<PAGE>
 
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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                                   FORM 10-K
 
      [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
            OF THE SECURITIES EXCHANGE ACT OF 1934
 
            OR
 
      [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
            SECURITIES EXCHANGE ACT OF 1934
 
                 For the fiscal year ended September 30, 1998
 
                        COMMISSION FILE NUMBER 1-12823
 
                          LASALLE RE HOLDINGS LIMITED
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                BERMUDA                            NOT APPLICABLE
    (STATE OR OTHER JURISDICTION OF      (I.R.S. EMPLOYER IDENTIFICATION NO.)
    INCORPORATION OR ORGANIZATION)
 
        CONTINENTAL BUILDING, 25 CHURCH STREET, HAMILTON HM 12, BERMUDA
                   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 
                        TELEPHONE NUMBER: 441-292-3339
             (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
<TABLE>
<CAPTION>
TITLE OF EACH CLASS                   NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------------                   -----------------------------------------
<S>                                   <C>
Common Shares, par value $1.00 per
 share                                    The New York Stock Exchange, Inc.
Series A Preferred Shares, par value
 $1.00 per share                          The New York Stock Exchange, Inc.
</TABLE>
 
  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. [X] Yes [_] No
 
  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S) 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [_]
 
  The aggregate market value of the shares of all classes of voting stock of
the registrant held by non-affiliates of the registrant on December 16, 1998
was approximately $243,181,226, computed upon the basis of the closing sales
price of the Common Shares on that date. For the purposes of this computation,
shares held by directors (and shares held by any entities in which they serve
as officers) and officers of the registrant have been excluded. Such exclusion
is not intended, nor shall it be deemed, to be an admission that such persons
are affiliates of the registrant.
 
  As of December 16, 1998, there were outstanding 15,774,067 Common Shares of
$1.00 par value, of the registrant.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
1. Portions of the registrant's annual report to shareholders for the fiscal
   year ended September 30, 1998 (the "1998 Annual Report").
2. Portions of the registrant's definitive proxy statement (the "1999 Proxy
   Statement") to be filed with the Securities and Exchange Commission not
   later than 120 days after the end of the Registrant's fiscal year pursuant
   to Regulation 14A relating to the Annual General Meeting of Shareholders
   scheduled to be held on February 24, 1999.
 
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<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
 ITEM                                                                PAGE NUMBER
 ----                                                                -----------
 
                                     PART I
 
 <C>  <S>                                                            <C>
  1.  BUSINESS....................................................     10K-2
  2.  PROPERTIES..................................................     10K-17
  3.  LEGAL PROCEEDINGS...........................................     10K-17
  4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........     10K-17
      EXECUTIVE OFFICERS OF THE COMPANY...........................     10K-18
 
                                    PART II
 
  5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
       STOCKHOLDER MATTERS........................................     10K-19
  6.  SELECTED FINANCIAL DATA.....................................     10K-20
  7.  MANAGEMENTS' DISCUSSION AND ANALYSIS OF RESULTS OF
       OPERATIONS AND FINANCIAL CONDITION.........................     10K-20
  7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...     10K-29
  8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................     10K-30
  9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
       AND FINANCIAL DISCLOSURE...................................     10K-54
 
                                    PART III
 
 10.  DIRECTORS AND EXECUTIVE OFFICERS............................     10K-54
 11.  EXECUTIVE COMPENSATION......................................     10K-54
 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
       MANAGEMENT.................................................     10K-54
 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............     10K-54
 
                                    PART IV
 
 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
       8-K........................................................     10K-54
</TABLE>
 
                                     10K-1
<PAGE>
 
                                    PART I
 
  Unless the context otherwise requires, references herein to the "Company"
include LaSalle Re Holdings Limited and its subsidiary, LaSalle Re Limited
("LaSalle Re"), and its subsidiaries LaSalle Re Corporate Capital Ltd.
("LaSalle Re Capital") and LaSalle Re (Services) Limited ("LaSalle Re
Services").
 
NOTE ON FORWARD-LOOKING STATEMENTS
 
  This report contains certain forward-looking statements within the meaning
of Section 27A of the United States Securities Act of 1933, as amended, and
Section 21E of the United States Securities Exchange Act of 1934, as amended.
Forward-looking statements are statements other than historical information or
statements of current condition. Some forward-looking statements may be
identified by use of terms such as "believes", "anticipates", "intends", or
"expects". These statements relate to the plans of the Company for future
operations, including the dividend policy pursuant to which the Company
intends to distribute as dividends to holders of common shares of the Company
("Common Shares") and exchangeable non-voting shares of LaSalle Re
("Exchangeable Non-Voting Shares") in each fiscal year 50% to 60% of the
amount by which its net income (before minority interest) from the prior
fiscal year exceeds the amount of dividends payable on preferred shares of the
Company in the current fiscal year. In light of the risks and uncertainties
inherent in all future projections, these statements should not be regarded as
a representation that the objectives will be achieved. Many factors could
cause actual results to differ materially from those in the forward-looking
statements, including, but not limited, to the following: catastrophic events
of unanticipated frequency or severity; changes in the demand for or supply of
property catastrophe reinsurance; actions of competitors; changes in the
Company's financial ratings; changes in insurance or tax laws or regulations
or governmental interpretations thereof; changes in foreign economic
conditions including fluctuations in currency rates or global markets; a major
decrease in the cession of business from CNA Financial Corporation ("CNA");
any failure of the Company's computer systems or the computer systems of third
parties that are material to the Company's operations (such as the computer
systems of service providers, suppliers and brokers) to process correctly
information relating to dates in and after the year 2000. The Company
undertakes no obligation to release publicly the results of any future
revisions it may make to forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
 
ITEM 1. BUSINESS
 
GENERAL DEVELOPMENT OF THE BUSINESS
 
  The Company is a property and casualty reinsurer writing worldwide
specialist products with an emphasis on catastrophe cover. Catastrophe
reinsurance contracts cover unpredictable events such as hurricanes,
windstorms, hailstorms, earthquakes, fires, industrial explosions, freezes,
riots, floods and other man-made or natural disasters. The Company also seeks
to take advantage of pricing opportunities that may occur in other lines of
reinsurance. These lines currently include property risk excess, property pro
rata treaty, casualty clash, marine, crop hail, aviation, satellite, terrorism
and political risk coverages.
 
  LaSalle Re was incorporated in Bermuda in October 1993 with an initial
capitalization of $373.1 million from institutional and other investors (the
"Founding Shareholders"). It commenced operations on November 22, 1993.
LaSalle Re Holdings Limited was incorporated in Bermuda in September 1995 to
act as an investment holding company for LaSalle Re.
 
  LaSalle Re has two wholly owned subsidiaries, LaSalle Re Services, which
acts as a representative office for the Company in the United Kingdom, and
LaSalle Re Capital, which was incorporated in Bermuda in November 1996 to
provide capital support to selected syndicates at Lloyd's. LaSalle Re Capital
was accepted as a corporate member ("Corporate Member") of Lloyd's in December
1996 and, with effect from January 1, 1997, has participated in three Lloyd's
syndicates. In November 1995, the Company and LaSalle Re consummated an offer
(the "Exchange Offer") pursuant to which, among other things, the Founding
Shareholders exchanged their capital stock in LaSalle Re for Common Shares of
the Company and, in certain circumstances, Exchangeable
 
                                     10K-2
<PAGE>
 
Non-Voting Shares of LaSalle Re. The Exchangeable Non-Voting Shares are held
by certain Founding Shareholders who would otherwise hold, or cause another
shareholder to hold, directly, indirectly or constructively, in excess of 9.9%
of the voting power of the Company or LaSalle Re. The Exchangeable Non-Voting
Shares are exchangeable, at the option of the holder, for Common Shares on a
one-for-one basis, unless the board of directors of the Company (the "Board")
determines such exchange may cause actual or potential adverse tax
consequences to the Company or any shareholder. The Exchangeable Non-Voting
Shares will at all times rank as to assets, dividends and in all other
respects on a parity with the common shares of LaSalle Re, except that they do
not have the right to vote on any matters except as required by Bermuda law
and in connection with certain actions by the Company. The holders of the
Exchangeable Non-Voting Shares constitute the minority holding in LaSalle Re.
 
  In November 1995, the Company and certain Founding Shareholders also
consummated an initial public offering of 4,312,500 Common Shares (the
"Initial Public Offering"). Of these shares, 2,920,500 were sold by Founding
Shareholders and 1,392,000 by the Company. The proceeds from the sale of the
1,392,000 shares sold by the Company were used to enable LaSalle Re to redeem
shares of its capital stock (the "Redemption"). Upon the consummation of the
Exchange Offer, the Initial Public Offering and the Redemption, the Company
owned 100% of the outstanding voting stock, which constituted 63% of the
outstanding capital stock, of LaSalle Re.
 
  In December 1996, the Company completed a secondary offering of Common
Shares (the "Secondary Offering"). In connection with the Secondary Offering,
certain Founding Shareholders of LaSalle Re exchanged 2,119,110 of their
Exchangeable Non-Voting Shares for Common Shares. As a result of this
exchange, the Company increased its ownership of the outstanding capital stock
of LaSalle Re from 63% to 73%.
 
  In March 1997, the Company issued 3,000,000 Series A Preferred Shares in a
public offering (the "Preferred Offering"). The Series A Preferred Shares, par
value $1.00 per share, carry a liquidation preference of $25.00 per share,
plus accrued and unpaid dividends, if any, to the date of liquidation.
Dividends on the Series A Preferred Shares are payable in an amount per share
equal to 8.75% of the liquidation preference per annum (equivalent to $2.1875
per share). Net proceeds from the Preferred Offering after underwriting
discounts and commissions were $72.6 million.
 
  In May 1997, the Company completed a $100 million tender offer (the "Tender
Offer") whereby it purchased for cancellation 3,703,703 of its Common Shares
at a price of $27.00 per share. The Tender Offer was made to all holders of
Common Shares and Common Share equivalents, which included Exchangeable Non-
Voting Shares and options to purchase Common Shares and Exchangeable Non-
Voting Shares. Pursuant to the Tender Offer, 2,163,538 Exchangeable Non-Voting
Shares were exchanged for Common Shares and 95,679 options for Exchangeable
Non-Voting Shares were exercised and exchanged for Common Shares. As a result
of these exchanges, the Company increased its ownership of the outstanding
capital stock of LaSalle Re from 73% to 79%. The Company has continually owned
100% of the outstanding voting stock of LaSalle Re.
 
  In order to reduce its earnings volatility, protect its capital base and
support its dividend policy, the Company purchased a multi-year excess of loss
reinsurance program. The program first incepted January 1, 1997; however, as
no losses occurred, the contract was canceled and rewritten with the Company
receiving significant return premiums on the 1997 contract. The re-written
program, effective January 1, 1998, secured better terms over the 1997
program, with three event limits and a maximum aggregate recovery of $300
million. The attachment point is triggered by losses incurred directly by the
Company. The program is secured by a company which currently holds a rating of
"A+" (Superior) from A.M. Best Company, Inc. ("A.M. Best") and a claims-paying
rating of "AAA" (Excellent) from Standard & Poor's Ratings Services ("S&P").
See "--Reinsurance Protections Purchased."
 
  Effective July 1, 1997, the Company entered into a $100 million multi-year
Catastrophe Equity Put ("CatEPut") option program. The CatEPut option will
enable the Company to put up to $100 million of equity, through the issue of
convertible preferred shares at pre-negotiated terms, in the event of a major
catastrophe or series of large catastrophes that cause substantial losses to
the Company or its subsidiaries.
 
                                     10K-3
<PAGE>
 
  With effect from October 1, 1997, the administrative services agreement
("Administrative Services Agreement"), under which Aon Risk Consultants
(Bermuda) Ltd. ("ARC") provided the Company with actuarial and financial
reporting, accounting, office space and other administrative services, was
terminated. All of the personnel assigned to the Company by ARC became
employees of the Company and services performed by ARC were assumed by the
Company. In connection with the termination of the agreement the Company
agreed to purchase all of the fixed assets owned by ARC and utilized by the
Company for a purchase price of $1.5 million. In addition, the Company agreed
to assume the current leasing agreements.
 
  Effective on October 1, 1998, the underwriting services agreement (the
"Underwriting Services Agreement") under which CNA (Bermuda) Services Limited
("CNA Bermuda") had provided the Company with underwriting services, was
terminated. On that date, all of the personnel assigned to the Company by CNA
Bermuda became employees of the Company and the underwriting function formerly
performed by CNA Bermuda was assumed by the Company directly. In connection
with the termination of the Underwriting Services Agreement, the Company
entered into an underwriting support services agreement (the "Underwriting
Support Services Agreement") with CNA Re Services Company ("CRSC") and CNA
Bermuda. Under the Underwriting Support Services Agreement, CRSC and CNA
Bermuda provide the Company with various support services upon request,
including (i) underwriting personnel to assist the Company's underwriting
staff on a temporary basis, (ii) assistance with actuarial, financial and
statistical analysis and reporting, (iii) support on data processing and other
technical matters, (iv) access to the CNA reinsurance underwriting database
and technology as pertinent to the Company's business, (v) advice on insurance
industry customs and practices and (vi) advice to the Company's human
resources department.
 
BUSINESS SEGMENTS
 
  The Company writes property and casualty reinsurance on a worldwide basis
through its subsidiary, LaSalle Re. The Company also writes selected other
lines of reinsurance when it believes that market conditions are favorable.
These lines currently include property risk excess, property pro rata treaty,
casualty clash, marine, crop hail, aviation, satellite, terrorism and
political risk coverages.
 
  The following table sets forth the Company's net premiums written and number
of contracts written by type of reinsurance for the years indicated (dollars
in millions):
 
<TABLE>
<CAPTION>
                                         YEAR ENDED             YEAR ENDED
                                     SEPTEMBER 30, 1998     SEPTEMBER 30, 1997
                                   ---------------------- ----------------------
                                   NET PREMIUMS NUMBER OF NET PREMIUMS NUMBER OF
TYPE OF REINSURANCE                  WRITTEN    CONTRACTS   WRITTEN    CONTRACTS
-------------------                ------------ --------- ------------ ---------
<S>                                <C>          <C>       <C>          <C>
Property catastrophe reinsurance:
  Excess of loss.................     $ 82.7       719       $110.4        802
  Pro rata.......................       21.6        10         34.4         10
Other lines of business:
  LaSalle Re Capital.............       21.0       --          14.1        --
  Property--risk excess and pro
   rata..........................       10.5        76          9.0         80
  Casualty.......................        5.7        28          4.0         36
  Marine.........................        3.0        32          3.7         23
  Miscellaneous..................       10.7        72          6.1         49
Adjustments, reinstatement
 premiums and no claims bonuses..        0.1       --         (10.3)       --
                                      ------       ---       ------      -----
    Total........................     $155.3       937       $171.4      1,000
                                      ======       ===       ======      =====
</TABLE>
 
 Property Catastrophe
 
  The largest portion of the Company's business consists of property
catastrophe excess of loss contracts. Property catastrophe excess of loss
reinsurance provides coverage when total losses and loss expenses from a
single occurrence of a covered peril under a portfolio of primary reinsurance
contracts exceed the attachment
 
                                     10K-4
<PAGE>
 
point specified in the reinsurance contract with the primary insurer. Some of
the Company's property catastrophe excess of loss policies limit coverage to
one occurrence in a policy year, but most policies provide for coverage of a
second occurrence after the payment of a reinstatement premium. The Company
also writes a minimal amount of aggregate property catastrophe excess of loss
contracts that cover more than one catastrophe with one attachment point.
 
  The Company writes pro rata of property catastrophe reinsurance treaties
when it believes that rates and volume are attractive. In such programs, the
Company assumes a specified proportion of the exposure under a portfolio of
excess of loss property catastrophe reinsurance contracts written by the
ceding reinsurer and receives an equal proportion of the premium received by
the cedent. The cedent generally receives a ceding commission, based upon the
premiums ceded to the reinsurer, and may also be entitled to receive a profit
commission based on the ratio of losses, loss expenses and the reinsurer's
expenses to premiums ceded. The Company generally requires that its pro rata
of property catastrophe contracts have aggregate exposure limits per
occurrence on a zonal basis. The Company generally obtains detailed
information concerning each underlying contract and the exposures underlying
the risks it assumes and, as appropriate, audits the premiums associated with
the cessions. However, the Company is dependent upon the cedent's
underwriting, pricing and claims administration to yield an underwriting
profit.
 
 Other Lines of Business
 
  The Company formed LaSalle Re Capital to provide capital support on an
underwriting year basis to selected Lloyd's syndicates. The Company has
provided capital support to three syndicates for both the 1997 and 1998
underwriting years of approximately $27.4 million ((Pounds)16.3 million) and
$28.2 million ((Pounds)16.8 million) respectively. Through this support, for
the year ended September 30, 1998, the Company has written gross premiums of
approximately $3.0 million for the 1997 underwriting year and approximately
$18.0 million for the 1998 underwriting year. These syndicates individually
write the following lines of business: direct and facultative property
insurance; marine insurance and reinsurance; and professional indemnity,
directors and officers' insurance and bankers blanket bond business. LaSalle
Re Capital provides capital support to the syndicates through letters of
credit totaling (Pounds)9.8 million ($16.6 million).
 
  The Company's property risk excess of loss contracts cover a cedent's loss
on a single "risk" in excess of the cedent's attachment point, rather than
covering multiple risks as does property catastrophe reinsurance. A "risk" in
this context might mean the insurance coverage on one building or a group of
buildings or the insurance coverage under a single policy, which the reinsured
treats as a single risk. In property pro rata reinsurance treaties, the
Company assumes a proportional part of the original premiums and losses of the
reinsured on non-catastrophe reinsurance contracts. In property pro rata
reinsurance, the reinsurer generally pays the ceding company a ceding
commission. The ceding commission generally is based on the ceding company's
cost of acquiring the business being reinsured (including commissions, premium
taxes, assessments and miscellaneous administrative expenses) and also may
include a profit factor.
 
  In addition to property risk excess of loss and pro rata, the Company also
writes other lines of reinsurance, which currently include casualty, marine,
crop, aviation, satellite and political risk. The Company's underwriting
strategy with respect to these lines of business is to target those classes of
business which demonstrate relatively low historical levels of attritional
loss. Excess of loss contracts are written above a significant attachment
point, such contracts would be expected to respond only to large market losses
such as the destruction of an oil drilling platform (marine coverage) or an
airline disaster (aviation coverage). With proportional contracts, the Company
would expect the results of such contracts to be impacted by large market
losses, along with the cedents expected loss ratio. Claims on these contracts
will arise from physical damage, casualty and major political and trade
crises.
 
  Casualty excess of loss reinsurance protects cedents from a clash of
exposures from multiple insureds or from one large severe event. The Company
does not write casualty excess of loss business at a level where frequency of
loss is anticipated. Marine and aviation coverages can be triggered by
physical damage perils and
 
                                     10K-5
<PAGE>
 
may also entail casualty coverages arising from the same loss event. Crop
reinsurance provides hail and other defined property coverage for growing
crops. Satellite reinsurance protects the reinsured primarily for losses
arising from launch failure and in-orbit breakdown. Political risk includes
coverages for losses arising from contract frustration, confiscation,
repatriation and international trade credit transactions.
 
 Adjustment premiums, reinstatement premiums and no claims bonuses
 
  Due to the changing nature of a reinsurer's exposure under an excess of loss
contract, certain contracts contain adjustable premium clauses. The reinsurer
receives an initial deposit premium, with the final premium calculated at the
end of the contract period using a pre-negotiated percentage of the ceding
company's gross net annual premium income. The adjustment premium is the
difference between the initial deposit and the revised premium and can be
either an additional or return premium.
 
  In addition, the Company experiences adjustment premiums on its pro rata of
property catastrophe reinsurance treaties. The Company estimates premiums
written using reports received from ceding companies adjusted for previous
years' experiences of actual premiums against estimated premiums. These
estimates are revised during the contract period as more information as to
actual premiums written by the ceding companies is received. Any differences
between the estimate and the revised information are booked as adjustments
during the period the revised information is received.
 
  Certain excess of loss contracts contain a no claims bonus clause. Where no
claim is made under the contract, the ceding company is entitled to a pre-
determined return premium, which is referred to as a "no claims bonus". A
liability for the "no claims bonus" is established at the same time the gross
written premium is recorded. If a loss occurs, the no claims bonus is reversed
in the period in which the loss is notified to the Company.
 
 Geographic Diversification
 
  The Company seeks to diversify its property catastrophe exposures across
geographic zones in order to optimize its spread of risk. For the year ended
September 30, 1998, excluding the premiums written by LaSalle Re Capital,
adjustment premiums, reinstatement premiums and no claims bonuses, 48% of the
Company's net premiums written represented U.S.-based risks. Within the United
States, the Company's largest exposure on a zonal basis is the West Coast,
including Hawaii and Alaska. The remaining 52% of net premiums written were
spread in other territories around the world. This distribution of risk is
subject to change and is dependent upon rates available in various zones. As a
result of long-term relationships between the Company's management and certain
clients and brokers, the Company has developed a strong base of regional
business in the U.S. This business assists the Company in diversifying its
U.S.-based risks and makes more efficient use of its capital by limiting
multi-zone exposures. In the year ended September 30, 1998, this regional
business represented a significant component of the Company's U.S.-based net
premiums written.
 
 
                                     10K-6
<PAGE>
 
  The following table sets forth the percentage of the Company's net premiums
written allocated to the zone of exposure at the dates indicated (dollars in
millions):
 
<TABLE>
<CAPTION>
                                         SEPTEMBER 30, 1998  SEPTEMBER 30, 1997
                                         ------------------  -------------------
                                                  PERCENTAGE          PERCENTAGE
                                           NET      OF NET     NET      OF NET
                                         PREMIUMS  PREMIUMS  PREMIUMS  PREMIUMS
GEOGRAPHIC AREA                          WRITTEN   WRITTEN   WRITTEN   WRITTEN
---------------                          -------- ---------- -------- ----------
<S>                                      <C>      <C>        <C>      <C>
United States..........................   $ 64.4     48.0%    $ 75.3     44.9%
Europe (excluding the U.K.)............     14.4     10.7       18.6     11.1
United Kingdom.........................     11.7      8.7       15.2      9.1
Japan..................................      3.2      2.4        7.0      4.2
Australasia............................      3.3      2.5        6.4      3.8
Worldwide(1)...........................     21.8     16.2       20.9     12.5
Worldwide (excluding the U.S.)(2)......      7.5      5.6       12.6      7.5
Other..................................      7.9      5.9       11.6      6.9
                                          ------    -----     ------    -----
                                           134.2    100.0%     167.6    100.0%
                                                    =====               =====
LaSalle Re Corporate Capital...........     21.0                14.1
Adjustments, reinstatement premiums and
 no claims bonuses.....................      0.1               (10.3)
                                          ------              ------
    Total..............................   $155.3              $171.4
                                          ======              ======
</TABLE>
--------
(1) The category "Worldwide" consists of contracts that cover more than one
    zone, at least one of which is in the U.S.
(2) The category "Worldwide (excluding the U.S.)" consists of contracts that
    cover more than one zone (none of which is in the U.S.). The exposure in
    this category for business written to date is predominantly from Europe
    and Japan.
 
