UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A

                                (AMENDMENT NO. 1)

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

                   For the fiscal year ended December 31, 1996
                           Commission File No. 1-11941

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

                           Delaware IRS No. 14-1789227

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

         Securities  registered pursuant to Section 12(b)of the 

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

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

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

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

On  February  24,  1997,   Registrant  had  5,253,813  shares  of  Common  Stock
outstanding. Of these, 5,242,002 shares, having an aggregate market value (based
on the  closing  price of these  shares as  reported  in a summary of  composite
transactions  in the Wall Street Journal for stocks listed on the New York Stock
Exchange  February  24,  1997)  of  approximately  $117,945,000,  were  owned by
stockholders other than directors and executive officers of the Registrant.



<PAGE>


                       Documents Incorporated By Reference

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

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

Farm Family Holdings, Inc.                                         I and II
Annual Report to Stockholders
for the fiscal year ended
December 31, 1996
(the "Annual Report")

Farm Family Holdings, Inc.                                           III
Proxy Statement for the
1997 Annual Meeting of
Stockholders
(the "Proxy Statement")


<PAGE>



         The registrant hereby amends the following items, financial statements,
exhibits or other  portions of its Annual Report on Form 10-K for the year ended
December 31, 1996,  filed on March 31, 1997, as set forth in the pages  attached
hereto:

     Part IV: Item 14(a)3. Exhibits: Exhibit 13 - Farm Family Holdings, Inc.
                                     1996 Annual Report



                                   SIGNATURES

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




                                                  Farm Family Holdings, Inc.
                                                           Registrant

                                                   By:   /s/ Philip P. Weber
                                                   -------------------------
                                                   Philip P. Weber, President
                                                   April 10, 1997


<PAGE>


Exhibit 13

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

GENERAL

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

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

On July 23, 1996,  Farm Family  Holdings made an initial public  offering of its
common  stock at a price of $16 per share.  Farm Family  Holdings  received  net
proceeds  of  $41,453,000  for  2,786,000  shares  sold  in the  initial  public
offering.  In addition,  Farm Family  Holdings  received  $3,427,000 for 214,000
shares  purchased  by  policyholders  of Farm  Family  Mutual in a  subscription
offering.  In  addition,  pursuant  to the Plan of  Conversion,  holders of Farm
Family Mutual debt could elect to exchange their debt  instruments for shares of
common  stock  or cash.  As a  result,  there  were  17,000  common  shares  and
$1,107,000 in cash  exchanged for debt with an outstanding  principal  amount of
$1,371,000.

Farm Family
-----------
Farm Family  Casualty is a specialized  property and casualty  insurer of farms,
other  generally  related   businesses  and  residents  of  rural  and  suburban
communities  principally in the Northeastern United States. Farm Family Casualty
provides property and casualty insurance  coverages to members of the state Farm
Bureau(R) organizations in New York, New Jersey, Delaware, West Virginia and all
of the New England states.  Membership in a state Farm Bureau  organization is a
prerequisite  for  voluntary  insurance  coverage  (except for  employees of the
Company and its  affiliates).  Associate Farm Bureau  memberships  are generally
available to persons not engaged in agricultural businesses.

Operating Environment
---------------------
The  operating  results of companies  in the  property  and  casualty  insurance
industry have  historically  been subject to  fluctuations  due to  competition,
economic  conditions,  weather and various other factors.  Factors affecting the
results of  operations  of the  property  and casualty  industry  include  price
competition and aggressive  marketing which historically have resulted in higher
combined loss and expense ratios. The Company's premium revenue is a function of
changes in average premiums per policy and the growth in the number of policies.
Premium rates are regulated by the state insurance  departments in the states in
which the Company  operates.  Because of the nature of the property and casualty
insurance  industry,  it is difficult to predict future trends in the industry's
overall combined losses and profitability.  The Company's  operating results are
subject to significant  fluctuations from period to period depending upon, among
other  factors,  the frequency  and severity of losses from weather  related and
other  catastrophic  events,  the effect of  competition  and  regulation on the
pricing of products, changes in interest rates, general economic conditions, tax
laws  and the  regulatory  environment.  As a  condition  of its  license  to do
business in various states,  the Company is required to participate in a variety
of  mandatory  residual  market  mechanisms  (including  mandatory  pools) which
provide certain insurance (most notably  automobile  insurance) to consumers who
are otherwise  unable to obtain such coverages from private  insurers.  Residual
market  premium rates for automobile  insurance have generally been  inadequate.
The amount of future losses or assessments  from residual market  mechanisms can
not be predicted with certainty and could have a material  adverse effect on the
Company's results of operations.

For the years ended December 31, 1996, 1995, and 1994,  38.6%,  39.1% and 38.5%,
respectively,  of the  Company's  direct  written  premiums  were  derived  from
policies  written in New York and 22.6%,  20.8%, and 19.6%,  respectively,  were
derived from policies written in New Jersey.  For these periods,  no other state
accounted for more than 10.0% of the Company's  direct  written  premiums.  As a
result of the concentration of the Company's  business in the states of New York
and New  Jersey  and more  generally  in the  Northeastern  United  States,  the
Company's  results  of  operations  may be  significantly  affected  by  weather
conditions,  catastrophic events and regulatory developments in these two states
and in the Northeastern United States.

Products
--------
The  Special  Farm  Package  is a  flexible,  multi-line  package  of  insurance
coverages  which the Company  regards as its  "flagship"  product.  For the year
ended December 31, 1996,  24.5% of the Company's  total direct written  premiums
were derived from the Special Farm Package product.

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

Expense Management
------------------
During the fourth quarter of 1996, the Company announced the implementation of a
voluntary early  retirement  program and other changes to the Company's  benefit
plans as part of its continuous expense management program. The Company recorded
a nonrecurring charge, net of an income tax benefit of $412,000, of $765,000 for
the Company's  share of the costs of this voluntary  early  retirement  program.
Eligibility for the program was based on age and years of service.  In addition,
effective  January 1, 1997,  the Company froze  benefits  available  through its
defined  benefit plan and enhanced its defined  contribution  plan. As a result,
the  Company's  contributions  to the defined  contribution  plan will vary to a
greater  extent based upon the Company's  profitability  than the  contributions
previously  required to fund its defined  benefit  plan.  The Board of Directors
also  approved a stock  option plan,  subject to  shareholder  approval,  and an
annual incentive plan for officers.

RESULTS OF OPERATIONS

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

Premiums
--------
Premium revenue increased $13.9 million or 11.8%, during the year ended December
31, 1996 to $130.8  million from $116.9 million in 1995. The increase in premium
revenue in 1996 resulted from an increase of $11.1 million in earned premiums on
additional business directly written by the Company (principally in New York and
New Jersey) and an increase of $2.4 million in earned  premiums  retained by the
Company and not ceded to reinsurers,  in addition to an increase of $0.4 million
in earned  premiums  assumed.  The $11.1 million  increase in earned premiums on
additional  business directly written by the Company was primarily  attributable
to an increase of $9.9 million,  or 9.2%, in earned  premiums from the Company's
primary  products  (personal  and  commercial  automobile  policies  other  than
assigned  risk  business,  the Special Farm  Package,  businessowners  policies,
homeowners  policies,  and  Special  Home  Package)  and to an  increase of $0.7
million in earned  premiums on  workers'  compensation  business.  The number of
policies in force related to the Company's primary products increased by 8.6% to
approximately 114,000 in 1996 from approximately 105,000 in 1995 and the average
premium earned for each such policy  increased by 0.6% in 1996. The $2.4 million
increase in earned premiums  retained by the Company was primarily the result of
a change  in the  terms  of  certain  of the  Company's  reinsurance  agreements
pursuant to which the earned premiums ceded by the Company were reduced.

