<PAGE>   1

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

                                    FORM 10-K

              [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED
                                             ------------------

              [X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
        For the Transition Period From April 1, 1997 to December 31, 1997

                         COMMISSION FILE NUMBER 0-21933

                         SUMMIT HOLDING SOUTHEAST, INC.
             (Exact Name of Registrant as Specified in Its Charter)

        FLORIDA                                                  59-3409855
(State of Incorporation)                                   (I.R.S. Employer
                                                          Identification Number)

                   2310 A-Z PARK ROAD, LAKELAND, FLORIDA 33801
          (Address of Principal Executive Offices, including Zip Code)

                                 (941) 665-6060
              (Registrant's telephone number, including area code)

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

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

           Securities registered pursuant to Section 12(g) of the Act:
                          COMMON STOCK, $.01 PAR VALUE
                   SERIES A PREFERRED STOCK, $10.00 PAR VALUE

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

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

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

The aggregate market value of the Registrant's outstanding Common Stock held by
non-affiliates of the Registrant on March 26, 1998 was approximately
$128,265,000.  There were 5,791,100 shares of Common Stock outstanding as of
March 26, 1998.


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                       DOCUMENTS INCORPORATED BY REFERENCE

                                      NONE


<PAGE>   3


                         SUMMIT HOLDING SOUTHEAST, INC.
                     TRANSITION REPORT ON FORM 10-K FOR THE
            TRANSITION PERIOD FROM APRIL 1, 1997 TO DECEMBER 31, 1997

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Item                                                                                                          Page
Number                                                                                                       Number
------                                                                                                       ------
                                                      PART I

<S>                                                                                                          <C>
   1.    Business.........................................................................................        4

   2.    Properties.......................................................................................       27

   3.    Legal Proceedings................................................................................       27

   4.    Submission of Matters to a Vote of Security Holders..............................................       28


                                                      PART II

   5.    Market for Registrant's Common Equity and Related Shareholder Matters............................       29

   6.    Selected Financial Data..........................................................................       31

   7.    Management's Discussion and Analysis of Financial Condition and Results of Operations............       33

   7A.   Quantitative and Qualitative Disclosures About Market Risk.......................................       45

   8.    Financial Statements and Supplementary Data......................................................       45

   9.    Changes in and Disagreements with Accountants on Accounting and Financial
         Disclosure.......................................................................................       46

                                                      PART III

  10.    Directors and Executive Officers of the Registrant...............................................       46

  11.    Executive Compensation...........................................................................       47

  12.    Security Ownership of Certain Beneficial Owners and Management...................................       47

  13.    Certain Relationships and Related Transactions...................................................       47

                                                      PART IV

  14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................       47

                                       SIGNATURES.........................................................       52

                                       INDEX OF FINANCIAL STATEMENTS .....................................      F-1

                                       INDEX OF FINANCIAL STATEMENT SCHEDULES.............................      F-1
</TABLE>


<PAGE>   4


                                     PART I

ITEM 1. BUSINESS

OVERVIEW

         Please carefully consider and evaluate all of the information provided
in this report. In addition to historical information, this report includes
forward-looking statements and information that are based on management's
beliefs, plans, expectations and assumptions and on information currently
available to management. The words "may," "should," "expect," "anticipate,"
"intend," "plan," "continue," "believe," "seek," "estimate" and similar
expressions used in this report that do not relate to historical facts are
intended to identify forward-looking statements. The forward-looking statements
in this report are not guarantees of future performance and involve certain
risks, uncertainties and assumptions, including but not limited to those
described in "Item 1. BUSINESS" and "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." Many of such factors
are beyond the Company's ability to control or predict. As a result, the
Company's future actions, financial condition, results of operations and stock
price could differ materially from those expressed in any forward-looking
statements made by the Company, and undue reliance should not be placed on
forward-looking statements. The Company does not intend to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise.

         Summit Holding Southeast, Inc. ("Summit" or, together with its
subsidiaries unless the context requires otherwise, the "Company") provides a
variety of managed care workers' compensation products and administrative
services to employers and self-insured employer groups primarily in Florida, as
well as in Louisiana and Kentucky. Through the Company's administrative group
(the "Administrative Subsidiaries"), the Company provides administrative
services for three self-insurance funds, which are entities formed to provide
workers' compensation coverage for self-insured employer groups on a pooled
basis (the "Funds"), and a non-affiliated mutual insurance company (together
with the Funds, the "Non-affiliated Entities"), for the Company's two wholly
owned workers' compensation insurance companies (the "Insurance Subsidiaries")
and for certain municipalities. These administrative services include most
aspects of the daily operations of the Non-affiliated Entities and the Insurance
Subsidiaries, including sales and agency relations, marketing, underwriting,
claims administration, loss control, policy administration and financial
management. These services are provided for a fee, with the Company generally
receiving a percentage of premiums. The Administrative Subsidiaries do not
assume any underwriting risk of the Non-affiliated Entities.

         The Insurance Subsidiaries, which consist of Bridgefield Employers
Insurance Company ("Bridgefield") (formerly, Employers Self Insurers Fund or
"ESIF") and Bridgefield Casualty Insurance Company ("Bridgefield Casualty"),
underwrite and assume the underwriting risk with respect to workers'
compensation insurance policies for Florida employers of all sizes, primarily in
the construction, manufacturing, wholesale and retail and service industries. As
of December 31, 1997, in the aggregate, the Company's insurance products and
administrative services were provided to approximately 17,400 employers
representing approximately $198 million in premiums, including approximately $80
million in premiums attributable to the Non-affiliated Entities and $118 million
in premiums attributable to the Insurance Subsidiaries.


                                      -4-

<PAGE>   5

         The Company's approach to managed care workers' compensation is to
select responsible employers for coverage, assist such employers in creating a
safe work place and proactively manage claims, thereby returning employees to
work promptly and minimizing losses. Employers' safety programs are monitored by
the Company's staff of approximately 25 loss control field representatives who
may visit an employer's work place on at least an annual basis. Reported claims
are proactively managed by the Company so that employees receive prompt care by
healthcare professionals which are part of the Company's provider network. The
Company's claims management professionals direct care through the provider
network, monitor employee treatment and progress toward returning to work and
perform utilization and peer review to control costs.

         The Company's business was started in 1977, when Summit Consulting,
Inc. ("SCI") was formed to establish and administer workers' compensation
self-insurance programs for group self-insurance funds that are sponsored and
formed by trade associations. The Company's primary Insurance Subsidiary,
Bridgefield (formerly ESIF), was formed in 1978 as a group self-insurance fund
under Florida law, and SCI became its administrator at that time. Between 1979
and 1982, SCI assisted with the formation and became the administrator of the
Funds located in Florida and Louisiana, and in 1995, SCI became the
administrator of a Fund located in Kentucky. None of the Non-affiliated Entities
are related to the Company, except that certain of the directors of Summit are
trustees of certain of the Non-affiliated Entities. See "Item 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS." Until January 16, 1996, Bridgefield was
also unrelated to SCI. Effective on that date, Bridgefield acquired SCI, its
holding company, Summit Holding Corporation ("SHC"), and all of their affiliates
(the "Acquisition").

         Summit was formed in November 1996 in connection with the conversion of
ESIF (the "Conversion") from a Florida group self-insurance fund to a Florida
stock insurance company, which is now Bridgefield. Pursuant to ESIF's Amended
Plan of Conversion and Recapitalization, which was approved by the policyholders
or members of ESIF, all of the membership interests in ESIF were extinguished
and, in exchange for such membership interests, Summit issued to each eligible
policyholder shares of Summit's Series A Preferred Stock and subscription rights
to purchase shares of Summit's Common Stock. On the date of the Conversion,
Summit issued a total of 1,639,701 shares of its Series A Preferred Stock to
eligible policyholders and sold 5,000,000 shares of its Common Stock to
subscribing eligible policyholders, to directors, officers and certain other
management employees of the Company (the "Management Group") and to purchasers
in Summit's initial public offering. Simultaneously, Bridgefield issued all of
its capital stock to Summit and thereby became a wholly owned subsidiary of
Summit. At the same time, in connection with a recapitalization to simplify the
Company's corporate structure, all of the capital stock of SHC, which had been
owned by ESIF and one of its subsidiaries prior to the Conversion, was acquired
by Summit, and SHC also became a wholly owned subsidiary of Summit. As a result,
Summit conducts the business of the Insurance Subsidiaries through Bridgefield
and conducts the business of the Administrative Subsidiaries through SHC. The
Conversion and related recapitalization became effective on May 28, 1997.

INDUSTRY

         Workers' compensation benefits are state-mandated and regulated
programs that generally require employers to provide medical benefits and wage
replacement to employees injured at


                                      -5-

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work, regardless of fault. In the event an employee suffers a work-related
injury, workers' compensation coverage will pay the medical benefits associated
with such injury, regardless of whether the injured employee participates in any
other health or medical benefits program. Each individual state has a regulatory
and adjudicatory system that quantifies the level of wage replacement to be
paid, determines the level of medical care required to be provided and the cost
of permanent impairment, and provides whether the injured employee or the
employer has certain options in selecting healthcare providers. State laws
generally require two types of benefits for injured employees: (i) medical
benefits that include expenses related to diagnosis and treatment of the injury,
as well as rehabilitation, if necessary, and (ii) indemnity payments that
consist of temporary wage replacement, permanent disability payments or death
benefits to surviving family members. To fulfill this mandated financial
obligation, virtually all employers are required to either purchase workers'
compensation insurance from a private insurance carrier, a state-sanctioned
assigned risk pool or a self-insurance fund (an entity that allows employers to
obtain workers' compensation coverage on a pooled basis, typically subjecting
each employer to joint and several liability for the entire fund) or, if
permitted by their state, to self-insure.

         The Florida workers' compensation market accounted for more than 90% of
the Company's total revenue for the period from April 1, 1997 to December 31,
1997. Florida is the fourth largest state in terms of population behind
California, New York and Texas and, according to the Department of Insurance of
the State of Florida (the "Florida DOI"), the Florida workers' compensation
market approximated $3.4 billion in premiums in 1996. Over half of Florida's
employment is in the service and wholesale/retail trade sectors, with
manufacturing, construction and agriculture following (in order of size) to make
up the bulk of the remainder of the state's employment base. Because of the
heavy concentration of the Company's business in the State of Florida, the
Company may be adversely affected by economic downturns, significant
unemployment, regulatory developments and other conditions that may occur from
time to time in Florida and which may not affect the Company's more
geographically diversified competitors.

MANAGED CARE

         Over the past eight years, the Company has implemented a managed care
approach to workers' compensation. The Company's managed care strategy reduces
costs through loss prevention, early intervention and proactive management of
claims. The Company's focus on loss prevention includes helping employers
establish workplace safety programs, making on-site visits to the workplace and
coordinating among the Company's underwriting, loss control, claims management
and sales and marketing groups. Once a claim occurs, the Company's early
intervention procedures enable the Company to identify injuries that have the
potential of resulting in significant expenses and controlling these expenses
from the outset. The Company generally uses a three-point contact system with
the goal of contacting each of the injured employee, the employer and the health
care provider within 24 hours after notification of an initial claim. The
Company's SMART(TM) (Summit Medical Alert Reaction Team) coordinates a medical
claim from inception to completion in order to provide quality health care to
the injured employee so that he or she may return to work as quickly as
possible. The Company believes returning an employee to the job quickly is an
effective means of controlling indemnity payments for lost wages, typically the
largest component of workers' compensation costs as well as medical expenses.

                                      -6-

<PAGE>   7

         The Company directs claimants to healthcare providers that are part of
the Company's managed care networks. These networks currently include healthcare
providers who have contracted with Heritage/Summit Healthcare of Florida, Inc.,
the Company's wholly owned provider network subsidiary, or with Vincam
Occupational Health Systems, Inc., an unaffiliated provider network. These
arrangements currently give the Company access to healthcare providers in every
county in Florida. With such networks, the Company emphasizes the use of cost
control measures such as utilization review. The Company's total managed care
approach, including early intervention, proactive claims management and use of
provider networks, in combination with state-mandated fee schedules, has
resulted in a substantial reduction in the amount the Company pays for medical
bills submitted.

PRODUCTS AND SERVICES

         The Company's operations are comprised of two general types: (i)
administrative services provided by the Administrative Subsidiaries and (ii)
insurance coverage underwritten by the Insurance Subsidiaries.

         ADMINISTRATIVE SERVICES. The Company provides a full range of
management and administrative services for the Non-affiliated Entities and for
certain municipalities. The Company's Administrative Subsidiaries also provide
these services for the Insurance Subsidiaries. The services include those needed
to manage an integrated workers' compensation program, including sales and
marketing, underwriting, claims management, loss control and policy
administration.

         Claims Management. The Company's claims management group consists of
approximately 150 claims adjusting personnel based at the Company's headquarters
and 15 field claims adjusters. The Company believes that it has developed a
sophisticated, efficient claims management system which facilitates the prompt
resolution of claims. On average, each claims adjuster has a case load of 125
outstanding claims, which the Company believes is a contributing factor in
reducing and controlling claims costs. Claims adjusters electronically track the
progress of claims filed and issue regular reviews on the status of cases. On a
bi-monthly basis, claims personnel review selected cases for changes in status
and adjustments to case-specific reserves. In order to provide consistent
service and build customer relationships, the Company assigns claims adjusters
by geographic territory. However, given the special considerations related to
medical claims, the Company has established a designated medical claims
management group which is utilized for medical related claims in all
territories.

         Underwriting and Loss Control. The Company's services include assisting
the Non-affiliated Entities, the Insurance Subsidiaries and other clients with
formulating their underwriting guidelines and then implementing those guidelines
on behalf of the client. Management believes that one of the Company's most
valuable services for its clients, and one of the ways that the Company is able
to minimize its own insurance risks, is the Company's general practice of
recommending for membership in one of the Non-affiliated Entities, or for
issuance of a policy, those employers who fit the Company's underwriting
criteria. Prior to recommending that the client or the Insurance Subsidiaries
accept a risk, the Company's underwriters review the employer's prior loss
experience and safety record, premium payment and credit history,



                                      -7-

<PAGE>   8

employment classifications and physical operation. As part of the Company's
ongoing loss control efforts, each employer undergoes a periodic review (not
less than annually) of its coverage.

         After accepting an employer for workers' compensation coverage, the
second phase is to help the employer manage its safety risks. The Company
employs a staff of approximately 25 loss control field representatives whose
goals include visiting new employers within 90 days of coverage. Loss control
professionals complete training programs upon joining the Company, and many come
with certifications and professional designations for loss control and safety.
Loss control representatives assist employers in developing and monitoring
safety programs to reduce work related injuries and health hazards. After
evaluating an employer's loss profile, a loss control field representative will
help develop a loss control program and establish accident reporting and claims
investigation protocol. A primary objective for field representatives is to
educate employers on necessary safety systems and health issues which will
enable the employers to manage their own risk.

         In an effort to evaluate the underwriting process and provide an early
warning system, the underwriting department, in cooperation with the loss
control department, produces a monthly computer-generated report identifying
specific employers where excessive losses have occurred. Triggered by these
reports, loss control representatives review the employer's operations with the
respective employer and issue recommendations based on their findings. Further,
loss control representatives conduct periodic spot checks to determine the
effectiveness of specific recommendations.

         Sales and Marketing. The Company's products and the Non-affiliated
Entities' memberships are sold through more than 1,000 independent insurance
agencies. As of December 31, 1997, the Company's top ten independent agencies
accounted for approximately 18% of the Company's direct in-force premiums, with
the top independent insurance agency accounting for approximately 3%. These
agencies offer and sell competitors' products, as well as the Company's
products. As a result, the Company's business depends in part on the marketing
efforts of these agencies and on the Company's ability to offer workers'
compensation insurance products and services that meet the requirements of these
agencies and their customers. In addition, if the Company expands into
additional states, it must establish a network of independent agencies in such
states if it is to successfully market its products. Failure of independent
insurance agencies to market the Company's products and services successfully
could have a material adverse effect on the Company's business, financial
condition and results of operations.

         The Company's sales and agency relations department and telemarketing
department work with the more than 1,000 independent insurance agencies that
sell the Company's products. The Company's agency executives are sales
professionals who work closely with the larger agencies, maintaining regular
communications with the agencies and keeping them up to date on the Company's
products and services, as well as developments and trends in workers'
compensation insurance. The Company's telemarketing representatives maintain
contact with the smaller agencies by telephone, keeping those agencies informed
about products, services and trends. Often, the Company's agency executives work
with the independent agents in making presentations to potential clients. The
sales department is responsible for maintaining the record of accounts for each
agent and ensuring that proper commissions are paid in a timely manner. Sales
conferences and seminars are held regularly for agents and their staffs.


                                      -8-

<PAGE>   9

         The Company's creative services department supports the sales and
agency relations functions. This seven-person department functions as an
in-house advertising agency to produce brochures, newsletters, posters, videos
and other visual presentations to assist the independent agents, and in turn
their clients, in understanding how the Company's products and services can
satisfy an employer's workers' compensation insurance needs. The creative
services department also provides a service to members of the Non-affiliated
Entities by informing them about developments in safety, claims and other areas
of workers' compensation through internally generated newsletters and articles
in trade publications.

         Policy Administration. It is an objective of the Company to provide
every insured and Non-affiliated Entities member and their employees with timely
and quality service. The Company maintains a team of approximately 30 client
service personnel who answer all incoming client telephone calls and handle
other requests for customer support. These personnel coordinate with the sales
force and field personnel, and they are responsible for maintaining a client
database. In addition, the Company has a team of approximately 20 individuals
who perform premium audits, working both internally at the Company's
headquarters and in the field at client sites. These auditors are responsible
for making certain that the payrolls and job classifications for each insured
are accurately reflected in the premium amounts charged for coverage. The field
auditors generally conduct a premium audit for every insured on an annual basis.

         Primary Customers. The Company's primary customers for its
administrative services are its own Insurance Subsidiaries and the four
Non-affiliated Entities, including the Florida Retail Federation Self Insurers
Fund ("FRF"), Louisiana Employers Mutual Insurance Company ("LEMIC"), formerly
known as the Louisiana Employers Safety Association Self Insurers Fund ("LESA"),
the Louisiana Retailers Association Self Insurers Fund ("LRA"), and the Kentucky
Retail Federation Self Insurers Fund ("KRF"). SCI assisted with the formation of
and became the administrator for FRF, LRA and LESA in 1979, 1980 and 1982,
respectively. SCI became the administrator of KRF in 1995. Each of the
Non-affiliated Entities was formed at the direction of a particular trade
association, and each is a trust organized and operated under provisions of
applicable state law. Each of the Non-affiliated Entities has a board of
trustees, but no officers or employees, and the board of trustees of each of the
Non-affiliated Entities has contracted with SCI to perform most aspects of the
daily operations of such Non-affiliated Entities.

         Each of the Non-affiliated Entities has executed a written
administrator's contract with SCI which defines the services to be performed by
SCI and the fee to be paid by the respective Non-affiliated Entity. These
contracts are intended to be (i) long-term in nature, with initial terms of
between two and five years and provisions for automatic renewal, and (ii)
terminable by the Non-affiliated Entities for "good cause," which is generally
defined to mean a failure by SCI to perform its obligations under the contract
or SCI's fraud or bankruptcy, with such default by SCI not being cured within a
90-180 day period after notice from the Non-affiliated Entities . For these
reasons and because the Non-affiliated Entities have no employees and the
Company manages all aspects of their relationships with agents and members, the
Company believes that it would be difficult for the Non-affiliated Entities to
cancel their contracts with the Company or move the business to a new
administrator. The administrator's agreement between the Company and LESA was
replaced with a managing general agent agreement, pursuant to which SCI
continues to manage the day-to-day operations of LEMIC.


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<PAGE>   10

         Annual administrative fee revenues are generally a contractually agreed
upon percentage of each Non-affiliated Entity's premiums. Out of such annual
administrative fees, the Company is required to pay certain direct expenses,
including agents commissions, premium taxes and reinsurance premiums.
Administrative fee revenue from the Non-affiliated Entities for the nine months
ended December 31, 1997 was approximately $22.8 million.

         The following describes certain information about each of the four
Non-affiliated Entities:

                  Florida Retail Federation Self Insurers Fund. FRF was
established in 1979 as a workers' compensation self-insurance fund targeted
specifically to retailers, service providers, wholesalers and retail-related
businesses in Florida. As of December 31, 1997, FRF had approximately 6,900
member employers and annual premiums in excess of $62 million. FRF memberships
renew each year on January 1.

                  Louisiana Employers Mutual Insurance Company. LEMIC, through
its predecessor LESA, was established in 1982 and currently provides coverage to
over 700 member employers in Louisiana. As of December 31, 1997, LEMIC had
annual premiums of approximately $9 million. On January 1, 1998 LESA completed a
conversion from a group self-insurance fund to LEMIC, a non-assessable mutual
insurance company.

                  Louisiana Retailers Association Self Insurers Fund. LRA was
established in 1980 as a workers' compensation self-insurance fund targeting
specifically wholesalers and retail-related businesses in Louisiana. As of
December 31, 1997, LRA had over 1,100 retail member employers and annual
premiums of approximately $6 million. LRA memberships renew each year on July 1.

                  Kentucky Retail Federation Self Insurers Fund. KRF is a
workers' compensation self-insurance fund for selected Kentucky retail
businesses, and SCI assumed administration of KRF in August 1995. As of December
31, 1997, KRF had over 1,400 members and annual premiums of approximately $3
million. KRF memberships renew each year on January 1.

         INSURANCE OPERATIONS.

         Bridgefield has maintained a relatively steady risk distribution of
business groups. A breakdown of all business segments is shown below:


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                         BRIDGEFIELD'S RISK DISTRIBUTION
                             AS OF DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                                          APPROXIMATE % OF TOTAL
INDUSTRY                                                                                     PREMIUMS WRITTEN
--------                                                                                     ----------------

<S>                                                                                       <C>
Construction............................................................................               52%
Manufacturing...........................................................................               13%
Wholesale and retail....................................................................               11%
Service.................................................................................               13%
Transportation..........................................................................                5%
Agriculture.............................................................................                6%
                                                                                                      ---
         Total                                                                                        100%
                                                                                                      ===
</TABLE>

         The Company's products and rating plans encompass a continuum of
options designed to fit the needs of its insured employers and employer groups.
The basic product, accounting for approximately 70% of the Insurance
Subsidiaries' premiums in force at December 31, 1997, is a guaranteed cost
contract, in which the premium for each employer is set in advance and varies
based upon changes in the client's operations, payroll and safety and drug-free
workplace programs. In return, the Company agrees to assume statutorily imposed
obligations of the employer to provide workers' compensation benefits to its
employees. The premium for such a policy depends upon the type of work performed
by the employees and the general business of the insured. An employer large
enough to qualify, typically those paying more than $25,000 in annual premiums,
may choose a different product, having its premium based on its loss experience
relative to its peers as determined over a one-year period. A client who desires
to assume a certain amount of financial risk may elect a deductible which makes
the client responsible for the first portion of any claim. In exchange for the
deductible election, the employer receives a premium reduction. The Company also
offers a loss sensitive plan (retrospective rated plan) to employers paying more
than $25,000 in annual premiums. Under this plan, final premium for a period is
determined on the basis of the insured's actual losses during that period. If a
client's losses during a claims period are better than expected, the Company may
be required to refund a portion of the premium previously collected. At the
fiscal year ended March 31, 1997 and for the period from April 1, 1997 to
December 31, 1997, the Company accrued retrospective premium refund amounts of
$11.4 million and $10.7 million, respectively. Retrospective rated policies
accounted for 30%, 31% and 30%, respectively, of total premiums during the
fiscal years ended March 31, 1996 and 1997 and during the period from April 1,
1997 to December 31, 1997.

REINSURANCE

         The Company obtains reinsurance principally to reduce its net liability
on individual risks, to provide protection for catastrophic losses, to stabilize
its underwriting results and to increase its underwriting capacity. In exchange
for reinsurance, the Company pays to its reinsurers a portion of the premiums
that the Company receives.

         Bridgefield currently maintains specific excess of loss policies
("Excess Reinsurance") with several reinsurers, under which the reinsurers have
agreed to pay claims and claims expenses over



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<PAGE>   12

a specific dollar amount per occurrence. Bridgefield currently maintains Excess
Reinsurance agreements with John Hancock Mutual Life Insurance Company, Lincoln
National Life Insurance Company, Republic Western Mutual Insurance Company and
National Union Fire Insurance Company, and policies providing coverage for prior
years with several other reinsurers, pursuant to which each of such reinsurers
agrees to pay claims and expenses above a certain amount and up to a specified
limit per claim. The aggregate effect of such agreements is that claims and
claims expenses in excess of $50,000 per claim and up to the statutory amount
per claim will be paid by one or more of such reinsurers in accordance with the
terms of such agreements, subject to certain deductibles.

         Further, Bridgefield has entered into Quota Share Reinsurance
agreements, effective April 1, 1997, with American Re-Insurance Company ("Am
Re"), St. Paul Fire and Marine Insurance Co., Constitution Reinsurance Corp. and
Transatlantic Reinsurance Co. under which Bridgefield has ceded to such
reinsurers, in the various proportions taken by each of them, an aggregate of
75% of the net premiums on workers' compensation policies earned during such
period, and such insurers, in the respective proportions taken by each of them,
have assumed that same percentage of risks under such policies. The portions
taken by each of such reinsurers is as follows: Am Re--35%; St. Paul Fire and
Marine Insurance Co.--15%; Constitution Reinsurance Corporation--20%; and
Transatlantic Reinsurance Company-5%.

         Bridgefield Casualty has an Excess Reinsurance agreement with John
Hancock Mutual Life Insurance Company and Continental Casualty Company under
which such reinsurers have agreed to pay claims and claims expenses up to
statutory limits per claim, to the extent each claim exceeds $50,000. In
addition, Bridgefield Casualty has a Quota Share Reinsurance agreement in effect
with Am Re under which Bridgefield Casualty cedes to Am Re 80% of all earned
workers' compensation premiums and Am Re assumes that same percentage of risks.

