EXHIBIT 13
Five-Year Financial Highlights



<TABLE>
<CAPTION>

In millions except per share amounts                2000         1999        1998        1997         1996

(Unaudited)
For the Years Ended December 31
<S>                                          <C>          <C>           <C>          <C>         <C>
Premiums:
   Net premiums at standard rates (a)         $   195.9    $   174.1     $   230.9   $   258.1   $   255.5
   Effect of large deductible programs (b)        (72.1)       (62.0)        (95.3)      (97.6)     (101.3)
   Mandated assigned risk pools                     0.8          0.9           2.9         4.4         7.5
   Adjustment to retro premium accrual               --        (20.0)          --          --          --
-----------------------------------------------------------------------------------------------------------------------------------
Total premiums                                    124.6         93.0         138.5       164.9       161.7
 Investment income and realized gains              85.3         71.3         128.6        91.7       111.1
-----------------------------------------------------------------------------------------------------------------------------------
Total revenue                                 $   209.9    $   164.3     $   267.1   $   256.6   $   272.8
===================================================================================================================================
Net income (loss)                             $   (83.3)   $   (15.2)    $    62.7   $    48.5   $   (94.0)
===================================================================================================================================
Net income (loss) per common share:

   Basic                                      $    (3.77)  $    (0.64)   $     2.62  $     2.04  $    (3.92)
===================================================================================================================================

   Diluted                                    $    (3.77)  $    (0.64)   $     2.61  $     2.02  $    (3.92)
===================================================================================================================================

   Comprehensive income (loss)                $   (80.5)      $(43.8)     $   71.7   $    89.6   $   (100.9)
===================================================================================================================================


At Year End

Total assets                                   $1,565.8     $1,625.1      $1,823.0    $1,898.8     $1,944.4
Shareholders' equity                              501.1        628.4         754.4       717.9        665.3
Shareholders' equity per common share             23.03       28.10          31.33        30.09       27.97
</TABLE>

(a) Premiums based on full exposure  before price  reductions  reflecting  lower
 loss  exposure on large  deductible  policies (b) Premium  reductions  based on
 lower loss exposure on large deductible policies.
The accompanying notes are an integral part of these financial statements.



                                       1





                                          13-1

<PAGE>




EXHIBIT 13





Report of Independent Public Accountants

To the Shareholders of Argonaut Group, Inc.

We have audited the accompanying  consolidated balance sheets of Argonaut Group,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999,
and the related  consolidated  statements of operations,  comprehensive  income,
shareholders'  equity,  and cash flow for each of the three  years in the period
ended December 31, 2000. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial position of Argonaut Group,
Inc. and  subsidiaries  as of December 31, 2000 and 1999,  and their  results of
operations,  comprehensive  income and cash flow for each of the three  years in
the period ended  December 31, 2000, in conformity  with  accounting  principles
generally accepted in the United States.





ARTHUR ANDERSEN LLP

San Francisco, California
January              29, 2001 (except  with  respect to the matter  discussed in
                     Note 15, as to which the date is February 16, 2001)
























                                      13-2


                                       2
<PAGE>



<TABLE>
<CAPTION>

                                                                                             EXHIBIT 13

Consolidated Balance Sheets
In millions                                December 31,                           2000            1999

<S>                                                                           <C>                <C>
Assets

Investments:
   Fixed maturities, available for sale, at fair value                        $   713.9           $ 745.4
(cost: 2000-- $711.4; 1999-- $775.8)
   Equity securities, available for sale, at fair value                           363.3             427.1
(cost: 2000-- $167.1; 1999-- $202.2)
   Short-term investments, available for sale, at fair value                        8.3               0.8
   Securities in transit                                                            0.1               2.6
-------------------------------------------------------------------------------------------------------------------------------
                                                                                1,085.6           1,175.9
Cash and cash equivalents                                                           7.2              31.2
Accrued investment income                                                          15.9              16.2
Receivables:
   Due from insureds                                                              120.6              92.8
   Due from reinsurance                                                           222.6             218.3
   Accrued retrospective premiums                                                  15.4              31.0
Cost in excess of net assets purchased                                             29.9              32.7
Unearned premiums on ceded reinsurance                                              3.9               1.2
Accrued policyholder dividends recaptured                                            --               3.0
Deferred federal income tax asset, net                                             55.8              10.3
Other assets                                                                        8.9              12.5
-------------------------------------------------------------------------------------------------------------------------------
                                                                               $1,565.8          $1,625.1
===============================================================================================================================

Liabilities and Shareholders' Equity

Reserves for losses and loss adjustment expenses                               $  930.7          $  897.4
Unearned premiums                                                                  69.7              43.9
Accrued policyholder dividends                                                      2.0              --
Other liabilities                                                                  62.3              55.4
-------------------------------------------------------------------------------------------------------------------------------
                                                                                1,064.7             996.7
===============================================================================================================================

Shareholders' equity:
   Common  stock -- $.10  par,  35,000,000  shares  authorized,  21,758,812  and
     22,359,816 shares issued and outstanding
     at December 31, 2000 and December 31, 1999, respectively                       2.2              2.2
   Additional paid-in capital                                                      94.4             96.8
   Retained earnings                                                              275.3            403.0
   Accumulated other comprehensive income                                         129.2            126.4
-------------------------------------------------------------------------------------------------------------------------------
                                                                                  501.1            628.4
-------------------------------------------------------------------------------------------------------------------------------
                                                                               $1,565.8          $1,625.1
===============================================================================================================================


</TABLE>

The accompanying notes are an integral part of these financial statements.






                                                                     13-3



EXHIBIT 13


                                       3
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
In millions except per share amounts                                               For the Years Ended December 31,

                                                                            2000             1999              1998

<S>                                                                      <C>              <C>               <C>
Premiums and other revenue:
   Premiums, net                                                          $124.6          $ 93.0            $138.5
   Net investment income                                                    62.0            68.5              77.4
   Gains on sales of investments                                            23.3             2.8              51.2
-----------------------------------------------------------------------------------------------------------------------------------
Total revenue                                                              209.9           164.3             267.1
-----------------------------------------------------------------------------------------------------------------------------------
Expenses:
   Losses and loss adjustment expenses                                     247.6           121.4              95.1
   Underwriting, acquisition, and insurance expenses                        83.1            64.6              74.9
   Amortization of cost in excess of net assets purchased                    2.8             2.8               2.8
   Policyholder dividends                                                    5.6             1.0               0.8
-----------------------------------------------------------------------------------------------------------------------------------
Total expenses                                                             339.1           189.8             173.6
-----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                        (129.2)           (25.5)             93.5
Provision (benefit) for income taxes                                      (45.9)           (10.3)             30.8
-----------------------------------------------------------------------------------------------------------------------------------

Net income (loss)                                                        $(83.3)          $(15.2)           $ 62.7
===================================================================================================================================

Net income (loss) per common share:
   Basic                                                                 $(3.77)           $  (0.64)        $ 2.62
===================================================================================================================================

   Diluted                                                               $(3.77)           $  (0.64)        $ 2.61
===================================================================================================================================

</TABLE>

The accompanying notes are an integral part of these financial statements.




























13-4 EXHIBIT 13

                                       4
<PAGE>
<TABLE>
<CAPTION>

Consolidated Statements of Comprehensive Income



In millions                                                                 2000             1999              1998

<S>                                                                      <C>              <C>               <C>

Net income (loss)                                                         $(83.3)         $(15.2)            $ 62.7
Other comprehensive income (loss):
   Unrealized gain (loss) on securities:
   Gains (losses) arising during the year                                   27.6           (41.2)              65.0
   Reclassification adjustment for gains
   included in net income or loss                                          (23.3)           (2.8)             (51.2)
----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) before tax                                 4.3           (44.0)              13.8
Income tax expense (recoverable) related to
   other comprehensive income (loss)                                         1.5           (15.4)               4.8
----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax                                2.8           (28.6)               9.0
----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss)                                               $(80.5)         $(43.8)            $ 71.7
==================================================================================================================================

</TABLE>


The accompanying notes are an integral part of these financial statements.















































                                                                     13-5


                                       5
<PAGE>




EXHIBIT 13

<TABLE>
<CAPTION>

Consolidated Statements of Shareholders' Equity



In millions                                             Common        Additional     Retained       Accumulated    Shareholders'
                                                         Stock        Paid-In        Earnings       Other          Equity
                                                                      Capital                       Comprehensive
                                                                                                      Income

<S>                                                    <C>            <C>           <C>             <C>            <C>
 Balance, December 31, 1997                             $ 2.4          $98.3          $471.2         $146.0         $717.9
   Net income                                                                           62.7                          62.7
   Other comprehensive income, net of tax                                                               9.0            9.0
   Repurchase and retirement of
     common stock                                                                       (0.5)                         (0.5)
   Cash dividends ($1.64 per share)                                                    (39.3)                        (39.3)
   Stock options exercised                                               4.6                                           4.6
-----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                                2.4          102.9           494.1          155.0          754.4
   Net loss                                                                            (15.2)                        (15.2)
   Other comprehensive loss, net of tax                                                               (28.6)         (28.6)
   Repurchase and retirement of
     common stock                                        (0.2)          (6.9)          (37.0)                        (44.1)
   Cash dividends ($1.64 per share)                                                    (38.9)                        (38.9)
   Stock options exercised                                               0.8                            0.8
-----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999                                2.2           96.8           403.0          126.4          628.4
   Net loss                                                                            (83.3)                        (83.3)
   Other comprehensive income, net of tax                                                               2.8            2.8
   Repurchase and retirement of
     common stock                                                       (2.4)           (8.2)                        (10.6)
   Cash dividends ($1.64 per share)                                                    (36.2)                        (36.2)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000                              $ 2.2          $94.4          $275.3         $129.2         $501.1
===================================================================================================================================
</TABLE>

