<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549

                                   FORM 10-K/A
(Mark One)
[x]                             Amendment No. 1 to
                  Annual report pursuant to section 13 or 15 (d)
                      of the Securities Exchange Act of 1934
                   For the fiscal year ended December 31, 1998.

[_]              Transition report pursuant to section 13 or 15 (d) of the
                         Securities Exchange Act of 1934.
    For the transition period from_____________________ to ___________________.

                         Commission file number 0-17676
                                                -------

                        AMERINST INSURANCE GROUP, INC.
            (Exact Name of Registrant as Specified in its Charter)

DELAWARE                                                     52-1534560
(State or other jurisdiction of                              (I.R.S. Employer
Incorporation or Organization)                               Identification No.)
   
128 Berlin State Highway-Berlin, Barre, Vermont              05641
Mailing address:  P.O. Box 1330, Montpelier, Vermont         05601
(Address of Principal Executive Offices)                     (Zip Code)
 
Registrant's telephone number, including area code:          (802) 229-5042

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01
par value
                                                           (Title of class)

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 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 [X].

Aggregate market value of the common stock held by nonaffiliates of the
Registrant as of April 30, 1999 was $21,938,708. *

Number of shares of the $.01 par value common stock outstanding as of March 15,
1999 was 332,281.


*based on book value as of December 31, 1998.
<PAGE>
 
                                    PART II


Item 6.  Selected Financial Data

Item 6 is hereby amended and restated in its entirety as follows:

The following summary sets forth selected financial data with respect to AIIG
for the five fiscal years ended December 31, 1998. The balance sheet and income
statement data have been derived from AIIG's consolidated financial statements,
which have been audited by Johnson Lambert & Co., AIIG's independent auditors.
The data set forth below should be read in conjunction with the audited
financial statements and notes thereto included elsewhere herein. As more fully
described in Note H of the audited financial statements, certain balances in the
1995, 1996, 1997 and 1998 financial statements have been restated to reflect
correction of prior year errors determined during 1998. See Note H for
additional description of the errors determined.

SELECTED FINANCIAL STATEMENT DATA

Income Statement Data

<TABLE>
<CAPTION>
                                                                              RESTATED
                               ----------------------------------------------------------------------------------------------------
                                    1998                  1997                 1996                 1995                1994
                               ----------------     -----------------     -----------------     ---------------     ---------------
<S>                            <C>                  <C>                   <C>                   <C>                 <C>
Premiums Earned                  $ 5,901,939          $  6,172,610          $  5,956,946          $  5,748,143        $  6,276,395
Net Investment Income              2,443,592             2,572,539             2,394,377             2,195,451           2,156,374
                               ----------------     -----------------     -----------------     ---------------     ---------------
 Total Revenue                   $ 8,345,934          $  8,745,149          $  8,351,323          $  7,943,594        $  8,432,769
                               ================     =================     =================     ===============     ===============
 Net Income                      $ 1,061,530          $  1,482,332          $  2,356,024          $  3,216,720        $  3,801,325
                               ================     =================     =================     ===============     ===============
 Basic Earnings Per Share        $      3.19          $       4.44          $       7.04          $       9.59        $      11.26
                               ================     =================     =================     ===============     ===============
 Cash dividends declared 
   per common share              $      2.60          $       2.60          $       2.60          $       1.30        $          -
                               ================     =================     =================     ===============     ===============
</TABLE> 

                                      2 
<PAGE>
 
Balance Sheet Data

<TABLE>
<CAPTION>
BALANCE SHEET DATA
                                                                RESTATED
                               --------------------------------------------------------------------------------
                                     1998                  1997                 1996                   1995                 1994
                               --------------        --------------        --------------        --------------        -------------
<S>                              <C>                   <C>                   <C>                   <C>                   <C>
Investments                       $42,548,658           $41,683,579           $39,636,771           $39,099,802          $15,642,358
Funds Held by Reinsurers                                                                                                  25,041,311
Other Assets                        7,232,788             6,565,948             6,667,197             7,964,483            8,570,677
                               --------------        --------------        --------------        --------------        -------------

Total Assets                      $49,781,446           $48,249,527           $46,303,968           $47,064,285          $49,254,346
                               ==============        ==============        ==============        ==============        =============
 
Losses and Loss
 Adjustment Expenses              $21,718,087           $20,802,873           $20,299,937           $21,789,036          $25,335,230
Unearned Premiums                   3,415,651             2,809,115             2,464,351             2,370,336            2,053,900
Other Liabilities                   2,705,699             2,979,033             3,059,174             3,725,385            7,368,133
                              ---------------        --------------       ---------------        --------------         ------------
 
Total Liabilities                  27,839,437            26,591,021            25,823,462            27,884,757           34,757,263
Stockholders' Equity               21,942,009            21,658,506            20,480,506            19,179,528           14,497,083
                              ---------------        --------------       ---------------        --------------         ------------
Total Liabilities and
 Stockholders' Equity             $49,781,446           $48,249,527           $46,303,968           $47,064,285          $49,254,346
                              ===============        ==============       ===============        ==============         ============
</TABLE>


Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

Item 7 is hereby amended and restated in its entirety as follows:

RESULTS OF OPERATION

Net income decreased by 28% in 1998 to $1,061,530 from $1,482,332 in 1997.  Net
income for 1997 decreased by 37% from $2,356,024 reported in 1996.

Premiums earned decreased by 4.4% in 1998 to $5,901,939 from $6,172,610 in 1997.
Premiums earned for 1997 increased by 3.6% from $5,956,946 reported in 1996. In
1998, 1997, and 1996 premiums earned includes $131,250, $720,298 and $693,976,
respectively resulting from reductions in the ultimate estimated premium ceded
pursuant to retrocession agreements in effect during 1989 through mid-1993.
Ultimate premiums are dependent on loss experience under the agreements and are
reevaluated as ultimate losses are reevaluated. Excluding the effect of the
reduction of estimated ultimate premiums ceded, premiums earned during 1998
increased by 5.8% as compared to 1997 and 1997 premiums earned increased by 
3.6% as compared to 1996. 

The increase in earned premiums during 1998 and 1997 is attributable to
continued growth of the AICPA Plan. This growth is primarily the result of an
increase in the number of insureds under the AICPA Plan and from certain rate
increases associated with a "step plan" which was initiated during 1995. Under
the step plan, insureds are offered discounted premium rates for favorable loss
experience. However, as these insureds experience losses their premiums are
"stepped up" accordingly. Because of the use of claims-made policies, as the
number of years of coverage provided increases, CNA's (and AIIG's) exposure
increases. This additional exposure results in an increase in premiums charged.

                                       3
<PAGE>
 
Net investment income, including realized capital gains and losses, includes
amounts earned on the Company's investment portfolio and cash on deposit. Net
investment income decreased by $128,544 or 5% in 1998 to $2,443,995 from
$2,572,539 in 1997. Net investment income in 1997 increased by $178,162 or 7%
from the $2,394,377 reported in 1996. Net investment income in 1998 includes net
realized capital gains of $277,627 as compared to net realized capital gains in
1997 of $305,252, a net decrease of $27,625. Net realized capital gains in 1996
were $1,765. Capital losses are used to offset capital gains of prior and future
years and recover related income taxes.

Average invested assets including cash equivalents increased by $2,007,639 or 5%
to $43,382,384 in 1998 compared to $41,374,745 in 1997. 1997 average invested
assets increased by 3% from $40,077,308 in 1996. Investment yield including
realized capital gains and losses in 1998 was 5.6% as compared to 6.2% in 1997
and 6.0% in 1996. Excluding realized gains and losses, the yield is computed at
5.0% in 1998, 5.5% in 1997 and 6.0% in 1996. The decrease in investment yield,
excluding realized gains and losses, is primarily attributable to an increase in
holdings of tax free municipal securities and an increase in equity securities
which generate less realized investment income.

Unrealized gain on investments net of tax is $1,156,993 at December 31, 1998 as
compared to $1,016,956 at December 31, 1997. AIIG considers all of its
investment portfolio to be available for sale and accordingly all investments
are reported at market value, with changes in net unrealized gains and losses
reflected as an adjustment to accumulated other comprehensive income.

The composition of the investment portfolio at December 31, 1998 and 1997 is as
follows:

<TABLE>
<CAPTION>

                                                      1998       1997
                                                      ----       ----
<S>                                                   <C>        <C>
   U.S. Treasury notes                                   4%        11%
   Mortgage backed securities and obligations of
    U.S. Government agencies                            41         38
   Obligations of state and political subdivisions      36         33
   Equity securities                                    19         18
                                                      ----       ----
                                                       100%       100%
                                                      ====       ==== 
</TABLE>

AIIG continues to invest in high grade debt and equity securities.

Losses and loss adjustment expenses incurred increased by 1% to $4,797,657 in
1998 from $4,748,833 in 1997. Losses and loss adjustment expense for 1997
increased by 75% from $2,717,884 in 1996. These amounts include favorable
development of prior years' estimates of losses and loss adjustment expense of
approximately $4,883,000 in 1998, $1,411,000 in 1997 and $2,917,000 in 1996. As
adjustments to prior estimates of losses and loss adjustment expenses become
known, such adjustments are included in current operations. AIIG's loss ratio,
calculated as the ratio of losses and loss adjustment expense to premiums
earned, is 81% in 1998, 77% in 1997 and 46% in 1996. The ratio calculated using
only losses and loss adjustment expenses incurred for the current year
(excluding the effects of favorable development and excluding reductions to
retrocession premiums) is 168% in 1998, 113% in 1997 and 107% in 1996.

Favorable development on prior year losses is attributable to various economic
trends and factors. In a strong economic environment, fewer professional
liability claims are likely to occur since fewer companies are experiencing the
kind of financial stress or failure that can often lead to such claims. However,
AIIG has noted that under the CNA program, loss frequency has increased in
recent years while loss severity has remained constant. This increase in loss
frequency can be attributed to CNA's implementation of a step plan (also see
above discussion of premiums) in 1995 that was designed to attract a large
number of new insureds, predominantly smaller firms, to the program. CNA
expected loss severity to decrease and offset the effects of increases in loss
frequency, but to date this has not occurred. Accordingly, losses are trending
upward in the most

                                       4

<PAGE>
 
recent years. Additionally, in recent years, many of the CNA insureds have opted
to purchase defense coverage outside of policy limits which results in larger
reserve requirements.