         All of the reinsurers that are party to the Excess Reinsurance
agreements or the Quota Share Reinsurance agreements are rated A or better by AM
Best Company ("A.M. Best"). Nevertheless, any failure on the part of the
Company's reinsurers, as well as any inability of the Company to obtain
reinsurance in the future or any significant increase in the cost of such
reinsurance, could have a material adverse effect on the Company's business,
financial condition and results of operations.

         Certain detailed information regarding the Company's total reinsurance
recoverable is set forth in Note 5 of Notes to Consolidated Financial Statements
contained in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."

         Under the terms of its administrative services contracts, the Company
advises the Non-affiliated Entities regarding their reinsurance needs and places
such reinsurance. The Company currently has placed Excess Reinsurance on behalf
of each of the Non-affiliated Entities. The Company pays the Non-affiliated
Entities' reinsurance premiums out of the Company's administrative fee revenues.

         The Company brokers all of its reinsurance and the reinsurance
purchased for the Non-affiliated Entities through a wholly owned reinsurance
agency, which employs one agent. The Company receives a brokerage fee from the
reinsurers.

                                      -12-

<PAGE>   13

         The Company has not experienced any material difficulties in collecting
reinsurance recoverables from any of its reinsurers, including, without
limitation, Crossroads Insurance Company, Ltd. ("Crossroads") and Lloyds of
London. However, no assurance can be given as to the future ability of any of
the Company's reinsurers to meet their obligations. In recent years, Lloyds of
London has reported substantial aggregate losses which have had adverse effects
on it in general and on the underwriting capacity of its syndicates in
particular. These losses and other adverse developments could affect the ability
of certain Lloyds of London syndicates to continue to trade and the ability of
insureds to continue to place business with particular syndicates. To the
Company's knowledge, the Lloyds of London syndicates with which the Company has
contractual relationships have not experienced any inability to pay their
reinsurance obligations as and when due. However, it is not possible for the
Company to predict what effects the circumstances described above may have on
Lloyds of London and the Company's contractual relationship with Lloyds of
London syndicates in future years.

LOSSES AND LOSS ADJUSTMENT EXPENSES

         The Insurance Subsidiaries are required to maintain reserves to cover
their estimated liabilities for incurred losses and loss adjustment (claim
settlement) expenses ("LAE") with regard to reported and unreported claims. Such
loss reserves are estimates established by management based upon, among other
factors, (i) results of actuarial reviews which incorporate the Company's
experience with similar cases, estimates of future claim trends, and historical
trends such as recurring loss payment and reporting patterns, claim closures and
product mixes; (ii) facts known to the Company; and (iii) regulatory
requirements. These reserves are continually reviewed and, as adjustments become
necessary, such adjustments are included in the results of current operations.

         The establishment of appropriate reserves is an inherently uncertain
process, particularly in the workers' compensation industry in which claims
payments can extend for lengthy periods of time. There can be no assurance that
ultimate losses will not materially exceed the Insurance Subsidiaries' loss
reserves. There can be no assurance that there will not be deficiencies or
adjustments in the future, resulting from numerous factors including, for
example, any instability in the regulatory environment and loss data
inadequacies. To the extent that reserves prove to be inadequate in the future,
the Insurance Subsidiaries would have to increase such reserves and incur a
charge to earnings in the period such reserves are increased, which could cause
fluctuations in quarterly operating results and which could have a material
adverse effect on the Company's business, financial condition and results of
operations.

         The following table shows changes in the historical loss and LAE
reserves for ESIF for the nine fiscal years beginning with the year ended March
31, 1989 and for the nine-month period ended December 31, 1997. The top line
shows the reserves recorded at the end of each period stated. Such amount
represents an estimate of unpaid losses and LAE occurring in that period as well
as future payments on claims occurring in prior periods. The upper portion of
the table (cumulative paid) presents the cumulative amounts paid during
subsequent years on those losses for which reserves were carried as of each
specific year. The lower portion (reserves re-estimated) shows the re-estimated
amounts of the previously recorded reserves based on experience as of the end of
each succeeding year. The re-estimate changes as more information



                                      -13-

<PAGE>   14

becomes known about the actual losses for which the initial reserve was carried.
An adjustment to the carrying value of unpaid losses for a prior year will also
be reflected in the adjustments for each subsequent year. For example, an
adjustment made in the fiscal year ended March 31, 1996 for loss reserves in the
fiscal year ended March 31, 1993 will be reflected in the re-estimated ultimate
net loss for each of the fiscal years ended March 31, 1993 through March 31,
1996. The cumulative redundancy (deficiency) line represents the cumulative
change in estimates since the initial reserves were established. It is equal to
the difference between the initial reserves and the latest re-estimated reserves
amount.



                                      -14-

<PAGE>   15
            ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT

<TABLE>
<CAPTION>
                                                         FISCAL YEAR ENDED MARCH 31,
                                 -------------------------------------------------------------------------
                                    1989           1990            1991             1992             1993
                                    ----           ----            ----             ----             ----

<S>                              <C>             <C>             <C>             <C>             <C>
Reserve for losses and
  LAE at end of period ....      $ 125,065       $ 169,004       $ 209,601       $ 169,474       $ 257,307
Cumulative paid as of
   One year later .........      $  57,482       $  74,481       $  88,815       $  71,364       $  73,839
   Two years later ........        100,883         133,064         138,546         118,326         122,411
   Three years later ......        135,490         160,896         170,259         149,424         149,175
   Four years later .......        146,825         176,483         190,179         165,628         163,261
   Five years later .......        151,683         185,759         199,556         175,079         174,668
   Six years later ........        154,668         189,948         205,762         183,712
   Seven years later ......        158,802         193,066         212,332
   Eight years later ......        161,815         196,925
   Eight years, nine
   months later ...........        165,672
Reserves re-estimated
  as of end of year
   One year later .........      $ 141,132       $ 184,334       $ 202,489       $ 233,631       $ 237,318
   Two years later ........        156,080         178,786         237,767         214,381         238,014
   Three years later ......        161,652         214,630         231,823         225,238         247,328
   Four years later .......        182,010         209,894         239,113         235,163         255,854
   Five years later .......        178,810         209,196         248,352         244,113         261,810
   Six years later ........        178,042         215,984         255,232         250,454
   Seven years later ......        184,986         219,629         261,432
   Eight years later ......        188,622         225,146
   Eight years, nine
   months later ...........        194,137
Cumulative redundancy
  (deficiency)
   Dollars ................      $ (69,072)      $ (56,142)      $ (51,831)      $ (80,980)      $  (4,503)
   Percentage .............         -55.23%         -33.22%         -24.73%         -47.78%          -1.75%

<CAPTION>


                                                                                                    NINE
                                                                                                    MONTHS
                                                                                                    ENDED
                                                              FISCAL YEAR ENDED MARCH 31,        DECEMBER 31,
                                 -------------------------------------------------------------   ------------
                                    1994            1995            1996            1997            1997
                                    ----            ----            ----            ----            ----

<S>                              <C>             <C>             <C>             <C>             <C>
Reserve for losses and
  LAE at end of period ....      $ 274,102       $ 259,085       $ 277,995       $ 269,670       $ 235,557
Cumulative paid as of
   One year later .........      $  71,915       $  64,882       $  72,976       $  55,585
   Two years later ........        114,097         102,227          97,681
   Three years later ......        136,646         129,815
   Four years later .......        153,422
   Five years later .......
   Six years later ........
   Seven years later ......
   Eight years later ......
   Eight years, nine
   months later ...........
Reserves re-estimated
  as of end of year
   One year later .........      $ 247,737       $ 267,885       $ 276,437       $ 268,828
   Two years later ........        257,002         271,738         275,190
   Three years later ......        264,364         271,962
   Four years later .......        266,077
   Five years later .......
   Six years later ........
   Seven years later ......
   Eight years later ......
   Eight years, nine
   months later ...........
Cumulative redundancy
  (deficiency)
   Dollars ................      $   8,025       $ (12,877)      $   2,805             842
   Percentage .............           2.93%          -4.97%           1.01%           0.31%

<CAPTION>
<S>                                              <C>             <C>             <C>             <C>
Net reserves ..............................      $ 259,085       $ 277,995       $ 269,670       $ 235,557
Ceded reserves ............................        108,306         109,637          89,074         111,511
                                                 ---------       ---------       ---------       ---------
Gross reserves ............................      $ 367,391       $ 387,632       $ 358,744       $ 347,068
                                                 =========       =========       =========       =========

Net reserves re-estimated .................      $ 271,962       $ 275,190       $ 268,828       $      --
Ceded reserves re-estimated ...............         91,248          90,691          86,453              --
                                                 ---------       ---------       ---------       ---------
Gross reserves re-estimated ...............      $ 363,210       $ 365,881       $ 355,281       $      --
                                                 =========       =========       =========       =========
Gross cumulative redundancy (deficiency)
   Dollars ................................      $   4,181       $  21,751       $   3,463
   Percentage .............................           1.14%           5.61%           0.97%
</TABLE>

         As seen in the above table, Bridgefield's reserve estimates for the
fiscal years ended March 31, 1993 and after demonstrate an improving loss and
LAE development. At March 31, 1997, the cumulative loss and LAE was a redundancy
of $0.8 million, or 0.3%.


                                      -15-

<PAGE>   16


         The following table contains summary reconciliations of the beginning
and ending insurance reserves, displayed individually for the years ended March
31, 1996 and 1997 and the nine months ended December 31, 1996 and 1997.

<TABLE>
<CAPTION>
                                                 YEAR ENDED MARCH 31,       NINE MONTHS ENDED DECEMBER 31,
                                              --------------------------    ------------------------------
                                                 1996            1997            1996            1997
                                                 ----            ----            ----            ----
                                                    (IN THOUSANDS)                  (IN THOUSANDS)

<S>                                           <C>             <C>           <C>               <C>
Net reserves for losses
  and LAE at beginning of
  period                                      $ 259,085       $ 277,995       $ 277,995       $ 269,670
Less: Recoverable from
  Florida SDTF(1)                               (15,879)        (20,060)        (20,060)        (20,979)
                                              ---------       ---------       ---------       ---------
Net reserves for losses
  and LAE less SDTF
  recoverable assets at
  beginning of period                           243,206         257,935         257,935         248,691
Add provision for claims
  occurring in:
   The current period                            84,058          69,014          53,698          13,003
   Prior period                                  10,786          (3,862)         (3,462)           (551)
                                              ---------       ---------       ---------       ---------
Incurred losses during
  the current period                             94,844          65,152          50,236          12,452
Deduct payments for claims
  occurring in:
   The current period                            15,432          14,131           8,378           2,481
   Prior period                                  64,683          60,265          48,137          46,938
                                              ---------       ---------       ---------       ---------
Claim payments during
  the current period                             80,115          74,396          56,515          49,419
Net reserves for losses
  and LAE less SDTF
  recoverable assets at
  end of period                                 257,935         248,691         251,656         211,724
Add: Recoverable from
  Florida SDTF(1)                                20,060          20,979          21,138          23,833
                                              ---------       ---------       ---------       ---------
Net reserves for losses
  and LAE at end of period                      277,995         269,670         272,794         235,557
Add: Reinsurance recoverables
  (exclusive of recoverables
  on paid losses)                               109,637          89,074         104,129         111,511
                                              ---------       ---------       ---------       ---------
Gross reserves for losses
  and LAE at end of period
  (GAAP basis)                                $ 387,632       $ 358,744       $ 376,923       $ 347,068
                                              =========       =========       =========       =========
</TABLE>

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


                                      -16-

<PAGE>   17


(1)      Florida operates a Special Disability Trust Fund (the "SDTF") that
         reimburses insurance carriers, self-insurance funds and self-insured
         employers in Florida for certain workers' compensation benefits paid to
         injured employees. The SDTF is managed by the State of Florida and is
         funded through assessments against Florida insurers and self-insurers.
         The change in the SDTF recoverable asset is included in incurred losses
         in the Statement of Income.

         A reconciliation of the loss and LAE reserves determined on the basis
of generally accepted accounting principles ("GAAP") with the reserves recorded
on the statutory basis financial statements provided to state regulatory
authorities is as follows:

<TABLE>
<CAPTION>
                                         MARCH 31,                    DECEMBER 31,
                                        ----------                    ------------
                                   1996            1997            1996           1997
                                   ----            ----            ----           ----
                                      (IN THOUSANDS)                 (IN THOUSANDS)

<S>                             <C>             <C>             <C>             <C>
GAAP basis loss and LAE
  reserves                      $ 387,632       $ 358,744       $ 376,923       $ 347,068
Reinsurance recoverables
  included in GAAP loss
  and LAE reserves               (106,812)        (86,338)       (103,508)       (124,266)
Adjustment for the effect
  of computing GAAP basis
  loss reserves using paid
  losses gross of SDTF
  recoveries                      (31,376)        (25,965)        (28,832)        (27,523)
Discounting of indemnity
  portion of permanent
  disability claims                 4,667           4,367           4,235             -0-
                                ---------       ---------       ---------       ---------
Statutory basis loss and
  LAE reserves                  $ 254,111       $ 250,808       $ 248,818       $ 195,279
                                =========       =========       =========       =========
</TABLE>

         The Company's GAAP basis balance sheet also includes the following
amounts related to the SDTF:

<TABLE>
<CAPTION>
                                   MARCH 31,                DECEMBER 31,
                                  ----------                ------------
                              1996          1997         1996         1997
                              ----          ----         ----         ----
                                (IN THOUSANDS)            (IN THOUSANDS)

<S>                          <C>          <C>          <C>          <C>
Recoverable from SDTF        $20,060      $20,979      $21,138      $23,833
Reinsurance recoverable
  related to SDTF            $11,781      $ 5,737      $ 8,445      $ 4,441
</TABLE>


                                      -17-

<PAGE>   18
         The recoverable from SDTF asset has been recorded based on
Bridgefield's historical collection experience and the amount of claims
identified as subject to SDTF recovery. The SDTF reinsurance recoverable was
calculated using loss and LAE reserves computed using paid losses gross of SDTF
recoveries and in consideration of expected recoveries from the SDTF. Certain of
the claims used in the determination of the SDTF recoverable are of an amount
which will pierce reinsurance layers, and the Company will pursue recovery of
such claims under the provisions of its reinsurance agreements. Subsequently, as
the Company remits the claims to the SDTF, and ultimately collects these claims
from SDTF, the Company will remit to the reinsurers their portion of the SDTF
recoveries. The aggregate recoverable from SDTF asset and the SDTF related
reinsurance recoverable, which approximates the amount of the increase in loss
reserves resulting from determining the GAAP basis loss reserves using paid loss
data gross of SDTF recoveries, represents management's best estimate of the
aggregate amounts that will be recovered.

         The Company received $5.6 million from the SDTF for the fiscal year
ended March 31, 1996, $7.5 million for the fiscal year ended March 31, 1997 and
$3.5 million for the nine-month period ended December 31, 1997. In order to
quantify the amounts recoverable from the SDTF, which are management's best
estimates of the amounts that will be recovered, Bridgefield reviewed its claims
that have been identified as subject to SDTF recovery considering Bridgefield's
historical recovery experience on claims submitted to the SDTF. Bridgefield
believes it will be reimbursed over a number of years.

         For additional information regarding the SDTF, see "--Regulation-
Special Disability Trust Fund."

INVESTMENT PORTFOLIO

         In general, the Company's investment policy focuses on: (i) safety of
principal; (ii) timing of maturities to match assets and liabilities; (iii)
diversification; and (iv) regulatory compliance. The Company's investment
portfolio is managed by First Union Capital Management, Smith Barney Capital
Management and Invesco Capital Management. These managers have certain
discretion to make investments on behalf of the Company, subject to regulatory
restrictions and the Company's investment policy and guidelines.

         The Company's primary investment objective is to minimize risk while
matching portfolio and liabilities duration. The average fixed-income duration
of the portfolio is approximately five years. This duration, when coupled with
the Company's cash and cash equivalents, short-term investments and equity
securities, approximates the historical claims liability duration of three
years. A secondary objective is to maximize after-tax total return, within the
constraints of the insurance regulations of the State of Florida (together with
all applicable regulations (the "Florida Insurance Code") and the quality and
allocation constraints of the Company's investment guidelines.


                                      -18-

<PAGE>   19
         The fair value basis of the Company's investment portfolio, including
short-term investments and cash and cash equivalents, is comprised as follows:

<TABLE>
<CAPTION>
                                                        MARCH 31, 1997                DECEMBER 31, 1997
                                                        --------------                -----------------
                                                                 (DOLLARS IN THOUSANDS)
<S>                                                <C>             <C>            <C>               <C>
U.S. Treasury and other U.S.
   government agency bonds                         $ 55,246          25.5%        $ 73,578           28.8%
Municipal bonds                                      83,317          38.5%          95,099           37.3%
Corporate debt securities                            41,512          19.2%          47,098           18.5%
Other debt securities                                    --            --            5,453            2.1%
                                                   --------        ------         --------          -----
     Total bonds                                    180,075          83.1%         221,228           86.7%
                                                   --------        ------         --------          -----

Preferred stocks                                      4,547           2.1%           3,006            1.2%
Common stocks                                        13,739           6.3%          18,685            7.3%
                                                   --------        ------         --------          -----
     Total equity securities                         18,286           8.4%          21,691            8.5%
                                                   --------        ------         --------          -----

Short-term investments                               14,733           6.8%           6,537            2.6%
Cash and cash equivalents                             3,578           1.7%           5,757            2.2%
                                                   --------        ------         --------          -----

     Total portfolio                               $216,672         100.0%        $255,213          100.0%
                                                   ========        ======         ========          =====
</TABLE>


         As of December 31, 1997, approximately 71% of the Company's investment
in bonds (fixed maturities) were rated "AA" or better by Standard & Poor's
("S&P") and approximately 93% were rated "A-" or better by S&P.

         Shareholders' equity will continue to fluctuate in accordance with
market interest rates due to the effect of Statement of Financial Accounting
Standards ("SFAS") No. 115. In accordance with this Statement, the Company has
classified all of its investments in debt and equity securities as
"available-for-sale" and, as a result, unrealized gains and losses of such
securities are reported as a separate component of shareholders' equity, net of
applicable deferred income taxes. As of March 31, 1997 and December 31, 1997,
net unrealized investment gains reported in shareholders' equity was $0.5
million and $6.2 million, respectively, an increase of $5.7 million. This
increase was due primarily to the continued rise in the U.S. stock markets
during 1997.

COMPETITION

         The markets for workers' compensation insurance products and services
are highly competitive. The Company's competitors include, among others,
insurance companies, specialized provider groups, in-house benefits
administrators, state insurance pools and other significant providers of
workers' compensation, administration and insurance services. A number of the
Company's current and potential competitors are significantly larger, with
greater financial and operating resources than those of the Company, and can
offer their services nationwide. The Insurance Subsidiaries do not offer
multi-line insurance products that are offered by some of such


                                      -19-

<PAGE>   20


competitors. In addition, after a period of absence from the market in Florida,
traditional national insurance companies have re-entered that market, thereby
increasing competition. Their presence in the Company's current market, and in
markets into which the Company might consider for expansion, will likely create
greater competition for acquisitions of workers' compensation businesses, making
it more difficult for the Company to grow by acquisition.

         Competitive factors in the workers' compensation insurance field
include premium rates (in some states), levels of service, A.M. Best ratings,
levels of capitalization, quality of managed care services, the ability to
reduce loss ratios and the ability to reduce claims expenses. The Company
believes that its products and services are competitively priced. In addition,
the Company believes its premium rates are typically lower than those for
clients assigned to the state-sponsored risk pools, allowing the Company to
provide a viable alternative for employers in such pools. The Company also
believes that its level of service and its ability to reduce claims are strong
competitive factors that have enabled it to retain existing clients and attract
new clients. Competitive factors relating to the Company's administrative
service products are primarily based upon pricing, service and reputation. See
"--A.M. Best Rating" below.

A.M.  BEST RATING

         A.M. Best is a rating agency that reports on the financial condition of
insurance companies. Neither of the Insurance Subsidiaries has been assigned a
rating by A.M. Best because neither company has accumulated the required five
consecutive years of operating experience. Management has met with
representatives of A.M. Best to discuss whether ESIF's prior operations might be
considered in assigning a rating to Bridgefield, but there can be no assurance
that any rating will be assigned to either Insurance Subsidiary in the near
future or that any such rating will be favorable. The absence of a rating, or an
unfavorable rating in the future, may be a competitive disadvantage in some
markets, especially regarding larger customers with in-house risk managers. See
"--Competition" above.

REGULATION

         General. Workers' compensation and managed healthcare programs are
subject to various laws and regulations. Both the nature and degree of
applicable government regulation vary greatly depending upon the specific
activities involved. Generally, parties that actually provide or arrange for the
provision of managed care workers' compensation programs, assume financial risk
related to the provision of those programs or undertake direct responsibility
for making payment or payment decisions for those services are subject to a
number of complex regulatory schemes that govern many aspects of their conduct
and operations. The managed healthcare field is a rapidly expanding and changing
industry; it is possible that the applicable regulatory frameworks will expand
to have an even greater impact upon the conduct and operation of the Company's
business.


                                      -20-

<PAGE>   21

         The Company's business is subject to state-by-state regulation of
workers' compensation insurance and workers' compensation insurance management
services (which in some instances includes rate regulation and mandatory fee
schedules). Under the workers' compensation system, employer insurance or
self-funded coverage is governed by individual laws in each of the fifty states
and by certain federal laws. Such regulation is primarily for the benefit and
protection of covered employees and policyholders and not for the benefit of
workers' compensation insurance companies, administrators or shareholders. State
regulatory agencies have discretionary power with respect to most aspects of the
Company's business, including premium rates, capital surplus requirements,
reserve requirements and investment criteria. Changes in individual state
regulation of workers' compensation or managed healthcare may create a greater
or lesser demand for some or all of the Company's products and services, or
require the Company to develop new or modified services in order to meet the
needs of the marketplace and compete effectively in that marketplace. Changes in
workers' compensation insurance laws or regulations or their interpretation or
administration could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, many states limit
the maximum amount of dividends and other distributions that may be paid in any
year by insurance companies. This may limit the amount of distributions that may
be made by the Company's Insurance Subsidiaries to Summit, which in turn may
limit the amount of capital available to Summit for debt service, expansion,
dividend payments to shareholders and other purposes.

         Premium Rate Restrictions. In general, state regulations governing the
workers' compensation systems and insurance business impose restrictions and
limitations on the Company's business operations that are not imposed on
unregulated businesses. Among other matters, state laws regulate not only the
amounts and types of workers' compensation benefits that must be paid to injured
workers, but also the premium rates that may be charged by the Company to insure
employers for those liabilities. As a consequence, the Company's ability to pay
insured workers' compensation claims out of the premium revenue generated from
the Company's sale of such insurance is dependent upon the level of premium
rates permitted by state laws. In this regard, it is significant that the state
regulatory agency that regulates workers' compensation may not be the same
agency that regulates workers' compensation insurance premium rates.

         In Florida, the Florida DOI approves "manual" rates for each of the
approximately 650 employment classification codes prepared and filed by the
National Council on Compensation Insurance ("NCCI"). The carriers operating in
Florida are not permitted to deviate from these approved rates, and competition
is, therefore, primarily related to service and the ability to improve insureds'
experience ratings through loss prevention and effective claims management.
Levels of benefit payments, however, are regulated by the Florida Department of
Labor and Employment Security. Sometimes, mandated benefit changes will be
coupled with permission for appropriate rate changes, but not always. If Florida
were to adopt an "open rating" system in which premium rates would be
established with little or no regulatory intervention, the Company's business,
financial condition and results of operations could be materially adversely
affected.

                                      -21-

<PAGE>   22

         Unlike Florida, Louisiana is not an NCCI-rated state but instead is
"open rated," meaning that carriers can apply for, and may receive, approval to
sell workers' compensation coverages at varying rates. However, since Louisiana
established a competitive state-run fund, rates have generally followed those of
the state-run fund.

         Statutory Accounting and Solvency Regulations. State regulation of
insurance company financial transactions and financial condition are based on
statutory accounting principles ("SAP"). Such statutory accounting principles
differ in a number of ways from GAAP, which govern the financial reporting of
most other businesses. In general, SAP financial reports are more conservative
than GAAP financial reports, reflecting lower asset values, higher liability
values and lower equity.

         State insurance regulators closely monitor the financial condition of
insurance companies reflected in SAP financial statements and can impose
significant financial and operating restrictions on an insurance company that
becomes financially impaired. Regulators generally have the power to impose
restrictions or conditions on the following kinds of activities of a financially
impaired insurance company: transfer or disposition of assets; withdrawal of
funds from bank accounts; extension of credit or making loans; and investment of
funds.

         Financial and Investment Restrictions. Insurance company operations are
subject to financial restrictions that are not imposed on other businesses.
State laws require insurance companies to maintain minimum surplus balances and
place limits on the amount of insurance a company may write based on the amount
of the company's surplus. These limitations may restrict the rate at which the
Company's insurance operations can grow. The Company currently meets relevant
state minimum capital and surplus requirements.

         State laws also require insurance companies to establish reserves for
payment of policyholder liabilities and impose restrictions on the kinds of
assets in which insurance companies may invest. These restrictions may require
the Company to invest its assets more conservatively than it would if it were
not subject to the state law restrictions and may prevent the Company from
obtaining as high a return on its assets as it might otherwise be able to
realize. See "--Investment Portfolio." In addition, in connection with the
Conversion, Bridgefield is required to maintain a deposit with the Florida DOI
of $5.0 million. All net investment income on such deposit is for the account of
Bridgefield.

         In addition, under Florida law, an insurance company may not, without
regulatory approval, pay to its shareholders within a 12-month period dividends
or other distributions of cash or property, the total fair market value of which
exceeds generally the lesser of 10% of surplus or net income, not including
realized capital gains. In connection with the Conversion, the Florida DOI
requires that all dividends proposed to be paid by the Insurance Subsidiaries be
approved in advance by the Florida DOI. However, the Florida DOI has agreed to
approve a request for any dividend that complies with the Florida Insurance
Code. This may limit the amount of dividends that may be paid by the Insurance
Subsidiaries to Summit, which in turn may limit the amount of


                                      -22-

<PAGE>   23

capital available to Summit for debt service, expansion, dividend payments to
shareholders and other purposes.