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

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

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

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

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

Net Income
----------
Net income  decreased  $2.7 million to $6.9 million in 1996 from $9.6 million in
1995  primarily  as a result of the  foregoing  factors  and the  impact of $1.5
million of  expenses  related to the Plan of  Conversion  which the  Company has
identified  as an  extraordinary  item. In addition,  the Company  implemented a
voluntary  early  retirement  program  which  resulted  in a one time  charge to
earnings,  net of an income tax benefit of $0.4 million,  of $0.8 million in the
last quarter of 1996.

The Year Ended December 31, 1995 Compared to the Year Ended December 31, 1994

Premiums
--------
Premium revenue increased $15.5 million or 15.2%, during the year ended December
31, 1995 to $116.9  million from $101.5 million in 1994. The increase in premium
revenue in 1995 resulted from an increase of $14.3 million in earned premiums on
additional business directly written by the Company (principally in New York and
New Jersey) and an increase of $2.3 million in earned  premiums  retained by the
Company and not ceded to reinsurers,  which were partially  offset by a decrease
of $1.1 million in earned premiums assumed. The $14.3 million increase in earned
premiums on additional  business  directly  written by the Company was primarily
attributable to an increase of $10.8 million,  or 11.1%, in earned premiums from
the Company's  primary  products  (personal and commercial  automobile  policies
other than assigned  risk  business,  the Special Farm  Package,  businessowners
policies,  homeowners policies,  and Special Home Package) and to an increase of
$1.8  million  in earned  premiums  on  assigned  risk  business.  The number of
policies in force related to the Company's primary products increased by 8.4% to
approximately  105,000 in 1995 from approximately 97,000 in 1994 and the average
premium earned for each such policy  increased by 2.5% in 1995. The $2.3 million
increase in earned premiums  retained by the Company was primarily the result of
a change  in the  terms  of  certain  of the  Company's  reinsurance  agreements
pursuant  to which both the amount of earned  premiums  ceded by the Company and
the ceding  commissions  received by the Company were reduced.  The $1.1 million
decrease in earned premiums  assumed was attributable to a reduction in premiums
assumed from mandatory pools as a result of the depopulation of such pools.

Net Investment Income
---------------------
Net  investment  income  increased $1.1 million or 8.6% to $14.3 million for the
year ended  December  31, 1995 from $13.2  million in 1994.  The increase in net
investment  income was  primarily the result of an increase in cash and invested
assets (at amortized cost) of approximately  $17.2 million,  or 9.6%. The return
realized on the Company's cash and invested assets was 7.6% in 1995 and 1994.

Net Realized Investment Gains
-----------------------------
Net realized  investment gains were $0.9 million for the year ended December 31,
1995 compared to $1.3 million in 1994.

Losses and Loss Adjustment Expenses
-----------------------------------
Losses and loss adjustment  expenses  increased $0.5 million,  or 0.6%, to $83.2
million for the year ended  December  31, 1995 from $82.7  million in 1994.  The
increase in losses and loss  adjustment  expenses was primarily  attributable to
the overall growth in the Company's  business and was significantly  offset by a
reduction  in the  loss  and  loss  adjustment  expense  ratio.  Loss  and  loss
adjustment  expenses were 71.1% of premium  revenue in 1995 compared to 81.5% of
premium  revenue in 1994. The decrease in the loss and loss  adjustment  expense
ratio was  primarily  attributable  to  improved  loss  ratios on the  Company's
personal and commercial  automobile  lines and to a decline in the frequency and
severity  of weather  related  property  losses in 1995 as  compared  with 1994.
Losses believed to be weather  related  aggregated $5.2 million in 1995 compared
to $7.9 million in 1994. To a much lesser  extent,  the decrease in the loss and
loss adjustment  expense ratio on assumed  reinsurance  also  contributed to the
decrease in the Company's overall loss and loss adjustment  expense ratio during
1995.



Underwriting Expenses
---------------------
Underwriting  expenses increased $6.1 million,  or 21%, to $34.9 million for the
year ended December 31, 1995 from $28.8 million for the same period in 1994. For
the year ended  December 31, 1995,  underwriting  expenses were 29.8% of premium
revenue  compared  to 28.4% in 1994.  A  reduction  in 1994 of $2.2  million  in
amounts  accrued for the Company's share of the deficit of the New Jersey Market
Transition Facility had a favorable impact on the Company's underwriting expense
ratio in that year.  Without  taking into account the effect of this  reduction,
underwriting expenses in 1994 would have been 30.5% of premium revenue

Federal Income Tax Expense
--------------------------
Federal income tax expense increased $3.6 million to $5.0 million in 1995 from $
1.4  million in 1994.  Federal  income tax  expense  was 34.2% of income  before
federal  income tax expense in 1995  compared to 29.1% in 1994.  The increase in
the Company's  effective  federal income tax rate was primarily  attributable to
the  increase in income  before  federal  income tax expense,  certain  expenses
related to the Plan of Conversion , and reductions in tax exempt interest income
in 1995.

Net Income
----------
Net  income  increased  $6.1  million  to $9.6  million  in 1995 from $3.5  
million  in 1994  primarily  as a result of the foregoing factors.

LIQUIDITY AND CAPITAL RESOURCES

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

During 1996,  the Company  continued  to reduce its  holdings of  non-investment
grade  fixed  maturities  to  improve  the  overall  quality  of its  investment
portfolio.  The aggregate  carrying value of fixed maturity  securities rated as
non-investment  grade by the NAIC was  reduced to $6.9  million,  or 3.2% of its
fixed maturity  portfolio,  at December 31, 1996 from $10.8 million,  or 5.6% of
its fixed maturity  portfolio,  at December 31, 1995. High yield corporate bonds
constituted most of the  non-investment  grade securities held by the Company as
of  December  31,  1996.  As a result of the  reduction  in  holdings of certain
non-investment grade securities,  the Company anticipates that future investment
yields  may be lower  than  they  otherwise  would be.  Approximately  4% of the
Company's  investment  portfolio  consists  of  investments  in  mortgage-backed
securities.  The  mortgage-backed  securities held by the Company as of December
31, 1996 were  primarily  GNMA,  FNMA,  and  Federal  Home Loan  Mortgage  Corp.
pass-through  securities.  The  Company  currently  has no  investments  in such
derivative financial instruments as futures, forward, swap, or option contracts,
or other financial instruments with similar characteristics. The market value of
the Company's  fixed maturity  investments is subject to  fluctuations  directly
attributable  to prevailing  rates of interest as well as other  factors.  As of
December 31, 1996,  the aggregate  market value of the Company's  fixed maturity
investments  exceeded the aggregate  amortized cost of such  investments by $5.1
million.  As of December 31, 1995,  the aggregate  market value of the Company's
fixed  maturity  investments  exceeded  the  aggregate  amortized  cost  of such
investments by $10.2 million

The Company  has in place an  unsecured  line of credit with Key Bank,  NA under
which it may borrow up to $2.0  million  and,  effective  January  1997,  a $7.0
million unsecured line of credit with Fleet National Bank. At December 31, 1996,
no amounts  were  outstanding  on either  line of  credit,  each of which has an
annual  interest rate equal to such bank's prime rate. In addition,  the Company
had notes payable outstanding  consisting of $0.3 million of debentures and $1.0
million of subordinated surplus certificates (collectively "the Surplus Notes").
The Surplus  Notes bear  interest at the rate of 8% per annum,  have no maturity
date,  and principal  and interest are  repayable  only with the approval of the
Insurance Department of the State of New York.