Policy acquisition costs of $1,641,092 were expensed in 1998 as compared to
$1,554,025 in 1997, an increase of 5.6%. Policy acquisition costs expensed in
1997 reflect an increase of 6.1% from $1,464,936 in 1996. Such costs as a
percentage of premiums earned (excluding the effects of reductions to
retrocession premiums) are 28% in 1998, 29% in 1997 and 28% in 1996, and result
primarily from ceding commissions paid to ceding companies determined
contractually pursuant to reinsurance agreements.

Operating and management expenses increased by 4% in 1998 to $642,925 from
$619,684 in 1997. 1997 operating and management expenses decreased by 15% from
$727,780 in 1996.

The effective tax rate was 16% in 1998, 19% in 1997 and 32% in 1996. These rates
differ from the statutory federal rate primarily due to the effects of tax
exempt municipal bond income. Gross tax exempt investment income increased by
30% in 1998 to $683,891 from $527,600 in 1997. Gross 1997 tax exempt investment
income increased by 110% from $250,913 in 1996.


                                       5
<PAGE>
 
Liquidity and Capital Resources

The Company's cash needs consist of settlement of losses and expenses under its
reinsurance treaties and funding day-to-day operations.  Management expects to
be able to meet these cash needs from cash flows arising from its investment
portfolio.  Because substantially all of the Company's assets are marketable
securities, the Company has sufficient flexibility to provide for unbudgeted
cash needs which may arise without resorting to borrowing.

As of December 31, 1998, total invested assets amounted to $42,548,658, an 
increase of $865,079 or 2% from $41,683,579 at December 31, 1997.  Cash balances
increased from $1,081,736 at December 31, 1997 to $1,450,795 at December 31, 
1998, an increase of 34%.  The balance of cash and cash equivalents varies 
depending on the maturities of fixed term investments and on the level of funds 
invested in money market mutual funds.  The ratio of cash and invested assets to
total liabilities and stockholders' equity at December 31, 1998 was .88 to 1, 
compared to a ratio of .89 to 1 at December 31, 1997.

AIIG's gross premiums assumed in 1998 amounted to $6,377,225, an increase of 
$580,149 from 1997.  Gross premiums assumed in 1997 increased by $440,091, 
or 8.2% from 1996.  Assumed reinsurance premiums receivable represents current 
assumed premiums receivable less commissions payable to the fronting carriers.  
This balance increased from $1,964,777 at December 31, 1997 to $2,357,147 at 
December 31, 1998, an increase of 20%.  Approximately $818,000 of the balance of
assumed reinsurance premiums receivable at December 31, 1998 and 1997 is 
attributable to the adjustment for prior year premiums due from CNA, as more
fully described in Note H of the audited financial statements included herein.
This balance also fluctuates due to the timing of renewal premium written. The
increase in premiums has also resulted in a direct increase in policy
acquisition costs, unearned premiums, fixed commissions paid to CNA as part of
its quota share agreement, and loss reserves.

Reinsurance recoveries represent AIIG's estimate of losses to be reimbursed by 
its reinsurer from future loss payments. AIIG (through AIIC) entered into excess
of loss retrocession agreements to limit its retained risk on any one claim 
underwritten by Coregis Group, Inc. (formerly Crum and Forster Managers 
Corporation), to $50,000 in 1989 and 1990 and $62,500 in 1991 through mid-1993, 
subject to specified maximum recoveries for each contract year. Retrocession 
premiums ceded by AIIG are adjustable within a specified range based on actual 
experience under each contract. Amounts recoverable from the reinsurers pursuant
to retrocession agreements have been estimated using actuarial assumptions 
consistent with those used in establishing the liability for unpaid losses and 
loss adjustment expenses. The actuary suggested a decrease in its analysis as of
December 31, 1998 which is reflected in the decrease to reinsurance recoveries 
receivable from $1,039,762 at December 31, 1997 to $875,685 at December 31, 
1998, a decrease of $164,077, or 16%.

Reinsurance balances payable represent AIIG's estimate of the premiums due to 
the Company's reinsurer under the retrocession agreements described above, and 
amounts currently due for losses and loss adjustment expenses payable. Ultimate 
loss reserves were adjusted downward by the actuary in 1998, which resulted in a
decrease in the portion of reinsurance balances payable due for retrospective 
premiums. The estimate of reinsurance balances due for retrospective premiums 
decreased by $131,250, $720,298 and $693,976 during 1998, 1997 and 1996, 
respectively. Including loss and loss adjustment expenses currently due, 
reinsurance balances payable increased from $1,984,442 at December 31, 1997 to 
$2,142,396 at December 31, 1998, an increase of $157,954, or 8%.

Prepaid expenses and other assets amounted to $326,172 at December 31, 1998, an
increase of 75% from 1997. This is due to the fact that the Company incurred
expenses in researching, studying and preparing for its possible redomestication
to Bermuda. At December 31, 1998 expenses totaling $86,798 were capitalized and
have been included in other assets.

Deferred policy acquisition costs, representing the deferral of ceding
commission expense related to premiums not yet earned, increased from December
31, 1997 along with the increase in unearned premiums. The current ceding
commission rate, which became effective August 1, 1995, is 28.5%.

The Registrant paid its fourteenth consecutive quarterly dividend of $0.65 per 
share during the fourth quarter of 1998.

During 1998, 1997 and 1996, the Board of Directors declared quarterly dividends
of $0.65 per share totaling $865,587, $867,735 and $869,661, respectively.
Continuation of quarterly dividend payments is subject to the Board of
Directors' continuing evaluation of the Company's level of surplus vis a vis its
capacity to accept more business.  It is an objective of the Company to build
surplus in anticipation of the next "hard market", that is to say, the next
period in which accountants' professional liability insurance becomes difficult
or impossible to obtain at reasonable prices, and to retain flexibility for any
future business expansions.

Property/Casualty Losses and Loss Adjustment Expenses

The consolidated financial statements include the established liability for
unpaid losses and loss adjustment expenses (LAE) of the Company's
property/casualty (P/C) insurance operations. The liabilities for losses and
loss adjustment expenses are determined utilizing both case-basis evaluations
and actuarial projections, which together represent an estimate of the ultimate
net cost of all unpaid losses and LAE incurred through December 31 of each year.
These estimates are subject to the effect of trends in future claim severity and
frequency. The estimates are continually reviewed, and as experience develops
and new information becomes known, the liability is adjusted as appropriate.
Such adjustments are reflected in current financial reports.

The anticipated effect of inflation is implicitly considered when estimating
liabilities for losses and LAE. Future average severity is projected based on
historical trends adjusted for anticipated changes in underwriting standards,
policy provisions and general economic trends. These anticipated trends are
monitored based on actual development and are modified if necessary.

As is customary in the business, an acturial review and projection is performed 
for AIIC by its independent actuary as of June 30 and December 31 of each year. 
Those projections are not adjusted at the first or third quarters, but remain in
effect for the half-year period.

AIIC's actuary has applied four standard methods. The Expected Value Method
(EVM) relies on pricing considerations prior to the emergence of any actual
experience for a particular report year. The Bornhuetter-Ferguson Method (BFM)
blends the expected value estimates from the EVM with the actual emerging
experience. The Trended Average Cost Method (TACM) allows separate estimation of
the three components of expected losses -- frequency, limited severity, and
excess severity -- with the ability to introduce different valuation methods for
each of these three components at different points in time. The Loss Development
Method (LDM) projects current values of incurred losses to their estimated
ultimate level based on historical patterns of how losses have developed as a
report year ages.

The selection of estimated ultimate loss, and related loss ratios, for each of 
the last five years consistently have been based on composite indications from
each of the four methods rather than solely on a single method. However, for
more recent and thus most immature report years, the selection has primarily
been based on the Trended Average Cost Method, which adjusts quickly to changes
in the number of reported claims which become available soon after the end of
the report year.

The valuation has been subject to limited adjustments to reflect uncertainties
concerning CNA's underwriting, which is not fully comparable to the more mature
Crum & Forster results for earlier years.

The result of this process is that each half year, the actuary has made
recommendations to AIIC's Board of Directors, which for each period adopted the
recommendation. Based on the foregoing practice, the estimated loss ratio has
been changed by AIIG's Board of Directors approximately once each year.

The following table shows the development of the estimated liability for the
previous ten years of the Company's P/C operations:

                                       6
<PAGE>
 
ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSES DEVELOPMENT
(Thousands of Dollars)

Amounts prior to 1993 restated to conform with SFAS 113

<TABLE>
<CAPTION>
 
                                                                        Year Ended December 31,
                                     1988     1989     1990     1991     1992     1993     1994     1995     1996     1997     1998
                                   --------  -------  -------  -------  -------  -------  -------  -------  -------  -------  ------
<S>                                <C>       <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
 
Gross Liability for Loss and
 LAE Reserves....................    $1,895   $8,085  $15,182  $20,260  $25,287  $27,047  $25,335  $21,789  $20,300  $20,803  21,718

Reinsurance Recoverable for
 Unpaid
 Loss and LAE Reserves...........         -        -      502      761      969    4,764    4,071    3,160    2,020    1,040     876

                                     ------   ------  -------  -------  -------  -------  -------  -------  -------  -------  ------
Net Liability for Unpaid Losses
 and
 LAE reserves....................    $1,895   $8,085  $14,680  $19,499  $24,318  $22,283  $21,264  $18,629  $18,280   19,763  20,842

 
 
                                                                          Year Ended December 31,
                                       1988     1989     1990     1991     1992     1993     1994     1995     1996     1997    1998
                                     ------   ------  -------  -------  -------  -------  -------  -------  -------  -------  ------
Losses Reestimated as of:
 
  One Year Later.................     1,897    8,705   14,779   19,963   23,004   18,099   17,957   15,709   16,869   14,883       -
  Two Years Later................     1,897    8,145   12,667   15,264   20,133   15,064   15,042   14,299   10,161
  Three Years Later..............     1,780    6,796    9,862   13,101   17,782   12,196   13,635    8,417
  Four Years Later...............     1,405    5,199    8,696   11,725   15,520   10,811    9,322
  Five Years Later...............     1,065    4,782    7,753   10,158   14,825    8,479
  Six Years Later................       995    4,536    6,879   10,081   12,817
  Seven Years Later..............       936    4,031    6,761    8,523
  Eight Years Later..............       819    4,016    5,661
  Nine Years Later...............       819    3,576
  Ten Years Later................       819
 
