FORM 10-Q/A

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

(Mark one)

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

For the quarterly period ended September 30, 1997

         OR

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

For the transition period from               to

Commission file number     0-27462


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

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

  1390 Main Street, Sarasota, Florida                       34236
    (Address of principal executive offices)              (Zip Code)

                                 (941) 906-2000
                         (Registrant's telephone number,
                              including area code)


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

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

                     Class                       Outstanding at October 31, 1997

   Class A Common Stock, $.01 par value                   11,743,335
   Class B Common Stock, $.01 par value                   24,334,443






                                       1
<PAGE>


                                      INDEX

<TABLE>
<CAPTION>

                                                                                                          Page No.
Part I     Financial Information

<S>                                                                                                       <C>
           Item 1.         Financial Statements

                           Consolidated Balance Sheets -
                               September 30, 1997 and December 31, 1996                                    3-4


                           Consolidated Statements of Operations -
                               For the three months ended September 30, 1997 and 1996                        5


                           Consolidated Statements of Income -
                               For the nine months ended September 30, 1997 and 1996                         6


                           Consolidated Statements of Cash Flows -
                               For the nine months ended September 30, 1997 and 1996                         7


                           Notes to Consolidated Financial Statements                                     8-15


           Item 2.         Management's Discussion and Analysis of Financial                             16-27
                           Condition and Results of Operations


Part II    Other Information

           Item 1.         Legal Proceedings                                                                28

           Item 2.         Changes to Securities                                                            29

           Item 3.         Defaults Upon Senior Securities                                                  29

           Item 4.         Submission of Matters to a Vote of Security Holders                              29

           Item 5.         Other Information                                                                29

           Item 6.         Exhibits and Reports on Form 8-K                                              29-30

                           Signatures                                                                       31

                           Exhibits                                                                      32-35

</TABLE>




                                       2
<PAGE>



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

                         RISCORP, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets
                    September 30, 1997 and December 31, 1996
                                 (in thousands)


                                                                                          September 30,    December 31, 1996
                                                                                              1997
Assets                                                                                    (Unaudited)

Investments:
<S>                                                                                        <C>                 <C>
Fixed maturities available for sale, at fair value (amortized cost $226,240
      $147,882 in 1997 and $226,240 in 1996)                                                $ 151,200           $ 228,802
   Fixed  maturities available for sale, restricted, at fair value (amortized
      cost $34,515 in 1997)                                                                    34,633                  --
   Fixed maturities held to maturity, at amortized cost (fair value $21,882
      in 1997 and $22,892 in 1996)                                                             21,765              22,809
   Equity securities, at fair value (cost $1,476 in 1997 and $3,380 in 1996)                    1,536               4,045
      Total investments                                                                       209,134             255,656


Cash and cash equivalents                                                                      29,750              26,307
Cash and cash equivalents, restricted                                                          16,374                  --
Premiums receivable, net                                                                      109,295             122,078
Accounts receivable--other                                                                       3,724              11,676
Recoverable from Florida Special Disability Trust Fund, net                                    45,215              49,505
Reinsurance recoverables                                                                      190,871             180,698
Prepaid reinsurance premiums                                                                   39,039              49,788
Prepaid managed care fees                                                                      22,174              31,958
Accrued reinsurance commissions                                                                27,153              20,419
Deferred income taxes                                                                          22,248              22,551
Property and equipment, net                                                                    27,281              27,505
Goodwill                                                                                       19,629              22,648
Other assets                                                                                    7,389               7,653

Total assets                                                                                $ 769,276       $ 828,442











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




                                       3
<PAGE>


<TABLE>
<CAPTION>


                         RISCORP, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets
                    September 30, 1997 and December 31, 1996
                                 (in thousands)


                                                                                        September 30,     December 31, 1996
                                                                                            1997
Liabilities and Shareholders' Equity                                                    (Unaudited)

Liabilities:
<S>                                                                                       <C>                  <C>      
   Losses and loss adjustment expenses                                                    $ 460,428            $ 458,239
   Unearned premiums                                                                         73,252              102,562
   Notes payable of parent company                                                           15,000               15,000
   Notes payable of subsidiaries                                                                802                1,303
   Accounts and notes payable--related party                                                     --                1,171
   Deposit balances payable                                                                   5,512                4,787
   Accrued expenses and other liabilities                                                    42,291               74,706
   Net assets in excess of cost of business acquired                                         10,043               11,266
                                                                                            607,328              669,034

Class A Common Stock subject to put options                                                      --                2,100

Shareholders' equity:
   Class A Common Stock, $.01 par value, 100,000,000 shares authorized; shares
       issued and outstanding:  11,855,917 in 1997 and 1996
                                                                                                120                  120
   Class B Common Stock, $.01 par value,  100,000,000 shares authorized;  shares
       issued and outstanding; 1996 and 1997 24,334,443
                                                                                                243                  243
   Preferred stock, $.01 par value, 10,000,000 shares authorized; 0 shares
       issued and outstanding                                                                   --                    --
   Additional paid-in capital                                                               139,691              137,813
   Net unrealized gains on investments                                                        2,274                1,769
   Unearned compensation--stock options                                                          --                 (546)
   Retained earnings                                                                         21,720               17,909
   Treasury stock - at cost, 112,582 shares                                                  (2,100)                   -
      Total shareholders' equity                                                            161,948              157,308

      Total liabilities and shareholders' equity                                          $ 769,276            $ 828,442










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




                                       4
<PAGE>



<TABLE>
<CAPTION>

                         RISCORP, INC. AND SUBSIDIARIES

                      Consolidated Statements of Operations
             For the three months ended September 30, 1997 and 1996
                 (in thousands, except share and per share data)


                                                                                            1997                 1996
                                                                                       (Unaudited)           (Unaudited)
   Revenue:
<S>                                                                                        <C>                 <C>     
       Premiums earned                                                                     $ 40,417            $ 51,365
       Fee income                                                                             7,008               7,111
       Net investment income
                                                                                              4,104               3,098
          Total revenue                                                                      51,529              61,574

   Expenses:
       Losses and loss adjustment expenses                                                   31,219              38,291
       Unallocated loss adjustment expenses                                                   3,195               3,367
       Commissions, underwriting and administrative expenses                                 15,291              13,207
       Interest expense                                                                         473                 523
       Depreciation and amortization
                                                                                              2,418               4,323
          Total expenses                                                                     52,596              59,711

   Income (loss) before income taxes                                                        (1,067)               1,863

   Income tax (benefit) expense
                                                                                              (433)               1,551

   Net (loss) income                                                                     $                  $
                                                                                              (634)                 312



   Net (loss) income per common share                                                     $                  $
                                                                                             (0.02)                0.01

   Weighted average common and common share
     equivalents outstanding                                                            36,868,114           37,591,605











See accompanying notes to consolidated financial statements.

</TABLE>



                                       5
<PAGE>


<TABLE>
<CAPTION>


                         RISCORP, INC. AND SUBSIDIARIES

                        Consolidated Statements of Income
              For the nine months ended September 30, 1997 and 1996
                 (in thousands, except share and per share data)


                                                                                             1997                1996
                                                                                        (Unaudited)          (Unaudited)
   Revenue:
<S>                                                                                        <C>                <C>      
       Premiums earned                                                                     $ 133,882          $ 131,855
       Fee and other income                                                                   17,969             23,079
       Net investment income                                                                  12,557              7,592
          Total revenue                                                                      164,408            162,526

   Expenses:
       Losses and loss adjustment expenses                                                    87,140             89,517
       Unallocated loss adjustment expenses                                                   11,295              9,214
       Commissions, underwriting and administrative expenses                                  51,862             39,327
       Interest expense                                                                        1,442              2,121
       Depreciation and amortization                                                           6,257              6,270
          Total expenses                                                                     157,996            146,449

   Income before income taxes                                                                  6,412             16,077

   Income taxes                                                                                2,602              6,776

   Net income                                                                            $     3,810        $     9,301


   Net income per common share                                                          $       0.10       $       0.26

   Weighted average common and common share
     equivalents outstanding                                                             37,164,143          35,828,026
















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




                                       6
<PAGE>



<TABLE>
<CAPTION>

                         RISCORP, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
              For the nine months ended September 30, 1997 and 1996
                                 (in thousands)

                                                                                            1997                 1996
                                                                                       (Unaudited)           (Unaudited)

<S>                                                                                      <C>                <C>        
Net cash (used in) provided by operating activities                                      $ (24,228)         $    30,712

Cash flows from investing activities:
     Purchase of property and equipment                                                     (3,112)              (9,807)
     Proceeds from the sale of equipment                                                       658                  600
     Purchase of fixed maturities - available for sale                                     (86,170)            (154,776)
     Proceeds from sale of fixed maturities - available for sale                           120,424               64,850
     Proceeds from maturities of fixed maturities - available for sale                       9,868                2,500
     Purchase of fixed maturities--held to maturity                                             --               (2,452)
     Proceeds from maturities of fixed maturities - held to maturity                         1,000                4,400
     Purchase of equity securities                                                            (637)              (2,955)
     Proceeds from sale of equity securities                                                 3,431                  414
     Purchase of National Alliance for Risk Management Group Self
       Insurers' Fund of Maryland, net of cash acquired                                        134                   --
     Purchase of CompSource, Inc. and Insura, Inc., net of cash acquired                        --              (12,681)
     Purchase of NARM, net of cash acquired                                                     --                2,717
     Purchase of Atlas Insurance Company, net of cash acquired                                  --               (5,370)
     Purchase of Independent Association Administrators, Inc., net of
       cash acquired                                                                            --              (10,543)
     Purchase of Risk Inspection Services and Consulting, Inc., net of
       cash acquired                                                                            --                 (538)
           Net cash provided by (used in) investing activities                              45,596             (123,641)

Cash flows from financing activities:
     Principal repayments of notes payable                                                    (501)             (30,832)
     Increase in deposit balances payable                                                      725                  668
     Unearned compensation - stock options                                                     547                  216
     Issuance of common stock                                                                   --              138,375
     Treasury Stock                                                                         (2,100)                  --
     Other, net                                                                               (222)                 324
           Net cash (used in) provided by financing activities                              (1,551)             108,103

Net increase in cash and cash equivalents                                                   19,817               15,174

Cash and cash equivalents, beginning of period                                              26,307               23,348
Cash and cash equivalents, end of period                                                  $ 46,124            $  38,522
Supplemental disclosures of cash flow information:

     Cash paid during the period for:
       Interest                                                                          $   1,447            $   2,965
       Income taxes                                                                      $   3,445            $   6,244

See accompanying notes to consolidated financial statements.

