UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-K


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

                   For the fiscal year ended December 31, 1998
                           Commission File No. 1-11941

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

                           Delaware IRS No. 14-1789227

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

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

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

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

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

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

On March 1, 1999, Registrant had 5,253,813 shares of Common Stock outstanding.
Of these, 5,241,270 shares, having an aggregate market value (based on the
closing price of these shares as reported in a summary of composite transactions
in the Wall Street Journal for stocks listed on the New York Stock Exchange
March 1, 1999) of approximately $170,341,275, were owned by stockholders other
than directors and executive officers of the Registrant.
<PAGE>

                      Documents Incorporated By Reference

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

   Documents Incorporated                                    Part of Form 10K


   Farm Family Holdings, Inc.                                   I and II
   Annual Report to Stockholders
   for the fiscal year ended
   December 31, 1998
   (the "Annual Report")

   Farm Family Holdings, Inc.                                     III
   Proxy Statement for the
   1999 Annual Meeting of
   Stockholders
   (the "Proxy Statement")

<PAGE>


                                     PART I
                                     ------

ITEM 1.  BUSINESS

Overview

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

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

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

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

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

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

     In 1997, the Company established a wholly owned subsidiary, Farm Family
Financial Services, Inc. Through the establishment of this subsidiary, and its
affiliation with a national broker-dealer, the Company's agents can offer
financial products such as mutual funds, stocks, bonds and variable life
insurance and variable annuity products to their clients.

Acquisition of Farm Family Life

     Farm Family Holdings entered into an Option Purchase Agreement with the
shareholders of Farm Family Life pursuant to which Farm Family Holdings was
granted an option to acquire all of the outstanding capital stock of Farm Family
Life, exercisable for a two year period which commenced on July 26, 1996. On
February 26, 1998, the Board of Directors of Farm Family Holdings approved the
exercise of the option to acquire Farm Family Life and its wholly owned
subsidiary, United Farm Family. Farm Family Life is owned by the Farm Bureau
organizations and their affiliates in New York, New Jersey, Delaware, West
Virginia and all of the New England states. Under the Option Purchase Agreement,
Farm Family Holdings will pay an exercise price of $37.5 million to acquire Farm
Family Life, consisting of $31.5 million of common stock of Farm Family
Holdings, and $6 million stated value of 6-1/8% voting preferred stock of Farm
Family Holdings, less certain expenses to be paid by Farm Family Life in
connection with the acquisition on behalf of the shareholders of Farm Family
Life.

     The Option Purchase Agreement was originally approved by the Company's
shareholders on December 2, 1998. The closing of the acquisition was scheduled
to occur on December 7, 1998, but was delayed when it was determined that in
order for certain shareholders of Farm Family Life to provide unqualified
opinions of counsel required by the Option Purchase Agreement as a condition to
closing, such shareholders of Farm Family Life or their respective parent
entities would need to obtain approval of the acquisition from their members.

     As a result of this delay, the Option Purchase Agreement was amended by
Amendment No. 2 dated as of January 14,1999 ("Amendment No.2") to, among other
things, fix the price used to determine the number of shares of common and
preferred stock to be issued, subject to a collar mechanism, at $35.72, which
was the average closing price that would have been used if the closing had
occurred on December 7, 1998. Under the collar mechanism, if the price per share
of the Company's common stock on the last trading day prior to the closing (the
"Closing Price") is greater than $42.86 or equal to or less than $25.00, the
price used to determine the number of shares of the Company's common stock to be
issued in the acquisition will equal $35.72 divided by a factor. The factor will
be equal to 1.2 (if the Closing Price is greater than $42.86) or 0.7 (if the
Closing Price is equal to or less than $25.00) multiplied by $35.72 divided by
the Closing Price. If the Closing Price is $25.00 or less, the Company will also
have the option to terminate the Option Purchase Agreement. In addition,
Amendment No. 2 extended the date on which the Company or the shareholders of
Farm Family Life may terminate the Option Purchase Agreement, if the closing has
not occurred, to April 30, 1999.

     The Option Purchase Agreement is subject to the approval of the members of
certain shareholders of Farm Family Life or their respective parent entities.
Farm Family Holdings resolicited the approval of its shareholders for the
revised terms of the acquisition. On March 25, 1999, the Option Purchase
Agreement as amended by Amendment No. 2, and the acquisition of Farm Family Life
were approved by Farm Family Holdings' shareholders. Under the terms of
Amendment No. 2, the shareholders of Farm Family Life have agreed to reimburse
the Company for half of the expenses of resolicitation, up to $200,000. The
acquisition of Farm Family Life is subject to certain closing conditions
including the receipt of all required government approvals, among other things.
Management expects to close the acquisition of Farm Family Life in the second
quarter of 1999.

Related Party Transactions

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

     The Company is a party to Membership List Purchase Agreements with each of
the state Farm Bureaus in the ten states in which it conducts business. Pursuant
to each Membership List Purchase Agreement, Farm Bureau membership lists are
provided to the Company on an exclusive basis for the purpose of marketing its
insurance products. The Membership List Purchase Agreements are for six years
commencing on January 1, 1996. For the years ended December 31, 1998, 1997 and
1996, the Company paid a total of $660,000, $600,000 and $571,000, respectively,
to the Farm Bureaus pursuant to the Membership List Purchase Agreements.

<PAGE>

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

     Farm Family Casualty and Farm Family Life are parties to an Amended and
Restated Expense Sharing Agreement, effective as of February 14, 1996 (the
"Expense Sharing Agreement"), pursuant to which shared expenses for goods,
services and facilities are allocated between the Company and Farm Family Life.
Under the Expense Sharing Agreement, expenses are allocated in accordance with
applicable provisions of the New York Insurance Law and regulations promulgated
thereunder. Direct expenses are charged as incurred to the Company and Farm
Family Life, as applicable, at cost. For each of the years ended December 31,
1998, 1997 and 1996, 68%, 67% and 65%, respectively, of aggregate operating
expenses totaling $29.3, $29.4 million and $30.7 million, respectively, were
allocated to the Company, under the Expense Sharing Agreement.

     Farm Family Holdings, Farm Family Casualty and Farm Family Life were
parties to a Lease Agreement dated July 1, 1988, as amended by Amendment to
Lease Agreement, effective January 1, 1994, as so amended, (the "Lease
Agreement") pursuant to which the Company leased home office space in Glenmont,
New York from Farm Family Life. Annual rent incurred by Farm Family Casualty
under the Lease Agreement was approximately $781,000, $760,000, and $712,000 for
each of the years ended December 31, 1998, 1997, and 1996, respectively. In
addition, Farm Family Holdings incurred annual rent expense of $37,000, $24,000
and $8,000 for the years ended December 31, 1998, 1997, and 1996, respectively
pursuant to the Expense Sharing Agreement. The Lease Agreement expired December
31, 1998 and the parties entered into a new lease agreement effective January 1,
1999.

     The Company and United Farm Family are parties to a service agreement dated
July 25, 1988 (the "Service Agreement") pursuant to which the Company provides
United Farm Family with certain administrative and special services necessary
for its operations, including, but not limited to, claims management,
underwriting, accounting, tax and auditing, investment management, and
functional support services. In addition, the Company provides United Farm
Family with certain personnel, property, equipment and facilities for its
operations. For each of the years ended December 31, 1998, 1997, and 1996, Farm
Family Casualty charged United Farm Family approximately $1.0 million, $0.5
million, and $0.7 million, respectively, in direct and allocated expenses and
overhead under the Service Agreement.

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

         ($ in thousands)                                          1998             1997               1996
                                                                   ----             ----               ----
<S>                                                                <C>              <C>                <C>             
         Earned Premiums Ceded                                     $   -            $8,960             $9,334               
         Losses  Ceded                                              1,349            8,922              7,049                
         Expenses Ceded                                              (299)             846                446             
                                                              -------------------------------------------------------
         Net                                                       $(1,050)         $ (808)            $1,839
                                                              =======================================================
</TABLE>


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

Products

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

<PAGE>


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

         ($ in millions)                                          Year Ended December 31,
                                                                  -----------------------
                                                             % of                   % of                    % of
                                                1998        Total       1997       Total        1996       Total
                                                -----       -----       -----      -----        -----      -----
<S>                                             <C>         <C>         <C>        <C>          <C>        <C>  
         Personal Automobile*                   $68.3       36.9%       $62.3      36.9%        $50.0      34.2%
         Special Farm Package                    40.8       22.0%        38.4      22.8%         35.9      24.5%
         Commercial Automobile*                  28.9       15.6%        26.1      15.5%         24.1      16.5%
         Workers' Compensation                   12.6        6.8%        11.3       6.7%          9.7       6.5%
         Businessowners                          10.1        5.5%         9.0       5.3%          7.6       5.2%
         Homeowners                               9.2        5.0%         7.7       4.6%          6.1       4.2%
         Umbrella                                 5.0        2.7%         4.8       2.9%          4.6       3.1%
         Commercial General Liability             4.5        2.4%         4.1       2.4%          3.9       2.7%
         Special Home Package                     3.3        1.8%         3.1       1.8%          2.9       2.0%
         Fire, Allied, Inland Marine              1.8        1.0%         1.3       0.8%          1.2       0.8%
         Products Liability                       0.4        0.2%         0.4       0.2%          0.3       0.2%
         Pollution                                0.2        0.1%         0.2       0.1%          0.1       0.1%
                                           ----------------------------------------------------------------------
         Total                                 $185.1      100.0%      $168.7     100.0%       $146.4     100.0%
                                           ======================================================================
</TABLE>


     *Includes $3.9, $6.3, and $4.7 million of assigned risk automobile for
personal automobile business and $0.3, $0.7, and $0.5 million of assigned risk
for commercial automobile business for each of the years ended December 31,
1998,1997, and 1996, respectively.

     Personal Automobile. The Company's personal automobile policies provide the
Company with more premium than any of the Company's other products. The
Company's industry standard policies are generally marketed in conjunction with
its other products, such as the Special Farm Package, the businessowners policy
or the homeowners policy.

     Special Farm Package. The Special Farm Package, is a flexible, multi-line
package of insurance coverages that the Company regards as its "flagship"
product. As a result of its flexible features, this product can be adapted to
meet the needs of a variety of agricultural and related businesses. The Special
Farm Package policy combines personal, farm and business property and liability
insurance for the farm owner, as well as owners of other agricultural related
businesses, such as horse breeding and training facilities, nurseries, wineries
and greenhouses.

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

     Commercial Automobile. Commercial automobile is primarily used for
commercial automobiles utilized in conjunction with agricultural and related
businesses.

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

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

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

     Umbrella Liability. The Company writes commercial and personal line excess
liability policies covering business, farm and personal liabilities of its
policyholders in excess of amounts covered under Special Farm Package,
<PAGE>


homeowners, businessowners and automobile policies. Such policies are available
with limits of $1.0 million to $5.0 million. The Company does not generally seek
to market its excess liability policies unless it also writes an underlying
liability policy.

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

     Pollution. The Company writes a small number of pollution liability
policies covering specified farm risks on a "claims-made" basis. The policy
insures against losses incurred from third party liability, including bodily
injury and property damages, for pollution incidents, such as those caused from
pesticides, fertilizers, herbicides and manure piles. An "extended reporting
period" option is available under certain circumstances which allows for claim
reporting after the policy expiration. As of December 31, 1998, the Company had
approximately 226 pollution policies in force.

Marketing

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

                                                                     Year Ended December 31,
                                                                     -----------------------
         ($ in millions)                                         % of                       % of                 % of
                                                   1998         Total        1997          Total      1996      Total
                                                   -----        -----        -----         -----      -----     -----

<S>                                                <C>          <C>          <C>           <C>        <C>       <C>  
         New York                                  $64.3        34.8%        $61.5         36.5%      $56.5     38.6%
         New Jersey                                 52.4        28.3%         44.5         26.3%       33.1     22.6%
         Massachusetts                              14.6         7.9%         12.9          7.7%       10.3      7.0%
         Connecticut                                12.1         6.5%         11.0          6.5%        9.8      6.7%
         West Virginia                              10.1         5.4%          9.1          5.4%        8.1      5.5%
         Maine                                       6.5         3.5%          6.7          4.0%        6.8      4.7%
         New Hampshire                               6.9         3.8%          6.5          3.9%        6.7      4.6%
         Vermont                                     6.3         3.4%          5.8          3.4%        5.7      3.9%
         Delaware                                    6.5         3.5%          5.8          3.4%        5.0      3.4%
         Rhode Island                                5.4         2.9%          4.9          2.9%        4.4      3.0%
                                            --------------------------------------------------------------------------
                                                  $185.1       100.0%       $168.7        100.0%     $146.4    100.0%
                                            ==========================================================================
</TABLE>

     As of December 31, 1998, the Company marketed its property and casualty
insurance products in its ten state region through approximately 187 primarily
career agents, 12 independent agents and 10 field managers. Many of the
Company's agents are established residents of the rural and suburban communities
in which they operate and often have specific prior experience in agricultural
related businesses. In addition to marketing the Company's property and casualty
insurance products, the agency force also markets life insurance products for
Farm Family Life. In 1998, agent compensation was comprised entirely of
commissions earned by the Company's agents for premiums written by the agents
during 1998. The commissions earned by the Company's agents are determined by
applying a commission rate to the amount of the premiums written by the agent.
The Company applies a fixed commission rate to determine commissions earned on
workers compensation and umbrella business produced by its agents. For
automobile business and property liability business, the commission rate varies
monthly based upon the loss ratio of such business written by the agent during
the previous twelve month period. The Company has designed its commission
program in this manner to encourage agents to produce profitable business for
the Company.

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

Relationship with Farm Bureaus

     The Company was organized in 1955 through the efforts of certain Farm
Bureaus, and its relationship with the Farm Bureaus in its ten state region
continues to be a fundamental aspect of its business. These Farm Bureaus are
affiliated with the American Farm Bureau Federation, the nation's largest
general farm organization with over 4.9 million members, which has traditionally
sought to advance the interests of the agricultural community. The Company was
established through the efforts of certain Farm Bureaus to provide property and
casualty insurance for Farm Bureau members in the Northeast. Substantially all
of the directors of the Company are associated with Farm Bureau organizations in
the Northeast. The Company has the exclusive endorsement of the Farm Bureaus to
market property and casualty insurance in the ten states in which it operates.

     The endorsement of the Farm Bureaus generally means that the Farm Bureaus
provide the Company with the right to utilize their membership lists and
authorize the use of their name and service marks in connection with the
marketing of the Company's products. In exchange for these rights, the Company
pays to each of the Farm Bureaus an annual fee of $7.50 per Farm Bureau member,
pursuant to agreements with each Farm Bureau (the "Membership List Purchase
Agreements"). The current term of each Membership List Purchase Agreement is six
years, commencing on January 1, 1996. Pursuant to the Membership List Purchase
Agreements, the Farm Bureaus may not endorse the products of other property and
casualty insurers within the Company's ten state region. Farm Family Life has
entered into similar membership list purchase agreements with each of the Farm
Bureaus.

Underwriting

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

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

Claims

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

     Claim settlement authority levels are established for each adjuster and
claim manager based upon the employee's ability and level of experience. Claim
are reported directly to the claims department, located at a field office or
through the Company's central claim processing unit located in the home office.
Specialized units exist at the home office for no-fault automobile, subrogation
and large, litigated and certain other claims. The Company also has a special
investigative unit to investigate suspected insurance fraud, including arson.
The claims department is responsible for reviewing all claims, obtaining
necessary documentation, estimating the loss reserves and resolving the claims.

     Claims for New York private passenger assigned risk business are handled by
outside claim adjusting firms that specialize in this line of business. As of
January 1, 1999, claims on new and renewal workers compensation policies are
handled by an outside adjusting firm that specializes in workers compensation
claims.

<PAGE>

Reinsurance

Reinsurance Ceded

     The Company's reinsurance arrangements are placed with non-affiliated
reinsurers through a reinsurance broker. In addition, through December 31, 1997,
certain reinsurance coverages were also placed directly with United Farm Family
(see "Related Party Transactions"). Prior to January 1, 1998, the largest net
per risk exposure retained by the Company on any one individual property or
casualty risk was $100,000. Prior to January 1, 1998 , United Farm Family
covered property and casualty risks in excess of $100,000 on an excess of loss
basis up to $300,000 per risk. Effective January 1, 1998, the largest net per
risk exposure retained by the Company on any one individual property or casualty
risk is $300,000. Per risk property losses in excess of $300,000 but less than
$4 million are reinsured on an excess of loss basis by unaffiliated reinsurers.
Casualty losses per risk in excess of $300,000 but less than $1 million (which
is generally the maximum limit of liability written by the Company's casualty
insurance policies, other than workers' compensation and umbrella liability
policies) are covered on an excess of loss basis by unaffiliated reinsurers.
Clash coverage, which provides coverage for a single event that results in
multiple casualty losses to the Company's insureds, is provided by unaffiliated
reinsurers and covers casualty losses, including workers' compensation, in
excess of $1 million but less than $5 million. In addition, workers'
compensation claims, on a per occurrence basis with a $600,000 per person limit,
in excess of $5 million but less than $20 million are separately reinsured on an
excess of loss basis by an unaffiliated reinsurer. Prior to January 1, 1998, the
Company reinsured 95% of its umbrella liability losses (including a 5% quota
share participation by United Farm Family) under $1 million per loss on a quota
share basis and 100% of umbrella liability losses in excess of $1 million up to
$5 million per loss with unaffiliated reinsurers. Effective January 1, 1998,
umbrella losses per occurrence in excess of $300,000 but less than $2 million
are covered on an excess of loss basis with unaffiliated reinsurers. In
addition, the Company reinsures 100% of its umbrella liability losses in excess
of $2 million up to $5 million per loss with unaffiliated reinsurers.
Facultative reinsurance coverage is obtained for property policies written for
limits in excess of $4 million per risk, casualty risks in excess of $1 million,
and umbrella policies written for limits in excess of $5 million.

     The Company's property catastrophe reinsurance is placed with
non-affiliated reinsurers and provides for recovery of 95% of the losses over $3
million up to a maximum of $51 million per occurrence. The Company retains the
first $3 million of losses per occurrence under its property catastrophe
program.

     The Company also has aggregate stop loss reinsurance covering net losses
incurred in excess of 66% of the Company's net earned premiums, up to a maximum
of $12.5 million per accident year, for accident years 1998 and 1999. Aggregate
stop loss reinsurance covers the Company's direct written and assumed
reinsurance business, net of inuring reinsurance ceded. This coverage is
provided by non-affiliated reinsurers, covers each accident year separately, and
includes the premium and losses of the Company's affiliate, United Farm Family.

     The insolvency or inability of any reinsurer to meet its obligations to the
Company could have a material adverse effect on the results of operations or
financial condition of the Company. As of December 31, 1998, more than 95% of
the Company's reinsurance program was provided by reinsurers which were rated
"A-" (Excellent) or above by A.M. Best Company, Inc. ("A.M. Best").

     The Company terminated all reinsurance agreements with United Farm Family
effective December 31, 1997, although, United Farm Family retains liability for
covered losses arising from occurrences prior to the termination date. Effective
January 1, 1998, all reinsurance agreements are provided solely by
non-affiliated reinsurers.

Reinsurance Assumed

     The Company assumes voluntary reinsurance covering primarily property,
property catastrophe and casualty risks located outside of the Northeast. The
Company believes that, among other benefits, its assumed reinsurance
arrangements enhance the Company's geographic spread of risk. The Company also
assumed an insignificant amount of reinsurance covering substandard automobile
policies from United Farm Family through December 31, 1997. For the year ended
December 31, 1998, the Company earned premiums of $11.2 million under various
voluntary proportional and non-proportional reinsurance agreements. In addition,
the Company has a retrocessional reinsurance program covering the Company's
assumed business, which is placed with unaffiliated reinsurers and provides for
recovery of 95% of losses over $1 million up to a maximum of $4 million per
occurrence and 75% of losses over $4 million up to a maximum of $6 million.

<PAGE>

Loss and Loss Adjustment Expense ("LAE") Reserves

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

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

     The following table provides a reconciliation of beginning and ending loss
and LAE reserve balances of the Company for each of the years in the three year
period ended December 31, 1998.

<TABLE>
<CAPTION>
                                            Reconciliation of Liability for Loss
                                                and Loss Adjustment Expenses
         ($ in thousands)
                                                                                               Year ended December 31,

                                                                                                1998        1997        1996
                                                                                                ----        ----        ----
<S>                                                                                         <C>         <C>        <C>      
Reserves for losses and loss adjustment expenses at the  beginning of the  year             $156,622    $141,220   $ 137,978
Less:    Reinsurance recoverables and receivables                                             29,054      26,837      28,655
                                                                                         ------------------------------------ 
Net reserves for losses and loss adjustment expenses at beginning of year                    127,568     114,383     109,323
                                                                                         ------------------------------------
Provision for losses and loss adjustment expenses for claims occurring in:
     Current year                                                                            138,201     107,273     100,418
     Prior years                                                                             (3,899)     (3,972)     (5,441)
                                                                                         ------------------------------------
         Total incurred losses and loss adjustment expenses                                  134,302     103,301      94,977
                                                                                         ------------------------------------  
Loss and loss adjustment expenses payments for claims occurring in:
      Current year                                                                            70,098      49,858      50,122
      Prior years                                                                             48,245      40,258      39,795
                                                                                         ------------------------------------
         Total payments                                                                      118,343      90,116      89,917
                                                                                         ------------------------------------
Net reserves for losses and loss adjustment expenses at end of   year                        143,527     127,568     114,383
Add:   Reinsurance recoverables and receivables                                               30,908      29,054      26,837
                                                                                         ------------------------------------
       Reserves for losses and loss adjustment expenses at end of year                      $174,435    $156,622    $141,220
                                                                                         ====================================
</TABLE>

Analysis of Loss and Loss Adjustment Expense Development

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

     In evaluating the information in the table below, it should be noted that
each amount includes the effects of all changes in amounts of prior periods. For
example, if a loss determined in 1996 to be $150,000 was first reserved in 1993
at $100,000, the $50,000 deficiency (actual loss minus original estimate) would
be included in the cumulative deficiency in each of the years 1993 through 1995
shown below. This table presents development data by calendar year and does not
relate the data to the year in which the accident actually occurred. Conditions
and trends that have affected the development of these reserves in the past may
not necessarily recur in the future.
<PAGE>


     The following table sets forth the development of loss and loss adjustment
expenses reserves of the Company for the ten-year period ended December 31,
1998:
<TABLE>
<CAPTION>

                            Analysis of Loss and Loss Adjustment Expense Development
($ in thousands)
Year Ended December 31  1988     1989    1990    1991    1992     1993      1994      1995      1996      1997      1998
                       ------   -----   ------  ------  ------    -----    -----      -----     ----      ----      ----
Reserves for Losses
  and Loss Adjustment          
<S>                   <C>      <C>     <C>     <C>      <C>      <C>      <C>       <C>        <C>       <C>       <C>     
     Expenses         $65,543  $78,339 $94,135 $110,135 $117,497 $123,477 $127,954  $137,978   $141,220  $156,622  $174,435
Reinsurance
Recoverable           
     on Unpaid Losses  (7,126) (11,784)(22,123) (25,048)(24,463)  (28,761) (28,230)  (28,655)   (26,837)  (29,054)  (30,908)
                       ----------------------------------------------------------------------------------------------------
Reserves for Losses
   and Loss Adjustment
         Expenses, Net  58,417  66,555  72,012   85,087   93,034   94,716   99,724   109,323    114,383   127,568   143,527
                       ====================================================================================================
</TABLE>

<TABLE>
<CAPTION>
Reserves, Net,
  Reestimated as of:
<S>                     <C>      <C>     <C>     <C>     <C>       <C>       <C>     <C>       <C>       <C>    
        One year later  57,932   69,036  76,786  84,514  91,561    88,296    94,542  104,649   110,411   123,654
       Two years later  63,348   72,478  76,442  84,305  89,666    82,876    87,592  101,561   107,610
     Three years later  65,399   72,926  76,832  83,960  86,876    81,556    84,840  100,295                               
      Four years later  65,842   73,130  77,879  82,750  85,204    79,139    84,167                                         
      Five years later  66,289   74,599  77,375  81,690  83,875    78,948
       Six years later  68,298   74,391  76,811  80,487  83,964
     Seven years later  68,370   74,578  76,080  80,385
     Eight years later  68,678   73,993  76,179
      Nine years later  68,010   74,364
       Ten years later  68,692
Cumulative Redundancy
          (Deficiency) (10,275) (7,809) (4,167)   4,702   9,070    15,768    15,557    9,028     6,773     3,914
                       ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>

Cumulative Amount of
   Reserves Paid Through:
<S>                     <C>      <C>     <C>     <C>     <C>       <C>       <C>      <C>       <C>       <C>
        One year later  23,852   29,587  29,446  32,708  36,692    34,439    33,069   39,796    40,258    48,232             
       Two years later  40,454   46,469  47,392  53,455  57,236    49,867    53,121   59,671    62,486                       
     Three years later  51,147   57,838  60,737  65,951  66,127    62,138    64,023   72,234
      Four years later  57,239   65,803  67,401  70,176  73,409    67,865    70,114
      Five years later  62,168   68,950  68,634  74,752  76,434    71,160
       Six years later  64,421   68,652  71,697  76,266  78,502
     Seven years later  63,815   71,075  72,820  77,550
     Eight years later  65,940   72,038  73,790
      Nine years later  66,735   72,736
       Ten years later  67,372
</TABLE>

<PAGE>


     Prior to 1990, the Company had a history of cumulative deficiencies in
reserving for losses and LAE. These deficiencies were primarily caused by the
underestimation of reserves for workers' compensation, automobile and other
liability claims. In 1991, the Company reviewed and revised its process for
estimating reserves for losses and LAE, and in recent years the Company has
generally experienced overall redundancies. The redundancies December 31, 1998
of $9.0 million, $6.8 million and $3.9 million for the December 31, 1995, 1996
and 1997 reserves, respectively, were primarily attributable to favorable
development of IBNR and case reserves for personal automobile, commercial
automobile, automobile physical damage, and workers' compensation claims.
<TABLE>
<CAPTION>

                                                                                     Year Ended December 31,
                                                                                     -----------------------
         ($ in thousands)                                                    1998            1997            1996
                                                                             -----           -----           ----
         Reserve for unpaid losses and loss adjustment expenses:
<S>                                                                 <C>             <C>             <C>           
         Gross liability                                            $      174,435  $      156,622  $      141,220
         Reinsurance recoverable                                            30,908          29,054          26,837
                                                                    -----------------------------------------------
         Net liability                                               $     143,527  $      127,568  $      114,383
                                                                    ===============================================
         One year later:
         Gross reestimated liability                                                $      156,928  $      131,121
         Reestimated reinsurance recoverable                                                33,274          20,710
                                                                                   --------------------------------
         Net reestimated liability                                                  $      123,654  $      110,411
                                                                                   ================================
         Two years later:
         Gross reestimated liability                                                                $      130,601
         Reestimated reinsurance recoverable                                                                22,991
                                                                                                   ----------------
         Net reestimated liability                                                                  $      107,610
                                                                                                   ================
</TABLE>


     The Company believes that its reserves at December 31, 1998 are adequate.
Conditions and trends that have historically affected the Company's claims may
not necessarily occur in the future. Accordingly, it would not be appropriate to
extrapolate future deficiencies or redundancies based on the results set forth
above. Future adjustments to loss reserves and LAE that are unanticipated by the
Company could have a material adverse impact upon the Company's financial
condition and results of operations.

