<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                   FORM 10-K

(Mark One)
[X]              Annual report pursuant to section 13 or 15 (d)
             of the Securities Exchange Act of 1934 (Fee Required)
                  For the fiscal year ended December 31, 1997.

[_]         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.)

R.R. No. 3, Airport Road, Berlin, Vermont                05602
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 March 18, 1998 was $21,118,364.*

Number of shares of the $.01 par value common stock outstanding as of March 18,
1998 was 333,358.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant's Proxy Statement for the 1998 Annual Meeting of
Stockholders are incorporated by reference into Part III hereof.

*based on book value as of December 31, 1997.
<PAGE>

                                    PART I

Item 1.  Business

General

AmerInst Insurance Group, Inc. ("AIIG" or the "Company") was incorporated under
the laws of Delaware on September 9, 1987.  AIIG's principal offices are located
at P.O. Box 1330, Montpelier, Vermont 05601 (RR No. 3, Airport Road, Berlin,
Vermont 05602).

The primary purpose for the formation and operation of AIIG and its wholly owned
subsidiary, AmerInst Insurance Company ("AIIC"), was to establish, for the
benefit of accounting firms which are stockholders of AIIG, an insurance company
which over time can exert a stabilizing influence, primarily through the
reinsurance capacity of AIIC, on the design, pricing and availability of
accountants' professional liability insurance.  AIIC's sole current business
activity is to act as a reinsurer of professional liability insurance policies
which are issued under the AICPA Professional Liability Insurance Plan ("AICPA
Plan" or "Plan"). The AICPA Plan offers professional liability coverage to
accounting firms in all 50 states.  Currently, approximately 17,000 accounting
firms are insured under the Plan.  In the future, AIIC may want to expand its
business, subject to obtaining any required regulatory approvals, to include the
reinsurance of other lines of coverage.

The reinsurance activity of AIIC depends upon agreements entered into with
outside parties.  From the inception of AIIC through mid-1993, Crum and Forster
Managers Corporation, through its affiliates (collectively "CFMC"), was the
primary insurer for the AICPA Plan.  Virginia Surety Company, Inc. ("VSC"), was
a reinsurer for the AICPA Plan.  AIIC was a reinsurer of VSC for the years 1989-
1993.  In 1988, AIIC reinsured CFMC directly.  In August 1993, the AICPA Plan
endorsed the CNA insurance group as its insurance carrier, replacing CFMC as the
primary insurer.  AIIC then began a reinsurance relationship with CNA, taking a
10% participation of the first million dollars of liability of each policy
written under the plan. Since its inception, AIIC's participation has ranged
from 10% to 12.5% of the first million dollars of underlying coverage.

Third-party Managers and Service Providers

USA Risk Group, through Vermont Insurance Management, Inc., provides the day to
day services necessary in the administration of AIIG's and AIIC's business.

The Country Club Bank of Kansas City, Missouri, has been engaged by AIIG for
portfolio management and directs AIIG's investments pursuant to guidelines
approved by AIIG's board of directors.  Harris Associates L.P. has been engaged
by AIIC to provide discretionary investment advice with respect to AIIC's equity
investments.

Liscord, Ward & Roy, Inc., an independent casualty actuarial consulting firm,
has been retained by AIIC to render advice regarding actuarial matters.

The law firms of Lord, Bissell & Brook and Altheimer & Gray have been retained
to render advice on legal matters.

Johnson Lambert & Co. has been retained by AIIG as its independent auditor to
audit its financial statements.

                                       1
<PAGE>

Professional Liability Coverage

The professional liability policy issued by CFMC or CNA and ultimately reinsured
by AIIC (the "Policy") is a Professional Liability Company Indemnity Policy
form.

The coverage provided under the Policy is on a "claims made" basis, which means
the Policy covers only those losses resulting from claims asserted against the
insured during the policy period.  The insuring clause of the Policy, which
indemnifies for losses caused by acts, errors or omissions in the insured's
performance of professional accounting services for others, is in three parts:

Clause A indemnifies the accounting firm insured and any predecessor firms;

Clause B indemnifies any accountant or accounting firm while performing
professional accounting services under contract with the insured;

Clause C indemnifies any former or new partner, officer, director or employee of
the firm or predecessor firms.

In almost every state, the Policy provides that costs of defense and related
expenses incurred in defending a claim are included within the Policy limits of
liability, and payment of such items by the insurer reduces the insurer's
remaining limit of liability for payment of damage awards or settlements.  There
are a few states in which defense costs may not be included within the Policy
limit.  The Plan carrier often charges additional premium to cover this
exposure.  Settlements are made only with the written consent of the insured.
However, if the insured contests the settlement recommended by the insurer, the
Policy will only cover costs that do not exceed the amount for which the claim
could have been settled or the applicable limit of liability (whichever is
less).

Competition

The AICPA Plan's current major competition comes from three large, established
insurance companies, including the Plan's former carrier, CFMC.  A number of
smaller companies compete in the field, but none have significant nationwide
market share.  Many of these companies charge lower premiums than the Plan and
may provide less coverage.  The Plan's principal competitive strength is its
commitment to the use of large, financially strong and experienced primary
insurers which enhance the Plan's capacity to continue to be a stable and
dependable source of coverage and to pay losses as they arise.

Licensing and Regulation

The rates and terms of reinsurance agreements generally are not subject to
regulation by any governmental authority.  This is in contrast to primary
insurance policies, the rates and terms of which are regulated by various state
insurance departments.  As a practical matter, however, the rates charged by
primary insurers place a limit upon the rates that can be charged by reinsurers.

AIIG and AIIC are subject to regulation under the insurance laws, including the
insurance holding company law of Illinois, where AIIC is domiciled.  If AIIC
becomes licensed as an insurer in other states, AIIG and AIIC would become
subject to the insurance laws in such other states as well.  Insurance laws vary
from state to state, but generally require insurance holding companies and their
insurance subsidiaries to register and file certain reports, including
information concerning their capital structure, ownership, financial condition
and general business operations, and require prior approval of changes in
control, payments of dividends and other intercompany transfers of assets, and
transactions between insurance companies, their parents and affiliates.

                                       2
<PAGE>

State insurance holding company statutes also impose standards on certain
transactions with related companies, which stipulate, among other requirements,
that all transactions be fair and reasonable and that transactions exceeding
specified limits receive prior regulatory approval.  AIIC is required to file
annual statutory statements and is subject to statutory restrictions concerning
the types and quality of investments and the size of risks that it may reinsure.
Additionally, AIIC is subject to financial examinations by the Illinois
Department of Insurance.

