proceeds in the December 31, 1997
       financial statements. Given the preliminary nature of this settlement and
       the various contingencies  relating to its consummation,  there can be no
       assurance that this litigation will be ultimately settled on this basis.

       In April  1996,  RISCORP  Insurance  Company  and  certain  officers  and
       directors were named as defendants in a purported class action suit filed
       in the United States District Court for the Southern  District of Florida
       (the "Vero Cricket  Litigation").  In this action, the plaintiffs claimed
       that  the  defendants  violated  the  Racketeer  Influenced  and  Corrupt
       Organizations Act ("RICO"),  breached fiduciary duties and were negligent
       in  the  Company's  acquisition  of  Commerce  Mutual  Insurance  Company
       ("CMIC") in 1995. The plaintiffs sought compensatory and punitive damages
       and equitable  relief and treble  damages for the RICO counts.  The named
       plaintiffs,  Vero Cricket Shop,  Inc.,  Vero Cricket Shop Too,  Inc., and
       Falls Company of Longboat Key, Inc.,  claimed to be former  policyholders
       of CMIC and claimed to represent others similarly situated. In June 1997,
       the  plaintiffs  amended the  complaint to add as  additional  defendants
       Zenith  Insurance  Company and the Florida  Department of Insurance.  The
       plaintiffs seek only equitable relief against the two new defendants.

       On December 5, 1997,  counsel for the  parties  reached an  agreement  to
       recommend to their respective clients a settlement of the claims asserted
       in the Vero Cricket  litigation.  Plaintiff's  counsel has confirmed that
       the terms of the settlement are acceptable to the named  plaintiffs.  The
       Company's  Board of Directors  has approved the terms of the  settlement.
       The settlement is contingent upon preliminary approval by the court as to
       the fairness of the  settlement,  certification  of a  settlement  class,
       notice to the  settlement  class,  opportunity  of the  settlement  class
       members to object and withdraw,  no termination by either party and final
       approval by the court.  The  court's  preliminary  approval  was given on
       April  16,  1998,  and the  Settlement  and  Fairness  Hearing  has  been
       scheduled  for June 22,  1998.  Pursuant  to the terms of the  settlement
       agreement and subject to the satisfaction of the contingencies  discussed
       above,  RISCORP Insurance Company will pay to the plaintiffs a settlement
       amount  of  $475,000.  The  Company  estimates  that  75  percent  of the
       settlement  amount will be covered by insurance.  The Company  recognized
       the  $475,000  settlement  and  the  related  insurance  proceeds  in the
       accompanying financial statements as of December 31, 1997.

       On September 18, 1997, the United States  Attorney's office in Pensacola,
       Florida  announced that a United States grand jury had indicted  RISCORP,
       Inc., RISCORP Management  Services,  Inc. (a wholly owned,  non-regulated
       subsidiary of RISCORP, Inc.) and five former officers,  including William
       D.  Griffin,  Founder  and  Chairman of the Board,  for  various  charges
       stemming  from  alleged  illegal  political  campaign  contributions.  On
       September 18, 1997, the Board of Directors  approved a guilty plea by RMS
       to a single count of conspiracy to commit mail fraud. The guilty plea was
       entered  by RMS  and  accepted  by the  court  on  October  9,  1997.  No
       sentencing  date  for RMS has  been  set.  As a  result  of an  agreement
       negotiated  with the United  States  Attorney,  the court  dismissed  the
       indictment  against  RISCORP,  Inc.  on the same  day.  Mr.  Griffin  has
       resigned  from the  Board  of  Directors  of the  Company  and all  other
       positions  with the  Company.  RMS  agreed to cease to operate as a third
       party administrator  effective October 31, 1997. As of December 31, 1996,
       RMS recorded  $1.0 million for the  estimated  fines and costs related to
       this matter.  On February 18, 1998, a second  superseding  indictment was
       issued against the five former officers  including Mr.  Griffin.  Neither


                                       23
<PAGE>

       the Company nor any of its  subsidiaries  were named as defendants in the
       second indictment.  The charges asserted in the second  indictment,  like
       those in the  first  indictment,  stem  from  alleged  illegal  political
       campaign contributions.