Investments

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

     At December 31, 1998, the Company had cash and invested assets with an
aggregate carrying value of $318.2 million. The Company primarily invests in
high quality fixed maturity securities and to a lesser extent, equity
securities. At December 31, 1998, 94.8% of the Company's total cash and invested
assets consisted of fixed maturities, 3.4% consisted of cash and short-term
investments, 1.7% consisted of equity securities, and the remainder consisted of
mortgage loans.

     Prior to September 1, 1997, the Company exclusively managed its invested
assets internally. During 1997, the Company retained the services of a
professional asset management firm, specializing in the management of
investments for insurance companies, to supplement its internal capabilities and
improve upon the management of its investments in fixed maturities. The
investment activities are subject to oversight by management of the Company as
well as an Investment Committee of the Board of Directors. The Company continues
to manage its equity securities, cash and short-term investments, and mortgage
loans internally.

     The Company actively manages and monitors its exposure to credit risk.
Invested assets are reviewed regularly for credit quality. Investments which
have experienced payment delinquencies, adverse changes in credit ratings or
deterioration in the financial condition of the borrower, or which have
otherwise been identified as having potential adverse credit implications are
placed on a credit watch report. Management and the investment committee on a
regular basis review securities placed on the credit watch list. At December 31,
1998, the Company had identified five securities, with an aggregate carrying
value of $6.0 million on the credit watch report. None of these securities were
considered non-performing or in default. In addition, Farm Family Casualty's
holdings of NAIC Class 3 through 6 bonds, generally considered non-investment
<PAGE>

grade, were $6.0 million or 2.0% of its fixed maturity portfolio, at December
31, 1998. Due to uncertainties in the economic environment, however, it is
possible that the quality of investments currently held in the Company's
investment portfolio may change.

     The average effective duration and average maturity of the Company's fixed
maturity investments as of December 31, 1998 were approximately 4.3 and 9.7
years, respectively. As a result, the market value of the Company's investments
may fluctuate significantly in response to changes in interest rates. In
addition, the Company may also be likely to experience investment losses to the
extent its liquidity needs require the disposition of fixed maturity securities
in unfavorable interest rate environments.

     For the year ended December 31, 1998, compared with the prior year, the
amortized cost of the Company's cash and invested assets increased 10.3% to
$303.2 million, primarily as a result of the cash flow from the Company's
operations. For the years ended December 31, 1998, 1997 and 1996, the Company's
net investment income, average cash and invested assets and return on average
cash and invested assets were as follows:
<TABLE>
<CAPTION>

                                                                                 Years Ended December 31,
                                                                                 ------------------------
         ($ in millions)                                                   1998             1997             1996
                                                                           ----             ----             ----
<S>                                                                       <C>              <C>              <C>  
Net investment income                                                     $19.1            $18.1            $16.0
Average cash and invested assets (at amortized cost)                     $289.1           $256.7           $212.0
Return on average cash and invested assets                                 6.6%             7.0%             7.5%
</TABLE>

     The return on average cash and invested assets is calculated by dividing
net investment income for the year by average cash and invested assets for the
year. The reduction in the return on average cash and invested assets during
1998 was primarily attributable to an overall reduction in the prevailing
interest rates as well as an increase in the Company's investment in tax exempt
fixed maturities. The Company's after-tax income has been increased by investing
in investment grade tax exempt securities, which generally produce more
after-tax investment income than taxable investment grade fixed maturity
securities.

<PAGE>



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

   ($ in thousands)                                                December 31, 1998           December 31, 1997
                                                                   ------------------          -----------------
Type of Investment                                            Amortized        Market     Amortized         Market
                                                                   Cost      Value(3)          Cost       Value(3)
                                                                   ----      --------          ----       --------
   Available For Sale Portfolio:
    Fixed Maturities(1)
        United States government and
<S>                                                             <C>           <C>           <C>            <C>    
        government agencies and authorities                     $14,754       $15,641       $18,905        $19,540
        States, municipalities and political subdivisions        98,354       103,189        51,166         54,007
        Public utilities                                         16,815        17,292        26,180         26,484
        All other corporate bonds                               112,532       118,305       127,056        132,416
        Mortgage-backed securities                               31,367        32,032        18,516         19,195
        Redeemable preferred stock                                6,302         6,661         7,161          7,557
                                                         ----------------------------------------------------------
          Total Fixed Maturities                                280,124       293,120       248,984        259,199
       Equity securities                                          3,356         5,323         3,363          4,521
                                                         ----------------------------------------------------------
          Total Available for Sale                              283,480       298,443       252,347        263,720
                                                         ----------------------------------------------------------
    Held to Maturity Portfolio:
       Fixed Maturities(2)
       States, municipalities and political subdivisions          4,278         4,257         4,603          4,683
       All other corporate bonds                                  4,112         4,395         4,252          4,511
                                                         ----------------------------------------------------------
          Total Held to Maturity                                  8,390         8,652         8,855          9,194
                                                         ----------------------------------------------------------
       Mortgage loans(1)                                            691           691         1,660          1,660
       Short-term investments(1)                                  4,638         4,638         5,643          5,643
       Other Invested Assets(1)                                       -             -           553            553
                                                         ----------------------------------------------------------
          Total Investments                                    $297,199      $312,424      $269,058       $280,770
                                                         ==========================================================
------------
</TABLE>

(1)  Fixed maturities (bonds, redeemable preferred stocks and mortgage-backed
     securities) and equity securities in the Available for Sale Portfolio are
     carried at market value in the consolidated financial statements of the
     Company. Mortgage loans, short-term investments and other invested
     assets are carried at cost, which approximates market value. 
2)   Fixed maturities in the Held to Maturity Portfolio are carried at amortized
     cost. 
(3)  The Company primarily obtains market value information through the pricing
     service offered by Interactive Data Corporation. Market values are also
     obtained, to a lesser extent, from various brokers who provide price
     quotes.
<PAGE>
     The Company's investments in fixed maturity securities are comprised
primarily of intermediate-term, investment grade securities. The table below
contains additional information concerning the investment ratings of the
Company's fixed maturity investments at December 31, 1998.
<TABLE>
<CAPTION>

                                                                           Amortized          Market
    Type/Ratings of Investment(1)                                            Cost             Value        Percentage(4)
    --------------------------                                               ----             -----        ----------
                                                                                         ($ in thousands)
    Available for Sale Portfolio:(2)
<S>                                                                          <C>              <C>                <C> 
       U.S. Government and Agencies                                          $18,204          $19,377            6.6%
       AAA                                                                    70,552           73,356           25.0%
       AA                                                                     53,580           55,434           18.9%
       A                                                                      71,422           76,671           26.2%
       BBB                                                                    60,836           63,148           21.5%
                                                                   ---------------------------------------------------
         Total BBB or Better                                                 274,594          287,986           98.2%
       BB                                                                      4,050            3,764            1.3%
       B and Below                                                             1,480            1,370            0.5%
                                                                   ---------------------------------------------------
         Total Available for Sale                                           $280,124         $293,120          100.0%
                                                                   ===================================================
    Held to Maturity Portfolio:(3)
       AAA                                                                $    2,890       $    2,944           34.0%
       AA                                                                      2,112            2,221           25.7%
       A                                                                       3,388            3,487           40.3%
       BBB                                                                         -                -            0.0%
                                                                   ---------------------------------------------------
         Total BBB or Better                                                   8,390            8,652          100.0%
       BB                                                                          -                -            0.0%
       B and Below                                                                 -                -            0.0%
                                                                   ---------------------------------------------------
         Total Held to Maturity                                               $8,390           $8,652          100.0%
                                                                   ===================================================
</TABLE>

(1)  The ratings set forth in this table are based on the ratings, if any,
     assigned by Standard & Poor's Corporation ("S&P"). If S&P's ratings were
     unavailable, the equivalent ratings supplied by Moody's Investors Services,
     Inc., Fitch Investors Service, Inc. or the NAIC were used where available.
     The percentage of securities that were not assigned a rating by S&P at
     December 31, 1998 was 2.9%.
(2)  Fixed maturities in the Available for Sale Portfolio are carried at market
     value in the consolidated financial statements of the Company. 
(3)  Fixed maturities in the Held to Maturity Portfolio are carried at amortized
     cost. 
(4)  Represents percent of market value for classification as a percent of total
     for each portfolio.
<PAGE>


     The table below sets forth the maturity profile of the Company's fixed
maturity investments as of December 31, 1998:
<TABLE>
<CAPTION>

    Maturity                                                          Amortized Cost(1)     Market Value(2)       Percentage
    --------                                                          -----------------     ---------------       ----------
    Available for Sale:                                                                     ($ in thousands)
<S>    <C>                                                               <C>                 <C>                       <C> 
       1 year or less                                                    $     7,511         $     7,566               2.6%
       More than 1 year through 3 years                                       10,400              10,917               3.7%
       More than 3 years through 5 years                                      44,372              46,147              15.7%
       More than 5 years through 10 years                                    140,863             146,792              50.1%
       More than 10 years through 15 years                                    29,812              32,002              10.9%
       More than 15 years through 20 years                                     3,749               4,084               1.5%
       More than 20 years                                                     12,050              13,580               4.6%
       Mortgage backed securities                                             31,367              32,032              10.9%
                                                               -------------------------------------------------------------
         Total                                                              $280,124            $293,120             100.0%
                                                               =============================================================

    Held to Maturity:
       1 year or less                                                     $      140          $      137               1.6%
       More than 1 year through 3 years                                          211                 202               2.3%
       More than 3 years through 5 years                                         247                 235               2.7%
       More than 5 years through 10 years                                      6,322               6,494              75.1%
       More than 10 years through 15 years                                     1,470               1,584              18.3%
       More than 15 years through 20 years                                        -                   -                 -
       More than 20 years                                                         -                   -                 - 
                                                               -------------------------------------------------------------
         Total                                                             $   8,390           $   8,652             100.0%
                                                               =============================================================
</TABLE>

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

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

     The stated maturity date of each fixed maturity investment is used to
determine the number of years to maturity. However, many of the Company's fixed
maturity investments are subject to call provisions that give the issuer the
option of redeeming the investment before its stated maturity date. Therefore
the actual maturity may be earlier than is shown in the table.

Information Services

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


A.M. Best Rating

     A.M. Best, which rates insurance companies based on factors of concern to
policyholders, currently assigns a Best's Rating of "A" (Excellent), its third
highest rating category, to Farm Family Casualty. A.M. Best assigns "A" or "A-"
ratings to companies, which, in its opinion, have demonstrated excellent overall
performance when, compared to the standards established by A.M. Best. Companies
rated "A" or "A-" have a strong ability to meet their obligations to
policyholders over a long period of time. In evaluating a company's financial
and operating performance, A.M. Best reviews the company's profitability,
leverage and liquidity, as well as the company's book of business, 
<PAGE>

the adequacy and soundness of its reinsurance, the quality and estimated market
value of its assets, the adequacy of its loss reserves, the adequacy of its
surplus, its capital structure, the experience and competency of its management
and its market presence. No assurance can be given that A.M. Best will not
downgrade the Company's current rating in the future.

Competition

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

Seasonality

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

Employees

     The Company shares most of its employees with Farm Family Life. As of
December 31, 1998, the total number of full time employees of the Company and
Farm Family Life was 461 employees in the aggregate, of which 324 were employed
in the home office. Based on annual time studies, 67% of total employee
expenses, including salary expense, is currently allocated to the Company and
33% is allocated to Farm Family Life and United Farm Family (see "Certain
Relationships and Related Transactions"). None of these employees are covered by
a collective bargaining agreement, and the Company believes that its employee
relations are good.

Effect of Regulation

     General

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

     Insurance companies are also affected by a variety of state and federal
legislative and regulatory measures and judicial decisions that define and
extend the risks and benefits for which insurance is sought and provided. These
include redefinitions of risk exposure in areas such as products liability,
environmental damage and workers' compensation. Certain state insurance
departments and legislatures may prevent premium rates for some classes of
insureds from reflecting the level of risk assumed by the insurer for those
classes. Several states place restrictions on the ability of insurers to
discontinue or withdraw from certain lines of insurance. Such developments may
adversely affect the profitability of various lines of insurance.

     Effective March 22, 1999, all insurers in New Jersey were required to
reduce personal automobile rates by approximately 15% pursuant to the Automobile
Insurance Cost Reduction Act of 1998 (The "Act"). The Company's direct premium
written for New Jersey personal automobile business in 1998 was $27.2 million
which was approximately 14.7% of its total direct written premium, for the year
ended December 31, 1998. The Act also made coverage and other changes to the
statutory requirements governing personal automobile insurance in New Jersey
which are intended to reduce losses, and loss adjustment expenses. The impact on
the Company's losses and loss adjustment expenses, if any, cannot be determined
at this time.
<PAGE>

Risk-Based Capital

     State insurance departments have adopted a methodology developed by the
NAIC for assessing the adequacy of statutory surplus of property and casualty
insurers which includes a risk-based capital formula that attempts to measure
statutory capital and surplus needs based on the risks in a company's mix of
products and investment portfolio. The formula is designed to allow state
insurance regulators to identify potential inadequately capitalized companies.
Under the formula, a company determines its "risk-based capital" ("RBC") by
taking into account certain risks related to the insurer's assets (including
risks related to its investment portfolio and ceded reinsurance) and the
insurer's liabilities (including underwriting risks related to the nature and
experience of its insurance business). The risk-based capital rules provide for
different levels of regulatory attention depending on the ratio of a company's
total adjusted capital to its "authorized control level" of RBC. Based on
calculations made by the Company, the risk-based capital level for the Company
exceeds a level that would trigger regulatory attention. At December 31, 1998,
the Company's total adjusted capital was $105.2 million, and the threshold
requiring the least regulatory attention was $15.5 million.

NAIC-IRIS Ratios

     The NAIC's Insurance Regulatory Information System ("IRIS") was developed
by a committee of state insurance regulators and is primarily intended to assist
state insurance departments in executing their statutory mandates to oversee the
financial condition of insurance companies operating in their respective states.
IRIS identifies 12 ratios for the property and casualty insurance industry and
specifies a range of "usual values" for each ratio. Departure from the "usual
value" range on four or more ratios may lead to increased regulatory oversight
from individual state insurance commissioners. The Company did not have any
ratios which varied from the "usual value" range in 1998, 1997, or 1996.

Risk Factors

     In addition to the normal risks of business, the Company is subject to
significant risk factors, including but not limited to: (i) the inherent
uncertainty in the process of establishing property-casualty loss reserves,
including reserves for the cost of pollution claims, and the fact that ultimate
losses could materially exceed established loss reserves and have a material
adverse effect on results of operations and financial condition; (ii) the
potential material adverse impact on its financial condition, results of
operations and cash flow of losses arising out of catastrophes; (iii) the fact
that the insolvency or inability of any reinsurer to meet its obligations to
Farm Family Casualty may have a material adverse effect on the business and
results of operations of the Company; (iv) the need for Farm Family Casualty to
maintain appropriate levels of statutory capital and surplus, particularly in
light of continuing scrutiny by rating organizations and state insurance
regulatory authorities, and to maintain acceptable financial strength and
claims-paying ability ratings; (v) the fact that there can be no assurance that
Farm Family Casualty will be able to maintain its current A.M. Best rating and
that the Company's business and results of operations could be materially
adversely affected by a rating downgrade; (vi) the fact that the property and
casualty market is highly competitive and certain of its competitors may have
substantially greater financial, technical and operating resources than the
Company; (vii) the extensive regulation and supervision to which Farm Family
Casualty is subject, various regulatory initiatives that may affect the Company,
and regulatory and other legal actions involving the Company; (viii) Farm Family
Holdings' primary reliance, as a holding company, on dividends and other
payments from Farm Family Casualty for funds to meet its obligations, and
regulatory restrictions on Farm Family Casualty to pay such dividends; (ix) the
inherent uncertainty in the economic environment which may cause the quality of
the investments currently held in the Company's investment portfolio to change;
(x) the impact on the revenues and profitability of the Company from prevailing
economic, regulatory, demographic and other conditions in New York, New Jersey
and the other states in which the company operates; (xi) the fact that since a
substantial portion of the Company's business is concentrated in a relatively
small number of states, a significant change in or the termination of the
Company's relationship with the Farm Bureaus in certain of these states could
have a materially adverse effect on the Company's results of operations and
financial condition; (xii) the fact that the Company has experienced, and can be
expected in the future to experience, storm and weather related losses which may
have a material adverse impact on the Company's results of operations, financial
condition and cash flow; (xiii) the impact of the Year 2000 related issues on
the business of the Company;, and (xiv) the impact of the mandated rate
reduction for New Jersey personal automobile business.
<PAGE>

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

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


<PAGE>
<TABLE>
<CAPTION>
Executive Officers of the Registrant
                                                                                         Date First Elected
                                                                                             Officer of
                                                                                           Registrant or
            Name               Age        Position Presently Held with Registrant            Subsidiary
-------------------------------------------------------------------------------------------------------------

<S>                             <C>                                                             <C> 
Philip P. Weber                 50  President & Chief Executive Officer                         1987
James J. Bettini                44  Executive Vice President - Operations                       1990
Victoria M. Stanton             39  Executive Vice President,                                   1991
                                    General Counsel and Secretary
Timothy A. Walsh                37  Executive Vice President - Finance and Treasurer            1996
William T. Conine               50  Senior Vice President - Information Services of             1985
                                    Farm Family Casualty Insurance Company
Stuart C. Henderson             43  Senior Vice President - Casualty Claims of Farm             1991
                                    Family Casualty Insurance Company
Daniel L. Hooker                35  Senior Vice President - Marketing of Farm Family            1998
                                    Casualty Insurance Company
Dale E. Wyman                   56  Senior Vice President - New York Sales of Farm              1989
                                    Family Casualty Insurance Company
</TABLE>



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

     Mr. Bettini currently serves as a Director of Ambanc Holding Co., Inc.

     The Registrant or its Subsidiary has employed all the Executive Officers of
the Registrant in various executive or administrative capacities for at least
five years, except for the following:

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

     Mr. Hooker has served as Senior Vice President - Marketing of Farm Family
Casualty since August 1998. Previously, Mr. Hooker held positions of Agent,
Associate Agency Manager, and Associate Regional Manager with Farm Family
Casualty from December 1992 to August 1998.

ITEM 2.  PROPERTIES
-------------------

     Farm Family Casualty currently leases space for its home office in
Glenmont, New York from Farm Family Life. The lease agreement provides for Farm
Family Casualty to pay Farm Family Life an annual rental of approximately
$781,000. In addition, Farm Family Holdings incurred annual rental expense of
approximately $37,000 pursuant to the Expense Sharing Agreement. See "Related
Party Transactions"
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS
--------------------------

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


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

     Farm Family Holdings' held a special meeting of Stockholders on December 2,
1998. At the meeting, (i) the Option Purchase Agreement (in effect prior to
Amendment No. 2) among Farm Family Holdings, Inc. and Farm Family Life was
approved and adopted, and (ii) the consummation of the transactions contemplated
in the Option Purchase Agreement (in effect prior to Amendment No. 2), including
the Company's acquisition of all the outstanding capital stock of Farm Family
Life was approved. The number of votes cast for, against or withheld, and the
number of abstentions with respect to each such matter is set forth below:
<TABLE>
<CAPTION>
                                                                 For           Against/Withheld         Abstained
                                                                 ---           ----------------         ---------
<S>                                                            <C>                  <C>                  <C>   
      Adoption of Option Purchase Agreement:                   2,720,331            19,287               37,844
      Approval of the consummation of the transactions
         contemplated in the Option Purchase Agreement         2,718,721            20,247               38,494

</TABLE>

     The Option Purchase Agreement was subsequently amended by Amendment No. 2.
The Company resolicited the approval of the revised terms of the acquisition
andat a Special Meeting of Stockholders held on March 25, 1999, the Option
Purchase Agreement, as amended by Amendment No. 2, and the acquisition of Farm
Family Life were approved by Farm Family Holdings' shareholders.



<PAGE>


                                     PART II
                                     -------

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

     The Company's common stock is traded on the New York Stock Exchange. There
were approximately 28,023 registered holders of the Company's common stock at
February 25, 1999. The Company currently intends to retain any earnings in order
to develop its business and support its operations, and, as such, does not
anticipate that it will pay any dividends to stockholders in the foreseeable
future. The declaration of dividends in the future is at the discretion of the
Board of Directors of the Company, subject to certain regulatory constraints and
will depend upon, among other things, the Company's results of operations,
financial condition, cash requirements, future prospects and other factors.

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

<TABLE>
<CAPTION>

For the Quarter Ended                          High              Low

<S>       <C> <C>                           <C> <C>          <C> <C>
September 30, 1996                          19  1/8          16  1/2
December 31, 1996                           20  1/2          18  1/8
March 31, 1997                              23  1/2          19  1/2
June 30, 1997                               27  7/8          22  1/8
September 30, 1997                          32  1/8          27  7/8
December 31, 1997                           32 9/16          29  1/4
March 31, 1998                              38  3/4          31  5/8
June 30, 1998                               42  5/8          38 9/16
September 30, 1998                          40  5/8          29  1/4
December 31, 1998                           38 3/16          28

</TABLE>
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------
The following table sets forth certain consolidated financial data of the
Company and its subsidiaries prior to and after the reorganization pursuant to
the Plan that took place during 1996. The consolidated statement of income data
set forth below for the years ended December 31, 1998, 1997, 1996, 1995 and 1994
and the consolidated balance sheet data as of December 31, 1998, 1997, 1996,
1995 and 1994 are derived from the consolidated financial statements of the
Company which have been audited by PricewaterhouseCoopers, independent auditors.
This data should be read in conjunction with Item 7 Management's Discussion and
Analysis of Financial Condition and Results of Operations as well as Item 8
Financial Statements and Supplementary Data included elsewhere herein.
<TABLE>
<CAPTION>
         ($ in millions except per share data)                                                  Year Ended December 31,
                                                                                                -----------------------
         Statement of Income Data:                                                 1998      1997        1996       1995       1994
                                                                                   ----      ----        ----       ----       ----
        Revenues:
<S>                                                                               <C>       <C>         <C>   
           Premiums                                                               $181.8    $149.2      $130.8     $116.9     $101.5
           Net investment income                                                    19.1      18.1        15.9       14.3       13.2
           Net realized investment gains (losses), net                               0.5       5.4        (0.6)       0.9        1.3
           Other income(1)                                                           1.0       1.0         0.9        0.9        0.7
                                                                                 ---------------------------------------------------
             Total revenues                                                        202.4     173.7        147.0      133.0     116.7
         Losses, Expenses and Other:
           Losses and loss adjustment expenses                                     134.3     103.3         95.0       83.2      82.7
           Underwriting expenses                                                    47.2      43.3         39.5       36.1      29.0
           Early retirement program expense                                            -         -          1.2          -         -
           Interest and other expense                                                0.3       0.4          0.5        0.3       0.3
                                                                                 ---------------------------------------------------
             Total losses and expenses                                             181.8     147.0        136.2      119.6     112.0
                Gain on partial reduction of extended earnings liability (2)        (6.3)        -            -          -         -
                                                                                 ---------------------------------------------------
             Total losses, expenses and other                                      175.5     147.0        136.2      119.6     112.0
                                                                                 ---------------------------------------------------
        Income before federal income tax and extraordinary item                     26.9      26.7         10.8       13.4       4.7
        Federal income tax expense                                                   8.3       9.2          3.3        4.6       1.4
                                                                                 ---------------------------------------------------
        Income before extraordinary item                                            18.6      17.5          7.5        8.8       3.3
        Extraordinary item - demutualization expense                                   -         -          1.5          -         -
                                                                                 ---------------------------------------------------
        Net income                                                                 $18.6     $17.5         $6.0       $8.8      $3.3
                                                                                 ===================================================
         Income before extraordinary item per share-basic                          $3.55     $3.33        $1.90      $2.95     $1.11
                                                                                 ===================================================
         Income before extraordinary item per share-diluted                        $3.52     $3.32        $1.90      $2.95     $1.11
                                                                                 ===================================================
         Net income per share-basic                                                $3.55     $3.33        $1.51      $2.95     $1.11
                                                                                 ===================================================
         Net income per share-diluted                                              $3.52     $3.32        $1.51      $2.95     $1.11
                                                                                 ===================================================
         Weighted average shares outstanding(3)                                  5,303,965 5,270,947  3,979,115  3,000,000 3,000,000
                                                                                 ===================================================
         Balance Sheet Data (at December 31):
           Total investments                                                      $312.2    $280.4       $244.7     $207.9    $170.6
           Total assets                                                            406.5     371.2        321.8      280.3     244.7
           Long term debt                                                              -       1.3          1.3        2.7       2.7
           Total liabilities                                                       262.3     248.0        216.8      210.9     195.7
           Total equity                                                            144.2     123.2        105.0       69.4      49.0
         Book value per share                                                     $27.45    $23.46       $20.00     $23.13   $16.32
                                                                                 ===================================================
         GAAP Ratios:
         Loss and loss adjustment expense ratio(4)                                  73.9%     69.3%        72.6%      71.1%    81.5%
         Underwriting expense ratio(5)                                              26.0%     29.0%        30.2%      30.9%    28.6%
         Combined ratio(6)                                                          99.9%     98.3%       102.8%     102.0%   110.1%
         Statutory Ratios:
         Statutory Combined Ratio(7)                                                98.4%     95.6%       101.8%     101.0%   108.9%
         Statutory Surplus                                                        $105.2     $94.6        $83.2      $55.9    $42.9
           Ratio of annual written premiums to  surplus -  Statutory basis(8)      1.80x     1.68x        1.61x      2.16x   2.46x
</TABLE>
-------------------------------------------------------------------------------
(1)  Primarily represents service fee income on the Company's property and
     casualty insurance business. 
(2)  The Company recorded a gain of $6.3 million on the partial reduction of its
     extended earnings liability during the year ended December 31, 1998, which
     was the result of modifications made to the agreements with the Company's
     agents and agency managers that relieved the Company of the primary
     obligation to make extended earnings payments.
(3)  Gives effect to the allocation of 3,000,000 shares to eligible
     policyholders on July 26, 1996 pursuant to Farm Family Casualty's
     conversion from a mutual company to a stockholder owned company. 
(4)  Calculated by dividing losses and loss adjustment expenses by premiums. 
(5)  Calculated by dividing underwriting expenses by premiums. 
(6)  The sum of the Loss and Loss Adjustment Expense Ratio and the Underwriting
     Expense Ratio.
(7)  The sum of the Loss & Loss Adjustment Expense Ratio and the ratio of
     statutory underwriting expense divided by net written premium 
(8)  Calculated by dividing statutory net written premiums for the period by
     statutory surplus at the end of the period.
<PAGE>

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


The "Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 14 - 23 of the Company's 1998 Annual Report is incorporated
herein by reference.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
---------------------------------------------------------------------

The Quantitative and Qualitative Disclosures about Market Risk under the caption
"Market Sensitive Instruments and Risk Management" on page 16 of the Company's
1998 Annual Report is incorporated herein by reference.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

The consolidated financial statements of the Company, including the accompanying
notes to the consolidated financial statements and Report of Independent
Accountants on pages 24 - 44 of the Company's 1998 Annual Report are
incorporated herein by reference.