 Program Limits
 
  Property catastrophe reinsurance is usually arranged in a series of layers,
which form an individual program. The Company may write one or more of these
layers with each layer constituting a separate contract. The following table
sets forth the number of the Company's property catastrophe excess of loss
programs written in the year ended September 30, 1998 by aggregate excess of
loss program limits:
 
<TABLE>
<CAPTION>
                                                                         NUMBER
                                                                           OF
                                                                        PROGRAMS
                                                                        --------
      <S>                                                               <C>
      Greater than $25 million but less than $30 million...............     1
      $20-25 million...................................................     2
      $15-20 million...................................................     7
      $10-15 million...................................................    15
      $7.5-10 million..................................................    13
      $5-7.5 million...................................................    39
      $2.5-5 million...................................................    75
      Less than $2.5 million...........................................   152
                                                                          ---
          Total........................................................   304
                                                                          ===
</TABLE>
 
UNDERWRITING
 
  The Company's principal underwriting strategy is to underwrite property
catastrophe exposures within clearly defined parameters that permit thorough
analysis and appropriate pricing of each of the Company's reinsurance
contracts. Underwriting decisions are made following analysis of each
reinsurance contract based on the expected incremental return on equity in
relation to the Company's overall portfolio of reinsurance contracts.
 
                                     10K-7
<PAGE>
 
  The Underwriting/Actuarial Committee of the Board has set limits on the
Company's aggregate exposure. The Company uses various methods to evaluate and
monitor its exposure to loss. The Company diversifies its property catastrophe
exposures worldwide and within each geographic zone and also maintains
exposure limits within each geographic zone. Aggregate exposures also are
controlled and monitored on a real-time basis using computer-based rating and
control systems. The Company imposes attachment points in its contracts at a
level that is expected to exceed frequency of loss and limits aggregate risk
exposure. In addition, the Company regularly reevaluates its pricing to ensure
that general market conditions remain attractive.
 
  The Company obtains information from brokers, potential cedents and other
sources, as appropriate, in order to make informed underwriting decisions. A
potential cedent generally is not accepted without a thorough examination of
its historical record, management, business strategy, underwriting policies
and risk management systems. The Company also seeks to select clients with
disciplined catastrophe management programs. The Company seeks to build long-
term relationships with its clients because the Company believes that it can
underwrite renewal business with greater precision.
 
  The Company uses computer-based modeling systems to estimate exposure to
loss and evaluate pricing adequacy of its reinsurance programs. These models
are also used in the analysis of projected return on equity and the monitoring
of aggregate exposures within geographic zones.
 
  For U.S.-based risks, the Company has developed a proprietary model called
L-CAM(TM) (LaSalle Catastrophe Analysis Model). L-CAM(TM) incorporates the
output of commercially available catastrophe simulation models and the
Company's internally-generated models. The commercially available models
include (i) CATMAP(TM), which uses market share data derived from zip code
and/or county aggregate data to develop individual contract and portfolio loss
statistics and (ii) IRAS(TM), which derives loss statistics based on
hypothetical risk location determined from the most detailed information
provided by the primary insurer. Models developed by the Company and used in
L-CAM(TM) include (i) the Modified Historical Event Model, which fits a Pareto
loss distribution to over 45 years of catastrophe loss data, adjusted for
inflation and demographic shifts, (ii) the Market Loss Pricing Model, which
uses underwriting-zone market share information to develop attachment and
exhaustion probabilities from which pricing input is determined, and (iii) the
Industry Peer Model, which is a portfolio management tool selecting treaties
in force with similar characteristics for pricing considerations.
 
  For non-U.S. based property catastrophe risks, the Company uses modeling
techniques which incorporate Pareto loss distributions with exposure rating
based on aggregate liabilities per geographic zone. The Company also examines
experience ratings of adjusted historical loss events and, for some non-U.S.
territories, uses a commercially available software program produced by EQECAT
International, which utilizes probabilistic and deterministic loss
calculations.
 
  For the other lines of reinsurance, the Company uses internal rating
techniques that incorporate, among other things, exposure and experience
ratings and thorough analysis of loss ratios and underwriting expenses
associated with the business to be reinsured. The Company carefully structures
the terms and conditions of its contracts to restrict coverage to the specific
perils intended.
 
  The results of these analyses are measured against the Company's current
portfolio and other known treaties in the market and combined with
management's knowledge of the client and the current reinsurance market
environment. Pricing and participation decisions are then made based on the
estimated exposure of losses and the potential impact of each contract on
incremental return on equity. In addition, the underwriting of all new
exposures is reviewed by the Chief Executive Officer or Chief Operating
Officer of the Company.
 
  Prior to October 1, 1998, underwriting services were provided to the Company
by CNA Bermuda pursuant to the Underwriting Services Agreement. A staff of
seven professionals with extensive experience in the reinsurance industry
served as the Company's underwriting team in Bermuda. This agreement was
terminated on October 1, 1998. On that date, all of the personnel assigned to
the Company by CNA Bermuda became employees of the Company and the
underwriting function formerly performed by CNA Bermuda was assumed by the
Company directly.
 
                                     10K-8
<PAGE>
 
  In connection with the termination of the Underwriting Services Agreement,
the Company entered into an Underwriting Support Services Agreement with CRSC
and CNA Bermuda. Under the Underwriting Support Services Agreement, which
expires on September 30, 2001, CRSC provides underwriting support services to
the Company on a daily or hourly fee basis when and as requested by the
Company. The Company pays CNA Bermuda a $0.3 million annual retainer, which is
credited against CRSC's daily or hourly fees and associated travel expenses.
In recognition of the contribution made by CNA Bermuda to the development of
the Company's business, the Company has agreed, subject to certain conditions,
to pay CNA Bermuda, during the term of the Underwriting Support Services
Agreement, an underwriting profit commission of 1.67% of the aggregate net
underwriting profits of LaSalle Re for each fiscal year for which LaSalle Re's
loss ratio was 70% or less.
 
REINSURANCE PROTECTIONS PURCHASED
 
  Reinsurance premiums ceded are primarily in respect of a multi-year excess
of loss reinsurance program purchased by the Company, and various reinsurance
protections purchased by LaSalle Re Capital. The excess of loss program
provides coverage of $100 million in excess of the first $100 million of
losses per occurrence for a first loss event and $100 million excess of $100
million per occurrence on the second loss event and $100 million excess of
$150 million per occurrence on the third loss event over a three-year period
ended December 31, 2000, subject to a maximum aggregate recovery of $300
million. The Company is required to pay reinstatement premiums to reinstate
the second and third loss event coverages. The Company may participate on a
co-insurance basis for the third loss event.
 
  Coverage for the first loss is substantially funded by way of annual and
reinstatement premium obligations. Accordingly, this portion of the coverage
has been recorded as a financing arrangement whereby the consideration paid,
net of associated financing charges, is recorded as a deposit and included as
part of other assets in the consolidated balance sheet. The deposit asset is
adjusted at the balance sheet date to reflect the net present value of
expected future cash flows under that portion of the contract.
 
  The reinsurance is provided by a company that currently holds a rating of
"A+" (Superior) from A.M. Best and a claims-paying rating of "AAA" (Excellent)
from S&P.
 
MARKETING
 
  The Company markets its reinsurance products worldwide primarily through
reinsurance brokers. By marketing its products primarily through the broker
network, the Company limits the expense of establishing and maintaining
worldwide offices and marketing operations. The Company believes that its
broker relationships permit it to obtain business and monitor developments in
various lines of reinsurance in order to increase its writings when market
conditions in those lines are favorable.
 
  The Company maintains an office in London, England through LaSalle Re
Services. LaSalle Re Services introduces prospective customers to the Company
and provides an important liaison with brokers in the London market, assisting
in the distribution of marketing literature and collecting information for
LaSalle Re on demand and developments in the London reinsurance market
generally. In addition, LaSalle Re Services plays a key role in the Company's
marketing efforts in Europe.
 
  The Company strives to develop strong relationships with its brokers and
clients. Retention of clients permits the Company to use experience regarding
a client's underwriting practices and risk management systems to underwrite
its own business with greater precision. The Company also targets brokers and
clients that it believes will enhance the risk/return composition of its
portfolio, are capable of supplying detailed and accurate underwriting data
and can potentially add diversification to the Company's book of business.
Additionally, the Company believes that its level of capital and surplus
offers financial security and demonstrates to brokers and clients a high level
of commitment to property catastrophe reinsurance.
 
  The Company focuses on providing high quality service by promptly responding
to underwriting submissions, designing customized programs and offering lead
terms when circumstances warrant and paying valid claims within an average of
five days. The Company believes that it has established a reputation with its
brokers and clients for high quality service.
 
                                     10K-9
<PAGE>
 
  The Company received 2,022 contract submissions in the year ended September
30, 1998 as compared to 2,344 in the year ended September 30, 1997. The
Company is highly selective in accepting risks, extending coverage on only 937
(1997: 1,000 contracts), or 46.3% (1997: 42.7%) of the program submissions
received, in the year ended September 30, 1998. Subsidiaries and affiliates of
Aon Corporation (together with its affiliates, "Aon") were brokers for 17.4%
and 16.6% of the Company's gross written premiums in the years ended September
30, 1998 and 1997, respectively. Guy Carpenter & Company, Inc., together with
its affiliates, generated 17.1% and 15.5% of the Company's gross premiums
written for the years ended September 30, 1998 and 1997, respectively. E.W.
Blanch accounted for 9.1% of the Company's gross written premiums for the year
ended September 30, 1998. This percentage was 11.3% for the year ended
September 30, 1997. No other broker accounted for more than 10% of the
Company's gross premiums written for the years ended September 30, 1998 and
1997.
 
  Consistent with its emphasis on disciplined underwriting practices, the
Company is not obligated to accept any business from any intermediary,
including Aon, CNA or LaSalle Re Services. No intermediary has the authority
to bind the Company on any business.
 
RESERVES
 
  The Company establishes loss reserves for the ultimate settlement costs of
all losses and loss expenses incurred with respect to business written by it.
United States generally accepted accounting principles ("GAAP") do not permit
the Company to establish reserves with respect to its property catastrophe
reinsurance until an event occurs that may give rise to a claim. As a result,
only loss reserves applicable to losses incurred up to the reporting date may
be set aside, with no allowance for the provision of a contingency reserve to
account for expected future losses.
 
  The derivation of loss reserves involves the actuarial and statistical
projection at any given time of the Company's expectations of the ultimate
settlement of loss and loss expenses. These loss projections become necessary,
primarily, as a result of time lags associated with reinsurance loss
reporting. These lags are principally attributable both to claimant delays in
reporting to the primary carrier as well as primary and reinsurance company
delays in gathering statistics and subsequently reporting cession details to
the Company. As a result, in addition to the loss estimates reported by
primary insurers on known claims, actuarially projected estimates of reserves
applicable to both the development (growth) of known claims as well as the
emergence of new claims reports related to loss events which have been
incurred but not reported ("IBNR losses") prior to the evaluation date must be
developed. In addition to the impact of reporting lags upon the accuracy of
estimated loss liabilities, other factors have significant impact upon the
ultimate settlement of insured losses, including loss cost inflation, trends
in the amount of insurance purchased to the full value of insured properties
and trends in the size and demographics of insured populations. Loss reserve
estimates are not precise in that they necessarily involve an attempt to
predict the ultimate outcome of future loss reporting and settlement
activities.
 
  To establish appropriate loss reserves, the Company uses a combination of
data sources and commercially available catastrophe models. These models are
employed upon the occurrence of an event to arrive at estimates of losses to
the Company. In addition, grouped and individual contract data illustrating
the loss development history for prior similar events, as well as actual loss
emergence experience of the underlying insurers, are analyzed to assist in the
determination of suitable loss reserves. The data derived from the industry
sources, and supplemented with the client specific information, are then used
to arrive at estimates of loss emergence patterns and initial estimates of
ultimate loss ratios. These parameters are then applied, on a contract-by-
contract basis, to arrive at estimates of ultimate losses. These loss
estimates are then supplemented with the results derived from the catastrophe
models, and final loss estimates are selected and reduced for losses reported
to the Company to arrive at IBNR losses as of the date of evaluation. The
reserves for LaSalle Re Capital are separately derived primarily from an
analysis using expected loss ratios which is supplemented, when available, by
actuarial evaluations produced for the individual syndicates.
 
  The reserves are prepared quarterly and reviewed by the Company's executive
officers and the Board, and to the extent they develop upward or downward, the
results are reflected in the net income in the period in which
 
                                    10K-10
<PAGE>
 
the reserve deficiency or redundancy is evaluated. There can be no assurance
that the final loss settlements will not exceed the Company's loss reserve and
have a material adverse effect upon the Company's financial condition and
results of operations in a particular period.
 
  Prior to October 1, 1997, the Company determined its reserves with the
assistance of actuarial staff provided by ARC pursuant to the Administrative
Services Agreement.
 
INVESTMENTS
 
 Composition of Portfolio
 
  The Board has implemented a set of investment guidelines designed to meet
the Company's liquidity requirements and return objectives. The guidelines are
intended to be conservative, stressing preservation of principal, yield
enhancement through the identification of value and market inefficiencies,
market liquidity and risk reduction. The primary objective of the investment
portfolio, as set forth in the guidelines, is to maximize investment returns
consistent with these policies. The Company's investment guidelines are
reviewed periodically and are subject to change at the discretion of the
Board.
 
  The following table summarizes the composition of the Company's investment
portfolio as of September 30, 1998 and 1997 (dollars in millions):
 
<TABLE>
<CAPTION>
                                                           SEPTEMBER 30,
                                                     --------------------------
                                                         1998          1997
                                                     ------------  ------------
                                                      FAIR  % OF    FAIR  % OF
TYPE OF INVESTMENT                                   VALUE  TOTAL  VALUE  TOTAL
------------------                                   ------ -----  ------ -----
<S>                                                  <C>    <C>    <C>    <C>
Fixed maturities:
  Non-U.S. government bonds and agencies............ $ 38.4   6.3% $ 71.8  13.0%
  U.S. government bonds and agencies................  141.2  23.3    88.4  16.0
  Corporate bonds...................................  309.0  50.9   337.1  60.9
  Mortgage-backed securities........................   30.2   5.0     0.0   0.0
  Other debt........................................    2.7   0.4     1.0   0.2
                                                     ------ -----  ------ -----
    Subtotal........................................  521.5  85.9   498.3  90.1
  Cash and cash equivalents.........................   85.3  14.1    54.8   9.9
                                                     ------ -----  ------ -----
    Total cash and investments...................... $606.8 100.0% $553.1 100.0%
                                                     ====== =====  ====== =====
</TABLE>
 
 Quality of Portfolio
 
  The Company has investment guidelines which restrict investments in
securities below an "AA" grade rating to 20% of the total portfolio, and only
10% of the total portfolio can be invested in "BBB" grade rating. During the
year, the Company amended the guidelines to allow up to $10 million to be
invested in risk based investments such as catastrophe bonds. These bonds may
carry a rating below "BBB". In addition, the guidelines restrict investments
in a single issuer to no greater than 5% of the market value of the portfolio
(except for U.S. and U.K. Government issues) and, with respect to country of
issue, to no greater than 25% of the market value of the portfolio, except for
U.S. and supernational borrowers.
 
  The following table summarizes the composition of the Company's fixed
maturity portfolio by rating as assigned by S&P or Moody's Investors Services
Inc. ("Moody's") as of September 30, 1998 and 1997 (dollars in millions):
 
<TABLE>
<CAPTION>
                                                           SEPTEMBER 30,
                                                     --------------------------
                                                         1998          1997
                                                     ------------  ------------
                                                      FAIR  % OF    FAIR  % OF
RATING                                               VALUE  TOTAL  VALUE  TOTAL
------                                               ------ -----  ------ -----
<S>                                                  <C>    <C>    <C>    <C>
AAA................................................. $363.0  69.6% $215.3  43.2%
AA..................................................   88.1  16.9   155.0  31.1
A...................................................   59.5  11.4   127.0  25.5
BB..................................................    8.3   1.6     1.0   0.2
Catastrophe bonds (not rated).......................    2.6   0.5     0.0   0.0
                                                     ------ -----  ------ -----
                                                     $521.5 100.0% $498.3 100.0%
                                                     ====== =====  ====== =====
</TABLE>
 
                                    10K-11
<PAGE>
 
 Maturity and Duration of Portfolio
 
  The Company's investment guidelines specify a one to four year duration for
the Company's investment portfolio, reflecting the need to maintain a liquid,
short duration portfolio to assure the Company's ability to pay claims on a
timely basis. The Company currently has a target duration for the portfolio of
three years and at September 30, 1998, the modified average duration of the
portfolio was 3.1 years. The Company expects to periodically reevaluate the
target duration in light of market conditions, including the level of interest
rates, and estimates of the duration of its liabilities.
 
  The following table summarizes the contractual maturities of the Company's
fixed maturity portfolio as of September 30, 1998 and 1997 (dollars in
millions):
 
<TABLE>
<CAPTION>
                                                           SEPTEMBER 30,
                                                     --------------------------
                                                         1998          1997
                                                     ------------  ------------
                                                      FAIR  % OF    FAIR  % OF
RATING                                               VALUE  TOTAL  VALUE  TOTAL
------                                               ------ -----  ------ -----
<S>                                                  <C>    <C>    <C>    <C>
Due in less than one year........................... $ 24.8   4.8% $ 55.2  11.1%
Due in one to five years............................  348.9  66.9   381.9  76.6
Due in five to ten years............................  117.6  22.6    61.2  12.3
                                                     ------ -----  ------ -----
                                                      491.3  94.3   498.3 100.0
Mortgage-backed securities..........................   30.2   5.7     0.0   0.0
                                                     ------ -----  ------ -----
                                                     $521.5 100.0% $498.3 100.0%
                                                     ====== =====  ====== =====
</TABLE>
 
 Equity Securities/Real Estate
 
  Pursuant to the Company's investment guidelines, the Company's investment
portfolio may not contain any direct investments in real estate, mortgage
loans or equity securities.
 
 Foreign Currency Exposures
 
  As at September 30, 1998, all of the Company's fixed maturity portfolio
except one hedged international bond was denominated in U.S. dollars. During
the year ended September 30, 1998, the Investment Committee of the Board
amended the investment guidelines to allow up to 5% of the market value of the
portfolio at the time of purchase to be invested in hedged international
bonds. Under this type of investment the currency risk is negated through the
use of forward contracts with the Company only being exposed to the interest
rate risk on the bond purchased. At September 30, 1998 the hedged
international bond was denominated in Canadian dollars and represented 1.2% of
the total fair value of the portfolio. In connection with this investment as
at September 30, 1998 the Company had a forward contract with a notional
principal amount outstanding of $5.5 million.
 
  In an effort to manage other areas of exposure to foreign currency exchange
rate fluctuations, the Company from time to time enters into foreign exchange
contracts. These contracts generally involve the exchange of one currency for
U.S. dollars at some future date. At September 30, 1998 and 1997, the Company
had no principal amounts outstanding. See "Quantitative and Qualitative
Disclosure About Market Risk."
 
 Investment Manager
 
  LaSalle Re has entered into an investment management agreement (the
"Investment Management Agreement") with Aon Advisors (UK) Limited ("Aon
Advisors"). Pursuant to the terms of the Investment Management Agreement, the
Company pays Aon Advisors a flat fee equal to 0.16375% per annum of the assets
under management. Prior to July 1, 1997, the Company paid Aon Advisors a fee
equal to 0.35% per annum of the first $100 million of assets under management,
0.25% per annum of the next $100 million of assets under management in excess
of $100 million and 0.15% per annum of any additional assets under management
in excess of $200 million. The terms of the Investment Management Agreement
were determined in arm's length commercial negotiations. The performance of,
and the fees paid to, Aon Advisors under the Investment Management Agreement
are reviewed periodically by the Investment Committee of the Board.
 
                                    10K-12
<PAGE>
 
COMPETITION
 
  The property catastrophe reinsurance industry is highly competitive. The
Company competes, and will continue to compete, with major U.S. and non-U.S.
insurers and property catastrophe reinsurers, including other Bermuda-based
property catastrophe reinsurers and CNA, some of which have greater financial
and organizational resources than the Company. A recent trend in the property
catastrophe reinsurance industry has been the utilization of the capital
markets in structuring reinsurance agreements using catastrophe bonds, swaps
and other types of derivative instruments. There may be established or new
companies of which the Company is not aware who may be planning to enter the
property catastrophe reinsurance market or existing reinsurers who may be
planning to raise additional capital. In addition, Lloyd's began to allow
capital from corporate investors in 1994. Competition in the types of
reinsurance business that the Company underwrites is based on many factors,
including rates and other terms and conditions offered, services provided,
ratings assigned by independent rating agencies, speed of claims payment and
reputation, the perceived financial strength and experience of the reinsurer
in the line of reinsurance to be written.
 
  In April 1996, LaSalle Re received an initial rating from A.M. Best of "A-"
(Excellent). In August 1997, the rating was upgraded to "A" (Excellent). The
current rating received by LaSalle Re represents the fourth highest in the
rating scale used by A.M. Best. In October 1996, LaSalle Re received an
initial rating of its claims paying ability from S&P of "A" (Good). This
rating received represents the sixth highest in the rating scale used by S&P.
Such ratings are based on factors of concern to cedents and brokers and are
not directed toward the protection of investors. Such ratings are neither a
rating of securities nor a recommendation to buy, hold or sell such
securities. Insurance ratings are one factor used by brokers and cedents as a
means of assessing the financial strength and quality of reinsurers. In
addition, a cedent's own rating may be adversely affected by the lack of a
rating of its reinsurer. Therefore, a cedent may elect to reinsure with a
competitor of the Company that has a higher insurance rating. Similarly, the
lowering or loss of a rating in the future could adversely affect the
Company's ability to compete.
 
  Other than being a corporate member of selected Lloyd's syndicates, the
Company is not licensed or admitted as an insurer in any jurisdiction other
than Bermuda and has no plans to become so licensed or admitted. Because
jurisdictions in the United States do not permit insurance companies to take
credit for reinsurance obtained from unlicensed or non-admitted insurers on
their statutory financial statements unless security is posted, the Company's
reinsurance contracts generally require it to post a letter of credit or
provide other security for outstanding claims and/or unearned premiums. In
order to post these letters of credit, the Company generally is required to
provide the issuing banks with collateral equal to such amounts. As a result
of the size of the Company's capitalization, the Company does not believe that
its non-admitted status in any jurisdiction has, or should have, a material
adverse effect on its ability to compete or obtain business in the property
catastrophe reinsurance market in which it operates, principally because many
of the Company's competitors are not admitted or licensed in United States
jurisdictions. However, there can be no assurance that increased competitive
pressure from current reinsurers and future market entrants or the Company's
non-admitted status will not adversely affect the Company.
 
EMPLOYEES
 
  As of December 1, 1998, the Company employed 31 people. The Company believes
that its employee relations are satisfactory. None of the Company's employees
are subject to collective bargaining agreements, and the Company knows of no
current efforts to implement such agreements at the Company.
 
REGULATION
 
 Bermuda
 
  The Insurance Act 1978, as amended, and related regulations (the "Insurance
Act"). As a holding company, the Company is not subject to Bermuda insurance
regulations. However, the Insurance Act, which regulates the insurance
business of LaSalle Re and LaSalle Re Capital, provides that no person shall
carry on an insurance business in or from within Bermuda unless registered as
an insurer under the Insurance Act by the Minister of Finance (the
"Minister"). The Minister, in deciding whether to grant registration, has
broad
 
                                    10K-13
<PAGE>
 
discretion to act as he thinks fit in the public interest. The Minister is
required by the Insurance Act to determine whether the applicant is a fit and
proper body to be engaged in the insurance business and, in particular,
whether it has, or has available to it, adequate knowledge and expertise. The
registration of an applicant as an insurer is subject to its complying with
the terms of its registration and such other conditions as the Minister may
impose at any time.
 
