[COVER]

                                    SIG LOGO
                               1996 Annual Report




                       [Large SIG logo with three photos]
<PAGE>

Corporate Profile

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

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


<PAGE>
Table of Contents


Financial Highlights                                                        1

Chairman's Report                                                           2

Selected Financial Data                                                     4

Management's Discussion and Analysis                                        6

Consolidated Financial Statements                                          20

Notes to Consolidated Financial Statements                                 24

Report of Independent Accountants                                          49

Stockholder Information                                                    50

Board of Directors and Executive Officers                                  51

Subsidiary and Branch Offices                                             IBC



[GRAPH OMITTED]



                              1992      1993      1994       1995       1996
Gross Premiums Written     $109,219   $88,936   $103,134   $124,634   $305,499

                         Gross Premiums Written By Year

<PAGE>



Financial Highlights
(in thousands, except per share data)

<TABLE>
<CAPTION>
For the years ended December 31,             1992          1993           1994           1995            1996
------------------------------------       --------       --------       --------       --------       --------
<S>                                        <C>            <C>            <C>            <C>            <C>
Gross premiums written                     $109,219       $88,936        $103,134       $124,634
$305,499
Net earnings (loss)(1)                     $    817       $  (323)       $  2,117       $  4,821       $ 13,256
Net operating earnings
 (loss)(2)                                 $    496       $  (244)       $  2,222       $  5,048       $ 13,916
Earnings (loss) per share(1)               $   0.12       $ (0.05)       $   0.30       $   0.69       $   1.76
Operating earnings (loss)
     per share (1)(2)                      $   0.07       $ (0.03)       $   0.32       $   0.72       $   1.85
Stockholders' equity                       $  1,193       $ 2,219        $  4,255       $  9,535       $ 60,900
Return on beginning equity                    168.8%        (27.1%)            95%         113.3%
139.0%
Book value per share                       $   0.17       $  0.32        $   0.61       $   1.36       $   5.83
Market value per share(3)                       N/A           N/A             N/A            N/A       $  16.75
</TABLE>

(1)  In 1993, the Company  recognized an increase to net earnings as a result of
     a cumulative effect of a change in accounting principle of $1,175. Earnings
     and operating earnings per share excluding this effect were $(0.20).

(2)  Operating  earnings and per share amounts  exclude the after tax effects of
     realized capital gains and losses.

(3)  The Company's shares were first publicly traded on November 5, 1996.


                              CORPORATE STRUCTURE
[graphic omitted]

           Symons International Group,
           Inc, Indianapolis, Indiana
             ("SIG or the "Company")
                       |
                       |
      ----------------------------------
     |                                  |
  100% Owned                        52% Owned                   Funds Affiliated
 IGF Holdings, Inc.                GGS Management   ----48%----  with Goldman
   ("IGFH")                        Holdings, Inc.                 Sachs & Co.
                           ("GGSH" or "GGS Holdings")             ("GS Funds")

     |                                  |
     |                                  |
 100% Owned                        100% Owned
IGF Insurance                 GGS Management, Inc.
  Company                       "GGS Management"
  ("IGF")
                                        |
                                        |
                        -----------------------------------
                        |                                  |
                        |                                  |
                 100% Owned                            100% Owned
               PAFCO General                      Superior Insurance Company
               Insurance Company                       ("Superior")
                  ("Pafco")                                |
                                                           |
                                                           |
                                             ----------------------------
                                             |                           |
                                             |                           |
                                        100% Owned                   100% Owned
                                   Superior Guranty                   Superior
                                   Insurance Company                  American
                                                                      Insurance
                                                                       Company



<PAGE>



Chairman's Report

--------------------------------------------------------------
Symons International Group, Inc.
--------------------------------------------------------------

1996  saw  Symons   International  Group,  Inc.  ("SIG")  change  from  being  a
wholly-owned  subsidiary  of Goran to a 67% owned newly listed  (NASDAQ)  public
company on the occasion of its Initial Public Offering on November 5, 1996.

Three million of its ten million  outstanding  common shares were offered to the
public at $12.50 per share,  and a further  450,000 shares were issued under the
terms of the "over-allotment"  agreement. The total proceeds were $43.1 million.
While  this  was a  significant  adventure  for SIG,  it came  late in a year of
several outstanding achievements produced by its subsidiary companies.

The year started with the  completion on January 31, 1996, of an agreement  with
the Fortis Group to purchase their nonstandard  automobile  insurance  division,
the Superior  Group of Insurance  Companies.  The purchase price was 105% of the
"book" value,  which developed a selling value to Fortis of $66,600,000,  a most
satisfactory arrangement for SIG as we will demonstrate.

The funds were raised by the following:

The substantial  financial house of Goldman Sachs,  through their affiliate,  GS
Capital  Partners II, L.P.  contributed  $21.2 million in cash to a newly formed
nonstandard  automobile  insurance holding company, GGS Management Holdings Inc.
We contributed  our previously  wholly-owned,  nonstandard  auto insurer,  Pafco
General Insurance  Company.  For its contribution,  GS Capital Partners II, L.P.
received a 48%  interest in GGS  Management  Holdings,  Inc.  and we, of course,
retained the other 52% of GGS Management Holdings, Inc. in SIG.

With the  assistance of our new  investors,  GS Capital  Partners II, L.P.,  GGS
Management  Holdings,  Inc.  borrowed  $48  million  thus  satisfying  the  cash
requirement for the acquisition and a definitive agreement was concluded for the
purchase  with Fortis on January 31, 1996.  The  necessary  application  seeking
approval of the purchase was  expeditiously  made to the regulators and by April
30,  1996,  the Florida  Department  of  Insurance  sanctioned  the deal and GGS
Management Holdings, Inc. was in business.

With the keys to Superior  firmly in our hands,  we  proceeded  to make  several
major improvements in the sales and administration of the nonstandard automobile
companies.  This  field of  insurance  is one of our core lines and we felt most
comfortable  with the  acquisition  from the  outset.  Our  first  chore  was to
implement proven and constructive  systems and to reduce redundancies that might
prevail within our two active nonstandard auto insurers.  Time proved that these
changes were  effective  in that by the end of 1996,  only eight months after we
acquired  Superior,  gross premiums of the Company had risen from $95 million in
1995 to $159 million. For 1996, we were also able to reduce the operating ratios
from 107.6% of premiums to 99.5% over this period.

During 1996 we reduced  operation  costs and  increased  production  at Pafco as
well.



<PAGE>



In combination with Pafco, the two nonstandard  entities now under the banner of
GGS Management Holdings,  Inc. moved into 16th place in this the fastest growing
segment of personal insurance.

IGF Insurance  Company,  our crop  insurer,  now occupies 5th place in volume of
income in the crop insurance business, which has been categorized as the fastest
growing  segment of the commercial  insurance  business.  The company,  since we
acquired it in November 1990, has progressed  from a relatively  small writer of
this  sophisticated  line of insurance,  doing $22 million of premium  income in
1990, to gross premiums for 1996 of $110 million - an increase of 56% over 1995.
Pre-tax earnings increased from $11 million in 1995 to $17.7 million in 1996.

A gentleman  employed with a major investment house asked a short time ago if we
expected to see results, such as we have displayed over the past years, continue
into the future.  It is a good question and if we could look into a crystal ball
and come up with the answer that might prove useful, too. The fact of the matter
is that there have been sound and  understandable  reasons for our growth and we
can take credit for that.  We have stuck to the  business  philosophy  developed
some years back of being a "niche"  company,  carefully  selecting  our areas of
development.  These have been the nonstandard  auto insurance and crop insurance
segments.  We have made  antidilutive  acquisitions,  and managed  above average
growth while  increasing  profitability.  As the large  standard  auto  insurers
tightened their  underwriting  criteria,  this threw a large number of motorists
into the  nonstandard  market.  As the  nonstandard  market  grew to accept more
business, various legislators brought in tougher laws to eliminate the uninsured
motorist.  Florida even  introduced  bounty  hunters to hound out the noninsured
motorists. Other states have been introducing tighter laws to impose a mandatory
obligation  to insure  with  seizure of the car and large  fines in the event of
non-compliance.  The market for nonstandard  auto insurance has now reached more
than $17 billion  and there is still some  shortfall  in the  capacity to absorb
these  premiums by the  insurers.  We are selective in the risks we accept which
accounts for our results bettering the averages.

Dating as far back as the period  following the Dust Bowl of the 30's, there was
a lack of insurance markets to accept the risks of farmers for damage or loss of
crops.  This was not a serious  problem  in the past for many  farmers  were not
prone to purchase  the  coverage  and relied on the luck of the draw,  or as the
more  religious  put it,  the hand of God to look  after  them.  The time  came,
however,  when  losses  became  too severe for the  well-being  of the  nation's
farmers  and the  central  government  in the U.S.  had to step in and  offer to
provide  assistance  with  the  creation  of  a  sound  insurance  market.  With
reluctance,  the Federal Crop Insurance Corporation was established and for some
time,  along with a small group of speciality  insurance  companies,  a suitable
market existed.

In 1993 devastating floods hit the farms in mid-America following some turbulent
and  unpredictable  weather in the years  preceding.  There were disaster  areas
aplenty and of course many farmers, as was their tradition, had not insured. The
demands  for  "Disaster  Fund"   assistance  was  loud  and  insistent  and  the
government,  of course  with  taxpayers  funds,  did its best to  render  useful
assistance. The upshot of this was the 1994 Crop Reform bill


<PAGE>



and the 1996 Freedom to Farm  legislature.  These bills,  while modernizing many
aspects of  protection  to farmers  and the way in which  they  conducted  their
business  affairs,  imposed an obligation on the farmers to purchase  protection
for their own  security.  Premiums in the crop  insurance  industry have doubled
since while the number of insurance  providers has shrunk. IGF has increased its
segment of this business by a greater amount than the overall factor of growth.

We have added  many  capable  people to our staff over the past few years,  some
through  acquisition of companies such as IGF and Superior,  but others garnered
from other insurers and businesses. Our goal is to continue to grow by increased
sales and  acquisitions,  but the proof of the  pudding  is in the eating and we
have become an efficient  producer of  business,  both in the  nonstandard  auto
field and crop insurance business. We have developed unique marketing strategies
and our  underwriting  results and expense  ratios are comparable to the largest
and most experienced companies.



G. Gordon Symons, Chairman


<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
                       Years Ended December 31,

--------------------------------------------------------------------------------
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
--------------------------------------------------------------------------------
OF SYMONS INTERNATIONAL GROUP, INC.

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

<TABLE>
<CAPTION>


                                     1992          1993         1994          1995           1996
                                   ---------    ---------     ---------     ---------     ---------
                                             (in thousands except per share amounts and ratios)
<S>                                <C>          <C>           <C>           <C>           <C>
Consolidated Statement of
Operations Data:

Gross Premiums Written             $ 109,219    $  88,936     $ 103,134     $ 124,634     $ 305,499
Net Premiums Written                  35,425       31,760        35,139        53,447       209,592

Net Premiums Earned                   35,985       31,428        32,126        49,641       191,759
Net Investment Income                  1,319        1,489         1,241         1,173         6,733
Other Income                         - - - -          886         1,632         2,170         9,286
Net Realized Capital Gain
(Loss)                                   486         (119)         (159)         (344)       (1,015)
                                   ---------    ---------     ---------     ---------     ---------
Total Revenues                        37,790       33,684        34,840        52,640       206,763
                                   =========    =========     =========     =========
=========

Losses and Loss Adjustment
Expenses                              27,572       25,080        26,470        35,971       137,109
Policy Acquisition and General
and Administrative Expenses            7,955        8,914         5,801         7,981        42,013
Interest Expense                         459          996         1,184         1,248         3,938
                                   ---------    ---------     ---------     ---------     ---------

Total Expenses                        35,986       34,990        33,455        45,200       183,060
                                   =========    =========     =========     =========
=========

Earnings (Loss) Before Taxes,
Extraordinary Item, Cumulative
Effect Of An Accounting Change
And Minority Interest                  1,804       (1,306)        1,385         7,440        23,703
Income Taxes                             996           83          (718)        2,619         8.046
                                   =========    =========     =========     =========
=========
Earnings (Loss) Before
Extraordinary Item,
Cumulative Effect Of An
Accounting Change And
Minority Interest                  $     808    $  (1,389)    $   2,103     $   4,821     $  15,657
Net Earnings (Loss)                $     817    $    (323)    $   2,117     $   4,821     $  13,256
                                   =========    =========     =========     =========
=========
</TABLE>



<PAGE>

                                 SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
                                                        Years Ended December 31,

--------------------------------------------------------------------------------
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                     1992          1993         1994          1995           1996
                                   ---------    ---------     ---------     ---------     ---------
<S>                                <C>          <C>           <C>           <C>           <C>
Per Common Share Data:
Earnings (Loss) Before
Extraordinary Item,
And Cumulative Effect Of
An Accounting Change And
Minority Interest                  $    0.12    $   (0.20)    $    0.30     $    0.69     $    2.08
                                   ---------    ---------     ---------     ---------     ---------
Net Earnings (Loss)                $    0.12    $   (0.05)    $    0.30     $    0.69     $    1.76
                                   =========    =========     =========     =========
=========


Weighted Average Shares
Outstanding                            7,000        7,000         7,000         7,000         7,537

GAAP Ratios:
Loss and LAE Ratio                      76.6%        79.8%         82.4%         72.5%         71.5%
Expenses Ratio                          23.4         31.5          21.7          18.6          24.0
                                   ---------    ---------     ---------     ---------     ---------

Combined Ratio                         100.0%       111.3%        104.1%         91.1%         95.5%
                                   =========    =========     =========     =========
=========

Consolidated Balance Sheet Data:
Investments                        $  27,941    $  21,497     $  18,572     $  25,902     $ 178,429
Total Assets                          75,001       81,540        66,628       110,516       344,679
Losses and Loss Adjustment
Expenses                              38,616       54,143        29,269        59,421       101,719
Total Debt                            11,528        9,341        10,683        11,776        48,000
Minority Interest                         55      - - - -            16       - - - -        21,610
Total Shareholders Equity              1,193        2,219         4,255         9,535        60,900
Book Value Per Share               $    0.17    $    0.32     $    0.61     $    1.36     $    5.83

Statutory Capital And Surplus:
Pafco                              $  10,363    $   8,132     $   7,848     $  11,875     $  18,112
IGF                                $   6,400    $   2,789     $   4,512     $   9,219     $  29,412
Superior                                                                                    $57,121
</TABLE>


<PAGE>

                                  [photographs of automobiles down right margin]

MANAGEMENT'S DISCUSSION AND ANALYSIS


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

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

Formation of GGS  Management  Holdings,  Inc.  ("GGSH" or "GGS  Holdings"),  The
Holding Company For Its Nonstandard Operations

SIG  entered  into a Letter of Intent on June 3, 1995 with  Fortis,  Inc. to buy
Superior  Insurance Company  ("Superior"),  a nonstandard  automobile  insurance
company  operating  principally  in Florida,  Texas,  California  and four other
states.  SIG needed to finance the purchase so it turned to Goldman  Sachs & Co.
("Goldman  Sachs")  which has a large fund that invests in equity of growing and
profitable  companies.  SIG formed GGSH through  contribution of its nonstandard
subsidiary,  Pafco General  Insurance  Company  ("Pafco") and a contribution  by
Goldman  Sachs of about $21 Million,  or 48% of GGS Holdings'  stock.  With this
cash and the value of Pafco,  GGS Holdings  borrowed from Chase  Manhattan Bank,
N.A.  ("Chase") $48 Million  through a term loan of 6 years at LIBOR plus 2.75%.
With these funds,  GGS Holdings  bought  Superior for $66.6  Million in cash and
closed the deal on April 30, 1996 (the  "Acquisition").  Today,  GGS Holdings is
the sixteenth  largest  nonstandard  automobile  insurance  writer in the United
States  with  gross  written  premiums  for  1996 of  $187,176,000  compared  to
$49,005,000  for 1995. GGS Holdings is an acquisition  and growth company in the
nonstandard  automobile insurance sector, which is the fastest growing sector of
the personal lines market.