Net cash provided by operating activities was $11.8 million,  $16.4 million, and
$8.6  million  during  the  years  ended  December  31,  1996,  1995,  and 1994,
respectively.  The decrease in cash provided by operating activities in 1996 was
primarily  attributable  to the decrease in net income which included the impact
of $1.5 million of expenses  related to the Plan of Conversion which the Company
has  identified  as an  extraordinary  item  during 1996  compared to 1995.  The
increase in net cash  provided by  operating  activities  in 1995 was  primarily
attributable to the increase in net income and a decrease in payments for losses
and loss adjustment expenses during 1995 compared to 1994.

Net cash used in investing activities was $41.1 million, $18.5 million, and $7.7
million during the years ended December 31, 1996, 1995, and 1994,  respectively.
The increase in net cash used in investing activities in 1996 resulted primarily
from a reduction in proceeds on the maturities and sales of fixed maturities and
the investment of the net proceeds from the Company's  initial public  offering.
The increase in net cash used in investing  activities in 1995 resulted from the
net increase in cash available from the Company's  operations  during 1995 and a
corresponding  increase  in  investments  in  short-term  investments  and fixed
maturities.

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

The Company  purchases  reinsurance  in part to mitigate  the impact of large or
unusual  losses and loss  expenses on its  liquidity.  As a condition of writing
business in certain  states,  the Company  participates in a number of mandatory
pools and the  Company may be  required  to pay  assessments  to the extent such
pools require the funding of deficits in the future.

The principal  source of liquidity for Farm Family Holdings will be derived from
dividend payments received from the Farm Family Casualty. The New York Insurance
Law regulates the  distribution  of dividends and other  payments to Farm Family
Holdings by Farm Family Casualty.  Such restrictions or any subsequently imposed
restrictions may in the future affect Farm Family Holdings' liquidity.


<PAGE>
<TABLE>

FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
 ($ in thousands)
<CAPTION>


--------------------------------------------------------------------------------------------------------------------

For the Years Ended December 31,                                                    1996          1995         1994
--------------------------------------------------------------------------------------------------------------------

Revenues:
<S>                                                                             <C>           <C>          <C>     
         Premiums                                                               $130,780      $116,936     $101,466
         Net investment income                                                    15,952        14,326       13,190
         Realized investment gains (losses), net                                   (640)           912        1,340
         Other income                                                                905           840          696
                                                                          ------------------------------------------
             Total revenues                                                      146,997       133,014      116,692
                                                                          ------------------------------------------

Losses and Expenses:
         Losses and loss adjustment expenses                                      94,977        83,184       82,680
         Underwriting expenses                                                    38,160        34,902       28,768
         Early retirement program expense                                          1,177             -            -
         Interest expense                                                            167           216          220
         Dividends to policyholders                                                  373           122           51
                                                                          ------------------------------------------
            Total losses and expenses                                            134,854       118,424      111,719
                                                                          ------------------------------------------

Income before federal income tax expense and extraordinary item                   12,143        14,590        4,973

Federal income tax expense                                                         3,676         4,984        1,447
                                                                          ------------------------------------------

Income before extraordinary item                                                   8,467         9,606        3,526

Extraordinary item - demutualization expenses                                      1,543             -            -
                                                                          ------------------------------------------

Net income                                                                        $6,924        $9,606       $3,526
                                                                          ------------------------------------------

Per Common Share:
    Income before extraordinary item                                               $2.13         $3.20        $1.18
                                                                          ------------------------------------------

    Net income                                                                     $1.74         $3.20        $1.18
                                                                          ------------------------------------------
                                                                          ------------------------------------------
See accompanying notes to Consolidated Financial Statements.

</TABLE>


<PAGE>

<TABLE>

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


As of December 31,                                                                                             1995
                                                                                             1996
ASSETS

Investments:
<S>                                                                                            <C>          <C>  
   Fixed Maturities
     Available for sale, at fair value
        (Amortized cost: $214,226 in 1996 and $171,694 in 1995 )                               $219,188     $181,189
     Held to maturity, at amortized cost
        (Fair value: $9,973 in 1996 and $13,100 in 1995)                                          9,782       12,386
   Equity securities
     Available for sale, at fair value
         (Cost: $2,546 in 1996 and $334 in 1995)                                                  7,908        4,746
   Mortgage loans                                                                                 1,745        1,822
   Other invested assets                                                                            748        1,246
   Short-term investments                                                                         5,333        6,532
                                                                                       ------------------------------
             Total investments                                                                  244,704      207,921
                                                                                       ------------------------------

Cash                                                                                              4,110        2,410
Insurance receivables:
   Reinsurance receivables                                                                       10,743       13,773
   Premiums receivable                                                                           22,663       21,791
Deferred acquisition costs                                                                       10,682       10,527
Accrued investment income                                                                         4,861        4,260
Deferred income tax asset, net                                                                    1,520            -
Prepaid reinsurance premiums                                                                      1,944        1,864
Receivable from affiliates, net                                                                  16,133       13,860
Other assets                                                                                      2,052        1,882
                                                                                       ------------------------------
             Total Assets                                                                      $319,412     $278,288
                                                                                       ------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Reserves for losses and loss adjustment expenses                                               $141,220     $137,978
Unearned premium reserve                                                                         55,945       52,799
Reinsurance premiums payable                                                                        641        2,635
Accrued expenses and other liabilities                                                            9,561        7,788
Debt                                                                                              1,304        2,707
Deferred income tax liability, net                                                                    -          217
                                                                                       ------------------------------
             Total liabilities                                                                  208,671      204,124
                                                                                       ------------------------------
Commitments and contingencies
-----------------------------
Stockholders' equity:
Preferred stock $.01 par value 1,000,000 shares authorized
         and no shares issued and outstanding                                                         -            -

Common stock $.01 par value 10,000,000 shares authorized
         and 5,253,813 shares issued and outstanding                                                 53            -

Additional Paid in Capital                                                                       98,140            -
Retained earnings                                                                                 5,838       65,284
Net unrealized investment gains                                                                   6,710        8,998
Minimum pension liability adjustment                                                                  -        (118)
                                                                                       ------------------------------
             Total stockholders' equity                                                         110,741       74,164
                                                                                       ------------------------------
             Total Liabilities and Stockholders' Equity                                        $319,412     $278,288
                                                                                       ------------------------------

See accompanying notes to Consolidated Financial Statements.

