<PAGE>
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549
                            ------------------------

                                   FORM 10-K
                                 ANNUAL REPORT

(MARK ONE)

<TABLE>
<C>        <S>
   /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                                       OR

<TABLE>
<C>        <S>
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

        FOR THE TRANSITION PERIOD FROM ______________ TO ______________

                         COMMISSION FILE NUMBER 0-8804
                            ------------------------

                         THE SEIBELS BRUCE GROUP, INC.

             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                 <C>
               SOUTH CAROLINA                                    57-0672136
      (State or other jurisdiction of                (IRS employer identification no.)
       incorporation or organization)
1501 LADY STREET (P.O. BOX 1) COLUMBIA, S.C.                      29201(2)
  (Address of principal executive offices)                       (Zip code)
</TABLE>

       Registrant's telephone number, including area code (803) 748-2000

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      None

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                    Common stock, par value $1.00 per share
                                (Title of class)
                            ------------------------

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

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant 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 and non-voting common equity held
by non-affiliates of the registrant as of March 15, 2001, based on the closing
sale price of the registrant's common stock, par value $1.00 per share, as
reported on the National Association of Securities Dealers Over-the-Counter
Bulletin Board on such date: $10,181,197.

    The number of shares outstanding of the registrant's common stock as of
March 15, 2001: 7,831,690.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                      DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the Registrant's proxy statement in connection with the annual
meeting of shareholders to be held May 9, 2001 are incorporated by reference
into Part III.

                               TABLE OF CONTENTS

<TABLE>
<S>       <C>                                                           <C>
Table of Contents.....................................................      i

Abbreviations.........................................................     ii

                                     PART I

Item 1.   Business....................................................      1

Item 2.   Properties..................................................     11

Item 3.   Legal Proceedings...........................................     11

Item 4.   Submission of Matters to a Vote of Security Holders.........     12

                                    PART II

Item 5.   Market for the Registrant's Common Stock and Related
          Security Holder Matters.....................................     12

Item 6.   Selected Financial Data.....................................     13

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................     15

Item 8.   Financial Statements and Supplementary Data.................     32

Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................     73

                                    PART III

Item 10.  Directors, Executive Officers, Promoters and Control Persons
          of the Registrant...........................................     74

Item 11.  Executive Compensation......................................     75

Item 12.  Security Ownership of Certain Beneficial Owners and
          Management..................................................     75

Item 13.  Certain Relationships and Related Transactions..............     76

                                    PART IV

Item 14.  Exhibits, Financial Statements, Schedules and Reports on
          Form 8-K....................................................     76

Signatures............................................................     80
</TABLE>

                                       i
<PAGE>
                                 ABBREVIATIONS

    The following abbreviations used in the text have the meaning set forth
below unless the context requires otherwise:

<TABLE>
<S>                 <C>
AFS                 America's Flood Services, Inc.

Catawba             Catawba Insurance Company

FASB                Financial Accounting Standards Board

FEMA                Federal Emergency Management Administration

GAAP                Generally Accepted Accounting Principles

Generali            Generali-U.S. Branch

Graward             Graward General Companies, Inc.

IBNR                Incurred-But-Not-Reported

INS                 Insurance Network Services, Inc.

Investors           Investors National Life Insurance Company of South Carolina

JUA                 Joint Underwriting Association

LAE                 Loss Adjustment Expenses

MGA                 Managing General Agent

NC Facility         North Carolina Reinsurance Facility

NAIC                National Association of Insurance Commissioners

NASDAQ              National Association of Securities Dealers Automated
                    Quotation System

NCDOI               North Carolina Department of Insurance

NFIP                National Flood Insurance Program

Norwest             Norwest Financial Resources, Inc.

OTC Bulletin Board  National Association of Securities Dealers Over-the-Counter
                    Bulletin Board

PBP                 Premium Budget Plan, Inc.

Premium             Premium Service Corporation of Columbia

QualSure            QualSure Insurance Corporation

RBC                 Risk-Based Capital

SAP                 Statutory Accounting Principles

The Company         The Seibels Bruce Group, Inc.

SBC                 Seibels, Bruce & Company

SCAAIP              South Carolina Associated Auto Insurers Plan

SCDOI               South Carolina Department of Insurance

SCIC                South Carolina Insurance Company

SC Facility         South Carolina Reinsurance Facility

UIC                 Universal Insurance Company

WYO                 Write-Your-Own
</TABLE>

                                       ii
<PAGE>
                                     PART I

ITEM 1.  BUSINESS

    CORPORATE PROFILE AND DEVELOPMENT OF BUSINESS

    (dollars in thousands except per share amounts)

    Tracing its roots to 1869, The Seibels Bruce Group, Inc. (the "Company") is
a provider of a wide range of services to the insurance industry as well as a
provider of automobile, flood and other property and casualty insurance
products. The Company is committed to providing quality customer service,
building strong relationships with its customers, developing and capitalizing on
territorial knowledge, and fostering the creativity and innovation of its
associates.

    The Company conducts business in two primary categories: fee-for-service
operations and traditional insurance operations. Its fee-for-service operations
include the activities of Insurance Network Services, Inc. ("INS"), its flood
operations, and its operations as a servicing carrier for the South Carolina
Reinsurance Facility ("SC Facility") and the South Carolina Associated Auto
Insurers Plan ("SCAAIP"). INS provides a variety of claims-related management
and adjudication services to the insurance industry, including claims handling,
networked glass claims handling and automobile appraisals. The Company's flood
unit is a leading provider, and is an original participant, in the National
Flood Insurance Program ("NFIP"), a flood insurance program administered by the
federal government. In this capacity, the Company writes flood insurance for the
NFIP in 46 states, and it offers excess flood insurance as a broker for Lloyd's
of London. As such, the Company receives commissions and fees from the NFIP and
Lloyd's of London, but retains no underwriting risk. The Company's flood
operations also offers flood zone determinations and flood compliance tracking
services through its subsidiary, America's Flood Services, Inc. ("AFS"). The
Company is a servicing carrier for the SC Facility and the SCAAIP. Under both of
these pools, the Company issues policies and adjusts claims for a fee. The SC
Facility is currently in runoff; however, the Company may continue to cede
premiums to the SC Facility through March 1, 2002, at which time final runoff of
the SC Facility will commence. The Company is required to continue to adjudicate
claims it ceded to the SC Facility during the final runoff, for which it will be
paid a fee. The SCAAIP became effective in March 1999 and will survive the SC
Facility. Although the SCAAIP offers the Company access to additional fee-based
revenue with no underwriting risk, thus far into the runoff of the SC Facility,
the Company has not experienced significant activity in the SCAAIP.

    The Company's traditional insurance operations include its North Carolina
nonstandard automobile subsidiary, Universal Insurance Company ("UIC"), and its
commercial lines operations. UIC writes nonstandard automobile insurance
primarily in the state of North Carolina. UIC cedes substantially all of its
liability premiums to the North Carolina Reinsurance Facility ("NC Facility")
and adjusts the related claims for the NC Facility for a fee. Substantially all
of UIC's retained risk operations is on physical damage policies, which are
minimum limit policies partially reinsured through a quota share reinsurance
agreement. The Company also writes commercial lines insurance, which includes
business owner's policies, commercial package policies and commercial automobile
policies. These "main street" policies are sold primarily to small businesses.
The Company reinsures its commercial lines through quota share, facultative,
excess of loss, catastrophe and umbrella reinsurance agreements.

    The Company seeks to balance its fee-based operations with selective risk
underwriting to increase the Company's value for its shareholders, agents and
employees by pursuing maximum growth with limited risk exposure.

                                       1
<PAGE>
    The net loss by business segment for 2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                                            2000       1999
                                                          --------   --------
<S>                                                       <C>        <C>
Automobile *............................................  $(15,245)  $(12,761)
Flood...................................................      (142)     1,066
Commercial..............................................      (247)       608
Adjusting services......................................     1,768      1,312
All other...............................................    (1,495)     2,239
                                                          --------   --------
  Net loss..............................................  $(15,361)  $ (7,536)
                                                          ========   ========
  Per share.............................................  $  (1.98)  $  (0.99)
                                                          ========   ========
</TABLE>

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

    * 2000 includes a net special items charge of $8,138 related to the
      discontinuation of the Nashville operations and the settlement of related
      preacquisition liabilities.

    Fiscal 2000 was a year of significant change for the Company. Beginning in
May 2000, the Company began a comprehensive review of the profitability
potential of each of its business segments. As a result of this review, the
Company concluded that it would discontinue two of its nonstandard automobile
insurance operations. In June 2000, the Company announced the discontinuation of
its Nashville operations under its subsidiary, Graward General Companies, Inc.
("Graward"). Of the $16,421 in special items charged to earnings in the second
quarter of 2000, $15,678 were non-cash items, including impairment of goodwill
associated with the Graward acquisition of $14,915. In July 2000, the Company
announced its planned withdrawal from the South Carolina voluntary nonstandard
automobile insurance market. Both the Graward and the South Carolina automobile
operations had suffered substantial operating losses in 1998 and 1999, with
indications that the losses would continue throughout 2000 and that neither
operation could become profitable in the foreseeable future. The substantial
losses from these two operations and the special items charges associated with
discontinuing the Graward operation were the single largest contribution to the
Company's consolidated net loss in 2000.

    The following table sets forth the sources of the Company's direct and net
written premiums for the years ended December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                      2000
                             -------------------------------------------------------
                               AUTO      FLOOD     COMMERCIAL   ALL OTHER    TOTALS
                             --------   --------   ----------   ---------   --------
<S>                          <C>        <C>        <C>          <C>         <C>
Direct written premium.....  $ 73,021   $38,348     $13,854       $(205)    $125,018
Net written premium........    20,195         7       4,071         124       24,397
                             ========   =======     =======       =====     ========
<CAPTION>
                                                      1999
                             -------------------------------------------------------
                               AUTO      FLOOD     COMMERCIAL   ALL OTHER    TOTALS
                             --------   --------   ----------   ---------   --------
<S>                          <C>        <C>        <C>          <C>         <C>
Direct written premium.....  $119,928   $34,355     $14,318       $   5     $168,606
Net written premium........    47,700        49      (1,530)          2       46,221
</TABLE>

    Sources of premium result from contractual processing with the SC Facility,
South Carolina voluntary nonstandard automobile insurance business, UIC in North
Carolina, Graward in Tennessee, flood business, commercial lines business and
runoff book premiums. Negative net written premium under the Commercial segment
in 1999 resulted from an unearned premium portfolio transfer associated with its
90% quota share reinsurance agreement effective March 31, 1999. This agreement
was amended to become a 70% quota share reinsurance agreement effective
April 1, 2000.

                                       2
<PAGE>
NONSTANDARD AUTOMOBILE

    The Company's consolidated net loss in 2000 is primarily related to its
nonstandard automobile insurance business. Due to high loss and expense ratios
in the Company's Nashville operation, and high loss ratios in its South Carolina
voluntary nonstandard automobile business, the Company concluded that these
operations could not become profitable in the foreseeable future. Therefore, the
Nashville operation was discontinued and the Company began its withdrawal from
the South Carolina voluntary nonstandard automobile insurance market. Though the
Company's UIC operations were also unprofitable in 2000, the Company believes
this operation has profitability potential in the foreseeable future and has
implemented profitability initiatives in the fourth quarter of 2000 and the
first quarter of 2001 to end the losses. The SC Facility began its three-year
run off March 1, 1999. Though the Company may no longer cede premiums to the SC
Facility after March 1, 2002, it is required to adjudicate claims it ceded to
the SC Facility during the final runoff, for which it will be paid a fee. The
Company also issues nonstandard automobile policies and adjusts claims for the
SCAAIP, a joint underwriting association ("JUA") formed to replace the SC
Facility. The Company is one of two servicing carriers for the SCAAIP. Although
the SCAAIP offers the Company access to additional fee-based revenue with no
underwriting risk, thus far into the runoff of the SC Facility the Company has
not experienced significant activity in the SCAAIP.

GRAWARD OPERATIONS

    During 2000, the Company discontinued its Nashville operations and placed
all of this business into runoff. Due to high loss ratios and an extremely high
expense structure, this operation had suffered substantial operating losses in
1998 and 1999, with indications that the losses would continue throughout 2000
without expectation that it could become profitable in the foreseeable future.
In the second quarter of 2000, the Company took a special items charge to
earnings of $16,421, $15,678 of which were non-cash items, including impairment
of goodwill associated with the Graward acquisition of $14,915. Other special
items charges associated with exiting the operation included the write-down of
certain fixed and operating assets, accrual of closure costs and accrual of
severance and other personnel-related costs. On August 1, 2000, the Company
moved all remaining business of the operation to its South Carolina headquarters
to complete the runoff of this book of business.

SOUTH CAROLINA NONSTANDARD AUTOMOBILE OPERATIONS

    The Company has been a servicing carrier for the SC Facility since its
creation in 1974. The SC Facility began its planned runoff effective March 1,
1999, at which time no new business was accepted into the SC Facility. Effective
October 1, 1999, voluntary renewals were no longer accepted by the SC Facility.
However, servicing carriers can still cede renewals to the SC Facility until
March 1, 2002, at which time final runoff of the SC Facility will commence.
During 1997, in contemplation of the runoff of the SC Facility, the Company
introduced a voluntary nonstandard automobile program in South Carolina. By the
end of 1999, direct written premium volume under this voluntary program had
escalated to $28,288. Such rapid growth customarily strains earnings and results
in higher than average loss ratios; however, the operation continued to
experience substantial losses and substantially higher than acceptable loss
ratios well into 2000, with no indication of reprieve. In July 2000, the Company
concluded that the operation could not generate profits in the foreseeable
future and, therefore, placed the business into runoff.

UIC OPERATIONS

    The North Carolina-based UIC operation began the year with favorable loss
ratios. However, during the fourth quarter of 2000, the operation began
experiencing a deterioration in its loss ratios. The deteriorated loss ratio,
coupled with an unfavorable quota share reinsurance agreement, are the primary
drivers of the operation's losses in 2000. Under the terms of the quota share
reinsurance

                                       3
<PAGE>
agreement, the Company must adjust the ceding commission received from the
reinsurer on a point-for-point sliding basis as the loss ratio surpasses a
defined threshold. When the loss ratio began to deteriorate late in 2000, the
Company accrued for the adjustment to the ceding commissions received from the
reinsurer. The Company has taken action to mitigate these losses and improve the
loss ratio in 2001 through the implementation of various rate increases. The
Company continually reevaluates both UIC's insurance rates and its quota share
reinsurance contract, which is due to terminate June 30, 2001.

FLOOD

    The Company's flood operations experienced substantial growth again in 2000.
The operation's 2000 written premium increased at a rate that surpassed that of
the NFIP, due primarily to obtaining several large books of flood business from
independent insurance agents across the United States. This was facilitated by
expanding the Company's product offering to independent agents and the
introduction of new technology to its agency force, including internet-based
policy rating and flood zone determination services.

    The Company's flood product line includes flood insurance, excess flood
insurance, flood zone determinations, claims processing and flood compliance
tracking services. The Company's basic flood insurance product is underwritten
by the NFIP, a federal government program that sets policy rates, bears risks
and pays claims. Working through its independent agents located across the
United States, the Company issues policies and processes claims on behalf of the
NFIP. The NFIP policies only cover losses up to $250 for residential buildings
and $100 for contents. Further, the NFIP commercial coverage is limited to $500
for either buildings or contents. The Company's excess flood insurance product
provides a level of protection above the NFIP's limits for residential and
commercial properties. The Company, as broker, receives commissions for placing
this business. The Company also believes that offering the excess flood product
allows it to improve its relationships with its agency force by offering them a
broader product portfolio.

    The Company, through AFS, offers the additional flood-related services of
flood zone determinations and flood zone mapping services to customers located
throughout the United States. These services are provided primarily to mortgage
originators to determine whether or not homes are located in flood zones and,
therefore, require flood insurance. These services allow the Company to offer a
more complete flood portfolio to both agents and financial institutions, provide
the Company with a stronger presence in the flood market and expand the channels
of distribution for the Company's complementary products.

    Claims processing has been a substantial source of revenues and earnings for
the Company over the past several years and is a weather-dependent component of
its flood operations. Whereas most property and casualty insurance companies
suffer losses during hurricanes and floods, the Company benefits strongly as a
fee-based processor of claims for the NFIP. Due to the relatively quiet 2000
hurricane season, the Company experienced a significant decrease in its claims
processing revenues over 1999. However, the Company continued to receive
commissions for premiums written for the NFIP. AFS provides the Company a
presence for flood claims processing on both coasts, an important element of
diversification and scale for weather-dependent operations.

COMMERCIAL LINES

    Commercial lines represents an important diversification for the Company,
further complementing its product offerings and enabling independent agents to
bundle its products for a more complete insurance portfolio. This
diversification makes the Company more attractive to agents, enabling them to
work with the Company to better serve their customers. The commercial lines
operation lost $247 in 2000, primarily due to high expense ratios associated
with a lower average premium. As the Company

                                       4
<PAGE>
continues to automate the commercial lines operation and look for ways to
increase its average premium, the operation is expected to once again become
profitable.

    During 1998, the Company accomplished its major strategic initiative in
commercial lines--converting from a managing general agent ("MGA") role to
retaining risk for commercial policies. The transition was a success, and
Seibels Bruce retained more than 75 percent of the policies it had originally
underwritten as an MGA. This is largely attributable to the long-standing
relationships the Company has developed with the commercial lines agents that
sell its products.

INSURANCE ADJUSTING

    The Company's premium concentration in the catastrophe-heavy Southeast led
to the 1996 creation of INS to manage the Company's internal claims. INS
currently offers a wide array of services: automobile appraisals, automobile
liability claims handling, catastrophe claims handling, claims administration,
direct reporting, general liability claims handling, glass claims handling,
property claims handling, subrogation and recovery and total loss claims
handling. These services expand the Company's business opportunities by allowing
it to offer services to other insurance companies. The Company's experience in
processing flood claims led to the award of two statewide Wind and Hail
Association contracts, a strong indication of its growing presence in the
catastrophe claims handling market.

    INS is an important part of the Company's corporate structure. It has over
50 unaffiliated customers and can accommodate claims services requests from
anywhere in the United States. INS claims representatives are differentiated
from their counterparts at traditional claims adjusting companies by having an
insurance company background, an important characteristic when equitably
settling claims.

    Effective January 21, 2000, three of the Company's insurance subsidiaries
made a combined investment totaling $4,900 in the common stock of QualSure
Holding Corporation, representing a combined ownership interest of 30.625%.
QualSure Holding Corporation owns 100% of the issued and outstanding stock of
QualSure Insurance Corporation ("QualSure"), a homeowners take out insurance
company domiciled in the state of Florida, and QualSure Underwriting
Agencies, Inc., an MGA for QualSure. QualSure was formed to take out
approximately 44,000 homeowners policies from the Florida Windstorm Underwriting
Association and approximately 40,000 homeowners policies from the Florida
Residential Property & Casualty Joint Underwriting Association. In connection
with this investment, INS entered into a Claims Administration Services
Agreement with QualSure to adjudicate all of its claims for a fee based upon
subject earned premium. The Company believes this investment capitalizes upon
its considerable experience in claims adjudication and will provide a
substantial source of additional fee-based income to supplement its risk bearing
operations.

ALL OTHER

    The Company continues to maintain reserves and pay significant claims with
respect to its runoff operations. These operations consist primarily of general
liability policies that include contractors' liability and environmental
coverages primarily in California and commercial (including workers'
compensation) and personal lines policies in the Southeast. The runoff of claims
on these policies created substantial losses to the Company over the past
10 years. In addition, the Company's runoff segment contains the management of
runoff reserves from prior business in the 1980's and runoff from a nonstandard
homeowners MGA book of business in Kentucky and Tennessee entered into in early
1997. The Company discontinued writing new business in this MGA book of business
in October of 1998.

