<PAGE>
Property and Casualty Reserves for Unpaid Claims and Claim Expenses

Domestic.  The Company's domestic  subsidiaries maintain reserves to cover their
estimated  ultimate  liability for unpaid claims and claim expenses with respect
to reported  and  unreported  claims  incurred as of the end of each  accounting
period (net of estimated related salvage and subrogation claims). These reserves
are estimates that involve actuarial and statistical projections of the expected
cost of the ultimate  settlement  and  administration  of unpaid claims based on
facts  and  circumstances  then  known,  estimates  of  future  trends in claims
severity  and other  variable  factors  such as  inflation  and new  concepts of
liability.   The  inherent   uncertainties  of  estimating  claim  reserves  are
exacerbated for reinsurers by the significant  periods of time that often elapse
between the  occurrence of an insured  claim,  the reporting of the claim to the
primary insurer and,  ultimately,  to the reinsurer,  and the primary  insurer's
payment of that  claim and  subsequent  indemnification  by the  reinsurer  (the
"tail").  As a  consequence,  actual claims and claim expenses paid may deviate,
perhaps  substantially,  from  estimates  reflected in the insurance  companies'
reserves in their  financial  statements.  Adjustments  to  previously  reported
reserves  for net claims  and claim  expenses  are  reflected  in the  financial
statements in the period in which the adjustment occurs.





<PAGE>
When a claim is  reported  to a ceding  company,  the  ceding  company's  claims
personnel  establish a "case  reserve" for the estimated  amount of the ultimate
payment.  The estimate reflects the informed judgment of such personnel based on
general  insurance  reserving  practices and on the  experience and knowledge of
such personnel regarding the nature and value of the specific type of claim. The
Company, in turn,  typically  establishes a case reserve when it receives notice
of a claim from the ceding  company.  Such reserves are based on an  independent
evaluation  by the  Company's  claims  departments,  taking  into  consideration
coverage,  liability,  severity of injury or damage, jurisdiction, an assessment
of the ceding company's ability to evaluate and handle the claim, and the amount
of reserves  recommended  by the ceding  company.  Case  reserves  are  adjusted
periodically  by the claims  departments  based on subsequent  developments  and
audits of ceding companies.

In accordance with industry practice,  the Company maintains reserves for claims
incurred but not reported ("IBNR"). Such reserves are established to provide for
future case reserves and loss payments on incurred claims that have not yet been
reported to an insurer or reinsurer.  In calculating IBNR reserves,  the Company
uses generally  accepted actuarial  reserving  techniques that take into account
quantitative loss experience data, together with, where appropriate, qualitative
factors.  IBNR  reserves are based on claim  experience  and are grouped both by
class of business and by accident year.  IBNR reserves are also adjusted to take
into  account  certain  additional  factors,  such as  changes  in the volume of
business  written,  reinsurance  contract  terms  and  conditions,  the  mix  of
business,  claims  processing and inflation,  that can be expected to affect the
Company's liability for claims over time.

International.  The Company's  international  property and casualty  reinsurance
operations establish their reserves using analytical techniques similar to those
utilized by GE Global's domestic subsidiaries.  They also maintain IBNR reserves
using  actuarial  and  statistical   projections.   The  potential  for  adverse
development  of the  Company's  reserves  for  its  international  business,  as
compared to that of its domestic business,  is reduced because the international
operations  have a relatively  low  proportion of longer tail  exposures.  As of
December 31, 1997,  approximately 2% of the Company's net international reserves
($65  million)  related to  business  acquired  by the  Company  from  Assurance
Compagniet  Baltica  Aktiesellskab  ("Baltica")  in  1988.  At the  time  of the
acquisition, the Company obtained from Baltica a 90% loss development guarantee,
pursuant to which Baltica is obligated to pay the Company,  during 1998,  90% of
the  amount of claim  reserve  development  (adjusted  for  certain  income  and
expenses) from 1988 through December 31, 1997.

Reserve  Development.  The table that follows  presents the  development  of net
balance sheet  property and casualty  liabilities  of ERC and  subsidiaries  for
unpaid claims and claim expenses for 1987 through 1997.

Net  Liability.  The first row of data shows the  estimated  net  liability  for
unpaid claims and claim expenses at December 31 for each year from 1987 to 1997.
The liability includes both case and IBNR reserves as of each year-end date, net
of anticipated recoveries from other reinsurers.  The rows immediately following
the first row of data show  cumulative paid data at December 31, as of one year,
two years, etc., through up to 10 years of subsequent payments.