</TABLE>
<PAGE>

<TABLE>

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

<CAPTION>
------------------------------------------------------------------------------------------------------------

For the Years Ended December 31,                                            1996        1995        1994
------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>          <C>        <C>    
Common stock
         Balance, beginning of year                                         
                                                                                $  -         $ -        $ -
         Common stock issued                                                      53           -          -
                                                                        ------------------------------------
         Balance, end of year                                                     53           -          -
                                                                        ------------------------------------

Additional Paid in Capital
         Balance, beginning of year                                                -           -          -
         Initial public offering and subscription offering, net               43,715           -          -
         Payments to policyholders                                           (12,210)          -          -
         Conversion of debt to common stock                                      265           -          -
         Demutualization of Farm Family Mutual                                66,370           -          -
                                                                        ------------------------------------
         Balance, end of year                                                 98,140           -          -
                                                                        ------------------------------------

Retained earnings
         Balance, beginning of year                                           65,284      55,678     52,152
         Net income                                                            6,924       9,606      3,526
         Demutualization of Farm Family Mutual                               (66,370)          -          -
                                                                        ------------------------------------

         Balance, end of year                                                  5,838      65,284     55,678
                                                                        ------------------------------------


Net unrealized appreciation (depreciation) of investments
         Balance, beginning of year                                            8,998     (2,701)      8,360
         Change in unrealized appreciation (depreciation), net                (2,288)    11,699     (11,061)
                                                                        ------------------------------------
         Balance, end of year                                                  6,710      8,998      (2,701)
                                                                        ------------------------------------

Minimum pension liability adjustment
         Balance, beginning of year                                             (118)        -            -
         Minimum pension liability adjustment                                    118       (118)          -
                                                                        ------------------------------------
         Balance, end of year                                                      -       (118)          -
                                                                        ------------------------------------

Total Stockholders' Equity                                                  $110,741     $74,164    $52,977
                                                                        ------------------------------------
                                                                        ------------------------------------

See accompanying notes to Consolidated Financial Statements.

</TABLE>


<PAGE>

<TABLE>

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

<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31,                                                     1996         1995         1994
-----------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                                                             $6,924       $9,606      $3,526
                                                                                 --------------------------------------

<S>                                                                                       <C>         <C>       <C>    
Adjustments to reconcile net income to net cash provided by operating
   activities:
     Realized investment (gains) losses                                                   640         (912)     (1,340)
     Amortization of bond discount                                                        130           62          77
     Deferred income taxes                                                               (505)         581         596
     Extraordinary item - demutualization expense                                       1,543            -           -
     Changes in:
         Reinsurance receivables                                                        3,030        1,254       1,910
         Premiums receivable, net                                                        (872)      (3,062)     (2,732)
         Deferred acquisition costs                                                      (155)      (1,856)        (39)
         Accrued investment income                                                       (601)        (213)       (426)
         Prepaid reinsurance premiums                                                     (80)         (58)       (367)
         Receivable from affiliates, net                                               (2,273)      (3,293)      1,699
         Other assets                                                                    (283)         742        (803)
         Reserves for losses and loss adjustment expenses                               3,242       10,024       4,477
         Unearned premium reserve                                                       3,146        3,956       4,541
         Reinsurance premiums payable                                                  (1,994)      (1,394)          4
         Accrued expenses and other liabilities                                         1,497        1,001      (2,030)
         Income taxes payable                                                               -            -        (459)
                                                                                 --------------------------------------
         Total adjustments                                                              6,465        6,832       5,108
                                                                                 --------------------------------------
         Net cash provided by operating activities before extraordinary item           13,389       16,438       8,634
         Extraordinary item - demutualization expenses                                 (1,543)           -           -
                                                                                 --------------------------------------
         Net cash provided by operating activities                                     11,846       16,438       8,634
                                                                                 --------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sales:
    Fixed maturities available for sale                                                 5,670       28,466      26,102
    Other invested assets                                                                 144            -         732
Investment collections:
    Fixed maturities available for sale                                                 9,405       15,435      16,025
    Fixed maturities held to maturity                                                   2,561          514         418
    Mortgage loans                                                                         77           68          58
Investment purchases:
    Fixed maturities available for sale                                               (58,430)     (58,339)    (54,010)
    Fixed maturities held to maturity                                                       -       (1,598)     (1,040)
    Equity securities                                                                  (2,042)           -           -
Change in short-term investments, net                                                   1,199       (3,519)         90
Change in other invested assets                                                           344          480       3,186
Proceeds from sale of property and equipment                                                -            -         711
                                                                                 --------------------------------------
         Net cash used in investing activities                                        (41,072)     (18,493)     (7,728)
                                                                                 --------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from IPO and Subscription Offerings                                           44,880            -           -
subscription
Demutualization payments to Policyholders and Noteholders                             (12,842)           -           -
IPO Expenses paid                                                                      (1,080)           -           -
Principal payments on debt                                                                (32)         (42)        (34)
                                                                                 --------------------------------------
         Net cash provided by (used in) financing activities                           30,926          (42)        (34)
                                                                                 --------------------------------------
         Net increase (decrease) in cash                                                1,700       (2,097)        872
Cash, beginning of year                                                                 2,410        4,507       3,635
                                                                                 --------------------------------------
Cash, end of year                                                                      $4,110       $2,410      $4,507
                                                                                 --------------------------------------
                                                                                 --------------------------------------
See accompanying notes to Consolidated Financial Statements.

</TABLE>
<PAGE>

         1.       Summary of Significant Accounting Policies

        Basis of Presentation:

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

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

         The  operations  of the Company are closely  related  with those of its
         affiliates, Farm Family Life Insurance Company ("Farm Family Life") and
         Farm  Family  Life's  wholly  owned  subsidiary,   United  Farm  Family
         Insurance  Company  ("United Farm Family").  (see Note 10.) Farm Family
         Life is a stock life  insurance  company owned by the state Farm Bureau
         organizations  of the ten  states in which the  Company  operates.  The
         Company  and Farm  Family  Life are  affiliated  by common  management,
         shared agents and employees and similar Boards of Directors.

        Investments:

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

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

         Mortgage loans are carried at their outstanding principal balance.

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

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

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

        Income Taxes:

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

        Property-Liability Insurance Accounting:

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

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

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

         Net Income Per Share:
         The weighted  average shares of common stock used in the computation of
         net income per share and income  per share  before  extraordinary  item
         were  3,979,115 in 1996 and  3,000,000  in 1995 and 1994.  The weighted
         average  shares  of  common  stock in all  periods  give  effect to the
         allocation   of   3,000,000   shares  of  common   stock  to   eligible
         policyholders  on July 26,  1996  pursuant  to Farm  Family  Casualty's
         conversion from a mutual company to a stockholder owned company.

    2.  Plan of Reorganization and Conversion

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

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

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

         Farm Family  Holdings  has entered into an Option  Purchase  Agreement,
         dated  February 14, 1996 (the "Option  Purchase  Agreement"),  with the
         shareholders of Farm Family Life pursuant to which Farm Family Holdings
         has, for a two year period  commencing on July 26, 1996,  the option to
         acquire Farm Family Life subject to certain  conditions,  which include
         the  approval  of Farm Family  Holdings'  shareholders  and  applicable
         regulatory authorities. Although Farm Family Holdings believes that the
         acquisition  of Farm Family Life would be desirable  under  appropriate
         circumstances,  Farm Family  Holdings is not in a position at this time
         to predict with any certainty whether the option to acquire Farm Family
         Life will in fact be  exercised.  Farm  Family  Holdings'  decision  to
         exercise the option will depend,  among other  things,  on the exercise
         price  for the  shares  of  Farm  Family  Life,  an  evaluation  of the
         financial  statements  prepared in accordance  with generally  accepted
         accounting principles and prospects of Farm Family Life, the outcome of
         a vote by the Farm Family  Holdings'  shareholders,  and the receipt of
         applicable   regulatory   approvals.   Farm  Family  Life's   financial
         statements are prepared on the basis of statutory  accounting practices
         prescribed or permitted by insurance regulatory authorities.  Financial
         statements  for Farm Family Life prepared in accordance  with generally
         accepted accounting principles do not currently exist.