  An Insurance Advisory Committee appointed by the Minister advises him on
matters connected with the discharge of his functions, and sub-committees
thereof supervise and review the law and practice of insurance in Bermuda,
including reviews of accounting and administrative procedures.
 
  The Insurance Act imposes on Bermuda insurance companies solvency and
liquidity standards and auditing and reporting requirements and grants to the
Minister powers to supervise, investigate and intervene in the affairs of
insurance companies. Although LaSalle Re Capital is governed by the Insurance
Act, it is exempted from complying with most of the Act filings required by
insurance companies by section 57 of the Insurance Act. The solvency and
liquidity standards and auditing and reporting requirements of the Insurance
Act are summarized below.
 
  Significant aspects of the Bermuda insurance regulatory framework are set
forth below.
 
  Cancellation of Insurer's Registration. An insurer's registration may be
canceled by the Minister on certain grounds specified in the Insurance Act,
including failure of the insurer to comply with its obligations under the
Insurance Act or, if in the opinion of the Minister after consultation with
the Insurance Advisory Committee, the insurer has not been carrying on
business in accordance with sound insurance principles.
 
  Independent Approved Auditor. Every registered insurer must appoint an
independent auditor who will annually audit and report on the Statutory
Financial Statements and the Statutory Financial Return of the insurer, both
of which, in the case of LaSalle Re, are required to be filed annually with
the Registrar of Companies (the "Registrar"), who is the chief administrative
officer under the Insurance Act. The independent auditor of the insurer must
be approved by the Minister and may be the same person or firm that audits the
insurer's financial statements and reports for presentation to its
shareholders.
 
  Loss Reserve Specialist. LaSalle Re is registered as a Class 4 insurer.
Every Class 4 insurer is required to submit an annual loss reserve opinion
when filing the annual Statutory Financial Return. This opinion must be issued
by a Loss Reserve Specialist. The Loss Reserve Specialist, who will normally
be a qualified casualty actuary, must be approved by the Minister.
 
  Statutory Financial Statements. An insurer must prepare Statutory Financial
Statements annually. The Insurance Act prescribes rules for the preparation
and substance of such Statutory Financial Statements (which include, in
statutory form, a balance sheet, income statement, statement of capital and
surplus and detailed notes thereto). The insurer is required to give detailed
information and analyses regarding premiums, claims, reinsurance and
investments. The Statutory Financial Statements are not prepared in accordance
with GAAP and are distinct from the financial statements prepared for
presentation to the insurer's shareholders under the Companies Act 1981 of
Bermuda (the "Companies Act"), which financial statements may be prepared in
accordance with GAAP. LaSalle Re is required to submit the Statutory Financial
Statements as part of the annual Statutory Financial Return.
 
  Minimum Solvency Margin. The Insurance Act provides that the statutory
assets of an insurer must exceed its statutory liabilities by an amount
greater than the prescribed minimum solvency margin which varies with the type
of business and class of registration of the insurer and the insurer's net
premiums written and loss reserve level. As a registered Class 4 insurer,
LaSalle Re is required to maintain a minimum solvency margin equal to the
greatest of $100 million, 50% of its net premiums written (but may not deduct
more than 25% of gross premiums written when computing net premiums written)
or 15% of its loss and other certain insurance reserves. At September 30,
1998, LaSalle Re's actual statutory capital and surplus was $506.0 million,
compared to its minimum solvency margin requirement of $100 million.
 
                                    10K-14
<PAGE>
 
  Minimum Liquidity Ratio. The Insurance Act provides a minimum liquidity
ratio for general business. An insurer engaged in general business is required
to maintain the value of its relevant assets at not less than 75% of the
amount of its relevant liabilities. Relevant assets include cash and time
deposits, quoted investments, unquoted bonds and debentures, first liens on
real estate, investment income due and accrued, accounts and premiums
receivable and reinsurance balances receivable. There are certain categories
of assets which, unless specifically permitted by the Minister, do not
automatically qualify as relevant assets, such as unquoted equity securities,
investments in and advances to affiliates, real estate and collateral loans.
The relevant liabilities are total general business insurance reserves and
total other liabilities less deferred income tax and sundry liabilities (by
interpretation, those not specifically defined).
 
  Annual Statutory Financial Return. LaSalle Re is required to file annually
with the Registrar a Statutory Financial Return no later than four months
after its financial year end (unless specifically extended). The Statutory
Financial Return includes, among other matters, a report of the approved
independent auditor on the Statutory Financial Statements of the insurer; a
declaration of the statutory ratios; a solvency certificate; the Statutory
Financial Statements themselves; the opinion of the approved Loss Reserve
Specialist and certain details concerning ceded reinsurance. The solvency
certificate and the declaration of the statutory ratios must be signed by the
principal representative and at least two directors of the insurer who are
required to state (among other matters) whether the Minimum Solvency Margin
and, in the case of the solvency certificate, the Minimum Liquidity Ratio have
been met, and the independent approved auditor is required to state whether in
its opinion it was reasonable for them to so state and whether the declaration
of the statutory ratios complies with the requirements of the Insurance Act.
The Statutory Financial Return must include the opinion of the Loss Reserve
Specialist in respect of the loss and loss expense provisions of LaSalle Re.
Where an insurer's accounts have been audited for any purpose other than
compliance with the Insurance Act, a statement to that effect must be filed
with the Statutory Financial Return.
 
  Supervision, Investigation and Intervention. The Minister may appoint an
inspector with extensive powers to investigate the affairs of an insurer if
the Minister believes that an investigation is required in the interest of the
insurer's policyholders or persons who may become policyholders. In order to
verify or supplement information otherwise provided to him, the Minister may
direct an insurer to produce documents or information relating to matters
connected with the insurer's business.
 
  If it appears to the Minister that there is a risk of the insurer becoming
insolvent or that it is in breach of the Insurance Act or any conditions
imposed upon its registration, the Minister may (among other matters) direct
the insurer not to take on any new insurance business; not to vary any
insurance contract if the effect would be to increase the insurer's
liabilities; not to make certain investments; to realize certain investments;
to maintain in or transfer to the custody of a specified bank, certain assets;
not to declare or pay any dividends or other distributions or to restrict the
making of such payments; and/or to limit its premium income.
 
  Principal Representative. An insurer is required to maintain a principal
office in Bermuda and to appoint and maintain a principal representative in
Bermuda. For the purpose of the Insurance Act, the principal office of LaSalle
Re is at the Company's offices at 25 Church Street, Hamilton HM FX Bermuda,
and Andrew Cook is the principal representative of LaSalle Re. Without a
reason acceptable to the Minister, an insurer may not terminate the
appointment of its principal representative, and the principal representative
may not cease to act as such, unless 30 days' notice in writing to the
Minister is given of the intention to do so. It is the duty of the principal
representative, within 30 days of his reaching the view that there is a
likelihood of the insurer for which he acts becoming insolvent or its coming
to his knowledge, or his having reason to believe, that an "event" has
occurred, to make a report in writing to the Minister setting out all the
particulars of the case that are available to him. Examples of such an "event"
include failure by the reinsurer to comply substantially with a condition
imposed upon the reinsurer by the Minister relating to a solvency margin or a
liquidity or other ratio.
 
  Class 4 Insurer. LaSalle Re is registered as a Class 4 insurer and, as such:
(i) is required to maintain a minimum statutory capital and surplus equal to
the greatest of $100 million, 50% of its net premiums written (but may not
deduct more than 25% of gross premiums written when computing net premiums
written) or 15% of its loss and other insurance reserves; (ii) is required to
file annually within four months following the end of
 
                                    10K-15
<PAGE>
 
the relevant financial year with the Registrar, inter alia, a Statutory
Financial Return together with a copy of its annual Statutory Financial
Statements and an opinion of a Loss Reserve Specialist in respect of its loss
and loss expense provisions; (iii) is prohibited from declaring or paying any
dividends during any financial year if it is in breach of its minimum solvency
margin or minimum liquidity ratio or if the declaration or payment of such
dividends would cause it to fail to meet such margin or ratio (if it has
failed to meet its minimum solvency margin or minimum liquidity ratio on the
last day of any financial year, LaSalle Re will be prohibited, without the
approval of the Minister, from declaring or paying any dividends during the
next financial year); (iv) is prohibited from declaring or paying in any
financial year dividends of more than 25% of its total statutory capital and
surplus (as shown on its previous financial year's statutory balance sheet)
unless it files (at least 7 days before payment of such dividends) with the
Registrar an affidavit stating that it will continue to meet the required
margins; (v) is prohibited, without the approval of the Minister, from
reducing by 15% or more its total statutory capital, as set out in its
previous year's financial statements; and (vi) is required, at any time it
fails to meet its solvency margin, within 30 days (45 days where total
statutory capital and surplus falls to $75 million or less) after becoming
aware of that failure or having reason to believe that such failure has
occurred to file with the Minister a written report containing certain
information.
 
  Certain Other Considerations. As "exempted" companies, the Company, LaSalle
Re and LaSalle Re Capital may not, without the express authorization of the
Bermuda legislature or a license granted by a Minister, participate in certain
business transactions, including: (i) the acquisition or holding of land in
Bermuda (except that required for its business and held by way of lease or
tenancy agreement for a term not exceeding 50 years); (ii) the taking of
mortgages on land in Bermuda in excess of $50,000; or (iii) the carrying on of
business of any kind in Bermuda, except in furtherance of the business carried
on outside Bermuda or as permitted under the Companies Act.
 
  The Bermuda government actively encourages foreign investment in "exempted"
entities like the Company that are based in Bermuda but do not operate in
competition with local businesses. As well as having no restrictions on the
degree of foreign ownership, the Company, LaSalle Re and LaSalle Re Capital
are not currently subject to taxes on their income or dividends or to any
foreign exchange controls in Bermuda. In addition, there currently is no
capital gains tax in Bermuda, and profits can be accumulated by the Company,
LaSalle Re and LaSalle Re Capital, as required, without limitation.
 
  The Companies Act prohibits a company from declaring or paying a dividend,
or making a distribution out of contributed surplus, if there are reasonable
grounds for believing that (i) the company is, or would after the payment be,
unable to pay its liabilities as they come due; or (ii) the realizable value
of the company's assets would thereby be less than the aggregate of its
liabilities and shareholders' equity. The foregoing restriction applies to the
Company, LaSalle Re and LaSalle Re Capital as Bermuda exempted companies.
 
 LaSalle Re Capital
 
  LaSalle Re Capital became a Corporate Member of Lloyd's in December 1996 and
commenced underwriting effective January 1, 1997. LaSalle Re Capital is only
licensed to carry on business related to Lloyd's. As a Corporate Member,
LaSalle Re Capital is subject to the regulatory jurisdiction of the Council of
Lloyd's (the "Council"). Unlike other financial markets in the U.K., Lloyd's
is not subject to direct U.K. government regulation under The Financial
Services Act of 1986. Instead, Lloyd's is self regulating by virtue of The
Lloyd's Act of 1982, through by-laws, regulations and codes of conduct written
by the Council, which governs the market. Under the Council, there are two
boards, the Market Board and the Regulatory Board. The Market Board is led by
working members of the Council and is responsible for strategy and policy
signing. The Regulatory Board is responsible for the regulation of the market,
compliance and the protection of policyholders. Under the terms of its license
(as a "member of a recognised association of underwriters") under the
Insurance Act, LaSalle Re Capital is required to meet and maintain the
solvency requirements of Lloyd's.
 
  As a Corporate Member of Lloyd's, LaSalle Re Capital is required to file
audited financial statements and an annual return, which is part of the annual
declaration of compliance process. The annual declaration of compliance sets
out the financial position of the Corporate Member and confirms details of its
directors and controllers. In addition, LaSalle Re Capital is required to file
an audited solvency return either confirming the
 
                                    10K-16
<PAGE>
 
value of funds at Lloyd's ("FAL") held by the member as at the previous
December 31, or that it held no FAL at that date. Lloyd's will compare the
value of a Corporate Member's FAL derived from the solvency return with its
underwriting assets and liabilities as reported by the syndicates on which it
participates. Where a negative solvency position is disclosed, the Corporate
Member is required to provide sufficient additional funds to cover the
shortfall. As at December 14, 1998, LaSalle Re Capital had filed a solvency
return for the 1997 underwriting year.
 
  In addition to the above Lloyd's requirements, under the terms of its
license under the Insurance Act, LaSalle Re Capital must send to the Bermuda
Registrar of Companies within 30 days after submission of the annual solvency
return and declaration of compliance to Lloyd's a copy of such documents
together with a copy of the audited annual statements of each of the
syndicates in which LaSalle Re Capital participates. Further, LaSalle Re
Capital must also appoint and maintain a principal representative in Bermuda.
 
 United States, United Kingdom and Other
 
  LaSalle Re is registered as an insurer and is subject to regulation and
supervision in Bermuda. LaSalle Re is not admitted or authorized to do
business in any jurisdiction except Bermuda. The insurance laws of each state
of the United States do not directly regulate the sale of reinsurance within
their jurisdictions by alien insurers, such as LaSalle Re. Nevertheless, the
sale of reinsurance by alien reinsurers, such as LaSalle Re, to insurance
companies domiciled or licensed in United States jurisdictions is indirectly
regulated by state "credit for reinsurance" laws that operate to deny
financial statement credit to ceding insurers unless the non-admitted alien
reinsurer posts acceptable security for ceded liabilities and agrees to
certain contract provisions (e.g., insolvency and intermediary clauses).
Although the insurance laws of United States jurisdictions generally exempt
the business of reinsurance from "doing business" laws, the Company conducts
its business at its principal offices in Bermuda and does not maintain an
office in the United States, and its personnel do not solicit, advertise,
settle claims or conduct other insurance activities in the United States. All
policies are issued and delivered and premiums are received outside the United
States. The Company does not believe that it is subject to the insurance laws
of any state in the United States. From time to time, there have been
congressional and other initiatives in the United States regarding the
supervision and regulation of the insurance industry, including proposals to
supervise and regulate alien reinsurers. While none of these proposals have
been adopted to date on either the federal or state level, there can be no
assurance that federal or state legislation will not be enacted subjecting the
Company to supervision and regulation in the United States, which could have a
material adverse effect on the Company. In addition, no assurance can be given
that if the Company were to become subject to any laws of the United States or
any state thereof or of any other country at any time in the future, it would
be in compliance with such laws.
 
  LaSalle Re does not intend to maintain an office or to solicit, advertise,
settle claims or conduct other insurance activities in any jurisdiction other
than Bermuda where the conduct of such activities would require that LaSalle
Re be so admitted. Consistent with this policy, LaSalle Re established LaSalle
Re Services as a subsidiary in the United Kingdom to operate a London "contact
office" at the London Underwriting Center. LaSalle Re Services is not
registered as an insurer in England or in any other jurisdiction. The Company
believes that LaSalle Re Services is not required to be registered as an
insurance company in the United Kingdom, and that the activities of LaSalle Re
Services do not cause the Company to be subject to regulation as an insurance
company in the United Kingdom.
 
ITEM 2. PROPERTIES
 
  The Company's executive offices, which are leased, are located in Hamilton,
Bermuda. In addition, the Company leases office space in London, England.
 
ITEM 3. LEGAL PROCEEDINGS
 
  None.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  No matters were submitted to a vote of shareholders of the Company during
the fourth fiscal quarter of the fiscal year ended September 30, 1998.
 
                                    10K-17
<PAGE>
 
                       EXECUTIVE OFFICERS OF THE COMPANY
 
  Set forth below are the names, ages, positions and certain other information
concerning the current executive officers of the Company.
 
<TABLE>
<CAPTION>
      NAME                     AGE POSITION
      ----                     --- --------
      <S>                      <C> <C>
      Victor H. Blake.........  63 Chairman, Chief Executive Officer and President
      Guy D. Hengesbaugh......  39 Executive Vice President and Chief Operating Officer
      Andrew Cook.............  36 Senior Vice President and Chief Financial Officer
</TABLE>
 
  Victor H. Blake has been Chairman, Chief Executive Officer and President of
the Company since its organization in September 1995 and Chairman and Chief
Executive Officer of LaSalle Re since May 1994. Mr. Blake has 37 years
experience in the insurance industry, concentrating primarily in reinsurance.
Mr. Blake served as Chairman and Chief Executive Officer of CNA International
Reinsurance Company Ltd. ("CNA Re"), a leading property and casualty insurer
operating in the London market, from its formation in 1976 until October 1995.
In addition, he acted as the chairman and chief executive officer of CNA
Reinsurance Group from its formation in April 1994 until October 1995. CNA
Reinsurance Group includes CNA Re and the United States reinsurance operations
of CNA. Mr. Blake is the non-executive chairman of CNA Reinsurance Group. Mr.
Blake is also founder Chairman of the LUC Holdings Ltd., the shareholder of
the London Underwriting Centre, a marketplace housing many of the London
market insurers and reinsurers. He also served as a member of the Council of
the London Insurance and Reinsurance Market Association and its predecessor
bodies from 1977 to 1996.
 
  Guy D. Hengesbaugh was Executive Vice President and Chief Underwriting
Officer of the Company since its organization in September 1995 and Executive
Vice President and Chief Underwriting Officer of LaSalle Re since its
organization in October 1993. On September 17, 1998, Mr. Hengesbaugh was
promoted to President and Chief Operating Officer of the operating company,
LaSalle Re. Mr. Hengesbaugh has ten years experience in underwriting
management with CNA in Chicago and London and is a Vice President of
Continental Casualty Company. Up to September 30, 1998, Mr. Hengesbaugh was an
employee of CNA Bermuda and his services were made available to the Company
pursuant to the Underwriting Services Agreement. Upon termination of this
agreement, with effect from October 1, 1998, Mr. Hengesbaugh became an
employee of the Company.
 
  Andrew Cook, a chartered accountant, was promoted to Senior Vice President
and Chief Financial Officer effective on October 1, 1997. Mr. Cook continues
to be Chief Financial Officer and Treasurer of the Company, a position he has
held since its organization in September 1995, and Chief Financial Officer and
Treasurer of LaSalle Re, a position he has held since its organization in
October 1993. Mr. Cook was an employee of Aon from 1993 until September 1995.
Mr. Cook was employed by Becher and Carlson Risk Management Limited, a
subsidiary of American Re-Insurance Company, from November 1990 to October
1993, where he was a Vice President responsible for a portfolio of captive
insurance companies. From December 1987 to October 1990, Mr. Cook was an audit
manager with Ernst & Young in Bermuda specializing in the audit of insurance
and reinsurance companies.
 
                                    10K-18
<PAGE>
 
                                    PART II
 
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
      MATTERS
 
  The Common Shares were quoted on the Nasdaq National Market under the symbol
"LSREF" until April 11, 1997, at which time the Common Shares were transferred
to The New York Stock Exchange under the symbol "LSH".
 
  The following table sets forth, for the periods indicated, the high and low
sale prices for the Common Shares as reported by the Nasdaq National Market
until April 11, 1997 and The New York Stock Exchange thereafter. The prices
reported by the Nasdaq National Market reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and do not necessarily represent
actual transactions.
 
<TABLE>
<CAPTION>
                                                                   HIGH   LOW
                                                                  ------ ------
      <S>                                                         <C>    <C>
      Quarter ended December 31, 1997............................ $35.63 $32.00
      Quarter ended March 31, 1998...............................  42.00  31.13
      Quarter ended June 30, 1998................................  42.25  34.88
      Quarter ended September 30, 1998...........................  39.06  26.63
      Quarter ended December 31, 1996............................ $29.25 $22.75
      Quarter ended March 31, 1997...............................  29.25  26.50
      Quarter ended June 30, 1997................................  30.13  27.50
      Quarter ended September 30, 1997...........................  35.50  29.75
</TABLE>
 
  As of December 1, 1998, there were 136 holders of record of the Common
Shares.
 
  The following table sets forth for the fiscal quarters of the two most
recent fiscal years all dividends declared during each such period.
 
<TABLE>
<CAPTION>
     FISCAL YEAR ENDED SEPTEMBER 30,            FISCAL QUARTER DIVIDEND PER SHARE
     -------------------------------            -------------- ------------------
          <S>                                   <C>            <C>
                   1998                         First quarter        $0.75
                                                Second quarter       $0.75
                                                Third quarter        $0.75
                                                Fourth quarter       $0.75
                   1997                         First quarter        $0.71
                                                Second quarter       $0.71
                                                Third quarter        $0.71
                                                Fourth quarter       $0.71
</TABLE>
 
  In February 1997, in connection with the Preferred Offering, the Board
confirmed the dividend policy pursuant to which the Company intends to
distribute as dividends to holders of Common Shares and Exchangeable Non-
Voting Shares in each fiscal year, 50% to 60% of the amount by which its net
income (before minority interest) from the prior fiscal year exceeds the
amount of dividends payable on preferred shares of the Company in the current
fiscal year. The actual amount and timing of any future dividends is at the
discretion of the Board and is dependent upon the profits and financial
requirements of the Company as well as loss experience, business opportunities
and any other factors that the Board deems relevant. In addition, if the
Company has funds available for distribution, it may nevertheless determine
that such funds should be retained for the purposes of replenishing capital,
expanding premium writings or other purposes. The Company is a holding company
whose principal source of income is cash dividends and other permitted
payments from LaSalle Re. The payment of dividends by LaSalle Re to the
Company is restricted under Bermuda law and regulation, including Bermuda
insurance law. Under the Insurance Act, LaSalle Re is prohibited from paying
dividends of more than 25% of its opening statutory capital and surplus unless
it files an affidavit (at least 7 days before payment of such dividends)
stating that it will continue to meet the required solvency margin and minimum
liquidity ratio requirements and from declaring or paying any dividends
without the approval of the Minister of Finance if it failed to meet its
required margins on the last day of the previous fiscal year. The Insurance
Act also requires LaSalle Re to maintain a minimum solvency margin and minimum
liquidity ratio and prohibits
 
                                    10K-19
<PAGE>
 
dividends which would result in a breach of these requirements. In addition,
LaSalle Re is prohibited under the Insurance Act from reducing its opening
total statutory capital by 15% or more without the approval of the Minister of
Finance. As a result of these factors, there can be no assurance that the
Company's dividend policy will not change or that the Company will declare or
pay any dividends.
 
ITEM 6. SELECTED FINANCIAL DATA
 
  Information with respect to this item may be found in the section captioned
"Selected Financial Data" contained in the 1998 Annual Report.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
       FINANCIAL CONDITION
 
  The following is a discussion and analysis of the Company's results of
operations and financial condition. This discussion and analysis should be
read in conjunction with the audited consolidated financial statements and
related notes.
 