Cumulative Redundancy
 (Deficiency)....................     1,076    4,509    9,019   10,976   11,501   13,804   11,942   10,212    8,119    4,880       -

 
Cumulative Amount Paid Through:
 
  One Year Later.................        73      415    2,548    4,158    6,100    1,555    4,007    2,885    3,036    3,567       -
  Two Years Later................       208    1,710    3,653    5,464    7,860    5,128    6,469    4,791    5,580
  Three Years Later..............       595    2,349    4,147    6,255   10,370    6,765    7,721    6,087
  Four Years Later...............       617    2,716    4,380    7,744   11,436    7,666    8,551
  Five Years Later...............       676    2,927    5,422    8,303   11,878    8,199
  Six Years Later................       659    3,317    5,540    8,501   12,263
  Seven Years Later..............       668    3,380    5,764    8,611
  Eight Years Later                     670    3,467    5,799
  Nine Years Later                      674    3,485
  Ten Years Later                       675
</TABLE>

The above table of losses reestimated has been prepared on a net basis (i.e.,
loss and loss adjustment expenses and reinsurance recoveries receivable have not
been grossed-up, as required under FAS 113). The schedule has been prepared on a
net basis due to the relative immateriality of reinsurance balances when
considered in relation to total loss and loss adjustment expense reserves, and
due to the cost/benefit of providing such information.

The above table presents the development of balance sheet liabilities for 1988
through 1998 as of year-end 1998. The top line of the table shows the original
recorded unpaid liability for losses and LAE recorded at the balance sheet date
for each of the indicated years.

This liability represents the estimated amount of losses and LAE for claims
arising in all prior years, both paid and unpaid at the balance sheet date,
including losses that had been incurred. The upper portion of the table shows
the experience as of the end of each succeeding year. The estimate is increased
or decreased as more information becomes known about the frequency and severity
of claims.

The "cumulative redundancy (deficiency)" represents the aggregate change in the
estimates over all prior years. For example, the 1994 liability has developed a
$11,942,000 redundancy which has been reflected in income in subsequent years as
the reserves were reestimated.

                                       7
<PAGE>
 
The lower section of the table shows the cumulative amount paid with respect to
the previously recorded liability as of the end of each succeeding year. For
example, the 1994 year end liability was originally $21,264,000. As of December
31, 1998, the Company had paid $8,551,000 of the currently estimated $9,322,000
of losses and LAE that had been incurred for 1994 and prior years through the
end of 1998; thus an estimated $771,000 in losses incurred through 1994 remain
unpaid as of the current financial statement date.

In evaluating this information, it should be understood that each amount
includes the effects of all changes in amounts for prior periods. This table
does not present accident or policy year development data, which readers may be
more accustomed to analyzing. Conditions and trends that have affected
development of liability in the past may not necessarily occur in the future.
Accordingly, it may not be appropriate to extrapolate future redundancies or
deficiencies based on this table.

Year 2000 Readiness

AIIG is aware of the issues associated with the programming code in existing
computer systems as the year 2000 approaches. The "Year 2000" problem is the
result of computer programs being written using two digits rather than four to
define the applicable year. Programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. Systems
that do not properly recognize such information could generate erroneous data or
fail.

The Company's operations are conducted through its management company, Vermont
Insurance Management, Inc. ("VIM"). VIM has informed the Company that it is
using both internal and external resources to identify, correct and test its
financial, information and operational systems for Year 2000 compliance. VIM is
assessing its internal systems for Year 2000 compliance and has made inquiries
of third parties with whom the Company has material relationships to assess the
potential impact on the Company's operations if key third parties are not
successful in converting their systems in a timely manner. VIM has completed its
assessment of its hardware systems and is still in the process of reviewing its
software systems, and anticipates that its review of its internal systems will
be complete by June 30, 1999. VIM anticipates that any necessary remediation
will be completed by September 1999 and that any necessary testing will be
completed by September 30, 1999. Based on its review efforts to date, VIM does
not anticipate any material disruption to the Company's business from its
internal systems. The costs of remediation to its systems will be borne by VIM
or its affiliates.

VIM has not yet received responses to all of its third party inquiries, but the
Company believes that its primary focus regarding the Year 2000 problem is
appropriately with AIIC's primary insurance carrier, CNA. The majority of
insurance transactions affecting the Company are originated by CNA operating
systems, with quarterly reporting to the Company. Representatives of CNA have
informed the Company that CNA has been Year 2000 compliant since December 1,
1998. If CNA is not Year 2000 compliant, the Company believes that the impact on
its business is likely to be material. Presently, the Company's only business is
that of reinsurance, so the Company anticipates that Year 2000 noncompliance by,
particularly CNA, will be disruptive primarily from a reporting and
informational standpoint.

The Company's expectations about the impact of the Year 2000 problem on its
business are subject to a number of uncertainties that could cause actual
results to differ materially. Such factors include the following: (i) The
Company's service providers may not be successful in properly identifying all
systems and programs that contain two-digit year codes; (ii) The nature and
number of systems which require reprogramming, upgrading or replacement may
exceed the service providers' expectations in terms of complexity and scope;
(iii) The Company's service providers may not be able to complete all
remediation and testing necessary in a timely manner; (iv) The Company has no
control over the ability of third parties to achieve Year 2000 compliance; and
(v) The impact of the Year 2000 problem on CNA may be of such magnitude that it
may adversely affect the Company's business or eliminate its sole source of
insurance business.

NAIC Codification of Statutory Accounting Practices

See Note F to the Consolidated Financial Statements regarding the codification
of statutory accounting practices by the National Association of Insurance
Commissioners.

Proposed Redomestication and Restructuring

The Board of Directors of the Company has approved a redomestication and
restructuring of the Company, which is subject to shareholders approval,
regulatory approvals and the approval of certain other third parties. See Note G
to the Consolidated Financial Statements for a further description of the
proposed transaction.

                                       8
<PAGE>
 
Item 8.  Financial Statements and Supplementary Data

Item 8 is hereby amended and restated in its entirety as follows:

The financial statements required by this Item are listed below:

                                 INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
 
Financial Statements
---------------------------------------------------------------------
                                                                       Page
                                                                       -----
<S>                                                                    <C>
 
Report of Independent Accountants....................................    11
Consolidated Balance Sheets..........................................    12
Consolidated Statements of Income and Other Comprehensive Income.....    13
Consolidated Statement of Changes in Stockholders' Equity............    14
Consolidated Statements of Cash Flows................................    16
Notes to the Consolidated Financial Statements.......................    17
                                                                       
Financial Statement Schedules:                                         
---------------------------------------------------------------------  
                                                                       
Reports of Independent Accountants on Financial Statement Schedules..    31
Schedule II, Parent Company Condensed Financial Statements...........    32
Schedule IV, Reinsurance.............................................    35
</TABLE>

Schedules I, III, V, and VI are omitted as they are inapplicable, immaterial, or
because the required information may be found in the audited consolidated
financial statements and notes thereto.

                                       9
<PAGE>
 
                                    PART IV

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

Item 14 is hereby amended and restated in its entirety as follows:

(a)(1)   See Index to Financial Statements on page 9. 

(a)(2)   See Index to Financial Statement Schedules on page 9.

(a)(3)   See Index to Exhibits set forth on page 37.

(b)      No reports on Form 8-K were filed during the fourth quarter of 1998.

(c)      See Index to Exhibits set forth on page 37.

(d)      See Index to Financial Statement Schedules on page 9.

                                      10
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
                       ---------------------------------



To the Board of Directors
AmerInst Insurance Group, Inc.


We have audited the accompanying consolidated balance sheets of AmerInst
Insurance Group, Inc. (the Company) as of December 31, 1998 and 1997, and the
related consolidated statements of income and other comprehensive income,
changes in stockholders' equity, and cash flows for each of the years in the
three year period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with 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 the disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AmerInst Insurance Group, Inc.
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the years in the three year period ended December 31, 1998 in
conformity with generally accepted accounting principles.

As described in Note H, the financial statements for each of the three years in
the three year period ended December 31, 1998 have been restated to reflect in 
the appropriate periods previously unrecorded assumed premiums and related 
activity identified by the Company during 1998.


                                                           JOHNSON LAMBERT & CO.

Burlington, Vermont
February 22, 1999, except
for Note H, as to which the 
date is April 30, 1999

                                      11
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                           December 31,
ASSETS                                                                             1998                    1997
                                                                                                        (Restated)
                                                                                -----------             -----------
<S>                                                                             <C>                     <C>
Investments:
  Fixed maturity investments, at market value
   (amortized cost $33,680,548 and $33,420,863)                                 $34,577,261             $34,065,619
  Equity securities, at market value (cost $7,115,089
   and $6,721,873)                                                                7,971,397               7,617,960
                                                                                -----------             -----------
     TOTAL INVESTMENTS                                                           42,548,658              41,683,579

Cash and cash equivalents                                                         1,450,795               1,081,736
Assumed reinsurance premiums receivable                                           2,357,147               1,964,777
Reinsurance recoveries receivable                                                   875,685               1,039,762
Accrued investment income                                                           596,862                 499,970
Deferred policy acquisition costs                                                   973,461                 800,598
Deferred income tax asset                                                           652,666                 992,599
Prepaid expenses and other assets                                                   326,172                 186,506
                                                                                -----------             -----------
     TOTAL ASSETS                                                               $49,781,446             $48,249,527
                                                                                ===========             ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses                                      $21,718,087             $20,802,873
Unearned premiums                                                                 3,415,651               2,809,115
Reinsurance balances payable                                                      2,142,396               1,984,442
Federal income taxes payable                                                        118,004                 539,153
Accrued expenses and other liabilities                                              445,299                 455,438
                                                                                -----------             -----------
     TOTAL LIABILITIES                                                           27,839,437              26,591,021
                                                                                -----------             -----------

STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 2,000,000 shares authorized;
 1998--332,331 shares issued and outstanding
 1997--333,358 shares issued and outstanding                                          3,323                   3,334
Additional paid-in capital                                                        7,144,818               7,172,508
Retained earnings                                                                13,636,875              13,465,708
Accumulated other comprehensive income, net of tax                                1,156,993               1,016,956
                                                                                -----------             -----------

     TOTAL STOCKHOLDERS' EQUITY                                                  21,942,009              21,658,506
                                                                                -----------             -----------

     TOTAL LIABILITIES AND STOCKHOLDERS'
      EQUITY                                                                    $49,781,446             $48,249,527
                                                                                ===========             ===========
</TABLE>

See accompanying notes to the consolidated financial statements.