         The National Association of Insurance Commissioners ("NAIC") has
recently adopted risk-based capital standards to determine the capital
requirements of an insurance carrier based upon the risks inherent in its
operations. These standards require the computation of a risk-based capital
amount which is then compared to the carrier's actual total adjusted capital.
The computation involves applying factors to various financial factors to
address four primary risks: asset risk, insurance underwriting risk, credit risk
and off-balance sheet risk. These standards provide for regulatory intervention
when the percentage of total adjusted capital to authorized control level
risk-based capital is below certain levels. In July 1997, the Florida
legislature adopted the provisions of the risk-based capital standards. The
Company exceeds such risk-based capitalization levels, as recommended by the
NAIC.

         Special Disability Trust Fund. Florida operates a special disability
trust fund that reimburses Florida insurance carriers, self-insurance funds and
self-insured employers for certain workers' compensation benefits paid to an
employee when he or she is injured on the job and the injury merges with,
aggravates, or accelerates a preexisting injury or physical condition of that
employee. The SDTF is managed by the State of Florida and is funded through
assessments against insurance carriers, self-insurance funds and self-insured
employers providing workers' compensation coverage in Florida. The Company's
SDTF recoveries, recorded as a reduction to losses and LAE incurred, were
approximately $5.7 million, $5.6 million, $7.5 million and $3.5 million for the
fiscal years ended March 31, 1995, 1996 and 1997 and for the nine months ended
December 31, 1997, respectively. The Company's SDTF assessments were
approximately $4.7 million, $5.6 million, $5.1 million and $4.1 million for the
fiscal years ended March 31, 1995, 1996 and 1997 and for the nine months ended
December 31, 1997, respectively. In addition, the Company's consolidated balance
sheet as of December 31, 1997 included an asset of approximately $23.8 million,
representing SDTF recoveries that the Company estimated at that time it would be
entitled to receive, based on claims identified as subject to SDTF recovery and
considering the Company's recovery experience.

         The SDTF has not prefunded its claims liability, and no reserves
currently exist to satisfy future claims. Under a recent enactment of the
Florida legislature, the SDTF law has been amended so that claims arising from
accidents occurring on or after January 1, 1998 will not be accepted for
reimbursement by the SDTF. The bill states the SDTF will be liable for
reimbursement for applicable injuries that occur prior to January 1, 1998 and
that assessments are to continue for funding purposes.

         In addition, the Florida DOI participated with the Florida legislature
in the review of statutory accounting treatments of SDTF projected recoveries,
and with respect to how an insurer may include such estimated recoveries in its
admitted asset and loss reserve calculations in statutory financial statements.
Under the law referred to above, the anticipated SDTF recoveries that an insurer
can take into account when computing loss reserves in its statutory financial


                                      -23-

<PAGE>   24

statements will be limited to recoveries for which a claim has been accepted by
the SDTF for payment. Credit for all other anticipated recoveries will be capped
at the total SDTF recovery amount used by the insurer in 1996, and this capped
amount will be phased out over a five-year period, commencing with statutory
financial statements filed in the year 2000 (20% per year reduction of 1996
capped amount).

         While it is not possible to predict other legislative or regulatory
initiatives which might affect the SDTF, changes in the SDTF's operations or
funding which decrease the availability of recoveries or increase assessments
payable by the Company could have a material adverse effect on the Company's
business, financial condition or results of operations.

         Subject to the enactment set forth above, the SDTF recoverable recorded
on the Company's balance sheet is the amount the Company expects to recover from
the SDTF based on eligible claims. The Company has a dedicated claims unit that
handles the tracking, submission and collection process with the SDTF. In the
event that there are adverse developments in SDTF collection experience, the
recorded recoverable balance will accordingly be adjusted.

         With respect to collection patterns, the SDTF reviews reimbursement
requests on a claim by claim basis, with actual collection payments tied to the
paid loss development over a claim's life. The payments are not made ratably or
in any other predictable pattern. A prior actuarial review of the SDTF indicated
the average time frame for collection of a claim made to the SDTF is 6 to 8
years.

         Participation in State Guaranty Funds. Every state has established one
or more insurance guaranty funds or associations that are charged by state law
to pay claims of policyholders insured by a company that becomes insolvent. All
insurance companies must participate in the guaranty associations in the states
where they do business and are assessable for the associations' operating costs,
including the cost of paying policyholder claims against an insolvent insurer.
The Company's financial performance could be adversely affected by guaranty
association assessments as a consequence of the insolvency of other insurers
over which the Company has no control.

         Holding Company Act. In addition to the regulatory oversight of the
Insurance Subsidiaries, Summit also is subject to regulation under the
provisions of the Florida Insurance Code relating to insurance holding company
systems, defined as two or more companies, one or more of which is an insurance
company. Such provisions contain certain reporting requirements, including those
requiring the ultimate parent of a Florida insurance company to file information
relating to its capital structure, ownership and financial condition and the
general business operations of its insurance subsidiary. Such holding company
laws contain special reporting and prior approval requirements with respect to
transactions among affiliates.

         Possible Future Regulation. Numerous proposals have been debated in
Congress and in several state legislatures regarding healthcare legislation
intended to control the cost and availability of healthcare services. It is not
possible to determine what healthcare reform


                                      -24-

<PAGE>   25

legislation will be adopted by Congress or any state legislature, or if and when
any such legislation will be adopted and implemented. In the event that such
legislation is adopted and implemented, there can be no assurance that the
Company will be able to adjust effectively to any regulatory changes made by
future healthcare reform legislation and remain profitable. The Company is
unable to predict accurately the nature and effect, if any, that the adoption of
healthcare legislation or regulations or changing interpretations at the federal
or state level would have upon the Company.

         In recent years, the state insurance regulatory framework has come
under increased federal scrutiny, and certain state legislatures have considered
or have enacted laws that altered and, in many cases, increased state authority
to regulate insurance companies and insurance holding companies. Further, the
NAIC and state insurance regulators are re-examining laws and regulations,
specifically focusing on investment laws for insurers, modifications to holding
company regulations, codification of statutory accounting practices, risk-based
capital guidelines, interpretations of existing laws and the development of new
laws. In addition, Congress and certain federal agencies are investigating the
current condition of the insurance industry in the United States to determine
whether to impose federal regulation. The Company cannot predict with certainty
the effect any proposed or future legislation or NAIC initiatives may have on
the conduct of the Company's business or the financial condition or results of
operations of the Company.

INFORMATION TECHNOLOGY SYSTEMS

         The Company's centralized information technology systems department
provides, maintains and manages the information resources for all of the
Company. The department currently has four IBM AS/400 mainframe computers
supporting approximately 430 terminals in the Company's Lakeland, Florida
headquarters and remote locations. Some 100 personal computers are used in
networks, as stand-alone units or as host-connected PCs. The Company also
maintains a number of laptop computers for field personnel. More than 80% of the
department's approximately 26 employees have been with the Company five or more
years. The department's programming staff averages 10 years of experience. The
department's personnel include full-time programmers, quality-control engineers
and operational support specialists.

         EMPLOYEES

         The Company employed approximately 424 full-time employees as of
December 31, 1997. Approximately 395 employees are based in Florida, while 25
are based in Louisiana and 4 in Kentucky.


                                      -25-

<PAGE>   26



ITEM 1(A).  EXECUTIVE OFFICERS OF THE REGISTRANT.

         The following sets forth certain biographical information regarding the
executive officers and certain key employees of the Company:

         EXECUTIVE OFFICERS:

         William B. Bull, age 49, has served as President and Chief Executive
Officer of SHC and its predecessors since 1987 and as President, Chief Executive
Officer and a director of Summit since November 1996. Mr. Bull joined SCI in
1984 as special assistant to the President and subsequently became Executive
Vice President in 1986 with operating responsibilities for such company. Mr.
Bull is a member of various insurance associations and serves on numerous boards
including the Florida Association of Self-Insurance, Florida Retail Federation
and Florida Group Risk Administrators Association. Mr. Bull's term as a director
of Summit expires at the 2000 Annual Meeting of Shareholders.

         Russell L. Wall, age 54, has served as Vice President of Finance of SHC
since 1988 and has served Summit in the same capacity since November 1996. Mr.
Wall is responsible for the Company's accounting and financial management
operations. Before joining SHC, Mr. Wall worked for three years as a Portfolio
Manager for Eickhoff & Pieper, Inc. Mr. Wall is a Chartered Financial Analyst
and holds an M.B.A. in Finance from the University of Santa Clara.

         KEY EMPLOYEES:

         Allen C. Bennett, age 48, has served as Vice President of Summit Loss
Control Services, Inc., ("SLCS") a wholly owned subsidiary of SCI, since 1987.
Mr. Bennett is responsible for overseeing the daily operations and staff of such
entity. For two years prior thereto, Mr. Bennett worked at SLCS as a director
and a field loss control consultant.

         David T. Cederholm, age 53, has served as Vice President of Operations
of Bridgefield Casualty since January 1996. Since September 1996, Mr. Cederholm
has also served as a director and Vice Chairman of Bridgefield Casualty. From
May 1995 until January 1996, Mr. Cederholm worked as the Assistant to the
President of SCI. From December 1993 until April 1995, Mr. Cederholm served as
Vice President of Atlantic Region of TIG Insurance Company in New York, New York
with responsibility for overseeing and managing the underwriting facilities in
the eastern United States. From December 1992 through December 1993, Mr.
Cederholm served as President of Production Group of Continental Risk Management
Services, a property and casualty insurance company located in New York, New
York, where he was responsible for underwriting and production. For
approximately six years prior thereto, Mr. Cederholm served as President of
Continental Special Risk Underwriters, in New York, New York, overseeing the
large account casualty underwriting unit of Continental Insurance.


                                      -26-

<PAGE>   27

         Timothy J. Ermatinger, age 49, has served as Vice President of
Operations of SCI since January 1996. From August 1995 through December 1995,
Mr. Ermatinger worked as the Assistant to the President of SHC. Between February
1993 and January 1995, Mr. Ermatinger served as Vice President and Chief
Financial Officer of Independence One Mortgage Corp., a wholly owned subsidiary
of Michigan National Bank. From May 1986 to February 1993, Mr. Ermatinger was
the Executive Vice President of Alexsis, Inc., a third-party insurance
administrator concentrating in property and casualty claims.

         Ricky T. Hodges, age 44, has served as Vice President of Claims of
Summit Claims Management, Inc.("SCMI") since September 1991. Mr. Hodges has
worked at SCMI in various capacities since January 1984. Mr. Hodges is the
current Chairman of the Florida Workers' Compensation Advisory Council,
President of the Workers' Compensation Claims Professionals and Chairman for the
Adjuster Board Certification Program in Florida.

ITEM 2.  PROPERTIES

         The Company is headquartered in Lakeland, Florida, where it leases
approximately 80,000 square feet of space in a campus of nine buildings. The
Company also leases office space including approximately 2,000 square feet in
Lexington, Kentucky; and approximately 1,000 square feet in Ft. Lauderdale,
Florida.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is periodically involved as plaintiff or defendant in
various legal actions incident to its business. Based upon information presently
available to it, management is not aware of any threatened or pending litigation
that is expected to have a material adverse effect on the Company or its
business.

         The Internal Revenue Service is currently conducting an audit of SHC.
The Company cannot predict the results of the audit, and no assurance can be
given that the results of the audit will not have a material adverse effect on
the Company's business, financial condition or results of operations.


                                      -27-

<PAGE>   28


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

         The annual meeting of common shareholders of Summit Holding Southeast,
Inc. was held October 15, 1997, at which time the following matters were brought
before and voted upon by the shareholders.

1.       The election of directors to serve until the year 2000 Annual Meeting
         of shareholders. Duly elected were William B. Bull, John A. Gray and
         Thomas S. Petcoff.

<TABLE>
<CAPTION>
                  For                      Against                Abstain
                  ---                      -------                -------

               <S>                         <C>                    <C>
               5,139,481                      0                    5,300
</TABLE>

2.       The appointment of the firm of Ernst & Young, LLP, independent public
         accountants, as auditors of the company for the fiscal year ending
         December 31, 1997 was ratified and approved.

<TABLE>
<CAPTION>
                  For                      Against                Abstain
                  ---                      -------                -------

               <S>                         <C>                    <C>
               5,142,037                    1,500                  1,244
</TABLE>


                                      -28-

<PAGE>   29


                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
STOCK PRICE

         Since the Company's initial public offering (at $11.00 per share) on
May 22, 1997, the Common Stock has traded on the Nasdaq National Market under
the symbol "SHSE." The following table sets forth for the periods indicated the
high and low sale prices per share of the Common Stock as reported by the Nasdaq
National Market.

<TABLE>
<CAPTION>
         1997                                                                    HIGH             LOW
         ----                                                                    ----             ---

         <S>                                                                    <C>              <C>
         May 22 - June 30..............................................         $ 19.25          $12.75
         July 1 - September 30.........................................         $21.375          $16.50
         October 1 - December 31.......................................         $ 22.50          $15.00
</TABLE>

SHAREHOLDERS

         As of March 26, 1998, the Company had approximately 1,300 beneficial
holders of the Common Stock. Of that total, 128 were shareholders of record.

DIVIDENDS

         Summit has no intention at present to pay dividends on the Common
Stock. Any payment of dividends on the Common Stock in the future would be
subject to determination and declaration by the Board of Directors of Summit and
the availability of funds therefor. Any future dividend payments by Summit would
depend upon the Company's debt and equity structure, earnings, need for capital
and other factors, including economic conditions, regulatory restrictions and
tax considerations.

         Should Summit consider paying dividends on the Common Stock in the
future, the source of funds for payment of such dividends would be dividends
from the Insurance Subsidiaries and the Administrative Subsidiaries to Summit,
dependent on such subsidiaries' earnings. Summit currently expects to cause the
Insurance Subsidiaries to retain all of their earnings to provide capital for
their operations and business. In addition, under the Florida Insurance Code and
conditions imposed by the Florida DOI in connection with the Conversion, the
Insurance Subsidiaries may not be permitted to pay cash dividends to Summit
generally in excess of the lesser of 10% of surplus or net income exclusive of
realized capital gains, without prior approval of the Florida DOI. In addition,
if any shares of the Company's Series A Preferred Stock are outstanding, no
dividends may be paid to the holders of Common Stock so long as there are
cumulated but unpaid dividends on the Series A Preferred Stock. See "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS


                                      -29-

<PAGE>   30

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital
Resources" and "ITEM 1. BUSINESS--Regulation--Financial and Investment
Restrictions."

RECENT SALES OF UNREGISTERED SECURITIES

         On November 15, 1996, Summit sold one share of Common Stock at a price
of $11.00 per share to each of the seven directors of Summit. These shares were
issued to accredited investors as defined in Regulation D in a transaction
exempt from the registration requirements of the Securities Act of 1933, as
amended, pursuant to Section 4(2) of the Securities Act of 1933, as amended, and
Regulation D thereunder. On the date of the Conversion, the seven shares were
redeemed by Summit for an amount equal to the original purchase price.

USE OF PROCEEDS FROM REGISTERED SECURITIES

          On May 28, 1997, Summit completed the Conversion. As part of the
Conversion, Summit issued to each eligible policyholder or member of ESIF shares
of Summit's Series A Preferred Stock and subscription rights to purchase shares
of Summit's Common Stock in exchange for their membership interests in ESIF. On
the date of the Conversion, Summit issued a total of 1,639,701 shares of its
Series A Preferred Stock to such eligible policyholders and sold an aggregate of
5,000,000 shares of its Common Stock to subscribing eligible policyholders, to
the Management Group and to purchasers in Summit's initial public offering. The
aforementioned offerings were conducted pursuant to a registration statement
(Registration Number 333-16499) filed under the Securities Act of 1933, as
amended, and declared effective by the Securities and Exchange Commission on May
21, 1997. The initial public offering was underwritten by Raymond James &
Associates, Inc. and ABN AMRO Chicago Corporation, as managing underwriters.
After giving effect to the over-allotment option, an aggregate of 5,750,000
shares of Common Stock was sold for an aggregate of $63.3 million. In connection
with the Conversion, the Company incurred an aggregate of $4.0 million in
underwriting discounts and commissions and an additional $1.6 million in
additional expenses related to the issuance and distribution of the securities,
for an aggregate of $5.6 million in total expenses, which resulted in net
offering proceeds to the Company of $57.7 million. From the effective date of
such Conversion through December 31, 1997, the Company has used $9.3 million of
the net proceeds to repay indebtedness on a prior credit facility and $48.0
million as funding capital for Bridgefield, as required by the Florida
Department of Insurance. None of such payments were made to directors, officers,
persons owing 10% or more of any class of equity securities of the Company or
their affiliates.


                                      -30-


<PAGE>   31


ITEM 6.  SELECTED FINANCIAL DATA

         The following selected financial data has been taken from, or derived
from, the Company's consolidated financial statements, including the related
notes thereto. The Company's consolidated financial statements as of and for the
years ended March 31, 1996 and 1997, and as of and for the nine months ended
December 31, 1997, have been audited by Ernst & Young LLP, independent auditors,
whose report thereon appears elsewhere in this report. The consolidated
financial statements of ESIF (predecessor to Bridgefield) as of March 31, 1994
and 1995, and for the years then ended, have been audited by Brinton & Mendez,
certified public accountants. The selected financial data provided as of and for
the nine months ended December 31, 1996 is unaudited but in the opinion of
management contains all adjustments, consisting of only normal recurring
accruals, for a fair presentation of the results of such periods. The
information set forth below is not necessarily indicative of the results of
future operations and should be read in conjunction with the consolidated
financial statements and notes thereto.

                                      -31-


<PAGE>   32

<TABLE>
<CAPTION>
                                                                                          NINE MONTHS ENDED
                                             YEAR ENDED MARCH 31,                            DECEMBER 31,
                                 -------------------------------------------------    ------------------------
                                    1994         1995       1996(1)         1997         1996            1997
                                    ----         ----       -------         ----         ----            ----
                                                                                      (UNAUDITED)
                                                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                              <C>          <C>          <C>           <C>           <C>           <C>
INCOME STATEMENT DATA:
   Premiums earned ............. $ 148,441    $ 128,489    $ 114,893     $  97,321     $  74,509     $  19,532
   Net investment income .......    10,510       12,205       13,210        12,770         9,606        11,117
   Administrative fees .........        --           --        7,665        33,303        25,762        22,828
  Realized investment gains ....        --           --        4,354           687           366         1,551
  Other income .................                    121          206           692           568           229
                                 ---------    ---------    ---------     ---------     ---------     ---------
  Total revenue ................   158,951      140,815      140,328       144,773       110,811        55,257
                                 ---------    ---------    ---------     ---------     ---------     ---------
   Losses and loss adjustment
     expenses ..................   108,411       69,116       94,844        65,152        50,236        12,452
   Other underwriting, general
     and administrative
     expenses ..................    37,121       41,546       43,657        60,675        45,837        24,765
   Interest expense ............        --           --          847         3,521         2,719         1,935
   Amortization and
     depreciation ..............                               1,103         4,733         3,729         3,417
                                 ---------    ---------    ---------     ---------     ---------     ---------
   Income (loss) from
     continuing operations
     before income taxes .......    13,419       30,153         (123)       10,692         8,290        12,688
   Income tax expense (benefit).     4,534       10,990         (505)        3,717         3,057         4,138
   Loss from discontinued
     operations ................        --           --          197         1,250         1,250            --
  Extraordinary charge for
     conversion costs                   --           --           --         1,485           785            --
                                 ---------    ---------    ---------     ---------     ---------     ---------
  Net income ................... $   8,885    $  19,163    $     185     $   4,240     $   3,198     $   8,550
                                 =========    =========    =========     =========     =========     =========

  Basic earnings per common
      share ....................                                                                     $    1.43
  Diluted earnings per common
      share ....................                                                                     $    1.40
OTHER DATA:(2)
   Net loss ratio(3) ...........      73.0%        53.8%        82.5%         66.9%         67.4%         63.8%
   Expense ratio(4) ............      25.0%        32.3%        34.1%         35.1%         33.4%         34.8%
   Combined ratio(5) ...........      98.0%        86.1%       116.6%        102.0%        100.8%         98.6%

<CAPTION>
                                                                   MARCH 31,                                    DECEMBER 31,
                                            --------------------------------------------------------     -------------------------
                                              1994          1995            1996(1)           1997          1996             1997
                                              ----          ----            -------           ----          ----             ----
                                                                                                         (UNAUDITED)
                                                                               (IN THOUSANDS)
<S>                                         <C>           <C>               <C>             <C>           <C>              <C>
BALANCE SHEET DATA:
   Cash and invested assets.....            $201,688      $224,956          $220,266        $216,672       $225,319        $255,213
   Premiums receivable..........              71,520        50,391            38,093          42,397         39,828          63,077
   Reinsurance recoverable......              95,851       110,141           111,519          94,009        107,058         117,722
   Recoverable from SDTF........               9,929        15,879            20,060          20,979         21,138          23,833
   Total assets.................             405,765       425,206           491,844         458,008        476,972         534,651
   Loss and loss adjustment
     expense reserves...........             368,000       367,391           387,632         358,744        376,923         347,068
   Debt.........................                  --            --            44,000          32,675         33,000          16,540
   Total equity.................               2,480        20,065            23,154          26,416         27,378          98,334
</TABLE>

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


                                      -32-

<PAGE>   33

(1)  Includes the Acquisition as of January 16, 1996.
(2)  Ratio for Insurance Subsidiaries
(3)  Net loss ratio is the ratio of losses and LAE incurred to premiums earned.
(4)  Expense ratio is the ratio of underwriting, general and administrative
     expenses to premiums earned.
(5)  Combined ratio is the sum of the net loss ratio and the expense ratio.


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

         The following analysis of the consolidated results of operations and
financial condition of the Company should be read in conjunction with "ITEM 6.
SELECTED FINANCIAL DATA," the Consolidated Financial Statements and the
accompanying Notes to the Consolidated Financial Statements included elsewhere
herein.

OVERVIEW

         As of May 28, 1997, the successor entity to ESIF, as described below,
became a wholly owned subsidiary to the Company. On such date ESIF completed a
conversion from a group self-insurance fund to a stock property and casualty
insurance company. Concurrent with this conversion ESIF's name was changed to
Bridgefield Employers Insurance Company and Summit, a new holding company,
issued $16.4 million of preferred stock to the former policyholders or members
of ESIF for the extinguishment of their membership interests. At the same time,
in connection with a recapitalization of the Company's corporate structure, all
of the capital stock of Summit Holding Corporation ("SHC"), which had been owned
by ESIF and one of its subsidiaries prior to the conversion, was acquired by
Summit and SHC became a wholly subsidiary of Summit.

         The conversion and recapitalization transactions described above are
considered to be similar to pooling of interests transactions. The historical
cost basis accounting of the predecessor companies has been retained and the
Company's financial statements have been presented using pooling of interests
basis accounting. The conversion and recapitalization transactions had no impact
upon previously reported net income of the consolidated entities.

         The Company's managed care workers' compensation insurance operations
are comprised primarily of the Administrative Subsidiaries and the Insurance
Subsidiaries. The Company's income is generated principally from three sources:
fees earned from the management of the Non-affiliated Entities, underwriting
profits derived from premiums earned on insurance policies written by the
Insurance Subsidiaries and investment income generated by invested assets
related to insurance underwriting.

         All of the Company's insurance policies are written for entities
located in Florida, and a significant portion of the Company's administrative
services are provided to entities operating in


                                      -33-

<PAGE>   34

Florida. Effective January 1, 1994 (with subsequent certain amendments), Florida
enacted new legislation (the "New Florida Law") that changed the underwriting
environment for workers' compensation by, among other things: (i) limiting
certain benefits that must be provided; (ii) eliminating wage loss benefits in
favor of a system of benefits based upon a schedule of impairment ratings plus
supplemental benefits; (iii) obligating employers to rehire injured workers;
(iv) adopting new procedures for dispute resolution designed to reduce
litigation costs; and (v) redefining permanent impairment.

         In addition, the New Florida Law authorized insurers and self-insured
groups to apply to the Florida DOI for permission to offer premium credits of up
to 10% from January 1, 1994 through December 31, 1996 to insured employers who
participated in approved managed care arrangements and, effective January 1,
1997, required all insured employers to participate in managed care
arrangements. The New Florida Law also authorized premium credits for insured
employers who participate in safety and drug-free workplace programs. In
response to the New Florida Law, which was expected to result in savings to
self-insured groups and insurers, the Florida DOI ordered a 10.6% overall rate
decrease, effective January 1, 1994. In addition, the New Florida Law eliminated
the residual market assessment that was levied against insurance companies to
support the involuntary workers' compensation market and replaced it with a
self-funded joint underwriting association. As a result, the financial
obligation of funding deficits in the residual market mechanism was shifted from
traditional insurance entities to employers who are insured by the joint
underwriting association. While the long term impact of the New Florida Law
cannot be determined, the Company believes that it has resulted in: (i) a more
competitive workers' compensation market in Florida; (ii) conversions by some of
the larger self-insured groups to traditional insurance entities; and (iii) loss
portfolio transfers by self-insured groups to insurance companies.

         Based in part upon the elimination of the managed care premium credit
(10%) and upon other rate-making factors, the Florida DOI ordered an 11.2%
overall workers' compensation insurance rate reduction, which applies to new and
renewal policies written on and after January 1, 1997.

         The Insurance Subsidiaries have entered into certain Quota Share
Reinsurance agreements pursuant to which 75% of Bridgefield and 80% of
Bridgefield Casualty's net premiums have been ceded to the respective
reinsurers. While such reinsurance agreements have enabled the Insurance
Subsidiaries to underwrite a larger number of policies than they could otherwise
write, the ceding of a percentage of the premiums of such policies to the
reinsurers has resulted in lower premium income, as well as lower losses and
LAE, to the Company than in prior years. However, the Company has received a
ceding commission related to the Quota Share Reinsurance agreements which is
reflected as a reduction of operating expenses. Management does not currently
anticipate that the net income of the Company will be adversely effected by such
agreements.

         Historically, ESIF was not operated for the purpose of accumulating
profits, but it retained a portion of its earnings and profits to avoid making
assessments against its members.



                                      -34-

<PAGE>   35

ESIF occasionally during its operating history paid distributions of profits to
its members, but it never made an assessment against its members. ESIF's
indemnity agreements indemnified the member employers against loss or liability
relating to workers' compensation insurance risks.