       On July 17,  1997,  plaintiffs  Thomas K.  Albrecht  and Peter D.  Norman
       filed,  in the Circuit Court of  Montgomery  County,  Alabama,  an action
       against the  Company,  Mr.  William D.  Griffin and several  other former
       officers of the Company. The suit alleged violations of federal and state
       securities laws,  common law fraud and breach of contract  resulting from
       the purchase by the Company of shares of IAA from  Albrecht and Norman in
       1996, as described above. The plaintiffs sought compensatory and punitive
       damages and equitable relief.  On or about December 2, 1997,  counsel for
       the Company and counsel for  plaintiffs  negotiated a settlement  of this
       action.  Settlement  documents  have been  approved  and  executed by all
       parties.  As part of the  settlement  agreement,  the  Company  paid $2.0
       million to plaintiffs,  RISCORP, Inc. advanced $2.3 million to plaintiffs
       against an anticipated  final  distribution to shareholders  and RISCORP,
       Inc.  accelerated a distribution of 790,336  additional shares of Class A
       Common Stock to the plaintiffs.  Such shares were contemplated  under the
       terms of the  Agreement  and Plan of Merger  by and  among  the  Company,
       RISCORP-IAA,  Inc., IAA, Thomas K. Albrecht and Peter D. Norman, dated as
       of  September  17,  1996.  The  Company  estimates  that $2.0  million of
       insurance  proceeds  will be  available  to offset  the total  settlement
       amount as well as related costs and expenses.  The Company recognized the
       $2.0  million  settlement  and  the  related  insurance  proceeds  in the
       accompanying financial statements as of December 31, 1997. As part of the
       settlement  agreement,  the plaintiffs agreed to vote all their shares of
       Class  A  Common  Stock  in  favor  of the  Purchase  Agreement  and  the
       transaction  contemplated  therein.  Plaintiffs  are  record  holders  of
       1,580,672  shares of Class A Common Stock,  and, thus,  these  plaintiffs
       hold 13 percent of the outstanding shares of Class A Common Stock.

       On August 20, 1997,  Occupational  Safety Association of Alabama Workers'
       Compensation  Fund  (the  "Fund")  filed a breach of  contract  and fraud
       action  against the Company and  others.  The Fund is an  association  of
       self-insured  employers  who  agreed  to  transfer,  in a Loss  Portfolio
       Transfer Agreement (the "Agreement") dated August 26, 1996, substantially
       all of its assets and liabilities to the Company. Co-defendant,  Peter D.
       Norman,  was a principal and officer of IAA. The  complaint  alleges that
       Normal and IAA  breached  certain  fiduciary  duties  owed to the Fund in
       connection with the subject agreement and transfer. The complaint alleges
       that the Company has breached  certain  provisions  of the  Agreement and
       owes the Fund monies under the terms of the  Agreement.  The Fund claims,
       per a Loss Portfolio  Evaluation  dated February 26, 1998,  that the Fund
       overpaid   RISCORP  by   approximately   $6.0   million  in  the  subject
       transaction.

       The court has granted  defendant's  Motion to Compel  Arbitration per the
       terms  and  provisions  of  the  Agreement.  The  other  parties  to  the
       litigation  have agreed to attempt to mediate their  disputes on May 28 -
       29, 1998, and have invited the Company to participate in that  mediation.
       Assuming  mediation  fails,  the dispute between the Company and the Fund
       will be resolved through  arbitration.  The Company intends to vigorously
       defend  this  claim,   and  believes  that   application  of  appropriate
       accounting and actuarial  principles and methodologies to the calculation
       at issue may indicate  that monies are instead owed to the Company by the
       Fund.