RESULTS OF OPERATIONS
 
 Year Ended September 30, 1998 Compared with Year Ended September 30, 1997
 
  Gross premiums written decreased 9.4% to $155.3 million for the year ended
September 30, 1998 from $171.4 million for the year ended September 30, 1997.
The table below summarizes the Company's gross premiums written by line of
business (expressed in millions of dollars)
 
<TABLE>
<CAPTION>
                                             YEAR ENDED    YEAR ENDED
                                            SEPTEMBER 30, SEPTEMBER 30,
TYPE OF REINSURANCE                             1998          1997      CHANGE
-------------------                         ------------- ------------- ------
<S>                                         <C>           <C>           <C>
U.S. property catastrophe..................    $ 55.2        $ 71.6     $(16.4)
International property catastrophe.........      49.0          73.1      (24.1)
                                               ------        ------     ------
Total property catastrophe.................     104.2         144.7      (40.5)
Other lines................................      51.0          37.0       14.0
Reinstatements, adjustments and no claims
 bonuses...................................       0.1         (10.3)      10.4
                                               ------        ------     ------
Total gross premiums written...............    $155.3        $171.4     $(16.1)
                                               ======        ======     ======
</TABLE>
 
  The overall decrease in gross premiums written was primarily due to a
reduction in gross premiums written in the Company's core product, property
catastrophe reinsurance, from $144.7 million for the year ended September 30,
1997 to $104.2 million, a decrease of 28.0%. Of this reduction approximately
60.0% related to the international property catastrophe book and 40.0% related
to the United States property catastrophe book. The reduction was greater in
the international property catastrophe book as the Company reduced its line
sizes on certain proportional treaties pursuant to its policy of reducing
aggregate exposures in a declining rate environment. This accounted for
approximately $7.7 million of the decrease in the international property
catastrophe book. Approximately 25% of the decrease in the United States
property catastrophe book related to a multi-year contract which was written
in the year ended September 30, 1997 and hence no written premium was recorded
in the year ended September 30, 1998. The remaining decrease in the total
property catastrophe book was due to continuing competitive rates. Based on
the Company's experience, rates for property catastrophe business written in
the year ended September 30, 1998, were approximately 15% and 10% below those
experienced in the year ended September 30, 1997 for international and United
States property catastrophe business respectively. This led to lower priced
premiums in comparison to those written in the year ended September 30, 1997
and the non-renewal of contracts in certain cases where the Company considered
the business to be under-priced. For the year ended September 30, 1998, the
Company experienced a 6.3% reduction in the number of property catastrophe
contracts written from 1,000 in the year ended September 30, 1997 to 937
contracts for the year ended September 30, 1998.
 
                                    10K-20
<PAGE>
 
  The decline in gross premiums written by the Company was partially offset by
an increase of $14.0 million in respect of gross premiums written in other
non-property catastrophe lines. The increase was primarily due to increased
gross premiums written by LaSalle Re Capital, which commenced underwriting as
a corporate member of Lloyd's in January 1997, the second quarter of the 1997
fiscal year. For the year ended September 30, 1998, LaSalle Re Capital wrote
gross premiums of $21.0 million compared to $14.1 million for the year ended
September 30, 1997. Also, the Company increased the size of its terrorism and
political risks book which accounted for approximately $1.0 million of gross
premiums written for the year ended September 30, 1997 compared with
approximately $4.4 million for the year ended September 30, 1998.
 
  In addition, for the year ended September 30, 1997, an amount of $10.3
million relating to adjustment premiums, reinstatement premiums and no claims
bonuses produced a reduction in gross premiums written. In the year ended
September 30, 1998, there was a positive adjustment to gross premiums written
of $0.1 million. This was principally due to insignificant premium adjustments
and, due to increased loss activity, to increased reinstatement premiums and
lower no claims bonuses.
 
  Premiums ceded for the year ended September 30, 1998 were $7.8 million
compared to $7.7 million for the year ended September 30, 1997 and related to
reinsurance protection purchased by LaSalle Re with effect from January 1,
1997 and to various reinsurance protections purchased by LaSalle Re Capital.
Ceded premiums amortized increased from $1.9 million in the year ended
September 30, 1997 to $6.1 million for the year ended September 30, 1998. This
increase was due primarily to the reinsurance protections purchased by LaSalle
Re Capital, which were amortized in line with the premiums earned by LaSalle
Re Capital.
 
  Net premiums earned decreased 5.7% to $154.6 million for the year ended
September 30, 1998 from $163.9 million for the year ended September 30, 1997.
This decrease was the result of reduced premiums earned on the Company's core
property catastrophe business that was partially offset by increased earned
premiums on those premiums written by LaSalle Re Capital. Premiums written by
LaSalle Re Capital are earned over a period of 18-24 months from the inception
date of the underlying contracts. Premiums on property catastrophe excess of
loss contracts are earned over the period coverage is provided, which is
generally 12 months. Under proportional property catastrophe contracts, with
the risks underlying the contracts incepting throughout the contract period,
premiums are generally earned over 18 months. Premiums on other lines of
business are earned over the period for which coverage is provided, which
generally ranges between 12 months and 60 months.
 
  Net investment income increased 3.6% to $34.3 million for the year ended
September 30, 1998 from $33.1 million for the year ended September 30, 1997.
This increase was attributable to a larger average investment base compared to
the year ended September 30, 1997. Annualized investment income as a
percentage of the average market value of invested assets was 6.0% for the
year ended September 30, 1998 compared to 6.1% for the year ended September
30, 1997.
 
  Net realized gains on investments were $5.6 million for the year ended
September 30, 1998 compared to $0.6 million for the year ended September 30,
1997. During the year ended September 30, 1998 the Company realized gains on
investments as part of an exercise undertaken to increase the credit quality
of the portfolio. In addition, during the last quarter of the year ended
September 30, 1998, the Company took advantage of market conditions by
realizing some of the large unrealized gains in the portfolio. The proceeds
from this exercise were reinvested in securities with marginally lower yields.
 
  Other income was derived from a contract under which the Company provided
certain reinsurance related services. This contract was not renewed January 1,
1998.
 
  The following table sets forth the Company's combined ratios for the years
ended September 30, 1998 and 1997:
 
<TABLE>
<CAPTION>
                                           SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
                                           ------------------ ------------------
      <S>                                  <C>                <C>
      Loss and loss expense ratio.........       61.8%              19.0%
      Expense ratio.......................       20.4%              23.6%
      Combined ratio......................       82.2%              42.6%
</TABLE>
 
                                    10K-21
<PAGE>
 
  Losses and loss expenses incurred increased 206.2% from $31.2 million for
the year ended September 30, 1997 to $95.5 million for the year ended
September 30, 1998. This was due to an increase in the number of worldwide
catastrophic events that affected the Company during the year ended September
30, 1998. The largest loss event to affect the Company was Hurricane Georges,
which occurred in September 1998. The Company established a $25 million loss
provision for this event that represented 26% of the losses incurred for the
year ended September 30, 1998. In addition, throughout the year ended
September 30, 1998, the Company incurred losses in respect of various weather-
related events, notably U.K. Midland floods ($7.0 million), Canadian winter
freeze ($4.3 million) and various U.S. storms ($2.4 million). The Company
sustained a number of claims relating to aggregate stop loss and excess of
loss contracts, which accounted for approximately $16.8 million or 18% of
losses incurred. A large percentage of these aggregate losses incurred in the
year ended September 30, 1998 related to losses that had occurred in prior
years. This was due to the extended loss reporting periods on these contracts,
a number of which had a period of 24 months after the expiry of the contract
within which to report losses. Also, as a result of increasing other lines of
business the Company incurred losses relating to LaSalle Re Capital ($5.0
million), satellite coverages ($3.0 million), various risk excess coverages
($3.0 million) and political risks coverages ($1.7 million). As a result of
the current year loss activity, the Company has increased the level of
incurred but not reported reserves. Losses and loss expenses incurred during
the year ended September 30, 1997 primarily included $12.0 million for floods
in Eastern Europe, $6.1 million in respect of various international windstorms
and winter storm activity in the United States and $4.6 million adverse
development on Hurricane Fran (which occurred in September 1996).
 
  Underwriting expenses decreased 12.9% from $26.0 million for the year ended
September 30, 1997 to $22.7 million for the year ended September 30, 1998. As
a percentage of net premiums earned, underwriting expenses were 14.6% for the
year ended September 30, 1998 compared to 15.9% for the year ended September
30, 1997. Fees accrued pursuant to the Underwriting Services Agreement as a
percentage of net premiums earned decreased to 2.3% for the year ended
September 30, 1998 from 4.0% for the year ended September 30, 1997. This was
due to the higher loss activity and lower premium earnings in the year ended
September 30, 1998 compared with the year ended September 30, 1997. The
Company's level of brokerage fees and ceding commissions increased to 12.3% of
net premiums earned for the year ended September 30, 1998 from 11.8% of net
premiums earned for the year ended September 30, 1997. The increase was partly
due to an increase in earned premiums written by LaSalle Re Capital, whose
expense ratio was approximately 20% and partly due to an increase in the
average cost of writing proportional business.
 
  Operational expenses decreased 29.4% from $12.7 million for the year ended
September 30, 1997 to $8.9 million for the year ended September 30, 1998. As a
percentage of net premiums earned, operational expenses were 5.7% during the
year ended September 30, 1998 compared to 7.7% for the year ended September
30, 1997. Effective October 1, 1997, the Administrative Services Agreement
with ARC was terminated and all of the personnel assigned to the Company by
ARC became employees of the Company, with the Company assuming the functions
previously performed by ARC. This generated a reduction in operational
expenses of approximately $2.3 million, as the fees paid to ARC were in excess
of the additional costs assumed by the Company. In addition, the Company
experienced a reduction in executive compensation of approximately $2.4
million, due partly to a decline in the fair value of stock appreciation
rights and partly to reduced bonus provisions. These decreases were offset by
increased costs of $1.0 million relating to LaSalle Re Capital and fees paid
to directors.
 
  Corporate expenses decreased 72.2% from $1.8 million for the year ended
September 30, 1997 to $0.5 million for the year ended September 30, 1998. The
costs incurred in the year ended September 30, 1998 related to costs
associated with the Company's investigation of potential merger and
acquisition transactions. Corporate expenses for the year ended September 30,
1997 included costs associated with the Secondary Offering, the Preferred
Offering, the Tender Offer, the formation costs of LaSalle Re Capital, the
Company's move to the New York Stock Exchange and fees incurred with respect
to the CatEPut. Corporate expenses do not include the underwriting discounts
associated with the various offerings. These costs were borne by the selling
shareholders in the Secondary Offering. In respect of the Preferred Offering,
the underwriting discount was charged to additional paid in capital.
 
                                    10K-22
<PAGE>
 
  Interest expense increased 11.8% from $1.7 million in the year ended
September 30, 1997 to $1.9 million for the year ended September 30, 1998. The
increase was due to additional financing charges associated with the deposit
portion of LaSalle Re's ceded reinsurance contract in the year ended September
30, 1998. As the contract incepted January 1, 1997, only three quarters of the
annual charge was included in the year ended September 30, 1997. Other
interest expenses related to the annual administration fee and the ongoing
commitment fees payable on the Company's credit facility. As at September 30,
1998, there were no borrowings under this facility.
 
  Foreign exchange gains in the year ended September 30, 1998 were negligible
at $0.2 million compared to losses of $3.0 million in the year ended September
30, 1997. The losses in the year ended September 30, 1997 resulted from the
unfavorable closing of a sterling forward contract, and an overall
strengthening of the U.S. dollar against the major foreign currencies in which
the Company wrote premiums.
 
  Earnings per Common Share were $3.06 for the year ended September 30, 1998
and $5.55 for the year ended September 30, 1997. Earnings per Common Share
assuming dilution were $2.80 for the year ended September 30, 1998 and $5.14
for the year ended September 30, 1997. The weighted average number of shares
outstanding used in the calculation of earnings assuming dilution decreased
from 22,998,936 for the year ended September 30, 1997 to 20,919,405 for the
year ended September 30, 1998. The decrease in the weighted average number of
shares outstanding resulted primarily from the repurchase of shares in the
Tender Offer in April 1997.
 
 Year Ended September 30, 1997 Compared with Year Ended September 30, 1996
 
  Gross premiums written decreased 9.9% to $171.4 million for the year ended
September 30, 1997 from $190.2 million for the year ended September 30, 1996.
This decrease was due primarily to a reduction in international property
catastrophe premiums to $73.1 million for the year ended September 30, 1997
from $88.9 million for the year ended September 30, 1996. This reduction, in
turn, was a result of the competitive rate environment, which led to a
reduction in the number of international property catastrophe contracts
written. The Company experienced a 5.3% decrease in property catastrophe
premiums written in the United States. The decline in gross premiums written
by the Company was partially offset by an increase of $14.9 million in respect
of other non-property catastrophe lines written. This increase primarily
related to premiums written in the year ended September 30, 1997 by LaSalle Re
Capital, which was accepted into Lloyd's with effect from January 1, 1997.
Further, for the year ended September 30, 1997 compared to the year ended
September 30, 1996, the Company experienced a reduction in reinstatement
premiums of $6.2 million due to more favorable loss experience and an increase
in overall negative premium adjustments of $7.6 million.
 
  Premiums ceded for the year ended September 30, 1997 were $7.7 million
compared to nil in the year ended September 30, 1996. This was primarily
attributable to reinsurance protection purchased by LaSalle Re with effect
from January 1, 1997 and to reinsurance purchased by LaSalle Re Capital. Ceded
premiums amortized were $1.9 million for the year ended September 30, 1997
compared to nil in the year ended September 30, 1996.
 
  Net premiums earned decreased 16.0% to $163.9 million for the year ended
September 30, 1997 from $195.1 million for the year ended September 30, 1996.
This decrease was principally due to the overall decrease in premiums written
in the previous fiscal year and the year ended September 30, 1997.
 
  Net investment income increased 23.5% to $33.1 million for the year ended
September 30, 1997 from $26.8 million for the year ended September 30, 1996.
This increase was principally attributable to an increase in yields during the
year ended September 30, 1997, together with a larger average investment base
compared to the year ended September 30, 1996. Annualized investment income as
a percentage of the average market value of invested assets was 6.07% for the
year ended September 30, 1997 compared to 5.44% for the year ended September
30, 1996.
 
  Net realized gains on investments were $0.6 million during the year ended
September 30, 1997 compared to $0.4 net realized losses during the year ended
September 30, 1996.
 
                                    10K-23
<PAGE>
 
  Other income was derived from reinsurance related services providing an
annual fee of $0.3 million. As the provision of these services began on
January 1, 1997, there was no corresponding income in the year ended September
30, 1996.
 
  The following table sets forth the Company's combined ratios for the years
ended September 30, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                                     SEPTEMBER 30, SEPTEMBER 30,
                                                         1997          1996
                                                     ------------- -------------
      <S>                                            <C>           <C>
      Loss and loss expense ratio...................     19.0%          26.4%
      Expense ratio.................................     23.6%          19.6%
      Combined ratio................................     42.6%          46.0%
</TABLE>
 
  Losses and loss expenses incurred decreased 39.4% to $31.2 million for the
year ended September 30, 1997 from $51.5 million for the year ended September
30, 1996. This decrease was a result of the limited number of worldwide
catastrophic events that affected the Company during the year. Losses and loss
expenses incurred during the year ended September 30, 1997 primarily included
$12.0 million for floods in Eastern Europe, $6.1 million in respect of various
international windstorms and winter storm activity in the United States and
$4.6 million adverse development on Hurricane Fran, which occurred in
September 1996. Losses and loss expenses incurred during the year ended
September 30, 1996 included additional reserves of $14.2 million for
Hurricanes Marilyn and Luis and various other losses emanating from the 1996
hurricane season and end of the 1995 hurricane season and international
storms.
 
  Underwriting expenses decreased 4.8% from $27.3 million for the year ended
September 30, 1996 to $26.0 million for the year ended September 30, 1997. As
a percentage of net premiums earned, underwriting expenses were 15.9% for the
year ended September 30, 1997 compared to 14.0% for the year ended September
30, 1996. Of this increase, 0.6% was due to the settlement of significant
profit commissions on one program underwritten in previous fiscal years, which
had better than expected loss ratios, and the provision for profit commission
on contracts underwritten in the current fiscal year. In addition, the
business underwritten by LaSalle Re Capital has higher underwriting costs,
which increases the Company's percentage of underwriting expenses to net
premiums earned. The Company experienced an increase in the fees and profit
commission accrued under the Underwriting Services Agreement from 3.7% of net
premiums earned for the year ended September 30, 1996 to 4.0% net premiums
earned for the year ended September 30, 1997.
 
  Operational expenses increased 14.4% to $12.7 million for the year ended
September 30, 1997 from $11.1 million for the year ended September 30, 1996.
This increase was substantially due to additional executive compensation and
expenses relating to the operation of LaSalle Re Capital.
 
  Corporate expenses were $1.8 million for the year ended September 30, 1997,
compared with $0.9 million for the year ended September 30, 1996. Corporate
expenses for the year ended September 30, 1997 included costs associated with
the Secondary Offering, the Preferred Offering, the Tender Offer, the
formation costs of LaSalle Re Capital, the Company's move to the New York
Stock Exchange and fees incurred with respect to the CatEPut. In 1996,
corporate expenses included costs associated with the initial public offering
and all costs associated with the establishment of the Company's credit
facility. Corporate expenses do not include the underwriting discounts
associated with the various offerings. These costs were borne by the selling
shareholders in the initial public offering and the Secondary Offering. In
respect of the Preferred Offering, the underwriting discount was charged to
additional paid in capital.
 
  Interest expense was $1.7 million during the year ended September 30, 1997
compared to $0.2 million in the year ended September 30, 1996. This increase
was due to financing charges associated with the deposit portion of LaSalle
Re's ceded reinsurance contract. Other interest expenses related to the annual
administration fee and the ongoing commitment fees payable on the Company's
credit facility. As at September 30, 1997, there were no borrowings under this
facility.
 
                                    10K-24
<PAGE>
 
  Foreign exchange losses in the year ended September 30, 1997 were $3.0
million compared to losses of $1.1 million in the year ended September 30,
1996. The losses in the year ended September 30, 1997 resulted from the
unfavorable closing of a sterling forward contract, and an overall
strengthening of the U.S. dollar since January 1, 1997 against the major
foreign currencies in which the Company writes premiums. The losses for the
year ended September 30, 1996 were the result of several factors, including
the decrease in the value of yen and deutschmarks relative to the U.S. dollar.
Additionally, the Company's sterling foreign exchange contracts precluded
participation in the appreciation of sterling in the third fiscal quarter
above the Company's average forward rate.
 
  Earnings per Common Share were $5.55 for the year ended September 30, 1997
and $5.70 for the year ended September 30, 1996. Earnings per Common Share
assuming dilution were $5.14 for the year ended September 30, 1997 and $5.40
for the year ended September 30, 1996. Following the Tender Offer, the
adjusted weighted average number of Common Shares outstanding decreased from
23,967,870 for the year ended September 30, 1996 to 22,998,936 for the year
ended September 30, 1997. This decrease generated a 6.6% accretive effect on
the Company's 1997 net income per share.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  As a holding company, the Company's assets consist primarily of all of the
outstanding voting stock of LaSalle Re. The Company's cash flows depend
primarily on dividends and other permitted payments from LaSalle Re.
 
  LaSalle Re's sources of funds consist of premiums written, investment income
and proceeds from sales and redemptions of investments. Cash is used primarily
to pay losses and loss expenses, brokerage, commissions, excise taxes,
administrative expenses and dividends. Under the Insurance Act, LaSalle Re is
prohibited from paying dividends of more than 25% of its opening statutory
capital and surplus unless it files an affidavit (at least 7 days before
payment of such dividends) stating that it will continue to meet the required
solvency margin and minimum liquidity ratio requirements and from declaring or
paying any dividends without the approval of the Minister of Finance if it
failed to meet its required margins in the previous fiscal year. The Insurance
Act also requires LaSalle Re to maintain a minimum solvency margin and minimum
liquidity ratio and prohibits dividends that would result in a breach of these
requirements. In addition, LaSalle Re is prohibited under the Insurance Act
from reducing its total opening statutory capital by 15% or more without the
approval of the Minister of Finance. LaSalle Re currently meets its
requirements under the Insurance Act. In addition, the payment of dividends by
LaSalle Re is subject to the rights of holders of the Exchangeable Non-Voting
Shares to receive a pro rata share of any dividend and to its need to maintain
shareholders' equity adequate to support the level of LaSalle Re's reinsurance
operations.
 
  Operating activities provided net cash of $96.0 million for the year ended
September 30, 1998 and $98.6 million for the year ended September 30, 1997.
Cash flows from operations in future years may differ substantially from net
income. Cash flows are affected by loss payments, which, due to the nature of
the reinsurance coverage provided by LaSalle Re, are generally expected to
comprise large loss payments on a limited number of claims and can therefore
fluctuate significantly from year to year. The irregular timing of these large
loss payments can create significant variations in operating cash flows
between periods. LaSalle Re funds such payments from cash flows from
operations and sales of investments.
 
  As a result of the potential for large loss payments, LaSalle Re maintains a
substantial portion of its assets in cash and marketable securities. As of
September 30, 1998, 80.1% of its total assets were held in cash and marketable
securities. To further mitigate the uncertainty surrounding the amount and
timing of potential liabilities and to minimize interest rate risk, LaSalle Re
maintains a short average duration for its investment portfolio. The modified
average duration of the investment portfolio, including cash, was 3.1 years at
September 30, 1998. At September 30, 1998, the fair value of the Company's
total investment portfolio, including cash, was $606.8 million.
 
  Cash and cash equivalents increased from $54.8 million at September 30, 1997
to $85.3 million at September 30, 1998. The increase was due to proceeds
received on the sale of bonds in late September, which
 
                                    10K-25
<PAGE>
 
were not re-invested until post year-end. In addition the Company required
funds for the payment of losses, primarily as a result of Hurricane Georges.
 
  The Company has adopted the Statement of Financial Accounting Standard No.
115 ("SFAS 115") to account for its marketable securities with all of the
Company's investments classified as "available for sale". Under this
classification, investments are recorded at fair market value and any
unrealized gains or losses are reported as "Accumulated other comprehensive
income", a separate component of shareholders' equity. In accordance with SFAS
No. 130 "Reporting of Comprehensive Income", the movement in unrealized gains
or losses on these investments are disclosed as part of other comprehensive
income. The unrealized gain on the investment portfolio net of amounts
attributable to minority interest was $13.8 million at September 30, 1998
compared to an unrealized gain of $2.0 million at September 30, 1997.
 
  At September 30, 1998, 86.5% of the securities held in the Company's
investment portfolio were fixed-income securities rated "AA" or better and
97.9% were fixed-income securities rated "A" or better by S&P or Moody's. No
single investment comprised more than 5% of the overall portfolio. As at
September 30, 1998, issuers from the Far East and Asia represented 5.7% of the
investment portfolio. These securities had a market value of $33.6 million and
an aggregate unrealized gain of $0.4 million. All of these securities had an
average credit rating of AAA as assigned by S&P or Moody's, as at September
30, 1998.
 
  During the year ended September 30, 1998, the Company modified its
investment guidelines to allow the purchase of mortgage backed securities. In
addition during the year ended September 30, 1998 the Company entered into a
swap agreement to provide cash flow to a counterparty in the event of a
defined earthquake activity in Japan. Receipts to the Company are accounted
for as investment income and are based on a percentage of the notional amount
of the swap. The contract exposes LaSalle Re to a maximum cash outflow of the
original notional amount of $3.0 million should the defined earthquake event
occur. In addition, the Company is exposed to credit loss in the event of
nonperformance by the counter-party to the remittance of interest payments as
required by the swap.
 
  Reinsurance balances receivable were $86.8 million at September 30, 1998
compared to $80.0 million at September 30, 1997. This increase was due to the
inclusion of receivable balances relating to the business underwritten by
LaSalle Re Capital. At September 30, 1998, these receivable balances were
$31.2 million compared to $11.3 million as at September 30, 1997. Given the
three-year accounting methodology utilized by Lloyd's, these balances will not
be received until after the year 2000.
 
  Deferred acquisition costs increased from $11.9 million at September 30,
1997 to $13.4 million at September 30, 1998 whereas unearned premiums
decreased from $88.5 million at September 30, 1997 to $83.1 million at
September 30, 1998. Although the volume of gross premiums written has
declined, there has been an increase in the average cost of the business
written due to increased costs associated with proportional business and an
increased level of LaSalle Re Capital business.
 