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

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

                                    PART III
                                    --------

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------

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

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

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

ITEM 11.   EXECUTIVE COMPENSATION
---------------------------------

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------

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

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
---------------------------------------------------------

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

<PAGE>
                                     PART IV
                                     -------

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


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

               (a)  3 Exhibits:

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

               (b)  Reports on Form 8-K:

                    On October 27, 1998, a Report on Form 8-K was filed
                    regarding a press release announcing the results of its
                    operations for the three months and the nine months ended
                    September 30, 1998 and that the Board of Directors approved
                    the exercise of the Company's option to acquire Farm Family
                    Life Insurance Company.

                    On December 3, 1998, a Report on Form 8-K was filed
                    regarding a press release announcing that on December 2,
                    1998 at a Special Meeting of Stockholders, the Company's
                    stockholders voted to approve and adopt an Amended and
                    Restated Option Purchase Agreement, and to approve the
                    Company's acquisition of all of the outstanding capital
                    stock of the Farm Family Life Insurance Company.

                    On December 23, 1998, a Report on Form 8-K was filed
                    regarding a press release announcing that a committee of its
                    independent directors and a committee representing the
                    shareholders of Farm Family Life Insurance Company have
                    negotiated the terms of an amendment of the Option Purchase
                    Agreement pursuant to which Farm Family Holdings, Inc.
                    proposes to acquire Farm Family Life Insurance Company.


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

                           FARM FAMILY HOLDINGS, INC.


                    By: /s/ Philip P. Weber Philip P. Weber, President
                        -------------------
                        March 31, 1999

<PAGE>
                                   SIGNATURES

Pursuant to the requirements of Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
  
<S>                                  <C>                                          <C>                          <C>
                                     President  and CEO
/s/ Philip P. Weber                 (Principal Executive Officer)                 /s/ Arthur D. Keown, Jr.     Director
------------------------------------                                              -----------------------------
Philip P. Weber                     February 25, 1999                             Arthur D. Keown, Jr.         February 25, 1999

                                    Executive Vice President - Finance & Treasurer                                    
/s/ Timothy A. Walsh                (Principal Financial & Accounting Officer)    /s/ Daniel R. LaPointe       Director
------------------------------------                                              -----------------------------
Timothy A. Walsh                    February 25, 1999                             Daniel R. LaPointe           February 25, 1999


/s/ Robert L. Baker                 Director                                      /s/ John W. Lincoln          Director
------------------------------------                                              -----------------------------
Robert L. Baker                     February 25, 1999                             John W. Lincoln              February 25, 1999


/s/ Wayne R. Bissonette             Director                                      /s/  Wayne A. Mann           Director
------------------------------------                                              -----------------------------
Wayne R. Bissonette                 February 25, 1999                             Wayne A. Mann                February 25, 1999


/s/ Randolph C. Blackmer, Jr.       Director                                      /s/  Frank W. Matheson       Director
------------------------------------                                              -----------------------------
Randolph C. Blackmer, Jr.           February 25, 1999                             Frank W. Matheson            February 25, 1999


/s/ Fred G. Butler, Sr.             Director                                      /s/ John P. Moskos           Director
------------------------------------                                              -----------------------------
Fred G. Butler, Sr.                 February 25, 1999                             John P. Moskos               February 25, 1999


/s/ Joseph E. Calhoun               Director                                      /s/ Norma R. O'Leary         Director
------------------------------------                                              -----------------------------
Joseph E. Calhoun                   February 25, 1999                             Norma R. O'Leary             February 25, 1999


/s/ James V. Crane                  Director                                      /s/ John I. Rigolizzo, Jr.   Director
------------------------------------                                              -----------------------------
James V. Crane                      February 25, 1999                             John I. Rigolizzo, Jr.       February 25, 1999


/s/ Stephen J. George               Director                                      /s/ Howard T. Sprow          Director
------------------------------------                                              -----------------------------
Stephen J. George                   February 25, 1999                             Howard T. Sprow              February 25, 1999


/s/ Gordon H. Gowen                 Director                                      /s/ William M. Stamp, Jr.    Director
------------------------------------                                              -----------------------------
Gordon H. Gowen                     February 25, 1999                             William M. Stamp, Jr.        February 25, 1999


/s/ Jon R. Greenwood                Director                                      /s/ Charles A. Wilfong       Director
------------------------------------                                              -----------------------------
Jon R. Greenwood                    February 25, 1999                             Charles A. Wilfong           February 25, 1999


/s/ Clark W. Hinsdale III           Director                                      /s/ Tyler P. Young           Director
------------------------------------                                              -----------------------------
Clark W. Hinsdale III               February 25, 1999                             Tyler P. Young               February 25, 1999


/s/ Richard A. Jerome               Director
------------------------------------
Richard A. Jerome                   February 25, 1999

</TABLE>

<PAGE>

                   FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
         INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
                          Year Ended December 31, 1998

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

                                                                    Page in
                                                                  Annual Report
                                                                  -------------

Consolidated Statements of Income and Comprehensive Income             24

Consolidated Balance Sheets                                            25

Consolidated Statements of Stockholders' Equity                        26

Consolidated Statements of Cash Flows                                  27

Notes to Consolidated Financial Statements                             28

Report of Independent Accountants                                      44


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


                                                                      Page
                                                                      ----
Report of Independent Accountants                                       II

Schedule I    Summary of Investments - Other than Investments 
               in Related Parties                                      III

Schedule II   Condensed Financial Information of the Registrant       IIII

Schedule IV   Reinsurance                                             VIII

Schedule VI   Supplemental Information Concerning
              Property - Casualty Insurance Operations               VIIII



<PAGE>

                                             Report of Independent Accountants



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



Our audits of the consolidated  financial  statements  referred to in our report
dated  February  10,  1999,  appearing  on page 44 of the 1998 Annual  Report to
Shareholders of Farm Family Holdings,  Inc. and  Subsidiaries  (which report and
consolidated  financial  statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the financial statement schedules
listed in Item  14(a)(2)  of this Form 10-K.  In our  opinion,  these  financial
statement  schedules present fairly, in all material  respects,  the information
set  forth  therein  when  read in  conjunction  with the  related  consolidated
financial statements.





Albany, New York
February 10, 1999
<PAGE>
<TABLE>
<CAPTION>


                   FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
                       SCHEDULE 1 - SUMMARY OF INVESTMENTS
                    OTHER THAN INVESTMENTS IN RELATED PARTIES
                                DECEMBER 31, 1998
($ in thousands)
                                                                             Cost/
                                                                           Amortized               Balance Sheet
Type of Investment                                                            Cost       Fair Value          Carrying Value
------------------                                                           ----        ----------          --------------

  Available for sale
    Fixed maturities:
         United States Government and government agencies  and
<S>                                                                            <C>             <C>                <C>    
           authorities                                                         $14,754         $15,641            $15,641
         States, municipalities and political subdivisions                      98,354         103,189            103,189
         Public utilities                                                       16,815          17,292             17,292
         All other corporate bonds                                             112,532         118,305            118,305
         Mortgage-backed securities                                             31,367          32,032             32,032
         Redeemable preferred stock                                              6,302           6,661              6,661
                                                                        --------------------------------------------------
           Total fixed maturities                                              280,124         293,120            293,120
                                                                        --------------------------------------------------
    Equity securities:
       Common stocks:
         Public utilities                                                        1,219           1,889              1,889
         Banks, trusts and insurance companies                                     169             340                340
         Industrial and miscellaneous                                            1,968           3,094              3,094
                                                                        --------------------------------------------------
           Total equity securities                                               3,356           5,323              5,323
                                                                        --------------------------------------------------
           Total available for sale                                            283,480         298,443            298,443
                                                                        --------------------------------------------------  
  Held to maturity
       Fixed maturities:        
         States, municipalities and political subdivisions                       4,278           4,257              4,278
         All other Corporate bonds                                               4,112           4,395              4,112
                                                                        --------------------------------------------------
           Total held to maturity                                                8,390           8,652              8,390
                                                                        --------------------------------------------------
  Mortgage loans                                                                   691             691                691
  Short-term investments                                                         4,638           4,638              4,638
                                                                        --------------------------------------------------
           Total investments                                                  $297,199        $312,424           $312,162
                                                                        ==================================================

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

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

                                                                                     For the Year Ended
                                                                                         December 31,
       Revenues:                                                                      1998         1997
                                                                                      ----         ----
<S>                                                                                   <C>          <C>                          
          Investment income                                                           $518         $608                       
          Realized gains                                                                 3            -                       
                                                                                   ------------------------
          Total revenues                                                               521          608

       Expenses:
          General and administrative expenses                                        1,403        1,347
                                                                                   ------------------------
       Loss before federal income tax benefit                                         (882)        (739)

       Federal income tax benefit                                                      306          125                       
                                                                                   ------------------------
       Net loss from operations                                                       (576)        (614)

       Income from investments in subsidiaries                                        19,247      18,114
                                                                                   ------------------------

       Net income                                                                     18,671       17,500
                                                                                   ------------------------

       Other Comprehensive Income:
          Unrealized holding gain (loss) arising during the year (net of
             Deferred tax expense (benefit) of $1,046 and $(1,255))                    1,943       (2,329)
           Reclassification adjustment for gains included in net income              
              (net of tax expense of $211 and $1,622)                                    390        3,011                         
                                                                                   ------------------------
       Other comprehensive income                                                      2,333          682
                                                                                   ------------------------
       Comprehensive income                                                          $21,004      $18,182
                                                                                   ========================

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

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

                                                                                          As of December 31,
Assets:                                                                                   1998          1997
                                                                                          ----          ----
<S>                                                                                     <C>           <C>   
   Fixed maturities available for sale                                                  $7,436        $7,567
   Investment in subsidiaries                                                          135,059       113,519
   Short-term investments                                                                  150         1,808
   Cash                                                                                      6             1
   Investment income due or accrued                                                        145           157
   Other assets                                                                          2,387           947
                                                                                  ---------------------------
     Total Assets                                                                     $145,183      $123,999
                                                                                  ===========================
Liabilities:
   Payable to affiliates                                                                  $129          $192
   Deferred tax liability                                                                   72            25
   Other liabilities                                                                       744           548
                                                                                  ---------------------------
     Total Liabilities                                                                     945           765
                                                                                  ---------------------------

Commitments and Contingencies
Stockholders' Equity:
   Common stock, $.01 par value, 10,000,000 shares authorized
          and 5,253,813 shares issued and outstanding                                       53            53
   Additional paid in capital                                                           92,906        92,906
   Retained earnings                                                                    41,554        22,883
   Accumulated other comprehensive income                                                9,725         7,392
                                                                                  ---------------------------
     Total Stockholders' Equity                                                        144,238       123,234
                                                                                  ---------------------------
     Total Liabilities and Stockholders' Equity                                       $145,183      $123,999
                                                                                  ===========================
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

                   FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
                                   SCHEDULE II
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF CASH FLOWS
                                ($ in Thousands)
                                                                                  For the Year Ended 
                                                                                      December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:                                              1998           1997
-------------------------------------                                              -----          ----
<S>                                                                              <C>            <C>    
   Net income                                                                    $18,671        $17,500

   Realized investment gains                                                          (3)
   Amortization of bond discount                                                     (18)           (17)
   Deferred income taxes                                                              (8)           (31)
   Changes in:
       Equity in net income of subsidiaries                                      (19,247)       (18,114)
       Accrued investment income                                                      12             (5)
       Other assets, net                                                          (1,440)          (716)
       Payable to affiliates                                                         (63)          (164)
       Other liabilities                                                             195             75
                                                                           ------------------------------
   Total adjustments                                                             (20,572)       (18,972)
                                                                           ------------------------------
   Net Cash Used in Operating Activities                                          (1,901)        (1,472)
                                                                           ------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from Sales:
       Fixed maturities available for sale                                           303              -
   Investment Purchases:
       Investment in subsidiary                                                      (55)           (70)
       Fixed maturities available for sale                                             -              -
       Change in short-term investments                                            1,658          1,542
                                                                           ------------------------------
   Net Cash Provided by Investing Activities                                       1,906          1,472
                                                                           ------------------------------
   Net Change in Cash                                                                  5              -
Cash, beginning of year                                                                1              1
                                                                           ------------------------------
Cash, end of year                                                                     $6             $1
                                                                           ==============================
</TABLE>
<PAGE>


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


Basis of Presentation

The financial statements of the registrant should be read in conjunction with
the Consolidated Financial Statements and notes thereto included in the Farm
Family Holdings, Inc. 1998 Annual Report.

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


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

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

Year Ended December 31, 1998
<S>                                            <C>               <C>             <C>        <C>            <C> 
Property/Casualty Insurance                    $180,996          $13,277         $14,037    $181,756       7.7%

Year Ended December 31, 1997
Property/Casualty Insurance                     160,988           22,454          10,686     149,220       7.2
                                                                                                     

Year Ended December 31, 1996
Property/Casualty Insurance                     142,794           18,945           6,931     130,780       5.3
                                                                                                     
</TABLE>
<PAGE>

<TABLE>
<CAPTION>


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

                                                                                                   
                            Reserve for                                                            Amortization  Paid
                  Deferred  Unpaid Claims                                 Claim & Claim Adjustment of Deferred  Claims     Premium
                   Policy     & Claim     Discount                     Net     Expense Incurred       Policy     & Claim    Written,
                 Acquisition Adjusmtent   if any, Unearned Earned   Investment     Related to      Acquisition  Adjustment  Net of
                    Cost     Expense    Deducted  Premiums Premiums  Income  Current Year Prior Years  Costs    Expense  Reinsurance
                    ----     -------    --------  -----------------  ------  ------------------------  -----    -------  -----------
 
Type of Coverage and Affiliation with Registrant
Year Ended
December 31, 1998
Property and
<S>                 <C>      <C>                  <C>     <C>       <C>       <C>        <C>          <C>      <C>        <C>     
Casualty business   $13,668  $174,435       -     $71,209 $181,756  $19,119   $138,201   $(3,899)     $35,019  $118,343   $188,824
Year Ended
December 31, 1997
Property and
Casualty business    12,613   156,622       -      66,069  149,220   18,077    107,273    (3,972)      28,794    90,116    159,245
Year Ended
December 31, 1996
Property and
Casualty business    10,682   141,220       -      55,945  130,780   15,952    100,418    (5,441)      26,348    89,917    133,844

</TABLE>
<PAGE>

                                                      
                                  EXHIBIT INDEX
                                  -------------

                      FARM FAMILY HOLDINGS, INC. FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 1998
Sequential
Page Number
Exhibit Number    Document Description
--------------    --------------------

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

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

*3.2                Bylaws of Farm Family Holdings, Inc.

 4.1                Rights Agreement, dated as of July 29, 1997, between the
                    Company and The Bank of New York (incorporated by reference
                    to Exhibit 4.1 to the Company's Current Report of Form 8-K
                    filed with the Securities and Exchange Commission on July
                    30, 1997)

10.1                Amended and Restated Option Purchase Agreement, dated
                    February 26, 1998 among Farm Family Holdings, Inc. and the
                    Shareholders of Farm Family Life Insurance Company, as
                    amended by Amendment No. 1 dated as of April 28, 1998 and
                    Amendment No. 2 dated as of January 14, 1999 (Incorporated
                    by reference to the Proxy Statement of Farm Family Holdings,
                    Inc. dated February 17, 1999)

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

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

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

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

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


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

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

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

 10.12              Farm Family Life Insurance Company, Farm Family Casualty
                    Insurance Company, Farm Family Holdings, Inc. Officer
                    Severance Pay Plan Effective October 27, 1998

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

 10.14              Farm Family Holdings, Inc. Directors' Deferred Compensation
                    Plan, effective January 1, 1997 (Incorporated by reference
                    to Farm Family Holdings, Inc. Form 10-K for the year ended
                    December 31, 1996) as amended by Amendment No. 1 dated as of
                    October 27, 1998 Farm Family Holdings, Inc. Officers'
                    Deferred Compensation Plan, effective January 1, 1997

10.15               (Incorporated by reference to Farm Family Holdings, Inc.
                    Form 10-K for the year ended December 31, 1996) as amended
                    by Amendment No. 1 dated as of October 27, 1998
  
10.16               Farm Family Holdings, Inc. Annual Incentive Plan effective,
                    as amended and restated as of October 27, 1998
  
10.17               Farm Family Supplemental Profit Sharing and Money Purchase
                    Plan effective January 1, 1997 **10.18 Tax Payment
                    Allocation Agreement effective January 1, 1996 by and
                    between Farm Family Holdings, Inc. and Farm Family Casualty
                    Insurance Company
   
10.19               Excess Catastrophe Reinsurance Contract issued to Farm
                    Family Casualty Insurance Company effective January 1, 1997
                    (Incorporated by reference to Farm Family Holdings, Inc.
                    Form 10-Q for the quarter ended March 31, 1997)
   
10.20               Farm Family Holdings, Inc. Omnibus Securities Plan, as
                    amended by Amendment No. 1 dated February 13, 1997
                    (Incorporated by reference to the Proxy Statement of Farm
                    Family Holdings, Inc. dated March 7, 1997) as amended by
                    Amendment No. 2 dated as of October 27, 1998

   13             Farm Family Holdings, Inc. 1998 Annual Report       iii
                                                        
   21             Subsidiaries of the Registrant                     xxxv
                                                

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

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

<PAGE>

Exhibit 10.12
                            SUMMARY PLAN DESCRIPTION

                       FARM FAMILY LIFE INSURANCE COMPANY
                     FARM FAMILY CASUALTY INSURANCE COMPANY
                           FARM FAMILY HOLDINGS, INC.

                           OFFICER SEVERANCE PAY PLAN
                           Effective October 27, 1998

Purpose

Farm Family Life Insurance Company (hereinafter referred to as "Life"), Farm
Family Casualty Insurance Company (hereinafter referred to as "Casualty") and
Farm Family Holdings, Inc. (hereinafter referred to as "Holdings") have adopted
a severance pay plan effective August 1, 1994, as amended July 29, 1997, July
28, 1998 and as further amended October 27, 1998, the purpose of which is to
provide financial benefits to officers of Life, Casualty or Holdings who lose
their positions under Severance Qualifying Conditions.

Eligible Officers

All officers of Life, Casualty and Holdings (each of such companies a "Company"
and collectively, the "Companies") are eligible for severance benefits under
this plan.

Definitions

  1.  Cause: An officer's:

     (a)  felony conviction or the failure of an officer to contest prosecution
          for a felony;

     (b)  willful misconduct or dishonesty, any of which is directly and
          materially harmful to the business or reputation of Life, Casualty or
          Holdings;

     (c)  theft, participation in any material fraudulent conduct, or other acts
          involving material misappropriation of property;

     (d)  habitual drunkenness or habitual drug abuse;

     (e)  material and willful disclosure of any confidential information;

     (f)  unlawful discrimination and/or unlawful sexual harassment by an
          officer;

     (g)  serious breach of Life's, Casualty's or Holding's policies; or

     (h)  continuing inattention to or continuing neglect of the duties to be
          performed by an officer which inattention or neglect is not the result
          of illness or accident.


<PAGE>


2. Change in Control: A change in control of Life, Casualty or Holdings of a
nature that would be required to be reported in response to Item 6(e) of
schedule 14A of Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), whether or not Life, Casualty or Holdings is
subject to the Exchange Act at such time; provided, however, that without
limiting the generality of the foregoing, a Change in Control will in any event
be deemed to occur if and when:

     (a)  any person (as such term is used in paragraphs 13(d) and 14(d)(2) of
          the Exchange Act, hereinafter in this definition, "Person"), other
          than Life, Casualty or Holdings, or a subsidiary of Life, Casualty or
          Holdings or employee benefit plan of Life, Casualty or Holdings,
          becomes the beneficial owner (as defined in Rule 13d-3 under the
          Exchange Act), directly or indirectly of twenty percent (20%) or more
          of the common stock of Life, Casualty, or Holdings then outstanding;

     (b)  stockholders approve a merger, consolidation or other business
          combination (a "Business Combination") other than a Business
          Combination in which holders of common stock of Life, Casualty or
          Holdings immediately prior to the Business Combination have
          substantially the same proportionate ownership of common stock of the
          surviving corporation immediately after the Business Combination as
          immediately before;

     (c)  stockholders approve either (i) an agreement for the sale or
          disposition of all or substantially all of Life's, Casualty's, or
          Holding's assets to any entity that is not a subsidiary of one of said
          Companies, or (ii) a plan of complete liquidation; or

     (d)  the persons who were members of the Board of Directors immediately
          before a tender offer by any Person other than Life, Casualty or
          Holdings or a subsidiary of Life, Casualty or Holdings, or before a
          merger, consolidation or contested election, or before any combination
          of such transactions, cease to constitute a majority of the Board of
          Directors as a result of such transaction or transactions.

Provided, however, that the acquisition of Life by Holdings pursuant to the
Amended and Restated Option Purchase Agreement dated as of February 26, 1998 by
and among Holdings and the shareholders of Life, as amended by Amendment No. 1
to Amended and Restated Option Purchase Agreement dated as of April 28, 1998, as
the same may be further amended from time to time, shall not constitute a Change
in Control hereunder.

3. Good Reason: "Good Reason" for termination of employment by the Eligible
Officer shall mean the occurrence (without the Eligible Officer's express
written consent) after a Change in Control of any one or more of the following
unless such act is remedied by the Companies within ten (10) business days after
receipt of written notice thereof given by the Eligible Officer:


<PAGE>


     (i)  the assignment of the Eligible Officer to duties materially
          inconsistent with the Eligible Officer's authorities, duties,
          responsibilities and status (including offices, titles and reporting
          requirements) as an executive and/or officer of any Company or a
          material reduction or alteration in the nature or status of the
          Eligible Officer's authorities, duties or responsibilities from those
          in effect as of ninety (90) days prior to the Change in Control;

     (ii) a reduction of the Eligible Officer's base salary in effect on the
          Effective Date hereof or as the same shall be increased from time to
          time, unless such reduction is less than ten percent (10%) and is
          either (a) replaced by an incentive opportunity equal in value or is
          (b) consistent and proportional with an overall reduction in
          management compensation (i.e., the base salary of the Eligible Officer
          will not be singled out for reduction in a manner inconsistent to a
          reduction imposed on other executives of the Companies);

     (iii)the failure of any Company to continue in effect any of the Company's
          annual and long-term incentive compensation plans or employee benefit
          or retirement plans, policies practices or other compensation
          arrangements (collectively the "Compensation Arrangements") in which
          the Eligible Officer participates unless such failure to continue the
          plan, policy, practice or arrangement pertains to all plan
          participants generally and the lost value is being replaced by a new
          plan, policy, practice or arrangement of reasonably equivalent value;
          or the failure by the Company to continue the Eligible Officer's
          participation in the Compensation Arrangements on substantially the
          same basis, both in terms of the amount of benefits provided and the
          level of the Eligible Officer's participation relative to other
          participants, as existed immediately prior to the Change in Control;

     (iv) the permanent relocation of the principal place of the Eligible
          Officer's employment to a location that is more than fifty (50) miles
          from the location of the principal place of the Eligible Officer's
          employment on the date immediately prior to the Change in Control; or

     (v)  the failure of a Company to obtain an agreement, in form and substance
          reasonably satisfactory to the Eligible Officer, from any acquirer of
          or successor to such Company to expressly assume and agree to
          discharge the Company's obligations to the Eligible Officer under this
          Officer Severance Pay Plan.

The Eligible Officer's right to terminate employment for Good Reason shall not
be affected by the Eligible Officer's incapacity due to physical or mental
illness. The Eligible Officer's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstance constituting
Good Reason herein; provided, however, that the Eligible Officer must provide
notice of termination of employment within ninety (90) days following the
Eligible Officer's knowledge of an event constituting Good Reason or such event
shall not constitute Good Reason hereunder.