<PAGE>

[photographs of automobiles down left margin and across top of page]

The  Company  wanted to define its  business  as two  distinct  units,  crop and
nonstandard.  The  Company  also  wanted  Goldman  Sachs to  invest  only in the
nonstandard  division.  In order to  accomplish  this,  SIG moved IGF  Insurance
Company  ("IGF") out from being a subsidiary  of Pafco to become a subsidiary of
SIG. After all the accountants and lawyers got through their deliberations,  IGF
Holdings, Inc. ("IGFH") was formed as a subsidiary of SIG and IGFH owned 100% of
IGF, now the fifth  largest crop  insurer in the United  States.  To replace the
value of IGF to Pafco,  IGF paid a dividend  of $11  Million to Pafco and funded
same through our friendly local bank for $7.5 Million (the "IGFH Bank Debt") and
a note  back from  Pafco for $3.5  Million.  Both of these  loans  were paid off
through the Offering proceeds.

Nonstandard Automobile Insurance Operations

The  Company  owns  52% of GGS  Holdings,  our  nonstandard  division,  with the
remaining  48%  owned by  certain  funds  affiliated  with  Goldman  Sachs.  GGS
Holdings, through its wholly-owned subsidiaries,  Pafco and Superior, is engaged
in the writing of insurance  coverage on automobile  insurance for  "nonstandard
risks".  Nonstandard  insureds  are those  individuals  who are unable to obtain
insurance  through  standard market carriers due to factors such as poor premium
payment  history,  driving  experience,  record of prior  accidents  or  driving
violations,  particular  occupation  or  type  of  vehicle.  Premium  rates  for
nonstandard risks are higher than for standard risks.  Nonstandard policies have
relatively  short  policy  periods and low limits of  liability.  Due to the low
limits of coverage,  the period of time that elapses  between the occurrence and
settlement of losses under nonstandard policies is shorter than many other types
of insurance. The nonstandard automobile market is the fastest growing sector of
the personal  lines market.  This is fueled by two main  factors.  (A) As states
clamp down on uninsured  motorists,  more insureds find their way to our market.
For example, Florida, our biggest state, has bounty hunters who take your plates
off your car if you fail to have  insurance.  Further,  California  just  passed
strong  laws to  enforce  insurance  or lose  your  car.  (B) The baby  boomers'
children  are now  reaching  driving  age and they  mainly find their way to our
market.


<PAGE>

                                        [photographs of crops down right margin]

Crop Insurance Operations

General

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

Certain Accounting Policies for Crop Insurance Operations

The majority of the Company's crop insurance  business consists of MPCI. MPCI is
a  government-sponsored  program  with  accounting  treatment  which  differs in
certain  respects from more traditional  property and casualty  insurance lines.
Farmers  may  purchase  "CAT  Coverage"  (the  minimum  available  level of MPCI
coverage) upon payment of a fixed administrative fee of $50 per policy (the "CAT
Coverage  Fee")  instead of a premium.  This fee is  included  in other  income.
Commissions paid to agents to write CAT policies are partially offset by the CAT
Coverage  Fee,  which is also  reflected  in other  income.  For purposes of the
profit-sharing  formula under the MPCI program referred to below, the Company is
credited  with an imputed  premium  (its  "MPCI  Imputed  Premium")  for all CAT
Coverage  policies it sells,  determined in accordance  with the  profit-sharing
formula  established by the Federal Crop  Insurance  Corporation  ("FCIC").  For
income  statement  purposes under GAAP,  gross premiums  written  consist of the
aggregate  amount of  premiums  paid by  farmers  for  "Buy-up  Coverage"  (MPCI
coverage in excess of CAT Coverage),  and any related federal premium subsidies,
but do not include any MPCI Imputed Premium


<PAGE>
[photographs of crops down left margin]

credited on CAT  Coverage.  By contrast,  net premiums  written and net premiums
earned do not include any MPCI premiums or premium  subsidies,  all of which are
deemed to be ceded to the U.S. Government as reinsurer.  The Company's profit or
loss from its MPCI  business  is  determined  after the crop  season ends on the
basis of a complex  profit-sharing formula established by federal regulation and
the FCIC. For GAAP income  statement  purposes,  any such profit or loss sharing
earned or payable by the  Company is  treated  as an  adjustment  to  commission
expense  and is included in policy  acquisition  and general and  administrative
expenses.  Amounts  receivable  from  the FCIC are  reflected  on the  Company's
consolidated balance sheet as reinsurance recoverables.

The Company also  receives  from the FCIC (i) an expense  reimbursement  payment
equal to a percentage of gross premiums  written for each Buy-up Coverage policy
it  writes  (the  "Buy-up   Expense   Reimbursement   Payment"),   (ii)  an  LAE
reimbursement  payment  equal  to 13.0% of MPCI  Imputed  Premiums  for each CAT
Coverage  policy it writes  (the "CAT LAE  Reimbursement  Payment")  and (iii) a
small excess LAE  reimbursement  payment of two hundredths of one percent (.02%)
of MPCI  Retention  (as defined  herein) to the extent the  Company's  MPCI loss
ratios  on a per state  basis  exceed  certain  levels  (the  "MPCI  Excess  LAE
Reimbursement   Payment").   For  1994,   1995  and  1996,  the  Buy-up  Expense
Reimbursement  Payment  has  been  set at 31% of  the  MPCI  Premium,  but it is
scheduled  to be  reduced  to 29% in 1997,  28% in 1998 and  27.5% in 1999.  The
Company is working to reduce  costs in order to preserve  the profit  margins of
the  Company.   For  GAAP  income  statements   purposes,   the  Buy-up  Expense
Reimbursement Payment is treated as a contribution to income and reflected as an
offset against policy acquisition and general and administrative  expenses.  The
CAT LAE Reimbursement Payment and the MPCI Excess LAE Reimbursement Payment are,
for income  statement  purposes,  recorded as an offset  against  LAE, up to the
actual  amount of LAE incurred by the Company in respect of such  policies,  and
the remainder of the payment, if any, is recorded as other income.

In 1996, the Company instituted a policy of recognizing (i) 35% of its estimated
MPCI gross  premiums  written  for each of the first and second  quarters,  (ii)
commission  expense at a rate of 16% of MPCI gross premiums  written  recognized
and (iii) Buy-up Expense  Reimbursement  at a rate of 31% of MPCI gross premiums
written  recognized along with normal operating  expenses incurred in connection
with  premium  writings.  In  the  third  quarter,  if a  sufficient  volume  of
policyholder  acreage  reports have been  received and processed by the Company,
the Company's  policy is to recognize MPCI gross premiums  written for the first
nine months based on a re-estimate.  If an  insufficient  volume of policies has
been  processed,  the  Company's  policy  is to  recognize  20% of its full year
estimate of MPCI gross  premiums  written in the third  quarter.  The  remaining
amount of gross premiums  written is recognized in the fourth quarter,  when all
amounts are  reconciled.  In prior  years,  recognition  of MPCI gross  premiums
written  was 30%,  30%,  30% and 10%,  for the first,  second,  third and fourth
quarters, respectively.  Commencing with its June 30, 1995 financial statements,
the Company also began  recognizing  MPCI  underwriting  gain or loss during the


<PAGE>
first  and  second  quarters,  as  well as the  third  quarter,  reflecting  the
Company's  best estimate of the amount of such gain or loss to be recognized for
the full  year,  based  on,  among  other  things,  historical  results,  plus a
provision for adverse  developments.  In the fourth  quarter,  a  reconciliation
amount is recognized  for the  underwriting  gain or loss based on final premium
and loss information.

Discontinuance of Surplus Lines Underwriting Unit

Prior to January 1, 1996,  the  Company,  through its  wholly-owned  subsidiary,
Symons   International   Group,  Inc.  -  Florida  ("SIGF"),   a  surplus  lines
underwriting  unit based in  Florida,  provided  commercial  insurance  products
through  independent  insurance  agents.  SIGF writes these  specialty  products
through Pafco as well as a number of other insurers.  Effective January 1, 1996,
the  Company  transferred  SIGF to Goran and  reinsured  all  current and future
policies issued by Pafco on this business  through Goran's  subsidiary,  Granite
Reinsurance Company Ltd. ("Granite Re").

Selected Segment Data of the Company

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

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                   1993          1994          1995          1996
                                                            (in thousands, except ratios)


Nonstandard -Automobile Insurance Operations:
<S>                                             <C>           <C>           <C>             <C>
     Gross premiums written                     $  52,187     $  45,593     $  49,005       187,176
     Net premiums written                          26,479        28,114        37,302       186,579
     Net premiums earned                           26,747        25,390        34,460       168,746
     Net investment income                          1,144           904           624         6,489
     Other income, principally
         billing fees                                 886         1,545         1,787         7,578
     Net realized capital loss                        (44)          (55)         (508)       (1,014)
     Total revenues                                28,733        27,784        36,363       181,799
     Losses and loss adjustment
          expenses                                 17,152        18,303        25,423       124,385
     Policy acquisition and general and
       administrative expenses                      5,855         8,709        12,929        46,796
     Interest and amortization of
          intangibles                             - - - -       - - - -         - - -         3,184
     Total expenses                                23,007        27,012        38,352       174,365
     Earnings (loss) before income
          taxes                                 $   5,726     $     772     $  (1,989)    $   7,434

GAAP Ratios (Nonstandard Automobile Only):
     Loss ratio                                      55.5%         62.3%         65.8%         65.1%
     LAE ratio                                        8.6%          9.8%          8.0%          8.6%
     Expense ratio, net of bilLing fees              18.6%         28.2%         32.3%         25.1%
     Combined ratio                                  82.7%        100.3%        106.1%         98.8%

Crop Insurance Operations:
     Gross premiums written                     $  35,156     $  54,455     $  70,374     $ 110,059
     Net premiums written                           4,281         4,565        11,608        23,013
     Net premiums earned                            4,281         4,565        11,608        23,013
     Net investment income                            347           339           674           181
     Other income                                       0            73           384         1,672
     Net realized capital gain (loss)                 114          (104)          164            (1)
     Total revenues                                 4,742         4,873        12,830        24,865

     Losses and loss adjustment expenses            6,774         7,031         8,629        12,724
     Policy acquisition and general and
       administrative expenses                      1,468        (4,802)       (7,466)       (6,095)
     Interest expense                                 235           492           627           551
     Total expenses                                 8,477         2,721         1,790         7,180
     Earnings (loss) before income taxe         $  (3,735)    $   2,152     $  11,040     $  17,685

Statutory Capital and Surplus:
     Pafco                                      $   8,132     $   7,848     $  11,875     $  18,112
     IGF                                            2,789         4,512         9,219        29,412
     Superior                                      56,656        43,577        49,277        57,121

</TABLE>

<PAGE>
Results of Operations

Overview

1996 Compared To 1995

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

1995 Compared To 1994

Net earnings and earnings per share  increased  128% to  $4,821,000  and 130% to
$0.69 in 1995 from $2,117,000 and $0.30 in 1994.  Improved earnings in 1995 were
attributable to the crop insurance  segment which  demonstrated  premium growth,
lower loss ratios and higher MPCI underwriting gains than in 1994.

Years Ended December 31, 1996 and 1995:

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

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


<PAGE>
Since all MPCI premiums are reported as 100% ceded,  MPCI gross premiums written
have no effect on net premiums written.

Net Premiums Earned.  The Company's net premiums earned in 1996 increased 286.3%
reflecting  the  increase in net  premiums  written.  The ratio of net  premiums
earned to net  premiums  written  for  nonstandard  automobile  business in 1996
decreased to 90.4% from 92.4% in 1995 due to growth in net  premiums  written in
1996 exceeding growth in net premiums written in 1995.

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

Other  Income.   The  Company's  other  income  in  1996  increased  327.9%  due
principally  to (i) billing fee revenue of $4,655,000 at Superior  subsequent to
the  Acquisition,  (ii) increased  billing fee revenue at Pafco of $998,000 from
nonstandard  automobile  insurance policies,  resulting from the increase in the
in-force  policy  count  described  above,  and an increase in fees  charged per
installment  in late 1995,  and (iii)  increased  CAT Coverage  Fees and CAT LAE
Reimbursement  Payments  resulting from the introduction of CAT Coverages in the
Federal Crop Insurance Reform Act of 1994 (the "1994 Reform Act").

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

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

Policy  Acquisition and General and Administrative  Expenses.  The expense ratio
for the nonstandard  automobile segment decreased to 29.6% in 1996 from 37.5% in
1995.  Excluding  interest on the Acquisition  debt and amortization of goodwill
and other intangibles associated with the Acquisition would reduce this ratio to
27.7% in 1996.  This  decrease was due to several  factors  including  (i) lower
commission  expense at Superior  through  utilization of multi-tiered  products,
(ii)  lower  staff  expenses  as a result  of higher  utilization  and work flow
re-engineering,  and  (iii)  technological  advancements  in  the  underwriting,
premium  processing and claims areas.  As a result of the unique  accounting for
the crop insurance  segment,  such segment  experienced a contribution to income
reflected in the policy acquisition and general and administrative  expense line
item of $6,095,000 in 1996 compared to a contribution to income of $7,466,000 in
1995.  This decrease in  contribution  resulted  from a  combination  of several
factors.  The primary  difference is the decrease in ceding commission income of
$2,036,000 which is due to only a 10%


<PAGE>

quota  share  agreement  for crop hail in 1996 versus a 25% quota share in 1995.
Other items include a commission  expense  increase of $6,217,000  due to higher
premium writings and an increase in other operating expenses of $4,153,000. This
net increase in expense of $10,370,000  was reduced by an increase of $8,490,000
in Buy-up Expense Reimbursement and an increase in the MPCI underwriting gain of
$2,624,000.

