UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-K


                 ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1997
                           Commission File No. 1-11941

                           FARM FAMILY HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)

                           Delaware IRS No. 14-1789227

                     344 Route 9W, Glenmont, New York 12077
                  Registrant's telephone number: (518) 431-5000

           Securities registered pursuant to Section 12(b)of the Act:

                                                      Name of each exchange
              Title of each class                      on which registered
              -------------------                      -------------------
          Common Stock, par value $0.01              New York Stock Exchange
          per share (the "Common Stock")

        Securities registered pursuant to Section 12(g) of the Act: None

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

On March 2, 1998,  Registrant had 5,253,813 shares of Common Stock  outstanding.
Of these,  5,241,894  shares,  having an  aggregate  market  value (based on the
closing price of these shares as reported in a summary of composite transactions
in the Wall  Street  Journal  for stocks  listed on the New York Stock  Exchange
March 2, 1998) of approximately  $190,018,658,  were owned by stockholders other
than directors and executive officers of the Registrant.

<PAGE>

                       Documents Incorporated By Reference

  Portions of the following documents are incorporated by reference as follows:

          Documents Incorporated                               Part of Form 10K
          ----------------------                               ----------------

         Farm Family Holdings, Inc.                                I and II
         Annual Report to Stockholders
         for the fiscal year ended
         December 31, 1997
         (the "Annual Report")

         Farm Family Holdings, Inc.                                  III
         Proxy Statement for the
         1998 Annual Meeting of
         Stockholders
         (the "Proxy Statement")







                                      -2-

<PAGE>


                                     PART I


ITEM 1.  BUSINESS

Overview

     The following  discussion  includes the operations of Farm Family Holdings,
Inc. ("Farm Family Holdings"),  a Delaware corporation incorporated in 1996, and
its wholly owned subsidiaries,  (collectively referred to as the "Company"). The
primary  subsidiary of Farm Family  Holdings is Farm Family  Casualty  Insurance
Company ("Farm Family Casualty"). The operations of the Company are also closely
related with those of its affiliates,  Farm Family Life Insurance Company ("Farm
Family Life") and Farm Family Life's wholly owned subsidiary, United Farm Family
Insurance Company ("United Farm Family").

     On July 26,  1996,  Farm Family  Mutual  Insurance  Company  ("Farm  Family
Mutual")  converted from a mutual property and casualty  insurance  company to a
stockholder  owned property and casualty  insurance  company and became a wholly
owned  subsidiary of Farm Family Holdings  pursuant to a plan of  Reorganization
and Conversion  (the "Plan").  In addition,  Farm Family Mutual was renamed Farm
Family Casualty Insurance Company. As part of the Plan, Farm Family Holdings was
formed and the Farm Family Mutual policyholders received approximately 2,237,000
shares of Farm Family Holding's common stock and $11,735,000 in cash in exchange
for their membership interest in Farm Family Mutual.

     On July 23, 1996,  Farm Family  Holdings made an initial public offering of
its common stock at a price of $16.00 per share.  Farm Family Holdings  received
net  proceeds of  $41,453,000  for  approximately  2,786,000  shares sold in the
initial public offering.  In addition,  Farm Family Holdings received $3,427,000
for  approximately  214,000  shares  purchased by  policyholders  of Farm Family
Mutual in a subscription offering. In addition, pursuant to the Plan, holders of
Farm  Family  Mutual debt could elect to  exchange  their debt  instruments  for
shares of common stock or cash. As a result, there were 17,000 common shares and
$1,107,000 in cash  exchanged for debt with an outstanding  principal  amount of
$1,371,000.

     Farm Family  Casualty is a  specialized  property and  casualty  insurer of
farms,  agribusiness,  other generally related businesses and residents of rural
and suburban  communities  principally in the Northeastern  United States.  Farm
Family Casualty provides property and casualty insurance coverages to members of
the state Farm Bureau(R)  organizations in New York, New Jersey,  Delaware, West
Virginia and all of the New England states,  (collectively  the "Farm Bureaus").
Membership in a state or county Farm Bureau  organization is a prerequisite  for
voluntary  insurance  coverage,  except for  employees  of the  Company  and its
affiliates.

     Farm Family Casualty  markets its insurance  products through more than 200
Farm Family agents and field  managers who are located in the rural and suburban
communities it serves.  These agents generally sell insurance products primarily
for Farm Family  Casualty and Farm Family Life.  The Company  believes  that the
distinctive  focus of the  Company  and its  agents on meeting  the  specialized
insurance needs of rural communities has provided the Company with the knowledge
and experience to adapt to changes in the demographics of its markets and in the
nature of agricultural related businesses. In addition to insuring those engaged
in agricultural pursuits such as dairy, vegetable and fruit farming, the Company
insures  a wide  range of  other  businesses  related  to  agriculture,  such as
distributors of agricultural  products,  horse breeding and training facilities,
landscapers,  nurseries,  florists,  wineries and growers of specialty products.
The  Company  also  offers  businessowners   products  for  certain  retail  and
contractor businesses and for owners of apartment and office buildings,  as well
as a homeowners product.

     The  Company's  principal  strategy is to maintain its focus on meeting the
specialized insurance needs of northeastern rural and suburban communities.  The
Company's flagship product,  the Special Farm Package, is a flexible policy that
can be adapted to meet the needs of a variety of agricultural  and  agricultural
related businesses.  As evidenced by its introduction of businessowners products
in 1990, the Company also seeks to leverage its local reputation,  agency force,
knowledge and  experience to expand its product  offerings to a wider variety of
customers in the rural and suburban  communities in which it currently operates.
In addition, the Company will continue to seek to facilitate and expedite sales,
underwriting  and  policy  administration  functions  through  the use of  local
service centers and computer networking communications with the home office.

      Farm Family Holdings  entered into an Option  Purchase  Agreement with the
shareholders of Farm Family Life (the "Selling  Shareholders") pursuant to which

                                      -3-
<PAGE>


Farm Family  Holdings  has, for a two-year  period  which  commenced on July 26,
1996, the option to acquire Farm Family Life subject to certain  conditions.  On
February 26, 1998, the Board of Directors of Farm Family  Holdings  approved the
exercise  of the  option to  acquire  Farm  Family  Life and it's  wholly  owned
subsidiary,  United  Farm  Family.  Under  the  terms  of  the  Option  Purchase
Agreement,  Farm Family  Holdings will pay an exercise price of $37.5 million to
acquire Farm Family Life,  consisting  of $31.5  million of common stock of Farm
Family  Holdings  (the "Common  Stock"),  and $6 million  stated value of 6-1/8%
voting preferred stock of Farm Family Holdings (the "Series A Preferred Stock").
The actual number of shares of Common Stock and Series A Preferred  Stock issued
to the Selling  Shareholders  will be equal to  approximately  $31.5 million and
approximately $6 million  respectively,  divided by the average closing price of
the Common Stock on the New York Stock Exchange, Inc. during the 20 trading days
preceding the third  business day prior to the closing of the  acquisition.  The
proposed  acquisition  of Farm  Family  Life is subject to the  approval  of the
shareholders  of Farm Family  Holdings  and receipt of all  required  government
approvals.  Management  expects that the acquisition of Farm Family Life will be
brought to the shareholders of Farm Family Holdings for their approval in 1998.

Related  Party Transactions

     The Company was organized through the efforts of certain Farm Bureaus,  and
its relationship with the Farm Bureaus in its ten state region continues to be a
fundamental aspect of its business (see "Relationship with Farm Bureaus").  Many
of the directors of the Company are also directors or executive  officers of the
Farm Bureaus and the Selling  Shareholders  of Farm Family Life under the Option
Purchase Agreement.

     The Company is a party to Membership List Purchase  Agreements with each of
the state Farm Bureaus in the ten states in which it conducts business. Pursuant
to each Membership List Purchase  Agreement,  Farm Bureau  membership  lists are
provided to the Company on an exclusive  basis for the purpose of marketing  its
insurance  products.  The Membership List Purchase  Agreements are for six years
commencing on January 1, 1996.  For the years ended  December 31, 1997 and 1996,
the Company paid a total of $600,000  and  $571,000,  respectively,  to the Farm
Bureaus pursuant to the Membership List Purchase Agreements.  For the year ended
December  31,  1995  the  Company  paid  $547,000  to  the  Farm  Bureaus  under
substantially similar Membership List Purchase Agreements in effect for 1995.

     The  operations  of the  Company  are  closely  related  with  those of its
affiliates,  Farm Family Life and United Farm Family.  The affiliated  companies
operate under similar Boards of Directors and have similar senior management. In
addition, the affiliated companies share home office facilities, data processing
equipment, certain personnel and other operational expenses.

     The Company  and Farm  Family  Life are parties to an Amended and  Restated
Expense  Sharing  Agreement,  effective  as of February  14, 1996 (the  "Expense
Sharing Agreement"),  pursuant to which shared expenses for goods,  services and
facilities  are  allocated  between the Company and Farm Family Life.  Under the
Expense Sharing Agreement,  expenses are allocated in accordance with applicable
provisions of the New York Insurance Law and regulations promulgated thereunder.
Direct  expenses are charged as incurred to the Company and Farm Family Life, as
applicable,  at cost.  In 1995,  the  parties  shared  expenses  under a similar
expense  sharing  agreement.  For each of the years ended  December 31, 1997 and
1996, 67% and 65%, respectively,  of aggregate operating expenses totaling $29.4
million and $30.7 million,  respectively,  were allocated to the Company,  under
the Expense  Sharing  Agreement.  For the year ended  December 31, 1995,  61% of
aggregate operating expenses totaling $26.7 million was allocated to the Company
under a similar expense sharing arrangement.

     The Company and Farm  Family  Life are parties to a Lease  Agreement  dated
July 1, 1988, as amended by Amendment to Lease Agreement,  effective  January 1,
1994,  as so  amended,  (the  "Lease  Agreement")  pursuant to which the Company
leases home office  space in Glenmont,  New York from Farm Family  Life.  Annual
rent  under  the Lease  Agreement  was  approximately  $760,000,  $712,000,  and
$687,000  for each of the  years  ended  December  31,  1997,  1996,  and  1995,
respectively.

     The Company and United Farm Family are parties to a service agreement dated
July 25, 1988 (the "Service  Agreement")  pursuant to which the Company provides
United Farm Family with certain  administrative  and special services  necessary
for  its  operations,   including,   but  not  limited  to,  claims  management,
underwriting,   accounting,   tax  and  auditing,   investment  management,  and
functional  support  services.  In addition,  the Company  provides  United Farm
Family with  certain  personnel,  property,  equipment  and  facilities  for its
operations.  For each of the years ended December 31, 1997, 1996, and 1995, Farm
Family  Casualty  charged United Farm Family  approximately  $0.5 million,  $0.7
million, and $0.8 million, respectively, in direct and allocated expenses and

                                      -4-
<PAGE>

overhead under the Service Agreement.

     Prior to  January 1,  1998,  the  Company's  reinsurance  program  included
reinsurance   agreements  with  United  Farm  Family.  In  accordance  with  the
provisions  of  these  reinsurance  agreements,  premiums  earned,  losses,  and
expenses ceded by the Company to United Farm Family were as follows:
<TABLE>
<CAPTION>

         ($ in thousands)                                                 1997             1996             1995
                                                                          ----             ----             ----
<S>                                                                     <C>              <C>              <C>
         Earned Premiums Ceded                                          $8,960           $9,334           $9,238
         Losses  Ceded                                                   8,922            7,049            6,447
         Expenses Ceded                                                    846              446              199
                                                             ----------------------------------------------------
         Net                                                          $  (808)           $1,839           $2,592
                                                             ----------------------------------------------------
</TABLE>

     The Company  terminated all reinsurance  agreements with United Farm Family
effective December 31, 1997.  However,  United Farm Family retains liability for
covered losses arising from occurrences prior to the termination date. Effective
January 1, 1998, the Company's  retention on a per risk basis will increase from
$100,000 to $300,000 and all  reinsurance  coverage  will be provided  solely by
non-affiliated reinsurers.

Products

     The Company  offers a variety of property and casualty  insurance  products
primarily  designed  to meet the  unique  insurance  needs  of its  agricultural
clients and the general insurance needs of the rural and suburban communities in
which it does business.  Many  policyholders  have more than one policy with the
Company,  most  commonly,  a property  policy (such as a Special Farm Package or
homeowners policy) and an automobile policy.

The  following  table sets forth by product the direct  premiums  written by the
Company for the periods indicated:
<TABLE>
<CAPTION>

         ($ in millions)                                     Year Ended December 31,
                                                             -----------------------
                                                         % of                 % of                % of
                                             1997       Total     1996       Total     1995      Total
                                             -----      -----     -----      -----     -----     -----
<S>                                          <C>        <C>       <C>        <C>       <C>       <C>
         Personal Automobile*                $62.3      36.9%     $50.0      34.2%     $46.5     34.2%
         Special Farm Package                 38.4      22.8%      35.9      24.5%      34.0     25.0%
         Commercial Automobile*               26.1      15.5%      24.1      16.5%      22.7     16.7%
         Workers' Compensation                11.3       6.7%       9.7       6.5%       9.1      6.7%
         Businessowners                        9.0       5.3%       7.6       5.2%       6.6      4.9%
         Homeowners                            7.7       4.6%       6.1       4.2%       5.2      3.8%
         Umbrella                              4.8       2.9%       4.6       3.1%       4.4      3.2%
         Commercial General Liability          4.1       2.4%       3.9       2.7%       3.4      2.5%
         Special Home Package                  3.1       1.8%       2.9       2.0%       2.8      2.1%
         Fire, Allied, Inland Marine           1.3       0.8%       1.2       0.8%       1.0      0.7%
         Products Liability                    0.4       0.2%       0.3       0.2%       0.2      0.1%
         Pollution                             0.2       0.1%       0.1       0.1%       0.1      0.1%
                                          -------------------------------------------------------------
         Total                              $168.7     100.0%    $146.4     100.0%    $136.0    100.0%
                                          -------------------------------------------------------------
</TABLE>

     *Includes $6.3 million of assigned risk automobile for personal  automobile
      and $0.7 million of assigned risk automobile for commercial automobile

     Personal Automobile.  Personal automobile is the Company's largest product.
The Company's  industry standard policies are generally  marketed in conjunction
with its other products,  such as the Special Farm Package,  the  businessowners
policy or the homeowners policy.

     Special Farm  Package.  The Special Farm  Package,  developed in 1980, is a
flexible, multi-line package of insurance coverages which the Company regards as
its "flagship" product.  As a result of its flexible features,  this product can
be  adapted  to  meet  the  needs  of a  variety  of  agricultural  and  related
businesses. The Special Farm Package policy combines personal, farm and business

                                      -5-
<PAGE>


property and liability  insurance for the farm owner, as well as owners of other
agricultural related businesses, such as horse breeding and training facilities,
nurseries, wineries and greenhouses.

     In October 1997, the Company began marketing the Country Estate program,  a
specialized  version of the Special Farm  Package.  The Country  Estate  program
covers  rural  residents   where   agricultural   exposures  are  present,   but
agribusiness is not the main source of income for the household.

     Commercial Automobile. Commercial automobile is the Company's third largest
product.  The Company's  industry  standard  policies are generally  marketed in
conjunction with the Special Farm Package or the businessowners policy.

     Workers'  Compensation.  The Company  generally  does not seek to market or
write its  workers'  compensation  policy apart from a Special Farm Package or a
businessowners policy.

     Businessowners. The Company's businessowners product (based on the industry
standard policy form) is designed to meet the needs of small  businesses  within
its rural and suburban markets. This product is marketed to two distinct groups:
(i) "mercantile  businessowners" with property based risks,  including apartment
and office building owners and small to medium-sized retail businesses,  such as
florists  and farm  markets  and (ii)  small,  established  artisan  contractors
principally serving the agricultural community.

     Special  Home  Package and  Homeowners  Policy.  The  Company's  homeowners
policy,  introduced in 1989, is a standard homeowners multi-peril policy for the
rural and suburban homeowner.  Increasingly, the homeowners policy is being sold
to provide  coverage for the insured's  principal  residence,  while the Special
Home  Package is used by the  Company  to insure  rural-based,  tenant  occupied
residences.  Like the Special Farm  Package,  the Special Home Package  combines
personal and commercial property and liability coverages,  and contains flexible
features  which  also  allow it to be  adapted to meet the needs of a variety of
customers.

     Umbrella Liability.  The Company writes commercial and personal line excess
liability  policies  covering  business,  farm and personal  liabilities  of its
policyholders   in  excess  of  amounts  covered  under  Special  Farm  Package,
homeowners,  businessowners and automobile policies. Such policies are available
with limits of $1.0 million to $5.0 million. The Company does not generally seek
to market its excess  liability  policies  unless it also  writes an  underlying
liability policy.

     Commercial  General  Liability.  The Company  writes an  industry  standard
commercial  general  liability policy which is generally  marketed in connection
with the  Special  Farm  Package or, as an  accommodation  to  policyholders  in
connection  with  the  commercial  automobile  policy.  The  commercial  general
liability  policy is generally not written apart from these other policies.  The
policy is usually written by the Company for unique business situations, such as
horse breeding and training  facilities and certain  landscaper risks,  which do
not meet the criteria for liability  coverage under a businessowners  or Special
Farm Package policy. The policy insures businesses against third party liability
from accidents occurring on their premises or arising out of their operations or
products.  Most of the Company's  products  liability line is written as part of
the commercial general liability product.

     Pollution.  The  Company  writes  a small  number  of  pollution  liability
policies  covering  specified farm risks on a  "claims-made"  basis.  The policy
insures against losses  incurred from third party  liability,  including  bodily
injury and property damages, for pollution incidents,  such as those caused from
pesticides,  fertilizers,  herbicides and manure piles.  An "extended  reporting
period" option is available under certain  circumstances  which allows for claim
reporting after the policy expiration.  As of December 31, 1997, the Company had
approximately 222 pollution policies in force.


                                      -6-
<PAGE>


Marketing

         The following table sets forth the Company's direct written premiums by
state for the periods indicated:
<TABLE>
<CAPTION>

                                                          Year Ended December 31,
                                                          -----------------------
         ($ in millions)                                 % of                 % of               % of
                                              1997      Total      1996      Total    1995      Total
                                              ----      -----      ----      -----    -----     -----

<S>                                           <C>       <C>        <C>       <C>      <C>       <C>
         New York                             $61.5     36.5%      $56.5     38.6%    $53.2     39.1%
         New Jersey                            44.5     26.3%       33.1     22.6%     28.3     20.8%
         Massachusetts                         12.9      7.7%       10.3      7.0%     10.5      7.7%
         Connecticut                           11.0      6.5%        9.8      6.7%      9.1      6.7%
         West Virginia                          9.1      5.4%        8.1      5.5%      7.8      5.7%
         Maine                                  6.7      4.0%        6.8      4.7%      6.9      5.1%
         New Hampshire                          6.5      3.8%        6.7      4.6%      6.8      5.0%
         Vermont                                5.8      3.5%        5.7      3.9%      5.3      3.9%
         Delaware                               5.8      3.4%        5.0      3.4%      4.4      3.3%
         Rhode Island                           4.9      2.9%        4.4      3.0%      3.7      2.7%
                                           --------- --------- ---------- --------- -------- ---------
                                             $168.7    100.0%    $146 .4    100.0%   $136.0    100.0%
                                           --------- --------- ---------- --------- -------- ---------
</TABLE>

     As of December  31,  1997,  the Company  marketed its property and casualty
insurance  products in its ten state region through  approximately 189 primarily
exclusive  agents,  13  independent  agents and 12 field  managers.  Many of the
Company's agents are established residents of the rural and suburban communities
in which they operate and often have specific prior  experience in  agricultural
related businesses. Almost all of the Company's agents market and write the full
range of its  products.  In addition to  marketing  the  Company's  property and
casualty  insurance  products,  the agency  force also  markets  life  insurance
products  for Farm  Family  Life.  In 1997,  agent  compensation  was  comprised
entirely of commissions, office expense allowances and incentive bonuses.

     In 1997,  the Company  established a wholly owned  subsidiary,  Farm Family
Financial  Services,  Inc. Through this  subsidiary,  and its affiliation with a
national  broker-dealer,  the  Company's  agents  can make  available  financial
services and products.  Many agents are in the process of obtaining a securities
license so they can offer these products to their clients.

     The  Company  emphasizes  personal  contact  between  its  agents  and  the
policyholders.  The Company  believes  that its name  recognition,  policyholder
loyalty and policyholder  satisfaction  with agent and claims  relationships are
the principal  sources of new customer  referrals,  cross-selling  of additional
insurance products and policyholder retention. In addition, the Company believes
that its  relationship  with the Farm Bureaus in its target markets promotes the
Company's name recognition and new customer  referrals among Farm Bureau members
(see " Relationship with Farm Bureaus").

Relationship with Farm Bureaus

     The Company was organized through the efforts of certain Farm Bureaus,  and
its relationship with the Farm Bureaus in its ten state region continues to be a
fundamental  aspect of its business.  These Farm Bureaus are affiliated with the
American Farm Bureau Federation,  the nation's largest general farm organization
with over four million members,  which has  traditionally  sought to advance the
interests of the  agricultural  community.  The Company was  established in 1955
through the efforts of certain  Farm  Bureaus to provide  property  and casualty
insurance for Farm Bureau  members in the  Northeast.  Substantially  all of the
directors of the Company are associated  with Farm Bureau  organizations  in the
Northeast.  The Company has the  exclusive  endorsement  of the Farm  Bureaus to
market property and casualty insurance in the ten states in which it operates.

     The  endorsement of the Farm Bureaus  generally means that the Farm Bureaus
provide  the  Company  with the  right to  utilize  their  membership  lists and
authorize  the use of  their  name and  service  marks  in  connection  with the
marketing of the Company's  products.  In exchange for these rights, the Company
pays to each of the Farm Bureaus an annual fee of $7.50 per Farm Bureau  member,
pursuant to  agreements  with each Farm Bureau (the  "Membership  List  Purchase
Agreements"). The current term of each Membership List Purchase Agreement is six

                                      -7-
<PAGE>

years,  commencing on January 1, 1996.  Pursuant to the Membership List Purchase
Agreements,  the Farm Bureaus may not endorse the products of other property and
casualty  insurers  within the Company's ten state region.  Farm Family Life has
entered into similar  membership list purchase  agreements with each of the Farm
Bureaus.

Underwriting

     The  Company  seeks to write its  commercial  and  personal  lines risks by
evaluating  loss experience and  underwriting  profitability  with  consistently
applied  standards.  The  Company  maintains  information  on all aspects of its
business which is routinely  reviewed by the Company's  staff of underwriters in
relationship to product line profitability. The Company's underwriters generally
specialize by agency territory. Specific information is monitored with regard to
individual  insureds  which is used to assist the  Company  in making  decisions
about policy renewals or modifications.

     The Company  concentrates on its established  major product lines (personal
and  commercial  auto,  Special  Farm  Package,  businessowners  and  homeowners
policies).  It generally  does not pursue the  development of products with risk
profiles with which it is not familiar, nor does it, typically,  actively market
its automobile,  workers'  compensation or general liability  policies except to
policyholders who may also purchase its Special Farm Package,  businessowners or
homeowners  products.  The Company  believes  its  extensive  knowledge of local
markets in its region is a key element in its underwriting process.

Claims

     Claims on insurance  policies written are usually  investigated and settled
by one of the Company's staff claims  adjusters,  located in nine field offices.
The Company's claims philosophy emphasizes timely investigation,  evaluation and
settlement of claims,  while maintaining adequate reserves and controlling claim
adjustment expenses.  The claims philosophy is designed to support the Company's
marketing efforts by providing agents and policyholders with prompt service.

     Claims  settlement  authority  levels are established for each adjuster and
claims manager based upon the employee's ability and level of experience. Claims
are  reported  directly to the claims  department,  located at a field office or
through the central claim reporting unit at the home office.  Specialized  units
exist at the home  office for  no-fault  automobile  and  workers'  compensation
claims, as well as subrogation and large, litigated or certain other claims. The
Company  also has on  staff a  special  investigator  to  investigate  suspected
insurance  fraud,  including  arson.  The claims  department is responsible  for
reviewing all claims,  obtaining  necessary  documentation,  estimating the loss
reserves  and  resolving  the  claims.  Claims  for New York  private  passenger
assigned  risk  business  are  handled by outside  claim  adjusting  firms which
specialize in this line of business.

