FORM 10-Q/A

                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
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<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                                     7-14


           Item 2.         Management's Discussion and Analysis of Financial                             15-23
                           Condition and Results of Operations


Part II    Other Information

           Item 1.         Legal Proceedings                                                             23-27

           Item 2.         Changes to Securities                                                            27

           Item 3.         Defaults Upon Senior Securities                                                  27

           Item 4.         Submission of Matters to a Vote of Security Holders                              27

           Item 5.         Other Information                                                                28

           Item 6.         Exhibits and Reports on Form 8-K                                                 28

                           Signatures                                                                       29

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                                       2
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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 $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                                                                      15,168                16,858
Cash and cash equivalents-restricted                                                           14,385                13,295
Premiums receivable, net                                                                       83,556               100,183
Accounts receivable--other                                                                     19,278                16,720
Recoverable from Florida Special Disability Trust Fund, net                                    44,552                45,211
Reinsurance recoverables                                                                      213,667               184,251
Prepaid reinsurance premiums                                                                   21,680                29,982
Prepaid managed care fees                                                                       6,182                 8,420
Accrued reinsurance commissions                                                                38,670                37,188
Deferred income taxes                                                                          22,361                22,120
Property and equipment, net                                                                    25,546                26,665
Goodwill                                                                                       14,069                15,286
Other assets                                                                                    6,738                 9,990
                                                                                         ------------         -------------
Total assets                                                                             $    727,037         $     749,650
                                                                                         ============         =============









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





                                       3
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<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                                                  $     461,657       $      437,038
   Unearned premiums                                                                           43,177               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                                                      42,409               65,885
   Net assets in excess of cost of business acquired                                            5,544                5,749
                                                                                              -------              -------
          Total liabilities                                                                   572,227              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                                                                           15,873               25,195
   Treasury stock - at cost, 112,582 shares
                                                                                                   (1)                  (1)
   Accumulated Other Comprehensive Income:
   Net unrealized gains on investments                                                          1,957                2,002
                                                                                             --------             --------      
          Total shareholders' equity                                                          154,810              163,533
                                                                                             --------             --------

          Total liabilities and shareholders' equity                                     $    727,037          $   749,650
                                                                                         ============          ===========











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


                                       4
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<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                                                                 $       25,819          $   46,814
       Fee income                                                                               5,723               5,146
      Net realized gains                                                                        1,461                  --
       Net investment income                                                                    3,306               3,946
                                                                                                -----               -----
          Total revenue
                                                                                               36,309              55,906
                                                                                               ------              ------

   Expenses:
       Losses and loss adjustment expenses                                                     24,016              32,547
       Unallocated loss adjustment expenses                                                     2,561               4,019
       Commissions, underwriting and administrative expenses                                   15,515              14,437
       Interest expense                                                                           469                 482
       Depreciation and amortization                                                            3,069               1,933
                                                                                                -----               -----
          Total expenses
                                                                                               45,630              53,418
                                                                                               ------              ------

   (Loss) Income before income taxes                                                          (9,321)               2,488

   Income taxes
                                                                                                   --               1,009

   Net (loss) income                                                                         $(9,321)             $ 1,479
                                                                                              =======               =====

   Per share data:
      Net (loss) income per common share-basic                                             $   (0.25)             $  0.04
                                                                                                =====                ====

      Net (loss) income per common share-diluted                                            $  (0.25)             $  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
                                                                                          ==========           ==========








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



                                       5
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<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                                                      $  (20,882)       $  (13,557)
                                                                                           ----------        ----------

Cash flows from investing activities:
     Purchase of property and equipment                                                          (693)           (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                                               21,962            20,238
                                                                                          -----------      ------------

Cash flows from financing activities:
     Principal repayments of notes payable                                                        (82)              (59)
     (Decrease) 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                                       (1,090)               --
                                                                                         ------------   ---------------

       Net cash used in financing activities                                                   (2,770)           (2,003)
                                                                                         ------------      ------------

Net (decrease) increase in cash and cash equivalents                                           (1,690)            4,678

Cash and cash equivalents, beginning of period                                                 16,858            26,307
                                                                                          -----------      ------------
Cash and cash equivalents, end of period                                                   $   15,168       $    30,985
                                                                                           ==========       ===========


Supplemental disclosures of cash flow information:

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





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



                                       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 accounted 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 percent  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 Stock valued at $642,148 were issued on January
       9, 1998 to the former  shareholders of IAA. The market value of the stock
       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


                                       8
<PAGE>

       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
       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 ("RIC") 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
       ("FDOI").  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,  RIC will pay to the  plaintiffs a settlement  amount of $475,000.


