SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

 [X]    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
 Act of 1934 for the fiscal year ended December 31, 1997

                                       OR

 [  ]    Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.

                        Commission file number 001-12617

                             Trigon Healthcare, Inc.
             (Exact name of registrant as specified in its charter)

          Virginia                                              54-1773225
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                              Identification No.)

                   2015 Staples Mill Road, Richmond, VA 23230
                    (Address of principal executive offices)

        Registrant's telephone number, including area code (804) 354-7000

          Securities registered pursuant to Section 12(b) of the Act:
      Class A Common Stock, $.01 Par Value          New York Stock Exchange
                 (Title of Class)                      (Name of Exchange)

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

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. [ ]

The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 27, 1998 was approximately $1,245,818,000
(based on the last reported sales price of $29 7/8 per share on March
27, 1998, on the New York Stock Exchange).

As of March 27, 1998, 42,300,022 shares of the registrant's Class A Common
Stock, par value $.01 per share, were issued and outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE:

Certain portions of Trigon Healthcare Inc.'s Annual Report to Shareholders for
the year ended December 31, 1997 into Parts II and IV of this Form 10-K.

Certain portions of Trigon Healthcare Inc.'s definitive Proxy Statement dated
March 27, 1998 for the Annual Meeting of Shareholders into Part III of this
Form 10-K.

                                   1
<PAGE>


                                     PART I
Item 1. Business.

GENERAL

Trigon Healthcare, Inc. ("Trigon" or the "Company") is the largest managed
health care company in Virginia, serving approximately 1.8 million members
primarily through statewide and regional provider networks. The Company's
membership represents approximately 26% of the Virginia population and 31% of
the Virginia population in those areas where Trigon has the exclusive right to
use the Blue Cross and Blue Shield service marks and tradenames. Within
Virginia, Trigon provides a comprehensive spectrum of managed care products
through three network systems with a range of utilization and cost containment
controls. The Company is pursuing a growth strategy which includes expansion
within Virginia and outside of Virginia into other southeastern and mid-Atlantic
states.

As of December 31, 1997, the Company's network systems consisted of: HMO
networks which, with 293,538 members, are the Company's most tightly managed and
cost efficient networks; the preferred provider organization ("PPO") networks
which, with 904,470 members, offer greater choice of providers than Trigon's HMO
networks and may include a point of service ("POS") feature; and the
participating provider ("PAR") network which, with 411,142 members, is the
Company's broadest and most flexible network. As of December 31, 1997, the
Company served 215,492 additional members through Medicare supplemental plans
(125,686 members), third-party administration of health care claims (25,663
members) and through Mid-South Insurance Company ("Mid-South"), a Fayetteville,
North Carolina-based health and life insurance company, which was acquired by
the Company in 1996 (64,143 members). Within the Company's managed care product
offerings, customers may choose between fully-insured arrangements (in which the
Company bears the cost of providing specified health care services for a fixed
payment) and self-funded arrangements (in which the customer bears all or a
portion of the risk). As of December 31, 1997, 50.9% of members were covered
under fully-insured arrangements and 37.8% were covered under self-funded
arrangements, with the remaining 11.3% covered under the Federal Employee
Program ("FEP"), administered under contract with the Blue Cross Blue Shield
Association ("BCBSA"). Member enrollment information for FEP, Mid-South group
health business and certain national group accounts are not maintained on the
Company's systems. Member enrollment information presented herein for such
groups have been calculated based on policy counts for these groups which have
been converted to a membership number through the use of actuarially determined
conversion factors.

In 1990 the Company began to institute greater managed care controls in all of
its product lines and networks, focusing in particular on its PPO and HMO
networks and, depending on market readiness, designing, pricing and marketing
its products to encourage members to migrate into these more tightly managed
networks where the Company is better able to manage health care costs. While
members decide which network to select, the Company generally offers more
attractive rates in its more tightly managed networks to encourage members to
choose these products. This strategy contributed to accelerated enrollment
growth for the Company's HMO and PPO networks and a decline in enrollment in the
Company's more traditional PAR network. Trigon operates four HMOs which are
licensed to serve most areas of Virginia. Trigon has the largest number of HMO
members in Virginia. Trigon's total HMO enrollment has grown from 60,683 members
at December 31, 1992 to 293,538 members as of December 31, 1997,
representing a compound annual growth rate of 37.1%. The Company's PPO
network system is the largest in Virginia. Trigon's total PPO enrollment
has grown from 561,686 members at December 31, 1992 to 904,470 members
as of December 31, 1997, representing a compound annual growth rate of
10.0%. Membership in the Company's HMOs and PPOs increased from 38.4% of
total enrollment at December 31, 1992 to 65.1% as of December 31, 1997.
Trigon's more traditional products are offered through its PAR network,
which is the Company's largest provider network. As a result of the Company's
strategy of encouraging members to migrate to its more tightly managed networks,
total membership in the PAR network, decreased from 683,982 members at December
31, 1992 to 411,142 members at December 31, 1997. Trigon also offers several
specialty health care and related products, such as dental, wellness, behavioral
health, life and accident and disability insurance coverage.

                                   2
<PAGE>

Trigon has the largest membership base in Virginia, which generally allows the
Company to negotiate contracts with its Virginia providers that specify
favorable rates and incorporate utilization management and other cost controls.
As a result of its extensive networks, managed care expertise and broad product
offerings, the Company competes favorably in all of its Virginia lines of
business, including the individual, small, mid-sized and large employer groups
and state and federal agency markets. Trigon has exclusive rights to use the
Blue Cross and Blue Shield service marks and tradenames for purposes of doing
business throughout Virginia other than certain northern Virginia suburbs
adjacent to Washington, D.C.

Since 1972, the Company has provided health benefits to employees and retirees
of the Commonwealth of Virginia. In 1997, the Company recorded $398.7 million
for amounts attributable to this self-funded arrangement, which represented 38%
of the Company's self-funded business. The current contract to provide health
benefits to the employees and retirees of the Commonwealth of Virginia will
expire on June 30, 1999. Under the agreement, such services may be terminated by
either party upon twelve months' written notice. The Company believes that it is
well qualified to meet the Commonwealth of Virginia's health care requirements
because of the size and geographic range of the Company's network systems and
its broad offering of PPO and HMO network products.

DEMUTUALIZATION AND INITIAL PUBLIC OFFERING

Effective February 5, 1997, Blue Cross and Blue Shield of Virginia (dba Trigon
Blue Cross Blue Shield) completed its conversion from a mutual insurance company
to a stock insurance company in accordance with a Plan of Demutualization
("Demutualization"). In accordance with the Demutualization, Blue Cross and Blue
Shield of Virginia changed its name to Trigon Insurance Company (dba Trigon Blue
Cross Blue Shield) ("Trigon Insurance") and became a wholly-owned subsidiary of
the Company. The membership interests of Blue Cross and Blue Shield of
Virginia's eligible members were converted into Class A common stock of Trigon
Healthcare, Inc., or, in certain circumstances, cash. The Demutualization also
required the Company to complete an Initial Public Offering ("IPO") of stock
simultaneously with the conversion. Accordingly, Trigon Healthcare, Inc. issued
17.8 million shares of Class A common stock at $13 per share in the IPO,
generating net proceeds of $215.2 million. In connection with the
Demutualization, the Company was required to make a payment of $175 million to
the Commonwealth of Virginia ("Commonwealth Payment") in February 1997. The
Commonwealth Payment was accrued and reflected as an extraordinary charge in the
consolidated financial statements for 1996. The Company used approximately $90
million of the net proceeds and $85 million in borrowings under a revolving
credit agreement to fund this payment. The Company also used approximately $91.1
million of the offering proceeds to pay certain eligible members cash in lieu of
shares of common stock that would otherwise have been issued to such eligible
members pursuant to the Demutualization.

NETWORK SYSTEMS

The Company's extensive managed health care provider networks enable it to offer
a comprehensive array of managed health care programs throughout Virginia. These
networks include its HMO, PPO and PAR networks, as well as specialty managed
care networks. In establishing these networks, the Company enters into contracts
with qualified providers in each geographic area to serve its members. These
contracts are intended to control the cost of health care through both control
of unit cost and utilization management. As a result, the Company reduces the
need to utilize out-of-network providers that are not subject to the Company's
cost controls.

Within the Company's network product offerings, employer groups may choose
various funding options ranging from fully-insured to partially or fully
self-funded financial arrangements. While self-funded customers participate in
Trigon's networks, the claims are not underwritten by Trigon but are funded by
the groups. Self-funded arrangements are typically utilized by large and
mid-size groups. In addition, most self-funded groups purchase aggregate and/or
claim specific stop-loss coverage. In exchange for a premium, the group's
aggregate liability is capped for the year or the group's liability on any one
episode of care is capped. Trigon charges self-funded groups an administrative
fee which is based on the number of members in a group or the group's claims
experience. Under the Company's self-funded arrangements, amounts due are
recognized based on incurred claims plus administrative and other fees and any
stop-loss premiums.

                                   3
<PAGE>

The following table sets forth the number of members in each of the Company's
product groups for the last five years.

                          ENROLLMENT BY NETWORK SYSTEM
<TABLE>
<CAPTION>


                                                                             AS OF DECEMBER 31,
                                                                             ------------------
                                                          1997          1996          1995          1994          1993
                                                 -------------- ------------- ------------- ------------- -------------
<S> <C>


Commercial:
HMO..........................................          291,036       248,172       172,893        85,739        59,353
PPO..........................................          263,828       230,675       212,322       155,433       131,052
PAR..........................................          192,825       236,383       296,716       334,800       352,783
   Other (1).................................          189,829       177,266       149,109       158,503       156,737
                                                 -------------- ------------- ------------- ------------- -------------
Subtotal.....................................          937,518       892,496       831,040       734,475       699,925

Self-funded:
HMO..........................................            2,502         9,479        48,255        34,243        24,728
PPO..........................................          433,185       363,754       336,414       321,863       313,744
PAR..........................................          218,317       291,629       256,964       253,110       264,776
ASO..........................................           25,663        35,620        63,826        77,481        78,903
                                                 -------------- ------------- ------------- ------------- -------------
Subtotal.....................................          679,667       700,482       705,459       686,697       682,151


FEP (PPO network)............................          207,457       197,241       198,561       195,314       180,015
Fully insured and self-funded                    -------------- ------------- ------------- ------------- -------------
enrollment...................................        1,824,642     1,790,219     1,735,060     1,616,486     1,562,091

Processed for other Blue Cross and Blue          -------------- ------------- ------------- ------------- -------------
   Shield Plans (ASO)........................           15,728        70,330        64,558        65,187        69,916

                                                 -------------- ------------- ------------- ------------- -------------
Total........................................        1,840,370     1,860,549     1,799,618     1,681,673     1,632,007
                                                 -------------- ------------- ------------- ------------- -------------
</TABLE>

(1) "Other" members include enrollment from Medicare supplement plans,
out-of-state student health care coverage (which was discontinued as of December
31, 1995) and Mid-South members beginning in 1996.