AIIC's ability to pay dividends to AIIG is subject to the provisions of the
Illinois insurance laws.  Such laws provide that insurance companies may not pay
a dividend except out of cumulative earned surplus determined in accordance with
statutory insurance accounting principles.  In addition, insurance companies may
not pay an "extraordinary" dividend or make an "extraordinary" distribution
unless thirty days' prior written notice is given to the Illinois Director of
Insurance and the Director does not disapprove the proposed dividend or
distribution.  An "extraordinary" dividend or distribution is a dividend or
distribution of cash or other property having a fair market value, which
together with that of other dividends or distributions made within the preceding
12 months, exceeds the greater of: (1) 10% of the insurer's surplus as regards
policyholders as of the December 31 immediately preceding the date of the
dividend or distribution, or (2) 100% of its net income for the annual period
ending on such preceding December 31.

Customers

AIIC's only source of income, other than its investment portfolio, is its
reinsurance treaties.  Without such reinsurance treaties, investment income
would provide enough revenue to continue operations while the Company evaluated
other reinsurance and insurance opportunities.

Employees

AIIG and AIIC have no employees.  See Note D, Notes to the Consolidated
Financial Statements.

Loss Reserves

For information concerning AIIC's loss reserves, changes in aggregate reserves
for the last three years, and loss reserve development as of the end of each of
the last ten years, see Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operation, Note A to the Consolidated Financial
Statements, and Note B to the Consolidated Financial Statements.

Item 2.  Properties

Neither AIIG nor AIIC owns or leases material properties.  Substantially all of
the business of AIIG and AIIC is conducted from the offices of USA Risk Group.

Item 3.  Legal Proceedings

There are no legal proceedings to which AIIG or AIIC is a party.

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

No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders, through the solicitation of proxies
or otherwise.

                                       3
<PAGE>

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

There is no established public trading market for the common stock of AIIG.
AIIG's Certificate of Incorporation provides that all transfers of shares of
AIIG common stock must be approved by AIIG's Board of Directors or a committee
thereof.  AIIG's Board of Directors has appointed a Stockholder Relations
Committee for purposes of reviewing and approving applications for transfer.
All transferees must meet the qualifications for Stock Ownership contained in
AIIG's Stock Ownership Policy.

As of March 18, 1998, AIIG had 2,585 holders of record of its common stock.  On
August 28, 1995, the Board adopted a dividend policy for AIIG to pay a quarterly
dividend of $0.65 per share subject to legally available funds and specific
Board approval for each quarter.  During 1997 and 1996, AIIG paid cash dividends
of $867,735 and $869,661, respectively, representing four quarterly payments of
$0.65 per share in each year.  During 1995, AIIG paid two quarterly dividends of
$0.65 totaling $435,412.  The declaration of dividends by AIIG's Board of
Directors is dependent upon AIIG's and AIIC's capacity to insure or reinsure
business, profitability, financial condition, and other factors which the Board
of Directors may deem appropriate.  For a description of the restrictions which
Illinois law imposes on AIIC's ability to pay dividends, see Item 1 above.

Item 6.  Selected Financial Data

The following summary sets forth selected financial data with respect to AIIG
for the five fiscal years ended December 31, 1997.  The balance sheet and income
statement data have been derived from AIIG's consolidated financial statements,
which have been audited by Johnson Lambert & Co. (1994-1997) and Altschuler,
Melvoin and Glasser (1993), 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.

SELECTED FINANCIAL STATEMENT DATA

<TABLE>
<CAPTION>

Income Statement Data
                                 1997         1996         1995         1994         1993
                              ----------   ----------   ----------   ----------    ----------
<S>                           <C>          <C>          <C>          <C>           <C>
Revenue
Premiums Earned               $5,852,286   $5,386,388   $5,494,413   $6,276,395    $6,437,120
Net Investment Income          2,572,539    2,394,377    2,195,451    2,156,374     2,493,421
                              ----------   ----------   ----------   ----------    ----------

Total Revenue                 $8,424,825   $7,780,765   $7,689,864   $8,432,769    $8,930,541
                              ==========   ==========   ==========   ==========    ==========

Net Income                    $1,331,171   $2,086,778   $3,096,985   $3,801,325    $1,458,486
                              ==========   ==========   ==========   ==========    ==========

Net Income Per Share          $     3.99   $     6.24   $     9.24   $    11.26    $     4.31
                              ==========   ==========   ==========   ==========    ==========

Cash dividends declared
 per common share             $     2.60   $     2.60   $     1.30   $    -        $    -
                              ==========   ==========   ==========   ==========    ==========
</TABLE>

                                       4
<PAGE>

Balance Sheet Data

<TABLE>
<CAPTION>

<S>                          <C>          <C>          <C>          <C>          <C>
Investments                  $41,683,579  $39,636,771  $36,865,013  $15,642,358  $15,521,231
Funds Held by Reinsurers                                             25,041,311   22,480,127
Other Assets                   5,747,550    5,820,502    9,804,663    8,570,677    6,304,630
                             -----------  -----------  -----------  -----------  -----------

Total Assets                 $47,431,129  $45,457,273  $46,669,676  $49,254,346  $47,305,988
                             ===========  ===========  ===========  ===========  ===========

Losses and Loss
  Adjustment Expenses        $20,802,873  $20,299,937  $21,789,036  $25,335,230  $27,047,417
Unearned Premium Reserves      2,809,115    2,144,027    2,095,462    2,053,900    2,730,117
Other Liabilities              2,700,777    2,921,784    3,725,385    7,368,133    5,344,818
                             -----------  -----------  -----------  -----------  -----------

Total Liabilities             26,312,765   25,365,748   27,609,883   34,757,263   35,122,352
Stockholders' Equity          21,118,364   20,091,525   19,059,793   14,497,083   12,183,636
                             -----------  -----------  -----------  -----------  -----------
Total Liabilities and
  Stockholders' Equity       $47,431,129  $45,457,273  $46,669,676  $49,254,346  $47,305,988
                             ===========  ===========  ===========  ===========  ===========
</TABLE>

The accompanying 1993 financial statements have been reclassified to conform
with the 1994-1997 presentation.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
of Operation

Results of Operation

Net income decreased by 36% in 1997 to $1,331,171 from $2,086,778 in 1996.  Net
income for 1996 decreased by 33% from $3,096,985 reported in 1995.