                                       5
<PAGE>
OUTLOOK

    The Company continues with many of the same challenges. The SC Facility will
continue its runoff and have an adverse affect on the Company's commission and
service income opportunities. With regard to the Company's credit facility, it
must still demonstrate compliance with a number of affirmative and negative
covenants on a quarterly basis, including minimum statutory capital and surplus
levels, ratios of debt to total capitalization and cash flow coverage. While the
Company indeed continues to face considerable challenges in 2001, it now
operates without the significant losses generated by the unprofitable Nashville
and South Carolina automobile operations. Furthermore, INS continued its growth
in 2000 and is expecting additional growth in 2001 to partially offset the
Company's expected decrease in commission and service income. In addition, UIC
is under new management and is planning on significantly increasing its business
ceded to the NCRF, thereby increasing the Company's commission and service
income with no underwriting risk. The Company is also actively seeking other
fee-based opportunities in the insurance marketplace. Finally, in 2001 SCIC is
subject to the normal capital and surplus requirements enforced by the SCDOI and
it is management's opinion that the Company's amended affirmative and negative
covenants under its credit facility allow for the Company to be in compliance
within its 2001 Business Plan. Management is of the opinion that the Company's
operations will be profitable in 2001 and that it will be able to maintain
compliance with existing capital and surplus and debt requirements.

REINSURANCE

    The Company currently reinsures 75% of its North Carolina-based UIC
nonstandard automobile business through a quota share reinsurance agreement with
Scandinavian Re that became effective July 1, 2000. Under this arrangement, the
Company cedes a portion of its premiums to the reinsurer, net of a ceding
commission, and collects the same portion of claims payments from the reinsurer.
This type of reinsurance is designed to increase a company's capacity to write
new and renewal business.

    Effective March 31, 1999, the Company entered into a 90% quota share
reinsurance agreement with Erie Insurance Exchange for its commercial lines
business. This agreement was amended to become a 70% quota share reinsurance
agreement effective April 1, 2000. The Company also carries facultative, excess
of loss, catastrophe and umbrella reinsurance on its commercial lines.

    Reinsurance contracts do not relieve the Company of its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to the Company. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities or economic characteristics of the reinsurer to
minimize its exposure to significant losses from reinsurer insolvency.

    The Company issues a substantial number of automobile and flood insurance
policies for, and fully reinsures those risks with, the SC Facility, the NC
Facility and the NFIP. While the amount of reinsurance recoverable under these
arrangements is significant, the Company believes the balances due from the SC
Facility, the NC Facility and the NFIP are fully collectable due to the
governmental agency's ability to assess policyholders and member companies for
deficiencies.

                                       6
<PAGE>
INVESTMENT AND INVESTMENT RESULTS

    The Company's cash and investments are as follows at December 31:

<TABLE>
<CAPTION>
                                                              2000                      1999
                                                          ASSET VALUES      %       ASSET VALUES      %
                                                          ------------   --------   ------------   --------
<S>                                                       <C>            <C>        <C>            <C>
U.S. Government, government agencies and authorities....    $15,009        30.8       $15,135        25.4
States, municipalities and political subdivisions.......        383          .8           381         0.7
Corporate bonds.........................................     16,598        34.1        16,059        26.9
                                                            -------       -----       -------       -----
  Total debt securities.................................     31,990        65.7        31,575        53.0
Equity securities.......................................      6,307        12.9         1,317         2.2
Cash and short-term investments.........................     10,410        21.4        26,722        44.8
                                                            -------       -----       -------       -----
  Total cash and investments............................    $48,707       100.0       $59,614       100.0
                                                            =======       =====       =======       =====
</TABLE>

    Asset values represent market values at December 31, 2000 and 1999,
respectively. Effective January 21, 2000, three of the Company's insurance
subsidiaries made a combined investment totaling $4,900 in the common stock of
QualSure Holding Corporation, representing a combined ownership interest of
30.625%. QualSure Holding Corporation owns 100% of the issued and outstanding
stock of QualSure, a homeowners take out insurance company domiciled in the
state of Florida formed to take out approximately 44,000 homeowners policies
from the Florida Windstorm Underwriting Association and approximately 40,000
homeowners policies from the Florida Residential Property & Casualty Joint
Underwriting Association. During the fourth quarter of 1997, the Company
invested $854 in Sunshine State Holding Corporation for an ownership interest of
21.49%. Sunshine State Holding Corporation owns 100% of the issued and
outstanding stock of Sunshine State Insurance Company, a Florida-based writer of
homeowners insurance. As each of these investments exceeds 20% of the equity of
each respective company, the Company's equity in the undistributed earnings of
the unconsolidated affiliates are included in current earnings.

    The following table sets forth the consolidated investment results for the
three years ended December 31:

<TABLE>
<CAPTION>
                                                     2000       1999       1998
                                                   --------   --------   --------
<S>                                                <C>        <C>        <C>
Total investments (1)............................  $47,780    $60,531    $58,015
Net investment income............................  $ 2,660    $ 2,835    $ 3,271
Average yield....................................      5.6%       4.7%       5.6%
Net realized investment (loss) gain..............  $  (236)   $   (91)   $    85
                                                   =======    =======    =======
</TABLE>

(1) Average of the aggregate invested amounts (market values) as of the
    beginning of the year, March 31, June 30, September 30, and year-end.

REGULATION

    STATE REGULATION.  Insurance companies are subject to supervision and
regulation in the jurisdictions in which they transact business. Such
supervision and regulation relate to numerous aspects of an insurance company's
business and financial condition. The primary purpose of such supervision and
regulation is the protection of policyholders. The extent of such regulation
varies but generally derives from state statutes which delegate regulatory,
supervisory and administrative authority to state insurance departments.
Accordingly, the state insurance departments have the authority to establish
standards of solvency that must be met and maintained by insurers to license
insurers and agents and to approve policy forms. State insurance departments
also conduct periodic examinations of the affairs

                                       7
<PAGE>
of insurance companies and require the filing of annual and other reports
relating to the financial condition of insurance companies.

    Most states have enacted legislation that regulates insurance holding
company systems, including acquisitions, dividends, the terms of surplus notes,
the terms of affiliate transactions and other related matters. Three of the
Company's insurance subsidiaries are domiciled in the state of South Carolina
and are principally regulated by the South Carolina Department of Insurance (the
"SCDOI"). UIC is domiciled in North Carolina and is principally regulated by the
North Carolina Department of Insurance (the "NCDOI"). A fifth insurance company,
Investors National Life Insurance Company of South Carolina ("Investors"), was
dissolved effective December 1, 2000. Investors had been in runoff for several
years and, effective October 1, 2000, executed a portfolio assumption agreement
with an unaffiliated company for all remaining policy liabilities. Upon
completion of the portfolio assumption agreement, and receiving approval from
the SCDOI, Investors issued a liquidating dividend to its parent, South Carolina
Insurance Company ("SCIC"), and returned its insurance license to the SCDOI.

    Insurance companies are required to file detailed annual statements with the
state insurance regulators in each of the states in which they conduct business.
Their business and accounts are subject to examination by such regulators at any
time. In addition, these insurance regulators periodically examine the insurer's
financial condition, adherence to statutory accounting principles and compliance
with insurance department rules and regulations. South Carolina and North
Carolina law, rather than federal bankruptcy law, would apply to the liquidation
or reorganization of any of the Company's insurance companies. An examination of
SCIC and its subsidiary companies, Consolidated American Insurance Company,
Catawba Insurance Company ("Catawba") and Investors, as of December 31, 1998 was
completed during 1999 with no material findings.

    At the close of 1999, the SCDOI had placed a minimum statutory capital and
surplus requirement on SCIC which was in excess of that required by South
Carolina's insurance statutes. This minimum statutory capital and surplus
requirement, which was related to premium writings, was effectively lifted when
the Company announced the discontinuation of its Nashville operations and its
withdrawal from the nonstandard voluntary automobile market in South Carolina,
resulting in a significant reduction in premium writings. These actions removed
SCIC from substantial risk-bearing business. However, the SCDOI continues close
scrutiny of SCIC's operations and its statutory capital and surplus and has the
authority to implement new minimum statutory capital and surplus requirements in
the future.

    Since before the Company's acquisition of UIC in 1997, UIC has operated, and
continues to operate, under the Regulatory Action Division (the "RAD") of the
NCDOI. Under the requirements of the RAD, UIC is required to submit monthly
financial statements to the NCDOI.

    NAIC GUIDELINES.  The National Association of Insurance Commissioners
("NAIC") has adopted Risk-Based Capital ("RBC") requirements for property and
casualty insurance companies to evaluate the adequacy of statutory capital and
surplus in relation to investment and insurance risks such as asset quality,
asset and liability matching, loss reserve adequacy and other business factors.
The RBC formula is used by state insurance regulators as an early warning tool
to identify, for the purpose of initiating regulatory action, insurance
companies that may be inadequately capitalized. Compliance is determined by the
ratio of the Company's regulatory total adjusted capital to its company action
level RBC (as defined by the NAIC). Companies which fall below the company
action level RBC are required to disclose plans to remedy the situation. As of
December 31, 2000, all of the insurance subsidiaries have ratios in excess of
the level which would prompt regulatory action.

REGULATION OF DIVIDENDS AND OTHER PAYMENTS FROM INSURANCE SUBSIDIARIES

    The Company is a legal entity separate and distinct from its subsidiaries.
As a holding company, the primary sources of cash needed to meet its
obligations, including principal and interest payments on

                                       8
<PAGE>
outstanding debt, are dividends and other permitted payments, including
management fees, from its subsidiaries and affiliates.

    Except in limited circumstances, South Carolina and North Carolina insurance
laws and regulations require a domestic insurer to report any action authorizing
distributions to shareholders and material payments from subsidiaries and
affiliates at least 30 days prior to distribution or payment. Additionally,
those laws and regulations provide the SCDOI and the NCDOI the right to
disapprove and prohibit distributions meeting the definition of an
"Extraordinary Dividend" under applicable statutes and regulations.

    The South Carolina Insurance Holding Company Regulatory Act provides that,
without prior approval of the Commissioner of Insurance of the State of South
Carolina, dividends within any 12-month period may not exceed the greater of
(i) 10% of a domestic insurer's surplus as regarding policyholders as shown in
the insurer's most recent annual statement or (ii) a domestic insurer's net
income, not including realized capital gains or losses as shown in the insurer's
most recent annual statement. Furthermore, dividends may only be paid out of
positive earned surplus unless approved by the Commissioner. As of December 31,
2000, SCIC had negative earned surplus.

    The North Carolina Insurance Holding Company System Regulatory Act provides
that, without prior approval of the Commissioner of Insurance of the State of
North Carolina, dividends within any 12-month period may not exceed the lessor
of (i) 10% of a domestic insurer's surplus as regarding policyholders as of the
preceding December 31 or (ii) the net income, not including realized capital
gains, for the 12-month period ending the preceding December 31. For 2001, no
dividends are available from UIC to the Company.

    Payment of cash dividends by the Company is at the discretion of its Board
of Directors and is based on its earnings, financial condition, capital
requirements and other relevant factors. If the ability of the Company's
insurance subsidiaries to pay dividends or make other payments to the Company is
materially restricted by regulatory or credit facility requirements, it could
affect the Company's ability to service its debt and/or pay dividends. In
addition, no assurance can be given that North Carolina or South Carolina will
not adopt statutory provisions more restrictive than those currently in effect.

REQUIRED PARTICIPATION

    STATE RESIDUAL MARKET PLANS.  Most states in which the Company's property
and casualty insurance group writes business have collective pools, underwriting
associations, reinsurance facilities assigned risk plans and/or other types of
residual market plans, the largest being the SC Facility and the NC Facility,
pursuant to which coverages not normally available in the voluntary market are
shared by all companies writing that type of business in that state.
Participation is usually based on the ratio of the Company's share of the
voluntary market in a given state.

    SOUTH CAROLINA AUTOMOBILE.  The SC Facility is an unincorporated, non-profit
administrative state-sponsored plan. The SC Facility provides a mechanism for
the insurance companies conducting business in the state of South Carolina to
cede mandated, high-risk coverages under automobile policies to the SC Facility
and to share the cost of those coverages ceded. Every insurer authorized to
write automobile liability insurance in South Carolina is required to
participate in the SC Facility. When policyholders whose premiums have been
ceded to the SC Facility incur a loss, the member company that issued the policy
adjusts the loss and subsequently is reimbursed by the SC Facility for the loss
and loss adjustment expenses ("LAE") incurred by the member company. The SC
Facility has also created a pool of "Designated Agents," which are agencies
usually comprised of a single independent agent who had lost his or her access
to the voluntary automobile market. Designated Agents are assigned to one of the
SC Facility's servicing carriers. Prior to October 1, 1996, the cession or
retention of physical damage was dictated by whether or not the risk was
"pointed" or "clean." Prior to that date only clean risk physical damage could
be ceded to the SC Facility. Effective October 1, 1996, however, physical

                                       9
<PAGE>
damage was removed from the mandate and the SC Facility agreed to accept any
physical damage, pointed or clean, provided that the SC Facility-filed premium
rates were used.

    In 1997, the South Carolina State General Assembly passed legislation that
transforms the SC Facility into the SCAAIP, a JUA, effective March 1, 1999. As
of March 1, 1999, insurance companies could no longer cede new business to the
SC Facility. Non-servicing carriers continued to cede renewals to the SC
Facility until October 1, 1999 and servicing carriers may continue to cede
renewals to the SC Facility until March 1, 2002. All renewals ceded after
March 1, 1999 must be ceded at the rate level approved for the SC Facility. The
SCAAIP began accepting business on March 1, 1999. The initial rate level for the
JUA was approximately 150% of the current SC Facility rate. The legislation also
allowed the current Designated Agents of the SC Facility to receive voluntary
contracts without jeopardizing their Designated Agent status.

    NATIONAL FLOOD INSURANCE PROGRAM.  FEMA's Federal Insurance Administration
manages the NFIP. The NFIP regulations established the Financial
Assistance/Subsidy Arrangement pursuant to which the NFIP Administrator and
private sector insurers participate in the Write-Your-Own ("WYO") Program. Under
the WYO Program, insurers that are party to a Financial Assistance/Subsidy
Arrangement may issue, in the NFIP name, a Standard Flood Insurance Policy, the
form and substance of which is approved by the NFIP Administrator. Insurers are
responsible for all aspects of service, including policy issuance, endorsements
and renewals of policies and the adjudication of claims brought under the
policies, while the NFIP Administrator monitors the performance levels of all
insurers participating in the WYO Program. The Company is required to furnish
FEMA such summaries and analyses of information, including claims information,
as may be necessary to carry out the purposes of the National Flood Insurance
Act of 1968, as amended.

COMPETITION AND OTHER FACTORS

    The Company operates in highly competitive industry markets. Many of its
competitors have greater financial resources and higher ratings from A. M. Best
than the Company does. In general, the Company competes with both large national
writers and smaller regional companies in each state in which it operates. These
competitors include other companies that, like the Company, serve the agency
market as well as companies that sell insurance directly to policyholders.
Direct writers may have certain competitive advantages over agency writers,
including increased name recognition, increased customer base loyalty and,
potentially, reduced acquisition costs.

    NONSTANDARD AUTOMOBILE INSURANCE BUSINESS.  The Company competes in North
Carolina with the major carriers for nonstandard voluntary automobile insurance
business. The nonstandard automobile insurance business is price sensitive and
certain competitors of the Company have, from time to time, decreased their
prices in an apparent attempt to gain market share. Although the Company's
pricing is inevitably influenced to some degree by that of its competitors,
management believes that it is generally not in its best interest to match such
price decreases; choosing instead to compete on the basis of underwriting
criteria and superior service to its agents and insureds. Competition in the
North Carolina market is driven not only by price, but also by premium
financing. The North Carolina market is sensitive to the down payment required
on a nonstandard automobile policy. Therefore, the Company, through its
subsidiary Premium Budget Plan ("PBP"), offers down payments and premium
financing alternatives to its customers similar to those of its competitors.

    FLOOD PROGRAM.  Factors influencing the choice of a competitor over the
Company include ability to offer homeowners or other property products to
agents, ability to increase commission rates and on-line policy issuance
capability. The Company has been impacted by not having a homeowners product to
complement its flood insurance, especially in Florida. Thus, the Company entered
into a joint marketing agreement with Sunshine State Insurance Company, in which
the Company has an equity ownership interest of 21.49%, that gives the Company's
agents access to a homeowners product.

                                       10
<PAGE>
In addition, the competitive nature of the flood insurance market prompted the
Company to introduce new technology to its agency force, including
internet-based policy rating and flood zone determination services.

    Effective January 21, 2000, three of the Company's insurance subsidiaries
made a combined investment totaling $4,900 in the common stock of QualSure
Holding Corporation, representing a combined ownership interest of 30.625%.
QualSure Holding Corporation owns 100% of the issued and outstanding stock of
QualSure, a homeowners take out insurance company domiciled in the state of
Florida, and QualSure Underwriting Agencies, Inc., an MGA for QualSure. QualSure
was formed to take out approximately 44,000 homeowners policies from the Florida
Windstorm Underwriting Association and approximately 40,000 homeowners policies
from the Florida Residential Property & Casualty Joint Underwriting Association.
In connection with this investment, INS entered into a Claims Administration
Services Agreement with QualSure to adjudicate all of its claims for a fee based
upon subject earned premium. The Company believes this investment capitalizes
upon its considerable experience in claims adjudication and will provide a
substantial source of additional fee-based income to supplement its risk bearing
operations. QualSure is planning to introduce a voluntary homeowners product
that will also serve as an outlet in Florida for the Company's existing flood
products.

    COMMERCIAL LINES.  As the Company resumed writing risk-bearing commercial
business in 1998, new competitive factors arose. The Company continued, and will
continue, to focus on small businesses in developing its "Main Street" book of
business, but competition in this market is intense. The Company will be
competing with large national and regional carriers, many with higher A.M. Best
ratings than the Company, which influences the decisions of many commercial
insurance customers. In addition, companies offering workers' compensation
coverage may hold some competitive advantage over the Company. The Company is
reinsuring its book of business with A+ rated carriers in an attempt to minimize
the effects of not having its own rating. The Company is also investigating
certain niche markets in which it believes the competition will be less and the
lack of an A.M. Best rating will have little impact.

EMPLOYEES

    At December 31, 2000 and 1999, the Company and its subsidiaries employed a
total of 329 and 516 employees, respectively. The Company believes that its
relationship with its employees is good.

ITEM 2.  PROPERTIES

    The Columbia, South Carolina headquarters, containing approximately 126,000
square feet of occupied space, is owned by Charles H. Powers, the Company's
majority shareholder and Chairman of the Board of Directors, and leased by the
Company through 2003 for its property and casualty insurance and claims
operations. The Winston-Salem, North Carolina office is the base of UIC's
operations. That office contains approximately 18,000 square feet and is leased
through 2005. AFS is located in Rancho Cordova, California. AFS leases
approximately 5,300 square feet, with the lease expiring in 2002. Some
additional premises are leased by the Company in other locations in which it
operates. Management believes that these facilities are sufficient for the
Company's current and foreseeable future needs.

ITEM 3.  LEGAL PROCEEDINGS

    The Company was served with a complaint dated November 19, 1997 by Norwest
Financial Resources, Inc. ("Norwest") that claimed indemnification from Premium
Service Corporation of Columbia ("Premium") and Seibels, Bruce & Company ("SBC")
pursuant to the Asset Purchase Agreement dated as of July 2, 1993 by and among
Premium, SBC and Norwest. The indemnification claim relates to certain loans of
Premium which later were discovered to be incorrectly recorded as

                                       11
<PAGE>
realizable assets. Management is vigorously defending this complaint. This
complaint was filed in the state of South Carolina in the Richland County Court
of Common Pleas.

    On May 1, 1998, the Company completed its acquisition of Graward. In
completing the Final Balance Sheet in accordance with the related purchase
agreement, the Company identified purchase price adjustments totaling
approximately $6,000 that it believes were known to certain of the sellers, but
were not disclosed to the Company during its due diligence process. On
November 29, 2000, the Company reached a settlement with the sellers of Graward
related to certain of these adjustments. In the settlement, the sellers of
Graward agreed to cancel four Subordinated Purchase Notes dated May 1, 1998 in
the aggregate face amount of $2,700. The Company in turn agreed to dismiss a
pending motion and an arbitration demand. Additionally, the Company agreed to
issue to the sellers of Graward warrants to purchase 25,000 shares of its common
stock at a price of $3.00 per share and an additional 25,000 shares of its
common stock at a price of $7.00 per share. The settlement of these purchase
price disputes resulted in a special items gain of $2,700.