                                      12
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE
  INCOME
<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                                               1998           1997           1996
                                                            (Restated)     (Restated)     (Restated)
                                                            ----------     ----------     ---------- 
<S>                                                         <C>            <C>            <C>
REVENUES                                                                                
Premiums earned                                             $5,901,939     $6,172,610     $5,956,946 
Net investment income and net realized gains and losses      2,443,995      2,572,539      2,394,377
                                                            ----------     ----------     ---------- 
       TOTAL REVENUES                                        8,345,934      8,745,149      8,351,323
                                                            ----------     ----------     ---------- 

LOSSES AND EXPENSES                                                                     
Losses and loss adjustment expenses                          4,797,657      4,748,833      2,717,884
Policy acquisition costs                                     1,641,092      1,554,025      1,464,936
Operating and management expenses                              642,925        619,684        727,780
                                                            ----------     ----------     ----------      
                                                                                        
       TOTAL LOSSES AND EXPENSES                             7,081,674      6,922,542      4,910,600
                                                            ----------     ----------     ---------- 

       INCOME BEFORE INCOME TAXES                            1,264,260      1,822,607      3,440,723
                                                                                        
Provision for income taxes                                     202,730        340,275      1,084,699
                                                            ----------     ----------     ----------      
                                                                                        
       NET INCOME                                            1,061,530      1,482,332      2,356,024 
                                                            ----------     ----------     ----------      
                                                                                        
OTHER COMPREHENSIVE INCOME, NET OF TAX                                                  
Net unrealized holding gains (losses) arising during                                    
   the period                                                  323,271        793,801       (149,578)
Less: reclassification adjustment for gains and                                         
   losses included in net income                              (183,234)      (201,466)        (1,165)
                                                            ----------     ----------     ----------      
                                                                                        
       OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX           140,037        592,335       (150,743)
                                                            ----------     ----------     ----------      
                                                                                        
       COMPREHENSIVE INCOME                                 $1,201,567     $2,074,667     $2,205,281
                                                            ==========     ==========     ========== 
                                                                                        
       BASIC EARNINGS PER SHARE                             $     3.19     $     4.44     $     7.04
                                                            ==========     ==========     ========== 
                                                                                        
Average common shares outstanding for the year                 332,997        333,870        334,558
                                                            ==========     ==========     ========== 
</TABLE>

See accompanying notes to the consolidated financial statements.

                                      13
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                             Accumulated
                                                                                                Other
                                                                 Additional                 Comprehensive                  Total
                                                        Common     Paid-in      Retained       Income,      Treasury   Stockholders'
                                                         Stock     Capital      Earnings      Net of Tax      Stock        Equity
                                                        ------   ----------   -----------   -------------   --------   -------------
<S>                                                     <C>      <C>          <C>             <C>           <C>        <C>
BALANCE AT JANUARY 1, 1996 - PRIOR TO RESTATEMENT       $3,349   $7,206,283   $11,274,797     $  575,364    $      -   $19,059,793
BEGINNING OF PERIOD ADJUSTMENT TO RETAINED EARNINGS                               
(SEE NOTE H)                                                                      119,735                                  119,735
Net income                                                                      2,356,024                                2,356,024
Other comprehensive income, net of tax:
   Unrealized gains (losses) on securities,
   net of reclassification adjustment                                                           (150,743)                 (150,743)
Purchases of 692 shares of treasury stock                                                                    (34,642)      (34,642)
Retirement of 692 shares of treasury stock                  (7)     (17,300)      (17,335)                    34,642
Cash dividends paid ($2.60 per share)                                            (869,661)                                (869,661)
                                                        ------   ----------   -----------     ----------    --------   -----------
BALANCE AT DECEMBER 31, 1996                             3,342    7,188,983    12,863,560        424,621           -    20,480,506
Net income                                                                      1,482,332                                1,482,332
Other comprehensive income, net of tax:
   Unrealized gains (losses) on securities,
   net of reclassification adjustment                                                            592,335                   592,335
Purchases of 822 shares of treasury stock                                                                    (28,932)      (28,932)
Retirement of 822 shares of treasury stock                  (8)     (16,475)      (12,449)                    28,932
Cash dividends paid ($2.60 per share)                                            (867,735)                                (867,735)
                                                        ------   ----------   -----------     ----------    --------   -----------
BALANCE AT DECEMBER 31, 1997                            $3,334   $7,172,508   $13,465,708     $1,016,956    $      -   $21,658,506
</TABLE>

                                 -(Continued)-

See accompanying notes to the consolidated financial statements.

                                      14
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY-CONTINUED



<TABLE>
<CAPTION>
                                                                                             Accumulated
                                                                                                Other
                                                                 Additional                 Comprehensive                 Total
                                                        Common     Paid-in      Retained       Income,     Treasury   Stockholders'
                                                         Stock     Capital      Earnings     Net of Tax      Stock        Equity
                                                        ------   ----------   -----------   -------------  --------   ------------- 
<S>                                                     <C>      <C>          <C>           <C>            <C>        <C>
BALANCE AT DECEMBER 31, 1997                            $3,334   $7,172,508   $13,465,708      $1,016,956  $     -      $21,658,506
 
Net income                                                                      1,061,530                                 1,061,530
Other comprehensive income, net of tax:
   Unrealized gains (losses) on securities,
   net of reclassification adjustment                                                             140,037                   140,037
Purchases of 1,108 shares of treasury stock                                                                 (52,477)        (52,477)

Retirement of 1,108 shares of treasury stock               (11)     (27,690)      (24,776)                   52,477          
Cash dividends paid ($2.60 per share)                                            (865,587)                                 (865,587)

                                                        ------   ----------   -----------      ----------  --------     -----------
BALANCE AT DECEMBER 31, 1998                            $3,323   $7,144,818   $13,636,875      $1,156,993  $     -      $21,942,009
                                                        ======   ==========   ===========      ==========  ========     ===========
  
</TABLE>

See accompanying  notes to the consolidated financial statements.

                                      15
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                        Year ended December 31,
                                                               1998                  1997                 1996
                                                            (Restated)            (Restated)           (Restated)
                                                           ------------          ------------         ------------
<S>                                                        <C>                   <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES                    
Net income                                                 $  1,061,530          $  1,482,332         $  2,356,024
Adjustments to reconcile net income to net cash         
   provided by (used in) operating activities           
    Amortization of net premiums on investments                  35,048                21,185               18,906
    Net realized gains on sales of investments                 (277,627)             (305,253)              (1,765)
    Deferred income taxes                                       267,793                (1,262)            (494,414)
Changes in assets and liabilities:                      
    Assumed reinsurance premiums receivable                    (392,370)             (216,581)            (243,818)
    Reinsurance recoveries receivable                           164,077               980,213            1,139,586
    Accrued investment income                                   (96,892)               15,900               75,303
    Deferred policy acquisition costs                          (172,863)              (98,258)             (61,526)
    Income taxes receivable/payable                            (421,149)               31,826              850,581
    Prepaid expenses and other assets                          (139,666)              (96,498)              (9,758)
    Unpaid losses and loss adjustment expenses                  915,214               502,936           (1,489,099)
    Unearned premiums                                           606,536               344,764               94,015
    Reinsurance balances payable                                157,954              (167,614)          (1,083,436)
    Accrued expenses and other liabilities                      (10,139)                1,909              (36,364)
                                                           ------------          ------------         ------------
     Net cash provided by operating activities                1,697,446             2,495,599            1,114,235
                                                           ------------          ------------         ------------
                                                        
CASH FLOWS FROM INVESTING ACTIVITIES                    
Purchases of investments                                    (12,265,241)          (13,572,437)         (22,603,360)
Proceeds from sales and maturities of investments            11,854,918            11,010,362           20,761,301
Net (purchases) sales of short-term investments                                     1,697,475           (1,325,897)
                                                           ------------          ------------         ------------
     Net cash used in investing activities                     (410,323)             (864,600)          (3,167,956)
                                                           ------------          ------------         ------------
                                                        
CASH FLOWS FROM FINANCING ACTIVITIES                    
Dividends paid                                                 (865,587)             (867,735)            (869,661)
Purchases of treasury stock                                     (52,477)              (28,932)             (34,642)
                                                           ------------          ------------         ------------
     Net cash used in financing activities                     (918,064)             (896,667)            (904,303)
                                                           ------------          ------------         ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS                         369,059               734,332           (2,958,024)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                  1,081,736               347,404            3,305,428
                                                           ------------          ------------         ------------
                                                        
CASH AND CASH EQUIVALENTS, END OF YEAR                     $  1,450,795          $  1,081,736         $    347,404
                                                           ============          ============         ============
SUPPLEMENTAL DATA  -  Income taxes paid                    $    454,893          $    425,000         $    728,505
                                                           ============          ============         ============
</TABLE>

See accompanying notes to the consolidated financial statements.

                                      16
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE A--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization: AmerInst Insurance Group, Inc. (AIIG) was incorporated under the
laws of the State of Delaware on September 9, 1987. On February 29, 1988, AIIG
sold 343,357 shares of its common stock at a price of $25 per share in a public
offering to accounting firms that were members of the American Institute of
Certified Public Accountants (AICPA) or a state CPA society. Proceeds of the
public offering (net of selling agent's commission and expenses, management fees
and other offering costs totaling $1,151,850) amounted to $7,432,075, which
consisted of $3,434 of paid-in share capital and $7,428,641 of additional paid-
in capital.