  Prepaid reinsurance premiums have increased from $5.8 million at September
30, 1997 to $7.6 million at September 30, 1998. The increase primarily related
to an increase in the level of the risk transfer portion of the Company's
reinsurance program and to the level of reinsurance ceded by LaSalle Re
Capital.
 
  Other assets increased from $22.6 million at September 30, 1997 to $31.7
million as at September 30, 1998. This was primarily due to the deposit
portion of the ceded reinsurance contract, which is accounted for in
accordance with SFAS No 113 and the no claims bonus provision of the contract.
In addition, following the termination of the Administrative Services
Agreement the Company paid $1.5 million to purchase the existing fixed assets.
The Company has also purchased additional fixed assets during the year ended
September 30, 1998.
 
  At September 30, 1998, the liability for unpaid losses and loss expenses was
$97.9 million compared to $45.5 million at September 30, 1997. The increase of
$52.4 million from September 30, 1997 was primarily due to the losses which
occurred in the fourth quarter on which the Company made an estimate of its
total liability, notably Hurricane Georges. In addition, the Company increased
its reserves for unpaid losses on other lines of business and the business
written by LaSalle Re Capital which, given the three-year accounting
methodology, will not be paid until after the year 2000.
 
                                    10K-26
<PAGE>
 
  Other liabilities increased from $22.8 million as at September 30, 1997 to
$29.2 million as at September 30, 1998. The increase of $6.4 million was
primarily due to liabilities established for the purchased reinsurance
protections for both the Company and LaSalle Re Capital and operating expenses
of LaSalle Re Capital. This was offset partially by a reduction in the fees
accrued pursuant to the Underwriting Services Agreement with CNA Bermuda which
was terminated October 1, 1998 and the Administrative Services Agreement with
ARC which was terminated October 1, 1997.
 
  In accordance with the terms of certain reinsurance contracts written by the
Company, the Company has posted letters of credit in the amount of $8.3
million as of September 30, 1998 as compared to $8.7 million as of September
30, 1997 to support outstanding loss reserves. In connection with LaSalle Re
Capital's support of three Lloyd's syndicates, the Company has posted letters
of credit in the amount of $16.6 million (equivalent to (Pounds)9.8 million).
In addition, in connection with the Japanese earthquake swap, the Company has
posted a letter of credit of $3.0 million. All letters of credit are secured
by a lien on the Company's investment portfolio equal to 115% of the amount of
the outstanding letters of credit.
 
  The Company paid dividends on its Common Shares of $0.71 per share in
October 1997 and $0.75 per share in January, April and July 1998. The Company
paid a quarterly dividend of $0.5469 per share to holders of its Series A
Preferred Shares in December 1997 and March, June and September 1998. As of
September 30, 1998, dividends due but not yet declared on the Series A
Preferred Shares amounted to $0.5 million.
 
  Based on the Company's net income for the year ended September 30, 1998, the
Company currently expects to declare dividends of $0.375 per Common Share each
quarter during the 1999 fiscal year. The actual amount and timing of any
future Common Share dividends is at the discretion of the Board. The
declaration and payment of any dividends is dependent upon the profits and
financial requirements of the Company and other factors, including certain
legal, regulatory and other restrictions. There can be no assurance that the
Company's dividend policy will not change or that the Company will declare or
pay any dividends in future periods.
 
  LaSalle Re Capital is committed to provide capital support for the 1999
underwriting year to the same Lloyd's syndicates as it supported in 1998. The
level of support is not expected to change materially from that provided in
1998. The Company has no material commitments for capital expenditures.
 
  The Company has in place a $100 million committed line of credit from a
syndicate of banks. The proceeds from the credit facility may only be used to
buy preferred shares of LaSalle Re that, in turn, may use the proceeds of such
purchase to meet current cash requirements. The facility matures December 1,
2000, and is secured by a pledge ("legal mortgage") of all the capital stock
of LaSalle Re held by the Company, including any preferred shares that may be
issued by LaSalle Re to the Company. The line of credit contains various
covenants, including limitations on incurring additional indebtedness;
restrictions on the sale or lease of assets not in the ordinary course of
business; maintenance of a ratio of consolidated total debt to consolidated
tangible net worth of no more than 0.40 to 1.00; maintenance of tangible net
worth at the end of each fiscal year of the greater of $300 million or 70% of
net premiums written; maintenance of statutory capital of LaSalle Re of at
least $300 million, increasing to $350 million at the end of calendar year
1998 and $400 million at the end of calendar year 1999 and thereafter; and
maintenance of a ratio of net premiums written to statutory capital at the end
of any fiscal quarter for the four fiscal quarters then ended of no more than
1.00 to 1.00 in each case. The Company may pay dividends and make other
restricted payments so long as, after giving effect to such restricted
payments, no event of default has occurred. Dividends and restricted payments
are limited to 50% of consolidated net income for its immediately preceding
fiscal year less amounts paid on the Series A preferred shares. In order for
the Company to pay dividends in excess of 50% of consolidated net income, the
Company would have to renegotiate certain terms of its credit facility. As of
September 30, 1998, the credit facility had not been utilized.
 
  The Company's financial condition and results of operations are influenced
by both internal and external forces. Loss payments, investment returns and
premiums may be impacted by changing rates of inflation and other economic
conditions. Cash flows from operations and the liquidity of its investment
portfolio are, in the Company's opinion, adequate to meet the Company's
expected cash requirements over the next 12 months.
 
                                    10K-27
<PAGE>
 
  In June 1997, the Financial Accounting Standards Board issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information." This
statement is effective for financial statements issued for periods beginning
after December 15, 1997 and requires the Company to report financial and
descriptive information about its reportable operating segments. This standard
will require additional disclosure and will be adopted by the Company for the
year ended September 30, 1999.
 
  In February 1998, the Financial Accounting Standards Board issued SFAS No.
132 "Employers' Disclosures about Pensions and other Postretirement Benefits".
This statement is effective for fiscal years beginning after December 15,
1997. As the provisions of the statement need not be applied to immaterial
items, the Company considers it unlikely the statement will change its
disclosures significantly.
 
  In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". This statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Given the limited number of transactions currently entered into by the
Company that are covered by the statement, the Company does not anticipate any
significant changes to its current financial reporting.
 
 Year 2000 Issue
 
  The Company's goal is to ensure that its computer systems and the computer
systems of third parties that are material to the Company's operations (such
as the computer systems of service providers, suppliers and brokers) will be
capable of correctly processing information relating to dates in and after the
year 2000 ("Year 2000 compliant"). The Company does not believe that it faces
any material Year 2000 compliance problems with respect to its non-information
technology systems.
 
  The Company engaged International Business Machines Corporation ("IBM") to
prepare an assessment and strategy report outlining the steps needed to make
the Company's computer systems Year 2000 compliant. IBM's report indicated
that certain of the Company's systems, applications and business interfaces
have Year 2000 date problems which will require an estimated 359 person-days
to correct. The Company has set a target date of March 31, 1999 for the
completion of the necessary conversions to the following systems: (i) the
Senator underwriting management system, (ii) the RSG reinsurance system, (iii)
other software and hardware components and infrastructure, (iv) enterprise-
wide spreadsheet and database files, (v) broker compliance and (vi) supplier
compliance. The Company has budgeted $0.3 million for the overall Year 2000
compliance effort and has expensed $0.06 million to date for the IBM
assessment and strategy report. Given the current level of estimated costs, it
is not anticipated that the costs of Year 2000 compliance will have a material
impact on the Company's future results.
 
  A number of risk factors, including but not limited to the following, could
affect the Company's plans to achieve Year 2000 compliance by March 31, 1999
within the current budget:
 
  . As the Company is currently completing its installation of the Senator
    underwriting management system, any delay in completing that installation
    could delay the Year 2000 conversion of components of that system. To
    provide for that contingency, the Company has contracted with outside
    service providers to ensure that the Company's current RSG reinsurance
    system is Year 2000 compliant by January 31, 1999.
 
  . The target date of March 31, 1999 for Year 2000 compliance is based on
    the December 1998 commencement and timely progress of the actual software
    conversions. Any delays in starting or implementing the conversion
    process will present a significant hindrance to completing the project by
    the target date.
 
  . Information technology ("IT") resources to implement Year 2000
    conversions are in short supply and the supply of external contractor
    resources is likely to decrease further as the Year 2000 approaches. This
    shortage of resources could escalate the cost of performing the
    conversion work beyond the current estimates. The Company intends to
    maximize internal IT resources by freezing all discretionary changes to
    applications during the Year 2000 conversion and does not anticipate that
    this will delay other significant IT projects.
 
                                    10K-28
<PAGE>
 
  . The Company has no control over the timing of Year 2000 compliance by
    external brokers and suppliers who interface with the Company. However,
    the Company has distributed a Year 2000 compliance questionnaire to its
    suppliers and brokers and, as of November 12, 1998, 63.5% of suppliers
    and 61.5% of brokers, including the Company's major suppliers and
    brokers, had adequately responded to the Company's questionnaire.
 
  The Company also assesses the effect of the Year 2000 issue on the business
it underwrites, considering the exposure to Year 2000 related losses on a
contract by contract basis at the time of underwriting.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
  The Company's major market risk exposure is changing interest rates,
primarily in the United States as the Company has a portfolio of fixed
maturity investments, of which all except one hedged international bond are
denominated in U.S. dollars. A change in interest rates will affect the fair
value of the Company's investments and will lead to fluctuations in
"Accumulated Other Comprehensive Income" on the balance sheet. The Company
limits this risk by setting a maximum portfolio duration of four years, which
is stipulated in the Company's investment guidelines. The Company does not use
derivative financial instruments to manage market risk in its U.S. dollar
denominated portfolio. In addition, the Company places its investments with
high credit quality issuers and limits the amount of credit exposure with
respect to particular ratings categories and any one issuer or country of
issuer. The table below (expressed in millions of U.S. dollars) presents the
par value amounts and related weighted average interest rates by year of
maturity for the Company's U.S. dollar denominated investment portfolio.
 
<TABLE>
<CAPTION>
                         1998  1999  2000  2001  2002   2003  2004  2005  2006  2007  2008  2013  TOTAL
                         ----  ----  ----  ----  -----  ----  ----  ----  ----  ----  ----  ----  -----
<S>                      <C>   <C>   <C>   <C>   <C>    <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>
Cash and cash
 equivalents............ 55.5                                                                      55.5
Weighted average
 interest rate..........  5.8%                                                                      5.8%
Investments Fixed
 interest............... 23.0  11.7  66.0  60.0  127.5  78.0  15.0  3.0   5.0   14.5  63.0  29.7  496.4
Weighted average
 interest rate..........  5.7%  6.2%  6.0%  6.3%   6.2%  5.8%  6.2% 5.9%  5.9%   5.7%  5.7%  6.4%   6.0%
</TABLE>
 
  Mortgage backed securities are included in the above table by relevant year
of maturity. In addition, unit funds which are included as part of cash and
cash equivalents are included in the above table at par value.
 
  During the year ended September 30, 1998, the Company amended its investment
guidelines to permit investment in hedged international bonds. Under this type
of investment, the currency risk is negated through the use of forward
contracts, with the Company only being exposed to the interest rate risk on
the bond purchased. As at September 30, 1998, only one bond had been purchased
with a par value of Canadian dollars $7 million, an interest rate of 5.3% and
a maturity date of 2007.
 
  The fair value of the cash and cash equivalents and the fixed interest
securities as at September 30, 1998 was $606.8 million.
 
  In addition, the Company has foreign currency risk on both reinsurance
balances receivable and reinsurance balances payable (including payables
relating to losses). The Company does not currently utilize derivative
instruments to manage the Company's exposure to foreign currency movements. In
the past the Company has used forward contracts to eliminate the risk;
however, given the uncertainty in cash flows this was not deemed to be an
efficient management technique. As of September 30, 1998, the majority of the
Company's net receivable/payable position is denominated in U.S. dollars. As
at September 30, 1998, the largest foreign currency exposure is sterling, as
the Company had a net receivable balance of (Pounds)14.1 million. A 5%
increase or decrease in the year-end sterling/U.S. dollar exchange rate would
produce a gain or loss, respectively, of $1.2 million. Given the limited
amount of net receivable balances in other currencies, no other currency
movement has been considered.
 
                                    10K-29
<PAGE>
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                          LASALLE RE HOLDINGS LIMITED
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                           PAGE
                                                                          NUMBER
                                                                          ------
<S>                                                                       <C>
INDEPENDENT AUDITORS' REPORT............................................. 10K-31
CONSOLIDATED BALANCE SHEETS.............................................. 10K-32
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME........... 10K-33
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY............... 10K-34
CONSOLIDATED STATEMENTS OF CASH FLOWS.................................... 10K-35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................... 10K-36
</TABLE>
 
                                     10K-30
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT
 
The Board of Directors and Shareholders
LaSalle Re Holdings Limited
 
  We have audited the consolidated financial statements of LaSalle Re Holdings
Limited and subsidiaries as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LaSalle Re
Holdings Limited and subsidiaries as of September 30, 1998 and 1997 and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1998 in conformity with generally
accepted accounting principles.
 
                                          KPMG PEAT MARWICK
                                          Chartered Accountants
 
Hamilton, Bermuda
October 26, 1998
 
                                    10K-31
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
                          CONSOLIDATED BALANCE SHEETS
 
                    YEARS ENDED SEPTEMBER 30, 1998 AND 1997
  (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
                                     DATA)
 
<TABLE>
<CAPTION>
                                                                  1998     1997
                                                                -------- --------
<S>                                                             <C>      <C>
ASSETS
Cash and cash equivalents.....................................  $ 85,281 $ 54,761
Investments held as available for sale at fair value..........   521,476  498,282
 (amortized cost 1998: $503,531; 1997: $495,705)
Accrued investment income.....................................    11,056   12,684
Reinsurance balances receivable...............................    86,779   80,041
 (related party 1998: $8,729; 1997: $13,481)
Deferred acquisition costs....................................    13,444   11,932
Prepaid reinsurance premiums..................................     7,584    5,837
Other assets..................................................    31,670   22,551
                                                                -------- --------
Total assets..................................................  $757,290 $686,088
                                                                ======== ========
LIABILITIES
Outstanding losses and loss expenses..........................  $ 97,942 $ 45,491
Unearned premiums.............................................    83,119   88,490
Other liabilities.............................................    29,241   22,823
 (related party 1998: $3,831; 1997: $7,975)
Dividend payable..............................................    11,366   10,703
                                                                -------- --------
Total liabilities.............................................   221,668  167,507
                                                                -------- --------
Minority Interest.............................................   105,569   93,355
                                                                -------- --------
SHAREHOLDERS' EQUITY
Share capital authorized in the aggregate 100,000,000 shares,
par value $1
Preferred shares..............................................     3,000    3,000
 (par value $1, liquidation preference $25 per share, issued &
 outstanding,
 3,000,000 Series A Preferred Shares)
Common shares.................................................    15,179   15,074
 (par value $1 issued & outstanding, 15,178,791; 1997:
  15,073,914)
Additional paid in capital....................................   295,578  299,964
Accumulated other comprehensive income........................    13,838    2,035
Retained earnings.............................................   102,458  105,153
                                                                -------- --------
Total shareholders' equity....................................   430,053  425,226
                                                                -------- --------
Total liabilities, minority interest and shareholders' equity.  $757,290 $686,088
                                                                ======== ========
</TABLE>
 
          See accompanying notes to consolidated financial statements
 
                                     10K-32
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
         CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
 
                 YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
  (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
                                     DATA)
 
<TABLE>
<CAPTION>
                                                     1998      1997      1996
                                                   --------  --------  --------
<S>                                                <C>       <C>       <C>
REVENUES
Premiums written.................................  $155,316  $171,386  $190,151
 (related party 1998: $16,917; 1997: $21,408;
 1996: $24,045)
Premiums ceded...................................    (7,815)   (7,693)        0
                                                   --------  --------  --------
Net premiums written.............................   147,501   163,693   190,151
Change in unearned premiums and prepaid
 reinsurance premiums............................     7,119       240     4,990
                                                   --------  --------  --------
Net premiums earned..............................   154,620   163,933   195,141
Net investment income............................    34,288    33,109    26,846
Net realized gains (losses) on investments.......     5,575       555      (418)
Other income ....................................        63       188         0
 (related party 1998: $63; 1997: $188; 1996: $0)
                                                   --------  --------  --------
Total revenues...................................   194,546   197,785   221,569
                                                   --------  --------  --------
EXPENSES
Losses and loss expenses incurred................    95,539    31,199    51,477
Underwriting expenses............................    22,661    26,018    27,268
 (related party 1998: $6,318; 1997: $9,857; 1996:
 $10,419)
Operational expenses.............................     8,932    12,656    11,114
 (related party 1998: $44; 1997: $6,212; 1996:
 $6,500)
Corporate expenses...............................       517     1,770       911
Interest expense.................................     1,881     1,678       222
Exchange (gains) losses..........................      (216)    2,996     1,126
                                                   --------  --------  --------
Total expenses...................................   129,314    76,317    92,118
                                                   --------  --------  --------
Income before minority interest..................    65,232   121,468   129,451
Minority interest................................    13,426    24,391    47,966
                                                   --------  --------  --------
Net income.......................................  $ 51,806  $ 97,077  $ 81,485
OTHER COMPREHENSIVE INCOME
Unrealized gains (losses) on securities..........  $ 12,715  $  3,592  $   (483)
Less: reclassification adjustments for (gains)
 losses included in net income...................  $   (912) $    304  $   (339)
                                                   --------  --------  --------
Total other comprehensive income.................    11,803     3,896      (822)
                                                   --------  --------  --------
Comprehensive income.............................  $ 63,609  $100,973  $ 80,633
                                                   ========  ========  ========
Earnings per common share........................  $   3.06  $   5.55  $   5.70
                                                   ========  ========  ========
Earnings per common share--assuming dilution.....  $   2.80  $   5.14  $   5.40
                                                   ========  ========  ========
</TABLE>
 
          See accompanying notes to consolidated financial statements
 
                                     10K-33
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
 
                 YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
  (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
                                     DATA)
 
<TABLE>
<CAPTION>
                                                   1998      1997      1996
                                                 --------  --------  --------
<S>                                              <C>       <C>       <C>
PREFERRED SHARES PAR VALUE $1
Balance at beginning and end of year............ $  3,000  $  3,000  $      0
                                                 ========  ========  ========
COMMON SHARES PAR VALUE $1
Balance at beginning of year.................... $ 15,074  $ 14,398  $ 14,398
Issuance of shares..............................      155         1         0
Share repurchase................................      (50)   (3,704)        0
Change in minority interest.....................        0     4,379         0
                                                 --------  --------  --------
Balance at end of year.......................... $ 15,179  $ 15,074  $ 14,398
                                                 ========  ========  ========
ADDITIONAL PAID IN CAPITAL
Balance at beginning of year.................... $299,964  $221,968  $221,968
Issuance of shares..............................    1,490    70,177         0
Share repurchase................................     (790)  (44,990)        0
Change in minority interest.....................   (3,274)   54,664         0
Equity put option premium.......................   (1,812)   (1,855)        0
                                                 --------  --------  --------
Balance at end of year.......................... $295,578  $299,964  $221,968
                                                 ========  ========  ========
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of year.................... $  2,035  $ (1,861) $ (1,039)
Unrealized gain / (loss) in year................   11,851     4,354      (822)
Change in minority interest.....................      (48)     (458)        0
                                                 --------  --------  --------
Balance at end of year.......................... $ 13,838  $  2,035  $ (1,861)
                                                 ========  ========  ========
RETAINED EARNINGS
Balance at beginning of year.................... $105,153  $ 72,943  $ 18,095
Net income......................................   51,806    97,077    81,485
Common share dividends..........................  (44,641)  (44,860)  (26,637)
 (1998: $3.00 per share; 1997: $2.84 per share;
 1996: $0.75 per share)
Preferred share dividends.......................   (6,563)   (2,807)        0
 (1998: $2.19 per share; 1997: $0.94 per share;
 1996: $Nil)
Share repurchase................................     (719)  (33,807)        0
Option exercise.................................     (133)        0         0
Change in minority interest.....................   (2,445)   16,607         0
                                                 --------  --------  --------
Balance at end of year.......................... $102,458  $105,153  $ 72,943
                                                 ========  ========  ========
    Total shareholders' equity.................. $430,053  $425,226  $307,448
                                                 ========  ========  ========
</TABLE>
 
          See accompanying notes to consolidated financial statements
 
                                     10K-34
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                 YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
  (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
                                     DATA)
 
<TABLE>
<CAPTION>
                               1998       1997       1996
                             ---------  ---------  ---------
<S>                          <C>        <C>        <C>
CASH FLOWS FROM OPERATING
 ACTIVITIES
Net income.................  $  51,806  $  97,077  $  81,485
Adjustments to reconcile
 net income to cash
 provided by operating
 activities:
  Minority interest in net
   income..................     13,426     24,391     47,966
  Amortization of
   investment premium......        863      1,725      3,280
  Net realized
   (gains)/losses on sale
   of investments...........    (5,575)      (555)       418
  Unrealized (gains)/losses
   on foreign exchange......      (594)       937        590
Changes in:
  Accrued investment
   income..................      1,628      1,527      1,592
  Reinsurance balances
   receivable...............    (6,590)   (10,495)    15,412
  Deferred acquisition
   costs....................    (1,512)    (1,468)       244
  Prepaid reinsurance
   premiums.................    (1,747)    (5,837)         0
  Other assets..............    (9,156)   (20,981)      (105)
  Outstanding losses and
   loss expenses............    52,218     (4,242)   (16,748)
  Unearned premiums.........    (5,372)     5,596     (4,991)
  Other liabilities.........     6,613     10,968      2,294
                             ---------  ---------  ---------
Cash provided by operating
 activities................     96,008     98,643    131,437
                             ---------  ---------  ---------
CASH FLOWS FROM INVESTING
 ACTIVITIES
Purchase of investments....   (427,283)  (364,989)  (270,287)
Net sales of short term
 investments...............          0        116         47
Proceeds on the sale of
 investments...............    389,170    282,449    170,296
Proceeds on the maturity of
 investments...............     35,000     79,000     44,500
                             ---------  ---------  ---------
Cash applied to investing
 activities................     (3,113)    (3,424)   (55,444)
                             ---------  ---------  ---------
CASH FLOWS FROM FINANCING
 ACTIVITIES
Net proceeds from
 subscriptions to share
 capital...................      4,802     72,682          0
Payment of dividends.......    (63,267)   (54,338)  (111,363)
Share repurchase...........     (1,560)  (103,442)         0
Equity put option premium..     (2,350)    (2,350)         0
                             ---------  ---------  ---------
Cash applied to financing
 activities................    (62,375)   (87,448)  (111,363)
                             ---------  ---------  ---------
Net increase/(decrease) in
 cash and cash equivalents.     30,520      7,771    (35,370)
Cash and cash equivalents
 at beginning of year......     54,761     46,990     82,360
                             ---------  ---------  ---------
Cash and cash equivalents
 at end of year............  $  85,281  $  54,761  $  46,990
                             =========  =========  =========
</TABLE>
 
          See accompanying notes to consolidated financial statements
 
                                     10K-35
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
 (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
                                     DATA)
 
1. GENERAL
 
  The Company was incorporated on September 20, 1995 under the laws of Bermuda
to act as an investment holding company. LaSalle Re Limited ("LaSalle Re") was
incorporated on October 26, 1993 under the laws of Bermuda and commenced
operations on November 22, 1993. LaSalle Re is licensed under the Insurance
Act, 1978 as amended by the Insurance Amendment Act, 1995 of Bermuda (the
"Act") to write insurance business and operates as a multi-line reinsurance
company, with emphasis on property catastrophe business.
 