    On March 1, 2000, the Company received a demand from Generali-U.S. Branch
("Generali") for arbitration of claims arising under the April 1995 Agency
Agreement between Generali and Graward. Effective February 19, 2001, the Company
resolved these arbitration claims. As a result of the settlement, the remaining
preacquisition liabilities assumed upon the acquisition of Graward recorded in
the amount of $6,527 were discharged in exchange for $1,000 in cash and the
issuance of warrants to purchase 75,000 shares of the Company's common stock at
$1.00 per share and an additional 75,000 shares of the Company's common stock at
$2.00 per share. The resolution and ultimate quantification of these
preacquisition liabilities resulted in a special items gain of $5,527.

    Catawba was served with a complaint dated November 7, 1997 by the Municipal
Association of South Carolina, which claimed it had a potential deficiency of
certain South Carolina municipality taxes. Effective April 10, 2000, the Company
settled this complaint for $1,525, resulting in a gain of $902.

    The Company and its subsidiaries are parties to various other lawsuits
generally arising in the normal course of their insurance and ancillary
businesses. The Company does not believe that the eventual outcome of such suits
will have a material effect on the financial condition or results of operations
of the Company.

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

    No matter was submitted to a vote of security holders by the Company during
the fourth quarter of 2000.

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
  MATTERS

    (a) Market Information

    The Company's common stock is quoted and traded on the National Association
of Securities Dealers Over-the-Counter Bulletin Board (the "OTC Bulletin Board")
under the symbol "SBIG." In November 2000, the Company announced that it had
been delisted from the National Association of Security Dealers Automated
Quotation System ("NASDAQ") for failing to meet the minimum bid price, market
value of public float and net tangible asset requirements set forth in NASDAQ
Marketplace Rules. The following table sets forth the range of high and low
closing bid prices as reported on either NASDAQ or the OTC Bulletin Board. Such
bid prices represent inter-dealer quotations, without retailer mark-up,
mark-down or commission and may not necessarily represent

                                       12
<PAGE>
actual transactions. On March 15, 2001, the last reported bid price of the
Company's common stock on the OTC Bulletin Board was $1.30 per share.

<TABLE>
<CAPTION>
                                                                HIGH       LOW
                                                              --------   --------
<S>                                                           <C>        <C>
                            2001
------------------------------------------------------------
First quarter (through March 15, 2001)......................   $1.30      $0.59
                                                               =====      =====

                            2000
------------------------------------------------------------
First quarter...............................................   $2.00      $1.50
Second quarter..............................................    2.00       0.94
Third quarter...............................................    1.44       0.56
Fourth quarter..............................................    1.00       0.55
                                                               =====      =====

                            1999
------------------------------------------------------------
First quarter...............................................   $3.75      $2.75
Second quarter..............................................    6.13       3.25
Third quarter...............................................    5.63       2.94
Fourth quarter..............................................    2.88       1.56
                                                               =====      =====
</TABLE>

    (b) Holders

    There were approximately 4,447 shareholders of record as of March 15, 2001.

    (c) Dividends

    There have been no dividends declared by the Company on its common stock
during the past 5 years, and the Board of Directors does not presently intend to
pay any cash dividends on common stock in the foreseeable future. The Company is
a legal entity separate and distinct from its subsidiaries. As a holding
company, the primary sources of cash needed to meet its obligations, including
principal and interest payments on outstanding debt, are dividends and other
permitted payments, including management fees, from its subsidiaries and
affiliates. The Company's insurance subsidiaries are regulated as to their
payment of dividends by their respective state of domicile's insurance laws. The
Company's payment of cash dividends is at the discretion of the Board of
Directors and is based on its earnings, financial condition, capital
requirements, and other relevant factors.

    The Company has 50,000 shares of $0.625 Cumulative, Convertible, Redeemable,
Nonvoting Special Preferred Stock and 220,000 shares of $0.620 Cumulative,
Convertible, Redeemable, Nonvoting Special Preferred Stock issued and
outstanding at December 31, 2000 and 1999. The special stock pays quarterly
dividends at an annual rate of $0.625 per share and $0.62 per share,
respectively. The Company paid a total of $168, $168 and $160 in special stock
dividends in 2000, 1999 and 1998, respectively.

ITEM 6.  SELECTED FINANCIAL DATA

    The following selected historical financial data for each of the five years
ended December 31, 2000 is derived from the Company's audited consolidated
financial statements. The selected data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of

                                       13
<PAGE>
Operations (Item 7) and the consolidated financial statements and accompanying
notes (Item 8) included elsewhere herein.

<TABLE>
<CAPTION>
                                              2000       1999       1998       1997       1996
                                            --------   --------   --------   --------   --------
<S>                                         <C>        <C>        <C>        <C>        <C>
FINANCIAL CONDITION:
  Total cash and investments..............  $ 48,707   $ 59,614   $ 64,250   $ 51,793   $ 42,944
  Total assets............................   170,666    254,803    295,563    234,618    220,472
  Total debt..............................    10,159     14,986     16,250      3,036         --
  Special stock...........................     2,700      2,700      2,700      2,200         --
  Shareholders' equity....................    11,992     26,557     35,588     37,544     23,791
  Shareholders' equity per share..........      1.53       3.39       4.58       4.86       3.86
                                            ========   ========   ========   ========   ========
RESULTS OF OPERATIONS:
  Revenues
  Insurance:
    Commission and service income.........  $ 35,890   $ 45,652   $ 49,298   $ 44,105   $ 46,419
    Property and casualty premiums
      earned..............................    25,137     53,344     22,762      6,580      7,186
    Credit life premiums earned...........        --         --         13        156        478
  Net investment and other interest
    income................................     4,627      4,220      4,645      3,887      3,807
  Net realized (loss) gain................      (225)       338         54        529        (14)
  Policy fees and other income............     4,693      4,779      4,645        112        151
                                            --------   --------   --------   --------   --------
      Total revenues......................  $ 70,122   $108,333   $ 81,417   $ 55,369   $ 58,027
                                            ========   ========   ========   ========   ========
(Loss) income before effect of change in
  accounting principle....................  $(15,361)  $ (7,536)  $ (2,293)  $  4,003   $  5,176

Effect of change in accounting
  principle...............................        --         --       (601)        --         --

Net (loss) income.........................  $(15,361)  $ (7,536)  $ (2,894)  $  4,003   $  5,176
                                            ========   ========   ========   ========   ========
Basic (loss) earnings per share before
  change in accounting principle..........  $  (1.98)  $  (0.99)  $  (0.31)  $   0.57   $   1.05

Basic loss per share effect of change in
  accounting principle....................        --         --      (0.08)        --         --
                                            --------   --------   --------   --------   --------
Basic (loss) earnings per share after
  change in accounting principle..........  $  (1.98)  $  (0.99)  $  (0.39)  $   0.57   $   1.05
                                            ========   ========   ========   ========   ========
Diluted (loss) earnings per share before
  change in accounting principle..........  $  (1.98)  $  (0.99)  $  (0.31)  $   0.55   $   0.94

Diluted loss per share effect of change in
  accounting principle....................        --         --      (0.08)        --         --
                                            --------   --------   --------   --------   --------

Diluted (loss) earnings per share after
  change in accounting principle..........  $  (1.98)  $  (0.99)  $  (0.39)  $   0.55   $   0.94
                                            ========   ========   ========   ========   ========
</TABLE>

                                       14
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS

    The selected financial data and consolidated financial statements and
related notes thereto should be read in conjunction with the following
discussion as they contain important information for evaluation of the Company's
financial condition and operating results.

                                    OVERVIEW

    The Company is a provider of a wide range of services to the insurance
industry as well as a provider of automobile, flood and other property and
casualty insurance products. The Company is committed to providing quality
customer service, building strong relationships with its customers, developing
and capitalizing on territorial knowledge, and fostering the creativity and
innovation of its associates.

    The Company conducts business in two primary categories: fee-for-service
operations and traditional insurance operations. Its fee-for-service operations
include the activities of INS, its flood operations, and its operations as a
servicing carrier for the SC Facility and the SCAAIP. INS provides a variety of
claims-related management and adjudication services to the insurance industry,
including claims handling, networked glass claims handling and automobile
appraisals. The Company's flood unit is a leading provider, and is an original
participant, in the NFIP, a flood insurance program administered by the federal
government. In this capacity, the Company writes flood insurance for the NFIP in
46 states, and it offers excess flood insurance as a broker for Lloyd's of
London. As such, the Company receives commissions and fees from the NFIP and
Lloyd's of London, but retains no underwriting risk. The Company's flood
operations also offers flood zone determinations and flood compliance tracking
services through its subsidiary, AFS. The Company is a servicing carrier for the
SC Facility and the SCAAIP. Under both of these pools, the Company issues
policies and adjusts claims for a fee. The SC Facility is currently in runoff;
however, the Company may continue to cede premiums to the SC Facility through
March 1, 2002, at which time final runoff of the SC Facility will commence. The
Company is required to continue to adjudicate claims it ceded to the SC Facility
during the final runoff, for which it will be paid a fee. The SCAAIP became
effective in March 1999 and will survive the SC Facility. Although the SCAAIP
offers the Company access to additional fee-based revenue with no underwriting
risk, thus far into the runoff of the SC Facility, the Company has not
experienced significant activity in the SCAAIP.

    The Company's traditional insurance operations include its North Carolina
nonstandard automobile subsidiary, UIC, and its commercial lines operations. UIC
writes nonstandard automobile insurance primarily in the state of North
Carolina. UIC cedes substantially all of its liability premiums to the NC
Facility and adjusts the related claims for the NC Facility for a fee.
Substantially all of UIC's retained risk operations is on physical damage
policies, which are minimum limit policies partially reinsured through a quota
share reinsurance agreement. The Company also writes commercial lines insurance,
which includes business owner's policies, commercial package policies and
commercial automobile policies. These "main street" policies are sold primarily
to small businesses. The Company reinsures its commercial lines through quota
share, facultative, excess of loss, catastrophe and umbrella reinsurance
agreements.

    The Company seeks to balance its fee-based operations with selective risk
underwriting to increase the Company's value for its shareholders, agents and
employees by pursuing maximum growth with limited risk exposure.

                                       15
<PAGE>
    The net loss by business segment for 2000, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                    2000       1999       1998
                                                  --------   --------   --------
<S>                                               <C>        <C>        <C>
Automobile *....................................  $(15,245)  $(12,761)  $  (814)
Flood...........................................      (142)     1,066      (358)
Commercial......................................      (247)       608    (2,090)
Adjusting services..............................     1,768      1,312       382
All other.......................................    (1,495)     2,239       (14)
                                                  --------   --------   -------
  Net loss......................................  $(15,361)  $ (7,536)  $(2,894)
                                                  ========   ========   =======
  Per share.....................................  $  (1.98)  $  (0.99)  $ (0.39)
                                                  ========   ========   =======
</TABLE>

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

*   2000 includes a net special items charge of $8,138 related to the
    discontinuation of the Nashville operations and the settlement of related
    preacquisition liabilities.

    Fiscal 2000 was a year of significant change for the Company. Beginning in
May 2000, the Company began a comprehensive review of the profitability
potential of each of its business segments. As a result of this review, the
Company concluded that it would discontinue two of its nonstandard automobile
insurance operations. In June 2000, the Company announced the discontinuation of
its Nashville operations under its subsidiary, Graward. Of the $16,421 in
special items charged to earnings in the second quarter of 2000, $15,678 were
non-cash items, including impairment of goodwill associated with the Graward
acquisition of $14,915. In July 2000, the Company announced its planned
withdrawal from the South Carolina voluntary nonstandard automobile insurance
market. Both the Graward and the South Carolina automobile operations had
suffered substantial operating losses in 1998 and 1999, with indications that
the losses would continue throughout 2000 and that neither operation could
become profitable in the foreseeable future. The substantial losses from these
two operations and the special items charges associated with discontinuing the
Graward operation were the single largest contribution to the Company's
consolidated net loss in 2000.

NONSTANDARD AUTOMOBILE

    The Company's consolidated net loss in 2000 is primarily related to its
nonstandard automobile insurance business. Due to high loss and expense ratios
in the Company's Nashville operation, and high loss ratios in its South Carolina
voluntary nonstandard automobile business, the Company concluded that these
operations could not become profitable in the foreseeable future. Therefore, the
Nashville operation was discontinued and the Company began its withdrawal from
the South Carolina voluntary nonstandard automobile insurance market. Though the
Company's UIC operations were also unprofitable in 2000, the Company believes
this operation has profitability potential in the foreseeable future and has
implemented profitability initiatives in the fourth quarter of 2000 and the
first quarter of 2001 to end the losses. The SC Facility began its three-year
run off March 1, 1999. Though the Company may no longer cede premiums to the SC
Facility after March 1, 2002, it is required to adjudicate claims it ceded to
the SC Facility during the final runoff, for which it will be paid a fee. The
Company also issues nonstandard automobile policies and adjusts claims for the
SCAAIP, the joint underwriting association formed to replace the SC Facility.
The Company is one of two servicing carriers for the SCAAIP. Although the SCAAIP
offers the Company access to additional fee-based revenue with no underwriting
risk, thus far into the runoff of the SC Facility the Company has not
experienced significant activity in the SCAAIP.

GRAWARD OPERATIONS

    During 2000, the Company discontinued its Nashville operations and placed
all of this business into runoff. Due to high loss ratios and an extremely high
expense structure, this operation had

                                       16
<PAGE>
suffered substantial operating losses in 1998 and 1999, with indications that
the losses would continue throughout 2000 without expectation that it could
become profitable in the foreseeable future. In the second quarter of 2000, the
Company took a special items charge to earnings of $16,421, $15,678 of which
were non-cash items, including impairment of goodwill associated with the
Graward acquisition of $14,915. Other special items charges associated with
exiting the operation included the write-down of certain fixed and operating
assets, accrual of closure costs and accrual of severance and other
personnel-related costs. On August 1, 2000, the Company moved all remaining
business of the operation to its South Carolina headquarters to complete the
runoff of this book of business.

SOUTH CAROLINA NONSTANDARD AUTOMOBILE OPERATIONS

    The Company has been a servicing carrier for the SC Facility since its
creation in 1974. Premium-based fees under the Company's contract with the SC
Facility are 8.90% of gross premiums written plus commissions paid to agents.
The Company is responsible for paying all costs of processing the policies. The
Company also receives income on the claims it pays on behalf of the SC Facility
in the amount of 10.98% of the gross paid claims. The Company is responsible for
paying all costs to process these claims, including LAE. However, the SC
Facility does reimburse the Company in full for legal expenses associated with
processing these claims. The SC Facility began its planned runoff effective
March 1, 1999, at which time no new business was accepted into the SC Facility.
Effective October 1, 1999, voluntary renewals were no longer accepted by the SC
Facility. However, servicing carriers can still cede renewals to the SC Facility
until March 1, 2002, at which time final runoff of the SC Facility will
commence. During 1997, in contemplation of the runoff of the SC Facility, the
Company introduced a voluntary nonstandard automobile program in South Carolina.
By the end of 1999, direct written premium volume under this voluntary program
had escalated to $28,288. Such rapid growth customarily strains earnings and
results in higher than average loss ratios; however, the operation continued to
experience substantial losses and substantially higher than acceptable loss
ratios well into 2000, with no indication of reprieve. In July 2000, the Company
concluded that the operation could not generate profits in the foreseeable
future and, therefore, placed the business into runoff.

UIC OPERATIONS

    Physical damage coverage is retained on voluntary business in North
Carolina, as the NC Facility does not reinsure this coverage. Liability
coverage, however, is reinsured 100% in the NC Facility. Companies ceding
liability coverage to the NC Facility receive an expense allowance for
processing the business and a claims allowance for adjusting the claims on that
business. Every company that transacts business in North Carolina is a member of
the NC Facility. The North Carolina-based UIC operation began the year with
favorable loss ratios. However, during the fourth quarter of 2000, the operation
began experiencing a deterioration in its loss ratios. The deteriorated loss
ratio, coupled with an unfavorable quota share reinsurance agreement, are the
primary drivers of the operation's losses in 2000. Under the terms of the quota
share reinsurance agreement, the Company must adjust the ceding commission
received from the reinsurer on a point-for-point sliding basis as the loss ratio
surpasses a defined threshold. When the loss ratio began to deteriorate late in
2000, the Company accrued for the adjustment to the ceding commissions received
from the reinsurer. The Company has taken action to mitigate these losses and
improve the loss ratio in 2001 through the implementation of various rate
increases. The Company continually reevaluates both UIC's insurance rates and
its quota share reinsurance contract, which is due to terminate June 30, 2001.

FLOOD

    The Company's flood operations experienced substantial growth again in 2000.
The operation's 2000 written premium increased at a rate that surpassed that of
the NFIP, due primarily to obtaining several large books of flood business from
independent insurance agents across the United States. This

                                       17
<PAGE>
was facilitated by expanding the Company's product offering to independent
agents and the introduction of new technology to its agency force, including
internet-based policy rating and flood zone determination services.

    The Company's flood product line includes flood insurance, excess flood
insurance, flood zone determinations, claims processing and flood compliance
tracking services. The Company's basic flood insurance product is underwritten
by the NFIP, a federal government program that sets policy rates, bears risks
and pays claims. Working through its independent agents located across the
United States, the Company issues policies and processes claims on behalf of the
NFIP. The NFIP policies only cover losses up to $250 for residential buildings
and $100 for contents. Further, the NFIP commercial coverage is limited to $500
for either buildings or contents. The Company's excess flood insurance product
provides a level of protection above the NFIP's limits for residential and
commercial properties. The Company, as broker, receives commissions for placing
this business. The Company also believes that offering the excess flood product
allows it to improve its relationships with its agency force by offering them a
broader product portfolio.

    The Company, through AFS, offers the additional flood-related services of
flood zone determinations and flood zone mapping services to customers located
throughout the United States. These services are provided primarily to mortgage
originators to determine whether or not homes are located in flood zones and,
therefore, require flood insurance. These services allow the Company to offer a
more complete flood portfolio to both agents and financial institutions, provide
the Company with a stronger presence in the flood market and expand the channels
of distribution for the Company's complementary products.

    As a servicing carrier for the NFIP, the Company recognizes income for the
policies it processes in the amount of 31.7% of gross premiums written. The
Company is responsible for paying all costs associated with processing the
policies, including a commission to the independent agent. The Company also
receives a fee on the claims that it pays on these policies in the amount of
3.3% of incurred claims. The Company is reimbursed for the allocated LAE
associated with these claims according to a standard fee schedule. Claims
processing has been a substantial source of revenues and earnings for the
Company over the past several years and is a weather-dependent component of its
flood operations. Whereas most property and casualty insurance companies suffer
losses during hurricanes and floods, the Company benefits strongly as a
fee-based processor of claims for the NFIP. Due to the relatively quiet 2000
hurricane season, the Company experienced a significant decrease in its claims
processing revenues over 1999. However, the Company continued to receive
commissions for premiums written for the NFIP. AFS provides the Company a
presence for flood claims processing on both coasts, an important element of
diversification and scale for weather-dependent operations.

COMMERCIAL LINES

    Commercial lines represents an important diversification for the Company,
further complementing its product offerings and enabling independent agents to
bundle its products for a more complete insurance portfolio. This
diversification makes the Company more attractive to agents, enabling them to
work with the Company to better serve their customers. The commercial lines
operation lost $247 in 2000, primarily due to high expense ratios associated
with a lower average premium. As the Company continues to automate the
commercial lines operation and look for ways to increase its average premium,
the operation is expected to once again become profitable.