Premiums earned increased by 9% in 1997 to $5,852,286 from $5,386,388 in 1996.
Premiums earned for 1996 decreased by 2% from $5,494,413 reported in 1995.  In
1997, 1996, and 1995 premiums earned includes $720,298, $693,976 and $611,916,
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, 1997 premiums earned increased
by 9% as compared to 1996 premiums earned, and 1995 premiums earned decreased by
4% from 1994.  The increase in earned premiums in 1997 resulted from an increase
in the number of insureds, attracted through a "step plan" in which new insureds
are offered premium discounts for favorable loss history.  The step plan was
initiated during 1995, but has only recently had significant impact.  The
reduction in earned premiums in 1996, excluding the effect of the reduction of
estimated ultimate premiums ceded, primarily reflects the increased competition
in the accountants professional liability market which has placed downward
pressure on premiums.

Net investment income, including realized capital gains and losses, includes
amounts earned on the Company's investment portfolio, cash on deposit and funds
held pursuant to reinsurance agreements.  During 1995, the investments
comprising funds held were released to the Company and were then placed by the
Company into a trust account for the benefit of Virginia Surety Company.  Net
investment income increased by $178,162 or 7% in 1997 to $2,572,539 from
$2,394,377 in 1996.  1996 net investment income increased by $198,926 or 9% from
the $2,195,451 reported in 1995.  Net investment income in 1997 includes net
realized capital gains of $305,252 as compared to net realized capital gains in
1996 of $1,765, a net change of $303,487.  Net realized capital losses in 1995
were $312,657.  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 $1,297,437 or 3% to $41,374,745 in 1997
compared to $40,077,308 in 1996.  1996 average

                                       5
<PAGE>

invested assets decreased by 2% from $40,842,132 in 1995.  Investment yield
including realized capital gains and losses in 1997 was 6.2% as compared to 6.0%
in 1996 and 5.4% in 1995.  Excluding realized gains and losses, the yield is
computed at 5.50% in 1997, 6.0% in 1996 and 6.1% in 1995.  The changes in the
yields excluding realized gains and losses reflect the relatively stable
interest rates during the last three years, combined with the effects of an
increase in the portion of invested assets in equity and tax exempt securities.

Unrealized gain on investments net of tax is $1,016,956 at December 31, 1997 as
compared to $424,621 at December 31, 1996.  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 stockholders' equity.  The increase in net unrealized gain as of
December 31, 1997 as compared to 1996 is primarily attributable to the increase
in the proportion of invested assets in equity securities which experienced
significant market value increases during 1997.

The composition of the investment portfolio at December 31, 1997 and 1996 is as
follows:

<TABLE>
<CAPTION>

                                                            1997      1996
                                                            ----      ----
<S>                                                         <C>       <C>

  U.S. Treasury securities and obligations of
    U.S. government agencies                                 11%        19%
  Mortgage backed securities                                 38         51
  Obligations of state and political subdivisions            33         24
  Equity securities                                          18          6
                                                            ---        ---

                                                            100%       100%
                                                            ===        ===
</TABLE>

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

Losses and loss adjustment expenses incurred increased by 75% to $4,748,833 in
1997 from $2,717,884 in 1996.  1996 losses and loss adjustment expense increased
by 83% from $1,489,667 in 1995.  These amounts include favorable development of
prior years' estimates of losses and loss adjustment expense of approximately
$1,411,000 in 1997, $2,917,000 in 1996 and $3,307,000 in 1995.  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
1997, 50% in 1996 and 27% in 1995.  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 105%
in 1997, 105% in 1996, 87% in 1995.

Policy acquisition costs of $1,462,733 were expensed in 1997 as compared to
$1,302,327 in 1996, an increase of 12%.  Policy acquisition costs expensed in
1996 reflect an increase of 20% from $1,084,577 in 1995.  Such costs as a
percentage of premiums earned are 25% in 1997, 24% in 1996 and 20% in 1995, and
result primarily from ceding commissions paid to ceding companies determined
contractually pursuant to reinsurance agreements.

Operating and management expenses decreased by 15% in 1997 to $619,684 from
$727,780 in 1996.  1996 operating and management expenses decreased by 7% from
$786,037 in 1995.

The effective tax rate was 16% in 1997, 31% in 1996 and 28% in 1995.  These
rates differ from the statutory federal rate primarily due to the effects of tax
exempt income offset by state income taxes.  Gross tax exempt investment income
increased by 110% in 1997 to $527,600 from $250,913 in 1996.  Gross 1996 tax
exempt investment income increased by 10% from $227,407 in 1995.

                                       6
<PAGE>

AIIG and its subsidiary do not have any employees.  All operations of AIIG are
performed by service providers and business partners, including a management
company, under the direction of AIIG's Board of Directors.  AIIG has undertaken
an ongoing effort to evaluate and monitor the year 2000 compliance and related
remediation efforts of its significant service providers and business partners.
AIIG has identified CNA, the sole current reinsured of AIIG, as the most
critical of such entities to AIIG's ongoing operations. CNA performs
underwriting and claims administration functions for all risks currently
reinsured by AIIG. CNA has informed AIIG that its target for achieving Year 2000
compliance is December 1, 1998.  AIIG will continue to monitor the year 2000
compliance efforts of its service providers and business partners. AIIG does not
expect to incur significant costs associated with year 2000 remediation efforts.

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.

During 1997 and 1996, the Board of Directors declared quarterly dividends of
$0.65 per share totaling $867,735 and $869,661 during 1997 and 1996
respectively. During 1995, the Board of Directors declared two quarterly
dividends of $.65 per share totaling $435,412. 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.

Due to regulatory restrictions on the payment of dividends, $18,200,893 of
AIIC's separately determined GAAP basis stockholders' equity of $19,940,953 is
unavailable for distribution as dividends in 1998 without prior regulatory
approval.

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 using case-basis evaluations and
statistical projections and represent estimates 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 necessary. Such
adjustments are reflected in current operations.

The anticipated effect of inflation is implicitly considered when estimating
liabilities for losses and LAE. 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.