Net Liability Re-estimated. The middle rows of data show the re-estimated amount
for previously  reported net liability based on experience as of the end of each
subsequent calendar year's results. This estimate is changed as more information
becomes known about the underlying  claims for individual  years. The cumulative
redundancy  (deficiency)  shown in the  table is the  aggregate  net  change  in
estimates over the period of years  subsequent to the calendar year reflected at
the top of the  respective  columns.  The amount in the line titled  "Redundancy
(Deficiency) at December 31, 1997", represents for each calendar year (the "Base
Year")  the  aggregate  change in (i) the  Company's  original  estimate  of net
liability  for  unpaid  claims  and claim  expenses  for all years  prior to and
including  the Base  Year  compared  to (ii)  the  Company's  re-estimate  as of
December 31, 1997, of net liability for unpaid claims and claim expenses for all
years prior to and including the Base Year. A redundancy means that the original
estimate  was  greater  than the  re-estimate  and a  deficiency  means that the
original  estimate  was  less  than  the  re-estimate.  By way of  example,  the
deficiency for the year 1994,  calculated as of December 31, 1997,  represents a
deficiency  in the  Company's  original  estimate  of  unpaid  claims  and claim
expenses for 1994 and prior years.

The last seven lines of data present the  development of reserves on a "gross of
reinsurance"  basis,  reconciled to the "net of reinsurance  basis" shown in the
immediately preceding tables.





<PAGE>
<TABLE>
<CAPTION>
                                           Changes in Historical Reserves for Unpaid Claims and Claim Expenses
                                               For the Last Ten Years - GAAP Basis as of December 31, 1997

                                                                Year ended December 31,
                         -------------------------------------------------------------------------------------------------------
(In millions)             1987     1988     1989      1990      1991      1992      1993     1994      1995       1996     1997
                         -------------------------------------------------------------------------------------------------------
<S>                        <C>      <C>      <C>       <C>       <C>       <C>      <C>       <C>       <C>        <C>      <C>
Net liability for unpaid
   claims and claim
   expenses              $2,620   $3,087   $3,338    $3,579    $3,596    $3,991   $4,525    $5,071    $9,351     $9,458   $9,114
Paid (cumulative) as of:
One year later.......       615      681      706       747       665       802      949     1,115     1,964      1,949      ---
Two years later......     1,006    1,064    1,125     1,119     1,103     1,274    1,602     1,804     3,130        ---      ---
Three years later....     1,314    1,432    1,469     1,524     1,499     1,739    2,054     2,341       ---        ---      ---
Four years later.....     1,553    1,687    1,746     1,772     1,784     2,036    2,424       ---       ---        ---      ---
Five years later.....     1,754    1,919    1,929     1,989     2,008     2,293      ---       ---       ---        ---      ---
Six years later......     1,945    2,065    2,072     2,173     2,208       ---      ---       ---       ---        ---      ---
Seven years later....     2,063    2,221    2,229     2,348       ---       ---      ---       ---       ---        ---      ---
Eight years later....     2,181    2,347    2,380       ---       ---       ---      ---       ---       ---        ---      ---
Nine years later.....     2,284    2,478      ---       ---       ---       ---      ---       ---       ---        ---      ---
Ten years later......     2,394      ---      ---       ---       ---       ---      ---       ---       ---        ---      ---