         Prior to the Acquisition, ESIF and SHC were unaffiliated entities.
Although SHC (through its wholly owned subsidiary, SCI) had provided all
administrative and management services required to operate ESIF since ESIF's
inception in 1978, the two organizations had different financial objectives and
reported historical financial results independently. ESIF used a fiscal year
ending on March 31, and SHC used a fiscal year ending on December 31. As a
result of the Acquisition, SHC became a wholly owned subsidiary of ESIF, and
management began to implement an integrated strategic plan. The discussion below
in "--Results of Operations" includes SHC from and after the date of the
Acquisition.

         On August 20, 1997, the Board of Directors of Summit determined to
change the fiscal year end of Summit from March 31 to December 31.

RESULTS OF OPERATIONS

COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997

         REVENUE. Revenue was $110.8 million and $55.3 million for the nine
months ended December 31, 1996 and 1997, respectively. The revenues decreased
primarily due to the ceding of $67.9 million of premium in quota share
agreements. Set forth below is a discussion of the composition of revenue for
the periods indicated.

<TABLE>
<CAPTION>
                                                              NINE MONTHS ENDED DECEMBER 31
                                                      ---------------------------------------------
                                                      1996                                     1997
                                                      ----                                     ----
                                                   (UNAUDITED)
                                                                       (IN THOUSANDS)

<S>                                                   <C>                                   <C>
REVENUE:
  Premiums earned                                     $ 74,509                              $ 19,532
  Administrative fees                                   25,762                                22,828
  Net investment income                                  9,606                                11,117
  Realized investment gains                                366                                 1,551
  Other income                                             568                                   229
                                                      --------                              --------

         Total revenue                                $110,811                              $ 55,257
                                                      ========                              ========
</TABLE>

         Premiums Earned. Premiums earned during the nine months ended December
31, 1997 declined by $55.0 million, or 73.8%, from that of the nine-month period
ended December 31, 1996. This decline is attributable primarily to the 75% quota
share reinsurance agreement entered into by Bridgefield effective April 1, 1997.
During the nine months ended December 31,



                                      -35-

<PAGE>   36

1996 and 1997, the Company ceded $4.7 million and $67.9 million, respectively,
of earned premiums under reinsurance agreements. This increase in ceded premiums
of $63.2 million had a corresponding decreasing effect upon earned premiums of
the same amount. For the nine months ended December 31, 1996 and 1997, premiums
earned before the effect of ceded premiums were $79.2 million and $87.5 million,
respectively. This was an increase of $8.3 million or 10.5%

         Premiums earned were also impacted by an 11.2% rate reduction and the
elimination of the 10% managed care credit which became effective January 1,
1997 for new and renewal policies. The net effect of these changes was a
decrease in premium rates of approximately 4.5%.

         Administrative Fees. During the nine months ended December 31, 1997,
the Company's administrative fee income decreased $2.9 million, or 11.4%, from
that of the nine months ended December 31, 1996. This decline resulted from the
premiums of the administrative subsidiaries' non-affiliated clients, upon which
the Company's administrative fees are based, being adversely affected by both
the aforementioned 11.2% premium rate reduction and the increased competitive
environment within the self-insurance workers' compensation marketplace.

         Net Investment Income. Net investment income increased $1.5 million, or
15.7%, to $11.1 million for the nine months ended December 31, 1997 compared to
$9.6 million for the same period in 1996. This increase was due to the increase
in investment assets generated by the public offering on May 22, 1997 which
provided net proceeds of approximately $57.8 million. The investment income
included $2.6 million and $3.3 million from the municipal bond portfolio for the
nine months ended December 31, 1996 and 1997, respectively.

         Net Realized Investment Gains. Net realized investment gains increased
$1.2 million during the nine months ended December 31, 1997 compared to the
nine-month period ended December 31, 1996. For the nine months ended December
31, 1996 and 1997, the Company's proceeds on sales of fixed maturity and equity
investments were $67.2 million and $68.3 million, respectively. Though the
overall investment sales volume remained level, gains realized from the sale of
equity securities were $0.7 million and $1.5 million for the nine months ended
December 31, 1996 and 1997, respectively. The sale of stocks accounted for $0.8
million of the total $1.2 million increase. This result is primarily due to the
continued strength in the United States stock markets.

  LOSSES AND EXPENSES. The losses and expenses for the nine months ended
December 31, 1996 and 1997 were $102.5 and $42.6 million, respectively. Set
forth below is a breakdown of such expenses.



                                      -36-

<PAGE>   37


<TABLE>
<CAPTION>
                                                                                NINE MONTHS ENDED
                                                                                   DECEMBER 31,
                                                                                   ------------
                                                                              1996               1997
                                                                              ----               ----
                                                                           (UNAUDITED)
                                                                                  (IN THOUSANDS)

         <S>                                                                <C>                 <C>
         Losses and loss adjustment expenses                                $ 50,236            $ 12,452
         Underwriting, general and administrative
           expenses                                                           45,837              24,765
         Amortization and depreciation                                         3,729               3,417
         Interest expense                                                      2,719               1,935
                                                                            --------             -------

         Total losses and expenses                                          $102,521             $42,569
                                                                            ========             =======
</TABLE>

         Losses and Loss Adjustment Expenses. Losses and LAE decreased by $37.8
million from the nine-month period ended December 31, 1996 to the nine-month
period ended December 31, 1997. This change was in large part due to the ceding
of losses and LAE under the reinsurance agreements. The amount of losses ceded
was $9.1 million and $51.2 million for the nine-month period ended December 31,
1996 and 1997, respectively. Before the effect of reinsurance transactions, the
Company's losses and LAE expense were $59.3 million and $63.6 million during the
nine-month period ended December 31, 1996 and 1997, respectively. This increase
of $4.3 million corresponds favorably to the growth of premium earned between
the nine-month periods ended December 31, 1996 and 1997.

         Another factor contributing to the decrease in losses and LAE for the
Insurance Subsidiaries was the improvement of the loss ratio from 67.4% to 63.8%
for the nine months ended December 31, 1996 and 1997, respectively.

         Underwriting, General and Administrative Expenses. During the nine
months ended December 31, 1997 the Company's other underwriting, general and
administrative expenses declined by $21.1 million, or 46.0%, from that for the
nine-month period ended December 31 1996. A major factor contributing to this
change was the ceding commissions received by the Insurance Subsidiaries
corresponding to the quota share reinsurance agreements, and, particularly, the
75% quota share agreement entered into by Bridgefield effective April 1, 1997.
Such ceding commissions are recorded as reductions to other underwriting,
general and administrative expenses. During the nine months ended December 31,
1996 and 1997, the Company recognized ceding commissions in the amount of $1.2
million and $27.0 million, respectively

         During the period ended December 31, 1997, an accrual for the 1998
assessment for the Florida Workers' Compensation Guaranty Association of
approximately $2.0 million was recorded.

                                      -37-

<PAGE>   38

         Amortization and Depreciation. Amortization and depreciation expense
decreased $0.3 million between the nine-month period ended December 31, 1996 and
1997. The relative consistency in this expense is due to the lack of significant
purchase and sale activity of property and equipment assets and intangibles.
This decline of $0.3 million is primarily due to certain property and equipment
assets becoming fully depreciated during the nine-month periods ended December
31, 1996 and 1997.

         Interest Expense. In connection with the Acquisition, SHC borrowed $44
million from a commercial lender. In December 1997, a new $30 million revolver
was negotiated with a different lender at more favorable terms. The outstanding
debt at December 31, 1997 was approximately $16.5 million. The combination of
the paydown on the debt and the new more favorable rates decreased the interest
expense by $0.8 million to $1.9 million for the nine months ended December 31,
1997.

         NET INCOME. The Company realized net income during the nine months
ended December 31, 1997 of $8.6 million, or $1.40 per common share (on a diluted
basis), compared to $3.2 million for the nine months ended December 31, 1996.
Earnings per share is inapplicable to the 1996 period as it was prior to the
Company's public offering. As explained above, this increase in net income is
due primarily to growth in premium revenues written and earned, improvement in
the Company's loss ratio, favorable reinsurance arrangements, and investment
gains realized as a result of the continued strength in the U.S. security
markets. Net income for the nine month ended December 31, 1996 was also reduced
by a $1.2 million loss from discontinued operations and a $0.8 million
extraordinary charge related to the costs of the Conversion.

COMPARISON OF FISCAL YEARS ENDED MARCH 31, 1996 AND 1997

         REVENUE. Revenue was $140.3 million and $144.8 million for the fiscal
years ended March 31, 1996 and 1997, respectively. Revenue increased by $4.5
million for the fiscal year ended March 31, 1997 as a result of $33.3 million of
administrative fees generated by SHC in the 1997 period compared to $7.7 million
of administrative fees generated by SHC in the 1996 period (January 16,
1996-March 31, 1996). Set forth below is a discussion of the composition of
revenue for the periods indicated.


                                      -38-


<PAGE>   39


<TABLE>
<CAPTION>
                                          YEAR ENDED MARCH 31,
                                          --------------------
                                        1996               1997
                                        ----               ----
                                             (IN THOUSANDS)
<S>                                   <C>               <C>

REVENUE:
  Premiums earned                     $114,893          $ 97,321
  Net investment income                 13,210            12,770
  Realized investment gains              4,354               687
  Administrative fees                    7,665            33,303
  Other income                             206               692
                                      --------          --------

         Total revenue                $140,328          $144,773
                                      ========          ========
</TABLE>

         Premiums Earned. Premiums earned decreased by $17.6 million, or 15.3%,
for the year ended March 31, 1997. These declines in premiums resulted in large
part from: (i) lost accounts due to the market's increasing preference for
non-assessable products, which ESIF, as a Florida group self-insurance fund, was
unable to offer; (ii) increased competition; (iii) the effects of increasing
participation in the premium credit programs; (iv) an adjustment in estimation
of accrued retrospective premiums which reduced reported premiums for the fiscal
year ended March 31, 1996 by approximately $9.3 million; and (v) a rate decrease
of 11.2% effective January 1, 1997.

         As discussed in the table below, in the fiscal years ended March 31,
1996 and 1997, the premium credit programs in the aggregate accounted for
approximately $14.1 million and $16.6 million, respectively, in credits.


<TABLE>
<CAPTION>
                                                        YEAR ENDED MARCH 31,
                                                        --------------------
                                                     1996                 1997
                                                     ----                 ----
                                                         (IN THOUSANDS)

<S>                                                 <C>                  <C>
Managed care credits                                $ 8,811              $10,874
All other credits                                     5,250                5,746
                                                    -------              -------

         Total premium credits                      $14,061              $16,620
                                                    =======              =======
</TABLE>

         In January 1997, the 10% managed care premium credit was eliminated and
a 11.2% premium rate reduction for new and renewal policies became effective.

         Net Investment Income. Net investment income decreased from $13.2
million for the fiscal year ended March 31, 1996 to $12.8 million for the fiscal
year ended March 31, 1997. The decrease in investment income for the fiscal year
ended March 31, 1997 was due in part to a reduction of invested assets and a
larger portion of those assets invested in municipal bonds.


                                      -39-

<PAGE>   40

The decrease for the fiscal year ended March 31, 1997 was primarily due to an
increase in assets invested in municipal bonds from 32% in 1996 to 38% in 1997.

         Realized Investment Gains. Realized investment gains decreased from
$4.4 million for the fiscal year ended March 31, 1996 to $0.7 million for the
fiscal year ended March 31, 1997 as a result of the sale of certain invested
assets to finance the Acquisition.

         Administrative Fees. The Administrative Subsidiaries generate
administrative fees primarily through contracts with the Non-affiliated
Entities, pursuant to which the Administrative Subsidiaries provide marketing,
underwriting, claims administration, loss control and policy administration
services. Fees are generally based on a percentage of each Non-affiliated
Entities' premiums. For the period beginning on the date of the Acquisition,
January 16, 1996, and ended on March 31, 1996, the administrative fees were $7.7
million. For the fiscal year ended March 31, 1997, the administrative fees were
$33.3 million. Administrative fees represented 23.0% of total revenue for the
fiscal year ended March 31, 1997.

      LOSSES AND EXPENSES. The Company's losses and expenses decreased from
$140.5 million for the fiscal year ended March 31, 1996 to $134.1 million for
the fiscal year ended March 31, 1997. Set forth below is a breakdown of the
total annual expenses.

<TABLE>
<CAPTION>
                                                              YEAR ENDED MARCH 31,
                                                              --------------------
                                                            1996                1997
                                                            ----                ----
                                                                (IN THOUSANDS)

<S>                                                       <C>                  <C>
Losses and loss adjustment expenses                       $ 94,844            $ 65,152
Underwriting, general and administrative
  expenses                                                  43,657              60,675
Interest expense                                               847               3,521
Amortization and depreciation                                1,103               4,733
                                                          --------            --------

         Total losses and expenses                        $140,451            $134,081
                                                          ========            ========
</TABLE>

         Losses and Loss Adjustment Expenses. The Company establishes reserves
to cover its estimated liabilities for losses from claims and for LAE incurred.
Such loss reserves are estimates established by management based upon, among
other factors: (i) results of actuarial reviews which incorporate the Company's
experience with similar cases, estimates of future claim trends, and historical
trends such as recurring loss payment and reporting patterns, claim closures,
and product mixes; (ii) facts known to the Company; and (iii) regulatory
requirements. Losses and LAE incurred for the fiscal year ended March 31, 1996
were $94.8 million compared to $65.2 million for the fiscal year ended March 31,
1997.

         Prior to the fiscal year ended March 31, 1995, management had recorded
reserves in excess of reserve levels required by actuarial reports because the
actuarial estimates for fund years


                                      -40-

<PAGE>   41

1991 and earlier had a history of increasing (or "adversely developing") as the
fund years matured and more actual loss data became known. During the fiscal
year ended March 31, 1995, ESIF began to record reserves at levels primarily
supported by actuarial reviews since the actuarial estimates had by that time
evidenced a trend of less adverse development with the maturity of the fund
years. Management's determination that it was no longer necessary to increase
reserves over the actuarial estimates, together with a reduction in premiums
earned and a lower actuarial loss ratio, resulted in a $39.3 million decrease in
losses and LAE for the fiscal year ended March 31, 1995 as compared to fiscal
year ended March 31, 1994. The subsequent increase of $25.7 million in losses
and LAE for the fiscal year ended March 31, 1996, was primarily the result of
revised actuarial estimates for prior years. In the fiscal year ended March 31,
1997, losses and LAE decreased by $29.7 million as compared to the fiscal year
ended March 31, 1996 primarily as a result of (i) the abnormally high losses and
LAE in 1996 due to prior year adjustments all recorded in that year, and (ii) a
reduction in premiums earned. The net loss ratio for the fiscal years ended
March 31, 1996 and 1997 was 82.5%, and 66.9%, respectively.

         Underwriting, General and Administrative Expenses. The increase in
these expenses from $43.7 million to $60.7 million in the fiscal year ended
March 31, 1997 was primarily due to the inclusion of the Acquisition as of
January 16, 1996.

         Interest Expense. In connection with the Acquisition, SHC borrowed
$44.0 million from a commercial lender, and as a result, interest expense on a
consolidated basis for the fiscal years ended March 31, 1996 and 1997 was $0.8
million and $3.5 million, respectively.

         Amortization and Depreciation. In connection with the Acquisition, SHC
recorded certain intangibles including software, noncompete agreements, customer
contracts and goodwill. For the fiscal years ended March 31, 1996 and 1997,
amortization of these intangible assets was $1.1 million and $3.8 million,
respectively. The expense associated with amortization of these intangible
assets is not deductible for federal income tax purposes.

         NET INCOME. Income from continuing operations was $0.4 million, and
$7.0 million for the fiscal years ended March 31, 1996 and 1997, respectively.
The $6.6 million increase resulted from the stability of losses and LAE during
that year and the depressed net income for the fiscal year ended March 31, 1996
resulting from adjustments of loss reserves in that year.

         Losses from discontinued operations of $0.2 million and $1.3 million
were incurred for the years ended March 31, 1996 and 1997, respectively. In
addition, an extraordinary charge of $1.5 million was incurred during the year
ended March 31, 1997 related to the conversion of ESIF from a group of
self-insurance fund to a stock insurance company. After inclusion of these
nonrecurring items, net income was $0.2 million and $4.2 million for the years
ended March 31, 1996 and 1997, respectively.


                                      -41-

<PAGE>   42


LIQUIDITY AND CAPITAL RESOURCES

         The Company has historically met its cash requirements and financed its
growth principally through cash flows generated from operations. The Insurance
Subsidiaries' primary sources of cash flows are premiums earned, investment
income and the proceeds from the sale or maturity of invested assets. The
Administrative Subsidiaries' primary source of cash flow is service fees
generated from the Insurance Subsidiaries and the Non-affiliated Entities. The
cash requirements of the Insurance Subsidiaries are primarily for the payment of
claims, commissions, reinsurance premiums, administration fees and the purchase
of investment securities. The cash requirements of the Administrative
Subsidiaries are primarily for the payment of salaries, employee benefits, debt
obligations and other operating expenses. Due to the uncertainty regarding
settlement of unpaid claims, the liquidity requirements of the Company vary,
and, consequently, the Company has attempted to structure its investment
portfolio to take into account historical payout patterns. See "ITEM 1.
BUSINESS--Investment Portfolio." The Company purchases reinsurance to mitigate
the effect of catastrophic claims and to help stabilize demands on its
liquidity. See "ITEM 1.
BUSINESS--Reinsurance."

         In connection with the Acquisition, SHC acquired a bank term loan and
procured a revolving bank credit facility. On May 28, 1997, the date of ESIF's
conversion, Summit entered into a new credit facility with First Union National
Bank of North Carolina whereby the then-existing debt was restructured. Under
this new credit facility, the outstanding debt pertaining to the term loan was
established at $32.7 million, and the maximum amount available for borrowings
under a revolving line of credit was established at $5.0 million. The interest
rate applicable to this debt package was also established at the prime lending
rate plus 1%.

         In December 1997, Summit secured, with SunTrust Bank of Tampa Bay, a
$30.0 million revolving line of credit which offered more favorable terms and
greater flexibility than that of the existing debt. Of this line of credit,
$25.0 million was utilized to extinguish all other debt. At December 31, 1997,
the balance outstanding under this revolving line of credit was $16.5 million.
Interest on this revolving debt ranges from LIBOR plus 1.5% to LIBOR plus 2.25%.
Availability under this revolving line of credit reduces by $4.0 million
annually until the loan maturity date which is the last business day of 2003.

         As collateral for the debt outstanding at December 31, 1997, Summit has
pledged all of the issued and outstanding capital stock of two subsidiaries of
SHC, Summit Consulting, Inc. and Summit Healthcare Holdings, Inc. As a condition
for this debt, the Company must comply with certain financial convenants and
operating restrictions, to which the Company has so complied.

         For the fiscal years ended March 31, 1996 and 1997, net cash provided
by operating activities was $10.8 million and $5.7 million, respectively, while
net cash used in investing activities was $47.1 million and $1.5 million,
respectively. During the year ended March 31, 1996, cash of $44.0 million was
provided through debt proceeds, and most of these proceeds were utilized in
financing activities relating to the Acquisition. In the year ended March 31,
1997,


                                      -42-

<PAGE>   43

cash of $11.3 million was used to reduce this debt. During the nine months ended
December 31, 1996, net cash provided by operations was $10.7 million while net
cash of $13.3 million was utilized in operations during the nine-month period
ended December 31, 1997. For this 1996 period, the net cash provided was
primarily due to the collection of $9.7 million of income taxes recoverable. The
utilization of cash during the 1997 nine-month period was related primarily to
the increase in reinsurance recoverables and the reduction of loss and LAE
reserves.

         Relating to investing activities, cash was utilized in net amounts of
$3.0 million and $26.0 million during the nine months ended December 31, 1996
and 1997, respectively, primarily the result of net purchases of investments.
Cash of $11.0 million was used in financing activities during the nine months
ended December 31, 1996 representing payments on debt. During the nine months
ended December 31, 1997, net cash of $41.6 million was generated from financing
activities. Of this amount, $16.1 million was used to reduce the Company's debt
obligation and $57.7 million was provided as net proceeds on the sales of the
Company's capital stock. The Company expects to redeem the Series A Preferred
Stock from future surpluses in excess of statutorily required capital.

         The Company's balance sheets as of March 31, 1996 and 1997, and
December 31, 1996 and 1997, reflect recoverables from the SDTF in an amount of
$20.1 million, $21.0 million, $21.1 million and $23.8 million, respectively. The
Company received $5.6 million and $7.5 million in actual recoveries from the
SDTF during the years ended March 31, 1996 and 1997, respectively, and $6.5
million and $3.5 million during the nine months ended December 31, 1996 and
1997, respectively.

         Although the SDTF has not charged adequate assessments to actuarially
fund its claims liability, under a recent legislative enactment the SDTF law has
been amended so that claims arising from accidents occurring on or after January
1, 1998 will not be accepted for reimbursement by the SDTF. The new legislation
states the SDTF will be liable for reimbursement for applicable injuries that
occur prior to January 1, 1998 and that assessments are to continue for funding
purposes. The SDTF has not failed to make payments on accepted claims, and the
Company has no reason to believe that the SDTF will fail to meet its obligations
to pay accepted claims in the future, although there can be no assurance
thereof. Should the SDTF fail to met such obligations, the Company believes that
the existing reimbursement obligations of the SDTF would become general
obligations of the State of Florida, although there is no assurance that a
reviewing court would adopt that view. The SDTF has made no acknowledgment with
regard to the enforceability of its reimbursement obligations to insurers such
as the Company. See "ITEM 1. BUSINESS--Regulation--Special Disability Trust
Fund."

         As a self-insurance fund, ESIF recorded for statutory reporting an
asset of $47.4 million and $44.4 million at March 31, 1996 and March 31, 1997,
respectively, for future investment income determined by discounting loss and
LAE reserves at a statutorily prescribed rate. Following its conversion to a
stock insurance company, Bridgefield is permitted to record discounts only on
permanent disability cases. The amount of such discount, combined with that


                                      -43-


<PAGE>   44

of Bridgefield Casualty, is estimated at approximately $4.7 million, $4.4
million and $4.1 million at March 31, 1996, March 31, 1997 and December 31,
1997, respectively. ESIF's statutory basis surplus as a self-insurance fund was
approximately $21.8 million at March 31, 1997. Following its conversion to a
stock insurance company and the related public offering of the Company's Common
Stock which resulted in net proceeds contributed to Bridgefield of approximately
$48 million, plus $7.1 million of additional statutory capital which resulted
from the simultaneous reorganization, Bridgefield's statutory basis surplus as a
stock insurance company was approximately $53.8 million at December 31, 1997.
Such capital and surplus is considered adequate to satisfy the requirements of
the Florida Insurance Code. From time to time, the Company may be required to
increase the capital surplus of the Insurance Subsidiaries to remain in
compliance with state regulatory requirements. If the Company is unable to
generate sufficient capital, either internally or from outside sources, it could
be required to reduce its growth. There can be no assurance that capital will
continue to be available when needed or, if available, will be on terms
acceptable to the Company.

         The NAIC has recently adopted risk-based capital standards to establish
the capital requirements of an insurance carrier based upon the risks inherent
in its operations. The standards, which have become effective in Florida under a
bill recently passed by the Florida legislature, require the computation of a
risk-based capital amount which is then compared to a carrier's actual total
adjusted capital. The computation involves applying various financial factors to
address four primary risks: asset risk, insurance underwriting risk, credit risk
and off-balance sheet risk. These standards provide for regulatory intervention
when the percentage of total adjusted capital to authorized control level
risk-based capital is below certain levels. In July 1997, the Florida
legislature adopted the provisions of these risk-based capital standards. The
Company exceeds such risk-based capitalization levels, as recommended by the
NAIC.

         The Company's Insurance Subsidiaries are subject to state insurance
laws and regulations that limit the amount of dividends or distributions that
may be paid by an insurance company to its shareholders. Pursuant to the Florida
Insurance Code, the Insurance Subsidiaries may not, without the prior approval
of the Florida DOI, pay to their shareholders dividends or other distributions
of cash or property, the total fair market value of which exceeds generally the
lesser of 10% of surplus or net income, not including realized capital gains. In
addition, the conditions imposed by the Florida DOI in connection with the
Conversion require that all dividends or distributions by the Insurance
Subsidiaries be approved by the Florida DOI in advance, but provide that
approval will be given for any dividend or distribution otherwise complying with
the Florida Insurance Code. As a consequence of these legal restrictions and
other business considerations, the amount of dividends that may be paid by the
Insurance Subsidiaries to Summit may be limited, which may in turn limit the
amount of cash available to Summit for servicing its debt and other purposes.


                                      -44-


<PAGE>   45


Year 2000

         Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could cause a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions, send invoices or engage in
similar normal business activities.

         The Company has completed an assessment and will have to modify or
replace portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The total Year
2000 project for the Company is estimated to cost approximately $0.5 million and
is anticipated to be completed prior to the year 2000.



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The following consolidated financial statements of the Company and the
report of independent auditors thereon are set forth following the Index of
Financial Statements on page F-1 of this report:

             Consolidated Balance Sheets as of March 31, 1997 and December 31,
               1997

             Consolidated Statements of Income for the years ended March 31,
               1996 and 1997 and the nine months ended December 31, 1996
               (unaudited) and December 31, 1997

             Consolidated Statements of Changes in Equity for the years ended
               March 31, 1996 and 1997 and the nine months ended December 31,
               1996 (unaudited) and December 31, 1997

             Consolidated Statements of Cash Flows for the years ended March 31,
               1996 and 1997 and the nine months ended December 31, 1996
               (unaudited) and December 31, 1997

             Notes to Consolidated Financial Statements


                                      -45-


<PAGE>   46


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

                  In June 1996, ESIF changed principal accountants from Brinton
& Mendez to Ernst & Young, LLP to audit its financial statements. Prior thereto,
Brinton & Mendez had served as ESIF's principal accountants. Prior to the
Acquisition, Ernst & Young, LLP had served as SHC's principal accountants. The
decision by ESIF to change principal accountants was made with the approval of
the Board of Trustees of ESIF as a result of the decision to pursue the
Conversion.