</TABLE>



                                       7
<PAGE>




                         RISCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Condensed Financial Statements
                                   (Unaudited)


(1)    Basis of Presentation

       RISCORP,  Inc.'s (the  "Company"  or  "RISCORP")  consolidated  unaudited
       interim financial statements have been prepared on the basis of generally
       accepted   accounting   principles   ("GAAP")  and,  in  the  opinion  of
       management, reflect all adjustments,  consisting only of normal recurring
       adjustments, necessary for a fair presentation of the Company's financial
       condition,   results  of  operations  and  cash  flows  for  the  periods
       presented.  The  preparation of financial  statements in conformity  with
       GAAP requires  management to make estimates and  assumptions  that affect
       the  reported  amounts  of assets  and  liabilities  and  disclosures  of
       contingent assets and liabilities at the date of the financial statements
       and the  reported  revenues  and expenses  during the  reporting  period.
       Actual  results  could  differ  from  those  estimates.  The  results  of
       operations for the three and nine months ended September 30, 1997 may not
       be  indicative  of the  results  that may be  expected  for the full year
       ending December 31, 1997.  These  consolidated  financial  statements and
       notes should be read in  conjunction  with the financial  statements  and
       notes  included  in the  audited  consolidated  financial  statements  of
       RISCORP,  Inc.  and  subsidiaries  for the year ended  December  31, 1996
       contained in the Company's  Statement on Form 10K/A, which was filed with
       the Securities and Exchange Commission on October 23, 1997.

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

(2)    Initial Public Offering of Common Stock


       On February 29, 1996, the Company issued 7,200,000 shares of common stock
       in an initial public offering ("IPO") at a price of $19.00 per share. Net
       proceeds,   after   underwriting   discounts  and  commissions,   totaled
       approximately  $127.9  million.  The  Company  used $28.6  million of the
       proceeds  from the IPO to repay  certain  debt,  including  debt of $26.0
       million  bearing  interest at a variable  rate (either LIBOR or the prime
       rate of First Union National Bank of North  Carolina,  plus an applicable
       margin)  which was 8.75  percent  as of March 1,  1996,  and debt of $2.6
       million  bearing   interest  at  the  rate  of  9.75  percent  per  year.
       Additionally,  approximately  $12.1  million  was  used to  complete  the
       acquisition  of  CompSource,   Inc.  and  Insura,   Inc.   (collectively,
       "CompSource"),  approximately  $5.0  million  was used to  acquire  Atlas
       Insurance  Company  ("Atlas"),  approximately  $11.5  million was used to
       acquire   Independent   Association    Administrators,    Inc.   ("IAA"),
       approximately  $68.9 million was used to increase the capital and surplus
       of the  Company's  insurance  subsidiaries,  and the balance was used for
       general corporate  purposes.  These acquisitions are more fully described
       in Note 3.

       In conjunction  with the offering of shares by the Company,  the majority
       shareholder offered shares to the public. The Company did not receive any
       proceeds  from the sale of shares  offered by the  majority  shareholder.
       However,  some of the majority  shareholder's  proceeds from the offering
       were used to repay approximately $7.6 million in outstanding indebtedness
       to the Company.





                                       8
<PAGE>




(3)    Acquisitions and Joint Ventures

       Joint Venture Arrangement

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

       The Company accounts for its 50 percent  investment in Third Coast on the
       equity basis of accounting,  whereby the Company's recorded investment is
       adjusted  for its  proportionate  share of  earnings  or  losses of Third
       Coast.  The  Company  discontinued  the  use  of  the  equity  method  of
       accounting  for  Third  Coast  in the  first  quarter  of 1997  when  the
       cumulative losses reduced the Company's  investment in Third Coast to $0.
       In addition,  the Company has not made any financial  guarantees relating
       to Third Coast and has not made any financial  commitments to provide any
       future funding to Third Coast.  For the three months ended  September 30,
       1997, the unrecorded  losses  relating to Third Coast were  approximately
       $2.7 million and the  cumulative  unrecorded  losses as of September  30,
       1997 were approximately $5.3 million.

       Acquisition of CompSource

       In March 1996,  the Company  purchased  all of the  outstanding  stock of
       CompSource  in  exchange  for  approximately  $12.1  million  in cash and
       112,582  shares  of the  Company's  Class A Common  Stock  valued at $2.1
       million on the date of acquisition. CompSource is a workers' compensation
       management  services  company  offering its  services in North  Carolina.
       Pursuant to a stock  redemption  agreement  entered  into as part of this
       transaction,  the former  shareholders of CompSource  elected to have the
       Company  repurchase the 112,582 shares at a purchase price of $18.653 per
       share on March 8, 1997,  and the Company  repurchased  all 112,582 shares
       from the former  shareholders  for $2.1 million,  in accordance  with the
       terms of the redemption agreement. This $2.1 million stock redemption has
       been included in the accompanying Consolidated Balance Sheets.

       On the  acquisition  date,  the excess of the purchase  price over the
       fair  value of the net  assets  acquired  was  $12.6  million  and was
       recorded as goodwill in the accompanying Consolidated Balance Sheets.

       Acquisition of Atlas

       In March 1996, RISCORP of Florida, Inc., a wholly-owned subsidiary of the
       Company,  acquired 100 percent of the outstanding  capital stock of Atlas
       for  approximately  $5.0 million in cash. As a result of the acquisition,
       the name was changed  from Atlas to RISCORP  National  Insurance  Company
       ("RNIC"). RNIC, which primarily provides workers' compensation insurance,
       is licensed to do business in 19 states and is  authorized  to operate on
       an  excess  and  surplus  lines  basis  in 5  additional  states.  On the
       acquisition date, the excess of the purchase price over the fair value of
       the net assets  acquired was $2.6 million and was recorded as goodwill in
       the accompanying Consolidated Balance Sheets.




                                       9
<PAGE>




       Acquisition of Independent Association Administrators, Inc. and Risk
       Inspection Services and Consulting, Inc. ("RISC")

       In September 1996, the Company  purchased all of the outstanding stock of
       IAA and RISC in exchange  for  approximately  $11.5  million,  consisting
       primarily of 790,336 shares of the Company's  Class A Common Stock valued
       at approximately  $10.9 million on the date of acquisition.  IAA and RISC
       are workers' compensation management services companies offering services
       in Alabama.  On the  acquisition  date,  the excess of the purchase price
       over the fair value of the net assets  acquired was $11.4 million and was
       recorded as goodwill in the accompanying Consolidated Balance Sheets.

       During the first  quarter of 1997,  it became  evident  that the goodwill
       recorded at the date of the RISC and IAA  acquisition  could not be fully
       recovered from the  profitability of the workers'  compensation  business
       that was currently under contract  including the estimated 1997 renewals.
       Therefore,  as of December 31, 1996, $2.8 million of goodwill was written
       off  and is  included  as an  expense  in the  accompanying  Consolidated
       Statements of Income.

       Assumption Reinsurance Transaction

       The  following  loss  portfolio  transfers  and  assumption   reinsurance
agreements were entered into by RNIC during 1996 (in thousands):
<TABLE>
<CAPTION>

                                                     Losses Assumed at       Unearned Premiums at
       Entity                      Effective Date     Date of Transfer         Date of Transfer
                                         

<S>                               <C>                       <C>                      <C>    
       NARM                        June 14, 1996             $ 34,544                 $ 5,209
       OSAA                        September 1, 1996           49,716                      --
       NARM - Virginia             October 1, 1996              3,057                     996
       Total                                                 $ 87,317                 $ 6,205
</TABLE>

       Effective June 14, 1996, RNIC entered into a loss portfolio  transfer and
       assumption   reinsurance   agreement  with  National  Alliance  for  Risk
       Management ("NARM"), a North Carolina  self-insured workers' compensation
       fund.  Under the terms of the agreement,  RNIC assumed 100 percent of the
       outstanding  loss reserves  (including  incurred but not reported losses)
       and the  outstanding  unearned  premiums as of June 14, 1996. RNIC issued
       assumption certificates to all of the NARM policyholders.

       Effective  September 1, 1996, RNIC entered into a loss portfolio transfer
       and  assumption   reinsurance  agreement  with  the  Occupational  Safety
       Association  of  Alabama  ("OSAA"),   an  Alabama  self-insured  workers'
       compensation  fund.  Under the terms of the  agreement,  RNIC assumed 100
       percent of the  outstanding  loss  reserves  (including  incurred but not
       reported  losses)  as  of  September  1,  1996.  RNIC  issued  assumption
       certificates to all OSAA policyholders.

       Effective  October 1, 1996,  RNIC entered into a loss portfolio  transfer
       and assumption reinsurance agreement with three NARM self insurance funds
       in Virginia ("NARM - Virginia").  Under the terms of the agreement,  RNIC
       assumed 100 percent of the outstanding loss reserves  (including incurred
       but not  reported  losses) and the  outstanding  unearned  premiums as of
       October 1, 1996. RNIC issued assumption certificates to all NARM Virginia
       policyholders.