                                       9
<PAGE>

       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 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.  Sentencing
       has been  scheduled  for August  10,  1998.  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 the  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 the  plaintiffs,  RISCORP,  Inc.  advanced $2.3 million to the
       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.  The 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
       Norman 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 motion was denied on
       June 12, 1998.

       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 RISCORP Property & Casualty  Insurance Company
       ("RPC") were added as defendants in a purported class action filed in the
       United States 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.  Zenith has  provided  the Company  with
       notice that it disputes  this claim.  On April 22,  1998,  pursuant to an
       Omnibus  Administrative  Scheduling Order dated January 23, 1998, RISCORP
       adopted certain motions to dismiss the Amended Complaint filed by various
       other  defendants in this action.  These  motions,  if granted,  would be
       entirely  dispositive of the action. The motions have been fully briefed.
       Plaintiffs have filed a motion for class  certification,  and the parties
       are engaged in discovery.  A hearing has been scheduled for June 30, 1998
       on the class certification issue.  Management intends to contest the case
       vigorously.

       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.


                                       11
<PAGE>

       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
       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 ("Zenith")

       On June 17, 1997, RISCORP,  Inc. 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 (such
       agreement,  as so amended, shall be hereinafter referred to as the "Asset
       Purchase  Agreement").  On March 26, 1998,  RISCORP,  Inc. 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, the transaction closed on
       April 1, 1998 (the "Closing Date") and, on that date,  RISCORP,  Inc. and
       its subsidiaries  (collectively,  "RISCORP") ceased  substantially all of
       its former business operations. Capitalized terms used in these notes and
       not otherwise  defined herein shall have the meanings ascribed to them in
       the Asset Purchase Agreement.

       Not later than 70 days after  April 1,  1998,  RISCORP's  representatives
       were required under the terms of the Asset Purchase  Agreement to deliver
       to Zenith an audited  statement  of  Transferred  Assets and  Transferred
       Liabilities  as of the  Closing  Date  (the  "Proposed  Business  Balance
       Sheet").  RISCORP delivered to Zenith the Proposed Business Balance Sheet
       on June 8, 1998.  If Zenith and  RISCORP  are able to agree in writing on
       the manner in which items  should be treated and the  appropriateness  of


                                       12
<PAGE>

       the  amounts  contained  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  into
       escrow,  any  excess  in the  value of the  Transferred  Assets  over the
       Transferred Liabilities, less the $35.0 million paid on April 2, 1998, as
       the final purchase price.  If, however,  RISCORP 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 Neutral  Actuaries,  as appropriate,
       for a final and binding  determination  of such  issues.  Pursuant to the
       terms of the Asset  Purchase  Agreement,  the  Neutral  Auditors  and the
       Neutral  Actuaries  shall  act  as  experts  and  not as  arbitrators  to
       determine  the  resolution,   based  on  the  Accounting  Principles  and
       Actuarial Principles, as the case may be, of those issues (and only those
       issues) still in dispute.

       In accordance with the Asset Purchase Agreement, on April 2, 1998, Zenith
       transferred $25.0 million to RISCORP and an additional $10.0 million into
       an interest-bearing  escrow account as payment of the initial and minimum
       purchase price. The ultimate purchase price for the net assets of RISCORP
       and its  subsidiaries  acquired  by  Zenith  will be based  on the  Final
       Business Balance Sheet, as determined in accordance with the terms of the
       Asset Purchase Agreement,  subject to the minimum purchase price of $35.0
       million.  Zenith  is  required  to pay the  remaining  purchase  price to
       RISCORP,  plus  interest  thereon of 6.13  percent  from the Closing Date
       through the final  payment  date,  in cash,  less the  additional  amount
       required to be deposited into escrow, not later than 135 days after April
       1, 1998.