<PAGE>


    3.  Investments

        The amortized cost, fair value and gross  unrealized gains and losses of
        available  for  sale  securities  and  held to  maturity  securities  at
        December 31, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>

             ($ in thousands)
         1996                                                     Amortized     Gross Unrealized        Fair
         Available for Sale                                          Cost     Gains         Losses     Value
         ------------------                                          ----     -----         ------     -----
<S>                                                                <C>           <C>          <C>     <C>    
         Fixed maturities:
          U.S. Government & Agencies                               $18,401       $421         $79     $18,743
          States, Municipalities & Political Subdivisions           42,568      1,500         118      43,950
          Corporate                                                135,485      3,918       1,527     137,876
          Mortgage-backed Securities                                 9,676        666        ----      10,342
          Redeemable Preferred Stock                                 8,096        276          95       8,277
                                                              ------------------------------------------------
               Total fixed maturities                              214,226      6,781       1,819     219,188
         Equity securities                                           2,546      5,431          69       7,908
                                                              ------------------------------------------------
              Total Available for Sale                            $216,772    $12,212      $1,888    $227,096
                                                              ------------------------------------------------
         Held to Maturity
         ----------------
         Fixed maturities:
          States, Municipalities & Political Subdivisions           $5,423        $93         $34      $5,482
          Corporate                                                  4,359        186          54       4,491
                                                              ------------------------------------------------
              Total Held to Maturity                                $9,782       $279         $88      $9,973
                                                              ------------------------------------------------
          1995
         Available for Sale
         ------------------
         Fixed maturities:
          U.S. Government & Agencies                               $12,797       $596     $  ----     $13,393
          States, Municipalities & Political Subdivisions           21,871      1,675          66      23,480
          Corporate                                                119,319      7,040         987     125,372
          Mortgage-backed Securities                                10,985        995        ----      11,980
          Redeemable Preferred Stock                                 6,722        322          80       6,964
                                                              ------------------------------------------------
              Total fixed maturities                               171,694     10,628       1,133     181,189
         Equity securities                                             334      4,440          28       4,746
                                                              ------------------------------------------------
              Total Available for Sale                            $172,028    $15,068      $1,161    $185,935
                                                              ------------------------------------------------
         Held to Maturity
         ----------------
         Fixed maturities:
          States, Municipalities & Political Subdivisions           $5,925       $373     $  ----      $6,298
          Corporate                                                  6,461        354          13       6,802
                                                              ------------------------------------------------
              Total Held to Maturity                               $12,386       $727         $13     $13,100
                                                              ------------------------------------------------

</TABLE>
<PAGE>


              The table below  presents the  amortized  cost and fair value of 
              fixed maturities at December 31, 1996, by contractual  maturity.  
              Actual maturities may differ from  contractual  maturities as a 
              result of prepayments.

<TABLE>
<CAPTION>

            ($ in thousands)                                     Available                   Held to
                                                                  for Sale                   Maturity
                                                               -------------              -------------
                                                        Amortized         Fair     Amortized        Fair
                                                             Cost        Value          Cost       Value
                                                             ----        -----          ----       -----
<S>                                                      <C>          <C>             <C>         <C>   
         Due in one year or less                             $771         $746          $350        $358
         Due after one year through five years             28,061       28,756           917         923
         Due after five years through ten years           100,668      102,102         3,186       3,173
         Due after ten years                               75,050       77,242         5,329       5,519
                                                     -------------------------- -------------------------
                                                          204,550      208,846         9,782       9,973
         Mortgage-backed securities                         9,676       10,342          ----        ----
                                                     -------------------------- -------------------------
            Total                                        $214,226     $219,188        $9,782      $9,973
                                                     -------------------------- -------------------------
</TABLE>



Unrealized  investment  gains  and  losses  on fixed  maturities  classified  as
available for sale and equity  securities  included in  stockholders'  equity at
December 31, 1996 are as follows:

<TABLE>
<CAPTION>

             ($ in thousands)                        Cost/                                             Net
                                                  Amortized      Fair         Gross Unrealized     Unrealized
                                                     Cost        Value       Gains       Losses       Gains
<S>                                                <C>         <C>           <C>         <C>          <C>   
         Fixed maturities available for sale       $214,226    $219,188      $6,781      $1,819       $4,962
         Equity securities                            2,546       7,908       5,431          69        5,362
                                                -------------------------------------------------------------
         Total                                     $216,772    $227,096     $12,212      $1,888       10,324
                                                ------------------------------------------------
         Deferred income taxes                                                                         3,614
                                                                                                -------------
             Total                                                                                    $6,710
                                                                                                -------------

</TABLE>

         The change in unrealized  appreciation  (depreciation)  of  investments
         included in stockholders' equity for the years ended December 31, 1996,
         1995 and 1994 was as follows:

<TABLE>
<CAPTION>

               ($ in thousands)                                                 1996        1995          1994
                                                                                ----        ----          ----
<S>                                                                         <C>          <C>         <C>      
         Fixed maturities available for sale                                $(4,532)     $17,197     $(17,236)
         Equity securities                                                       950         802           477
         Other invested assets                                                    63        (63)          ----
                                                                       ----------------------------------------
                                                                             (3,519)      17,936      (16,759)
         Deferred income taxes                                                 1,231     (6,237)         5,698
                                                                       ----------------------------------------
         Total                                                              $(2,288)     $11,699     $(11,061)
                                                                       ----------------------------------------
</TABLE>



<PAGE>


The components of net investment income are as follows:

<TABLE>
<CAPTION>

              ($ in thousands)
                                                                                   1996       1995        1994
                                                                                   ----       ----        ----
<S>                                                                             <C>        <C>         <C>    
         Interest on fixed maturities                                           $15,612    $14,561     $13,546
         Dividends from equity securities                                            53         19          23
         Interest on mortgage loans                                                 169        180         182
         Interest on short-term investments                                         585        315         145
         Other, net                                                                ----      (406)       (381)
                                                                            -----------------------------------
            Gross investment income                                              16,419     14,669      13,515
         Investment expense                                                       (467)      (343)       (325)
                                                                            -----------------------------------
            Net investment income                                               $15,952    $14,326     $13,190
                                                                            -----------------------------------

</TABLE>

A summary of realized investment gains (losses), net, as follows:

<TABLE>
<CAPTION>
              ($ in thousands)
                                                                                   1996       1995        1994
                                                                                   ----       ----        ----
<S>                                                                              <C>          <C>       <C>   
         Fixed maturities                                                        $(567)       $912      $1,241
         Equity securities                                                         ----       ----          99
         Other invested assets                                                     (73)       ----        ----
                                                                            -----------------------------------
         Total                                                                   $(640)       $912      $1,340
                                                                            -----------------------------------
</TABLE>

    4.  Fair Value of Financial Instruments

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



<PAGE>


         The following  table  presents the carrying value and fair value of the
         Company's financial instruments at December 31, 1996 and 1995.