The accompanying notes are an integral part




















                                                                     13-6


                                       6
<PAGE>




EXHIBIT 13
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flow



In millions                   For the Years Ended December 31,              2000             1999              1998


<S>                                                                      <C>                <C>             <C>

Cash flows from operating activities:
   Net income (loss)                                                     $ (83.3)           $(15.2)         $   62.7
   Adjustments to reconcile net income (loss) to
   net cash provided (used) by operations:
     Amortization and depreciation                                           5.4               6.8               8.6
     Deferred federal income tax provision (benefit)                       (46.9)             (9.2)             20.8
     Gains on sales of investments                                         (23.3)             (2.8)            (51.2)
   Decrease in accrued investment income                                     0.3               2.5               1.6
   Decrease (increase) in receivables from insureds                        (27.8)             10.9               8.8
   Decrease (increase) in reinsurance receivables                           (4.3)            (22.2)             14.1
   Decrease in accrued retrospective premiums                               15.6              21.8               9.0
   Increase in unearned premiums on ceded reinsurance                       (2.7)             (0.3)             (0.1)
   Increase (decrease) in reserves for losses and loss
     adjustment expenses                                                    33.3             (38.4)           (127.4)
   Increase (decrease) in unearned premiums                                 25.8               7.1              (3.4)
   Decrease (increase) in accrued policyholder dividends                     5.0              (0.5)             (0.1)
   Increase (decrease) in income taxes payable                               6.9             (11.1)              6.8
   Increase (decrease) in other assets and liabilities, net                  1.9             (14.2)             (6.9)
-----------------------------------------------------------------------------------------------------------------------------------
                                                                           (94.1)            (64.8)            (56.7)
-----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
   Sales of fixed maturity investments                                      64.9              61.0              13.3
   Maturities and mandatory calls of fixed maturity investments             16.1             107.9             248.3
   Sales of equity securities                                               87.5              18.4              96.0
   Purchases of fixed maturity investments                                 (18.2)            (30.7)           (335.1)
   Purchases of equity securities                                          (28.4)            (21.0)            (15.0)
   Decrease (increase) in short-term investments                            (7.5)             19.1              61.0
   Other, net                                                                2.5              (1.0)            (11.1)
-----------------------------------------------------------------------------------------------------------------------------------
                                                                           116.9             153.7              57.4
-----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
   Repurchase of common stock                                              (10.6)            (44.1)             (0.5)
   Payment of cash dividend                                                (36.2)            (38.9)            (39.3)
   Exercise of stock options                                                  --               0.8               4.6
-----------------------------------------------------------------------------------------------------------------------------------
                                                                           (46.8)            (82.2)            (35.2)
-----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents                           (24.0)              6.7             (34.5)
Cash and cash equivalents, beginning of period                              31.2              24.5              59.0
-----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                                  $  7.2             $31.2          $   24.5
===================================================================================================================================

   Additional disclosure:
   Income taxes paid (refunded)                                           $ (5.8)           $  9.7           $   1.7
===================================================================================================================================
</TABLE>



The accompanying notes are an integral part of these financial statements.






                                      13-7


<PAGE>                                  7


EXHIBIT 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business and Significant Accounting Policies


Business
Argonaut Group, Inc. (the Company) is a national provider of specialty insurance
products  focused  on  high-quality  customer  service  for  specific  niches of
property-casualty  insurance.  Workers  compensation  is  the  primary  line  of
insurance  written  by  Argonaut  Insurance  Company,  the  principal  insurance
subsidiary.   Argonaut  Insurance  Company  also  writes  a  limited  amount  of
complementary  lines of commercial  insurance,  primarily general and automobile
~liability,  but targets companies whose workers  compensation needs will result
in significant  annual premiums  (generally  between $250,000 and $5 million) in
classes of insurance which require specific  expertise to underwrite  prudently,
enhance the safety of the  workplace,  and  effectively  manage  losses  through
partnership with the insured.  These classes include  contractors,  wholesalers,
retailers, light manufacturers,  technology firms, service firms (such as in the
hospitality industry), and clients who use self-insurance to meet some or all of
their  insurance  needs.  Argonaut  Insurance  Company  has a  partnership  with
Esurance  to  provide  personal  auto  insurance   nationally  on  the  Internet
(www.esurance.com).
    Argonaut  Great  Central   Insurance   Company   specializes  in  commercial
multiple-peril,  workers compensation,  and umbrella coverages  specifically for
supermarkets,  restaurants,  religious  institutions,  and laundry/dry cleaners.
Basis of Presentation The consolidated  financial  statements of Argonaut Group,
Inc.  and  subsidiaries   have  been  prepared  in  accordance  with  accounting
principals  generally  accepted in the United States  (GAAP),  which differ from
statutory  insurance   accounting   practices.   The  preparation  of  financial
statements in conformity  with GAAP  requires  management to make  estimates and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure 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  financial  statements  include the accounts and  operations of Argonaut
Group,  Inc.  and its  subsidiaries.  All  material  intercompany  accounts  and
transactions  have  been  eliminated.  Certain  prior  year  balances  have been
restated to reflect current year classifications.
    For purposes of reporting cash flows, cash and cash equivalents include cash
on hand and  securities  with an original  maturity  of less than  ninety  days.
Investments  Investments  in fixed  maturities  at  December  31,  2000 and 1999
include bonds, notes, and redeemable preferred stocks. Equity securities include
common and nonredeemable  preferred stocks.  Short-term  investments  consist of
funds which are in excess of the Company's near-term operating and claims-paying
needs and are invested in repurchase  agreements,  commercial  paper,  and money
market funds.
    All  investments  are considered  available for sale and are carried at fair
value.  Fair values for fixed  maturity  investments  and equity  securities are
based on quoted  market  prices or dealer  quotes.  Unrealized  appreciation  or
depreciation on fixed maturity  investments  and equity  securities is included,
net of applicable  deferred income taxes,  in  shareholders'  equity.  Gains and
losses on sales of  investments  are  computed  on the  specific  identification
method and are  reflected in total  revenue.  Receivables  Receivables  due from
insureds  are  presented  net of a reserve  for  uncollectible  accounts of $1.7
million and $1.5 million at December 31, 2000 and 1999 respectively.
Receivables due from  reinsurance of paid loss and loss adjustment  expenses are
presented  net of a reserve for  uncollectable  accounts of $705,000 at December
31,  2000 and 1999.  Accrued  retrospective  premiums  are based upon  actuarial
estimates of expected  ultimate  losses.  Management  believes  that the accrued
retrospective   premium  receivable  is  properly  stated.  While  the  eventual
receivable may differ from the current  estimates,  management  does not believe
that this difference will have a material effect, either adversely or favorably,
on the Company's financial position and results of operations.







                                                         13-8

                                       8
<PAGE>

Cost in Excess of Net Assets Purchased                               EXHIBIT 13
Cost in excess of net assets purchased of $29.9 million at December 31, 2000 and
$32.7 million at December 31, 1999,  relate to Teledyne,  Inc.'s  acquisition of
Argonaut  Insurance  Company in 1969, and is net of accumulated amortization of
$39.7  million  and $36.9  million,  respectively.  Cost in excess of net assets
purchased is being  amortized  on a  straight-line  basis over a 25-year  period
beginning October 1, 1986. At each balance sheet date, the Company evaluates the
recoverability  of its cost in excess of net assets  purchased  in  relation  to
anticipated future cash flows on an undiscounted basis. If the carrying value of
the cost in excess of net assets purchased exceeds anticipated future cash flows
on an  undiscounted  basis,  then the cost in excess of net assets  purchased is
deemed to be impaired  and written down to the value of the  anticipated  future
cash flows.  Based on this annual  assessment,  the Company  expects its cost in
excess of net assets purchased to be fully recovered.
Recognition of Premium Revenue & Related Expenses
Premium  revenue is  recognized  ratably  over the  period to which the  premium
relates.  Policy  acquisition  costs,  included  in  other  assets,   consisting
primarily of commissions and premium taxes,  are deferred and amortized over the
period in which the related premium is earned. Deferred policy acquisition costs
are limited to their estimated  realizable  value based on the related  unearned
premium and take into account  anticipated claims and claims expenses,  based on
historical and current experience, and investment income.