HMO NETWORKS

Trigon established its first HMO in 1984 and now operates four separate HMOs.
HealthKeepers, Inc. ("HealthKeepers") is a state qualified HMO that operates
primarily in the central, eastern, and southwestern areas of Virginia.
Physicians Health Plan, Inc. ("PHP") is a federally qualified HMO operating in
Northern Virginia, Washington D.C. and the surrounding Maryland counties.
Peninsula Health Care, Inc. ("PHC"), a joint venture owned 51% by Trigon, is a
state qualified HMO operating primarily on the Peninsula in Eastern Virginia.
The Company owns 80% of Priority Inc. ("Priority") (acquired in 1995), which
owns a federally qualified HMO, Priority Health Care, Inc. (formerly, Health
First, Inc.), operating in the Tidewater area in Eastern Virginia. As of
December 31, 1997, the HMO networks included approximately 2,200 primary care
physicians, 6,600 specialist physicians and 66 hospitals throughout Virginia.
Each of Trigon's HMOs uses the Blue Cross and Blue Shield service mark except
for PHP, which operates outside the area covered by the Company's license to use
the service mark.

The Company's HMOs are able to provide for the delivery of health care services
at lower costs than traditional health insurance plans due to their network
provider arrangements which specify favorable rates and require utilization
management and other cost control measures. Members choose a primary care
physician who is responsible for coordinating health care services for the
member. The HMO product portfolio is presented to customers as a stand-alone HMO
offering, or through "Blue Advantage," a program which includes HMO and PPO
options administered and priced as a single program and which can only be
utilized by groups that contract with Trigon on an exclusive basis.

Most HMO products have a copayment provision under which the member bears a
portion of health care costs. All of the Company's HMOs offer a feature which
permits the member to receive health care services from providers that are not
part of the Company's HMO network or without a primary care physician referral
at additional out-of-
                                   4
<PAGE>

pocket cost to the member which includes a deductible and
higher copayment obligation. The Company believes that copayment obligations,
out-of-network costs and other obligations of these HMO plans enhance its
ability to control costs by encouraging members to take more responsibility for
their health care decisions.

MEDICAID AND MEDICARE HMO PRODUCTS. PHC and Priority Health Care, Inc. market a
Medicaid HMO product to participants in the Aid to Families with Dependent
Children program and the Aged, Blind and Disabled Individuals programs in the
Peninsula and Tidewater regions of Virginia. HealthKeepers received federal and
state regulatory approval in the first quarter of 1998 to begin selling a
Medicare HMO product within the City of Richmond and five surrounding counties
in central Virginia. The product is available to individuals who are eligible
for Medicare either through age or disability. Health care services will be
provided by a special network comprised of a subset of the HealthKeepers
provider network. The Company is currently beginning its marketing and
enrollment efforts, with enrollment of 5,000 to 7,000 members expected by the
end of 1998.

PPO NETWORKS

The Company's PPO network is a statewide PPO network, which as of December 31,
1997 included approximately 15,900 physicians and 136 hospitals. Approximately
24% of PPO members as of December 31, 1997 were employees of the Commonwealth of
Virginia, whose plan includes the POS feature discussed below.

The Company's PPO products are similar to its HMO products in that they are able
to provide for health care delivery at lower costs than traditional health
insurance due to network provider arrangements which specify favorable rates and
employ utilization management and other cost control measures. Members have
copayment or coinsurance obligations for services rendered by network providers
that are similar to those of the Company's HMO products. Trigon includes as part
of its PPO network the option of including a POS feature in which each member
chooses a primary care physician who is responsible for coordinating all health
care services for the member. Unlike the HMO and PPO products electing the POS
feature, members with the standard PPO products may seek care from any PPO
network physician in the appropriate PPO network depending on services required.
PPO members may also choose to receive health care services from providers that
are not a part of the network, typically at substantial out-of-pocket costs.
Trigon believes that copayments and out-of-network obligations of its PPO
products enhance its ability to control costs by encouraging members to take
more responsibility for their health care decisions.

PAR NETWORK

Trigon's PAR network provides more traditional health coverage and included
approximately 17,400 physicians and 137 hospitals as of December 31, 1997. The
PAR network offers members more providers to choose from, greater customization
of benefit design, and fewer restrictions in the use of non-network providers
than the PPO network. The Company's strategy is to transition members from the
PAR network to the more tightly managed PPO and HMO networks. However, Trigon
expects that its PAR network and products will continue to be an important
offering for groups desiring greater flexibility and choice in networks and
benefits, as well as a source of new PPO and HMO members.

The Company's PAR network and products are able to provide for health care
delivery at lower costs than many other traditional health plans due to network
arrangements which specify favorable rates and encourage utilization management
and other cost control measures. Members may choose any physician from the PAR
network depending on services required, and are generally subject to annual
deductible requirements and coinsurance. Trigon believes that annual deductibles
and higher out-of-network costs of its PAR products enhance its ability to
control costs by encouraging members to take more responsibility for their
health care decisions. In the PAR network, physicians accept payments for
covered services and do not bill the members for the difference between the
provider charges and the Company reimbursements. If a member chooses to receive
out-of-network services under a PAR health plan, the member will be required to
bear a larger portion of the total expenses for such services since the provider
is able to bill the member for the difference between the provider's charge and
the Company payment.

                                   5
<PAGE>


PROVIDER ARRANGEMENTS

Trigon's HMO networks have contracts with hospitals, physicians and other
professionals at reduced rates, which are typically more favorable than rates
for the Company's PPO and PAR networks. Almost all of the primary care
physicians in the HMO networks are reimbursed on a capitated basis. Specialists
are reimbursed based on a fee schedule or on a capitated basis. Some ancillary
services, lab services, behavioral health and vision services are also
capitated. These arrangements provide the incentive to control utilization and
cost. HMO network hospital provider contracts, typically two years in duration,
are on a nonexclusive basis and are generally paid on the basis of per diems
(fixed fee schedules where the daily rate is based on the type of service), per
case per admission (fixed fee schedules for all services during a member's
hospitalization), or a percentage of covered charges with limits on the
subsequent year increases. The average rate negotiated with hospitals under this
arrangement is lower than the hospital's average standard retail charges.
Services not subject to special per case or per diem payment arrangements are
generally paid according to a fee schedule or as a percentage of billed charges.
Based on these payment arrangements, physicians and hospitals in the HMO
networks have financial incentives to control health care costs.

PPO and PAR network hospital provider contracts are generally based upon per
diem or per case or a percentage of covered charges arrangements that are
typically lower than the hospital's average standard billing rates. The PPO
provider contracts provide for rates that are generally more favorable than
rates for the Company's PAR network. The Company is able to obtain discounted
prices for services because of the volume of business it offers to healthcare
providers that are part of the network. Hospital reimbursement rates are
generally negotiated for terms of two years. Physician provider contracts also
employ attractive fixed fee schedules which are below standard billing rates
with the PPO contracts typically more favorable than the PAR network. Physician
fee schedule payments are set by the Company using Resource Based Relative Value
System methodologies and are generally adjusted annually. When considering
whether to contract with a physician for its PPO or PAR networks, the Company
conducts a credentialing program to evaluate the applicant's professional
experience, including licensure.

UTILIZATION MANAGEMENT

Trigon also manages health care costs in its HMO networks by using utilization
management systems guidelines for the HMO network that are intended to address
quality of care and help to ensure that only appropriate services are rendered,
and that such services are provided in the most cost-effective manner. The
primary care physicians are considered to be the overall manager of the
individual's health care needs. Primary care physicians manage and optimize care
through the use of referrals and by approving all specialty care before it is
rendered. In addition, under a utilization review program, the HMO reviews all
high cost services needed by individual members which are not provided by the
primary care physician. This review program is intended to ensure that all
enrollees receive necessary, appropriate and cost-effective care. Focused case
management techniques are used on all high cost cases. New medical technologies
are reviewed in advance through Trigon's participation in a new technology
evaluation program sponsored by the BCBSA and a large HMO company. Such review
of new medical technologies attempts to ensure that only safe and effective new
medical procedures are covered.

The Company also manages health care costs and quality by reviewing monthly cost
and utilization trends within its HMO networks. Utilization rates and cases are
reviewed in the aggregate and by service type to identify opportunities for
better cost and quality control. In addition, the highest cost services are
studied to determine if costs can be reduced by using new, less expensive
technologies or by creating additional networks or contracts, such as networks
for ambulatory care, to reduce provider costs.

The Company also manages health care costs in its PPO and PAR networks by
adopting utilization management systems that are intended to reduce unnecessary
procedures, admissions and other medical costs. The Company's utilization
management systems guidelines for the PPO and PAR networks help to ensure that
only appropriate services are rendered and that such services are provided in
the most cost-effective manner. Trigon utilizes Milliman & Robertson's
healthcare management guidelines and requires pre-admission approvals of all
hospital and skilled nursing facility stays and concurrent review of length of
stay. Trigon prospectively reviews the medical necessity of home health, private
duty nursing and durable medical equipment. Trigon also retrospectively reviews
physician practice patterns. Review of physician practice patterns may result in
modifications and refinements to the PPO and

                                       6

<PAGE>

PAR network of providers and network contractual arrangements. Physicians
participating in the PPO network and in the POS program are required to meet
certain economic profiling criteria that indicate cost effective and quality
practice standards. Primary care and specialist providers in the POS program are
periodically given utilization, cost and quality profiles, or "report cards." In
the POS program, utilization management includes an outpatient review program,
with pre-authorization of high-cost outpatient care, in addition to management
of hospital care through precertification, concurrent review, case management
and discharge planning capacity. Outpatient care is further controlled through
claim edits designed to detect and correct inappropriate provider billing
patterns. All new medical technologies are reviewed in advance in an attempt to
ensure that only safe and effective new medical procedures are covered.
Additionally, the Company also employs a comprehensive case management program.
In this program, the Company identifies those members having certain chronic
diseases (such as asthma, hypertension and cancer) and proactively works with
the member and the physician to facilitate appropriate treatment, help to ensure
compliance with recommended therapies and educate members on lifestyle
modifications to manage the disease. The Company believes that the program
promotes the delivery of efficient care and helps to improve the quality of
health care delivered.

As with its HMO network, Trigon further manages health care costs by reviewing
monthly cost and utilization trends within its PPO and PAR networks.

QUALITY MANAGEMENT

Trigon's HMO quality improvement standards are modeled on those of the National
Committee on Quality Assurance ("NCQA"), an independent, nonprofit institution
that reviews and accredits health maintenance and managed care organizations.
The quality improvement program instituted by the Company's HMOs provides for
the review of quality of care service and the initial and ongoing review of the
credentials of all network providers. This credentialing process includes a
review of whether the provider has the necessary licenses, is qualified in the
specialty indicated, and meets standards for safety, sanitation, and
accessibility. The HMO reviews the findings with a quality improvement
committee, which includes practicing physicians from the HMO network. In
addition, quality of care services are monitored through profiling and data
analysis, member satisfaction surveys, and problem case review. During 1997, the
Company obtained one-year accreditation from the NCQA for HealthKeepers, its
largest HMO. The one-year accreditation is granted to companies that have
well-established quality improvement programs and meet most NCQA standards. NCQA
provides companies with specific recommendations and reviews the companies again
after one year to determine if they have reached full accreditation. The
remaining Trigon HMO plans -- PHC, PHP and Priority Health Care, Inc. -- did not
seek accreditation in 1997. PHC is currently undergoing an NCQA-review in 1998.
The Company will not know the results of this review until later this year.