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

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

Years Ended December 31, 1995 and 1994:

Gross Premiums  Written.  Gross premiums  written in 1995  increased  20.8%,  to
$124,634,000  from $103,134,000 in 1994 reflecting an increase in gross premiums
written of 29.2% in crop insurance and 7.5% in nonstandard automobile insurance.
The increase in gross premiums written for the nonstandard  automobile insurance
segment was primarily attributable to an increase in policies in-force of 13.4%.
The Company  experienced a greater percentage  increase in certain states due to
the  introduction  of  product  improvements.  In  Colorado,  policies  in-force
increased  due to the  increased  number  of its  deductible  options  and  more
favorable  pricing for certain personal injury  protection  coverages.  The crop
insurance  segment  experienced  growth in both the crop hail and MPCI business.
The increase in crop hail gross  premiums  written to  $16,966,000  in 1995 from
$10,130,000 in 1994 was due primarily to increased  opportunities to market crop
hail coverages to farmers as a result of the increases in sales of MPCI products
(both  Buy-up  Coverage  and CAT  Coverage)  due to the 1994 Reform Act. The net
increase in MPCI gross premiums  written to $53,408,000 in 1995 from $44,325,000
in 1994  resulted  from an  increase  in the  number  of acres  insured  in 1995
following the 1994 Reform Act.

Net Premiums  Written.  The  Company's  net premiums  written in 1995  increased
52.1%,  to  $53,447,000  from  $35,139,000  in 1994 due to an  increase in gross
premiums  written and a reduction in premiums  ceded to  reinsurers  under quota
share reinsurance for both nonstandard  automobile and crop hail insurance.  The
percentage  of the Company's  nonstandard  automobile  premiums  ceded under its
quota share reinsurance  treaty was reduced to 25% from an effective  percentage
ceded of 38% in 1994 as a result of a reduction  in the  Company's  need for the
additional  capacity  provided by this  reinsurance.  Net Premiums  Earned.  The
Company's net premiums earned in 1995 increased 54.5%  reflecting an increase in
net  premiums  written  and a  reduction  in  quota  share  reinsurance  on  the
nonstandard  automobile insurance business.  The ratio of net premiums earned to
net premiums  written for  nonstandard  automobile  insurance  in 1995  remained
relatively unchanged at 92.4% as compared to 90.3% in 1994.

Net Investment  Income. Net investment income in 1995 decreased 5.5% principally
due to a decrease in the average yield earned on invested assets to 5.2% in 1995
from 6.0% in 1994. Although market interest rates increased


<PAGE>

in 1995, the average yield on investments  declined primarily as a result of the
repositioning of the Company's investment portfolio, begun in the latter part of
1995,  into a higher  concentration  in fixed  income  securities,  particularly
including  shorter  term  securities.  The  decrease  in the  average  yield was
partially  offset by an increase in average  invested  assets to  $22,653,000 in
1995 from $20,628,000 in 1994.

Other Income.  The Company's other income in 1995 increased 34.0% as a result of
increased billing fee income of $351,000 on nonstandard  automobile business due
primarily to the increase in the in-force policy count as described above,  with
the  remainder  due  primarily to the receipt of CAT  Coverage  Fees and CAT LAE
Reimbursement Payments following the 1995 introduction of CAT Coverages.

Net Realized  Capital Gain (Loss).  The Company  recorded a net realized capital
loss of  $344,000  from the sale of  investments  in 1995 as  compared  to a net
realized capital loss of $159,000 in 1994. The net realized capital loss in 1995
was the result of  appointing a new  investment  manager in October 1995 and the
resulting  repositioning of the Company's  investment portfolio described above,
as well as certain write-downs taken on investments with an other than temporary
decline in estimated fair value.

Losses and LAE. The nonstandard  automobile segment loss and LAE ratio increased
to 73.8% in 1995 from 72.1% in 1994 primarily due to increased  repair costs for
automobile  parts resulting from the  implementation  of laws prohibiting use of
reconditioned  parts  as well as  general  inflationary  pressures  on  costs of
settling  claims.  The crop hail loss and LAE ratio  decreased  to 74.3% in 1995
from 154.0% in 1994 due to more favorable  weather  conditions than in the prior
year. Crop insurance  losses and LAE were also impacted by net MPCI LAE of $0 in
1995 and $936,000 in 1994, after reduction for LAE  reimbursements of $3,324,000
in 1995  compared to $107,000 in 1994.  These  reimbursements  are  reflected in
losses and LAE up to the actual amount of LAE incurred with any excess reflected
in Other Income.

Policy Acquisition and General and Administrative Expenses. The Company's policy
acquisition and general and administrative  expenses in 1995 increased 37.6%, to
$7,981,000 from $5,801,000 in 1994. The nonstandard  automobile  segment expense
ratio  increased  to  37.5%  in  1995  from  34.3%  in 1994  primarily  due to a
$2,390,000,  or 44%,  reduction in ceding commission income in 1995 arising from
reduced  reliance  on  quota  share  reinsurance.  As a  result  of  the  unique
accounting  for  the  crop  insurance  segment,   such  segment   experienced  a
contribution  to income  reflected  in the policy  acquisition  and  general and
administrative   expense  line  item  of   $7,466,000  in  1995  compared  to  a
contribution  to income of  $4,802,000 in 1994.  This  increase in  contribution
resulted from an increase in Buy-Up Expense Reimbursement Payments of $2,521,000
due to higher gross premium  writings in 1995,  together with an increase in the
MPCI underwriting gain of 6,396,000.

Interest  Expense.  The Company's  interest  expense in 1995 increased 5.4% as a
result of increased line of credit  borrowings by IGF due to an increase in cash
flow  requirements  and an  increase  in  applicable  interest  rates.  This was
partially  offset by  interest  savings  in 1995 over 1994  resulting  from debt
principal repayments and the retirement of a Company term loan in June 1995.



<PAGE>
                                   [photographs of a building down right margin]

Income Tax Expense.  The  effective tax rate in 1995 was 35.2% as compared to an
effective  tax rate of  (52.2%)  in 1994.  The tax  benefit in 1994 was due to a
$1,492,000  reduction  in the  valuation  allowance  the Company had  previously
established for its deferred tax assets.

Liquidity and Capital Resources

The primary sources of funds available to the Company and its  Subsidiaries  are
premiums,  billing fees, expense reimbursements,  investment income and proceeds
from the maturity of invested  assets.  Such funds are used  principally for the
payment of claims, operating expenses,  commissions,  dividends and the purchase
of investments.  There is variability to cash outflows  because of uncertainties
regarding settlement dates for liabilities for unpaid losses.  Accordingly,  the
Company maintains  investment  programs  generally  intended to provide adequate
funds to pay claims without the forced sale of investments.

Net cash provided by operating  activities in 1996 was  $10,003,000  compared to
$9,654,000  in 1995  for an  increase  of  $349,000.  This  increase  was due to
improved  profitability  and growth in written  premiums.  Loss  payments in the
nonstandard automobile insurance business tend to lag behind receipt of premiums
thus providing cash for operations. Net cash provided by operating activities in
1995  was  $9,654,000  compared  to net cash  used by  operating  activities  of
$3,302,000 in 1994.  Operations in 1995  provided an additional  $12,956,000  in
cash compared to 1994 due to additional net earnings of $2,704,000 and cash flow
provided of $5,109,000 relating to premium receipts and loss payments, including
effects of reinsurance, due primarily to growth in operations with the remainder
due to timing of tax and other liability payments.

Net cash used in  investing  activities  increased  from  $8,835,000  in 1995 to
$92,769,000  in 1996.  Included  in 1996 was a  $66,590,000  use of cash for the
Acquisition. The remaining increase in cash used in investing activities in 1996
related to the growth in investments due to increased cash provided by operating
activities.  Net cash of  $8,835,000  was used in investing  activities  in 1995
compared to net cash provided by investing activities in 1994 of $1,473,000. The
increase in the use of cash in 1995 over 1994 primarily  relates to investing of
excess  funds  generated  by  additional  operating  earnings  in  fixed  income
securities. Due to the nature of insurance operations, the Company does not have
a significant amount of expenditures on property and equipment.

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

Cash provided or used by financing activities in 1995 and 1994 primarily related
to  activity  in the  Company's  line  of  credit  for  its  crop  segment.  The
nonstandard  automobile  segment  generates  sufficient  cash from operations to
preclude the need for working  capital  borrowings  while the timing of receipts
and  payments in the crop  segment is such that an  operating  line of credit is
necessary.



<PAGE>
[photographs of a building down right margin and across top of page]

After the Offering,  the Company,  on a  stand-alone  basis,  requires  funds to
defray operating expenses  consisting  primarily of legal,  accounting and other
fees and expenses in connection  with the disclosure and regulatory  obligations
of a public  company.  In order to satisfy  its cash  requirements,  the Company
intends to rely primarily on the fees from an  administrative  agreement between
the  Company  and IGF (the  "Administration  Agreement")  pursuant  to which the
Company provides certain executive management, accounting, investing, marketing,
data processing and reinsurance  services in exchange for a fee in the amount of
$150,000  quarterly.  In  addition,  the Company is  currently in the process of
seeking  approval  from the Indiana  Department  of Insurance to implement a new
arrangement whereby the underwriting,  marketing and administrative functions of
IGF will be assumed by, and employees will be transferred  to, IGFH.  There can,
however, be no assurance that the required regulatory approval will be obtained.
In  accordance  with  industry  practice,  the FCIC will  continue to pay Buy-up
Expense Reimbursement Payments to IGF, which will in turn pay management fees to
IGFH.  Accordingly,  IGFH will be able to pay  dividends  to the  Company to the
extent that such fees exceed the  operating  and other  expenses of IGFH.  There
can, however, be no assurance that IGFH will have sufficient excess cash flow to
permit the payment of any dividends to the Company.

As a result of the covenants  contained in the credit  agreement with respect to
the GGS Senior Credit  Facility,  GGS Holdings and its  subsidiaries,  Pafco and
Superior,  are not expected to constitute a significant  source of funds for the
Company. The GGS Senior Credit Facility restricts the ability of GGS Management,
Inc., a wholly-owned  subsidiary of GGSH ("GGS Management") to undertake certain
actions,  including  making,  or  permitting  any of its  subsidiaries  to make,
certain restricted payments in excess of $100,000 per year in the aggregate. For
purposes  of the GGS  Senior  Credit  Facility,  "restricted  payments"  include
dividends in the form of cash or other  tangible or intangible  property  (other
than stock,  options,  warrants or other rights to purchase  stock),  as well as
administrative,  advisory, management and billing fees payable by GGS Management
to any of its affiliates (other than investment  banking fees payable to Goldman
Sachs).  As a result,  this covenant  restricts the ability of GGS Management to
pay dividends to its parent  company,  GGS  Holdings,  in excess of $100,000 per
year.

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

The GGS Senior Credit  Facility,  with an outstanding  principal  balance of $48
million,  matures  on  April  30,  2002  and will be  repaid  in 11  consecutive
semi-annual installments, the first of which will occur on the first anniversary
of the closing date of the GGS Senior Credit Facility. The first installments of
principal repayments will be $3,128,000 and $2,886,500, respectively, with the


<PAGE>

remaining annual installments to be paid as follows:  1998 - $6,494,500;  1999 -
$7,938,000; 2000 - $9,742,000;  2001 - $11,611,500;  and 2002 $6,199,500. At the
election of GGS Management,  interest on the GGS Senior Credit Facility shall be
payable either at the "Base Rate" option or LIBOR option,  plus in each case the
applicable  margin.  The Base Rate is defined  as the higher of (i) the  federal
funds  rate  plus 1/2 of 1% or (ii) the  prime  commercial  lending  rate of the
lending bank.  LIBOR is defined as an annual rate equal to the London  Interbank
Offered Rate for the  corresponding  deposits of U.S.  dollars.  The  applicable
margin for Base Rate loans is 1.50% and for LIBOR loans is 2.75%.  In May, 1996,
the Company  entered into an interest rate swap agreement to protect the Company
against  interest rate volatility.  As a result,  the Company fixed its interest
rate on the GGS Senior Credit Facility at 8.85% through January 31, 1997,  9.08%
through April 30, 1997,  9.24%  through July 30, 1997 and 8.80% through  October
30, 1999. The GGS Senior Credit Facility is collateralized by a pledge of all of
the  tangible  and  intangible  assets  of GGS  Holdings,  including  all of the
outstanding shares of GGS Management, and by a pledge of all of the tangible and
intangible assets of GGS Management,  including all of the outstanding shares of
capital stock of Pafco and Superior. GGS Management intends to rely primarily on
management  fees from Pafco and Superior and billing fee income to satisfy these
debt service requirements which are subject to review by the Indiana and Florida
Departments of Insurance.

As of December 31, 1996, GGS Management was in default of three covenants in the
GGS Senior Credit  Facility.  The first covenant  requires Pafco and Superior to
maintain a combined  ratio of statutory net premiums  written for the prior four
quarters to surplus of 3:1 (three  dollars of premiums to 1 dollar of  surplus).
As at December 31, 1996 such ratio was 3.06:1. The commercial bank lenders under
the GGS Senior  Credit  Facility  amended the agreement to cure this default for
the four consecutive fiscal quarters ended December 31, 1996. As of December 31,
1996, GGS Management  contributed additional capital to Pafco $3,737,000 and GGS
Holdings  contributed  $4,800,000 to Superior in the form of a note payable, due
March 28, 1997, of which the Company guaranteed  $2,496,000.  The Company loaned
$500,000  to GGS  Holdings,  which  was  used to fund a  portion  of the note at
December 31, 1996. The outstanding balance of the note payable from GGS Holdings
to Superior of $4,300,000  at December 31, 1996 was funded by its due date.  The
Company  believes  that premium  volume in 1997 will be at a level where capital
contributions from GGS Management will be necessary to maintain  compliance with
this covenant.  The Company  believes GGS Management  will have  sufficient cash
flow after debt service to provide a  significant  portion of this capital need.
However,  GGS Management believes,  based on 1997 projcted premium writings,  it
will  need to either  obtain  reinsurance,  reduce  premium  writings  or obtain
additional  funding of  approximately  $12,000,000 from either SIG or additional
financing.  The Company is currently exploring its options including negotiating
with its lenders.  Should the Company  experience  less than  satisfactory  loss
experience,  it will reduce its premium  writings  either  internally or through
additional reinsurance.  Certain factors will influence the Company's ability to
maintain  adequate  capital  including  actual level of premium  writings,  loss
trends,  commission  rates,  investment  yields and cash  flow.  There can be no
assurance that GGS Management's plans will provide adequate capital.