         The Company believes, and has been advised by Brinton & Mendez that it
concurs in such belief, that, during the fiscal years ended March 31, 1994 and
1995 and subsequent thereto, the Company and Brinton & Mendez did not have any
disagreement on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Brinton & Mendez, would have caused it to make
reference in connection with its report on the Company's financial statements to
the subject matter of the disagreement.

         No report of Brinton & Mendez on the Company's financial statements for
either of the fiscal years ended March 31, 1994 and 1995 contained an adverse
opinion, a disclaimer of opinion, or qualification or modification as to
uncertainty, audit scope or accounting principles. During such fiscal periods,
there were no "reportable events" within the meaning of Item 304(a)(1) of
Regulation S-K promulgated under the Securities Act


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information relating to the directors of the Company will be set forth
under the captions "Proposal 1--Election of Directors--Nominees" in the
Company's Proxy Statement for its 1998 Annual Meeting of Stockholders to be held
on May 27, 1998 (the "1998 Proxy Statement"). Such information is incorporated
herein by reference. Pursuant to Instruction 3 to Item 401(b) of Regulation S-K
and General Instruction G(3) to Form 10-K, information relating to the executive
officers of the Company is set forth in Part I, Item 4(A) of this report under
the caption "Executive Officers of the Registrant." Information regarding
compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended, by directors and executive officers of the Company and beneficial
owners of more than 10% of the Company's Common Stock will be set forth under
the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the
1998 Proxy Statement. Such information is incorporated herein by reference. The
1998 Proxy

                                      -46-


<PAGE>   47

Statement will be filed with the Securities and Exchange Commission within 120
days after December 31, 1997.

ITEM 11.  EXECUTIVE COMPENSATION

         Information relating to executive compensation will be set forth under
the captions "Proposal 1--Election of Directors" and "Executive Compensation" in
the 1998 Proxy Statement. Such information is incorporated herein by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information regarding ownership of the Company's securities by certain
persons will be set forth under the caption "Stock Ownership" in the 1998 Proxy
Statement. Such information is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information regarding certain relationships and transactions between
the Company and certain non-employee directors of the Company will be set forth
under the captions "Proposal 1--Election of Directors--Compensation Committee
Interlocks and Insider Participation" and "Certain Transactions" in the 1998
Proxy Statement. Such information is incorporated herein by reference.



                                     PART IV

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

         (a)      Documents Filed as Part of This Report.

                  1.  Financial Statements

                     The following consolidated financial statements of the
                  Company and the independent auditors' report thereon set
                  forth immediately following the Index of Financial Statements
                  which appears on page F-1 of this report:

                      Consolidated Balance Sheets as of March 31, 1997 and
                        December 31, 1997



                                      -47-

<PAGE>   48

                      Consolidated Statements of Income for the years ended
                        March 31, 1996 and 1997 and the nine months ended
                        December 31, 1996 (unaudited) and December 31, 1997

                      Consolidated Statements of Changes in Equity for the years
                        ended March 31, 1996 and 1997 and the nine months ended
                        December 31, 1996 (unaudited) and December 31, 1997

                      Consolidated Statements of Cash Flows for the years ended
                        March 31, 1996 and 1997 and the nine months ended
                        December 31, 1996 (unaudited) and December 31, 1997

                      Notes to Consolidated Financial Statements


                  2.  Financial Statement Schedules

                      The following financial statement schedules are set forth
                  beginning on page S-1 of this report:

                      Schedule I - Summary of Investments

                      Schedule II - Condensed Financial Statements of Registrant

                      Schedule IV - Reinsurance

                      Schedule V - Supplemental Information Concerning Insurance
                        Operations

                  All other schedules for which provision is made in the
                  applicable accounting regulations of the Securities and
                  Exchange Commission have been omitted because such schedules
                  are not required under the related instructions or are
                  inapplicable or because the information required is included
                  in the consolidated financial statements or notes thereto.

                  3.  Exhibits

                      The following exhibits are filed with or incorporated by
                  reference in this report. Where such filing is made by
                  incorporation by reference to a previously filed registration
                  statement or report, such registration statement or report is
                  identified in parentheses. The Company will furnish any
                  exhibit upon request to Russell L. Wall, Vice President of
                  Finance and Chief Financial Officer of the


                                      -48-

<PAGE>   49

                  Company, 2310 A-Z Park Road, Lakeland, Florida 33801.
                  There is a charge of $.50 per page to cover expenses of
                  copying and mailing.

                  2.1      Amended Plan of Conversion and Recapitalization of
                           Employers Self Insurers Fund. (Exhibit 2.1 of
                           Registration Statement on Form S-1 (File No.
                           333-16499)).

                  2.2      Recapitalization Agreement between Summit and
                           Employers Self Insurers Fund. (Exhibit 2.2 of
                           Registration Statement on Form S-1 (File No.
                           333-16499)).

                  2.3      Order of the Florida DOI approving the Plan of
                           Conversion. (Exhibit 2.3 of Registration Statement on
                           Form S-1 (File No. 333-16499)).

                  3.1      Articles of Incorporation of Summit. (Exhibit 3.1 of
                           Registration Statement on Form S-1 (File No.
                           333-16499)).

                  3.2      Bylaws of Summit. (Exhibit 3.2 of Registration
                           Statement on Form S-1 (File No. 333-16499)).

                  3.3      Form of Certificate of Designation, Preferences and
                           Rights of Series A Preferred Stock of Summit.
                           (Exhibit 3.3 of Registration Statement on Form S-1
                           (File No. 333-16499)).

                  4.1      Specimen Stock Certificate of the Common Stock of
                           Summit. (Exhibit 4.1 of Registration Statement on
                           Form S-1 (File No. 333-16499)).

                  4.2      Specimen Stock Certificate of the Series A Preferred
                           Stock of Summit. (Exhibit 4.2 of Registration
                           Statement on Form S-1 (File No. 333-16499)).

                 10.1      Employment Agreement between Summit and William B.
                           Bull. (Exhibit 10.1 of the Form 10-K for the fiscal
                           year ended March 31, 1997).

                 10.2      Employment Agreement between Summit and Russell L.
                           Wall. (Exhibit 10.2 to the Form 10-K for the fiscal
                           year ended March 31, 1997).

                 10.3      Credit Agreement dated May 28, 1997 among Summit, the
                           Lenders named therein and First Union National Bank
                           of North Carolina, as Agent. (Exhibit 10.1 of Current
                           Report on Form 8-K (Date of Report: May 21, 1997)).


                                      -49-

<PAGE>   50

                  10.4     Credit Agreement among Summit and the Subsidiaries of
                           Summit (other than Insurance Subsidiaries) and
                           SunTrust Bank, Tampa Bay, dated as of December 11,
                           1997.

                  10.5     Summit 1996 Long-Term Incentive Plan. (Exhibit 10.4
                           of Registration Statement on Form S-1 (File No.
                           333-16499)).

                  10.6     The Summit Consulting, Inc. Retirement Plan. (Exhibit
                           10.5 of Registration Statement on Form S-1 (File No.
                           333-16499)).

                  10.7     Amendment No. 1 to The Summit Consulting, Inc.
                           Retirement Plan. (Exhibit 10.6 of Registration
                           Statement on Form S-1 (File No. 333-16499)).

                  10.8     Amendment No. 2 to The Summit Consulting, Inc.
                           Retirement Plan. (Exhibit 10.7 of Registration
                           Statement on Form S-1 (File No. 333-16499)).

                  10.9     Third Amendment to The Summit Consulting, Inc.
                           Retirement Plan. (Exhibit 10.8 to the Form 10-K for
                           the fiscal year ended March 31, 1997).

                 10.10     Summit Retirement Plan, Amended and Restated
                           Effective September 1, 1997.

                 10.11     Florida Retail Federation Self Insurers Fund
                           Administrator's Contract, with Assignment and
                           Addendum. (Exhibit 10.8 of Registration Statement on
                           Form S-1 (File No. 333-16499)).

                 10.12     Louisiana Employers Safety Association Self Insurers
                           Fund Administrator's Contract, with Addendum.
                           (Exhibit 10.9 of Registration Statement on Form S-1
                           (File No. 333-16499)).

                 10.13     Louisiana Retailers Association Self Insurers Fund
                           Administrator's Contract, with Addendum. (Exhibit
                           10.10 of Registration Statement on Form S-1 (File No.
                           333-16499)).

                 10.14     Managing General Agent Agreement By and Between
                           Summit Consulting, Inc. of Louisiana and Louisiana
                           Employers Mutual Insurance Company, dated May 29,
                           1997.

                 10.15     Kentucky Retail Federation Self Insurers Fund
                           Administrator's Contract. (Exhibit 10.11 of
                           Registration Statement on Form S-1 (File No.
                           333-16499)).


                                      -50-


<PAGE>   51

                  16.1     Letter from Brinton & Mendez relating to change in
                           accountants. (Exhibit 16.1 of Registration Statement
                           on Form S-1 (File No. 333-16499)).

                  21.1     Subsidiaries of Summit. (Exhibit 21.1 of Registration
                           Statement on Form S-1 (File No. 333-16499)).

                  23.1     Consent of Ernst & Young, LLP

                  27.1     Financial Data Schedule (for SEC use only).

         (b)      Reports on Form 8-K. No Current Reports on Form 8-K were filed
 by the Company during the quarter ended December 31, 1997.

         (c)      See Item 14(a)(3) above.

         (d)      See Item 14(a)(2) above.



                                      -51-

<PAGE>   52

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March ___, 1998.

                                       SUMMIT HOLDING SOUTHEAST, INC.


                                       By:
                                          -------------------------------------
                                          William B. Bull
                                          President and Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March __, 1997.

<TABLE>
<CAPTION>
             Signature                                           Title
             ---------                                           -----
<S>                                            <C>

-------------------------------------          President, Chief Executive Officer,
William B. Bull                                  and Director (principal executive officer)


-------------------------------------          Chairman of the Board of Directors
Greg C. Branch


-------------------------------------          Director
C. C. Dockery


-------------------------------------          Director
John A. Gray


-------------------------------------          Director
Robert L. Noojin, Jr.


-------------------------------------          Director
Thomas s. Petcoff


-------------------------------------          Director
Robert Siegel


-------------------------------------          Vice President of Finance
Russell L. Wall                                  (principal financial and
                                                 accounting officer)
</TABLE>


                                      -52-


<PAGE>   53


                         SUMMIT HOLDING SOUTHEAST, INC.

                                INDEX OF EXHIBITS


         The following exhibits are filed with or incorporated by reference in
this report. Where such filing is made by incorporation by reference to a
previously filed registration statement or report, such registration statement
or report is identified in parenthesis.

<TABLE>
<CAPTION>
EXHIBIT NO.                                           DESCRIPTION                                           PAGE
-----------                                           -----------                                           ----

<S>      <C>                                                                                                <C>
 2.1     Amended Plan of Conversion and Recapitalization of Employers Self Insurers
         Fund.  (Exhibit 2.1 of Registration Statement on Form S-1 (File No. 333-16499)).

 2.2     Recapitalization Agreement between Summit and Employers Self Insurers Fund.
         (Exhibit 2.2 of Registration Statement on Form S-1 (File No. 333-16499)).

 2.3     Order of the Florida DOI approving the Plan of Conversion. (Exhibit 2.3 of
         Registration Statement on Form S-1 (File No. 333-16499)).

 3.1     Articles of Incorporation of Summit. (Exhibit 3.1 of Registration
         Statement on Form S-1 (File No. 333-16499)).

 3.2     Bylaws of Summit.  (Exhibit 3.2 of Registration Statement on Form S-1
         (File No. 333-16499)).

 3.3     Form of Certificate of Designation, Preferences and Rights of Series A Preferred
         Stock of Summit.  (Exhibit 3.3 of Registration Statement on Form S-1
         (File No. 333-16499)).

 4.1     Specimen Stock Certificate of the Common Stock of Summit . (Exhibit 4.1
         of Registration Statement on Form S-1 (File No. 333-16499)).

 4.2     Specimen Stock Certificate of the Series A Preferred Stock of Summit.
         (Exhibit 4.2 of Registration Statement on Form S-1 (File No. 333-16499)).

10.1     Employment  Agreement between Summit and William B. Bull. (Exhibit 10.1 of the Form
         10-K for the fiscal year ended March 31, 1997).

10.2     Employment  Agreement between Summit and Russell L. Wall. (Exhibit 10.2 to the Form
         10-K for the fiscal year ended March 31, 1997).
</TABLE>



                                      -53-

<PAGE>   54


 10.3    Credit Agreement dated May 28, 1997 among Summit, the Lenders named
         therein and First Union National Bank of North Carolina, as Agent.
         (Exhibit 10.1 of Current Report on Form 8-K (Date of Report: May 21,
         1997)).

 10.4    Credit Agreement among Summit and the Subsidiaries of Summit (other
         than Insurance Subsidiaries) and SunTrust Bank, Tampa Bay, dated as of
         December 11, 1997.

 10.5    Summit 1996 Long-Term Incentive Plan. (Exhibit 10.4 of Registration
         Statement on Form S-1 (File No. 333-16499)).

 10.6    The Summit Consulting, Inc. Retirement Plan. (Exhibit 10.5 of
         Registration Statement on Form S-1 (File No. 333-16499)).

 10.7    Amendment No. 1 to The Summit Consulting, Inc. Retirement Plan.
         (Exhibit 10.6 of Registration Statement on Form S-1 (File No.
         333-16499)).

 10.8    Amendment No. 2 to The Summit Consulting, Inc. Retirement Plan.
         (Exhibit 10.7 of Registration Statement on Form S-1 (File No.
         333-16499)).

 10.9    Third Amendment to The Summit Consulting, Inc. Retirement Plan (Exhibit
         10.8 to the Form 10-K for the fiscal year ended March 31, 1997).

10.10    Summit Retirement Plan, Amended and Restated Effective September 1,
         1997.

10.11    Florida Retail Federation Self Insurers Fund Administrator's Contract,
         with Assignment and Addendum. (Exhibit 10.8 of Registration Statement
         on Form S-1 (File No. 333-16499)).

10.12    Louisiana Employers Safety Association Self Insurers Fund
         Administrator's Contract, with Addendum. (Exhibit 10.9 of Registration
         Statement on Form S-1 (File No. 333-16499)).

10.13    Louisiana Retailers Association Self Insurers Fund Administrator's
         Contract, with Addendum. (Exhibit 10.10 of Registration Statement on
         Form S-1 (File No. 333-16499)).

10.14    Managing General Agent Agreement By and Between Summit Consulting, Inc.
         of Louisiana and Louisiana Employers Mutual Insurance Company, dated
         May 29, 1997.

10.15    Kentucky Retail Federation Self Insurers Fund Administrator's Contract.
         (Exhibit 10.11 of Registration Statement on Form S-1 (File No.
         333-16499)).


                                      -54-

<PAGE>   55

16.1     Letter from Brinton & Mendez relating to change in accountants.
         (Exhibit 16.1 of Registration Statement on Form S-1 (File No.
         333-16499)).

21.1     Subsidiaries of Summit. (Exhibit 21.1 of Registration Statement on Form
         S-1 (File No. 333-16499)).

23.1     Consent of Ernst & Young, LLP

27.1     Financial Data Schedule - (for SEC use only).



                                      -55-
<PAGE>   56
                          INDEX OF FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
<S>                                                                     <C>
Report of Ernst & Young LLP...........................................   F-2

Consolidated Balance Sheets as of March 31, 1997
   and December 31, 1997..............................................   F-3

Consolidated Statements of Income for the years ended
   March 31, 1996 and 1997 and the nine months ended
   December 31, 1996 (unaudited) and 1997.............................   F-4

Consolidated Statements of Changes in Equity for the years
   ended March 31, 1996 and 1997 and the nine months ended
   December 31, 1996 (unaudited) and 1997.............................   F-5

Consolidated Statements of Cash Flows for the years ended
   March 31, 1996 and 1997 and the nine months ended
   December 31, 1996 (unaudited) and 1997.............................   F-6

Notes to Consolidated Financial Statements............................   F-7
</TABLE>








                                      F-1
<PAGE>   57
                         REPORT OF INDEPENDENT AUDITORS


Board of Directors
Summit Holding Southeast, Inc.

We have audited the accompanying consolidated balance sheets of Summit Holding
Southeast, Inc. and subsidiaries (the "Company") as of March 31, 1997 and
December 31, 1997, and the related consolidated statements of income, changes in
equity, and cash flows for the years ended March 31, 1996 and 1997, and for the
nine months ended December 31, 1997. Our audits also included the financial
statement schedules listed in the Index at Item 14(a). These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based
on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company at March
31, 1997 and December 31, 1997, and the results of their operations and their
cash flows for the years ended March 31, 1996 and 1997, and for the nine months
ended December 31, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.


                                                      ERNST & YOUNG LLP


Jacksonville, Florida
March 6, 1998




                                      F-2
<PAGE>   58
                 SUMMIT HOLDING SOUTHEAST, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                     MARCH 31     DECEMBER 31
                                                                       1997          1997
                                                                       ----          ----
<S>                                                                  <C>          <C>
                                     ASSETS

Investments:
  Fixed maturities ............................................      $180,075      $221,228
  Equity securities ...........................................        18,286        21,691
  Short-term investments ......................................        14,733         6,537
                                                                     --------      --------
         Total investments ....................................       213,094       249,456
Cash and cash equivalents .....................................         3,578         5,757
Premiums receivable (net of $2,566 and $2,672
  allowance for doubtful accounts, respectively) ..............        42,397        63,077
Reinsurance recoverable .......................................        94,087       117,722
Recoverable from Florida Special Disability Trust Fund ........        20,979        23,833
Deferred policy acquisition costs .............................            --           973
Accrued investment income .....................................         3,129         3,906
Property and equipment, net ...................................         1,452         1,333
Goodwill, net .................................................        44,651        43,242
Other intangible assets, net ..................................        11,078         9,498
Deferred income taxes .........................................        14,869        11,701
Other assets ..................................................         8,694         4,153
                                                                     --------      --------
         Total assets .........................................      $458,008      $534,651
                                                                     ========      ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
  Loss and loss adjustment expense reserves ...................      $358,744      $347,068
  Debt ........................................................        32,675        16,540
  Unearned premiums ...........................................         5,794        36,633
  Other policyholders' funds ..................................        16,786        14,015
  Accounts payable and accrued expenses .......................        13,093        15,000
  Deferred revenue ............................................         3,915         4,653
  Income taxes payable ........................................           585         2,408
                                                                     --------      --------
         Total liabilities ....................................       431,592       436,317
                                                                     --------      --------
Shareholders' equity:
  Common stock, $.01 par; 20,000,000 shares authorized;
    5,791,100 shares issued and outstanding ...................            --            58
  Additional paid-in capital ..................................            --        57,643
  Series A, 4% cumulative preferred stock, $10.00 par;
    5,000,000 authorized; 1,639,701 shares issued
    and outstanding ...........................................            --        16,397
  Retained earnings ...........................................        25,899        18,052
  Net unrealized appreciation of available-for-sale
    securities, less applicable deferred income taxes .........           517         6,184
                                                                     --------      --------
         Total shareholders' equity ...........................        26,416        98,334
                                                                     --------      --------

         Total liabilities and shareholders' equity ...........      $458,008      $534,651
                                                                     ========      ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>   59
                 SUMMIT HOLDING SOUTHEAST, INC. AND SUBSIDIARIES


                        CONSOLIDATED STATEMENTS OF INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                              YEAR ENDED                  NINE MONTHS ENDED
                                                                               MARCH 31                      DECEMBER 31
                                                                               --------                      -----------
                                                                         1996            1997            1996            1997
                                                                         ----            ----            ----            ----
                                                                                                     (UNAUDITED)
<S>                                                                   <C>             <C>             <C>             <C>
Revenue:
  Premiums earned ....................................                $ 114,893       $  97,321       $  74,509       $  19,532
  Administrative fees .................................................   7,665          33,303          25,762          22,828
  Net investment income ...............................................  13,210          12,770           9,606          11,117
  Net realized investment gains .......................................   4,354             687             366           1,551
  Other income ........................................................     206             692             568             229
                                                                      ---------       ---------       ---------       ---------
         Total revenue ................................................ 140,328         144,773         110,811          55,257
                                                                      ---------       ---------       ---------       ---------
Losses and expenses:
  Losses and loss adjustment expenses .................................  94,844          65,152          50,236          12,452
  Other underwriting, general and administrative
    expenses ..........................................................  43,657          60,675          45,837          24,765
  Amortization and depreciation .......................................   1,103           4,733           3,729           3,417
  Interest expense ....................................................     847           3,521           2,719           1,935
                                                                      ---------       ---------       ---------       ---------
         Total losses and expenses .................................... 140,451         134,081         102,521          42,569
                                                                      ---------       ---------       ---------       ---------

Income (loss) from continuing operations
  before federal income taxes ...................................          (123)         10,692           8,290          12,688
Federal income tax expense (benefit) ............................          (505)          3,717           3,057           4,138
                                                                      ---------       ---------       ---------       ---------
Income from continuing operations ...............................           382           6,975           5,233           8,550
                                                                      ---------       ---------       ---------       ---------

Discontinued operations:
  Loss from discontinued operations (net of
    income tax benefit of $121, $460 and $460, respectively).....          (197)           (893)           (893)             --
  Loss on disposal of discontinued operations
   (net of tax benefit of $184 and $184 respectively)............            --            (357)           (357)             --
                                                                      ---------       ---------       ---------       ---------
Loss from discontinued operations ...............................          (197)         (1,250)         (1,250)             --
                                                                      ---------       ---------       ---------       ---------
Income before extraordinary charge ..............................           185           5,725           3,983           8,550
Extraordinary charge for conversion costs
  (net of income tax benefit of $328  ...........................            --          (1,485)           (785)             --
  and $474, respectively                                              ---------       ---------       ---------       ---------

         Net income .............................................     $     185       $   4,240       $   3,198       $   8,550
                                                                      =========       =========       =========       =========

Basic earnings per common share .................................                                                     $    1.43
                                                                                                                      =========

Diluted earnings per common share................................                                                     $    1.40
                                                                                                                      =========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>   60
                 SUMMIT HOLDING SOUTHEAST, INC. AND SUBSIDIARIES


                  CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

                       YEARS ENDED MARCH 31, 1996 AND 1997
              AND THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                             NET
                                                                                          UNREALIZED
                                                                                         APPRECIATION
                                                                                        (DEPRECIATION)
                                                                                        OF AVAILABLE-
                                               ADDITIONAL                                  FOR-SALE
                                   COMMON        PAID-IN      PREFERRED     RETAINED       SECURITY
                                    STOCK        CAPITAL        STOCK       EARNINGS      INVESTMENTS       TOTAL
                                  --------     ---------      --------      --------    -------------     --------
<S>                               <C>          <C>            <C>           <C>         <C>               <C>
Balance at March 31, 1995 ..      $     --      $     --      $     --      $ 21,474       $ (1,409)      $ 20,065
Net income .................            --            --            --           185             --            185
Change in net unrealized
    investment gains .......            --            --            --            --          2,904          2,904
                                  --------      --------      --------      --------       --------       --------

Balance at March 31, 1996 ..            --            --            --        21,659          1,495         23,154
Net income .................            --            --            --         3,198             --          3,198
Change in net unrealized
    investment gains .......            --            --            --            --          1,026          1,026
                                  --------      --------      --------      --------       --------       --------

Balance at December 31, 1996            --            --            --        24,857          2,521         27,378
Net income .................            --            --            --         1,042             --          1,042
Change in net unrealized
    investment gains .......            --            --            --            --         (2,004)        (2,004)
                                  --------      --------      --------      --------       --------       --------

Balance at March 31, 1997 ..            --            --            --        25,899            517         26,416
Issuance of common stock ...            58        57,643            --            --             --         57,701
Issuance of preferred stock             --            --        16,397       (16,397)            --             --
Net income .................            --            --            --         8,550             --          8,550
Change in net unrealized
    investment gains .......            --            --            --            --          5,667          5,667
                                  --------      --------      --------      --------       --------       --------

Balance at December 31, 1997      $     58      $ 57,643      $ 16,397      $ 18,052       $  6,184       $ 98,334
                                  ========      ========      ========      ========       ========       ========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>   61
                 SUMMIT HOLDING SOUTHEAST, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                        YEAR ENDED                  NINE MONTHS ENDED
                                                                         MARCH 31                      DECEMBER 31
                                                                         --------                      -----------
                                                                   1996            1997            1996              1997
                                                                   ----            ----            ----              ----
                                                                                                (UNAUDITED)
<S>                                                             <C>             <C>             <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income .............................................      $     185       $   4,240       $   3,198          $  8,550
Adjustments to reconcile net income to net cash
    provided by operating activities:
  Amortization and depreciation ..........................          1,103           4,733           3,729             3,417
  Net realized gains .....................................         (4,354)           (687)           (366)           (1,551)
  Allowance for doubtful accounts ........................           (600)          1,066           1,014               106
  (Increase) decrease in premiums receivable .............         12,898           5,943          (2,749)          (20,786)
  (Increase) decrease in reinsurance recoverable .........         (1,377)         17,510           4,460           (23,636)
  Increase in Special Disability Trust Fund recoverable ..         (4,181)           (919)         (1,078)           (2,854)
  Increase in deferred policy acquisition costs...........             --              --              --              (973)
  (Increase) decrease in accrued investment income .......            473            (193)           (100)             (777)
  (Increase) decrease in income taxes recoverable ........         (9,690)             --           9,690                --
  (Increase) decrease in deferred income taxes ...........          4,239             602             699              (248)
  (Increase) decrease in other assets ....................         (7,776)          9,944             675             4,542
  (Increase) decrease in discontinued operations .........           (588)            588             588                --
  Increase (decrease) in loss and loss adjustment expenses         20,240         (28,888)        (10,709)          (11,677)
  Increase in unearned premiums ..........................          1,042           4,752           8,872            30,839
  Decrease in other policyholders' funds..................         (2,273)        (18,086)             --            (2,769)
  Increase (decrease) in accounts payable and accrued
    expenses .............................................           (935)          7,942          (4,137)            1,908
  Increase (decrease) in deferred revenue ................          7,298          (3,469)         (3,371)              737
  Increase (decrease) in income taxes payable ............         (4,878)            585             303             1,823
                                                                ---------       ---------       ---------          --------
Net cash provided by (used in) operating activities ......         10,826           5,663          10,718           (13,349)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities ........................       (979,829)       (238,324)       (201,739)         (102,938)
Disposal and maturity of investment securities ...........        972,918         236,188         198,203            77,208
Purchase of property and equipment .......................         (2,697)           (669)           (518)             (317)
Proceeds from sales of property and equipment ............             --           1,343           1,067                 9
Purchase of Summit Holding Corporation ...................        (37,500)             --              --                --
                                                                ---------       ---------       ---------          --------
Net cash used in investing activities ....................        (47,108)         (1,462)         (2,987)          (26,038)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt .......................................         44,000              --              --            25,040
Payments on debt .........................................             --         (11,325)        (11,000)          (41,175)
Net proceeds from sales of capital stock..................             --              --              --            57,701
                                                                ---------       ---------       ---------         ---------
Net cash provided by (used in) financing activities ......         44,000         (11,325)        (11,000)           41,566
                                                                ---------       ---------       ---------         ---------
Net increase (decrease) in cash and cash equivalents .....          7,718          (7,124)         (3,269)            2,179
Beginning cash and cash equivalents ......................          2,984          10,702          10,702             3,578
                                                                ---------       ---------       ---------         ---------
Ending cash and cash equivalents .........................      $  10,702       $   3,578       $   7,433         $   5,757
                                                                =========       =========       =========         =========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-6
<PAGE>   62
                SUMMIT HOLDING SOUTHEAST, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             MARCH 31, 1996 AND 1997 AND DECEMBER 31, 1996 AND 1997

1.  NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Organization

         Summit Holding Southeast, Inc. ("Summit") is the holding company for
Bridgefield Employers Insurance Company ("Bridgefield"), the successor, as of
May 28, 1997, to Employers Self Insurers Fund ("ESIF"), and for Summit Holding
Corporation ("SHC"). On May 28, 1997, ESIF completed a conversion from a group
self-insurance fund to a stock property and casualty insurance company.
Concurrent with this conversion, ESIF's name was changed to Bridgefield, and the
new holding company, Summit, issued (i) 1.64 million shares of its Series A
preferred stock to the eligible former policyholders or members of ESIF in
exchange for the extinguishment of the membership interests of such
policyholders of ESIF, including the elimination of the assessability feature of
the membership interests, and (ii) 5.79 million shares of its common stock to
subscribing former policyholders or members of ESIF, certain members of
management, and the public in a subscription offering and subsequent public
offerings. At the same time, and in connection with a recapitalization to
simplify Summit's corporate structure, all of the capital stock of SHC, which
had been owned by ESIF and one of its subsidiaries prior to the conversion, was
acquired by Summit, and SHC became a wholly owned subsidiary of Summit. In
addition, as part of the recapitalization, SHC's ownership of Bridgefield
Casualty Insurance Company ("Bridgefield Casualty") was transferred to
Bridgefield.