    During 1998, the Company accomplished its major strategic initiative in
commercial lines--converting from an MGA role to retaining risk for commercial
policies. The transition was a success, and Seibels Bruce retained more than
75 percent of the policies it had originally underwritten as an MGA. This is
largely attributable to the long-standing relationships the Company has
developed with the commercial lines agents that sell its products.

                                       18
<PAGE>
INSURANCE ADJUSTING

    The Company's premium concentration in the catastrophe-heavy Southeast led
to the 1996 creation of INS to manage the Company's internal claims. INS
currently offers a wide array of services: automobile appraisals, automobile
liability claims handling, catastrophe claims handling, claims administration,
direct reporting, general liability claims handling, glass claims handling,
property claims handling, subrogation and recovery and total loss claims
handling. These services expand the Company's business opportunities by allowing
it to offer services to other insurance companies. The Company's experience in
processing flood claims led to the award of two statewide Wind and Hail
Association contracts, a strong indication of its growing presence in the
catastrophe claims handling market.

    INS is an important part of the Company's corporate structure. It has over
50 unaffiliated customers and can accommodate claims services requests from
anywhere in the United States. INS claims representatives are differentiated
from their counterparts at traditional claims adjusting companies by having an
insurance company background, an important characteristic when equitably
settling claims.

    Effective January 21, 2000, three of the Company's insurance subsidiaries
made a combined investment totaling $4,900 in the common stock of QualSure
Holding Corporation, representing a combined ownership interest of 30.625%.
QualSure Holding Corporation owns 100% of the issued and outstanding stock of
QualSure, a homeowners take out insurance company domiciled in the state of
Florida, and QualSure Underwriting Agencies, Inc., an MGA for QualSure. QualSure
was formed to take out approximately 44,000 homeowners policies from the Florida
Windstorm Underwriting Association and approximately 40,000 homeowners policies
from the Florida Residential Property & Casualty Joint Underwriting Association.
In connection with this investment, INS entered into a Claims Administration
Services Agreement with QualSure to adjudicate all of its claims for a fee based
upon subject earned premium. The Company believes this investment capitalizes
upon its considerable experience in claims adjudication and will provide a
substantial source of additional fee-based income to supplement its risk bearing
operations.

ALL OTHER

    The Company continues to maintain reserves and pay significant claims with
respect to its runoff operations. These operations consist primarily of general
liability policies that include contractors' liability and environmental
coverages primarily in California and commercial (including workers'
compensation) and personal lines policies in the Southeast. The runoff of claims
on these policies created substantial losses for the Company over the past
10 years. In addition, the Company's runoff segment contains the management of
runoff reserves from prior business in the 1980's and runoff from a nonstandard
homeowners MGA book of business in Kentucky and Tennessee entered into in early
1997. The Company discontinued writing new business in this MGA book of business
in October of 1998.

OUTLOOK

    The Company continues with many of the same challenges. The SC Facility will
continue its runoff and have an adverse affect on the Company's commission and
service income opportunities. With regard to the Company's credit facility, it
must still demonstrate compliance with a number of affirmative and negative
covenants on a quarterly basis, including minimum statutory capital and surplus
levels, ratios of debt to total capitalization and cash flow coverage. While the
Company indeed continues to face considerable challenges in 2001, it now
operates without the significant losses generated by the unprofitable Nashville
and South Carolina automobile operations. Furthermore, INS continued its growth
in 2000 and is expecting additional growth in 2001 to partially offset the

                                       19
<PAGE>
Company's expected decrease in commission and service income. In addition, UIC
is under new management and is planning on significantly increasing its business
ceded to the NCRF, thereby increasing the Company's commission and service
income with no underwriting risk. The Company is also actively seeking other
fee-based opportunities in the insurance marketplace. Finally, in 2001 SCIC is
subject to the normal capital and surplus requirements enforced by the SCDOI and
it is management's opinion that the Company's amended affirmative and negative
covenants under its credit facility allow for the Company to be in compliance
within its 2001 Business Plan. Management is of the opinion that the Company's
operations will be profitable in 2001 and that it will be able to maintain
compliance with existing capital and surplus and debt requirements.

                             RESULTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 2000 AND 1999

COMMISSION AND SERVICE INCOME

    Commission and service income for the year ended December 31, 2000 decreased
$9,762, or 21.4%, to $35,890 from $45,652 for the year ended December 31, 1999.
The automobile and commercial reporting segments accounted for $14,109 and $425
of the overall net decrease, respectively, posting commission and service income
of $11,194 and $654, respectively, for the year ended December 31, 2000, versus
$25,303 and $1,079, respectively, for the same period of 1999. These decreases
are substantially the result of a decrease in the number of policies in the SC
Facility, a residual market for automobile insurance in the state of South
Carolina. Effective March 1, 1999, no new policies could be ceded to the SC
Facility, and no voluntary renewals could be ceded to the SC Facility after
September 1999. Designated agents are able to renew in the SC Facility through
March 1, 2002. The new SCAAIP provides insurance to drivers unable to obtain
coverage in the voluntary market. Although the Company is one of two servicing
carriers for the SCAAIP, there has been very little activity to date.

    Offsetting these decreases in commission and service income was the $5,010
increase posted by the adjusting services reporting segment. Over the last
fifteen months, the adjusting services reporting segment has focussed on
attracting and retaining external customers and, as a result, now boasts more
than 50 unaffiliated customers. In addition, concurrent with the Company's
January 21, 2000 investment in QualSure Holding Corporation, the Company's
adjusting services reporting segment entered into a Claims Administration
Services Agreement with QualSure to adjudicate all of its claims for a fee-based
upon subject earned premium. Revenues, net of deferrals, under this arrangement
amounted to $3,458 for the year ended December 31, 2000.

    The remaining $238 decrease in commission and service income came from the
Company's flood and runoff operations.

PROPERTY AND CASUALTY PREMIUMS EARNED

    Property and casualty premiums earned for the year ended December 31, 2000
decreased $28,207, or 52.9%, to $25,137 from $53,344 for the year ended
December 31, 1999. The automobile reporting segment accounted for $28,050 of the
overall decrease, posting premiums earned of $21,934 for the year ended
December 31, 2000 versus $49,984 for the same period of 1999. The primary reason
for the decrease centers on the Company's 75% quota share reinsurance agreement
that was effective December 31, 1999. Under the agreement, 75% of all automobile
premiums written between January 1, 2000 and June 30, 2000 were ceded to the
reinsurers. No such reinsurance arrangement was in effect during 1999.
Secondarily, in May of 2000, the Company performed a critical profitability
review of its automobile book of business that resulted in a reduction of
authorized independent agents, more stringent underwriting guidelines and the
discontinuation of its Nashville operations as well as its

                                       20
<PAGE>
withdrawal from the retained risk nonstandard automobile market in South
Carolina. These events had a substantial negative impact on premiums written,
particularly over the last six months of 2000. Finally, during the quarter ended
September 30, 2000, premium refunds totaling $344 were issued by the Company as
required under a settlement between the NCDOI and the North Carolina Rate Bureau
(the "Bureau"). On certain policies issued or renewed during the period
January 1, 1995 through January 14, 1997, the Bureau established insurance rates
higher than rates approved by the NCDOI. The refunds represent the difference
between the rates approved by the NCDOI and those originally charged as allowed
by the Bureau.

    The commercial reporting segment accounted for $132 of the overall decrease,
posting premiums earned of $3,040 for the year ended December 31, 2000 versus
$3,172 for the same period of 1999. Effective March 31, 1999, the Company
entered into a 90% quota share reinsurance agreement that remained in place
through March 31, 2000. Effective April 1, 2000, the 90% quota share reinsurance
agreement was amended to become a 70% quota share reinsurance agreement. The
amendment was made to capitalize upon the favorable underwriting results of the
commercial book of business. Retaining a larger portion of its commercial book
of business had a positive impact on the Company's earned premium for the year
ended December 31, 2000. However, more than offsetting this increase in earned
premium was the decrease in commercial writings over the last six months of
2000. In accordance with a mandate from the NCDOI, the Company ceased writing
new commercial business in the state of North Carolina at the beginning of the
third quarter of 2000. The Company may, however, continue renewing existing
commercial business at its discretion.

    The remaining $25 decrease in premiums earned came from the Company's flood
and runoff operations.

CREDIT LIFE PREMIUMS EARNED

    The Company's credit life premiums earned have been a product of its life
and accident subsidiary, Investors. Investors had been in runoff for several
years and, effective October 1, 2000, executed a portfolio assumption agreement
with an unaffiliated company for all remaining policy liabilities. Upon
completion of the portfolio assumption agreement, and receiving approval from
the SCDOI, Investors issued a liquidating dividend to its parent, SCIC, and
returned its insurance license to the SCDOI. There were no credit life premiums
earned for the year ended December 31, 2000.

NET INVESTMENT AND OTHER INTEREST INCOME

    Net investment and other interest income for the year ended December 31,
2000 increased $407, or 9.6%, to $4,627 from $4,220 for the year ended
December 31, 1999. During the fourth quarter of 2000, the Company received
approximately $800 from the SC Facility related to the time value of money
consideration on recoupment premiums the Company writes for the SC Facility.
This activity is calculated by the SC Facility and communicated to its servicing
carriers on an irregular basis. The Company records all normal interest income
on a monthly basis from the SC Facility. Partially offsetting this increase in
net investment and other interest income was lower investment income earned on
the Company's cash and investments. Total cash and investments decreased $10,907
from December 31, 1999 to December 31, 2000, primarily to fund the acquisition
of QualSure, to settle liabilities created through the 75% quota share
reinsurance agreement for the Company's automobile operations, and to fund the
Company's operations. However, substantially all of the overall decrease in
total cash and investments came from the lower yielding cash and short-term
investments rather than from the higher yielding bond portfolio. Therefore, the
impact on net investment and other interest income from the sharp decrease in
total cash and investments was somewhat mitigated.

                                       21
<PAGE>
NET REALIZED (LOSS) GAIN

    Realized losses for the year ended December 31, 2000 consisted of $236 in
losses resulting from the liquidation of a portion of the Company's bond
portfolio. Partially offsetting these losses were gains of $11 associated with
the disposition of certain property and equipment. Furthermore, in
December 2000, the Company sold its corporate headquarters with a net book value
of $2,589 to its majority shareholder and Chairman of the Board of Directors for
$4,500, resulting in a gain of $1,892. Expenses incurred in connection with the
sale were $19. Concurrent with this transaction, the Company leased the property
back for a fixed period of three years without an option for renewal. The gain
resulting from this transaction has been deferred and will be amortized into
income evenly over the term of the leaseback.

POLICY FEES AND OTHER INCOME

    Policy fees and other income for the year ended December 31, 2000 decreased
$86, or 1.8%, to $4,693 from $4,779 for the year ended December 31, 1999. While
the net decrease is not significant, the components of the net decrease are. The
most significant source of policy fees for the Company is derived from Graward
and is directly correlated with its premium writings. During the third quarter
of 1999, the Company implemented significant cost control measures at Graward in
an attempt to make the operation profitable. Concurrent with these measures, the
Company began a critical profitability review of Graward's book of business that
resulted in a reduction of authorized independent agents and more stringent
underwriting guidelines. Additional underwriting measures were implemented in
the first quarter of 2000. Finally, in June 2000 it was announced that the
Graward operation would be discontinued. As Graward's written premium fell
throughout 2000, particularly during the last six months of 2000, policy fees
and other income followed suit. Graward's policy fees and other income was
$1,380 for the year ended December 31, 2000 versus $2,901 for the same period in
1999, a decrease of $1,521.

    Significantly offsetting this decrease were the policy fees and other income
generated by a division of the adjusting services reporting segment. This
division was formed in the third quarter of 1999 and has experienced rapid
growth with a customer base containing both affiliated and unaffiliated
companies. Policy fees and other income generated by this unit amounted to
$2,028 for the year ended December 31, 2000, an increase of $1,054 over the $974
generated for the same period of 1999. Also offsetting the overall decrease in
policy fees and other income is the Company's $129 of equity in earnings of its
unconsolidated subsidiaries, Sunshine State Holding Corporation and QualSure
Holding Corporation.

    The remaining increase in policy fees and other income of $252 came from all
other operations and includes the recovery of unclaimed property from various
states and additional other income generated through the growth of other
divisions of the adjusting services reporting segment.

LOSSES AND LOSS ADJUSTMENT EXPENSES

    Property and casualty losses and LAE for the year ending December 31, 2000
decreased $21,565, or 46.9%, to $24,445 from $46,010 for the year ended
December 31, 1999. The automobile reporting segment accounted for $27,091 of the
overall decrease, posting incurred losses and LAE of $20,665 for the year ended
December 31, 2000 versus $47,756 for the same period of 1999. The primary reason
for the decrease centers on the Company's 75% quota share reinsurance agreement
that was effective December 31, 1999. Under the agreement, 75% of losses
incurred between January 1, 2000 and June 30, 2000 were ceded to the reinsurers.
No such reinsurance arrangement was in effect during 1999. Further driving the
decrease in losses and loss adjustment expenses was the discontinuation of
Graward's operations and the withdrawal from the retained risk nonstandard
automobile market in South Carolina (see prior discussion).

                                       22
<PAGE>
    Substantially offsetting the overall decrease in losses and LAE of the
automobile reporting segment was the $4,924 increase relating to the Company's
runoff operations due to adverse loss development and general reserve
strengthening. The remaining increase of $602 came from all other operations.

POLICY ACQUISITION COSTS

    Policy acquisition costs decreased $8,718 for the year ended December 31,
2000 compared to 1999, or 25.9%. Fluctuations in policy acquisition costs are
directly correlated to fluctuations in direct written premium. Direct written
premium for the year ended December 31, 2000 amounted to $125,018, a $43,588, or
25.9%, decrease from the $168,606 written during the same period in 1999. See
PREMIUMS EARNED for discussion concerning the decrease in premium volume for the
year ended December 31, 2000 versus the same period of 1999.

OTHER OPERATING COSTS AND EXPENSES

    Other operating costs and expenses for the year ended December 31, 2000
decreased $8,424, or 24.1%, to $26,461 from $34,885 for the year ended
December 31, 1999. The largest causes of the decrease result from a wide array
of expense reductions directly associated with the cost savings initiatives
begun in the third quarter of 1999 and continuing through the end of 2000, the
decision to discontinue the Nashville operations and the decision to withdraw
from the retained risk nonstandard automobile market in South Carolina. Expense
reductions from reductions in force associated with these initiatives and
decisions amounted to over $3,222 for the year ended December 31, 2000 as
compared to the same period of 1999. The Company also experienced significant
general expense reductions associated with the greatly reduced business volume
in 2000 as compared to 1999, including postage ($375), premium and municipality
taxes ($1,828), printing and supplies ($504), survey and underwriting reports
($475), telephone ($420), and travel and temporary help ($652). Approximately
$902 of the reduction in premium and municipality taxes resulted from the
Company's settlement of disputed municipality taxes due the Municipal
Association of South Carolina. Amortization expense of the Company's goodwill
decreased $197 for the year ended December 31, 2000 as compared to the same
period of 1999 due to the impairment of the goodwill associated with the Graward
acquisition taken in the second quarter of 2000. The Company also experienced a
significant decrease ($2,310) in its bad debts expense. 1999's level of bad
debts expense was extraordinarily high as a result of bad experience in the
Company's nonstandard premium financing activities. During 2000, the Company
implemented intense collections initiatives to reduce the expense to more normal
levels. Further, the discontinuation of the Nashville operations and the
withdrawal from the retained risk nonstandard automobile market in South
Carolina had a substantial negative impact on premiums written over the last six
months of 2000, correlating to a decrease in the likelihood of bad debts expense
for the year. Finally, in connection with the premium refunds issued as required
under a settlement between the NCDOI and the Bureau, the Company was able to
recoup $136 of accounts previously charged off. Partially offsetting these
expense reductions were legal expense increases of $928 associated with the
resolution and expected resolution of a significant number of the Company's
disputes.

SPECIAL ITEMS

    The Company's results of operations for the year ended December 31, 2000
include $8,138 in special items charges associated with the discontinuation of
its Nashville operations and the resolution of preacquisition liabilities
assumed upon the acquisition of Graward. In June 2000, the Company's Board of
Directors approved and the Company announced a restructuring plan centering on
the discontinuation of its Nashville operations. The restructuring plan included
approximately $16,421 in special items charges related primarily to the
impairment of long-lived assets associated with the operation, employee
severance, and the cancellation of contractual commitments. Of the $16,421 total

                                       23
<PAGE>
special items charges, $15,678 related to the impairment of long-lived assets,
including $14,915 of goodwill, $580 of fixed assets directly associated with the
Nashville operation and $183 of deferred financing costs. In December 2000, the
estimated cost of the restructuring plan was adjusted downward by $56.

    On November 29, 2000, the Company reached a settlement with the sellers of
Graward related to certain purchase price adjustments. In the settlement, the
sellers of Graward agreed to cancel four Subordinated Purchase Notes dated
May 1, 1998 in the aggregate face amount of $2,700. The Company in turn agreed
to dismiss a pending motion and an arbitration demand. Additionally, the Company
agreed to issue to the sellers of Graward warrants to purchase 25,000 shares of
its common stock at a price of $3.00 per share and an additional 25,000 shares
of its common stock at a price of $7.00 per share. The settlement of these
purchase price disputes resulted in a special items gain of $2,700.

    Effective February 19, 2001, the Company reached a settlement with respect
to liabilities assumed upon the acquisition of Graward recorded in the amount of
$6,527 which were discharged in exchange for $1,000 in cash and the issuance of
warrants to purchase 75,000 shares of the Company's common stock at $1.00 per
share and an additional 75,000 shares of the Company's common stock at $2.00 per
share (see Note 15). The resolution and ultimate quantification of these
preacquisition liabilities resulted in a special items gain of $5,527.

                     YEARS ENDED DECEMBER 31, 1999 AND 1998

COMMISSION AND SERVICE INCOME

    Commission and service income for the year ended December 31, 1999 decreased
$3,646, or 7.4%, to $45,652 from $49,298 for the year ended December 31, 1998.
The automobile and commercial segments experienced declines of $5,657 and $814,
respectively, related to the runoff of the SC Facility. Offsetting these
decreases were increases in the flood and adjusting services segments of $2,812
resulting from increased storm-related activities and services.

PROPERTY AND CASUALTY PREMIUMS EARNED

    Property and casualty premiums earned for the year ended December 31, 1999
increased $30,582, or 134.4%, to $53,344 from $22,762 for the year ended
December 31, 1998. This increase is due to a $31,647 increase in nonstandard
automobile premiums offset by a $804 decrease in commercial multi-peril
premiums. The increase in nonstandard automobile earned premiums is a result of
the Company's continued emphasis on premium growth during 1999 in addition to an
entire year of sustained premium growth from Graward, which was acquired in
May 1998, versus only seven comparable months during 1998. The decrease in
commercial multi-peril earned premiums is a result of the unearned premium
portfolio transfer associated with its 90% quota share reinsurance agreement
effective March 1999. The remaining change in property and casualty premiums
earned is attributable to a $322 decrease in earned premium in the Company's
runoff operation.

CREDIT LIFE PREMIUMS EARNED

    There were no credit life premiums earned for the year ended December 31,
1999 as this operation was nearing completion of its runoff.

NET INVESTMENT AND OTHER INTEREST INCOME

    Net investment and other interest income for the year ended December 31,
1999 decreased 9.1%, or $425, to $4,220 from $4,645 for the year ended
December 31, 1998. This decrease is due to a $4.6 million reduction in the
Company's total cash and investments to fund operations and service its debt.
Furthermore, the Company's average investment yield decreased to 4.7% in 1999
from 5.6% for

                                       24
<PAGE>
1998 due primarily to the Company's conservative investment portfolio consisting
of significant investments in obligations of the U.S. Government and government
agencies and authorities.

REALIZED GAINS

    Realized gains for the year ended December 31, 1999 consists of a gain on
the sale of one of the Company's insurance subsidiaries, KIC, of $243 and a gain
on the sale of one of the Company's vacant buildings of $206. These gains were
offset by losses of $20 associated with the disposition of other property and
equipment and $91 on the liquidation of a portion of the Company's investment
portfolio.