Basis of Presentation: The accompanying consolidated financial statements have
been prepared in conformity with generally accepted accounting principles (GAAP)
and include the accounts of AIIG and its wholly owned subsidiaries, AmerInst
Insurance Company (AIIC) and AmerInst Insurance Group, Ltd. (AIG, Ltd.) All
material intercompany accounts and transactions have been eliminated in
consolidation.
 
During June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income". This
pronouncement, which was adopted by AIIG in 1998 establishes standards for
reporting and display of comprehensive income. This all-inclusive approach to
reporting income attempts to more accurately report items that previously
bypassed the income statement and were only addressed in the equity section of
the balance sheet. For AIIG, the only item required for reporting of
comprehensive income is the change in unrealized holding gains and losses.
Adoption of this pronouncement does not affect shareholders' equity. In
accordance with this pronouncement, the 1997 and 1996 financial statements have
been restated to reflect this new standard.

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Recognition of Premium Revenue: Premiums assumed are earned ratably over the
terms of the underlying policies to which they relate. Premiums assumed relating
to the unexpired portion of policies in force at the balance sheet date are
recorded as unearned premiums. Pursuant to prior retrocession agreements,
charges or credits resulting from adjustments to related provisional
retrocession premiums are reflected as adjustments to ceded premiums. Management
believes that recorded retrocession premiums ceded represent its best estimate
of such amounts; however, as changes in the estimated ultimate losses and loss
adjustment expenses applicable to the retrocession layers are determined, the
estimated ultimate ceded premiums will also change. As adjustments to these
estimates become necessary, such adjustments are reflected in current
operations.

                                      17
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED


NOTE A--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES--(Continued)

Deferred Policy Acquisition Costs: Ceding commissions related to assumed
reinsurance agreements are deferred and amortized over the terms of the
underlying policies to which they relate.

Unpaid Losses and Loss Adjustment Expenses: The liability for unpaid losses and
loss adjustment expenses includes case basis estimates of reported losses plus
supplemental amounts for projected losses, calculated based upon loss 
projections utilizing certain actuarial assumptions and AIIC's historical loss 
experience supplemented with industry data. Management believes that its
aggregate liability for unpaid losses and loss adjustment expenses at year end
represents its best estimate, based upon the available data, of the amount
necessary to cover the ultimate cost of losses, based upon an actuarial analysis
prepared by its independent consulting actuary. However, because of the
volatility inherent in professional liability coverage, actual loss experience
may not conform to the assumptions used in determining the estimated amounts for
such liability at the balance sheet date. Accordingly, the ultimate liability
could be significantly in excess of or less than the amount indicated in the
financial statements. As adjustments to these estimates become necessary, such
adjustments are reflected in current operations. AIIC does not discount its loss
reserves for purposes of these financial statements.

The anticipated effect of inflation is implicitly considered when estimating
liabilities for unpaid losses and loss adjustment expenses. Future average
severities are projected based on historical trends adjusted for anticipated
changes in underwriting standards, policy provisions, and general economic
trends. These anticipated trends are monitored based on actual development, and
are modified if necessary.

Reinsurance Recoveries Receivable: Reinsurance recoveries receivable is
comprised of estimated amounts of losses and loss adjustment expenses paid and
unpaid which are expected to be recoverable from reinsurers. Amounts recoverable
from the reinsurers pursuant to retrocession agreements have been estimated
using actuarial assumptions consistent with those used in establishing the
liability for unpaid losses and loss adjustment expenses. Management believes
that reinsurance recoveries receivable as recorded represents its best estimate
of such amounts; however, as changes in the estimated ultimate liability for
unpaid losses and loss adjustment expenses are determined, the estimated
ultimate amount recoverable from the reinsurers will also change. Accordingly,
the ultimate recoverable could be significantly in excess of or less than the
amount indicated in the financial statements. Further, management has determined
that no provision for uncollectible reinsurance recoveries is necessary. As
adjustments to these estimates become necessary, such adjustments are reflected
in current operations.

                                      18
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED


NOTE A--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES--(Continued)

Investments: Investments held by AIIG consist of U.S. Treasury notes,
obligations of states and political subdivisions, mortgage-backed securities,
and equity securities. AIIG classifies these investments as available-for-sale.
Accordingly, AIIG reports these securities at their estimated market values with
unrealized holding gains and losses being reported as other comprehensive
income, net of tax. Realized gains and losses on sales of investments are
accounted for using the specific identification method and are reflected in the
income statement in the period of sale.

Investments in U.S. Treasury notes with a carrying value of $1,525,000 and
$1,755,000 at December 31, 1998 and 1997 are held in trust for the State of
Illinois in accordance with the Illinois Insurance Code. Also, as more fully
described in Note B, certain other investments held are used to collateralize
obligations to previous and current ceding companies.

Cash and Cash Equivalents: For purposes of the statement of cash flows, AIIG
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents. Cash and cash equivalents
include amounts on deposit with Harris Trust and Savings Bank, the Bank of
Butterfield and investments in money market funds. At December 31, 1998 and
1997, cash and cash equivalents held were as follows:

<TABLE>
<CAPTION>
                                                                                December 31,
                                                                          1998                  1997
                                                                    -------------         -------------

              <S>                                                      <C>                    <C>
              Harris Trust and Savings Bank                            $  976,976             $  290,464
              Bank of Butterfield                                          13,299

              Money Market Funds:
            ----------------------
                Harris Insight Funds  Class A                             395,207                604,125
                Lehman Brothers Prime Money
                    Market Fund                                            65,313                187,147
                                                                        ---------              ---------

            Total cash and cash equivalents                            $1,450,795             $1,081,736
                                                                        =========              =========
</TABLE>

The Federal Deposit Insurance Corporation (FDIC) insures amounts on deposit with
Harris Trust Savings Bank up to $100,000. The FDIC does not insure amounts on
deposit with the Bank of Butterfield, a Bermuda institution, or investments in
money market funds.

                                      19
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED


NOTE B--INSURANCE ACTIVITY

AIIG, through its wholly-owned subsidiary AIIC, has been engaged since April
1988 in the reinsurance of claims-made insurance policies of participants in an
AICPA-endorsed insurance program that provides accountants' professional
liability insurance coverage (AICPA Plan). From the inception of AIIC through
mid-1993, Coregis Group, Inc. (formerly Crum and Forster Managers Corporation)
through a group of affiliated insurance companies (collectively CGI), was the
primary insurer for the AICPA Plan. In 1988, AIIC provided reinsurance to CGI,
assuming 10% of the risks related to the first $1,000,000 of coverage for each
policy issued under the program. For the period 1989 through mid-1993, an
unaffiliated company, Virginia Surety Company, Inc. (VSC) provided reinsurance
to CGI and retroceded a portion to AIIC such that AIIC assumed 10% to 12.5% of
the risk related to the first $1,000,000 of coverage limits for each policy
issued under the program. In August 1993, the AICPA Plan endorsed the CNA
Insurance Group (CNA) as its insurance carrier, replacing CGI as the primary
insurer. AIIC began a reinsurance relationship with CNA, taking a 10%
participation of the first $1,000,000 of liability of each policy written under
the plan. CGI, VSC, and CNA are collectively referred to as the "ceding
companies".

Pursuant to the reinsurance agreements described above, AIIC is required to
provide the ceding companies with collateral for AIIC's liabilities to them. At
December 31, 1998 and 1997, investments with a carrying value of $505,000 and
$499,707, respectively, were held in a trust account pursuant to the 1988
reinsurance agreement with CGI. Also at December 31, 1998 and 1997, the carrying
value of investments held in a trust account pursuant to reinsurance agreements
with VSC in effect from 1989 to mid-1993 was $7,148,516 and $7,225,790,
respectively. At December 31, 1998 and 1997, AIIC had provided CNA with a letter
of credit issued by Harris Trust and Savings Bank in the amount of $4,500,000.
At December 31, 1998 and 1997, investments with a carrying value of $7,493,550
and $7,225,790, respectively, were held in a trust account at Harris Trust and
Savings Bank as security for the letter of credit.

AIIC entered into excess of loss retrocession agreements to limit its retained
risk on any one claim underwritten by CGI to $50,000 in 1989 and 1990 and
$62,500 in 1991 through mid-1993, subject to specified maximum recoveries for
each contract year. Retrocession premiums ceded by AIIC are adjustable within a
specified range based on actual experience under each contract. Retrocession
transactions do not relieve AIIC from its obligation to the ceding companies.
Revisions to the estimates of ultimate premiums ceded pursuant to the
retrocession agreements resulted in credits to retroceded premiums recorded of
$131,250, $720,298 and $693,976 during 1998, 1997 and 1996, respectively.

                                      20
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED


NOTE B--INSURANCE ACTIVITY--(Continued)

A reconciliation of assumed to net premiums, on both a written and an earned
basis is as follows:

<TABLE>
<CAPTION>
                              1998                        1997                        1996
                    ------------------------    ------------------------    ------------------------
                      Written       Earned       Written        Earned       Written        Earned
                    ----------    ----------    ----------    ----------    ----------    ----------
<S>                 <C>           <C>           <C>           <C>           <C>           <C>
Assumed             $6,377,225    $5,770,689    $5,797,076    $5,452,312    $5,356,985    $5,262,970 
Retroceded             131,250       131,250       720,298       720,298       693,976       693,976
                    ----------    ----------    ----------    ----------    ----------    ----------
Net premiums        $6,508,475    $5,901,939    $6,517,374    $6,172,610    $6,050,961    $5,956,946
                    ==========    ==========    ==========    ==========    ==========    ==========
</TABLE>


Details of the liability for unpaid losses and loss adjustment expenses and
related reinsurance recoveries receivable at December 31, 1998 and 1997 are as
follows:

                                (000's omitted)
<TABLE>
<CAPTION>
                                           1998                                     1997
                           -------------------------------------    -------------------------------------
                             Gross      Reinsurance       Net         Gross      Reinsurance       Net
                           Liability    Receivable     Liability    Liability    Receivable     Liability
                           ---------    -----------    ---------    ---------    -----------    ---------
<S>                        <C>          <C>            <C>          <C>          <C>            <C>
Case basis estimates        $ 5,094       $(169)        $ 4,925      $ 5,765      $  (372)       $ 5,393
Incurred But Not Reported    16,624        (707)         15,917       15,038         (668)        14,370
                            -------       -----         -------      -------      -------        -------
   Totals                   $21,718       $(876)        $20,842      $20,803      $(1,040)       $19,763
                            =======       =====         =======      =======      =======        =======
</TABLE>