The Company has an active program to evaluate the quality and appropriateness of
care provided by its PPO and PAR networks. Provider credentialing, profiling and
member satisfaction, along with monitoring of outcomes, and clinical studies are
all performed to monitor and manage quality of care. Network physicians and
other providers participate in quality management programs overseen by medical
advisory panels. Using the Company's computerized medical information database,
these programs involve profiles of the tests, types of treatment and procedures
performed for specific diagnoses by these physicians, as well as reviews of
aggregate data.

SPECIALTY MANAGED HEALTH CARE PLANS

Trigon also offers specialty managed health care services through a number of
specialized networks. The Company believes that these specialty networks and
plans complement and facilitate the Company's marketing plans and enable the
Company to attract employer groups and other members that are increasingly
seeking a variety of options and services. These specialty plans include
pharmacy plans, dental plans, behavioral health plans as well as ancillary
networks for certain outpatient services. In addition, Trigon offers numerous
Medicare supplemental plans, which typically pay the difference between the
health care cost incurred and the amount paid by Medicare.

                                   7
<PAGE>


MARKETING

Trigon markets its products and services to both individuals and groups. The
individual products are marketed principally through a telemarketing unit and
through brokers. The group market includes small, medium and large group
employers. The smaller group employers generally use insurance brokers to assist
in the selection of products and analysis of the actual cost of competing plans.
As the group size grows, employers may use consultants to assist in the
tailoring of benefits and networks. The larger group employers are generally
more sophisticated purchasers, often engaging consultants to work with the
Trigon sales staff to tailor benefit and network design to match their specific
needs more closely. In addition, Trigon has a direct sales staff that markets
the full range of Trigon products and services.

RELATED BUSINESSES

In addition to its core managed care business, the Company engages in several
other health-related businesses including employee benefits administration,
workers' compensation administration and health management services. Together,
these and other health-related benefits businesses generated $25.5 million in
revenues for the year ended December 31, 1997, included in "Other Revenues" in
the Company's consolidated financial statements. These businesses represent
approximately 1% of the Company's total revenues, a trend which is expected to
remain consistent in the next several years. Aside from their direct
contribution to revenue, the Company believes these related businesses also
provide Trigon with competitive advantages from single-source product offerings,
cross-selling, market presence and as avenues into new markets.

GOVERNMENT PROGRAMS

Trigon acts as an intermediary and administrative agent in servicing
approximately 1.2 million Medicare Part A beneficiaries in Virginia and West
Virginia. In 1997, the Company processed over 3.7 million Medicare Part A claims
amounting to $3.3 billion of charges. Claims processed and the reimbursement for
these claims are not included in the Company's consolidated statements of
operations. However, the Company is reimbursed for operating expenses related to
administering this business. In 1997, such expense reimbursements totaled $12.5
million. Trigon's intermediary Medicare program carries no underwriting risk.

Trigon also administers Virginia's portion of the BCBSA's national contract with
the U.S. Office of Personnel Management ("OPM") to provide benefits through its
PPO networks for approximately 207,000 federal employees and their dependents
living in Virginia. The contract renews automatically for a term of one year
each January 1, unless written notice is given by either party at least 60 days
prior to the date of renewal. In 1997, Trigon recorded revenues of $377.7
million under this program, which represented 18% of total revenues. Under the
program, a special FEP reserve is maintained at the national level as protection
against adverse claims trends. However, if the contract should terminate with a
negative balance in the FEP special reserve, the losses would be allocated to
participating plans or subcontractors based on a ratio of the Company's past
five year claims experience as a percent of the total program's experience. As
of December 31, 1997, the national reserve amounted to $3.3 billion or 5.7
months of program income.

INFORMATION SYSTEMS

The Company develops and maintains its own information systems. Information
systems have played and will continue to play a key role in ongoing plans to
continually improve quality, lower costs and increase benefit flexibility for
the Company's customers. Trigon's centralized, common database and analytical
technologies allow for increasingly more sophisticated methods of managing costs
and quality of care. The database includes comprehensive information on
virtually all physicians and hospitals and one third of the population in
Virginia, which assists Trigon in analyzing the medical and economic performance
of providers and the medical and economic experience of specific customer groups
and individuals. The Company believes that its information systems are a
competitive advantage and are sufficient to meet its current needs and future
expansion plans.
                                   8

<PAGE>


The Company uses an integrated set of applications software to support marketing
and underwriting, eligibility and billing, electronic claims submission, claims
administration, managed care programs and corporate financial management. A
combination of custom developed and licensed systems are used to meet the unique
needs of different products and markets. An overall systems architecture is
maintained to promote consistency of data, processing rules and flexibility.
Different systems serving the unique products or markets feed data to a
corporate information and decision support system. This decision support system
provides a single source of information for all of the Company's data reporting
and analytic needs. This includes operational and financial performance,
underwriting and marketing analysis, utilization management and actuarial
reporting.

The Company has developed and is currently executing a comprehensive plan to
prepare the computer systems and application software for the year 2000. Project
completion for the Company's systems and software is scheduled for the end of
1998, allowing adequate time for testing. The Company is using both external and
internal resources for the project. The incremental costs for the project were
$6.8 million through December 31, 1997 and are expected to approximate $20.0
million through 1999. The costs will be expensed as incurred and will be funded
through operating cash flows.

In addition, the Company is actively working with hospitals, providers and
others depended upon for electronic commerce in an effort to ensure they are
assessing and correcting any issues relating to the year 2000 which could impact
their ability to conduct business with the Company. Lack of appropriate action
on the part of these third parties could impact the Company's ability to serve
its customers. The Company will continue to monitor the progress of these
entities.

COMPETITION

The health care industry is highly competitive both in Virginia and in other
states in the southeastern and mid-Atlantic United States into which the Company
principally intends to expand. Managed care companies, including large,
well-capitalized companies which market managed care products nationwide, have
targeted the southeastern and mid-Atlantic regions of the United States as being
favorable for expansion, and have begun entering Virginia and markets targeted
by Trigon in increasing numbers. In some cases, new market entrants, as well as
existing health care companies, have competed with the Company for business by
offering very favorable pricing terms to customers. The Company is facing this
increased competition in the areas in which it is licensed to use the Blue Cross
and Blue Shield service marks and tradenames, as well as the areas in which it
operates without these service marks and tradenames. In areas outside of its
licensed territory, the Company's ability to successfully compete may be
adversely affected by its inability to use the Blue Cross and Blue Shield
service marks and tradenames, by the presence of competitors that are able to
use such service marks and tradenames in the areas, and by the Company's lack of
substantial market share or established provider networks in these areas. The
Company also faces competition from a trend among health care providers to
combine and form their own networks in order to contract directly with employer
groups and other prospective customers to provide health care services. There is
no assurance that such overall increased competition will not exert strong
pressures upon Trigon's profitability, its ability to increase enrollment or its
ability to successfully pursue growth in areas both within and outside of
Virginia.

The Company believes that it has effectively integrated its managed care
programs into its traditional business, principally through its PPO and HMO
networks and products. The trend in the health care industry is toward both
vertical and horizontal integration coupled with significant levels of managed
care, principally through HMOs. In the Company's principal geographic market
areas, HMOs have a smaller share of the health care market than in other areas
of the country, but the Company believes that HMOs will capture an increasing
share of the health care market. The Company believes that it will be necessary
to expand significantly its market share in the HMO market, in part by
successfully transitioning its PAR and PPO members into HMOs, if it is to
succeed in retaining a high overall market share in its existing geographic
markets. There can be no assurance that the Company will succeed in
significantly expanding its market share in HMOs.

                                   9
<PAGE>


INVESTMENTS

The Company's investment policies are designed to provide liquidity to meet
anticipated payment obligations and preserve capital within acceptable limits of
risk. The Company believes that concentration of investments in any one asset
class is unwise due to constantly changing interest rates, market and economic
conditions. A portion of the portfolio has been designated to meet the operating
and liquidity needs of the Company. The liquidity portfolio is invested in
short- to intermediate-term fixed income instruments with an average portfolio
duration of two and one-half years and an average quality of AA. Additional
funds not required for liquidity needs are invested by internal and external
money managers in fixed income and equity securities with the dual objectives of
generating income and safeguarding principal. The long-term fixed income
portfolio is invested in governmental and corporate securities, both domestic
and international, with an average quality rating of A. The equity portfolio
contains readily marketable investment securities (domestic and international)
ranging from small growth to well-established Fortune 500 companies. During the
first quarter of 1997, the Company reduced its equity allocation from 27.8% of
the total portfolio at December 31, 1996 to approximately 10.5%. The Company
currently plans to maintain the equity allocation at levels generally no greater
than 15%.

Each external manager invests within certain guidelines established by the
Company designed to fit into the overall investment strategy. These guidelines
establish minimum quality and diversification requirements which, among other
things, provide limitations on the allowable investment for a single issuer as
well as currency exposure for those managers investing in international
securities. At December 31, 1997, 13.5% of the portfolio was invested to meet
the liquidity needs of the Company with an additional 76.0% in long-term fixed
income portfolios (including derivative instruments) and 10.5% in equity
portfolios. At December 31, 1997, 4.8% of the fixed income portfolio and 44.1%
of the equity portfolio was invested internationally. The exposure to securities
denominated in any one currency (other than U.S. dollars) was no greater than
1.8% at December 31, 1997.

At December 31, 1997 the investment portfolio was comprised of the following (in
thousands):

<TABLE>
<CAPTION>


                                                                                   ESTIMATED         PERCENT OF
                                                                                  FAIR VALUE          PORTFOLIO
                                                                                  ----------         ----------
<S> <C>

Fixed income:
    Domestic:
       U.S. Treasury securities and obligations of U.S. government
       agencies...............................................................      $429,947              31.3%
       Mortgage-backed obligations of U.S. government agencies................        73,453               5.3
       States and political subdivisions securities...........................        33,232               2.4
       Other mortgage-backed and asset-backed securities......................       139,916              10.2
       Domestic corporate securities..........................................       398,217              29.0

       Short-term debt securities with maturities of less than one
       year...................................................................        93,561               6.8
    Foreign:
       Debt securities issued by foreign governments..........................        42,872               3.1
       Foreign corporate  bonds...............................................         6,973               0.5

       Short-term debt securities with maturities of less than one year.......         9,182               0.7

                                                                             ---------------- ----------------
Total fixed income.....................................................            1,227,353              89.3

                                                                             ---------------- ----------------
Equities:
    Domestic...........................................................               80,635               5.9
    Foreign............................................................               63,697               4.6
                                                                             ---------------- ----------------
Total equities.........................................................              144,332              10.5

Derivative instruments.................................................                2,312               0.2

                                                                             ---------------- ----------------
Total investments......................................................        $   1,373,997             100.0%
                                                                             ================ ================

</TABLE>
                                   10
<PAGE>


As of December 31, 1997, the composition of the Company's fixed income
investment securities by rating is as follows (in thousands):

                                   ESTIMATED       PERCENT OF
         RATING (1)                FAIR VALUE        TOTAL
         ----------               -----------      ----------
AAA...........................    $   727,932            59.3%
AA............................         30,283             2.5
A.............................         30,552             2.5
BBB...........................        102,849             8.4
BB............................        149,476            12.2
B.............................        185,546            15.1
CCC or lower..................              -               -

Not rated.....................            715               -
                                  -----------          ------
Total.........................    $ 1,227,353           100.0%
                                  ===========          ======


(1)  Ratings are assigned by Standard & Poor's  Corporation or Moody's  Investor
     Service, Inc.