Recent Accounting Pronouncements
Statement of Financial  Accounting  Standards  (SFAS) No. 137, which amended the
effective  date of SFAS No. 133 -- Accounting  for  Derivative  Instruments  and
Hedging  Activities,  was issued in June 1999.  The Company is required to adopt
SFAS No. 133 on  January 1, 2001.  This  statement  establishes  accounting  and
reporting  standards  requiring that all derivative  instruments are recorded on
the balance sheet as either an asset or a liability, measured at its fair value.
The statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met and such
hedge  accounting  treatment  is elected.  Because the Company does not hold any
derivatives  as defined in SFAS No.  133,  management  of the  Company  does not
believe the adoption of SFAS No. 133 will have a material  impact on its results
of operations or financial position.
   In December 1999, the Securities and Exchange  Commission  (SEC) issued Staff
Accounting Bulletin No. 101,"Revenue  Recognition in Financial  Statements" (SAB
101).  SAB 101,  as amended,  summarizes  certain of the SEC's views in applying
generally  accepted  accounting  principles to revenue  recognition in financial
statements.  SAB 101 was  adopted by the  Company in 2000.  The  adoption of the
provisions  of  SAB  101  did  not  have a  material  effect  on  the  Company's
consolidated  operating  results,  statement  of Cost in  Excess  of Net  Assets
Purchased  Cost in excess of net assets  purchased of $32.7  million at December
31, 1999 and $35.9  million at December  31, 1998,  relate to  Teledyne,  Inc.'s
acquisition  of Argonaut  Insurance  Company in 1969,  and is net of accumulated
amortization of $36.9 million and $34.1 million, respectively. Cost in excess of
net assets purchased is being amortized on a straight-line  basis over a 25-year
period  beginning  October 1, 1986.  At each  balance  sheet  date,  the Company
evaluates the  recoverability  of its cost in excess of net assets  purchased in
relation to  anticipated  future  cash flows on an  undiscounted  basis.  If the
carrying value of the cost in excess of net assets purchased exceeds anticipated
future  cash  flows on an  undiscounted  basis,  then the cost in  excess of net
assets  purchased  is deemed to be impaired and written down to the value of the
anticipated  future cash flows.  Based on this  annual  assessment,  the Company
expects  its cost in  excess  of net  assets  purchased  to be fully  recovered.
Recognition of Premium Revenue & Related  Expenses Premium revenue is recognized
ratably over the period to which the premium relates.  Policy acquisition costs,
included in other assets, consisting primarily of commissions and premium taxes,
are  deferred  and  amortized  over the period in which the  related  premium is
earned.  Deferred  policy  acquisition  costs  are  limited  to their  estimated
realizable  value based on the related  unearned  premium and take into  account
anticipated  claims  and  claims  expenses,  based  on  historical  and  current
experience, and investment income.

Recently Issued Accounting Pronouncements In June 1998, the Financial Accounting
Standards  Board  ("FASB")  issued  Statement of Financial  Accounting  Standard
("SFAS")  No.  133,   "Accounting   for  Derivative   Instruments   and  Hedging
Activities."  SFAS No.  133  requires  companies  to record  derivatives  on the
balance sheet as assets or liabilities,  measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending  on the use of the  derivative  and  whether  it  qualifies  for hedge
accounting.  The  key  criterion  for  hedge  accounting  is  that  the  hedging
relationship  must be highly effective in achieving  offsetting  changes in fair
value or cash flows.  SFAS No. 133 was to have been  effective  for fiscal years
beginning  after June 15,  1999.  In May 1999,  the FASB  issued  SFAS No.  137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective  Date of SFAS No.  133",  that  amends  SFAS No.  133 and  defers  the
effective date to fiscal years beginning after June 15, 2000.  Management of the
Company  does not  believe  the  adoption  of SFAS No.  133 will have a material
impact on the  Company's  results  of  operations  or  financial  position  when
adopted.
                                      13-9





                                       9
<PAGE>



EXHIBIT 13


2. Investments

<TABLE>
<CAPTION>

Gains and losses on sales and calls of investments  for the years ended December
31, were as follows.

In millions                                      2000              1999         1998
<S>                                             <C>               <C>           <C>

Fixed maturities                                $ (0.6)           $0.6          $  0.2
Equity securities                                 23.9             2.2            51.0
-------------------------------------------------------------------------------------------------------------
                                                 $23.3            $2.8           $51.2
=============================================================================================================
</TABLE>

<TABLE>
<CAPTION>

The amortized cost and fair value of fixed  maturity  investments as of December
31, were as follows.

In millions                                                                                           2000
                                                Amortized         Gross            Gross             Fair
                                                 Cost             Unrealized       Unrealized        Value
Gains                                           Losses
<S>                                             <C>               <C>           <C>                 <C>
U.S. treasury securities                        $127.5              $4.9             $  -            $132.4
U.S. government agencies                         554.6               1.2              3.1             552.7
Obligations of states and
   political subdivisions                         14.1                 -                -              14.1
Corporate securities                               7.2               0.1                -               7.3
Redemptive preferred stock                         8.0                 -              0.6               7.4
------------------------------------------------------------------------------------------------------------------------------
                                                $711.4              $6.2             $3.7            $713.9
==============================================================================================================================
</TABLE>

<TABLE>
<CAPTION>

In millions                                                                                           1999
                                                Amortized         Gross            Gross              Fair
                                                 Cost             Unrealized       Unrealized         Value
Gains                                           Losses
<S>                                             <C>               <C>           <C>                 <C>
U.S. treasury securities                        $139.9              $  -           $  1.4            $138.5
U.S. government agencies                         595.9                 -             29.3             566.6
Obligations of states and
   political subdivisions                         26.3               0.2              0.1              26.4
Redemptive preferred stock                        13.7               0.4              0.2              13.9
------------------------------------------------------------------------------------------------------------------------------
                                                $775.8              $0.6            $31.0            $745.4
==============================================================================================================================
</TABLE>

<TABLE>
<CAPTION>

The  amortized  cost and  market  values  of fixed  maturity  investments  as of
December 31, 2000 by contractual maturity, are shown below.

In millions
                                                 Amortized        Fair
                                                 Cost             Value
<S>                                             <C>               <C>
Due in one year or less                          $17.6             $17.6
Due after one year to five years                  89.8              91.8
Due after five years to ten years                599.9             600.3
Thereafter                                         4.1               4.2
-------------------------------------------------------------------------------------------
                                                $711.4            $713.9
===========================================================================================
</TABLE>







13-10 EXHIBIT 13

                                       10
<PAGE>


The  expected  maturities  may differ from the  contractual  maturities  because
debtors may have the right to call or prepay obligations without penalties.
   Proceeds from sales of fixed maturity  investments were $64.9 million,  $61.0
million, and $13.3 million in 2000, 1999, and 1998, respectively. Gross gains of
$1.5 million, $0.6 million, and $0.2
   million were realized on those sales in 2000,  1999, and 1998,  respectively.
Gross losses of $2.1 million were realized on those sales in 2000. There were no
gross losses realized on those sales in 1999 and 1998.
   At December  31, 2000 the  amortized  cost and fair value of bonds on deposit
with  various  insurance  regulatory  agencies  were  $364.2  million and $389.1
million, respectively.
   Additionally,  U.S. Treasury Notes with an amortized cost of $7.0 million and
fair value of $6.9  million were  pledged as  collateral  for surety bonds which
were issued to various states in lieu of depositing bonds.
   At  December  31, 2000 the Company  had no  investments  in any one  investee
exceeding  10% of  shareholders'  equity.  At December  31,  1999 the  Company's
investment in  International  Paper Company  common stock with a market value of
$66.8 million, was 10.6% of shareholders' equity.
Included in the Company's  investment in equity  securities at December 31, 2000
is a California  utility  company.  Its fair market value subsequent to year end
has declined approximately

The  expected  maturities  may differ from the  contractual  maturities  because
debtors may have the right to call or prepay obligations without penalties.

Proceeds from sales of fixed  maturity  investments  were $61.0  million,  $13.3
million, and $13.0 million in 1999, 1998, and 1997, respectively. Gross gains of
$0.6 million,  $0.2  million,  and $0 and no gross losses were realized on those
sales in 1999, 1998, and 1997, respectively.

At December 31, 1999 the amortized  cost and fair value of bonds on deposit with
various  insurance  regulatory  agencies were $381.4 million and $367.3 million,
respectively.

Additionally,  U.S.  Treasury  Notes with an amortized  cost of $6.8 million and
fair value of $6.5  million were  pledged as  collateral  for surety bonds which
were issued to various states in lieu of depositing bonds.

At December 31, 1999 the  Company's  investment in  International  Paper Company
common stock with a market value of $66.8  million,  was 10.6% of  shareholder's
equity.  At December 31,  1998,  there were no  investments  in any one investee
exceeding 10% of shareholders' equity.































13-11 EXHIBIT 13


                                       11
<PAGE>

3. Reinsurance


The  Company  reinsures  certain  risks with  other  insurance  companies.  Such
arrangements serve to limit the Company's maximum loss on catastrophes and large
or unusually hazardous risks. The Company is liable for reinsurance ceded in the
event its reinsurers do not meet their  obligations.  The Company's reserves for
nonrecoverable  reinsurance  were $10.6 million and $11.2 million as of December
31, 2000 and 1999,  respectively.  Under certain of the reinsurance  agreements,
funds  are held in the form of cash  deposits  and  letters  of credit to secure
performance of reinsurers in meeting their obligations. The amount of such funds
was $18.4 million and $17.6 million at December 31, 2000 and 1999, respectively.
The cash deposits portion of the funds held are classified as other  liabilities
in the balance sheet. Estimated losses recoverable from reinsurers and the ceded
portion of unearned premiums are reported as assets.  Losses and loss adjustment
expenses of $247.6  million,  $121.4  million,  and $95.1  million for the years
ending December 31, 2000, 1999, and 1998,  respectively,  are net of cessions of
$50.7 million, $54.1 million, and $20.7 million, respectively. While the Company
is not in the business of assuming  reinsurance  risks, it is required to accept
certain assigned risks and other legally mandated  reinsurance  obligations.  In
previous  years,   the  Company  actively  assumed  various  forms  of  casualty
reinsurance  for  which it  continues  to  maintain  reserves  for loss and loss
adjustment expenses (Note 13).
<TABLE>
<CAPTION>
    Premiums for the years ended December 31, were as follows.