                                       10
<PAGE>





       In addition, OSAA transferred to RNIC approximately $11.0 million in OSAA
       member deposits and cash of approximately $11.0 million. RNIC will refund
       the  deposits to the  policyholders  during  1997 when the final  premium
       audits are  completed  for the 1996 policy year. As of December 31, 1996,
       OSAA  owed  RNIC  approximately  $3.3  million  in  connection  with  the
       transaction. These funds were received on April 14, 1997.

(4)    Commitments and Contingencies

       On April 2, 1996, the Company, RISCORP Insurance Company ("RIC"), several
       officers, directors and employees were named as defendants in a purported
       class action filed in the United States  District  Court for the Southern
       District  of  Florida.  The  suit  claims  the  defendants  violated  the
       Racketeer  Influenced and Corrupt  Organizations  Act ("RICO"),  breached
       fiduciary  duties,  and were  negligent in the Company's  acquisition  of
       Commerce  Mutual  Insurance  Company  ("CMIC")  in 1995.  The suit  seeks
       compensatory and punitive damages and equitable relief and treble damages
       for the RICO counts. The named plaintiffs,  Vero Cricket Shop, Inc., Vero
       Cricket Shop Too, Inc., and Falls Company of Longboat Key, Inc., claim to
       be former  policyholders  of CMIC and claim to represent others similarly
       situated.  The defendants  moved to dismiss the RICO counts and to strike
       the punitive damages claims. These motions, as well as plaintiffs' motion
       for  class  certification,  were  pending  when the  plaintiffs  filed an
       amended  complaint.  The amended  complaint  added the Florida  Insurance
       Commissioner and Zenith Insurance Company ("Zenith") as defendants in one
       new count seeking declaratory relief. The remaining claims in the amended
       complaint are the same as those in the original complaint. The defendants
       have filed a motion to dismiss  the amended  complaint  and to strike the
       punitive  damages  claims.  The parties have been ordered to  non-binding
       mediation  in this  matter.  The  Company  intends to defend  this action
       vigorously;  however,  there can be no assurance  that it will prevail in
       the litigation.

       Between  November 20, 1996 and January 31, 1997, nine  shareholder  class
       action  lawsuits were filed  against the Company and other  defendants in
       the United States District Court for the Middle  District of Florida.  In
       March 1997, the Court  consolidated  these lawsuits and appointed co-lead
       plaintiffs  and co-lead  counsel.  The  plaintiffs  subsequently  filed a
       consolidated  complaint.  The consolidated  complaint named as defendants
       the Company,  three of its executive officers,  one non-officer  director
       and three of the Company's  underwriters for the Company's initial public
       offering.  The  plaintiffs  in  the  consolidated  complaint  purport  to
       represent the class of  shareholders  who purchased the Company's Class A
       Common  Stock  between  February  28, 1996 and  November  14,  1996.  The
       consolidated  complaint alleges that the Company's Registration Statement
       and  Prospectus of February 28, 1996,  as well as subsequent  statements,
       contained false and misleading statements of material fact and omissions,
       in  violation  of sections 11 and 15 of the  Securities  Act and sections
       10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 promulgated
       thereunder.  The consolidated  complaint seeks  unspecified  compensatory
       damages.  The  Company  has filed a motion to  dismiss  the  consolidated
       complaint which has been fully briefed and is pending.  Discovery will be
       stayed until the motion to dismiss has been decided.  The plaintiffs have
       filed a motion to certify the class, but the parties have agreed that the
       Company  need not  respond to that  motion  until  thirty  days after the
       motion to dismiss  has been  decided.  The parties  have been  ordered to
       non-binding  mediation in this matter. The Company intends to defend this
       action  vigorously;  however,  there  can be no  assurance  that  it will
       prevail in the litigation.




                                       11
<PAGE>





       On July 17, 1997, the Company and several  former  officers were named as
       defendants  in a suit filed in state court in  Montgomery,  Alabama.  The
       suit alleges  violations of federal and state  securities laws and breach
       of contract  resulting  from the  purchase of IAA by the Company in 1996.
       The suit seeks  compensatory and punitive  damages and equitable  relief.
       The named  plaintiffs  are Thomas  Albrecht and Peter Norman,  the former
       shareholders  of IAA.  The  Company  intends to  vigorously  defend  this
       action;  however,  there can be no assurance  that it will prevail in the
       litigation.

       On August 20, 1997, the Company, RNIC, IAA and Peter Norman were named as
       defendants  in a suit filed in state court in  Montgomery,  Alabama.  The
       suit alleges common law fraud, breach of contract and breach of fiduciary
       duty  resulting  from  the  assumption  reinsurance  and  loss  portfolio
       transfer  agreement  with OSAA in 1996. The suit seeks  compensatory  and
       punitive damages and equitable  relief.  The named plaintiff is OSAA. The
       Company intends to vigorously defend this action;  however,  there can be
       no assurance that it will prevail in the litigation.

       On September 18, 1997, the United States  Attorney's Office in Pensacola,
       Florida,  announced  that a United  States  grand jury had  indicted  the
       Company,  RISCORP  Management  Services,  Inc.  ("RMS") (a wholly  owned,
       non-regulated  subsidiary  of the  Company)  and  five  former  officers,
       including  William D.  Griffin,  Founder and  Chairman of the Board,  for
       various  charges  stemming  from  alleged  illegal   political   campaign
       contributions.  On September 18, 1997, the Board of Directors  approved a
       guilty plea by RMS to a single count of  conspiracy to commit mail fraud.
       The guilty plea was  entered by RMS and  accepted by the court on October
       9, 1997.  As a result of an agreement  negotiated  with the United States
       Attorney,  the court dismissed the indictment  against the Company on the
       same day.  Mr.  Griffin has  resigned  from the Board of Directors of the
       Company and its subsidiaries and all other positions with the Company and
       its subsidiaries. As of December 31, 1996 the Company had recorded in the
       accompanying  financial  statements  a provision  of $1.0 million for the
       payment of fines and other costs related to this matter.

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

       Due to a recent  decrease in the market  value of the  Company's  Class A
       Common  Stock,  additional  amounts  may  have to be  paid to the  former
       shareholders of IAA. Under the IAA acquisition agreement,  the former IAA
       shareholders  received  790,336  shares of the  Company's  Class A Common
       Stock.  Pursuant  to  the  acquisition  agreement,   if  the  former  IAA
       shareholders  own all of such Class A Common Stock on September 17, 1998,
       the Company is  obligated  to issue  additional  shares of the  Company's
       Class A Common  Stock in an  amount  sufficient  to make the value of all
       shares of the  Company's  Class A Common  Stock  held by the  former  IAA
       shareholders  equal to an aggregate fair market value of $10.9 million on
       September  17, 1998.  However,  in no event will the number of additional
       shares issued to the former IAA shareholders exceed 790,336 shares. Based
       upon the fair market value of the Company's Class A Common Stock of $1.00
       as of November 14, 1997, 790,336 additional shares would be issued to the
       former IAA shareholders.

       The Florida  Department of Insurance  (the "FDOI")  conducted a financial
       examination  of RIC, one of the  Company's  insurance  subsidiaries,  for
       1995.  The final  examination  report  reduced  statutory  surplus  as of
       December 31, 1995 from $31,117,099 to $4,961,478. As a result, RIC failed
       to meet the minimum  capital and surplus  requirements  by  approximately
       $12.5 million. The Company made a capital infusion of approximately $31.2
       million into RIC in 1996,  and as a result,  as of December 31, 1996, the
       surplus of RIC exceeded the minimum capital and surplus requirements.




                                       12
<PAGE>




       The FDOI and the  Missouri  Department  of  Insurance  (the  "MDOI")  are
       currently  conducting  financial  examinations  of two  of the  Company's
       insurance   subsidiaries.   While  these   examinations   may  result  in
       adjustments  to the  statutory  financial  statements  of  the  insurance
       subsidiaries  for  1996,  management  does  not  believe  that  any  such
       adjustments  will be  material.  The Company has not received the reports
       from these  examinations,  however,  based upon  communications  with the
       MDOI,  the  most  significant  adjustment  proposed  by the  MDOI  is the
       non-admission of an accounts receivable balance of $900,000 relating to a
       loss portfolio transfer. This balance was received on April 14, 1997. The
       adjustment relates to statutory financial statements and has no impact on
       these GAAP financial  statements,  however,  any adjustments could impact
       the dividend  ability of the  company's  insurance  subsidiaries  and the
       disclosures within these financial statements.

       Under the CompSource  acquisition,  the former shareholder  received cash
       and  112,582  shares  of  the  Company's  Class  A  Common  Stock.  Per a
       redemption agreement, if the former shareholders so elect, the Company is
       obligated to repurchase the 112,582 shares at a purchase price of $18.653
       per share during a redemption  period  beginning March 8, 1997 and ending
       April 7, 1998.  On March 19, 1997,  the Company  received the  redemption
       notice from the former  CompSource  shareholders.  On March 19, 1997, the
       Company paid the CompSource  shareholders $2.1 million as payment for the
       112,582  shares  of  Class A  Common  Stock  pursuant  to the  redemption
       provisions.

       The Company has historically  met its cash  requirements and financed its
       growth through cash flow generated from  operations and  borrowings.  The
       Company's  primary  sources of cash flow from operations are premiums and
       investment income, and its cash requirements consist primarily of payment
       of  losses  and  loss  adjustment  expenses,  support  of  its  operating
       activities  including  various  reinsurance  agreements  and managed care
       programs  and  services,  capital  and  surplus  needs for its  insurance
       subsidiaries, and other general and administrative expenses.

       On November 9, 1996, at a Special Board of Directors' meeting of RISCORP,
       the Board  voted to  establish  a  Strategic  Alternatives  Committee  to
       evaluate  alternatives to maximize  shareholder value including,  without
       limitation,  potential acquisitions,  joint ventures,  mergers, strategic
       alliances  and the sale of all or part of RISCORP  and its  subsidiaries.
       The actions of the Strategic  Alternatives Committee during the period of
       November 1996 through June 1997 culminated in the June 17, 1997 agreement
       for the sale and transfer of certain of RISCORP's  and its  subsidiaries'
       assets and  non-contingent  liabilities to another  insurer for cash. The
       pending sale, which is anticipated to take place in early 1998,  requires
       the  filing  of a  proxy  statement  with  the  Securities  and  Exchange
       Commission   ("SEC"),   the  approval  of  the   transaction  by  RISCORP
       shareholders and approval by the FDOI and MDOI, amongst other conditions.