POLICY FEES AND OTHER INCOME

    Policy fees and other income for the year ended December 31, 1999 increased
2.9%, or $134, to $4,779 from $4,645 for the year ended December 31, 1998. This
increase is due primarily to a full year of operations with Graward, which was
acquired in May 1998, versus only seven months of operations during 1998.

LOSSES AND LOSS ADJUSTMENT EXPENSES

    Property and casualty losses and loss adjustment expenses for the year
ending December 31, 1999 increased $20,741, or 82.1%, to $46,010 from $25,269
for the year ended December 31, 1998. This increase is due to the Company's
higher than expected losses on the increased premiums earned in 1999.

POLICY ACQUISITION COSTS

    Policy acquisition costs increased $23,499 for the year ended December 31,
1999 compared to 1998, or 229.9%. Policy acquisition costs for the year ended
December 31, 1999 were $33,721, as compared to the year ended December 31, 1998
of $10,222. The Company attributes this increase to the costs associated with
the underwriting activities necessary to generate earned premium.

OTHER OPERATING COSTS AND EXPENSES

    Other operating costs and expenses for the year ended December 31, 1999
decreased $11,938 or, 25.5%, to $34,885 from $46,823 for the year ended
December 31, 1998. This decrease is due to significant one-time charges incurred
and expensed in 1998, including approximately $1,000 associated with Year 2000
remediation and legal expenses; as well as approximately $2,000 in various other
items. In addition, cost control measures designed to reduce the Company's
operating expense ratios were implemented in the third quarter of 1999.

                   LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

    Loss and LAE reserves are estimates at a given point in time of the amount
of claims that the insurer expects to pay claimants plus investigation and
litigation costs, based on facts and circumstances then known. It can be
expected that the ultimate liability in each case will differ from such
estimates. During the loss settlement period, additional facts regarding
individual claims may become known and, consequently, it becomes necessary to
refine and adjust existing estimates of liability.

    The liability for losses on direct business is determined using case-basis
evaluations and statistical projections. The liabilities determined under these
procedures are reduced, for GAAP reporting purposes, by an estimated amount to
be received through salvage and subrogation. The resulting liabilities represent
the Company's estimate of the net cost of all unpaid losses and LAE incurred
through December 31 of each year. These estimates may be affected by the
frequency and/or severity

                                       25
<PAGE>
of future claims. These estimates are continually reviewed and, as experience
develops and new information becomes known, the liability is adjusted as
necessary.

    The anticipated effect of inflation is implicitly considered when estimating
liabilities for losses and LAE. While anticipated price increases due to
inflation are considered, an increase in average severity of claims may be
caused by a number of factors that vary with the individual type of policy
written. Future average severity is projected based on historical trends as
adjusted for changes in underwriting standards, policy provisions, and general
economic trends. These anticipated trends are monitored based on actual
developments and are modified as necessary. The Company does not discount its
reserves for unpaid losses and LAE.

    The following table presents, on a GAAP basis, a three-year analysis of
losses and LAE, net of ceded reinsurance recoverable, with the net liability
reconciled to the gross liability as reported in the Company's financial
statements:

<TABLE>
<CAPTION>
                                                                2000       1999       1998
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Liability for losses and LAE, beginning of the year:
    Gross liability per balance sheet.......................  $113,850   $119,976   $114,770
    Ceded reinsurance recoverable, classified as an asset...   (74,017)   (83,654)   (75,616)
    Net liability...........................................    39,833     36,322     39,154
                                                              --------   --------   --------

Provision for losses and LAE for claims occurring in the
  current year..............................................    22,090     47,250     24,450
                                                              --------   --------   --------
Increase (decrease) in estimated losses and LAE for claims
  occurring in prior years..................................     2,355     (1,240)       819
                                                              --------   --------   --------
                                                                24,445     46,010     25,269
                                                              --------   --------   --------
Losses and LAE payments for claims occurring during:
    Current year............................................    11,608     30,827     18,398
    Prior years.............................................    16,849     11,672      9,703
                                                              --------   --------   --------
                                                                28,457     42,499     28,101
                                                              --------   --------   --------
Liability for losses and LAE at the end of the year:
    Net liability...........................................    35,821     39,833     36,322
    Ceded reinsurance recoverable, classified as an asset...    50,012     74,017     83,654
                                                              --------   --------   --------
    Gross liability per balance sheet.......................  $ 85,833   $113,850   $119,976
                                                              ========   ========   ========
</TABLE>

    The ceded reinsurance recoverable on paid and unpaid losses and LAE,
classified as an asset, includes $46,160, $66,371 and $94,440 at December 31,
2000, 1999 and 1998, respectively, of balances recoverable from the SC Facility,
the NC Facility and the NFIP.

    The difference between the year-end net liability for losses and LAE
reported in the accompanying consolidated financial statements in accordance
with GAAP and that in accordance with SAP was as follows for the years ended
December 31:

<TABLE>
<CAPTION>
                                                             2000       1999
                                                           --------   --------
<S>                                                        <C>        <C>
Net liability on a SAP basis as filed in annual
  statements.............................................  $36,360    $ 40,741
Established salvage and subrogation recoveries recorded
  on a cash basis for SAP and on an accrual basis for
  GAAP...................................................     (539)       (908)
                                                           -------    --------
Net liability on a GAAP basis, at year end...............   35,821      39,833
Ceded reinsurance recoverable classified as an asset.....   50,012      74,017
                                                           -------    --------
Gross liability on a GAAP basis, at year end.............  $85,833    $113,850
                                                           =======    ========
</TABLE>

                                       26
<PAGE>
    The following table reflects the loss and LAE balances and development for
2000 and 1999 on a GAAP basis:

<TABLE>
<CAPTION>
                                                             UNPAID      RE-ESTIMATED     CUMULATIVE
                                                           LOSSES AND   AS OF ONE YEAR    REDUNDANCY
                                                              LAE           LATER        (DEFICIENCY)
                                                           ----------   --------------   ------------
<S>    <C>                                                 <C>          <C>              <C>
2000:  Gross liability                                      $ 85,833
       Less reinsurance recoverable......................     50,012
                                                            --------
       Net liability.....................................   $ 35,821
                                                            ========
1999:  Gross liability                                      $113,850       $111,104         $ 2,746
       Less reinsurance recoverable......................     74,017         69,891           4,126
                                                            --------       --------         -------
       Net liability.....................................   $ 39,833       $ 41,213         $(1,380)
                                                            ========       ========         =======
</TABLE>

    The following analysis reflects loss and LAE development on a SAP basis, net
of ceded reinsurance recoverable, for a ten year period for retained business
only for year ended December 31 (in millions):
<TABLE>
<CAPTION>
                                       1990       1991       1992       1993       1994       1995       1996       1997
                                     --------   --------   --------   --------   --------   --------   --------   --------
<S>                                  <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Liability for unpaid losses and
  LAE..............................    $114       $112       $118       $120       $80        $62        $48        $39
Cumulative liability paid through:
  One year later...................    $ 77       $ 63       $ 30       $ 65       $26        $16        $ 9        $11
  Two years later..................     116         50         84         86        42         29         17         11
  Three years later................      93         91        102         99        52         35         17         11
  Four years later.................     125        104        112        108        58         35         17
  Five years later.................     135        111        120        114        58         35
  Six years later..................     140        117        125        114        58
  Seven years later................     146        122        126        114
  Eight years later................     151        122        126
  Nine years later.................     151        122
  Ten years later..................     151
Liability re-estimated as of:
  One year later...................    $136       $119       $129       $138       $85        $63        $45        $40
  Two years later..................     147        124        139        144        87         62         45         40
  Three years later................     151        134        151        143        85         62         45         40
  Four years later.................     161        145        149        141        85         62         45
  Five years later.................     172        143        150        141        85         62
  Six years later..................     171        145        149        141        85
  Seven years later................     173        145        149        142
  Eight years later................     173        145        149
  Nine years later.................     173        145
  Ten years later..................     173
Cumulative (deficiency)
  redundancy.......................    $(59)      $(33)      $(31)      $(22)      $(5)       $--        $ 3        $(1)
                                       ====       ====       ====       ====       ===        ===        ===        ===

<CAPTION>
                                       1998       1999       2000
                                     --------   --------   --------
<S>                                  <C>        <C>        <C>
Liability for unpaid losses and
  LAE..............................    $36        $40        $36
Cumulative liability paid through:
  One year later...................    $ 6        $11
  Two years later..................      7
  Three years later................
  Four years later.................
  Five years later.................
  Six years later..................
  Seven years later................
  Eight years later................
  Nine years later.................
  Ten years later..................
Liability re-estimated as of:
  One year later...................    $39        $41
  Two years later..................     39
  Three years later................
  Four years later.................
  Five years later.................
  Six years later..................
  Seven years later................
  Eight years later................
  Nine years later.................
  Ten years later..................
Cumulative (deficiency)
  redundancy.......................    $(3)       $(1)
                                       ===        ===
</TABLE>

    The preceding table presents the development of balance sheet liabilities on
a GAAP basis for 1990 through 2000. The top line of the preceding table shows
the initial estimated liability for each accident year. This liability
represents the estimated amount of losses and LAE for claims arising in past and
current years that are unpaid as of each balance sheet date, including losses
that have been incurred but not yet reported. The next portion of the table
reflects the cumulative payments made subsequent to and for each of the
indicated years as they have developed through time.

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

                                       27
<PAGE>
    A part of the Company's reserve for losses and LAE is set aside for
environmental, pollution, and toxic tort claims. These claims relate to business
written by the Company's previously owned West Coast operation prior to 1986. On
June 7, 1994, the Company settled a dispute related to approximately 400 of
these claims. Any future liability on these claims is limited to 50% of the
direct loss and LAE paid. The Company's obligation does not begin until the
other company involved in the settled dispute pays, subsequent to the settlement
date, a total of $20 million in losses and LAE. As of December 31, 2000 and
1999, $14.3 million and $13.8 million, respectively, of claims payments have
been made by the other company since the settlement date.

    Of the remaining environmental, pollution and toxic tort claims, the
following activity took place during 2000 and 1999:

<TABLE>
<CAPTION>
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Pending, January 1..........................................     44         43
New claims advised..........................................      5          4
Claims settled..............................................     (9)        (3)
                                                                 --         --
Pending, December 31........................................     40         44
                                                                 ==         ==
</TABLE>

    The policies corresponding to these claims were written on a direct basis.
The Company has excess of loss reinsurance with company retention through 1980
of $100 and between $250 and $500 thereafter. The claims are reserved as follows
as of December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Case reserves...............................................   $1,756     $3,196
IBNR reserves...............................................    3,025      3,193
LAE reserves................................................    1,514      1,083
                                                               ------     ------
Total.......................................................   $6,295     $7,472
                                                               ======     ======
</TABLE>

    The claims involve four Superfund sites, seven asbestos or toxic claims, two
underground storage tanks and twenty-seven miscellaneous clean-up sites. For
this direct business there are usually several different insurers participating
in the defense and settlement of claims made against the insured. Costs and
settlements are pro-rated by either time on the risk or policy limits.

    In estimating the liability for reported and estimated losses and LAE
related to environmental and construction defect claims, management considers
facts currently known along with current laws and coverage litigation.
Liabilities are recognized for known claims (including the cost of related
litigation) when sufficient information has been developed to indicate the
involvement of a specific insurance policy and management can reasonably
estimate its liability. In exposures on both known and unasserted claims,
estimates of the liabilities are reviewed and updated continually. The potential
development of losses is restricted by policy limits.

    Because only forty claims remain open as of December 31, 2000, the exposure
to significant additional development is less than when the claims were less
mature. In addition, the likelihood of new claims being asserted for
construction liability is lessened by the expiration of statutes of limitations
since the last policy expired over ten years ago.

                        LIQUIDITY AND CAPITAL RESOURCES

    Liquidity relates to the Company's ability to produce sufficient cash to
fulfill contractual obligations, primarily to policyholders. Sources of
liquidity include service fee income, premium collections, policy fees,
investment income and sales and maturities of investments. The principal uses of
cash are payments of claims, principal and interest payments on debt, payments
for operating

                                       28
<PAGE>
expenses and purchases of investments. Cash outflows can be variable because of
the uncertainties regarding settlement dates for liabilities for unpaid losses
and because of the potential for large losses. Accordingly, the Company
maintains investment and reinsurance programs generally intended to avoid the
forced sale of investments to meet claims obligations.

    Net cash used in operations totaled $13,797 for 2000, compared to net cash
used of $1,015 in 1999. The most notable use of cash flows from operating
activities resulted from the settlement of balances due other insurance
companies. Effective December 31, 1999, the Company entered into a 75% quota
share reinsurance agreement on its automobile operations whereby it ceded 75% of
its unearned premium portfolio to the reinsurers. The transaction created
balances due other insurance companies of $9,613, which was settled in the first
quarter of 2000. The 75% quota share reinsurance agreement was cancelled
effective July 1, 2000 and is in runoff. Furthermore, effective February 19,
2001, the Company resolved liabilities assumed upon the acquisition of the
Nashville operations which were recorded in balances due other insurance
companies in the amount of $6,527, in exchange for $1,000 in cash and the
issuance of warrants to purchase 75,000 shares of the Company's common stock at
$1.00 per share and an additional 75,000 shares of the Company's common stock at
$2.00 per share. The resolution and ultimate quantification of these
preacquisition liabilities was recorded effective December 31, 2000. Finally,
the largest offset of the overall decrease in balances due other insurance
companies is attributable to UIC substantially increasing its business ceded to
the NC Facility during 2000. As a result, balances due to the NC Facility
increased $1,824. Additional uses of cash flows from operating activities
include the overall decrease in the Company's net reserves for unpaid losses and
LAE. Settlements of claims, coupled with the runoff of the Nashville and South
Carolina automobile operations, resulted in a reduction of the Company's net
retained reserves for unpaid losses and LAE of $4,012. Similarly, the Company
has experienced a decrease in net unearned premium reserves of $740 due to the
runoff of its Nashville and South Carolina automobile operations. Further, with
the significant increase in UIC's premium ceded to the NC Facility, premiums
financed by PBP experienced a significant increase over 1999 of $1,825. Finally,
effective April 10, 2000, Catawba settled disputed municipal tax liabilities
with a recorded balance of $2,427 with the Municipal Association of South
Carolina for $1,525.

    The most significant source of cash flows from operating activities resulted
from the net collection of $4,497 of reinsurance recoverable on paid losses and
LAE. As of December 31, 1999, the Company reinsured 90% of its commercial
operations. Effective April 1, 2000, the agreement was amended to reduce the
reinsured percentage to 70% in an effort to capitalize on the profitability of
this business. The reduction in the quota share reinsurance accounted for $2,246
of the net collection of reinsurance recoverable on paid losses. The remaining
$2,251 net collection of reinsurance recoverable on paid losses is attributable
to substantial collections under various old reinsurance treaties nearing
completion of runoff. An additional source of cash flows from operating
activities was the Company's net collection of premiums and agent's balances
receivable. During the second and third quarters of 2000, the Company's
Nashville and South Carolina automobile operations, respectively, were placed
into runoff due to the unprofitable nature of the operations. The substantial
decrease in direct written premium over the last six months of 2000, coupled
with the Company's increased collections efforts to reduce bad debts expected
from the runoff of the operations, resulted in net collections of premiums and
agent's balances receivable of $6,519.

    Investing activities in 2000 used cash in the amount of $222. In
December 2000, the Company sold its corporate headquarters to its majority
shareholder and Chairman of the Board of Directors, providing cash of $4,500
less $19 of expenses incurred in connection with the sale. Concurrent with this
transaction, the Company leased the property back for a fixed period of three
years without an option for renewal. The Company received $11 from the sale of
other property and equipment and used $212 for the purchase of additional
property and equipment. More than offsetting the cash provided by these
transactions was net cash used in the purchase of debt and equity securities of
$4,502. Effective

                                       29
<PAGE>
January 21, 2000, three of the Company's insurance subsidiaries collectively
acquired a 30.625% equity ownership interest in QualSure Holding Corporation,
the holding company parent of QualSure, a homeowners take-out insurance company
domiciled in the state of Florida, for $4,900. In connection with this
investment, INS entered into a Claims Administration Services Agreement with
QualSure to adjudicate all of its claims for a fee based upon subject earned
premium. Approximately $398 of cash was provided through net liquidations and
maturities of the Company's debt securities portfolio.

    In its investment strategy, the Company attempts to match the average
duration of its investment portfolio with the approximate duration of its
liabilities. Total cash and investments at December 31, 2000 and 1999 were
$48,707 and $59,614, respectively. All debt securities are considered available
for sale and are carried at market value as of December 31, 2000 and 1999. The
weighted-average maturity of the fixed income investments as of December 31,
2000 was approximately 2.18 years. Average net investment yields on the
Company's cash and investments were 5.6% in 2000 and 4.7% in 1999.

    Financing activities in 2000 used $2,293, primarily attributable to the
repayment of debt issued in 1998 to fund the acquisitions of AFS and Graward and
the payment of dividends on the Company's special stock.

    The Company is a legal entity separate and distinct from its subsidiaries.
As a holding company, the primary sources of cash needed to meet its
obligations, including principal and interest payments on outstanding debt, are
dividends and other permitted payments, including management fees, from its
subsidiaries and affiliates.

    South Carolina and North Carolina insurance laws and regulations require a
domestic insurer to report any action authorizing distributions to shareholders
and material payments from subsidiaries and affiliates at least 30 days prior to
distribution or payment except in limited circumstances. Additionally, those
laws and regulations provide the Department of Insurance with the right to
disapprove and prohibit distributions meeting the definition of an
"Extraordinary Dividend" under applicable statutes and regulations.

    The South Carolina Insurance Holding Company Regulatory Act provides that,
without prior approval of the Commissioner of Insurance of the State of South
Carolina, dividends within any 12-month period may not exceed the greater of
(i) 10% of a domestic insurer's surplus as regarding policyholders as shown in
the insurer's most recent annual statement or (ii) a domestic insurer's net
income, not including realized capital gains or losses as shown in the insurer's
most recent annual statement. Furthermore, dividends may only be paid out of
positive earned surplus unless approved by the Commissioner. As of December 31,
2000, SCIC had negative earned surplus.

    The North Carolina Insurance Holding Company System Regulatory Act provides
that, without prior approval of the Commissioner of Insurance of the State of
North Carolina, dividends within any 12-month period may not exceed the lessor
of (i) 10% of a domestic insurer's surplus as regarding policyholders as of the
preceding December 31 or (ii) the net income, not including realized capital
gains, for the 12-month period ending the preceding December 31. For 2001, no
dividends are available from Universal to the Company.

    Payment of cash dividends by the Company is at the discretion of its Board
of Directors and is based on its earnings, financial condition, capital
requirements, and other relevant factors. If the ability of the Company's
insurance subsidiaries to pay dividends or make other payments to the Company is
materially restricted by regulatory or credit facility requirements, it could
affect the Company's ability to service its debt and/or pay dividends. In
addition, no assurance can be given that North Carolina or South Carolina will
not adopt statutory provisions more restrictive than those currently in effect.

    The volume of premiums that the property and casualty insurance subsidiaries
may prudently write is based in part on the amount of statutory net worth as
determined in accordance with applicable insurance regulations. The NAIC has
adopted RBC requirements for property and casualty insurance

                                       30
<PAGE>
companies to evaluate the adequacy of statutory capital and surplus in relation
to investment and insurance risks such as asset quality, asset and liability
matching, loss reserve adequacy, and other business factors. The RBC formula is
used by state insurance regulators as an early warning tool to identify, for the
purpose of initiating regulatory action, insurance companies that are
potentially inadequately capitalized. Compliance is determined by the ratio of
the Company's regulatory total adjusted capital to its company action level RBC
(as defined by the NAIC). Companies which fall below the company action level
RBC are required to disclose plans to remedy the situation. As of December 31,
2000, all of the insurance subsidiaries have ratios in excess of the level that
would prompt regulatory action.