<PAGE>

The  second  covenant  violation  relates  to  insufficient  funds  posted by an
affiliate  reinsurer to cover ceded premiums and loss reserves.  Such deficiency
was approximately $770,000 at December 31, 1996, or less than 10% of total funds
required to be held for ceded premiums and loss  reserves.  In addition to cash,
the  affiliate  had posted a $1.5  Million  letter of credit as of December  31,
1996. However,  reserve development calculated subsequent to December 31 created
most of the deficiency. The affiliate has posted sufficient funds in March, 1997
and the Company doesnot expect future  violations of this covenant to occur. The
commercial  bank  lenders have agreed in writing  that this  violation  has been
cured.

The third covenant  violation  relates to Superior's  risk-based  capital rating
being  less than 3 to 1 as of  December  31,  1996 due to  premium  growth.  The
commercial  bank lenders have amended the agreement to cure this violation as of
December 31, 1996.

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

While GAAP  shareholders'  equity was  $60,900,000 at December 31, 1996, it does
not reflect the  statutory  equity upon which the Company  conducts  its various
insurance operations. Pafco, Superior and IGF individually had statutory surplus
at December 31, 1996 of $18,112,000, $57,121,000 and $29,412,000, respectively.

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

During 1996,  IGF  continued  the practice of borrowing  funds under a revolving
line of  credit to  finance  premium  payables  to the FCIC on  amounts  not yet
received from farmers (the "IGF Revolver").  The maximum  borrowing amount under
the IGF Revolver was  $6,000,000  until July 1, 1996,  at which time the maximum
borrowing  amount  increased to $7,000,000.  The IGF Revolver carried a weighted
average  interest rate of 6.0%,  8.1%,  9.7% and 8.6%, in 1993,  1994,  1995 and
1996, respectively. These payables to the FCIC accrue interest at a rate of 15%,
as do the receivables from farmers.  By utilizing the IGF Revolver,  which bears
interest  at a  floating  rate  equal to the prime  rate plus  1/4%,  IGF avoids
incurring  interest  expense at the rate of 15% on interest  payable to the FCIC
while  continuing to earn 15% interest on the  receivables  due from the farmer.
The IGF Revolver  contains certain covenants which restrict IGF's ability to (i)
incur indebtedness, (ii) declare dividends or make any capital distribution upon
its stock  whether  through  redemption  or  otherwise,  and (iii) make loans to
others,  including  affiliates.  The IGF Revolver also contains other  customary
covenants which,  among other things,  restricts IGF's ability to participate in
mergers,  acquire  another  enterprise or  participate  in the  organization  or
creation of any other business entity. At December 31, 1996,  $7,000,000 remains
available  under the IGF Revolver.  At December 31, 1996,  IGF was in compliance
with all covenants  associated with the line, except the covenant  pertaining to
certain  investments  as a percentage of total  admitted  assets,  for which IGF
obtained a waiver.

Effects of Inflation

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

Primary Variances Between GAAP and SAP

The financial  statements in this Annual Report have been prepared in conformity
with  generally  accepted  accounting  principles  ("GAAP")  which  differ  from
statutory  accounting  practices  ("SAP")  prescribed or permitted for insurance
companies by regulatory authorities in the following respects:

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

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

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

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

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


<PAGE>

Deferred income taxes are not recognized on a statutory basis.

Credits for reinsurance are recorded only to the extent  considered  realizable.
Under SAP, credit for reinsurance ceded are allowed to the extent the reinsurers
meet the statutory  requirements  of the Insurance  Departments of the States of
Indiana and Florida, principally statutory solvency.

New Accounting Standards

On January  1,  1994,  the  Company  adopted  the  provisions  of SFAS No.  115,
"Accounting  for  Certain  Investments  in  Debt  and  Equity  Securities".   In
accordance  with SFAS No. 115, prior period  financial  statements have not been
restated to reflect the change in accounting principle. The cumulative effect as
of January 1, 1994 of adopting  Statement  115 has no effect on net income.  The
effect of this change in accounting  principle was an increase in  stockholders'
equity of $139,000,  net of deferred taxes of $73,000 on net unrealized gains on
fixed maturities  classified as available for sale that were previously  carried
at amortized cost.

On January  1,  1996,  the  Company  adopted  the  provisions  of SFAS No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed  Of". SFAS No. 121 requires  that  long-lived  assets to be held and
used by an entity be  reviewed  for  impairment  whenever  events or  changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  This  Statement is effective for financial  statements  for fiscal
years beginning after December 15, 1995. Adoption of SFAS No. 121 did not have a
material impact on the Company's results of operations.

In December 1995, SFAS No. 123,  "Accounting for Stock-Based  Compensation"  was
issued.  It introduces  the use of a fair-value  based method of accounting  for
stock-based  compensation.  It  encourages,  but does not require,  companies to
recognize  compensation expense for stock-based  compensation to employees based
on the new fair value accounting  rules.  Companies that choose not to adopt the
new rules will  continue to apply the  existing  accounting  rules  contained in
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees".  However,  SFAS No. 123 requires  companies that choose not to adopt
the new fair  value  accounting  rules to  disclose  pro  forma net  income  and
earnings per share under the new method. SFAS No. 123 is effective for financial
statements for fiscal years  beginning  after December 15, 1995. The Company has
chosen not to adopt the new rules but has provided the appropriate disclosure as
required.

In February 1996, SFAS No. 128,  Earning Per Share,  was issued.  This Statement
establishes  standards for computing and presenting Earnings per Share (EPS) and
applies to entities with  publicly held common stock or potential  common stock.
This  Statement  simpliflies  the  standards  for  computing  Earning  per Share
previously  found in APB  Opinion  No. 15,  Earnings  per Share,  and makes them
comparable to  international  EPS  standards.  It replaces the  presentation  of
primary EPS with a presentation  of basic EPS. It also requires dual  presention
of basic and diluted EPS on the face of  theincome  statement  for all  entities
with complex capital  structures and requires a reconciliation  of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.

<PAGE>

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

This Statement is effective for financial  statements  issued for periods ending
after December 15, 1997,  including interim periods;  earlier application is not
permitted.  This Statement  requires  restatement of all  prior-period  EPS data
presented.  The Company  has not yet  determined  the  effects of adopting  this
Statement.

The National Association of Insurance  Commissioners ("NAIC") is considering the
adoption of a recommended  statutory accounting standard for crop insurers,  the
impact of which is uncertain  since several  methodologies  are currently  being
examined. Although the Indiana Department has permitted the Company to continue,
for its statutory  financial  statements through December 31, 1996, its practice
of recording its MPCI  business as 100% ceded to the FCIC with net  underwriting
results  recognized in ceding  commissions,  the Indiana Department of Insurance
has  indicated  that in the future it will require the Company to adopt the MPCI
accounting practices  recommended by the NAIC or any similar practice adopted by
the Indiana  Department  of  Insurance.  Since such a standard  would be adopted
industry wide for crop  insurers,  the Company would also be required to conform
its  future  GAAP  financial  statements  to  reflect  the  new  MPCI  statutory
accounting  methodology and to restate all historical GAAP financial  statements
consistently  with this  methodology  for  comparability.  The  Company  can not
predict what accounting  methodology  will eventually be implemented or when the
Company will be required to adopt such methodology. The Company anticipates that
any such new crop accounting methodology will not affect GAAP net income.

The NAIC  currently  has a project under way to codify SAP, as existing SAP does
not  address  all  accounting  issues and may differ  from state to state.  Upon
completion,  the Codification is expected to replace prescribed or permitted SAP
in each  state  as the new  comprehensive  statutory  basis  of  accounting  for
insurance  companies.  The final format of the Codification is uncertain at this
time, yet  implementation  could be required as early as January 1, 1998. Due to
the project's  uncertainty,  the Company has not yet  quantified  the impact any
such  changes  would have on the  statutory  capital  and  surplus or results of
operations of the Company's insurance subsidiaries.  The impact of adopting this
new  comprehensive  statutory  basis of  accounting  is,  however,  expected  to
materially impact statutory capital and surplus.


<PAGE>

Consolidated FINANCIAL STATEMENTS
as of December 31, 1996 and 1995
(in thousands, except share data)

--------------------------------------------------------------------------------
Consolidated Balance Sheets
--------------------------------------------------------------------------------

Assets                                       1996               1995
Investments
Available for sale:
   Fixed maturities, at market              $127,681           $12,931
   Equity securities, at market               27,920             4,231
   Short-term investments, at
     amortized cost, which
     approximates market                       9,565             5,283
   Real estate, at cost                          466               487
   Mortgage loans, at cost                     2,430             2,920
   Other                                          75                50
                                            --------          --------
Total investments                            168,137            25,902
Investments in and advances to
  related parties                              1,152             2,952
Cash and cash equivalents                     13,095             2,311
Receivables (net of allowance
  for doubtful accounts of
  $1,480 and $927 in 1996 and
  1995, respectively)                         65,194             8,203
Reinsurance recoverable on paid
  and unpaid losses, net                      48,294            54,136
Prepaid reinsurance premiums                  14,983             6,263
Federal income taxes recoverable                 319               ---
Deferred policy acquisition costs             12,800             2,379
Deferred income taxes                          3,329             1,421
Property and equipment, net of
  accumulated depreciation                     8,137             5,502
Other assets                                   9,239             1,447
                                            --------          --------
Total assets                                $344,679          $110,516
                                            ========          ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Losses and loss adjustment expenses         $101,719          $ 59,421
Unearned premiums                             87,285            17,497
Reinsurance payables                           6,508             6,206
Payables to affiliates                           366             6,474
Federal income tax payable                       ---               133
Line of credit and notes payable                 ---             5,811
Term  debt                                    48,000               ---
Other                                         18,291             5,439
                                            --------          --------
Total liabilities                            262,169           100,981
                                            --------          --------

Minority interest in consolidated
subsidiary                                    21,610               ---
                                            --------          --------
Commitments and contingencies
Stockholders' equity:
  Common stock, no par value,
    100,000,000 shares authorized,
    10,450,000 and 7,000,000 shares
    issued and outstanding in 1996
    and 1995, respectively                    38,969             1,000
 Additional paid-in capital                    5,905             3,130
 Unrealized gain (loss) on invest-
    ments, net of deferred tax of
    $625 in 1996 and $(23) in 1995               820               (45)
 Retained earnings                            15,206             5,450
                                            --------          --------

Total stockholders' equity                    60,900             9,535
                                            --------          --------

Total liabilities and stockholders'
equity                                      $344,679          $110,516
                                            ========          ========


<PAGE>

Consolidated FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995
and 1994 (in thousands, except per share data)

--------------------------------------------------------------------------------
Consolidated  Statements of Earnings
--------------------------------------------------------------------------------


                                           1996           1995           1994

Gross premiums  written                 $ 305,499      $ 124,634      $ 103,134
Less ceded premiums                       (95,907)       (71,187)       (67,995)
                                        ---------      ---------      ---------
Net premiums written                      209,592         53,447         35,139
Change in unearned premiums               (17,833)        (3,806)        (3,013)
Net premiums earned                       191,759         49,641         32,126
Net investment income                       6,733          1,173          1,241
Other income                                9,286          2,170          1,632
Net realized capital loss                  (1,015)          (344)
                                        ---------      ---------      ---------
Total revenues                            206,763         52,640         34,840
                                        ---------      ---------      ---------
Expenses:
Losses and loss adjustment expenses       137,109         35,971         26,470
Policy acquisition and general
and administrative expenses                42,013          7,981          5,801
Interest expense                            3,938          1,248          1,184
Total expenses                            183,060         45,200         33,455
                                        ---------      ---------      ---------
Earnings before income taxes
and minority interest                      23,703          7,440          1,385
                                        ---------      ---------      ---------
Income taxes:
Current income tax expense                  7,982          2,275            462
Deferred income tax expense
 (benefit)                                     64            344         (1,180)
Total income taxes                          8,046          2,619           (718)
                                        ---------      ---------      ---------
Net earnings before minority
interest                                   15,657          4,821          2,103

Minority interest                          (2,401)           ---             14
                                        ---------      ---------      ---------
Net earnings                            $  13,256      $   4,821      $   2,117
                                        =========      =========      =========

Weighted average shares outstanding         7,537          7,000          7,000
                                        =========      =========      =========

Net earnings per share                  $    1.76      $    0.69      $    0.30
                                        =========      =========      =========


<PAGE>


Consolidated FINANCIAL STATEMENTS
for the years ended
December 31, 1996, 1995 and 1994 (in thousands)

--------------------------------------------------------------------------------
Consolidated  Statements of Changes in Stockholders'  Equity
--------------------------------------------------------------------------------

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

Balance at
<S>                    <C>       <C>          <C>            <C>          <C>
January 1, 1994         $ 1,000   $3,130       $  (423)       $ (1,488)    $ 2,219

Unrealized gain
on fixed maturities
resulting from a
change in accounting
principle, net of
deferred taxes              ---      ---           139             ---         139

Change in unrealized
loss on investments,
net of deferred taxes       ---      ---          (220)            ---        (220)

Net earnings                ---      ---           ---           2,117       2,117
                        -------   ------       -------        --------     -------
Balance at December
31, 1994                  1,000    3,130          (504)            629       4,255

Change in unrealized
loss on investments,
net of deferred taxes       ---      ---           459             ---         459

Net earnings                ---      ---           ---           4,821       4,821
                        -------   ------       -------        --------     -------
Balance at December
31, 1995                  1,000    3,130           (45)          5,450       9,535

Sale of subsidiary
stock                       ---    2,775           ---             ---       2,775

Change in unrealized
loss on investments,
net of deferred taxes       ---      ---           865             ---         865

Issuance of common
stock                    37,969      ---           ---             ---      37,969

Dividend to parent          ---      ---           ---          (3,500)     (3,500)

Net earnings                ---      ---           ---          13,256      13,256
                        -------   ------       -------        --------     -------
Balance at December
31, 1996                $38,969   $5,905       $   820        $ 15,206     $60,900
                        =======   ======       =======        ========     =======
</TABLE>



<PAGE>



Consolidated Statements of Cash Flows
for the years ended December 31, 1996,1995 and 1994
(in thousands)