Net liability
   re-estimated as of:
One year later.......    $2,746    $3,134   $3,390    $3,616    $3,625    $3,919   $4,612    $5,173    $9,192    $9,229      ---
Two years later......     2,861     3,220    3,482     3,583     3,587     4,066    4,656     5,313     8,959       ---      ---
Three years later....     2,941     3,346    3,462     3,564     3,701     4,095    4,793     5,256       ---       ---      ---
Four years later.....     3,057     3,360    3,472     3,654     3,687     4,238    4,747       ---       ---       ---      ---
Five years later.....     3,094     3,406    3,537     3,635     3,818     4,154      ---       ---       ---       ---      ---
Six years later......     3,151     3,470    3,521     3,758     3,771       ---      ---       ---       ---       ---      ---
Seven years later....     3,210     3,494    3,626     3,734       ---       ---      ---       ---       ---       ---      ---
Eight years later....     3,259     3,582    3,608       ---       ---       ---      ---       ---       ---       ---      ---
Nine years later.....     3,324     3,575      ---       ---       ---       ---      ---       ---       ---       ---      ---
Ten years later......     3,321       ---      ---       ---       ---       ---      ---       ---       ---       ---      ---
Redundancy (Deficiency)
   at December 31, 1997    (701)     (488)    (270)     (155)     (175)     (163)    (222)     (185)      392       229      ---
Effect of foreign
   exchange (1)             ---         6       16       (15)      (21)        3       23         8      (352)     (289)     ---
                         ------    ------   ------    ------    ------    ------   ------    ------      ----    ------   ------
Redundancy (Deficiency)
   at December 31, 1997,
   excluding foreign
   exchange              $ (701)   $ (482)  $ (254)   $ (170)   $ (196)   $ (160)  $ (199)   $ (177)     $ 40    $  (60)  $  ---
                         ======    ======   ======    ======    ======    ======   ======    ======      ====    ======   ======
</TABLE>

<TABLE>
<CAPTION>
(In millions)                                                              1992     1993      1994       1995      1996      1997
                                                                        ------------------------------------------------------------
<S>                                                                         <C>      <C>       <C>        <C>       <C>       <C>
Gross liability-end of year............................................   $4,815   $5,312    $6,020    $11,145   $10,869   $10,936
Reinsurance recoverables...............................................      824      787       949      1,794     1,411     1,822
                                                                          ------   ------    ------    -------   -------   -------
Net liability-end of year..............................................    3,991    4,525     5,071      9,351   $ 9,458   $ 9,114
                                                                          ------   ------    ------    -------   -------   -------
Gross re-estimated liability-latest....................................    5,210    5,766     6,352     10,808    11,033       ---
Re-estimated reinsurance recoverables..................................    1,056    1,019     1,096      1,849     1,804       ---
                                                                          ------   ------    ------    -------   -------   -------
Net re-estimated liability-latest......................................    4,154    4,747     5,256      8,959     9,229       ---
                                                                          ------   ------    ------    -------   -------   -------
Gross redundancy (deficiency)..........................................     (395)    (454)     (332)       337      (164)      ---
Effect of foreign exchange (1).........................................        3       24         7       (457)     (363)      ---
                                                                          ------   ------    ------    -------   -------   -------
Gross redundancy (deficiency) excluding foreign exchange...............   $ (392)  $  430    $ (325)   $  (120)  $  (527   $   ---
                                                                          ======   ======    ======    =======   =======   =======
</TABLE>

(1)  The  results of the  Company's  international  operations  translated  from
     functional  currencies  into U.S.  dollars are included  with the Company's
     U.S.  underwriting  operations in this table from 1988 to 1996. The foreign
     currency  translation  impact  on the  cumulative  redundancy  (deficiency)
     arises from the difference between reserve  developments  translated at the
     exchange  rates  at the  end of the  year in  which  the  liabilities  were
     originally  estimated,  and the  exchange  rates  at the end of the year in
     which the liabilities were re-estimated.

Note:  For a description of the purpose of the above table and the various table
sections,  please refer to the immediately  preceding  section entitled "Reserve
Development."





<PAGE>
A number of major  trends  that  occurred  within the  insurance  industry,  the
economy in general and several  Company-specific  factors have had a significant
effect on the Company's  liabilities for unpaid claims and claim expenses during
the period covered by the preceding table. The claims and claim expenses reserve
deficiencies  developed  to December 31,  1997,  as  reflected in the  preceding
table, included reserve deficiencies of approximately $236 million in 1987, $161
million in 1988,  $110  million in 1989,  $78 million in 1990 and $54 million in
1991 related to the general  liability  business on the books of Puritan  Excess
and Surplus Lines Insurance Company ("PESLIC") before the Company's  acquisition
of PESLIC in 1994. Prior to 1994, PESLIC was owned by GE Capital.  Additionally,
beginning  in  1985,  the  Company  strengthened  the  reserves  for its  excess
liability  and  workers'  compensation   business  for  qualified   self-insured
employers.  Claims and claim expenses  reserve  development in the mid 1980's in
these  businesses  reflected the  inadequate  premium rates which  resulted from
intense competition in the market during that period.