Reinsurance

Reinsurance Ceded

     The  Company's   reinsurance   arrangements   are  generally   placed  with
non-affiliated  reinsurers through  reinsurance  brokers.  In addition,  through
December 31, 1997, certain reinsurance  coverages were also placed directly with
United Farm Family (see "Related Party Transactions"). Prior to January 1, 1998,
the largest net per risk exposure  retained by the Company on any one individual
property or casualty risk was $100,000. Property and casualty risks in excess of
$100,000  were  covered  on an excess of loss basis up to  $300,000  per risk by
United Farm Family,  prior to January 1, 1998.  Effective  January 1, 1998,  the
largest net per risk  exposure  retained  by the  Company on any one  individual
property or casualty  risk is $300,000.  Per risk  property  losses in excess of
$300,000  but less than $4 million are  reinsured  on an excess of loss basis by
unaffiliated reinsurers. Casualty losses per risk in excess of $300,000 but less
than $1 million  (which is generally the maximum  limit of liability  written by
the Company's casualty insurance policies,  other than workers' compensation and
umbrella  liability  policies)  are  covered  on an  excess  of  loss  basis  by
unaffiliated  reinsurers.  Clash coverage  provided by  unaffiliated  reinsurers
covers casualty losses, including workers' compensation, in excess of $1 million
but less than $5 million. In addition,  workers'  compensation  claims, on a per
occurrence  basis with a $600,000 per person limit,  in excess of $3 million but
less than $10 million are separately  reinsured on an excess of loss basis by an
unaffiliated  reinsurer.  Prior to January 1, 1998, the Company reinsured 95% of
its  umbrella  liability  losses  (including a 5% quota share  participation  by
United Farm Family) under $1 million per loss on a quota share basis and 100% of
umbrella liability losses in excess of $1 million up to $5 million per loss with
unaffiliated  reinsurers.   Effective  January  1,  1998,  umbrella  losses  per
occurrence  in excess of  $300,000  but less than $2 million  are  covered on an

                                      -8-
<PAGE>

excess of loss basis with  unaffiliated  reinsurers.  In  addition,  the Company
reinsures 100% of its umbrella liability losses in excess of $2 million up to $5
million per loss with unaffiliated reinsurers. Facultative coverage is available
for property risks in excess of $4 million per risk, casualty risks in excess of
$1 million, and umbrella losses in excess of $5 million.

     The Company's property catastrophe reinsurance provides for recovery of 95%
of the losses over $6 million up to a maximum of $51 million per  occurrence and
approximately  79%  of  the  losses  between  $3  million  and  $6  million  per
occurrence.  The Company  retains the first $3 million of losses per  occurrence
under its property  catastrophe  program.  Prior to January 1, 1998, United Farm
Family was a  participant  in Farm  Family's  property  catastrophe  reinsurance
program  and  assumed 2% of losses per  occurrence  between  $11 million and $51
million and approximately 16% of losses between $3 million and $6 million.

     The insolvency or inability of any reinsurer to meet its obligations to the
Company  could have a material  adverse  effect on the results of  operations or
financial  condition of the Company.  As of December 31, 1997,  more than 95% of
the Company's  reinsurance  program was provided by reinsurers  which were rated
"A-" (Excellent) or above by A.M. Best Company, Inc. ("A.M. Best").

     The Company  terminated all reinsurance  agreements with United Farm Family
effective December 31, 1997.  However,  United Farm Family retains liability for
covered losses arising from occurrences prior to the termination date. Effective
January  1,  1998,  all  reinsurance  agreements  will  be  provided  solely  by
non-affiliated  reinsurers.  Consequently,  the  Company's  net retention on all
risks will  increase  from  $100,000 to $300,000 for the 1998 year. In addition,
the Company  purchased an aggregate  stop loss which  provides  $12.5 million of
coverage excess of 66% loss ratio for the 1998 year.

Reinsurance Assumed

     The Company assumes  voluntary  reinsurance  covering  primarily  property,
property  catastrophe and casualty risks located  outside of the Northeast.  The
Company   believes  that,   among  other  benefits,   its  assumed   reinsurance
arrangements  balance to a limited  extent the geographic  concentration  of its
risks in the  Northeast.  The Company  also assumed an  insignificant  amount of
reinsurance  covering  substandard  automobile  policies from United Farm Family
through  December 31, 1997.  For the year ended  December 31, 1997,  the Company
earned  premiums  of $7.0  million  under  various  voluntary  proportional  and
non-proportional   reinsurance  agreements.  In  addition,  the  Company  has  a
retrocessional  reinsurance  program  covering the Company's  assumed  business,
which is placed with unaffiliated reinsurers and provides for recovery of 95% of
losses over $1 million up to a maximum of $4 million per  occurrence  and 75% of
losses over $4 million up to a maximum of $6 million.

Loss and Loss Adjustment Expense ("LAE") Reserves

     The Company's reserve for losses is an estimate of the unpaid amount, as of
December  31, of the  losses  incurred  in both the  current  year and all prior
years. The LAE reserve is an estimate of the unpaid expenses  required to settle
losses  incurred in both the current  year and all prior  years.  The Company is
required to maintain  reserves  for payment of  estimated  loss and LAE for both
reported  claims and claims which have been incurred but not yet  reported.  The
ultimate liability incurred by the company may be different from current reserve
estimates.

     Adjustments in aggregate  reserves,  if any, are reflected in the operating
results of the period during which such  adjustments  are made.  Although claims
for which reserves are established may not be paid for many years,  reserves for
losses  and  LAE  are not  discounted,  except  for  certain  lifetime  workers'
compensation indemnity reserves where the reserves are discounted at 3.5%.


-9-

<PAGE>


         The following table provides a  reconciliation  of beginning and ending
loss and LAE reserve  balances of the Company for each of the years in the three
year period ended December 31, 1997.

                    Reconciliation of Liability for Loss
                        and Loss Adjustment Expenses
<TABLE>

<CAPTION>

         ($ in thousands)
                                                                                      Year ended December 31,
                                                                                      -----------------------
                                                                                    1997       1996       1995
                                                                                    ----       ----       ----

         Reserves for losses and loss adjustment expenses at the
<S>                                                                             <C>       <C>        <C>
         beginning of the year                                                  $141,220  $ 137,978  $ 127,954
         Less:    Reinsurance recoverables and receivables                        26,837     28,655     28,230
                                                                               ---------- ---------  ---------
         Net reserves for losses and loss adjustment expenses at
             beginning of year                                                   114,383    109,323     99,724
                                                                               ---------- ---------- ----------
         Provision for losses and loss adjustment  expenses for claims occurring
         in:
         Current year                                                            107,273    100,418     88,366
         Prior years                                                              (3,972)    (5,441)    (5,182)
                                                                              ----------  ---------  ---------

         Total incurred losses and loss adjustment expenses                      103,301     94,977     83,184
                                                                               ---------- ---------  ---------
         Loss and loss adjustment expenses payments for claims occurring in:
         Current year                                                             49,858     50,122     40,519
         Prior years                                                              40,258     39,795     33,066
                                                                               ---------- ---------- ----------
         Total payments                                                           90,116     89,917     73,585
                                                                               ---------- ---------- ----------
         Net reserves for losses and loss adjustment expenses at end of
         year                                                                    127,568    114,383    109,323
         Add:   Reinsurance recoverables and receivables                          29,054     26,837     28,655
                                                                               ---------- ---------- ----------
         Reserves for losses and loss adjustment expenses at end of year        $156,622   $141,220   $137,978
                                                                               ---------- ---------- ----------
</TABLE>

Analysis of Loss and Loss Adjustment Expense Development

     The following  table reflects the development of losses and loss adjustment
expenses for the periods  indicated at the end of that year and each  subsequent
year. Each calendar  year-end reserve includes the estimated unpaid  liabilities
for that  accident year and for all prior  accident  years.  The data  presented
under  the  caption  "Cumulative  Amount  of  Reserves  Paid  Through"  show the
cumulative  amounts paid related to the reserve as of the end of each subsequent
year. The data presented under the caption  "Reserves,  Net,  Reestimated as of"
show the original  recorded reserve as adjusted as of the end of each subsequent
year  to  reflect  the   cumulative   amounts  paid  and  all  other  facts  and
circumstances  discovered during each such year. The line "Cumulative Redundancy
(Deficiency)"  reflects the difference  between the latest  reestimated  reserve
amount and the reserve amount as originally established.

     In evaluating the  information in the table below,  it should be noted that
each amount includes the effects of all changes in amounts of prior periods. For
example,  if a loss determined in 1996 to be $150,000 was first reserved in 1988
at $100,000,  the $50,000 deficiency (actual loss minus original estimate) would
be included in the cumulative  deficiency in each of the years 1989 through 1995
shown below. This table presents  development data by calendar year and does not
relate the data to the year in which the accident actually occurred.  Conditions
and trends that have affected the  development of these reserves in the past may
not necessarily recur in the future.


                                      -10-
<PAGE>


   The following  table sets forth the  development of loss and loss  adjustment
expenses  reserves of the Company for the  ten-year  period  ended  December 31,
1997:
<TABLE>

            Analysis of Loss and Loss Adjustment Expense Development
<CAPTION>

($ in thousands)
Year Ended December 31     1987     1988    1989     1990      1991      1992      1993      1994      1995      1996      1997
                          -----    -----   -----    -----     -----     -----    ------    ------     -----     -----     -----
Reserves for Losses
     and Loss
<S>                     <C>      <C>      <C>      <C>      <C>       <C>       <C>       <C>       <C>       <C>       <C>
   Adjustment Expenses  $53,126  $65,543  $78,339  $94,135  $110,135  $117,497  $123,477  $127,954  $137,978  $141,220  $156,622

Reinsurance Recoverable
on upaid losses          (5,468)  (7,126) (11,784) (22,123)  (25,048)  (24,463)  (28,761)  (28,230)  (28,655)  (26,837)  (29,054)
                        --------------------------------------------------------------------------------------------------------
Reserves for Losses
  and Loss Adjustment
        Expenses, Net    47,658   58,417   66,555   72,012    85,087    93,034    94,716    99,724   109,323   114,383   127,568
                        --------------------------------------------------------------------------------------------------------

Reserves, Net,
   Reestimated as of:
       One year later    50,145   57,932   69,036   76,786    84,514    91,561    88,296    94,542   104,649   110,411
      Two years later    50,572   63,348   72,478   76,442    84,305    89,666    82,876    87,592   101,561
    Three years later    53,540   65,399   72,926   76,832    83,960    86,876    81,556    84,840
     Four years later    55,303   65,842   73,130   77,879    82,750    85,204    79,139
     Five years later    55,445   66,289   74,599   77,375    81,690    83,875
      Six years later    56,018   68,298   74,391   76,811    80,487
    Seven years later    57,751   68,370   74,578   76,080
    Eight years later    58,323   68,678   73,993
     Nine years later    58,754   68,010
      Ten years later    58,077

Cumulative Redundancy
         (Deficiency)   (10,419)  (9,593)  (7,438)  (4,068)    4,600     9,159    15,577    14,884     7,762     3,972
                        ----------------------------------------------------------------------------------------------

Cumulative Amount of
   Reserves Paid Through:
       One year later    21,931   23,852   29,587   29,446    32,708    36,692    34,439    33,066    39,795    40,258
      Two years later    33,879   40,454   46,469   47,392    53,455    57,236    49,867    53,121    59,671
    Three years later    42,838   51,147   57,838   60,737    65,951    66,127    62,138    64,023
     Four years later    48,480   57,239   65,803   67,401    70,176    73,409    67,865
     Five years later    51,216   62,168   68,950   68,634    74,752    76,434
      Six years later    54,644   64,421   68,652   71,697    76,266
    Seven years later    55,794   63,815   71,075   72,820
    Eight years later    55,313   65,940   72,038
     Nine years later    57,174   66,735
      Ten years later    57,800
</TABLE>

     Prior to 1990,  the Company  had a history of  cumulative  deficiencies  in
reserving for losses and LAE. These  deficiencies  were primarily  caused by the
underestimation  of reserves for  workers'  compensation,  automobile  and other
liability  claims.  In 1991,  the Company  reviewed  and revised its process for
estimating  reserves  for losses and LAE,  and in recent  years the  Company has
generally  experienced  overall  redundancies.  The redundancies at December 31,
1997 of $14.9 million,  $7.8 million and $4.0 million for the December 31, 1994,
1995 and 1996 reserves,  respectively,  were primarily attributable to favorable
development  of IBNR and  case  reserves  for  personal  automobile,  commercial
automobile, automobile physical damage, and workers' compensation claims.

                                      -11-
<PAGE>


<TABLE>
<CAPTION>

                                                                               Year Ended December 31,
                                                                               -----------------------
         ($ in thousands)                                                 1997           1996           1995
                                                                         -----          -----           ----
         Reserve for unpaid losses and loss adjustment expenses:
<S>                                                                    <C>            <C>            <C>
         Gross liability                                               $156,622       $141,220       $137,978
         Reinsurance recoverable                                         29,054         26,837         28,655
                                                                   ------------------------------------------
         Net liability                                                 $127,568       $114,383       $109,323
                                                                   ------------------------------------------

         One year later:
         Gross reestimated liability                                                  $131,121       $126,779
         Reestimated reinsurance recoverable                                            20,710         22,130
                                                                                -----------------------------
         Net reestimated liability                                                    $110,411       $104,649
                                                                                -----------------------------

         Two years later:
         Gross reestimated liability                                                                 $118,039
         Reestimated reinsurance recoverable                                                           16,478
                                                                                               --------------
         Net reestimated liability                                                                   $101,561
                                                                                               --------------
</TABLE>

     The Company  believes  that its reserves at December 31, 1997 are adequate.
Conditions and trends that have  historically  affected the Company's claims may
not necessarily occur in the future. Accordingly, it would not be appropriate to
extrapolate  future  deficiencies or redundancies based on the results set forth
above. Future adjustments to loss reserves and LAE that are unanticipated by the
Company  could have a  material  adverse  impact  upon the  Company's  financial
condition and results of operations.

Investments

     An important component of the operating results of the Company has been the
return on invested  assets.  The Company's  investment  objective is to maximize
current  yield  while  maintaining  safety of  capital  together  with  adequate
liquidity  for  its   insurance   operations.   Since  1995,   the  Company  has
significantly  reduced its  holdings  of  non-investment  grade  fixed  maturity
securities and improved the overall credit quality of its invested assets.

     At December  31,  1997,  the Company had cash and  invested  assets with an
aggregate  carrying value of $286.3 million.  The Company  primarily  invests in
high  quality  fixed  maturity  securities  and  to  a  lesser  extent,   equity
securities. At December 31, 1997, 93.6% of the Company's total cash and invested
assets  consisted of fixed  maturities,  4.0 % consisted of cash and  short-term
investments, 1.6% consisted of equity securities, and the remainder consisted of
mortgage loans and other invested assets.

     Prior to September 1, 1997,  the Company  exclusively  managed its invested
assets  internally.  During  1997,  the  Company  retained  the  services  of  a
professional   asset  management   firm,   specializing  in  the  management  of
investments for insurance companies, to supplement its internal capabilities and
improve upon the management of its invested  assets.  Investment  activities are
subject to  oversight  by  management  of the  Company as well as an  Investment
Committee of the Board of Directors.

     The Company  actively  manages and  monitors  its  exposure to credit risk.
Invested  assets are reviewed  regularly for credit quality.  Investments  which
have  experienced  payment  delinquencies,  adverse changes in credit ratings or
deterioration  in  the  financial  condition  of the  borrower,  or  which  have
otherwise been identified as having  potential  adverse credit  implications are
placed on a credit watch report.  Securities placed on the credit watch list are
reviewed by  management  and the  investment  committee on a regular  basis.  At
December  31,  1997,  the  Company  had  identified  eight  securities,  with an
aggregate  carrying  value of $9.9 million on the credit watch  report.  None of
these securities were considered non-performing or in default. In addition, Farm
Family Casualty's holdings of NAIC Class 3 through 6 bonds, generally considered
non-investment grade, were $8.4 million or 3.1% of its fixed maturity portfolio,
at December 31, 1997. Due to uncertainties in the economic environment, however,
it is possible  that the quality of  investments  currently  held in Farm Family
Casualty's investment portfolio may change.

                                      -12-
<PAGE>


       The average duration and average maturity of the Company's fixed maturity
investments  as of  December  31,  1997 were  approximately  4.2 and 9.5  years,
respectively.  As a result,  the market value of the Company's  investments  may
fluctuate  significantly  in response to changes in interest rates. In addition,
the Company may also be likely to experience investment losses to the extent its
liquidity  needs  require  the  disposition  of  fixed  maturity  securities  in
unfavorable interest rate environments.

     For the year ended  December 31, 1997,  compared  with the prior year,  the
amortized  cost of the Company's  cash and invested  assets  increased  15.3% to
$274.9  million,  primarily  as a result  of the cash  flow  from the  Company's
operations.  For the years ended December 31, 1997, 1996 and 1995, the Company's
net investment  income,  average cash and invested  assets and return on average
cash and invested assets were as follows:

<TABLE>
<CAPTION>

                                                                           Years Ended December 31,
                                                                           ------------------------
         ($ in millions)                                              1997          1996           1995
                                                                      ----          ----           ----
<S>                                                                  <C>           <C>            <C>
Net investment income                                                $18.1         $16.0          $14.3
Average cash and invested assets                                    $256.7        $212.0         $187.8
Return on average cash and invested assets                            7.0%          7.5%           7.6%

</TABLE>

     The reduction in the return on average cash and invested assets during 1997
is primarily  attributable  to an overall  reduction in the prevailing  interest
rate  environment  during 1996 and 1997 compared to earlier years, as well as an
increase in the  Company's  investment  in tax exempt  investments  which should
improve the Company's after tax investment returns.

The following  table sets forth  certain  information  concerning  the Company's
investments:
<TABLE>
<CAPTION>

   ($ in thousands)                                           December 31, 1997      December 31, 1996
                                                              -----------------      -----------------
Type of Investment                                         Amortized      Market   Amortized       Market
                                                                Cost    Value(3)        Cost     Value(3)
   Available For Sale Portfolio:
    Fixed Maturities(1)
        United States government and
<S>                                                          <C>         <C>         <C>          <C>
        government agencies and authorities                  $18,905     $19,540     $18,401      $18,743
        States, municipalities and political subdivisions     51,166      54,007      42,568       43,950
        Public utilities                                      26,180      26,484      26,244       26,233
        All other corporate bonds                            127,056     132,416     109,241      111,643
        Mortgage-backed securities                            18,516      19,195       9,676       10,342
        Redeemable preferred stock                             7,161       7,557       8,096        8,277
                                                        --------------------------------------------------
          Total Fixed Maturities                             248,984     259,199     214,226      219,188
       Equity securities                                       3,363       4,521       2,546        7,908
                                                        --------------------------------------------------
          Total Available for Sale                           252,347     263,720     216,772      227,096
                                                        --------------------------------------------------

    Held to Maturity Portfolio:
       Fixed Maturities(2)
       States, municipalities and political                    4,603       4,683       5,423        5,482
              subdivisions
       All other corporate bonds                               4,252       4,511       4,359        4,491
                                                        --------------------------------------------------
          Total Held to Maturity                               8,855       9,194       9,782        9,973
                                                        --------------------------------------------------

       Mortgage loans(1)                                       1,660       1,660       1,745        1,745
       Short-term investments(1)                               5,643       5,643       5,333        5,333
       Other Invested Assets(1)                                  553         553         748          748
                                                        --------------------------------------------------

          Total Investments                                 $269,058    $280,770    $234,380     $244,895
                                                        --------------------------------------------------
</TABLE>

------------
(1)  Fixed maturities (bonds,  redeemable  preferred stocks and  mortgage-backed
     securities)  and equity  securities in the Available for Sale Portfolio are
     carried at market value in the  consolidated  financial  statements  of the
     Company. Mortgage loans, cash and short-term investments and other invested
     assets are carried at cost, which approximates market value.

(2)  Fixed maturities in the Held to Maturity Portfolio are carried at amortized
     cost.

(3)  The Company primarily obtains market value information  through the pricing
     service  offered by Interactive  Data  Corporation.  Market values are also
     obtained,  to a lesser  extent,  from  various  brokers who  provide  price
     quotes.
                                      -13-
<PAGE>

The Company's investments in fixed maturity securities are composed primarily of
intermediate-term,   investment  grade  securities.  The  table  below  contains
additional  information concerning the investment ratings of the Company's fixed
maturity investments at December 31, 1997.
<TABLE>
<CAPTION>

                                                                     Amortized         Market
    Type/Ratings of Investment(1)                                       Cost            Value      Percentage(4)
    --------------------------                                          ----            -----      ----------
                                                                                  ($ in thousands)
    Available for Sale Portfolio:(2)
<S>                                                                        <C>             <C>               <C>
       U.S. Government and Agencies                                        $22,318         $23,453           9.0%
       AAA                                                                  44,394          46,182          17.8%
       AA                                                                   33,267          34,286          13.3%
       A                                                                    70,647          74,434          28.7%
       BBB                                                                  73,455          76,566          29.5%
                                                                  ------------------------------------------------
         Total BBB or Better                                               244,081         254,921          98.3%
       BB                                                                    1,836           1,831           0.7%
       B and Below                                                           3,067           2,447           1.0%
                                                                  ------------------------------------------------
         Total Available for Sale                                         $248,984        $259,199         100.0%
                                                                  ------------------------------------------------

    Held to Maturity Portfolio:(3)
       AAA                                                              $    3,005      $    3,074          33.5%
       AA                                                                    1,000           1,078          11.7%
       A                                                                     4,850           5,042          54.8%
       BBB                                                                       -               -           0.0%
                                                                  ------------------------------------------------
         Total BBB or Better                                                 8,855           9,194         100.0%
       BB                                                                        -               -           0.0%
       B and Below                                                               -               -           0.0%
                                                                  ------------------------------------------------
         Total Held to Maturity                                             $8,855          $9,194         100.0%
                                                                  ------------------------------------------------
</TABLE>

(1)  The  ratings  set forth in this  table are  based on the  ratings,  if any,
     assigned by Standard & Poor's  Corporation  ("S&P").  If S&P's ratings were
     unavailable, the equivalent ratings supplied by Moody's Investors Services,
     Inc., Fitch Investors Service,  Inc. or the NAIC were used where available.
     The  percentage  of  securities  that were not  assigned a rating by S&P at
     December 31, 1997 was 3.8%.

(2)  Fixed  maturities in the Available for Sale Portfolio are carried at market
     value in the consolidated financial statements of the Company.

(3)  Fixed maturities in the Held to Maturity Portfolio are carried at amortized
     cost.

(4)  Represents percent of market value for classification as a percent of total
     for each portfolio.


                                      -14-
<PAGE>


The table below sets forth the maturity  profile of the Company's fixed maturity
investments as of December 31, 1997:
<TABLE>
<CAPTION>

    Maturity                                                   Amortized Cost(1)    Market Value(2)      Percentage
    --------                                                   -----------------    ---------------      ----------
    Available for Sale:                                                            ($ in thousands)
<S>                                                                    <C>                <C>                     <C>
       1 year or less                                                  $     5,501        $     5,581             2.2%
       More than 1 year through 3 years                                     13,582             13,974             5.4%
       More than 3 years through 5 years                                    23,222             23,951             9.2%
       More than 5 years through 10 years                                  141,322            145,906            56.3%
       More than 10 years through 15 years                                  26,105             27,842            10.7%
       More than 15 years through 20 years                                   8,127              8,506             3.3%
       More than 20 years                                                   12,609             14,244             5.5%
       Mortgage backed securities                                           18,516             19,195             7.4%
                                                              ---------------------------------------------------------
         Total                                                            $248,984           $259,199           100.0%
                                                              ---------------------------------------------------------

    Held to Maturity:
       1 year or less                                                   $      155         $      156             1.7%
       More than 1 year through 3 years                                        294                297             3.2%
       More than 3 years through 5 years                                       232                232             2.5%
       More than 5 years through 10 years                                    4,534              4,741            51.6%
       More than 10 years through 15 years                                   3,640              3,768            41.0%
       More than 15 years through 20 years                                       -                  -                -
       More than 20 years                                                        -                  -                -
                                                              ---------------------------------------------------------
         Total                                                           $   8,855          $   9,194           100.0%
                                                              ---------------------------------------------------------
</TABLE>

(1)  Fixed  maturities in the Available for Sale portfolio are carried at market
     value  in the  consolidated  financial  statements  of the  Company.  Fixed
     maturities in the Held to Maturity portfolio are carried at amortized cost.