(5)   Events Subsequent to the Balance Sheet Date

       In May 1997,  RIC and RISCORP  Property & Casualty  Company  ("RPC") were
       assigned a rating of C (Weak) by A.M. Best Company,  Inc. ("A.M.  Best"),
       one of the leading  insurance  rating  agencies.  This rating will remain
       "under  review  with  negative  implications"  by A.M.  Best  pending the
       resolution of certain uncertainties,  including various legal issues, the
       protracted  delay in RISCORP  filing its annual report on Form 10-K/A for
       the year  ended  December  31,  1996  with the  Securities  and  Exchange
       Commission  ("SEC"),  and the ongoing state  regulatory  examination  for
       1996.  The  Company  filed its annual  report on Form 10K/A for the years
       ended  December 31, 1996 with the SEC on October 23, 1997. In April 1997,
       RNIC was assigned a rating of NR-2 (Not Rated) by A.M.
       Best. RNIC was not eligible for a Best Rating due to its limited
       operating experience.




                                       13
<PAGE>





       On June 17, 1997, the Company  entered into an agreement for the sale and
       transfer  of  certain of its assets  and  non-contingent  liabilities  to
       Zenith in exchange for cash. The purchase price for the net assets of the
       Company  is  undetermined  at this  time  but  will be  based on the GAAP
       statement of transferred assets and the transferred liabilities as of the
       closing date, which has also not yet been determined. It is expected that
       this  pending  transaction  will  transfer  primarily  all of the assets,
       liabilities and operations of the Company to Zenith,  leaving the Company
       with the minimum  required  capital  and surplus to maintain  its various
       state licenses and no continuing insurance operations.

       On September 18, 1997, the United States  Attorney's Office in Pensacola,
       Florida,  announced  that a United  States  grand jury had  indicted  the
       Company and five former officers,  including William D. Griffin,  founder
       and  Chairman of the Board,  for various  charges  stemming  from alleged
       illegal  political  campaign  contributions.  On September 18, 1997,  the
       Board  of  Directors  approved  a  guilty  plea by RMS,  a  wholly-owned,
       non-regulated  subsidiary of the Company, to a single count of conspiracy
       to commit  mail  fraud.  As a result of the plea with the  United  States
       Attorney,  the indictment against the Company was dismissed.  Mr. Griffin
       has  resigned  from the Board of  Directors  of the Company and all other
       positions with the Company.

       In September 1997, the Company formed 1390 Main Street Services, Inc. for
       the purpose of providing the identical  services that were being provided
       by RMS.  The FDOI  approved  the  Managing  General  Agency  and  Service
       Agreement  between  each of the  Company's  Florida  domiciled  insurance
       subsidiaries  and 1390 Main  Street  Services,  Inc.  on October 6, 1997,
       under the identical terms as the previous contract with RMS. The Managing
       General Agency and Service Agreement is pending approval in Missouri.

       On October 1, 1997,  RMS entered  into a Plea and  Cooperation  Agreement
       with the United States  Attorney and pleaded  guilty to a single count of
       conspiracy to commit mail fraud.  RMS has agreed to cease to operate as a
       third party administrator  effective October 31, 1997. As of December 31,
       1996,  RMS recorded  $1.0 million  provision for the payment of fines and
       other costs relating to these matters.

       The Company and American  Re-Insurance  Company ("AmRe") are parties to a
       senior  subordinated  note  agreement  in the  principal  amount of $15.0
       million  due 2002 (the "AmRe loan  agreement").  The AmRe loan  agreement
       requires that the Company shall prepay the outstanding  principal balance
       of the notes,  together with interest accrued  thereon,  on or before the
       tenth  business day following the  occurrence of a Change of Control or a
       Material Adverse Event. The resignation of William D. Griffin,  effective
       on September 18, 1997, as Chairman of RISCORP is a Material Adverse Event
       as defined in the AmRe loan  agreement.  On October 10, 1997, the Company
       received a waiver from AmRe of the  requirement to prepay these notes, as
       well as certain events of default subject to the receipt of the Company's
       financial statements.  On October 17, 1997, the Company received a waiver
       from AmRe of the default based upon the failure of the Company to deliver
       quarterly  financial  statements  and for  failure to file its  quarterly
       report on Form 10-Q with the SEC for the  quarterly  periods  ended March
       31, 1997 and June 30, 1997. This waiver from AmRe regarding the Company's
       failure to provide  its  financial  reports  and Form  10-Q's in a timely
       manner for the first and second  quarter of 1997  expires on December 31,
       1997. In the event the Company is unable to provide its financial reports
       and Form 10-Q's,  including its third quarter  financial reports and Form
       10-Q,  to AmRe when  required  under the note  agreement  or the  waiver,
       additional  debt covenant  violations  would occur. If such debt covenant
       violations  did occur and the Company was unable to obtain an  additional
       waiver of such violations from AmRe, such violations could result in AmRe
       accelerating the note which, in turn, could create as liquidity  shortage
       for the Company.




                                       14
<PAGE>





(6)    Reclassifications

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





                                       15
<PAGE>





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

Forward-Looking Statements

       This quarterly report on Form 10-Q contains  forward-looking  statements,
       particularly  with respect to the Liquidity and Capital Resources section
       of  Management's  Discussion  and  Analysis of  Financial  Condition  and
       Results  of  Operations.   Additional  written  or  oral  forward-looking
       statements  may be made by the Company from time to time, in filings with
       the Securities and Exchange Commission or otherwise. Such forward-looking
       statements  are within the  meaning of that term in  Sections  27A of the
       Securities  Act of 1933 (the  "Securities  Act") and  Section  21E of the
       Securities Exchange Act of 1934 (the "Exchange Act"). Such statements may
       include, but not be limited to, projections of revenues,  income, losses,
       cash flows, capital expenditures,  plans for future operations, financing
       needs or plans,  plans  relating to products or services of the  Company,
       estimates concerning the effects of litigation or other disputes, as well
       as assumptions  to any of the  foregoing.  See "Part I, Item 1, Note 5 to
       the consolidated financial statements."

Recent Developments

       Restructuring

       On May 20,  1997,  the  Company  named  Frederick  M.  Dawson as Chief
       Executive  Officer of the  Company.  Mr.  Dawson  replaced  William D.
       Griffin  who  took an  unpaid  leave  of  absence  and  remained  as a
       non-salaried,  non-executive  Chairman  of  the  Board  of  Directors.
       Concurrently,  Mr.  Dawson was also named to the Board of Directors of
       the  Company,  and all  employee  directors  other  than  Mr.  Griffin
       resigned  from the Board of  Directors.  On June 10, 1997,  Mr. Dawson
       became  president  of the  Company  upon the  resignation  of James A.
       Malone from the position of president and chief  operating  officer on
       the same date. On September 18, 1997,  Mr.  Griffin  resigned from the
       Board of  Directors of the Company and from all other  positions  with
       the Company.


       In  June  1997,  the  Company  announced  a  workforce  reduction  and  a
       restructuring  of  the  Company's  management  team,  field  offices  and
       products.  The reduction in the work force resulted in the termination of
       128 employees of the Company. The Company also announced in June 1997 its
       intention to focus  solely on its core  workers'  compensation  insurance
       business and to close all field offices, except Charlotte and Birmingham,
       by the end of 1997.  The  Company  recorded  $5.9  million  in the second
       quarter  of  1997  in  connection   with  the  workforce   reduction  and
       restructuring  of the field  offices and  products.  These  non-recurring
       expenses consisted  primarily of severance expenses of approximately $5.1
       million,  of which $4.1 million was unpaid as of September 30, 1997,  and
       occupancy  costs of  approximately  $0.7  million.  These  expenses  were
       included in commissions,  underwriting and administrative expenses in the
       June 30, 1997 and September 30, 1997 Consolidated Statements of Income.




                                       16
<PAGE>




       Asset Purchase Agreement With Zenith

       In June 1997, the Company  entered into an asset purchase  agreement (the
       "Purchase  Agreement")  with  Zenith,  a  subsidiary  of Zenith  National
       Insurance Corp.  Under the terms of the Purchase  Agreement,  Zenith will
       purchase  all of the  assets  of the  Company  relating  to its  workers'
       compensation   business,   including  the  Company's  existing  in  force
       business, as well as the right to all new and renewal policies. After the
       transaction  closes,  the Company  will no longer  engage in the workers'
       compensation  or  managed  care   businesses.   In  connection  with  the
       transaction,  Zenith  will  assume  certain  liabilities  related  to the
       Company's insurance business,  including $15.0 million in indebtedness of
       the Company owed to AmRe. The purchase price, which will be paid in cash,
       will be the difference between the book value of the assets purchased and
       the book value of the  liabilities  assumed by Zenith on the closing date
       including  the $15.0  million  AmRe debt,  subject to a minimum  purchase
       price of $35.0 million.

       The closing of the purchase is contingent upon review and approval by the
       appropriate  state and federal  regulatory  agencies,  and  approval by a
       majority of each of the Class A Common and Class B Common shareholders of
       the Company.

       Effective  June 18,  1997,  Zenith  entered  into an interim  reinsurance
       agreement and cut-through endorsement with the RIC and RISCORP Property &
       Casualty  Insurance  Company ("RPC").  Under the terms of the reinsurance
       agreement,  Zenith reinsured all of the Company's liabilities on or after
       June  18,  1997,  as to  new,  renewal,  and in  force  Florida  workers'
       compensation  policies  in the event RIC and RPC are  declared  insolvent
       under applicable  insurance law pursuant to court order. RIC and RPC have
       assigned  to Zenith  its right to  receive  certain  payments  from other
       reinsurers  with  respect  to  the  business  Zenith  has  reinsured.  In
       addition,  RIC and RPC have  established  trust accounts of approximately
       $50.0 million as security to reimburse  Zenith for any amounts paid under
       the reinsurance agreement.