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

                                       7
<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
                                               ----    ----    ----     ----     ----     ----     ----     ----     ----     ----
<S>                                          <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
Reinsurance Recoverable for Unpaid Loss
and LAE Reserves............................       -       -      502      761      969    4,764    4,071    3,160    2,020    1,040
                                              ------  ------  -------  -------  -------  -------  -------  -------  -------  -------
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


                                                                     Year Ended December 31,
                                               1988    1989    1990     1991     1992     1993     1994     1995     1996     1997
                                               ----    ----    ----     ----     ----     ----     ----     ----     ----     ----
<S>                                          <C>    <C>     <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
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       -
          Two Years Later...................   1,897  8,145   12,667   15,264   20,133   15,064   15,042   14,299
          Three Years Later.................   1,780  6,796    9,862   13,101   17,782   12,196   13,635
          Four Years Later..................   1,405  5,199    8,696   11,725   15,520   10,811
          Five Years Later..................   1,065  4,782    7,753   10,158   14,825
          Six Years Later...................     995  4,536    6,879   10,081
          Seven Years Later.................     936  4,031    6,761
          Eight Years Later.................     819  4,016
          Nine Years Later..................     819

Cumulative Redundancy (Deficiency)..........   1,076  4,069    7,919    9,418    9,493   12,196    7,629    4,330    1,411       -

Cumulative Amount Paid Through:

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

          One Year Later....................      73    415    2,548    4,158    6,100    1,555    4,007    2,885    3,036        -
          Two Years Later...................     208  1,710    3,653    5,464    7,860    5,128    6,469    4,791
          Three Years Later.................     595  2,349    4,147    6,255   10,370    6,765    7,721
          Four Years Later..................     617  2,716    4,380    7,744   11,436    7,666
          Five Years Later..................     676  2,927    5,422    8,303   11,878
          Six Years Later...................     659  3,317    5,540    8,501
          Seven Years Later.................     668  3,380    5,764
          Eight Years Later.................     670  3,467
          Nine Years Later..................     674

</TABLE>

The above table presents the development of balance sheet liabilities for 1988
through 1997 as of year end 1997. 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, but not yet reported, to the Company.
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
$7,629,000 redundancy which has been reflected in income in subsequent years as
the reserves were reestimated.

                                       8
<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, 1997, the Company had paid $7,721,000 of the currently estimated $13,635,000
of losses and LAE that had been incurred for 1994 and prior years through the
end of 1997; thus an estimated $5,914,000 in losses incurred through 1994 remain
unpaid as of the current financial statement date.

In evaluating this information, it should be noted 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.


NAIC Codification of Statutory Accounting Practices

See Note F to the Consolidated Financial Statements regarding an anticipated
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.


Item 8.  Financial Statements and Supplementary Data

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 .....................................    13
Consolidated Statement of Changes in Stockholders' Equity .............    14
Consolidated Statements of Cash Flows .................................    15
Notes to the Consolidated Financial Statements ........................    16

Financial Statement Schedules:
------------------------------
Reports of Independent Accountants on Financial Statement Schedules ...    28
Schedule II, Parent Company Condensed Financial Statements ............    29
</TABLE>

Schedules I, III, IV, 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 III

Item 10.  Directors and Executive Officers of the Registrant

Information regarding the officers and directors of the Registrant is included
under the caption "Election of Directors" in the Registrant's proxy statement
for the Registrant's 1998 Annual Meeting* and is incorporated herein by
reference.


Item 11.  Executive Compensation

The Registrant does not have any employees. Information regarding compensation
of directors is included under the caption "Executive and Director Compensation"
in the Registrant's proxy statement for the Registrant's 1998 Annual Meeting*
and is incorporated herein by reference.


Item 12.  Security Ownership of Certain Beneficial Owners and Management

Information regarding the above is included under the caption "Security
Ownership of Certain Beneficial Owners" in the Registrant's proxy statement for
the Registrant's 1998 Annual Meeting* and is incorporated herein by reference.


Item 13.  Certain Relationships and Related Transactions

Information regarding the above is included under the caption "Certain
Transactions and Relationships" in the Registrant's proxy statement for the
Registrant's 1998 Annual Meeting* and is incorporated herein by reference.

---------------
*  To be filed within 120 days after the end of the fiscal year.



                                 PART IV

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

(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 33.

(b)      No reports on Form 8-K were filed during the fourth quarter of 1997.

(c)      See Index to Exhibits set forth on page 33.

(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. as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the three years ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash
flows for the three years ended December 31, 1997 in conformity with generally
accepted accounting principles.


                                            JOHNSON LAMBERT & CO.

Burlington, Vermont
February 13, 1998


                                       11

<PAGE>

AMERINST INSURANCE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                    --------------------------
ASSETS                                                                 1997           1996
                                                                    -----------    -----------
<S>                                                                 <C>            <C>
Investments:
    Fixed maturity investments, at market value (amortized cost
      $33,420,863 and $35,312,165)                                  $34,065,619    $35,688,432
    Short-term investments, at market value (approximates cost)                      1,687,461
    Equity securities, at market value (cost $6,721,873 and
      $1,991,963)                                                     7,617,960      2,260,878
                                                                    -----------    -----------
        TOTAL INVESTMENTS                                            41,683,579     39,636,771

Cash and cash equivalents                                             1,081,736        347,404
Assumed reinsurance premiums receivable                               1,146,379        929,798
Reinsurance recoveries receivable                                     1,039,762      2,019,975
Accrued investment income                                               499,970        515,870
Deferred policy acquisition costs                                       800,598        611,048
Deferred income tax asset                                               992,599      1,306,399
Prepaid expenses and other assets                                       186,506         90,008
                                                                    -----------    -----------
        TOTAL ASSETS                                                $47,431,129    $45,457,273
                                                                    ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES
Unpaid losses and loss adjustment expenses                          $20,802,873    $20,299,937
Unearned premiums                                                     2,809,115      2,144,027
Reinsurance balances payable                                          1,984,442      2,152,056
Income taxes payable                                                    260,897        316,199
Accrued expenses and other liabilities                                  455,438        453,529
                                                                    -----------    -----------
        TOTAL LIABILITIES                                            26,312,765     25,365,748
                                                                    -----------    -----------

STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 2,000,000 shares authorized;
    1997-333,521 shares issued and outstanding
    1996-334,180 shares issued and outstanding                            3,334          3,342
Additional paid-in capital                                            7,172,508      7,188,983
Retained earnings                                                    12,925,566     12,474,579
Unrealized gains on investments, net of tax                           1,016,956        424,621
                                                                    -----------    -----------
        TOTAL STOCKHOLDERS' EQUITY                                   21,118,364     20,091,525
                                                                    -----------    -----------

        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                  $47,431,129    $45,457,273
                                                                    ===========    ===========
</TABLE>

              See notes to the consolidated financial statements.