(2)  The Company obtains market value information  primarily through the pricing
     service  offered by Interactive  Data  Corporation.  Market values are also
     obtained, to a lesser extent, from various brokers who provide price quotes


Information Services

     The Company's automated information  processing  capabilities are supported
by  centralized  computer  systems and a network of personal  computers  linking
agents,  claims offices and service  centers with the Company's home office data
center and information  services division.  This network enables field employees
and agents to work  directly  with clients in response to service  questions and
policy  transactions.  A specialized client information system containing policy
and claim information for each customer's portfolio is utilized by the Company's
agents to monitor  policy  activity.  Also,  personalized  summaries of material
events  affecting  each agent's  policies  are updated  daily on the network and
forwarded to agents.  Substantially  all of the Company's  information  services
equipment,  including the centralized  computer systems and computer network, is
owned by Farm Family Life.  Information systems equipment expenses are shared by
the Company and Farm Family Life pursuant to the Expense Sharing  Agreement (see
"Related Party Transactions").

     Many of the  Company's  existing  computer  programs use only two digits to
identify a year in the date field.  These  programs  were designed and developed
without  considering  the impact of the upcoming  change in the century.  If not
corrected,  many of these computer  applications  could fail or create erroneous
results  by or at the Year  2000.  The Year 2000  issue  affects  virtually  all
companies and  organizations . Therefore,  the Company must also coordinate with
other  entities  with  which it  interacts  to ensure  these  entities  are also
addressing the Year 2000 issue.  If not  successfully  addressed,  the Year 2000
issue could have material adverse  consequences on the Company.  The Company has
an  on-going,  enterprise-wide  project to address its Year 2000  issue.  During
1998, the Company will perform system-wide testing to support its plan of having
policy  administration  systems Year 2000  compliant by December 31, 1998.  Year
2000 work on remaining  systems will continue  through  1999.  In addition,  the
Company has contacted  other  entities on which it relies to process and support
its  business.  The  Company  will  react to their  plans to  achieve  Year 2000
compliance and will adjust operations as required.  The Company believes it will
successfully  address its Year 2000 issue without material adverse  consequences
to the Company.  However,  there can be no assurance  that other  entities  with
which the Company interacts will achieve

                                      -15-
<PAGE>

Year 2000  compliance  or that the failure by such entities to achieve Year 2000
compliance would not have a material adverse effect on the Company.

A.M. Best Rating

     A.M. Best,  which rates insurance  companies based on factors of concern to
policyholders,  currently assigns a Best's Rating of "A" (Excellent),  its third
highest rating category, to Farm Family Casualty.  A.M. Best assigns "A" or "A-"
ratings to companies which, in its opinion, have demonstrated  excellent overall
performance when compared to the standards  established by A.M. Best.  Companies
rated  "A"  or  "A-"  have  a  strong  ability  to  meet  their  obligations  to
policyholders  over a long period of time. In  evaluating a company's  financial
and  operating  performance,  A.M.  Best  reviews the  company's  profitability,
leverage and liquidity,  as well as the company's book of business, the adequacy
and soundness of its reinsurance,  the quality and estimated market value of its
assets,  the adequacy of its loss  reserves,  the  adequacy of its surplus,  its
capital  structure,  the  experience  and  competency of its  management and its
market presence. No assurance can be given that A.M. Best will not downgrade the
Company's current rating in the future.

Competition

     The property  and  casualty  insurance  market is highly  competitive.  The
Company competes with stock insurance  companies,  mutual  insurance  companies,
local  cooperatives  and  other  underwriting  organizations.  Certain  of these
competitors  have  substantially  greater  financial,  technical  and  operating
resources than the Company. The Company's ability to compete successfully in its
principal  markets  is  dependent  upon a  number  of  factors,  many  of  which
(including market and competitive conditions) are outside the Company's control.
Many of the lines of insurance written by the Company are subject to significant
price  competition.  Some  companies may offer  insurance at lower premium rates
through the use of salaried personnel or other methods,  rather than agents paid
on a commission basis, as the Company does. In addition to price, competition in
the lines of  business  written by the  Company  is based on the  quality of the
products,  quality and speed of service  (including  claims service),  financial
strength, ratings, distribution systems and technical expertise.

Seasonality

     Although the insurance business generally is not seasonal,  losses and loss
adjustment  expenses  tend to be higher  for  periods  of  severe  or  inclement
weather.

Employees

     The Company  shares most of its  employees  with Farm  Family  Life.  As of
December  31, 1997,  the total number of full time  employees of the Company and
Farm Family Life was 391 employees in  aggregate,  of which 286 were employed in
the home office.  Based on annual time studies,  66% of total employee expenses,
including  salary  expense,  is  currently  allocated  to the Company and 34% is
allocated to Farm Family Life and United Farm Family (see "Certain Relationships
and Related Transactions").  None of these employees are covered by a collective
bargaining  agreement,  and the Company believes that its employee relations are
good.

Effect of Regulation

     General

     The Company is regulated by  government  agencies in the states in which it
does business. Such regulation usually includes (i) regulating premium rates and
policy  forms,  (ii) setting  minimum  capital and surplus  requirements,  (iii)
regulating  guaranty  fund  assessments  and residual  markets,  (iv)  licensing
companies, adjusters and agents, (v) approving accounting methods and methods of
setting statutory loss and expense reserves,  (vi) setting  requirements for and
limiting the types and amounts of investments,  (vii) establishing  requirements
for the  filing  of  annual  statements  and  other  financial  reports,  (viii)
conducting   periodic  statutory   examinations  of  the  affairs  of  insurance
companies,  (ix)  approving  proposed  changes in control and (x)  limiting  the
amount of dividends that may be paid without prior regulatory approval.

     Insurance  companies  are also  affected  by a variety of state and federal
legislative  and  regulatory  measures  and judicial  decisions  that define and
extend the risks and benefits for which insurance is sought and provided.  These
include  redefinitions  of risk  exposure in areas such as  products  liability,
environmental  damage  and  workers'   compensation.   Certain  state  insurance
departments  and  legislatures  may prevent  premium  rates for some  classes of

                                      -16-
<PAGE>


insureds  from  reflecting  the level of risk  assumed by the  insurer for those
classes.  Several  states  place  restrictions  on the  ability of  insurers  to
discontinue  or withdraw from some lines of  insurance.  Such  developments  may
adversely affect the profitability of various lines of insurance.

Risk-Based Capital

     State  insurance  departments  have adopted a methodology  developed by the
NAIC for  assessing  the adequacy of statutory  surplus of property and casualty
insurers  which includes a risk-based  capital  formula that attempts to measure
statutory  capital  and surplus  needs based on the risks in a company's  mix of
products  and  investment  portfolio.  The  formula is  designed  to allow state
insurance regulators to identify potential  inadequately  capitalized companies.
Under the formula,  a company  determines its  "risk-based  capital"  ("RBC") by
taking into account  certain risks related to the  insurer's  assets  (including
risks  related  to its  investment  portfolio  and  ceded  reinsurance)  and the
insurer's  liabilities  (including  underwriting risks related to the nature and
experience of its insurance business).  The risk-based capital rules provide for
different levels of regulatory  attention  depending on the ratio of a company's
total  adjusted  capital  to its  "authorized  control  level" of RBC.  Based on
calculations made by the Company,  the risk-based  capital level for the Company
exceeds a level that would trigger regulatory  attention.  At December 31, 1997,
the  Company's  total  adjusted  capital was $94.6  million,  and the  threshold
requiring the least regulatory attention was $27.7 million.

     NAIC-IRIS Ratios

     The NAIC's Insurance  Regulatory  Information System ("IRIS") was developed
by a committee of state insurance regulators and is primarily intended to assist
state insurance departments in executing their statutory mandates to oversee the
financial condition of insurance companies operating in their respective states.
IRIS identifies 12 ratios for the property and casualty  insurance  industry and
specifies a range of "usual  values" for each ratio.  Departure  from the "usual
value" range on four or more ratios may lead to increased  regulatory  oversight
from  individual  state  insurance  commissioners.  The Company did not have any
ratios which varied from the "usual value" range in 1997, 1996 or 1995.

Risk Factors

     In  addition  to the normal  risks of  business,  the Company is subject to
significant  risk  factors,  including  but not  limited  to:  (i) the  inherent
uncertainty  in the process of  establishing  property-liability  loss reserves,
including  reserves for the cost of pollution claims, and the fact that ultimate
losses could  materially  exceed  established  loss reserves and have a material
adverse  effect on results  of  operations  and  financial  condition;  (ii) the
potential  material  adverse  impact  on its  financial  condition,  results  of
operations  and cash  flow of  losses  arising  out of  catastrophes;  (iii) the
insolvency or inability of any reinsurer to meet its  obligations to Farm Family
Casualty  may have a material  adverse  effect on the  business  and  results of
operations  of the Company;  (iv) the need for Farm Family  Casualty to maintain
appropriate  levels of statutory  capital and surplus,  particularly in light of
continuing  scrutiny  by rating  organizations  and state  insurance  regulatory
authorities,  and to maintain  acceptable  financial  strength and claims-paying
ability  ratings;  (v) the fact that there can be no assurance  that Farm Family
Casualty  will be able to  maintain  its current  A.M.  Best rating and that the
Company's  business  and results of  operations  could be  materially  adversely
affected by a rating  downgrade;  (vi) the fact that the  property  and casualty
market  is  highly   competitive   and  certain  of  its  competitors  may  have
substantially  greater  financial,  technical and operating  resources  than the
Company;  (vii) the extensive  regulation  and  supervision to which Farm Family
Casualty is subject, various regulatory initiatives that may affect the Company,
and regulatory and other legal actions involving the Company; (viii) Farm Family
Holdings'  primary  reliance,  as a  holding  company,  on  dividends  and other
payments  from  Farm  Family  Casualty  for funds to meet its  obligations,  and
regulatory restrictions on Farm Family Casualty to pay such dividends;  (ix) the
inherent  uncertainty in the economic  environment  may cause the quality of the
investments  currently held in the Company's investment portfolio to change; (x)
the impact on the revenues  and  profitability  of the Company  from  prevailing
economic,  regulatory,  demographic and other conditions in New York, New Jersey
and the other states in which the company  operates;  (xi) the fact that since a
substantial  portion of the Company's  business is  concentrated in a relatively
small  number of  states,  a  significant  change in or the  termination  of the
Company's  relationship  with the Farm  Bureaus in certain of these states could
have a materially  adverse  effect on the Company's  results of  operations  and
financial condition; and (xii) the Company has experienced,  and can be expected
in the future to experience,  storm and weather  related losses which may have a
material  adverse  impact on the  Company's  results  of  operations,  financial
condition and cash flow.

                                      -17-
<PAGE>


Safe Harbor Statement under The Private Securities Litigation Reform Act of 1995

     With the  exception of  historical  information,  the matters  discussed or
incorporated  by  reference  in this  Report  on Form  10-K are  forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 that are based on management's current knowledge, expectations,  estimates,
beliefs and assumptions.  The forward-looking  statements in this Report on Form
10-K  include,  but are not limited to,  statements  with respect to Farm Family
Holdings' potential acquisition of Farm Family Life, the impact of the potential
acquisition  of Farm Family Life on the earnings and  shareholder  value of Farm
Family  Holdings,  statements  regarding the Company's  ability to  successfully
address its Year 2000 issue, statements regarding the Company's dividend policy,
statements  regarding  the  Company's  plans to redeem its  outstanding  Surplus
Notes,  statements  regarding the  Company's  ability to adapt to changes in the
demographics  of  its  markets  and  in  the  nature  of  agricultural   related
businesses,  statements  regarding  the  ability  of the  Company's  reinsurance
arrangements to balance the geographical  concentrations of the Company's risks,
statements regarding the Company's  investment  objectives and expected rates of
return,  statements  regarding the adequacy of the Company's  reserves,  capital
resources and other financial  items,  statements of the plans and objectives of
the Company or its  management,  statements of future  economic  performance and
assumptions underlying statements regarding the Company or its business. Readers
are hereby  cautioned  that certain events or  circumstances  could cause actual
results to differ materially from those estimated,  projected, or predicted. The
forward-looking  statements  in this Report on Form 10-K are not  guarantees  of
future  performance  and  are  subject  to  a  number  of  important  risks  and
uncertainties, many of which are outside the Company's control, that could cause
actual results to differ materially.  These risks and uncertainties include, but
are not  limited to, the  results of  operations  of the Company and Farm Family
Life, fluctuations in the market value of shares of Farm Family Holdings' common
stock,  the  satisfaction  of the  closing  conditions  set forth in the  Option
Purchase  Agreement  (which  conditions  include,  but are not  limited  to, the
approval  of Farm Family  Holdings'  shareholders  and  receipt of all  required
governmental   approvals),   factors  relating  to  the  Company's   ability  to
successfully address its Year 2000 issue, the potential recision of the New York
Insurance  Department's  conditional  approval to redeem the  Company's  Surplus
Notes, exposure to catastrophic loss, geographic concentration of loss exposure,
general economic conditions and conditions specific to the property and casualty
insurance  industry  including  its  cyclical  nature,  regulatory  changes  and
conditions,  rating agency policies and practices,  competitive factors,  claims
development and the impact thereof on loss reserves and the Company's  reserving
policy, the adequacy of the Company's reinsurance programs,  developments in the
securities markets and the impact thereof on the Company's  investment portfolio
and other risk factors listed from time to time in the Company's  Securities and
Exchange  Commission  Filings.  Accordingly,  there can be no assurance that the
actual results will conform to the forward-looking  statements in this Report on
Form 10-K.

<TABLE>

Executive Officers of the Registrant
<CAPTION>
                                                                                     Date First Elected
                                                                                         Officer of
                                                                                        Registrant or
            Name             Age       Position Presently Held with Registrant           Subsidiary
---------------------------------------------------------------------------------------------------------
<S>                           <C>                                                            <C>
Philip P. Weber               49  President & Chief Executive Officer                        1987
James J. Bettini              43  Executive Vice President - Operations                      1990
Victoria M. Stanton           38  Executive Vice President,                                  1991
                                  General Counsel and Secretary
Timothy A. Walsh              36  Executive Vice President - Finance and Treasurer           1996
William T. Conine             49  Senior Vice President - Information Services of            1985
                                  Farm Family Casualty Insurance Company
Stuart C. Henderson           42  Senior Vice President - Casualty Operations of             1991
                                  Farm Family Casualty Insurance Company
Dale E. Wyman                 55  Senior Vice President - Marketing of Farm Family           1989
                                  Casualty Insurance Company

</TABLE>


There are no family  relationships  among any of such officers nor are there any
arrangements or  understandings  between any person pursuant to which he/she was
elected  as an  officer.  All  officers  serve at the  pleasure  of the Board of
Directors,  but subject to the foregoing, are elected for terms of approximately
one year until the next Annual Meeting of the Company.

                                      -18-
<PAGE>


All  the  Executive  Officers  of  the  Registrant  have  been  employed  by the
Registrant or its Subsidiary in various executive or  administrative  capacities
for at least five years, except for the following:

Mr. Walsh has served as Executive  Vice  President - Finance & Treasurer of Farm
Family  Holdings  since  December 1996 and Executive  Vice President - Finance &
Treasurer of Farm Family  Casualty since April 1997, as Executive Vice President
Finance  of Farm  Family  Casualty  from  December  1996 to April  1997,  and as
Treasurer of Farm Family  Holdings from October 1996 to December 1996. Mr. Walsh
was Senior Vice  President - Finance of Farm Family  Casualty from March 1996 to
December  1996, and was previously  Director of Corporate  Development  for Farm
Family Casualty from August 1995 to March 1996.  Previously,  Mr. Walsh was Vice
President, Finance & Chief Financial Officer with MPW Industrial Services, Inc.,
Columbus,  OH,  from  April 1994 to August  1995,  Corporate  Controller  of NSC
Corporation, Methuen, MA from July 1992 to April 1994 and Senior Manager at KPMG
Peat  Marwick  from July 1983 to July  1992.  Mr.  Walsh  currently  serves as a
director of MPW Industrial Services Group, Inc.

ITEM 2.  PROPERTIES

     The Company  currently  leases space for its home office in  Glenmont,  New
York  from Farm  Family  Life.  The lease  agreement  provides  for Farm  Family
Casualty to pay Farm Family Life an annual rental of approximately $760,000. The
lease expires on December 31, 1998. See "Related Party Transactions".

ITEM 3.  LEGAL PROCEEDINGS

     The  Company is subject to  litigation  in the normal  course of  business.
Based upon  information  presently  available to it,  management  believes  that
resolution of these legal actions will not have a material adverse effect on the
Company's  consolidated results of operations and financial condition.  However,
given the uncertainties attendant to litigation,  there can be no assurance that
the Company's  consolidated  results of operations and financial  condition will
not be materially adversely affected by any threatened or pending litigation.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None


                                      -19-

<PAGE>


                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
               STOCKHOLDER MATTERS

     The Company's common stock is traded on the New York Stock Exchange.  There
were  approximately  29,139 registered  holders of the Company's common stock at
March 2, 1998. The Company  currently intends to retain any earnings in order to
develop  its  business  and  support  its  operations,  and,  as such,  does not
anticipate  that it will pay any dividends to  stockholders  in the  foreseeable
future.  The  declaration of dividends in the future is at the discretion of the
Board of Directors of the Company, subject to certain regulatory constraints and
will depend upon,  among other  things,  the  Company's  results of  operations,
financial condition, cash requirements, future prospects and other factors.

     The high and low New York  Stock  Exchange  closing  market  prices for the
Company's  common  stock for each quarter  since the  Company's  initial  public
offering on July 26, 1996, at a price of $16 per share, were as follows:

<TABLE>

For the Quarter Ended                        High             Low
---------------------                        ----             ---

<S>                                        <C>             <C>
September 30, 1996                         19 1/8          16 1/2
December 31, 1996                          20 1/2          18 1/8
March 31, 1997                             23 1/2          19 1/2
June 30, 1997                              27 7/8          22 1/8
September 30, 1997                         32 1/8          27 7/8
December 31, 1997                         32 9/16          29 1/4
</TABLE>


                                      -20-
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

The  following  table  sets forth  certain  consolidated  financial  data of the
Company and its subsidiaries prior to and after the  reorganization  pursuant to
the Plan that took place during 1996. The consolidated  statement of income data
set forth below for the years ended December 31, 1997, 1996, 1995, 1994 and 1993
and the consolidated  balance sheet data as of December 31, 1997, 1996, 1995 and
1994 are derived from the consolidated financial statements of the Company which
have been  audited  by  Coopers  &  Lybrand  L.L.P,  independent  auditors.  The
consolidated  balance  sheet data as of December  31, 1993 was derived  from the
unaudited consolidated financial statements of the Company. The Company believes
that such unaudited  financial data fairly  reflect the  consolidated  financial
condition of the Company as of December  31,  1993.  This data should be read in
conjunction  with Item 7  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations as well as Item 8 Financial  Statements  and
Supplementary Data included elsewhere herein.
<TABLE>
<CAPTION>



         ($ in millions except per share data)                                 Year Ended December 31,
                                                                      1997      1996       1995      1994      1993
Statement of Income Data:                                             ----      ----       ----      ----      ----
        Revenues:
<S>                                                                  <C>       <C>        <C>       <C>        <C>
           Premiums                                                  $149.2    $130.8     $116.9    $101.5     $96.7
           Net investment income                                       18.1      15.9       14.3      13.2      13.8
           Net realized investment gains (losses), net                  5.4       (.6)       0.9       1.3      (0.2)
           Other income(1)                                              1.0       0.9        0.9       0.7       0.7
                                                                 ----------------------------------------------------
             Total revenues                                           173.7     147.0      133.0     116.7     111.0
                                                                 ----------------------------------------------------
         Losses and Expenses:
           Losses and loss adjustment expenses                        103.3      95.0       83.2      82.7      73.2
           Underwriting expenses                                       41.8      38.2       34.9      28.8      26.8
           Early retirement program expense                               -       1.2          -         -         -
           Interest and other expense                                   0.4       0.5        0.3       0.3       0.3
                                                                 ----------------------------------------------------
             Total losses and expenses                                145.5     134.9      118.4     111.8     100.3
                                                                 ----------------------------------------------------
        Income before federal income tax and extraordinary item        28.2      12.1       14.6       4.9      10.7
        Federal income tax expense                                      9.7       3.7        5.0       1.4       3.1
                                                                 ----------------------------------------------------
        Income before extraordinary item                               18.5       8.4        9.6       3.5       7.6
        Extraordinary item - Demutualization expense                      -       1.5          -         -         -
                                                                 ----------------------------------------------------
        Net Income                                                    $18.5      $6.9       $9.6      $3.5      $7.6
                                                                 ----------------------------------------------------
         Income before extraordinary item per share-Basic             $3.52     $2.13      $3.20     $1.18     $2.53
                                                                 ----------------------------------------------------
         Income before extraordinary item per share-Diluted           $3.51     $2.13      $3.20     $1.18     $2.53
                                                                 ----------------------------------------------------
         Net income per share-Basic                                   $3.52     $1.74      $3.20     $1.18     $2.53
                                                                 ----------------------------------------------------
         Net income per share-Diluted                                 $3.51     $1.74      $3.20     $1.18     $2.53
                                                                 ----------------------------------------------------
         Weighted average shares outstanding(2)                   5,270,947 3,979,115  3,000,000 3,000,000 3,000,000
                                                                 ----------------------------------------------------

         Balance Sheet Data (at December 31):
           Total investments(3)                                      $280.4    $244.7     $207.9    $170.6    $177.7
           Total assets                                               368.3     319.4      278.3     243.1     244.1
           Long term debt                                               1.3       1.3        2.7       2.7       2.8
           Total liabilities                                          238.4     208.7      204.1     190.1     183.6
           Total equity(3)                                            129.9     110.7       74.2      53.0      60.5
         Book value per share                                        $24.73    $21.08     $24.72    $17.66    $20.17
                                                                 ----------------------------------------------------
         GAAP Ratios:
         Loss and loss adjustment expense ratio(4)                    69.2%     72.6%      71.1%     81.5%     75.7%
         Underwriting expense ratio(5)                                28.0%     29.2%      29.8%     28.4%     27.7%
         Combined ratio(6)                                            97.2%    101.8%     100.9%    109.9%    103.4%
         Statutory Ratios:
         Statutory Combined Ratio(7)                                  95.6%    101.8%     101.0%    108.9%    104.2%
         Statutory Surplus                                           $94.6     $83.2      $55.9     $42.9     $39.1
           Ratio of annual written premiums to  surplus -
                 statutory basis(8)                                   1.68x     1.61x      2.16x     2.46x     2.52x
-----------------------------------------------------------------
</TABLE>

(1)  Primarily  represents  service  fee income on the  Company's  property  and
     casualty insurance business.

(2)  Gives  effect  to  the   allocation   of   3,000,000   shares  to  eligible
     policyholders  on  July  26,  1996  pursuant  to  Farm  Family   Casualty's
     conversion from a mutual company to a stockholder owned company.

(3)  Due to the  adoption by the  Company on December  31, 1993 of SFAS No. 115,
     "Accounting for Certain  Investments in Debt and Equity  Securities," total
     investments and  policyholders'  equity were adjusted to reflect changes in
     market value, which resulted in an increase of $6.8 million, a reduction of
     $11.1  million and an increase of $11.7  million as of December  31,  1993,
     1994 and 1995, respectively.

(4)  Calculated by dividing losses and loss adjustment expenses by premiums.

(5)  Calculated by dividing underwriting expenses by premiums.

(6)  The sum of the Loss and Loss Adjustment  Expense Ratio and the Underwriting
     Expense Ratio.

(7)  The sum of the  Loss & Loss  Adjustment  Expense  Ratio  and the  ratio  of
     statutory underwriting expense divided by net written premium

(8)  Calculated  by dividing  statutory  net written  premiums for the period by
     statutory surplus at the end of the period.

                                      -21-
<PAGE>


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS


The "Management's  Discussion and Analysis of Financial Condition and Results of
Operations"  on pages 12 - 18 of the  Annual  Report is  incorporated  herein by
reference.



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company, including the accompanying
notes  to the  consolidated  financial  statements  and  Report  of  Independent
Accountants  on pages 19 - 38 of the Annual  Report are  incorporated  herein by
reference.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
             ACCOUNTING AND FINANCIAL DISCLOSURE

There were no disagreements with the Company's independent auditors.