       Delisting by NASDAQ

       After the Company's  initial  public  offering of Class A Common Stock in
       February 1996, the Company experienced  personnel turnover in its finance
       and  treasury  areas.  The rapid  growth of the Company and its  multiple
       acquisitions  coupled  with  the  loss of key  personnel  overloaded  the
       Company's  internal  accounting  staff. As a result,  the Company was not
       able to provide the  necessary  support and back-up  required to complete
       the  audit of its 1996  financial  statements  in a  timely  manner,  and
       therefore,  the Company was unable to timely file with the Securities and
       Exchange  Commission  its annual report on Form 10-K/A for the year ended
       December 31, 1996. Despite  management's efforts to correct these issues,
       difficulties  continued in 1997  resulting in the Company's  inability to
       timely file its quarterly  reports on Form 10-Q for the quarterly periods
       ended March 31, 1997 and June 30, 1997.

       In July 1997,  the  Company's  common stock was delisted  from the NASDAQ
       National  Market due to the  Company's  failure to comply with the filing
       requirements of the Exchange Act.

       AmRe Loan Agreement

       The $15.0  million AmRe loan  agreement  requires  that the Company shall
       prepay the  outstanding  principal  balance of the notes,  together  with
       interest accrued  thereon,  on or before the tenth business day following
       the occurrence of a Change of Control or a Material  Adverse  Event.  The
       resignation  of William D.  Griffin,  effective on September 18, 1997, as
       Chairman of RISCORP,  Inc. is a Material  Adverse Event as defined in the
       AmRe loan agreement.  On October 10, 1997, the Company  received a waiver
       from AmRe of the  requirement  to prepay these notes,  as well as certain
       events of default  subject  to the  receipt  of the  Company's  financial
       reports.  On October 17, 1997, the Company received a waiver from AmRe of



                                       17
<PAGE>

       the default  based upon the  failure of the Company to deliver  quarterly
       financial  reports and to file its quarterly report on Form 10-Q with the
       SEC for the  quarterly  periods  ended March 31, 1997 and June 30,  1997.
       This  waiver from AmRe  regarding  the  Company's  failure to provide its
       financial  reports and Form  10-Q's in a timely  manner for the first and
       second  quarter of 1997 expires on December  31,  1997.  In the event the
       Company is unable to  provide  its  financial  reports  and Form  10-Q's,
       including its third quarter financial reports and Form 10-Q, to AmRe when
       required under the note agreement or the waiver, additional debt covenant
       violations  would occur.  If such debt covenant  violations did occur and
       the Company was unable to obtain an additional  waiver of such violations
       from AmRe, such  violations  could result in AmRe  accelerating  the note
       which, in turn, could create a liquidity shortage for the Company.

       Legal Developments

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

       A.M. Best Initial Rating

       During 1997 the Company's  insurance  subsidiaries  were reviewed by A.M.
       Best and  assigned  a rating.  A.M.  Best  ratings  are based on  several
       factors,  including  comparative  analysis of the financial condition and
       operating  performance  of  insurance  companies as  determined  by their
       publicly available reports and meetings with the entity's officers.  A.M.
       Best ratings are based upon factors of concern to  policyholders  and are
       not directed  toward the protection of investors.  In assigning  ratings,
       companies may fall within one of three A.M. Best rating groupings: Best's
       Ratings, Best's Financial Performance Ratings or Not Rated.

       A.M.  Best  ratings  include:  Secure,  which  consists  of  A++  and  A+
       (Superior),  A and A- (Excellent) and B++ and B+ (Very Good); Vulnerable,
       which consists of B and B- (Fair), C++ and C+ (Marginal), C and C- (Weak)
       and D (Poor); E (Under Regulatory Supervision);  F (In Liquidation) and S
       (Rating  Suspended).  Companies  not assigned  either  Best's  Ratings or
       Best's  Financial  Performance  Ratings  opinions  are assigned to one of
       several Not Rated (NR) Categories.
       The NR category  identifies  the primary  reason a rating opinion was not
       assigned.

       The limited  operating history of the companies,  pending  litigation and
       the factors  discussed  above have  affected the ability of the Company's
       insurance  subsidiaries  to obtain  favorable  A.M.  Best and  comparable
       ratings.  In May 1997,  RIC and RPC were  assigned  a Best's  Rating of C
       (Weak).  This rating is under review with negative  implications  pending
       resolution of certain substantial uncertainties,  including various legal
       issues,  any material Form 10-K  disclosures,  and  potential  regulatory
       actions  emanating  from the  ongoing  state  examinations.  The  Company
       believes this rating and the factors discussed above will have a material
       adverse effect on the Company's business, financial condition and results
       of operations.

       RNIC (formerly Atlas Insurance Company) had its B+ rating removed and was
       given an A.M.  Best's  "Not  Rated"  classification  of NR-2  (Less  than
       Minimum  Size  and/or  Operating   Experience)  following  the  Company's
       purchase  of Atlas in March  1996  and the  discontinuance  of its  prior
       business,  which  effectively  treated RNIC as a start-up  operation  for
       rating purposes.




                                       18
<PAGE>





       1997 Events That Have Impacted The Company

       On November 9, 1996,  at a special  meeting of the Board of  Directors of
       RISCORP, the Board voted to establish a Strategic  Alternatives Committee
       to evaluate alternatives to maximize shareholder value including, without
       limitation,  potential acquisitions,  joint ventures,  mergers, strategic
       alliances  and the sale of all or part of RISCORP  and its  subsidiaries.
       The actions of the Strategic  Alternatives Committee during the period of
       November 1996 through June 1997 culminated in the June 17, 1997 agreement
       (as  more  fully  described  in  Note  5 to  the  consolidated  financial
       statements)  for the sale and  transfer of certain of  RISCORP's  and its
       subsidiaries'  assets and  non-contingent  liabilities to another insurer
       for cash.  The pending sale,  which is anticipated to take place in early
       1998, requires,  among other things, the filing of a proxy statement with
       the  Securities  and  Exchange  Commission  ("SEC"),  the approval of the
       transaction by RISCORP  shareholders and regulatory  approval by the FDOI
       and MDOI.

       RIC,  RPC  (both  Florida  domiciled  insurance  companies)  and  RNIC (a
       Missouri domiciled insurance company), are all wholly-owned  subsidiaries
       of  RISCORP  and  each  of  these  companies  experienced  difficulty  in
       completing   their  year  end  December  31,  1996  statutory   financial
       statements  in an accurate and timely  manner.  In addition,  RIC and RPC
       were unable to respond in an accurate  and timely  manner to requests for
       financial  information made by examiners from the FDOI in connection with
       the FDOI's financial examination of RIC for 1996 and RPC for 1995.

       While RIC, RPC and RNIC filed their 1996 statutory  financial  statements
       by February 28, 1997,  the deadline for filing such  statements,  each of
       the  companies  discovered  later that certain  amounts  contained in the
       previously filed 1996 statutory  financial  statements were incorrect and
       the 1996  statutory  financial  statements of each of the companies  were
       amended by substitution  in October 1997. In addition,  RIC, RPC and RNIC
       were  also  unable  to  file  their  1996  audited  statutory   financial
       statements by June 1, 1997, as required by Florida and Missouri statutes.
       Audited  financial  statements  were filed for each company in September,
       1997. As previously  described,  RISCORP also  experienced  difficulty in
       completing  its  1996  financial  statements  in a  timely  manner.  This
       resulted in RISCORP  being  delisted  by the stock  exchange on which its
       stock was traded and in adverse  publicity in the insurance  marketplace.
       See "Part I, Item 2, Delisting by NASDAQ."

       The  inability  of RIC and  RPC to file  accurate  and  timely  financial
       statements  and to respond  timely to requests made by the examiners from
       the FDOI inhibited the FDOI's  ability to assess the financial  condition
       of  RIC  and  RPC  and  prompted  increased  regulatory  scrutiny  of the
       companies. As a result of the FDOI's increased regulatory scrutiny of RIC
       and RPC, and in connection  with the pending sale discussed  above and in
       Note 5 to the consolidated  financial statements,  the FDOI requested the
       purchaser to provide an interim  reinsurance  agreement  and  cut-through
       endorsement ("Agreement") on all inforce business as of June 18, 1997 and
       all new and  renewed  business  written on or after June 18,  1997.  This
       Agreement  only  provides  coverage  for  Florida  workers'  compensation
       policyholders and was approved by the FDOI.

       The ability of RIC and RPC to operate at their present level of insurance
       activity could be affected if the transaction  discussed in Note 5 is not
       completed  and  RIC  and  RPC  are  unable  to  replace  the  reinsurance
       agreement.   Management   believes  it  could  replace  this  reinsurance
       agreement under similar terms.




                                       19
<PAGE>





       The unfavorable publicity related to the inability of the Company and its
       subsidiaries to file timely  financial  statements,  the delisting of the
       Company's stock, the pending litigation and subsequent indictments,  A.M.
       Best's letter  rating,  and delays in  completion  of the Company's  1996
       audit,  have  negatively  impacted  the  Company's  ability to retain its
       existing customers and add new business.  While the first quarter of 1997
       was not  adversely  affected  by  these  factors,  the  Company  began to
       experience a decline in new and renewed premiums in the second quarter of
       1997.  This  decline   increased  in  the  third  quarter.   The  Company
       anticipates  that written premiums for the fourth quarter of 1997 will be
       significantly less than 1996 written premiums for comparable quarters. In
       addition,  the Company has experienced  increased employee turnover which
       has resulted in the hiring of consultants  and increased  operating costs
       to the  Company.  The  overall  effects  of these and other  factors  are
       discussed in more detail below in the "Results of Operations".