In millions                             2000              1999           1998
<S>                                 <C>                 <C>              <C>
Direct written premiums             $184.0              $139.6            $160.4
Reinsurance ceded to
   other companies                   (22.2)              (18.1)            (18.6)
Reinsurance assumed from
   other companies                     2.1                 0.7               2.3
----------------------------------------------------------------------------------------------------
Net written premiums                $163.9              $122.2            $144.1
====================================================================================================
Direct earned premiums              $142.8              $109.8            $154.0
Reinsurance ceded to
   other companies                   (19.4)              (17.8)            (18.5)
Reinsurance assumed from
   other companies                     1.2                 1.0               3.0
----------------------------------------------------------------------------------------------------
Net earned premiums                 $124.6              $ 93.0            $138.5
====================================================================================================
Percentage of reinsurance
   assumed to net earned premiums      1.0%                1.1%              2.2%
</TABLE>




















                                      13-12

                                       12
<PAGE>

EXHIBIT 13 4. Reserves for Losses and Loss Adjustment Expenses
<TABLE>
<CAPTION>
The following  table provides a  reconciliation  of reserves for losses and loss
adjustment expenses for the years ended December 31, 2000, 1999, and 1998.

In millions                                      2000              1999        1998
<S>                                           <C>              <C>            <C>
Reserves for losses and loss
   adjustment expenses at
   beginning of year                          $897.4            $935.8        $1,063.2
Losses and loss adjustment expenses:
   Provision for losses and loss
     adjustment expenses for claims
     occurring in the current year             145.1             118.0           128.2
   Increase (decrease) in estimated
     losses and loss adjustment expenses
     for claims occurring in prior years       153.2              57.5           (12.4)
-------------------------------------------------------------------------------------------------------------
                                               298.3             175.5           115.8
-------------------------------------------------------------------------------------------------------------
Losses and loss adjustment expense payments
for claims occurring during:
   Current year                                 45.8              36.4            45.4
   Prior years                                 219.2             177.5           197.8
-------------------------------------------------------------------------------------------------------------
                                               265.0             213.9           243.2
-------------------------------------------------------------------------------------------------------------
Reserves for losses and loss
   adjustment expenses at end of year         $930.7            $897.4          $935.8
=============================================================================================================
</TABLE>


Reserves  for  losses  and loss  adjustment  expenses  represent  the  estimated
indemnity cost and related  adjustment  expenses  necessary to  investigate  and
settle  claims.  Such  estimates are based upon  individual  case  estimates for
reported claims,  estimates from ceding companies for reinsurance  assumed,  and
actuarial  estimates for losses which have been incurred but not yet reported to
the insurer. Any change in probable ultimate liabilities is reflected in current
operating results.
    The primary  reason for the loss  deterioration  recognized in 2000 was poor
experience in the workers  compensation  line of business.  In particular,  loss
experience in the State of California was worse than  anticipated.  The negative
effect of a California  legal ruling in 1996 was only recognized by the industry
starting in 1999.  Continuing through 2000 the workers compensation  industry in
California  has reported  results which have  worsened  with each  quarter.  The
impact  of the legal  ruling  can be seen  through  increasing  claim  costs for
California workers compensation accidents which occurred in 1997 and thereafter.
The full  effect of the legal  changes  was delayed due to the nature of workers
compensation  injuries and the sometimes  subjective  nature of the system which
administers  the settlement of workers'  claims.  It can take many months before
the first  injured  worker has gone through the system with a claim coming under
new law.  Subsequent claims are administered  according to the new standard in a
trickle down manner. As a result, loss estimates established by the Company, and
the industry,  in prior years have proved  inadequate  with the passage of time.
Upon  actuarial  review of the  changing  loss  climate,  the Company  increased
workers  compensation loss and loss adjustment  expense reserves by $124 million
during 2000.
    The Company  faces  increased  uncertainty  due to its  exposure to asbestos
liability  insurance.  The  Company  wrote  insurance  in the 1970's for a small
number of asbestos manufacturers and contractors. Due to the long latency period
of asbestos related diseases,  these types of claims continue to be administered
by the  Company.  During  2000 the Company  recorded a $10  million  increase in
reserves for loss  adjustment  expense to reflect the ongoing  costs of handling
these types of claims.
     In  the  opinion  of  management,  the  Company's  reserves  represent  the
Company's best estimate of its ultimate  liabilities,  based on currently  known
facts, current law, current technology,  and assumptions  considered  reasonable
where facts are not known. Due to the significant  uncertainties mentioned above
and related  management  judgments,  there can be no assurance  that future loss
development, favorable or unfavorable, will not occur.
The Company discounted certain workers compensation  pension-type reserves using
a maximum  interest  rate of 3.5% in 2000 and 1999.  The  amount of  unamortized
discount was $42.8  million at December  31, 2000 and $41.4  million at December
31, 1999.
                                                         13-13


                                       13
<PAGE>




EXHIBIT 13


5. Income Taxes

<TABLE>
<CAPTION>

The Company's income tax provision includes the following components.

In millions                                      2000         1999          1998
<S>                                            <C>            <C>           <C>
Current tax provision (benefit)                $  1.0         $ (1.1)       $10.0
Deferred tax provision (benefit) related to:
   Future tax deductions                        (12.8)          (0.7)        16.4
   Net operating loss carryforward              (34.1)          (8.5)        16.2
   Deferred alternative minimum
     tax provision                                  -            -          (11.8)
----------------------------------------------------------------------------------------------------
Income tax provision (benefit)                 $(45.9)        $(10.3)       $30.8
====================================================================================================
</TABLE>

<TABLE>
<CAPTION>
A  reconciliation  of the  Company's  income  tax  provision  or  benefit to the
provision or benefit  which would have  resulted if the tax had been computed at
the statutory rate is as follows.

In millions                                      2000         1999          1998
<S>                                            <C>            <C>           <C>
Income tax provision (benefit) at statutory
   tax rates (35%)                             $(45.6)        $ (9.5)        $32.3
Tax effect of:
   Tax exempt interest                           (0.2)          (0.8)         (1.4)
   Dividends received deduction                  (2.2)          (2.4)         (1.7)
   Other permanent adjustments, net               1.1            0.8          (0.6)
State income tax provision                        1.0            1.6           1.0
----------------------------------------------------------------------------------------------------
   Income tax provision (benefit)              $(45.9)        $(10.3)        $30.8
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>

Deferred  taxes arise from temporary  differences in the  recognition of revenue
and expenses for tax and financial reporting  purposes.  Net deferred tax assets
(liabilities)  at December 31, 2000, 1999, and 1998 result from the tax-effected
temporary differences shown in the following table.

In millions                                      2000         1999          1998
<S>                                            <C>            <C>           <C>
Deferred liability
   Unrealized gains                            $(69.5)        $(68.1)       $(83.4)
   Other, net                                    (0.4)          (4.7)         (5.9)
Deferred tax assets:
   Reserve discounting                           44.6           43.4          44.9
   Alternative minimum tax                       12.2           12.2          15.0
   Net operating loss carryforward               68.9           27.5          15.2
----------------------------------------------------------------------------------------------------
Deferred tax asset (liability), net            $ 55.8          $10.3        $(14.2)
====================================================================================================
</TABLE>


Realization of deferred tax assets is dependent upon the Company's generation of
sufficient  taxable  income in the future to recover tax benefits that cannot be
recovered  from taxes  paid in the  carryback  period,  generally  three  years.
Although realization is not assured,  management believes it is more likely than
not that all of the  deferred  tax asset  will be  realized.  The  amount of the
deferred tax asset considered realizable,  however, could be reduced in the near
term if estimates of future  taxable income during the  carryforward  period are
reduced.  The Company has a regular federal tax net operating loss  carryforward
of $38.0 million to expire after 2011, $16.5 million to expire after 2012, $44.8
million after 2019, and $97.4 million to expire after 2020.




                                      13-14


                                       14
<PAGE>




EXHIBIT 13




6. Shareholders' Equity

The Company is authorized to issue 5,000,000 shares of $0.10 par value preferred
stock. No preferred shares were issued or outstanding at December 31, 2000.
    During  2000 and 1999,  the  Company  reacquired  and  retired  601,800  and
1,735,300 shares of its common stock, respectively, at prevailing market prices.
The Company also retired 1,083, 25,475 and 22,577 shares,  during 2000, 1999 and
1998  respectively,  that were  acquired  through  exercise  of  employee  stock
options,  or from  forfeited  nonvested  shares from the employee stock purchase
plan.
    The Company's insurance  subsidiaries are regulated by the various states in
which they do business and prepare their financial statements in accordance with
statutory accounting principles.
<TABLE>
<CAPTION>
The amount of statutory net income and surplus
(shareholders'  equity)  for the  insurance  subsidiaries  for the  years  ended
December 31, were as follows.