                                      21
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED


NOTE B--INSURANCE ACTIVITY--(Continued)

Unpaid losses and loss adjustment expense activity is as follows:

<TABLE>
<CAPTION>
                                                                           (000's omitted)
                                                                 1998            1997            1996
                                                               -------         -------         -------
<S>                                                            <C>             <C>             <C>
Liability as of January 1, (net of
  reinsurance recoveries receivable)                           $19,763         $18,280         $18,629

Incurred related to:
  Current year                                                   9,681           6,160           5,635
  Prior years                                                   (4,883)         (1,411)         (2,917)
                                                               -------         -------         -------
     Total incurred                                              4,798           4,749           2,718
                                                               -------         -------         -------

Paid related to:
  Current year                                                    (152)           (230)           (183)
  Prior years                                                   (3,567)         (3,036)         (2,884)
                                                               -------         -------         -------
     Total paid                                                 (3,719)         (3,266)         (3,067)
                                                               -------         -------         -------

Liability as of December 31, (net of
  reinsurance recoveries receivable)                           $20,842         $19,763         $18,280
                                                               =======         =======         =======
</TABLE>

As a result of changes in estimates of insured events in prior years, the
liability for losses and loss adjustment expenses relating to those years was
reduced as of December 31, 1998, 1997 and 1996 because of lower than anticipated
losses on policies in those years.

                                      22
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED


NOTE C--INVESTMENTS

Major categories of net interest and dividend income, net realized gains
(losses) on sales of investments and net change in unrealized gains (losses) are
summarized as follows:

 
<TABLE>
<CAPTION>
                                          1998          1997          1996
                                       ----------    ----------    ----------
<S>                                    <C>           <C>           <C>
Interest earned:
  Fixed maturity investments           $1,999,638    $2,135,448    $2,281,987
  Short term investments and cash
    and cash equivalents                   83,362       148,884       157,679
  Other interest income                   121,853        23,233         1,650
Dividends earned                           98,971        57,724        23,571
Net realized gains (losses) on sales
  of investments:                         
  Fixed maturity investments              120,808         3,025      (160,919)
  Equity securities                       156,819       302,693       163,265
  Short-term investments                                   (466)         (581)
Investment expenses                      (137,456)      (98,002)      (72,275)
                                       ----------    ----------    ----------
Net investment income                  $2,443,995    $2,572,539    $2,394,377
                                       ==========    ==========    ==========
Net change in unrealized gains
  (losses):
  Fixed maturity investments           $  251,957    $  270,305    $ (373,231)
  Equity securities                       (39,780)      627,172       144,833
                                       ----------    ----------    ----------
Net change in unrealized gains
  (losses)                             $  212,177    $  897,477    $ (228,398)
                                       ==========    ==========    ==========
</TABLE> 

                                      23
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED


NOTE C--INVESTMENTS--(Continued)

The cost or amortized cost, gross unrealized holding gains and losses, and
estimated market value for investments in fixed maturity investments by major
security type, and equity securities at December 31, 1998 and 1997 are as
follows:

<TABLE>
<CAPTION>
                                                                            December 31, 1998
                                                ------------------------------------------------------------------
                                                  Cost or             Gross            Gross            Estimated
                                                 Amortized         Unrealized       Unrealized           Market
                                                   Cost               Gains           Losses              Value
                                                -----------        -----------      ----------         -----------
<S>                                             <C>                <C>               <C>                <C>
 Fixed maturity investments:
----------------------------------------------
 U.S. Treasury notes                            $ 1,488,553        $   36,447        $    -            $ 1,525,000
 Obligations of states and political
   subdivisions                                  14,898,513           508,761             (688)         15,406,586
 Mortgage-backed securities and
       obligations of U.S. government                       
       corporations and agencies                 17,293,482           352,193                           17,645,675
                                                -----------        ----------        ---------         -----------


 Total fixed maturity investments                33,680,548           897,401             (688)         34,577,261
 Equity securities                                7,115,089         1,310,453         (454,145)          7,971,397
                                                -----------        ----------        ---------         -----------
   Total investments                            $40,795,637        $2,207,854        $(454,833)        $42,548,658
                                                ===========        ==========        =========         ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                           December 31, 1997
                                                ------------------------------------------------------------------
                                                     Cost or          Gross             Gross           Estimated
                                                    Amortized      Unrealized         Unrealized         Market
                                                      Cost            Gains             Losses            Value
                                                --------------     ----------         ----------       -----------
<S>                                             <C>                <C>               <C>               <C>
 Fixed maturity investments:
----------------------------
 U.S. Treasury notes                            $ 4,447,299        $  105,201         $     -          $ 4,552,500
 Obligations of states and political
   subdivisions                                  13,831,512           292,052            (5,510)        14,118,054
 Mortgage-backed securities and
       obligations of U.S. government
       corporations and agencies                 15,142,052           253,013                           15,395,065
                                                --------------     ----------         ----------       -----------

 Total fixed maturity investments                33,420,863           650,266            (5,510)        34,065,619
 Equity securities                                6,721,873         1,177,052          (280,965)         7,617,960
                                                -----------         ---------         ----------       -----------
   Total investments                            $40,142,736        $1,827,318         $(286,475)       $41,683,579
                                                ===========        ==========         =========        ===========
</TABLE>

                                      24
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED


NOTE C--INVESTMENTS--(Continued)

The cost or amortized cost and estimated market value of fixed maturity
investments at December 31, 1998, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities as borrowers may have
the right to call or prepay obligations without penalties.

<TABLE>
<CAPTION>
                                                                                                Estimated
                                                                         Amortized                Market
                                                                           Cost                   Value
                                                                   -------------------     ------------------

<S>                                                                  <C>                     <C>
      Due in one year or less                                              $   748,829            $   755,000
      Due after one year through five years                                  5,500,968              5,651,661
       Due after five years through ten years                                9,722,328             10,090,480
      Due after ten years                                                      414,941                434,445
                                                                   -------------------     ------------------

                Subtotal                                                    16,387,066             16,931,586

       Mortgage-backed securities and                                       17,293,482             17,645,675
          obligations of U.S. government
          corporations and agencies
                                                                   -------------------     ------------------

                Total                                                      $33,680,548            $34,577,261
                                                                   ===================     ==================
</TABLE>

Information on sales and maturities of investments in fixed maturity securities
are as follows:

<TABLE>
<CAPTION>
                                                                       1998               1997                1996
                                                                     ----------        ---------          ----------
<S>                                                           <C>                <C>                <C>
Total proceeds (excluding short-term investments)                    $8,296,442        $9,890,774         $19,057,331
Gross gains                                                             120,808            18,504              33,438
Gross losses                                                                  -           (15,479)           (194,357)
</TABLE>

                                      25
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED


NOTE D--OPERATING AND MANAGEMENT EXPENSES

AIIG, AIIC and AIG, Ltd. have no employees.  Their operating activities, as well
as certain management functions, are performed by contracted professional
service providers.  USA Risk Group (USARG) provides AIIG and AIIC certain
management, administrative and operational services under the direction of the
AIIG's Board of Directors pursuant to an agreement.  The agreement may be
terminated by either party on July 1 of each year within a period not exceeding
ninety days and no less than 60 days prior written notice.

Operating and management expenses include compensation paid to members of the
board of directors and various committees of the board totaling $114,200 in
1998, $140,025 in 1997 and $140,300 in 1996.


NOTE E--FEDERAL INCOME TAXES

AIIG and AIIC file a consolidated federal income tax return.  Deferred federal
income taxes arise from temporary differences between the valuation of assets
and liabilities as determined for financial reporting purposes and income tax
purposes.  Such temporary differences relate principally to unrealized gains and
losses on investments, discounting of loss reserves, recognition of unearned
premiums and deferred policy acquisition costs.  Although realization is not
assured, management believes it is more likely than not that the net deferred
tax asset recorded at each balance sheet date is fully realizable.  The amount
of the deferred tax asset considered realizable could be reduced in the near
term if estimates of future taxable income are reduced.  Significant permanent
differences between book and taxable income include nontaxable municipal bond
income, the dividends received deduction, and recovery of capital losses in
excess of gains relating to a prior year.

The components of the provision for income tax are as follows:

<TABLE>
<CAPTION>
                                                            1998                1997                  1996
                                                     ---------------      ---------------     -----------------
Federal income tax
<S>                                                    <C>                  <C>                 <C>
     Current tax                                            $(46,149)            $340,875            $1,571,562
     Deferred tax (benefit)                                  267,793                 (600)             (494,467)
                                                     ---------------      ---------------     -----------------

Total federal income tax                                     221,644              340,275             1,077,095
State income tax (benefit)                                   (18,914)                                     7,604
                                                     ---------------      ---------------     -----------------

Provision for income tax                                    $202,730             $340,275            $1,084,699
                                                     ===============      ===============     =================
</TABLE>

                                      26
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED


NOTE E--FEDERAL INCOME TAXES--(Continued)

A reconciliation of income tax at the federal statutory rate to the Company's
provision for income tax is as follows:

<TABLE>
<CAPTION>
                                                               1998                   1997                  1996
                                                              --------             ---------             ----------
<S>                                                          <C>                  <C>                  <C>
   Income tax at federal statutory rate                      $ 429,848            $ 619,687             $1,169,846
   Effect of tax exempt investment income                     (232,523)            (164,154)               (71,449)
   State income taxes                                          (18,914)                                      7,604
   Other                                                        24,319             (115,258)               (21,302)
                                                             ---------            ---------             ----------

   Totals                                                    $ 202,730            $ 340,275             $1,084,699
                                                             =========            =========             ==========
</TABLE>

The composition of the net deferred tax asset at December 31, 1998 is as
follows:

<TABLE>
<CAPTION>
                                                       Deferred              Deferred
                                                          Tax                  Tax
                                                        Assets             Liabilities                 Net
                                                   -----------------       ------------           ----------