At December 31, 1997, $122.7 million, or 8.9% of the Company's investment
portfolio was invested internationally. This amount includes $8.3 million
invested in U.S. dollar denominated investment funds containing international
investment securities.

Derivative instruments consist of foreign currency forward contracts and foreign
currency options. The Company enters into foreign currency derivative
instruments to hedge exposure to fluctuations in foreign currency exchange
rates. Company policy only permits utilization of these instruments in its
foreign denominated bond and equity portfolios. The counterparties to these
transactions are major financial institutions. The Company may incur a loss with
respect to these transactions to the extent that a counterparty fails to perform
under a contract and exchange rates have changed unfavorably since the inception
of the contract. The Company anticipates that the counterparties will be able to
fully satisfy their obligations under the agreements. The forward contracts
involve the exchange of one currency for another at a future date and typically
have maturities of six months or less. As of December 31, 1997, the Company had
forward contracts outstanding to purchase approximately $3.3 million in foreign
currencies and to sell approximately $35.8 million in foreign currencies
(primarily British Pound, German Mark and Canadian Dollar). The gross unrealized
gains and losses related to these contracts as of December 31, 1997 aggregated
$547,000 and $406,000, respectively. Foreign currency options are contracts that
give the option purchaser the right, but not the obligation, to buy or sell,
within a specific period of time, a financial instrument at a specified price.
Foreign currency options to sell approximately $20.6 million of foreign
currencies (Japanese Yen and German Mark) at set prices were outstanding as of
December 31, 1997. These options generally expire within twelve months. The
gross unrealized gains related to these options as of December 31, 1997
aggregated $1.7 million. There were no gross unrealized losses as of
December 31, 1997.

The Company enters into financial futures contracts for portfolio strategies
such as minimizing interest rate risk and managing portfolio duration. The
notional amount of the futures, $174.8 million as of December 31, 1997, is
limited to that of the market value of the underlying portfolios.

Other than currently or formerly occupied Company property or through
mortgage-backed securities, the Company has no investment in real estate or
mortgage loans. The company does not enter into any derivative instruments other
than forward currency contracts, foreign currency options and financial futures.

REGULATION

HEALTHCARE REFORM - VIRGINIA. In its 1998 session, the Virginia General Assembly
passed the following legislation which will become effective July 1, 1998,
pending approval by the Governor of Virginia:

                                   11
<PAGE>

*    a new small group reform measure which requires all insurers and HMOs doing
     business in the small group market (employers with 2-50 employees) to offer
     and make available  both an essential and a standard  benefit plan to small
     group employers in addition to other insurance plans which they now market.
     Prior law required the offering only to groups of 2-25. Rating requirements
     apply to the two  benefit  plans,  which  will  allow  carriers  to use the
     demographic risk classification factors of age, gender and geographic area.
     Variations in premiums  charged by a small employer  carrier based on claim
     experience,  health status and duration are limited to a range of 20% above
     or 20%  below the  community  rate  filed by the  carrier,  defined  as the
     average  rate  charged  for the  same or  similar  coverage  to all of that
     carrier's small employer group business.

*    legislation  that requires HMOs to offer a point of service  option as part
     of any plan offered to an employer.  However,  an HMO is not required to do
     so if the employer has a non-HMO option in place.  Because Trigon Insurance
     offers  point of service  options to its  affiliated  HMO  customers,  this
     legislation  is not  expected  to have a material  effect on the  Company's
     operations or financial condition.

*    legislation that transfers the responsibility for regulation of utilization
     review activities and quality of care in managed care plans from the Bureau
     of Insurance to the  Department  of Health.  The law also imposes  material
     change filing requirements  previously imposed on HMOs only to all carriers
     offering  managed care plans.  The  legislation  establishes a mechanism by
     which any carrier offering a managed care plan must apply to the Department
     of Health and receive a certificate  of quality  assurance.  The Department
     will  review the  carrier's  procedures  regarding  adequacy  of  complaint
     systems, access to care, provider  credentialing,  patient privacy, as well
     as other  factors in  determining  whether to issue the  certificate.  Full
     implementation  of the quality  bill does not occur until  regulations  are
     promulgated by the Department of Health,  and certificates are not required
     to maintain a carrier's insurance license until July 1, 2000, so long as an
     application  for a  certificate  is made by December  1, 1999.  There is no
     indication  or  expectation  that the  regulatory  process  will  result in
     requirements  that will  materially  affect  the  Company's  operations  or
     financial condition,  however,  there can be no assurance of that result at
     this time.

HEALTHCARE REFORM - FEDERAL. Effective January 1, 1998, provisions of the Health
Insurance  Portability and Accountability Act ("HIPAA") affecting the individual
market took effect.  The provisions impose  requirements  concerning  guaranteed
renewability  and  availability,  the  waiving of waiting  periods  for  certain
eligible  individuals coming from group coverage and limitations on the insurers
ability to terminate  policies.  Also, new requirements on group insurance plans
concerning  maternity length of stay and mental health benefits became effective
for group  coverage with the  commencement  of plan years  beginning on or after
January 1, 1998. There is no expectation that any of these new requirements will
materially affect the Company's operations or financial condition.

Currently,  at the federal level,  there are numerous  legislative  proposals to
regulate  health plans in order to address the issues of health care quality and
patient rights. Many of these proposals are viewed by health plans as adverse to
managed  care  but it is not  clear at  present  whether  any of  these  federal
proposals will be adopted.  Moreover,  there can be no assurance that additional
legislative  or  regulatory  initiatives  will not be  undertaken in the future,
either at the  federal or state  level,  to engage in  structural  reform of the
health care  industry in order to reduce the  escalation in health care costs or
to make health care more accessible.  Such reform, if it occurs, could adversely
affect Trigon's results of operations or financial condition.

HMO  REGULATION.  Trigon has four HMO  subsidiaries,  two of which are federally
qualified  HMOs.  All  of  Trigon's  HMO   subsidiaries   are  licensed  by  the
Commonwealth  of Virginia and are subject to regulation  and review by the State
Corporation Commission, with which they must file periodic reports. In addition,
one of the HMO  subsidiaries is licensed by and subject to regulation and review
by the State of Maryland,  with which it must file periodic  reports.  Among the
areas  regulated by Virginia and Maryland law are policy forms,  market conduct,
quality  assurance,  covered benefits,  contracts between the HMO and its health
care providers, the HMO's financial condition, including net worth requirements,
and the geographic service area of an HMO.

Trigon's  federally  qualified HMOs are also subject to regulation and review by
the U.S.  Department  of Health and Human  Services  and certain  other  federal
authorities,  with  which  they must file  periodic  reports.  Areas  covered by
federal  law are  similar  to those  covered  by state  law and  regulation.  In
addition, one of the Company's HMOs

                                   12
<PAGE>

offers a Medicare risk product that  subjects that HMO to regulation  and review
by the U.S.  Department  of Health and Human  Services and certain other federal
authorities as well.

INSURANCE HOLDING COMPANY REGULATION.  Trigon Healthcare,  Inc. is not regulated
as an insurance  company but, as the direct or indirect owner of all the capital
stock of Trigon Insurance,  Trigon Health and Life Insurance  Company,  formerly
Monticello Life Insurance  Company  ("Trigon Health and Life"), a Virginia-based
group life and disability company,  and Mid-South,  is regulated as an insurance
holding  company and subject to the insurance  holding  company acts of Virginia
and North Carolina,  the states in which the insurance company  subsidiaries are
domiciled.  Effective  July 1, 1998, the Company's HMOs will also be required to
meet the obligations and  restrictions  under the Virginia  Holding Company Act.
These acts contain  certain  reporting  requirements  as well as restrictions on
transactions  between an insurer  and its  affiliates.  The  Virginia  insurance
holding  company laws and  regulations  generally  require  insurance  companies
within  an  insurance   holding  company  system  to  register  with  the  State
Corporation  Commission,  and to file  with  the  State  Corporation  Commission
certain reports describing capital structure,  ownership,  financial  condition,
certain intercompany  transactions and general business operations. In addition,
various  notice  and  reporting  requirements  generally  apply to  transactions
between  insurance  companies and their affiliates  within an insurance  holding
company system,  depending on the size and nature of the transactions.  Virginia
insurance holding company laws and regulations require prior regulatory approval
or, in certain  circumstances,  prior notice of, certain  material  intercompany
transfers of assets as well as certain transactions between insurance companies,
their parent holding companies and affiliates.

Additionally,  holding  company  acts  (including  those of  Virginia  and North
Carolina)  restrict the ability of any person to obtain  control of an insurance
company without prior  regulatory  approval.  Under Virginia  insurance  holding
company laws and  regulations,  the acquisition of control of a Virginia insurer
or a person controlling a Virginia insurer,  including the Company, requires the
prior approval of the State Corporation Commission. Without such approval (or an
exemption),  no person may acquire any voting  security of an insurance  holding
company  which  controls  a  Virginia  insurance  company,  or merge with such a
holding company,  if as a result of such transaction such person would "control"
the insurance  holding  company.  "Control" is defined as the direct or indirect
power to direct or cause the  direction  of the  management  and  policies  of a
person and is  presumed  to exist if a person  directly  or  indirectly  owns or
controls 10% or more of the voting securities of another person.

INSURANCE  COMPANY  REGULATION.  Trigon  Insurance and its HMO  subsidiaries and
Trigon Health and Life are subject to the insurance laws and  regulations of the
Commonwealth of Virginia, the domiciliary state of these companies. Mid-South is
domiciled in North  Carolina and is subject to the laws and  regulations of that
state. In addition, Trigon Insurance and its HMO subsidiaries, Trigon Health and
Life and  Mid-South  are subject to the insurance  laws and  regulations  of the
other  jurisdictions  in which they are licensed or  authorized  to do business.
These insurance laws and regulations generally give state regulatory authorities
broad supervisory, regulatory and administrative powers over insurance companies
and insurance  holding companies with respect to most aspects of their insurance
businesses.  This  regulation  is  intended  primarily  for the  benefit  of the
policyholders and members of insurance  companies and not investors.  Regulatory
authorities exercise extensive  supervisory power over health and life insurance
companies with respect to the licensing of insurance companies;  the approval of
forms and  insurance  policies  used;  the  nature of,  and  limitations  on, an
insurance company's  investments;  the periodic examination of the operations of
insurance companies; the form and content of annual statements and other reports
required to be filed on the financial condition of insurance companies;  and the
establishment of capital requirements for insurance companies. Trigon Insurance,
the HMO subsidiaries,  Trigon Health and Life and Mid-South are required to file
periodic statutory  financial  statements in each jurisdiction in which they are
licensed.  Additionally,  Trigon Insurance, the HMO subsidiaries,  Trigon Health
and Life, and Mid-South are periodically  examined by the insurance  departments
of the  jurisdictions  in which they are  licensed to do  business.  Some states
impose surcharges on all insurance  companies  operating in the state except for
the Blue Cross plan or plans operating  there. The Company does not believe that
these  surcharges  will  materially  affect  its  ability  to expand  outside of
Virginia because the surcharges have generally not been imposed in the states in
which the Company  principally  intends to expand and, if imposed,  would likely
apply equally to all non-Blue Cross companies operating in the state.