                UTILIZATION OF NET OPERATING LOSS CARRYFORWARDS

    The Company has unused tax operating loss carryforwards and capital loss
carryforwards of $104,857 for income tax purposes. However, due to "change in
ownership" events that occurred in June 1998, January 1997, and January 1995,
the Company's use of the net operating loss carryforwards are subject to maximum
limitations in future years of approximately $2,200 per year. Net operating loss
carryforwards available for use in 2001 are approximately $10,900 due to losses
incurred in 1998, 1999 and 2000 after the change in ownership event occurred and
carryover of previous years' unused limitations.

    The Company has determined, based on its recent earnings history, that a
valuation allowance should be maintained against the deferred tax asset at
December 31, 2000 and 1999.

                        SAFE HARBOR STATEMENT UNDER THE
                PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

    Some of the statements discussed or incorporated by reference in this annual
report on Form 10-K are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, including statements regarding
management's current knowledge, expectations, estimates, beliefs and
assumptions. All forward-looking statements included in this document or
incorporated by reference are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward-looking statements. Results may differ materially because of both known
and unknown risks and uncertainties which the Company faces. Factors which could
cause results to differ materially from our forward-looking statements include,
but are not limited to:

    - the possibility that the Company will be unable to meet its cash flow
      requirements; the Company has suffered losses in recent years and the
      Company may continue to experience losses in the future;

    - the ability to secure additional sources of revenue;

    - the ability to secure and maintain long-term relationships with customers
      and agents;

    - the effects of economic conditions and conditions which affect the market
      for property and casualty insurance, including, but not limited to,
      interest rate fluctuations and flood zone determination services;

    - the effects and impact of laws, rules and regulations which apply to
      insurance companies;

    - geographic concentrations of loss exposure, causing revenues and
      profitability to be subject to prevailing regulatory, demographic and
      other conditions in the area in which the Company operates;

    - the availability of reinsurance and the ability of the Company's
      reinsurance arrangements to balance the geographical concentrations of the
      Company's risks;

                                       31
<PAGE>
    - the impact of competition from new and existing competitors, which
      competitors may have superior financial and marketing resources than the
      Company;

    - the impact of the decisions to exit the Graward and South Carolina
      nonstandard automobile operations;

    - the ability to successfully implement the restructuring plan and the risk
      that current initiatives may not be successful;

    - restrictions on the Company's ability to declare and pay dividends;

    - the fact that the Company has experienced, and can be expected in the
      future to experience, storm and weather-related losses, which may result
      in a material adverse effect on the Company's results of operations,
      financial condition and cash flows;

    - the uncertainty associated with estimating loss reserves, and the adequacy
      of such reserves, capital resources and other financial items;

    - the outcome of certain litigation and administrative proceedings involving
      the Company;

    - control of the Company by a principal shareholder, which shareholder has
      the ability to exert significant influence over the policies and affairs
      of the Company;

    - risks the Company faces in diversifying the services it offers and
      entering new markets; and

    - other risk factors listed from time to time in the Company's Securities
      and Exchange Commission filings.

    Accordingly, there can be no assurance that the actual results will conform
to the forward-looking statements discussed or incorporated by reference in this
annual report on Form 10-K.

ITEM 7A.  MARKET RISK

    A substantial portion of the Company's cash and investments is comprised of
investments in market-rate sensitive debt securities. The amortized costs and
estimated market values of these market-rate sensitive investments as of
December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                2000                    1999
                                                        ---------------------   ---------------------
                                                                    ESTIMATED               ESTIMATED
                                                        AMORTIZED    MARKET     AMORTIZED    MARKET
                                                          COST        VALUE       COST        VALUE
                                                        ---------   ---------   ---------   ---------
<S>                                                     <C>         <C>         <C>         <C>
U.S. Government, government agencies and
  authorities.........................................   $14,852     $15,009     $15,343     $15,135
States, municipalities and political subdivisions.....       375         383         375         381
Corporate bonds.......................................    16,369      16,598      16,462      16,059
                                                         -------     -------     -------     -------
  Total...............................................   $31,596     $31,990     $32,180     $31,575
                                                         =======     =======     =======     =======
</TABLE>

    The market values of these investments can fluctuate greatly according to
changes in the general level of market interest rates. For example, a one
percentage point increase (decrease) in the general level of market interest
rates would (decrease) increase the total estimated market value of the
Company's debt securities by approximately $(808) and $779, respectively, as of
December 31, 2000. In its investment strategy, the Company attempts to match the
average duration of its investment portfolio with the approximate duration of
its liabilities. All debt securities are considered available for sale and are
carried at market value as of December 31, 2000 and 1999. The weighted-average
maturity of the fixed income investments as of December 31, 2000 was
approximately 2.18 years.

    The Company has variable-rate debt based upon the LIBOR or the prime
interest rate, as described in Note 5 in Item 8, Part II.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED ON FOLLOWING
  PAGE).

                                       32
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Seibels Bruce Group, Inc.:

    We have audited the accompanying consolidated balance sheets of The Seibels
Bruce Group, Inc. (the Parent Company--a South Carolina corporation) and
subsidiaries (collectively the "Company"), as of December 31, 2000 and 1999, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 2000. These financial statements and the schedules referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedules based on our
audits.

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

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Seibels
Bruce Group, Inc. and subsidiaries, as of December 31, 2000 and 1999 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.

    Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Schedules I, II, III, IV, V and VI
listed in Part IV, Item 14 are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements, and in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

Columbia, South Carolina,
March 28, 2001.

                                       33
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

                               AS OF DECEMBER 31,
                          (DOLLARS SHOWN IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
ASSETS
Cash and investments:
    Debt securities, available-for-sale, at market (cost of
     $31,596 at 2000 and $32,180 at 1999)...................  $ 31,990   $ 31,575
    Equity securities, at market (cost of $6,344 at 2000 and
     $1,317 at 1999)........................................     6,307      1,317
    Cash and short-term investments.........................    10,410     26,722
                                                              --------   --------
        Total cash and investments..........................    48,707     59,614
Accrued investment income...................................       749        835
Premiums and agent's balances receivable, net of allowance
  for doubtful accounts of $4,780 in 2000 and $4,247 in
  1999......................................................     1,637      8,156
Premium notes receivable, net of allowance for doubtful
  accounts of $400 in 2000 and $393 in 1999.................     5,260      3,435
Reinsurance recoverable on paid losses and loss adjustment
  expenses..................................................    14,031     18,528
Reinsurance recoverable on unpaid losses and loss adjustment
  expenses..................................................    50,012     74,017
Property and equipment, net.................................       917      5,421
Prepaid reinsurance premiums -- ceded business..............    40,997     56,724
Deferred policy acquisition costs...........................       400      1,373
Goodwill....................................................     4,638     19,876
Other assets................................................     3,318      6,824
                                                              --------   --------
        Total assets........................................  $170,666   $254,803
                                                              ========   ========

LIABILITIES
Losses and loss adjustment expenses:
    Reported and estimated losses and claims--retained
     business...............................................  $ 30,574   $ 34,733
                                        --ceded business....    46,612     67,904
    Adjustment expenses--retained business..................     5,247      5,100
                      --ceded business......................     3,400      6,113
Unearned premiums--retained business........................     5,056      5,796
                 --ceded business...........................    40,997     56,724
Balances due other insurance companies......................     4,592     20,460
Debt........................................................    10,159     14,986
Restructuring accrual.......................................       276         --
Other liabilities and deferred items........................     9,061     13,730
                                                              --------   --------
        Total liabilities...................................   155,974    225,546
                                                              --------   --------

COMMITMENTS AND CONTINGENCIES
SPECIAL STOCK, no par value, authorized 5,000,000 shares
Issued and outstanding 220,000 shares of cumulative $0.62,
  convertible, redeemable, nonvoting special preferred
  stock, redemption value $2,200............................     2,200      2,200
Issued and outstanding 50,000 shares of cumulative $0.625,
  convertible, redeemable, nonvoting special preferred
  stock, redemption value $500..............................       500        500
                                                              --------   --------
        Total special stock.................................     2,700      2,700
                                                              --------   --------

SHAREHOLDERS' EQUITY
Common stock, $1 par value, authorized 17,500,000 shares in
  2000 and 1999, issued and outstanding 7,831,690 and
  7,831,398 shares in 2000 and 1999, respectively...........     7,832      7,831
Additional paid-in-capital..................................    61,989     61,988
Accumulated other comprehensive income......................       357       (605)
Accumulated deficit.........................................   (58,186)   (42,657)
                                                              --------   --------
        Total shareholders' equity..........................    11,992     26,557
                                                              --------   --------
        Total liabilities and shareholders' equity..........  $170,666   $254,803
                                                              ========   ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       34
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS

                        FOR THE YEAR ENDED DECEMBER 31,
(DOLLARS AND WEIGHTED AVERAGE SHARES OUTSTANDING SHOWN IN THOUSANDS, EXCEPT PER
                                 SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                2000       1999       1998
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Commission and service income...............................  $ 35,890   $ 45,652   $49,298
Premiums earned:
    Property and casualty...................................    25,137     53,344    22,762
    Credit life.............................................        --         --        13
Net investment income.......................................     2,660      2,835     3,271
Other interest income, net..................................     1,967      1,385     1,374
Net realized (loss) gain....................................      (225)       338        54
Policy fees and other income................................     4,693      4,779     4,645
                                                              --------   --------   -------
        Total revenue.......................................    70,122    108,333    81,417
                                                              --------   --------   -------
Expenses
    Property and casualty:
        Losses and loss adjustment expenses.................    24,445     46,010    25,269
        Policy acquisition costs............................    25,003     33,721    10,222
    Credit life benefits....................................        --         --       (46)
    Interest expense........................................     1,436      1,216       981
    Other operating costs and expenses......................    26,461     34,885    46,823
    Special items...........................................     8,138         --       546
                                                              --------   --------   -------
        Total expenses......................................    85,483    115,832    83,795
                                                              --------   --------   -------
Loss from operations, before (provision) benefit for income
  taxes and effect of change in accounting principle........   (15,361)    (7,499)   (2,378)
(Provision) benefit for income taxes........................        --        (37)       85
                                                              --------   --------   -------
Loss before effect of change in accounting principle........   (15,361)    (7,536)   (2,293)
Effect of change in accounting principle....................        --         --      (601)
                                                              --------   --------   -------
Net loss....................................................   (15,361)    (7,536)   (2,894)
Other comprehensive income:
    Change in value of marketable securities, less
     reclassification adjustment of $(236), $(91) and $85
     for net (losses) gains included in net loss in 2000,
     1999 and 1998, respectively............................       962     (1,512)      860
                                                              --------   --------   -------
Comprehensive net loss......................................  $(14,399)  $ (9,048)  $(2,034)
                                                              ========   ========   =======
Basic loss per share before change in accounting principle:
    Net loss................................................  $  (1.98)  $  (0.99)  $ (0.31)
    Weighted average shares outstanding.....................     7,832      7,774     7,763
                                                              ========   ========   =======
Diluted loss per share before change in accounting
  principle:
    Net loss................................................  $  (1.98)  $  (0.99)  $ (0.31)
    Weighted average shares outstanding.....................     7,832      7,774     7,763
                                                              ========   ========   =======
Basic loss per share after change in accounting principle:
    Net loss................................................  $  (1.98)  $  (0.99)  $ (0.39)
    Weighted average shares outstanding.....................     7,832      7,774     7,763
                                                              ========   ========   =======
Diluted loss per share after change in accounting principle:
    Net loss................................................  $  (1.98)  $  (0.99)  $ (0.39)
    Weighted average shares outstanding.....................     7,832      7,774     7,763
                                                              ========   ========   =======
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       35
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                        FOR THE YEAR ENDED DECEMBER 31,
                          (DOLLARS SHOWN IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                2000       1999       1998
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Common stock:
  Beginning of year.........................................  $  7,831   $  7,773   $  7,731
  Stock issued under stock option plans.....................         1         58         42
                                                              --------   --------   --------
  End of year...............................................  $  7,832   $  7,831   $  7,773
                                                              --------   --------   --------

Additional paid-in-capital:
  Beginning of year.........................................  $ 61,988   $ 61,861   $ 61,665
  Stock issued under stock option plans.....................         1        127        196
                                                              --------   --------   --------
  End of year...............................................  $ 61,989   $ 61,988   $ 61,861
                                                              --------   --------   --------

Accumulated other comprehensive income:
  Beginning of year.........................................  $   (605)  $    907   $     47
  Change during the year....................................       962     (1,512)       860
                                                              --------   --------   --------
  End of year...............................................  $    357   $   (605)  $    907
                                                              --------   --------   --------

Accumulated deficit:
  Beginning of year.........................................  $(42,657)  $(34,953)  $(31,899)
  Net loss..................................................   (15,361)    (7,536)    (2,894)
  Dividends on special stock................................      (168)      (168)      (160)
                                                              --------   --------   --------
  End of year...............................................  $(58,186)  $(42,657)  $(34,953)
                                                              --------   --------   --------
    Total shareholders' equity..............................  $ 11,992   $ 26,557   $ 35,588
                                                              ========   ========   ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       36
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                        FOR THE YEAR ENDED DECEMBER 31,
                          (DOLLARS SHOWN IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                2000       1999       1998
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
  Net loss..................................................  $(15,361)  $(7,536)   $ (2,894)
  Adjustments to reconcile net loss to cash (used in)
    provided by operating activities:
      Special items.........................................     7,510        --          --
      Equity in earnings of unconsolidated subsidiaries.....      (191)      (11)       (392)
      Amortization of deferred policy acquisition costs.....    25,003    33,721      10,222
      Depreciation and amortization.........................     1,847     2,552       2,115
      Realized loss (gain) on sale of investments, net......       236        91         (85)
      Realized (gain) loss on sale of property and
       equipment, net.......................................       (11)     (186)         31
      Realized gain on sale of subsidiary...................        --      (243)         --
      Change in assets and liabilities:
          Accrued investment income.........................        86       (21)        (95)
          Premiums and agent's balances receivable, net.....     6,519     6,572       5,838
          Premium notes receivable, net.....................    (1,825)    1,171      (1,373)
          Reinsurance recoverable on losses and loss
            adjustment expenses.............................    28,502    21,081      (7,766)
          Prepaid reinsurance premiums -- ceded business....    15,727     2,895      (9,017)
          Deferred policy acquisition costs.................   (24,030)  (32,622)    (11,129)
          Unpaid losses and loss adjustment expenses........   (28,017)   (6,126)      5,206
          Unearned premiums.................................   (16,467)  (10,018)     18,178
          Balances due other insurance companies............   (10,341)  (18,564)      1,964
          Accrued restructuring charges.....................       276        --          --
          Other, net........................................    (3,260)    6,229      (2,784)
                                                              --------   -------    --------
              Net cash (used in) provided by operating
                activities..................................   (13,797)   (1,015)      8,019
                                                              --------   -------    --------
Cash flows from investing activities:
  Proceeds from investments sold or matured.................    11,335    20,343      31,542
  Cost of investments acquired..............................   (15,837)  (16,565)    (28,495)
  Proceeds from property and equipment sold, net............     4,492       499          40
  Purchases of property and equipment.......................      (212)   (1,506)     (1,392)
  Proceeds from sale of subsidiary, net of cash transferred
    of $3,382...............................................        --     3,072          --
  Cost of purchased subsidiary..............................        --        --      (5,598)
                                                              --------   -------    --------
              Net cash (used in) provided by investing
                activities..................................      (222)    5,843      (3,903)
                                                              --------   -------    --------
Cash flows from financing activities:
  Issuance of capital stock.................................         2       185         238
  Net (repayment) proceeds from issuance of debt............    (2,127)   (1,264)     10,025
  Dividends paid............................................      (168)     (168)       (160)
                                                              --------   -------    --------
              Net cash (used in) provided by financing
                activities..................................    (2,293)   (1,247)     10,103
                                                              --------   -------    --------
Net (decrease) increase in cash and short-term
  investments...............................................   (16,312)    3,581      14,219
Cash and short-term investments, beginning of year..........    26,722    23,141       8,922
                                                              --------   -------    --------
Cash and short-term investments, end of year................  $ 10,410   $26,722    $ 23,141
                                                              ========   =======    ========
Supplemental cash flow information:
  Interest paid.............................................  $  1,077   $ 1,076    $    922
  Income taxes paid.........................................        --        --          39
                                                              ========   =======    ========
Non-cash investing, financing and other activities:
  Elimination of note in connection with the settlement of
    purchase price adjustments..............................  $ (2,700)  $    --    $     --
  Settlement of obligations in connection with the
    resolution of preacquisition liabilities................    (5,527)       --          --
                                                              ========   =======    ========
  Acquisitions:
      Cash paid, net of cash acquired of $4,111.............  $     --   $    --    $ (5,598)
      Issuance of debt......................................        --        --      (2,700)
      Preferred stock issued................................        --        --        (500)
      Assets acquired.......................................        --        --      17,563
      Liabilities assumed...................................        --        --     (27,247)
                                                              --------   -------    --------
      Goodwill..............................................  $     --   $    --    $(18,482)
                                                              ========   =======    ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       37
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

    The accompanying consolidated financial statements include the accounts of
The Seibels Bruce Group, Inc. (the "Company") and its wholly owned subsidiaries
and have been prepared in conformity with accounting principles generally
accepted in the United States ("GAAP") pursuant to the rules and regulations of
the Securities and Exchange Commission. All significant intercompany balances
and transactions have been eliminated in consolidation. Certain prior year
balances have been reclassified to conform with the current year presentation.

    DESCRIPTION OF THE BUSINESS

    The Company provides automobile, flood, and other property and casualty
insurance services and products to customers located primarily in the
southeastern United States. A significant source of revenue for the Company
includes premiums earned from its retained risk property and casualty insurance
operations. During 2000, however, the Company shifted its emphasis of operations
away from its risk-bearing property and casualty insurance operations towards
its fee-based products and services, which include the following:

    - South Carolina Reinsurance Facility ("SC Facility")

    One of the Company's insurance subsidiaries, Catawba Insurance Company
("Catawba"), is one of three servicing carriers for the SC Facility, a
state-sponsored plan for insuring South Carolina drivers outside of the
voluntary market. In its capacity as a servicing carrier, Catawba receives
commission and service income from the SC Facility but retains no underwriting
risk. The SC Facility began its planned runoff effective March 1, 1999, at which
time no new business was accepted into the SC Facility. Effective October 1,
1999, voluntary renewals were no longer accepted by the SC Facility. However,
servicing carriers can still cede renewals to the SC Facility until March 1,
2002, at which time final runoff of the SC Facility will commence. The South
Carolina Associated Auto Insurers Plan ("SCAAIP") became effective in
March 1999 and will survive the SC Facility. The SCAAIP offers the Company
access to additional fee-based revenue with no underwriting risk. However, thus
far into the runoff of the SC Facility, the Company has not experienced
significant activity in the SCAAIP.

    - North Carolina Reinsurance Facility ("NC Facility")

    The NC Facility is a state-sponsored plan for insuring North Carolina
drivers outside of the voluntary market. Two of the Company's insurance
subsidiaries, South Carolina Insurance Company ("SCIC") and Universal Insurance
Company ("UIC") derive commission and service income from business they cede to
the NC Facility, but retain no underwriting risk.

    - National Flood Insurance Program ("NFIP")

    Through its subsidiaries, SCIC and Catawba, the Company continues to be a
leading provider, and is an original participant, in the NFIP, a flood insurance
program administered by the federal government. In this capacity, the Company
receives commissions and fees from the NFIP, but retains no underwriting risk.

    - Claims Adjusting and Management Services

    The Company receives fee-based income from its catastrophe, property and
casualty and automobile claims adjusting services and liability runoff
management services. The Company's premium concentration in the
catastrophe-heavy Southeast led to the creation of a catastrophe adjusting

                                       38
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
business, Insurance Network Services ("INS"), to manage the Company's internal
claims volume. INS has since extended its services to over 50 third party
affiliated and unaffiliated customers and currently offers three services:
catastrophe claims handling for hurricanes, tornadoes, hailstorms, earthquakes
and floods; catastrophe claims supervision; and ordinary claims adjusting.