       In accordance with the terms of the Asset Purchase Agreement,  15 percent
       of the total purchase price is required to be held in escrow for a period
       of two years from the Closing Date.  The escrowed funds will be disbursed
       pursuant to the terms of the Escrow Agreement. The escrowed 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 RISCORP at the end of each calendar quarter.

       In accordance with a letter  agreement dated April 1, 1998 between Zenith
       and  RISCORP,  RISCORP  has  retained  assets  necessary  for each of its
       insurance  subsidiaries  to  maintain  the  minimum  capital  and surplus
       required  by law to  remain in good  standing  in the  State  where  each
       company is located (the "Definite  Exclusions").  In accordance  with the
       provisions of this letter  agreement,  RISCORP's  insurance  subsidiaries
       retained  marketable  securities with carrying values of $11.4 million as
       of April 1, 1998.

       In  addition,  in the event that  RISCORP is unable to transfer to Zenith
       (i) certain  certificates  of deposit and  securities  held by regulatory
       authorities,  (ii) the stated capital of the selling  entities other than
       the insurance subsidiaries,  or (iii) certain certificates of deposit and
       securities held in trust under certain  reinsurance  agreements  prior to
       the date that Zenith is required to pay the final  purchase  price,  such
       assets,  at Zenith's option and in its sole  discretion,  shall be deemed
       not to be  transferred  to Zenith  (the  "Possible  Exclusions").  If the
       retention  by RISCORP of the Definite  Exclusions  or any of the Possible
       Exclusions results in the value of the Transferred  Liabilities exceeding
       the value of the Transferred Assets, the minimum purchase price specified
       in the Asset Purchase Agreement will be reduced.

       On June  8,  1998,  pursuant  to the  provisions  of the  Asset  Purchase
       Agreement,  RISCORP  delivered  to Zenith the audited  Proposed  Business
       Balance  Sheet  indicating  a  purchase  price  of  approximately  $141.0
       million.  The  determination of the ultimate purchase price is subject to
       review by Zenith of the  Proposed  Business  Balance  Sheet and a dispute
       resolution  process;  therefore,  the  final  purchase  price  cannot  be
       determined at this time and may differ materially from the purchase price
       reflected in the Proposed Business Balance Sheet.

                                       13
<PAGE>


 (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):
<TABLE>
<CAPTION>

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

<S>                                                                           <C>            <C>      
 Net (loss) income                                                            $  (9,321)     $   1,479
 Unrealized (losses) gains on securities available for sale:
    Unrealized holding losses during the period                                    (133)        (1,555)
    Reclassification  adjustment  for realized gains included in
        net earnings
                                                                                     89              -

 Comprehensive loss                                                           $  (9,365)      $    (76)
                                                                              =========       =========
</TABLE>

(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.



                                       14
<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/A 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  controls  its  operations  as president of the general
       partner.  Mr. Walter E. Riehemann owns a minority interest in Phoenix and
       serves 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 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


                                       15
<PAGE>

       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  RISCORP  National  Insurance  Company
       ("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.  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:
<TABLE>
<CAPTION>

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

<S>                                       <C>          <C>            <C>           <C>    
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.
</TABLE>

       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.

                                       16
<PAGE>

       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
       percent  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 percent.

       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,   North  Carolina,   and
       Birmingham,  Alabama,  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").



                                       17
<PAGE>




Results of Operations

       Three months ended March 31, 1998 compared to three months ended
       March 31, 1997
<TABLE>

       The  following  table shows  direct,  assumed,  ceded and net earned
       premiums by quarter for 1998 and 1997 (in thousands):
<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             $ 48,416         $ 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                $ 25,819         $ 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 $48.4 million for the three months
       ended  March 31, 1998 from $91.5  million for the same period in 1997,  a
       net decrease of $43.1 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 initial  public  offering
          ("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.