                                       12

<PAGE>

AMERINST INSURANCE GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME



<TABLE>
<CAPTION>
                                                                    Year ended December 31,
                                                               1997          1996         1995
                                                            ----------    ----------   ----------
<S>                                                         <C>         <C>         <C>
REVENUES
Premiums earned                                             $5,852,286    $5,386,388   $5,494,413
Net investment income and net realized gains
   and losses                                                2,572,539     2,394,377    2,195,451
                                                            ----------    ----------   ----------
     TOTAL REVENUES                                          8,424,825     7,780,765    7,689,864
                                                            -----------   ----------   ----------


LOSSES AND EXPENSES
Losses and loss adjustment expenses                          4,748,833     2,717,884    1,489,667
Policy acquisition costs                                     1,462,733     1,302,327    1,084,577
Operating and management expenses                              619,684       727,780      786,037
                                                            ----------    ----------    ---------
     TOTAL LOSSES AND EXPENSES                               6,831,250     4,747,991    3,360,281
                                                            ----------    ----------  -----------

     INCOME BEFORE INCOME TAXES                              1,593,575     3,032,774    4,329,583

Provision for income taxes                                     262,404       945,996    1,232,598
                                                            -----------   ----------  -----------

     NET INCOME                                             $1,331,171    $2,086,778   $3,096,985
                                                            ==========    ==========   ==========

     NET INCOME PER SHARE                                   $     3.99    $     6.24   $     9.24
                                                            ==========    ==========   ==========

Average common shares outstanding
 for the year                                                  333,870       334,558      335,294
                                                            ==========    ==========   ==========

</TABLE>


See notes to the consolidated financial statements.

                                       13
<PAGE>

AMERINST INSURANCE GROUP, INC.


CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                      Unrealized
                                                         Additional                 Gains (Losses)                  Total
                                                Common    Paid-in      Retained     on Investments,  Treasury   Stockholders'
                                                Stock     Capital      Earnings       Net of Tax      Stock        Equity
                                                ------   ----------   -----------     -----------    --------   ------------
<S>                                             <C>      <C>          <C>            <C>             <C>        <C>
Balance at January 1, 1995                      $3,366   $7,248,608   $ 8,635,961    $(1,390,852)   $      -     $14,497,083
Net income                                                              3,096,985                                  3,096,985
Change in net unrealized gains and losses                                              1,966,216                   1,966,216
Purchases of 1,693 shares of treasury stock                                                          (65,079)        (65,079)
Retirement of 1,693 shares of treasury stock       (17)     (42,325)      (22,737)                    65,079
Cash dividends paid ($1.30 per share)                                    (435,412)                                  (435,412)
                                                ------   ----------   -----------    -----------    --------     -----------
Balance at December 31, 1995                     3,349    7,206,283    11,274,797        575,364           -      19,059,793

Net income                                                              2,086,778                                  2,086,778
Change in net unrealized gains and losses                                               (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    12,474,579        424,621           -      20,091,525

Net income                                                              1,331,171                                  1,331,171
Change in net unrealized gains and losses                                                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   $12,925,566    $ 1,016,956    $      -     $21,118,364
                                                ======   ==========   ===========    ===========    ========     ===========

</TABLE>


See notes to the consolidated financial statements.

                                       14
<PAGE>

AMERINST INSURANCE GROUP, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                      Year ended December 31,
                                                                1997           1996           1995
                                                            ------------   -------------  -------------
<S>                                                         <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                  $  1,331,171   $  2,086,778   $  3,096,985
Adjustments to reconcile net income to net cash
 provided by (used in) operating activities
   Amortization of net premiums and discounts
     on investments                                               21,185         18,906         43,796
   Net realized (gains) losses on sales of investments          (305,253)        (1,765)       312,647
   Deferred income taxes                                           7,995       (495,727)       817,999
Changes in assets and liabilities:
   Assumed reinsurance premiums receivable                      (216,581)       196,628       (754,590)
   Reinsurance recoveries receivable                             980,213      1,139,586        911,439
   Accrued investment income                                      15,900         75,303       (217,556)
   Deferred policy acquisition costs                            (189,550)       (48,573)      (120,887)
   Income taxes receivable/payable                               (55,302)       713,191     (3,765,309)
   Prepaid expenses and other assets                             (96,498)        (9,758)       (15,862)
   Unpaid losses and loss adjustment expenses                    502,936     (1,489,099)    (3,546,094)
   Unearned premiums                                             665,088         48,565         41,562
   Reinsurance balances payable                                 (167,614)    (1,083,436)      (687,903)
   Accrued expenses and other liabilities                          1,909        (36,364)       413,372
                                                            ------------   ------------   ------------
     Net cash provided by (used in) operating activities       2,495,599      1,114,235     (3,470,401)
                                                            ------------   ------------   ------------



CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments                                     (13,572,437)   (22,603,360)   (16,227,959)
Proceeds from sales and maturities of investments             11,010,362     20,761,301     22,430,109
Net (purchases) sales of short-term investments                1,697,475     (1,325,897)       244,016
                                                            ------------   ------------   ------------
     Net cash provided by (used in) investing activities        (864,600)    (3,167,956)     6,446,166
                                                            ------------   ------------   ------------


CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid                                                  (867,735)      (869,661)      (435,412)
Purchases of treasury stock                                      (28,932)       (34,642)       (65,079)
                                                            ------------   ------------   ------------
     Net cash used in financing activities                      (896,667)      (904,303)      (500,491)
                                                            ------------   ------------   ------------


NET CHANGE IN CASH AND CASH EQUIVALENTS                          734,332     (2,958,024)     2,475,274
CASH AND CASH EQUIVALENTS,
 BEGINNING OF YEAR                                               347,404      3,305,428        830,154
                                                            ------------   ------------   ------------
CASH AND CASH EQUIVALENTS,
 END OF YEAR                                                $  1,081,736   $    347,404   $  3,305,428
                                                            ============   ============   ============
SUPPLEMENTAL DATA
 Income taxes paid                                          $    425,000   $    600,000   $    600,000
                                                            ============   ============   ============
</TABLE>





See notes to the consolidated financial statements.

                                       15
<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 subsidiary, AmerInst
Insurance Company (AIIC). All material intercompany accounts and transactions
have been eliminated in consolidation.

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 underlying policies in force at the balance sheet
date are recorded as unearned premiums. Premiums ceded pursuant to excess of
loss retrocession agreements are expensed over the calendar year term of the
treaty and are netted against earned premiums. Charges or credits resulting from
adjustments to provisional retrocession premiums ceded pursuant to the excess of
loss retrocession agreements are reflected as adjustments to ceded premiums
based upon estimated ultimate premiums. Management believes that recorded
retrocession premiums ceded represent its best estimates of such amounts;
however, as changes in the estimated ultimate losses and loss adjustment
expenses applicable to the first excess of loss retrocession agreements are
determined, the estimated ultimate ceded premiums will also change. As
adjustments to these estimates become necessary, such adjustments are reflected
in current operations.

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.

                                      16
<PAGE>

AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED


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

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 calculated based upon projections of AIIC's historical loss
experience supplemented with industry data.  In establishing its liability for
unpaid losses and loss adjustment expenses, AIIC utilizes the findings of an
independent consulting actuary.  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.  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 dates. Accordingly, the ultimate liability could vary
significantly from the amounts shown in the financial statements.  As
adjustments to these estimates become necessary, such adjustments are reflected
in current operations.