<TABLE>
<CAPTION>

                                                              December 31, 1996          December 31, 1995
                                                              -----------------          -----------------
                                                              Carrying        Fair     Carrying         Fair
               ($ in thousands)                                  Value       Value        Value        Value
               ----------------                                  -----       -----        -----        -----
         Assets
         ------
<S>                                                          <C>         <C>           <C>          <C>     
         Fixed maturities                                    $228,970    $229,161      $193,575     $194,289
         Equity securities                                       7,908       7,908        4,746        4,746
         Mortgage loans                                          1,745       1,745        1,822        1,822
         Cash and short-term investments                         9,443       9,443        8,942        8,942
         Premiums receivable, net                               22,663      22,663       21,791       21,791
         Receivable from affiliates, net                        16,133      16,133       13,860       13,860
         Accrued investment income and other assets              7,137       7,137        6,940        6,940
         Liabilities
         -----------
         Accrued expenses and other liabilities                  9,561       9,561        7,788        7,788
         Debt                                                    1,304       1,304        2,707        2,707

</TABLE>

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

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

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

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

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

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

    5.  Reinsurance

         The  Company   assumes  and  cedes  insurance  to  participate  in  the
         reinsurance market, limit maximum losses and minimize exposure on large
         risks.  Reinsurance  contracts  do not  relieve  the  Company  from its
         obligations  to  policyholders  as the  primary  insurer.  The  Company
         evaluates  the  financial  condition  of its  reinsurers  and  monitors
         concentrations of credit risk arising from similar geographic  regions,
         activities and economic  characteristics  of the reinsurers to minimize
         its exposure to significant losses from reinsurer insolvencies. Amounts
         recoverable are regularly evaluated by the Company and an allowance for
         uncollectible  reinsurance is provided when  collection is in doubt. At
         December 31, 1996 and 1995, the Company determined it was not necessary
         to provide an allowance for uncollectible reinsurance.


<PAGE>

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

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

<TABLE>
<CAPTION>

                                                                               Year Ended December 31,
                                                                               -----------------------
              ($ in thousands)                                                  1996          1995        1994
                                                                                ----          ----        ----
         Premiums written
<S>                                                                         <C>           <C>         <C>     
         Direct                                                             $146,408      $135,963    $122,039
         Assumed                                                               6,462         6,261       7,577
         Ceded to United Farm Family                                         (9,336)       (9,237)     (9,776)
         Ceded to non-affiliates                                             (9,690)      (12,153)    (14,226)
                                                                        ---------------------------------------
             Premiums written, net of reinsurance                           $133,844      $120,834    $105,614
                                                                        ---------------------------------------

         Premiums earned
         Direct                                                             $142,794      $131,717    $117,384
         Assumed                                                               6,931         6,552       7,690
         Ceded to United Farm Family                                         (9,334)       (9,238)     (9,750)
         Ceded to non-affiliates                                             (9,611)      (12,095)    (13,858)
                                                                        ---------------------------------------
             Premiums earned, net of reinsurance                            $130,780      $116,936    $101,466
                                                                        ---------------------------------------

         Losses and loss adjustment expenses incurred
         Direct                                                              $99,954       $91,176     $91,467
         Assumed                                                               4,630         4,658       4,513
         Ceded to United Farm Family                                         (7,277)       (6,604)     (7,378)
         Ceded to non-affiliates                                             (2,330)       (6,046)     (5,922)
                                                                        ---------------------------------------
             Losses and loss adjustment expenses incurred,
                 net of reinsurance                                          $94,977       $83,184     $82,680
                                                                        ---------------------------------------

</TABLE>


<PAGE>


6.      Income Taxes

         The  components of the deferred  income tax assets and  liabilities  at
December 31, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>

               ($ in thousands)
         Deferred Income Tax Assets                                                      1996             1995
         --------------------------                                                      ----             ----
<S>                                                                                      <C>             <C>   
         Reserves for losses and loss adjustment expenses                                $4,423          $4,444
         Unearned premium reserve                                                         3,774           3,559
         Accrued expenses and other liabilities                                             797             474
         Investments                                                                        148              68
                                                                               ---------------------------------
                 Total deferred income tax assets                                         9,142           8,545
                                                                               ---------------------------------
         Deferred Income Tax Liabilities
         Deferred acquisition costs                                                       3,739           3,685
         Unrealized investment gains, net                                                 3,614           4,846
         Other assets                                                                       269             231
                                                                               ---------------------------------
                 Total deferred income tax liabilities                                    7,622           8,762
                                                                               ---------------------------------
                      Net deferred income tax asset (liability)                          $1,520          $(217)
                                                                               ---------------------------------
</TABLE>

         There was no valuation  allowance for deferred  income tax assets as of
         December 31, 1996 or 1995. In assessing the realization of deferred tax
         assets,  management  considers  whether it is more likely than not that
         the  deferred  tax  assets  will  be  realized.   Management  primarily
         considered the existence of taxable  income in the carryback  period in
         making this  assessment  and believes  the  benefits of the  deductible
         differences recognized as of December 31, 1996 and 1995 will ultimately
         be realized.

         The components of income tax expense (benefit) are as follows:

<TABLE>
<CAPTION>

              ($ in thousands)                                       Year Ended December 31,
                                                                     -----------------------
                                                                   1996         1995        1994
                                                                   ----         ----        ----
<S>                                                              <C>          <C>           <C> 
         Current                                                 $4,181       $4,403        $851
         Deferred                                                 (505)          581         596
                                                          ---------------------------------------
         Total income tax expense                                $3,676       $4,984      $1,447
                                                          ---------------------------------------
</TABLE>

The Company paid income taxes of $4,592,000,  $3,952,000 and $2,209,000 in 1996,
1995 and 1994 respectively.



<PAGE>


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

                                                                      Year Ended December 31,
                                                                      -----------------------
         ($ in thousands)                                    % of                % of                 % of
                                                            Pretax              Pretax               Pretax
                                                     1996   Income       1995   Income        1994   Income
                                                     ----   ------       ----   ------        ----   ------
<S>                                                <C>      <C>        <C>      <C>         <C>      <C>   
         Income tax provision at prevailing rates  $4,147   34.18%     $5,006   34.31%      $1,691   34.00%
         Tax effect of:
         Tax exempt interest income                  (107)    (.88)       (11)    (.08)        (67)   (1.35)
         Dividends received deduction                (156)   (1.29)      (148)   (1.01)       (140)   (2.81)
         Other, net                                  (208)   (1.71)       137      .94         (37)    (.74)
                                                 -----------------------------------------------------------
         Federal income tax expense                $3,676   30.30%     $4,984   34.16%      $1,447   29.10%
                                                 -----------------------------------------------------------
</TABLE>


7.      Reserves for Losses and Loss Adjustment Expenses

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



<PAGE>


         The following table provides a  reconciliation  of beginning and ending
         liability balances for reserves for losses and loss adjustment expenses
         for the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                                                 1996        1995         1994
                                                                                 ----        ----         ----
         ($ in thousands)
         Reserves for losses and loss adjustment
<S>                                                                          <C>         <C>          <C>     
               expenses at beginning of year                                 $137,978    $127,954     $123,477
         Less reinsurance recoverables and receivables                         28,655      28,230       28,761
                                                                          -------------------------------------
         Net reserves for losses and loss adjustment
               expenses at beginning of year                                  109,323      99,724       94,716
                                                                          -------------------------------------
         Incurred losses and loss adjustment expenses:
         Provision for insured events of current year                         100,418      88,366       86,370
         Decrease in provision for
                insured events of prior years                                  (5,441)     (5,182)      (3,690)
                                                                          -------------------------------------
                  Total incurred losses and loss adjustment expenses           94,977      83,184       82,680
                                                                          -------------------------------------

         Payments:
         Losses and loss adjustment expenses
             attributable to insured events of current year                    50,122      40,519       43,232
         Losses and loss adjustment expenses
             attributable to insured events of prior years                     39,795      33,066       34,440
                                                                          -------------------------------------
             Total Payments:                                                   89,917      73,585       77,672
                                                                          -------------------------------------
         Net reserves for losses and loss
              adjustment expenses at end of year                              114,383     109,323       99,724
         Plus reinsurance recoverables and receivables                         26,837      28,655       28,230
                                                                          -------------------------------------
         Reserves for losses and loss adjustment
             expenses at end of year                                         $141,220    $137,978     $127,954
                                                                          -------------------------------------
</TABLE>

        The Company  does not discount  reserves for losses and loss  adjustment
        expenses except for certain  lifetime  workers'  compensation  indemnity
        reserves it assumes from mandatory  pools. The amount of such discounted
        reserves was $4,184,000  (net of a discount of  $1,185,000),  $4,754,000
        (net of a discount of $1,192,000),  and $4,876,000 (net of a discount of
        $1,217,000) for December 31, 1996, 1995 and 1994, respectively.