                                                  1996        1995        1994

Cash flows from operating activities:

Net earnings                                   $ 13,256    $  4,821    $  2,117
Adjustments to reconcile net earnings
  to net cash provided from (used in)
  operations:
    Minority  interest                            2,401         ---         (14)
    Depreciation and amortization                 2,194         742         690
    Deferred income tax expense (benefit)            64         344      (1,180)
    Net realized capital loss                     1,015         344         159
    Net changes in operating as
     sets and liabilities
     (net of assets acquired):
      Receivables                               (22,673)      6,462      (9,057)
      Reinsurance recoverable on paid and
      unpaid losses, net                          5,842     (41,250)    (25,130)
      Prepaid reinsurance premiums               (8,720)        725      (3,343)
      Federal income taxes recoverable
      (payable)                                  (1,270)        325         759
      Deferred policy acquisition costs          (2,496)       (900)       (727)
      Other assets                               (2,923)      1,019          98
      Losses and loss adjustment expenses        (2,125)     30,152     (24,874)
      Reinsurance payables                       (1,978)      2,133       1,982
      Unearned premiums                          24,508       3,081       6,356
      Other liabilities                           2,908       1,656      (1,398)
                                               --------    --------    --------
Net cash provided from (used in) operations      10,003       9,654      (3,302)
                                               --------    --------    --------

Cash flow from investing activities:
  Cash paid for Superior                        (66,590)        ---         ---
  Net sales (purchases) of short-term
  investments                                     8,026      (4,493)       (308)
  Proceeds from sales, calls and
  maturities of fixed maturities                 56,903       8,603       8,460
  Purchases of fixed maturities                 (73,503)    (12,517)     (7,587)
  Proceeds from sales of equity securities       19,796      29,599      10,510
  Purchase of equity securities                 (34,157)    (28,173)    (10,122)
  Proceeds from the sale of real estate             ---         ---       1,165
  Purchases of mortgage loans                       ---        (100)        (50)
  Proceeds from repayment of mortgage loans         490         120          60
  Purchase of property and equipment             (3,734)     (1,874)       (655)
                                               --------    --------    --------
Net cash (used in) provided from investing
activities                                      (92,769)     (8,835)      1,473
                                               --------    --------    --------

Cash flow from financing activities:
Proceeds from initial public offering,
net of expenses                                  37,969         ---         ---
Proceeds from line of credit and
notes payable                                       ---       1,620      26,900
Proceeds from term debt                          48,000           0         ---
Payments on line of credit and notes
payable                                          (5,811)     (1,250)    (26,459)
Proceeds from consolidated subsidiary
minority interest owner                          21,200         ---         ---
Payment of dividend to parent                    (3,500)        ---         ---
Repayments from related parties                   1,800          44         711
Loans from and (repayments to) related
parties                                          (6,108)      1,036         425
                                               --------    --------    --------
Net cash provided from financing
activities                                        9,355       1,450       1,577
                                               --------    --------    --------
Increase (decrease) in cash and
cash equivalents                                 10,784       2,269        (252)
Cash and cash equivalents, beginning
of year                                           2,311          42         294
                                               --------    --------    --------
Cash and cash equivalents, end of year         $ 13,095    $  2,311    $     42
                                               ========    ========    ========



<PAGE>

Notes to Consolidated Financial Statements
(Dollars in thousands)

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

1. Nature of Operations and Significant Accounting Policies:

Symons  International  Group,  Inc. (the "Company") is a 67% owned subsidiary of
Goran Capital,  Inc. (Goran).  The Company is primarily  involved in the sale of
personal  nonstandard  automobile  insurance  and  crop  insurance.  Nonstandard
automobile  represents  approximately 61% of the Company's  premium volume.  The
Company's products are marketed through independent agents and brokers, within a
31-state  area,  primarily  in the  Midwest  and  Southern  United  States.  The
following is a description of the significant  accounting policies and practices
employed:

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

     GGS Management Holdings,  Inc. (GGSH)-a holding company for the nonstandard
     automobile  operations  which includes GGS Management,  Inc., Pafco General
     Insurance Company, Pafco Premium Finance Company and the Superior entities,
     as described below - 52% owned;

     GGS  Management,  Inc.  (GGS)-a  management  company  for  the  nonstandard
     automobile operations-52% owned;

     Superior  Insurance  Company  (Superior)-an  insurance company domiciled in
     Florida-52% owned;

     Superior  American  Insurance  Company  (Superior   American)-an  insurance
     company domiciled in Florida-52% owned;

     Superior  Guaranty  Insurance  Company  (Superior   Guaranty)-an  insurance
     company domiciled in Florida-52% owned;

     Pafco General Insurance Company  (Pafco)-an  insurance company domiciled in
     Indiana-52% owned;

     Pafco Premium  Finance  Company  (PPFC)-an  Indiana-based  premium  finance
     company-52% owned;

     IGF Holdings,  Inc.  (IGFH)-a holding company for the crop operations which
     includes IGF and Hail Plus Corp.-100% owned;

     IGF Insurance Company (IGF)-an  insurance company domiciled in Indiana-100%
     owned; and

     Hail Plus Corp.-an Iowa-based premium finance company-100% owned.

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

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


<PAGE>
                                      Notes to Consolidated Financial Statements
                                                          (Dollars in thousands)

On January 1, 1996,  the  Company  sold its excess and surplus  lines  insurance
operations,  Symons International Group, Inc. of Florida (SIGF), with a net book
value of $2, to Goran for $2.  Accordingly,  no gain or loss was  recognized  in
1996 on the transaction.

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

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

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

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

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

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

Deferred income taxes are not recognized on a statutory basis.

Credits for reinsurance are recorded only to the extent  considered  realizable.
Under SAP, credit for reinsurance ceded are allowed to the extent the reinsurers
meet the statutory  requirements  of the Insurance  Departments of the States of
Indiana and Florida, principally statutory solvency.

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

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


                                             1996          1995           1994
Capital and surplus:
  Superior entities                        $57,121           N/A            N/A
  PGIC                                      18,112        11,875          7,848
  IGF                                       29,412         9,219          4,512

Net earnings (losses):
  Superior entities                          1,978           N/A            N/A
  PGIC                                       5,151          (553)          (571)
  IGF                                       12,122         6,574          1,511

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


<PAGE>
Notes to Consolidated Financial Statements
(Dollars in thousands)

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

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

Real estate-at cost, less allowances for depreciation.

Mortgage loans-at outstanding principal balance.

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

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

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

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

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

j. Losses and Loss Adjustment Expenses:  Reserves for losses and loss adjustment
expenses  include  estimates  for  reported  unpaid  losses and loss  adjustment
expenses and for estimated losses incurred but not reported. These reserves have
not been discounted.  The Company's losses and loss adjustment  expense reserves
include an  aggregate  stop-loss  program.  The Company  retains an  independent
actuarial firm to estimate  reserves.  Reserves are established using individual
case-basis  valuations and  statistical  analysis as claims are reported.  Those
estimates are subject to the effects of trends in loss  severity and  frequency.
While management  believes the reserves are adequate,  the provisions for losses
and loss adjustment  expenses are necessarily based on estimates and are subject
to considerable  variability.  Changes in the estimated  reserves are charged or
credited to operations as additional  information  on the estimated  amount of a
claim becomes known during the course of its settlement. The reserves for losses
and loss adjustment expenses are reported net of the receivables for salvage and
subrogation  of  approximately  $4,766 and $948 at  December  31, 1996 and 1995,
respectively.


<PAGE>
Notes to Consolidated Financial Statements
(Dollars in thousands)

k. Income Taxes:  The Company  utilizes the liability  method of accounting  for
deferred income taxes.  Under the liability  method,  companies will establish a
deferred  tax  liability  or asset  for the  future  tax  effects  of  temporary
differences  between book and taxable  income.  Changes in future tax rates will
result in immediate  adjustments  to deferred  taxes.  (See Note 11.)  Valuation
allowances are  established  when necessary to reduce deferred tax assets to the
amount  expected  to be  realized.  Income  tax  expense  is the tax  payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.

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

m. Certain  Accounting  Policies for Crop  Insurance  Operations:  In 1996,  IGF
instituted a policy of  recognizing  (i) 35% of its  estimated  Multi Peril Crop
Insurance  (MPCI)  gross  premiums  written  for each of the  first  and  second
quarters,  (ii)  commission  expense  at a rate  of 16% of MPCI  gross  premiums
written  recognized and (iii) Buy-up Expense  Reimbursement  at a rate of 31% of
MPCI gross premiums  written  recognized  along with normal  operating  expenses
incurred  in  connection  with  premium  writings.  In the third  quarter,  if a
sufficient  volume  of  policyholder  acreage  reports  have been  received  and
processed by IGF, IGF's policy is to recognize  MPCI gross premiums  written for
the first nine months  based on a  reestimate  which takes into  account  actual
gross premiums processed. IGF followed the foregoing approach for the 1996 third
quarter. If an insufficient volume of policies has been processed,  IGF's policy
is to recognize in the third quarter 20% of its full year estimate of MPCI gross
premiums written,  unless other circumstances require a different approach.  The
remaining  amount of gross premiums written is recognized in the fourth quarter,
when all amounts  are  reconciled.  In prior  years,  recognition  of MPCI gross
premiums  written was 30%,  30%, 30% and 10%, for the first,  second,  third and
fourth  quarters,  respectively.  Commencing  with its June 30,  1995  financial
statements, IGF also began recognizing MPCI underwriting gain or loss during the
first and second quarters,  as well as the third quarter,  reflecting IGF's best
estimate of the amount of such gain or loss to be recognized  for the full year,
based on, among other things,  historical results,  plus a provision for adverse
developments.

n. Accounting Changes: On January 1, 1994, the Company adopted the provisions of
Statement of Financial  Accounting  Standards  No. 115,  Accounting  for Certain
Investments in Debt and Equity  Securities,  (Statement 115). In accordance with
Statement  115,  prior period  financial  statements  have not been  restated to
reflect the change in accounting principle.  The cumulative effect as of January
1, 1994 of adopting  Statement 115 had no effect on net earnings.  The effect of
this change in accounting  principle was an increase to stockholders'  equity of
$139, net of deferred taxes of $73, of net unrealized  gains on fixed maturities
classified as available for sale that were previously carried at amortized cost.

On January  1,  1996,  the  Company  adopted  the  provisions  of SFAS No.  121,
Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
Be Disposed Of. SFAS No. 121 requires that long-lived assets to be held and used
by  an  entity  be  reviewed  for  impairment  whenever  events  or  changes  in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  This  statement is effective for financial  statements  for fiscal
years beginning after December 15, 1995. Adoption of SFAS No. 121 did not have a
material impact on the Company's results of operations.

In December 1995,  SFAS No. 123,  Accounting for Stock-Based  Compensation,  was
issued.  It introduces  the use of a fair  value-based  method of accounting for
stock-based  compensation.  It  encourages,  but does not require,  companies to
recognize  compensation expense for stock-based  compensation to employees based
on the new fair value accounting  rules.  Companies that choose not to adopt the
new rules will  continue to apply the  existing  accounting  rules  contained in
Accounting  Principles  Board  Opinion No. 25,  Accounting  for Stock  Issued to
Employees. However, SFAS No. 123 requires companies that choose not to adopt the
new fair value  accounting  rules to disclose  pro forma net income and earnings
per  share  under  the new  method.  SFAS No.  123 is  effective  for  financial
statements for fiscal years  beginning  after December 15, 1995. The Company has
adopted the disclosure provisions of SFAS No. 123 (see Note 22).

<PAGE>
                                      Notes to Consolidated Financial Statements
                                                          (Dollars in thousands)

In February 1996, SFAS No. 128,  Earnings per Share, was issued.  This statement
establishes  standards for computing and presenting earnings per share (EPS) and
applies to entities with  publicly held common stock or potential  common stock.
This  statement  simplifies  the  standards  for  computing  earnings  per share
previously  found in APB  Opinion  No. 15,  Earnings  per Share,  and makes them
comparable to  international  EPS  standards.  It replaces the  presentation  of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income  statement  for all  entities
with complex capital structures,  and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.

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

This statement is effective for financial  statements  issued for periods ending
after December 15, 1997,  including interim periods;  earlier application is not
permitted.  This  statement  requires  restatement  of all prior period EPS data
presented.  The Company  has not yet  determined  the  effects of adopting  this
statement.

o. Vulnerability from  Concentration:  At December 31, 1996, the Company did not
have a  material  concentration  of  financial  instruments  in an  industry  or
geographic  location.  Also at  December  31,  1996,  the Company did not have a
concentration of (1) business transactions with a particular customer, lender or
distributor,  (2) revenues from a particular product or service,  (3) sources of
supply of labor or services used in the business,  or (4) a market or geographic
area in which business is conducted that makes it vulnerable to an event that is
at least  reasonably  possible to occur in the near term and which could cause a
serious impact to the Company's financial condition.

p. Earnings Per Share:  The Company's  net earnings per share  calculations  are
based upon the weighted  average  number of shares of common  stock  outstanding
during each period,  as restated for the 7,000-for-1  stock split.  The weighted
average shares  outstanding in 1996 have been increased by 44,000 shares for the
$3.5  million  dividend  paid to Goran from the  proceeds  of the  offering,  in
accordance with generally accepted accounting principles. Stock options were not
considered  to be common  stock  equivalents  and,  thus,  not  included  in the
calculation  of earnings per share as the Company's  shares have been traded for
less than one calendar quarter.