In millions                      2000            1999         1998
<S>                             <C>              <C>          <C>

Net income (loss)               $(120.3)           $(14.3)      $ 68.8
Surplus                         $ 360.6            $579.5       $657.4
</TABLE>


Effective January 1, 2001, the Company's insurance  subsidiaries are required to
adopt the revised statements of statutory accounting principals as prescribed by
the  National  Association  of Insurance  Commissioners  (NAIC).  The  resulting
adjustment  if applied to the Company  for the period  ended  December  31, 2000
would have decreased  statutory surplus by approximately $60 million.  Statutory
surplus after the adjustment  far exceeds the authorized  control level required
for Risk Based  Capital.  Various state  insurance laws restrict the amount that
may be transferred to Argonaut Group,  Inc. from its subsidiaries in the form of
dividends without prior approval of regulatory  authorities.  In addition,  that
portion of the Company's net equity which  results from the  difference  between
statutory insurance practices and generally accepted accounting principles would
not be available  for  dividends.  During 2000,  dividends of $50.6 million were
paid to Argonaut Group, Inc. Based on the aforementioned restrictions, dividends
declared in the first quarter of 2001 by Argonaut Insurance Company to Argonaut


7. Net Investment Income

<TABLE>
<CAPTION>
Investment income and expenses for the years ended December 31, were as follows.

In millions                                 2000          1999         1998
<S>                                        <C>            <C>          <C>
Investment income:
   Interest and dividends on
     fixed maturities                       $49.1         $54.7        $60.0
   Dividends on equity securities            10.4          11.6         13.0
   Interest on short-term investments         0.3           0.3          2.0
Other                                         3.8           3.5          3.5
-------------------------------------------------------------------------------------------------
                                             63.6          70.1         78.5
Investment expenses                          (1.6)         (1.6)        (1.1)
-------------------------------------------------------------------------------------------------
Net investment income                       $62.0         $68.5        $77.4
=================================================================================================

</TABLE>








13-15 EXHIBIT 13

                                       15
<PAGE>

8. Earnings Per Share
<TABLE>
<CAPTION>
Investment income and expenses for the years ended December 31, were as follows.

                                                 2000              1999             1998
<S>                                        <C>                <C>           <C>
Net income (loss) (in millions)            $  (83.3)          $   (15.2)    $    62.7
Weighted average share-basic               22,069,662         23,567,399    23,954,443
Effect of dilutive securities:
    Stock options                                -                   -            77,000
Weighted average share-diluted             22,069,662         23,567,399    24,031,443
Net income (loss)
    per common share-basic                 $   (3.77)         $  (0.64)     $   2.62
Net income (loss)
    per common share-diluted               $   (3.77)         $  (0.64)     $   2.61

</TABLE>

The  computation  of diluted  earnings per share for the year ended December 31,
1998 excludes  outstanding  stock options to purchase 292,950 shares because the
exercise  prices for those options were greater than the average market price of
the common  shares,  and therefore the effect would be  antidilutive.  For years
2000 and 1999 the options do not appear



9. Underwriting, Acquisition, and Insurance Expenses

<TABLE>
<CAPTION>
Underwriting,  acquisition,  and insurance expenses for the years ended December
31, were as follows.

In millions                                      2000              1999             1998
<S>                                          <C>                 <C>              <C>
Commissions                                     $14.1             $11.6           $14.6
General expenses                                 52.8              40.5            50.7
State assessments                                 6.4               5.9             4.4
Taxes, licenses, and bureau fees                  6.7               5.1             5.9
-------------------------------------------------------------------------------------------------------------
                                                 80.0              63.1            75.6
Amortization (deferral) of policy
   acquisition costs                              3.1               1.5            (0.7)
-------------------------------------------------------------------------------------------------------------
                                                $83.1             $64.6           $74.9
=============================================================================================================
</TABLE>






















13-16 EXHIBIT 13

                                       16
<PAGE>



10. Benefit Plans

<TABLE>
<CAPTION>

Pension
The  Company  sponsors a  qualified  defined  benefit  plan and a  non-qualified
unfunded  supplemental  defined  benefit plan.  The  following  table sets forth
change  in  benefit   obligation,   change  in  plan  assets,   weighted-average
assumptions  and components of net periodic  benefit cost as of December 31 with
respect to the qualified and non-qualified pension plans.

In millions                                               2000              1999
<S>                                                      <C>                 <C>
Change in benefit obligation
Projected benefit obligation at beginning of year        $28.0             $30.6
Service cost                                               1.2               1.8
Interest cost                                              2.0               1.9
Plan participant's contributions                             -                 -
Amendments                                                   -                 -
Actuarial (gain) loss                                     (0.6)             (5.3)
Benefits paid                                             (2.3)             (1.0)
-------------------------------------------------------------------------------------------
Projected benefit obligation at end of year              $28.3             $28.0
===========================================================================================
   Accumulated other comprehensive income                    -                 -
-------------------------------------------------------------------------------------------
Net amount recognized                                    $ 1.1              $2.0
===========================================================================================
</TABLE>

<TABLE>
<CAPTION>


In millions                                               2000              1999
<S>                                                      <C>               <C>
Assumptions as of December 31  Change in Plan Assets
Fair value of plan assets at beginning of year           $32.0             $34.0
Actual return on plan assets                               3.2              (1.1)
Employer contribution                                      0.3               0.1
Plan participants' contributions                             -                 -
Benefits paid                                             (2.3)             (1.0)
-------------------------------------------------------------------------------------------
Fair value of plan assets at end of year                 $33.2             $32.0
===========================================================================================
Funded status                                            $ 4.9             $ 4.0
Unrecognized actuarial loss                               (4.6)             (2.9)
Unrecognized prior service cost                            1.0               1.2
Unrecognized net transition obligation                    (0.2)             (0.3)
-------------------------------------------------------------------------------------------
Net amount recognized                                    $ 1.1             $ 2.0
===========================================================================================
Amounts recognized in the statement of
financial position consist of:
   Prepaid benefit cost                                  $2.4              $3.2
   Accrued benefit liability                             (1.8)             (1.4)
   Intangible asset                                       0.5               0.2


Weighted average discount rate                            7.5%              7.5%
Long term rate of return on plan assets                   6.0%              6.0%
Expected rate of increase in future compensation levels   4.5%              4.5%

</TABLE>






                                       17
<PAGE>

13-17 EXHIBIT 13

<TABLE>
<CAPTION>
In millions                                               2000              1999             1998
<S>                                                      <C>               <C>             <C>
Components of net periodic benefit cost
Service cost                                             $1.2              $1.8             $1.7
Interest cost                                             2.0               1.9              1.8
Expected return on plan assets                           (1.8)             (2.0)            (1.8)
Amortization of:
Transition asset                                         (0.1)             (0.1)            (0.1)
Prior service cost                                        0.2               0.1              0.2
(Gain) loss                                              (0.3)                 -            (0.2)
-------------------------------------------------------------------------------------------------------------
Total                                                    (0.2)                 -            (0.1)
-------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                                $1.2              $ 1.7            $1.6
=============================================================================================================
</TABLE>



The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension  plan with  accumulated  benefit  obligations  in
excess of plan assets were $2.3 million,  $1.8 million, and $0 respectively,  as
of December 31, 2000 and $1.7 million, $1.4 million, and $0, respectively, as of
December 31, 1999.


Stock Options
In August 1986, the Board of Directors of Argonaut Group, Inc. adopted the Stock
Option Plan  covering an  aggregate  1,500,000  shares of Argonaut  Group,  Inc.
Common Stock. An amendment to the Plan increasing the number of shares of common
stock  issuable under the Plan from 1,500,000 to 2,000,000 was approved on April
23,  1996 at the  Company's  Annual  Meeting.  A  second  amendment  to the Plan
increasing  the number of shares of common  stock  issuable  under the Plan from
2,000,000 to 2,500,000  was approved on April 27, 1999 at the  Company's  Annual
Meeting. A third amendment to the Plan increasing the number of shares of common
stock  issuable under the Plan from 2,500,000 to 3,000,000 was approved on April
25, 2000 at the Company's Annual Meeting.  Under the Stock Option Plan,  options
to  purchase  shares of  Argonaut  Group,  Inc.  common  stock may be granted to
certain  key  employees.   The  options  may  be  incentive   stock  options  or
nonqualified stock options. If incentive options are granted, the exercise price
of the options  will be the fair market value of the shares on the date that the
option is  granted.  The  exercise  price of  nonqualified  stock  options to be
granted can be below the fair market value of the shares on the grant date.
In April 2000,  The Board of  Directors  of  Argonaut  Group,  Inc.  adopted the
Company's  Non-Employee  Director Stock Option Plan. The  Non-Employee  Director
Plan provides for the issuance of options to purchase  common stock to directors
of the Company who are not employees. The Company may issue up to 150,000 shares
of common stock upon exercise of options issued under the Non-Employee  Director
Plan. The options issued under the Non-Employee Director Plan are not "incentive
stock options". All options will have an exercise price equal to the fair market
value as of the date of grant. To date all options granted have been at the fair
market value of the shares on the date of grant,  and as such,  no  compensation
expense  has been  recognized  as  accounted  for under APB  Opinion No. 25. The
options are nontransferable and are exercisable in installments.
In October,  1995 the Financial  Accounting  Standards  Board issued SFAS No.123
"Accounting for Stock-Based  Compensation" (SFAS 123). As permitted by SFAS 123,
the Company will not change its method of  accounting  for stock options but has
provided the additional required disclosures in the tables below. The additional
compensation  costs that would have been  recorded if the Company had  accounted
for the options under SFAS 123 are not material.
At December 31, 2000, under the Stock Option Plan, 921,890 shares were available
for future grant. The options are fully vested after 6 years and expire after 11
years.  At December 31, 2000,  under the  Non-Employee  Director  Plan,  129,000
shares were  available for future grant.  The options are fully vested after one
year and expire after 10 years.
The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions  used for  grants in 2000,  1999 and 1998,  respectively:  risk-free
rates of 6.67%,  6.57%,  6.39%,  5.65%,  5.45%,  and 5.32% for options issued in
2000,  4.58% and 5.12% for options  issued in 1999,  5.56% and 5.64% for options
issued in 1998;  expected dividend yields of 9.51%,  6.66%, and 5.43%;  expected
lives of 6.21, 6.21, and 6.00 years; and expected volatility of 25.57%,  20.45%,
and 19.01%.