In the  late  1980's,  the  reinsurance  market  generally  reacted  to the rate
deficiencies and the resulting claims and claim expenses reserve  development by
increasing rates and strengthening  claims and claim expenses reserves.  This is
reflected,  with respect to the Company,  in the  significant  reductions in the
reserve deficiencies in recent years.

To a lesser  degree,  development  of  asbestos  and  environmental  claims  has
affected the Company's  results.  Higher than anticipated levels of inflation in
certain  lines of  reinsurance  businesses  has also had an  adverse  effect  on
liabilities  for  claims  and  claim  expenses,  particularly  in excess of loss
reinsurance.  Partially offsetting the above factors is favorable development in
recent  years  in  medical  professional   liability  and  facultative  casualty
businesses as well as an increase in net retentions by ceding companies.

The reconciliation of property and casualty reserves for unpaid claims and claim
expenses on a GAAP basis for each of the years indicated is shown below.

<TABLE>
<CAPTION>
                                                                           Year ended December 31,
                                                                   -------------------------------------
 (In millions)                                                       1997            1996          1995
                                                                   -------------------------------------
<S>                                                                   <C>             <C>           <C>
Gross reserves at beginning of year......................          $10,869         $11,145       $ 6,020
Reinsurance recoverables.................................            1,411           1,794           949
                                                                   -------         -------       -------
Net reserves at beginning of year........................            9,458           9,351         5,071
                                                                   -------         -------       -------
Net incurred related to:
   Current year..........................................            2,438           2,763         2,638
   Prior years...........................................               71             106           104
                                                                   -------         -------       -------
   Total net incurred....................................            2,509           2,869         2,742
                                                                   -------         -------       -------

Net payments related to:
   Current year..........................................              612             485           295
   Prior years...........................................            1,949           1,990         1,426
                                                                   -------         -------       -------
   Total net payments....................................            2,561           2,475         1,721
                                                                   -------         -------       -------

Acquired businesses' net unpaid claims and
   claim expenses........................................              ---             ---         3,313

Foreign exchange and other...............................             (292)            (287)         (54)
                                                                   -------          -------      -------
Net reserves at end of year..............................            9,114            9,458        9,351
Reinsurance recoverables.................................            1,822            1,411        1,794
                                                                   -------          -------      -------
Gross reserves at end of year............................          $10,936          $10,869      $11,145
                                                                   =======          =======      =======
</TABLE>

The  liabilities  for claims and claim  expenses in the preceding  table include
long-term  disability  claims that are  discounted  at a 6% rate. As a result of
discounting the Company's  long-term  disability  claims,  total liabilities for
claims and claim  expenses  have been reduced by an estimated 3% at December 31,
1997 and 1996.  The  amortization  of discount is included in current  operating
results as part of the development of prior year liabilities.





<PAGE>
For the years ended  December  31,  1997,  1996 and 1995,  long-term  disability
discounts accrued as a percentage of claims,  claim expenses and policy benefits
were  approximately 1%, 5% and 5%,  respectively,  and discounts  amortized were
approximately 1% in 1997, 2% in 1996 and 1% in 1995.

The reconciliation of property and casualty reserves for unpaid claims and claim
expenses between  statutory basis and GAAP basis for each of the years indicated
is shown below:

<TABLE>
<CAPTION>
                                                                           Year ended December 31,
                                                                   -----------------------------------------
 (In millions)                                                       1997             1996           1995
                                                                   -----------------------------------------
<S>                                                                   <C>              <C>             <C>
Statutory basis U.S. reserves.............................         $ 5,527          $ 5,875         $ 5,758
Adjustments to GAAP basis (1).............................            (118)            (435)           (413)
                                                                   -------          -------         -------
Net GAAP reserves for U.S. companies......................           5,409            5,440           5,345
Net GAAP reserves for non-U.S. companies..................           3,705            4,018           4,006
                                                                   -------          -------         -------
Net GAAP reserves.........................................           9,114            9,458           9,351
Reinsurance recoverables..................................           1,822            1,411           1,794
                                                                   -------          -------         -------
Gross reserves on a GAAP basis............................         $10,936          $10,869         $11,145
                                                                   =======          =======         =======
</TABLE>

--------
(1) Statutory basis reserves  reclassified to contract deposit liabilities based
on risk transfer provisions of FAS No. 113.