<PAGE>


4. Salary: The sum of (i) the highest rate of wages, salaries and fees for
professional services, and other amounts received by the officer for personal
services actually rendered in the course of employment with the Companies within
the last two years, on an annualized basis and (ii) the highest Target Award
Opportunity established for the officer under each of the Company's Annual
Incentive Plan within the last two years. Salary does include taxable
reimbursements or other expense allowances, fringe benefits (cash and non cash),
and moving expenses. Salary does not include:

     (a)  any distribution from a plan of deferred compensation;

     (b)  amounts realized from the exercise of a non qualified stock option, or
          when restricted stock (or property) held by an officer either becomes
          freely transferable or is no longer subject to substantial risk of
          forfeiture; and

     (c)  amounts realized from the sale, exchange or other disposition of stock
          acquired under a qualified stock option.

5. Year of Service: A period of 12 months during which the individual is an
officer and/or employee of Life, Casualty or Holdings, excluding any service as:

     (a)  A leased employee;

     (b)  An independent contractor; or

     (c)  An employee or agent of the Company compensated pursuant to an agent's
          training allowance program, agent's, independent agent's, regional
          manager's contract or other contract of the same general character

Severance Qualifying Conditions

An Eligible Officer whose employment with Life, Casualty or Holdings is
terminated, is eligible for severance benefits, if his or her employment is
terminated under the following conditions ("Severance Qualifying Conditions"):

  1.  The officer's employment with Life, Casualty or Holdings  is

     (a)  involuntarily terminated other than for cause;

     (b)  terminated due to the elimination of the officer's position and the
          officer is not offered another position of comparable responsibility
          and compensation with Life, Casualty or Holdings ("Elimination of
          Position Termination");

     (c)  terminated due to a Change in Control of Life, Casualty or Holdings
          and the officer is not offered a position of comparable responsibility
          and compensation by the acquiring or resulting company ("Change in
          Control Termination");


<PAGE>


     (d)  terminated by the officer for Good Reason ("Termination for Good
          Reason"); or

     (e)  in the case of the Chief Executive Officer or an Executive Vice
          President, terminated by the officer within 30 days following the
          first anniversary of a Change in Control ("Change in Control
          Anniversary Termination"); AND

2. The officer executes a release of all claims against Life, Casualty and
Holdings acceptable to Life, Casualty and Holdings.

The termination of an officer's employment with Life, Casualty or Holdings, for
any of the following reasons shall not be treated as a Severance Qualifying
Condition:

     If an officer resigns, abandons his or her job, fails to return from an
     approved leave of absence or initiates termination on any similar basis
     other than pursuant to Elimination of Position Termination, Change in
     Control Termination, Termination for Good Reason or Change in Control
     Anniversary Termination;

      If an officer is terminated for Cause.

An Eligible Officer wishing to terminate employment with the Companies pursuant
to Subsection 1(c), 1(d) or 1(e) of the Severance Qualifying Conditions set
forth above shall provide written notice thereof to the Vice President - Human
Resources or, in the case of such notice given by the Vice President - Human
Resources, to the Chief Executive Officer of the Companies. Such written notice
shall set forth (i) the specific Severance Qualifying Event relied upon, (ii)
the facts and circumstances claimed to provide a basis for termination pursuant
to such Severance Qualifying Event; and (iii) the date of termination (which
date shall not be less than fifteen (15) nor more than sixty (60) days after the
giving of such notice).

The decision of whether an officer's termination is a Severance Qualifying
Condition shall be determined solely at the Companies' discretion.

Policy

In the event that an Eligible Officer becomes eligible to receive severance
benefits as a result of meeting the Severance Qualifying Conditions set forth
above, the Companies shall pay to the Eligible Officer and provide him or her
with severance benefits equal to the following:

     1.   A lump sum amount equal to the Eligible Officer's unpaid salary,
          accrued vacation pay, unreimbursed business expenses and all other
          items earned by and owed to the Eligible Officer through and including
          the effective date of employment termination.

  2. The greater of:

      (a) one week's Salary for each Year of Service or


<PAGE>


     (b)  (i)  36 months Salary in the case of the Chief Executive Officer;
          (ii) 24 months Salary in the case of an Executive Vice President;
          (iii)12 months Salary in the case of a Senior Vice President; and 
          (iv)  6 months Salary in the case of any officer other than the Chief
               Executive Officer, ExecutivE Vice Presidents, and Senior Vice
               Presidents

3. A lump sum amount equal to the amount, if any, to which the Eligible Officer
is entitled to receive under each of the Companies Annual Incentive Plans. This
amount, if any, shall be paid to the Eligible Officer pursuant to the applicable
Annual Incentive Plan(s).

4. A continuation for the period set forth in the applicable subsection of
paragraph 2(b) of this Section of the Eligible Officer's medical, dental, group
term life and disability insurance coverages. These benefits shall be provided
by the Companies, to the extent permitted under the terms of such plans and
applicable law, to the Eligible Officer beginning immediately upon the effective
date of termination. Such benefits shall be provided at the same premium cost to
the Eligible Officer, if any, and at the same coverage level, as in effect as of
the Eligible Officer's effective date of termination. To the extent that the
Companies are unable to provide for continuation of such benefits pursuant to
the terms of such plans and applicable law, the Companies shall provide an
equivalent benefit to the Eligible Officer.

Notwithstanding the above, these insurance benefits shall be discontinued prior
to the end of the stated continuation period in the event the Eligible Officer
receives substantially similar benefits from a subsequent employer, as
determined solely by the Plan Administrator in good faith. For purposes of
enforcing this offset provision, the Eligible Officer shall be deemed to have a
duty to keep the Vice President - Human Resources informed as to the terms and
conditions of any subsequent employment and the corresponding benefits earned
from such employment and shall provide, or cause to provide, to the Vice
President - Human Resources in writing correct, complete and timely information
concerning the same.

5. The Eligible Officer shall be entitled, at the expense of the Companies, to
receive standard outplacement services from a nationally recognized outplacement
firm of the Companies' selection, for a period of up to two (2) years from the
effective date of termination. Such services shall be at the Companies' expense
to a maximum amount of twenty percent (20%) of the Eligible Officer's annual
rate of base salary as of the effective date of termination.

Any bonuses or performance or merit reviews that are pending or in process shall
not affect the amount of any officer's severance benefits.

In the event an officer becomes eligible for severance benefits pursuant to this
Officer Severance Pay Plan due to a Severance Qualifying Event with respect to
Life, Casualty or Holdings or any combination of the Companies less than all
three of the Companies, then Salary shall include only the amount of Salary
which would be allocated to the company for which there is a Severance
Qualifying Event for the Eligible Officer pursuant to the Amended and Restated
Expense Sharing Agreement dated February 14, 1996 or any successor agreement
thereto.


<PAGE>


The decision of how benefits will be paid will be made by the Companies in their
sole discretion. The Companies will pay all benefits under this plan from their
general assets.

Certain Additional Payments by the Companies

In the event it shall be determined that any payment, award, benefit or
distribution (or any acceleration of any payment, award, benefit or
distribution) by the Companies (or any of their affiliated entities) or any
entity which effectuates a Change in Control (or any of its affiliated entities)
to or for the benefit of an Eligible Officer (whether pursuant to the terms of
this Officer Severance Pay Plan or otherwise, but determined without regard to
any additional payments required under this Section) (the "Payments") would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code") (or any similar tax that may hereafter be
imposed), or any interest or penalties are incurred by the Eligible Officer with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Companies shall pay to the Eligible Officer an additional payment (a "Gross
Up Payment") in an amount such that after payment by the Eligible Officer of all
taxes (including any Excise Tax) imposed upon the Gross Up Payment, the Eligible
Officer retains an amount of the Gross Up Payment equal to the sum of (x) the
Excise Tax imposed upon the Payments and (y) the product of any deductions
disallowed for federal, state or local income tax purposes because of the
inclusion of the Gross Up Payment in the Eligible Officer's adjusted gross
income and the highest applicable marginal rate of federal, state or local
income taxation, respectively, for the calendar year in which the Gross Up
Payment is to be made. For purposes of determining the amount of the Gross Up
Payment, the Eligible Officer shall be deemed to (i) pay federal income taxes at
the highest marginal rates of federal income taxation for the calendar year in
which the Gross Up Payment is to be made, (ii) pay applicable state and local
income taxes at the highest marginal rate of taxation for the calendar year in
which the Gross Up Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes and (iii) have otherwise allowable deductions for federal, state and
local income tax purposes at least equal to those disallowed because of the
inclusion of the Gross Up Payment in the Eligible Officer's adjusted gross
income.

Subject to the provisions of this Section, all determinations required to be
made under this Section, including whether and when a Gross Up Payment is
required and the amount of such Gross Up Payment, and the assumptions to be
utilized in arriving at such determinations, shall be made by tax counsel,
compensation consultants or auditors of nationally recognized standing (the
"Independent Advisors") selected by the Companies and reasonably acceptable to
the Eligible Officer which shall provide detailed supporting calculations both
to the Companies and the Eligible Officer within fifteen (15) business days of
the receipt of notice from the Companies or the Eligible Officer that there has
been a Payment, or such earlier time as is requested by the Companies
(collectively, the "Determination"). All fees and expenses of the Independent
Advisors shall be borne solely by the Companies. The Gross Up Payment under this
Section with respect to any Payments shall be made no later than thirty (30)
days following such Payment. If the Independent Advisors determine that no
Excise Tax is payable by the Eligible Officer, it shall furnish the Eligible
Officer with a written opinion to such effect, and to the effect that failure to
report the Excise Tax, if any, on the Eligible Officer's applicable federal
income tax return will not result in the imposition of a negligence or similar
penalty. 

<PAGE>

The Determination by the Independent Advisors shall be binding upon the
Companies and the Eligible Officer. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into account hereunder
at the time the Gross Up Payment is made, the Eligible Officer shall repay to
the Companies at the time that the amount of such reduction in Excise Tax is
finally determined (but, if previously paid to the taxing authorities, not prior
to the time the amount of such reduction is refunded to the Eligible Officer or
otherwise realized as a benefit by the Eligible Officer) the portion of the
Gross Up Payment that would not have been paid if such Excise Tax had been
applied in initially calculating the Gross Up Payment, plus interest on the
amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed the amount taken
into account hereunder at the time the Gross Up Payment is made (including by
reason of any payment the existence or amount of which cannot be determined at
the time of the Gross Up Payment), the Companies shall make an additional Gross
Up Payment and shall indemnify and hold the Eligible Officer harmless in respect
of such excess (plus any interest and penalties payable with respect to such
excess) at the time that the amount of such excess is finally determined. The
Eligible Officer shall cooperate, to the extent his or her expenses are
reimbursed by the Companies, with any reasonable requests by the Companies in
connection with any contests or disputes with the Internal Revenue Service in
connection with the Excise Tax.

Review of Denial of Benefits/Appeal Process

If an officer does not receive benefits to which the officer thinks he or she is
entitled, the officer may file a claim for those benefits. The Vice
President-Human Resources will rule on the claims within 60 days of receipt of
the claim. In the case of claims made by the Vice President-Human Resources, the
Chief Executive Officer of the Companies shall make such review and
determination. If claims are denied, in whole or in part, the officer will be
notified in writing. A copy of the ruling and a statement supporting the
decision will be given to the officer. The notice will indicate why the claims
were denied, and either describe any additional information necessary to grant a
claim or instruct the officer on how to appeal the denial.

After an officer receives notice of denial of his or her claims, the officer may
appeal to the Plan Administrator, in writing within 60 days. If the officer does
not make an appeal within 60 days, the original decision will become final. The
officer may include in the written appeal any reasons for appeal and any
information to support the officer's rights to benefits. The Plan Administrator
will then reexamine all the facts and come to a final decision. The officer will
be notified of this decision within 60 days of the time that the officer submits
the written appeal, unless there are special circumstances, such as a hearing.
The officer will be notified if an extension is required. However, in no case
will the officer receive the Plan Administrator's decision later than 120 days
after the appeal is submitted. The notice of final decision will include
specific reasons for the decision and identify the plan provisions relied upon.


<PAGE>


Fees and Expenses of Eligible Officers

The Companies shall reimburse the Eligible Officer for all reasonable legal,
accounting, actuarial and related fees and expenses incurred by the Eligible
Officer in seeking in good faith to obtain or enforce any benefit or right
provided by this Officer Severance Pay Plan or in connection with any tax audit
or proceeding to the extent attributable to the application of Section 4999 of
the Code (or such other Code Section imposing a similar tax that may hereafter
be enacted) to the Payments or to a Gross Up Payment, each as previously defined
herein. Such reimbursement shall be made within ten (10) business days after
receipt of the Eligible Officer's written request for reimbursement accompanied
with such evidence of fees and expenses incurred as the Companies reasonably may
require.

Amendment or Termination of the Plan

The Companies reserve the right to amend or terminate the plan at any time, with
or without advance notice, by action of the Board of Directors. Provided,
however, that no amendment or termination of the plan will reduce the amount the
Companies agree to pay officers covered by the Plan at the time of the amendment
or termination, in the event of a Severance Qualifying Condition below the
following amounts:

  1.  36 months Salary in the case of the Chief Executive Officer;
  2.  24 months Salary in the case of an Executive Vice President;
  3.  12 months Salary in the case of a Senior Vice President; and
  4.   6 months Salary in the case of an officer other than the Chief Executive
      Officer, Executive Vice Presidents and Senior Vice Presidents.

Further, it is provided, that no amendment or termination of the plan adversely
affecting the right of any officer to severance pay hereunder due to a Change in
Control of Life, Casualty or Holdings, shall be effective if made after the
Board of Directors has approved such Change in Control.

Employee rights under ERISA

As a participant in this plan, officers are entitled to certain rights and
protection under ERISA. ERISA provides that all plan participants shall be
entitled to:

     Examine, free of charge, at the administrative office in their geographic
     area, all plan documents and copies of all documents filed by the plan with
     the U.S. Department of Labor.

     Obtain copies of all plan documents and other plan information upon written
     request to theplan administrator. The plan administrator may make a
     reasonable charge for the copies.


<PAGE>


In addition to creating rights for the plan participants, ERISA imposes
obligations on the people who are responsible for the operation of the plan. The
people who operate the plan, called "fiduciaries" of the plan, have a duty to do
so prudently and in the interest of all plan participants and beneficiaries.

No one, including the Companies or any other person, may discriminate against
employees to prevent them from obtaining a benefit or exercising their rights
under ERISA.

If a claim for a benefit is denied in whole or in part, an employee must receive
a written explanation of the reason for the denial. Employees also have the
right to have the plan administrator review and reconsider any claim.

Under ERISA, there are steps employees can take to enforce the above rights. For
instance, if a participant in the plan requests materials from the plan
administrator and does not receive them within thirty days, the participant may
file suit in a federal court. In such a case, the court may require the plan
administrator to provide the materials and pay up to $100 a day until the
participant receives the materials, unless the materials were not sent because
of reasons beyond the control of the plan administrator. If a claim for benefits
is denied or ignored, in whole or in part, the participant may file suit in a
state or federal court.

If any employee is discriminated against for asserting that person's rights,
assistance may be sought from the U.S. Department of Labor or the participant
may file suit in a federal court. The court will decide who should pay court
costs and legal fees. If the participant is successful, the court may order the
person sued to pay these costs and fees. If the participant loses, the court may
order that person to pay these costs and fees, for example, if it finds a claim
is frivolous.

If a participant has any questions about the plan, the participant should
contact the Human Resources Department of the Companies. If a participant has
any questions about this statement or about his or her rights under ERISA, the
nearest area office of the Labor-Management Services Administration, U.S.
Department of Labor, should be contacted.

General Information. Eligible Officers should note the following information
about the severance plan:

Plan Sponsor. The Plan is sponsored by:

Farm Family Life Insurance Company
Farm Family Casualty Insurance Company
Farm Family Holdings, Inc.
P.O. Box 656
Albany, New York 12201-0656
Telephone Number (518) 431-5000


<PAGE>


Plan Administrator: Farm Family Life Insurance Company is the plan
administrator. The plan administrator makes the rules and regulations necessary
to administer the plan. The plan administrator shall have the responsibility and
discretionary authority to interpret the terms of this plan, to determine
eligibility for benefits and to determine the amount of the benefits. The
interpretations and determinations of the plan administrator shall be final and
binding.

Agent for legal process: The Vice President-Human Resources of Life and Casualty
shall be the agent for service of legal process for all of the Companies. Any
communications should be sent to the following address:

  Vice President-Human Resources
  Farm Family Life Insurance Company
  Farm Family Casualty Insurance Company
  344 Route 9W
  Glenmont, NY 12077

  Mailing Address: 
  P.O. Box 656
  Albany, NY 12201-0656

Legal process may also be served on the plan administrator at the following
address:

  Farm Family Life Insurance Company
  Attn.: Human Resources Department
  344 Route 9W
  Glenmont, NY 12077

  Mailing Address:
  P.O. Box 656
  Albany, NY 12201-0656

Plan year: The records of the plan are kept on a calendar year basis.

Identification number: If an officer needs to discuss the plan with a federal
government agency, he or she should reference the plan number 510. The Company's
employer identification numbers are:

Farm Family Life Insurance Company 14-1400831 Farm
Family Casualty Insurance Company 14-1415410
Farm Family Holdings, Inc. 14-1789227


<PAGE>


Notices

Any notice, consent or demand required or permitted to be given under this
Officer Severance Pay Plan shall be in writing and shall be signed by the party
giving or making the same. If such notice, consent or demand is mailed to an
Eligible Officer or to the Companies, it shall be sent by United States
certified mail, postage prepaid, and addressed as set forth below.

If to an Eligible Officer:

     To such officer's last known address as shown on the records of the Company

If to the Vice President Human Resources:

  Vice President-Human Resources
  Farm Family Life Insurance Company
  Farm Family Casualty Insurance Company
  344 Route 9W
  Glenmont, NY 12077

  Mailing Address:
  P.O. Box 656
  Albany, NY 12201-0656

If to the Plan Administrator:

  Farm Family Life Insurance Company
  Attn.: Human Resources Department
  344 Route 9W
  Glenmont, NY 12077

  Mailing Address:
  P.O. Box 656
  Albany, NY 12201-0656

The date of such mailing shall be deemed the date of notice, consent or demand.
An officer may change the address to which notice is to be sent by giving notice
of the change of address in the manner aforesaid.

<PAGE>
                                 Exhibit 10.14
                           AMENDMENT NO. 1 TO THE
                           FARM FAMILY HOLDINGS, INC.
                      DIRECTORS' DEFERRED COMPENSATION PLAN



This AMENDMENT NO. 1 TO THE FARM FAMILY HOLDINGS, INC. DIRECTORS' DEFERRED
COMPENSATION PLAN, dated as of October 27, 1998 (this "Amendment No. 1"), was
adopted by the Board of Directors of FARM FAMILY HOLDINGS, INC. (the "Company"),
at a meeting duly called and held on October 27, 1998.

WHEREAS, the Board of Directors of the Company (the "Board") adopted the Farm
Family Holdings, Inc. Directors' Deferred Compensation Plan, dated as of
November 1, 1996 (the "Plan"); and

WHEREAS, pursuant to Section 7.06 of the Plan, the Board has the right to amend
the Plan at any time; and

WHEREAS, the Board desires to amend and modify the Plan as set forth herein.

NOW, THEREFORE, the Plan shall be, and hereby is, amended and modified,
effective October 27, 1998, as follows:

     1. Section 1.05(a) is hereby amended and replaced in its entirety to read
as follows:

     "(a) any person (as such term is used in paragraphs 13(d) and 14(d)(2) of
          the Exchange Act, hereinafter in this definition, "Person"), other
          than the Company or a subsidiary or employee benefit plan of the
          Company or subsidiary, becomes the beneficial owner (as defined in
          Rule 13d-3 under the Exchange Act), directly or indirectly, of twenty
          percent (20%) or more of the common stock of the Company then
          outstanding."

     2. The following paragraph is hereby added to the end of Section 1.05:

          "Provided, however, that the acquisition of Farm Family Life Insurance
          Company by Farm Family Holdings, Inc. pursuant to the Amended and
          Restated Option Purchase Agreement dated as of February 26, 1998 by
          and among Farm Family Holdings, Inc. and the shareholders of Farm
          Family Life Insurance Company, as amended by Amendment No. 1 to
          Amended and Restated Option Purchase Agreement dated as of April 28,
          1998, as the same may be further amended from time to time, shall not
          constitute a Change in Control hereunder."

     3. Except as amended and modified by this Amendment No. 1, all other terms
of the Plan shall remain unchanged.


<PAGE>



IN WITNESS WHEREOF, Farm Family Holdings, Inc. by authority of its Board of
Directors, has caused this Amendment No. 1 to be duly executed as of the date
and year first above written.

                                             FARM FAMILY HOLDINGS, INC.

                                     By:     /s/ Philip P. Weber
                                             ------------------------
                                             Philip P. Weber

                                     Title:  President & Chief Executive Officer

                                     Date:   November 8, 1998
                                             ------------------------


<PAGE>
                                 Exhibit 10.15
                             AMENDMENT NO. 1 TO THE
                           FARM FAMILY HOLDINGS, INC.
                      OFFICERS' DEFERRED COMPENSATION PLAN



This AMENDMENT NO. 1 TO THE FARM FAMILY HOLDINGS, INC. OFFICERS' DEFERRED
COMPENSATION PLAN, dated as of October 27, 1998 (this "Amendment No. 1"), was
adopted by the Board of Directors of FARM FAMILY HOLDINGS, INC. (the "Company"),
at a meeting duly called and held on October 27, 1998.

WHEREAS, the Board of Directors of the Company (the "Board") adopted the Farm
Family Holdings, Inc. Officers' Deferred Compensation Plan, dated as of November
1, 1996 (the "Plan"); and

WHEREAS, pursuant to Section 7.06 of the Plan, the Board has the right to amend
the Plan at any time; and

WHEREAS, the Board desires to amend and modify the Plan as set forth herein.

NOW, THEREFORE, the Plan shall be, and hereby is, amended and modified,
effective October 27, 1998, as follows:

     1. Section 1.05(a) is hereby amended and replaced in its entirety to read
as follows:

     "(a) any person (as such term is used in paragraphs 13(d) and 14(d)(2) of
          the Exchange Act, hereinafter in this definition, "Person"), other
          than the Company or a subsidiary or employee benefit plan of the
          Company or subsidiary, becomes the beneficial owner (as defined in
          Rule 13d-3 under the Exchange Act), directly or indirectly, of twenty
          percent (20%) or more of the common stock of the Company then
          outstanding."

     2. The following paragraph is hereby added to the end of Section 1.05:

          "Provided, however, that the acquisition of Farm Family Life Insurance
          Company by Farm Family Holdings, Inc. pursuant to the Amended and
          Restated Option Purchase Agreement dated as of February 26, 1998 by
          and among Farm Family Holdings, Inc. and the shareholders of Farm
          Family Life Insurance Company, as amended by Amendment No. 1 to
          Amended and Restated Option Purchase Agreement dated as of April 28,
          1998, as the same may be further amended from time to time, shall not
          constitute a Change in Control hereunder."

     3. Except as amended and modified by this Amendment No. 1, all other terms
of the Plan shall remain unchanged.


<PAGE>



IN WITNESS WHEREOF, Farm Family Holdings, Inc. by authority of its Board of
Directors, has caused this Amendment No. 1 to be duly executed as of the date
and year first above written. 

                                               FARM FAMILY HOLDINGS, INC.

                                     By:     /s/ Philip P. Weber
                                             -----------------------
                                             Philip P. Weber

                                     Title:  President & Chief Executive Officer

                                     Date:   November 8, 1998
                                             ------------------------
<PAGE>

                                 Exhibit 10.16
                           FARM FAMILY HOLDINGS, INC.

                              ANNUAL INCENTIVE PLAN

                (AS AMENDED AND RESTATED AS OF OCTOBER 27, 1998)



Farm Family Holdings, Inc. hereby establishes this Annual Incentive Plan (the
"Plan") for certain key employees of the Company and its affiliates who are
selected for participation in the Plan. The Plan is comprised of this Plan
document and each valid, executed Annual Incentive Plan Notice for a
Participant.



                                    ARTICLE 1
                                   DEFINITIONS

1.01 Board of Directors: The Board of Directors of the Company.

1.02 Cause: An employee's:

          (a)  felony conviction or the failure of an employee to contest
               prosecution for a felony;

          (b)  willful misconduct or dishonesty, any of which is directly and
               materially harmful to the business or reputation of the Company;

          (c)  theft, participation in any material fraudulent conduct, or other
               acts involving material misappropriation of property;

          (d)  habitual drunkenness or habitual drug abuse;

          (e)  material and willful disclosure of any confidential information:

          (f)  unlawful discrimination and/or unlawful sexual harassment by an
               officer;

          (g)  serious breach of the Company's policies; or

          (h)  continuing inattention to or continuing neglect of the duties to
               be performed by an employee which inattention or neglect is not
               the result of illness or accident.


<PAGE>


1.03 Change in Control: A change in control of the Company of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is subject to the Exchange Act at
such time; provided, however, that without limiting the generality of the
foregoing, a Change in Control will in any event be deemed to occur if and when:

          (a)  any person (as such term is used in paragraphs 13(d) and 14(d)(2)
               of the Exchange Act, hereinafter in this definition, "Person"),
               other than the Company or a subsidiary or employee benefit plan
               of the Company or subsidiary, becomes the beneficial owner (as
               defined in Rule 13d-3 under the Exchange Act), directly or
               indirectly of twenty percent (20%) or more of the Company's
               common stock then outstanding;

          (b)  stockholders approve a merger, consolidation or other business
               combination (a "Business Combination") other than a Business
               Combination in which holders of common stock of the Company
               immediately prior to the Business Combination have substantially
               the same proportionate ownership of common stock of the surviving
               corporation immediately after the Business Combination as
               immediately before;

          (c)  stockholders approve either (i) an agreement for the sale or
               disposition of all or substantially all of the Company's assets
               to any entity that is not a subsidiary of the Company, or (ii) a
               plan of complete liquidation; or

          (d)  the persons who were members of the Board of Directors
               immediately before a tender offer by any Person other than the
               Company or a subsidiary, or before a merger, consolidation or
               contested election, or before any combination of such
               transactions, cease to constitute a majority of the Board of
               Directors as a result of such transaction or transactions.