2. Corporate Reorganization and Acquisition:

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


<PAGE>
Notes to Consolidated Financial Statements
(Dollars in thousands)

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

Contribution, April 30, 1996                          $18,425
GGSH earnings                                           2,401
Unrealized gains, net of deferred tax of $599             784
                                                      -------
                                                      $21,610
                                                      =======

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

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

Assets acquired:

Invested assets                               $118,665
Receivables                                     34,933
Deferred acquisition                             7,925
Other assets                                     2,082
                                              --------
Total                                          163,605
                                              --------

Liabilities assumed:
Unpaid losses and loss adjustment expense       44,423
Unearned premiums                               45,280
Other liabilities                               10,863
                                              --------
Total                                          100,566
                                              --------

Net assets required                             63,039

Purchase price                                  65,590
                                              --------

Excess purchase price                            3,551

Less amounts allocated to deferred income
taxes on unrealized gains on investments         1,334
                                              --------

Goodwill                                      $  2,217
                                              ========


<PAGE>
Notes to Consolidated Financial Statements
(Dollars in thousands)

2. Corporate Reorganization and Acquisitin, continued:

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

3.   Initial Public Offering:

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

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

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

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

                                    1996                  1995
                                          (unaudited)

Net Income per common share       $   1.86              $   0.81
                                  ========              ========

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

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


<PAGE>
                                      Notes to Consolidated Financial Statements
                                                          (Dollars in thousands)

4. Investments:
Investments are summarized as follows:

<TABLE>
<CAPTION>
                                       Cost or                              Estimated
                                      Amortized         Unrealized           Market
December 31, 1996                       Cost        Gain          Loss        Value
                                      ---------   -----------------------   ---------
<S>                                   <C>         <C>          <C>          <C>
Fixed maturities:
U.S. Treasury securities
and obligations of U.S.
government operations and
agencies                              $  55,034   $     343    $    (233)   $  55,144
Foreign governments                       1,515           0          (30)       1,485
Obligations of states
and political
subdivisions                              2,945          11           (4)       2,952
Corporate securities                     67,545         977         (422)      68,100
                                      ---------   ---------    ---------    ---------
    Total Fixed Maturities             $127,039   $   1,331   $     (689)   $ 127,681
                                      ---------   ---------    ---------    ---------

Equity Securities:
Common stocks                            25,734       2,884         (698)      27,920

Short-term investments                    9,565           0            0        9,565
Real Estate                                 466           0            0          466
Mortgage Loans                            2,430           0            0        2,430
Other loans                                  75           0            0           75
                                      ---------   ---------    ---------    ---------
     Total Investments                $ 165,309   $   4,215    $  (1,387)   $ 168,137
                                      =========   =========    =========    =========

December 31, 1995

Fixed maturities:
U.S. Treasury securities
and obligations of U.S.
government operations and
agencies                              $  10,978   $      63    $      (1)   $  11,040
Obligations of states
and political
subdivisions                              1,470          57           (1)       1,526
Corporate securities                        364           1            0          365
                                      ---------   ---------    ---------    ---------
    Total Fixed Maturities             $ 12,812   $     121    $      (2)   $  12,931
                                      ---------   ---------    ---------    ---------

Equity Securities:
Preferred stocks                            100           1           (4)          97
Common stocks                             4,318         108         (292)       4,134

Short-term investments                    5,283           0            0        5,283
Real Estate                                 487           0            0          487
Mortgage Loans                            2,920           0            0        2,920
Other loans                                  50           0            0           50
                                      ---------   ---------    ---------    ---------
     Total Investments                $  25,970   $     230    $    (298)   $  25,902
                                      =========   =========    =========    =========
</TABLE>

<PAGE>
Notes to Consolidated Financial Statements
(Dollars in thousands)

4. Investments, continued:

At December 31, 1996,  90.2% of the Company's  fixed  maturities were considered
investment  grade  by The  Standard  & Poors  Corporation  or  Moody's  Investor
Services,  Inc.  Securities  with quality  ratings Baa and above are  considered
investment grade  securities.  In addition,  the Company's  investments in fixed
maturities did not contain any significant  geographic or industry concentration
of credit risk.

The amortized  cost and estimated  market value of fixed  maturities at December
31,  1996,  by  contractual  maturity,  are  shown in the table  which  follows.
Expected  maturities will differ from contractual  maturities  because borrowers
may have the right to call or prepay obligations with or without penalty:

                                                        Estimated
                                      Amortized           Market
Maturity:                                Cost              Value
                                      --------           --------
Due in one year or less               $  6,412          $   6,423
Due after one year through
five years                              70,848             71,086
Due after five years through
ten years                               43,109             43,404
Due after ten years                      6,670              6,768
                                      --------           --------
     Total                            $127,039           $127,681
                                      ========           ========

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

                                        1996           1995         1994

Proceeds from sales                    $40,153        $7,903       $4,083
Gross gains realized                        92           106          119
Gross losses realized                      561           291           29

Real Estate is reported  net of  accumulated  depreciation  of $164 and $143 for
1996 and 1995, respectively.  Investments in a single issuer greater than 10% of
stockholders' equity at December 31, 1996 are as follows:

                                                 Fixed
Description                                     Maturities
                                                ----------
United States Treasury Notes                     $26,318
Federal National Mortgage Association            $41,203


<PAGE>

                                      Notes to Consolidated Financial Statements
                                                          (Dollars in thousands)

An analysis of net  investment  income for the years ended  December  31,  1996,
1995, and 1994 follows:

                                     1996           1995         1994
Fixed maturities                     $5,714         $  534       $  470
Equity securities                       756            256          677
Cash and short-term investments         281            194           99
Real Estate                              51             52          273
Mortgage Loans                          207            231          132
Other                                    25            270           96
Total Investment Income               7,034          1,537        1,747
Investment expenses                    (301)          (364)        (506)
                                     ------         ------       ------
Net Investment Income                $6,733         $1,173       $1,241
                                     ======         ======       ======

In 1992, PGIC acquired a hotel property through a deed in lieu of foreclosure on
a mortgage it held in the amount of $2,985.  In 1993, the property was renovated
and  changed to a Comfort  Inn.  In June  1994,  the  property  was sold for net
proceeds of $4,166,  resulting  in a gain on sale of $147.  Upon the sale,  PGIC
issued an 8%  mortgage  loan due in the year 2001 in the  amount of  $3,000.  It
calls for monthly principal  payments of $10 plus interest.  All payments on the
mortgage were current at December 31, 1996.

Investments with a market value of $23,419 and $6,410 (amortized cost of $22,749
and $6,296) as of December 31, 1996 and 1995,  respectively,  were on deposit in
the United  States and  Canada.  The  deposits  are  required  by law to support
certain reinsurance  contracts,  performance bonds and outstanding loss reserves
on assumed business.

Fixed  maturities  and  short-term  investments  with a market  value of  $1,539
(amortized cost of $1,571) as of December 31, 1996 were pledged as collateral on
an unused letter of credit of $1,500 issued to a ceding reinsurer.

5. Deferred Policy Acquisition Costs:

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

                                      1996           1995          1994
Balance, beginning of year          $  2,379       $ 1,479        $  752
Deferred policy acquisition
costs purchased in the
Superior acquisition                   7,925             0             0
Costs deferred during year            27,657         8,050         5,579
Amortization during year             (25,161)       (7,150)       (4,852)
                                    --------       -------        ------
Balance, end of year                $ 12,800       $ 2,379        $1,479
                                    ========       =======        ======


<PAGE>

Notes to Consolidated Financial Statements
(Dollars in thousands)

6.   Property and Equipment:

Property and equipment at December 31 are summarized as follows:

                           1996      Accumulated       1996       1995
                           Cost      Depreciation       Net        Net
                           -------   -------------    ------      ------
Land                       $   226      $     0        $  226     $   226
Buildings                    4,342       (1,186)        3,156       3,209
Office furniture and
equipment                    2,032         (999)        1,024         610
Automobiles                     20           (7)           13           1
Computer equipment           5,535       (1,817)        3,718       1,456
                           -------      -------        ------      ------
                           $12,146      $(4,009)       $8,137      $5,502
                           =======      =======        ======      ======

Accumulated  depreciation at December 31, 1995 was $2,226.  Depreciation expense
related to property and  equipment for the years ended  December 31, 1996,  1995
and 1994 were $1,783, $637, and $374, respectively.

7. Other Assets:

Other assets at December 31, 1996 includes the following intangible assets:

                                         Accumulated       Amortization
                           Cost          Amortization         Expense
                           ----          ------------         -------
Goodwill                   $2,217            $ 95              $  95
Deferred debt costs         1,386             154                154
Organization costs          1,689             162                162
                            -----             ---                ---
                            5,292             411                411
                            =====             ===                ===

No such amounts existed at December 31, 1995.

8.   Line of Credit:

At December 31,  1996,  IGF  maintained  a revolving  bank line of credit in the
amount of $7,000. At December 31, 1996 and 1995, the outstanding  balance was $0
and  $5,811,  respectively.  Interest on this line of credit was at the New York
prime rate (8.25% at December 31, 1996) plus 0.25% adjusted daily.  This line is
collateralized by the crop-related uncollected premiums, reinsurance recoverable
on paid losses, Federal Crop Insurance Corporation (FCIC) annual settlement, and
a first lien on the real estate owned by IGF. The line  requires IGF to maintain
its primary banking relationship with the issuing bank, limits dividend payments
and capital  purchases and requires the maintenance of certain financial ratios.
At December 31, 1996, IGF was in compliance  with all covenants  associated with
the line, except the covenant  pertaining to certain investments as a percentage
of total admitted assets, for which IGF obtained a waiver.

The weighted  average  interest rate on the line of credit was 8.6%,  9.7%,  and
8.1% during December 31, 1996, 1995, and 1994, respectively.


<PAGE>
                                      Notes to Consolidated Financial Statements
                                                          (Dollars in thousands)

9. Term Debt:

The term debt,  with an  outstanding  principal  balance of $48,000,  matures on
April 30, 2002,  and will be repaid in 11 consecutive  semiannual  installments,
the first of which will occur on the first  anniversary of the closing date. The
first  installments  of principal  repayments will be $3,128 and $2,886 in 1997,
respectively,  with the remaining annual  installments over the term of the debt
to be paid as follows: 1998-$6,494; 1999-$7,938; 2000-$9,742; 2001- $11,612; and
2002-$6,200. Interest on the term debt is payable quarterly at LIBOR plus 2.75%.
In 1996, the Company entered into an interest rate swap agreement to protect the
Company against  interest rate  volatility.  As a result,  the Company fixed its
interest rate on the term debt at 8.31%  through  November  1996,  8.85% through
January  1997,  9.08% through  April 1997,  9.24%  through July 1997,  and 8.80%
through October 1999. The term debt is  collateralized by a pledge of all of the
tangible and intangible assets of GGSH,  including all of the outstanding shares
of GGS,  and by a pledge of all of the tangible  and  intangible  assets of GGS,
including all of the outstanding shares of capital stock of PGIC and Superior.

As of December 31, 1996, GGS was in default of three covenants in the term debt.
The first  covenant  required Pafco and Superior to maintain a combined ratio of
statutory net premiums  written to surplus of 3:1. The  commercial  bank lenders
under the term debt have amended the agreement to cure this default. While there
can be no assurance that GGS will have in the future  sufficient cash flow after
satisfaction of its debt service requirements to permit GGS to infuse sufficient
capital into its  insurance  subsidiaries  to permit them to maintain a ratio of
net premiums  written to surplus not in excess of 3:1, the Company believes that
it or GGS will be able  either  to  contribute  additional  capital  to PGIC and
Superior or, if necessary,  to obtain reinsurance,  reduce premium writings,  or
obtain additional  financing in order to permit them to satisfy this covenant in
future years.

The  second  covenant  violation  relates  to  insufficient  funds  posted by an
affiliate  reinsurer to cover its obligations  under  reinsurance  treaties with
Pafco.  The affiliate has posted  sufficient funds in 1997, and the Company does
not expect  future  violations of this covenant to occur.  The  commercial  bank
lenders under the term debt have agreed that this violation has been cured.  The
third violation relates to Superior's  risk-based  capital ratio being less than
300% due to growth in premium  writings.  The commercial  lenders under the term
debt have amended the agreement to cure this default.


<PAGE>

Notes to Consolidated Financial Statements
(Dollars in thousands)

10.     Unpaid Losses and Loss Adjustment Expenses:

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

                                  1996             1995           1994
                                --------         -------        -------
Balance at January 1            $ 59,421         $29,269        $54,143
Less reinsurance recoverables     37,798          12,542         36,891
                                --------         -------        -------
Net balance at January 1          21,623          16,727         17,252
                                --------         -------        -------

Reserves required in
connection with the
Superior Acquisition              44,423               0              0
                                --------         -------        -------
Incurred related to:
  Current year                   183,618          35,184         26,268
  Prior years                     (1,509)            787            202
                                --------         -------        -------
Total Incurred                   137,109          35,971         26,470

Paid related to:
  Current year                   102,713          21,057         16,647
  Prior years                     28,182          10,018         10,348
                                --------         -------        -------
Total paid                       130,895          31,075         26,995
                                --------         -------        -------
Net balance at December 31        72,260          21,623         16,727

Plus reinsurance recoverables     29,459          37,798         12,542
                                --------         -------        -------
Balance at December 31          $101,719         $59,421        $29,269
                                ========         =======        =======

The  foregoing  reconciliation  shows that the  (redundancies)  deficiencies  of
$(1,509),  $787,  and $202 in the  December 31,  1995,  1994 and 1993  reserves,
respectively,  emerged in the following year. These (redundancies)  deficiencies
resulted from (lower) higher than anticipated  losses resulting from a change in
settlement costs relating to those estimates.

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

Liabilities for loss and loss  adjustment  expenses have been  established  when
sufficient  information  has been  developed  to indicate the  involvement  of a
specific  insurance  policy.  In addition,  a liability has been  established to
cover additional exposure on both known and unasserted claims. These liabilities
are reviewed and updated continually.


<PAGE>
                                      Notes to Consolidated Financial Statements
                                                          (Dollars in thousands)

11.     Income Taxes:

The Company files a consolidated federal income tax return with its wholly owned
subsidiaries.  GGSH  files a  consolidated  tax  return  with its  wholly  owned
subsidiaries.  Intercompany tax sharing  agreements  between the Company and its
wholly owned  subsidiaries  and GGSH and its wholly owned  subsidiaries  provide
that income taxes will be allocated based upon separate  return  calculations in
accordance with the Internal Revenue Code of 1986, as amended.  Intercompany tax
payments are  remitted at such times as estimated  taxes would be required to be
made to the Internal Revenue Service.

A reconciliation of the differences between federal tax computed by applying the
federal  statutory rate of 35% in 1996 and 34% in 1995 and 1994 to income before
income taxes and the income tax provision is as follows:

                                      1996            1995            1994
Computed income taxes at
statutory rate                       $8,296          $2,531          $   468
Dividends received deduction           (158)            (54)             (30)
Tax-exempt interest                    (270)            (32)             (36)
Change in valuation allowance           (23)           (237)          (1,492)
Change in tax rate                      (14)              0                0
Other                                   215             414              372
                                     ------          ------           ------
     Income Taxes                    $8,046          $2,622           $ (718)
                                     ======          ======           ======

State income taxes for 1996, 1995 and 1994 are not significant. Therefore, state
income taxes have been recorded in general and  administrative  expenses and not
as part of income taxes.