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.

Investments:  All investments are considered to be available for sale and are
reported at their estimated market values at December 31, 1997 and 1996.  Net
changes in these estimated market values are reported as unrealized gains or
losses directly in stockholders' equity, net of tax effects. Net realized gains
and losses are determined using the specific identification method and are
reflected in the income statement in the period of sale. Short-term investments
include fixed maturity securities with a maturity date within one year of
acquisition. As more fully described in Note B, certain investments held are
used to collateralize obligations to previous and current ceding companies.

Cash and Cash Equivalents: Cash equivalents consist of money market mutual
funds.

                                       17
<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, Crum and Forster Managers Corporation through a group of affiliated
insurance companies (collectively CFMC), was the primary insurer for the AICPA
Plan. In 1988, AIIC provided reinsurance to CFMC, 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 CFMC 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 CFMC 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. CFMC, 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, 1997 and 1996, investments with a carrying value of $499,707 and
$1,498,311, respectively, are held in a trust account pursuant to the 1988
reinsurance agreement with CFMC.  At December 31, 1997 and 1996, the carrying
value of investments held in a trust account pursuant to reinsurance agreements
with VSC in effect from 1989 to mid-1993 is $7,144,800 and $12,291,395,
respectively.  At December 31, 1997 and 1996, AIIC has provided CNA with a
letter of credit issued by Harris Trust and Savings Bank in the amount of
$4,500,000.  At December 31, 1997 and 1996, investments with a carrying value of
$7,225,790 and $7,170,612, respectively, are 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 CFMC 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
$720,298, $693,976 and $611,916 during 1997, 1996 and 1995, respectively.

                                       18
<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>
                               1997                      1996                      1995
                      -----------------------   -----------------------   -----------------------
                       Written       Earned      Written       Earned      Written       Earned
                      ----------   ----------   ----------   ----------   ----------   ----------
<S>                   <C>          <C>          <C>          <C>          <C>          <C>
Assumed               $5,797,076   $5,131,988   $4,740,977   $4,692,412   $4,924,059   $4,882,497
Retroceded               720,298      720,298      693,976      693,976      611,916      611,916
                      ----------   ----------   ----------   ----------   ----------   ----------
 Net                  $6,517,374   $5,852,286   $5,434,953   $5,386,388   $5,535,975   $5,494,413
                      ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>
The components of the liability for unpaid losses and loss adjustment expenses
and related reinsurance recoveries receivable are as follows:
<TABLE>
<CAPTION>
                                                   (000's omitted)
                                                     December 31,
                                       1997                                  1996
                        ----------------------------------     ----------------------------------
                          Gross     Reinsurance     Net          Gross     Reinsurance     Net
                        Liability   Receivable   Liability     Liability   Receivable   Liability
                        ---------  -----------   ---------     ---------  -----------   ---------
<S>                     <C>        <C>           <C>           <C>        <C>           <C>
Case basis estimates      $ 5,765      $  (372)    $ 5,393       $ 6,673      $(1,162)    $ 5,511
Supplemental amounts       15,038         (668)     14,370        13,627         (858)     12,769
                        ---------  -----------   ---------     ---------  -----------   ---------
 Totals                   $20,803      $(1,040)    $19,763       $20,300      $(2,020)    $18,280
                        =========  ===========   =========     =========  ===========   =========
</TABLE>
                                       19
<PAGE>

AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED


NOTE B--INSURANCE ACTIVITY--(Continued)

The changes in the liability for unpaid losses and loss adjustment expenses, net
of related reinsurance recoveries receivable, are as follows:
<TABLE>
<CAPTION>
                                               (000's omitted)
                                            1997     1996     1995
                                           -------  -------  -------
<S>                                        <C>      <C>      <C>
 Balance as of January 1, net of
  reinsurance recoveries receivable        $18,280  $18,629  $21,264

 Incurred related to:

    Current year                             6,160    5,635    4,797
    Prior years                             (1,411)  (2,917)  (3,307)
                                            ------   ------   ------
           Total incurred                    4,749    2,718    1,490
                                            ------   ------   ------

 Paid related to:

    Current year                              (230)    (183)     (38)
    Prior years                             (3,036)  (2,884)  (4,087)
                                            ------   ------   ------
           Total paid                       (3,266)  (3,067)  (4,125)
                                            ------   ------   ------

 Balance as of December 31, net of
  reinsurance recoveries receivable        $19,763  $18,280  $18,629
                                           =======  =======  =======
</TABLE>
                                       20
<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>


                                                              1997         1996         1995
                                                           -----------  -----------  -----------
<S>                                                        <C>          <C>          <C>

   Interest earned:
     Fixed maturity investments                            $2,158,681   $2,283,637   $2,290,071
     Funds held by ceding companies                                                     113,704
     Short term investments and cash and
       cash equivalents                                       148,884      157,679      150,104
   Dividends earned                                            57,724       23,571       23,336
   Net realized gains (losses) on sales of investments:
     Fixed maturity investments                                 3,025     (160,919)    (367,505)
     Equity securities                                        302,693      163,265       54,858
     Short-term investments                                      (466)        (581)
   Investment expenses                                        (98,002)     (72,275)     (69,117)
                                                           ----------   ----------   ----------

   Net investment income                                   $2,572,539   $2,394,377   $2,195,451
                                                           ==========   ==========   ==========

   Net change in unrealized gains (losses):
     Fixed maturity investments                            $  270,305   $ (373,231)  $1,229,681
     Funds held by ceding companies                                                   1,555,517
     Equity securities                                        627,172      144,833      193,917
                                                           ----------    ---------   ----------

   Net change in unrealized gains (losses)                 $  897,477   $ (228,398)  $2,979,115
                                                           ==========   ==========   ==========
</TABLE>
                                      21
<PAGE>

AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED


NOTE C--INVESTMENTS--(Continued)

The cost or amortized cost and estimated market values of investments are as
follows:

<TABLE>
<CAPTION>
                                                    As of December 31, 1997
                                        -------------------------------------------------
                                           Cost or     Gross       Gross       Estimated
                                          Amortized  Unrealized  Unrealized      Market
                                            Cost       Gains       Losses        Value
                                        -----------  ----------  ----------   -----------
<S>                                     <C>          <C>         <C>          <C>
 U.S. treasury securities and
  obligations of U.S. government
  agencies                              $ 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              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>
<TABLE>
<CAPTION>
                                                    As of December 31, 1996
                                        -------------------------------------------------
                                           Cost or     Gross       Gross       Estimated
                                          Amortized  Unrealized  Unrealized      Market
                                            Cost       Gains       Losses        Value
                                        -----------  ----------  ----------   -----------
<S>                                     <C>          <C>         <C>          <C>
 U.S. treasury securities and
  obligations of U.S. government
  agencies                              $ 5,684,753   $   87,747  $       -   $ 5,772,500
 Obligations of states and political
  subdivisions                            9,332,002      110,379    (19,952)    9,422,429
 Mortgage-backed securities              20,295,410      214,677    (16,584)   20,493,503
                                        -----------   ----------  ---------   -----------