        8. Debt

         At December  31,  1996,  debt  consists of $301,000 of  debentures  and
         $1,003,000 of  subordinated  surplus  certificates.  The debentures and
         subordinated  surplus  certificates bear interest at the rate of 8% per
         annum,  have no maturity date, and principal and interest are repayable
         only with the approval of the Insurance  Department of the State of New
         York. No single holder holds more than 5% of the outstanding debentures
         or  subordinated  surplus  certificates.  The Company paid  interest of
         $279,000,  $217,000 and $220,000 for the years ended December 31, 1996,
         1995 and 1994, respectively.

         At December 31, 1996,  the Company had an available line of credit with
         a bank for $2,000,000.  There were no amounts  outstanding on this line
         of credit at December 31, 1996.

<PAGE>

    9.     Benefits Plans

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

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

                                                                                   Year Ended December 31,
         ($ in thousands)                                                       1996          1995        1994
                                                                                ----          ----        ----
<S>                                                                             <C>           <C>         <C> 
         Service cost                                                           $869          $708        $777
         Interest cost on projected benefit obligation                         1,411         1,384       1,225
         Actual return on plan assets                                          (854)       (1,844)       (401)
         Net amortization (deferral)                                           (447)           632       (756)
         Voluntary early retirement program                                    2,069          ----        ----
                                                                        ---------------------------------------
             Total pension expense                                            $3,048          $880        $845
                                                                        ---------------------------------------
</TABLE>


         The Company's  portion of net periodic pension  expense,  excluding the
         expense of the voluntary early retirement program,  for the years ended
         December 31, 1996,  1995 and 1994 was $617,000,  $537,000 and $516,000,
         respectively. In addition, the Company's portion of the expense related
         to the voluntary early retirement program was $1,155,000 for 1996.

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

                                                                                 Year Ended December 31,
                                                                                1996          1995        1994
                                                                                ----          ----        ----
<S>                                                                            <C>           <C>         <C>  
         Weighted-average discount rate                                        7.00%         6.40%       7.90%
         Rate of increase in compensation levels                               4.00%         3.40%       4.90%
         Expected long-term rate of return on plan assets                      8.00%         8.00%       8.00%

</TABLE>


<PAGE>


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

                                                                                        Year Ended December 31,
                                                                                            1996           1995
                                                                                            ----           ----
               ($ in thousands)
         Actuarial present value of benefit obligations:
<S>                                                                                      <C>            <C>    
              Vested                                                                     $21,075        $17,901
              Nonvested                                                                      ---            338
                                                                                --------------------------------
         Accumulated benefit obligation                                                   21,075         18,239
         Effect of projected future salary increases on past service                         ---          3,204
                                                                                --------------------------------
         Projected benefit obligation                                                     21,075         21,443
         Plan assets at fair value                                                        18,881         17,112
                                                                                --------------------------------
         Projected benefit obligation in excess of plan assets                          $(2,194)       $(4,331)
                                                                                --------------------------------

</TABLE>

         The accrued pension liability of the plan was as follows:
<TABLE>
<CAPTION>
                                                                                        Year Ended December 31,
                                                                                           1996            1995
                                                                                           ----            ----
                ($ in thousands)
<S>                                                                                    <C>             <C>     
          Projected benefit obligation in excess of plan assets                        $(2,194)        $(4,331)
          Unrecognized prior service asset                                                  ---             114
          Unrecognized net gain from past
                experience different from that assumed                                      ---           3,880
          Unrecognized net asset at transition                                              ---           (558)
          Minimum liability adjustment                                                      ---           (232)
                                                                                 -------------------------------
          Accrued pension liability                                                    $(2,194)        $(1,127)
                                                                                 -------------------------------
</TABLE>


         Incentive Savings Plan:

         The Company and Farm Family Life sponsor an employee  incentive savings
         plan which is qualified  under Section  401(k) of the Internal  Revenue
         Code. Under the provisions of this plan, employees may contribute 1% to
         16% of their  eligible  compensation,  with up to 6% being eligible for
         matching  contributions  from the  Company.  In  addition,  the Company
         contributed 1% of eligible  compensation up to $240 to the plan for all
         eligible employees in 1996, 1995, and 1994.  Effective January 1, 1997,
         the Company will contribute to the plan a regular contribution of 3% of
         eligible  compensation and a matching  contribution of 25% of the first
         6% of eligible compensation  deferred by each eligible employee.  Also,
         Company may elect to make additional discretionary contributions to the
         plan.  The  Company's  expense  associated  with the plan was $182,000,
         $138,000 and $155,000 in 1996, 1995 and 1994, respectively.

<PAGE>

        Postretirement Benefits Other Than Pensions:

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

         Effective   January  1,  1995,  the  Company   adopted  SFAS  No.  106,
         "Employers'   Accounting   for   Postretirement   Benefits  Other  than
         Pensions",   which   changed   the   accounting   for   the   Company's
         postretirement  benefit plan from a cash basis by requiring  accrual of
         the expected cost of providing benefits under the plan during the years
         that the employee renders the necessary service to the Company.

         Net periodic  postretirement  benefit expense for the plan included the
         following:

<TABLE>
<CAPTION>

                                                                                       Year Ended December 31,
         ($ in thousands)                                                                    1996          1995
<S>                                                                                           <C>           <C>
         Service cost                                                                         $27           $37
         Interest cost                                                                         63            73
         Return on assets                                                                     ---           ---
         Amortization of transition obligation                                                 47            47
          Voluntary early retirement program                                                   41           ---
                                                                                    ----------------------------
                    Total                                                                    $178          $157
                                                                                    ----------------------------
</TABLE>


         The Company incurred  postretirement benefit expense on a cash basis of
         $6,000 for the year ended December 31, 1994.  The Company's  portion of
         net periodic  postretirement  benefit  expense,  excluding  the expense
         related to the  voluntary  early  retirement  program,  for each of the
         years ended  December 31, 1996 and 1995 was $66,000.  In addition,  the
         Company's  portion  of  the  expense  related  to the  voluntary  early
         retirement program was $22,000 for 1996.

         The plan's postretirement benefit obligation reconciled with the plan's
         funded status and the amount  recognized in the Company's  consolidated
         balance sheets was as follows:
<TABLE>
<CAPTION>

                                                                                     Year Ended December 31,
          ($ in thousands)                                                                 1996           1995
                                                                                           ----           ----
         Accumulated postretirement benefit obligation:
<S>                                                                                      <C>            <C>   
              Retirees                                                                   $(487)         $(534)
              Other fully eligible plan participants                                      (182)          (260)
              Other active plan participants                                              (293)          (452)
                                                                                  -----------------------------
              Obligation at year-end                                                      (962)        (1,246)
         Plan assets                                                                        ---            ---
                                                                                  -----------------------------
         Funded status                                                                    (962)        (1,246)
         Unrecognized transition obligation                                                 805            893
         Unrecognized net loss                                                             (95)            238
                                                                                  -----------------------------
                Accrued postretirement benefit liability at year-end                     $(252)         $(115)
                                                                                  -----------------------------

</TABLE>

         The discount  rate used to  determine  the  accumulated  postretirement
         benefit  obligation  was 7.0% at December 31, 1996 and 6.4% at December
         31, 1995.