         The conversion and recapitalization transactions described above are
considered to be similar to pooling of interests transactions. The historical
cost basis accounting of the predecessor companies has been retained, and the
Company's financial statements have been presented using pooling of interests
basis accounting. The conversion and recapitalization transactions had no impact
upon previously reported net income of the consolidated entities.

         The terms and details of these transactions, and the preferred stock
and common stock issued by Summit in connection therewith, are more fully
described in Summit's Registration Statement on Form S-1 (No. 333-16499).

         In the accompanying notes to financial statements, the "Company" refers
to the consolidated financial statements of Summit and its consolidated
subsidiaries.

         Subsequent to the conversion and recapitalization, the Company's
business is comprised of two major operating segments. Summit's insurance
subsidiaries, Bridgefield and Bridgefield Casualty (the "insurance
subsidiaries"), continue to underwrite and assume the underwriting risks with
respect to workers' compensation insurance policies for Florida employers and
are regulated by the Department of Insurance of the State of Florida (the
"Florida DOI"). Summit's


                                      F-7
<PAGE>   63
administrative subsidiaries (SHC and subsidiaries) (the "administrative
subsidiaries") continue to provide administrative services (including sales and
agency relations, underwriting, claims administration, loss control, policy
administration, and financial management) to the insurance subsidiaries and
several unaffiliated self-insurance funds.

         ESIF was formed in 1978 for the stated purpose of providing statutory
workers' compensation coverage for Florida employers of all sizes, primarily in
the construction, manufacturing, wholesale and retail, and service industries.
An indemnity agreement issued by ESIF indemnified the member employer against
loss or liability relating to workers' compensation insurance risks. Any
employer that obtained workers' compensation coverage from ESIF automatically
became a member of ESIF with certain rights, including voting privileges and
rights to receive any distributions of profits or surplus if so declared by
ESIF's Trustees or upon liquidation. However, all members of ESIF were subject
to joint and several liability for the obligations of ESIF. ESIF did not operate
for the purpose of generating profits, but it did retain a portion of its
earnings and profits in order to avoid making assessments against its members.
Occasionally during its operating history, ESIF did pay a distribution of
profits to its members, but it never made an assessment against its members.

         Bridgefield also wholly owns a Grand Cayman Island domiciled
reinsurance subsidiary, U.S. Employers Insurance, Inc. ("USEI"), whose
underwriting operations are eliminated in consolidation (see Note 5).

Consolidation and Presentation

         The accompanying consolidated financial statements include the
accounts, after intercompany eliminations, of Summit and its wholly owned
subsidiaries and have been prepared in conformity with generally accepted
accounting principles ("GAAP") applicable to stock property and casualty
insurance companies, which differ from statutory accounting practices prescribed
or permitted by the Florida DOI.

         In August 1997, Bridgefield changed its fiscal year end from March 31
to December 31 in order to better facilitate the consolidated reporting with
Summit, its subsidiaries, and affiliates. Accordingly, the accompanying
financial statements include a consolidated balance sheet and a consolidated
statement of income as of and for the nine months ended December 31, 1997. A
consolidated statement of income for the nine months ended December 31, 1996 is
also provided for comparison purposes.

Use of Estimates and Assumptions

         The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect amounts
reported in the financial statements and accompanying notes. Such estimates and
assumptions could change in the future as more information becomes known which
could impact the amounts reported and disclosed herein.

Recognition of Revenues

         Workers' compensation insurance premiums are based on rates established
by the National Council on Compensation Insurance. Premium revenues generally
are recognized over the life of the related policies on the daily pro rata
method with a reserve for unearned premiums established for the unexpired
portion of the premiums applicable to those policies. Similarly,


                                      F-8
<PAGE>   64
premiums ceded under reinsurance contracts are recognized on a daily pro rata
basis corresponding earned premiums subject to such contracts. Adjustments to
revenue for premium audits are recognized in the period in which such audits are
finalized.

         For retrospectively rated policies, the ultimate premium for a period
is determined on the basis of the insured's loss experience. If an insured's
incurred losses are less than expected, the Company may be required to refund a
portion of the premiums previously collected. The Company considers loss
development experience through the date of the financial statements in
estimating the ultimate premium and, as adjustments to premiums become necessary
as a result of loss development, such adjustments are recognized in current
operations.

         Administrative fee revenue is recognized based upon a contractual
administrative fee percentage of premiums earned by the unaffiliated
self-insurance funds to whom the Company's administrative subsidiaries provides
services. Fees for administrative services provided to the Company's insurance
subsidiaries have been eliminated in the accompanying consolidated income
statements.

Deferred Policy Acquisition Costs

         All indemnity contracts issued by Bridgefield (formerly ESIF) prior to
March 31, 1997 had a common anniversary date of April 1, and consequently, for
Bridgefield, there was no deferred policy acquisition costs asset nor a
liability for unearned premiums at March 31, 1997. The reserve for unearned
premiums included in the accompanying balance sheet at March 31, 1997 pertains
to Bridgefield Casualty, for which the related agent commissions were incurred
as the premiums were earned, and other acquisition-related costs were
insignificant.

         Policy acquisition costs represent costs directly related to the
production or acquisition of new or renewal business, including agent
commissions and Florida Department of Labor administration fees. These costs are
deferred to the extent recoverable and are amortized over the period during
which premiums are earned. The deferred policy acquisition costs asset reported
in the accompanying balance sheet at December 31, 1997 represents the portion of
policy acquisition costs corresponding to unearned premium reserves of the
Company's insurance subsidiaries.

Income Taxes

         Income taxes have been provided using the liability method in
accordance with Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
Under that method, deferred tax assets and liabilities are determined based on
the differences between financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates.

Investments

         In 1993, the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". This Statement requires that debt
investment securities are to be classified as


                                      F-9
<PAGE>   65
either "held-to-maturity" (carried at amortized cost), "trading" (carried at
fair value with unrealized gains and losses reported in income), or
"available-for-sale" (carried at fair value with unrealized gains and losses
reported as a component of shareholders' equity). Equity securities are to be
classified as either trading or available-for-sale.

         The Company recognizes there may be occasions where it is necessary and
appropriate to sell a security prior to its maturity in response to changes in
circumstances. Recognizing this need for the ability to proactively respond to
changes in tax position and in market conditions, the Company has classified its
entire investment portfolio as available-for-sale.

         Accordingly, all investments in the accompanying consolidated balance
sheets are reported at estimated fair value with the corresponding net
unrealized gains and losses, net of tax, reported as a separate component of
shareholders' equity. Gains and losses realized through the sale of investments
are included as a separate component in the accompanying consolidated statements
of income. The cost of fixed maturities sold is determined principally on the
specific identification method, while the cost of equity securities sold is
based on the first-in-first-out method.

         Short-term investments are reported at cost.

         In the normal course of business, the Company is party to financial
instruments, none of which have significant off-balance-sheet risks.

Loss and Loss Adjustment Expense Reserves

         The reserves for unpaid losses and loss adjustment expenses ("LAE")
represent management's best estimate of the ultimate cost of the losses and LAE
that are unpaid at the balance sheet date including incurred but not reported
claims. Such reserves are established by management based upon (i) results of
actuarial reviews which incorporate the Company's experience with similar cases,
estimates of future claim trends, and historical trends such as recurring loss
payment and reporting patterns, claim closures and product mixes; (ii) facts
known to the Company, and (iii) regulatory requirements. These reserves are
continually reviewed and as adjustments become necessary, such adjustments are
included in current operations.

         The reserves for permanent indemnity disability claims have been
discounted at a rate of 4% as permitted under section 625.091, Florida Statutes,
with such discount computed based upon the Company's anticipated payout
patterns. The amount of this discount was $4.4 million and $4.0 million at March
31, 1997 and December 31, 1997, respectively.

Reinsurance

         Under FASB Statement No. 113, "Accounting and Reporting for Reinsurance
of Short-Duration and Long-Duration Contracts", all assets and liabilities
related to reinsurance ceded contracts are reported on a gross basis rather than
the previous practice of reporting such liabilities net of reinsurance.
Accordingly, amounts recoverable from reinsurers are reported


                                      F-10
<PAGE>   66
separately as assets in the accompanying consolidated balance sheets, and loss
and LAE reserves are reported exclusive of such recoverable amounts (also see
Note 5).

         In the accompanying consolidated statements of income, premiums earned
and losses incurred are reported net of reinsurance ceded (also see Note 5).
Reinsurance arrangements allow management to control exposure to potential
losses arising from large risks. All of the insurance subsidiaries' reinsurance
is effected under quota share and excess of loss reinsurance contracts, the
general terms of which are described in Note 5. Losses and LAE recoverable from
reinsurers are estimated in a manner consistent with the loss and LAE reserves
associated with the reinsured policies. Similarly, reinsurance premiums are
accounted for on bases consistent with those used in accounting for the related
original policies issued and the terms of the reinsurance contracts.

Guaranty Fund Assessments

         Under Florida law, the Company's insurance subsidiaries are subject to
state guaranty fund assessments, the purpose of which is to collect money from
solvent insurance companies and self-insurance funds to cover certain losses to
policyholders or members of insolvent insurance companies or self-insurance
funds, after assessment of the policyholders or members of such insolvent
companies or funds. This type of guaranty fund is separate from the Florida
Special Disability Trust Fund (the "SDTF") which is designed to reimburse
insurers for certain benefits paid to previously injured workers as discussed in
the accompanying Note 13 to these consolidated financial statements.

         Florida Statutes limit the guaranty fund assessment to a maximum of 2%
of direct written premiums annually. However, due to the many uncertainties
regarding the ultimate amount of assessments, if any, the Company's policy is to
recognize its obligation for guaranty fund assessments upon the receipt of
notice thereof. Guaranty fund assessments charged to expense during the years
ending March 31, 1996 and 1997 were $1.6 million and $1.4 million, respectively.
In November 1997, based upon a recommendation of the Board of Directors of the
Florida Workers' Compensation Insurance Guaranty Association, the Florida DOI
certified an assessment in the amount of 1.5% of insurers' net direct written
premiums for 1997. Accordingly, assessments charged to expense by the insurance
subsidiaries during the nine months ended December 31, 1997 were $2.0 million.

Concentrations of Credit or Financial Risk

         Florida law currently allows the Company's insurance subsidiaries to
write policies only in the State of Florida. Therefore, all of the insurance
subsidiaries' premium revenues reported in the accompanying consolidated income
statements were derived from policies offered to customers located in Florida.
Accordingly, the Company could be adversely affected by economic downturns,
significant unemployment, regulatory developments and other conditions that may
occasionally occur in Florida and which may not as significantly affect its more
geographically diversified competition.


                                      F-11
<PAGE>   67
'         SHC has significant amounts of administrative revenue associated with
its third-party processing as a result of its contracts with several
unaffiliated self-insurance funds. Changes with respect to these contracts could
adversely affect the Company's business, financial condition, and results of
operations.

         As further described in Note 5, the insurance subsidiaries have
significant amounts recoverable and reported in the accompanying consolidated
balance sheets as a result of ceding reinsurance under excess of loss and quota
share reinsurance contracts.

Intangible Assets

         The majority of the Company's intangible assets were recorded in
connection with the January 1996 acquisition of SHC (see Note 14). These
intangible assets principally consist of customer accounts and contracts,
purchased software, and the excess of costs over the fair value of identifiable
net assets acquired (goodwill). The customer accounts and contracts, as well as
the purchased software, are being amortized on a straight-line basis over the
related estimated lives and contract periods which range from three to ten
years. The excess of costs over the fair value of identifiable net assets
acquired is being amortized on a straight-line basis over 25 years.

         Periodically, the Company evaluates the recoverability of the costs in
excess of the fair value of net assets acquired and the costs associated with
customer listings through a comparison of forecasted undiscounted cash flows of
SHC and the remaining asset balances.

Property and Equipment

         Property and equipment are stated at cost less accumulated depreciation
and amortization. Expenditures for improvements are capitalized, and
expenditures for maintenance and repairs are charged to operations as incurred.
Upon sale or retirement, the cost and related accumulated depreciation and
amortization are removed from the accounts and the resulting gain or loss, if
any, is reflected in income. Depreciation has been provided using the
straight-line method over the estimated useful lives of the related assets which
range from five to ten years. Leasehold improvements are amortized on the
straight-line method over the term of the related leases.

Cash and Cash Equivalents

         Cash and cash equivalents principally consists of demand deposits with
financial institutions and highly liquid investments having original maturities
of three months or less when purchased.

Allowance for Doubtful Accounts

         The allowance for doubtful accounts is based on the Company's
experience with uncollectible premiums receivable and represents the Company's
best estimate of the ultimate uncollectible amounts incurred through the balance
sheet date.



                                      F-12
<PAGE>   68

Earnings Per Share

Earnings per share amounts, determined in accordance with SFAS 128, "Earnings
Per Share", are presented for the period in 1997 subsequent to the Company's
initial public offering.

Reclassifications

         Certain amounts in the financial statements as of and for the year
ended March 31, 1997 have been reclassified to better conform with the
presentation in the financial statements as of and for the nine months ended
December 31, 1997.

2. INVESTMENTS

         The amortized cost and estimated fair value of available-for-sale fixed
maturity investments are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                         GROSS             GROSS          ESTIMATED
                                                      AMORTIZED       UNREALIZED        UNREALIZED           FAIR
                                                         COST            GAINS            LOSSES            VALUE
                                                         ----            -----            ------            -----
           <S>                                        <C>             <C>               <C>               <C>
           AT MARCH 31, 1997
             U.S. Treasury and other U.S.
                 government agencies.............     $ 56,265          $   123           $ 1,142          $ 55,246
             States and political subdivisions...       83,455              421               559            83,317
             Corporate debt securities...........       41,861              173               522            41,512
                                                      --------          -------           -------          --------
           Total debt securities.................     $181,581          $   717           $ 2,223          $180,075
                                                      ========          =======           =======          ========

           AT DECEMBER 31, 1997
             U.S. Treasury and other U.S.
                 government agencies.............     $ 71,977          $ 1,685           $    84          $ 73,578
             States and political subdivisions...       93,005            2,316               222            95,099
             Corporate debt securities...........       45,733            1,441                76            47,098
             Other debt securities...............        5,601               26               174             5,453
                                                      --------          -------           -------          --------
           Total debt securities.................     $216,316          $ 5,468           $   556          $221,228
                                                      ========          =======           =======          ========
</TABLE>

         Refer to Note 17 regarding the fair value of the Company's investment
securities.

         The amortized cost and estimated fair value of fixed maturities at
December 31, 1997, by contractual maturity, are shown below. Actual maturities
may differ from contractual maturities because certain borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.


<TABLE>
<CAPTION>
                                                                       ESTIMATED
                                                      AMORTIZED          FAIR
                                                        COST             VALUE
                                                        ----             -----
                                                            (IN THOUSANDS)
           <S>                                        <C>              <C>
           Years to maturity:
             One or less.......................       $  5,176         $  5,196
             After one through five............         83,569           84,918
             After five through ten............        108,402          111,506
             After ten.........................         19,169           19,608
                                                      --------         --------
           Total...............................       $216,316         $221,228
                                                      ========         ========
</TABLE>


                                      F-13
<PAGE>   69
         Like that for fixed maturities, unrealized gains and losses on
investments in available-for-sale equity securities are reported directly in
shareholders' equity, net of applicable deferred income taxes, and do not affect
results of operations. The gross unrealized gains, gross unrealized losses, cost
and estimated fair value of these investments are summarized as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                          GROSS            GROSS        ESTIMATED
                                                                       UNREALIZED        UNREALIZED       FAIR
                                                        COST              GAINS            LOSSES         VALUE
                                                        ----              -----            ------         -----
           <S>                                         <C>             <C>               <C>            <C>
           AT MARCH 31, 1997
             Preferred stocks..................        $ 4,452            $   95           $ --          $ 4,547
             Common stocks.....................         11,517             2,511            289           13,739
                                                       -------            ------           ----          -------
           Total equity securities.............        $15,969            $2,606           $289          $18,286
                                                       =======            ======           ====          =======

           AT DECEMBER 31, 1997
             Preferred stocks..................         $2,782               224           $ --          $ 3,006
             Common stocks.....................         13,929             4,992            236           18,685
                                                       -------            ------           ----          -------
           Total equity securities.............        $16,711            $5,216           $236          $21,691
                                                       =======            ======           ====          =======
</TABLE>

         Proceeds from the sales of investments, and resulting realized gains
and losses, are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                                           NET
                                                                        GROSS            GROSS           REALIZED
              YEAR ENDED      SECURITY                 SALES          REALIZED          REALIZED          GAINS
               MARCH 31       TYPE SOLD               PROCEEDS          GAINS            LOSSES          (LOSSES)
               --------       ---------               --------          -----            ------          --------
              <S>             <C>                     <C>             <C>               <C>              <C>
                 1996         Fixed maturities        $195,500         $ 3,235           $   616         $ 2,619
                              Equities                  12,293           1,782                47           1,735
                                                      --------         -------           -------         -------
                                 Total                $207,793         $ 5,017           $   663         $ 4,354
                                                      ========         =======           =======         =======

                 1997         Fixed maturities        $ 78,430         $   637           $ 1,030         $  (393)
                              Equities                   6,981           1,300               220           1,080
                                                      --------         -------           -------         -------
                                 Total                $ 85,411         $ 1,937           $ 1,250         $   687
                                                      ========         =======           =======         =======

<CAPTION>
              NINE MONTHS
                 ENDED
              DECEMBER 31
              -----------
              <S>             <C>                     <C>              <C>               <C>             <C>
                1996 (1)      Fixed maturities        $ 62,666         $   732           $   953         $  (221)
                              Equities                   4,515             695               108             587
                                                      --------         -------           -------         -------
                                 Total                $ 67,181         $ 1,427           $ 1,061         $   366
                                                      ========         =======           =======         =======

                1997          Fixed maturities        $ 60,533         $   423           $   254         $   169
                              Equities                   7,786           1,532               150           1,382
                                                      --------         -------           -------         -------
                                 Total                $ 68,319         $ 1,955           $   404         $ 1,551
                                                      ========         =======           =======         =======
</TABLE>

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

(1)  Unaudited




                                      F-14
<PAGE>   70
         Major categories of net investment income are summarized as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                                                  NINE MONTHS
                                                           YEAR ENDED MARCH 31                   ENDED DECEMBER 31
                                                           -------------------                   -----------------
                                                           1996           1997                1996              1997
                                                           ----           ----                ----              ----
                                                                                         (UNAUDITED)
           <S>                                           <C>            <C>               <C>                 <C>
           Income from:
             Fixed maturities...................         $10,923        $10,500             $ 7,805           $ 9,489
             Equity securities..................             534            874                 434               461
             Short-term investments and cash....           1,753          1,396               1,367             1,167
                                                         -------        -------             -------           -------
           Net investment income................         $13,210        $12,770             $ 9,606           $11,117
                                                         =======        =======             =======           =======
</TABLE>

         In compliance with insurance regulations, at December 31, 1997 the
Company has $5.1 million and $0.3 million of its investments and cash pledged
to and on deposit with the Florida DOI.

3. PROPERTY AND EQUIPMENT

         The major components of property and equipment are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                             MARCH 31   DECEMBER 31
                                                               1997        1997
                                                               ----        ----
           <S>                                               <C>        <C>
           Furniture, fixtures and equipment.........         $1,794      $2,065
           Leasehold improvements....................            103         115
           Software..................................            270         284
                                                              ------      ------
                                                               2,167       2,464
           Less accumulated depreciation
               and amortization......................            715       1,131
                                                              ------      ------
                                                              $1,452      $1,333
                                                              ======      ======
</TABLE>


         Depreciation and amortization expense for the years ended March 31,
1996 and 1997 was $0.2 million and $0.7 million, and for the nine months ended
December 31, 1996 and 1997 was $0.6 million and $0.4 million, respectively.
Substantially all property and equipment was acquired in the January 1996
acquisition of SHC (See Note 14).




                                      F-15
<PAGE>   71
4. INTANGIBLES

         Intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                           MARCH 31   DECEMBER 31
                                                             1997         1997
                                                             ----         ----
           <S>                                             <C>        <C>
           Goodwill..................................      $47,239      $46,916
           Other intangible assets:
             Customer accounts and contracts.........        6,608        6,608
             Purchased software......................        6,300        6,300
             Capitalized debt acquisition costs......          757          757
                                                           -------      -------
                                                            60,904       60,581
           Less accumulated amortization.............        5,175        7,841
                                                           -------      -------
                                                           $55,729      $52,740
                                                           =======      =======
</TABLE>


5. REINSURANCE

         In accordance with general practice in the insurance industry, the
insurance subsidiaries are engaged in reinsurance transactions to cede portions
of their risks to other insurers. These reinsurance agreements do not relieve
the insurance subsidiaries from their primary obligation to policyholders, but
they do make the assuming reinsurers liable to the insurance subsidiaries for
the reinsurance ceded. Therefore, the Company is subject to credit risk with
respect to the obligations of its reinsurers, and any failure on the part of
these reinsurers could have a material adverse effect on the Company's business,
financial condition, and results of operations.

         Effective April 1, 1997, Bridgefield entered into quota share
reinsurance agreements, in addition to existing excess of loss reinsurance
agreements, with American Re-Insurance Company, St. Paul Fire and Marine
Insurance Company, Constitution Reinsurance Corp., and Transatlantic Reinsurance
Company. Accordingly, beginning on that date and for the nine months ended
December 31, 1997, Bridgefield ceded an aggregate of 75% of the net premiums
earned on workers' compensation during such period, and the reinsurers, in their
respective proportions, have assumed that same percentage of the risks under
such policies. In addition, Bridgefield recognized $22.9 million, during the
nine months ended December 31, 1997, of ceding commissions under this quota
share arrangement, and such commissions were recorded as a reduction to other
underwriting, general and administrative expenses.

         The ceding of 75% of net premiums earned by Bridgefield during the nine
months ended December 31, 1997, and the recognition of corresponding ceding
commissions, resulted in significant reductions to earned premium revenue,
losses and LAE, and other underwriting, general and administrative expenses from
that recognized in the prior periods reported in the accompanying consolidated
statements of income.