13-18 EXHIBIT 13

                                       18
<PAGE>

Employee Savings Plans
Substantially  all  employees  of the Company are  eligible  to  participate  in
employee savings plans. Under these plans, a percentage of an employee's pay may
be  contributed  to  various  savings  alternatives  including,  under one plan,
investment  in the  Company's  common  stock.  The plans call for the Company to
match the  employee's  contribution  under various  formulae.  Charges to income
related to such  Company  matching  were $0.5  million in 2000,  $0.6 million in
1999, and $0.7 million in 1998.
<TABLE>
<CAPTION>

A summary of the status of the Company's stock option plan at December 31, 2000,
1999, and 1998 is presented in the table below.

                                                              2000                       1999                      1998
-----------------------------------------------------------------------------------------------------------------------

                                                         Weighted-                  Weighted-                 Weighted-
                                               Number      Average        Number      Average       Number      Average
                                            of Shares  Exercise Price   of Shares Exercise Price   of Shares Exercise Price
<S>                                        <C>         <C>             <C>        <C>            <C>         <C>
Outstanding at beginning of the year          853,390       $28.62      896,440        $28.87    1,080,040       $24.63
   Granted                                    672,800        18.36      124,000         25.60      160,500        34.35
   Exercised                                        -            -      (41,600)        17.71    (244,400)        12.97
   Cancelled                                (102,200)        26.93     (125,450)        31.05     (99,700)        30.74
                                            ---------                  ---------                  --------
Outstanding at end of the year              1,423,990       $23.89      853,390        $28.62      896,440       $28.87
Exercisable at end of year                    634,503        28.56      428,800         27.36      416,230        26.20
Weighted-average fair value of options
   granted during the year                                 $  1.86                    $  2.71                   $  4.67

</TABLE>

<TABLE>
<CAPTION>
The following table summarizes  information  about stock options  outstanding at
December 31, 2000.

                                                           Options Outstanding         Options Exercisable
Range of                                               Weighted-Average
Exercise Price                             Number      Remaining        Weighted-Average     Number          Weighted-Average
                                           Outstanding Contractual Life Exercise Price       Exercisable     Exercise Price

<S>                                        <C>         <C>             <C>                    <C>            <C>
$16.50 to $26.25                           940,390        8.64 yrs.            $20.46          214,278            $25.18
$27.00 to $35.50                           483,600        5.54 yrs.            $30.57          420,225            $30.28
                                           ---------                                             -------
                                           1,423,990                                             634,503

</TABLE>



















                                                         13-19

EXHIBIT 13

                                       19
<PAGE>

11. Business Segments


The Company and its  subsidiaries  are engaged  principally  in the  business of
selling  workers  compensation  and other  insurance.  The  Company's  insurance
subsidiaries  are  authorized  to  sell a  portfolio  of  workers  compensation,
commercial and homeowners multi-peril, automobile liability and physical damage,
medical  malpractice,  fire,  and other lines in all states and the  District of
Columbia.  On June 30, 1997 the Financial Accounting Standards Board issued SFAS
No. 131  "Disclosures  About Segments of an Enterprise and Related  Information"
effective for fiscal years beginning after December 15, 1997. In accordance with
the selection  criteria  established by SFAS 131, the Company has identified and
disclosed as business segments the lines of business  considered  significant to
the Company as a whole.  Net pre-tax  underwriting  loss  represents  net earned
premium less operating expenses for each segment, and excludes general corporate
expenses  and  other  income  and  expenses  of  a  general   corporate  nature.
Depreciation,  capital expenditures,  and other assets are not identifiable with
any particular  segment.  Other general corporate assets consist  principally of
investments   (fixed   maturities  and  equity   securities)   and   receivables
(reinsurance, agents balances and accrued retrospective premiums).
There are no major  customers  from whom the Company  derives 10% or more of its
revenue.  Information  on the  Company's  business  segments for the years ended
December 31 is as follows.
<TABLE>
<CAPTION>

In millions                                      2000              1999             1998
<S>                                        <C>               <C>                <C>
Net earned premiums:
   Workers compensation                     $ 100.3           $  65.7           $115.6
   Other lines                                 24.3              27.3             22.9
   Run off lines                                    -               -                -
-------------------------------------------------------------------------------------------------------------
Net earned premiums                         $ 124.6           $  93.0           $138.5
=============================================================================================================
Pre-tax underwriting income (loss):
   Workers compensation                    $ (181.3)           $(80.6)          $(24.1)
   Other lines                                (19.0)            (10.6)            (7.1)
   Run off lines                               (8.7)             (0.9)             0.6
-------------------------------------------------------------------------------------------------------------
Total pre-tax underwriting loss              (209.0)            (92.1)           (30.6)
General corporate expenses                     (5.5)             (4.7)            (4.5)
Net investment income                          62.0              68.5             77.4
Gains on sales of investments                  23.3               2.8             51.2
Provision (benefit) for income taxes          (45.9)            (10.3)            30.8
-------------------------------------------------------------------------------------------------------------
Net (loss) income
</TABLE>





















                                                         13-20


                                       20
<PAGE>




EXHIBIT 13



12. Commitments and Contingencies


    The Company's insurance  subsidiaries are members of the statutorily created
insolvency  guarantee  associations  in all states where they are  authorized to
transact business.  These associations were formed for the purpose of paying the
claims of  insolvent  companies.  The Company is assessed  its pro rata share of
such  claims  based  on  its  premium  writings,  subject  to a  maximum  annual
assessment per line of insurance.  Such costs can generally be recovered through
surcharges on future premiums.  The Company does not believe that assessments on
current  insolvencies will have a material effect on its financial  condition or
results of operations.
    On August 30,  1996,  the Los  Angeles  County  Metropolitan  Transportation
Authority (MTA) filed a civil action against Argonaut  Insurance Company ("AIC")
alleging  breach of  contract,  breach of the  covenant  of good  faith and fair
dealing,  and  requesting  ancillary  relief  in the form of an  accounting,  an
injunction and restitution in connection with allegations  regarding failures to
perform under certain contracts of insurance.  The MTA contends that it has been
damaged by an unspecified amount.
    The  Company  has   responded  to  the   Complaint,   and  brought   certain
counterclaims against the MTA, and possibly others, in connection with the facts
underlying the lawsuit.  The Company believes it has meritorious  defenses,  and
intends  to  vigorously  contest  these  claims.  The  trial  judge  for the MTA
litigation  has ordered that the first stage of this case commence in July 2001.
That trial will primarily  consider a portion of AIC's  counterclaim for sums it
contends are due to it from the MTA.  The Company is unable,  with any degree of
certainty,  to comment upon the range of any potential  loss, or whether such an
outcome is probable or remote,  in light of the limited  discovery  conducted in
the case, and the preliminary investigation conducted thus far.
    AIC has been sued in sixteen  lawsuits  brought on behalf of alleged classes
of purchasers of retrospectively rated workers compensation insurance,  alleging
that  the  defendants,   including  other  compensation  insurers,  charged  the
purported class unlawful  premiums.  Plaintiffs have threatened to bring similar
claims  against AIC in several  other states.  AIC intends to vigorously  defend
these lawsuits. Management is unable to determine the potential financial impact
of these lawsuits at this time.
    AIC is a  defendant  in a  case  entitled  Diamond  Woodworks  vs.  Argonaut
Insurance Company, in the Superior Court of Orange County,  California. The case
arose  out of AIC's  alleged  mishandling  of a workers  compensation  claim and
alleged fraudulent acts towards the plaintiff. On June 19, 2000 the jury awarded
approximately  $700,000  in  compensatory  damages  and $14  million in punitive
damages  against the Company,  which verdict was  subsequently  confirmed by the
Court. AIC filed post judgment motions and the judgment for punitive damages was
reduced to $5.5 million.
    AIC is pursuing an appeal of the adverse  final  judgment,  and has posted a
surety bond for the  judgement  pending  appeal.  The Company has  recorded  the
$700,000 judgment for compensatory damages but has not recorded the $5.5 million
judgment for punitive  damages.  Management is currently  unable to estimate the
amount (if any) of punitive damages that will ultimately be paid.
    The  insurance  subsidiaries  of the Company  are  parties to legal  actions
incidental to their business. Based on the advice of counsel,  management of the
Company believes that the resolution of these matters will not materially affect
the Company's financial condition or results of operations.