    - Flood Zone Determinations and Compliance Tracking Services

    In the first quarter of 1998, the Company purchased America's Flood
Services, Inc. ("AFS") located in Rancho Cordova, California. AFS offers
fee-based flood zone determinations and compliance tracking services to a
variety of customers and institutions located throughout the United States.

    OPERATIONS AND BUSINESS PLAN

    The net losses experienced in 2000 and 1999 are primarily related to the
Company's automobile segment, which includes its Nashville and North Carolina
operations, South Carolina voluntary automobile operations, the SC Facility and
the NC Facility. The overall automobile segment incurred net losses of $15,245
and $12,761 in 2000 and 1999, respectively. Within the overall automobile
segment, the Nashville and South Carolina automobile operations accounted for
the most significant portion of the losses, losing approximately $13,325 and
$2,076, respectively, in 2000 and approximately $4,235 and $4,845, respectively,
in 1999.

    The Company began 2000 with a variety of challenges. The nonstandard
automobile market remained intensely competitive, keeping downward pressure on
insurance rates and significantly impacting the ability of the Company's
risk-bearing insurance operations, most notably the Nashville and South Carolina
automobile operations, to become profitable. In addition, the SC Facility would
continue its runoff and have an adverse affect on the Company's commission and
service income opportunities. From a regulatory compliance standpoint, the
Company's primary insurance subsidiary, SCIC, remained subject to a minimum
statutory capital and surplus requirement placed by the South Carolina
Department of Insurance (the "SCDOI") which was in excess of statutorily
required minimums. Finally, the Company's credit facility stipulated that the
Company demonstrate compliance with a number of affirmative and negative
covenants on a quarterly basis. Significant financial covenants include minimum
statutory capital and surplus levels, ratios of debt to total capitalization and
cash flow coverage.

    During the first and second quarters of 2000, in an attempt to mitigate the
losses experienced during 1999, the Company intensified its cost control and
profitability measures originally introduced in the third and fourth quarters of
1999. These measures were primarily directed at the Nashville and South Carolina
automobile operations in an attempt to turn the operations profitable. Despite
these efforts, however, both operations remained unprofitable. During the second
quarter of 2000, management concluded that all available actions and cost
control measures that could reasonably be taken in relation to the Nashville
operations had been taken and that it would not generate profits. That operation
was then discontinued (see SPECIAL ITEMS). Similarly, during the third quarter
of 2000, it was concluded that the South Carolina automobile operations also
would not generate profits. As a result, the Company began its withdrawal from
the voluntary nonstandard automobile market in South Carolina. With these
actions, management believes it has effectively addressed the major causes of
its operating losses in 2000 and has positioned the Company for profitability in
2001.

    Effective January 21, 2000, three of the Company's insurance subsidiaries
collectively acquired a 30.625% equity ownership interest in QualSure Holding
Corporation, the holding company parent of

                                       39
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
QualSure Insurance Corporation, a homeowners take out insurance company
domiciled in the state of Florida. In connection with this investment, INS
entered into a Claims Administration Services Agreement with QualSure Insurance
Corporation to adjudicate all of its claims for a fee based upon subject earned
premium. The Company believes this investment capitalizes upon its considerable
experience in claims adjudication and will provide a substantial source of
additional fee-based income to partially compensate for its decreased commission
and service income resulting from the runoff of the SC Facility.

    From a debt compliance standpoint, after obtaining waivers of noncompliance
for minimum statutory capital and surplus levels and the ratio of debt to total
capitalization, the Company was in compliance with credit facility covenants as
of December 31, 2000. Additionally, the restrictive minimum statutory capital
and surplus requirement placed by the SCDOI on SCIC, which was in excess of
statutorily required minimums and related to premium writings on retained
business, was no longer restrictive once the Company announced the
discontinuation of its Nashville operations and its withdrawal from the
nonstandard voluntary automobile market in South Carolina. These actions removed
SCIC from the majority of its voluntary automobile risk-bearing market.

    The Company continues with many of the same challenges. The SC Facility will
continue its runoff and have an adverse affect on the Company's commission and
service income opportunities. With regard to the Company's credit facility, it
must still demonstrate compliance with a number of affirmative and negative
covenants on a quarterly basis, including minimum statutory capital and surplus
levels, ratios of debt to total capitalization and cash flow coverage. While the
Company indeed continues to face considerable challenges in 2001, it now
operates without the significant losses generated by the unprofitable Nashville
and South Carolina automobile operations. Furthermore, INS continued its growth
in 2000 and is expecting additional growth in 2001 to partially offset the
Company's expected decrease in commission and service income. In addition, UIC
is under new management and is planning on significantly increasing its business
ceded to the NCRF, thereby increasing the Company's commission and service
income with no underwriting risk. The Company is also actively seeking other
fee-based opportunities in the insurance marketplace. Finally, in 2001 SCIC is
subject to the normal capital and surplus requirements enforced by the SCDOI and
it is management's opinion that the Company's amended affirmative and negative
covenants under its credit facility allow for the Company to be in compliance
within its 2001 Business Plan. Management is of the opinion that the Company's
operations will be profitable in 2001 and that it will be able to maintain
compliance with existing capital and surplus and debt requirements.

    FAIR VALUE OF FINANCIAL INSTRUMENTS

    Investments in debt and equity securities are classified as either
held-to-maturity, available-for-sale or trading. The Company currently holds all
securities as available-for-sale, and reports them at fair value, with
subsequent changes in value reflected as unrealized investment gains and losses
credited or charged directly to accumulated other comprehensive income included
in shareholders' equity.

    The fair values of the Company's cash and short-term investments approximate
carrying values due to the short-term nature of those instruments.

    The fair values of debt securities and equity securities were determined
from nationally quoted market rates. The fair market value of certain municipal
bonds is assumed to be equal to amortized cost where no market quotations exist.

                                       40
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    Premiums and agent's balances receivable and premium notes receivable are
carried at historical cost which approximates fair value as a result of timely
collections and evaluations of recoverability with a provision for uncollectable
amounts. Premium notes receivable are generally short-term in nature, with a
duration of approximately six months.

    The Company's debt is carried at its outstanding balance, which approximates
fair value as a result of its variable market rate of interest.

    CASH AND SHORT-TERM INVESTMENTS

    Cash and short-term investments consists of cash on hand, time deposits and
commercial paper. Short-term investments have an original maturity of three
months or less and are considered to be cash equivalents.

    PREMIUM NOTES RECEIVABLE

    The Company offers premium financing arrangements that require a down
payment and payment of the remaining balance in equal installments over the
policy term.

    ALLOWANCE FOR UNCOLLECTABLE ACCOUNTS

    The Company routinely evaluates the collectability of receivables and has
established an allowance for uncollectable accounts for agents' balances and
direct billed balances receivable and premium notes receivable in the amount of
approximately $5,180 and $4,640 at December 31, 2000 and 1999, respectively.

    PROPERTY AND EQUIPMENT

    Property and equipment is stated at cost and, for financial reporting
purposes, depreciated on a straight-line basis over the estimated useful lives
of the assets. For income tax purposes, accelerated depreciation methods are
used. Maintenance and repairs costs are charged to expense as incurred.

    INTANGIBLE ASSETS

    Intangible assets consist primarily of goodwill and deferred loan costs.
Goodwill is the excess of the amount paid to acquire a company over the fair
value of its net assets, reduced by amortization and any subsequent valuation
adjustments. The Company amortizes goodwill using the straight-line method over
a period not to exceed 40 years. Deferred loan costs are the costs associated
with issuing long term debt. The costs are amortized over the life of the debt.
Intangible assets are continually evaluated to determine if any portion of the
remaining balance may not be recoverable. If circumstances suggest that their
value may be impaired and the write-down would be material, an assessment of
recoverability is performed and any impairment is recorded through a valuation
allowance with a corresponding charge recorded in the statements of operations.
During 2000, the Company concluded that the goodwill associated with the
acquisition of Graward General Companies, Inc. ("Graward") was fully impaired
(see SPECIAL ITEMS).

    PROPERTY AND CASUALTY UNPAID LOSS AND LOSS ADJUSTMENT EXPENSE

    The liability for property and casualty unpaid losses and loss adjustment
expenses includes:

(1) An accumulation of case estimates for losses reported prior to the close of
    the accounting period.

                                       41
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(2) Estimates of incurred-but-not-reported ("IBNR") losses based upon past
    experience and current circumstances.

(3) Estimates of allocated, as well as unallocated, loss adjustment expense
    liabilities determined by applying percentage factors to the unpaid loss
    reserves, with such factors determined on a by-line basis based on past
    results of paid loss expenses to paid losses.

(4) The deduction of estimated amounts recoverable from salvage, subrogation,
    and second injury funds.

(5) Estimated losses for reinsurance ceded and assumed.

    Management, in conjunction with the Company's consulting actuaries, performs
a complete review of the above components of the Company's loss reserves to
evaluate the adequacy of such reserves. Management believes the reserves, which
approximate the amount determined by independent actuarial reviews, are
sufficient to prevent prior years' losses from adversely affecting future
periods; however, establishing reserves is an estimation process and adverse
developments in future years may occur and would be recorded in the year so
determined.

    INCOME TAXES

    The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. This method also requires the
recognition of future tax benefits such as net operating loss carryforwards to
the extent that realization of such benefits is more likely than not. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period that includes
the enactment date.

    COMMISSION AND SERVICE INCOME AND POLICY FEES

    Commission and service income is predominately derived from servicing
carrier and managing general agent activities. The commission income related to
producing and underwriting the business is recognized in the period in which the
business is written. Service income and policy fees related to claims processing
are recognized on an accrual basis as earned.

    PROPERTY AND CASUALTY PREMIUMS

    Property and casualty premiums are reflected in income when earned as
computed on a monthly pro-rata basis. Written premiums and earned premiums have
been reduced by reinsurance placed with other companies, including amounts
related to business produced as a servicing carrier.

    CREDIT LIFE PREMIUMS

    Credit life premiums are reflected in income when earned as computed on a
monthly pro-rata basis for level term premiums and on a sum-of-the-digits method
for decreasing term premiums.

                                       42
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    OTHER INTEREST INCOME

    Other interest income includes interest received on reinsurance balances
withheld, agents' balances receivable, balances due from the SC Facility and the
SCAAIP, and financing of premium notes receivable. Other interest income is
recognized on an accrual basis as earned.

    POLICY ACQUISITION COSTS

    Policy acquisition costs attributable to property and casualty operations
represent that portion of the cost of writing business that varies with, and is
primarily related to, the production of business. Such costs are deferred and
charged against income as the premiums are earned. The deferral of policy
acquisition costs is subject to the application of recoverability tests to each
primary line or source of business based on past and anticipated underwriting
results. The deferred policy acquisition costs that are not recoverable from
future policy revenues, if any, are expensed. The Company considers anticipated
investment income in determining whether premium deficiencies exist.

    SPECIAL ITEMS

    During the second quarter of 1998, the Company recorded a pre-tax
restructuring charge of $546 related to the consolidation of its automobile and
claims operations. The charges relate to employee severance and other
termination benefits incurred in connection with moving the processing of the
Company's automobile insurance business from Winston-Salem, North Carolina to
Nashville, Tennessee and from the consolidation of claims management and staff
positions in the Columbia, South Carolina office. All liabilities associated
with the restructuring were paid in 1998.

    In June 2000, the Company's Board of Directors approved and the Company
announced a restructuring plan (the "Restructuring Plan") centering on the
discontinuation of its Nashville operations. The Restructuring Plan will be
substantially completed by December 31, 2001 and includes approximately $16,421
in special charges related primarily to the impairment of long-lived assets
associated with the operation, employee severance, and the cancellation of
contractual commitments. The cash requirements of the Restructuring Plan were
estimated to be approximately $743 and will be substantially expended by
March 31, 2001. Restructuring costs include all costs directly related to the
Restructuring Plan. Employee termination costs were recognized when benefit
arrangements were communicated to affected employees in sufficient detail to
enable the employees to determine the amount of benefits to be received upon
termination. Other exit costs resulting from the exit plan that were not
associated with and that did not benefit continued activities were recognized at
the date of commitment to the exit plan. Other costs directly related to the
discontinuation of the Nashville operations that were not eligible for
recognition at the commitment date, such as relocation costs and estimated
operating costs to be incurred during the runoff period, are being expensed as
incurred.

    Of the $16,421 total restructuring charge, approximately $15,678 relates to
the impairment of long-lived assets, including $14,915 of goodwill, $580 of
fixed assets directly associated with the Nashville operation and $183 of
deferred financing costs. The Company evaluated the recoverability of long-lived
assets by determining the recoverability of long-lived assets not held for sale.
Management measures the carrying amount of the assets against the estimated
undiscounted future cash flows associated with them. The recoverability of
long-lived assets held for sale are then compared to the asset's carrying amount
less estimated selling costs.

    On November 29, 2000, the Company reached a settlement with the sellers of
Graward related to certain purchase price adjustments. In the settlement, the
sellers of Graward agreed to cancel four

                                       43
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Subordinated Purchase Notes dated May 1, 1998 in the aggregate face amount of
$2,700. The Company in turn agreed to dismiss a pending motion and an
arbitration demand. Additionally, the Company agreed to issue to the sellers of
Graward warrants to purchase 25,000 shares of its common stock at a price of
$3.00 per share and an additional 25,000 shares of its common stock at a price
of $7.00 per share. The settlement of these purchase price disputes resulted in
a special items gain of $2,700.

    Effective February 19, 2001, the Company reached a settlement with respect
to liabilities assumed upon the acquisition of Graward recorded in the amount of
$6,527 which were discharged in exchange for $1,000 in cash and the issuance of
warrants to purchase 75,000 shares of the Company's common stock at $1.00 per
share and an additional 75,000 shares of the Company's common stock at $2.00 per
share (see Note 15). The resolution and ultimate quantification of these
preacquisition liabilities resulted in a special items gain of $5,527.

    Following is a summary of the special items charge included in the
consolidated statements of operations for the year ended December 31, 2000:

<TABLE>
<S>                                                           <C>
Initial restructuring plan charge...........................  $16,421
Estimate revision...........................................      (56)
Settlement of purchase price adjustments and elimination of
  related note..............................................   (2,700)
Resolution of preacquisition liabilities....................   (5,527)
                                                              -------
                                                              $ 8,138
                                                              =======
</TABLE>

    Following is a summary of the restructuring plan charge included in the
consolidated balance sheet at December 31, 2000:

<TABLE>
<CAPTION>
                             IMPAIRMENT    SEVERENCE   CONTRACTUAL
                              OF LONG-        AND       COMMITMENT
                            LIVED ASSETS   BENEFITS    CANCELLATION   ALL OTHER    TOTAL
                            ------------   ---------   ------------   ---------   --------
<S>                         <C>            <C>         <C>            <C>         <C>
Initial restructuring plan
  charge..................     $15,678       $304          $304         $135      $16,421
Utilization during 2000...     (15,678)      (207)          (63)        (141)     (16,089)
Estimate revision.........          --        (47)          (38)          29          (56)
                               -------       ----          ----         ----      -------
Balance, December 31,
  2000....................     $    --       $ 50          $203         $ 23      $   276
                               =======       ====          ====         ====      =======
</TABLE>

    All charges associated with the Restructuring Plan were determined based on
the formal plans of management, and approved by the Board of Directors, using
the best information available. The amounts ultimately incurred could change as
the operations are run off over 2001.

    CHANGE IN ACCOUNTING PRINCIPLE

    Effective January 1, 1998, the Company adopted the provisions of Statement
of Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance- Related Assessments", and recorded it as a cumulative effect of a
change in accounting principle of $601. As a result, the Company's participation
in the NC Facility is no longer being treated as assumed reinsurance and all
amounts assumed from the NC Facility have been eliminated. The NC Facility is
now treated as an assessment organization. The effect of the change in
accounting principle was a reduction of $.08 per share on both a basic and
diluted basis. Assuming the change in accounting principle was applied

                                       44
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
retroactively, the Company's net loss and loss per share for the twelve months
ended December 31, 1998 would have been $(2,293) and $(0.31), respectively.

    COMPREHENSIVE INCOME

    Comprehensive income is a measure of all non-owner changes in equity of an
entity and includes net loss plus changes in certain assets and liabilities that
are reported directly through equity.

    EARNINGS PER SHARE

    In accordance with SFAS No. 128, "Earnings Per Share", the Company measures
earnings per share at two levels: basic earnings per share and diluted earnings
per share. Basic per share data is calculated by dividing loss allocable to
common stockholders by the weighted average number of shares outstanding during
the year. Diluted per share data is calculated by dividing loss allocable to
common stockholders by the weighted average number of shares outstanding during
the year, as adjusted for the potentially dilutive effects of stock options,
warrants and/or convertible preferred stock, unless common equivalent shares are
antidilutive (see Note 10).

    USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

    The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates, although, in the opinion of the management, such differences would
not be significant.

    RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. This statement could increase volatility in earnings and other
comprehensive income. The effective date of this statement was amended by SFAS
Nos. 137 and 138 and, as amended, is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The Company will adopt SFAS No. 133
effective January 1, 2001. The Company has concluded that adoption of SFAS
No. 133 will not have a material impact on the Company's financial position or
results of operations.

NOTE 2  INVESTMENTS

    Investments in debt and equity securities are considered available-for-sale
securities and are carried at market value at December 31, 2000 and 1999.
Short-term investments are carried at cost, which approximates market value.

    Unrealized gains and losses on debt and equity securities are credited or
charged directly to accumulated other comprehensive income and included in
shareholders' equity. Realized gains and losses on investments included in the
results of operations are determined using the "identified

                                       45
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 2  INVESTMENTS (CONTINUED)
certificate" cost method. Realized (losses) gains and the change in unrealized
gains (losses) on investments are summarized as follows:

<TABLE>
<CAPTION>
                                               DEBT        EQUITY
                                            SECURITIES   SECURITIES    OTHER      TOTAL
                                            ----------   ----------   --------   --------
<S>                                         <C>          <C>          <C>        <C>
Realized:
  2000....................................    $ (236)       $ --        $--      $  (236)
  1999....................................       (91)         --         --          (91)
  1998....................................        85          --         --           85
                                              ======        ====        ===      =======

Change in unrealized:
  2000....................................    $  999        $(37)       $--      $   962
  1999....................................    (1,512)         --         --       (1,512)
  1998....................................       893         (47)        14          860
                                              ======        ====        ===      =======
</TABLE>

    Net accretion of bond discount and amortization of bond premium charged to
income for the years ended December 31, 2000, 1999 and 1998 was not significant.

    Unrealized gains and losses reflected in equity are as follows:

<TABLE>
<CAPTION>
                                                     2000       1999       1998
                                                   --------   --------   --------
<S>                                                <C>        <C>        <C>
Gross unrealized gains...........................  $   555    $    24    $   925
Gross unrealized losses..........................     (198)      (629)       (18)
                                                   -------    -------    -------
Net unrealized gain (loss).......................  $   357    $  (605)   $   907
                                                   =======    =======    =======
</TABLE>

    Proceeds from sales of debt and equity securities and the related realized
gains and losses are as follows:

<TABLE>
<CAPTION>
                                                     2000       1999       1998
                                                   --------   --------   --------
<S>                                                <C>        <C>        <C>
Proceeds from sales..............................  $11,335    $20,343    $31,542
Gross realized gains.............................       --          2         97
Gross realized losses............................      236         93         12
                                                   =======    =======    =======
</TABLE>

    Excluding investments in the U.S. Government, government agencies and
authorities, the only investments exceeding 10% of shareholders' equity at
December 31, 2000 were the Company's equity investments in Sunshine State
Holding Corporation and QualSure Holding Corporation totaling $6,307.

    There were no non-income producing debt securities for the 12 months ended
December 31, 2000, 1999 and 1998. Debt securities with an amortized cost of
$16 million at December 31, 2000 and $23 million at December 31, 1999 were on
deposit with regulatory authorities.