       During  1997,  the  Company  completed  its  review of each of the fourth
       quarter  adjustments  discussed in the 1996 Form 10-K/A, the 3-31-97 Form
       10-Q and the 6-30-97  Form 10-Q,  and based upon the  specific  facts and
       circumstances  relating  to each  1996  fourth  quarter  adjustment,  the
       Company has determined  that no adjustment to previously  filed 1996 Form
       10-Q's was necessary.

Overview

       General

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

                                            Direct Premiums Written (a)
(Dollars in millions)                     1996          1995          1994

Florida                                  $ 270.8       $ 284.8        $   2.4
North Carolina                              41.4            --             --
Alabama                                     21.7            --             --
Other                                       22.8            --             --
Total                                    $ 356.7       $ 284.8        $   2.4

                    (a)   Includes  RIC, RPC and RNIC for 1996,  RIC and RPC for
                          1995, and RPC for 1994.

       Direct  written  premiums were reduced by specific  reinsurance  cessions
       (1996,  1995 and 1994),  the 50  percent  AmRe  quota  share  reinsurance
       agreement for the Company's Florida workers'  compensation business (1996
       and 1995) and the 65 percent quota share reinsurance agreement (effective
       October  1,  1996),  with  another  reinsurer  for  certain   non-Florida
       business.  This  quota  share  reinsurance  agreement  was  reduced to 60
       percent effective January 1, 1997.

       The majority of the Company's  premiums  have been written in Florida,  a
       regulated  pricing state where premiums for guaranteed  cost products are
       based on state-approved  rates. However, the Company also offers policies
       which  are  subject  to  premium  reductions  as high  deductible  plans,
       participating  dividend plans, or other loss sensitive plans. Pricing for
       these  plans  tends  to be more  competitively  based,  and  the  Company
       experienced  increased competition during 1996 in pricing these plans. In
       addition,  in October 1996, the Florida  Insurance  Commissioner  ordered


                                       20
<PAGE>

       workers'  compensation  providers  to reduce  rates by an average of 11.2
       percent for new and renewal policies written on or after January 1, 1997.
       Concurrently,  the 10 percent  managed  care credit was phased out.  This
       credit had been offered since 1994 to employers who met certain  criteria
       for  participating  in a qualified  workers'  compensation  managed  care
       arrangement.  As  of  December  31,  1996,  the  Company  estimated  that
       approximately  60  percent  of the  Company's  premiums  received  the 10
       percent managed care credit.

       The  Company  experienced  increased  pricing  pressures  during 1996 and
       expects that such  pressures will continue into the  foreseeable  future.
       The Company  intends to continue  applying  managed  care  techniques  to
       differentiate  itself  from its  competitors  and to  continue  to reduce
       claims costs. In June 1997, the Company implemented cost cutting measures
       which  resulted in the Company  ceasing to write new  business in certain
       states including Oklahoma, Virginia, Missouri, Mississippi, Louisiana and
       Kansas, which approximates $16.0 million in direct premiums written.

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

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

Results of Operations

       Three  months  ended  September  30, 1997  compared to three months ended
       September  30, 1996 and nine months ended  September 30, 1997 compared to
       nine months ended September 30, 1996

       The following table shows direct, assumed, ceded, and net earned premiums
       for the three  months and nine months ended  September  30, 1997 and 1996
       (in thousands):
<TABLE>
<CAPTION>

                                            Three months ended          Nine months ended
                                               September 30               September 30
                                             1997         1996          1997         1996
                                         

<S>                                      <C>            <C>          <C>           <C>      
          Direct premiums earned         $ 77,169       $ 84,220     $ 260,446     $ 236,448
          Assumed premiums earned           1,118         33,772         6,008        37,316
          Premiums ceded to reinsurers    (37,870)       (66,627)     (132,572)     (141,909)
          Net premiums earned            $ 40,417       $ 51,365     $ 133,882     $ 131,855

</TABLE>




                                       21
<PAGE>





       The number of inforce policies were:

                        Quarter Ended           1996        1997

                        March 31               22,777      30,141
                        June 30                26,002      29,602
                        September 30           28,772      25,649
                        December 31            30,081         N/A

       Direct  premiums  earned  decreased to $77.2 million for the three months
       ended  September 30, 1997 from $84.2 million for the same period in 1996,
       a net  decrease of $7.0  million.  Direct  premiums  earned  increased to
       $260.4  million for the nine months ended  September 30, 1997 from $236.4
       million for the same period in 1996, a net increase of $24.0 million. The
       decrease in direct earned  premiums for the three months ended  September
       30, 1997 of $7.0 million from the same period in 1996 was  primarily  due
       to the decrease in new and renewal premiums that the Company  experienced
       in the  second  and third  quarters  of 1997 from the  adverse  publicity
       discussed earlier in this report. In addition, the direct premiums earned
       for the three months ended September 30, 1996 were favorably  impacted by
       the rapid  growth  that  occurred  in 1996  after  the IPO and  adversely
       impacted by the third  quarter  1996 earned  premium  reduction  for loss
       sensitive  products of $4.9 million (net).  During the three months ended
       September  30,  1996,  the  Company   reduced  its  earned   premiums  by
       approximately  $4.9  million to reflect  the  projected  ultimate  earned
       premiums on loss sensitive products.  The increase in the direct premiums
       earned for the nine months ended  September  30, 1997 was  primarily  the
       result of the following factors:

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

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

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

       These increases were partially offset by a decrease in new and renewal
       premiums in the second and third quarters of 1997 due to the adverse
       publicity discussed more fully in "Recent Developments".

       In September  1995,  the Company  entered into a fronting  agreement with
       another  insurer which enabled the Company to begin expansion into states
       where its insurance  subsidiaries were not licensed. The assumed premiums
       from the fronting agreement were approximately $1.1 million for the three
       months ended September 30, 1997 compared to $2.4 million at September 30,
       1996.  The decrease in assumed  premiums from the fronting  agreement was
       due to a reduction in the third  quarter of 1997 in the premium  writings
       under this  agreement  during the third quarter of 1997.  The majority of



                                       22

<PAGE>

       the decrease in assumed premiums for the three months ended September 30,
       1997  compared  to  September  30,  1996,   was  due  to  the  assumption
       reinsurance and loss portfolio transfers of the NARM and OSAA business in
       the  third  quarter  of 1996.  The  impact  of these  transaction  was to
       increase  assumed and ceded premiums for the three months ended September
       30, 1996 by $32.0 million. There were no similar transactions in 1997.

       The Company  cedes  approximately  50 percent of its Florida  premiums to
       AmRe under a quota share  reinsurance  agreement and the Company cedes 60
       percent of the  business  written by RNIC  under a separate  quota  share
       agreement (65 percent during 1996). As direct earned  premiums  decrease,
       the ceded premiums will also decrease.

       Fee income for the three months ended September 30, 1997 was $7.0 million
       compared to $7.1  million for the same period in 1996,  a net decrease of
       $0.1  million.  The decrease is primarily due to the loss of service fees
       from the conversion of the NARM self insurance  funds of Virginia  (which
       were  previously  managed by the  Company) to at-risk  business  via loss
       portfolio   transfers   and  decreases  in  RWI  service  fees  from  the
       termination of RWI's  Mississippi and Louisiana  service  contracts.  The
       decrease in fee income was partially  offset by new fees  generated  from
       CompSource,  the fronting agreement, the new service agreement with Third
       Coast Insurance Company,  and growth in other existing fee products.  Fee
       income for the nine months  ended  September  30, 1997 and 1996 was $18.0
       million and $23.1  million,  respectively.  The decrease in fee income of
       $5.1 million for the nine month period ended  September 30, 1997 compared
       to the same period in 1996,  was primarily  due to the reasons  discussed
       above and the loss in service fees from the NARM Self  Insurance  Fund of
       North Carolina.

       Net investment  income for the three months ended  September 30, 1997 was
       $4.1 million  compared to $3.1 million for the same period in 1996, a net
       increase of $1.0 million. Net investment income for the nine months ended
       September  30,  1997  and  1996  was  $12.6  million  and  $7.6  million,
       respectively.  Investment  income consists  entirely of earnings from the
       investment  portfolio,  including  realized  gains and losses.  The total
       investments of the Company for 1996 and 1997 were (in thousands):

                                    1996          1997

           March 31              $ 114,477     $ 230,274
           June 30               $ 187,528     $ 227,970
           September 30          $ 241,143     $ 209,134
           December 31           $ 255,656           N/A

       The increase in the investment  portfolio  during 1996 was due (i) to the
       investment  of  proceeds  from  the IPO by  RISCORP  into  its  insurance
       subsidiaries,  which, in turn,  invested the proceeds in their individual
       investment  portfolios,  (ii) the growth in premium  volume  during  1996
       which   generated   positive   cash  flow  which  was  used  to  purchase
       investments, and (iii) the positive cash flow generated from the proceeds
       received from the  assumption  reinsurance  transactions  which were also
       used to purchase  investments.  The  increase  in invested  assets is the
       primary  reason for the  increase in the  investment  income for both the
       third quarter of 1997 over the corresponding quarter of 1996 and the nine
       months ended  September 30, 1997 compared to the same period in 1996. The
       actual yield on invested assets was comparable between quarters.

       The  decrease  in  accounts   payable  and  other  accrued   expenses  of
       approximately  $32.4  million from December 31, 1996 was primarily due to
       the  payment  of  approximately  $8.5  million  in  accrued  assessments,
       approximately  $6.2  million in amounts held as deposits for insureds and
       approximately  $20.4 million in net  reductions in  reinsurance  payable.
       These  decreases  were offset by  increases  to accrued  expenses of $0.5


                                       23
<PAGE>

       million,  increases  in trade  accounts  payable of $2.2 million from the
       restructuring  and increases in deferred  revenues of $0.4  million.  The
       decrease in the cash and invested assets of  approximately  $26.7 million
       from  December  31,  1996 was  caused  primarily  by the  liquidation  of
       investments to pay these items.