                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Certain  information  regarding  directors  of the Company  located in the Proxy
Statement  under the caption "Item  1-Election  of  Directors"  is  incorporated
herein by reference .

Information  regarding  executive officers of the Company in Item 1 of Part 1 of
this  Report  under  the  caption  "Executive  Officers  of the  Registrant"  is
incorporated herein by reference.

Information  required by Item 405 of Regulation S-K of the  Securities  Exchange
Act of 1934  located in the Proxy  Statement  under the caption  "Section  16(a)
Beneficial Ownership Reporting Compliance" is incorporated herein by reference.


ITEM 11.   EXECUTIVE COMPENSATION

Information  regarding  executive  compensation  located in the Proxy  Statement
under the captions "Item 1 - Election of Directors - Compensation of Directors",
"Executive  Compensation - Summary Compensation Table, Options,  Severance Plan,
Pension  Benefits,  Change of Control  Arrangements and  Compensation  Committee
Interlocks and Insider Participation" is incorporated herein by reference.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT

Information  regarding  security  ownership  of  certain  beneficial  owners and
management  located in the Proxy Statement under the caption "Stock Ownership of
Management and Certain Beneficial Owners" is incorporated herein by reference.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information  regarding certain relationships and related transactions located in
the Proxy  Statement  under  the  caption  "Certain  Relationships  and  Related
Transactions" is incorporated herein by reference.


                                      -22-
<PAGE>


                                     PART IV


ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
               FORM 8-K




                (a) 1
                and 2    An  "Index  to  Financial  Statements  and  Financial
                         Statement  Schedules"  has been filed as a part of this
                         Report beginning on page S-1 hereof.

                (a) 3    Exhibits:

                         An  "Exhibit  Index"  has been  filed as a part of this
                         Report   beginning  on  page  E-Index   hereof  and  is
                         incorporated herein by reference.

                (b)      Reports on Form 8-K:

                         On  October  16,  1997,  a Report on Form 8-K was filed
                         regarding a press release  announcing  the beginning of
                         an  Odd-Lot   Shareowner  Program  which  provided  all
                         stockholders  owning  fewer  than 100  shares of common
                         stock of the Company with  convenient  means of selling
                         their shares in the open market at a reduced  brokerage
                         fees and without any cost to the Company.

                         On  October  29,  1997,  a Report on Form 8-K was filed
                         regarding  a press  release  announcing  the  Company's
                         operating  results for the three  month  period and the
                         nine month period ended September 30, 1997

                         On December  16,  1997,  a Report on Form 8-K was filed
                         regarding a press release  announcing  that a committee
                         of   its   independent   directors   and  a   committee
                         representing  the shareholders of Farm Family Life have
                         negotiated the proposed  exercise price, and a revision
                         of the  form of  consideration  to be paid,  under  the
                         Option Purchase Agreement pursuant to which Farm Family
                         Holdings,  Inc.  has an option to acquire  Farm  Family
                         Life.



<PAGE>


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                        FARM FAMILY HOLDINGS, INC.


                                     By:     /s/ Philip P. Weber
                                     -----------------------------
                                        Philip P. Weber, President
                                        March 25, 1998



<PAGE>


SIGNATURES

Pursuant to the requirements of Securities Exchange Act of 1934, this report has
been signed below by the following  persons on behalf of the  Registrant  and in
the capacities and on the dates indicated.
<TABLE>



                                 President  and CEO
<S>                              <C>                                     <C>                       <C>
/s/ Philip P. Weber              (Principal Executive Officer)           /s/ Arthur D. Keown, Jr.  Director
---------------------------------                                        --------------------------
Philip P. Weber                  February 26, 1998                       Arthur D. Keown, Jr.      February 26, 1998

                                 Executive Vice President - Finance &
                                 Treasurer                                                         Director
/s/ Timothy A. Walsh             (Principal Financial & Accounting       /s/ Daniel R. LaPointe
                                 Officer)
---------------------------------                                        --------------------------
Timothy A. Walsh                 February 26, 1998                       Daniel R. LaPointe        February 26, 1998


/s/ Robert L. Baker              Director                                /s/ John W. Lincoln       Director
---------------------------------                                        --------------------------
Robert L. Baker                  February 26, 1998                       John W. Lincoln           February 26, 1998


/s/ Randolph C. Blackmer, Jr.    Director                                /s/ Wane A. Mann          Director
---------------------------------                                        --------------------------
Randolph C. Blackmer, Jr.        February 26, 1998                       Wayne A. Mann             February 26, 1998


                                 Director                                /s/ John P. Moskos        Director
---------------------------------                                        --------------------------
Fred G. Butler, Sr.              February 26, 1998                       John P. Moskos            February 26, 1998


/s/ Joseph E. Calhoun            Director                                /s/ Norma R. O'Leary      Director
---------------------------------                                        --------------------------
Joseph E. Calhoun                February 26, 1998                       Norma R. O'Leary          February 26, 1998


/s/ Jonathan M. Carpentar        Director                                /s/ John I. Rigolizzo, Jr.Director
---------------------------------                                        --------------------------
Jonathan M. Carpentar            February 26, 1998                       John I. Rigolizzo, Jr.    February 26, 1998


/s/ James V. Crane               Director                                /s/ Howard T. Sprow       Director
---------------------------------                                        --------------------------
James V. Crane                   February 26, 1998                       Howard T. Sprow           February 26, 1998


/s/ Stephen J. George            Director                                /s/ William M. Stamp, Jr. Director
---------------------------------                                        --------------------------
Stephen J. George                February 26, 1998                       William M. Stamp, Jr.     February 26, 1998


/s/ Gordon H. Gowen              Director                                /s/ Richard D. Tryon      Director
---------------------------------                                        --------------------------
Gordon H. Gowen                  February 26, 1998                       Richard D. Tryon          February 26, 1998


/s/ John R. Greenwood            Director                                /s/ Charles A. Wilfong    Director
---------------------------------                                        --------------------------
Jon R. Greenwood                 February 26, 1998                       Charles A. Wilfong        February 26, 1998


/s/ Clark W. Hinsdale III        Director                                /s/ Tyler P. Young        Director
---------------------------------                                        --------------------------
Clark W. Hinsdale III            February 26, 1998                       Tyler P. Young            February 26, 1998


/s/ Richard A. Jerome            Director
---------------------------------
Richard A. Jerome                February 26, 1998

</TABLE>


<PAGE>


                   FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
         INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
                          Year Ended December 31, 1997

The  following  consolidated  financial  statements,  notes  thereto and related
information of Farm Family  Holdings,  Inc. and  Subsidiaries  are  incorporated
herein by reference to the Company's Annual Report.

                                                                   Page in
                                                                 Annual Report

Consolidated Statements of Income                                      19

Consolidated Balance Sheets                                            20

Consolidated Statements of Stockholders' Equity                        21

Statements of Consolidated Cash Flows                                  22

Notes to Consolidated Financial Statements                             23

Report of Independent Accountants                                      38


The following  additional  financial  statement schedules are furnished herewith
pursuant to the requirements of Form 10-K.


                                                                     Page

Report of Independent Accountants                                     S-2

Schedule I    Summary of Investments - Other than Investments
              in Related Parties                                      S-3

Schedule II   Condensed Financial Information of the Registrant       S-4

Schedule IV   Reinsurance                                             S-8

Schedule VI   Supplemental Information Concerning
              Property - Casualty Insurance Operations                S-9




















                                       S-1


<PAGE>





                        Report of Independent Accountants




To the Shareholders and Board of Directors
of Farm Family Holdings, Inc.


Our report on the  consolidated  financial  statements of Farm Family  Holdings,
Inc. and Subsidiaries has been  incorporated by reference in this Form 10-K from
page 38 of the 1997 Annual Report to Shareholders of Farm Family Holdings,  Inc.
and Subsidiaries. In connection with our audits of such financial statements, we
have also audited the related financial  statement schedules listed in the index
on page S-1 of this Form 10-K

In our  opinion,  the  financial  statement  schedules  referred to above,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
present  fairly,  in all  material  respects,  the  information  required  to be
included therein.




Coopers & Lybrand L.L.P.



Albany, New York
February 13, 1998








                                       S-2


<PAGE>


                   FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
                       SCHEDULE 1 - SUMMARY OF INVESTMENTS
                    OTHER THAN INVESTMENTS IN RELATED PARTIES
                                DECEMBER 31, 1997

<TABLE>
<CAPTION>

($ in thousands)
                                                                             Cost
                                                                          Amortized/                    Balance Sheet
Type of Investment                                                           Cost        Fair Value    Carrying Value
------------------                                                           ----        ----------    --------------

  Available for sale
    Fixed maturities:
<S>                                                                          <C>            <C>               <C>
         United States Government and government agencies                    $18,905        $19,540           $19,540
         States, municipalities and political subdivisions                    51,166         54,007            54,007
         Public utilities                                                     26,180         26,484            26,484
         Corporate                                                           127,056        132,416           132,416
         Mortgage-backed securities                                           18,516         19,195            19,195
         Redeemable preferred stock                                            7,161          7,557             7,557
                                                                       -----------------------------------------------
           Total fixed maturities                                            248,984        259,199           259,199
                                                                       -----------------------------------------------

    Equity securities:
       Common stocks:
         Public utilities                                                      1,219          1,693             1,693
         Banks, trusts and insurance companies                                   169            320               320
         Industrial and miscellaneous                                          1,975          2,508             2,508
                                                                       -----------------------------------------------
           Total equity securities                                             3,363          4,521             4,521
                                                                       -----------------------------------------------

           Total available for sale                                          252,347        263,720           263,720
                                                                       -----------------------------------------------

  Fixed maturities held to maturity
    States, municipalities and political subdivisions                          4,603          4,683             4,603
    Corporate                                                                  4,252          4,511             4,252
                                                                       -----------------------------------------------
           Total held to maturity                                              8,855          9,194             8,855
                                                                       -----------------------------------------------

    Mortgage loans on real estate                                              1,660          1,660             1,660
    Short-term investments                                                     5,643          5,643             5,643
    Other invested assets                                                        553            553               553
                                                                       -----------------------------------------------

           Total investments                                                $269,058       $280,770          $280,431
                                                                       -----------------------------------------------
</TABLE>


                                       S-3


<PAGE>


                  FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
                                   SCHEDULE II
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF OPERATIONS
<TABLE>

                                ($ in Thousands)
<CAPTION>

                                                                                         For the Year Ended December 31,
                                                                                         -------------------------------
                                                                                             1997                 1996
                                                                                             ----                 ----
       Revenues:
<S>                                                                                           <C>                  <C>
          Investment income                                                                   $608                 $319

       Expenses:
          General and administrative expenses                                                1,347                  580
                                                                            --------------------------------------------

       Loss before federal income tax benefit                                                 (739)                (261)

       Federal income tax benefit                                                              125                   87
                                                                            --------------------------------------------

       Net loss from operations                                                               (614)                (174)

       Income from investments in subsidiaries                                              19,118                7,098
                                                                            --------------------------------------------

       Net income                                                                          $18,504               $6,924
                                                                            --------------------------------------------


</TABLE>




                                       S-4


<PAGE>


                  FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
                                   SCHEDULE II
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                 BALANCE SHEETS
                                ($ in Thousands)
<TABLE>

<CAPTION>


                                                                                                   As of December 31,
                                                                                                   ------------------
Assets:                                                                                         1997               1996
                                                                                                ----               ----
<S>                                                                                           <C>                <C>
   Fixed Maturities Available for Sale                                                        $7,567             $7,438
   Investment in Subsidiaries                                                                120,212            100,419
   Short-term Investments                                                                      1,808              3,350
   Cash                                                                                            1                  1
   Investment income due or accrued                                                              157                152
   Other Assets                                                                                  947                229
                                                                                ----------------------------------------
     Total Assets                                                                           $130,692           $111,589
                                                                                ----------------------------------------

Liabilities:
   Payable to Affiliates                                                                        $192               $356
   Deferred tax liability                                                                         25                 19
   Other Liabilities                                                                             548                473
                                                                                ----------------------------------------
     Total Liabilities                                                                           765                848
                                                                                ----------------------------------------

Commitments and Contingencies
Stockholders' Equity
   Common stock, $.01 par value, 10,000,000 shares authorized
          and 5,253,813 shares issued and outstanding                                             53                 53
   Additional paid in capital                                                                 35,337             35,337
   Retained earnings                                                                          94,428             75,316
   Unrealized investment gains                                                                   109                 35
                                                                                ----------------------------------------
     Total Stockholders' Equity                                                              129,927            110,741
                                                                                ----------------------------------------
     Total Liabilities and Stockholders' Equity                                             $130,692           $111,589
                                                                                ----------------------------------------

</TABLE>



                                       S-5


<PAGE>
<TABLE>
<CAPTION>


                  FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
                                   SCHEDULE II
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF CASH FLOWS
                                ($ in Thousands)
                                                                                        For the Year Ended December 31,
                                                                                        -------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:                                                       1997                   1996
-------------------------------------                                                       ----                   ----
<S>                                                                                      <C>                     <C>
   Net Income                                                                            $18,504                 $6,924

   Amortization of bond discount                                                            (17)                    (4)
   Deferred income taxes                                                                    (31)                      -
   Changes in:
       Equity in net income of subsidiary                                               (19,118)                (7,098)
       Accrued investment income                                                             (5)                  (152)
       Other assets, net                                                                   (716)                  (180)
       Payable to affiliates                                                               (164)                    356
       Other liabilities                                                                      75                   (72)
                                                                          ----------------------------------------------
   Total adjustments                                                                    (19,976)                (7,150)
                                                                          ----------------------------------------------
   Net Cash Used in Operating Activities                                                 (1,472)                  (226)
                                                                          ----------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Investment Purchases:
       Investment in subsidiary                                                             (70)               (20,001)
       Fixed maturities available for sale                                                     -                (7,380)
       Change in short-term investments                                                    1,542                (3,350)
                                                                          ----------------------------------------------
   Net Cash Provided by (Used in) Investing Activities                                     1,472               (30,731)
                                                                          ----------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from IPO & Subscription Offerings                                                  -                 44,880
   Demutualization payments to policyholders and noteholders                                   -               (12,842)
   IPO expenses paid                                                                           -                (1,080)
                                                                          ----------------------------------------------
    Net Cash Provided by Financing Activities                                                  -                 30,958
                                                                          ----------------------------------------------
    Net Change in Cash                                                                         -                      1

Cash, beginning of year                                                                        1                      -
                                                                          ----------------------------------------------
Cash, end of year                                                                             $1                     $1
                                                                          ----------------------------------------------
</TABLE>









                                       S-6


<PAGE>


                  FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
                                   SCHEDULE II
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                    NOTES TO CONDENSED FINANCIAL INFORMATION
                                ($ in Thousands)


Basis of Presentation

The financial  statements of the registrant  should be read in conjunction  with
the  Consolidated  Financial  Statements and notes thereto  included in the Farm
Family Holdings, Inc. 1997 Annual Report.

The accompanying  condensed financial  information includes the accounts of Farm
Family Holdings,  Inc. Farm Family  Holdings,  Inc. was incorporated on February
14, 1996.












                                       S-7


<PAGE>


                  FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
                                   SCHEDULE IV
                                   REINSURANCE
                                ($ in Thousands)
<TABLE>
<CAPTION>

                                                                      Earned Premiums
                                                                      ---------------
                                                                                                    Percentage
                                                                          Assumed from               of Amount
                                              Gross      Ceded to Other       Other                 Assumed to
                                              Amount        Companies       Companies Net Amount        Net
                                          --------------------------------------------------------------------

Year Ended December 31, 1997
<S>                                          <C>              <C>           <C>        <C>               <C>
Property/Casualty Insurance                  $160,988         $22,454       $10,686    $149,220          7.2%

Year Ended December 31, 1996
Property/Casualty Insurance                   142,794          18,945         6,931     130,780          5.3%

Year Ended December 31, 1995
Property/Casualty Insurance                   131,717          21,333         6,552     116,936          5.6%

</TABLE>




                                       S-8


<PAGE>

                   FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
                                   SCHEDULE VI
                SUPPLEMENTAL INFORMATION CONCERNING CONSOLIDATED
                     PROPERTY-CASUALTY INSURANCE OPERATIONS
                                ($ in Thousands)

<TABLE>
<CAPTION>



                           Reserve for                                                Adjustment
                              Unpaid                                                    Expense
                              Claims                                                   Incurred   Amortization Paid Claims
                  Deferred   & Claim    Discount                             Net      Related to   of Deferred   and Claim
                Acquisition Adjustment   if any     Unearned     Earned  Investment Current  Prior Acquisition Adjustment    Premium
                   Costs     Expenses   Deducted    Premiums    Premiums   Income    Year     Year    Costs     Expenses     Written
Affiliation with
Registrant
---------------------------
<S>                 <C>       <C>                    <C>        <C>       <C>     <C>       <C>       <C>       <C>         <C>
Year Ended
December 31, 1997
Property and
Casualty business   $ 12,613  $156,622               $66,069    $149,220  $18,077 $107,273  $(3,972)  $28,794   $90,116     $159,245

Year Ended
December 31, 1996
Property and
Casualty business     10,682   141,220                55,945     130,780   15,952  100,418   (5,441)   26,348    89,917      133,844

Year Ended
December 31, 1995
Property and
Casualty business     10,527   137,978                52,799     116,936   14,326   88,366   (5,182)   23,162    73,585      120,834





</TABLE>

                                       S-9
<PAGE>
<TABLE>
<CAPTION>

                                  EXHIBIT INDEX

                      FARM FAMILY HOLDINGS, INC. FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 1997
                                                                                                            Sequential
                                                                                                           Page Number
Exhibit Number       Document Description

<S>                  <C>                                                                                       <C>
*2.1                 Plan  of  Reorganization  and  Conversion  dated  February  14,  1996 as  amended  by
                     Amendment No. 1, dated April 23, 1996

*3.1                 Certificate of Incorporation of Farm Family Holdings, Inc.

*3.2                 Bylaws of Farm Family Holdings, Inc.

  4.1                Rights Agreement, dated as of July 29, 1997, between the Company and The Bank of New
                     York (incorporated by reference to Exhibit 4.1 to the Company's Current Report of
                     Form 8-K filed with the Securities and Exchange Commission on July 30, 1997)
 10.1                Option Purchase Agreement,  dated February 14, 1996, among Farm Family Holdings, Inc.
                     and  The   Shareholders  of  Farm  Family  Life  Insurance   Company  Listed  Therein
                     (Incorporated  by reference to  Registration  Statement  No.  333-4446) as amended by
                     Amendment  No.  1  to  Option  Purchase  Agreement,   dated  as  of  April  22,  1997
                     (Incorporated  by reference to Farm Family  Holdings,  Inc. Form 10-Q for the quarter
                     ended June 30, 1997)

**10.2               Amended and Restated  Expense  Sharing  Agreement,  made effective as of February 14,
                     1996, by and among Farm Family Mutual Insurance  Company,  Farm Family Life Insurance
                     Company and Farm Family Holdings, Inc.

*10.3                Indenture  of  Lease,  made  the 1st day of  January  1988,
                     between Farm Family Life Insurance  Company and Farm Family
                     Mutual  Insurance  Company as amended by the  Amendment  to
                     Lease, effective January 1, 1994

 10.4                Underlying  Multi-Line  Per Risk  Reinsurance  Contract,  effective  January 1, 1995,     E-3
                     issued to Farm  Family  Mutual  Insurance  Company by The  Subscription  Reinsurer(s)
                     Executing the Interests and Liabilities  Agreement(s) Attached Thereto, as amended by
                     Addendum No. 1, effective January 1, 1996  (Incorporated by reference to Registration
                     Statement No. 333-4446),  Addendum No. 2, effective January 1, 1996,  Addendum No. 3,
                     effective  July 26, 1996  (Incorporated  by reference to Farm Family  Holdings,  Inc.
                     1997 Form 10-K for the year ended  December  31,  1996),  Addendum  No. 4,  effective
                     January 1, 1997  (Incorporated by reference to Farm Family  Holdings,  Inc. Form 10-Q
                     for the quarter ended March 31, 1997), and Termination  Addendum,  effective December
                     31, 1997

 10.5                Umbrella Quota Share Reinsurance Contract,  effective January 1, 1995, issued to Farm     E-4
                     Family Mutual Insurance Company and United Farm Family Insurance Company,  as amended
                     by  Addendum  No.  1,  effective  January  1,  1995  (Incorporated  by  reference  to
                     Registration  Statement  No.  333-4446),  and Addendum No. 2 effective  July 26, 1996
                     (Incorporated by reference to Farm Family Holdings,  Inc. 1997 Form 10-K for the year
                     ended December 31, 1996),  Addendum No. 3, effective January 1, 1997 (Incorporated by
                     reference to Farm Family  Holdings,  Inc.  Form 10-Q for the quarter  ended March 31,
                     1997), and Termination Addendum, effective January 1, 1998

*10.8                Service  Agreement,  made  effective  as of July 25, 1988 by and between  Farm Family
                     Mutual Insurance Company and United Farm Family Insurance Company

                                      E-1
<PAGE>


                                                                                                            Sequential
                                                                                                           Page Number
Exhibit Number       Document Description

 10.9                Form of Membership  List  Purchase  Agreement  between Farm Family  Mutual  Insurance
                     Company and each of the Farm  Bureaus  (Incorporated  by  reference  to  Registration
                     Statement No.  333-4446) as amended by Amendment  No. 1 to  Membership  List Purchase
                     Agreements  effective  July  26  1996  (Incorporated  by  reference  to  Farm  Family
                     Holdings, Inc. Form 10-Q for the quarter ended March 31, 1997)

*10.10               Farm Family Mutual Insurance Company 8% Subordinated Surplus Certificate,  as amended
                     by Certificate of Amendment No. 1 and Trust Indenture,  dated as of December 26, 1976
                     relating to the 8% Subordinated Surplus Certificates

*10.11               Farm Family Mutual  Insurance  Company 5%  Debenture,  as amended by  Certificate  of
                     Amendment,  effective  January 1, 1969,  Certificate  of Amendment  No. 2,  effective
                     January 1, 1979,  Certificate of Amendment No. 3 and  Supplemental  Trust  Indenture,
                     dated as of August  25,  1955  Amending  Trust  Indenture,  dates as of May 16,  1955
                     Relating to The 5% Debentures,  as amended by  Certificate of Amendment,  dated as of
                     August 25,  1955,  Certificate  of  Amendment  No. 2,  dated as of August  25,  1955,
                     Certificate of Amendment No. 3 dated as of August 25, 1955

 10.12               Farm Family Life Insurance Company, Farm Family Casualty Insurance Company, Farm
                     Family Holdings, Inc. Officer Severance Pay Plan Effective July 29, 1997
                     (Incorporated by reference to Farm Family Holdings, Inc. Form 10-Q for the quarter
                     ended September 30, 1997)

*10.13               Farm Family Mutual Insurance Company  Supplemental  Employee Retirement Plan, adopted
                     as of January 1, 1994

**10.14              Farm Family Holdings,  Inc. Directors' Deferred  Compensation Plan, effective January
                     1, 1997

**10.15              Farm Family Holdings,  Inc. Officers' Deferred  Compensation Plan,  effective January
                     1, 1997

**10.16              Farm Family Holdings, Inc. Annual Incentive Plan effective January 1, 1997

  10.17              Farm Family  Supplemental Profit Sharing and Money Purchase Plan effective January 1,
                     1997

**10.18              Tax  Payment  Allocation  Agreement  effective  January 1, 1996 by and  between  Farm
                     Family Holdings, Inc. and Farm Family Casualty Insurance Company

  10.19              Excess  Catastrophe  Reinsurance  Contract issued to Farm Family  Casualty  Insurance
                     Company  effective  January  1,  1997  (Incorporated  by  reference  to  Farm  Family
                     Holdings, Inc. Form 10-Q for the quarter ended March 31, 1997)

  10.20              Farm Family  Holdings,  Inc.  Omnibus  Securities Plan, as amended by Amendment No. 1
                     dated  February 13, 1997  (Incorporated  by reference to the Proxy  Statement of Farm
                     Family Holdings, Inc. dated March 7, 1997)

 13                  Farm Family Holdings, Inc. 1997 Annual Report                                             E-9

 21                  Subsidiaries of the Registrant                                                            E-41


*Incorporated by reference to Registration Statement No. 333-4446

**Incorporated by reference to Farm Family Holdings, Inc. Form 10-K for the year
  ended December 31, 1996

</TABLE>

                                      E-2

<PAGE>




Exhibit 10.4

                              Termination Addendum

                                     to the

                         Underlying Multi-Line Per Risk
                              Reinsurance Contract
                           Effective: January 1, 1995

                                    issued to

                     Farm Family Casualty Insurance Company
                               Glenmont, New York
                   (hereinafter referred to as the "Company")

                                   and to the

                       Interests and Liabilities Agreement

                                       of

United Farm Family Insurance Company
Glenmont, New York
            (hereinafter referred to as the "Subscribing Reinsurer")

                                attached thereto



It Is Hereby  Agreed  that  this  Contract  and the  Interests  and  Liabilities
Agreement  under  which  the  Subscribing  Reinsurer  has a  100%  share  in the
interests and liabilities of the "Reinsurer" shall be terminated on December 31,
1997, with respect to losses occurring after that date as respects Coverage A of
Article V and losses  arising out of occurrences  commencing  after that date as
respects Coverage B of Article V.