<PAGE>

   10.  Related Party Transactions

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

         ($ in thousands)                                                          Company's Share
                                                                                   ---------------
                                                                    Gross Shared
                                                                        Expenses         Amount     Percentage
                                                                        --------         ------     ----------
         Year Ended December 31,
<S>       <C>                                                            <C>            <C>                <C>
          1996                                                           $30,689        $19,912            65%
          1995                                                            26,650         16,182             61
          1994                                                            23,833         14,402             60

</TABLE>

         Farm Family Life held $813,000 of the Company's  debentures in 1994 and
         1995. In July 1996 the Company repurchased the debentures owned by Farm
         Family Life for the principal  amount of $813,000 plus accrued interest
         of $37,000.  The Company  incurred  interest expense of $37,000 in 1996
         and  $65,000  in 1995 and 1994 on the  debentures  held by Farm  Family
         Life.  During 1994, the Company sold its data  processing  equipment to
         Farm Family Life at net book value.

         The Company's reinsurance program includes reinsurance  agreements with
         United  Farm  Family.  In  accordance  with  the  provisions  of  these
         reinsurance  agreements,   the  Company  recognized  commission  income
         (expenses) of approximately $191,000,  $2,000, and ($39,000) during the
         years ended December 31, 1996, 1995 and 1994,  respectively.  A summary
         of the effect of the reinsurance  agreements with United Farm Family on
         premiums written and earned is described in Note 5.

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

         Currently,  Farm Family Life and its wholly  owned  subsidiary,  United
         Farm Family,  prepare their  financial  statements  in accordance  with
         statutory accounting practices.  Such practices vary significantly from
         generally  accepted  accounting  practices.   The  following  financial
         information was derived from the statutory  basis financial  statements
         for Farm  Family  Life and  United  Farm  Family as of and for the year
         ended December 31, 1996:

<TABLE>
<CAPTION>

         ($ in thousands)                                                         Total   Statutory        Net
                                                                                 Assets     Surplus     Income
                                                                                 ------     -------     ------
<S>                                                                            <C>          <C>         <C>   
         Farm Family Life                                                      $721,129     $74,081     $8,111
         United Farm Family                                                      31,378      13,571      2,134


</TABLE>
<PAGE>


11.              Dividends From Subsidiaries and Statutory Financial Information

         Farm Family Casualty is restricted by law as to the amount of dividends
         it can pay without the approval of regulatory authorities.

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

<TABLE>
<CAPTION>

         ($ in thousands)                                                 1996             1995           1994
                                                                          ----             ----           ----
<S>                                                                     <C>              <C>            <C>   
         Net income                                                     $7,221           $6,735         $3,196
         Surplus                                                        83,194           55,916         42,870

</TABLE>

        The National Association of Insurance Commissioners ("NAIC") has adopted
        risk based capital ("RBC") requirements that require insurance companies
        to calculate  and report  information  under a risk-based  formula which
        measures  statutory  capital  and surplus  needs  based on a  regulatory
        definition of risk in a company's mix of products and its balance sheet.
        The  implementation  of RBC is not expected to affect the  operations of
        Farm  Family  Casualty  since its Total  Adjusted  Capital  exceeds  the
        threshold level of regulatory action, as defined by the NAIC.

   12.  Commitments, Contingencies and Uncertainties

         The Company is party to numerous  legal  actions  arising in the normal
         course of business.  Management believes that resolution of these legal
         actions  will not have a material  adverse  effect on its  consolidated
         financial condition.
                  Catastrophes are an inherent risk in the property and casualty
         insurance industry and could produce significant  adverse  fluctuations
         in the Company's results of operations and financial  condition.  Since
         the Company  operates  primarily  within the  Northeastern  U.S., it is
         subject to a concentration of risk within this geographic  region.  For
         the years ended December 31, 1996,  1995 and 1994,  approximately  61%,
         60% and 58%,  respectively,  of the Company's  direct written  premiums
         were  derived from  policies  written in the states of New York and New
         Jersey. The Company uses its reinsurance program to mitigate the impact
         on net income of large or unusual  losses and loss  adjustment  expense
         activity.  However,  the Company is required by law to participate in a
         number of involuntary reinsurance pools and such pools may from time to
         time experience deficits which could result in losses to the Company.

         The Company is a party to Membership List Purchase Agreements with each
         of the  state  Farm  Bureaus  in the ten  states  in which it  conducts
         business.  The  Membership  List Purchase  Agreements are for six years
         commencing  on January 1, 1996.  For the year ended  December 31, 1996,
         the Company  paid a total of $571,000 to the Farm  Bureaus  pursuant to
         the Membership List Purchase  Agreements.  For the years ended December
         31,  1995  and  1994,   the  Company  paid   $547,000   and   $516,000,
         respectively,   to  the  Farm  Bureaus  under   substantially   similar
         Membership List Purchase Agreements in effect for such periods.

<PAGE>

         Pursuant to an agreement  between the Company and its agents and agency
         managers, subject to certain conditions including length of service and
         profitability,  certain  agents and agency  managers  are  eligible  to
         receive monthly extended  earnings payments for a period of up to eight
         years  subsequent  to the  termination  of their  association  with the
         Company. Historically,  such payments have been funded from commissions
         earned on the agent's or agency  manager's book of business  subsequent
         to the  termination  of the  agent's  association  with the  Company in
         accordance with the Company's  agreement with the successor  agents and
         agency managers. In the event that such commissions are insufficient to
         fund the extended earnings  payments,  the Company would be responsible
         for such  payments.  The aggregate  outstanding  amount of the extended
         earnings  payments which former agents and agency managers are entitled
         to receive for a period of up to eight years subsequent to December 31,
         1996 is $3,341,000.

   13.  Unaudited Interim Financial Information

<TABLE>
<CAPTION>
                                                                         Quarter Ended
                                                                         -------------
         ($ in thousands except per share data)        March 31    June 30    September 30      December 31
                                                       --------    -------    ------------      -----------
         1996
<S>                                                       <C>       <C>               <C>             <C>    
        Revenues                                          $35,810   $36,106           $37,264         $37,817
        Net income before extraordinary item                  823     2,533             3,462           1,649
        Net income                                            302     1,637             3,336           1,649
        Per share:
          Net income before extraordinary item              $0.27     $0.84             $0.75           $0.31
          Net income                                                   0.55              0.72            0.31
                                                             0.10

         1995
        Revenues                                          $31,585   $32,770           $34,145         $34,514
        Net income before extraordinary item                2,922     2,106             3,173           1,405
        Net income                                          2,922     2,106             3,173           1,405
        Per share:
          Net income before extraordinary item              $0.97     $0.70             $1.06           $0.47
          Net income                                         0.97      0.70              1.06            0.47

</TABLE>

14.     Extraordinary Item and Non-Recurring Expenses

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

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


<PAGE>



                       REPORT OF INDEPENDENT ACCOUNTANTS

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


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

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

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


                                                     COOPERS & LYBRAND L.L.P.


Albany, New York
February 13, 1997


<PAGE>