                                       18
<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 $5.7  million
       compared to $5.1  million for the same period in 1997,  a net increase of
       $0.6  million.  The increase in fee income of $1.4 million was  primarily
       due to the recognition of additional fees related to the profitability of
       the self  insurance  funds under  management.  The remaining  amounts 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 National  Alliance for Risk  Management
       ("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 RISCORP West Incorporated  ("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.

                                       19
<PAGE>

       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.
       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 $23.5
       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
       $2.6 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 $5.9
       million of reinsurance  balances and an increase in various other accrual
       balances of $0.6  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 $16.6 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 $24.0 million  compared to $32.5 million for the same period in
       1997,  a net  decrease of $8.5  million.  The $8.5  million  decrease was
       primarily due to a  significant  decrease in earned  premiums  during the
       first quarter combined with reserve increases. 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 93.0  percent,  69.5  percent  and 63.5  percent,  respectively.  The
       increase  in the 1998 loss ratio of 23.5  percent  was due  primarily  to
       gross  adverse loss  development  in 1997 and prior  accident  years from
       certain business written in Florida of approximately $10.3 million, gross
       favorable loss development in Alabama and North Carolina of approximately
       $2.6  million  and gross  adverse  loss  development  of $0.3  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 $2.6  million  compared to $4.0  million for the same period in
       1997, a net decrease of $1.4 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 9.9 percent, 8.5 percent and 7.3 percent, respectively.
       The 9.9 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.

                                       20
<PAGE>

       Commissions,  general and  administrative  expenses  for the three months
       ended March 31, 1998 were $15.5 million compared to $14.4 million for the
       same period in 1997.  The net  increase of $1.1 million from 1997 to 1998
       was  primarily  attributable  to a $4.3  million  decrease  in  personnel
       expenses, a $4.4 million increase in legal and consulting expenses, and a
       $1.0  million  increase  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


                                       21
<PAGE>

       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.

       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 $(20.9)  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 had projected  cash flows through  December 1998 and believes
       it  has  sufficient  liquidity  and  capital  resources  to  support  its
       operations.

       At March 31, 1998,  the Company has recorded $44.6 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.

       As of March 31, 1998 and 1997, the Company's  insurance  subsidiaries had
       combined statutory capital and surplus of approximately $98.1 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.

                                       22
<PAGE>

       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
       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.

                                       23
<PAGE>

       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 ("RIC") 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
       ("FDOI").  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,  RIC 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.  Sentencing
       has been  scheduled  for August  10,  1998.  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


                                       24
<PAGE>

       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 the  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 the  plaintiffs,  RISCORP,  Inc.  advanced $2.3 million to the
       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.  The 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
       Norman 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.

       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


                                       25
<PAGE>

       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 RISCORP Property & Casualty  Insurance Company
       ("RPC") were added as defendants in a purported class action filed in the
       United States 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.  Zenith has  provided  the Company  with
       notice that it disputes  this claim.  On April 22,  1998,  pursuant to an
       Omnibus  Administrative  Scheduling Order dated January 23, 1998, RISCORP
       adopted certain motions to dismiss the Amended Complaint filed by various
       other  defendants in this action.  These  motions,  if granted,  would be
       entirely  dispositive of the action. The motions have been fully briefed.
       Plaintiffs have filed a motion for class  certification,  and the parties
       are engaged in discovery.  A hearing has been scheduled for June 30, 1998
       on the class certification issue.  Management intends to contest the case
       vigorously.

       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


                                       26
<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.
<TABLE>
<CAPTION>

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

<S>                                            <C>                        <C>      
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
                                              ==========                 ==========
</TABLE>

Item 5.    Other Information

       None.

Item 6.Exhibits and Reports on Form 8-K

       a)  Exhibit

            11    Statement Re Computation of Per Share Earnings

                                       27
<PAGE>

            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.




                                       28
<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:    June 15, 1998





                  By:    /s/Edward W. Buttner, IV

                  Edward W. Buttner IV, CPA
                  Principal Accounting Officer

                  Date:    June 15, 1998






                                       29
<PAGE>