         Pertaining to the year ended March 31, 1997 and the nine months
ended December 31, 1997, the largest net amount of risk retained by the
insurance subsidiaries on any one occurrence is $500,000 and $50,000 with
deductibles of $500,000 and $500,000, respectively. The insurance subsidiaries
currently maintain the following coverage under specific excess of loss,
aggregate excess of loss, and quota share reinsurance agreements:


                                      F-16
<PAGE>   72
                              SPECIFIC REINSURANCE
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                               SPECIFIC
   YEAR ENDED                                                    SPECIFIC                     OCCURRENCE
    MARCH 31                  REINSURER                         ATTACHMENT                       LIMIT
    --------                  ---------                         ----------                       -----
<S>                <C>                                          <C>                           <C>
      1996         Federal Insurance Co.(2)                           500                            500
                   Federal Insurance Co.(2)                         1,000                          1,000
                   Continental Casualty Co. (2)                     2,000                      Statutory
      1997         Lloyd's (2)                                        500                          1,500
                   National Union Fire Insurance Co.(2)             2,000                      Statutory
                   Continental Casualty Co. (1)                       500                      Statutory

NINE MONTHS ENDED
   DECEMBER 31
   -----------
      1997         John Hancock Mutual Life Insurance Co.(2)           50                            450
                   Lincoln National Life Insurance Co.(2)             500                            500
                   Republic Western Insurance Co.(2)                1,000                          1,000
                   National Union Fire Insurance Co.(2)             2,000                      Statutory
                   John Hancock Mutual Life Insurance Co.(1)           50                            450
                   Continental Casualty Co.(1)                        500                      Statutory
</TABLE>


                             AGGREGATE REINSURANCE
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
   YEAR ENDED                                                    AGGREGATE                      AGGREGATE
    MARCH 31                     REINSURER                       ATTACHMENT                        LIMIT
    --------                     ---------                       ----------                        -----
<S>               <C>                                            <C>                             <C>
      1996        Crossroads (2)                                 115,018                          27,063
</TABLE>


                             QUOTA SHARE REINSURANCE

<TABLE>
<CAPTION>
   YEAR ENDED
    MARCH 31                     REINSURER                      PARTICIPATION
    --------                     ---------                      -------------
<S>               <C>                                           <C>
      1997        American Re-Insurance Co.(1)                      80%


NINE MONTHS ENDED
   DECEMBER 31
   -----------
      1997        American Re-Insurance Co.(2)                      35%
                  St. Paul Fire and Marine Insurance                15%
                  Co.(2)
                  Constitution Reinsurance Co.(2)                   20%
                  Transatlantic Reinsurance Co.(2)                   5%
                  American Re-Insurance Co.(1)                      80%
</TABLE>

-------------
(1)  Pertains to Bridgefield Casualty
(2)  Pertains to Bridgefield




                                      F-17
<PAGE>   73
         Insurance premiums for the years ended March 31, 1996 and 1997
are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                              1996          1997
                                                              ----          ----
           <S>                                              <C>           <C>
           Direct premiums earned.................          $119,028      $105,044
           Reinsurance ceded......................             4,135         7,723
                                                            --------      --------
           Net premiums earned....................          $114,893      $ 97,321
                                                            ========      ========


                                                              1996          1997
                                                              ----          ----
           Gross premiums written.................          $130,528      $132,321
           Reinsurance ceded......................             9,232        15,278
                                                            --------      --------
           Net premiums written...................          $121,296      $117,043
                                                            ========      ========
</TABLE>

         Insurance premiums for the nine months ended December 31, 1996 and 1997
are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                              1996          1997
                                                              ----          ----
                                                          (UNAUDITED)
           <S>                                            <C>             <C>
           Direct premiums earned.................          $ 79,201      $ 86,852
           Reinsurance assumed....................                --           618
           Reinsurance ceded......................             4,692        67,938
                                                            --------      --------
           Net premiums earned....................          $ 74,509      $ 19,532
                                                            ========      ========
<CAPTION>

<CAPTION>
                                                              1996          1997
                                                              ----          ----
                                                          (UNAUDITED)
           <S>                                            <C>             <C>
           Gross premiums written.................          $113,369      $117,409
           Reinsurance assumed....................                --           618
           Reinsurance ceded......................             5,060        85,947
                                                            --------      --------
           Net premiums written...................          $108,309      $ 32,080
                                                            ========      ========
</TABLE>

         Incurred losses and LAE are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                         YEAR ENDED              NINE MONTHS ENDED
                                                           MARCH 31                  DECEMBER 31
                                                      --------------------    ------------------------
                                                      1996          1997          1996          1997
                                                      ----          ----          ----          ----
                                                                              (UNAUDITED)
           <S>                                      <C>           <C>         <C>             <C>
           Direct losses and LAE.................   $102,832      $ 77,979      $ 59,298      $ 63,312
           Reinsurance assumed...................         --            --            --           330
           Reinsurance ceded.....................      7,988        12,827         9,062        51,190
                                                    --------      --------      --------      --------
           Net losses and LAE incurred...........   $ 94,844      $ 65,152      $ 50,236      $ 12,452
                                                    ========      ========      ========      ========
</TABLE>

         Reinsurance ceded premiums and losses included in the preceding table
reflect the elimination of amounts assumed by USEI through retrocession by
Crossroads Insurance Company, Limited ("Crossroads") of amounts ceded by
Bridgefield to Crossroads as described in the following paragraph.


                                      F-18
<PAGE>   74
         Of the reinsurance ceded amounts above for the nine months ended
December 31, 1997, losses and LAE of $1.9 million, and no related premium, are
attributable to reinsurance agreements with Crossroads, a Bermuda domiciled
insurance company in which a director of Summit has an ownership interest.
Crossroads is licensed to do business in Florida and is a member of the Florida
Workers' Compensation Insurance Guaranty Association. Fifty percent of business
ceded to Crossroads has been retroceded by Crossroads to USEI, and USEI does not
assume or directly underwrite any business other than that assumed from
Crossroads. At March 31, 1997 and December 31, 1997 loss and LAE reserves
recoverable of approximately $9.9 million and $7.2 million, respectively (net of
amounts retroceded to USEI), are attributable to excess reinsurance agreements
with Crossroads. For the years ending March 31, 1987, 1988, 1991, 1992 and 1993,
effective aggregate excess reinsurance is not currently in place because these
years have been self-funded or because the coverages have expired. Exposure to
significant adverse development for these years is considered minimal due to the
maturity of the loss development for these years.

         In the year ended March 31, 1997 and the nine months ended December 31,
1997, the insurance subsidiaries did not commute any ceded reinsurance nor enter
into or engage in any loss portfolio transfers. The insurance subsidiaries
remain obligated for amounts ceded in the event that the reinsurers do not meet
their obligations.

         The reinsurance recoverable asset at December 31, 1997 is comprised of
amounts related to reinsurance agreements with the following insurers (in
thousands):

<TABLE>
<CAPTION>
                                                                     PAID           UNPAID
           REINSURANCE CARRIER                     RATING(1)        CLAIMS          CLAIMS            TOTAL
           -------------------                     --------         ------          ------            -----
           <S>                                     <C>              <C>            <C>              <C>
           American Re...........................  A+ XV            $2,819         $ 13,148         $ 15,967
           Constitution Re.......................  A+ IX               973            3,932            4,905
           Continental Casualty..................  A XV                  0            8,982            8,982
           Crossroads(2).........................  N/R                 293            7,192            7,485
           Employers Re..........................  A++ XV              379            6,937            7,316
           Federal Insurance Co..................  A++ XV                0            6,384            6,384
           INA...................................  A- XIII             289            5,120            5,409
           John Hancock..........................  A++ XV              412            6,146            6,558
           Lincoln National......................  A+ XV                64            2,371            2,435
           Lloyds of London......................  N/R                   0           11,788           11,788
           National Union........................  A++ XV                3            4,768            4,771
           Old Republic..........................  A+ X                  5            6,950            6,955
           Republic Western......................  A VIII                0            1,623            1,623
           St Paul Fire & Marine.................  A+ XV               730            2,956            3,686
           Transatlantic Re......................  A++ XI              243              990            1,233
           Transamerica..........................  A XI                  1           22,224           22,225
                                                                    ------         --------         --------
                     Total.......................                   $6,211         $111,511         $117,722
                                                                    ======         ========         ========
</TABLE>
--------------
(1)      1997 Best's Key Rating Guide -- Property-Casualty Edition.
(2)      Based on filings with the Florida DOI, Crossroads maintains trust fund
         assets sufficient to fund its reinsurance obligations, although no
         specific recoverable from Crossroads is directly secured by such trust
         fund assets.

         Substantially all of the recoverable amounts related to paid claims
have been outstanding less than ninety days at the balance sheet date. The
reinsurance recoverable amounts related to unpaid claims are calculated
considering the provisions of the specific, aggregate and quota share
reinsurance agreements and using ultimate losses by accident year consistent
with the reported loss and LAE liabilities.


                                      F-19
<PAGE>   75
6. FEDERAL INCOME TAXES

         The Company files a consolidated federal income tax return. A formal
tax sharing agreement exists between Summit and its subsidiaries, Bridgefield
and SHC, such that the amount of taxes or tax benefits are shared as if separate
returns were filed. In addition, Bridgefield has a similar agreement with its
subsidiary, Bridgefield Casualty; however, Bridgefield does not have a tax
sharing agreement with its subsidiary USEI. Bridgefield does not collect from or
refund to this subsidiary the amount of income taxes or benefits which would
result if the entities filed separate returns.

         Income before federal income taxes differs from taxable income
principally due to tax-exempt investment income, dividends-received tax
deductions, and differences in loss and LAE discounting and unearned premium
reserves for tax and financial reporting purposes.

         After carryback of the year ended March 31, 1996 operations loss
to prior years, federal income taxes of $6.9 million and $12.2 million for
years ended March 31, 1994 and 1995, respectively, would be subject to
recovery in the event that the Company incurs net operating losses within three
years of the years for which such taxes were paid. State taxes paid were $0.8
million, $0.7 million, and $0.6 million for the years ended March 31, 1996 and
1997 and the nine months ended December 31, 1997, respectively.

         Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.

         Significant components of the Company's deferred tax liabilities and
assets, as calculated in accordance with SFAS 109, are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                              MARCH 31   DECEMBER 31
                                                                1997         1997
                                                                ----         ----
          <S>                                                 <C>        <C>
          Deferred tax liabilities:
            Unrealized investment gains ................      $   840      $ 3,708
            Special Disability Trust Fund
              recoverables .............................          283           --
            Reinsurance premium adjustment .............          898        1,671
            Intangible assets ..........................        4,038        3,491
                                                              -------      -------
          Total deferred tax liabilities ...............        6,059        8,870

          Deferred tax assets:
            Discount on loss and LAE reserves ..........       18,470       16,308
            Unallocated remittances ....................          180          966
            Uncollectible premiums .....................          941        1,005
            Special Disabilities Trust Fund
              recoverables .............................           --        1,321
            Other ......................................          789          971
            Unrealized investment losses ...............          548           --
                                                              -------      -------
          Total deferred tax assets ....................       20,928       20,571
                                                              -------      -------

          Net deferred tax assets ......................      $14,869      $11,701
                                                              =======      =======
</TABLE>


                                      F-20
<PAGE>   76
         The Company has made an election under the Internal Revenue Code of
1986 to treat income tax payments attributable to loss reserve discounting as
special estimated tax payments which are specifically recoverable upon reversal
of the discounting effects. Accordingly, the deferred tax assets attributable to
loss reserve discounting are considered to be fully recoverable. The Company
also has significant tax loss carryback potential for the  years ended March 31,
1994 and 1995. For those reasons, a deferred tax valuation allowance is not
considered necessary.

         The Company's consolidated federal income tax liability (asset) is
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                           MARCH 31     DECEMBER 31
                                                             1997          1997
                                                             ----          ----
          <S>                                              <C>          <C>
          Current.................................         $    585      $  2,408
          Deferred................................          (14,869)      (11,701)
                                                           --------      --------
          Total net asset.........................         $(14,284)     $ (9,293)
                                                           ========      ========
</TABLE>

         Significant components of the provision for income taxes attributable
to continuing operations are as follows (in thousands):

<TABLE>
<CAPTION>
                                                          YEAR ENDED              NINE MONTHS ENDED
                                                           MARCH 31                  DECEMBER 31
                                                           ---------              -----------------
                                                       1996          1997         1996         1997
                                                       ----          ----         ----         ----
                                                                              (UNAUDITED)
          <S>                                        <C>           <C>        <C>            <C>
          Current tax expense.....................   $ 1,425       $ 3,152      $ 3,006      $ 3,924
          Deferred taxes (benefit)................    (1,930)          565           51          214
                                                     -------       -------      -------      -------
          Total income tax expense (benefit) .....   $  (505)      $ 3,717      $ 3,057      $ 4,138
                                                     =======       =======      =======      =======
</TABLE>

         Income taxes paid by the Company totaled $11.2 million and $3.3 million
for the years ended March 31, 1996 and 1997, respectively, and $2.6 million for
the nine months ended December 31, 1997.

         The reconciliation of income tax expense (benefit) attributable to
continuing operations computed at the U.S. federal statutory tax rate of 35%, to
income tax expense (benefit) is as follows (in thousands):

<TABLE>
<CAPTION>
                                                        YEAR ENDED              NINE MONTHS ENDED
                                                         MARCH 31                  DECEMBER 31
                                                         --------                  -----------
                                                    1996          1997          1996          1997
                                                    ----          ----          ----          ----
                                                                            (UNAUDITED)
<S>                                               <C>           <C>         <C>             <C>
Income tax (at 35% of pretax income or loss)...   $   (43)      $ 3,742       $ 2,902       $ 4,441
Tax-exempt investment income...................    (1,067)       (1,245)         (932)       (1,071)
Non taxable/deductible (income) expenses.......        32           404            62            80
Intangibles amortization.......................       177           539           450           504
State income taxes.............................       495           263           346           412
Other items, net...............................       (99)           14           229          (228)
                                                  -------       -------       -------       -------
Provision (credit) for federal income tax
  expense (benefit)............................   $  (505)      $ 3,717       $ 3,057       $ 4,138
                                                  =======       =======       =======       =======
</TABLE>


         The Internal Revenue Service is currently conducting an audit of SHC.
The Company cannot predict the results of the audit, and no assurance can be
given that the results of this audit will not have a material adverse effect on
the Company's business, financial condition, or results of operations.


                                      F-21
<PAGE>   77
7. LOSSES AND LAE

         The reserves for unpaid losses and LAE are estimated using individual
case-basis valuations and statistical analyses. These estimates are subject to
the effects of trends in loss severity and frequency. Although some variability
is inherent in such estimates, management believes that the reserves for losses
and LAE are adequate. The estimates are reviewed annually by independent
consulting actuaries and adjusted necessarily as experience develops or new
information becomes known; such adjustments are included in current operations.

         The following table provides a reconciliation of the beginning and
ending reserve balances for losses and LAE (in thousands):

<TABLE>
<CAPTION>
                                                               YEAR ENDED                     NINE MONTHS ENDED
                                                                 MARCH 31                      DECEMBER 31
                                                                 --------                      -----------
                                                           1996            1997            1996            1997
                                                        ---------       ---------       ---------       ---------
                                                                                       (UNAUDITED)
      <S>                                               <C>             <C>            <C>              <C>
      Net reserves for losses and LAE at beginning
        of period ...................................   $ 259,085       $ 277,995       $ 277,995       $ 269,670
      Less: Recoverable from Florida SDTF(1) ........     (15,879)        (20,060)        (20,060)        (20,979)
                                                        ---------       ---------       ---------       ---------
      Net reserves for losses and LAE less SDTF
        recoverable asset at beginning of period ....     243,206         257,935         257,935         248,691
      Add provision for claims occurring in:
        The current period ..........................      84,058          69,014          53,698          13,003
        Prior periods ...............................      10,786          (3,862)         (3,462)           (551)
                                                        ---------       ---------       ---------       ---------
      Incurred losses during the current period .....      94,844          65,152          50,236          12,452
      Deduct payments for claims occurring in:
        The current period ..........................      15,432          14,131           8,378           2,481
        Prior periods ...............................      64,683          60,265          48,137          46,938
                                                        ---------       ---------       ---------       ---------
      Claim payments during the current period ......      80,115          74,396          56,515          49,419
      Net reserves for losses and LAE less SDTF
        recoverable asset at end of period ..........     257,935         248,691         251,656         211,724
      Add:  Recoverable from Florida SDTF(1) ........      20,060          20,979          21,138          23,833
                                                        ---------       ---------       ---------       ---------
      Net reserves for losses and LAE at end of
        period ......................................     277,995         269,670         272,794         235,557
      Add: Reinsurance recoverables (exclusive of
        recoverables on paid losses) ................     109,637          89,074         104,129         111,511
                                                        ---------       ---------       ---------       ---------
      Gross reserves for losses and LAE at end of
        period (GAAP basis) .........................   $ 387,632       $ 358,744       $ 376,923       $ 347,068
                                                        =========       =========       =========       =========
</TABLE>
--------------------

(1)      The change in the SDTF Recoverable asset is included in incurred losses
         and LAE in the accompanying consolidated income statements.

         The foregoing reconciliation shows that a strengthening of the March
31, 1995 reserves, in the amount of $10.8 million, occurred during the year
ended March 31, 1996. This increase in losses and LAE expense resulted
principally from settling case reserves established in prior years for more than
previously anticipated.


                                      F-22
<PAGE>   78
         The foregoing reconciliation also shows that reserve redundancies of
$3.9 million, $3.5 million, and $0.6 million emerged during the year ended March
31, 1997 and the nine-month period ended December 31, 1996 and 1997,
respectively. These amounts represent the release of certain loss reserves
previously carried which were determined, based on comparisons to actuarially
projected amounts, to be redundant.

         Statutory basis loss reserves were determined using paid loss data net
of historic SDTF recoveries; GAAP basis loss reserves were determined using paid
loss data gross of SDTF recoveries.  This adjustment increased loss reserves by
$31.4 million, $26.0 million, $28.8 million, and $27.5 million at March 31, 1996
and 1997, and December 31, 1996 and 1997, respectively, and increased
reinsurance recoverables by $11.8 million, $5.7 million, $8.4 million, and $4.4
million as of the same respective dates.  In addition, Bridgefield has recorded,
as an asset, amounts recoverable from the SDTF based upon ESIF's historical
collection experience and the amount of claims identified as subject to SDTF
recovery. The recoverable amount recorded at March 31, 1996 and 1997, and
December 31, 1996 and 1997, was $20.1 million, $21.0 million, $21.1 million, and
$23.8 million, respectively. In order to quantify the amounts recoverable from
the SDTF, Bridgefield reviews its claims that have been identified as subject to
SDTF recovery considering Bridgefield's historical recovery experience on claims
submitted to the SDTF.

         The SDTF reinsurance recoverable was calculated using loss and LAE
reserves computed using paid losses gross of SDTF recoveries and in
consideration of expected recoveries from the SDTF. Certain of the claims used
in the determination of the SDTF recoverable are of an amount which will pierce
reinsurance layers, and the Company will pursue recovery of such claims under
the provisions of its reinsurance agreements. Subsequently, as the Company
remits the claims to the SDTF, and ultimately collects these claims from the
SDTF, the Company will remit to the reinsurers their portion of the SDTF
recoveries. The aggregate recoverable from SDTF asset and the SDTF related
reinsurance recoverable, which approximates the amount of the increase in loss
reserves resulting from determining the GAAP basis loss reserves using paid loss
data gross of SDTF recoveries, represents management's best estimate of the
aggregate amounts that will be recovered.





                                      F-23
<PAGE>   79
8. ACCRUED RETROSPECTIVE PREMIUMS

         The Company offers several types of retrospectively rated policies for
which the ultimate premium is determined by the insured's loss experience. This
determined premium, upon comparison with premiums previously collected from the
insured, generally results in additional accrued premium income or a premium
refund to be recognized. Accrued retrospectively rated premiums and refunds,
including those relating to bulk incurred but not reported losses, have been
determined by individual policyholder accounts. Included as premiums receivable
in the accompanying balance sheets are accrued retrospective premiums of $23.1
million and $20.2 million as of March 31, 1997 and December 31, 1997,
respectively. Included as a part of other policyholders' funds liability in the
accompanying balance sheets are accrued retrospective premium refunds of $11.4
million and $10.7 million as of March 31, 1997 and December 31, 1997,
respectively.

9. EQUITY

         Of the Company's retained earnings as of December 31, 1997 reported in
the accompanying consolidated balance sheet, approximately $0.4 million is
restricted as such amount represents the aggregate value of the preferred stock
preferences, including liquidation and unpaid cumulative dividend preferences,
in excess of the stated value of preferred stock reported in such balance sheet.

         In addition, Bridgefield is subject to legal restrictions as to the
transfer of funds in the form of dividends, loans, and advances. These
restrictions, determined in accordance with statutory reporting practices,
generally limit the payment of dividends to amounts based upon statutory equity
or profits. At December 31, 1997, under statutory regulations applicable to
stock property and casualty insurance companies, $5.4 million of Bridgefield's
statutory net assets of $53.8 million could be transferred to Summit as a
dividend. Consequently, of the Company's retained earnings at December 31, 1997
reported in the accompanying consolidated balance sheet, $12.2 million is not
available to be distributed as dividends to the Company's shareholders.

         Consolidated statutory equity of the insurance subsidiaries, determined
in accordance with statutory accounting practices, was $21.8 million and $53.8
million as of March 31, 1997 and December 31, 1997, respectively. Bridgefield's
statutory basis net income (loss) for the years ended March 31, 1996 and 1997,
and the nine months ended December 31, 1996 and 1997, was $(4.7) million, $9.0
million, $12.9 million and $23.3 million, respectively.

         In order to improve the regulation of insurer solvency, the National
Association of Insurance Commissioners ("NAIC") issued a model law to implement
risk-based capital ("RBC") requirements for property and casualty insurance
companies, which are designed to assess capital adequacy and to raise the level
of protection that statutory equity provides for policyholder obligations. The
RBC formula for property and casualty insurance companies measures these major
areas of risk facing property and casualty insurers: (i) underwriting, which
encompasses the risk of adverse loss development and inadequate pricing; (ii)
declines in asset values arising from credit risk; and (iii) declines in asset
values arising from investment risks. Pursuant to the model law, insurers having
less statutory equity than required by the RBC calculation will be subject to
varying degrees of regulatory action, depending on the level of capital
inadequacy. In


                                      F-24
<PAGE>   80
July 1997, the Florida legislature adopted the provisions of the RBC model law.
At December 31, 1997, both Bridgefield and Bridgefield Casualty had achieved
statutory basis equity significantly in excess of that required by the Florida
RBC law.

10. EARNINGS PER SHARE

         The Company has adopted SFAS No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 replaces Accounting Principles Board Opinion No. 15, "Earnings
Per Share" ("APB 15") and requires disclosure of basic earnings per share and
diluted earnings per share. Basic earnings per share excludes all potentially
dilutive securities from the calculation and is calculated by dividing net
income available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. The diluted earnings
per share computation is computed similarly to the fully diluted earnings per
share calculation under APB 15. The following table reconciles the numerators
and denominators for the basic and diluted earnings per share calculations for
the nine months ended December 31, 1997 (in thousands except per share data).

<TABLE>
<CAPTION>

                                                   Income          Shares      Per Share
                                                 (Numerator)   (Denominator)    Amount
                                                 -----------   -------------   ----------
<S>                                              <C>           <C>             <C>
Net income                                         $8,550
Less: Preferred stock dividend requirement           (403)

Weighted average common shares outstanding                         5,697
                                                   ------          -----
Income available to common shareholders            $8,147          5,697
   Basic earnings per share                                                       $1.43
                                                                                  =====
Dilutive effect of stock options                                     142
                                                   ------          -----
Income available to common
  shareholders plus assumed conversions            $8,147          5,839
      Diluted earnings per share                                                  $1.40
                                                                                  =====
</TABLE>

         Because there were no common or preferred shares outstanding during the
fiscal years ended March 31, 1996 and 1997, or the nine-month period ended
December 31, 1996, the presentation of earnings per share is not applicable to
those consolidated financial statements.

11. COMMITMENTS AND CONTINGENCIES

         The Company leases office facilities and automobiles under
noncancellable operating leases which expire at various dates through the year
2001. These leases generally contain renewal options and escalation clauses
based on increases in the lessor's operating expenses and other charges. The
Company anticipates that most leases will be renewed or replaced upon
expiration.

         Future minimum annual payments at December 31, 1997 for all
noncancellable leases are (in thousands):

<TABLE>
          <S>                                                     <C>
               YEAR ENDING DECEMBER 31:
               1998....................................           $1,647
               1999....................................            1,289
               2000....................................              323
               2001....................................                1
                                                                  ------
          Total minimum future lease payments..........            3,260
              Income from subleases....................              (75)
                                                                  ------
          Net minimum future lease payments............           $3,185
                                                                  ======
</TABLE>

         In excess of 80% of the future lease commitments relates to rented
office facilities from certain directors of Summit.

         Rental expense, under operating leases, was $0.4 million, $1.7 million,
$1.3 million, and $1.2 million for the fiscal years ending March 31, 1996 and
1997 and the nine months ended December 31, 1996 and 1997, respectively.

         The Company, in the normal course of business, is named as a defendant
in various legal actions arising principally from claims made under insurance
policies and contracts. Those actions are considered by the Company in
estimating the loss and LAE reserves. The Company's management believes that the
resolution of those actions will not have a material effect on the Company's
financial position or results of operations.


                                      F-25
<PAGE>   81
12. CHANGE IN ACCOUNTING ESTIMATE

         During the year ended March 31, 1996 and prior to its
conversion, ESIF refined its method of estimating accrued retrospective premiums
and refunds. Prior to that year, ESIF estimated the accrued retrospective
premiums and refunds using aggregate premium and loss data. The estimation
methodology was revised in 1996 such that individual member premium and loss
data was utilized in the calculation. This revised methodology was implemented
by management in order to more accurately estimate the accrued retrospective
premium and refund amounts. This change decreased the accrued retrospective
premium asset and equity at March 31, 1996 by approximately $9.3 million and
$6.0 million, respectively, and decreased operating results for the year
ended March 31, 1997 by approximately $6.0 million.

13. SDTF

         The State of Florida maintains the SDTF for the purpose of providing
benefits to workers who have a pre-existing condition and incur a second or
subsequent injury. The SDTF is funded through annual assessments against
workers' compensation insurers which are based on a percentage of gross workers'
compensation premiums written.

         The SDTF has not charged adequate assessments to actuarially fund its
claims liability. The SDTF recently underwent legislative review. Under a recent
enactment of the Florida legislature, the SDTF law has been amended so that
claims arising from accidents occurring on or after January 1, 1998 will not be
accepted for reimbursement by the SDTF. The bill states the SDTF will be liable
for reimbursement for applicable injuries that occur prior to January 1, 1998
and that assessments are to continue for funding purposes. Changes in the SDTF's
operations which decrease the availability of recoveries from the SDTF, or
increase the SDTF assessments payable by Bridgefield, or changes in regulations
which further limit Bridgefield's ability to reduce statutory basis loss
reserves for a portion of SDTF future recoverable amounts, may have a material
adverse effect on Bridgefield's business, financial condition or results of
operations.

         Loss and LAE reserves included in the accompanying financial statements
are presented gross of future SDTF recoveries and have been determined using
historical loss data which excludes SDTF recoveries.