In Witness  Whereof,  the parties  hereto by their  respective  duly  authorized
representatives have executed this Addendum as of the dates undermentioned at:

Glenmont,  New York,  this  _______  day of  ___________________________________
199___.

-----------------------------------------------------
Farm Family Casualty Insurance Company

Glenmont, New York,        this _______ day of __________________________199___.

-----------------------------------------------------
            United Farm Family Insurance Company

                                      E-3
<PAGE>


Exhibit 10.5

                              Termination Addendum

                                     to the

                              Umbrella Quota Share
                              Reinsurance Contract
                           Effective: January 1, 1995

                                    issued to

                     Farm Family Casualty Insurance Company
                               Glenmont, New York
                   (hereinafter referred to as the "Company")

                                   and to the

                       Interests and Liabilities Agreement

                                       of

United Farm Family Insurance Company
                               Glenmont, New York
                (hereinafter referred to as "United Farm Family")

                                attached thereto


It Is Hereby  Agreed  that  this  Contract  and the  Interests  and  Liabilities
Agreement  under which United Farm Family has a 5.0% part of the Company's 10.0%
retention of its net  liability on Coverage A business  subject  hereto shall be
terminated at 12:01 a.m., January 1, 1998.

It Is Further  Agreed that United  Farm Family  shall  return to the Company its
5.0% share of the ceded  unearned  Coverage  A premium  in force at 12:01  a.m.,
January 1, 1998 (less commission allowed thereon), as promptly as possible after
that date. In consideration thereof,  United Farm Family shall have no liability
hereunder  with respect to losses  arising out of  occurrences  commencing at or
after the effective time and date of termination.

In Witness  Whereof,  the parties  hereto by their  respective  duly  authorized
representatives have executed this Addendum as of the dates undermentioned at:

Glenmont,  New York,  this  _______  day of  ___________________________________
199___.

-----------------------------------------------------
Farm Family Casualty Insurance Company

Glenmont,  New York,  this  ________ day of  ___________________________________
199___.

-----------------------------------------------------
United Farm Family Insurance Company

                                      E-4

<PAGE>


                              Termination Addendum

                                     to the

                              Umbrella Quota Share
                              Reinsurance Contract
                           Effective: January 1, 1995

                                    issued to

                     Farm Family Casualty Insurance Company
                               Glenmont, New York
                   (hereinafter referred to as the "Company")

                                   and to the

                       Interests and Liabilities Agreement

                                       of

Continental Casualty Company
Chicago, Illinois
            (hereinafter referred to as the "Subscribing Reinsurer")

                                attached thereto


It Is Hereby  Agreed  that  this  Contract  and the  Interests  and  Liabilities
Agreement  under  which  the  Subscribing  Reinsurer  has a 27.5%  share  in the
interests and liabilities of the "Reinsurer"  shall be terminated at 12:01 a.m.,
January 1, 1998.

It Is Further Agreed that the Subscribing  Reinsurer shall return to the Company
its 27.5% share of the ceded unearned premium in force at 12:01 a.m., January 1,
1998 (less commission allowed thereon), as promptly as possible after that date.
In  consideration  thereof,  the  Subscribing  Reinsurer shall have no liability
hereunder  with respect to losses  arising out of  occurrences  commencing at or
after the effective time and date of termination.

In Witness  Whereof,  the parties  hereto by their  respective  duly  authorized
representatives have executed this Addendum as of the dates undermentioned at:

Glenmont,  New York,  this  _______  day of  ___________________________________
199___.

-----------------------------------------------------
Farm Family Casualty Insurance Company

Chicago, Illinois,         this _______ day of __________________________199___.

-----------------------------------------------------
Continental Casualty Company

                                      E-5

<PAGE>


                              Termination Addendum

                                     to the

                              Umbrella Quota Share
                              Reinsurance Contract
                           Effective: January 1, 1995

                                    issued to

                     Farm Family Casualty Insurance Company
                               Glenmont, New York
                   (hereinafter referred to as the "Company")

                                   and to the

                       Interests and Liabilities Agreement

                                       of

Folksamerica Reinsurance Company
New York, New York
            (hereinafter referred to as the "Subscribing Reinsurer")

                                attached thereto


It Is Hereby  Agreed  that  this  Contract  and the  Interests  and  Liabilities
Agreement  under  which  the  Subscribing  Reinsurer  has a 12.5%  share  in the
interests and liabilities of the "Reinsurer"  shall be terminated at 12:01 a.m.,
January 1, 1998.

It Is Further Agreed that the Subscribing  Reinsurer shall return to the Company
its 12.5% share of the ceded unearned premium in force at 12:01 a.m., January 1,
1998 (less commission allowed thereon), as promptly as possible after that date.
In  consideration  thereof,  the  Subscribing  Reinsurer shall have no liability
hereunder  with respect to losses  arising out of  occurrences  commencing at or
after the effective time and date of termination.

In Witness  Whereof,  the parties  hereto by their  respective  duly  authorized
representatives have executed this Addendum as of the dates undermentioned at:

Glenmont,  New York,  this  _______  day of  ___________________________________
199___.

-----------------------------------------------------
Farm Family Casualty Insurance Company

New York, New York,        this _______ day of _________________________ 199___.

-----------------------------------------------------
Folksamerica Reinsurance Company

                                      E-6

<PAGE>


                              Termination Addendum

                                     to the

                              Umbrella Quota Share
                              Reinsurance Contract
                           Effective: January 1, 1995

                                    issued to

                     Farm Family Casualty Insurance Company
                               Glenmont, New York
                   (hereinafter referred to as the "Company")

                                   and to the

                       Interests and Liabilities Agreement

                                       of

Kemper Reinsurance Company
Long Grove, Illinois
            (hereinafter referred to as the "Subscribing Reinsurer")

                                attached thereto


It Is Hereby  Agreed  that  this  Contract  and the  Interests  and  Liabilities
Agreement  under  which  the  Subscribing  Reinsurer  has a 27.5%  share  in the
interests and liabilities of the "Reinsurer"  shall be terminated at 12:01 a.m.,
January 1, 1998.

It Is Further Agreed that the Subscribing  Reinsurer shall return to the Company
its 27.5% share of the ceded unearned premium in force at 12:01 a.m., January 1,
1998 (less commission allowed thereon), as promptly as possible after that date.
In  consideration  thereof,  the  Subscribing  Reinsurer shall have no liability
hereunder  with respect to losses  arising out of  occurrences  commencing at or
after the effective time and date of termination.

In Witness  Whereof,  the parties  hereto by their  respective  duly  authorized
representatives have executed this Addendum as of the dates undermentioned at:

Glenmont,  New York,  this  _______  day of  ___________________________________
199___.

-----------------------------------------------------
Farm Family Casualty Insurance Company

Long Grove, Illinois,      this _______ day of _________________________199___.

-----------------------------------------------------
Kemper Reinsurance Company

                                      E-7

<PAGE>


                              Termination Addendum

                                     to the

                              Umbrella Quota Share
                              Reinsurance Contract
                           Effective: January 1, 1995

                                    issued to

                     Farm Family Casualty Insurance Company
                               Glenmont, New York
                   (hereinafter referred to as the "Company")

                                   and to the

                       Interests and Liabilities Agreement

                                       of

Signet Star Reinsurance Company
Wilmington, Delaware
            (hereinafter referred to as the "Subscribing Reinsurer")

                                attached thereto


It Is Hereby  Agreed  that  this  Contract  and the  Interests  and  Liabilities
Agreement  under  which  the  Subscribing  Reinsurer  has a 32.5%  share  in the
interests and liabilities of the "Reinsurer"  shall be terminated at 12:01 a.m.,
January 1, 1998.

It Is Further Agreed that the Subscribing  Reinsurer shall return to the Company
its 32.5% share of the ceded unearned premium in force at 12:01 a.m., January 1,
1998 (less commission allowed thereon), as promptly as possible after that date.
In  consideration  thereof,  the  Subscribing  Reinsurer shall have no liability
hereunder  with respect to losses  arising out of  occurrences  commencing at or
after the effective time and date of termination.

In Witness  Whereof,  the parties  hereto by their  respective  duly  authorized
representatives have executed this Addendum as of the dates undermentioned at:

Glenmont,  New York,  this  _______  day of  ___________________________________
199___.

-----------------------------------------------------
Farm Family Casualty Insurance Company

Florham Park,  New Jersey,  this _______ day of  _______________________________
199___.

-----------------------------------------------------
                         Signet Star Reinsurance Company

                                      E-8
<PAGE>
Exhibit 13

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

General

Corporate Profile
The  following  discussion  and analysis of financial  condition  and results of
operations  includes the operations of Farm Family Holdings,  Inc. ("Farm Family
Holdings") and its wholly owned  subsidiaries  (collectively  referred to as the
"Company").  The  primary  subsidiary  of Farm  Family  Holdings  is Farm Family
Casualty  Insurance  Company  ("Farm Family  Casualty").  The  operations of the
Company are also closely related with those of its affiliates,  Farm Family Life
Insurance  Company  ("Farm  Family  Life") and Farm Family  Life's  wholly owned
subsidiary, United Farm Family Insurance Company ("United Farm Family").

Farm Family
Farm Family  Casualty is a specialized  property and casualty  insurer of farms,
other  generally  related   businesses  and  residents  of  rural  and  suburban
communities  principally in the Northeastern United States. Farm Family Casualty
provides property and casualty insurance  coverages to members of the state Farm
Bureau(R) organizations in New York, New Jersey, Delaware, West Virginia and all
of the New England states.  Membership in a state Farm Bureau  organization is a
prerequisite for insurance coverage (except for employees of the Company and its
affiliates).  During 1997, the Company created Farm Family  Financial  Services,
Inc., a wholly owned subsidiary.  Farm Family Financial  Services,  Inc. entered
into a mutually beneficial  agreement with a national  broker-dealer that allows
the  Company's  agents to offer  mutual funds and other  securities  products to
their clients.

Farm  Family  Holdings  entered  into an  Option  Purchase  Agreement  with  the
shareholders of Farm Family Life pursuant to which Farm Family Holdings has, for
a two-year period commencing on July 26, 1996, the option to acquire Farm Family
Life subject to certain conditions. On February 26, 1998, the Board of Directors
of Farm Family  Holdings  approved  the  exercise of the option to acquire  Farm
Family Life and its wholly owned subsidiary United Farm Family.  Under the terms
of the Option  Purchase  Agreement,  Farm Family  Holdings  will pay an exercise
price of $37.5 million to acquire Farm Family Life,  consisting of $31.5 million
of common stock of Farm Family  Holdings,  and $6 million stated value of 6-1/8%
voting preferred stock of Farm Family Holdings. The proposed acquisition of Farm
Family  Life is subject  to the  approval  of the  shareholders  of Farm  Family
Holdings and receipt of all required  government  approvals.  Management expects
that the acquisition of Farm Family Life will be brought to the  shareholders of
Farm Family Holdings for their approval in 1998.

1997  Financial Highlights
The Company's  operating earnings for the year ended December 31, 1997 increased
$5.4 million to $15.0  million  compared to $9.6 million in 1996. On a per share
basis  (diluted),  operating  earnings for 1997 were $2.84  compared to $2.42 in
1996.   Operating   earnings   exclude   realized   investment  gains  (losses),
extraordinary  items, and the related taxes thereon.  Premium revenue  increased
14.1%  during the year ended  December  31, 1997 to $149.2  million  from $130.8
million in 1996. In addition,  the Company's  GAAP combined  ratio  decreased to
97.2% in 1997 from 101.8% in 1996.

Operating Environment
The Company's  operating  results are subject to significant  fluctuations  from
period to period depending upon, among other factors, the frequency and severity
of losses from  weather  related and other  catastrophic  events,  the effect of
competition  and  regulation  on the  pricing of  products,  changes in interest

                                      E-9
<PAGE>

rates, general economic conditions, tax laws and the regulatory environment.  As
a condition  of its license to do  business  in various  states,  the Company is
required to participate  in a variety of mandatory  residual  market  mechanisms
(including  mandatory  pools) which  provide  certain  insurance  (most  notably
automobile  insurance)  to  consumers  who are  otherwise  unable to obtain such
coverages from private  insurers.  In all such states,  residual  market premium
rates are subject to the approval of the State  Insurance  Department.  Residual
market  premium rates for automobile  insurance have generally been  inadequate.
The amount of future  losses or  assessments  from  residual  market  mechanisms
cannot be predicted with  certainty and could have a material  adverse effect on
the Company's results of operations.

For the years ended December 31, 1997, 1996, and 1995,  36.5%,  38.6% and 39.1%,
respectively,  of the  Company's  direct  written  premiums  were  derived  from
policies  written in New York and 26.3%,  22.6% and  20.8%,  respectively,  were
derived from policies written in New Jersey.  For these periods,  no other state
accounted for more than 10.0% of the Company's  direct  written  premiums.  As a
result of the concentration of the Company's  business in the states of New York
and New Jersey,  and more  generally,  in the  Northeastern  United States,  the
Company's  results  of  operations  may be  significantly  affected  by  weather
conditions,  catastrophic events and regulatory developments in these two states
and in the Northeastern United States, generally.

Many of the Company's existing computer programs use only two digits to identify
a year in the date field.  These  programs were  designed and developed  without
considering the impact of the upcoming change in the century.  If not corrected,
many of these computer applications could fail or create erroneous results by or
at the Year 2000.  The Year 2000  issue  affects  virtually  all  companies  and
organizations . Therefore,  the Company must also coordinate with other entities
with which it interacts to ensure these  entities are also  addressing  the Year
2000  issue.  If not  successfully  addressed,  the Year 2000  issue  could have
material  adverse  consequences  on the  Company.  The Company has an  on-going,
enterprise-wide project to address its Year 2000 issue. During 1998, the Company
will  perform   system-wide  testing  to  support  its  plan  of  having  policy
administration  systems Year 2000 compliant by December 31, 1998. Year 2000 work
on remaining  systems will continue  through 1999. In addition,  the Company has
contacted other entities on which it relies to process and support its business.
The Company will react to their plans to achieve Year 2000  compliance  and will
adjust operations as required. The Company believes it will successfully address
its Year 2000  issue  without  material  adverse  consequences  to the  Company.
However,  there can be no assurance  that other  entities with which the Company
interacts will achieve Year 2000 compliance or that the failure by such entities
to achieve Year 2000 compliance  would not have a material adverse effect on the
Company.

Products
The  Special  Farm  Package  is a  flexible,  multi-line  package  of  insurance
coverages  which the Company  regards as its  "flagship"  product.  For the year
ended December 31, 1997,  22.8% of the Company's  total direct written  premiums
were derived from the Special Farm Package product.

The  Company  concentrates  on its primary  products:  personal  and  commercial
automobile, the Special Farm Package,  businessowners,  Special Home Package and
homeowners  policies.  The Company underwrites its commercial and personal lines
risks by  evaluating  historical  loss  experience,  current  prevailing  market
conditions,  and product profitability with consistently applied standards.  The
adequacy of premium  rates is affected  mainly by the severity and  frequency of
claims and changes in the competitive, legal and regulatory environment in which
the Company operates.

Expense Management
During 1997, the Company continued the expense  management  initiatives it began

                                      E-10
<PAGE>


during 1996.  The goal of the Company's  expense  management  initiatives  is to
continually  review its cost structure and reduce or eliminate certain expenses.
Additionally,  the Company  seeks to tie expenses to  operating  results so that
expenses become increasingly more variable with the Company's  profitability and
less fixed or volume  sensitive.  As a result,  portions of the compensation for
agents,  employees and  management  are  influenced  by the Company's  operating
results. These programs help to align the Company's interests more directly with
those of its  shareholders.  As a result  of  these  initiatives,  as well as an
increase in the Company's  premium  revenue at a greater rate than its expenses,
the  Company's  underwriting  expenses as a percentage  of premium  revenue were
reduced during 1997 to 28% compared to 29.2% for 1996.

Future Application of Accounting Standards
In June 1997, the Financial  Accounting Standards Board issued Statement No. 130
"Comprehensive  Income"  ("Statement 130"), which establishes  standards for the
reporting and disclosure of comprehensive  income and its components  (revenues,
expenses,  gains and losses).  Statement  130  requires  that all items that are
required  to  be  recognized  under   accounting   standards  as  components  of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial  statements.  Statement 130 requires that
an enterprise (a) classify items of other  comprehensive  income by their nature
in a  financial  statement  and (b)  display  the  accumulated  balance of other
comprehensive  income separately from retained  earnings and additional  paid-in
capital in the equity  section of a statement of financial  position.  Statement
130 is effective for the fiscal years  beginning  after  December 15, 1997.  The
Company will adopt Statement 130 in 1998.

Results of Operations

The Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996

Premiums
Premium  revenue  increased  $18.4  million,  or 14.1%,  during  the year  ended
December 31, 1997 to $149.2 million from $130.8 million in 1996. The increase in
premium  revenue in 1997  resulted  from an increase of $18.2  million in earned
premiums on additional business directly written by the Company  (principally in
New  Jersey and New York) and an  increase  of $3.7  million in earned  premiums
assumed by the Company,  offset by an increase of $3.5 million in earned premium
ceded to reinsurers. The $18.2 million increase in earned premiums on additional
business  directly  written by the  Company  was  primarily  attributable  to an
increase of $15.8  million,  or 13.4%,  in earned  premiums  from the  Company's
primary  products  (personal  and  commercial  automobile  products  other  than
assigned risk  automobile  business,  the Special Farm  Package,  businessowners
products,  homeowners products,  and Special Home Package),  an increase of $1.0
million in earned  premiums on workers'  compensation  business,  an increase of
$0.5 million in earned premium from assigned risk  automobile  business,  and an
increase of $0.9 million in earned  premium from the Company's  other  products.
Premiums  earned on  personal  automobile  policies  in the state of New  Jersey
accounted for $6.5 million of the $18.2 million increase in earned premiums from
the Company's primary products. The number of policies in force of the Company's
primary  products  increased  by 11.4% to  approximately  127,000  in 1997  from
approximately  114,000  in 1996 and the  average  premium  earned  for each such
policy increased by 1.6% in 1997.

Net Investment Income
Net investment income increased $2.1 million, or 13.3%, to $18.1 million for the
year ended  December  31, 1997 from $16.0  million in 1996.  The increase in net
investment  income was  primarily the result of an increase in cash and invested
assets  (at  amortized  cost) of  approximately  $36.4  million,  or 15.3%.  The
increase in average cash and invested  assets was primarily  attributable to the

                                      E-11
<PAGE>

investment of available operating cash flows during 1997. The return realized on
the Company's cash and invested assets was 7.0% in 1997 and 7.5% in 1996.

Net Realized Investment Gains (Losses)
Net realized  investment gains were $5.4 million for the year ended December 31,
1997  compared  to a loss of $0.6  million in 1996.  The  increase  in  realized
investment  gains was  primarily  attributable  a realized gain on the sale of a
common stock investment in 1997.

Losses and Loss Adjustment Expenses
Losses and loss adjustment  expenses increased $8.3 million,  or 8.8%, to $103.3
million for the year ended  December  31, 1997 from $95.0  million in 1996.  The
increase in losses and loss  adjustment  expenses was primarily  attributable to
the overall growth in the Company's business.  Loss and loss adjustment expenses
were 69.2% of premium  revenue in 1997  compared to 72.6% of premium  revenue in
1996.  Losses  and loss  adjustment  expenses  believed  to be  weather  related
aggregated $5.2 million in 1997 compared to $10.6 million in 1996.

Underwriting Expenses
Underwriting  expenses increased $3.6 million, or 9.5%, to $41.8 million for the
year ended December 31, 1997 from $38.2 million for the same period in 1996. For
the year ended  December 31, 1997,  underwriting  expenses were 28.0% of premium
revenue  compared to 29.2% in 1996. The reduction in the Company's  underwriting
expense  ratio was  primarily  attributable  to a smaller  relative  increase in
overhead  expenses  than in premium  revenue  for the  period and the  Company's
continued expense management initiatives which began in 1996.

Federal Income Tax Expense
Federal  income tax expense  increased $6.0 million to $9.7 million in 1997 from
$3.7  million in 1996.  Federal  income tax expense  was 34.5% of income  before
federal  income taxes in 1997 compared to 30.3% in 1996.  The increase in income
tax expense was primarily the result of the Company's  increased  premium volume
and favorable operating results during 1997.

Net Income
Net income increased $11.6 million to $18.5 million in 1997 from $6.9 million in
1996  primarily  as a result of the  foregoing  factors  and the  impact of $1.5
million of expenses  related to the  demutualization  of the  Company  which the
Company  has  identified  as an  extraordinary  item  in  1996,  as  well as the
implementation  of a voluntary early retirement  program which resulted in a one
time charge to earnings of $0.8 million net of tax in the last quarter of 1996.

The Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995

Premiums
Premium  revenue  increased  $13.9  million,  or 11.8%,  during  the year  ended
December 31, 1996 to $130.8 million from $116.9 million in 1995. The increase in
premium  revenue in 1996  resulted  from an increase of $11.1  million in earned
premiums on additional business directly written by the Company  (principally in
New York and New  Jersey) and an  increase  of $2.4  million in earned  premiums
retained by the Company and not ceded to reinsurers,  in addition to an increase
of $0.4 million in earned premiums assumed. The $11.1 million increase in earned
premiums on additional  business  directly  written by the Company was primarily
attributable  to an increase of $9.9 million,  or 9.2%, in earned  premiums from
the Company's  primary  products  (personal and commercial  automobile  products
other than assigned  risk  business,  the Special Farm  Package,  businessowners
products,  homeowners products,  and Special Home Package) and to an increase of
$0.7 million in earned premiums on workers' compensation business. The number of

                                      E-12
<PAGE>

policies in force related to the Company's primary products increased by 8.6% to
approximately 114,000 in 1996 from approximately 105,000 in 1995 and the average
premium earned for each such policy  increased by 0.6% in 1996. The $2.4 million
increase in earned premiums  retained by the Company was primarily the result of
a change  in the  terms  of  certain  of the  Company's  reinsurance  agreements
pursuant to which the earned premiums ceded by the Company were reduced.

Net Investment Income
Net investment income increased $1.6 million, or 11.3%, to $15.9 million for the
year ended  December  31, 1996 from $14.3  million in 1995.  The increase in net
investment  income was  primarily the result of an increase in cash and invested
assets  (at  amortized  cost) of  approximately  $34.7  million,  or 17.7%.  The
increase in average cash and invested  assets was primarily  attributable to the
net proceeds of $31.0 million from Farm Family Holdings' initial public offering
received in July 1996.  The return  realized on the Company's  cash and invested
assets was 7.5% in 1996 and 7.6% in 1995.

Net Realized Investment Gains (Losses)
Net realized investment losses were $0.6 million for the year ended December 31,
1996 compared to a gain of $0.9 million in 1995.

Losses and Loss Adjustment Expenses
Losses and loss adjustment  expenses increased $11.8 million, or 14.2%, to $95.0
million for the year ended  December  31, 1996 from $83.2  million in 1995.  The
increase in losses and loss  adjustment  expenses was primarily  attributable to
the  overall  growth in the  Company's  business,  as well as the  frequency  of
weather related losses in the Northeastern United States during the three months
ended March 31, 1996.  Loss and loss  adjustment  expenses were 72.6% of premium
revenue in 1996  compared to 71.1% of premium  revenue in 1995.  Losses and loss
adjustment  expenses believed to be weather related  aggregated $10.6 million in
1996 compared to $5.2 million in 1995.