13-21 EXHIBIT 13

                                       21
<PAGE>

13. Run Off Lines

Together with an outside  actuarial  consulting firm, the Company  estimates the
ultimate liability for difficult exposures, such as claims for toxic waste clean
up, asbestos-related  illnesses,  or other environmental  remediation exposures.
The Company and its consultant use a variety of actuarial  methods,  including a
ground up  analysis,  to  estimate  these  liabilities.  A review  is  conducted
semi-annually.
    The Company's  subsidiary,  Argonaut Insurance Company  discontinued writing
the bulk of this exposure in 1975.  However,  there are a few claims  continuing
into the mid-1980's.  Individual claims reserves are determined by a specialized
dedicated claim and legal staff of Argonaut Insurance Company employees.
    Any estimation of these liabilities is subject to significantly greater than
normal  variation  and  uncertainty.  An  indeterminable  amount  of  additional
liability  may develop due to the general  risks  inherent in major  litigation,
expanded theories of liability, and future court coverage decisions.
<TABLE>
<CAPTION>

Reserves for Losses and Loss Adjustment Expenses
In millions                                      2000              1999             1998
<S>                                        <C>                 <C>               <C>
Run off lines:
   Reinsurance assumed                      $192.1              $201.4           $213.0
   Medical malpractice                        26.0                27.5             29.0
-------------------------------------------------------------------------------------------------------------
                                             218.1               228.9            242.0
Continuing lines                             712.6               668.5            693.8
-------------------------------------------------------------------------------------------------------------
Total reserves                              $930.7              $897.4           $935.8
=============================================================================================================
</TABLE>

<TABLE>
<CAPTION>

Underwriting Income (Loss)
In millions                                      2000              1999             1998
<S>                                        <C>                 <C>               <C>
Run off lines:
   Reinsurance assumed                     $  (8.2)             $(1.3)            $(1.3)
   Medical malpractice                        (0.5)               0.4               1.9
-------------------------------------------------------------------------------------------------------------
                                              (8.7)              (0.9)              0.6
Continuing lines                            (200.3)             (91.2)            (31.2)
-------------------------------------------------------------------------------------------------------------
Total underwriting loss                    $(209.0)            $(92.1)           $(30.6)
=============================================================================================================
</TABLE>


14. Permitted Statutory Accounting Practices

The  Company's   insurance   subsidiaries   prepare  their  statutory  financial
statements in accordance  with accounting  practices  prescribed or permitted by
the insurance  departments of the state in which they are domiciled.  Prescribed
statutory accounting practices include a variety of publications of the National
Association  of  Insurance  Commissioners  ("NAIC"),  as  well  as  state  laws,
regulations,  and general  administrative rules.  Permitted statutory accounting
practices  encompass all  accounting  practices not so prescribed  but which the
appropriate regulatory agency has allowed in practice.
    The Company's  insurance  subsidiaries do not apply any permitted  statutory
accounting  practices which  individually or in the aggregate  materially affect
statutory surplus or risk-based capital.

15. Subsequent Events

On February 16, 2001 the Company  announced that it has entered into a letter of
intent to purchase the shares of North Pointe  Financial  Services Inc.  ("North
Pointe")  and  Hermitage  Insurance  Co.  ("Hermitage"),   two  subsidiaries  of
Queensway Financial Holdings Limited ("Queensway") [Toronto: QFH]. The letter of
intent also  contemplates a possible purchase of the shares or certain assets of
Consolidated  Property & Casualty Co.  ("Consolidated")  and Universal  Fire and
Casualty  Insurance  Company   ("Universal").   These   subsidiaries   represent
essentially  all of Queensway's  continuing U.S.  operations.  The cash purchase
price,  as stated in the letter of intent,  is US $36.5  million.  The  purchase
price will increase if Consolidated or Universal are also acquired.  The closing
of the  transaction is subject to the  completion of due  diligence,  as well as
various closing conditions, including obtaining regulatory and other approvals.


                                      13-22


                                       22
<PAGE>




EXHIBIT 13



Quarterly Financial Data - unaudited



The following table represents  unaudited quarterly financial data for the years
ended December 31, 2000 and 1999. In the opinion of management,  all adjustments
necessary to present fairly the results of operations for such periods have been
made.  Total revenues and net income  include gains on the sale of  investments.
The Company cannot  anticipate when or if similar gains may occur in the future.
Since  financial  results rely heavily on estimates,  caution  should be used in
drawing specific conclusions from quarterly consolidated results.
<TABLE>
<CAPTION>

In millions except per share amounts                                                    Three Months Ended
                                             March 31           June 30          Sept. 30           Dec. 31
2000
<S>                                        <C>                 <C>               <C>             <C>
Total revenues                                $ 52.8              $59.5           $ 50.5            $ 47.1
Underwriting loss                              (99.7)             (17.8)           (18.5)            (73.0)
Net income (loss)                              (49.0)               5.6             (0.9)            (39.0)
Net income (loss) per common share
   Basic*                                      (2.17)              0.26             (0.04)            (1.78)
   Diluted*                                    (2.17)              0.26             (0.04)            (1.78)
Comprehensive income (loss)                    (63.9)             (8.7)             11.2             (19.1)

1999
Total revenues                                 $46.1             $51.4             $ 45.3            $21.5
Underwriting loss                               (3.6)             (5.8)             (10.6)           (72.1)
Net income (loss)                                9.5               7.2                5.0            (36.9)
Net income (loss) per common share
   Basic*                                        0.40              0.30               0.21            (1.63)
   Diluted*                                      0.40              0.30               0.21            (1.63)
Comprehensive income (loss)                      (7.1)              10.8            (17.6)           (29.9)
</TABLE>

*Basic  and  diluted  earnings  per share are  computed  independently  for each
quarter  and the full  year  based on the  respective  average  number of common
shares  outstanding;  therefore,  the sum of the  quarterly net income per share
data may not equal the net income per share for the year.


Common Stock Market Prices - unaudited


<TABLE>
<CAPTION>

The following  table shows the high, low, and closing prices during each quarter
in the past two years.

Quarter Ended                                  March 31         June 30          Sept. 30        Dec. 31

2000
<S>                                            <C>             <C>               <C>             <C>
High                                           20 1/2            20 1/8               18            21 1/4
Low                                            16 7/8            16 1/2          14 7/16            16 3/8
Close                                          20 1/16           17 1/8           17 1/2                21
</TABLE>
<TABLE>
<CAPTION>

1999
<S>                                            <C>             <C>               <C>             <C>
High                                           27 1/2          27 15/16          26 5/8           26
Low                                            23 3/4                23          23 9/16          18 11/16
Close                                          25 11/16              24          25 1/8           19 7/8

</TABLE>





                                      13-23


                                       23
<PAGE>




EXHIBIT 13  Management's  Discussion  and Analysis of Results of Operations  and
Financial Condition


Results  of  Operations  Earned  premium  of $124.6  million  for the year ended
December  31,  2000,  increased  from $93.0  million in 1999,  and was down from
$138.5  million in 1998.  The  increase  in earned  premium in 2000  reflects an
increase in workers compensation inforce premium for Argonaut Insurance Company,
the Company's principal  subsidiary,  for the first time in four years from $100
million  at  year-end  1999 to $113  million  at  December  31,  2000.  Argonaut
Insurance's inforce workers  compensation  premium in California  decreased from
45% of the total inforce to 29% during the same period.  Argonaut  Insurance was
successful in implementing an overall rate increase of 13.7% while maintaining a
retention rate of 77% on eligible  renewals.  Earned premium in 1999 included an
estimate for additional  premiums accrued under  retrospectively  rated policies
for older policy years that was reduced by approximately $20 million. The impact
of large  deductible  programs on inforce  premium was $72.1  million in 2000 as
compared with $62.0 million in 1999 and $95.3  million in 1998.  Net  investment
income was $62.0 million,  $68.5 million,  and $77.4 million for 2000, 1999, and
1998,  respectively.  The current year decline is reflective of the reduction of
portfolio  assets.  The investment  portfolio has declined $90.3 million in 2000
primarily due to claim  payments,  the payment of operating  expenses as well as
funds to  repurchase  shares of the Company's  common stock and pay  shareholder
dividends  (see  Liquidity and Capital  Resources).  The decline in the previous
years net  investment  income  is a result of  fluctuations  in  interest  rates
combined with a reduction in the overall  portfolio  for the reasons  previously
mentioned.  Pre-tax  gains on sales of  investments  were  $23.3  million,  $2.8
million,  and $51.2 million for 2000, 1999, and 1998,  respectively.  During the
current year the Company  evaluated the prior  performance and future outlook of
its common stock  portfolio and decided to sell certain common stocks  resulting
in the majority of the related gains. The 1998 gain resulted  primarily from the
call of Navistar  International  Series D preferred stock and from resolution of
class action litigation related to investment trades in prior years.  Management
cannot  anticipate  when or if similar  gains or losses may occur in the future.
Losses and loss  adjustment  expenses were $247.6  million,  $121.4  million and
$95.1 million in 2000, 1999, and 1998,  respectively.  The Company's loss ratio,
including the run off lines of business, was 208% in 2000, 132% in 1999, and 69%
in 1998. The loss ratio in the workers compensation line of business was 220% in
2000, 143% in 1999, and 65% in 1998. The loss ratio in other continuing lines of
business was 125%,  102%,  and 87% in 2000,  1999, and 1998,  respectively.  The
Company  recorded  two reserve  increases  in calendar  year 2000.  In the first
quarter the Company  increased loss and loss adjustment  expense reserves by $85
million.  In the fourth quarter the Company  increased loss and loss  adjustment
expense reserves by $49 million.  These reserve  increases were the cause of the
208% loss ratio recorded for calendar year 2000. The primary reason for the loss
deterioration was poor experience in the workers  compensation line of business.
In  particular,  loss  experience  in the State of  California  was  worse  than
anticipated.  The negative effect of a California  legal ruling in 1996 was only
recognized by the industry starting in 1999. Continuing through 2000 the workers
compensation  industry in  California  has reported  results which have worsened
with each quarter. The impact of the legal ruling can be seen through increasing
claim costs for California workers compensation accidents which occurred in 1997
and  thereafter.  The full  effect of the legal  changes  was delayed due to the
nature of workers  compensation  injuries and the sometimes subjective nature of
the system which administers the settlement of workers' claims. It can take many
months before the first injured  worker has gone through the system with a claim
coming under new law.  Subsequent  claims are administered  according to the new
standard in a trickle down manner.  As a result,  loss estimates  established by
the Company,  and the industry,  in prior years have proved  inadequate with the
passage of time. Upon actuarial review of the changing loss climate, the Company
increased workers compensation loss and loss adjustment expense reserves by $124
million during 2000. The Company faces increased uncertainty due to its exposure
to asbestos liability insurance. The Company wrote insurance in the 1970's for a
small number of asbestos manufacturers and contractors.  Due to the long latency
period of  asbestos  related  diseases,  these  types of claims  continue  to be
administered  by the Company.  During the fourth quarter the Company  recorded a
$10  million  increase in reserves  for loss  adjustment  expense to reflect the
ongoing costs of handling these types and other run-off  claims.  In the opinion
of management,  the Company's  reserves represent the Company's best estimate of
its ultimate  liabilities,  based on currently known facts, current law, current
technology, and assumptions considered reasonable where facts are not known. Due
to  the  significant   uncertainties  mentioned  above  and  related  management
judgments, there can be no assurance that future loss development,  favorable or
unfavorable, will not occur. 13-24 EXHIBIT 13