The net  deferred  tax asset at December  31, 1996 and 1995 is  comprised of the
following:

                                                1996               1995
Deferred tax assets:
Unpaid losses and loss adjustment expenses      $2,705             $  422
  Unearned premiums                              5,061                764
  Allowance for doubtful accounts                  518                315
  Unrealized losses on investments                   0                 23
  Net operating loss carryforwards                 328                457
  Other                                            685                411
                                                ------             ------
                                                 9,297              2,392
Valuation allowance                                  0                 23
                                                ------             ------
Net deferred tax asset                           9,297              2,369
                                                ------             ------

Deferred tax liabilities:
Deferred policy acquisition costs                (4,480)              (809)
Unrealized gains on investments                 (1,224)                 0
Other                                             (264)              (139)
                                                ------             ------
                                                (5,968)              (948)
                                                ------             ------
     Net Deferred tax asset                     $3,329             $1,421
                                                ======             ======


<PAGE>
Notes to Consolidated Financial Statements
(Dollars in thousands)

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

As of December 31, 1996,  the Company has unused net operating  loss  carryovers
available as follows:


Years ending not later than December 31:           Amount
                                                   ------
  2000                                              $811
  2002                                               126
  ----                                               ---
     Total                                          $937
                                                    ====

Federal income tax attributed to the Company has been examined  through 1993. In
the opinion of management,  the Company has adequately provided for the possible
effects of future assessments related to prior years.

12.     Leases:

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

1997                             $  928
1998                                466
1999                                373
2000                                 62
2001 and thereafter                   0
                                 ------
     Total                       $1,829
                                 ======

13.     Reinsurance:

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


<PAGE>
                                      Notes to Consolidated Financial Statements
                                                          (Dollars in thousands)

13.  Reinsurance, continued:

Approximately  66% of amounts  recoverable  from reinsurers are with the FCIC, a
branch of the federal  government.  Another 28% of recoverable  amounts are with
Granite  Re, a foreign  corporation,  which  has not  applied  for an A.M.  Best
rating.  An  additional  5% of  uncollateralized  recoverable  amounts  are with
companies which maintain an A.M. Best rating of at least A+. Company  management
believes  amounts   recoverable   from  reinsurers  are   collectible.   Amounts
recoverable  from  reinsurers  relating  to unpaid  losses  and loss  adjustment
expenses were $29,459,  $37,798,  and $12,542 as of December 31, 1996, 1995, and
1994, respectively. These amounts are reported gross of the related reserves for
unpaid  losses and loss  adjustment  expenses in the  accompanying  Consolidated
Balance Sheets.

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

On April 29,  1996,  PGIC  retroactively  ceded all of its  commercial  business
relating to 1995 and  previous  years to Granite Re, with an  effective  date of
January 1,  1996.  Amounts  ceded for  outstanding  losses  and loss  adjustment
expenses  and  unearned   premiums   were   approximately   $3,519  and  $2,380,
respectively. No gain or loss was recognized in 1996 on the transaction. On this
date,  PGIC also  entered  into a 100% quota share  reinsurance  agreement  with
Granite Re, whereby all of PGIC's commercial  business from 1996 and forward was
ceded to Granite Re effective January 1, 1996. (See Note 17.)

Reinsurance  activity for 1996, 1995, and 1994, which includes  reinsurance with
related parties, is summarized as follows:

1996                       Direct       Assumed       Ceded          Net
                           --------     ------       --------      --------
Premiums written           $298,596     $6,903       $(95,907)     $209,592
Premiums earned             279,061      6,903        (94,205)      191,759
Incurred losses and loss
adjustment expenses         223,879      4,260        (91,030)      137,109
Commission expenses
(income)                     44,879      3,663        (46,716)        1,826

1995
Premiums written           $123,381     $1,253       $(71,187)     $ 53,447
Premiums earned             116,860      1,256        (68,475)       49,641
Incurred losses and loss
adjustment expenses         125,382      2,839        (92,250)       35,971
Commission expenses
(income)                     17,177        174        (27,092)       (9,741)

1994
Premiums written           $102,178     $  956       $(67,995)     $ 35,139
Premiums earned              96,053      1,308        (65,235)       32,126
Incurred losses and loss
adjustment expenses          57,951      1,588        (33,069)       26,470
Commission expenses
(income)                     19,619         48        (24,174)       (4,507)

<PAGE>

Notes to Consolidated Financial Statements
(Dollars in thousands)

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

The following balances were outstanding at December 31, 1996 and 1995:

                                                    1996               1995
Investments in and advances to related parties:
  Nonredeemable, nonvoting preferred
  stock of Granite                                 $  702             $  702
  Secured notes receivable from
  related parties                                       0              1,355
  Unsecured mortgage loan from
  director and officer                                278                278
  Due from directors and officers                     172                199
  Other receivables from related parties                0                418
                                                   ------             ------
                                                   $1,152             $2,952
                                                   ======             ======

                                                    1996               1995
Payable to affiliates:
  Loan and related interest payable
  to Goran                                         $    0             $2,232
  Loan and related interest payable
  to Granite Re                                         0              3,733
  Other payable to Goran                              350                500
  Other payables to related parties                    16                  9
                                                   ------             ------
                                                   $  366             $6,474
                                                   ======             ======

The  following  transactions  occurred  with related  parties in the years ended
December 31, 1996, 1995, and 1994:

                                        1996          1995          1994
Management fees charged
by Goran                               $  139        $  414        $  494
Reinsurance under various
treaties, net:
  Ceded premiums earned                 5,463         5,235           (73)
  Ceded losses and loss
   adjustment expenses incurred         5,168         2,612             0
  Ceded commissions                     2,620         1,142             0
Consulting fees charged by
various related parties                   180            26            75
Interest charged by Goran                 196           208           188
Dividend income from Granite Re             0             0            18
Interest charged by Granite Re            385           346           312


The unsecured mortgage loan to the Chairman and CEO of the Company was repaid in
full in February 1997.

Amounts due from  directors  and  officers of the Company  bear  interest at the
180-day  Treasury bill rate payable  semiannually.  Loan principal is payable on
demand.

The loans  payable,  including  accrued  interest,  to Goran and  Granite  Re at
December  31,  1995,  were  repaid  in full in 1996  from  the  proceeds  of the
offering.


<PAGE>
                                      Notes to Consolidated Financial Statements
                                                          (Dollars in thousands)

15.     Stockholders'  Equity:

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

16.     Effects of Statutory Accounting Practices and Dividend Restrictions:

At December 31, 1996 and 1995,  PGIC's statutory capital and surplus was $18,112
and $11,875,  respectively,  and IGF's statutory capital and surplus was $29,412
and $9,219,  respectively.  The minimum  regulatory  requirement for capital and
surplus  is  $1,250.  The  Indiana  statute  allows  10% of  surplus  as regards
policyholders  or  100%  of net  income,  whichever  is  greater,  to be paid as
dividends only from earned surplus.  Statutory requirements place limitations on
the amount of funds which can be  remitted to the Company  from PGIC and to PGIC
from IGF.

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

At December 31, 1996, the Superior  entities'  statutory capital and surplus was
$57,121. In the consent order approving the Acquisition,  the Florida Department
has  prohibited  Superior  from paying any  dividends for four years without the
prior written approval of the Florida Department.

17.     Regulatory Matters:

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


<PAGE>

Notes to Consolidated Financial Statements
(Dollars in thousands)

IGF received written approval through December 31, 1996 from the IDOI to reflect
its  business  transacted  with  the  FCIC  as  a  100%  cession  with  any  net
underwriting  results recognized in ceding commissions for statutory  accounting
purposes,  which differs from prescribed statutory accounting  practices.  As of
December 31, 1996, that permitted transaction had no effect on statutory surplus
or net income.  The  underwriting  profit results of the FCIC  business,  net of
reinsurance of $12,277,  $9,653,  and $3,257, are netted with policy acquisition
and general and  administrative  expenses for the years ended December 31, 1996,
1995, and 1994,  respectively,  in the accompanying  Consolidated  Statements of
Earnings.

PGIC  received  approval  from the IDOI to record  its quota  share  reinsurance
agreement with Granite Re for its commercial  business as reinsurance  effective
January 1, 1996 for statutory accounting purposes, which differs from prescribed
statutory practices.  SAP prescribed by the IDOI require certain  administrative
matters to be  completed  by an  insurance  company to  recognize a  reinsurance
agreement as of its  effective  date. As of December 31, 1996,  these  permitted
transactions  increased  statutory  surplus by $512 over what it would have been
had prescribed accounting practices been followed.

The NAIC is  considering  the  adoption of a  recommended  statutory  accounting
standard  for crop  insurers,  the impact of which is  uncertain  since  several
methodologies are currently being examined.  Although the Indiana Department has
permitted the Company to continue for its statutory financial statements through
December 31, 1996 its practice of recording  its MPCI  business as 100% ceded to
the FCIC with net underwriting  results  recognized in ceding  commissions,  the
Indiana  Department has indicated that in the future it will require the Company
to adopt the MPCI  accounting  practices  recommended by the NAIC or any similar
practice  adopted by the  Indiana  Department.  Since  such a standard  would be
adopted  industry-wide for crop insurers,  the Company would also be required to
conform its future GAAP  financial  statements to reflect the new MPCI statutory
accounting  methodology and to restate all historical GAAP financial  statements
consistently with this methodology for comparability. The Company cannot predict
what accounting  methodology  will eventually be implemented or when the Company
will be required to adopt such  methodology.  The Company  anticipates  that any
such new crop accounting methodology will not affect GAAP net earnings.

The  NAIC  has   promulgated   risk-based   capital   (RBC)   requirements   for
property/casualty  insurance  companies  to evaluate  the  adequacy of statutory
capital and surplus in relation to investment and insurance risks, such as asset
quality, asset and liability matching,  loss reserve adequacy and other business
factors.  The RBC information is used by state insurance  regulators as an early
warning  tool to  identify,  for the purpose of  initiating  regulatory  action,
insurance companies that potentially are inadequately capitalized.  In addition,
the formula  defines new minimum  capital  standards  that will  supplement  the
current  system  of  fixed  minimum  capital  and  surplus   requirements  on  a
state-by-state  basis.  Regulatory  compliance  is  determined  by a ratio  (the
"Ratio") of the enterprise's  regulatory total adjusted  capital,  as defined by
the  NAIC,  to its  authorized  control  level  RBC,  as  defined  by the  NAIC.
Generally, a Ratio in excess of 200% of authorized control level RBC requires no
corrective  actions by PGIC,  IGF or regulators.  As of December 31, 1996,  IGF,
PGIC and the Superior entities had Ratios that were in excess of the minimum RBC
requirements.

The NAIC  currently  has a project under way to codify SAP, as existing SAP does
not  address  all  accounting  issues and may differ  from state to state.  Upon
completion,  the Codification is expected to replace prescribed or permitted SAP
in each  state  as the new  comprehensive  statutory  basis  of  accounting  for
insurance  companies.  The final format of the Codification is uncertain at this
time, yet  implementation  could be required as early as January 1, 1998. Due to
the project's  uncertainty,  the Company has not yet  quantified  the impact any
such  changes  would have on the  statutory  capital  and  surplus or results of
operations of the Company's insurance subsidiaries.  The impact of adopting this
new  comprehensive  statutory  basis of  accounting  is,  however,  expected  to
materially impact statutory capital and surplus.

18.     Commitments and Contingencies:

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

IGF is responsible for the  administration  of a run-off book of business.  FCIC
has requested that IGF take  responsibility  for the claim liabilities under its
administration of these policies, and IGF has requested reimbursement of certain

<PAGE>

Notes to Consolidated Financial Statements
(Dollars in thousands)

18.     Commitments and Contingencies:, continued

expenses  from  the  FCIC  with  respect  to this  run-off  activity.  It is the
Company's  opinion,  and that of its legal  counsel,  that there is no  material
liability on the part of the Company for claim  liabilities  of other  companies
under IGF's administration.

The  increase  in  number  of  insurance  companies  that are  under  regulatory
supervision  has resulted,  and is expected to continue to result,  in increased
assessments  by state  guaranty  funds  to  cover  losses  to  policyholders  of
insolvent or rehabilitated insurance companies.  Those mandatory assessments may
be partially  recovered  through a reduction in future  premium taxes in certain
states.  The Company  recognizes its obligations  for guaranty fund  assessments
when it  receives  notice  that an amount is  payable to a  guaranty  fund.  The
ultimate amount of these assessments may differ from that which has already been
assessed.

The Company received a commitment from a commercial bank which provided funds to
certain  executives  and a director of the Company to purchase  69,500 shares in
the Directed  Share Program in the  Company's  Offering.  The Company  agreed to
guarantee  100% of the aggregate  principal  amount,  including  unpaid  accrued
interest,  extended by the commercial bank under this commitment.  The amount of
the Company's guarantee under this commitment is approximately $869.

The Company has entered into a purchase  agreement to acquire an office building
in Des Moines,  Iowa, to be used as its crop insurance division home office. The
purchase price was $2.6 million,  of which $2.4 million was escrowed on February
1, 1997. The terms include a floating  closing date whereby the transaction will
close on the earlier of February 1, 1998 or thirty days after the closing of the
Company's  currently occupied home office building,  also located in Des Moines.
The  purchase of the new building is not  contingent  on the sale of the current
building.

19. Supplemental Cash Flow Information:

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

                                 1996           1995           1994
Cash paid for interest           $5,178         $  553         $685
Cash paid for income taxes,
net of refunds                    9,825          1,953          166

During 1994, IGF exchanged 700,000 shares of Granite Reinsurance  Company,  Ltd.
stock for 9,800 shares of Granite Insurance Company stock,  recording no gain or
loss.  In addition,  PGIC  exchanged an investment in real estate for a mortgage
loan of $3,000 plus cash of $1,166.

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

<PAGE>

Notes to Consolidated Financial Statements
(Dollars in thousands)

20.     Disclosures About Fair Values of Financial Instruments:

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

a.   Fixed  Maturity and Equity  Securities:  Fair values for fixed maturity and
     equity  securities  are  based  on  market  values  obtained  from the NAIC
     Securities  Valuation Office.  Such values approximate quoted market prices
     from published information.

b.   Mortgage   Loan:  The  estimated  fair  value  of  the  mortgage  loan  was
     established  using a discounted  cash flow method  based on credit  rating,
     maturity  and  future  income  when  compared  to the  expected  yield  for
     mortgages having similar  characteristics.  The estimated fair value of the
     mortgage loan was $2,360 at December 31, 1996.