Underwriting Expenses
Underwriting  expenses increased $3.3 million, or 9.3%, to $38.2 million for the
year ended December 31, 1996 from $34.9 million for the same period in 1995. For
the year ended  December 31, 1996,  underwriting  expenses were 29.2% of premium
revenue  compared to 29.8% in 1995. The reduction in the Company's  underwriting
expense  ratio was  primarily  attributable  to a smaller  relative  increase in
overhead expenses than in premium revenue for the period.

Federal Income Tax Expense
Federal  income tax expense  decreased $1.3 million to $3.7 million in 1996 from
$5.0  million in 1995.  Federal  income tax expense  was 30.3% of income  before
federal  income  taxes in 1996  compared to 34.2% in 1995.  The  decrease in the
Company's  effective  federal income tax rate was primarily  attributable  to an
increase in tax exempt interest income in 1996.

Net Income
Net income  decreased  $2.7 million to $6.9 million in 1996 from $9.6 million in
1995  primarily  as a result of the  foregoing  factors  and the  impact of $1.5
million of expenses  related to the  demutualization  of the  Company  which the
Company  has  identified  as an  extraordinary  item  in  1996,  as  well as the
implementation  of a voluntary early retirement  program which resulted in a one
time charge to earnings of $0.8 million net of tax in the last quarter of 1996.

                                      E-13


<PAGE>


Liquidity and Capital Resources

Historically,  the  principal  sources  of the  Company's  cash  flow  have been
premiums,  investment income,  maturing investments,  and proceeds from sales of
invested  assets.  In  addition  to the  need for  cash  flow to meet  operating
expenses,  the liquidity  requirements  of the Company  relate  primarily to the
payment of losses and loss adjustment  expenses.  The liquidity  requirements of
the Company vary because of the uncertainties regarding the settlement dates for
liabilities  for unpaid  claims and because of the  potential  for large losses,
either individually or in the aggregate.

At December 31, 1997, the Company's cash and invested assets, at amortized cost,
was $274.9  million,  a $36.4  million  increase  from  1996.  The  increase  is
primarily the result of the investment of operating cash flows. During 1997, the
Company  continued to invest  primarily in investment  grade fixed maturities to
maintain  the  overall  quality  of its  investment  portfolio.  Fixed  maturity
securities,  at  amortized  cost,  rated as  investment  grade  by the  National
Association of Insurance Commissioners was $248.9 million, or 96.5% of its fixed
maturity portfolio, at December 31, 1997 compared to $217.7 million, or 97.2% of
its fixed maturity  portfolio,  at December 31, 1996. High yield corporate bonds
constituted most of the  non-investment  grade securities held by the Company as
of December 31, 1997 and 1996.  The Company also increased its  investments,  at
amortized  cost, in tax exempt bonds from $21.6 million in 1996 to $31.7 million
in 1997. The  mortgage-backed  securities held by the Company as of December 31,
1997  were  primarily   GNMA,   FNMA,  and  Federal  Home  Loan  Mortgage  Corp.
pass-through  securities.  The  Company  currently  has no  investments  in such
derivative financial instruments as futures, forward, swap, or option contracts,
or other financial instruments with similar characteristics. The market value of
the Company's  fixed maturity  investments is subject to  fluctuations  directly
attributable  to prevailing  rates of interest as well as other  factors.  As of
December 31, 1997 and 1996,  the aggregate  market value of the Company's  fixed
maturity  investments  exceeded the aggregate amortized cost of such investments
by $10.6 million and $5.2 million, respectively.

The Company has in place unsecured lines of credit with two banks under which it
may  borrow  up to  $12.0  million.  At  December  31,  1997,  no  amounts  were
outstanding  on the lines of credit  each of which has an annual  interest  rate
equal  to such  bank's  prime  rate.  In  addition,  the  Company's  reinsurance
intermediary has extended to the Company a "Rapid Recovery Facility" under which
the  Company,  at its option,  can receive  cash  advances of up to $7.7 million
within 48 hours of experiencing a catastrophic  loss.  There is no interest rate
associated  with this  facility.  The Company did not utilize  this  facility in
1997, 1996 or 1995.

In  addition,  the  Company had notes  payable  outstanding  consisting  of $0.3
million of  debentures  and $1.0 million of  subordinated  surplus  certificates
(collectively "the Surplus Notes").  The Surplus Notes bear interest at the rate
of eight percent per annum,  have no maturity  date,  and principal and interest
are repayable only with the approval of the Insurance Department of the State of
New York.  Interest expense incurred by the Company on the Surplus Notes for the
years  ended  December  31,  1997,  1996  and 1995 was  $102,000,  $167,000  and
$216,000,  respectively.  The Company has received conditional approval from the
Insurance Department of the State of New York to redeem all of the Surplus Notes
outstanding,  and plans to do so effective April 1, 1998.  Principal and accrued
interest on the  Surplus  Notes as of April 1, 1998 will be  approximately  $1.4
million.

Net cash provided by operating activities was $31.4 million,  $11.8 million, and
$16.4  million  during  the years  ended  December  31,  1997,  1996,  and 1995,
respectively.  The increase in net cash provided by operating activities in 1997
was primarily  attributable to the increase in premiums collected,  interest and
dividends  received,  and a reduction in losses paid relative to the increase in
premiums  collected.  The decrease in cash  provided by operating  activities in
1996 compared to 1995 was primarily  attributable  to the decrease in net income

                                      E-14
<PAGE>

which  included  the  impact  of  $1.5  million  of  expenses   related  to  the
demutualization   of  the  Company  which  the  Company  has  identified  as  an
extraordinary item during 1996.

Net cash used in investing  activities  was $29.6 million,  $41.1  million,  and
$18.5  million  during  the years  ended  December  31,  1997,  1996,  and 1995,
respectively.  The  decrease in net cash used in  investing  activities  in 1997
resulted  primarily  from an  increase  in  investment  collections  from  fixed
maturities available for sale and proceeds from sales of equity securities.  The
increase in net cash used in investing  activities  in 1996  resulted  primarily
from a reduction in proceeds on the maturities and sales of fixed maturities and
the investment of the net proceeds from the Company's initial public offering.

Net cash provided by financing  activities  for the year ended December 31, 1996
of $30.9 million was the result of the Company's  initial public offering of its
common  stock on July 23,  1996.  The  Company  received  net  proceeds of $41.5
million for approximately  2,786,000 shares sold in the initial public offering,
including  the  underwriters'  over-allotment,  as  well  as  $3.4  million  for
approximately  214,000 shares sold in a subscription  offering to policyholders.
The Company  made  payments of $11.7  million to  policyholders  in exchange for
their  membership  interest in Farm  Family  Mutual  Insurance  Company and $1.1
million to holders of Farm Family Mutual Insurance  Company debt pursuant to the
Plan of  Reorganization  and  Conversion.  In addition,  the net  proceeds  were
utilized to pay certain expenses  associated with the initial public offering of
$1.1 million.  Subsequent to the initial public  offering,  Farm Family Holdings
made an $18.0 million capital contribution to Farm Family Casualty.

Effective  December 31, 1997, the Company revised its reinsurance  program.  The
Company's  reinsurance  agreement  with its affiliate,  United Farm Family,  was
terminated effective December 31, 1997. As a result, the Company's retention per
claim under its current  reinsurance  program  will  increase  from  $100,000 to
$300,000 in 1998.  In addition,  the Company  entered  into an  agreement  which
provides  reinsurance  protection  within  certain  dollar  limits for losses in
excess of a  predetermined  ratio of losses to earned  premiums.  This agreement
covers all direct and assumed voluntary  business as well as mandatory  residual
market mechanisms.  The Company's reinsurance program is structured to partially
mitigate  the impact of large or unusual  losses as well as the  aggregation  of
smaller, more frequent losses on liquidity and operating results.

The New York  Insurance Law regulates  the  distribution  of dividends and other
payments to Farm Family  Holdings by Farm Family  Casualty.  As of December  31,
1997, the maximum  amount of dividends that can be paid by Farm Family  Casualty
without the prior  approval of the New York State  Insurance  Department is $1.9
million.  Such restrictions or any subsequently  imposed restrictions may in the
future affect the liquidity of Farm Family  Holdings.  The Company believes that
its liquidity and capital resources are adequate for the coming year.

                                      E-15

<PAGE>

<TABLE>
<CAPTION>

FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
 ($ in thousands except per share amounts)

--------------------------------------------------------------------------------------------------------------
For the Years Ended December 31,                                              1997         1996         1995
--------------------------------------------------------------------------------------------------------------
Revenues:
<S>                                                                       <C>          <C>          <C>
    Premiums                                                              $ 149,220    $ 130,780    $ 116,936
    Net investment income                                                    18,077       15,952       14,326
    Realized investment gains (losses), net                                   5,406        (640)          912
    Other income                                                              1,020          905          840
--------------------------------------------------------------------------------------------------------------
         Total revenues                                                     173,723      146,997      133,014
--------------------------------------------------------------------------------------------------------------
Losses and Expenses:
    Losses and loss adjustment expenses                                     103,301       94,977       83,184
    Underwriting expenses                                                    41,787       38,160       34,902
    Early retirement program expense                                            ---        1,177          ---
    Interest expense                                                            102          167          216
    Dividends to policyholders                                                  282          373          122
--------------------------------------------------------------------------------------------------------------
         Total losses and expenses                                          145,472      134,854      118,424
--------------------------------------------------------------------------------------------------------------
Income before federal income tax expense
    and extraordinary item                                                   28,251       12,143       14,590
Federal income tax expense                                                    9,747        3,676        4,984
--------------------------------------------------------------------------------------------------------------
Income before extraordinary item                                             18,504        8,467        9,606
Extraordinary item - demutualization expenses                                   ---        1,543          ---
--------------------------------------------------------------------------------------------------------------
         Net income                                                        $ 18,504      $ 6,924      $ 9,606
--------------------------------------------------------------------------------------------------------------

Per Share Data:
    Income before extraordinary item - Basic                              $    3.52     $   2.13     $   3.20
--------------------------------------------------------------------------------------------------------------
    Income before extraordinary item - Diluted                            $    3.51     $   2.13     $   3.20
--------------------------------------------------------------------------------------------------------------
    Net income - Basic                                                    $    3.52     $   1.74     $   3.20
--------------------------------------------------------------------------------------------------------------
    Net income - Diluted                                                  $    3.51     $   1.74     $   3.20
--------------------------------------------------------------------------------------------------------------

See accompanying notes to Consolidated Financial Statements.
</TABLE>


                                      E-16
<PAGE>

<TABLE>
<CAPTION>

FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
THE COMPANY MUTUAL INSURANCE COMPANY
Consolidated Balance Sheets
($ in thousands)

As of December 31,                                                                       1996        1997
------------------------------------------------------------------------------------------------------------

ASSETS
Investments:
   Fixed Maturities
     Available for sale, at fair value
<S>                                                                                    <C>         <C>
        (Amortized cost: $248,984 in 1997 and $214,226 in 1996)                        $259,199    $219,188
     Held to maturity, at amortized cost
        (Fair value: $9,194 in 1997 and $9,973 in 1996)                                   8,855       9,782
   Equity securities
     Available for sale, at fair value
        (Cost: $3,363 in 1997 and $2,546 in 1996)                                         4,521       7,908
   Mortgage loans                                                                         1,660       1,745
   Other invested assets                                                                    553         748
   Short-term investments                                                                 5,643       5,333
------------------------------------------------------------------------------------------------------------
             Total investments                                                          280,431     244,704
------------------------------------------------------------------------------------------------------------
Cash                                                                                      5,841       4,110
Insurance receivables:
   Reinsurance receivables                                                               12,343      10,743
   Premiums receivable, net                                                              28,141      22,663
Deferred acquisition costs                                                               12,613      10,682
Accrued investment income                                                                 5,408       4,861
Deferred income tax asset, net                                                            1,469       1,520
Prepaid reinsurance premiums                                                              2,044       1,944
Receivable from affiliates, net                                                          17,786      16,133

Other assets                                                                              2,202       2,052
------------------------------------------------------------------------------------------------------------
             Total Assets                                                              $368,278    $319,412
------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Reserves for losses and loss adjustment expenses                                    $156,622    $141,220
   Unearned premium reserve                                                              66,069      55,945
   Reinsurance premiums payable                                                           2,564         641
   Accrued expenses and other liabilities                                                11,828       9,561
   Debt                                                                                   1,268       1,304
------------------------------------------------------------------------------------------------------------
             Total liabilities                                                          238,351     208,671
------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized
         and no shares issued and outstanding                                                 -           -

Common stock, $.01 par value, 10,000,000 shares authorized
         and 5,253,813 shares issued and outstanding                                         53          53
Additional paid in capital                                                               98,140      98,140
Retained earnings                                                                        24,342       5,838
Net unrealized investment gains                                                           7,392       6,710
------------------------------------------------------------------------------------------------------------
             Total stockholders' equity                                                 129,927     110,741
------------------------------------------------------------------------------------------------------------
             Total Liabilities and Stockholders' Equity                                $368,278    $319,412
------------------------------------------------------------------------------------------------------------

See accompanying notes to Consolidated Financial Statements.
</TABLE>


                                      E-17

<PAGE>
<TABLE>
<CAPTION>


FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
 ($ in thousands)

For the Years Ended December 31,                                                1997        1996       1995
------------------------------------------------------------------------------------------------------------
Common stock
<S>                                                                         <C>            <C>        <C>
         Balance, beginning of year                                         $     53       $   -      $   -
         Common stock issued                                                       -          53          -
------------------------------------------------------------------------------------------------------------
         Balance, end of year                                                     53          53          -
------------------------------------------------------------------------------------------------------------
Additional paid in capital
         Balance, beginning of year                                           98,140           -          -
         Initial public offering and subscription offering, net                    -      43,715          -
         Payments to policyholders                                                 -     (12,210)         -
         Conversion of debt to common stock                                        -         265          -
         Demutualization of Farm Family Mutual                                     -      66,370          -
------------------------------------------------------------------------------------------------------------
         Balance, end of year                                                 98,140      98,140          -
------------------------------------------------------------------------------------------------------------
Retained earnings
         Balance, beginning of year                                            5,838      65,284     55,678
         Net income                                                           18,504       6,924      9,606
         Demutualization of Farm Family Mutual                                     -     (66,370)         -
------------------------------------------------------------------------------------------------------------
         Balance, end of year                                                 24,342       5,838     65,284
------------------------------------------------------------------------------------------------------------
Net unrealized investment gains (losses)
         Balance, beginning of year                                            6,710       8,998     (2,701)
         Change in unrealized appreciation (depreciation), net                   682      (2,288)    11,699
------------------------------------------------------------------------------------------------------------
         Balance, end of year                                                  7,392       6,710      8,998
------------------------------------------------------------------------------------------------------------
Minimum pension liability adjustment
         Balance, beginning of year                                                -        (118)         -
         Minimum pension liability adjustment                                                118       (118)
------------------------------------------------------------------------------------------------------------
         Balance, end of year                                                      -           -       (118)
------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity                                                  $129,927    $110,741    $74,164
------------------------------------------------------------------------------------------------------------


See accompanying notes to Consolidated Financial Statements.
</TABLE>
                                      E-18


<PAGE>
<TABLE>
<CAPTION>


FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
Statements of Consolidated Cash Flows

($ in thousands)

For the Years Ended December 31,                                                     1997         1996         1995
-----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                   <C>           <C>         <C>
Net income                                                                            $18,504       $6,924      $9,606
-----------------------------------------------------------------------------------------------------------------------
Adjustments  to  reconcile   net  income  to  net  cash  provided  by  operating
   activities:
     Realized investment (gains) losses                                                (5,406)         640        (912)
     Amortization of bond discount                                                        329          130          62
     Deferred income taxes                                                               (316)        (505)       (581)
     Extraordinary item - demutualization expense                                           -        1,543           -
     Changes in:
         Reinsurance receivables                                                       (1,600)       3,030       1,254
         Premiums receivable, net                                                      (5,478)        (872)     (3,062)
         Deferred acquisition costs                                                    (1,931)        (155)     (1,856)
         Accrued investment income                                                       (547)        (601)       (213)
         Prepaid reinsurance premiums                                                    (100)         (80)        (58)
         Receivable from affiliates, net                                               (1,653)      (2,273)     (3,293)
         Other assets                                                                    (150)        (283)        742
         Reserves for losses and loss adjustment expenses                              15,402        3,242      10,024
         Unearned premium reserve                                                      10,124        3,146       3,956
         Reinsurance premiums payable                                                   1,923       (1,994)     (1,394)
         Accrued expenses and other liabilities                                         2,267        1,497       1,001
-----------------------------------------------------------------------------------------------------------------------
           Total adjustments                                                           12,864        6,465       6,832
-----------------------------------------------------------------------------------------------------------------------
           Net cash provided by operating activities before extraordinary item         31,368       13,389      16,438
           Extraordinary item - demutualization expenses                                    -       (1,543)          -
-----------------------------------------------------------------------------------------------------------------------
           Net cash provided by operating activities                                   31,368       11,846      16,438
-----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales:
    Fixed maturities available for sale                                                 8,019        5,670      28,466
    Other invested assets                                                                   -          144           -
    Equity securities                                                                   6,257            -           -
Investment collections:
    Fixed maturities available for sale                                                16,435        9,405      15,435
    Fixed maturities held to maturity                                                     904        2,561         514
    Mortgage loans                                                                         85           77          68
Investment purchases:
    Fixed maturities available for sale                                               (59,667)     (58,430)    (58,339)
    Fixed maturities held to maturity                                                  (1,294)      (2,042)     (1,598)
Change in short-term investments, net                                                    (310)       1,199      (3,519)
Change in other invested assets                                                           (30)         344         480
-----------------------------------------------------------------------------------------------------------------------
           Net cash used in investing activities                                      (29,601)     (41,072)    (18,493)
-----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from IPO and Subscription Offerings                                                -       44,880           -
subscription
Demutualization payments to Policyholders and Noteholders                                   -      (12,842)          -
IPO Expenses paid                                                                           -       (1,080)          -
Principal payments on debt                                                                (36)         (32)        (42)
-----------------------------------------------------------------------------------------------------------------------
           Net cash provided by (used in) financing activities                            (36)      30,926         (42)
-----------------------------------------------------------------------------------------------------------------------
           Net increase (decrease) in cash                                              1,731        1,700      (2,097)
Cash, beginning of year                                                                 4,110        2,410       4,507
-----------------------------------------------------------------------------------------------------------------------
Cash, end of year                                                                      $5,841       $4,110      $2,410
-----------------------------------------------------------------------------------------------------------------------

See accompanying notes to Consolidated Financial Statements.
</TABLE>


                                      E-19


<PAGE>


         1.       Summary of Significant Accounting Policies

        Basis of Presentation:

         The accompanying  consolidated  financial statements have been prepared
         in conformity with generally accepted accounting principles and include
         the accounts of Farm Family Holdings, Inc. ("Farm Family Holdings") and
         its  wholly  owned  subsidiaries   (collectively  referred  to  as  the
         "Company").  The primary  subsidiary  of Farm  Family  Holdings is Farm
         Family  Casualty  Insurance  Company  ("Farm  Family  Casualty").   All
         significant   intercompany   balances   and   transactions   have  been
         eliminated.  The preparation of financial statements in accordance with
         generally accepted  accounting  principles  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  amounts  of
         revenues and expenses during the reporting period. Actual results could
         differ from those estimates.

         The Company  provides  property  and  casualty  insurance  coverages to
         members  of the state Farm  Bureau(R)  organizations  in New York,  New
         Jersey,  Delaware,  West  Virginia  and all of the New England  states.
         Membership in the state Farm Bureau organizations is a prerequisite for
         voluntary insurance  coverage,  except for employees of the Company and
         its affiliates.

         The  operations  of the Company are closely  related  with those of its
         affiliates, Farm Family Life Insurance Company ("Farm Family Life") and
         Farm  Family  Life's  wholly  owned  subsidiary,   United  Farm  Family
         Insurance  Company  ("United  Farm  Family") (see Note 10). Farm Family
         Life is a stock life  insurance  company owned by the state Farm Bureau
         organizations  of the ten states in which the  Company  operates.  Farm
         Family Holdings has entered into an Option Purchase  Agreement with the
         shareholders of Farm Family Life pursuant to which Farm Family Holdings
         has, for a two-year  period  commencing on July 26, 1996, the option to
         acquire Farm Family Life subject to certain  conditions  (See Note 15).
         The Company and Farm Family Life are  affiliated by common  management,
         shared agents and employees and similar Boards of Directors.

        Investments:

         Fixed  maturities  include  bonds,   redeemable  preferred  stocks  and
         mortgage-backed  securities.  Investments in fixed maturities which the
         Company has both the ability  and  positive  intent to hold to maturity
         are  classified  as held to  maturity  and carried at  amortized  cost.
         Investments   classified   as  held  to  maturity   on  the   Company's
         consolidated  balance sheets consist  primarily of private  placements.
         Fixed maturities which may be sold prior to their contractual  maturity
         are  classified  as available for sale and are carried at fair value on
         the Company's  consolidated  balance  sheets.  The  difference  between
         amortized  cost  and  fair  value of  fixed  maturities  classified  as
         available for sale,  net of deferred  income  taxes,  is reflected as a
         component of stockholders' equity.

         Equity securities  include common and  non-redeemable  preferred stocks
         which are carried at fair value.  The difference  between cost and fair
         value of equity securities, less deferred income taxes, is reflected as
         a component of stockholders' equity.

         Mortgage loans are carried at their outstanding principal balance.

                                      E-20
<PAGE>

         The  carrying  values of all  investments  are  reviewed  on an ongoing
         basis.  If this review  indicates a decline in fair value below cost is
         other than temporary, the Company's carrying value in the investment is
         reduced to its estimated  realizable value and a specific write-down is
         taken.  Such write-downs are included in realized  investment gains and
         losses.

         Short-term  investments  are carried at cost which  approximates  fair
         value.

         Investment  income  consists   primarily  of  interest  and  dividends.
         Interest is  recognized  on an accrual basis and dividends are recorded
         on the ex-dividend date. Interest income on mortgage-backed  securities
         is  determined  by  the  effective  yield  method  based  on  estimated
         principal   repayments.   Realized  investment  gains  and  losses  are
         determined on a specific identification basis.

        Income Taxes:

         The income tax  provision is  calculated  under the  liability  method.
         Deferred  income tax assets and  liabilities  are recorded based on the
         difference between the financial  statement and tax bases of assets and
         liabilities  and the  enacted  tax  rates.  The  principal  assets  and
         liabilities giving rise to such differences are reserves for losses and
         loss adjustment expenses,  unearned premiums,  and deferred acquisition
         costs.  Deferred  income  taxes also arise from  unrealized  investment
         gains or losses on equity securities and fixed maturities classified as
         available for sale.

         Stock Compensation Plan:

         Financial Accounting Standards Board Statement No. 123, "Accounting for
         Stock-Based  Compensation" ("Statement 123") applies to all stock-based
         employee  compensation plans (except employee stock ownership plans) in
         which  an  employer   grants  shares  of  its  stock  or  other  equity
         instruments  to  employees.  Statement  123 permits a company to choose
         either the fair value or the intrinsic value based method of accounting
         as  prescribed  by   Accounting   Principles   Board  Opinion  No.  25,
         "Accounting  for  Stock  Issued  to  Employees"  ("APB  25"),  for  its
         stock-based  compensation plans. The Company has elected to account for
         its stock  compensation  plan using the intrinsic value based method as
         prescribed by APB 25.

        Property-Liability Insurance Accounting:

         Premiums  are deferred and earned on a pro rata basis over the terms of
         the respective  policies.  Amounts paid for ceded reinsurance  premiums
         are reported as prepaid  reinsurance  premiums and  amortized  over the
         remaining contract period in proportion to premium. Premiums receivable
         are recorded at cost less an allowance for doubtful accounts.

         Policy  acquisition  costs that vary with and are primarily  related to
         the  production of business have been  deferred.  Deferred  acquisition
         costs primarily  consist of agents'  compensation,  premium taxes,  and
         certain other underwriting  expenses.  Such deferred  acquisition costs
         are amortized as premium  revenue is recognized.  Deferred  acquisition
         costs are  limited to their  estimated  realizable  value,  which gives
         effect to the  premium to be earned,  related  investment  income,  and
         losses and loss  adjustment  expenses  expected  to be  incurred as the
         premium is earned.