  Property catastrophe reinsurance covers unpredictable events such as
hurricanes, windstorms, hailstorms, earthquakes, fires, industrial explosions,
freezes, riots, floods and other man-made or natural disasters. Because the
Company has large aggregate exposures to these risks, the Company expects that
its claims experience will be characterized by relatively low frequency and
high severity claims. The occurrence of claims from catastrophic events is
likely to result in substantial volatility in the Company's financial results
for any particular period. The Company endeavors to manage its exposures to
catastrophic events by limiting the amount of its exposure in each geographic
zone worldwide and requiring that its property catastrophe contracts provide
for aggregate limits and attachment points.
 
  On August 26, 1994, LaSalle Re incorporated a subsidiary company in the
United Kingdom, LaSalle Re (Services) Limited, to act as a representative
office for the Company. In addition, on June 11, 1996, LaSalle Re incorporated
a subsidiary company in Bermuda, LaSalle Re Corporate Capital Ltd., to provide
capital support to selected Lloyd's syndicates.
 
  In November 1995, the Company and LaSalle Re consummated an offer (the
"Exchange Offer") pursuant to which, among other things, the founding
shareholders of LaSalle Re (the "Founding Shareholders") exchanged their
capital stock of LaSalle Re for common shares of the Company (the "Common
Shares") and, in certain circumstances, exchangeable non-voting shares of
LaSalle Re (the "Exchangeable Non-Voting Shares"). The Exchange Offer was
accounted for as if it were a pooling of interests of combining enterprises
under common control.
 
  On November 27, 1995, the Company and certain Founding Shareholders also
consummated an initial public offering of 4,312,500 Common Shares. Of these
shares, 2,920,500 were sold by Founding Shareholders and 1,392,000 by the
Company. The proceeds from the sale of 1,392,000 shares sold by the Company
were used to enable LaSalle Re to redeem shares of its capital stock.
 
  The consolidated financial statements include the results of the Company and
the Company's share of LaSalle Re and its subsidiaries for all periods
presented.
 
2. SIGNIFICANT ACCOUNTING POLICIES
 
  The accompanying consolidated financial statements are prepared in
accordance with United States generally accepted accounting principles
("GAAP"). The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
and disclosed amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates. The estimates most susceptible to
significant change are those used in determining the liability for unpaid
losses and loss expenses and the amount of ultimate premiums written.
 
                                    10K-36
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The following are the significant accounting policies adopted by the
Company:
 
 (a) Principles of consolidation
 
  The consolidated financial statements include the financial statements of
LaSalle Re Holdings Limited, LaSalle Re Limited and its subsidiaries, LaSalle
Re (Services) Limited and LaSalle Re Corporate Capital Ltd. All significant
inter-company balances and transactions have been eliminated in consolidation.
 
 (b) Minority interest
 
  Minority interest represents the Founding Shareholders' ownership of the
Exchangeable Non-Voting Shares in LaSalle Re. These shares are held by certain
Founding Shareholders who would otherwise hold, or cause another shareholder
to hold, directly, indirectly or constructively, in excess of 9.9% of the
voting power of the Company or LaSalle Re. The Exchangeable Non-Voting Shares
in LaSalle Re are exchangeable, at the option of the holder, for Common Shares
of the Company, on a one-for-one basis, unless the board of directors of the
Company determines such exchange may cause actual or potential adverse tax
consequences to the Company or any shareholder. The Exchangeable Non-Voting
Shares will at all times rank as to assets, dividends and in all other
respects on a parity with the Common Shares of LaSalle Re, except that they do
not have the right to vote on any matters except as required by Bermuda law
and in connection with certain actions by the Company.
 
  Changes in the minority interest of LaSalle Re as a result of the exchange
of such shares for shares in the Company are recorded at historic cost by
transferring an appropriate portion of the minority interest to the various
components of shareholders' equity. The minority's share of income as recorded
in the income statement is calculated using the minority's ownership
percentage as at the balance sheet date. Minority interest as reported in the
balance sheet represents the minority's current proportionate share of LaSalle
Re and its subsidiaries' net assets.
 
 (c) Premiums earned and deferred acquisition costs
 
  Premiums written are estimated by management based upon reports received
from ceding companies. These estimates are adjusted where a contract contains
a no claims bonus with a provision for the potential liability recorded
simultaneously with the written premium. In addition, estimates are subject to
review with adjustments recorded in the period in which the actual amounts are
determined. Premiums on property catastrophe excess of loss contracts are
earned on a pro rata basis over the period the coverage is provided, which is
generally 12 months. Under pro rata property catastrophe contracts, the risks
underlying the contracts incept throughout the policy period and premiums
generally are earned over an 18 month period. Premiums written by LaSalle Re
Corporate Capital Ltd. are derived from reports submitted to the Company by
the syndicates. These premiums are earned in accordance with the related
underlying risk attachment periods, which average between 18-24 months.
Unearned premiums represent the portion of premiums written which are
applicable to the unexpired terms of the policies in force.
 
  Acquisition costs, mainly brokerage, commissions, underwriting fees and
excise taxes related to unearned premiums, are deferred and amortized to
income over the period in which the premiums are earned. Future earned
premiums and anticipated losses and loss adjustment expenses related to those
premiums are considered in determining the recoverability of deferred
acquisition costs. The Company does not consider anticipated future investment
income in determining if a premium deficiency exists.
 
 (d) Reinsurance
 
  In the normal course of business, the Company seeks to reduce its exposure
to losses that may arise from catastrophes and cause unfavorable underwriting
results by reinsuring certain levels of risks with other reinsurers.
 
                                    10K-37
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  In accordance with Statement of Financial Accounting Standard ("SFAS") No.
113 "Accounting and Reporting for Reinsurance of Short-Duration and Long-
Duration Contracts", contracts providing indemnification against loss or
liability relating to insurance risk have been accounted for as reinsurance.
Reinsurance premiums are reported as prepaid reinsurance premiums and
amortized over the contract period in proportion to the amount of reinsurance
protection provided. Where the contract provides for return premiums, these
are accrued based on loss experience through to the balance sheet date.
Reinsurance contracts, which do not satisfy the conditions for reinsurance
accounting under SFAS No. 113, are accounted for as deposits.
 
 (e) Losses and loss expenses
 
  The liability for outstanding losses and loss expenses is based on reports
and individual case estimates received from ceding companies. An amount is
included for losses and loss expenses incurred but not reported on the basis
of reports received from ceding companies and an actuarial analysis. The
amount included as losses incurred in respect of business written by LaSalle
Re Corporate Capital Ltd. is derived from an analysis of expected loss ratios.
 
  Given the inherent nature of major catastrophic events, considerable
uncertainty underlies the assumptions and associated estimated reserves for
losses and loss expenses. These estimates are reviewed regularly and, as
experience develops and new information becomes known, the reserves are
adjusted as necessary. Such adjustments, if any, are reflected in results of
operations in the period in which they are determined and are accounted for as
changes in estimates. Due to the inherent uncertainty in estimating the
liability for losses and loss expenses, there can be no assurance that the
ultimate liability will not exceed recorded amounts, with a resulting material
effect on the Company. Based on the current assumptions used in calculating
the liability, management believes that the Company's recorded amount is
adequate to meet its future obligations.
 
  Amounts recoverable from reinsurers are estimated in a manner consistent
with the underlying liabilities.
 
  Liabilities are recorded without consideration of potential salvage or
subrogation recoveries that are estimated to be immaterial. Such recoveries,
when realized, are reflected as a reduction of losses incurred.
 
 (f) Investments
 
  The Company's investments comprise fixed interest securities and short term
investments, such as certificates of deposit or commercial paper. All
investments are considered to be available for sale under the definition
included in SFAS No. 115 "Accounting and Reporting for Certain Investments in
Debt and Equity Securities". As such, they are reported at fair value with
unrealized gains and losses, net of amounts attributable to the minority
interest, reported as other comprehensive income.
 
  Purchases and sales of investments are accounted for on the trade date of
the transaction.
 
 (g) Investment income
 
  Investment income, net of investment expenses, is accrued to the balance
sheet date and includes amortization of premiums and accretion of discounts
relative to fixed interest securities purchased at prices different to par
value.
 
  Realized gains or losses on sales of investments are determined on the basis
of specific identification and are included in the consolidated statements of
operations and comprehensive income.
 
                                    10K-38
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 (h) Translation of foreign currencies
 
  The U.S. dollar is the Company's functional currency. Foreign currency
monetary assets and liabilities are translated at exchange rates in effect at
the balance sheet date. Unearned premiums and deferred acquisition costs are
translated at historic exchange rates. Foreign currency revenues and expenses
are translated at the exchange rates in effect at the date of the transaction.
Exchange gains and losses are included in the determination of net income, as
they arise.
 
  The Company has entered into foreign exchange contracts to manage the
currency risks associated with the receipt of non-U.S. dollar insurance
premiums. Realized and unrealized gains and losses on these contracts are
included in the determination of net income as they arise.
 
 (i) Fair value of financial instruments
 
  Fair value disclosures with respect to certain financial instruments are
separately included herein, where appropriate.
 
  The carrying values of other financial instruments, including cash and cash
equivalents, reinsurance balances receivable, accrued investment income,
promissory note receivable and other liabilities, approximate their fair value
due to the short term nature of the balances.
 
 (j) Other income
 
  Other income relates to fees earned in respect of reinsurance services
provided.
 
 (k) Corporate expenses
 
  Corporate expenses are recorded on an accruals basis.
 
 (l) Cash and cash equivalents
 
  For the purposes of the consolidated statements of cash flows, the Company
considers all time deposits and certificates of deposit with an original
maturity of 90 days or less as equivalent to cash.
 
 (m) Stock incentive compensation plans
 
  The Company has adopted SFAS No. 123 "Accounting for Stock-Based
Compensation". As allowed under this standard, the Company accounts for stock
option grants in accordance with APB opinion No. 25, "Accounting for Stock
Issued to Employees". Compensation expense for stock option grants is
recognized to the extent that the fair value of the stock exceeds the exercise
price of the option at the measurement date. Any resulting compensation
expense is recorded over the shorter of the vesting or service period.
 
  Pro forma disclosure of net income and earnings per share as if the fair
value based method of SFAS No. 123 had been adopted is provided in Note 10 to
the consolidated financial statements.
 
 (n) Earnings per common share
 
  Earnings per Common Share have been calculated in accordance with SFAS 128
"Earnings per Share". Earnings per Common Share are calculated by dividing net
income available to common shareholders by the weighted average number of
Common Shares outstanding. For the purposes of this calculation, the
exchangeable non-voting shares of LaSalle Re ("Exchangeable Non-Voting
Shares") are considered outstanding Common Shares of the Company due to the
exchangeable nature of the shares. Earnings per Common Share assuming dilution
is computed by dividing net income available to common shareholders by the sum
of the weighted average number of Common Shares outstanding and the dilutive
potential Common Shares outstanding during the period of calculation. Prior
period calculations have been restated to give effect to SFAS 128.
 
                                    10K-39
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 (o) Accounting pronouncements
 
  In June 1997, the Financial Accounting Standards Board issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information." This
statement is effective for financial statements issued for periods beginning
after December 15, 1997 and requires the Company to report financial and
descriptive information about its reportable operating segments. This standard
will require additional disclosure and will be adopted by the Company for the
year ended September 30, 1999.
 
  In February 1998, the Financial Standards Board issued SFAS No. 132
"Employers' Disclosures about Pensions and other Postretirement Benefits".
This statement is effective for fiscal years beginning after December 15,
1997. As the provisions of the statement need not be applied to immaterial
items, the Company considers it unlikely the statement will change its
disclosures significantly.
 
  In June 1998, the Financial Standards Board issued SFAS No. 133 "Accounting
for Derivative Instruments and Hedging Activities". This statement is
effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Given the limited number of transactions currently entered into by the
Company that are covered by the Statement, the Company does not anticipate any
significant changes to its current financial reporting.
 
3. INVESTMENTS AND INVESTMENT INCOME
 
 (a) Investments
 
  All fixed interest securities and short term investments are considered as
available for sale. The fair values are based on quoted market prices at the
reporting date for those, or similar, investments. As at September 30, 1998
and 1997, the fair values and amortized cost of investments are as follows:
 
<TABLE>
<CAPTION>
                                        AMORTIZED UNREALIZED UNREALIZED   FAIR
1998                                      COST      GAINS      LOSSES    VALUE
----                                    --------- ---------- ---------- --------
<S>                                     <C>       <C>        <C>        <C>
U.S. government and agencies........... $134,832   $ 6,349    $     0   $141,181
Non U.S. government and agencies.......   37,239     1,233        (90)    38,382
Corporate..............................  299,101     9,869         (3)   308,967
Mortgage-backed securities.............   29,649       581          0     30,230
Other debt.............................    2,710        10         (4)     2,716
                                        --------   -------    -------   --------
                                        $503,531   $18,042    $   (97)  $521,476
                                        ========   =======    =======   ========
<CAPTION>
                                        AMORTIZED UNREALIZED UNREALIZED   FAIR
1997                                      COST      GAINS      LOSSES    VALUE
----                                    --------- ---------- ---------- --------
<S>                                     <C>       <C>        <C>        <C>
U.S. government and agencies........... $ 88,088   $   506    $  (195)  $ 88,399
Non U.S. government and agencies.......   71,541       456       (207)    71,790
Corporate..............................  335,076     2,819       (831)   337,064
Other debt.............................    1,000        29          0      1,029
                                        --------   -------    -------   --------
                                        $495,705   $ 3,810    $(1,233)  $498,282
                                        ========   =======    =======   ========
</TABLE>
 
  The unrealized gain on investments as shown on the consolidated balance
sheet of $13,838 (1997: $2,035) is net of the minority's interest of $4,107
(1997: $542).
 
  Investments held at September 30, 1998 mature as follows:
 
<TABLE>
<CAPTION>
                                                             AMORTIZED   FAIR
                                                               COST     VALUE
                                                             --------- --------
      <S>                                                    <C>       <C>
      Less than one year.................................... $ 24,745  $ 24,747
      1-5 years.............................................  337,360   348,926
      5-10 years............................................  111,777   117,573
                                                             --------  --------
                                                              473,882   491,246
      Mortgage-backed securities............................   29,649    30,230
                                                             --------  --------
                                                             $503,531  $521,476
                                                             ========  ========
</TABLE>
 
                                    10K-40
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The following table summarizes the composition of the fair value of
available for sale securities by ratings assigned by Standard & Poor's Ratings
Services or Moody's Investors Services Inc. or, with respect to non-rated
issues, as estimated by the Company's investment managers.
 
<TABLE>
<CAPTION>
                                                                   1998   1997
                                                                   -----  -----
      <S>                                                          <C>    <C>
      AAA.........................................................  69.6%  43.2%
      AA..........................................................  16.9%  31.1%
      A...........................................................  11.4%  25.5%
      BB..........................................................   1.6%   0.2%
      Not rated...................................................   0.5%   0.0%
                                                                   -----  -----
                                                                   100.0% 100.0%
                                                                   =====  =====
</TABLE>
 
  In the normal course of reinsurance operations, the Company's bankers have
issued letters of credit totaling $8,303 (1997: $8,673) in favor of ceding
insurance companies to secure the Company's obligations under various
reinsurance contracts. In connection with LaSalle Re Corporate Capital Ltd.'s
support of three Lloyd's syndicates, the Company has posted letters of credit
in the amount of $16,616 (1997: $15,974). In addition, in connection with a
swap agreement, the Company has posted a letter of credit of $3,000. At
September 30, 1998, $32,107 (1997: $28,344) of fixed interest securities have
been pledged as collateral for these letters of credit.
 
 (b) Net investment income
 
  Net investment income for the years ended September 30, 1998, 1997 and 1996
was derived from the following sources:
 
<TABLE>
<CAPTION>
                                                       1998     1997     1996
                                                     --------  -------  -------
      <S>                                            <C>       <C>      <C>
      Cash and short term investments..............  $  3,649  $ 4,342  $ 1,443
      U.S. government and agencies
       fixed interest securities...................     3,627    5,933    1,631
      Non U.S. government and agencies
       fixed interest securities...................     7,548    3,531    4,702
      Corporate fixed interest securities..........    19,784   20,456   20,197
      Mortgage-backed securities...................       477        0        0
      Other........................................       154        0        0
                                                     --------  -------  -------
      Gross investment income......................    35,239   34,262   27,973
      Investment expenses (Note 11)................      (951)  (1,153)  (1,127)
                                                     --------  -------  -------
                                                     $ 34,288  $33,109  $26,846
                                                     ========  =======  =======
</TABLE>
 
  Included in gross investment income for the year ended September 30, 1998
was a charge of $863 (1997: $1,725; 1996: $3,280) relating to the amortization
of investment premium.
 
  Net realized gains (losses) comprise $6,085 realized gains and $510 realized
losses (1997: $1,881 and $1,326; 1996: $1,242 and $1,660, respectively).
 
  The change in net unrealized gains on investments, net of the minority's
interest, that has been included as part of other comprehensive income for the
year ended September 30, 1998 was an increase of $11,803 (1997 increase:
$3,896; 1996 decrease: $822).
 
  Proceeds received from the sale of available for sale securities during the
year ended September 30, 1998 were $389,170 (1997: $282,449; 1996: $170,296).
 
                                    10K-41
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
4. REINSURANCE
 
  Reinsurance premiums ceded are primarily in respect of a multi-year excess
of loss reinsurance program purchased by the Company, and various reinsurance
protections purchased by LaSalle Re Corporate Capital Ltd. The excess of loss
program provides coverage of $100,000 in excess of the first $100,000 of
losses per occurrence for a first loss event and $100,000 excess of $100,000
per occurrence on the second loss event and $100,000 excess of $150,000 per
occurrence on the third loss event over a three-year period ended December 31,
2000, subject to a maximum aggregate recovery of $300,000. The Company is
required to pay reinstatement premiums to reinstate the second and third loss
event coverages. The Company may participate on a co-insurance basis for the
third loss event.
 
  Coverage for the first loss is substantially funded by way of annual and
reinstatement premium obligations. Accordingly, this portion of the coverage
has been recorded as a financing arrangement whereby the consideration paid,
net of associated financing charges, is recorded as a deposit and included as
part of other assets in the consolidated balance sheet. The deposit asset is
adjusted at the balance sheet date to reflect the net present value of
expected future cash flows under that portion of the contract. Interest
expense includes finance charges of $1,666 (1997: $1,470), which are being
amortized over the period of the contract using the interest method.
 
  The reinsurance agreement is secured by a company which currently holds a
rating of "A+" (Superior) from A.M. Best Company, Inc. and a claims-paying
rating of "AAA" (Excellent) from Standard & Poor's Ratings Services.
 
  The ceding of the reinsurance does not legally discharge the Company from
its liability to its reinsureds, since the Company is required to pay losses
and bear collection risk if the reinsurers fail to meet their obligations
under the reinsurance agreements. The effect of reinsurance on premiums
written and earned is as follows:
 
<TABLE>
<CAPTION>
                                               1998                1997
                                         ------------------  ------------------
                                         WRITTEN    EARNED   WRITTEN    EARNED
                                         --------  --------  --------  --------
      <S>                                <C>       <C>       <C>       <C>
      Assumed...........................  155,316   160,688  $171,386  $165,789
      Ceded.............................   (7,815)   (6,068)   (7,693)   (1,856)
                                         --------  --------  --------  --------
      Net Premiums...................... $147,501  $154,620  $163,693  $163,933
                                         ========  ========  ========  ========
</TABLE>
 
  There were no premiums ceded for the year ended September 30, 1996.
 
                                    10K-42
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
5. EARNINGS PER COMMON SHARE
 
  The following earnings per Common Share amounts have been disclosed in
accordance with the requirements of SFAS No. 128:
 
<TABLE>
<CAPTION>
                                             1998         1997         1996
                                          -----------  -----------  -----------
<S>                                       <C>          <C>          <C>
Net income..............................  $    51,806  $    97,077  $    81,485
Add back: minority interest.............       13,426       24,391       47,966
Less: Series A preferred share
 dividends..............................       (6,563)      (3,354)          (0)
                                          -----------  -----------  -----------
Income available to common shareholders.  $    58,669  $   118,114  $   129,451
                                          -----------  -----------  -----------
Weighted average number of Common Shares
 outstanding:
Common Shares...........................   15,145,112   15,567,521   14,397,720
Exchangeable Non-Voting Shares..........    4,018,146    5,703,212    8,329,290
                                          -----------  -----------  -----------
Weighted average number of Common Shares
 outstanding............................   19,163,258   21,270,733   22,727,010
                                          -----------  -----------  -----------
Earnings per Common Share...............  $      3.06  $      5.55  $      5.70
                                          ===========  ===========  ===========
Income available to common shareholders.  $    58,669  $   118,114  $   129,451
Weighted average number of Common Shares
 outstanding............................   19,163,258   21,270,733   22,727,010
  Plus: incremental shares from assumed:
    exercise of options.................    1,653,233    1,661,391    1,210,317
    exercise of stock appreciation
     rights.............................       80,516       66,812       30,543
    contingently issuable shares........       22,398            0            0
                                          -----------  -----------  -----------
Adjusted weighted average number of
 Common Shares outstanding..............   20,919,405   22,998,936   23,967,870
                                          -----------  -----------  -----------
Earnings per Common Share assuming
 dilution...............................  $      2.80  $      5.14  $      5.40
                                          ===========  ===========  ===========
</TABLE>
 
  As of September 30, 1998, the Company had 1,873,782 options outstanding
(1997: 2,550,537; 1996: 2,499,348) and had granted 340,872 (1997 and 1996:
340,872) stock appreciation rights.
 
  As of September 30, 1998, 10,000 options granted with an exercise price of
$31.63 have not been included in the above computation, as the options have an
antidilutive effect on earnings per Common Share.
 
6. OTHER ASSETS
 
  Included in other assets is a promissory note receivable. In connection with
the terms of the Chief Executive Officer's five-year employment contract,
LaSalle Re advanced $695 to him for the purpose of purchasing a property in
Bermuda. The advance is evidenced by a promissory note, which bears interest
at the rate of 8% per annum and is repayable in full at the earlier of the
termination date of the Chief Executive Officer's employment contract or the
date of sale of the property. Under the employment contract, LaSalle Re will
assume any gain or loss on the disposition of the property.
 
  As discussed in Note 4, other assets also include a deposit relating to
funded reinsurance.
 
7. MINORITY INTEREST
 
  During the year ended September 30, 1998, 454,500 options to purchase
Exchangeable Non-Voting Shares were exercised. This transaction had the effect
of increasing the minority interest percentage in LaSalle Re to 22.8% from
21.1%.
 
                                    10K-43
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The following table summarizes the movement in minority interest during the
years ended September 30, 1998 and 1997.
 
<TABLE>
<CAPTION>
                                                              1998      1997
                                                            --------  ---------
      <S>                                                   <C>       <C>
      Minority Interest as at October 1.................... $ 93,355  $ 179,470
       Share of:
       income..............................................   13,426     24,391
       dividends declared..................................  (13,247)   (12,503)
       exercise of exchangeable non-voting options.........    1,055          0
       equity put option premium...........................     (538)      (495)
       share purchase adjustments..........................        0    (20,941)
       change in unrealized position of investments........    3,517      1,161
       preferred offering issue costs......................        0       (497)
       option compensation.................................      208          0
       change in minority interest.........................    7,793    (77,231)
                                                            --------  ---------
      Minority Interest as at September 30................. $105,569  $  93,355
                                                            ========  =========
</TABLE>
 
8. SHARE CAPITAL AND ADDITIONAL PAID-IN CAPITAL
 
  The authorized share capital of the Company is 100,000,000 shares of par
value $1 each. This aggregate figure includes both common and preferred
shares. As of September 30, 1998 and 1997, the following Common Shares have
been issued and fully paid.
 