Provided, however, that the acquisition of Farm Family Life Insurance Company by
Farm Family Holdings, Inc. pursuant to the Amended and Restated Option Purchase
Agreement dated as of February 26, 1998 by and among Farm Family Holdings, Inc.
and the shareholders of Farm Family Life Insurance Company, as amended by
Amendment No. 1 to Amended and Restated Option Purchase Agreement dated as of
April 28, 1998, as the same may be further amended from time to time, shall not
constitute a Change in Control hereunder.

1.04 Company: Farm Family Holdings, Inc., a Delaware corporation, and any
successor thereto.

1.05 Committee: The Compensation Committee of the Board of Directors of the
Company or such other committee appointed by the Board. If at any time there is
no Committee, then the functions of the Committee specified in the Plan shall be
exercised by the Board.

1.06 Disability: The total and permanent disability as determined under the
Company's long term disability program.


<PAGE>


1.07 Earned Award: The amount of incentive award to be paid to a Participant
calculated pursuant to Section 6.01 hereof.

1.08 Effective Date: January 1, 1997.

1.09 Employee: An individual who is employed by the Company or an affiliate
thereof.

110 ERISA: The Employee Retirement Income Security Act of 1974, as amended.

1.11 Notice: The Annual Incentive Plan Notice for a Participant for a Plan Year.

1.12 Participant: An employee who is selected by the Committee as eligible to
participate in the Plan for a Plan Year.

1.13 Plan: This Plan document, together with each executed, valid Notice.

1.14 Plan Year: The calendar year. The first Plan Year begins January 1, 1997.

1.15 Retirement: The Normal or Early Retirement as those terms are defined in
the Farm Family Profit Sharing and Money Purchase Plan or any successor plan
thereto.

1.16 Secretary: The Corporate Secretary of the Company.

1.17 Severance Qualifying Termination: An officer's termination pursuant to
which the officer qualifies for severance benefits as determined under the Farm
Family Life Insurance Company, Farm Family Casualty Insurance Company and Farm
Family Holdings, Inc. Officer Severance Pay Plan, as the same may be amended
from time to time.



                                    ARTICLE 2
                                   OBJECTIVES

2.01 Objectives: The objectives of the Annual Incentive Plan are to:

          (a)  provide incentives and financial rewards to the employees of the
               Company and its affiliates for their contribution to improving
               the profitability of the Company and its affiliates;

          (b)  enable the Company to pay a fully-competitive total cash
               compensation package; and

          (c)  facilitate the attraction and retention of executives.


<PAGE>


                                    ARTICLE 3
                                   ELIGIBILITY

3.01 Eligibility: Officers and other key employees of the Company, its
subsidiaries and its affiliates (but excluding members of the Committee and any
person who serves only as a director) who are responsible for or contribute to
the management, growth and/or profitability of the business of the Company, or
its subsidiaries, may be designated as Participants.

3.02 Part-year Participants: An employee who is employed after January 1 but
prior to September 1 may be designated a Participant for the Plan Year in which
he commenced employment. An employee who is employed on or after September 1 may
not be designated a Participant for the Plan Year in which he commenced
employment.

3.03 Cessation of Eligibility: An individual shall cease to be a Participant for
any Plan Year in which the individual's employment with the Company or its
affiliates is terminated voluntarily by the individual or involuntarily for
Cause. Provided, however, that a Participant who is an officer of the Company or
its affiliate who terminates his or her employment with the Company or its
affiliate pursuant to a Severance Qualifying Termination shall be entitled to
payment under the Plan as provided herein.



                                    ARTICLE 4
                   AWARD OPPORTUNITIES AND PERFORMANCE FACTORS

4.01 Levels of Award Opportunities: Award Opportunities have the following
levels:

          (a)  Threshold Award Opportunity: 50% of the amount which will be paid
               for Target Performance.

          (b)  Target Award Opportunity: The amount paid for Target Performance.

          (c)  Outstanding Award Opportunity: 150% of the amount paid for Target
               Performance.

4.02 Performance Factors: Each level of performance shall have the following
Performance Factors:

          (a)  Below Threshold Performance: will have a Performance Factor of 0.

          (b)  Threshold Performance: will have a Performance Factor of 0.5.

          (c)  Target Performance: will have a Performance Factor of 1.0.


<PAGE>


          (d)  Outstanding Performance: will have a Performance Factor of 1.5.

          (e)  Above Outstanding Performance: will have a Performance Factor of
               1.5.

4.03 Interpolation of Performance Factors: The Performance Factors for
performance between Threshold and Outstanding Performance levels will be
interpolated.

4.04 Limitations on Award Opportunities: No award will be paid for below
Threshold Performance. No award will exceed the amount payable for Outstanding
Performance.



                                    ARTICLE 5
                             PERFORMANCE MEASUREMENT

5.01 Performance Measures: The performance of each Participant will be assessed
according to the achievement of predefined goals derived from the Company's and
its affiliates' strategic plans and budgets. These goals will be chosen each
year and identified as Performance Measures on the Participant's Notice,
weighted according to the Participant's relative responsibilities to the Company
and its affiliates and according to their relative importance.

5.02 Levels of Performance: Performance Measures will be stated in terms of the
following levels of performance:

          (a)  Threshold Performance: which will be defined to be 90%
               achievement of budget or a similar level of any performance
               measure which is not budget-related;

          (b)  Target Performance: which will generally be defined to be 100%
               achievement of budget or a similar level of any performance
               measure which is not budget-related; or

          (c)  Outstanding Performance: which will generally be defined to be
               110% achievement of budget or a similar level of any performance
               measure which is not budget-related.

5.03 Performance Measurement: The Performance Measures and weights for each
Participant will be set forth in a Notice for each Plan Year.


<PAGE>


                                    ARTICLE 6
                                PAYMENT OF AWARDS

6.01 Calculation of Earned Awards: The Earned Award for each Participant for a
Plan Year shall be calculated as follows:

          (a)  The Performance Factor will be calculated for each Performance
               Measure based on the Participant's actual performance.

          (b)  The Adjusted Performance Factor for each Performance Measure will
               be calculated by multiplying the weight for each Performance
               Measure by the Performance Factor.

          (c)  The Total Adjusted Performance Factor will be the sum of all
               Adjusted Performance Factors for the Participant.

          (d)  The Earned Award will be equal to the Target Award Opportunity
               multiplied by the Total Adjusted Performance Factor.

An example of the Earned Award calculation is set forth in Exhibit A attached
hereto.

6.02 Determination of Awards: The Earned Award for each Participant for a Plan
Year will be based solely on the Company's and its affiliates' records. The
Earned Award for each Participant for a Plan Year will be determined within a
reasonable time period after the end of the Plan Year.

6.03 Payment of Awards: Payment of Earned Awards will be made within a
reasonable time period after the end of the Plan Year but in no event later than
90 days after close of the Company's books for the Plan Year. Participants may
elect to defer receipt of their Earned Awards pursuant to the Company's
Officers' Deferred Compensation Plan. The Company will deduct from all payments
due a Participant, taxes required by law to be withheld with respect to such
payments.

6.04 Change in Control: In the event of a Change in Control, each Participant
will receive payment of the greater of his actual Earned Award or his Target
Award Opportunity for the Plan Year in which the Change in Control occurs
regardless of the level of performance actually achieved.

6.05 Change in Employment Status: The effect of a change in the employment
status of an Participant during a Plan Year shall be determined as follows:

          (a)  New Hire or Promotion During the Plan Year: The Participant will
               be paid the Earned Award prorated for the number of days of the
               Plan Year that the Participant was employed in the eligible
               position.


<PAGE>


          (b)  Death, Retirement or Disability During the Plan Year: The
               Participant will be paid the Earned Award prorated for the number
               of days of the Plan Year that the Participant was employed in the
               eligible position.

          (c)  Voluntary Termination Other Than a Severance Qualifying
               Termination: The Participant will forfeit any Earned Award for
               the Plan Year in which he voluntarily terminates employment with
               the Company or its affiliates, provided that such voluntary
               termination does not constitute a Severance Qualifying
               Termination.

          (d)  Severance Qualifying Termination: The Participant will be paid
               the Earned Award prorated for the number of days of the Plan Year
               that the Participant was employed by the Company in the eligible
               position, provided, however, that, in the event of a Change in
               Control during the Plan Year, the Participant will receive
               payment of the greater of his actual Earned Award or Target Award
               Opportunity for the Plan Year in which the Change in Control
               occurs, regardless of achievement of Target Performance, prorated
               for the number of days of the Plan Year that the Participant was
               employed in the eligible position.

          (e)  Involuntary Termination for Cause: The Participant will forfeit
               any award for the Plan Year in which he is terminated for Cause.

6.06. Amendment or Termination of Plan: In the event of an amendment or
termination of the Plan which reduces the amount any Participant will receive
pursuant to the Plan for the Plan Year in which the amendment or termination is
first effective, each such Participant will receive for such Plan Year payment
of the greater of his actual Earned Award calculated under the Plan, as amended,
or his Target Award Opportunity for the Plan Year without giving any effect to
such amendment or termination.



                                    ARTICLE 7
                                 ADMINISTRATION

7.01 Appointment of Committee: The general administration of the Plan and the
responsibility for carrying out its provisions shall be placed with the
Committee which shall be appointed from time to time by the Board of Directors.

7.02 Compensation of Committee: The members of the Committee shall not receive
compensation for their services as such, other than regular meeting fees, and,
except as required by law, no bond or other security need be required of them in
such capacity in any jurisdiction.


<PAGE>


7.03 Rules of Plan: Subject to the limitations of the Plan, the Committee may,
from time to time, establish policies for the administration of the Plan and the
transaction of its business. The Committee may correct errors, however arising,
and, as far as possible, adjust any award payments accordingly. The
determination of the Committee as to the interpretation of the provisions of the
Plan or any disputed question with respect to the Plan shall be conclusive upon
all interested parties.

7.04 Agents and Employees: The Committee may authorize one or more agents to
execute or deliver any instrument. The Committee may appoint or employ such
agents, counsel, auditors, physicians, clerical help and actuaries as in the
Committee's judgment shall be reasonable or necessary for the proper
administration of the Plan.

7.05 Records: The Committee shall maintain accounts showing the transactions of
the Plan. The Committee shall prepare and submit annually to the Board of
Directors a report setting forth the amounts paid to Participants for the Plan
Year. The report to the Board of Directors shall also include a brief account of
the operation of the Plan for the Plan Year.

7.06 Delegation of Authority: With the consent of the Board of Directors, the
Committee may, by resolution, delegate to any person or persons any or all of
its rights and duties hereunder. Any such delegation shall be valid and binding
on all persons, and the person or persons to whom any such authority has been
delegated shall, upon written acceptance of such authority, have full power to
act in all matters so delegated until the authority expires by its terms or is
revoked by the Committee.

7.07 Indemnification: The Company shall indemnify each member of the Committee
for all expenses and liabilities (including reasonable attorneys' fees) arising
out of the administration of the Plan, other than any expenses or liabilities
resulting from the Committee's own gross negligence or willful misconduct. The
foregoing right of indemnification shall be in addition to any other rights to
which the members of the Committee shall be entitled as a matter of law.


<PAGE>


                                    ARTICLE 8
                                  MISCELLANEOUS

8.01 No Trust Created: Nothing contained in the Plan, and no action taken
pursuant to the Plan by the Company or any Participant shall create, or be
construed to create, a trust of any kind, or a fiduciary relationship between
the Company and the Participant, or any other person

8.02 Benefits Payable Only From General Corporate Assets - Unsecured General
Creditor Status of Participant: Payments to any Participant shall be made from
assets which shall continue, for all purposes, to be a part of the general,
unrestricted assets of the Company. Title to and beneficial ownership of any
assets, whether cash or investments which the Company may earmark to pay Awards
hereunder, shall at all times remain in the Company and no Participant shall
have any property interest whatsoever in any specific asset of the Company. No
person shall have any interest in any such assets by virtue of the provisions of
this Plan. The Company's obligation hereunder shall be unfunded, for tax
purposes and for purposes of Title I of ERISA, and an unsecured promise to pay
money in the future. To the extent that any person acquires a right to receive
payments from the Company under the Plan, such right shall be no greater than
the right of any unsecured general creditor of the Company, and no such person
shall have nor acquire any legal or equitable right, interest or claim in or to
any property or asset of the Company.

There is no obligation on the part of the Company to fund for any liability
which accrues as a result of the Plan.

8.03 No Contract of Retention: Nothing contained herein shall be construed to be
a contract of employment as an Employee for any term of years, nor as conferring
upon any Participant the right to continue to be employed as an Employee in the
Participant's present capacity, or in any capacity. It is expressly understood
that the Plan relates merely to the promise of payment of annual incentive
compensation for the Participant's services as an Employee.

8.04 Benefits Not Transferable: The Participant shall not have any power or
right to transfer, assign, anticipate, hypothecate or otherwise encumber any
part or all of the amounts payable hereunder. A Participant's rights to payments
under the Plan are not subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, attachment or garnishment by
creditors of the Participant, and no such amounts shall be subject to seizure by
any creditor of any Participant, by a proceeding at law or in equity, nor shall
such amounts be transferable by operation of law in the event of bankruptcy,
insolvency or death of the Participant. Any such attempted assignment or
transfer shall be void.

8.05 Determination of Benefits: A Participant who believes that such Participant
is being denied a benefit to which the Participant is entitled under the Plan
(hereinafter referred to as a "Claimant") may file a written request for such
benefit with the Committee, setting forth the Participant's claim. The request
must be addressed to the Secretary at the principal place of business of the
Company.
<PAGE>
 
Upon receipt of a claim, the Secretary shall advise the Claimant that a reply
will be forthcoming within ninety (90) days and shall, in fact, deliver such
reply within such period. The Committee may, however, extend the reply period
for an additional ninety (90) days for reasonable cause.

If the claim is denied in whole or in part, the Committee shall render a written
opinion, using language calculated to be understood by the Claimant, setting
forth:

          (a)  The specific reason or reasons for such denial;

          (b)  The specific reference to pertinent provisions of the Plan upon
               which such denial is based;

          (c)  A description of any additional material or information necessary
               for the Claimant to perfect his claim and an explanation why such
               material or such information is necessary; and

          (d)  Appropriate information as to the steps to be taken if the
               Claimant wishes to submit the claim for review and the time
               period within which such review must be requested.

Within sixty (60) days after the receipt by the Claimant of the written opinion
described above, the Claimant may request in writing that the Board of Directors
review the determination of the Committee. Such request must be addressed to the
Board of Directors at the principal place of business of the Company. The
Claimant or the Claimant's duly authorized representative may, but need not,
review the pertinent documents and submit issues and comments in writing for
consideration by the Board of Directors. If the Claimant does not request a
review of the Committee's determination by the Board of Directors within such
sixty (60) day period, the Claimant shall be barred and estopped from
challenging the Committee's determination.

Within sixty (60) days after the Board of Directors' receipt of a request for
review from a Claimant, the Board of Directors shall review the Committee's
determination. If the Claimant is a member of the Board of Directors, the
Claimant shall be precluded from participating in the Board of Directors' review
of the Claimant's claim. After considering all material presented by the
Claimant, the Board of Directors shall render a written opinion, written in a
manner calculated to be understood by the Claimant, setting forth the specific
reasons for the decision and containing specific references to the pertinent
provisions of the Plan upon which the decision is based. If special
circumstances require that the sixty (60) day time period be extended, the Board
of Directors shall so notify the Claimant and will render the decision as soon
as possible, but not later than one hundred twenty (120) days after receipt of
the request for review from the Claimant.

8.06 Amendment or Termination: The Board of Directors, without the consent of
any Participant, may amend or terminate the Plan at any time provided, however,
that in the event of an amendment or termination of the Plan which reduces the
amount any Participant will receive pursuant to the Plan, each such Participant
shall be entitled to the payment set forth in Section 6.06 hereof for the Plan
Year in which such amendment or termination is first effective.


<PAGE>


8.07 Severability of Provisions: If any provision of the Plan is held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of the Plan, and the Plan shall be construed and enforced as if such
invalid or unenforceable provision had not been included in the Plan.

8.08 Headings: Headings used throughout the Plan are for convenience only and
shall not be given legal significance.

8.09 Inurement: The Plan shall be binding upon and shall inure to the benefit
of, the Company and its successors and assigns, and the Participants and their
Designated Beneficiaries and the successors, heirs, executors, administrators
and beneficiaries thereof.

8.10 Notice: Any notice, consent or demand required or permitted to be given
under the Plan shall be in writing and shall be signed by the party giving or
making the same. If such notice, consent or demand is mailed to a party hereto,
it shall be sent by United States certified mail, postage prepaid, and addressed
to such party's last known address as shown on the records of the Company. The
date of such mailing shall be deemed the date of notice, consent or demand. Any
party hereto may change the address to which notice is to be sent by giving
notice of the change of address in the manner aforesaid.

8.11 Governing Law: The Plan and the rights of the parties hereunder shall be
governed by and be construed in accordance with the laws of the State of New
York.

8.12 Pronouns: Any masculine term used in the Plan shall include the feminine
and any singular term shall include the plural, unless the text indicates
otherwise.

IN WITNESS WHEREOF, the Company has hereby executed this Plan, as of the date
written below.

                                             FARM FAMILY HOLDINGS, INC.


                                    By:      /s/ Philip P. Weber
                                             --------------------
                                                 Philip P. Weber

                                    Title:   President & Chief Executive Officer
                                             -----------------------------------


                                    Date:    November 8, 1998
                                             ----------------

<PAGE>
                                  Exhibit 10.20
                             AMENDMENT NO. 2 TO THE
                           FARM FAMILY HOLDINGS, INC.
                             OMNIBUS SECURITIES PLAN



This AMENDMENT NO. 2 TO THE FARM FAMILY HOLDINGS, INC. OMNIBUS SECURITIES PLAN,
dated as of October 27, 1998 (this "Amendment No. 2) was adopted by the Board of
Directors of FARM FAMILY HOLDINGS, INC. (the "Company"), at a meeting duly
called and held on October 27, 1998.

WHEREAS, the Board of Directors of the Company (the "Board") adopted the Farm
Family Holdings, Inc. Omnibus Securities Plan dated as of December 13, 1996 as
amended by Amendment No. 1 to the Farm Family Holdings, Inc. Omnibus Securities
Plan dated as of February 13, 1997 (as amended, the "Plan");

WHEREAS, pursuant to Article XI of the Plan, the Board has the right to alter or
amend the Plan from time to time; and

WHEREAS, the Board desires to amend and modify the Plan as set forth herein.

NOW, THEREFORE, the Plan shall be, and hereby is, amended and modified,
effective October 27, 1998, as follows:

     1. Subsection (a) of the definition of "Change of Control" is hereby
amended and replaced in its entirety to read as follows:

          "(a) any person (as such term is used in paragraphs 13(d) and 14(d)(2)
               of the Exchange Act, hereinafter in this definition, "Person"),
               other than the Company or a subsidiary or employee benefit plan
               of the Company or subsidiary, becomes the beneficial owner (as
               defined in Rule 13d-3 under the Exchange Act), directly or
               indirectly, of twenty percent (20%) or more of the common stock
               of the Company then outstanding;"

     2. Except as amended and modified by this Amendment No. 2, all other terms
of the Plan shall remain unchanged.

IN WITNESS WHEREOF, Farm Family Holdings, Inc. by authority of its Board of
Directors, has caused this Amendment No. 2 to be duly executed as of the date
and year first above written.

                                                FARM FAMILY HOLDINGS, INC.

                                     By:     /s/ Philip P. Weber
                                             ---------------------------
                                             Philip P. Weber

                                     Title:  President & Chief Executive Officer


<PAGE>

                           Farm Family Holdings, Inc.
                                   Exhibit 13
                               1998 Annual Report

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

Corporate Profile

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

Farm Family Casualty

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

Farm Family Financial Services, Inc.

During 1997, the Company created Farm Family Financial Services, Inc., a wholly
owned subsidiary. Farm Family Financial Services, Inc. entered into a mutually
beneficial agreement with a national broker-dealer that allows certain of the
Company's agents to offer mutual funds and other securities products to their
clients.

Acquisition of Farm Family Life

Farm Family Holdings entered into an Option Purchase Agreement with the
shareholders of Farm Family Life pursuant to which Farm Family Holdings was
granted an option to acquire all of the outstanding capital stock of Farm Family
Life, exercisable for a two year period which commenced on July 26, 1996. On
February 26, 1998, the Board of Directors of Farm Family Holdings approved the
exercise of the option to acquire Farm Family Life and it's wholly owned
subsidiary, United Farm Family. Farm Family Life is owned by Farm Bureau
organizations and their affiliates in New New York, New Jersey, Delaware, West
Virginia and all of the New England states. Under the Option Purchase Agreement,
Farm Family Holdings will pay an exercise price of $37.5 million to acquire Farm
Family Life, consisting of $31.5 million of common stock of Farm Family
Holdings, and $6 million stated value of 6-1/8% voting preferred stock of Farm
Family Holdings, less certain expenses to be paid by Farm Family Life in
connection with the acquisition on behalf of the shareholders of Farm Family
Life.

The Option Purchase Agreement was approved by the Company's shareholders on
December 2, 1998. The closing of the acquisition was scheduled to occur on
December 7, 1998, but was delayed when it was determined that in order for
certain shareholders of Farm Family Life to provide unqualified opinions of
counsel required by the Option Purchase Agreement as a condition to closing,
such shareholders of Farm Family Life or their respective parent entities would
need to obtain approval of the acquisition from their members.

As a result of this delay, the Option Purchase Agreement was amended to, among
other things, fix the price used to determine the number of shares of common and
preferred stock to be issued, subject to a collar mechanism, at $35.72, which
was the average closing price that would have been used if the closing had
occurred on December 7, 1998. Under the collar mechanism, if the price per share
of the Company's common stock on the last trading day prior to the closing (the
"Closing Price") is greater than $42.86 or equal to or less than $25.00, the
price used to determine the number of shares of the Company's common stock to be
issued in the acquisition will equal $35.72 divided by a factor. The factor will
be equal to 1.2 (if the Closing Price is greater than $42.86) or 0.7 (if the
Closing Price is equal to or less than $25.00) multiplied by $35.72 divided by
the Closing Price. If the Closing Price is $25.00 or less, the Company will have
the option to terminate the Option Purchase Agreement. In addition, the date on
which the Company or the shareholders of Farm Family Life may terminate the
Option Purchase Agreement, if the closing has not occurred, was extended to
April 30, 1999.

The amendment to the Option Purchase Agreement is subject to the approval of the
members of certain shareholders of Farm Family Life or their respective parent
entities, and the shareholders of the Farm Family Holdings. On February 24,
1999, Farm Family Holdings began resoliciting the approval of its shareholders
for the revised terms of the acquisition. Under the terms of the amendment, the
shareholders of Farm Family Life have agreed to reimburse the Company for half
of the expenses of resolicitation, up to $200,000. The acquisition of Farm
Family Life is also subject to certain closing conditions, including the receipt
of all required government approvals. Management expects to close the
acquisition of Farm Family Life in the second quarter of 1999.

1998 Financial Highlights

The Company's operating income for the year ended December 31, 1998 decreased to
$14.3 million compared to $15.0 million in 1997. On a per share basis (diluted),
operating income for 1998 was $2.69 compared to $2.84 in 1997. Operating
earnings exclude realized investment gains (losses), extraordinary items, the
gain on partial reduction of the Company's extended earnings liability, the
adjustments to restate prior period financial statements for the Company's
extended earnings liability, nonrecurring charges, and the related taxes
thereon. The slight decrease in operating income during 1998 was primarily
attributable to an increase in weather related losses which partially offset the
increase in premiums and the impact of the Company's expense management program.
Premium revenue increased 21.8% during the year ended December 31, 1998 to
$181.7 million from $149.2 million in 1997. In addition, the Company's GAAP
combined ratio was 99.9% for 1998 compared to 98.3% in 1997.

During 1998, the Company restated certain amounts within its consolidated
financial statements related to the Company's retroactive adoption effective
January 1, 1994 of Statement of Financial Accounting Standards No. 112
"Employers' Accounting for Postemployment Benefits" ("Statement 112") to account
for the Company's extended earnings program with its agents and agency managers.
Previously, the Company accounted for its extended earnings program pursuant to
Statement of Financial Accounting Standards No. 5 "Accounting for
Contingencies". The impact and nature of the Company's retroactive adoption of
Statement 112 is more fully described in Note 2 "Prior Period Adjustments" and
Note 13 "Commitments, Contingencies, and Uncertainties" in the notes to the
Company's consolidated financial statements included herein.

Operating Environment

The Company's operating results are subject to significant fluctuations from
period to period depending upon, among other factors, the frequency and severity
of losses from weather related and other catastrophic events, the effect of
competition and regulation on the pricing of products, changes in interest
rates, general economic conditions, tax laws and the regulatory environment. As
a condition of its license to do business in various states, the Company is
required to participate in a variety of mandatory residual market mechanisms
(including mandatory pools) which provide certain insurance (most notably
automobile insurance) to consumers who are otherwise unable to obtain such
coverages from private insurers. In all such states, residual market premium
rates are subject to the approval of the state insurance departments. Residual
market premium rates for automobile insurance have generally been inadequate.
The amount of future losses or assessments from residual market mechanisms
cannot be predicted with certainty and could have a material adverse effect on
the Company's results of operations.

For the years ended December 31, 1998, 1997, and 1996, 34.8%, 36.5% and 38.6%,
respectively, of the Company's direct written premiums were derived from
policies written in New York and 28.3%, 26.4% and 22.6%, respectively, were
derived from policies written in New Jersey. For these periods, no other state
accounted for more than 10.0% of the company's direct written premiums. As a
result of the concentration of the Company's business in the states of New York
and New Jersey, and more generally, in the Northeastern United States, the
Company's results of operations may be significantly affected by weather
conditions, catastrophic events and regulatory developments in these two states
and in the Northeastern United States, generally.