         Reserves for losses and loss adjustment expenses represent estimates of
         the  ultimate  amounts  necessary  to  settle  reported  losses  and  a
         provision for incurred but not reported claims of insured  losses.  The

                                      E-21
<PAGE>

         reserve estimates are based on known facts and circumstances, including
         the  Company's  experience  with similar  cases and  historical  trends
         involving reserving patterns,  loss payments,  pending levels of unpaid
         claims  and  product  mix,  as well as other  factors  including  court
         decisions,  economic conditions and public attitudes.  The reserves for
         losses and loss  adjustment  expenses  include case basis  estimates of
         reported  losses,  estimates of incurred but not reported  losses based
         upon prior  experience  adjusted for current  trends,  and estimates of
         losses  to be  paid  under  assumed  reinsurance  contracts.  Estimated
         amounts of recoverable  salvage and  subrogation  are deducted from the
         reserves for losses and loss adjustment expenses.  The establishment of
         appropriate  reserves,  as well as related  amounts  recoverable  under
         reinsurance  contracts  is an  inherently  uncertain  process.  Reserve
         estimates  are regularly  reviewed and updated,  using the most current
         information  available.   Any  resulting  adjustments,   which  may  be
         material, are reflected in current operations (see Note 7).

         Net Income Per Share:

         In 1997, the Financial  Accounting Standards Board issued Statement No.
         128, "Earnings Per Share" ("Statement 128"). Statement 128 replaced the
         calculation of primary and fully diluted  earnings per share with basic
         and diluted  earnings  per share.  Unlike  primary  earnings per share,
         basic  earnings per share  excludes  any  dilutive  effects of options,
         warrants,  and convertible  securities.  Diluted  earnings per share is
         very similar to the  previously  reported  fully  diluted  earnings per
         share. All earnings per share amounts for all periods presented conform
         to the Statement 128 requirements.

         The following  table  presents a  reconciliation  of the numerators and
         denominators of the basic and diluted earnings per share computations.
<TABLE>
<CAPTION>

                                                                            Year Ended December 31,
                                                                            -----------------------
                                                                            1997          1996          1995
                                                                            ----          ----          ----
         Net income before extraordinary item
<S>                                                                  <C>            <C>           <C>
               available to common stockholders                      $18,504,000    $8,467,000    $9,606,000
                                                                   ------------------------------------------
         Net income available to common stockholders                 $18,504,000    $6,924,000    $9,606,000
                                                                   ------------------------------------------
         Weighted average number of
             shares in basic earnings per share                        5,253,813     3,979,115     3,000,000
         Effect of stock options                                          17,134           ---           ---
                                                                   ------------------------------------------
         Weighted average number
             of shares in diluted earnings per share                   5,270,947     3,979,115     3,000,000
                                                                   ------------------------------------------
         Basic net income before extraordinary item
           per share -                                                     $3.52         $2.13         $3.20
                                                                   ------------------------------------------
         Diluted net income before extraordinary item
           per share -                                                     $3.51         $2.13         $3.20
                                                                   ------------------------------------------
         Basic net income per share                                        $3.52         $1.74         $3.20
                                                                   ------------------------------------------
         Diluted net income per share                                      $3.51         $1.74         $3.20
                                                                   ------------------------------------------
</TABLE>

         The weighted  average number of shares of common stock in 1996 and 1995
         gives effect to the  allocation of 3,000,000  shares of common stock to
         eligible  policyholders  on July  26,  1996  pursuant  to  Farm  Family
         Casualty's  conversion  from a mutual  company to a  stockholder  owned
         company.


                                      E-22
<PAGE>


    2.  Plan of Reorganization and Conversion

         On July 26, 1996,  Farm Family Mutual  Insurance  Company ("Farm Family
         Mutual")  converted  from a  mutual  property  and  casualty  insurance
         company to a stockholder owned property and casualty  insurance company
         and changed its name to Farm Family  Casualty  Insurance  Company.  The
         conversion was made pursuant to a Plan of Reorganization and Conversion
         (the "Plan").  As part of the Plan, Farm Family Holdings was formed and
         the  policyholders  received  approximately  2,237,000  shares  of Farm
         Family  Holdings  common stock and  $11,735,000 in cash in exchange for
         their membership interests in Farm Family Mutual.

         On July 23, 1996,  Farm Family Holdings made an initial public offering
         of its common stock at a price of $16 per share.  Farm Family  Holdings
         received net proceeds of $41,453,000  for 2,786,000  shares sold in the
         initial public offering. In addition, Farm Family Holdings received net
         proceeds of $3,427,000 for  approximately  214,000 shares  purchased by
         policyholders of Farm Family Mutual in a subscription offering.

         As part of the Plan,  holders of Farm  Family  Mutual debt (see Note 8)
         could elect to exchange their debt  instruments  for shares of stock or
         cash.  As a result,  there were 17,000  shares and  $1,107,000  in cash
         exchanged for debt with an outstanding  principal  amount of $1,371,000
         plus accrued interest thereon.


                                      E-23
<PAGE>


    3.  Investments

         The amortized cost, fair value and gross unrealized gains and losses of
         available  for sale  securities  and  held to  maturity  securities  at
         December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>

             ($ in thousands)
         1997                                                    Amortized      Gross Unrealized       Fair
         ----                                                       Cost       Gains    (Losses)      Value
                                                                    ----       -----    --------      -----
         Available for Sale
         ------------------
         Fixed maturities:
<S>                                                                <C>           <C>       <C>        <C>
          U.S. Government & Agencies                               $18,905       $635      $ ----     $19,540
          States, Municipalities & Political Subdivisions           51,166      2,846           5      54,007
          Corporate                                                153,236      6,364         700     158,900
          Mortgage-backed Securities                                18,516        679        ----      19,195
          Redeemable Preferred Stock                                 7,161        404           8       7,557
                                                              ------------------------------------------------
               Total fixed maturities                              248,984     10,928         713     259,199
         Equity securities                                           3,363      1,212          54       4,521
                                                              ------------------------------------------------
              Total Available for Sale                            $252,347    $12,140        $767    $263,720
                                                              ------------------------------------------------
         Held to Maturity
         Fixed maturities:
          States, Municipalities & Political Subdivisions           $4,603        $80     $  ----      $4,683
          Corporate                                                  4,252        259        ----       4,511
                                                              ------------------------------------------------
              Total Held to Maturity                                $8,855       $339     $  ----      $9,194
                                                              ------------------------------------------------

         1996                                                    Amortized      Gross Unrealized       Fair
         ----                                                       Cost       Gains    (Losses)      Value
                                                                    ----       -----    --------      -----
         Available for Sale
         ------------------
         Fixed maturities:
          U.S. Government & Agencies                               $18,401       $421         $79     $18,743
          States, Municipalities & Political Subdivisions           42,568      1,500         118      43,950
          Corporate                                                135,485      3,918       1,527     137,876
          Mortgage-backed Securities                                 9,676        666        ----      10,342
          Redeemable Preferred Stock                                 8,096        276          95       8,277
                                                              ------------------------------------------------
               Total fixed maturities                              214,226      6,781       1,819     219,188
         Equity securities                                           2,546      5,431          69       7,908
                                                              ------------------------------------------------
              Total Available for Sale                            $216,772    $12,212      $1,888    $227,096
                                                              ------------------------------------------------
         Held to Maturity
         Fixed maturities:
          States, Municipalities & Political Subdivisions           $5,423        $93         $34      $5,482
          Corporate                                                  4,359        186          54       4,491
                                                              ------------------------------------------------
              Total Held to Maturity                                $9,782       $279         $88      $9,973
                                                              ------------------------------------------------

</TABLE>
                                      E-24

<PAGE>


         The table below  presents  the  amortized  cost and fair value of fixed
         maturities  at December  31,  1997,  by  contractual  maturity.  Actual
         maturities  may  differ  from  contractual  maturities  as a result  of
         prepayments.
<TABLE>
<CAPTION>

            ($ in thousands)                                  Available                   Held to
                                                              for Sale                   Maturity
                                                           -------------              -------------
                                                        Amortized         Fair     Amortized        Fair
                                                             Cost        Value          Cost       Value
                                                             ----        -----          ----       -----
<S>                                                        <C>          <C>             <C>         <C>
         Due in one year or less                           $5,501       $5,581          $155        $156
         Due after one year through five years             36,804       37,925           526         529
         Due after five years through ten years           141,322      145,906         4,534       4,741
         Due after ten years                               46,841       50,592         3,640       3,768
                                                     -------------------------- -------------------------
                                                          230,468      240,004         8,855       9,194
         Mortgage-backed securities                        18,516       19,195          ----        ----
                                                     -------------------------- -------------------------
            Total                                        $248,984     $259,199        $8,855      $9,194
                                                     -------------------------- -------------------------
</TABLE>

         Unrealized  investment gains and losses on fixed maturities  classified
         as available for sale and equity  securities  included in stockholders'
         equity at December 31, 1997 are as follows:
<TABLE>
<CAPTION>

             ($ in thousands)                        Cost/                                             Net
                                                   Amortized     Fair         Gross Unrealized     Unrealized
                                                     Cost        Value       Gains     (Losses)       Gains
                                                     ----        -----       -----     --------       -----
<S>                                                <C>         <C>          <C>          <C>         <C>
         Fixed maturities available for sale       $248,984    $259,199     $10,928      $  713      $10,215
         Equity securities                            3,363       4,521       1,212          54        1,158
                                                -------------------------------------------------------------
         Total                                     $252,347    $263,720     $12,140      $  767      $11,373
                                                ------------------------------------------------
         Deferred income taxes                                                                        (3,981)
                                                                                                -------------
             Total                                                                                    $7,392
                                                                                                -------------

</TABLE>

         The change in unrealized  appreciation  (depreciation)  of  investments
         included in stockholders' equity for the years ended December 31, 1997,
         1996 and 1995 was as follows:
<TABLE>
<CAPTION>

               ($ in thousands)                                                 1997        1996          1995
                                                                                ----        ----          ----
<S>                                                                           <C>       <C>            <C>
         Fixed maturities available for sale                                  $5,253    $ (4,532)      $17,197
         Equity securities                                                   (4,204)         950           802
         Other invested assets                                                  ----          63           (63)
                                                                       ----------------------------------------
                                                                               1,049      (3,519)       17,936
         Deferred income taxes                                                  (367)      1,231        (6,237)
                                                                       ----------------------------------------
         Total                                                              $    682    $ (2,288)       $11,699
                                                                       ----------------------------------------

</TABLE>
                                      E-25

<PAGE>


         The components of net investment income are as follows:
<TABLE>
<CAPTION>

              ($ in thousands)
                                                                                   1997       1996        1995
                                                                                   ----       ----        ----
<S>                                                                             <C>        <C>         <C>
         Interest on fixed maturities                                           $17,968    $15,612     $14,561
         Dividends from equity securities                                           152         53          19
         Interest on mortgage loans                                                 154        169         180
         Interest on short-term investments                                         416        585         315
         Other, net                                                                  25       ----       (406)
                                                                            -----------------------------------
            Gross investment income                                              18,715     16,419      14,669
         Investment expense                                                        (638)      (467)       (343)
                                                                            -----------------------------------
            Net investment income                                               $18,077    $15,952     $14,326
                                                                            -----------------------------------
</TABLE>

A summary of realized investment gains (losses), net, is as follows:
<TABLE>
<CAPTION>

              ($ in thousands)
                                                                                   1997       1996        1995
                                                                                   ----       ----        ----
<S>                                                                              <C>        <C>           <C>
         Fixed maturities                                                        $(149)     $(567)        $912
         Equity securities                                                       5,780       ----        ----
         Other invested assets                                                    (225)       (73)        ----
                                                                            -----------------------------------
         Total                                                                  $5,406      $(640)       $912
                                                                            -----------------------------------
</TABLE>

    4.  Fair Value of Financial Instruments

         The estimated fair value of financial  instruments  has been determined
         using available market information and appropriate value methodologies.
         The estimated fair value of financial  instruments  is not  necessarily
         indicative  of the amounts  the Company  might pay or receive in actual
         market  transactions.  Potential taxes and other transaction costs have
         not been  considered  in  estimating  fair  value.  As a number  of the
         Company's significant assets (including deferred acquisition costs, and
         deferred income taxes) and liabilities  (including  reserves for losses
         and loss adjustment expenses) are not considered financial instruments,
         the  disclosures  that  follow  do not  reflect  the fair  value of the
         Company as a whole.

                                      E-26

<PAGE>


         The following  table  presents the carrying value and fair value of the
         Company's financial instruments at December 31, 1997 and 1996.
<TABLE>
<CAPTION>

                                                              December 31, 1997         December 31,1996
                                                              -----------------         ----------------
                                                              Carrying        Fair     Carrying         Fair
               ($ in thousands)                                  Value       Value        Value        Value
                                                                 -----       -----        -----        -----
         Assets
         ------
<S>                                                           <C>         <C>          <C>          <C>
         Fixed maturities                                     $268,054    $268,393     $228,970     $229,161
         Equity securities                                       4,521       4,521        7,908        7,908
         Mortgage loans                                          1,660       1,660        1,745        1,745
         Cash and short-term investments                        11,484      11,484        9,443        9,443
         Premiums receivable, net                               28,141      28,141       22,663       22,663
         Receivable from affiliates, net                        17,786      17,786       16,133       16,133
         Accrued investment income and other assets              7,938       7,938        7,137        7,137
         Liabilities
         -----------
         Accrued expenses and other liabilities                 11,828      11,828        9,561        9,561
         Debt                                                    1,268       1,268        1,304        1,304

</TABLE>

         The following  methods and assumptions were used in estimating the fair
         value disclosures for the financial instruments:

             Fixed  maturities and equity  securities -- The fair value is based
             upon quoted  market  prices  where  available  or from  independent
             pricing services.

             Mortgage loans -- The fair value is based on discounted  cash flows
             using  discount  rates  at  which  similar  loans  would be made to
             borrowers with similar characteristics.

        Cash and  Short-term  Investments  -- Due to  their  short-term,  highly
             liquid nature, their carrying value approximates fair value.

             Premiums  Receivable,  net;  Accrued  Investment  Income  and Other
             Assets;  Receivable from Affiliates,  net; and Accrued Expenses and
             Other Liabilities -- Due to their short-term nature, their carrying
             value approximates fair value.

             Debt -- The fair  value is based on  discounted  cash  flows  using
             current borrowing rates for similar debt arrangements.

    5.  Reinsurance

         The  Company   assumes  and  cedes  insurance  to  participate  in  the
         reinsurance  market,  to  geographically   diversify  its  exposure  to
         catastrophic  losses,  limit  maximum  losses and minimize  exposure on
         large  risks (see Note 12).  Reinsurance  contracts  do not relieve the
         Company from its obligations to  policyholders  as the primary insurer.
         The Company  evaluates the financial  condition of its  reinsurers  and
         monitors  concentrations of credit risk arising from similar geographic
         regions,  activities and economic  characteristics of the reinsurers to
         minimize   its   exposure  to   significant   losses   from   reinsurer
         insolvencies.  Amounts  recoverable  are  regularly  evaluated  by  the
         Company and an allowance for uncollectible reinsurance is provided when
         collection  is in doubt.  At December  31,  1997 and 1996,  the Company
         determined   it  was  not   necessary  to  provide  an  allowance   for
         uncollectible reinsurance.

                                      E-27
<PAGE>


          The Company's reinsurance program also includes reinsurance agreements
          with United Farm Family (see Note 10).

          The effects of reinsurance on premiums written and earned,  and losses
          and loss adjustment expenses incurred, for the years indicated were as
          follows:
<TABLE>
<CAPTION>

                                                                                 Year Ended December 31,
                                                                                 -----------------------
              ($ in thousands)                                                  1997          1996        1995
                                                                                ----          ----        ----
         Premiums Written
<S>                                                                         <C>           <C>         <C>
         Direct                                                             $168,707      $146,408    $135,963
         Assumed                                                              13,091         6,462       6,261
         Ceded to United Farm Family                                         (8,959)       (9,336)     (9,237)
         Ceded to non-affiliates                                            (13,594)       (9,690)    (12,153)
                                                                        ---------------------------------------
             Premiums written, net of reinsurance                           $159,245      $133,844    $120,834
                                                                        ---------------------------------------

         Premiums Earned
         Direct                                                             $160,988      $142,794    $131,717
         Assumed                                                              10,686         6,931       6,552
         Ceded to United Farm Family                                         (8,960)       (9,334)     (9,238)
         Ceded to non-affiliates                                            (13,494)       (9,611)    (12,095)
                                                                        ---------------------------------------
             Premiums earned, net of reinsurance                            $149,220      $130,780    $116,936
                                                                        ---------------------------------------

         Losses and Loss Adjustment Expenses Incurred
         Direct                                                             $113,569       $99,954     $91,176
         Assumed                                                               6,970         4,630       4,658
         Ceded to United Farm Family                                         (9,705)       (7,277)     (6,604)
         Ceded to non-affiliates                                             (7,533)       (2,330)     (6,046)
                                                                        ---------------------------------------
             Losses and loss adjustment expenses incurred,
                 net of reinsurance                                         $103,301       $94,977     $83,184
                                                                        ---------------------------------------
</TABLE>

        Effective  December  31,  1997,  the  Company  revised  its  reinsurance
        program. The Company's reinsurance agreement with its affiliate,  United
        Farm Family,  was terminated  effective  December 31, 1997. As a result,
        the Company's  retention per claim under its current reinsurance program
        will increase from $100,000 to $300,000.

                                      E-28

<PAGE>


    6.  Income Taxes

        The  components of the deferred  income tax assets and  liabilities at
        December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>

               ($ in thousands)
         Deferred Income Tax Assets                                                      1997             1996
         --------------------------                                                      ----             ----
<S>                                                                                      <C>             <C>
         Reserves for losses and loss adjustment expenses                                $5,124          $4,423
         Unearned premium reserve                                                         4,476           3,774
         Accrued expenses and other liabilities                                             987             797
         Investments                                                                        133             148
                                                                               ---------------------------------
                 Total deferred income tax assets                                        10,720           9,142
                                                                               ---------------------------------

         Deferred Income Tax Liabilities
         Deferred acquisition costs                                                       4,414           3,739
         Unrealized investment gains, net                                                 3,981           3,614
         Other assets                                                                       856             269
                                                                               ---------------------------------
                 Total deferred income tax liabilities                                    9,251           7,622
                                                                               ---------------------------------
                      Net deferred income tax asset                                      $1,469          $1,520
                                                                               ---------------------------------
</TABLE>

         There was no valuation  allowance for deferred  income tax assets as of
         December 31, 1997 or 1996. In assessing the realization of deferred tax
         assets,  management  considers  whether it is more likely than not that
         the  deferred  tax  assets  will  be  realized.   Management  primarily
         considered the existence of taxable  income in the carryback  period in
         making this  assessment  and believes  the  benefits of the  deductible
         differences recognized as of December 31, 1997 and 1996 will ultimately
         be realized.

         The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>

              ($ in thousands)                                     Year Ended December 31,
                                                                   -----------------------
                                                                   1997         1996        1995
                                                                   ----         ----        ----
<S>                                                             <C>           <C>         <C>
         Current                                                $10,063       $4,181      $4,403
         Deferred                                                 (316)        (505)         581
                                                          ---------------------------------------
         Total income tax expense                                $9,747       $3,676      $4,984
                                                          ---------------------------------------
</TABLE>

         The Company paid income taxes of $9,962,000, $4,592,000, and $3,952,000
         in 1997, 1996 and 1995 respectively.

                                      E-29
<PAGE>


         A reconciliation of the differences between the Company's effective tax
         rates and the United States federal income tax rates follows:
<TABLE>
<CAPTION>

                                                                  Year Ended December 31,
                                                                  -----------------------
         ($ in thousands)                                   % of                % of                 % of
                                                            Pretax              Pretax               Pretax
                                                     1997   Income       1996   Income        1995   Income
                                                     ----   ------       ----   ------        ----   ------
<S>                                                <C>      <C>        <C>      <C>         <C>      <C>
         Income tax provision at prevailing        $9,888   35.00%     $4,147   34.18%      $5,006   34.31%
         rates
         Tax effect of:
         Tax exempt interest income                 (380)   (1.35)      (107)    (.88)        (11)    (.08)
         Dividends received deduction               (157)    (.56)      (156)   (1.29)       (148)   (1.01)
         Other, net                                   396     1.41      (208)   (1.71)         137      .94
                                                 -----------------------------------------------------------
         Federal income tax expense                $9,747   34.50%     $3,676   30.30%      $4,984   34.16%
                                                 -----------------------------------------------------------
</TABLE>

    7.  Reserves for Losses and Loss Adjustment Expenses

         As described in Note 1, the Company establishes reserves for losses and
         loss  adjustment  expenses on reported  and  incurred  but not reported
         claims of insured losses. The establishment of appropriate reserves for
         losses and loss adjustment expenses is an inherently  uncertain process
         and the ultimate cost may vary  materially  from the recorded  amounts.
         Reserve  estimates are regularly  reviewed and updated,  using the most
         current information. Any resulting adjustments,  which may be material,
         are reflected in current operations.

                                      E-30

<PAGE>


         The following table provides a  reconciliation  of beginning and ending
         liability balances for reserves for losses and loss adjustment expenses
         for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>

                                                                                   Year Ended December 31,
                                                                                   -----------------------
                                                                                 1997        1996         1995
                                                                                 ----        ----         ----
         ($ in thousands)
         Reserves for losses and loss adjustment
<S>                                                                          <C>         <C>          <C>
               expenses at beginning of year                                 $141,220    $137,978     $127,954
         Less reinsurance recoverables and receivables                         26,837      28,655       28,230
                                                                          -------------------------------------
         Net reserves for losses and loss adjustment
               expenses at beginning of year                                  114,383     109,323       99,724
                                                                          -------------------------------------
         Incurred losses and loss adjustment expenses:
         Provision for insured events of current year                         107,273     100,418       88,366
         Decrease in provision for
                insured events of prior years                                  (3,972)      (5,441)     (5,182)
                                                                          -------------------------------------
                  Total incurred losses and loss adjustment expenses          103,301      94,977       83,184
                                                                          -------------------------------------

         Payments:
         Losses and loss adjustment expenses
             attributable to insured events of current year                    49,858      50,122       40,519
         Losses and loss adjustment expenses
             attributable to insured events of prior years                     40,258      39,795       33,066
                                                                          -------------------------------------
             Total payments                                                    90,116      89,917       73,585
                                                                          -------------------------------------
         Net reserves for losses and loss
              adjustment expenses at end of year                              127,568     114,383      109,323
         Plus reinsurance recoverables and receivables                         29,054      26,837       28,655
                                                                          -------------------------------------
         Reserves for losses and loss adjustment
             expenses at end of year                                         $156,622    $141,220     $137,978
                                                                          -------------------------------------
</TABLE>

         The Company does not discount  reserves for losses and loss  adjustment
         expenses except for certain lifetime  workers'  compensation  indemnity
         reserves it assumes from mandatory pools. The amount of such discounted
         reserves was $3,986,000 (net of a discount of  $1,229,000),  $4,184,000
         (net of a discount of $1,185,000), and $4,754,000 (net of a discount of
         $1,192,000) for December 31, 1997, 1996 and 1995, respectively.

      8. Debt

         At December  31,  1997,  debt  consists of $293,000 of  debentures  and
         $975,000 of  subordinated  surplus  certificates.  The  debentures  and
         subordinated  surplus  certificates bear interest at the rate of 8% per
         annum,  have no maturity date, and principal and interest are repayable
         only with the approval of the Insurance  Department of the State of New
         York. No single holder holds more than 5% of the outstanding debentures
         or  subordinated  surplus  certificates.  The Company paid  interest of
         $104,000,  $279,000 and $217,000 for the years ended December 31, 1997,
         1996 and 1995,  respectively.  The  Company  has  received  conditional
         approval  from the  Insurance  Department  of the  State of New York to
         redeem all of the outstanding debentures and subordinated  certificates


                                      E-31

<PAGE>

         and plans to do so  effective  April 1,  1998.  Principal  and  accrued
         interest  on  the  Surplus   Notes,   as  of  April  1,  1998  will  be
         approximately $1,395,000.