 Total fixed maturity investments        35,312,165      412,803    (36,536)   35,688,432
 Short term investments                   1,689,278                  (1,817)    1,687,461
 Equity securities                        1,991,963      345,397    (76,482)    2,260,878
                                        -----------   ----------  ---------   -----------
         Total investments              $38,993,406   $  758,200  $(114,835)  $39,636,771
                                        ===========   ==========  =========   ===========
</TABLE>


                                       22
<PAGE>

AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED


NOTE C--INVESTMENTS--(Continued)

The amortized cost and estimated market value of fixed maturity investments at
December 31, 1997, 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                    $   751,875    $   760,000
     Due after one year through five years        6,654,159      6,769,270
     Due after five years through ten years       9,463,351      9,702,132
     Due after ten years                          1,409,426      1,439,152
                                                -----------    -----------
         Subtotal                                18,278,811     18,670,554
     Mortgage-backed securities                  15,142,052     15,395,065
                                                -----------    -----------
         Total                                  $33,420,863    $34,065,619
                                                ===========    ===========
</TABLE>

Included in fixed maturity investments at December 31, 1997 and 1996 are
securities held in a trust fund deposit at a bank in accordance with the
Illinois Insurance Code with a carrying value of approximately $1,750,000.

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

<TABLE>
<CAPTION>
                                                       1997         1996          1995
                                                    ----------   -----------   -----------
<S>                                                 <C>          <C>           <C>
Total proceeds (excluding short-term investments)   $9,890,774   $19,057,331   $18,680,109
Gross gains                                             18,504        33,438        31,761
Gross losses                                           (15,479)     (194,357)     (399,266)
</TABLE>


NOTE D--OPERATING AND MANAGEMENT EXPENSES

AIIG and AIIC have no employees. Their operating activities, as well as certain
management functions, are performed by contracted professional service
providers. USA Risk Group (USARG) provides certain management, administrative
and operational services under the direction of the Company'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.


                                       23

<PAGE>

AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED


NOTE D--OPERATING AND MANAGEMENT EXPENSES--(Continued)

Operating and management expenses include compensation paid to members of the
board of directors and various committees of the board totaling $140,025 in
1997, $140,300 in 1996 and $129,183 in 1995.


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 tax exempt municipal bond
income, and the deduction for dividends received.

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

<TABLE>
<CAPTION>
                                       1997         1996          1995
                                     --------    ----------    ----------
     <S>                             <C>         <C>           <C>
     Federal income tax
         Current tax                 $253,747    $1,434,172    $  347,423
         Deferred tax (benefit)         8,657      (495,780)      841,771
                                     --------    ----------    ----------
     Total federal income tax         262,404       938,392     1,189,194
     State income tax                      --         7,604        43,404
                                     --------    ----------    ----------
     Provision for income tax        $262,404    $  945,996    $1,232,598
                                     ========    ==========    ==========
</TABLE>


                                       24

<PAGE>

AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED


NOTE EFEDERAL 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>
                                             1997         1996          1995
                                          ---------    -----------   -----------
<S>                                       <C>          <C>           <C>
Income tax at federal statutory rate      $ 541,816    $1,031,143    $1,472,058
Effect of tax exempt investment income     (164,154)      (71,449)     (143,386)
State income taxes                                          7,604        43,404
Other                                      (115,258)      (21,302)     (139,478)
                                          ---------    ----------    ----------
Totals                                    $ 262,404    $  945,996    $1,232,598
                                          =========    ==========    ==========
</TABLE>

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

<TABLE>
<CAPTION>
                                     Deferred Tax    Deferred 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>


                                      25
<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, 1996 is as
follows:

<TABLE>
<CAPTION>
                                       Deferred Tax  Deferred Tax
                                          Assets     Liabilities       Net
                                       ------------  ------------  -----------
<S>                                   <C>            <C>           <C>
Loss reserve discount                  $1,480,805    $     --      $1,480,805
Unearned premiums                         145,794                     145,794
Deferred policy acquisition costs                     (207,756)      (207,756)
Unrealized gain on investments                        (218,744)      (218,744)
Capital loss carryforward                 106,300                     106,300
                                       ----------    ---------     ----------

    Total                              $1,732,899    $(426,500)    $1,306,399
                                       ==========    =========     ==========
</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
currently is in the process of establishing a codified set of statutory
accounting practices (the codification), the result of which is expected to
change "prescribed" statutory accounting practices. The codification is expected
to be effective in 1999. The impact of the codification on AIIC cannot be
determined at this time. Significant differences between statutory accounting
practices and generally accepted accounting principles as apply to AIIC are as
follows:

     . For statutory purposes, policy acquisition costs are charged to
       operations in the year the costs are incurred rather than being deferred
       and amortized as premiums are earned.

     . Under statutory accounting practices, there is no provision made for
       deferred income taxes.

     . Certain assets including prepaid expenses are not admitted for statutory
       purposes.

     . Investments in fixed maturity securities are valued at amortized cost
       under statutory accounting practices, rather than at market value.

                                      26
<PAGE>

AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED


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

Statutory 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 $17,400,602 and $16,478,241 at December 31, 1997 and 1996,
respectively. Statutory net income was $1,248,255, $1,711,224 and $3,969,695 in
1997, 1996 and 1995, 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 1998 without prior regulatory
approval is $1,740,060. Accordingly, $18,200,893 of AIIC's separately determined
GAAP basis stockholder's equity of $19,940,953 is unavailable for distribution
to AIIG in 1998 without prior regulatory approval.

NOTE G--PROPOSED REDOMESTICATION AND RESTRUCTURING

AIIG's Board of Directors has voted to submit a proposed "Exchange Agreement"
and related matters to a vote of shareholders. Pursuant to this proposal, AIIG
would transfer all of its assets and liabilities to a newly formed Bermuda
company in exchange for newly issued shares of the Bermuda company. AIIG would
then be liquidated and AIIG shareholders would receive on a share-for-share
basis the newly issued shares of the Bermuda company.

The transaction contemplates the restructuring of AIIG's business, including the
redomestication of AIIC's insurance operations to a Bermuda domiciled company.