RISK-BASED CAPITAL REQUIREMENTS. In 1994, Virginia adopted new statutory
risk-based capital ("RBC") requirements for health and other insurance
companies. Such requirements are intended to assess the capital

                                   13
<PAGE>

adequacy  of  life  and  health   insurers,   taking   into   account  the  risk
characteristics  of an  insurer's  investments  and  products.  The  formula for
calculating  such RBC  requirements,  set forth in  instructions  adopted by the
NAIC, is designed to take into account asset risks,  insurance  risks,  interest
rate risks and other  relevant  risks with  respect to an  individual  insurance
company's business.  Under these laws, an insurance company must submit a report
of its  RBC  level  to the  State  Corporation  Commission  as of the end of the
previous calendar year.

The Virginia RBC requirements  categorize  insurance  companies according to the
extent to which they meet or exceed  certain RBC  thresholds.  The law  requires
increasing  degrees of  regulatory  oversight and  intervention  as an insurance
company's RBC declines.  The level of regulatory oversight ranges from requiring
the insurance company to inform and obtain approval from the Virginia  Insurance
Commissioner  of a  comprehensive  financial  plan  for  increasing  its  RBC to
mandatory  regulatory  intervention  requiring an insurance company to be placed
under regulatory control in a rehabilitation or liquidation proceeding.

As of December 31, 1997, the RBC levels of Trigon  Insurance,  Trigon Health and
Life, and Mid-South, as calculated in accordance with the NAIC RBC instructions,
exceeded all RBC thresholds.

RESTRICTIONS ON DIVIDENDS. In the event the Company determines to pay dividends,
the  principal  source  of  funds  to pay  dividends  to  stockholders  would be
dividends  received  by the  Company  from its  subsidiaries,  including  Trigon
Insurance.  Virginia  insurance  laws and  regulations  restrict  the payment of
extraordinary  dividends declared by insurance companies,  including health care
insurers such as Trigon  Insurance,  in a holding company  system.  An insurance
company is prohibited  from paying an  extraordinary  dividend unless it obtains
the approval of the State Corporation  Commission.  An extraordinary dividend is
one which,  together with the amount of dividends and distributions  paid by the
insurance company during the immediately preceding 12 months, exceeds the lesser
of  (i)  10% of the  insurance  company's  surplus  to  policyholders  as of the
preceding  December  31st  or (ii)  the  insurance  company's  net  income  (not
including realized capital gains) for the preceding calendar year.  Further,  an
insurance company may not pay a dividend unless, after such payment, its surplus
to  policyholders  is reasonable in relation to its outstanding  liabilities and
adequate to meet its financial needs. The State Corporation Commission may bring
an action to enjoin or rescind  payment of any  dividend  or  distribution  that
would cause the insurance  company's  statutory  surplus to be  unreasonable  or
inadequate. The maximum amount available after certain dates in 1998 for payment
of dividends by Trigon  Insurance to the Company  without the prior  approval of
the State Corporation Commission is $61.8 million.

North Carolina,  Mid-South's  domiciliary state, similarly restricts the payment
of dividends by their domiciliary insurance companies.

ASSESSMENTS AGAINST INSURERS.  Under insolvency or guaranty  association laws in
most states,  insurance  companies  can be assessed for amounts paid by guaranty
funds for policyholder  losses incurred by insolvent insurance  companies.  Most
state insolvency or guaranty association laws, including  Virginia's,  currently
provide for assessments  based upon the amount of premiums received on insurance
underwritten within such state (with a minimum amount payable where Mid-South is
licensed even if no premium is received). Substantially all of Trigon's premiums
are currently derived from insurance underwritten in Virginia.

Under the Virginia Life,  Accident and Sickness Insurance  Guaranty  Association
(the  "Association")  Act,  assessments  against insurance companies which issue
policies of accident or sickness insurance,  such as Trigon Insurance,  are made
retrospectively  and are based (up to  prescribed  limits) upon the ratio of (i)
the insurance  company's  premiums  received in Virginia over the previous three
calendar years on accident and sickness insurance,  to (ii) the aggregate amount
of premiums received by all assessed member insurance  companies over such three
calendar  years on  accident  and  sickness  insurance.  The  guaranty  fund and
assessments made under the act are  administered by the  Association,  which has
its own board of directors  selected by member insurers with the approval of the
State  Corporation  Commission.  An assessment  may be abated or deferred by the
Association if, in the opinion of the board,  payment would endanger the ability
of the member to  fulfill  its  contractual  obligations,  but the other  member
insurers may be assessed for the amount of such abatement or deferral.  Any such
assessment paid by a member insurance  company may be offset against its premium
tax  liability to the  Commonwealth  of Virginia in each  succeeding  year in an
amount not to exceed 0.05 (one  twentieth) of one percent of the member's direct
gross

                                   14
<PAGE>

premium income for the class of insurance for which the insurer is assessed. The
amount and  timing of any  future  assessments,  however,  cannot be  reasonably
estimated  and are beyond the control of the Company.  During 1997,  legislation
was enacted in Virginia that changed the  methodology by which these amounts are
offset against the premium tax liability.  Any assessments  issued after January
1, 1998 will be offset  against the premium tax liability  over the ten calendar
years following the year of the payment,  in amounts equal to ten percent of the
amount paid.

VIRGINIA'S OPEN  ENROLLMENT  PROGRAM.  The  Commonwealth of Virginia has an open
enrollment  program  pursuant  to which  Trigon  Insurance  is required to offer
comprehensive  accident and sickness insurance  contracts to individuals without
imposition  of certain  underwriting  criteria  that would deny  coverage on the
basis of medical  condition,  age or  employment  status.  As an  incentive  for
participating  in the open enrollment  program,  Trigon  Insurance pays Virginia
premium tax of  three-fourths  of one percent (0.75%) on premiums  received from
individual  accident and  sickness  insurance  rather than the general  Virginia
premium tax of two and one fourth percent (2.25%). This general Virginia premium
tax applies to  accident  and  sickness  insurance  premiums  received by Trigon
Insurance  from group  business.  Prior to January 1, 1998,  policies  issued to
small  employers were also part of the open  enrollment  program.  Subsequent to
health care reform  legislation in 1997, all carriers  offering  coverage in the
small group  market are  required to issue any policy in its small group  market
portfolio to any small employer that wants to purchase the product.  To withdraw
from the open enrollment program,  Trigon Insurance would be required to give 24
months advance notice of withdrawal to the State Corporation Commission.

BANKRUPTCY AND INSOLVENCY. In the event of a default on any debt incurred by the
Company or the bankruptcy of the Company,  the creditors and stockholders of the
Company would have no right to proceed against the assets of Trigon Insurance or
any other  subsidiary  of the  Company.  If Trigon  Insurance  were subject to a
rehabilitation  or liquidation  proceeding,  such proceeding would be brought by
the State Corporation Commission which would act as the receiver with respect to
such  insurance  company's  property  and  business.  All  creditors  of  Trigon
Insurance,  including,  without  limitation,  members  and, if  applicable,  the
various state guaranty  associations,  would be entitled to payment in full from
such assets before the Company,  as a stockholder,  would be entitled to receive
any distributions therefrom.

THE BLUE CROSS BLUE SHIELD LICENSE

The Company and its  subsidiaries  have the exclusive  right to use certain Blue
Cross and Blue Shield  service marks and  tradenames  for all of their plans and
products throughout Virginia other than a small portion of the northern Virginia
suburbs  adjacent to Washington,  D.C. The license  requires a fee to be paid to
BCBSA  equal to total  association  expenses  allocated  to  members  based upon
enrollment and premium.  BCBSA is a national trade association of Blue Cross and
Blue Shield licensees,  the primary function of which is to promote and preserve
the  integrity of the Blue Cross and Blue Shield name and service  marks as well
as provide certain  coordination among plan and provider services.  BCBSA has 55
primary licensee  members,  each of which holds exclusive rights to use the Blue
Cross  and/or Blue Shield name and service  mark in specific  geographic  areas,
subject  to annual  licensing  fees and  certain  other  guidelines.  Each BCBSA
licensee  is an  independent  legal  organization  and  is not  responsible  for
obligations of other BCBSA member organizations.

The Company has no right to use the Blue Cross and Blue Shield service marks and
tradenames  outside  of its  designated  territory  within the  Commonwealth  of
Virginia.  The Company and its  subsidiaries  intend to conduct their businesses
outside of Virginia under the name "Trigon" without  reference to the Blue Cross
and Blue Shield service marks and tradenames.

Under the Company's  license  agreement with BCBSA,  an  institutional  investor
(generally  defined as an entity  identified  in Rule  13d-1(b)  (1) (ii) of the
rules and regulations under the Securities  Exchange Act of 1934 and which makes
certifications required by item 10 of SEC Schedule 13G) may own up to 10% of the
outstanding voting securities of the Company. All other stockholders are subject
to a 5% ownership limitation.  Ownership by any stockholder of voting securities
in excess of such limits would subject the Company to automatic  termination  of
its license.
                                   15

<PAGE>


The Company's  Articles of  Incorporation  contain certain  provisions which are
intended to prevent any holder from acquiring shares in excess of the limits set
forth in the Company's  license  agreement.  However,  there can be no assurance
that a court would enforce these  provisions,  or that if these  provisions were
not enforced that the Company would retain the license from BCBSA.  If the BCBSA
license were to be terminated,  there would be a material  adverse effect on the
Company's  business  and  operations,  which the Company does not believe it can
meaningfully quantify.

The license  agreements between BCBSA and its licensees prohibit a licensee from
entering into certain  transactions  which would result in an unlicensed  entity
obtaining  control of the  licensee or  acquiring a  substantial  portion of the
licensee's  assets  related to  services  provided  under the Blue Cross or Blue
Shield service marks. The license agreements also require that a licensee pay to
BCBSA a specific amount upon  termination of the license  agreement,  subject to
certain limited  exceptions.  The amount payable upon termination of the license
agreement is equal to $25  multiplied  by the number of the  licensee's  members
receiving products or services sold or administered under the Blue Cross or Blue
Shield service marks, subject to reduction to the extent the payment of such fee
would cause such licensee to fall below certain capital requirements established
by the BCBSA.