       On or about  April 13,  1998,  the Fund  filed a Motion  for  Preliminary
       Injunction  which  seeks to enjoin  the  Company  from  distributing  any
       dividends  or  making  any  type  of   distributions   to   shareholders,
       withdrawing any proceeds from the escrow account established with certain
       proceeds  received  from Zenith,  or  dissolving  the  Company.  Although
       somewhat confusing,  the motion appears to be based on the failure of the
       Company to  specifically  identify  this  lawsuit in its proxy  statement
       issued in connection  with the sale to Zenith.  The Company  believes the
       motion to be completely  without merit and will be filing an  appropriate
       response in the near future. The motion was originally set for hearing on
       May 14, 1998, but has been continued.

                                       24
<PAGE>

       In June 1997, the Company  terminated a number of employees in connection
       with the workforce reduction.  As a result of the workforce reduction and
       the  sale  to  Zenith,  a  number  of  former  employees  have  initiated
       proceedings,  including  arbitration,  against  the  Company  for certain
       severance benefits. The Company intends to vigorously defend these suits;
       however,  there  can be no  assurance  that  it  will  prevail  in  these
       proceedings.

       On March 13, 1998,  RIC and RPC were added as  defendants  in a purported
       class action filed in the United District Court for the Southern District
       of Florida,  styled  Bristol Hotel  Management  Corporation,  et. al., v.
       Aetna  Casualty & Surety  Company,  a/k/a Aetna  Group,  et. al. Case No.
       97-2240-CIV-MORENO. The plaintiffs purport to bring this action on behalf
       of  themselves  and a class  consisting  of all employers in the State of
       Florida  who  purchased  or  renewed  retrospectively  rated or  adjusted
       workers'  compensation  policies in the voluntary  market since 1985. The
       suit was originally  filed on July 17, 1997,  against  approximately  174
       workers'   compensation   insurers  as  defendants.   The  complaint  was
       subsequently amended to add the RISCORP defendants. The amended complaint
       named a total of approximately  161 insurer  defendants.  The suit claims
       that the defendant  insurance  companies  violated the Sherman  Antitrust
       Act, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), the
       Florida Antitrust Act and committed breach of contract,  civil conspiracy
       and were  unjustly  enriched by  unlawfully  adding  improper and illegal
       charges  and fees  onto  retrospectively  rated  premiums  and  otherwise
       charging  more for those  policies  than  allowed by law.  The suit seeks
       compensatory and punitive damages, treble damages under the Antitrust and
       RICO claims,  and equitable relief. RIC and RPC have moved to dismiss the
       amended  complaint and the Company has provided  notice to Zenith that it
       believes  this cause of action is included in the  insurance  liabilities
       assumed by Zenith in connection with the asset sale.

       The  Company,  in the  normal  course of  business,  is party to  various
       lawsuits  which  management  believes  will  not  materially  affect  the
       financial  position  of the  Company.  Based upon  information  presently
       available,  and in light of legal and  other  defenses  available  to the
       Company,  contingent  liabilities  arising  from  threatened  and pending
       litigation  are not  presently  considered  by management to be material.
       However, no assurance can be given, or may be taken that material adverse
       judgments  will not be  rendered  against  the Company as a result of the
       aforementioned matters.

       Other than as noted above,  no provision  had been made in the  Company's
       financial statements for the above matters at December 31, 1997 and 1996.
       In addition,  certain of the lawsuits and related  legal  expenses may be
       covered under directors and officers'  insurance  coverage  maintained by
       the Company.

       During  February 1998, the FDOI completed an examination of the statutory
       books and records of RIC and RPC as of December  31,  1996.  The FDOI has
       not yet issued a report;  however,  based on the February 5, 1998 closing
       conference with the FDOI  examiners,  the resolution of the impact of the
       matters  raised  by the  FDOI  will  not have a  material  impact  on the
       December 31, 1996 statutory financial statements of RIC and RPC. However,
       because the FDOI has not released the final results of their examination,
       Management   cannot   determine  the  materiality  or  dollar  amount  of
       adjustments,  if  any,  to the  December  31,  1996  statutory  financial
       statements  resulting from the FDOI's 1996  examinations  of RIC and RPC.
       Management  believes  that any  adjustments  arising out of the statutory
       examinations  of  RIC  and  RPC  will  have  no  material  impact  on the
       accompanying GAAP financial statements.