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

                                      27
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS
                      ----------------------------------

                       ON FINANCIAL STATEMENT SCHEDULES
                       --------------------------------


The Board of Directors
AmerInst Insurance Group, Inc.

Our report on the 1997 consolidated financial statements of AmerInst Insurance
Group, Inc. is included on page 11 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 9 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 13, 1998

                                      28
<PAGE>

AMERINST INSURANCE GROUP, INC. (PARENT)

CONDENSED FINANCIAL INFORMATION OF REGISTRANT-SCHEDULE II

Condensed Balance Sheets as of December 31, 1996 and 1997

<TABLE>
<CAPTION>
                                                            December 31,
                                                         1997           1996
                                                     -----------    -----------
<S>                                                  <C>            <C>
ASSETS
Investment in subsidiary                             $18,940,597    $18,379,184
Fixed maturity investments                             1,081,859      1,082,928
Cash                                                       3,162          6,339
Accrued investment income                                 20,514         20,514
Prepaid expenses and other assets                         67,507         56,341
Income tax recoverable                                    79,893        218,275
                                                     -----------    -----------
    TOTAL ASSETS                                     $20,193,532    $19,763,581
                                                     ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Due to subsidiary                                    $    47,895    $    61,325
Deferred federal income tax                                8,552          7,399
Accrued expenses and other liabilities                    19,077         13,590
                                                     -----------    -----------
    TOTAL LIABILITIES                                     75,524         82,314
                                                     -----------    -----------

STOCKHOLDERS' EQUITY
Common stock                                               3,334          3,342
Additional paid-in capital                             7,172,508      7,188,983
Retained earnings                                     12,925,566     12,474,579
Net unrealized gain in held for sale securities           16,600         14,363
                                                     -----------    -----------
    TOTAL STOCKHOLDERS' EQUITY                        20,118,008     19,681,267
                                                     -----------    -----------
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $20,193,532    $19,763,581
                                                     ===========    ===========
</TABLE>

                                       29

<PAGE>

AMERINST INSURANCE GROUP, INC. (PARENT)

CONDENSED FINANCIAL INFORMATION OF REGISTRANT-SCHEDULE II

Condensed Statements of Income for the Years Ended December 31, 1995 through
1997

<TABLE>
<CAPTION>
                                                        December 31,
                                              1997          1996          1995
                                           ----------    ----------    ----------
<S>                                        <C>          <C>           <C>
REVENUE

Net investment income                      $   56,039    $   56,816    $   63,887
                                           ----------    ----------    ----------

EXPENSES

Operating and management expenses             242,064       323,970       327,481
                                           ----------    ----------    ----------

Income (Loss) Before Income Taxes and
  Undistributed Earnings of Subsidiary       (186,025)     (267,154)     (263,594)

Income Tax (Benefit)                          (88,048)      (98,355)     (111,765)
                                           ----------    ----------    ----------

Income (Loss) before undistributed
  income of subsidiary                        (97,977)     (168,799)     (151,829)

Undistributed Net Income of Subsidiary      1,429,148     2,255,577     3,248,814
                                           ----------    ----------    ----------
    NET INCOME                             $1,331,171    $2,086,778    $3,096,985
                                           ==========    ==========    ==========
</TABLE>


                                       30

<PAGE>

AMERINST INSURANCE GROUP, INC. (PARENT)

CONDENSED FINANCIAL INFORMATION OF REGISTRANT-SCHEDULE II

Condensed Statements of Cash Flows for the Years Ended December 31, 1995 through
1997
<TABLE>
<CAPTION>
                                                         1997          1996         1995
                                                       ---------     ---------    ---------
<S>                                                    <C>           <C>          <C>
OPERATING ACTIVITIES

Net Cash Provided by Operations                        $ 893,490     $ 829,642    $ 474,335
                                                       ---------     ---------    ---------
INVESTING ACTIVITIES

Purchases of fixed-maturity investments                        -      (190,000)    (105,000)
Sale and maturities of fixed maturity investments                      250,000
Net (purchases) sales of short-term investments                -        46,637       46,637
                                                       ---------     ---------    ---------
Net Cash Provided by (Used in) Investing Activities            -        60,000      (58,363)
                                                       ---------     ---------    ---------
FINANCING ACTIVITIES

Dividends paid                                          (867,735)     (869,661)    (435,412)
Purchases of treasury stock                              (28,932)      (34,642)     (65,079)
                                                       ----------    ---------    ---------
Net Cash Used in Financing Activities                   (896,667)     (904,303)    (500,491)
                                                       ----------    ---------    ---------
DECREASE IN CASH                                          (3,177)      (14,661)     (84,519)

CASH AT BEGINNING OF YEAR                                  6,339        21,000      105,519
                                                       ---------     ---------    ---------
CASH AT END OF YEAR                                    $   3,162     $   6,339    $  21,000
                                                       =========     =========    =========
</TABLE>
                                       31
<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:  March 27, 1998                 AMERINST INSURANCE GROUP, INC.
      --------------------------------


                                         By /S/ 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.
<TABLE>
<CAPTION>
         Signature                      Title                      Date
         ---------                      -----                      ----
<S>                         <C>                            <C>
/S/ NORMAN C. BATCHELDER    President and Director             March 27, 1998
    --------------------                                   --------------------
    Norman C. Batchelder    (Principal Executive Officer)

/S/ BRUCE W. BREITWEISER    Vice President and Director        March 27, 1998
    --------------------                                   --------------------
    Bruce W. Breitweiser

/S/ RONALD S. KATCH         Treasurer and Director             March 27, 1998
    --------------------                                   --------------------
    Ronald S. Katch         (Principal Financial and
                             Accounting Officer)

/S/ JEROME A. HARRIS        Assistant Treasurer,               March 27, 1998
    --------------------                                   --------------------
    Jerome A. Harris        Asst. Secretary and Director

/S/ CHARLES B. LARSON       Secretary and Director             March 27, 1998
    --------------------                                   --------------------
    Charles B. Larson
</TABLE>
                                       32

<PAGE>

                               INDEX TO EXHIBITS

                         YEAR ENDED DECEMBER 31, 1997


<TABLE>
<CAPTION>
Exhibit
Number    Description
------    -----------
<S>       <C>

 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)

10.5      Revised Management Agreement between Vermont Insurance Management,
          Inc. and AIIC dated May 1, 1997 (7) and addendum to Management
          Agreement dated July 1, 1997 (8)

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)

21        Subsidiaries of the Registrant (1)

27        Financial Data Schedules (filed herewith)
--------------
</TABLE>
(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, 1993 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.

(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.

                                       33