<S>                                                  <C>                   <C>                    <C>
 Loss reserve discount                               $1,334,649             $     -               $1,334,649
 Unearned premiums                                      232,264                                      232,264
 Deferred policy acquisition costs                                            (330,977)             (330,977)
 Unrealized gain on investments                                               (596,027)             (596,027)
 Capital loss carryforward                               12,757                                       12,757
                                                     ----------             ----------            ----------

       Total                                         $1,579,670             $(927,004)            $  652,666
                                                     ==========             ==========            ==========
</TABLE>

                                      27
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED


NOTE E--FEDERAL INCOME TAXES--(Continued)

The composition of the net deferred tax asset at December 31, 1997 is as
follows:

<TABLE>
<CAPTION>
                                                       Deferred                Deferred
                                                          Tax                     Tax
                                                        Assets                Liabilities              Net
                                                      ----------            ---------------        ------------
<S>                                                   <C>                   <C>                    <C>
 Loss reserve discount                                $1,491,367                  $      -           $1,491,367
 Unearned premiums                                       191,020                                        191,020
 Deferred policy acquisition costs                                                 (272,203)           (272,203)
 Unrealized gain on investments                                                    (523,885)           (523,885)
 Capital loss carryforward                               106,300                                        106,300
                                                      ----------                  ---------          ----------

       Total                                          $1,788,687                  $(796,088)         $  992,599
                                                      ==========                  =========          ==========
</TABLE>


NOTE F--INSURANCE REGULATORY MATTERS

AIIC, domiciled in the State of Illinois, prepares statutory financial
statements in accordance with accounting practices prescribed or permitted by
the Insurance Department of the State of Illinois. Prescribed statutory
accounting practices include a variety of publications of the National
Association of Insurance Commissioners (NAIC), as well as state laws,
regulations and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed.

The NAIC has recently adopted a codified set of statutory accounting practices
(the Codification). The Codification is expected to be effective in 2001 and, if
adopted by the Department will likely change, to some extent, prescribed
statutory accounting practices and may result in changes to the accounting
practices AIIC uses to prepare its statutory financial statements. The impact
that this codification may have on the financial statements of AIIC has not been
determined at this time.

Significant differences between statutory accounting practices and generally
accepted accounting principles as they apply to AIIC are as follows:

     .  Under statutory accounting practices, investments in bonds are valued at
        amortized cost. Under GAAP, investments in bonds may be valued at market
        value, rather than at amortized cost.

                                      28
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED


NOTE F--INSURANCE REGULATORY MATTERS--(Continued)

     .  Under statutory accounting practices, policy acquisition costs are
        expensed as incurred rather than deferred and amortized over the
        underlying policy terms to which they relate as required under GAAP.

     .  Under statutory accounting practices, no provision is made for deferred
        income taxes. Under GAAP, deferred income taxes are recorded to reflect
        temporary differences in the values of assets and liabilities for tax
        versus financial reporting purposes.

     .  Under statutory accounting practices, loss reserves and unearned
        premiums are presented net of related reinsurance rather than on a gross
        basis as required under GAAP.

     .  Certain assets such as prepaid expenses and deferred organizational
        costs are not admitted for statutory purposes.

Statutory capital and surplus (stockholder's equity determined on a statutory
basis) as reflected in AIIC's Annual Statement filed with the Insurance
Department of the State of Illinois was $18,223,867 and $17,400,602 at December
31, 1998 and 1997, respectively. Statutory net income was $1,843,388, $1,248,255
and $1,711,224 in 1998, 1997 and 1996, respectively.

The State of Illinois imposes a restriction on the amount of dividends that can
be paid without prior regulatory approval. The maximum amount of dividends that
may be paid without such approval is limited to the greater of 10% of statutory
surplus or 100% of statutory basis net income for the preceding fiscal year. The
amount of dividends that could be paid by AIIC in 1999 without prior regulatory
approval is $1,843,388. Accordingly, $19,005,196 of AIIC's separately determined
GAAP basis stockholder's equity of $20,848,584 is unavailable for distribution
to AIIG in 1999 without prior regulatory approval.


NOTE G--PROPOSED REDOMESTICATION AND RESTRUCTURING

AIIG and AIG Ltd., have entered into an Exchange Agreement, pursuant to which
AIIG would transfer all of its assets and liabilities to AIG Ltd. in exchange
for newly issued shares of AIG Ltd. AIG Ltd., is a Bermuda limited company.
AIIG would then be liquidated and AIIG shareholders would receive on a share-
for-share basis the newly issued shares of AIG Ltd. AIIG's Board of Directors
has voted to submit the Exchange Agreement and the dissolution of AIIG to a vote
of AIIG's shareholders.

The transaction contemplates the restructuring of AIIG's business, including the
redomestication of the insurance operations of AIIC to AIG Ltd.

                                      29
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED


NOTE G--PROPOSED REDOMESTICATION AND RESTRUCTURING--(Continued)

The transactions contemplated in the Exchange Agreement, the redomestication and
the restructuring will be consummated only if certain conditions are satisfied,
including certain regulatory approvals, the agreement of certain other third
parties, and the approval of specified matters by the holders of at least a
majority of the outstanding AIIG common stock.

On September 2, 1998 a registration statement was filed with the Securities and
Exchange Commission by AIG Ltd. The registration statement relates to the
registration of the shares to be issued by AIG Ltd. in the proposed transaction
and the solicitation of proxies from the Company's stockholders to approve the
transaction. The registration statement has been amended but is not yet 
effective.  It is currently expected that AIIG's shareholders will vote on the
transactions contemplated in the Exchange Agreement this summer.

NOTE H--RESTATEMENT

During 1998, the Company determined that premiums assumed from CNA relating to 
the first two months (July and August) of treaty years 1995-1996 and 1996-1997 
were omitted from reports and remittances made by CNA to AIIC.

As a result of such omissions, premiums earned (as originally reported) for the
years ended December 31, 1995, 1996 and 1997 were understated by $253,730,
$570,558 and $320,324, respectively. Net of the 28.5% earned ceding commission
due to CNA and adjusting for the tax effect of 34%, net income for these years
was understated by $119,735, $269,246 and $151,161, respectively. Premiums,
interest and penalties due from CNA for such omissions were received in full in
February, 1999. Interest and penalties of $121,350 calculated based on the
ninety day Treasury Bill rate, have been included in other interest income
reported herein. Originally, the Company recorded these adjustments in its
financial statements for the year ended December 31, 1998. The consolidated
balance sheet as of December 31, 1997 and the consolidated statements of income
and comprehensive income for each of the years in the three year period ended
December 31, 1998 presented herein have been restated to reflect the adjustments
in the appropriate periods. The effect on 1995 net income and shareholders'
equity has been presented as a beginning of period adjustment to retained
earnings--see consolidated statement of changes in stockholders' equity.

Prior to 1998, AIIC relied primarily on analytical procedures to monitor
reinsurance premiums assumed from CNA. As a result of fluctuations in the
underlying premiums caused by changes in rates and number and size of
participating insureds, the previously unreported premiums were not detected by
AIIC as a result of performing the analytical procedures.

A summary of the effects of the restatement on previously reported income before
income tax, net income and basic earnings per share is as follows:

<TABLE> 
<CAPTION> 
                                                                  Year ended December 31,    
                                                             1998         1997         1996  
                                                       -----------  -----------  ----------- 
<S>                                                    <C>          <C>          <C> 
Income before income tax prior to restatement          $2,082,657   $1,593,575   $3,032,774 
Restated income before income tax                       1,264,260    1,822,607    3,440,723 
                                                       -----------  -----------  ----------- 
                                                                                            
Difference in income before income tax                 $ (818,397)  $  229,032   $  407,949 
                                                       -----------  -----------  -----------
                                                                                            
Net income prior to restatement                        $1,601,672   $1,331,171   $2,086,778 
Restated net income                                     1,061,530    1,482,332    2,356,024 
                                                       -----------  -----------  -----------
                                                                                            
Difference in net income                               $ (540,142)  $  151,161   $  269,246 
                                                       -----------  -----------  -----------
                                                                                            
Basic earnings per share prior to restatement          $     4.82   $     3.99   $     6.24 
Restated basic earnings per share                            3.19         4.44         7.04 
                                                       -----------  -----------  -----------
                                                                                            
Difference in basic earnings per share                 $    (1.63)  $      .45   $      .80 
                                                       ===========  ===========  =========== 
</TABLE> 

                                      30
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
                       ---------------------------------
                       ON FINANCIAL STATEMENT SCHEDULES
                       --------------------------------


The Board of Directors
AmerInst Insurance Group, Inc.


Our report on the 1998 consolidated financial statements of AmerInst Insurance
Group, Inc. is included on page 16 of this Form 10-K.  In connection with our
audit of such financial statements, we also audited the related financial
statement schedules listed in the index on page 11 of this Form 10-K.

In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.


                                         JOHNSON LAMBERT & CO.