       The Company has historically  met its cash  requirements and financed its
       growth through cash flow generated from  operations and  borrowings.  The


                                       25
<PAGE>

       Company's  primary sources of cash flow from operations were premiums and
       investment  income,  and its cash  requirements  consisted  primarily  of
       payment of losses and loss adjustment expenses,  support of its operating
       activities  including  various  reinsurance  agreements  and managed care
       programs  and   services,   capital   surplus  needs  for  its  insurance
       subsidiaries, and other general and administrative expenses. As discussed
       more fully in Note 5, the Company and  certain of its  subsidiaries  have
       sold   substantially   all  of  their  assets  and  transferred   certain
       liabilities  to  Zenith  in  exchange  for  cash on  April  1,  1998.  In
       connection  with this sale to Zenith,  the Company  and its  subsidiaries
       ceased   substantially  all  of  its  former  business   operations  and,
       accordingly,  after April 1, 1998,  the Company's  primary source of cash
       flow will be generated from investment  income. The Company's future cash
       requirements  will  be  satisfied  through   investment  income  and  the
       liquidation of investments.

Item 2.    Changes to Securities

       None.

Item 3.Defaults Upon Senior Securities

       None.

Item 4.Submission of Matters to a Vote of Security Holders

       On March 26, 1998, the Company held a Special Meeting of the Shareholders
       of RISCORP,  Inc. to (1) vote upon the  approval and adoption of an Asset
       Purchase Agreement (the "Purchase  Agreement") whereby  substantially all
       of the assets of RISCORP,  Inc. and certain of its subsidiaries  would be
       acquired by Zenith Insurance  Company,  and (2) to vote upon the approval
       for  the  adjournment  or  postponement  of the  Special  Meeting  of the
       Shareholders  if the  Company  failed to receive a  sufficient  number of
       votes to approve the adoption of the Asset Purchase Agreement.

       Pursuant to the Company's  Amended and Restated Article of Incorporation,
       holders of Class B Common  Stock are  entitled to ten votes per share and
       the holders of Class A Common Stock are entitled to one vote per share on
       all matters to be voted on by the shareholders of the Company. There were
       243,344,430  Class B  votes  cast  "for"  proposal  1,  and  proposal  2,
       consisting  of 100  percent of the  outstanding  shares of Class B Common
       Stock.  Holders of the Class A Common  Stock  voted  their  shares as set
       forth below for the proposals.

                            Proposal 1                Proposal 2
                       ----------------      --------------------

     For                     8,307,109                  8,038,491
     Against                   194,812                    460,646
     Abstained                  58,315                     61,099
     Broker non votes        3,563,776                  3,563,776
     Votes withheld            409,659                    409,659
                          ------------               ------------

     Total                  12,533,671                 12,533,671
                            ==========                 ==========

Item 5.    Other Information

       None.


                                       26
<PAGE>


Item 6.Exhibits and Reports on Form 8-K

       a)  Exhibit

            11    Statement Re Computation of Per Share Earnings

            27    Financial Data Schedules

       b)  Reports on Form 8-K

                         The  Company  filed a Form  8-K on  April  15,  1998 in
                    connection  with  the   consummation  of  the   transactions
                    contemplated  in the Asset  Purchase  Agreement  between the
                    Company,  certain  of its  subsidiaries  named  therein  and
                    Zenith Insurance Company, as described more fully in Part 1,
                    Item 1 of this Form 10-Q.

                                       27
<PAGE>




                                   SIGNATURES


Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                  RISCORP, INC.
                  (Registrant)




                  By:      /s/Walter E. Riehemann

                  Walter E. Riehemann
                  Senior Vice President and Secretary

                  Date:    May 15, 1998





                  By:      /s/Edward W. Buttner IV

                  Edward W. Buttner IV, CPA
                  Principal Accounting Officer

                  Date:    May 15, 1998


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