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

d.   Short-term  and Long-term  Debt:  Fair values for long-term debt issues are
     estimated  using  discounted  cash  flow  analysis  based on the  Company's
     current   incremental   borrowing  rate  for  similar  types  of  borrowing
     arrangements.  In 1996,  the rate on the Company's  term debt  approximated
     8.38%,  below the  current  rate of 8.41% for  similar  types of  borrowing
     arrangements.  The  estimated  fair  value of the term debt was  $49,047 at
     December 31, 1996.  For short-term  debt,  the carrying value  approximates
     fair value.

e.   Advances  to  Related  Parties  and  Payables  to  Affiliates:  It  is  not
     practicable to determine the fair value of the advances to related  parties
     or the payables to  affiliates  as of December  31, 1996 and 1995,  because
     these  are  related  party   obligations   and  no  comparable  fair  value
     measurement is available.

21.     Segment Information:

The  Company  has  two  business  segments:   Nonstandard  automobile  and  Crop
insurance.  The  Nonstandard  automobile  segment  offers  personal  nonstandard
automobile   insurance  coverages  through  a  network  of  independent  general
agencies.  These  products are sold by PGIC in seven  states,  Superior in eight
states,  and IGF in three states.  Effective in the first  quarter of 1996,  all
nonstandard automobile business will be retained in PGIC (see Note 13). The Crop
segment  writes MPCI and crop hail  insurance in 31 states  through  independent
agencies with its primary  concentration  in the Midwest.  Activity which is not
included in the major business segments is shown as "Corporate and Other."

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

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

<PAGE>

                                      Notes to Consolidated Financial Statements
                                                          (Dollars in thousands)

Segment information for 1994 through 1996 is as follows (certain information for
1995 and 1994 is not  available by segment due to general use by all segments of
corporate assets):

                                        Year Ended December 31,
                                  1996            1995            1994

Revenue:
  Nonstandard automobile          $181,799        $36,363         $27,784
  Crop                              24,865         12,830           4,873
  Corporate and other                   99          3,447           2,183
                                  --------        -------         -------
Total Revenue                     $206,763        $52,640         $34,840
                                  ========        =======         =======

Earnings (loss) before taxes
     and minority interest:
  Nonstandard automobile          $  7,434        $(1,989)        $   722
  Crop                              17,685         11,040           2,152
  Corporate and other               (1,416)        (1,611)         (1,539)
                                  --------        -------         -------
Total earnings (loss) before
taxes and minority interest       $ 23,703        $ 7,440         $ 1,385
                                  ========        =======         =======

Identifiable assets:
  Nonstandard automobile          $260,332
  Crop                              72,916
  Corporate and other                6,550
                                  --------
Total Identifiable assets:        $339,798
                                  ========

Depreciation and amortization:
  Nonstandard automobile          $  1,568
  Crop                                 574
  Corporate and other                   52
                                  --------
Total depreciation and
amortization                      $  2,194
                                  ========

Capital expenditures:
  Nonstandard automobile          $  2,058
  Crop                               1,676
  Corporate and other                    0
                                  --------
Total capital expenditures        $  3,374
                                  ========

<PAGE>

Notes to Consolidated Financial Statements
(Dollars in thousands)

22.  Stock Option Plans:

On November 1, 1996,  the  Company  adopted the SIG 1996 Stock  Option Plan (the
"SIG Stock  Option  Plan").  The SIG Stock  Option  Plan  provides  the  Company
authority to grant  nonqualified  stock options and  incentive  stock options to
officers and key employees of the Company and its  subsidiaries and nonqualified
stock  options to  nonemployee  directors  of the Company and Goran.  A total of
1,000,000  shares of common stock have been reserved for issuance  under the SIG
Stock Option Plan. On November 1, 1996, the Company issued 830,000 stock options
to the Company's  nonemployee  directors and certain Goran directors and certain
officers,  and certain other key employees of the Company and Goran. The options
were granted at an exercise  price equal to the Offering  price of the Company's
common stock.  The Company has granted (i) options to purchase  20,000 shares of
common  stock to the  nonemployee  directors  of the  Company,  (ii)  options to
purchase  791,000  shares of common stock to officers  and key  employees of the
Company and the  subsidiaries,  (iii) options to purchase 6,000 shares of common
stock to certain  nonemployee  directors  of Goran and (iv)  options to purchase
13,000 shares of common stock to certain employees of Goran and its subsidiaries
who have provided valuable services or assistance for the benefit of the Company
and the  subsidiaries.  The options granted to the Company's  Chairman  (375,000
shares)  vest and become  exercisable  in full on the first  anniversary  of the
grant date.  All of the  remaining  outstanding  stock  options  vest and become
exercisable  in  three  equal  installments  on  the  first,  second  and  third
anniversaries of the date of grant.

The Board of Directors of GGSH adopted the GGS  Management  Holdings,  Inc. 1996
Stock Option Plan (the "GGS Stock Option Plan"), effective as of April 30, 1996.
A maximum of 10% of the issued and outstanding shares of GGSH's common stock (on
a fully diluted basis assuming  exercise in full of all options) may be made the
subject of options  granted  under the GGS Stock Option Plan. A total of 111,111
shares of common stock of GGSH have actually  been  reserved for issuance  under
the GGS Stock Option Plan,  which  authorizes the granting of  nonqualified  and
incentive  stock  options to such  officers  and other key  employees  as may be
designated by the Board of Directors of GGSH.  During 1996,  55,922 options have
been granted under the GGS Stock Option Plan.  Stock  options  granted under the
GGS Stock  Option Plan will be  exercisable  at such times and at such  exercise
prices as the Board of Directors of GGSH shall  determine,  but in any event not
prior to the earlier of (i) an initial public offering of GGS Holdings, and (ii)
a GGSH  Sale,  as  defined,  and not later  than ten years  from the date of the
grant. Options granted under the GGS Stock Option Plan vest at a rate of 20% per
year for five years after the date of the grant.  The exercise  price of options
granted as of April 30,  1996 is, with  respect to 50% of the shares  subject to
each  such  option,  $44.17  per  share.  The  exercise  price per share for the
remaining 50% is $44.17,  subject to a compound  annual increase in the exercise
price of 10% for the duration of the vesting  period.  The exercise price of any
options  granted  under the GGS Stock Option Plan after April 30, 1996,  will be
subject to a similar formula,  with 50% of the shares subject to any such option
having an exercise price determined by the Board of Directors in its discretion,
and the other 50% having an exercise price which  increases on each  anniversary
of the date of the grant  for the  duration  of the  vesting  period.  No option
granted  under the GGS Stock Option Plan is  transferable  by the option  holder
other  than by the  laws of  descent  and  distribution.  Shares  received  upon
exercise  of such an option  are not  transferable,  except as  provided  in the
Stockholder Agreement among the Company and the Goldman Funds.


<PAGE>

Notes to Consolidated Financial Statements
(Dollars in thousands)

At  December  31,  1996,  the  Company  applied  APB  Opinion No. 25 and related
interpretations in accounting for its plans.  Accordingly,  no compensation cost
has been recognized for its stock option plans in the accompanying  Statement of
Earnings.  Had  compensation  cost for the  Company's  stock  option  plan  been
determined  consistent  with FASB  Statement No. 123, the Company's net earnings
and  earnings  per share  would  have  been  reduced  to the pro  forma  amounts
indicated below:

                                             1996
                                ------------------------------
                                As Reported          Pro Forma
                                -----------          ---------
Net earnings                      $13,256              $13,021
                                  =======              =======
Net earnings per share            $  1.76              $  1.73
                                  =======              =======

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions  used: no dividend yield for all years;  expected  volatility of 40%
for the SIG Stock Option Plan and no percentage  for the GGSH Stock Option Plan,
since the GGSH stock is privately held; risk-free interest rate of 6.0% to 6.50%
for the SIG Stock Option Plan and 6.4% for the GGSH Stock  Option  Plan;  and an
expected  life of two to four years for the SIG Stock Option Plan and five years
for the GGSH Stock Option Plan.

23.   Quarterly Financial Information (unaudited):

Quarterly financial information is as follows:

                                         Quarters
                          -------------------------------------
1996                       First     Second     Third     Fourth    Total
                          -------   --------   -------   -------   --------
Gross written premiums    $41,422   $105,528   $71,813   $86,736   $305,499
Net earnings                1,586      2,718     4,589     4,363     13,256
Earnings per share           0.22       0.39      0.66      0.49       1.76

1995
Gross written premiums     28,272     67,487    16,978    11,897    124,634
Net earnings                1,066        940     1,464     1,351      4,821
Earnings per share           0.15       0.14      0.21      0.19       0.69

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


<PAGE>

FORWARD-LOOKING STATEMENTS

The statements  contained in this Annual Report which are not historical  facts,
including but not limited to,  statements  concerning  (i) the impact of federal
and  state  laws and  regulations  on the  Company's  business  and  results  of
operations,  (ii) the  competitive  advantage  afforded  to the  Company's  crop
insurance  operations  by  approaches  adopted  by  management  in the  areas of
information, technology, claims handling and underwriting, (iii) the sufficiency
of the  Company's  cash  flow to  meet  the  operating  expenses,  debt  service
obligations and capital needs of the Company and its subsidiaries,  and (iv) the
impact of declining MPCI Buy-up Expense  Reimbursements on the Company's results
of  operations,  are  forward-looking  statements.  The company  desires to take
advantage  of the "safe  harbor"  afforded  such  statements  under the  Private
Securities Litigation Reform Act of 1995 when they are accompanied by meaningful
cautionary  statements  identifying  important  factors  that could cause actual
results to differ materially from those in the forward-looking  statements. Such
cautionary  statements which discuss certain risks associated with the Company's
business including the variability of the results of operations of the Company's
crop insurance  business as a result of weather and natural  perils,  the highly
competitive  nature  of  both  the  Company's  crop  insurance  and  nonstandard
automobile  insurance business and the effects of state and federal  regulation,
the capital intensive nature of the property and casualty business and potential
limitations on the ability of the Company to raise additional  capital set forth
under the heading "Forward-Looking Statements -- Safe Harbor Provisions" in Item
1 -  Business  in the  Company's  Annual  Report on Form 10-K for the Year Ended
December 31, 1996.


<PAGE>
--------------------------------------------------------------------------------
MANAGEMENT RESPONSIBILITY
--------------------------------------------------------------------------------

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

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

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

Alan G. Symons
Chief Executive Officer



/s/ Gary P. Hutchraft
Gary P. Hutchraft
Vice Presidnet and Chief Financial Officer

March 21, 1997
<PAGE>

Board of directors and Stockholders of Symons International Group, Inc. and
Subsidiaries

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Symons
International Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of earnings, changes in stockholders' equity
and cash flows for each of the three  years in the  period  ended  December  31,
1996.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of Symons
International Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the  consolidated  results of their  operations and their cash flows for each of
the three  years in the  period  ended  December  31,  1996 in  conformity  with
generally accepted accounting principles.

/s/ Coopers & Lybrand
Indianapolis, Indiana
March 21, 1997



<PAGE>



STOCKHOLDER INFORMATION

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

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

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

Annual Meeting of Stockholders
Tuesday, May 20, 1997
10:00 a.m.
Corporate Offices

Annual Report on Form 10-K
A copy of the Annual Report on Form 10-K for Symons  International  Group,  Inc.
for the year ended  December 31, 1996,  filed with the  Securities  and Exchange
Commission,  may be obtained, without charge, upon request to the individual and
address noted under Shareholder Inquiries.

Market and Dividend Information
Symons  International  Group,  Inc.  effected  its  initial  public  offering on
November 5, 1996. Symons  International Group, Inc.'s common stock trades on the
NASDAQ  Stock  Market's  National  Market  under the symbol  SIGC.  The  initial
offering price of its shares of Common Stock was $12.50 per share.  The high and
low  trading  prices of the Common  Stock for the period  from  November 5, 1996
through December 31, 1996 were $16.75 and $12.50, respectively.

Trading Period             High             Low
--------------             ----             ---
11/5/96-12/31/96           $16.75         $12.50

As of March 20, 1997, the Company had  approximately  120 stockholders  based on
the  number of holders of record  and an  estimate  of the number of  individual
participants represented by securities position listings.

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

Shareholder Inquiries

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


<PAGE>

Board of Directors

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

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

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

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

Robert C. Whiting
President, Prime Advisors, Ltd

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

David R. Doyle
Vice President and Chief
Fnancial Officer
Avantec, Inc.


<PAGE>

Executive Officers

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

Alan G. Symons
Chief Executive Officer
Symons International Group, Inc.

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

Gary P. Hutchcraft
Vice President, Chief Financial Officer and Treasurer
Symons International Group, Inc.

David L. Bates
Vice President, General Counsel and Secretary
Symons International Group, Inc.

Dennis G. Daggett
President and Chief Operating Officer
IGF Insurance Company

Thomas F. Gowdy
Executive Vice President
IGF Insurance Company

Roger C. Sullivan Jr.
Executive Vice President
Superior Insurance Company

Donald J. Goodenow
Executive Vice President
Pafco General Insurance Company


<PAGE>


COMPANY, SUBSIDIARIES AND BRANCH OFFICES

CORPORATE OFFICE                                   IGF South
Symons International Group, Inc.                   101 Business Park Drive
4720 Kingsway Drive                                Jackson, Mississippi  39213
Indianapolis, Indiana  46205                       Tel:  601 957-9780
Tel:  317 259-6300                                 Fax:  601 957-9793
Fax:  317 259-6395
                                                   IGF East
SUBSIDIARIES AND BRANCHES                          4720 Kingsway Drive
Pafco General Insurance Company                    Indianapolis, Indiana 46205
4720 Kingsway Drive                                Tel:  317 259-6300
Indianapolis, Indiana  46205                       Fax:  317 259-6395
Tel:  317 259-6300
Fax: 317 259-6395                                  IGF West
                                                   407 Campus Drive
Superior Insurance Company                         Garden City, Kansas 67846
280 Interstate North Circle, N.W.                  Tel:  316 276-4111
Atlanta, Georgia  30339                            Fax:  316 275-6453
Tel:  770 952-4885
Fax:  770 952-6616                                 IGF North
                                                   208 S. Main
Superior Insurance Company                         Stanley, North Dakota 58784
3030 N. Rocky Point Drive                          Tel:  701 628-3536
Suite 770                                          Fax:  701 628-3537
Tampa, Florida  33607
Tel:  813 281-2444                                 IGF California
Fax:  831 281-8036                                 1750 Bullard Avenue
                                                   Suite 106
Superior Insurance Company                         Fresno, California  93710
1745 West Orangewood Road                          Tel:  209 432-0196
Orange, California  92868                          Fax:  209 432-0294
Tel:  714 978-6811
Fax:  714 978-0353

IGF Insurance Company
Corporate Office
2882 106th Street
Des Moines, Iowa  50322
Tel:  515 276-2766
Fax:  515 276-8305


<PAGE>


SIG Logo

Symons International Group, Inc.

4720 Kingsway Drive
Indianapolis, Indiana
46205

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