         At December 31, 1997,  the Company had  available  lines of credit with
         two banks for $12,000,000.  There were no amounts  outstanding on these
         lines of credit at December 31, 1997.

    9.     Benefits Plans

        Pension Plan:
         The Company and Farm  Family  Life  sponsor a qualified  multi-employer
         noncontributory defined benefit pension plan covering substantially all
         of the Company's and Farm Family  Life's  full-time  employees who meet
         the  eligibility  requirements.  Benefits  under the  pension  plan are
         primarily  based  upon  the  employee's   length  of  service  and  the
         employee's  average  compensation  for certain  periods during the last
         years of  employment.  The  Company's  funding  policy for its  defined
         benefit pension plan is to make annual contributions in accordance with
         accepted   actuarial  cost  methods   subject  to  regulatory   funding
         limitations.  Effective  January 1, 1997,  the  Company and Farm Family
         Life froze  benefits  available  through the defined  benefit  plan. In
         addition,  the Company implemented a voluntary early retirement program
         in the fourth quarter of 1996 (see Note 14).

         The net pension expense for the plan is as follows:
<TABLE>
<CAPTION>

                                                                                    Year Ended December 31,
                                                                                    -----------------------
         ($ in thousands)                                                       1997          1996        1995
                                                                                ----          ----        ----
<S>                                                                           <C>             <C>         <C>
         Service cost                                                         $ ----          $869        $708
         Interest cost on projected benefit obligation                         1,429         1,411       1,384
         Actual return on plan assets                                         (1,502)         (854)     (1,844)
         Net amortization (deferral)                                              73          (447)        632
         Voluntary early retirement program                                     ----         2,069        ----
                                                                        ---------------------------------------

             Total pension expense                                            $ ----        $3,048        $880
                                                                        ---------------------------------------
</TABLE>

         The Company incurred no net periodic pension expense in 1997 due to the
         freezing of the plan.  The  Company's  portion of net periodic  pension
         expense,  excluding  the  expense  of the  voluntary  early  retirement
         program,  for the years ended  December  31, 1996 and 1995 was $617,000
         and $537,000,  respectively.  In addition, the Company's portion of the
         expense  related  to  the  voluntary  early   retirement   program  was
         $1,155,000 for 1996.

         Assumptions used in the determination of pension obligations and assets
         were:
<TABLE>
<CAPTION>

                                                                                   Year Ended December 31,
                                                                                   -----------------------
                                                                                1997          1996        1995
                                                                                ----          ----        ----

<S>                                                                            <C>           <C>         <C>
         Weighted-average discount rate                                        7.00%         7.00%       6.40%
         Rate of increase in compensation levels                               0.00%         4.00%       3.40%
         Expected long-term rate of return on plan assets                      8.00%         8.00%       8.00%
</TABLE>

         Since  benefits  under the plan were frozen as of January 1, 1997,  the
         rate of increase in compensation levels assumption for 1997 is 0.00%.

                                      E-32
<PAGE>


         The following table summarizes the funded status of the pension plan:
<TABLE>
<CAPTION>

                                                                                            As of December 31,
                                                                                            ------------------
                                                                                           1997            1996
                                                                                           ----            ----
               ($ in thousands)
         Actuarial present value of benefit obligations:
<S>                                                                                     <C>             <C>
              Vested                                                                    $20,785         $21,075
              Nonvested                                                                     ---             ---
                                                                                --------------------------------
         Accumulated benefit obligation                                                  20,785          21,075
         Effect of projected future salary increases on past service                        ---             ---
                                                                                --------------------------------
         Projected benefit obligation                                                    20,785          21,075
         Plan assets at fair value                                                       19,026          18,881
                                                                                --------------------------------
         Projected benefit obligation in excess of plan assets                          $(1,759)        $(2,194)
                                                                                --------------------------------

</TABLE>

         Plan assets  primarily  consist of cash,  U.S.  government  securities,
         municipal and corporate  debt  instruments,  common stock mutual funds,
         and an insurance group annuity contract.

         The accrued pension liability of the plan was as follows:
<TABLE>
<CAPTION>

                                                                                            As of December 31,
                                                                                            ------------------
                                                                                           1997            1996
                                                                                           ----            ----
                ($ in thousands)
<S>                                                                                    <C>             <C>
          Projected benefit obligation in excess of plan assets                         $(1,759)        $(2,194)
          Unrecognized prior service asset                                                  ---             ---
          Unrecognized net gain from past
                experience different from that assumed                                      ---             ---
          Unrecognized net asset at transition                                              ---             ---
          Minimum liability adjustment                                                      ---             ---
                                                                                 -------------------------------
          Accrued pension liability                                                     $(1,759)        $(2,194)
                                                                                 -------------------------------
</TABLE>

        Incentive Savings Plans:
         The Company and Farm Family Life  sponsor  employee  incentive  savings
         plans which are  qualified  under  Section 401 of the Internal  Revenue
         Code. Under the provisions of these plans,  employees may contribute up
         to 15% of their eligible compensation, with up to 6% being eligible for
         matching   contributions  from  the  Company.   In  1997,  the  Company
         contributed to the plans a matching contribution of 50% of the first 6%
         of eligible  compensation  deferred by each eligible  employee and as a
         percentage  of  each  employee's  eligible   compensation,   a  regular
         contribution  of 3%, a profit  sharing  contribution  of 3% and a money
         purchase  contribution  of 3%. The profit  sharing  contribution  and a
         portion of the matching  contributions made by the Company in 1997 were
         discretionary.   In  1997,  the  Company  established  a  non-qualified
         unfunded  supplemental  plan for  those  employees  whose  compensation
         exceeds the Internal  Revenue Code  compensation  limits for  qualified
         plans. The Company's expense  associated with the plans was $1,082,000,
         $182,000 and $138,000 in 1997, 1996 and 1995, respectively. In 1995 and
         1996, the Company  contributed 1% of eligible  compensation (up to $240
         per employee) to the plan for all eligible employees.

                                      E-33
<PAGE>


        Postretirement Benefits Other Than Pensions:
         The Company and Farm Family Life  provide life  insurance  benefits for
         retired   employees   meeting   certain   age  and  length  of  service
         requirements.  The Company's  postretirement  benefit plan is currently
         unfunded and noncontributory. Benefits under the postretirement benefit
         plan are provided by a group term life insurance policy.

         Net  periodic  postretirement  benefit  expense  for  the  years  ended
         December 31, 1997, 1996, and 1995 included the following:
<TABLE>
<CAPTION>

                                                                                    1997        1996      1995
                                                                                    ----        ----      ----

            ($ in thousands)
<S>                                                                                  <C>         <C>       <C>
         Service cost                                                                $26         $27       $37
         Interest cost                                                                66          63        73
         Return on assets                                                           ----        ----      ----
         Amortization of transition obligation                                        47          47        47
            Amortization of unrecognized net gain                                     (1)       ----      ----
             Voluntary early retirement program                                     ----          41      ----
                                                                              ---------------------------------
                    Total net periodic postretirement benefit expense               $138        $178      $157
                                                                              ---------------------------------
</TABLE>

         The Company's  portion of net periodic  postretirement  benefit expense
         for the years  ended  December  31,  1997,  1996 and 1995 was  $79,000,
         $88,000 and  $66,000.  The  Company's  portion of the  voluntary  early
         retirement program expense in 1996 was $22,000.

         The  following  table  presents the plan's  accumulated  postretirement
         benefit obligation as of December 31, 1997 and 1996 reconciled with the
         plan's  funded  status  and  the  amount  recognized  in the  Company's
         consolidated balance sheets:
<TABLE>
<CAPTION>

                                                                                          1997            1996
                                                                                          ----            ----
                ($ in thousands)
         Accumulated postretirement benefit obligation:
<S>                                                                                      <C>             <C>
              Retirees                                                                   $(492)          $(487)
              Other fully eligible plan participants                                      (221)           (182)
              Other active plan participants                                              (276)           (293)
                                                                                   -----------------------------
              Obligation at year-end                                                      (989)           (962)
         Plan assets                                                                        ---             ---
                                                                                   -----------------------------
         Funded status                                                                    (989)           (962)
         Unrecognized transition obligation                                                759             805
         Unrecognized net loss                                                            (105)            (95)
                                                                                   -----------------------------
                Accrued postretirement benefit liability at year-end                     $(335)          $(252)
                                                                                   -----------------------------
</TABLE>

         The discount  rate used to  determine  the  accumulated  postretirement
         benefit obligation was 7.0% at December 31, 1997 and 1996.

                                      E-34

<PAGE>


         Stock Compensation Plan:

         In 1997, Farm Family Holdings adopted the Omnibus  Securities Plan (the
         "Securities  Plan"),  under which up to 500,000  shares of common stock
         are available for award.  Stock  options  granted under the  Securities
         Plan may be either  incentive stock options  ("ISO's") or non-qualified
         stock  options  ("NQSO's").  For ISO's the option  price may be no less
         than the fair market  value on the date of the grant.  For NQSO's,  the
         option  price may be no less than 85% of the fair  market  value on the
         date of grant.  On April 22, 1997,  215,000 NQSO's were granted.  These
         NQSO's may be exercised no earlier than July 26, 1999 and no later than
         April 22,  2007.  These  NQSO's vest  annually in equal  amounts over a
         three year  period  commencing  December  13, 1996 and have an exercise
         price of $22.56 per share,  the fair  market  value of the stock on the
         date of  grant.  The  following  table  summarizes  the  status  of the
         Securities Plan for the year ended December 31, 1997 and changes during
         the year of 1997:
<TABLE>
<CAPTION>

                                                                                                  Number of
                                                                                                      Shares
                                                                                                      ------
<S>                                                                                                  <C>
               Granted                                                                               215,000
               Exercised                                                                                ----
               Forfeited                                                                             (5,000)
                                                                                               --------------
                 Outstanding at end of year                                                          210,000
                                                                                               --------------
             Exercisable at end of year                                                                 ----
                                                                                               --------------

</TABLE>

         The Company has elected to follow  Accounting  Principles Board Opinion
         No.  25,  "Accounting  for Stock  Issued to  Employees"  ("APB 25") and
         related  interpretations  in accounting for the Securities  Plan. Under
         APB 25,  because the  exercise  price of the  Company's  stock  options
         equals the market price of the  underlying  stock on the date of grant,
         no  compensation  expense is recognized.  If the Company had determined
         the  compensation  expense  of the  Securities  Plan as  prescribed  by
         Financial Accounting Standards Board Statement No. 123, "Accounting for
         Stock-Based  Compensation"  ("Statement 123"), the Company's net income
         and  earnings per share for the year ended 1997 would have been reduced
         to the pro forma amounts indicated below:
<TABLE>
<CAPTION>

         ($ in thousands, except per share amounts)                As reported            Pro forma
                                                                   ------------           ---------
<S>                                                                     <C>                 <C>
              Net income                                                $18,504             $18,116
              Basic earnings per share                                    $3.52               $3.45
              Diluted earnings per share                                  $3.51               $3.44

</TABLE>

         The fair value of the options  granted in 1997 is estimated on the date
         of grant using the Black-Scholes option-pricing model and the following
         weighted-average   assumptions:   dividend  yield  of  0.0%,   expected
         volatility of 22.79%, risk-free interest rate of 6.78%, and an expected
         life of six years. At December 31, 1997, the exercise price for options
         outstanding is $22.56, and the weighted-average contractual life of the
         outstanding options is 9.3 years.


                                      E-35
<PAGE>


   10.  Related Party Transactions

         The  operations  of the Company are closely  related with those of Farm
         Family Life and Farm Family Life's wholly owned subsidiary, United Farm
         Family.  The  affiliated  Companies  operate  under  similar  Boards of
         Directors and have similar senior management.  The affiliated Companies
         share home office premises,  branch office facilities,  data processing
         equipment,  certain personnel and other operational expenses.  Expenses
         are shared based on each Company's  estimated level of usage. The gross
         shared  expenses and the Company's share of such expenses is summarized
         below:

<TABLE>
<CAPTION>

         ($ in thousands)
                                                                             Year Ended December 31,
                                                                             -----------------------
                                                                          1997         1996          1995
                                                                          ----         ----          ----
<S>                                                                    <C>          <C>           <C>
         Gross Shared Expenses                                         $29,364      $30,689       $26,650
         Company's Share:
             Amount                                                    $19,679      $19,912       $16,182
             Percentage                                                    67%          65%           61%
</TABLE>


         Farm Family Life held $813,000 of the Company's  debentures in 1994 and
         1995. In July 1996, the Company  repurchased  the  debentures  owned by
         Farm Family Life for the  principal  amount of  $813,000  plus  accrued
         interest of $37,000.  The Company incurred  interest expense of $37,000
         in 1996 and $65,000 in 1995 on the debentures held by Farm Family Life.

         The Company's reinsurance program includes reinsurance  agreements with
         United  Farm  Family.  In  accordance  with  the  provisions  of  these
         reinsurance  agreements,  the Company  recognized  commission income of
         $63,000, $191,000, and $2,000 during the years ended December 31, 1997,
         1996 and 1995,  respectively.  Effective December 31, 1997, the Company
         has terminated the reinsurance  agreements  with United Farm Family.  A
         summary of the effect of the  reinsurance  agreements  with United Farm
         Family on premiums written and earned is described in Note 5.

         Receivable  from  affiliates  represents  amounts  due from United Farm
         Family  pursuant to a  reinsurance  agreement and amounts due from Farm
         Family Life and United Farm Family for shared expenses.

   11.  Dividends From Subsidiaries and Statutory Financial Information

         Farm Family Casualty is restricted by law as to the amount of dividends
         it can pay  without  the  approval  of  regulatory  authorities.  As of
         December 31, 1997,  the maximum amount of dividends that can be paid by
         Farm Family  Casualty  without the prior approval of the New York State
         Insurance Department is $1.9 million.

         Net income and  surplus  of Farm  Family  Casualty,  as  determined  in
         accordance with statutory accounting practices are as follows:

<TABLE>
<CAPTION>

         ($ in thousands)                                                 1997             1996           1995
                                                                          ----             ----           ----
<S>                                                                    <C>               <C>            <C>
         Net income                                                    $17,081           $7,221         $6,735
         Surplus                                                        94,592           83,194         55,916
</TABLE>

                                      E-36
<PAGE>

        The National  Association of Insurance  Commissioners  ("NAIC") requires
        insurance   companies  to  calculate   and  report  risk  based  capital
        information  under a set of formulas which measure statutory capital and
        surplus  needs  based  on a  regulatory  definition  of the  risks  in a
        company's  mix of products  and its balance  sheet.  As of December  31,
        1997, Farm Family  Casualty's  total capital exceeds the threshold level
        of regulatory action, as defined by the NAIC.

   12.  Commitments, Contingencies and Uncertainties

         The Company is party to numerous  legal  actions  arising in the normal
         course of business.  Management believes that resolution of these legal
         actions  will not have a material  adverse  effect on its  consolidated
         financial condition.
                  Catastrophes are an inherent risk in the property and casualty
         insurance industry and could produce significant  adverse  fluctuations
         in the Company's  results of operations  and financial  condition.  The
         Company is subject to a concentration  of risk within the  Northeastern
         United States.  For the years ended  December 31, 1997,  1996 and 1995,
         approximately 63%, 61% and 60%,  respectively,  of the Company's direct
         premiums  were  written in the states of New York and New Jersey.  As a
         result of the concentration of the Company's  business in the states of
         New York and New Jersey, and more generally in the Northeastern  United
         States,  the  Company's  results  of  operations  may be  significantly
         affected  by weather  conditions,  catastrophic  events and  regulatory
         developments in these two states and in the Northeastern United States,
         despite the  Company's  reinsurance  program  designed to mitigate  the
         impact of these factors.

         As a condition  of its license to do  business in various  states,  the
         Company is required to participate  in a variety of mandatory  residual
         market  mechanisms  (including  mandatory  pools) which provide certain
         insurance  (most  notably  automobile  insurance)  to consumers who are
         otherwise  unable to obtain such coverages from private  insurers.  The
         amount of future losses and assessments from residual market mechanisms
         can not be predicted with  certainty and could have a material  adverse
         effect on the Company's future results of operations.

         Pursuant  to  agreements  between the Company and its agents and agency
         managers, subject to certain conditions including length of service and
         profitability,  certain  agents and agency  managers  are  eligible  to
         receive monthly extended  earnings payments for a period of up to eight
         years  subsequent  to the  termination  of their  association  with the
         Company. Historically,  such payments have been funded from commissions
         earned on the agent's or agency  manager's book of business  subsequent
         to the  termination  of the  agent's  association  with the  Company in
         accordance with the Company's  agreement with the successor  agents and
         agency managers. In the event that such commissions are insufficient to
         fund the extended earnings  payments,  the Company would be responsible
         for such  payments.  The aggregate  outstanding  amount of the extended
         earnings  payments which former agents and agency managers are entitled
         to receive for a period of up to eight years subsequent to December 31,
         1997 is $4,168,000.

         The Company is a party to Membership List Purchase Agreements with each
         of the  state  Farm  Bureaus  in the ten  states  in which it  conducts
         business.  The  Membership  List Purchase  Agreements are for six years
         commencing  on January 1, 1996.  For the years ended  December 31, 1997
         and  1996,   the  Company  paid  a  total  of  $600,000  and  $571,000,
         respectively,  to the Farm  Bureaus  pursuant  to the  Membership  List
         Purchase  Agreements.  For the year ended December 31, 1995 the Company
         paid  $547,000  to  the  Farm  Bureaus  under   substantially   similar
         Membership List Purchase Agreements in effect for 1995.

                                      E-37

<PAGE>

         At December 31, 1997, the Company had $1,422,000 of outstanding letters
         of credit.  These  letters of credit are issued to insurance  companies
         that  Farm  Family  Casualty  has  assumed  reinsurance  from  and  are
         domiciled  in states  where Farm  Family  Casualty  is not  licensed or
         authorized as a reinsurer.

         Many of the Company's existing computer programs use only two digits to
         identify a year in the date field.  These  programs  were  designed and
         developed without  considering the impact of the upcoming change in the
         century.  If not corrected,  many of these computer  applications could
         fail or create erroneous  results by or at the Year 2000. The Year 2000
         issue affects  virtually all companies and  organizations  . Therefore,
         the Company  must also  coordinate  with other  entities  with which it
         interacts to ensure these  entities are also  addressing  the Year 2000
         issue. If not  successfully  addressed,  the Year 2000 issue could have
         material  adverse  consequences  on the  Company.  The  Company  has an
         on-going,  enterprise-wide  project  to address  its Year 2000  issues.
         During 1998,  the Company will perform  system-wide  testing to support
         its plan of having policy administration systems Year 2000 compliant by
         December 31, 1998.  Year 2000 work on remaining  systems will  continue
         through 1999. In addition,  the Company has contacted other entities on
         which it relies to process and support its  business.  The Company will
         react to their plans to achieve  Year 2000  compliance  and will adjust
         operations  as  required.  The Company  believes  it will  successfully
         address its Year 2000 issues without material  adverse  consequences to
         the Company.  However,  there can be no assurance  that other  entities
         with which the Company  interacts will achieve Year 2000  compliance or
         that the failure by such entities to achieve Year 2000 compliance would
         not have a material adverse effect on the Company.

   13.  Unaudited Interim Financial Information
<TABLE>
<CAPTION>

                                                                           Quarter Ended
         ($ in thousands except per share data)         March 31    June 30      September 30     December 31
                                                        --------    -------      ------------     -----------
         1997
<S>                                                       <C>       <C>               <C>             <C>
        Revenues                                          $39,519   $46,087           $43,482         $44,635
        Net income                                          3,056     7,220             4,077           4,151
        Per share:
          Net income before
             extraordinary item - Basic                     $0.58     $1.37             $0.78           $0.79
          Net income before
             extraordinary item - Diluted                   $0.58     $1.37             $0.77           $0.78
          Net income - Basic                                $0.58     $1.37             $0.78           $0.79
          Net income - Diluted                              $0.58     $1.37             $0.77           $0.78

         1996
        Revenues                                          $35,810   $36,106           $37,264         $37,817
        Net income before extraordinary item                  823     2,533             3,462           1,649
        Net income                                            302     1,637             3,336           1,649
        Per share:
          Net income before
             extraordinary item - Basic                     $0.27     $0.84             $0.75           $0.31
          Net income before
             extraordinary item - Diluted                   $0.27     $0.84             $0.75           $0.31
          Net income - Basic                                $0.10     $0.55             $0.72           $0.31
          Net income - Diluted                              $0.10     $0.55             $0.72           $0.31

</TABLE>

                                      E-38
<PAGE>

   14.   Extraordinary Item and Non-Recurring Expenses

         During 1996, the Company incurred expenses of $1,543,000 related to the
         demutualization  of Farm Family Mutual which the Company has identified
         as  an  extraordinary  item.  These  expenses  consisted  primarily  of
         printing, postage, and legal costs.

         Pursuant to the  Statement of Financial  Accounting  Standards  No. 87,
         "Employers'   Accounting   for  Pensions",   the  Company   recorded  a
         non-recurring expense of $765,000 which is net of an income tax benefit
         of $412,000,  for the Company's share of the costs of a voluntary early
         retirement  program  offered to  certain  eligible  employees  in 1996.
         Eligibility for the program was based on age and years of service.
                  15.   Acquisition of Farm Family Life

         Farm Family Holdings entered into an Option Purchase Agreement with the
         shareholders of Farm Family Life pursuant to which Farm Family Holdings
         has, for a two-year  period  commencing on July 26, 1996, the option to
         acquire Farm Family Life subject to certain conditions. On February 26,
         1998,  the Board of  Directors  of Farm Family  Holdings  approved  the
         exercise of the option to acquire Farm Family Life and its wholly owned
         subsidiary  United Farm Family.  Under the terms of the Option Purchase
         Agreement,  Farm Family  Holdings  will pay an exercise  price of $37.5
         million to acquire Farm Family  Life,  consisting  of $31.5  million of
         common stock of Farm Family  Holdings,  and $6 million  stated value of
         6-1/8% voting  preferred  stock of Farm Family  Holdings.  The proposed
         acquisition  of Farm  Family  Life is  subject to the  approval  of the
         shareholders  of Farm  Family  Holdings  and  receipt  of all  required
         governmental approvals. Management expects that the acquisition of Farm
         Family Life will be brought to the shareholders of Farm Family Holdings
         for their approval in 1998.

   16.   Future Application of Accounting Standards

         In June 1997, the Financial Accounting Standards Board issued Statement
         No. 130  "Comprehensive  Income",  ("Statement  130") which establishes
         standards for the reporting and disclosure of comprehensive  income and
         its components (revenues,  expenses,  gains and losses).  Statement 130
         requires  that all  items  that are  required  to be  recognized  under
         accounting  standards as components of comprehensive income be reported
         in a financial  statement that is displayed with the same prominence as
         other financial  statements.  Statement 130 requires that an enterprise
         (a) classify items of other  comprehensive  income by their nature in a
         financial  statement and (b) display the  accumulated  balance of other
         comprehensive  income  separately from retained earnings and additional
         paid-in  capital in the  equity  section of a  statement  of  financial
         position.  Statement  130 is effective  for the fiscal years  beginning
         after December 15, 1997. The Company will adopt Statement 130 in 1998.

                                      E-39
<PAGE>



                        Report of Independent Accountants



To the Shareholders and Board of Directors
of Farm Family Holdings, Inc.

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

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

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


                                                  Coopers  & Lybrand L.L.P.


Albany, New York
February 13, 1998, except for Note 15, as to which the date is February 26, 1998

                                      E-40

<PAGE>
<TABLE>
<CAPTION>


                           FARM FAMILY HOLDINGS, INC.
                                   EXHIBIT 21
                         SUBSIDIARIES OF THE REGISTRANT

         Subsidiaries                                                                               State

         Farm Family Financial Services, Inc. is a wholly owned subsidiary of  Farm Family
         <S>                                                                                          <C>
               Holdings, Inc.                                                                         NY

         Farm Family Casualty Insurance Company ("FFCIC") is a wholly owned subsidiary of
               Farm Family Holdings, Inc.                                                             NY

         Rural Agency and Brokerage, Inc. ("RAB") is a wholly owned subsidiary of FFCIC.
                                                                                                      NY

         Rural Insurance Agency and Brokerage of Massachusetts, Inc. is a wholly owned
               subsidiary of RAB.                                                                     MA

         R.A.A.B of W. Va., Inc. is a wholly owned subsidiary of RAB.                                 WV

</TABLE>