       Losses and loss adjustment  expenses for the three months ended September
       30,  1997,  were $31.2  million  compared  to $38.3  million for the same
       period in 1996,  a net decrease of $7.1  million.  The loss ratio for the
       three months ended  September 30, 1997 and 1996 was 77.2 percent and 74.5
       percent,  respectively.  The $7.1  million  decrease  in losses  and loss
       adjustment  expenses  for the  three  months  ended  September  30,  1997
       compared to the same period in 1996,  was primarily due the $10.9 million
       decrease in earned  premiums  from the three months ended  September  30,
       1997 compared to the same period in 1996. In addition,  the loss reserves
       for the quarter  ended  September  30, 1997 were  effected  adversely  by
       approximately  $1.0 million,  net, by the loss development in Alabama and
       North Carolina.  This decrease in losses and loss adjustment expenses was
       also impacted by increases in the reserves from loss portfolio  transfers
       and writings in new states  licensed  through  RNIC, as well as growth in
       the Company's core Florida operations.

       Losses and loss  adjustment  expenses for the nine months ended September
       30, 1997 and 1996 were  approximately  $87.1  million and $89.5  million,
       respectively. The loss ratio for the nine months ended September 30, 1997
       and 1996 was 65.1 percent and 67.9 percent, respectively. The decrease in
       the loss ratio from 67.9 percent to 65.1 percent was  primarily  due to a
       $4.9  million  decrease  in the  second  quarter in  reserves  on Florida
       business resulting from favorable  development for the 1996 accident year
       resulting  primarily  from  favorable  development  of post 1993  Florida
       accident years due to enhanced savings from the legislative  changes that
       became effective in 1994. This favorable development was partially offset
       by the adverse  development by approximately $3.0 million  experienced in
       the first quarter of 1997.

       Unallocated loss adjustment expenses for the three months ended September
       30, 1997, were $3.2 million  compared to $3.4 million for the same period
       in  1996,  a net  decrease  of  $0.2  million.  The  slight  decrease  in
       unallocated loss adjustment expenses for the three months ended September
       30, 1997 is due primarily to the decrease in earned  premiums,  offset by
       increased  personnel and personnel  related costs from the same period in
       1996.  Unallocated  loss  adjustment  expenses  for the nine months ended
       September  30,  1997 and  1996  were  $11.3  million  and  $9.2  million,
       respectively,  representing an increase of $2.1 million.  These increases
       for the nine months ended  September  30, 1997 were  primarily due to the
       increased  premium volume and increased  operating  expenses during these
       periods.  The  unallocated  loss  adjustment  expense ratio for the three
       months ended September 30, 1997 and 1996 was 7.9 percent and 6.6 percent,
       respectively.  The unallocated loss adjustment expense ratio for the nine
       months ended September 30, 1997 and 1996 was 8.4 percent and 7.0 percent,
       respectively.  The increase in the ratio was  primarily  due to increased
       personnel and personnel related costs.

       Commissions,  underwriting  and  administrative  expenses  for the  three
       months  ended  September  30, 1997 were $15.3  million  compared to $13.2
       million for the same  period in 1996.  The net  increase of $2.1  million
       from 1996 to 1997 was  attributable to increases in commissions,  premium
       taxes  and  personnel  costs  caused by higher  premiums  generated  from
       acquisitions  and new and renewal  premium  growth,  increased  operating
       expenses from the addition of employees  and increases in legal  expenses
       from actions  initiated in 1996. The Company's total employees  decreased
       from 805 as of  September  30, 1996 to 619 at September  30,  1997,  as a
       result of the June 1997  restructuring and workforce  reduction.  The net
       increase in these expenses for the three months ended  September 30, 1997
       was also  adversely  impacted  by a $1.6  million  decrease in the ceding
       commission income received under the quota share reinsurance agreements.

                                       24
<PAGE>


       Commissions, underwriting and administrative expenses for the nine months
       ended  September 30, 1997 and 1996 were $51.9 million and $39.3  million,
       respectively,  representing  an  increase  of $12.6  million.  During the
       second quarter of 1997 the Company  recorded a charge to earnings of $5.9
       million in  connection  with the workforce  reduction and  restructuring.
       This non-recurring charge consisted of $5.1 million of personnel expenses
       (primarily  severance costs),  $0.7 million of occupancy costs (primarily
       lease cancellations) and $0.1 million of other restructuring costs. These
       restructuring   costs  were  included  in  the  accompanying  nine  month
       financial  statements with commissions,  underwriting and  administrative
       expenses.  The  remaining  net increase of $6.7 million was primarily the
       result of increased commissions, premium taxes and personnel costs caused
       by  increased  premium  volume  and  offset  by  an  increase  in  ceding
       commission  income for the nine months ended  September  30, 1997 of $5.7
       million compared to the same period in 1996.

       Interest  expense for the three months ended  September 30, 1997 was $0.5
       million compared to $0.5 million for the same period in 1996. Outstanding
       debt was principally  unchanged during this period.  Interest expense for
       the nine months  ended  September  30, 1997 and 1996 was $1.4 million and
       $2.1 million,  respectively. The decrease in the interest expense of $0.7
       million is due to the $28.6 million  reduction in outstanding debt during
       the first quarter of 1996 from the proceeds of the IPO.

       Depreciation  and  amortization  expenses  for  the  three  months  ended
       September  30, 1997 were $2.4  million  compared to $4.3  million for the
       same period in 1996, a net  decrease of $1.9  million.  The  amortization
       expense  for the three  months  ended  September  30, 1996  contained  an
       impairment  loss of $2.7  million  related to the  goodwill  recorded  in
       connection  with the purchase of SISB.  Excluding this impairment loss of
       $2.7 million,  depreciation and amortization  increased $0.8 million. The
       increase of $0.8  million was  primarily  the result of  amortization  of
       goodwill  related to the  acquisitions of CompSource and IAA in 1996, and
       additions to property and equipment  during 1996 necessary to support the
       Company's growth.  This increase in depreciation and amortization in 1997
       was  partially  offset by the  reduction  in  recurring  amortization  of
       goodwill due to a $3.0 million writedown of goodwill  associated with RWI
       and a  $2.8  million  writedown  of  goodwill  associated  with  the  IAA
       acquisition in the third and fourth quarters of 1996.  These  adjustments
       to  goodwill  are  more  fully  discussed  in Note 6 to the  consolidated
       financial statements.

       Depreciation  and  amortization  expense  for the  nine  months  ended
       September  30,  1997 and 1996  were  $6.3  million  and $6.3  million,
       respectively.  The changes in the  depreciation  and  amortization are
       described above.

       The effective tax rate for the three months ended  September 30, 1997 was
       40.6 percent  compared to 83.3  percent for the same period in 1996.  The
       effective tax rate for the nine months ended  September 30, 1997 and 1996
       was 40.6  percent and 42.1  percent,  respectively.  The 83.3 percent tax
       rate for the three months ended September 30, 1996 was adversely effected
       by the $2.7  million  impairment  loss  relating  to  goodwill,  which is
       non-deductible  for tax purposes.  Excluding  this  impairment  loss, the
       effective  tax rate was 34 percent for the three months  ended  September
       30, 1997.

       The  weighted  average  common  shares  outstanding  for the three months
       ending September 30, 1997, was 36,868,114 versus 37,485,691 for the three
       months ending  September  30, 1996.  The weighted  average  common shares
       outstanding  for the nine months ended  September  30, 1997 and 1996 were
       37,331,665  and  35,720,088,  respectively.  The increase in the weighted
       average number of shares for the nine months ended September 30, 1997 was
       due primarily to the  inclusion of the shares  issued in connection  with
       the February 29, 1996 IPO for the entire first, second and third quarters


                                       25
<PAGE>

       of 1997 versus  inclusion  of such  shares for only seven  months for the
       first,  second and third  quarters of 1996,  and the inclusion of certain
       contingent   shares   reserved  for  issuance  in  connection   with  the
       acquisitions  of CompSource and IAA, as more fully discussed in Note 3 of
       the  consolidated  financial  statements  included in this document.  The
       increase was partially  offset by a decrease in common stock  equivalents
       for option shares assumed to be exercised.

Liquidity and Capital Resources

       The Company has historically  met its cash  requirements and financed its
       growth through cash flow generated from  operations and  borrowings.  The
       Company's  primary  sources of cash flow from operations are premiums and
       investment income, and its cash requirements consist primarily of payment
       of  losses  and  loss  adjustment  expenses,  support  of  its  operating
       activities  including  various  reinsurance  agreements  and managed care
       programs  and  services,  capital  and  surplus  needs for its  insurance
       subsidiaries, and other general and administrative expenses.

       On February 29, 1996, the Company  completed its initial public  offering
       of Common Stock which generated net proceeds of $127.9 million which were
       used to repay approximately $28.6 million of various borrowings, increase
       the capital and surplus of the  Company's  insurance  subsidiaries,  fund
       acquisitions and for general corporate purposes.  Borrowings increased by
       $19.6 million  between 1994 and 1995 due to  borrowings  under a variable
       rate term loan and the  subordinated  notes,  the  proceeds of which were
       used to repay existing debt and fund the acquisition of RIC.

       On October 15, 1996,  the Company  entered into a credit  agreement  with
       NationsBank,  N.A. and SouthTrust  Bank of Alabama which provided a $50.0
       million  credit  facility to the Company for unsecured  borrowings  for a
       two-year  revolving  period  convertible  into a term  loan  with a final
       maturity  on  September  30,  2001.  There were no  borrowings  under the
       agreement, and the Company terminated the agreement on June 16, 1997.