Environmental  and Asbestos  Exposure.  Included in the Company's  liability for
claims  and claim  expenses  are  liabilities  for  environmental  and  asbestos
exposures.  These claims and claim  expenses are  primarily  related to policies
written  prior  to 1986 as the  policies  written  since  1986  have  tended  to
explicitly  exclude  environmental  and asbestos risks from coverage and most of
the environmental and asbestos  exposures arise from risks located in the United
States.  The Company's  international  operations have now completed the initial
process of identifying  environmental and asbestos claims that had been reserved
in prior  periods but were  initially  aggregated  and coded under other general
lines of business rather than being specifically  identified as environmental or
asbestos claims.

The following  table  presents the  three-year  development  of claims and claim
expenses  reserves  associated  with the  Company's  asbestos and  environmental
claims, including case and IBNR reserves.

<TABLE>
<CAPTION>
                                                                           Year ended December 31,
                                                                      --------------------------------
 (In millions)                                                         1997         1996         1995
                                                                      --------------------------------
<S>                                                                   <C>           <C>           <C>
Gross reserves at beginning of year.......................            $368          $436          $317
Reinsurance recoverables..................................             174           240           178
                                                                      ----          ----          ----
Net reserves at beginning of year.........................             194           196           139

Incurred claims and claim expenses........................              54            19            23
Claim identification and IBNR allocation..................              43 (1)         -            51 (2)
Claims and claim expense payments.........................              22            21            17
                                                                      ----          ----          ----

Net reserves at end of year...............................             269           194           196
Reinsurance recoverables..................................             193           174           240
                                                                      ----          ----          ----
Gross reserves at end of year.............................            $462          $368          $436
                                                                      ====          ====          ====
</TABLE>

--------
(1)  Prior to 1997,  the  Company's  international  operations  were  unable  to
     identify recorded claim reserves that related to asbestos and environmental
     exposures,  as they were  grouped with claim  reserves in various  lines of
     business  such as  general  liability.  The  Company in 1997 is now able to
     identify the asbestos and environmental claims related to its international
     operations.

(2)  Prior to 1995, the Company's  allocation of asbestos and environmental IBNR
     reserves associated with PESLIC was primarily made on a non-specific basis.
     As of December 31, 1995,  PESLIC  specifically  allocated  IBNR reserves to
     asbestos  and  environmental  liabilities  from  a  portion  of  previously
     established IBNR reserves.





<PAGE>
These  amounts are  management's  best  estimate,  based on currently  available
information,  of claims  and claim  expense  payments  and  recoveries  that are
expected to develop in future years.  The increase in incurred claims in 1997 is
principally  due to the inclusion of  international  environmental  and asbestos
claim activity for the first time in 1997 as discussed previously.

The  Company  monitors  evolving  case law and its  effect  on  asbestos-related
illness and toxic waste cleanup claims. Changing domestic and foreign government
regulations and legislation, including continuing congressional consideration of
federal Superfund law, newly reported claims, new contract  interpretations  and
other factors could  significantly  affect future claim  development.  While the
Company has recorded its best estimate of its liabilities  for  asbestos-related
illness and toxic waste cleanup claims based on currently available information,
it is possible that additional  liabilities  may arise in the future.  It is not
possible to estimate with any certainty the amount of additional  net claims and
claim expenses,  or the range of net claims and claim expenses,  if any, that is
reasonably possible; therefore there can be no assurance that future liabilities
will not materially affect the Company's  results of operations,  cash flows and
financial position.

Breast Implant Exposure.  The Company has minimal exposure to products liability
claims  involving  silicone  breast  implants.  The  Company  has,  in the past,
generally  avoided the products  liability  reinsurance  business,  specifically
pharmaceutical and chemical exposures.

Year 2000 Exposure.  The Company is currently monitoring the possibility of Year
2000  related  claims  arising  in  the  future  under  specific   insurance  or
reinsurance contracts and will establish  liabilities,  if appropriate,  at such
time when sufficient  information has been developed to indicate a liability has
been  incurred and can be  reasonably  estimated.  In  addition,  the Company is
evaluating  certain  actions which can be taken to mitigate the exposure to such
losses.  It is not possible to estimate  with any certainty the future amount of
additional  net loss,  or the range of net loss,  that may arise  from Year 2000
issues;  therefore,  there can be no assurance that future  liabilities will not
materially affect the Company's  results of operations,  cash flows or financial
position.