Market-Sensitive instruments and risk management

The Company's investment objective is to maximize after tax yield while
maintaining safety of capital and providing adequate liquidity for its insurance
operations. The Company seeks to meet these objectives and simultaneously manage
interest rate risk and market risk by investing in investment-grade fixed
maturity securities that have similar cash flows to the liabilities they
support, and are diversified by industry, issuer, type and geography. The
Company utilizes the services of a professional asset management firm
specializing in the management of assets for insurance companies to assist in
meeting these objectives. The Company's invested assets are managed to maximize
long term risk adjusted returns consistent with and in support of product
liabilities and the capital position of the Company.

The fair value of the Company's fixed maturity portfolio is sensitive to changes
in interest rates. The Company estimates that if interest rates were to increase
by 100 basis points from their  December 31, 1998 levels,  the  Company's  fixed
maturity portfolio would decline in fair value by approximately $15.6 million.

The calculations  involved in the computer  simulations the Company utilized for
the sensitivity analysis incorporate numerous  assumptions,  require significant
estimates  and  assume  an  immediate  change  in  interest  rates  without  any
management of the investment portfolio in reaction to such change. Consequently,
the  potential  changes in value of our financial  instruments  indicated by the
simulations will likely be different from the actual changes  experienced  under
given interest rate scenarios, and the differences may be material.

The Company has not utilized  options,  interest rate swaps, or other derivative
financial instruments to hedge interest rate risk.
<PAGE>

Year 2000

Many computer programs and other computer systems upon which the Company relies
were created using only two digits to identify a year in the date field. If not
corrected, many of these computer applications could fail or produce erroneous
result. In 1996, management began considering Year 2000 issues as they affect
the Company and began to develop a Year 2000 plan. The Company's overall plan
for dealing with the Year 2000 problem covers information technology ("IT")
systems, non-IT systems, and third-party providers. The Company has established
a Year 2000 team to lead the Company's activities relating to its Year 2000
issues. The Company's Year 2000 team works with the Company's senior management,
legal and business units on Year 2000 issues. The Company's current state of
readiness with respect to each of its IT systems, non-IT systems and third-party
providers is discussed below.

The Company uses a process consisting of the following five phases to approach
Year 2000 compliance of its IT systems: (1) Inventory (cataloging the systems
portfolio); (2) Assessment (identifying possible Year 2000 related failures and
developing strategies to remediate them); (3) Remediation (creating or acquiring
corrections to deficiencies); (4) Testing (confirming whether remediation is
successful); and (5) Implementation (installing solutions).

Critical IT systems include product administration systems, key financial
systems and core IT infrastructure. Management of the Company believes that the
phases of inventory, assessment, remediation, testing and implementation for
critical IT systems currently in use by the Company have been completed.
Noncritical IT systems include certain other business applications which the
Company does not believe to be critical. The Inventory phase has been completed
for the Company's noncritical IT systems. The assessment, remediation, testing
and implementation phases for the Company's noncritical IT systems are ongoing
and are expected to be completed by the end of 1999.

The Company has tested the operation of IT systems working together in an
integrated test environment that replicated the Company's live environment. This
test exercised software and hardware using dates advanced to Year 2000 and
beyond. There can be no assurances that this integrated testing discovered all
potential Year 2000 problems.

Non-IT systems typically include embedded technology such as microcontrollers.
The Company's non-IT systems include machinery and equipment in the buildings it
occupies, such as elevators, telephone equipment, HVAC, security and alarm
systems and print shop/mail room equipment. The Company is reviewing these
systems for Year 2000 compliance with the third-party providers the Company uses
to service and maintain this equipment.

The Company's Year 2000 effort also includes a systematic assessment of the Year
2000 compliance status of third-party providers. The Company believes loss of
public utilities, phone, banking, mail or certain outsourced processing services
could have an immediate adverse impact on the Company's operations, which under
certain circumstances could be material. The Company is contacting each of its
third-party providers, through letters, questionnaires and/or interviews
depending upon the nature of the product or service supplied, to determine if
the provider is Year 2000 compliant. As of Defmber 31, 1998, the Company had
received responses from approximately 90% of such third-parties. Many of the
responses indicate that the products or services provided are expected to be
Year 2000 compliant. However, few providers have provided written assurances
that they are currently Year 2000 compliant. The Company continues to track the
status of third-party providers' Year 2000 compliance progress and a follow-up
program is under way with providers that have not responded. Management believes
that the process of evaluating the Year 2000 compliance status of the Company's
third-party providers who provide critical services and products will be
completed by June 30, 1999.

The Company does not separately track the internal costs incurred for the Year
2000 project which are principally the related payroll costs for its IT staff.
However, the Company has identified certain costs related to the Year 2000
project including costs related to outside consultants and software and hardware
applications. The identified costs incurred through December 31, 1998 were
approximately $334,000, which were expensed as incurred. Based on information
currently available, the total identified remaining costs expected to be
incurred for the Year 2000 projects are estimated to be $95,000. These costs are
being funded through operating cash flows. These estimated costs are the costs
allocated to the Company and do not include the costs allocated to Farm Family
Life and United Farm Family in accordance with sharing arrangements among the
companies. The Company's estimated costs for the Year 2000 project are based on
management's best estimates, which were derived from numerous assumptions,
including the extent of remaining remediation and testing activities,
availability of certain resources and other factors.

The phases of inventory, assessment, remediation, testing and implementation of
the Company's software for Year 2000 issues have been done primarily by the
Company's existing IT staff. Correction of Year 2000 issues is a high priority
project and certain other less critical IT projects have been deferred due to

<PAGE>
Year 2000 efforts; however, the Company does not believe the deferral of other
IT projects has had a material effect on the Company's financial condition or
results of operations in 1997 or during 1998. The Company's IT staff has
continued to work on other high priority projects concurrent with the Year 2000
project.

The Company has not conducted a comprehensive analysis of the operational
problems and costs that would be reasonably likely to result from the failure to
achieve Year 2000 compliance on a timely basis. The Company believes that its
most reasonably likely worst case Year 2000 scenarios may include these
elements: (1) one or more parts of the Company's IT systems will operate
incorrectly, thereby resulting in a temporary shutdown or miscalculations in a
system which may have an adverse effect on the Company's operations and (2) one
or more of the Company's third-party providers will be unable to provide the
products or services expected which may have an adverse effect on the Company's
operations. Because of the progress which has been made toward achieving Year
2000 compliance with the Company's IT systems, an IT system contingency plan has
not been developed. The Company believes that its testing of its critical
hardware and software will reveal any significant Year 2000 problems, that such
problems will be capable of remediation, and that the Company's software and
hardware will perform substantially as planned when Year 2000 processing begins.
If testing reveals material problems that cannot be remediated, then the Company
intends to develop such contingency plans as are practical based on the
alternatives available. A contingency plan has not been developed for dealing
with the scenario where one or more of the Company's third-party providers will
be unable to provide the services expected. If management believes that a
third-party provider is not Year 2000 compliant, or that a third-party
provider's Year 2000 compliance status is uncertain, then the Company intends to
seek other providers or develop such contingency plans as are practical based on
the alternatives available.

Despite the Company's efforts to address its Year 2000 issues, there can be no
assurances that Year 2000 related failures of the Company's IT systems, or that
Year 2000 related failures by third parties with which the Company interacts,
will not have a material adverse effect on the Company's results of operations,
liquidity and financial condition.

In addition to its own computer systems and third-party providers, the Company
may also have exposure in its property/casualty operations to Year 2000 claims
asserted under certain insurance policies it has sold to customers. Although the
Company does not issue insurance policies intended to cover risks related to the
Year 2000 issue, there can be no certainty regarding future judicial or
legislative interpretations of coverage. There can be no assurances that Year
2000 related claims will not emerge and that such claims will not have a
material adverse effect on the Company's results of operations, liquidity and
financial condition.

Products

The Special Farm Package is a flexible, multi-line package of insurance
coverages, which the Company regards as its "flagship" product. For the year
ended December 31, 1998, 22.0% of the Company's total direct written premiums
were derived from the Special Farm Package product.

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

Expense Management

During 1998, the Company continued the expense management initiatives it began
during 1996. The goal of the Company's expense management initiatives is to
continually review its cost structure and reduce or eliminate certain expenses.
Additionally, the Company seeks to tie expenses to operating results so that
expenses become increasingly more variable with the Company's profitability and
less fixed or volume sensitive. As a result, portions of the compensation for
agents, employees and management are influenced by the Company's operating
results. These programs help to align the Company's interests more directly with
those of its shareholders. As a result of these initiatives, as well as an
increase in the Company's premium revenue at a greater rate than its expenses,
the Company's underwriting expenses as a percent of premium revenue were reduced
during 1998 to 26.0% compared to 29.0% for 1997. Further, the Company's
underwriting expenses as a percentage of premium revenue for the fourth quarter
of 1998 were 25.0%.

Future Application of Accounting Standards

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("Statement 133"). This statement, which is effective
for the Company for the year beginning January 1, 2000, establishes accounting
and reporting standards for derivative instruments and for hedging activities.
Statement 133 requires the recognition of all derivatives as either assets or
liabilities in the statement of financial position and the measurement of those
instruments at fair value. Management does not believe that Statement 133 will
have a material impact on the Company's financial statements.
<PAGE>

Results of Operations

The Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997

Premiums

Premium revenue increased $32.5 million, or 21.8%, during the year ended
December 31, 1998 to $181.7 million from $149.2 million in 1997. The increase in
premium revenue in 1998 resulted from an increase of $20.0 million in earned
premiums on additional business directly written by the Company (principally in
New Jersey and New York), an increase of $3.4 million in earned premiums assumed
by the Company, and a decrease of $9.1 million in earned premiums ceded to
reinsurers.

The $20.0 million increase in earned premiums on additional business directly
written by the Company was primarily attributable to an increase of $18.2
million, or 13.6%, in earned premiums from the Company's primary products
(personal and commercial automobile products other than assigned risk automobile
business, the Special Farm Package, businessowners products, homeowners
products, and Special Home Package), an increase of $1.8 million in earned
premiums on workers' compensation business, and an increase of $1.1 million in
earned premiums the Company's other products. These increases were somewhat
offset by a decrease of $1.1 million in earned premiums from assigned risk
automobile business. Premiums earned on personal automobile policies directly
written by the Company (excluding assigned risk personal automobile) accounted
for $62.7 million or 34.7% of the Company's premium revenue in 1998 compared to
$52.9 million or 32.9% in 1997. Premiums earned on personal automobile policies
in the state of New Jersey accounted for $7.0 million of the $20.0 million
increase in earned premiums from the Company's primary products. The number of
policies in force of the Company's primary products increased by 8.7% to
approximately 138,000 in 1998 from approximately 127,000 in 1997 and the average
premium earned for each such policy increased by 4.6% in 1998 compared to 1997.

The decrease in premiums ceded to reinsurers of $9.1 million was primarily
attributable to the termination of the reinsurance agreements with the Company's
affiliate, United Farm Family. The Company's reinsurance assumed premiums
increased as a result of both new reinsurance contracts written in 1998 and
increases in premiums for reinsurance contracts renewed.

Net Investment Income

Net investment income increased $1.0 million, or 5.8%, to $19.1 million for the
year ended December 31, 1998 from $18.1 million in 1997. The taxable equivalent
yield on the Company's investment portfolio was 7.01% and 7.29% for the years
ended December 31, 1998 and 1997, respectively. The increase in net investment
income was primarily the result of an increase in cash and invested assets (at
amortized cost) of approximately $28.3 million, or 10.3%. The increase in cash
and invested assets was greater than the increase in net investment income for
the year ended December 31, 1998 primarily as a result of a decline in
prevailing interest rates as well as an increase in the Company's investment in
tax exempt fixed maturity securities. The Company's investment income from tax
exempt securities increased to $2.7 million in 1998 from $1.4 million in 1997.
The Company's after-tax income has been increased by investing in tax exempt
securities which generally produce more after-tax investment income than taxable
investment grade fixed maturity securities.

Net Realized Investment Gains (Losses)

Net realized investment gains were $0.5 million for the year ended December 31,
1998 compared to $5.4 million in 1997. During 1997, the Company sold a common
stock investment which resulted in a realized gain of $5.7 million.

Losses and Loss Adjustment Expenses

Losses and loss adjustment expenses increased $31.0 million, or 30.0%, to $134.3
million for the year ended December 31, 1998 from $103.3 million in 1997. The
increase in loss and loss adjustment expenses was primarily attributable to a
21.8% increase in premium revenue in 1998 as compared to 1997. Loss and loss
adjustment expenses were 73.9% of premium revenue in 1998 compared to 69.2% of
premium revenue in 1997. The increase in loss and loss adjustment expenses as a
percent of premium revenue was attributable to an increase in weather related
losses and certain other factors during the year ended December 31, 1998
compared to the same period in 1997.
<PAGE>

Loss and loss adjustment expenses incurred by the Company for the year ended
December 31, 1998 were reduced by $3.2 million as a result of coverage provided
by the Company's aggregate stop loss reinsurance program. This program, which
became effective January 1, 1998, covers net losses incurred on the Company's
direct written, as well as its reinsurance assumed business.

Losses related to the Company's direct writings believed to be weather related
aggregated $11.7 million in 1998 compared to $5.2 million in 1997. The increase
in weather related losses was primarily attributable to severe ice storms which
impacted the upstate New York and Maine territories in which the Company writes
business during the first three months of 1998, and tornadoes and severe
thunderstorms which impacted the Northeast during the second quarter of 1998.

The Company incurred an additional $3.9 million of losses in 1998, as compared
to 1997, on its personal and commercial automobile business. The ratio of losses
incurred to premiums earned for the Company's personal and commercial automobile
business was 69.3% for the year ended December 31, 1998 compared to 65.1% in
1997. The Company also incurred an additional $1.4 million of losses in 1998 as
compared to 1997 on its workers compensation business. The loss ratio for
worker's compensation was 53.1% for the year ended December 31, 1998 compared to
41.7% for the same period in 1997.

Loss and loss adjustment expenses on the Company's voluntary assumed business
increased $2.6 million in 1998 as compared to 1997 and was 60.0% of earned
premiums for such business for the year ended December 31, 1998 compared to
57.7% in 1997. The increase in the ratio of loss and loss adjustment expenses to
earned premiums on business assumed was primarily attributable to losses caused
by severe weather in the Midwest.


Underwriting Expenses

Underwriting expenses increased $3.9 million, or 9.0%, to $47.2 million for the
year ended December 31, 1998 from $43.3 million for the same period in 1997. For
the year ended December 31, 1998, underwriting expenses were 26.0% of premium
revenue compared to 29.0% in 1997. The 1997 underwriting expenses include the
impact of the prior period adjustment made to reflect the Company's retroactive
adoption of Statement 112 to account for the Company's extended earnings
program, as discussed previously. Excluding the impact of this prior period
adjustment, the underwriting expenses were 28.0% of premium revenue for 1997.
The reduction in the Company's underwriting expense ratio was primarily
attributable to a smaller relative increase in overhead expenses than in premium
revenue for the year and the Company's continued expense management initiatives
which began in 1996.

Gain on Partial the Reduction of Extended Earnings Liability

The Company recorded a gain of $6.3 million on the partial reduction of its
extended earnings liability during the year ended December 31, 1998, which was
the result of modifications made to the agreements with the Company's agents and
agency managers that relieved the Company of the primary obligation to make
extended earnings payments. The Company is primarily liable for its remaining
extended earnings liability which represents the aggregate amount owed by the
Company to eligible former agents who have terminated their association with the
Company and are currently receiving extended earnings payments.

Federal Income Tax Expense

Federal income tax expense decreased $1.0 million to $8.2 million in 1998 from
$9.2 million in 1997. Federal income tax expense was 30.7% of income before
federal income taxes in 1998 compared to 34.5% in 1997. The decrease in the
Company's federal income tax expense as a percentage of income before federal
income tax expense for the year ended December 31, 1998 as compared to 1997 was
primarily attributable to an increase in tax exempt interest income earned on
the Company's investments reflecting the Company's increased investment in tax
exempt fixed maturity securities.

Net Income

Net income increased $1.2 million to $18.7 million in 1998 from $17.5 million in
1997 primarily as a result of the foregoing factors, including the gain on the
partial reduction of the Company's extended earnings liability of $6.3 million
recognized in 1998.
<PAGE>

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

Premiums

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

Net Investment Income

Net investment income increased $2.1 million, or 13.3%, to $18.1 million for the
year ended December 31, 1997 from $16.0 million in 1996. The increase in net
investment income was primarily the result of an increase in cash and invested
assets (at amortized cost) of approximately $36.4 million, or 15.3%. The
increase in average cash and invested assets was primarily attributable to the
investment of available operating cash flows during 1997. The return realized on
the Company's cash and invested assets was 7.0% in 1997 and 7.5% in 1996.

Net Realized Investment Gains (Losses)

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

Losses and Loss Adjustment Expenses

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

Underwriting Expenses

Underwriting expenses increased $3.8 million, or 9.7%, to $43.3 million for the
year ended December 31, 1997 from $39.5 million for the same period in 1996. For
the year ended December 31, 1997, underwriting expenses were 29.0% of premium
revenue compared to 30.2% in 1996. The reduction in the Company's underwriting
expense ratio was primarily attributable to a smaller relative increase in
overhead expenses than in premium revenue for the period and the Company's
continued expense management initiatives which began in 1996.

Federal Income Tax Expense

Federal income tax expense increased $5.9 million to $9.2 million in 1997 from
$3.3 million in 1996. Federal income tax expense was 34.5% of income before
federal income taxes in 1997 compared to 30.3% in 1996. The increase in income
tax expense was primarily the result of the Company's increased premium volume
and favorable operating results during 1997.

Net Income

Net income increased $11.5 million to $17.5 million in 1997 from $6.0 million in
1996 primarily as a result of the foregoing factors and the impact of $1.5
million of expenses related to the demutualization of the Company which the
Company has identified as an extraordinary item in 1996, as well as the
implementation of a voluntary early retirement program which resulted in a one
time charge to earnings of $0.8 million net of tax in the last quarter of 1996.
<PAGE>

Liquidity and Capital Resources

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

At December 31, 1998, the Company's cash and invested assets, at amortized cost,
was $303.2 million, a $28.3 million increase from 1997. The increase is
primarily the result of the investment of operating cash flows. During 1998, the
Company continued to invest primarily in investment grade fixed maturities to
maintain the overall quality of its investment portfolio. The Company also
increased its investments, at amortized cost, in tax exempt bonds from $31.7
million in 1997 to $78.8 million in 1998. The market value of the Company's
fixed maturity investments is subject to fluctuations directly attributable to
prevailing rates of interest as well as other factors. As of December 31, 1998
and 1997, the aggregate market value of the Company's fixed maturity investments
exceeded the aggregate amortized cost of such investments by $13.3 million and
$10.6 million, respectively.

Fixed maturity securities, at amortized cost, rated as investment grade by the
National Association of Insurance Commissioners were $282.0 million, or 97.7% of
its fixed maturity portfolio, at December 31, 1998 compared to $248.9 million,
or 96.5% of its fixed maturity portfolio, at December 31, 1997. Corporate bonds
constituted most of the non-investment grade securities held by the Company as
of December 31, 1998 and 1997. The mortgage-backed securities held by the
Company as of December 31, 1998 were primarily GNMA, FNMA, and Federal Home Loan
Mortgage Corp. pass-through securities. The Company currently has no investments
in such derivative financial instruments as futures, forward, swap, or option
contracts, or other financial instruments with similar characteristics.

The Company has in place unsecured lines of credit with two banks under which it
may borrow up to $12.0 million at an annual interest rate equal to the lending
bank's prime rate. At December 31, 1998, no amounts were outstanding on the
lines of credit. In addition, the Company's reinsurance intermediary has
extended to the Company a "Rapid Recovery Facility" under which the Company, at
its option, can receive cash advances of up to $8.0 million within 48 hours of
experiencing a catastrophic loss. There is no interest rate associated with this
facility. The Company did not utilize this facility in 1998, 1997 or 1996.

On April 1, 1998, the Company redeemed $1.3 million principal amount of surplus
notes bearing interest at a rate of eight percent per annum. Interest expense
incurred by the Company on the surplus notes for the years ended December 31,
1998, 1997 and 1996 was $25,000, $102,000 and $167,000, respectively.

Net cash provided by operating activities was $29.5 million, $31.4 million, and
$11.8 million during the years ended December 31, 1998, 1997, and 1996,
respectively. The decrease in net cash provided by operating activities in 1998
was primarily attributable to an increase in losses paid. The increase in net
cash provided by operating activities in 1997 compared to 1996 was primarily
attributable to the increase in premiums collected, interest and dividends
received, and a reduction in losses paid relative to the increase in premiums
collected.

Net cash used in investing activities was $28.0 million, $29.6 million, and
$41.1 million during the years ended December 31, 1998, 1997, and 1996,
respectively. The decrease in net cash used in investing activities in 1998
resulted primarily from an increase in investment collections from fixed
maturities available for sale due to an increase in the redemption of fixed
maturities. During 1998, issuers paid $26.9 million to redeem fixed maturities
prior to their stated maturity, compared to $10.6 million in 1997. The decrease
in net cash used in investing activities in 1997 compared to 1996 resulted
primarily from an increase in investment collections from fixed maturities
available for sale and proceeds from sales of equity securities.

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

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

The New York Insurance Law regulates the distribution of dividends and other
payments to Farm Family Holdings by Farm Family Casualty. As of December 31,
1998, the maximum amount of dividends that could be paid by Farm Family Casualty
without the prior approval of the New York State Insurance Department is $3.0
million. Such restrictions or any subsequently imposed restrictions may in the
future affect the liquidity of Farm Family Holdings. Management believes that
the Company's liquidity and capital resources are adequate for the coming year.



<PAGE>
<TABLE>
<CAPTION>



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

-------------------------------------------------------------------------------------------------------------------------
 For the Years Ended December 31,                                                  1998            1997          1996
-------------------------------------------------------------------------------------------------------------------------
Revenues:
<S>                                                                              <C>             <C>           <C>      
    Premiums                                                                     $ 181,756       $ 149,220     $ 130,780
    Net investment income                                                           19,119          18,077        15,952
    Realized investment gains (losses), net                                            451           5,406          (640)
    Other income                                                                     1,033           1,020           905
-------------------------------------------------------------------------------------------------------------------------
         Total revenues                                                            202,359         173,723       146,997
-------------------------------------------------------------------------------------------------------------------------
Losses, Expenses and Other:
    Losses and loss adjustment expenses                                            134,302         103,301        94,977
    Underwriting expenses                                                           47,233          43,320        39,465
    Early retirement program expense                                                   ---             ---         1,177
    Interest expense                                                                    25             102           167
    Dividends to policyholders                                                         192             282           373
-------------------------------------------------------------------------------------------------------------------------
         Total losses and expenses                                                 181,752         147,005       136,159
             Gain on the partial reduction of extended earnings liability           (6,318)             ---           ---
-------------------------------------------------------------------------------------------------------------------------
              Total losses, expenses and other                                     175,434         147,005       136,159
-------------------------------------------------------------------------------------------------------------------------
Income before federal income tax expense and extraordinary item                     26,925          26,718        10,838
Federal income tax expense                                                           8,254           9,218         3,281
-------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item                                                    18,671          17,500         7,557
Extraordinary item - demutualization expenses                                          ---             ---         1,543
-------------------------------------------------------------------------------------------------------------------------
            Net income                                                            $ 18,671        $ 17,500       $ 6,014
-------------------------------------------------------------------------------------------------------------------------
Other Comprehensive Income (Loss):
           Unrealized holding gain (loss) arising during the year 
           (net of deferred tax expense (benefit) of $1,046, $(1,255), and           1,943          (2,329)       (2,657)
           $(1,429))
           Reclassification adjustment for gains included in net
           income (net of tax expense of $210, $1,622, and $198)                       390           3,011           369
           Minimum pension liability adjustment                                        ---             ---           118
-------------------------------------------------------------------------------------------------------------------------
           Other comprehensive income (loss)                                         2,333             682       (2,170)
-------------------------------------------------------------------------------------------------------------------------
           Comprehensive income                                                    $21,004         $18,182        $3,844
=========================================================================================================================
Per Share Data:
    Income before extraordinary item - basic                                     $    3.55       $    3.33      $   1.90
=========================================================================================================================
    Income before extraordinary item - diluted                                   $    3.52       $    3.32      $   1.90
=========================================================================================================================
    Net income - basic                                                           $    3.55       $    3.33      $   1.51
=========================================================================================================================
    Net income - diluted                                                         $    3.52       $    3.32      $   1.51
=========================================================================================================================
</TABLE>

See accompanying notes to Consolidated Financial Statements.