Burlington, Vermont
February 22, 1999

                                      31
<PAGE>
 
AMERINST INSURANCE GROUP, INC. (PARENT)

CONDENSED FINANCIAL INFORMATION OF REGISTRANT--SCHEDULE II

Condensed Balance Sheets as of December 31, 1997 and 1998


<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                 1998                    1997
                                                                              -----------             -----------
<S>                                                                           <C>                     <C>
ASSETS
Investment in subsidiary                                                      $19,701,103             $19,480,739
Fixed maturity investments                                                        835,291               1,081,859
Cash                                                                                1,427                   3,162
Accrued investment income                                                          13,014                  20,514
Prepaid expenses and other assets                                                 198,474                  67,507
Income tax recoverable                                                             91,136                  79,893
                                                                              -----------             -----------
   TOTAL ASSETS                                                               $20,840,445             $20,733,674
                                                                              ===========             ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
 
LIABILITIES
Due to subsidiary                                                             $       247             $    47,895
Deferred federal income tax                                                        11,270                   8,552
Accrued expenses and other liabilities                                             22,036                  19,077
                                                                              -----------             -----------
   TOTAL LIABILITIES                                                               33,553                  75,524
                                                                              -----------             -----------
STOCKHOLDERS' EQUITY
Common stock                                                                        3,323                   3,334
Additional paid-in capital                                                      7,144,818               7,172,508
Retained earnings                                                              13,636,875              13,465,708
Accumulated other comprehensive income, net of tax                                 21,876                  16,600
                                                                              -----------             -----------
   TOTAL STOCKHOLDERS' EQUITY                                                  20,806,892              20,658,150
                                                                              -----------             -----------
   TOTAL LIABILITIES AND
      STOCKHOLDERS' EQUITY                                                    $20,840,445             $20,733,674
                                                                              ===========             ===========
</TABLE>

                                      32
<PAGE>
 

<TABLE> 
<CAPTION> 
 
AMERINST INSURANCE GROUP, INC. (PARENT)

CONDENSED FINANCIAL INFORMATION OF REGISTRANT-SCHEDULE II

Condensed Statements of Income for the Years Ended December 31, 1996 through 1998

                                                                                          December 31,
                                                                       1998                   1997                   1996
                                                               -----------------      -----------------      -----------------
REVENUE
<S>                                                                   <C>                    <C>                    <C>
Net investment income                                                 $   55,009             $   56,039             $   56,816
                                                               -----------------      -----------------      -----------------
 
 
EXPENSES
 
Operating and management expenses                                        280,565                242,064                323,970
                                                               -----------------      -----------------      -----------------
 
 
Income (Loss) Before Income Taxes and
   Undistributed Earnings of Subsidiary                                 (225,556)              (186,025)              (267,154)
Income Tax (Benefit)                                                     (91,137)               (88,048)               (98,355)
                                                               -----------------      -----------------      -----------------
 
Income (Loss) before undistributed income of
   Subsidiary                                                           (134,419)               (97,977)              (168,799)
 
Undistributed Net Income of Subsidiaries                               1,195,949              1,580,309              2,524,823
                                                               -----------------      -----------------      -----------------
 
        NET INCOME                                                     1,061,530              1,482,332              2,356,024
                                                               -----------------      -----------------      -----------------
 
OTHER COMPREHENSIVE INCOME,
   NET OF TAX
 
Net unrealized holding gains (losses) arising during
   the period                                                              6,926                  2,237                 (3,865)
Less:  reclassification adjustment for gains and losses
   included in net income                                                 (1,650)
                                                               -----------------      -----------------      -----------------
 
        OTHER COMPREHENSIVE INCOME,
            NET OF TAX                                                     5,276                  2,237                 (3,865)
                                                               -----------------      -----------------      -----------------
 
        COMPREHENSIVE INCOME                                          $1,066,806             $1,484,569             $2,352,159
                                                               =================      =================      =================
</TABLE>

                                      33
<PAGE>
 

<TABLE> 
<CAPTION> 
 
AMERINST INSURANCE GROUP, INC. (PARENT)

CONDENSED FINANCIAL INFORMATION OF REGISTRANT-SCHEDULE II

Condensed Statements of Cash Flows for the Years Ended December 31, 1996 through 1998


                                                                        1998                  1997                  1996
                                                                 ----------------      ----------------      ----------------
OPERATING ACTIVITIES
<S>                                                                <C>                   <C>                   <C>
Net Cash Provided by Operations                                         $ 664,129             $ 893,490             $ 829,642
                                                                 ----------------      ----------------      ----------------
 
 
INVESTING ACTIVITIES
 
Purchases of fixed-maturity investments                                         -                     -              (190,000)
Sale and maturities of fixed maturity investments                         252,500                                     250,000
                                                                 ----------------      ----------------      ----------------
 
Net Cash Provided by Investing Activities                                 252,500                     -                60,000
                                                                 ----------------      ----------------      ----------------
 
 
FINANCING ACTIVITIES
 
Dividends paid                                                           (865,587)             (867,735)             (869,661)
Purchases of treasury stock                                               (52,777)              (28,932)              (34,642)
                                                                 ----------------      ----------------      ----------------
 
Net Cash Used in Financing Activities                                    (918,364)             (896,667)             (904,303)
                                                                 ----------------      ----------------      ----------------
 
DECREASE IN CASH                                                           (1,735)               (3,177)              (14,661)
 
CASH AT BEGINNING OF YEAR                                                   3,162                 6,339                21,000
                                                                 ----------------      ----------------      ----------------
 
CASH AT END OF YEAR                                                     $   1,427             $   3,162             $   6,339
                                                                 ================      ================      ================
</TABLE>

                                      34
<PAGE>
 
AMERINST INSURANCE GROUP, INC. (PARENT)

REINSURANCE--SCHEDULE IV


<TABLE>
<CAPTION>
Year Ended          Column A    Column B    Column C    Column D     Column E     Column F
----------          --------    --------    --------    --------     --------     -------- 
                                                                                  % Assumed
                                 Gross      Ceded to     Assumed        Net        To Net
                    Line of     Premium      Other      Premiums     Premiums     Premiums
                   Business     Written    Companies     Written      Written     Written
                   --------     -------    ---------     -------      -------     ------- 
<S>              <C>            <C>        <C>          <C>          <C>          <C>
12/31/98         Professional                                                 
                  Liability        -       131,250      6,377,225    6,508,475     98.0%
12/31/97         Professional                                                 
                  Liability        -       720,298      5,797,076    6,517,374     88.9%
12/31/96         Professional                                                 
                  Liability        -       693,976      5,356,985    6,050,961     88.5%
</TABLE>

Note: For description of the insurance program and further detail on ceded
premium adjustments and assumed premiums written and earned--see Note B of the
audited financial statements.

                                      35
<PAGE>
 
                                 SIGNATURES


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

Dated:  May 10, 1999                     AMERINST INSURANCE GROUP, INC.
        -----------------
      
                                              By NORMAN BATCHELDER
                                                 -----------------
                                                 Norman C. Batchelder, President
 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and as of the dates indicated.



        Signature                Title                             Date
        ---------                -----                             ----

   NORMAN C. BATCHELDER    President and Director               May 10, 1999
   --------------------    (Principal Executive Officer)       --------------
   Norman C. Batchelder    
 
   BRUCE W. BREITWEISER    Vice President and Director          May 10, 1999
   --------------------                                        --------------
   Bruce W. Breitweiser

   RONALD S. KATCH         Treasurer and Director               May 10, 1999
   ---------------         (Principal Financial and            --------------
   Ronald S. Katch          Accounting Officer)    

   JEROME A. HARRIS        Secretary and Assistant Treasurer,
   ----------------          and Director                       May 10, 1999
   Jerome A. Harris                                            --------------

   DAVID N. THOMPSON       Director                             May 10, 1999
   -----------------                                           --------------
   David N. Thompson

   IRVIN F. DIAMOND        Director                             May 10, 1999
   ----------------                                            --------------
   Irvin F. Diamond

   JEFFRY I. GILLMAN       Director                             May 10, 1999
   --------------                                              --------------
   Jeffry I. Gillman

                                      36
<PAGE>
 
                               INDEX TO EXHIBITS
                         YEAR ENDED DECEMBER 31, 1998

Exhibit
Number    Description
------    -----------

3(i)      Certificate of Incorporation of the Company (1)
3(ii)     Bylaws of the Company (1)
4.1       Article Fourth of Certificate of Incorporation -- included in Exhibit
          3(i) above
4.2       Statement of Stock Ownership Policy, as Amended (9)
10.1      Reinsurance Treaty between AIIC and Virginia Surety Company, Inc. (2)
10.2      Agreement between Country Club Bank and AIIC (2)
10.3      Agreement between Country Club Bank and AIIG (2)
10.4      Reinsurance Treaty between AIIC and CNA Insurance Companies (3), 1994
          placement slip (4) 1995 placement slip (5) 1996 placement slip (6)
          1997 placement slip (8) and 1998 placement slip (10)
10.5      Revised Management Agreement between Vermont Insurance Management,
          Inc. and AIIC dated May 1, 1997 (7) Addenda to Management Agreement
          dated July 1, 1997 (8) and Addenda to Management Agreement dated July
          1, 1998 (10)
10.6      Escrow Agreement among AIIC, United States Fire Insurance Company
          and Harris Trust and Savings Bank dated March 7, 1995 (5)
10.7      Security Trust Agreement among AIIC, Harris Trust and Savings Bank
          and Virginia Surety Company, Inc. dated March 9, 1995 (5)
10.8      Investment Advisory Agreement For Discretionary Accounts between
          Amerinst Insurance Company and Harris Associates L.P. dated as of
          January 22, 1996, as amended by the Amendment to Investment Advisory
          Agreement for Discretionary Accounts dated as of April 2, 1996 (10)
10.9      Exchange Agreement between the Company and AIG Ltd., dated as of 
          January 20, 1999. (11)
21        Subsidiaries of the Registrant (1)       
27        Financial Data Schedules (filed herewith) 
----------------------------

(1) Filed with the Company's Registration Statement on Forms S-1, Registration
    No. 33-17421 and incorporated herein by reference.

(2) Filed with the Company's Annual Report on Form 10-K for the year ended
    December 31, 1992 and incorporated herein by reference.

(3) Filed with the Company's Annual Report on Form 10-K for the year ended
    December 31, 1993 and incorporated herein by reference.

(4) Filed with the Company's Annual Report on Form 10-K for the year ended
    December 31, 1994 and incorporated herein by reference.

(5) Filed with the Company's Quarterly Report on Form 10-Q for the quarter ended
    September 30, 1995 and incorporated herein by reference.

(6) Filed with the Company's Quarterly Report on Form 10-Q for the quarter ended
    September 30, 1996 and incorporated herein by reference.

(7) Filed with the Company's Quarterly Report on Form 10-Q for the quarter ended
    June 30, 1997 and incorporated herein by reference.

                                      37
<PAGE>
 
AMERINST INSURANCE GROUP, INC.

INDEX TO EXHIBITS--Continued


(8)  Filed with the Company's Quarterly Report on Form 10-Q for the quarter
     ended September 30, 1997 and incorporated herein by reference.

(9)  Filed with the Company's Annual Report on Form 10-K for the year ended
     December 31, 1996 and incorporated herein by reference.

(10) Filed with the Company's Quarterly Report on Form 10-Q for the quarter
     ended September 30, 1998 and incorporated herein by reference.

(11) Filed with the Company's Annual Report on Form 10-K for the year ended 
     December 31, 1998 and incorporated herein by reference.


                                      38