RATING

Trigon Insurance,  HealthKeepers and PHP are each presently assigned a rating of
"A" (Excellent) by A.M. Best Company. Mid-South, Trigon Health and Life, PHC and
Priority  Health Care,  Inc. are each presently  assigned an A.M. Best rating of
"A-" (Excellent).  A.M. Best's ratings of "A" and "A-" are assigned to companies
which have, on balance, excellent financial strength,  operating performance and
market  profile when  compared to the  standards  established  by the A.M.  Best
Company.  It is the opinion of A.M.  Best  Company  that such  companies  have a
strong ability to meet their ongoing obligations.  Such ratings are not directed
to the protection of investors and are subject to review and change over time.

EMPLOYEES

As of  December  31,  1997,  the  Company  had 3,583  full-time  employees.  The
employees  are  primarily  located  in  Richmond  and  Roanoke,  Virginia,  with
employees  also  located in  Illinois,  Maryland,  Georgia,  New  Jersey,  North
Carolina,   Pennsylvania,  South  Carolina,  Texas,  Washington  D.C.  and  West
Virginia. The Company believes that its relationship with its employees is good.
No employees are subject to collective bargaining agreements.


EXECUTIVE OFFICERS

<TABLE>
<CAPTION>



Name                             Age     Position
----                             ---     --------
<S> <C>

Norwood H. Davis, Jr.            58      Chairman of the Board and Chief Executive Officer

Thomas G. Snead, Jr.             44      President and Chief Operating Officer

John C. Berry                    60      Executive Vice President and Chief Operating
                                         Officer, Government and Individual Business Unit

Thomas R. Byrd                   40      Senior Vice President and Chief Financial Officer

Paul F. Nezi                     50      Senior Vice President, Marketing and Sales

J. Christopher Wiltshire         43      Senior Vice President, General Counsel and
                                         Corporate Secretary

</TABLE>



Norwood H. Davis,  Jr. joined Trigon  Insurance in 1968,  and was elected to the
Board of Directors in 1975.  Since 1989,  he has served as Chairman of the Board
and Chief  Executive  Officer.  He also  became  Chairman of the Company in June
1995.  Mr.  Davis is a  director  of Altris  Software,  Inc.  and Hilb,  Rogal &
Hamilton Co.

                                   16
<PAGE>


Thomas  G.  Snead,  Jr.  joined  Trigon  Insurance  in 1985.  He served as Group
Financial  Officer  from 1989 to 1990 and as  Senior  Vice  President  and Chief
Financial  Officer from 1990 to 1997. He became Treasurer of the Company in June
1995. He was elected to his current  position of President  and Chief  Operating
Officer of the Company in October 1997.

John C. Berry  joined  Trigon  Insurance in 1987.  He served as Chief  Operating
Officer of  Government  and  Individual  Business  from 1987 through 1989 and as
Senior Vice President and Chief  Operating  Officer of Government and Individual
Business  during 1990.  In 1991,  he was  appointed  to his current  position of
Executive  Vice  President  and  Chief  Operating   Officer  of  Government  and
Individual Business.

Thomas R. Byrd joined Trigon Insurance in 1991 as Director,  Financial Analysis.
In 1992, he was named Vice  President and  Controller,  a position he held until
1995 when he became Vice  President,  Financial  Planning and  Analysis.  He was
appointed to his current  position of Senior Vice President and Chief  Financial
Officer of the Company in November 1997.

Paul F. Nezi joined Trigon  Insurance in October 1996 as Senior Vice President,
Marketing and Underwriting. In 1997, he was named Senior Vice President,
Marketing and Sales. Prior to joining the Company, he served as Executive Vice
President,  Marketing,  Sales and Product Development of  ChoiceCare  in
Cincinnati,  Ohio since  1993.  Beginning  in November  1995,  he also served as
President of  ChoiceCare's Development  Division.  From 1991 through  1992,  he
served as Vice President and General Manager for the Advanced  Imaging  Products
group of AM Graphics, a division of AM International in Dayton, Ohio.

J. Christopher  Wiltshire joined Trigon Insurance in October 1996 as Senior Vice
President,  General Counsel and Corporate Secretary. He also became Secretary of
the Company in October  1996.  Prior to joining the Company,  he was employed by
the law firm,  McGuire,  Woods,  Battle & Boothe,  L.L.P. for 17 years, the last
nine years as partner.

SERVICE MARKS

The Company has registered and maintains  several service marks,  trademarks and
tradenames at the federal level, in the  Commonwealth of Virginia and in certain
other states.  "Trigon,"  "Keycare" and "HealthKeepers" are included among these
marks.  Although the Company considers its registered service marks,  trademarks
and tradenames  important in the operation of its business,  the business of the
Company is not dependent on any individual service mark, trademark or tradename.
For a  discussion  of the  Company's  license to use certain Blue Cross and Blue
Shield service marks and tradenames, see "The Blue Cross Blue Shield License."

FORWARD-LOOKING INFORMATION

The Private  Securities  Litigation  Reform Act of 1995 (the  "Act")  provides a
"safe harbor" for  forward-looking  statements,  so long as those statements are
identified as  forward-looking  and are  accompanied  by  meaningful  cautionary
statements  identifying  important  factors that could cause  actual  results to
differ materially from those discussed in the statement.  The Company desires to
take advantage of these safe harbor provisions. Certain information contained in
this Form 10-K is  forward-looking  within the meaning of the Act or  Securities
and Exchange  Commission  rules.  Words such as expects,  anticipates,  intends,
plans,  believes,  seeks or  estimates,  or variations of such words and similar
expressions  are also  intended to identify  forward-looking  statements.  These
forward-looking   statements  are  subject  to  significant   uncertainties  and
contingencies,  many of which are beyond the control of the  Company.  Set forth
below are certain  important  factors  that,  in  addition  to general  economic
conditions and other factors, some of which are discussed elsewhere in this Form
10-K, may affect these  forward-looking  statements  and the Company's  business
generally.

ESCALATING  HEALTH  CARE  COSTS AND THE  HEALTH  CARE  INDUSTRY.  The  Company's
profitability  depends in large part on accurately  predicting  and  effectively
managing health care costs.  Predicting medical costs is difficult partially due
to the variability of medical inflation.  Trigon continually reviews and adjusts
its premium

                                   17
<PAGE>

and benefit  structure to reflect its underlying  claims  experience and
revised actuarial data; however, several factors could adversely affect
the medical loss ratios.  Certain of these factors, which include
changes in health care practices,  inflation,  new  technologies,  major
epidemics,  natural disasters and malpractice litigation,  are beyond
any health plan's control and could  adversely  affect the Company's
ability to accurately predict and effectively control health care costs.

Competitive  price pressures in the health  insurance and managed care industry,
which  generally  result from the entry and exit of health care companies in the
marketplace,  historically  have  resulted in, or  contributed  to,  pricing and
profitability  cycles.  The  extent to which  recent  structural  changes in the
managed health care and health insurance industry have altered cyclical patterns
is uncertain.  There can be no assurance,  however,  that a continuation  of the
typical  cyclical  pattern will not adversely  affect the  profitability  of the
Company in the next few years.

COMPETITION. The health care industry is highly competitive both in Virginia and
in other states in the southeastern  and  mid-Atlantic  United States into which
the  Company  principally  intends to  expand.  See  "Competition".  There is no
assurance that the overall increased competition will not exert strong pressures
upon Trigon's profitability,  its ability to increase enrollment, or its ability
to successfully pursue growth in areas both within and outside of Virginia.

The trend in the health care  industry is toward both  vertical  and  horizontal
integration coupled with significant levels of managed care, principally through
HMOs. In the Company's  principal  geographic  market areas, HMOs have a smaller
share of the health  care market  than in other  areas of the  country,  but the
Company  believes that HMOs will capture an increasing  share of the health care
market.  The Company believes that it will be necessary to significantly  expand
its market share in the HMO market,  in part by successfully  transitioning  its
PAR and PPO members  into HMOs,  if it is to succeed in retaining a high overall
market share in its existing geographic markets.  There can be no assurance that
the Company will succeed in significantly expanding its market share in HMOs.

GOVERNMENT  REGULATION.  The Company and its subsidiaries are subject to federal
and state regulation. See "Regulation". Regulatory initiatives may be undertaken
in the future,  either as the federal or state  level,  to engage in  structural
reform of the health care  industry in order to reduce the  escalation in health
care costs or to make health care more  accessible.  Such reform,  if it occurs,
could adversely affect Trigon's results of operations or financial condition.

POTENTIAL RISKS ASSOCIATED WITH GROWTH THROUGH ACQUISITIONS.  As a result of the
expansion of managed care  companies  into  Virginia  and the  southeastern  and
mid-Atlantic  regions of the United States,  the  competition to purchase health
care  companies  has  intensified,  which  in many  instances  has  resulted  in
significant increases in the costs of acquiring such companies,  and which could
affect the availability of attractive  acquisition  opportunities.  In addition,
the Company has no  significant  experience in expanding its managed health care
business  outside  Virginia.  There can be no  assurance  that the Company  will
successfully  identify or complete  acquisitions  or that any  acquisitions,  if
completed,  will perform as expected or will contribute  significant revenues or
profits to the Company.

The  Company's  ability  to expand  successfully  outside  of  Virginia  through
acquisitions or otherwise may be adversely  affected by its inability to use the
Blue Cross and Blue Shield service marks and trademarks outside of the Company's
licensed  territory in Virginia,  by the Company's  lack of  substantial  market
share or established  provider  networks outside of Virginia and by the presence
of competitors with strong market positions in these areas.

CONCENTRATION  OF BUSINESS IN  VIRGINIA.  While the  Company's  growth  strategy
includes  expansion outside Virginia,  for the foreseeable  future a significant
portion of the Company's revenues may be subject to economic factors specific to
Virginia.  Therefore,  there can be no assurance that a downturn in the Virginia
economy would not adversely affect the Company.

POTENTIAL  LOSS OF BLUE  CROSS AND BLUE  SHIELD  SERVICE  MARKS AND  TRADENAMES.
Trigon and the BCBSA are  parties to a license  agreement  pursuant to which the
Company and its subsidiaries  have the

                                   18
<PAGE>

exclusive right to use certain Blue Cross and Blue Shield  service marks
and  tradenames  for their  products throughout  Virginia other than
certain  northern  Virginia  suburbs adjacent to Washington,  D.C. See
"The Blue Cross Blue Shield License". If the BCBSA license were to be
terminated, there would be a material adverse effect on the Company's
business and operations,  which the Company does not believe it can
meaningfully quantify.

To the extent that the Company  continues  to use the Blue Cross and Blue Shield
service marks and tradenames in marketing its managed care  products,  there can
be no assurance  that any negative  publicity  concerning  BCBSA and other BCBSA
licenses  will not  adversely  affect the sales of the  Company's  managed  care
products and the Company's operations.

Item 2. Properties.

The Company is headquartered in Richmond,  Virginia,  where it owns a four-story
building with 265,000 square feet. The Company also owns an office  facility and
warehouse in Roanoke,  Virginia with 201,000 square feet and an office  facility
in  Fayetteville,  North Carolina with 71,000 square feet. The Company leases an
additional 428,000 square feet at various other locations in Richmond, Virginia.
The  Company  also leases  space at two other  facilities  in Roanoke,  Virginia
comprising 52,000 square feet.