                                      F-26
<PAGE>   82
         Bridgefield has recorded an SDTF recoverable of $21.0 million and
$23.8 million at March 31, 1997 and December 31, 1997, respectively, for the
estimated amounts expected to be received from the SDTF. The estimated amount of
recoveries, which is management's best estimate of the amount that will be
recovered, was based on claims identified as subject to SDTF recovery as well as
Bridgefield's recovery experience.

         Amounts recovered from SDTF for the years ended March 31, 1996
and 1997 were $5.6 million and $7.5 million, respectively. Assessments paid by
Bridgefield to the SDTF were $5.6 million and $5.1 million for the years ended
March 31, 1996 and 1997, respectively. Amounts recovered from SDTF for the nine
months ended December 31, 1996 and 1997 were $6.5 million and $3.5 million,
respectively. Assessments paid by Bridgefield to the SDTF were $3.9 million and
$4.1 million for the nine months ended December 31, 1996 and 1997, respectively.

         Bridgefield records assessments from the SDTF as premiums are written.

14.  ACQUISITION OF SHC

         In January 1996, ESIF (prior to its conversion and becoming
Bridgefield) purchased all of the outstanding capital stock of SHC. SHC and its
subsidiaries comprise a third-party administrator which provides insurance
related services to the insurance subsidiaries and several unaffiliated
self-insurance funds located in Florida, Louisiana, and Kentucky.

         The acquisition was accounted for using the purchase method, and the
results of operations of SHC, after intercompany eliminations, are included in
the accompanying consolidated income statements from the date of acquisition.
The following unaudited pro forma information presents the consolidated results
of operations of ESIF and SHC for the year ended March 31, 1996 as if the
acquisition had been effective at April 1, 1995 after giving effect to
adjustments to reflect the acquisition. This data is provided for informational
purposes only and may not be indicative of future results of operations.

<TABLE>
<CAPTION>
                                                             YEAR ENDED
                                                           MARCH 31, 1996
                                                           --------------
                                                           (IN THOUSANDS)
           <S>                                             <C>
           Total revenues.........................            $169,178
           Income before income tax expense.......            $  3,330
           Net income.............................            $  2,496
</TABLE>

15. DEBT

         In connection with the January 1996 purchase of SHC by ESIF (see Note
14), SHC acquired a bank term loan and procured a revolving bank credit
facility. On May 28, 1997, the date of ESIF's conversion, Summit entered into a
new credit facility with First Union National Bank of North Carolina (FUNB)
whereby the then-existing debt was restructured. Under this


                                      F-27
<PAGE>   83
new credit facility, the outstanding debt pertaining to the term loan was
established at $32.7 million, and the maximum amount available for borrowings
under a revolving line of credit was established at $5.0 million. The interest
rate applicable to this debt package was also established at the prime lending
rate plus 1%.

         In December 1997, Summit secured, with SunTrust Bank of Tampa Bay,
access to $30.0 million under a revolving line of credit which offered more
favorable terms and greater flexibility than that of the existing debt. Of this
line of credit, $25.0 million was utilized to extinguish all other debt. At
December 31, 1997, the balance outstanding under this revolving line of credit
was $16.5 million. Interest on this revolving debt ranges from LIBOR plus 1.5%
to LIBOR plus 2.25%. Interest paid on debt during the nine months ended
December 31, 1997 was $1.9 million. Availability under this revolving line of
credit reduces by $4.0 million annually until the loan maturity date which is
the last business day of 2003.

         As collateral for the debt outstanding at December 31, 1997, Summit
has pledged all of the issued and outstanding capital stock of two subsidiaries
of SHC, Summit Consulting, Inc. and Summit Healthcare Holdings, Inc. As a
condition for this debt, the Company must comply with certain financial
covenants and operating restrictions, to which the Company has so complied.

16. EMPLOYEE BENEFIT PLANS

         The Company has a deferred savings and profit-sharing plan (the
"401(k)") covering substantially all of its employees. Under the 401(k), the
Company makes contributions equal to 75% of the participant's contributions, not
to exceed 6% of the participant's annual compensation. The Company's matching
contributions to the 401(k) totaled $0.3 million for the nine months ended
December 31, 1997.

         In addition, the Company contributed 100 shares of its capital stock
to the 401(k) on behalf of each employee in employment on the date of the
conversion. The Company's stock contribution totaled $0.5 million.

17. FAIR VALUES OF FINANCIAL INSTRUMENTS

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

         -        Cash and cash equivalents, short-term investments: The
                  carrying amounts reported in the accompanying consolidated
                  balance sheets for these instruments approximate fair values.

         -        Investment securities: Estimated fair values for debt and
                  equity security investments are based on quoted market prices.

         -        Premiums and accounts receivable: The carrying amounts of the
                  Company's receivables approximate fair values.


                                      F-28
<PAGE>   84
         -        Debt: Summit has $16.5 million of debt outstanding at
                  December 31, 1997 which approximates its fair value.

         -        Reinsurance recoverable: The carrying amounts of the Company's
                  reinsurance recoverables approximate fair values.

18. DISCONTINUED OPERATIONS

         Effective July 31, 1996, the Company decided to discontinue its
computer software development operation. As of December 31, 1996 all assets have
been disposed and the Company has recognized an after tax loss of approximately
$1.2 million on the disposition of this operation (including estimated operating
losses to the disposition date).

         The operating results of the computer software development subsidiary
for the period in 1996 until disposition were as follows (in thousands):

<TABLE>
           <S>                                                 <C>
           Revenue.................................            $   660
           Expenses................................              2,013
                                                               -------
           Loss before income taxes................             (1,353)
           Income tax benefit......................                460
                                                               -------
           Net loss................................            $  (893)
                                                               =======
</TABLE>

19. DISPOSITION

         Effective July 31, 1996, the Company decided to terminate its efforts
to develop a healthcare subsidiary in North Carolina. This start up effort was
initiated by SHC prior to the acquisition of SHC by ESIF. The disposition of
this subsidiary by a sale of its stock was completed during the second quarter
of 1997.

         The operating results of the healthcare subsidiary for the year ended
March 31, 1997 were as follows (in thousands):

<TABLE>
           <S>                                                 <C>
           Revenue..................................           $   114
           Expenses.................................               701
                                                               -------
           Loss before income taxes.................              (587)
           Income tax benefit.......................               200
                                                               -------
           Net loss.................................           $  (387)
                                                               =======
</TABLE>




                                      F-29
<PAGE>   85
20. SEGMENT INFORMATION

         The Company's operations prior to the January 1996 acquisition of SHC
(see Note 14) were solely in the workers' compensation insurance industry
segment. As a result of this acquisition, the Company also operates in the
insurance administration segment. Financial information by industry segment for
revenues, income before income taxes, and identifiable assets are summarized as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                WORKERS'
                                                             COMPENSATION      INSURANCE      INTERCOMPANY
                                                 TOTAL         INSURANCE    ADMINISTRATION    ELIMINATION
                                                 -----         ---------    --------------    -----------
      <S>                                      <C>           <C>            <C>               <C>
      Year Ended March 31, 1996
        Revenues ........................      $ 140,328       $ 132,393       $  15,051       $  (7,116)
        Income (loss) from
          continuing operations
          before income taxes ...........      $    (123)      $  (1,559)      $   1,436              --
        Identifiable assets .............      $ 491,844       $ 401,679       $  90,165              --
      Year Ended March 31, 1997
        Revenues ........................      $ 144,773       $ 110,733       $  55,935       $ (21,895)
        Income (loss) from
          continuing operations
          before income taxes ...........      $  10,692       $  11,387       $    (695)             --
        Identifiable assets .............      $ 447,617       $ 379,179       $  68,438              --


      Nine Months Ended December 31, 1996
      (Unaudited)
        Revenues ........................      $ 110,811       $  83,245       $  43,517       $ (15,951)
        Income (loss) from
          continuing operations
          before income taxes ...........      $   8,290       $   9,023       $    (733)             --
        Identifiable assets .............      $ 472,388       $ 472,388       $      --              --
      Nine Months Ended December 31, 1997
        Revenues ........................      $  55,257       $  31,776       $  45,460       $ (21,979)
        Income (loss) from
          continuing operations
          before income taxes ...........      $  12,688       $  11,758       $     930              --
        Identifiable assets .............      $ 534,651       $ 479,602       $  55,049              --
</TABLE>


         Depreciation expense and capital expenditures are not considered
material.

         The preceding financial information does not include the computer
software operations which are presented as discontinued operations in the
accompanying financial statements.


                                      F-30
<PAGE>   86
21. RELATED PARTY TRANSACTIONS

         As more fully described in Note 11, the Company has entered into office
premises and automobile lease agreements with certain directors of Summit.

         As more fully described in Note 5, the Company has entered into
reinsurance agreements with an insurance company in which a director of Summit
has an ownership interest. Included as reinsurance recoverable in the
accompanying balance sheets are recoverables from this insurance company in
amount of $11.9 million and $7.5 million as of March 31, 1997 and December 31,
1997, respectively.

         Entities in which Summit's president and chief executive officer held
ownership interests have provided certain transportation related services to the
Company. Fees paid by the Company to these entities approximated $0.4 million
and $0.03 million for the years ended March 31, 1996 and 1997 and $0.2 million
and $0.9 million for the nine months ended December 31, 1996 and 1997,
respectively.

         Summit's president and chief executive officer is also a member of the
Board of Directors of Florida Retail Federation (the "Association"), which is
the sponsoring trade association for Florida Retail Federation Self Insurers
Fund ("FRF"), one of the group self-insurance funds administered by SHC. The
Association, as the fund sponsor, is entitled to a fee equal to 1% of FRF's
premiums earned in each year, and SHC is obligated to pay such fee out of the
administrative fee it receives from FRF. During the fiscal years ended March 31,
1996 and 1997, SHC paid approximately $0.9 million and $0.6 million to the
Association for such fees. During the nine months ended December 31, 1996 and
1997, SHC paid approximately $0.6 million and $0.5 million, respectively, to the
Association for such fees. During the years ended March 31, 1996 and 1997, FRF
paid to SHC fees for administrative services of approximately $27.7 million and
$24.5 million, respectively. During the nine months ended December 31, 1996 and
1997, FRF paid SHC fees for administration services of approximately $19.0
million and $15.5 million, respectively.


22. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

         Quarterly results of operations for each of the years ended December
31, 1997 and 1996 are as follows (in thousands except per share data):


<TABLE>
<CAPTION>
                                                         Quarter Ended
                                -------------------------------------------------------------
                                March 31        June 30       September 30        December 31
                                  1997           1997             1997                1997
                                --------    -----------       ------------        -----------
<S>                             <C>         <C>               <C>                 <C>
Revenues                         $33,962        $17,225            $18,368            $19,664
Income from continuing
 operations                      $ 1,742        $ 2,539            $ 3,065            $ 2,946
Net income                       $ 1,042        $ 2,539            $ 3,065            $ 2,946
Diluted earnings per
 common share                       --          $  0.46            $  0.48            $  0.46

<CAPTION>
                                March 31       June 30        September 30        December 31
                                  1996           1996             1996               1996
                                --------    -----------       ------------        -----------
<S>                             <C>         <C>               <C>                 <C>
Revenues                        $37,242         $37,109            $35,939            $37,763
Income (loss) from
 continuing operations          $(4,790)        $ 1,274            $ 2,377            $ 1,582
Net income (loss)               $(4,802)        $ 1,022            $ 1,364            $   812
</TABLE>


         Earnings per share ("EPS") data is presented beginning with the quarter
in which the Company's public offering was completed. Prior to this time there
were no common shares outstanding. EPS amounts for the quarters ended June 30,
1997 and September 30, 1997 in the above table were restated for SFAS 128.

         The decrease in revenues beginning in the quarter ended June 30, 1997
is primarily attributable to Bridgefield entering into a quota share reinsurance
agreement, effective April 1, 1997, under which 75% of premiums and losses
related to policies issued subsequent to that date are ceded to third party
reinsurers.


23. STOCK OPTION PLAN


         The Company has a Long-Term Incentive Plan (the "Incentive Plan") which
provides certain directors, officers and other employees of Summit and its
subsidiaries can be granted a variety of long-term incentives, including
non-qualified stock options, incentive stock options, grants of restricted and
unrestricted stock, performance share awards, stock appreciation rights,
dividend equivalents and other stock based awards. The purpose of the Incentive
Plan is to promote the success, and enhance the value, of Summit and its
subsidiaries by linking the personal interest of their directors, officers and
key employees to those of Summit's shareholders and by providing their
directors, officers and key employees with an incentive for outstanding
performance.

         The Incentive Plan is administered by the Compensation Committee of the
Board of Directors of Summit, consisting of three non-employee directors. Such
committee determines, in its discretion, which directors, officers and employees
will receive awards under the Incentive Plan, when the awards will be granted,
the type of awards to be granted, the number of shares or cash involved in each
award, the time or times when any options will become exercisable and, subject
to certain conditions, the price and duration of such options. As of December
31, 1997, a total of 500,000 shares of common stock have been reserved for
issuance under the Incentive Plan.

         The Board of Directors or the Compensation Committee has the right at
any time to amend or discontinue the Incentive Plan without the consent of
Summit's shareholders or optionees, provided that no such action may adversely
affect awards previously granted without the recipient's consent.

         The Incentive Plan provides that in the event of a "change of
control" of Summit, all awards granted under the Incentive Plan that are in the
nature of rights that may be exercised shall automatically become fully
exercisable. In addition, at any time prior to or after the change of control,
the Compensation Committee may accelerate awards and waive conditions and
restrictions on any other awards under the Incentive Plan to the extent it may
determine appropriate.

         Stock options: Options granted under the Incentive Plan may be either;
(1) options intended to qualify as incentive stock options under Section 422 of
the Tax Code, or (2) non-qualified stock options. Incentive stock options may be
granted under the Incentive Plan to employees of Summit and its subsidiaries.
Non-qualified stock options may be granted to directors, officers or employees
of Summit and its subsidiaries. Options may be made exercisable in specified
installments.

         On the date of conversion of Bridgefield, Summit granted stock options
to the directors and executive officers of Summit to purchase 500,000 shares of
common stock at a price of $11 per share. The options granted (168,065) to the
executive officers, are incentive stock options, and 50% of such options vested
180 days after the grant date of May 28, 1997, and the remaining 50% of such
options will vest on the first anniversary of the grant date, provided that such
executive officers remain employed by Summit. The options granted to the
directors are non-qualified stock options and vested on the date of the
conversion.

         The Company has elected to follow Accounting Principals Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided under SFAS 123,
"Accounting for Stock Based Compensation", requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

         Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that SFAS. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1997; risk free interest rate of 5%, volatility factor of the
expected market price of the Company's common stock of .10, a weighted average
expected life of the options of 5 years, and no assumed dividend yield.

         The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value.

         For purposes of pro forma disclosure the estimated fair value of the
incentive stock options is amortized to expense over the options' vesting
period. The Company's pro forma information is as follows (in thousands except
per share data):

<TABLE>
<CAPTION>

                                               As              Pro
                                           Reported           Forma
--------------------------------------------------------------------
<S>                                        <C>                <C>
Net Income                                  $8,550            $8,212
Basic Earnings Per Share                     $1.43             $1.37
Diluted Earnings Per Share                   $1.40             $1.34

</TABLE>

         The following schedule summarizes activity in the Incentive Plan during
the nine months ended December 31, 1997.

<TABLE>
<CAPTION>

                              Incentive                 Non-Qualified
                                Stock                       Stock
                               Options                     Options
                              ---------                 -------------
                         Number       Market       Number       Market
                           of        Price at        of        Price at
                         Shares     Date Given     Shares     Date Given
------------------------------------------------------------------------
<S>                     <C>        <C>            <C>        <C>
Outstanding 3/31/97          --            --          --             --
Awarded                 168,065           $11     331,935            $11
Exercised                    --            --          --             --
Forfeited                    --            --          --             --
------------------------------------------------------------------------
Outstanding 12/31/97    168,065            --     331,935             --
========================================================================

</TABLE>


                                      F-31
<PAGE>   87

                     INDEX OF FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
            <S>                                                             <C>
            Schedule I -  Summary of Investments.........................    S-2

            Schedule II - Condensed Financial Information of Summit
                          Holding Southeast, Inc.........................    S-3

            Schedule IV - Reinsurance....................................    S-5

            Schedule VI - Supplemental Information Concerning
                          Insurance Operations...........................    S-6
</TABLE>








                                      S-1
<PAGE>   88

                SUMMIT HOLDING SOUTHEAST, INC. AND SUBSIDIARIES

                      SCHEDULE I -- SUMMARY OF INVESTMENTS
                                 (IN THOUSANDS)

                                DECEMBER 31, 1997

<TABLE>
<CAPTION>
                        COLUMN A                            COLUMN B      COLUMN C      COLUMN D
                        --------                            --------      --------      --------

                                                                                        AMOUNT AT
                                                             COST OR      ESTIMATED    WHICH SHOWN
                                                            AMORTIZED       FAIR         IN THE
                   TYPE OF INVESTMENT                         COST          VALUE     BALANCE SHEET
                   ------------------                         ----          -----     -------------
<S>                                                         <C>           <C>         <C>
  Fixed maturities:
     U.S. Government and other
       U.S. government agencies..........................   $ 71,977      $ 73,578      $ 73,578
     States, municipalities and political
       subdivisions......................................     93,005        95,099        95,099
     Corporate obligations...............................     45,733        47,098        47,098
     Other debt securities...............................      5,601         5,453         5,453
                                                            --------      --------      --------
          Total fixed maturities.........................    216,316       221,228       221,228
                                                            --------      --------      --------
Equity securities:
  Common stocks:
     Public utilities....................................      1,162         1,449         1,449
     Banks, trusts and insurance companies...............      2,134         3,200         3,200
     Industrial and miscellaneous........................     10,633        14,036        14,036
                                                            --------      --------      --------
          Total common stocks............................     13,929        18,685        18,685
  Non redeemable preferred stock.........................      2,782         3,006         3,006
                                                            --------      --------      --------
          Total equity securities........................     16,711        21,691        21,691
Short-term investments...................................      6,537         6,537         6,537
                                                            --------      --------      --------
          Total investments..............................   $239,564      $249,456      $249,456
                                                            ========      ========      ========
</TABLE>




                                      S-2
<PAGE>   89

                SUMMIT HOLDING SOUTHEAST, INC. AND SUBSIDIARIES

                  SCHEDULE II--CONDENSED FINANCIAL INFORMATION
                       OF SUMMIT HOLDING SOUTHEAST, INC.

                            CONDENSED BALANCE SHEET
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               DECEMBER 31, 1997
                                                               -----------------
<S>                                                            <C>

                                     ASSETS

Cash.........................................................      $       194
Other assets.................................................            2,132
Investment in subsidiaries...................................          112,791
                                                                   -----------
  Total assets...............................................      $   115,117
                                                                   ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY


Debt.........................................................      $    16,540
Other liabilities............................................              243
                                                                   -----------
  Total liabilities..........................................           16,783
                                                                   -----------

Common stock.................................................               58
Additional paid-in-capital...................................           57,643
Preferred stock..............................................           16,397
Retained earnings............................................           18,052
Net unrealized appreciation of available-for-
  sale securities held by subsidiaries, net
  of applicable deferred income taxes                                    6,184
                                                                   -----------
Total shareholders' equity.................................             98,334
                                                                   -----------

  Total liabilities and shareholders' equity.................      $   115,117
                                                                   ===========
</TABLE>


           See accompanying note to condensed financial information.

                                      S-3



<PAGE>   90
                SUMMIT HOLDING SOUTHEAST, INC. AND SUBSIDIARIES

                  SCHEDULE II--CONDENSED FINANCIAL INFORMATION
                 OF SUMMIT HOLDING SOUTHEAST, INC. - CONTINUED


                         CONDENSED STATEMENT OF INCOME
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                          NINE MONTHS
                                                                             ENDED
                                                                       DECEMBER 31, 1997
                                                                       -----------------
<S>                                                                    <C>
Revenue:
  Net investment income..............................................     $       221
Expenses:
  General and administrative.........................................             359
  Interest expense...................................................           1,434
  Amortization and depreciation......................................             108
                                                                          -----------
    Total expenses...................................................           1,901
                                                                          -----------
Loss before income taxes and equity in net income of
  subsidiaries.......................................................          (1,680)
Income tax benefit...................................................             643
                                                                          -----------
                                                                               (1,037)
Equity in net income of subsidiaries.................................           9,587
                                                                          -----------

  Net income ........................................................     $     8,550
                                                                          ===========
</TABLE>

See accompanying note to condensed financial information.


                       CONDENSED STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                             NINE MONTHS
                                                                                ENDED
                                                                          DECEMBER 31, 1997
                                                                           -----------------
<S>                                                                       <C>
CASH FROM OPERATING ACTIVITIES:                                           $     8,174

CASH USED IN INVESTING ACTIVITIES:
  Purchase of and contributions to subsidiaries.........................      (82,221)

CASH FROM FINANCING ACTIVITIES:
  Net proceeds from sales of capital stock..............................       57,701
  Proceeds from debt....................................................       57,715
  Payments on debt......................................................      (41,175)
                                                                           ----------
    Net cash provided by financing activities...........................       74,241
                                                                           ----------

Net increase in cash....................................................          194
Cash at beginning of period.............................................           --
                                                                            ----------
Cash at December 31, 1997...............................................  $       194
                                                                          ============
</TABLE>

                 See accompanying note to condensed financial information.



                                      S-4
<PAGE>   91
                SUMMIT HOLDING SOUTHEAST, INC. AND SUBSIDIARIES

                 SCHEDULE II - CONDENSED FINANCIAL INFORMATION
                 OF SUMMIT HOLDING SOUTHEAST, INC. - CONTINUED

                    NOTE TO CONDENSED FINANCIAL INFORMATION


1.  Basis of Presentation

    Summit Holding Southeast, Inc. ("Summit") began operations on May 28, 1997
in connection with Employers Self Insurers Fund's conversion from a group
self-insurance fund to a stock property and casualty insurance company as is
more fully explained in Note 1 to the accompanying consolidated financial
statements. Accordingly, parent company-only financial statements are not
applicable prior to that date.

    In the accompanying parent company-only financial statements, Summit's
investment in subsidiaries is stated at cost plus equity in undistributed
earnings and net unrealized investment gains of subsidiaries since the date of
acquisition. These parent company-only financial statements should be read in
conjunction with the accompanying consolidated financial statements and notes
thereto.




                SUMMIT HOLDING SOUTHEAST, INC. AND SUBSIDIARIES


                           SCHEDULE IV -- REINSURANCE
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
         COLUMN A                       COLUMN B        COLUMN C        COLUMN D        COLUMN E       COLUMN F
         --------                       --------        --------        --------        --------       --------

                                                                         ASSUMED                         % OF
                                                        CEDED TO          FROM                          AMOUNT
                                                          OTHER           OTHER                         ASSUMED
        DESCRIPTION                      DIRECT         COMPANIES       COMPANIES          NET          TO NET
        -----------                      ------         ---------       ---------          ---          ------
<S>                                     <C>             <C>             <C>             <C>             <C>
YEAR ENDED MARCH 31, 1996:
  Premiums -- Workers'
     Compensation.........              $119,028        $ 4,135            $  0         $114,893           0%

YEAR ENDED MARCH 31, 1997:
  Premiums -- Workers'
     Compensation.........              $105,044        $ 7,723            $  0         $ 97,321           0%

NINE MONTHS ENDED DECEMBER 31, 1996:
  Premiums -- Workers'
     Compensation.........              $ 79,201        $ 4,692            $  0         $ 74,059           0%

NINE MONTHS ENDED DECEMBER 31, 1997:
  Premiums -- Workers'
     Compensation.........              $ 86,852        $67,938            $618         $ 19,532           3%
</TABLE>






                                      S-5
<PAGE>   92
                SUMMIT HOLDING SOUTHEAST, INC. AND SUBSIDIARIES


     SCHEDULE VI -- SUPPLEMENTAL INFORMATION CONCERNING INSURANCE OPERATIONS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>

                      COLUMN A       COLUMN B     COLUMN C    COLUMN D   COLUMN E    COLUMN F     COLUMN G       COLUMN H
                      --------       --------     --------    --------   --------    --------     --------       --------
                                                  RESERVES                                                    CLAIMS & CLAIMS
                                                 FOR UNPAID                                                  SETTLEMENT EXPENSES
                                     DEFERRED    CLAIMS AND                                                  INCURRED RELATED TO
                                      POLICY       CLAIM      DISCOUNT                              NET      -------------------
                                   ACQUISITION   SETTLEMENT   DEDUCTED   UNEARNED   NET EARNED   INVESTMENT   CURRENT   PRIOR
YEAR ENDED            SEGMENT          COST       EXPENSES    IN COL C   PREMIUMS    PREMIUMS      INCOME      YEAR     YEARS
----------
<S>                 <C>            <C>                  <C>   <C>        <C>        <C>          <C>         <C>       <C>
March 31, 1996..... Workers'
                       Compensation
                       Insurance      $  0         $387,632   $4,668     $ 1,042    $114,893      $13,209    $84,058   $10,786
March 31, 1997..... Workers'
                       Compensation
                       Insurance      $  0         $358,744   $4,367     $ 5,794    $ 97,321      $12,770    $69,014   $(3,862)

NINE MONTHS ENDED
-----------------

December 31, 1996.. Workers'
                       Compensation
                       Insurance      $  0         $376,923   $4,235     $23,506    $ 74,509      $ 9,606    $53,698   $(3,462)
December 31, 1997.. Workers'
                       Compensation
                       Insurance      $973         $347,068   $4,077     $36,633    $ 19,532      $11,117    $13,003   $  (551)




<CAPTION>
                         COLUMN I      COLUMN J    COLUMN K
                         --------      --------    --------
                       AMORTIZATION    NET PAID
                        OF DEFERRED    CLAIMS &
                          POLICY        CLAIMS       NET
                        ACQUISITION   SETTLEMENT   PREMIUMS
                           COSTS       EXPENSES    WRITTEN
YEAR ENDED
----------
<S>                    <C>            <C>          <C>
March 31, 1996.....    $9,707         $80,115      $121,296


March 31, 1997.....    $9,655         $74,396      $117,043



NINE MONTHS ENDED
-----------------

December 31, 1996..    $7,250         $56,515      $108,309


December 31, 1997..    $2,731         $49,419      $ 32,080


</TABLE>








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