<PAGE>
<TABLE>
<CAPTION>
FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
($ in thousands)

As of December 31,                                                                                1998         1997
--------------------------------------------------------------------------------------------------------------------
ASSETS
Investments:
   Fixed Maturities
     Available for sale, at fair value
<S>                                                                                           <C>          <C>  
        (Amortized cost: $280,124 in 1998 and $248,984 in 1997)                               $293,120     $259,199
     Held to maturity, at amortized cost
        (Fair value: $8,652 in 1998 and $9,194 in 1997)                                          8,390        8,855
   Equity securities
     Available for sale, at fair value
        (Cost: $3,356 in 1998 and $3,363 in 1997)                                                5,323        4,521
   Mortgage loans                                                                                  691        1,660
   Other invested assets                                                                          ----          553
   Short-term investments                                                                        4,638        5,643
--------------------------------------------------------------------------------------------------------------------
             Total investments                                                                 312,162      280,431
--------------------------------------------------------------------------------------------------------------------
Cash                                                                                             6,039        5,841
Insurance receivables:
   Reinsurance receivables                                                                      17,800       12,343
   Premiums receivable, net                                                                     29,666       28,141
Deferred acquisition costs                                                                      13,668       12,613
Accrued investment income                                                                        5,527        5,408
Deferred income tax asset, net                                                                   1,694        4,422
Prepaid reinsurance premiums                                                                       205        2,044
Receivable from affiliates, net                                                                 16,660       17,786
Other assets                                                                                     3,082        2,202
--------------------------------------------------------------------------------------------------------------------
             Total Assets                                                                     $406,503     $371,231
====================================================================================================================
LIABILITIES and STOCKHOLDERS' EQUITY
Liabilities:
   Reserves for losses and loss adjustment expenses                                           $174,435     $156,622
   Unearned premium reserve                                                                     71,209       66,069
   Reinsurance premiums payable                                                                  1,055        2,564
   Accrued expenses and other liabilities                                                       15,566       21,474
   Debt                                                                                              -        1,268
--------------------------------------------------------------------------------------------------------------------
             Total liabilities                                                                 262,265      247,997
--------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
     Preferred stock, $.01 par value, 1,000,000 shares authorized
         and no shares issued and outstanding                                                        -            -
     Common stock, $.01 par value, 10,000,000 shares authorized
         and 5,253,813 shares issued and outstanding                                                53           53
    Additional paid in capital                                                                  92,906       92,906
    Retained earnings                                                                           41,554       22,883
    Accumulated other comprehensive income                                                       9,725        7,392
--------------------------------------------------------------------------------------------------------------------
             Total stockholders' equity                                                        144,238      123,234
--------------------------------------------------------------------------------------------------------------------
             Total Liabilities and Stockholders' Equity                                       $406,503     $371,231
====================================================================================================================
See accompanying notes to Consolidated Financial Statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

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

For the Years Ended December 31,                                                            1998            1997        1996
-----------------------------------------------------------------------------------------------------------------------------
Common stock
<S>                                                                                     <C>             <C>         <C>        
         Balance, beginning of year                                                     $     53        $     53    $      -    
         Common stock issued                                                                   -               -          53
-----------------------------------------------------------------------------------------------------------------------------
         Balance, end of year                                                                 53              53          53
-----------------------------------------------------------------------------------------------------------------------------
Additional paid in capital
         Balance, beginning of year                                                       92,906          98,140           - 
         Prior period adjustment - see Note 2                                                  -          (5,234)          -
-----------------------------------------------------------------------------------------------------------------------------
         Adjusted balance, beginning of year                                              92,906          92,906           -
         Initial public offering and subscription offering, net                                -               -      43,715
         Payments to policyholders                                                             -               -     (12,210)
         Conversion of debt to common stock                                                    -               -         265
         Demutualization of Farm Family Mutual                                                 -               -      61,136
-----------------------------------------------------------------------------------------------------------------------------
         Balance, end of year                                                             92,906          92,906      92,906
-----------------------------------------------------------------------------------------------------------------------------
Retained earnings
         Balance, beginning of year                                                            -           5,838      65,284
         Prior period adjustment - see Note 2                                                  -            (455)    ( 4,779)
-----------------------------------------------------------------------------------------------------------------------------
         Adjusted Balance, beginning of year                                              22,883           5,383      60,505
         Net income                                                                       18,671          17,500       6,014
         Demutualization of Farm Family Mutual                                                 -               -     (61,136)
-----------------------------------------------------------------------------------------------------------------------------
         Balance, end of year                                                             41,554          22,883       5,383
-----------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income
         Balance, beginning of year                                                        7,392           6,710       8,880
         Unrealized holding gain (loss) arising                                          
              during the year (net of deferred tax)                                        1,943          (2,329)     (2,657)
         Reclassification adjustment for gains                                           
              included in net income(net of tax)                                             390           3,011         369  
         Minimum pension liability adjustment                                                  -               -         118
-----------------------------------------------------------------------------------------------------------------------------
         Balance, end of year                                                              9,725           7,392       6,710
-----------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity                                                              $144,238        $123,234    $105,052
=============================================================================================================================
</TABLE>

See accompanying notes to Consolidated Financial Statements.


<PAGE>
<TABLE>
<CAPTION>



FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in thousands)

For the Years Ended December 31,                                                         1998           1997           1996
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS from OPERATING ACTIVITIES
Net income                                                                              $18,671         $17,500        $6,014
-------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income 
to net cash provided by  operating activities:
<S>                                                                                        <C>            <C>             <C>
     Realized investment (gains) losses                                                    (451)         (5,406)          640
     Amortization of bond discount                                                          328             329           130
     Deferred income taxes                                                                1,472            (845)         (900)
     Extraordinary item - demutualization expenses                                           -               -          1,543
     Changes in:
         Reinsurance receivables                                                         (5,457)         (1,600)        3,030
         Premiums receivable, net                                                        (1,525)         (5,478)         (872)
         Deferred acquisition costs                                                      (1,055)         (1,931)         (155)
         Accrued investment income                                                         (119)           (547)         (601)
         Prepaid reinsurance premiums                                                     1,839            (100)          (80)  
         Receivable from affiliates, net                                                  1,126          (1,653)       (2,273)
         Other assets                                                                      (880)           (150)         (283)
         Reserves for losses and loss adjustment expenses                                17,813          15,402         3,242
         Unearned premium reserve                                                         5,140          10,124         3,146
         Reinsurance premiums payable                                                    (1,509)          1,923        (1,994)   
         Accrued expenses and other liabilities                                          (5,908)          3,800         2,802
-------------------------------------------------------------------------------------------------------------------------------
           Total adjustments                                                             10,814          13,868         7,375
-------------------------------------------------------------------------------------------------------------------------------
           Net cash provided by operating activities before extraordinary item           29,485          31,368        13,389
           Extraordinary item - demutualization expenses                                     -              -          (1,543) 
-------------------------------------------------------------------------------------------------------------------------------
           Net cash provided by operating activities                                     29,485          31,368        11,846
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS from INVESTING ACTIVITIES Proceeds from sales:
    Fixed maturities available for sale                                                   3,684          8,019          5,670
    Other invested assets                                                                    -              -             144
    Equity Securities                                                                        -           6,257             -
Investment collections:
    Fixed maturities available for sale                                                   38,957        16,435          9,405
    Fixed maturities held to maturity                                                       440            904          2,561
    Equity securities                                                                         8             -              -
    Mortgage loans                                                                          969             85             77
Investment purchases:
    Fixed maturities available for sale                                                 (73,484)       (59,667)       (58,430)
    Fixed maturities held to maturity                                                        -          (1,294)        (2,042)
Change in short-term investments, net                                                     1,005           (310)         1,199
Change in other invested assets                                                             402            (30)           344
-------------------------------------------------------------------------------------------------------------------------------
           Net cash used in investing activities                                        (28,019)        (29,601)      (41,072)
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS from FINANCING ACTIVITIES
Proceeds from IPO and subscription offerings                                                 -              -          44,880
Demutualization payments to policyholders and noteholders                                    -              -         (12,842)
IPO expenses paid                                                                            -              -          (1,080)
Principal payments on debt                                                               (1,268)           (36)           (32)
-------------------------------------------------------------------------------------------------------------------------------
           Net cash provided by (used in) financing activities                           (1,268)           (36)        30,926
-------------------------------------------------------------------------------------------------------------------------------
           Net increase in cash                                                             198           1,731         1,700
Cash, beginning of year                                                                   5,841           4,110         2,410
-------------------------------------------------------------------------------------------------------------------------------
Cash, end of year                                                                        $6,039          $5,841        $4,110
===============================================================================================================================
</TABLE>

See accompanying notes to Consolidated Financial Statements.


<PAGE>


    1.  Summary of Significant Accounting Policies

          Basis of Presentation:

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

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

          The operations of the Company are closely related with those of its
          affiliates, Farm Family Life Insurance Company ("Farm Family Life")
          and Farm Family Life's wholly owned subsidiary, United Farm Family
          Insurance Company ("United Farm Family") (see Note 11). Farm Family
          Life is a stock life insurance company owned by the state Farm Bureau
          organizations of the ten states in which the Company operates. Farm
          Family Holdings has entered into an Option Purchase Agreement with the
          shareholders of Farm Family Life pursuant to which Farm Family
          Holdings proposes to acquire Farm Family Life subject to certain
          conditions (see Note 16). The Company and Farm Family Life are
          affiliated by common management, shared agents and employees and
          similar Boards of Directors.

          Investments:

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

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

          Mortgage loans are carried at their outstanding principal balance.

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

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

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


<PAGE>

          Income Taxes:

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

          Stock Compensation Plan:

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

          Property-Liability Insurance Accounting:

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

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

          Reserves for losses and loss adjustment expenses represent estimates
          of the ultimate amounts necessary to settle reported losses and a
          provision for incurred but not reported claims of insured losses. The
          reserve estimates are based on known facts and circumstances,
          including the Company's experience with similar cases and historical
          trends involving reserving patterns, loss payments, pending levels of
          unpaid claims and product mix, as well as other factors including
          court decisions, economic conditions and public attitudes. The
          reserves for losses and loss adjustment expenses include case basis
          estimates of reported losses, estimates of incurred but not reported
          losses based upon prior experience adjusted for current trends, and
          estimates of losses to be paid under assumed reinsurance contracts.
          Estimated amounts of recoverable salvage and subrogation are deducted
          from the reserves for losses and loss adjustment expenses. The
          establishment of appropriate reserves, as well as related amounts
          recoverable under reinsurance contracts is an inherently uncertain
          process. Reserve estimates are regularly reviewed and updated, using
          the most current information available. Any resulting adjustments,
          which may be material, are reflected in current operations (see Note
          8).


<PAGE>


          Net Income Per Share:


          The following table for the years ended December 31, 1998, 1997 and
          1996 presents a reconciliation of the numerators and denominators of
          the basic and diluted earnings per share computations.
<TABLE>
<CAPTION>

                                                                               1998           1997           1996
                                                                               ----           ----           ----
                                                                              
         Net income before extraordinary item
<S>                                                                     <C>            <C>             <C>       
               available to common stockholders                         $18,671,000    $17,500,000     $7,557,000
                                                                    ==============================================
         Net income available to common stockholders                    $18,671,000    $17,500,000     $6,014,000
                                                                    ==============================================
         Weighted average number of
             shares in basic earnings per share                           5,253,813      5,253,813      3,979,115
         Effect of stock options                                             50,152         17,134            ---
                                                                    ----------------------------------------------
         Weighted average number
             of shares in diluted earnings per share                      5,303,965      5,270,947      3,979,115
                                                                    ==============================================
         Basic net income before extraordinary item
           per share                                                          $3.55          $3.33          $1.90
                                                                    ==============================================
         Diluted net income before extraordinary item
           per share                                                          $3.52          $3.32          $1.90
                                                                    ==============================================
         Basic net income per share                                           $3.55          $3.33          $1.51
                                                                    ==============================================
         Diluted net income per share                                         $3.52          $3.32          $1.51
                                                                    ==============================================
</TABLE>


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

          New Accounting Pronouncements:

          Effective January 1, 1998, the Company adopted Statement of Financial
          Accounting Standards No. 130 "Comprehensive Income," ("Statement 130")
          which established standards for the reporting and disclosure of
          comprehensive income and its components and reclassifications of prior
          period financial statements to conform to this reporting standard. The
          adoption of Statement 130 resulted in revised and additional
          disclosures, but had no effect on the result of operations or the
          financial position of the Company.

          Effective January 1, 1998, the Company also adopted Statement of
          Financial Accounting Standards No. 131 "Disclosures about Segments of
          an Enterprise and Related Information," ("Statement 131"). Statement
          131 specifies the presentation and disclosure of operating segment
          information reporting in the annual and interim reports issued to
          shareholders. Statement 131 requires that segment information of
          earlier years be restated to conform to the new standard. The adoption
          of Statement 131 did not result in additional disclosures for the
          Company, because the Company currently operates within one business
          segment.

    2.    Prior Period Adjustments

          Previously, the Company accounted for its extended earnings program
          pursuant to Statement of Financial Accounting Standards No. 5,
          "Accounting for Contingencies". The prior period adjustments within
          the Company's consolidated financial statements relates to the
          Company's retroactive adoption effective January 1, 1994 of Statement
          of Financial Accounting Standards No. 112 "Employers' Accounting for
          Post-employment Benefits" ("Statement 112") to account for the
          Company's extended earnings program with its agents and agency
          managers (collectively referred to hereafter as "agents"). Pursuant to
          agreements between the Company and its agents, subject to certain
          conditions including length of service, confidentiality, and
          non-competition, certain agents are eligible to receive monthly
          extended earnings payments for a period of up to eight years
          subsequent to the termination of their association with the Company.
          Historically, such payments have been funded by deductions from the
          commissions earned by successor agents who have assumed the right to
          service the books of business previously serviced by eligible former
          agents subsequent to the termination of the former agent's association
          with the Company.

<PAGE>

          The Company has restated certain amounts within its consolidated
          financial statements as of and for the years ended December 31, 1997
          and 1996. The following table presents the restated and previously
          reported amounts:
<TABLE>
<CAPTION>

         ($ in thousands, except per share data)
                                                                            As of December 31, 1997
                                                                            -----------------------
                                                                   Previously
                                                                     Reported               Restated
                                                                     --------               --------
             Balance Sheet:
<S>                                                                    <C>                    <C>   
             Deferred income tax asset, net                            $1,469                 $4,422
             Total assets                                             368,278                371,231
             Accrued expenses and other liabilities                    11,828                 21,474
             Total liabilities                                        238,351                247,997
             Stockholders' equity                                     129,927                123,234
             Total liabilities and stockholders' equity               368,278                371,231
</TABLE>
<TABLE>
<CAPTION>

                                                                 1997                         1996
                                                                 ----                         ----
                                                  
                                                         Previously                   Previously
                                                          Reported      Restated       Reported       Restated
                                                          --------      --------       --------       --------
    Statements of Income:
<S>                                                        <C>           <C>            <C>            <C>    
        Underwriting expenses                              $41,787       $43,320        $38,160        $39,465
        Federal income tax expense                           9,747         9,218          3,676          3,281
        Income before extraordinary item                    18,504        17,500          8,467          7,557
        Net income                                          18,504        17,500          6,924          6,014
    Per share data:
        Income before extraordinary item-Basic               $3.52         $3.33          $2.13          $1.90
        Income before extraordinary item-Diluted             $3.51         $3.32          $2.13          $1.90
        Net income-Basic                                     $3.52         $3.33          $1.74          $1.51
        Net income-Diluted                                   $3.51         $3.32          $1.74          $1.51
</TABLE>

          Additionally, the consolidated statement of stockholders' equity
          reflects a decrease in the Company's retained earnings of $4,779,000
          as of January 1, 1996.

          During the third quarter of 1998, the Company modified the agreements
          with its agents to include revised eligibility conditions for its
          extended earnings program. As a result, a significant portion of the
          Statement 112 liability was reduced during the third quarter of 1998
          (see Note 13).

     3.   Plan of Reorganization and Conversion

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

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

          As part of the Plan, holders of Farm Family Mutual debt (see Note 9)
          could elect to exchange their debt instruments for shares of stock or
          cash. As a result, there were 17,000 shares and $1,107,000 in cash
          exchanged for debt with an outstanding principal amount of $1,371,000
          plus accrued interest thereon.

<PAGE>

4.          Investments

         The amortized cost, fair value and gross unrealized gains and losses of
         available  for sale  securities  and  held to  maturity  securities  at
         December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>

             ($ in thousands)
         1998                                                     Amortized        Gross Unrealized        Fair
         ----                                                      Cost             Gains     Losses     Value
                                                                   ----             -----     ------     -----
         Available for Sale                                       
         Fixed maturities:
<S>                                                                  <C>             <C>       <C>         <C>    
          U.S. Government & Agencies                                 $14,754         $887      $ ----      $15,641
          States, Municipalities & Political Subdivisions             98,354        4,856          21      103,189
          Corporate                                                  129,347        7,187         937      135,597
          Mortgage-backed Securities                                  31,367          678          13       32,032
          Redeemable Preferred Stock                                   6,302          362           3        6,661
                                                               ----------------------------------------------------
               Total fixed maturities                                280,124       13,970         974      293,120
         Equity securities                                             3,356        1,967        ----        5,323
                                                               ----------------------------------------------------
              Total Available for Sale                              $283,480      $15,937        $974     $298,443
                                                               ====================================================
         Held to Maturity
         Fixed maturities:
          States, Municipalities & Political Subdivisions             $4,278          $54         $75       $4,257
          Corporate                                                    4,112          283        ----        4,395
                                                               ----------------------------------------------------
              Total Held to Maturity                                  $8,390         $337         $75       $8,652
                                                               ====================================================
</TABLE>
<TABLE>
<CAPTION>

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

The table below presents the amortized cost and fair value of fixed maturities
at December 31, 1998, by contractual maturity. Actual maturities may differ from
contractual maturities as a result of prepayments.
<TABLE>
<CAPTION>

            ($ in thousands)                              Available for Sale              Held to Maturity
                                                      ----------------------------   ---------------------------
                                                          Amortized          Fair       Amortized          Fair
                                                               Cost         Value            Cost         Value
<S>                                                          <C>           <C>               <C>           <C> 
         Due in one year or less                             $7,511        $7,566            $140          $137
         Due after one year through five years               54,772        57,064             458           437
         Due after five years through ten years             140,863       146,792           6,322         6,494
         Due after ten years                                 45,611        49,666           1,470         1,584
                                                      ----------------------------   ---------------------------
            Total                                           248,757       261,088           8,390         8,652
         Mortgage-backed securities                          31,367        32,032            ----          ----
                                                      ----------------------------   ---------------------------
            Total                                          $280,124      $293,120          $8,390        $8,652
                                                      ============================   ===========================
</TABLE>





<PAGE>


          Unrealized investment gains and losses on fixed maturities classified
          as available for sale and equity securities included in stockholders'
          equity as accumulated other comprehensive income at December 31, 1998
          are as follows:
<TABLE>
<CAPTION>

             ($ in thousands)                        Cost/                                                Net
                                                   Amortized      Fair            Gross Unrealized    Unrealized
                                                     Cost         Value           Gains   Losses         Gains
                                                     ----         -----           -----   ------          -----
<S>                                                   <C>         <C>           <C>             <C>        <C>    
         Fixed maturities available for sale          $280,124    $293,120      $13,970         $974       $12,996
         Equity securities                               3,356       5,323        1,967        -----         1,967
                                                 ------------------------------------------------------------------
         Total                                        $283,480    $298,443      $15,937         $974        14,963
                                                 ====================================================
         Deferred income taxes                                                                               5,238
                                                                                                     --------------
             Total                                                                                          $9,725
                                                                                                     ==============
</TABLE>

          The change in unrealized  appreciation  (depreciation)  of investments
          included in stockholders'  equity as accumulated  other  comprehensive
          income for the years ended  December 31,  1998,  1997 and 1996 were as
          follows:
<TABLE>
<CAPTION>

               ($ in thousands)                                                   1998          1997          1996
               ----------------                                                   ----          ----          ----
           
<S>                                                                             <C>           <C>         <C>     
         Fixed maturities available for sale                                    $2,781        $5,253      $(4,532)
         Equity securities                                                         809        (4,204)         950
         Other invested assets                                                    ----          ----           63
                                                                        -------------------------------------------
                                                                                 3,590         1,049       (3,519)
         Deferred income taxes                                                  (1,257)         (367)       1,231
                                                                        -------------------------------------------
              Total                                                             $2,333      $    682      $(2,288)
                                                                        ===========================================
</TABLE>

         The  components of net  investment  income for the years ended December
31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>


              ($ in thousands)                                                       1998        1997         1996
              ----------------                                                       ----        ----         ----
<S>                                                                               <C>         <C>          <C>    
         Interest on fixed maturities                                             $19,031     $17,968      $15,612
         Dividends from equity securities                                             179         152           53
         Interest on mortgage loans                                                    90         154          169
         Interest on short-term investments                                           458         416          585
         Other, net                                                                    43          25         ----
                                                                             --------------------------------------
            Gross investment income                                                19,801      18,715       16,419
         Investment expense                                                          (682)       (638)        (467)
                                                                             --------------------------------------
            Net investment income                                                 $19,119     $18,077      $15,952
                                                                             ======================================
</TABLE>


     A summary of realized investment gains (losses), net, for the years ended
     December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>


              ($ in thousands)                                                       1998        1997         1996
              ----------------                                                       ----        ----         ----
<S>                                                                                  <C>       <C>          <C>   
         Fixed maturities                                                            $598      $ (149)       $(567)
         Equity securities                                                              1       5,780         ----
         Other invested assets                                                       (148)       (225)         (73)
                                                                             --------------------------------------
              Total                                                                  $451      $5,406       $(640)
                                                                             ======================================

</TABLE>


<PAGE>


5.        Fair Value of Financial Instruments

          The following table presents the carrying amounts and estimated fair
          values of financial instruments held by the Company at December 31,
          1998 and 1997. The fair value of a financial instrument is the amount
          at which the instrument could be exchanged in a current transaction
          between willing parties. The table excludes cash and cash equivalents,
          premiums receivable, receivables from affiliates, accrued investment
          income and other assets, and accrued expenses and other liabilities,
          all of which had fair values approximating carrying values. As a
          number of the Company's significant assets (including deferred
          acquisition costs, and deferred income taxes) and liabilities
          (including reserves for losses and loss adjustment expenses) are not
          considered financial instruments, the disclosures that follow do not
          reflect the fair value of the Company as a whole.
<TABLE>
<CAPTION>

                                                                      1998                         1997
                                                           ---------------------------  ---------------------------
                                                                Carrying         Fair        Carrying         Fair
               ($ in thousands)                                    Value        Value           Value        Value
                                                                   -----        -----           -----        -----
         Assets
         ------
<S>                                                             <C>          <C>             <C>          <C>     
         Fixed maturities                                       $301,510     $301,772        $268,054     $268,393
         Equity securities                                         5,323        5,323           4,521        4,521
         Mortgage loans                                              691          691           1,660        1,660
         Liabilities
         -----------
         Debt                                                      -----        -----           1,268        1,268
</TABLE>

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

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

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

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

          Fair values for the Company's off-balance-sheet instruments (letters
          of credit and guarantees) are based on fees currently charged to enter
          into similar agreements, taking into account the remaining terms of
          the agreements and the counter parties' credit standing. The fair
          value of the Company's off-balance-sheet instruments at December 31,
          1998 is not considered to be material.

   6.     Reinsurance

          The Company assumes and cedes insurance to participate in the
          reinsurance market, geographically diversify its exposure to
          catastrophic losses, limit maximum losses and minimize exposure on
          large risks (see Note 13). Reinsurance contracts do not relieve the
          Company from its obligations to policyholders as the primary insurer.
          The Company evaluates the financial condition of its reinsurers and
          monitors concentrations of risk arising from similar geographic
          regions, activities and economic characteristics of the reinsurers to
          minimize its exposure to significant losses from reinsurer
          insolvencies. Amounts recoverable are regularly evaluated by the
          Company and an allowance for uncollectible reinsurance is provided
          when collection is in doubt. At December 31, 1998 and 1997, the
          Company determined it was not necessary to provide an allowance for
          uncollectible reinsurance.

          Prior to 1998, the Company's reinsurance program included reinsurance
          agreements with its affiliate, United Farm Family (see Note 11). The
          Company terminated its reinsurance agreements with United Farm Family,
          effective December 31, 1997. As a result, the Company's retention per
          claim increased from $100,000 to $300,000 in 1998.


<PAGE>


               The effects of reinsurance on premiums written and earned, and
          losses and loss adjustment expenses incurred, for the years ended
          December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>

              ($ in thousands)                                                    1998           1997         1996
              ----------------                                                    ----           ----         ----
         Premiums Written
<S>                                                                           <C>            <C>          <C>     
         Direct                                                               $185,139       $168,707     $146,408
         Assumed                                                                15,034         13,091        6,462
         Ceded to United Farm Family                                               ---        (8,959)      (9,336)
         Ceded to non-affiliates                                              (11,349)       (13,594)      (9,690)
                                                                         ------------------------------------------
             Premiums written, net of reinsurance                             $188,824       $159,245     $133,844
                                                                         ==========================================
         Premiums Earned
         Direct                                                               $180,996       $160,988     $142,794
         Assumed                                                                14,037         10,686        6,931
         Ceded to United Farm Family                                               ---         (8,960)      (9,334)
         Ceded to non-affiliates                                               (13,277)       (13,494)      (9,611)
                                                                         ------------------------------------------
             Premiums earned, net of reinsurance                              $181,756       $149,220     $130,780
                                                                         ==========================================
         Losses and Loss Adjustment Expenses Incurred
         Direct                                                               $137,003       $113,569      $99,954
         Assumed                                                                 8,835          6,970        4,630
         Ceded to United Farm Family                                            (1,050)        (9,705)      (7,277)
         Ceded to non-affiliates                                               (10,486)        (7,533)      (2,330)
                                                                         ------------------------------------------
             Losses and loss adjustment expenses incurred,
                 net of reinsurance                                           $134,302       $103,301      $94,977
                                                                         ==========================================
</TABLE>

7. Income Taxes

               The components of the deferred income tax assets and liabilities
          at December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>

               ($ in thousands)                                                          1998          1997
               ----------------                                                          ----          ----
         Deferred Income Tax Assets
<S>                                                                                    <C>            <C>   
         Reserves for losses and loss adjustment expenses                              $5,863         $5,124
         Unearned premium reserve                                                       4,971          4,476
         Accrued expenses and other liabilities                                         1,120          3,940
         Investments                                                                       59            133
                                                                                -----------------------------
                 Total deferred income tax assets                                      12,013         13,673
                                                                                -----------------------------

         Deferred Income Tax Liabilities
         Deferred acquisition costs                                                     4,784          4,414
         Unrealized investment gains, net                                               5,238          3,981
         Other assets                                                                     297            856
                                                                                -----------------------------
                 Total deferred income tax liabilities                                 10,319          9,251
                                                                                -----------------------------
                      Net deferred income tax asset                                    $1,694         $4,422
                                                                                =============================
</TABLE>

          There was no valuation allowance for deferred income tax assets as of
          December 31, 1998 or 1997. In assessing the realization of deferred
          tax assets, management considers whether it is more likely than not
          that the deferred tax assets will be realized. Management primarily
          considered the existence of taxable income in the carry back period in
          making this assessment and believes the benefits of the deductible
          differences recognized as of December 31, 1998 and 1997 will
          ultimately be realized.