                                 COMMON SHARES
 
<TABLE>
<CAPTION>
                                                           1998        1997
                                                        ----------- -----------
      <S>                                               <C>         <C>
      Number issued and fully paid.....................  15,178,791  15,073,914
      Share capital.................................... $    15,179 $    15,074
      Additional paid in capital....................... $   225,295 $   229,681
</TABLE>
 
  Pursuant to the Employee Stock Purchase Plan (the "Plan") the Company issued
12,687 Common Shares. Under the Plan, the Company is authorized to sell up to
150,000 Common Shares at a discount equivalent to 15% of the market price, to
eligible employees of the Company and its subsidiaries, and other persons
providing services to those companies. The maximum investment by an employee
under the payroll deduction component of the Plan is $25 per calendar year. In
addition, since September 25, 1997, certain employees have been eligible to
use up to 25% of their annual bonus to purchase Common Shares under the bonus
component of the Plan. The Company has recorded the shares issued under the
Plan at fair value. No compensation cost has been recorded on those shares
issued to employees of CNA (Bermuda) Services Limited ("CNA Bermuda") as the
cost was reimbursed pursuant to the service agreement with CNA Bermuda.
Compensation cost of $5 (1997: $Nil; 1996: $Nil) has been recorded on those
shares issued to employees of LaSalle Re.
 
  In addition, during the year ended September 30, 1998, the Company issued
10,000 shares in a private placement for a cash consideration of $360. The
Company also repurchased 50,400 shares through open market purchases for a
total purchase price of $1,560.
 
  During the year ended September 30, 1997, the Company completed a secondary
offering of Common Shares. In connection with the offering, certain Founding
Shareholders of LaSalle Re exchanged 2,199,110 of their Exchangeable Non-
Voting Shares for Common Shares of the Company.
 
                                    10K-44
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Pursuant to a tender offer ("Tender Offer") made by the Company in May 1997,
2,163,538 Exchangeable Non-Voting Shares were exchanged for Common Shares of
the Company and 95,679 options for Exchangeable Non-Voting Shares were
exercised and exchanged for Common Shares of the Company. Following these
exchanges, the Company purchased 3,703,703 Common Shares, for cancellation, at
the tender price of $27.00. The par value of the shares canceled has been
deducted from share capital. The additional paid in capital arising from the
original subscription to shares, subject to the Tender Offer, has been
eliminated from additional paid in capital and the difference between the
subscription price received for the shares and the price paid in the Tender
Offer has been deducted from retained earnings.
 
                               PREFERRED SHARES
 
<TABLE>
<CAPTION>
                                                             1998       1997
                                                          ---------- ----------
      <S>                                                 <C>        <C>
      Number issued and fully paid.......................  3,000,000  3,000,000
                                                          ---------- ----------
      Share capital...................................... $    3,000 $    3,000
      Additional paid in capital......................... $   70,283 $   70,283
</TABLE>
 
  Series A Preferred Shares, have a par value $1.00 per share and are entitled
to a liquidation preference of $25.00 per share. Dividends are cumulative at
8.75% of the liquidation preference per annum (equivalent to an annual rate of
$2.1875 per share). On or after March 27, 2007, these shares will be
redeemable, in whole or in part, at the option of the Company at a redemption
price of $25.00 per share.
 
9. CATASTROPHE EQUITY PUT
 
  Effective July 1, 1997, the Company entered into a $100 million multi-year
Catastrophe Equity Put ("CatEPut") option program. The CatEPut option enables
the Company to sell up to $100 million of equity, through the issue of
convertible Series B Preferred Shares to the option writers. The preferred
shares can be redeemed by the Company at any time over the three years
following their issue. In addition, the option writers can convert their
preferred shares into Common Shares of the Company at any time after they have
been outstanding for three years. Conversion is at the greater of the book
value of the Company at the date of conversion or the market value of the
Common Shares based on the 30-day trading average prior to conversion. The
Company is obligated to pay an option premium of $2,350 per annum. The option
premium is charged to additional paid in capital, net of the minority's
interest of $538. Of the option premium, $422 is payable to affiliates of
shareholders of the Company.
 
10. SHARE PURCHASE OPTIONS AND STOCK APPRECIATION RIGHTS
 
 (a) Non-compensatory
 
  The Company has issued options to purchase 136,350 Common Shares to certain
shareholders and their affiliates and LaSalle Re has issued options to
purchase 2,199,780 Exchangeable Non-Voting Shares. These options became
exercisable on October 1, 1996 and may be exercised until November 22, 2003.
 
  During the year ended September 30, 1998, a total number of 177,255 options
were exercised in cashless transactions resulting in the issuance of 132,588
Common Shares. In addition, 454,500 options were exercised at an exercise
price of $6.78, which resulted in the issuance of 454,500 Exchangeable Non-
Voting Shares. As at September 30, 1998, LaSalle Re had 1,472,346 options to
purchase Exchangeable Non-Voting Shares outstanding.
 
  During the year ended September 30, 1997, 95,679 options were exercised at a
price of $9.74. In addition, 136,350 options to purchase Exchangeable Non-
Voting Shares were bought by the Company at a price of $24.97 and subsequently
canceled. As at September 30, 1997, the Company and LaSalle Re had 136,350
options to purchase Common Shares and 1,967,751 options to purchase
Exchangeable Non-Voting Shares outstanding respectively.
 
                                    10K-45
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The original exercise price of the options was $16.67 per share, (which was
equal to the fair value of the Company's shares at the grant date), minus
dividend adjustments. The current exercise price is $6.78. As the options were
granted to certain of the Founding Shareholders and their affiliates as an
inducement to purchase stock in LaSalle Re, no compensation expense has been
recorded in connection with the options.
 
 (b)(i) Compensatory--stock appreciation rights
 
  In consideration for entering into an employment agreement with LaSalle Re,
the Company's Chief Executive Officer (the "Executive") was granted a total of
340,872 Stock Appreciation Rights (SARs) during 1994. Upon exercise, the SARs
entitle the Executive to a cash payment equal to the value of the SARs as of
the exercise date. Alternatively, at the Company's sole discretion, the SARs
will entitle the Executive to either (i) the number of Special Non-Voting
Shares of LaSalle Re equal to the aggregate value of the SARs divided by the
fair value of a Common Share at the exercise date, or (ii) upon payment of the
base value for each SAR, the number of Special Non-Voting Shares of LaSalle Re
equal to the number of SARs exercised.
 
  The value of each SAR equals the fair market value of a Common Share less
the base value on the exercise date, subject to anti-dilution adjustments. The
fair market value shall be determined by the board of directors of the
Company, but shall be based on the market price of the Common Shares. The base
value of each SAR at the time of issuance was $16.67, minus dividend
adjustments. The current base value is $6.78.
 
  The number of SARs which can be exercised is dependent upon the internal
rate of return achieved during the period from November 22, 1993 through to
the date of exercise and ending on March 30, 2004 or, if earlier, two years
after the Chief Executive Officer's termination of employment. SARs will not
be exercisable unless a targeted internal rate of return of at least 18% per
annum is achieved during the entire measurement period. The internal rate of
return is based upon the financial performance of LaSalle Re from inception to
November 27, 1995 and LaSalle Re Holdings Limited's consolidated performance
from that date forward. As at September 30, 1998, the number of SARs vested is
92,035, of which 68,174 became exercisable on January 1, 1997 and 23,861 on
January 1, 1998. The remaining balance of SARs may become exercisable on
January 1, 1999 if the Company's internal rate of return exceeds 18% through
to December 31, 1998. At September 30, 1998, the Company's internal rate of
return has exceeded 18%. During the fiscal year ended September 30, 1998, the
fair value of the SARs has decreased and therefore the Company has recorded a
reduction in the total liability relating to the SARs of $548 (1997: charge
$1,611; 1996: charge $909).
 
 (b)(ii) Compensatory--options
 
  In November 1995, the Company adopted a Long Term Incentive Plan (the
"Incentive Plan") which permits the award of various incentives to employees
of the Company, its subsidiaries and other persons providing services to those
companies.
 
  Under the Incentive Plan, the options granted vest ratably in five annual
installments over 5 years from the grant date, except for 85,218 options
granted in 1997 which vest ratably in three annual installments over 3 years
from the date of grant. The options can be exercised over a 10-year period,
commencing on the vesting date. The Plan has an anti-dilution provision, which
awards the option holder a number of shares of restricted stock in the event
that a dividend, when added to the value of all cash dividends previously paid
within the same fiscal year, exceeds 5% of the average book value per share
for the prior four quarters. During the year ended September 30, 1998, 26,995
shares of restricted stock (1997: 19,362) were awarded. The restricted stock
vests when the underlying options are exercised and is forfeited if the
options expire unexercised. The Company has charged an expense of $374 (1997:
$264; 1996: $268) relating to compensation on these options. The following
table is a summary of the options granted and outstanding during 1998, 1997
and 1996.
 
                                    10K-46
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
<TABLE>
<CAPTION>
                                   1998                      1997                     1996
                         ------------------------- ------------------------ ------------------------
                         NUMBER                    NUMBER                   NUMBER
                           OF     WEIGHTED AVERAGE   OF    WEIGHTED AVERAGE   OF    WEIGHTED AVERAGE
                         SHARES    EXERCISE PRICE  SHARES   EXERCISE PRICE  SHARES   EXERCISE PRICE
                         -------  ---------------- ------- ---------------- ------- ----------------
<S>                      <C>      <C>              <C>     <C>              <C>     <C>
Outstanding
  --beginning of year... 446,436      $ 25.28      163,218      $19.25            0      $ 0.00
Granted.................  10,000      $ 31.63      283,218      $28.75      163,218      $19.25
Forfeited............... (55,000)     $(28.75)           0      $ 0.00            0      $ 0.00
                         -------                   -------                  -------
Outstanding
  --end of year......... 401,436      $ 24.96      446,436      $25.28      163,218      $19.25
                         =======                   =======                  =======
</TABLE>
 
  Of the 401,436 options outstanding, 65,287 options are presently exercisable
at an exercise price of $19.25 and 81,006 are presently exercisable at an
exercise price of $28.75. The remaining options are not presently exercisable
and have a weighted average vesting period of 2.64 years.
 
   The weighted average fair value of options granted during 1998 is $12.21
(1997: $8.18; 1996: $5.85) per share. The fair value of the option grant in
1998 is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions: dividend yield of 0% per annum; expected
volatility of 20%; expected life of 7 1/2 years; and a risk free interest rate
of 5.4%.
 
  The Company applies APB Opinion 25 and Related Interpretations in accounting
for the Incentive Plan. Accordingly, a compensation cost has been recognized
based on the intrinsic value of the options at the measurement date. The net
income and earnings per Common Share would have been reduced to the pro forma
amounts indicated below had compensation cost been determined based on the
fair value of the options at the grant date consistent with the method of SFAS
No 123:
 
<TABLE>
<CAPTION>
                                                    1998      1997      1996
                                                  --------  --------  --------
      <S>                             <C>         <C>       <C>       <C>
      Net income..................... As reported $ 51,806  $ 97,077  $ 81,485
                                      Pro forma    $51,350   $96,647   $81,390
      Earnings per Common Share,
       assuming dilution............. As reported  $  2.80   $  5.14   $  5.40
                                      Pro forma    $  2.78   $  5.12   $  5.40
</TABLE>
 
11. RELATED PARTY TRANSACTIONS
 
  In addition to the CatEPut transaction discussed in Note 9 and share
purchase options discussed in Note 10, LaSalle Re has entered into the
following transactions and agreements with companies related to the Founding
Shareholders.
 
 (a) Premiums written
 
  During the year ended September 30, 1998, LaSalle Re assumed premiums
written of approximately $16,917 (1997: $21,408; 1996: $24,045) from a ceding
company related to a shareholder of LaSalle Re. In addition, LaSalle Re
assumed premiums totaling $27,190 (1997: $28,450; 1996: $23,577) through
brokers related to a shareholder of LaSalle Re. Brokerage fees incurred in
respect of this business were approximately $2,719 (1997: $2,845; 1996:
$2,357). All such transactions were undertaken on normal commercial terms.
Reinsurance balances receivable at the balance sheet date include $8,729
(1997: $13,481) due from such related parties.
 
 (b) Underwriting services
 
  LaSalle Re was party to an underwriting services agreement with CNA Bermuda
during the period from the incorporation of LaSalle Re until September 30,
1998 at which date the agreement was terminated. Under this
 
                                    10K-47
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
agreement, LaSalle Re granted CNA Bermuda the authority to provide
underwriting services and to underwrite all classes of insurance and
reinsurance as agents for LaSalle Re. LaSalle Re agreed to pay fees, during
this period, to CNA Bermuda as follows:
 
  Prior to October 1, 1998 but on or after January 1, 1996:
 
    (i) 1.5% of the gross written and collected premium per fiscal year; and
 
    (ii) An underwriting profit commission equal to 4.0% of the aggregate net
  underwriting profits of LaSalle Re, where certain conditions are met.
 
  Prior to January 1, 1996:
 
    (i) 2.0% of the gross written and collected premium per fiscal year, up
  to premium of $150,000 plus 1.5% of the gross written and collected premium
  in excess of $150,000; and
 
    (ii) An underwriting profit commission equal to 2.5% of the aggregate net
  underwriting profits of LaSalle Re, where certain conditions are met.
 
  The Company has incurred $2,535 (1997: $2,526; 1996: $3,081) for
underwriting services provided for the year ended September 30, 1998, of which
$3,658 (1997: $2,903) was payable at September 30, 1998.
 
  The Company has incurred $1,059 (1997: $4,061; 1996: $4,140) for
underwriting profit commission for the year ended September 30, 1998, of which
$Nil (1997: $2,890) was payable at September 30, 1998.
 
  Following the termination of the agreement, all personnel assigned to the
Company by CNA Bermuda became employees of the Company and all underwriting
functions performed by CNA Bermuda are now performed in-house.
 
  Commencing October 1, 1998, LaSalle Re entered into an underwriting support
services agreement with CNA Re Services Company ("CNA Services"). Under this
Agreement, CNA Services will provide certain underwriting support functions to
LaSalle Re but no longer underwrite insurance or reinsurance as agents for
LaSalle Re.
 
  With effect from October 1, 1998:
 
  LaSalle Re has agreed to pay fees to CNA Services as follows:
 
    (i) An annual retainer of $333; and
 
    (ii) An underwriting profit commission equal to 1.67% of the aggregate
  net underwriting profits of LaSalle Re, where certain conditions are met.
 
  The agreement provides for additional fees to be payable if services
provided exceed the retainer. Fees in excess of the retainer are calculated at
competitive commercial daily or hourly rates to be agreed between the parties.
 
 (d) Administrative services
 
  LaSalle Re was party to an agreement with Aon Risk Consultants (Bermuda)
Ltd. ("ARC Bermuda") during the period from the incorporation of LaSalle Re
until September 30, 1997 at which date the agreement was terminated. Under
this agreement, ARC Bermuda performed certain actuarial and administrative
services on behalf of the Company. The management fees payable to ARC Bermuda
were as follows:
 
<TABLE>
<CAPTION>
      CALENDAR YEAR
      -------------
      <C>           <S>
          1995      $5,000
          1996      $7,000
          1997      $3,300 and an underwriting profit commission equal to 2.75%
                    of the aggregate net underwriting profit of LaSalle Re,
                    where certain conditions were met.
</TABLE>
 
                                    10K-48
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  During the year ended September 30, 1998, the Company incurred $44 in
respect of an adjustment to the profit commission accrued for the year ended
September 30, 1997. The Company incurred $6,212 and $6,500 for administrative
services for the years ended September 30, 1997 and 1996 respectively. As of
September 30, 1998, $Nil was payable (1997: $1,987) in respect of services
performed under the agreement.
 
 (e) Investment management services
 
  LaSalle Re is party to an agreement with Aon Advisors (UK) Limited ("Aon
UK") to provide investment management services. Fees are based on a flat fee
structure. Prior to July 1997, fees were based on the average daily balance of
the investment portfolio of the preceding quarter. The average daily balance
was split into various bands, with fees calculated by applying a sliding scale
of basis points to each band.
 
  The Company has incurred $850 (1997: $1,057; 1996: $1,028) for services
provided for the year ended September 30, 1998, of which $215 (1997: $215) was
payable at September 30, 1998.
 
 (f) Claims handling services
 
  LaSalle Re was party to an agreement with Integrated Runoff Insurance
Services Corporation ("IRISC") whereby IRISC performed certain claims handling
services for LaSalle Re. The contract expired December 31, 1996.
 
  The Company has incurred $Nil (1997: $16; 1996: $92) for services provided
for the year ended September 30, 1998. No balance was payable at September 30,
1998 (1997: Nil).
 
 (g) Reinsurance services
 
  Effective January 1, 1997, LaSalle Re was party to a fronting agreement with
Hedge Financial Products, an affiliate of CNA. CNA reinsured LaSalle Re 100%
for the business fronted. LaSalle Re received an administration fee of $63
(1997: $250) for the services provided. The agreement was not renewed on
January 1, 1998.
 
  As at September 30, 1998, no fees were due to the Company (1997: $60).
 
12. CONCENTRATION OF CREDIT RISK
 
  The Company has investment guidelines which restrict investments in
securities below an "AA" grade rating to 20% of the total portfolio and only
10% of the total portfolio can be invested in "BBB" grade rating. The Company
is allowed to invest up to $10,000 in risk based investments and these bonds
may carry a rating below "BBB". In addition, the guidelines restrict
investments in a single issuer to no greater than 5% of the market value of
the portfolio (except for U.S. and U.K. Government issues) and, with respect
to country of issue, to no greater than 25% of the market value of the
portfolio, except for U.S. and supernational borrowers.
 
  A broker, who is unrelated to the Company, arranged more than 17% of the
Company's premiums written for the year ended September 30, 1998 (1997: 15%;
1996: 16%). Another broker, who is unrelated to the Company, arranged more
than 9% of the Company's premiums written for the year ended September 30,
1998 (1997: 10%; 1996: 10%). A broker, who is related to the Company, arranged
17% of the Company's premiums written for the year ended September 30, 1998
(1997: 16%; 1996: 12%). Approximately 14% (1997: 8%; 1996: Nil) of the
Company's gross premiums written are derived from its participation as a
corporate member of Lloyd's.
 
                                    10K-49
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
13. OUTSTANDING LOSSES AND LOSS EXPENSES
 
  Activity in liability for losses and loss expenses during the years ended
September 30, 1998, 1997 and 1996 is summarized as follows:
 
<TABLE>
<CAPTION>
                                                     1998      1997      1996
                                                   --------  --------  --------
<S>                                                <C>       <C>       <C>
Balance as of October 1........................... $ 45,491  $ 49,875  $ 66,654
                                                   --------  --------  --------
Incurred related to:
  Current year....................................   79,014    22,095    31,910
  Prior year events...............................   16,525     9,104    19,567
                                                   --------  --------  --------
                                                     95,539    31,199    51,477
                                                   ========  ========  ========
Paid related to:
  Current year....................................  (12,934)   (3,216)  (10,222)
  Prior year......................................  (30,154)  (32,367)  (58,034)
                                                   --------  --------  --------
                                                    (43,088)  (35,583)  (68,256)
                                                   --------  --------  --------
Balance as of September 30........................ $ 97,942  $ 45,491  $ 49,875
                                                   ========  ========  ========
</TABLE>
 
  The reserves for outstanding losses and loss expenses at September 30, 1998
include an amount of $25,000 in respect of claims arising from Hurricane
Georges. Hurricane Georges occurred in late September and significantly
impacted certain parts of the Caribbean and southern United States. Management
believes that the amount of reserves established will be sufficient to provide
for claims arising from this event. However, the event occurred close to the
Company's fiscal year end and few loss notifications have been received to
date. Given the nature of the event and its proximity to the year end, there
is considerable uncertainty underlying this estimate.
 
  The prior year development in 1998 was primarily due to a loss reported
during the year on a 1996 aggregate stop loss contract. This contract had a
period of 24 months after the expiry of the contract within which to report
losses. Following this notification the Company also established reserves for
the 1997 renewal of this contract. The prior year development in 1997 relates
primarily to an additional liability on Hurricane Fran, which occurred in
September 1996. The amounts incurred in respect of prior year losses in 1996
relate primarily to Hurricanes Luis and Marilyn, which occurred in September
1995. Additional information reported by ceding companies in the months
following the losses necessitated the provision of additional liabilities.
This impact was mitigated by the collection of additional reinstatement
premiums. As at September 30, 1998 the Company's total reserve for incurred
but not reported losses was $52,200 compared to $19,648 at September 30, 1997.
 
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
 
  LaSalle Re has entered into a swap agreement to provide cash flow to a
counterparty in the event of defined earthquake activity in Japan. Receipts to
LaSalle Re which are accounted for as investment income are based on the
notional amount of the swap at 375 basis points. As at September 30, 1998, the
Company had recorded $58 (1997: $Nil) of investment income. The contract
exposes LaSalle Re to a maximum cash outflow of the same notional amount
should the defined seismic event occur. The Company is also exposed to credit
loss in the event of nonperformance by the counterparty to the remittance of
interest payments as required by the swap. The Company does not anticipate
nonperformance by counterparty. At September 30, 1998, the total notional
principal amount of the swap was $3,000 which is supported by a letter of
credit.
 
  The Company's functional currency is the U.S. dollar, however, as the
Company operates internationally, it has exposure to changes in foreign
currency exchange rates. These exposures include net cash inflows on non-U.S.
dollar denominated insurance premiums.
 
                                    10K-50
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  To manage the Company's exposure to these risks, the Company may enter into
foreign exchange contracts in the major currencies to which the Company is
exposed. These contracts generally involve the exchange of one currency for
another at some future date. The Company has a notional principal amount
outstanding of approximately $5,518 (1997: $Nil; 1996: $25,192) in a contract
to sell foreign currencies. The fair value of these contracts, based on quoted
forward rates available for the maturity of the contracts as at September 30,
1998 is insignificant (1997: $Nil; 1996: ($571). Losses of $Nil (1997: $1,906,
1996: $294) are included in the consolidated statements of operations and
comprehensive income with respect to foreign exchange contracts.
 
  The Company may also enter into foreign exchange contracts to manage the
exposures relating to known reinsurance losses denominated in foreign
currencies. However, no such contracts had been entered into at September 30,
1998.
 