       In  November  1996,  the  Board  of  Directors  of the  Company  formed a
       Strategic  Alternatives  Committee whose primary function was to evaluate
       alternatives to maximize shareholder value including, without limitation,
       potential acquisitions,  joint ventures, mergers, strategic alliances and
       the sale of all or part of the Company.  In turn, the committee  hired an
       investment  bank to identify  and evaluate  entities  with an interest in
       acquiring  the  Company or its  assets.  On June 17,  1997,  the  Company
       entered into an agreement  with Zenith to purchase  substantially  all of
       the  operating  assets of the  Company and its  affiliates  at a purchase
       price equal to the greater of: (i) the book value of the acquired  assets
       less the book  value  of the  assumed  liabilities  including  the  $15.0
       million AmRe debt,  or (ii) $35.0  million in cash.  The  transaction  is
       subject to shareholder and regulatory approval.

       Cash flow from operations for the years ended December 31, 1996, 1995 and
       1994 was $28.1 million, ($47.3) million and $17.8 million,  respectively.
       The increase  from 1995 to 1996 was due  primarily  to the improved  cash
       flows  resulting  from  ceding of  premiums  under the AmRe  quota  share
       reinsurance  agreement  and the  increase  in losses and loss  adjustment
       expenses.  The  decrease  from  1994 to 1995  was  due  primarily  to the
       initiation  of the AmRe  quota  share  reinsurance  agreement  and  other
       reinsurance  agreements  which created a net cash outflow  resulting from
       the ceding of $139.1 million in written premium.

       The Company has  projected  cash flows through March 1998 and believes it
       has sufficient  liquidity and capital resources to support its operations
       without considering dividends from the insurance company subsidiaries and
       transactions resulting from the pending sale of the Company.

                                       26
<PAGE>

       The Company has recorded $49.5 million in accrued net  recoverables  from
       the SDTF, which it anticipates will be reimbursed over a number of years.
       For the  years  ended  December  31,  1996,  1995 and 1994,  the  Company
       received net payments from the SDTF  totaling $2.5 million,  $0.9 million
       and $0, respectively.

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

       In  addition,  the  liquidity  of the Company  could be adversely
       affected  by certain  legal  issues  and its  initial  A.M.  Best
       Rating. See "Legal  Proceedings" and "Recent  Developments - A.M.
       Best Initial Rating."

       The  National   Association  of  Insurance   Commissioners   has  adopted
       risk-based capital standards to determine the capital  requirements of an
       insurance  carrier based upon the risks inherent in its  operations.  The
       standards,  which  have not yet been  adopted  in  Florida,  require  the
       computation  of a risk-based  capital  amount which is then compared to a
       carrier's  actual  total  adjusted  capital.   The  computation  involves
       applying factors to various financial data to address four primary risks:
       asset risk,  insurance  underwriting  risk,  credit risk, and off-balance
       sheet risk. These standards provide for regulatory  intervention when the
       percentage  of  total  adjusted  capital  to  authorized   control  level
       risk-based  capital is below  certain  levels.  At December  31, 1996 and
       March 31, 1997, the Company's insurance  subsidiaries'  statutory surplus
       was in excess of any risk-based capital action level requirements.





                                       27
<PAGE>




Part II    Other Information

Item 1.    Legal Proceedings

       On April 2, 1996,  the Company,  RIC,  several  officers,  directors  and
       employees  were named as defendants in a purported  class action  lawsuit
       filed in the United States  District  Court for the Southern  District of
       Florida. The suit claims the defendants violated the Racketeer Influenced
       and Corrupt  Organizations Act ("RICO"),  breached  fiduciary duties, and
       were  negligent in the Company's  acquisition  of CMIC in 1995.  The suit
       seeks  compensatory  and punitive damages and equitable relief and treble
       damages for the RICO counts.  The named  plaintiffs,  Vero Cricket  Shop,
       Inc.,  Vero Cricket Shop Too,  Inc.,  and Falls  Company of Longboat Key,
       Inc.,  claim to be former  policyholders  of CMIC and claim to  represent
       others  similarly  situated.  The  defendants  moved to dismiss  the RICO
       counts and to strike the punitive damages claims.  These motions, as well
       as  plaintiffs'  motion for class  certification,  were  pending when the
       plaintiffs filed an amended  complaint.  The amended  complaint added the
       Florida Insurance  Commissioner and Zenith as defendants in one new count
       seeking declaratory relief. The remaining claims in the amended complaint
       are the same as those in the  original  complaint.  The  defendants  have
       filed a motion  to  dismiss  the  amended  complaint  and to  strike  the
       punitive  damages  claims.  The parties have been ordered to  non-binding
       mediation  in this  matter.  The  Company  intends to defend  this action
       vigorously;  however,  there can be no assurance  that it will prevail in
       the litigation.

       Between November 20, 1996, and January 31, 1997, nine  shareholder  class
       action lawsuits were filed against RISCORP,  Inc. and other defendants in
       the United States District Court for the Middle  District of Florida.  In
       March 1997, the Court  consolidated  these lawsuits and appointed co-lead
       plaintiffs  and co-lead  counsel.  The  plaintiffs  subsequently  filed a
       consolidated  complaint.  The consolidated  complaint named as defendants
       RISCORP,  Inc., three of its executive officers, one non-officer director
       and  three  of  the  underwriters  for  RISCORP,  Inc.'s  initial  public
       offering.  The  plaintiffs  in  the  consolidated  complaint  purport  to
       represent the class of shareholders who purchased  RISCORP,  Inc. Class A
       Common  Stock  between  February 28,  1996,  and  November 14, 1996.  The
       consolidated   complaint  alleges  that  RISCORP,   Inc.'s   Registration
       Statement  and  Prospectus  of February 28, 1996,  as well as  subsequent
       statements,  contained  false and misleading  statements of material fact
       and  omissions,  in violation of sections 11 and 15 of the Securities Act
       and  sections  10(b)  and  20(a)  of the  Exchange  Act  and  Rule  10b-5
       promulgated  thereunder.  The  consolidated  complaint seeks  unspecified
       compensatory  damages.  The defendants have filed a motion to dismiss the
       consolidated  complaint  which has been  fully  briefed  and is  pending.
       Discovery  will be stayed  until the motion to dismiss has been  decided.
       The plaintiffs have filed a motion to certify the class,  but the parties
       have agreed  that the  defendants  need not respond to that motion  until
       thirty  days after the motion to dismiss  has been  decided.  The parties
       have been ordered to non-binding mediation in this matter.  RISCORP, Inc.
       intends  to  defend  this  action  vigorously;  however,  there can be no
       assurance that it will prevail in the litigation.

       On July 17, 1997, RISCORP, Inc. and several former officers were named as
       defendants  in a suit filed in state court in  Montgomery,  Alabama.  The
       suit alleges  violations of federal and state  securities laws and breach
       of contract  resulting  from the purchase of IAA in 1996.  The suit seeks
       compensatory  and  punitive  damages  and  equitable  relief.  The  named
       plaintiffs are Thomas Albrecht and Peter Norman, the former  shareholders
       of IAA. RISCORP, Inc. intends to vigorously defend this action;  however,
       there can be no assurance that it will prevail in the litigation.




                                       28
<PAGE>





       On August 20, 1997, RISCORP,  Inc., RNIC, IAA and Peter Norman were named
       as defendants in a suit filed in state court in Montgomery,  Alabama. The
       suit alleges common law fraud, breach of contract and breach of fiduciary
       duty resulting from the assumption of the OSAA business in 1996. The suit
       seeks  compensatory and punitive damages and equitable relief.  The named
       plaintiff is OSAA. The Company intends to vigorously  defend this action;
       however,  there  can  be  no  assurance  that  it  will  prevail  in  the
       litigation.

       On September 18, 1997, the United States  Attorney's Office in Pensacola,
       Florida,  announced  that a United  States  grand jury had  indicted  the
       Company,  RISCORP  Management  Services,  Inc.  ("RMS") (a wholly  owned,
       non-regulated  subsidiary  of the  Company)  and  five  former  officers,
       including  William D.  Griffin,  Founder and  Chairman of the Board,  for
       various  charges  stemming  from  alleged  illegal   political   campaign
       contributions.  On September 18, 1997, the Board of Directors  approved a
       guilty plea by RMS to a single count of  conspiracy to commit mail fraud.
       The guilty plea was  entered by RMS and  accepted by the court on October
       9, 1997.  As a result of an agreement  negotiated  with the United States
       Attorney,  the court dismissed the indictment  against the Company on the
       same day.  Mr.  Griffin has  resigned  from the Board of Directors of the
       Company and its subsidiaries and all other positions with the Company and
       its subsidiaries. As of December 31, 1996 the Company had recorded in the
       accompanying  financial  statements  a provision  of $1.0 million for the
       payment of fines and other costs related to this matter.

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


Item 2.    Changes to Securities

           None.

Item 3.    Defaults Upon Senior Securities

           None.

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

           None.

Item 5.    Other Information

           None.

Item 6.    Exhibits and Reports on Form 8-K

                a)          Exhibit

                  11       Statement Re Computation of Per Share Earnings

                  27       Financial Data Schedules




                                       29
<PAGE>





               b)           Reports on Form 8-K

                  The following  report on Form 8-K was filed during the quarter
ended September 30, 1997.

         Filing Date   Item No. Description

         July 2, 1997       5            Other Events.  Copy of press release
                                         announcing the asset purchase
                                         agreement between RISCORP,  Inc
                                         and Zenith Insurance Company.

                            7            Financial  Statements  and Exhibits.
                                         Exhibit 2.1 - Asset Purchase
                                         Agreement,  dated June 17, 1997,
                                         among Zenith Insurance Company and 
                                         RISCORP, Inc.






                                       30
<PAGE>







                                   SIGNATURES


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

                  RISCORP, INC.
                  (Registrant)



                  By:      /s/Stephen C. Rece

                  Stephen C. Rece
                  Senior Vice President and
                  Chief Financial Officer


                  Date:    February 27, 1998






                                       31
<PAGE>