<PAGE>


          The components of income tax expense (benefit) for the years ended
          December 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>

          ($ in thousands)                                           1998          1997          1996
          ----------------                                           ----          ----          ----
<S>                                                                <C>          <C>            <C>   
         Current                                                   $6,782       $10,063        $4,181
         Deferred                                                   1,472         (845)         (900)
                                                           -------------------------------------------
              Total income tax expense                             $8,254        $9,218        $3,281
                                                           ===========================================
</TABLE>

               The Company paid income taxes of $6,732,000, $9,962,000, and
          $4,592,000 in 1998, 1997 and 1996 respectively.

          A reconciliation of the differences between the Company's effective
          tax rates and the United States federal income tax rates for the years
          ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>

                                                                     % of              % of                 % of
                                                                   Pretax              Pretax               Pretax
           ($ in thousands)                              1998      Income      1997    Income      1996     Income
                                                         ----      ------      ----    ------ -    ----     ------
<S>                                                    <C>         <C>       <C>       <C>       <C>        <C>   
         Income tax provision at prevailing rates      $9,423      35.00%    $9,351    35.00%    $3,704     34.18%
         Tax effect of:
           Tax exempt interest income                   (932)      (3.45)     (380)    (1.42)     (107)     (0.98)
           Dividends received deduction                 (171)      (0.63)     (157)    (0.59)     (156)     (1.43)
           Other, net                                    (66)      (0.26)       404      1.51     (160)     (1.47)
                                                  -----------------------------------------------------------------
              Federal income tax expense               $8,254      30.66%    $9,218    34.50%    $3,281     30.30%
                                                  =================================================================
</TABLE>

    8.    Reserves for Losses and Loss Adjustment Expenses

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

          The following table provides a reconciliation of beginning and ending
          liability balances for reserves for losses and loss adjustment
          expenses for the years ended December 31, 1998, 1997 and 1996.
<TABLE>


         ($ in thousands)                                                           1998         1997         1996
         ----------------                                                           ----         ----         ----
         Reserves for losses and loss adjustment
<S>                                                                             <C>          <C>          <C>     
               expenses at beginning of year                                    $156,622     $141,220     $137,978
         Less reinsurance recoverables and receivables                            29,054       26,837       28,655
                                                                           ----------------------------------------
         Net reserves for losses and loss adjustment
               expenses at beginning of year                                     127,568      114,383      109,323
                                                                           ----------------------------------------
         Incurred losses and loss adjustment expenses:
                Provision for insured events of current year                     138,201      107,273      100,418
                Decrease in provision for
                         insured events of prior years                            (3,899)      (3,972)      (5,441)
                                                                           ----------------------------------------
                  Total incurred losses and loss adjustment expenses             134,302      103,301       94,977
                                                                           ----------------------------------------
         Payments:
              Losses and loss adjustment expenses
                        attributable to insured events of current year            70,098       49,858       50,122
              Losses and loss adjustment expenses
                        attributable to insured events of prior years             48,245       40,258       39,795
                                                                           ----------------------------------------
                  Total payments                                                 118,343       90,116       89,917
                                                                           ----------------------------------------        
         Net reserves for losses and loss
              adjustment expenses at end of year                                 143,527      127,568      114,383
         Plus reinsurance recoverables and receivables                            30,908       29,054       26,837
                                                                           ----------------------------------------
              Reserves for losses and loss adjustment
                      expenses at end of year                                   $174,435     $156,622     $141,220
                                                                           ========================================
</TABLE>
<PAGE>



          The Company does not discount reserves for losses and loss adjustment
          expenses except for certain lifetime workers' compensation indemnity
          reserves it assumes from mandatory pools. The amount of such
          discounted reserves was $3,337,000 (net of a discount of $1,243,000),
          $3,986,000 (net of a discount of $1,229,000), and $4,184,000 (net of a
          discount of $1,185,000) for December 31, 1998, 1997 and 1996,
          respectively.

    9.    Debt

          At December 31, 1998, the Company had no outstanding debt. On April 1,
          1998 the Company redeemed all of its outstanding debt, consisting of
          $293,000 of debentures and $975,000 of subordinated surplus
          certificates, plus accrued interest of $127,000. The debentures and
          subordinated surplus certificates paid interest at the rate of 8% per
          annum, had no maturity date, and principal and interest were repayable
          only with the approval of the Insurance Department of the State of New
          York. No single holder held more than 5% of the outstanding debentures
          or subordinated surplus certificates at the time of redemption. The
          Company paid interest of $127,000 $104,000 and $279,000 for the years
          ended December 31, 1998, 1997 and 1996, respectively.

          At December 31, 1998, the Company had available lines of credit with
          two banks for $12,000,000 at an annual interest rate equal to the
          lending bank's prime rate. There were no amounts outstanding on these
          lines of credit at December 31, 1998.

10.        Benefits Plans

          Pension and Other Postretirement Benefit Plans:

          The Company and Farm Family Life sponsor a qualified noncontributory
          defined benefit pension plan covering substantially all of the
          Company's and Farm Family Life's full time employees hired prior to
          January 1, 1997. Effective January 1, 1997, the Company and Farm
          Family Life froze benefits available through the defined benefit plan.
          In addition, the Company implemented a voluntary early retirement
          program in the fourth quarter of 1996 (see Note 15). The Company and
          Farm Family Life also provide life insurance benefits through a
          postretirement benefit plan for retired employees meeting certain age
          and length of service requirements. These benefits are shown as "Other
          Benefits" in the tables below. Benefits under the postretirement
          benefit plan are provided by a group term life insurance policy issued
          by Farm Family Life.

               The change in benefit obligation for the plans for the years
          ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>

                                                              Pension Benefits               Other Benefits
                                                              ----------------               --------------
         ($ in thousands)                                   1998       1997       1996     1998     1997      1996
                                                            ----       ----       ----     ----     ----      ----
<S>                                                     <C>        <C>        <C>         <C>      <C>     <C>   
         Benefit obligation at beginning of year        $20,785    $21,075    $21,443     $989     $962    $1,246
         Service cost                                       ---        ---        869       26       26        27
         Interest cost                                    1,416      1,429      1,411       62       65        63
         Actuarial (gain) / loss                             50        (62)       571      (88)     (10)     (333)             
         Benefits paid                                   (1,328)    (1,657)      (834)     (28)     (54)      (41)
         Changes in assumptions                           1,401       ---      (1,455)     170      ---       ---             
         Curtailment                                       ---        ---      (2,999)     ---      ---       ---
         Voluntary early retirement program                ---        ---       2,069      ---      ---       ---
                                                      -------------------------------------------------------------
              Benefit obligation at end of year         $22,324   $20,785    $21,075    $1,131     $989     $962
                                                      =============================================================
</TABLE>



<PAGE>


         The change in plan assets for the years ended  December 31, 1998,  1997
and 1996 is as follows:
<TABLE>
<CAPTION>

                                                        Pension Benefits                  Other Benefits
                                                        ----------------                  --------------
           ($ in thousands)                           1998      1997       1996        1998       1997       1996
                                                      ----      -----      -----       -----      -----      ----
         Fair value of plan assets at
<S>                                                 <C>        <C>        <C>          <C>        <C>        <C> 
         beginning of year                          $19,026    $18,881    $17,111      $---       $---       $---
         Actual return on plan assets                 2,944      1,502        854       ---        ---        ---
         Service cost                                   (72)       ---        ---       ---        ---        ---
         Employer contribution                          200        300       1,750       28        54         41
         Benefits paid                               (1,328)    (1,657)       (834)     (28)      (54)       (41)
                                                -------------------------------------------------------------------
            Fair value of  plan assets at
              end of year                         $20,770       $19,026    $18,881      $---     $---        $---           
                                                ===================================================================
</TABLE>
          Pension plan assets include an unallocated group annuity contract
          issued by Farm Family Life. The fair value of the contract was
          $870,000, $1,486,000 and $4,032,000 at December 31, 1998, 1997, and
          1996, respectively.

         The  components of the plans'  accrued  benefit cost as of December 31,
1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>

                                                         Pension Benefits                  Other Benefits
                                                         ----------------                  --------------
         ($ in thousands)                              1998       1997       1996       1998       1997       1996
                                                       ----       ----       ----       ----       ----       ----
<S>                                                <C>        <C>        <C>        <C>          <C>        <C>   
         Funded  status                            $(1,554)   $(1,759)   $(2,194)   $(1,131)     $(989)     ($962)
         Unrecognized net actuarial gain              (121)      (135)                   ---        ---        ---
                                                                              ---
         Unrecognized net gain                          ---        ---        ---       (15)        ---        ---
         Unrecognized transition obligation             ---        ---        ---       712        759        805
         Unrecognized prior service cost                ---        ---        ---        ---      (105)       (95)
                                                 ------------------------------------------------------------------
             Accrued benefit cost                  $(1,675)   $(1,894)   $(2,194)     $(434)     $(335)     ($252)
                                                 ==================================================================
</TABLE>

         Weighted-average assumptions as of December 31, 1998, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
                                                        Pension Benefits                  Other Benefits
                                                        ----------------                  --------------
                                                      1998       1997       1996       1998       1997       1996
<S>                                                   <C>        <C>        <C>        <C>        <C>        <C> 
         Discount rate                                6.5%       7.0%       7.0%       6.0%       7.0%       7.0%
         Expected  return on plan assets              8.0%       8.0%       8.0%       0.0%       0.0%       0.0%
         Rate of  compensation increase               0.0%       0.0%       4.0%       4.0%       4.0%       4.0%
</TABLE>

          The rate of compensation increase assumptions are zero for 1998 and
          1997, because benefits under the pension plan were frozen as of
          January 1, 1997.

          The components of net periodic pension expense (benefit) and the net
          periodic other benefit expense for the plans for the years
          ended December 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
                                                        Pension Benefits               Other Benefits
                                                         ----------------               --------------
          ($ in thousands)                             1998       1997       1996      1998        1997       1996
                                                       ----       ----       ----      ----        ----       ----
<S>                                                     <C>                  <C>         <C>         <C>        <C>
         Service cost                                   $72        ---       $869        26          26         27
         Interest cost                                1,416      1,429      1,411        62          65         63
         Expected return on plan assets              (1,473)    (1,463)    (1,368)      ---         ---        ---
         Amortization of prior service  cost            ---        ---         29       ---         ---        ---
         Amortization of unrecognized
          net (gain) loss                               (34)        34         94        (7)        ---        ---
         Amortization of unrecognized
         transition (asset) obligation                  ---        ---        (56)       47          47         47
         Voluntary early retirement program
                                                        ---        ---      2,069       ---         ---         41
                                                 ------------------------------------------------------------------
            Net periodic expense (benefit)            ($19)      $---      $3,048      $128        $138       $178
                                                 ==================================================================
</TABLE>
<PAGE>

          The Company's portion of net periodic pension expense (benefit),
          excluding the expense of the voluntary early retirement program, for
          the years ended December 31, 1998, 1997 and 1996 was $(12,000), $0,
          and $617,000, respectively. In addition, in 1996 the Company incurred
          expenses of $1,155,000 related to its voluntary early retirement
          program.

          The Company's portion of net periodic other benefits expense excluding
          the expense of the voluntary early retirement program, for the years
          ended December 31, 1998, 1997 and 1996 was $85,000, $79,000 and
          $88,000. The Company's portion of the voluntary early retirement
          program expense in 1996 was $22,000.

          Incentive Savings Plans:
          The Company sponsors incentive savings plans for the benefit of its
          employees. For the years ended December 31, 1998 and 1997, a portion
          of the contributions made by the Company were discretionary, based on
          the profits earned by the Company. The Company's expense associated
          with the plans was $875,000 $1,082,000 and $182,000 in 1998, 1997 and
          1996, respectively.

          Stock Compensation Plan: 
          In 1997, the Company adopted the Omnibus Securities Plan (the
          "Securities Plan"), under which up to 500,000 shares of common stock
          are available for award. Stock options granted under the Securities
          Plan may be either incentive stock options ("ISO's") or non-qualified
          stock options ("NQSO's"). For ISO's the option price may be no less
          than the fair market value on the date of the grant. For NQSO's, the
          option price may be no less than 85% of the fair market value on the
          date of grant. On April 22, 1997, 215,000 NQSO's were granted. These
          NQSO's may be exercised no earlier than July 26, 1999 and no later
          than April 22, 2007. These NQSO's vest annually in equal amounts over
          a three year period commencing December 13, 1996 and have an exercise
          price of $22.56 per share, the fair market value of the stock on the
          date of grant. The following table summarizes the status of the
          Securities Plan for the years ended December 31, 1998 and 1997 and
          changes during the years of 1998 and 1997:
<TABLE>
<CAPTION>

                                                                                              1998          1997
                                                                                              ----          ----
         Number of shares
<S>                                                                                        <C>           <C>        
         Outstanding at beginning of year                                                  210,000          ----
         Granted                                                                              ----       215,000
         Exercised                                                                            ----          ----
         Forfeited                                                                            ----       (5,000)
                                                                                   ------------------------------
         Outstanding at end of year                                                        210,000       210,000
                                                                                   ==============================
         Exercisable at end of year                                                           ----          ----
                                                                                   ==============================
</TABLE>

          The Company has elected to follow APB 25 and related interpretations
          in accounting for the Securities Plan. Under APB 25, because the
          exercise price of the Company's stock options equals the market price
          of the underlying stock on the date of grant, no compensation expense
          is recognized. If the Company had determined the compensation expense
          of the Securities Plan as prescribed by Statement 123, the Company's
          net income and earnings per share for the years ended December 31,
          1998 and 1997 would have been reduced to the pro forma amounts
          indicated below:
<TABLE>
<CAPTION>

         ($ in thousands, except per share amounts)                 1998                         1997
                                                                    ----                         -----
                                                          As reported     Pro forma     As reported      Pro forma
                                                          -----------     ---------     -----------      ---------
<S>                                                            <C>          <C>              <C>           <C>    
              Net income                                       $18,671      $18,271          $17,500       $17,112
              Basic earnings per share                           $3.55        $3.48            $3.33         $3.26
              Diluted earnings per share                         $3.52        $3.44            $3.32         $3.25
</TABLE>

          The fair value of the options granted in 1997 is estimated on the date
          of grant using the Black-Scholes option-pricing model and the
          following weighted-average assumptions: dividend yield of 0.0%,
          expected volatility of 22.79%, risk-free interest rate of 6.78%, and
          an expected life of six years. At December 31, 1998, the exercise
          price for options outstanding is $22.56, and the weighted-average
          contractual life of the outstanding options is 8.3 years.
<PAGE>

    11.  Related Party Transactions

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

          The gross shared expenses and the Company's share of such expenses for
          the years ended December 31, 1998, 1997 and 1996 is summarized below:
<TABLE>
<CAPTION>

         ($ in thousands)                                                   1998          1997           1996
         ----------------                                                   ----          ----           ----    
<S>                                                                      <C>           <C>            <C>    
         Gross Shared Expenses                                           $29,252       $29,364        $30,689
         Company's Share:
             Amount                                                      $19,842       $19,679        $19,912
             Percentage                                                      68%           67%            65%
</TABLE>

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

          Prior to January 1, 1998, the Company's reinsurance program included
          reinsurance agreements with United Farm Family. In accordance with the
          provisions of these reinsurance agreements, the Company recognized
          commission income of $63,000, and $191,000 during the years ended
          December 31, 1997 and 1996, respectively. Effective December 31, 1997,
          the Company terminated the reinsurance agreements with United Farm
          Family. A summary of the effect of the reinsurance agreements with
          United Farm Family on premiums written and earned is described in Note
          6.

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

   12.  Dividends From Subsidiaries and Statutory Financial Information

          Farm Family Casualty is restricted by law as to the amount of
          dividends it can pay without the approval of regulatory authorities.
          As of December 31, 1998, the maximum amount of dividends that can be
          paid by Farm Family Casualty without the prior approval of the New
          York State Insurance Department is $2,978,000.

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

         ($ in thousands)                                                   1998              1997            1996
                                                                            ----              ----            ----
<S>                                                                      <C>               <C>              <C>   
         Net income                                                      $13,346           $17,081          $7,221
         Surplus                                                         105,165            94,592          83,194
</TABLE>

          The National Association of Insurance Commissioners ("NAIC") requires
          insurance companies to calculate and report risk based capital
          information under a set of formulas which measure statutory capital
          and surplus needs based on a regulatory definition of the risks in a
          company's mix of products and its balance sheet. As of December 31,
          1998, Farm Family Casualty's total capital exceeds the threshold level
          of regulatory action, as defined by the NAIC.

   13.     Commitments, Contingencies and Uncertainties

          The Company is party to numerous legal actions arising in the normal
          course of business. Management believes that resolution of these legal
          actions will not have a material adverse effect on its consolidated
          financial condition.
<PAGE>

          Catastrophes are an inherent risk in the property and casualty
          insurance industry and could produce significant adverse fluctuations
          in the Company's results of operations and financial condition. The
          Company is subject to a concentration of risk within the Northeastern
          United States. For the years ended December 31, 1998, 1997 and 1996,
          approximately 63%, 63% and 61%, respectively, of the Company's direct
          premiums were written in the states of New York and New Jersey. As a
          result of the concentration of the Company's business in the states of
          New York and New Jersey, and more generally, in the Northeastern
          United States, the Company's results of operations may be
          significantly affected by weather conditions, catastrophic events and
          regulatory developments in these two states and in the Northeastern
          United States, despite the Company's reinsurance program designed to
          mitigate the impact of these factors.

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

          During the third quarter of 1998, the Company modified the agreements
          with its agents to include revised conditions under which eligible
          agents may receive extended earnings payments. In addition to the
          conditions described previously, extended earnings will be paid only
          if a successor agent(s) assumes the right to service the book of
          business of the eligible former agent and agrees to become primarily
          responsible for making the extended earnings payments. In the event
          that no successor agent(s) assumes the right to service the book of
          business of an eligible former agent, the Company has no obligation to
          make the extended earnings payments. The Company has no intention to
          waive this provision of its agreements with its agents. As a result,
          the successor agent(s), not the Company, will be the primary obligor
          responsible for extended earnings payments. Since the inception of the
          Program in 1986, the Company has always been able to identify
          successor agents willing to assume the rights to service such books of
          business. The Company will act as guarantor of the amounts payable to
          eligible former agents who have terminated their association with the
          Company by successor agents who agree to make the extended earnings
          payments. At December 31, 1998, the Company was guarantor of $678,000
          for such payments. The Company expects to enforce the terms of the
          guarantee in the event of default by a successor agent. During the
          third quarter of 1998, when the Company's modified agreements with its
          agents became effective, $6,318,000 of the Company's Statement 112
          liability was reduced and the Company recorded a net gain on this
          reduction of $4,107,000 ($6,318,000 less taxes of $2,211,000). The
          Company is primary liable for its remaining Statement 112 liability of
          $3,555,000, which is included in accrued expenses and other
          liabilities on the accompanying balance sheets at December 31, 1998
          and represents the aggregate amount owed by the Company to eligible
          former agents who have terminated their association with the Company
          and are currently receiving extended earnings payments. The Company's
          remaining Statement 112 liability is being funded by deductions from
          the commissions earned by successor agents who have assumed the right
          to service the books of business previously serviced by eligible
          former agents who have terminated their association with the Company
          pursuant to agreements with such agents. Funding from successor agents
          is subject to the ability of the successor agents to generate
          sufficient commissions to satisfy the liability.

          Many computer programs and other computer systems upon which the
          Company relies were created using only two digits to identify a year
          in the date field. If not corrected, many of these computer
          applications could fail or produce erroneous results by or at the
          beginning of the year 2000. In 1996, management began considering Year
          2000 issues as they affect the Company and began to develop a Year
          2000 plan. The Company's overall plan for dealing with the Year 2000
          problem covers information technology ("IT") systems, non-IT systems,
          and third-party providers. The Company has established a Year 2000
          team to lead the Company's activities relating to its Year 2000
          issues. The Company's Year 2000 team works with the Company's senior
          management, legal and business units on Year 2000 issues. Despite the
          Company's efforts to address its Year 2000 issues, there can be no
          assurances that Year 2000 related failures of the Company's IT
          systems, or that Year 2000 related failures by third parties with
          which the Company interacts, will not have a material adverse effect
          on the Company's results of operations, liquidity and financial
          condition.

          In addition to its own computer systems and third-party providers, the
          Company may also have exposure in its property/casualty operations to
          Year 2000 claims asserted under certain insurance policies it has sold
          to customers. There can be no assurances that Year 2000 related claims
          will not emerge and that such claims will not have a material adverse
          effect on the Company's results of operations, liquidity and financial
          condition.

          The Company is a party to Membership List Purchase Agreements with
          each of the state Farm Bureaus in the ten states in which it conducts
          business. The Membership List Purchase Agreements are for six years
          commencing on January 1, 1996. For the years ended December 31, 1998,
          1997, and 1996, the Company paid a total of $660,000, $600,000 and
          $571,000, respectively, to the Farm Bureaus pursuant to the Membership
          List Purchase Agreements.

          At December 31, 1998, the Company had $5.7 million of outstanding
          letters of credit. These letters of credit are issued to insurance
          companies that Farm Family Casualty has assumed reinsurance from and
          are domiciled in states where Farm Family Casualty is not licensed or
          authorized as a reinsurer.
<PAGE>

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

                                                                           Quarter Ended
         ($ in thousands except per share data)      March 31        June 30       September 30     December 31
                                                     --------        -------       ------------     ------------
         1998
<S>                                                       <C>            <C>              <C>              <C>    
        Revenues                                          $47,927        $50,160          $50,936          $53,336
        Net income                                         $3,022         $2,711           $8,458           $4,480
        Per share:
          Net income - Basic                                $0.58          $0.52            $1.61            $0.85
          Net income - Diluted                              $0.57          $0.51            $1.59            $0.85

          1997
        Revenues                                          $39,519        $46,087          $43,482          $44,635
        Net income                                         $2,794         $6,972           $3,829           $3,905
        Per share:
          Net income - Basic                                $0.53          $1.33            $0.73            $0.74
          Net income - Diluted                              $0.53          $1.33            $0.72            $0.74
</TABLE>

   15.    Extraordinary Item and Non-Recurring Expenses

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

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

  16.    Acquisition of Farm Family Life

          Farm Family Holdings entered into an Option Purchase Agreement with
          the shareholders of Farm Family Life pursuant to which Farm Family
          Holdings was granted an option to acquire all of the outstanding
          capital stock of Farm Family Life, exercisable for a two year period
          which commenced on July 26, 1996. On February 26, 1998, the Board of
          Directors of Farm Family Holdings approved the exercise of the option
          to acquire Farm Family Life and it's wholly owned subsidiary United
          Farm Family. Under the Option Purchase Agreement, Farm Family Holdings
          will pay an exercise price of $37.5 million to acquire Farm Family
          Life, consisting of $31.5 million of common stock of Farm Family
          Holdings, and $6 million stated value of 6-1/8% voting preferred stock
          of Farm Family Holdings, less certain expenses to be paid by Farm
          Family Life in the acquisition on behalf of the shareholders of Farm
          Family Life.

          The Option Purchase Agreement was approved by the Company's
          shareholders on December 2, 1998. The closing of the acquisition was
          scheduled to occur on December 7, 1998, but was delayed when it was
          determined that in order for certain shareholders of Farm Family Life
          to provide unqualified opinions of counsel required by the Option
          Purchase Agreement as a condition to closing, such shareholders of
          Farm Family Life or their respective parent entities would need to
          obtain approval of the acquisition from their members.

          As a result of this delay, the Option Purchase Agreement was amended
          to, among other things, fix the price used to determine the number of
          shares of common and preferred stock to be issued, subject to a collar
          mechanism, at $35.72, which was the average closing price that would
          have been used if the closing had occurred on December 7, 1998. Under
          the collar mechanism, if the price per share of the Company's common
          stock on the last trading day prior to the closing (the "Closing
          Price") is greater than $42.86 or equal to or less than $25.00, the
          price used to determine the number of shares of the Company's common
          stock to be issued in the acquisition will equal $35.72 divided by a
          factor. The factor will be equal to 1.2 (if the Closing Price is
          greater than $42.86) or 0.7 (if the Closing Price is equal to or less
          than $25.00) multiplied by $35.72 divided by the Closing Price. If the
          Closing Price is $25.00 or less, the Company will have the option to
          terminate the Option Purchase Agreement. In addition, the termination
          date for the Option Purchase Agreement has been extended to April 30,
          1999.

          The amendment to the Option Purchase Agreement is subject to the
          approval of the members of certain shareholders of Farm Family Life or
          their respective parent entities, and the shareholders of the Company.
          The Company expects to resolicit the approval of its shareholders for
          the revised terms of the acquisition. Under the terms of the
          amendment, the shareholders of Farm Family Life have agreed to
          reimburse the Company for half of the expenses of resolicitation, up
          to $200,000. The acquisition of Farm Family Life is also subject to
          the receipt of all required government approvals. Management expects
          to close the acquisition of Farm Family Life in the second quarter of
          1999.
<PAGE>


17.       Future Application of Accounting Standards

          In June 1998, the Financial Accounting Standards Board issued
          Statement of Financial Accounting Standards No. 133, "Accounting for
          Derivative Instruments and Hedging Activities" ("Statement 133"). This
          statement, which is effective for the Company for the year beginning
          January 1, 2000, establishes accounting and reporting standards for
          derivative instruments and for hedging activities. Statement 133
          requires the recognition of all derivatives as either assets or
          liabilities in the statement of financial position and the measurement
          of those instruments at fair value. Management does not believe that
          Statement 133 will have a material impact on the Company's financial
          statements.


<PAGE>


         Report of Independent Accountants


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


In our opinion, the accompanying consoldited balance sheets and the related
consolidated statements of income and comprehensive income, stockholders' equity
and cash flows present fairly, in all material respects, the financial position
of Farm Family Holdins, Inc. and its subsidiaries at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These finacial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.


/s/PricewaterhouseCoopers, LLP
Albany, New York
February 10, 1999




<PAGE>



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

Subsidiaries                                                             State

Farm Family Financial Services, Inc. is a wholly owned 
     subsidiary of Farm Family Holdings, Inc.                             NY

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

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

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

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