                                       24
<PAGE>

         Underwriting  expenses for the year were $83.1  million,  compared with
$64.6  million in 1999,  and $74.9  million in 1998.  Underwriting  expenses are
composed of four components: general expenses,  commissions,  premium taxes, and
state fees and  assessments.  The current year increase was primarily in general
expenses,  and related to accruals for legal expenses,  costs related to systems
development,  and costs related to reducing operating costs in 2001 and forward,
including the closure of two office  locations and a reduction in the work force
at the California Home Office of Argonaut Insurance  Company.  Also contributing
to the increase  was a one time charge of $3.7  million for accrued  acquisition
expenses  resulting from the change in  recognition  of written  premium from as
billed (the "Western"  method),  to recording a full year's premium at inception
(the "Eastern"  method).  Argonaut made this change  prospectively in 2000 to be
consistent with new tax and statutory accounting requirements. The impact of the
change was an increase in direct written  premiums of $29.7  million,  which was
offset by "unearned premiums", with no change in earned premiums..
         Policyholder dividend expense was $5.6 million in 2000, $1.0 million in
1999,  and $0.8 million in 1998.  These charges  reflect the loss  experience of
participating  policyholders,  the basis for dividend payments. Since the advent
of open rating in 1995 in  California,  fewer  participating  policies are being
written.  The larger  increase  in expense in the  current  year  pertains to an
actuarial  review  which  called for a reduction  in the  reserve for  potential
recoveries of dividends paid previously.
         Consolidated  operating loss after tax was $98.4 million for the twelve
months ended December 31, 2000 compared with a consolidated operating loss after
tax of $17.0  million for the twelve  months  ended  December,  31 1999 and to a
consolidated  operating  income after tax of $29.4 million for the twelve months
ended  December  31,  1998.  Operating  income  excludes  gains  on the  sale of
investments.  The  after-tax  loss  in  2000  was  primarily  a  result  of  the
strengthening  of  loss  reserves  and the  increase  in  underwriting  expenses
discussed in detail above.
Liquidity and Capital Resources
The Company's insurance  subsidiaries  require a significant degree of liquidity
and adequate capital to meet ongoing obligations to policyholders and claimants,
and to cover ordinary operating expenses.  During the three years ended December
31, 2000, the Company generated sufficient capital from operating and investment
income to meet all of its obligations.  The Company maintains adequate levels of
liquidity and surplus capacity to manage the risks inherent with any differences
between the duration of its liabilities and invested assets. Management believes
that the Company  continues to maintain  sufficient  liquidity to pay claims and
expenses, as well as to cover unforeseen events such as reinsurer  insolvencies,
inadequate premium rates, or reserve deficiencies.
         In addition to its investment portfolio, subsidiaries of Argonaut Group
own real  property  for use as Home Office  facilities  for  Argonaut  Insurance
Company and Argonaut Great Central,  as well as three  commercial  properties in
California.  These real properties are included in "Other Assets" at $5 million;
their original cost less  accumulated  depreciation.  The market value for these
properties is estimated at between $109 and $128 million.
         Under  provisions of the California  Insurance Code, there is a maximum
amount of dividends  which can be paid without  prior  approval of the Insurance
Commissioner,  reduced by dividends  declared  during the prior  twelve  months.
Under these  provisions,  Argonaut  Insurance Company will require the Insurance
Commissioner's  approval to declare a dividend  in the first  quarter of 2001 to
Argonaut Group, Inc. During 2000,  Argonaut Insurance paid the Company dividends
of $50.6 million.
         The quarterly  dividend to  shareholders of Argonaut Group for 2000 was
$0.41 per common share. During 2000, total cash dividends paid by the Company to
its shareholders  were $1.64 per share. On January 31, 2001, the Argonaut Group,
Inc. Board of Directors  declared a quarterly common stock dividend of $0.41 per
common share, payable February 27 to shareholders of record February 13, 2001.
         During 2000 under its previously announced stock repurchase program the
Company  purchased  an  additional  601,800  shares  bringing  the total  shares
repurchased  to 7,704,736  out of an aggregate  authorization  of eight  million
shares.  It is presently  expected  that  dividends  received from the Company's
subsidiaries  will be the  primary  source  of funds  for the  stock  repurchase
program.  Market Risk The primary market risk exposures that result in an impact
to the  Company's  investment  portfolio  relates to equity  price  changes  and
interest rate changes. The Company does not have any foreign currency risk, debt
or derivative instruments.
         The Company holds a well diversified portfolio of investments in common
stock  representing  U.S. firms in industries and market  segments  ranging from
small market  capitalization  stocks to the Standard & Poors 500 stocks.  Equity
price risk is managed  primarily through the daily monitoring of funds committed
to the various  types  securities we own and by limiting the exposure in any one
investment or type of investment.  At December 31, 2000 the fair market value of
our common stock portfolio was $338.6 million.  The potential loss in fair value
at December 31, 2000 using a 10% hypothetical decline in prices, is estimated to
be approximately $34 million.

13-25 EXHIBIT 13

                                       25
<PAGE>

         The  Company's  primary  exposure to interest  rate risk relates to its
fixed maturity  investments  including  redeemable  preferred stock.  Changes in
market  interest  rates  directly  impact the market value of the fixed maturity
securities  and  preferred  stocks.  The  following  interest  rate  sensitivity
analysis  measures the potential  change in fair value for the  Company's  fixed
maturity  investments and preferred stock as of December 31, 2000 resulting from
changes in the rate of 100, 200, and 300 basis points.


<TABLE>
<CAPTION>

Interest Rate Sensitivity Analysis

                      Fair Value    Yield to      Modified Duration
                      (Millions)    Maturity      (Years)
<S>                  <C>           <C>            <C>

-300bp                $832.7        4.0%          1.3
-200bp                $794.2        4.8%          1.3
-100bp                $764.5        5.6%          1.5
Base Case             $738.6        6.3%          2.4
+100bp                $716.5        7.0%          4.3
+200bp                $695.8        7.8%          4.5
+300bp                $686.8        8.5%          4.4
</TABLE>

The Company  adheres to certain  specific  guidelines  to manage its  investment
portfolio.  The Company invests only in high investment grade bonds ("AAA" rated
U.S.  treasury  notes and  government  agencies and "A" or better for  municipal
bonds,  corporate  bonds,  and  preferred  stocks) with a short horizon (10 year
maximum).  The  Company  also  purchases  common  stocks  through an  Investment
Manager.

Forward looking Statements
This Annual Report contains "forward looking statements" which are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995.  The  forward-looking  statements  are  based  on  the  Company's  current
expectations  and beliefs  concerning  future  developments  and their potential
effects on the Company.  There can be no assurance that actual developments will
be those  anticipated by the Company.  Actual results may differ materially from
those projected as a result of significant  risks and  uncertainties,  including
non-receipt of the expected payments,  changes in interest rates,  effect of the
performance  of  financial  markets  on  investment  income  and fair  values of
investments,  development of claims and the effect on loss reserves, accuracy in
projecting loss reserves,  the impact of competition  and pricing  environments,
changes in the demand for the Company's products, the effect of general economic
conditions, adverse state and federal legislation and regulations,  developments
relating  to existing  agreements,  heightened  competition,  changes in pricing
environments, and changes in asset valuations. For a more detailed discussion of
risks  and  uncertainties,  see the  Company's  public  filings  made  with  the
Securities  and Exchange  Commission.  The Company  undertakes  no obligation to
publicly update any forward looking statements.


















                                                         13-26



                                       26
<PAGE>