The Company leases 73,000 square feet for regional offices  throughout  Virginia
and 22,000  square  feet for office  space in  Maryland,  North  Carolina,  West
Virginia, Pennsylvania, Texas and South Carolina.

Item 3. Legal Proceedings.

The  Company  is the  defendant  in  three  lawsuits  that  have  been  filed by
self-funded  employer  groups in connection  with the Company's  past  practices
regarding provider discounts.  The suits claim that the Company was obligated to
credit  each  self-funded  plan with the full amount of the  discounts  that the
Company  negotiated with facilities  providing health care to members covered by
the plans.  Collectively,  the suits seek $1.3 million in  compensatory  damages
plus unspecified  punitive and other damages.  The Company is also presently the
subject of four  other  claims by  self-funded  employer  groups  related to the
Company's past practices  regarding  provider  discounts,  some of which involve
larger amounts of withheld  discounts.  The Company is communicating  with these
groups,  and lawsuits have not been filed in connection  with these claims.  The
Company believes that additional discount-related claims may be made against it.
Although the ultimate outcome of such claims and litigation cannot be estimated,
the Company believes that the discount-related  claims and litigation brought by
these self-funded employer groups will not have a material adverse effect on the
consolidated financial condition of the Company.

The Company and certain of its  subsidiaries are involved in other various legal
actions  occurring in the normal course of business.  While the ultimate outcome
of such litigation cannot be predicted with certainty, in the opinion of Company
management, after consultation with counsel responsible for such litigation, the
outcome of those  actions is not expected to have a material  adverse  effect on
the consolidated financial condition of the Company.

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

Not applicable.

                                     PART II

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

Refer to page 30, "Market Prices of Common Stock and Dividend  Data",  of Trigon
Healthcare Inc.'s Annual Report to Shareholders, which is incorporated herein by
reference.

Refer  to  "Part  1 -  Business  --  Regulation  --  Insurance  Holding  Company
Regulation"  and "Part 1 - Business -- Regulation --  Restriction  on Dividends"
for  discussion  of  insurance   holding   company   regulations   and  dividend

                                   19
<PAGE>


restrictions.  In  addition,  under  the  terms of the  Company's  $300  million
revolving  credit  agreement,  the Company may not pay  dividends on the Common
Stock unless the aggregate of all dividends paid by the Company  plus  payments
to  purchase,  redeem or  otherwise  acquire capital  stock of the Company
(other than the  Commonwealth  Payment)  does not exceed the sum of (i)
$10,000,000  plus (ii) 50% of the  consolidated net income (or minus 100% of
consolidated  net loss) of the Company for the period from the effectiveness  of
the  Demutualization  through  the  end of the  most  recently completed fiscal
quarter, plus (iii) an amount (not to exceed $50,000,000) equal to  50% of  the
cumulative  cash  dividends  paid  out  of  income  of  certain subsidiaries  of
the Company earned prior to January 1, 1997 and received by the Company after
the date of the revolving credit agreement and before December 31, 1997.

Item 6. Selected  Financial Data.

Refer to pages 22 and 23 of Trigon  Healthcare Inc.'s  Annual  Report  to
Shareholders,   which  are  incorporated  herein  by reference.

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

Refer to pages 24 through 30, "Management's Analysis of Operating Results",  of
Trigon Healthcare Inc.'s Annual Report to Shareholders,  which are incorporated
herein by reference.


Item 7a. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable for 1997.


Item 8. Financial  Statements and Supplementary  Data.

Refer to pages 31 through 55, the  Consolidated  Financial  Statements,  page
56,  "Independent  Auditors' Report",  and page 21,  "Quarterly  Financial
Data", of Trigon Healthcare Inc.'s Annual Report to Shareholders,  which are
incorporated herein by reference.

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

Not applicable.

PART III

Item 10. Directors and Executive  Officers of the Registrant.

Refer to pages  1  through  3,  "Election  of  Directors",  and  page 6,
"Section  16(a) Beneficial  Ownership Reporting  Compliance",  of the Company's
definitive Proxy Statement  dated March 27,  1998,  which are  incorporated
herein by  reference solely as they relate to the Directors of the Company.

Pursuant to General  Instruction G(3) to Form 10-K,  information as to executive
officers of the Company is set forth in Part I of this Form 10-K.  See "Part 1 -
Business -- Executive Officers."

Item 11. Executive Compensation.

Refer to pages 7 through 12, "Compensation of Executive Officers",  of the
Company's definitive Proxy Statement dated March 27, 1998, which are
incorporated herein by reference solely as they relate to this item.

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

Refer to  pages  3 and 4,  "Beneficial  Ownership  of  Securities",  of the
Company's definitive Proxy Statement dated March 27, 1998,  which are
incorporated  herein by reference solely as they relate to this item.

Item 13.  Certain  Relationships  and Related  Transactions.

R. Gordon Smith, a director  of the  Company,  is a partner  of  McGuire, Woods,
Battle & Boothe, L.L.P.,  a law firm which  regularly  provides legal services
to the Company and its subsidiaries.

                                   20
<PAGE>


PART IV

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

 (a) The following documents are filed as part of this report.

      1. Consolidated Financial Statements from Trigon Healthcare Inc.'s
         Annual Report to Shareholders are incorporated  herein by
         reference in Item 8:

           --  Consolidated  Balance Sheets as of December 31, 1997 and 1996
               (page 31)

           --  Consolidated Statements of Operations  for the years ended
               December 31, 1997, 1996 and 1995 (page 32)

           --  Consolidated  Statements of Changes in Shareholders'  Equity for
               the years ended December 31, 1997, 1996 and 1995 (page 33)

           --  Consolidated  Statements of Cash Flows for the years ended
               December  31,  1997,  1996 and 1995 (page 34)

           --  Summary of Significant  Accounting Policies (pages 35
               through 38)

           --  Notes to Consolidated  Financial  Statements (pages 39 through
               55)

           --  Independent Auditors' Report (page 56)

       2.  Financial statement schedules

           Independent Auditors' Report on Financial
             Statement Schedule.......................(filed herein on page S-1)

           Schedule I - Condensed Financial Information of Registrant (parent
             only) as of December 31, 1997 and for the period February 5, 1997
             through December 31, 1997 (filed herein on pages S-2 - S-6)

       3.  Exhibits. The following is a list of exhibits to this Form 10-K.

<TABLE>
<CAPTION>

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


      2       --  Amended and Restated Plan of Demutualization. (1)
    3.1       --  Amended and Restated Articles of Incorporation of Trigon Healthcare, Inc. (1)
    3.2       --  Amended and Restated Bylaws of Trigon Healthcare, Inc. (2)
    3.3       --  Articles of Amendment to Amended and Restated Articles of Incorporation setting forth the designation,
                  preferences and rights of Series A Junior Participating
                  Preferred Stock of Trigon Healthcare, Inc. dated July 16,
                  1997. (4)
      4       --  Form of Stock Certificate (other Instruments Defining the Rights of Security-Holders). (1)
    4.1       --  Rights Agreement dated as of July 16, 1997 between Trigon Healthcare, Inc. and
                  First Chicago Trust Company of New York, as Rights Agent. (4)
    4.2       --  Form of Rights Certificate. (4)
   10.1       --  License Agreement by and between the Blue Cross Blue Shield Association and the Company. (2)
                           (a)  Blue Cross license
                           (b)  Blue Shield license
   10.2       --  Limited Fixed Return Plan for Certain Officers and Directors of the Company. (1) *
   10.4       --  Non-Contributory Retirement Program for Certain Employees of the Company. (1) *
   10.5       --  Supplemental Executive Retirement Program for Certain Employees of the Company. (1) *
   10.6       --  Salary Deferral Plan for Norwood H. Davis, Jr.. (1) *
   10.7       --  Amended and Restated Employment Agreement dated January 2, 1998 by and between the Company and
                  Norwood H. Davis, Jr.. *
   10.9       --  Employee Thrift Plan of the Company. (1)*
   10.10      --  401(k) Restoration Plan of the Company . (1) *
   10.11      --  First Amendment to the Employee Thrift Plan of the Company, dated as of February 19, 1997. (2) *
   10.12      --  Form of Employment Agreement dated as of December 12, 1990 by and between the Company and
                  John C. Berry and certain other executive officers. (1) *

                                   21
<PAGE>

   10.14      --  Credit Agreement dated as of February 5, 1997 among Trigon Healthcare, Inc.,
                  the banks party thereto and  Morgan Guaranty Trust Company of
                  New York, as Agent. (2)
   10.15      --  1997 Stock Incentive Plan (6).*
   10.16      --  Employee Stock Purchase Plan (6).*
   10.17      --  Non-Employee Directors Stock Incentive Plan (6).*
   10.18      --  Amendment to the License Agreement by and between the Blue Cross Blue Shield Association and the Company. (5)
   10.19      --  Amendment to the Non-Contributory Retirement Program for Certain Employees of Trigon Insurance Company. *
   10.20      --  Form of Executive Continuity Agreement dated as of April 29, 1997 between Trigon Insurance Company
                  and certain executive officers. (3) *
   10.21      --  Form of Executive Continuity Agreement dated as of April 29, 1997 between Trigon Insurance Company and
                  John C. Berry and certain other executive officers. (3) *
  11          --  Computation of per share earnings.  Refer to pages 50 and 51,
                  "Note 14.  Net Income and Pro Forma Net Income Per Share", of
                  Trigon Healthcare Inc.'s Annual Report to Shareholders, which
                  are incorporated herein by reference.
  13          --  Excerpts from the Company's Annual Report to Shareholders for the year ended December 31, 1997.
  21          --  Subsidiaries of the Registrant.
  23.1        --  Consent of KPMG Peat Marwick LLP.
  27          --  Financial Data Schedule


(1)  Incorporated by reference to exhibits filed with the Company's Registration Statement on
     Form S-1 (registration number 333-09773).
(2)  Incorporated by reference to exhibits filed with the Company's Form 10-K for the year ended December 31, 1997.
(3)  Incorporated by reference to exhibits filed with the Company's Form 10-Q for the period ended March 31, 1997.
(4)  Incorporated by reference to exhibits filed with the Company's Form 8-A/A filed on July 16, 1997.
(5)  Incorporated by reference to exhibits filed with the Company's Form 10-Q for the period ended September 30, 1997.
(6)  Incorporated by reference to exhibits filed with the Company's Proxy Statement dated March 13, 1997.
 *   Management contract or compensatory plan or arrangement required to be filed as an exhibit to this
     Form 10-k pursuant to Item 14(c) of  this Form 10-K.
</TABLE>

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.

                                   22
<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, in the County of Henrico,
Commonwealth of Virginia, on March 30, 1998.

                                          TRIGON HEALTHCARE, INC.