15. COMMITMENTS
 
The Company has rented space for its principal executive offices under lease
agreements, which expire up to 2001. Total rent expense for the year ended
September 30, 1998 was approximately $365 (1997: $Nil; 1996: $Nil). Future
minimum rental payments under the leases are expected to be as follows:
 
<TABLE>
      <S>                                                                  <C>
      Year ending September 30, 1998...................................... $365
      Year ending September 30, 1999......................................  260
      Year ending September 30, 2000......................................  269
      Year ending September 30, 2001......................................   95
                                                                           ----
      Total minimum future rentals........................................ $989
                                                                           ====
</TABLE>
 
16. YEAR 2000
 
  The Year 2000 issue faced by the Company revolves around the extent to which
the Company's computer systems and third parties' computer systems (that are
material to the Company's operations such as the computer systems of service
providers, suppliers and brokers) are capable of correctly processing
information relating to dates in and after the Year 2000. The Company has
utilized the services of IBM to perform an assessment and strategy phase for
its Year 2000 issue. This assessment has indicated that the Company's systems,
applications and business interfaces have some degree of Year 2000 date
problems. In addition, the assessment has developed a strategy and series of
plans to implement solutions to the Company's Year 2000 problems. It is
anticipated that 359 effort days will be required and estimated costs are
currently budgeted at approximately $300 but are subject to change due to the
cost of external resources. A target date of March 31, 1999 has been set for
full Year 2000 compliance, however, this may not be achieved as there are a
number of external factors which are beyond the Company's control. The Company
intends to retain the services of IBM who will take responsibility for the co-
ordination of the project, however, overall responsibility for Year 2000
compliance remains with the Company.
 
17. CREDIT FACILITY
 
  The Company has in place a $100 million committed line of credit from a
syndicate of banks. The proceeds from the credit facility may only be used to
buy preferred shares of LaSalle Re that, in turn, may use the proceeds of such
purchase to meet current cash requirements. The facility matures December 1,
2000, and is secured by a pledge ("legal mortgage") of all the capital stock
of LaSalle Re held by the Company, including any preferred shares that may be
issued by LaSalle Re to the Company. As at September 30, 1998, the facility
had not been utilized.
 
                                    10K-51
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The line of credit contains various covenants, including limitations on
incurring additional indebtedness; restrictions on the sale or lease of assets
not in the ordinary course of business; maintenance of a ratio of consolidated
total debt to consolidated tangible net worth of no more than 0.40 to 1.00;
maintenance of tangible net worth at the end of each fiscal year of the
greater of $300 million or 70% of net premiums written; maintenance of
statutory capital of LaSalle Re of at least $300 million, increasing to $350
million at the end of calendar year 1998 and $400 million at the end of
calendar year 1999 and thereafter; and maintenance of a ratio of net premiums
written to statutory capital at the end of any fiscal quarter for the four
fiscal quarters then ended of no more than 1.00 to 1.00 in each case. The
Company may pay dividends and make other restricted payments so long as, after
giving effect to such restricted payments, no event of default has occurred.
Dividends are limited to 50% of consolidated net income for its immediately
preceding fiscal year less amounts paid on the Series A preferred shares. In
order for the Company to pay dividends in excess of 50% of consolidated net
income, the Company would have to renegotiate certain terms of its credit
facility. As of September 30, 1998, the credit facility had not been utilized
and the Company was in compliance with all covenants under the facility.
 
18. STATUTORY DATA
 
  The Company's ability to pay dividends is subject to certain regulatory
restrictions on the payment of dividends by LaSalle Re. Under the Act, LaSalle
Re is required to prepare statutory financial statements and to file in
Bermuda a statutory financial return. LaSalle Re is required to maintain
certain measures of solvency and liquidity.
 
  The statutory capital and surplus of LaSalle Re at September 30, 1998 was
approximately $506,000 (1997: $490,000) and the minimum required statutory
capital and surplus required by its license as a Class 4 insurer was $100,000
(1997: $100,000).
 
  In this regard, the declaration of dividends from retained earnings and
distributions from additional paid in capital is limited to the extent that
the above requirements are met. At September 30, 1998, there were no
restrictions on the distribution of retained earnings.
 
19. SEGMENTAL INFORMATION
 
  The following table sets forth the Company's gross premiums written and the
percentage thereof allocated to the zone of exposure for the years ended
September 30, 1998, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                   1998             1997             1996
                              ---------------  ---------------  --------------
                              PREMIUMS         PREMIUMS         PREMIUMS
                               WRITTEN    %    WRITTEN     %    WRITTEN    %
                              --------- -----  --------  -----  -------- -----
<S>                           <C>       <C>    <C>       <C>    <C>      <C>
United States................ $  64,352  41.4% $ 75,338   44.0% $ 79,357  41.7%
Europe (excluding the U.K.)..    14,477   9.3    18,553   10.8    21,959  11.6
United Kingdom...............    11,726   7.6    15,165    8.8    16,310   8.6
Japan........................     3,166   2.0     6,949    4.1     7,998   4.2
Australasia..................     3,263   2.1     6,472    3.8    11,038   5.8
Worldwide....................    21,784  14.0    20,872   12.2    22,049  11.6
Worldwide (excluding U.S.)...     7,499   4.8    12,579    7.3    11,451   6.0
Other........................     7,935   5.1    11,628    6.8    16,433   8.6
Lloyd's syndicates...........    21,039  13.6    14,125    8.2         0   0.0
Reinstatements, adjustment
 premiums and no claim
 bonuses.....................        75   0.1   (10,295)  (6.0)    3,556   1.9
                              --------- -----  --------  -----  -------- -----
                              $ 155,316 100.0% $171,386  100.0% $190,151 100.0%
                              ========= =====  ========  =====  ======== =====
</TABLE>
 
                                    10K-52
<PAGE>
 
                          LASALLE RE HOLDINGS LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
20. TAXATION
 
  Under current Bermuda law, the Company is not required to pay any taxes in
Bermuda on either income or capital gains. The Company has received an
undertaking from the Minister of Finance in Bermuda that will exempt the
Company from taxation until the year 2016 in the event of any such taxes being
imposed.
 
  Other than with respect to its Lloyd's business, the Company does not
consider itself to be engaged in a trade or business in the United States and
accordingly does not expect to be subject to United States income taxes.
LaSalle Re Corporate Capital Ltd. is a corporate member of Lloyd's. Pursuant
to a Closing Agreement between Lloyd's and the IRS, LaSalle Re Corporate
Capital Ltd. will be treated as engaged in business in the U.S. and is subject
to U.S. corporate income tax on its net income from U.S. sources.
 
  LaSalle Re Corporate Capital Ltd. is also subject to U.K. corporation tax,
with the assessment made at the end of thirty six months. Given the inherent
uncertainty in the results of the supported syndicates, the Company has not
included a deferred tax asset or liability in these financial statements.
 
21. UNAUDITED QUARTERLY FINANCIAL DATA
 
  Year ended September 30, 1998
 
<TABLE>
<CAPTION>
                                                FIRST  SECOND   THIRD  FOURTH
                                               QUARTER QUARTER QUARTER QUARTER
                                               ------- ------- ------- -------
<S>                                            <C>     <C>     <C>     <C>
Net premiums earned........................... $37,919 $41,906 $42,053 $32,742
Net investment income and realized gains
 (losses).....................................   8,856  10,196   9,247  11,564
Losses and loss expenses incurred.............   8,698  19,938  23,607  43,296
Net income (loss) (before minority interest)..  29,679  22,023  18,173  (4,643)
Earnings (loss) per common share--assuming
 dilution..................................... $  1.34 $  0.97 $  0.78 $ (0.33)
</TABLE>
 
  Year ended September 30, 1997
 
<TABLE>
<CAPTION>
                                                 FIRST  SECOND   THIRD  FOURTH
                                                QUARTER QUARTER QUARTER QUARTER
                                                ------- ------- ------- -------
<S>                                             <C>     <C>     <C>     <C>
Net premiums earned............................ $43,123 $41,400 $45,903 $33,507
Net investment income and realized gains
 (losses)......................................   8,179   8,535   7,904   9,046
Losses and loss expenses incurred..............  10,837   6,886   4,475   9,001
Net income (before minority interest)..........  28,047  32,698  37,685  23,038
Earnings per common share--assuming dilution... $  1.16 $  1.34 $ 1.639 $  1.02
</TABLE>
 
                                    10K-53
<PAGE>
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL DISCLOSURE
 
  None.
 
                                   PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
 
  For information regarding the Company's executive officers, see "Executive
Officers of the Company" in Part I. The other information required by this
Item 10 is incorporated by reference to the information contained under the
captions "Election of Directors", "Nominees", "Meetings and Committees of the
Board of Directors" and "Section 16 Reporting" in the 1999 Proxy Statement.
 
ITEM 11. EXECUTIVE COMPENSATION
 
  The information required for this item is incorporated by reference to the
information contained under the caption "Management" in the 1999 Proxy
Statement.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
  The information required for this item is incorporated by reference to the
information contained under the caption "Beneficial Ownership of Common
Shares--Directors, Officers and Other Beneficial Owners" in the 1999 Proxy
Statement.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  The information required for this item is incorporated by reference to the
information contained under the caption "Certain Transactions" in the 1999
Proxy Statement.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
  The following documents are filed as a part of this report:
 
  (a) Financial Statements and Schedules:
 
    1. Financial Statements
 
     See Index to Financial Statements on page 10K-30 of this report, which
     is incorporated herein by reference.
 
    2. Financial Statement Schedules:
 
     Schedules have been omitted since the required information is
     presented elsewhere in this report or is not applicable.
 
    3. Exhibits
 
     See Index to Exhibits on pages 10K-57 to 10K-60 of this report, which
     is incorporated herein by reference.
 
  (b) Reports on Form 8-K:
 
     No reports on Form 8-K were filed during the last quarter of the
     period covered by this report.
 
  (c) Exhibits:
 
  The Exhibits required by Item 601 of Regulation S-K are listed in the Index
to Exhibits on pages 10K-57 to 10K-60 of this report, which is incorporated
herein by reference. These Exhibits have been omitted from the copies of this
Form 10-K that are being distributed to shareholders. The Company will furnish
a copy of any Exhibit to any shareholder upon written request and upon payment
of a fee to cover the Company's reasonable expenses in furnishing such
Exhibit. Such requests may be made to: Investor Relations Department, LaSalle
Re Holdings Limited, Continental Building, 25 Church Street, Hamilton HM 12,
Bermuda.
 
                                    10K-54
<PAGE>
 
                                  SIGNATURES
 
  PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REPORT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
BERMUDA, ON THE 17TH DAY OF DECEMBER, 1998.
 
                                          LaSalle Re Holdings Limited
 
                                                   /s/ Andrew Cook
                                          By: _________________________________
                                                    Name: Andrew Cook
                                             Title: Senior Vice President and
                                                 Chief Financial Officer
 
                               POWER OF ATTORNEY
 
  EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS VICTOR H.
BLAKE, ANDREW COOK, CLARE MORAN AND IVAN BERK, OR ANY OF THEM, AS SUCH
PERSON'S TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, TO SIGN ANY AND ALL AMENDMENTS TO THIS
REPORT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS
IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION.
 
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED AND ON THE 17TH DAY OF DECEMBER,
1998.
 
<TABLE>
<CAPTION>
                 SIGNATURE                                     TITLE
                 ---------                                     -----
 
 
<S>                                         <C>
          /s/ Victor H. Blake               Chairman, President and Chief Executive
___________________________________________   Officer (Principal Executive Officer)
              Victor H. Blake
 
            /s/ Andrew Cook                 Senior Vice President and Chief Financial
___________________________________________   Officer (Principal Financial Officer)
                Andrew Cook
 
           /s/ Clare Moran                  Vice President--Finance
___________________________________________   (Principal Accounting Officer)
                Clare Moran
 
     /s/ William J. Adamson, Jr.            Director
___________________________________________
          William J. Adamson, Jr.
 
           /s/ Ivan P. Berk                 Director
___________________________________________
               Ivan P. Berk
 
       /s/ Clement S. Dwyer, Jr.            Director
___________________________________________
           Clement S. Dwyer, Jr.
 
       /s/ Donald P. Koziol, Jr.            Director
___________________________________________
           Donald P. Koziol, Jr.
 
</TABLE>
 
                                    10K-55
<PAGE>
 
<TABLE>
<CAPTION>
                 SIGNATURE                                     TITLE
                 ---------                                     -----
<S>                                         <C>
           /s/ Tim I. Madden                Director
___________________________________________
               Tim I. Madden
 
          /s/ Lester Pollack                Director
___________________________________________
              Lester Pollack
 
         /s/ Peter J. Rackley               Director
___________________________________________
             Peter J. Rackley
 
           /s/ Paul J. Zepf                 Director
___________________________________________
</TABLE>       Paul J. Zepf
 
 
 
                                     10K-56
<PAGE>
 
                               INDEX TO EXHIBITS
 
  Certain of the following documents are filed herewith. Certain other of the
following documents have been previously filed with the Securities and
Exchange Commission and, pursuant to Rule 12b-32, are incorporated herein by
reference.
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                DESCRIPTION                          METHOD OF FILING
-------               -----------                          ----------------
<S>      <C>                                    <C>
 3.1     Memorandum of Association              Incorporated by reference to Exhibit
                                                3.1 to Registration Statement on Form
                                                S-1 (No. 33-97304)
 3.2     Bye-Laws                               Incorporated by reference to Exhibit
                                                3.2 to Form 10-Q for the quarterly
                                                period ended March 31, 1998 (File No.
                                                1-12823)
10.1     Excess Ownership Agreement dated       Incorporated by reference to Exhibit
         November 27, 1995 among the Company,   10.3 to Form 10-Q for the quarterly
         LaSalle Re and the Founding            period ended December 31, 1995 (File
         Shareholders                           No. 0-27216)
10.2     Amended and Restated Shareholders      Incorporated by reference to Exhibit
         Agreement dated November 27, 1995      10.1 to Form 10-Q for the quarterly
         among the Company, LaSalle Re and the  period ended December 31, 1995 (File
         Founding Shareholders                  No. 0-27216)
10.3     Amended and Restated Option Agreement  Incorporated by reference to Exhibit
         dated November 27, 1995 among the      10.2 to Form 10-Q for the quarterly
         Company, LaSalle Re and certain of the period ended December 31, 1995 (File
         Founding Shareholders                  No. 0-27216)
10.4     Conversion Agreement dated November    Incorporated by reference to Exhibit
         27, 1995 among the Company, LaSalle Re 10.4 to Form 10-Q for the quarterly
         and holders of Exchangeable Non-Voting period ended December 31, 1995 (File
         Shares                                 No. 0-27216)
10.5     Amended and Restated Underwriting      Incorporated by reference to Exhibit
         Services Agreement dated September 21, 10.6 to Form 10-Q for the quarterly
         1995 among the Company, LaSalle Re and period ended December 31, 1995 (File
         CNA Bermuda                            No. 0-27216)
10.6     First Amendment dated July 1, 1996 to  Incorporated by reference to Exhibit
         Amended and Restated Underwriting      10.15 to Registration Statement on
         Services Agreement dated as of         Form S-1 (No. 333-14861)
         September 21, 1995 between CNA
         (Bermuda) Services Limited and LaSalle
         Re
10.7     Underwriting Support Services          Filed with this document
         Agreement dated October 1, 1998 among
         LaSalle Re, CRSC and CNA Bermuda
10.8     Amended and Restated Investment        Incorporated by reference to Exhibit
         Management Agreement dated September   10.8 to Registration Statement on Form
         21, 1995 among the Company, LaSalle Re S-1 (No. 333-14861)
         and Aon Advisors
10.9     Agreement, dated September 9, 1997,    Incorporated by reference to Exhibit
         terminating the Amended and Restated   10.34 to Form 10-K for the fiscal year
         Administrative Services Agreement      ended September 30, 1997 (File No. 1-
         dated September 21, 1995 among the     12823)
         Company, LaSalle Re and ARC
</TABLE>
 
                                    10K-57
<PAGE>
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                DESCRIPTION                          METHOD OF FILING
-------               -----------                          ----------------
<S>      <C>                                    <C>
10.10    Amended and Restated Employment        Incorporated by reference to Exhibit
         Agreement dated October 1, 1995        10.5 to Form 10-Q for the quarterly
         between Victor H. Blake and LaSalle    period ended December 31, 1995 (File
         Re*                                    No. 0-27216)
10.11    Amendment of Amended and Restated      Incorporated by reference to Exhibit
         Employment Agreement dated as of       10.25 to Registration Statement on
         October 1, 1996 between Victor H.      Form S-1 (No. 333-14861)
         Blake and the Company*
10.12    Employment Agreement dated October 1,  Filed with this document
         1998 between Guy D. Hengesbaugh and
         LaSalle*
10.13    Employment Agreement dated October 1,  Filed with this document
         1998 between Andrew Cook and LaSalle*
10.14    LaSalle Re Holdings Limited 1996 Long- Incorporated by reference to Exhibit
         Term Incentive Plan*                   10.13 to Registration Statement on
                                                Form S-1 (No. 333-14861)
10.15    First Amendment to LaSalle Re Holdings Incorporated by reference to Exhibit
         Limited 1996 Long-Term Incentive Plan, 4.4 to Registration Statement on Form
         dated September 25, 1997*              S-8 (No. 333-38653)
10.16    Second Amendment to LaSalle Re         Filed with this document
         Holdings Limited 1996 Long-Term
         Incentive Plan, dated September 25,
         1998 *
10.17    LaSalle Re Holdings Limited Employee   Incorporated by reference to Exhibit
         Stock Purchase Plan*                   10.14 to Registration Statement on
                                                Form S-1 (No. 333-14861)
10.18    First Amendment to LaSalle Re Holdings Incorporated by reference to Exhibit
         Limited Employee Stock Purchase Plan,  4.4 to Registration Statement on Form
         dated September 25, 1997 *             S-8 (No. 333-38655)
10.19    Second Amendment to LaSalle Re         Filed with this document
         Holdings Limited Employee Stock
         Purchase Plan, dated September 25,
         1998*
10.20    Credit Agreement dated as of December  Incorporated by reference to Exhibit
         1, 1995 among the Company, several     10.9 to Form 10-Q for the quarterly
         banks and Chemical Bank, as            period ended December 31, 1995 (File
         administrative agent                   No. 0-27216)
10.21    First Amendment, dated September 25,   Incorporated by reference to Exhibit
         1996, among the Company, several banks 10.12 to Registration Statement on
         and Chase Manhattan Bank as            Form S-1 (No. 333-14861)
         administrative agent, to Credit
         Agreement dated as of December 1, 1995
         among the Company, several banks and
         Chemical Bank, as administrative agent
</TABLE>
--------
*  Management contract or compensatory plan.
 
 
                                     10K-58
<PAGE>
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                DESCRIPTION                          METHOD OF FILING
-------               -----------                          ----------------
<S>      <C>                                    <C>
10.22    Second Amendment, dated March 13,      Incorporated by reference to Exhibit
         1997, among the Company, several banks 10.30 to Form 10-K for the fiscal year
         and Chase Manhattan Bank as            ended September 30, 1997 (File No. 1-
         administrative agent, to Credit        12823)
         Agreement dated as of December 1, 1995
         among the Company, several banks and
         Chemical Bank, as administrative agent
10.23    Third Amendment, dated March 16, 1998, Incorporated by reference to Exhibit
         among the Company, several banks and   10.1 to Form 10-Q for the quarterly
         Chase Manhattan Bank as administrative period ended March 31, 1998 (File No.
         agent, to Credit Agreement dated as of 1-12823)
         December 1, 1995 among the Company,
         several banks and Chemical Bank, as
         administrative agent
10.24    Catastrophe Equity Securities Issuance Incorporated by reference to Exhibit
         Option Agreement, dated as of July 1,  10.31 to Form 10-K for the fiscal year
         1997 between the Company on the one    ended September 30, 1997 (File No. 1-
         hand and European Reinsurance Company  12823)
         of Zurich, Allianz Aktiengesellschaft,
         Continental Casualty Company and CIC-
         Hilldale, Inc. on the other hand
10.25    Quota Share Treaty between CNA         Incorporated by reference to Exhibit
         International Reinsurance Company      10.17 to Registration Statement on
         Limited and LaSalle Re in respect of   Form S-1 (No. 333-14861)
         1994 underwriting year of account
         (London office)
10.26    Quota Share Treaty between CNA         Incorporated by reference to Exhibit
         International Reinsurance Company      10. 18 to Registration Statement on
         Limited and LaSalle Re in respect of   Form S-1 (No. 333-14861)
         1995 underwriting year of account
         (London office)
10.27    Quota Share Treaty between CNA         Incorporated by reference to Exhibit
         International Reinsurance Company      10.19 to Registration Statement on
         Limited and LaSalle Re in respect of   Form S-1 (No. 333-14861)
         1996 underwriting year of account
         (London office)
10.28    Quota Share Treaty between CNA         Incorporated by reference to Exhibit
         International Reinsurance Company      10.27 to Form 10-K for the fiscal year
         Limited and LaSalle Re in respect of   ended September 30, 1997 (File No. 1-
         1997 underwriting year of account      12823)
         (London office)
10.29    Quota Share Treaty between CNA         Filed with this document
         International Reinsurance Company
         Limited and LaSalle Re in respect of
         1998 underwriting year of account
         (London office)
10.30    Quota Share Treaty between CNA         Incorporated by reference to Exhibit
         International Reinsurance Company      10.20 to Registration Statement on
         Limited and LaSalle Re in respect of   Form S-1 (No. 333-14861)
         1994 underwriting year of account
         (Amsterdam office)
10.31    Quota Share Treaty between CNA         Incorporated by reference to Exhibit
         International Reinsurance Company      10.21 to Registration Statement on
         Limited and LaSalle Re in respect of   Form S-1 (No. 333-14861)
         1995 underwriting year of account
         (Amsterdam office)
</TABLE>
 
                                     10K-59
<PAGE>
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                DESCRIPTION                          METHOD OF FILING
-------               -----------                          ----------------
<S>      <C>                                    <C>
10.32    Quota Share Treaty between CNA         Incorporated by reference to Exhibit
         International Reinsurance Company      10.22 to Registration Statement on
         Limited and LaSalle Re in respect of   Form S-1 (No. 333-14861)
         1996 underwriting year of account
         (Amsterdam office)
10.33    Quota Share Treaty between CNA         Incorporated by reference to Exhibit
         International Reinsurance Company      10.28 to Form 10-K for the fiscal year
         Limited and LaSalle Re in respect of   ended September 30, 1997 (File No. 1-
         1997 underwriting year of account      12823)
         (Amsterdam office)
10.34    Quota Share Treaty between CNA         Filed with this document
         International Reinsurance Company
         Limited and LaSalle Re in respect of
         1998 underwriting year of account
         (Amsterdam office)
10.35    LMX Quota Share Retrocessional         Incorporated by reference to Exhibit
         Agreement between Continental Casualty 10.23 to Registration Statement on
         Company and LaSalle Re for the 1995    Form S-1 (No. 333-14861)
         underwriting year of account
10.36    LMX Quota Share Retrocessional         Incorporated by reference to Exhibit
         Agreement between Continental Casualty 10.24 to Registration Statement on
         Company and LaSalle Re for the 1996    Form S-1 (No. 333-14861)
         underwriting year of account
10.37    LMX Quota Share Retrocessional         Incorporated by reference to Exhibit
         Agreement between Continental Casualty 10.29 to Form 10-K for the fiscal year
         Company and LaSalle Re for the 1997    ended September 30, 1997 (File No. 1-
         underwriting year of account           12823)
10.38    LMX Quota Share Retrocessional         Filed with this document
         Agreement between Continental Casualty
         Company and LaSalle Re for the 1998
         underwriting year of account
12.1     Statement re computation of ratio of   Filed with this document
         earnings to combined fixed charges and
         preferred share dividends
13.1     Portions of the Annual Report to       Filed with this document
         Shareholders for the fiscal year ended
         September 30, 1998
21.1     Subsidiaries of the Registrant         Incorporated by reference to Exhibit
                                                21.1 to Registration Statement on Form
                                                S-1 (No. 333-14861)
23.1     Consent of KPMG Peat Marwick           Filed with this document
24.1     Power of Attorney                      Included on signature page
27.1     Financial Data Schedule                Filed with this document
</TABLE>
 
                                     10K-60