                                           By:  /s/ THOMAS R. BYRD
                                                ------------------
                                                  THOMAS R. BYRD

                                            Title:     SENIOR VICE PRESIDENT AND
                                                         CHIEF FINANCIAL OFFICER

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

<TABLE>
<CAPTION>



        SIGNATURE                              TITLE                                    DATE
        ---------                              -----                                    ----
<S> <C>

/s/ NORWOOD H. DAVIS, JR.               Chairman (Principal Executive Officer)      March 24, 1998
----------------------------
NORWOOD H. DAVIS, JR.


/s/ THOMAS R. BYRD                      Senior Vice President and Chief
----------------------------            Financial Officer  (Principal Financial
THOMAS R. BYRD                          and Accounting Officer)
                                                                                    March 30, 1998


/s/ LENOX D. BAKER, JR.                 Director                                    March 21, 1998
----------------------------
LENOX D. BAKER, JR., M.D.


/s/ JAMES K. CANDLER                    Director                                    March 23, 1998
----------------------------
JAMES K. CANDLER


/s/ JOHN COLE, JR.                      Director                                    March 23, 1998
----------------------------
JOHN COLE, JR., M.D.


/s/ ROBERT M. FREEMAN                   Director                                    March 25, 1998
----------------------------
ROBERT M. FREEMAN


<PAGE>


        SIGNATURE                              TITLE                                             DATE
        ---------                              -----                                             ----

/s/ WILLIAM R. HARVEY                   Director                                    March 26, 1998
----------------------------
WILLIAM R. HARVEY, Ph.D.


/s/ ELIZABETH G. HELM                   Director                                    March 25, 1998
----------------------------
ELIZABETH G. HELM


/s/ GARY A. JOBSON                      Director                                    March 20, 1998
----------------------------
GARY A. JOBSON


/s/ FRANK C. MARTIN, JR.                Director                                    March 23, 1998
----------------------------
FRANK C. MARTIN, JR.


/s/ DONALD B. NOLAN                     Director                                    March 27, 1998
----------------------------
DONALD B. NOLAN, M.D.


/s/ WILLIAM N. POWELL                   Director                                    March 20, 1998
----------------------------
WILLIAM N. POWELL


/s/ J. CARSON QUARLES                   Director                                    March 25, 1998
----------------------------
J. CARSON QUARLES


/s/ R. GORDON SMITH                     Director                                    March 25, 1998
----------------------------
R. GORDON SMITH


/s/ HUBERT R. STALLARD                  Director                                    March 24, 1998
----------------------------
HUBERT R. STALLARD


/s/ JACKIE M. WARD                      Director                                    March 23, 1998
----------------------------
JACKIE M. WARD


/s/ STIRLING L. WILLIAMSON, JR.   Director                                          March 20, 1998
----------------------------
STIRLING L. WILLIAMSON, JR.


</TABLE>


<PAGE>


                         Independent Auditors' Report on
                          Financial Statement Schedule




The Board of Directors
Trigon Healthcare, Inc.:

Over date of February 4, 1998, we reported on the consolidated balance sheets of
Trigon Healthcare, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related financial
statement schedule included in this annual report on Form 10-K. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.

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


/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP


Richmond, Virginia
February 4, 1998

                                      S-1

<PAGE>

                                                                      SCHEDULE I

                    TRIGON HEALTHCARE, INC. AND SUBSIDIARIES
         CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)

                                  Balance Sheet
                                December 31, 1997
                                 (In thousands)

<TABLE>
<CAPTION>



                        Assets                                                 1997
                        ------                                            ----------------
<S> <C>

 Current assets
      Cash                                                                $             1
      Investment securities, at estimated fair value                               81,364
      Premiums and other receivables                                                2,569
                                                                          ----------------
           Total current assets                                                    83,934
                                                                          ----------------

 Investment in subsidiaries                                                       960,418
 Other assets                                                                         425
                                                                          ----------------
              Total assets                                                 $    1,044,777
                                                                          ================

                    Liabilities and Shareholders' Equity
                    ------------------------------------
 Current liabilities
      Accounts payable and accrued expenses                                $          562
      Deferred income taxes                                                           389
      Payable to affiliates                                                            89
                                                                          ----------------
         Total current liabilities                                                  1,040
                                                                          ----------------

 Long-term debt                                                                    85,000
                                                                          ----------------
              Total liabilities                                                    86,040
                                                                          ----------------

 Shareholders' equity
      Common stock,$0.01 par; 42,300 shares issued and outstanding                    423
      Capital in excess of par                                                    842,035
      Retained earnings                                                            78,982
      Net unrealized gain on investment securities,
         net of deferred income taxes of $20,083 in 1997                           37,297
                                                                          ----------------
               Total shareholders' equity                                         958,737

 Commitments and contingencies                                                          -
                                                                          ----------------
               Total liabilities and shareholders' equity                 $      1,044,777
                                                                          ================



</TABLE>

 See accompanying independent auditors' report and notes to condensed
 financial information.






                                      S-2


<PAGE>


                                                                      SCHEDULE I

                    TRIGON HEALTHCARE, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY), CONTINUED

                             Statement of Operations
            For the Period February 5, 1997 through December 31, 1997
                                 (In thousands)


                                                                       1997
                                                                       ----
Revenues
    Investment income                                                $    4,358
    Net realized losses                                                    (105)
    Cash dividends from subsidiaries                                     50,000
                                                                     -----------
           Total revenues                                                54,253

Expenses
    Selling, general and administrative expenses                          1,742
    Interest expense                                                      4,601
                                                                      ----------
           Total expenses                                                 6,343
                                                                      ----------

Income before income taxes and equity in undistributed                   47,910
    net income of subsidiaries

    Income tax benefit                                                     (868)
                                                                      ----------
Income before equity in undistributed net income
    of subsidiaries                                                       48,778

Equity in undistributed net income of subsidiaries                        30,204
                                                                      ----------

Net income                                                           $    78,982
                                                                     ===========



 See accompanying independent auditors' report and notes to condensed
 financial information.




                                      S-3



<PAGE>

                                                                      SCHEDULE I

                    TRIGON HEALTHCARE, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY), CONTINUED

                  Statement of Changes in Shareholders' Equity
            For the Period February 5, 1997 through December 31, 1997
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                                   Unrealized
                                                                                                 gains (losses)
                                                    Common       Capital in        Retained       on investment
                                                    stock       excess of par      earnings      securities, net     Total
                                                    -----       -------------     --------       ---------------     -----
<S> <C>
   Balance at January 1, 1997                       $   -       $       -         $      -        $      -        $       -

   Undistributed earning of subsidiaries
      before Demutualization and IPO                    -               -          722,330          33,521          755,851
   Issuance of 24,475,022 shares to eligible
      policyholders in the Demutualization and
      cash payment to eligible policyholders in
      lieu of shares of common stock                  245         630,941         (722,330)              -          (91,144)
   Issuance of 17,825,000 shares in the Initial
      Public Offerings, net of expenses               178         215,027                -               -          215,205
   Other, principally shares held by
      consolidated grantor trusts                       -          (3,933)               -                           (3,933)
   Net income after Demutualization                                                 78,982               -           78,982
   Change in unrealized gains (losses)
      on investment securities, net                     -               -                -           3,776            3,776
                                                  --------  --------------   --------------  --------------    -------------

   Balance at December 31, 1997                     $ 423       $ 842,035         $ 78,982        $ 37,297        $ 958,737
                                                  =======  ==============   ==============  ==============    =============

</TABLE>




 See accompanying  independent auditors' report and notes to condensed
 financial information.


                                      S-4


<PAGE>

                                                                      SCHEDULE I

                    TRIGON HEALTHCARE, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY), CONTINUED

                             Statement of Cash Flows
            For the Period February 5, 1997 through December 31, 1997
                                 (in thousands)

                                                                        1997
                                                                   -------------
Net income                                                         $     78,982
    Adjustments to reconcile net income to net cash
      provided (used) by operating activities
          Accretion of discounts and amortization of premiums, net         (129)
          Undistributed earnings of subsidiaries                        (30,204)
          Increase in accounts receivable                                (2,569)
          Increase in other assets                                         (425)
          Increase in accounts payable and accrued expenses                 562
          Payment of obligation for commonwealth payment               (175,000)
          Change in deferred income taxes                                    53
          Increase in payable to affiliates                                  89
          Realized investment losses (net)                                  105
                                                                   -------------
              Net cash provided by operating activities                (128,536)

    Cash flows from investing activities:
      Investment securities purchased                                  (214,562)
      Proceeds from investment securities sold                           77,002

      Maturities of fixed income securities                              57,180
                                                                   -------------
              Net cash used by investing activities                     (80,380)

    Cash flows from financing activities:
      Proceeds from long-term debt                                       85,000
      Net proceeds from issuance of common stock                        215,205
      Net payments from issuance of common stock under
          employee benefit plans                                           (144)
      Payments to members in lieu of common stock
          pursuant to Plan of Demutualization                           (91,144)
                                                                   -------------
              Net cash provided by financing activities                 208,917
                                                                   -------------

Net increase in cash                                                          1

Cash - beginning of year                                                      -

                                                                   =============
Cash - end of year                                                 $          1
                                                                   =============

Cash paid during the year for
                                                                   =============
    Interest                                                       $      4,344
                                                                   =============




See accompanying independent auditors' report and notes to condensed
financial information.



                                       S-5

<PAGE>


                                                                      SCHEDULE I
                             TRIGON HEALTHCARE, INC.
 CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT ONLY), CONTINUED

      Notes to Condensed Financial Information of Registrant (Parent Only)


The condensed financial information provided should be read in conjunction with
the Consolidated Financial Statements incorporated by reference in Part II,
Section 8 of this Form 10-K and the following notes:

(a)   Basis of Presentation

      The accompanying condensed financial information reflects the financial
      position as of December 31, 1997 and the results of operations, changes in
      shareholders' equity and cash flows for the period after the
      Demutualization and Initial Public Offering, February 5, 1997 through
      December 31, 1997. The Registrant had no operations prior to February 5,
      1997, the date it became the holding company. Refer to note 1 to the
      consolidated financial statements for details regarding the
      Demutualization and Initial Public Offering.

(b)   Long-Term Debt

          The  information  about  long-term  debt  contained  in Note 11 of the
          notes to the  consolidated  financial  statements is incorporated
          herein by reference.

(c)   Cash and Stock Dividends

         During 1997, a subsidiary of the Registrant, Trigon Insurance Company,
         received permission from the Virginia Bureau of Insurance to pay a
         $238.7 million dividend to the Registrant, consisting of $188.7 million
         in stock of a wholly-owned subsidiary and $50 million in cash. This
         dividend was effected on July 31, 1997.

                                      S-6


<PAGE>


EXHIBIT INDEX

Exhibit

Number                     Description

   10.7       --  Amended and Restated Employment Agreement dated January 2,
                  1998 by and between the Company and Norwood H. Davis, Jr.

  10.19       --  Amendment to the Non-Contributory Retirement Program for
                  Certain Employees of Trigon Insurance Company

     13       --  Excerpts from the Company's Annual Report to Shareholders for
                  the year ended December 31, 1997.

     21       --  Subsidiaries of the Registrant.

   23.1       --  Consent of KPMG Peat Marwick LLP.

     27       --  Financial Data Schedule.