                                       46
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 2  INVESTMENTS (CONTINUED)
    The amortized cost and estimated market values of investments in debt and
equity securities were as follows:

<TABLE>
<CAPTION>
                                                                     GROSS        GROSS      ESTIMATED
                                                       AMORTIZED   UNREALIZED   UNREALIZED    MARKET
DECEMBER 31, 2000                                        COST        GAINS        LOSSES       VALUE
-----------------                                      ---------   ----------   ----------   ---------
<S>                                                    <C>         <C>          <C>          <C>
U.S. Government, government agencies and
  authorities........................................   $14,852       $161         $  (4)     $15,009
States, municipalities and political subdivisions....       375          8            --          383
Corporate bonds......................................    16,369        284           (55)      16,598
                                                        -------       ----         -----      -------
  Total debt securities..............................    31,596        453           (59)      31,990
Equity securities....................................     6,344        102          (139)       6,307
                                                        -------       ----         -----      -------
  Total..............................................   $37,940       $555         $(198)     $38,297
                                                        =======       ====         =====      =======
</TABLE>

<TABLE>
<CAPTION>
                                                                     GROSS        GROSS      ESTIMATED
                                                       AMORTIZED   UNREALIZED   UNREALIZED    MARKET
DECEMBER 31, 1999                                        COST        GAINS        LOSSES       VALUE
-----------------                                      ---------   ----------   ----------   ---------
<S>                                                    <C>         <C>          <C>          <C>
U.S. Government, government agencies and
  authorities........................................   $15,343       $ 18         $(226)     $15,135
States, municipalities and political subdivisions....       375          6            --          381
Corporate bonds......................................    16,462         --          (403)      16,059
                                                        -------       ----         -----      -------
  Total debt securities..............................    32,180         24          (629)      31,575
Equity securities....................................     1,317         --            --        1,317
                                                        -------       ----         -----      -------
  Total..............................................   $33,497       $ 24         $(629)     $32,892
                                                        =======       ====         =====      =======
</TABLE>

    The equity securities consist of investments in Sunshine State Holding
Corporation and QualSure Holding Corporation. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without penalties. The amortized cost and estimated market
value of debt securities at December 31, 2000, by contractual maturity, are as
follows:

<TABLE>
<CAPTION>
                                                           AMORTIZED    MARKET
                                                             COST       VALUE
                                                           ---------   --------
<S>                                                        <C>         <C>
Due in one year or less..................................   $ 5,372    $ 5,373
Due after one year through five..........................    19,605     19,888
Due after five years through ten.........................     2,422      2,427
Due after ten years......................................     4,197      4,302
                                                            -------    -------
Total....................................................   $31,596    $31,990
                                                            =======    =======
</TABLE>

                                       47
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 2  INVESTMENTS (CONTINUED)
    Investment income as of December 31 consists of the following:

<TABLE>
<CAPTION>
                                                        2000       1999       1998
                                                      --------   --------   --------
<S>                                                   <C>        <C>        <C>
Debt securities.....................................   $2,460     $2,415     $2,474
Equity securities...................................       --         --         97
Short-term investments..............................      286        432        699
Other...............................................       46         86         56
                                                       ------     ------     ------
  Total investment income...........................    2,792      2,933      3,326
Investment expenses.................................     (132)       (98)       (55)
                                                       ------     ------     ------
  Net investment income.............................   $2,660     $2,835     $3,271
                                                       ======     ======     ======
</TABLE>

NOTE 3  PROPERTY AND EQUIPMENT

    A summary of property and equipment is as follows:

<TABLE>
<CAPTION>
DESCRIPTION                                     ESTIMATED LIFE        2000       1999
-----------                                   -------------------   --------   --------
<S>                                           <C>                   <C>        <C>
Land........................................                  --    $     --   $    975
Buildings...................................         10-40 years          --      3,921
Leasehold improvements......................          2-10 years       1,649      1,712
Data processing equipment and software......           2-7 years       9,092      9,273
Furniture, fixtures and equipment...........          2-10 years       6,850      7,125
Automobiles.................................           3-5 years          60         81
                                                                    --------   --------
                                                                      17,651     23,087
Accumulated depreciation....................                         (16,734)   (17,666)
                                                                    --------   --------
                                                                    $    917   $  5,421
                                                                    ========   ========
</TABLE>

    Depreciation expense charged to operations was $1,451 in 2000, $1,800 in
1999 and $1,654 in 1998.

    In December 2000, the Company sold its corporate headquarters with a net
book value of $2,589 to its majority shareholder and Chairman of the Board of
Directors for $4,500, resulting in a gain of $1,892. Expenses incurred in
connection with the sale were $19. Concurrent with this transaction, the Company
leased the property back for a fixed period of three years without an option for
renewal (see Note 15). The gain resulting from this transaction has been
deferred and will be amortized into income evenly over the term of the
leaseback.

                                       48
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 4  DEFERRED POLICY ACQUISITION COSTS

    Policy acquisition costs incurred and amortized to income on property and
casualty business were as follows:

<TABLE>
<CAPTION>
                                                            2000       1999
                                                          --------   --------
<S>                                                       <C>        <C>
Deferred at beginning of year...........................  $  1,373   $  2,472
                                                          --------   --------
Costs incurred and deferred during year:
  Commissions and brokerage.............................    18,023     24,467
  Taxes, licenses and fees..............................     3,604      4,893
  Other.................................................     2,403      3,262
                                                          --------   --------
    Total...............................................    24,030     32,622
                                                          --------   --------
Amortization charged to income during year..............   (25,003)   (33,721)
                                                          --------   --------
Deferred at end of year.................................  $    400   $  1,373
                                                          ========   ========
</TABLE>

NOTE 5  DEBT

    Debt consisted of the following as of December 31:

<TABLE>
<CAPTION>
                                                              2000       1999
                                                            --------   --------
<S>                                                         <C>        <C>
Credit facility with lending institution..................  $10,159    $12,286
Subordinated convertible notes payable....................       --      2,700
                                                            -------    -------
                                                            $10,159    $14,986
                                                            =======    =======
</TABLE>

    Effective March 31, 1998 the Company entered into a $15,000,000 credit
facility (the "Facility") with a major lending institution for the purpose of
financing its acquisitions activity and other general corporate purposes.
Security for the Facility includes substantially all of the Company's assets.
Principal payments are due quarterly beginning March 1999 with a final payment
of all remaining principal and accrued interest due in June 2004. Accrued
interest is payable monthly on the outstanding balance under the Facility and is
calculated, at the Company's discretion, using a pre-determined spread over
LIBOR or the prime interest rate of the lending institution. The effective
interest rate was 9.44% on December 31, 2000 and 8.94% on December 31, 1999. The
Facility is secured by a lien on the assets of the Company.

    The Facility stipulates that the Company demonstrate compliance with a
number of affirmative and negative covenants on a quarterly basis. Significant
financial covenants include minimum statutory capital and surplus levels, ratios
of debt to total capitalization and cash flow coverage. After obtaining waivers
of noncompliance for minimum statutory capital and surplus levels and the ratio
of debt to total capitalization, the Company was in compliance with credit
facility covenants as of December 31, 2000.

    Scheduled maturities of the debt are as follows:

<TABLE>
<S>                                                           <C>
2001........................................................  $ 2,439
2002........................................................    2,530
2003........................................................    2,530
2004........................................................    2,660
                                                              -------
                                                              $10,159
                                                              =======
</TABLE>

                                       49
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 5  DEBT (CONTINUED)
    Effective November 29, 2000, in connection with the settlement of
liabilities the Company assumed upon the acquisition of Graward, the holders of
the subordinated convertible notes payable released and discharged the Company
from liability under the notes and the Company issued warrants to purchase
25,000 shares of common stock at $3.00 per share and an additional 25,000 shares
of common stock at $7.00 per share (see Notes 8 and 15). The Company recorded a
special items gain of $2,700 in connection with this transaction.

NOTE 6  INCOME TAXES

    The Company files a consolidated federal income tax return that includes all
subsidiaries. A formal tax-sharing agreement has been established by the Company
with its subsidiaries.

    The Company uses the liability method in accounting for income taxes. A
reconciliation of the income tax provision (benefit) to that computed by
applying the statutory federal income tax rate to loss before income taxes is as
follows:

<TABLE>
<CAPTION>
                                                       2000       1999       1998
                                                     --------   --------   --------
<S>                                                  <C>        <C>        <C>
Federal income tax benefit at statutory rates......  $(5,223)   $(2,550)    $(809)
(Decrease) increase in taxes due to:
  Tax exempt interest income.......................       (6)       (12)      (18)
  Overaccrual from prior year......................       --         --       (85)
  Non-deductible special items charges.............    4,325         --        --
  Limitation of net operating loss carryforward due
    to changes in control..........................       --        523        --
Changes in valuation allowances:
  Reduction due to limitation of net operating
    loss...........................................      831      1,872       751
Other..............................................       73        204        76
                                                     -------    -------     -----
  Tax provision (benefit)..........................  $    --    $    37     $ (85)
                                                     =======    =======     =====
</TABLE>

    The provision for income taxes on income from operations consists primarily
of current income taxes resulting from alternative minimum tax. The change in
deferred amounts has been offset by the valuation allowance.

                                       50
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 6  INCOME TAXES (CONTINUED)
    Deferred tax liabilities and assets at December 31, 2000 and 1999 are
comprised of the following:

<TABLE>
<CAPTION>
                                                             2000         1999
                                                          TAX EFFECT   TAX EFFECT
                                                          ----------   ----------
<S>                                                       <C>          <C>
Deferred tax liabilities:
  Deferred acquisition costs............................   $    136     $    467
  Property and equipment................................        243          145
  Net unrealized investing gains........................        121           --
  Other.................................................        408          169
                                                           --------     --------
    Total deferred tax liabilities......................        908          781
                                                           --------     --------

Deferred tax assets:
  Net operating loss carryforwards......................    (12,002)     (12,833)
  Net unrealized investment losses......................         --         (206)
  Insurance reserves....................................     (1,310)      (1,562)
  Bad debts.............................................     (1,011)      (1,262)
  Deferred gain on sale of property.....................       (643)          --
  Other.................................................       (464)        (149)
                                                           --------     --------
    Total deferred tax assets...........................    (15,430)     (16,012)
                                                           --------     --------
Valuation allowance.....................................     14,522       15,231
                                                           --------     --------
Net deferred tax liabilities............................   $     --     $     --
                                                           ========     ========
</TABLE>

    The Company has determined, based on its recent earnings history, that a
valuation allowance should be maintained against the deferred tax asset at
December 31, 2000 and 1999.

    The Company has unused tax operating loss carryforwards and capital loss
carryforwards of $104,857 for income tax purposes. However, due to "change in
ownership" events that occurred in June 1998, January 1997, and January 1995,
the Company's use of the net operating loss carryforwards are subject to maximum
limitations in future years of approximately $2,200 per year. Net operating loss
carryforwards available for use in 2001 are approximately $10,900 due to losses
incurred in 1998, 1999 and 2000 after the change in ownership event occurred and
carryover of previous years' unused limitations.

                                       51
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 6  INCOME TAXES (CONTINUED)
    The years of expiration of the tax carryforwards are as follows:

<TABLE>
<CAPTION>
                                                               NET
                                                            OPERATING   CAPITAL
YEAR OF EXPIRATION                                            LOSS        LOSS
------------------                                          ---------   --------
<S>                                                         <C>         <C>
2001......................................................  $     --      $ 13
2003......................................................        --       110
2004......................................................    12,825        --
2006......................................................    20,411        --
2007......................................................    31,931        --
2009......................................................    19,342        --
2010......................................................     3,918        --
2011......................................................     1,764        --
2012......................................................       690        --
2018......................................................     3,988        --
2019......................................................     7,265        --
2020......................................................     2,600        --
                                                            --------      ----
                                                            $104,734      $123
                                                            ========      ====
</TABLE>

NOTE 7 PROPERTY AND CASUALTY UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

    A part of the Company's reserve for losses and loss adjustment expenses
("LAE") is set aside for environmental, pollution, and toxic tort claims. These
claims relate to business written by the Company's previously owned West Coast
operation prior to 1986. On June 7, 1994, the Company settled a dispute related
to approximately 400 of these claims. Any future liability on these claims is
limited to 50% of the direct loss and LAE paid. The Company's obligation does
not begin until the other company involved in the settled dispute pays,
subsequent to the settlement date, a total of $20 million in losses and LAE. As
of December 31, 2000 and 1999, $14.3 million and $13.8 million, respectively, of
claims payments have been made by the other company since the settlement date.

    Of the remaining environmental, pollution and toxic tort claims, the
following activity took place during 2000 and 1999:

<TABLE>
<CAPTION>
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Pending, January 1..........................................     44         43
New claims advised..........................................      5          4
Claims settled..............................................     (9)        (3)
                                                                 --         --
Pending, December 31........................................     40         44
                                                                 ==         ==
</TABLE>

                                       52
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 7 PROPERTY AND CASUALTY UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
(CONTINUED)
    The policies corresponding to these claims were written on a direct basis.
The Company has excess of loss reinsurance with company retention through 1980
of $100 and between $250 and $500 thereafter. The claims are reserved as follows
as of December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Case reserves...............................................   $1,756     $3,196
IBNR reserves...............................................    3,025      3,193
LAE reserves................................................    1,514      1,083
                                                               ------     ------
Total.......................................................   $6,295     $7,472
                                                               ======     ======
</TABLE>

    The claims involve four Superfund sites, seven asbestos or toxic claims, two
underground storage tanks and twenty-seven miscellaneous clean-up sites. For
this direct business there are usually several different insurers participating
in the defense and settlement of claims made against the insured. Costs and
settlements are pro-rated by either time on the risk or policy limits.

    In estimating the liability for reported and estimated losses and LAE
related to environmental and construction defect claims, management considers
facts currently known along with current laws and coverage litigation.
Liabilities are recognized for known claims (including the cost of related
litigation) when sufficient information has been developed to indicate the
involvement of a specific insurance policy and management can reasonably
estimate its liability. In exposures on both known and unasserted claims,
estimates of the liabilities are reviewed and updated continually. The potential
development of losses is restricted by policy limits.

    Because only forty claims remain open as of December 31, 2000, the exposure
to significant additional development is less than when the claims were less
mature. In addition, the likelihood of new claims being asserted for
construction liability is lessened by the expiration of statutes of limitations
since the last policy expired over ten years ago.

    Losses incurred are reduced by recoveries made and estimated to be made from
reinsurers based on projected ultimate losses. Such amounts also include
substantial amounts related to the business produced as a servicing carrier.
Estimated reinsurance recoveries are as follows:

<TABLE>
<CAPTION>
                                                   2000       1999       1998
                                                 --------   --------   --------
<S>                                              <C>        <C>        <C>
Losses incurred................................  $70,776    $137,252   $145,207
LAE incurred...................................    2,330       4,396      7,125
                                                 -------    --------   --------
Total..........................................  $73,106    $141,648   $152,332
                                                 =======    ========   ========
</TABLE>

                                       53
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 7 PROPERTY AND CASUALTY UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
(CONTINUED)
    The following table summarizes net property and casualty losses and LAE
incurred:

<TABLE>
<CAPTION>
                                                 2000       1999        1998
                                               --------   ---------   ---------
<S>                                            <C>        <C>         <C>
Estimated losses and LAE incurred............  $ 97,551   $ 187,658   $ 177,601
Estimated reinsurance recoveries on losses
  and LAE incurred...........................   (73,106)   (141,648)   (152,332)
                                               --------   ---------   ---------
                                               $ 24,445   $  46,010   $  25,269
                                               ========   =========   =========
</TABLE>

    Activity in the liability for unpaid losses and loss adjustment expenses is
summarized as follows:

<TABLE>
<CAPTION>
                                                  2000       1999       1998
                                                --------   --------   --------
<S>                                             <C>        <C>        <C>
Liability for losses and LAE at the beginning
  of the year:
  Gross liability per balance sheet...........  $113,850   $119,976   $114,770
  Ceded reinsurance recoverable, classified as
    an asset..................................   (74,017)   (83,654)   (75,616)
                                                --------   --------   --------
  Net liability...............................    39,833     36,322     39,154
                                                --------   --------   --------
Provision for losses and LAE for claims
  occurring in the current year...............    22,090     47,250     24,450
Increase (decrease) in estimated losses and
  LAE for claims occurring in prior years.....     2,355     (1,240)       819
                                                --------   --------   --------
                                                  24,445     46,010     25,269
                                                --------   --------   --------
Losses and LAE payments for claims occurring
  during:
  Current year................................    11,608     30,827     18,398
  Prior years.................................    16,849     11,672      9,703
                                                --------   --------   --------
                                                  28,457     42,499     28,101
                                                --------   --------   --------
Liability for losses and LAE at the end of the
  year:
  Net liability...............................    35,821     39,833     36,322
  Ceded reinsurance recoverable, classified as
    an asset..................................    50,012     74,017     83,654
                                                --------   --------   --------
    Gross liability per balance sheet.........  $ 85,833   $113,850   $119,976
                                                ========   ========   ========
</TABLE>

NOTE 8 SALE, MERGERS AND ACQUISITIONS

    Effective January 21, 2000, three of the Company's insurance subsidiaries
made investments totaling $4,900 in the common stock of QualSure Holding
Corporation, representing a combined ownership interest of 30.625%. QualSure
Holding Corporation owns 100% of the issued and outstanding stock of QualSure
Insurance Corporation ("QualSure"), a homeowners take out insurance company
domiciled in the state of Florida, and QualSure Underwriting Agencies, Inc., a
managing general agent for QualSure. QualSure was formed to take out
approximately 44,000 homeowners

                                       54
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 8 SALE, MERGERS AND ACQUISITIONS (CONTINUED)
policies from the Florida Windstorm Underwriting Association and approximately
40,000 homeowners policies from the Florida Residential Property & Casualty
Joint Underwriting Association. In connection with this investment, INS entered
into a Claims Administration Services Agreement with QualSure to adjudicate all
of its claims for a fee based upon subject earned premium.

    Effective October 14, 1999, the Company sold Kentucky Insurance Company
("Kentucky"), one of its insurance company subsidiaries, to an unrelated party
for a gain of $243,000 calculated as follows:

<TABLE>
<S>                                                           <C>
Assets sold:
  Bonds.....................................................   $2,778
  Cash and short-term investments...........................    3,382
  Accrued investment income.................................       66
                                                               ------
                                                                6,226
Liabilities transferred.....................................      (15)
                                                               ------
                                                                6,211
Proceeds from sale..........................................    6,454
                                                               ------
Realized gain...............................................   $  243
                                                               ======
</TABLE>

    The operations of Kentucky generated income of $113 and $4 in 1999 and 1998,
respectively.

    Effective May 1, 1998, the Company acquired all of the issued and
outstanding shares of common stock of Graward. Consideration in the transaction
included cash of $7,500 and Subordinated Convertible Notes (the "Notes") with a
principal amount of $2,700. The Company accounted for the transaction as a
purchase. The excess purchase price over the fair value of the assets was
$16,245 (see Note 1 "SPECIAL ITEMS").

    Effective March 31, 1998, the Company acquired all of the issued and
outstanding shares of common stock of Americas Flood Services, Inc. ("AFS").
Consideration in the transaction included cash of $2,100 and 50,000 shares of
the Company's $0.625 Cumulative, Convertible, Redeemable, Nonvoting Special
Preferred Stock ("$0.625 Special Stock") (see Note 9). The Company accounted for
the transaction as a purchase. The excess purchase price over the fair value of
the assets was $2,237.

    The results of operations in the Company's consolidated financial statements
include a full year's operations of Graward and AFS in 2000 and 1999, and eight
(Graward) and nine (AFS) month's worth of operations in 1998. The following pro
forma unaudited consolidated results of operation for 1998 give affect to the
acquisitions as though they had occurred at the beginning of the year. The
dividends on the preferred stock and interest of the notes have been considered.

<TABLE>
<S>                                                           <C>
Revenues....................................................  $89,133
Net (loss) income...........................................   (3,968)
Basic Earnings Per Share....................................    (0.51)
Diluted Earnings Per Share..................................    (0.51)
                                                              =======
</TABLE>

                                       55
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 9 SPECIAL STOCK AND DIVIDEND RESTRICTIONS

    SPECIAL STOCK

    On March 31, 1998, the Company issued 50,000 shares of $0.625 Special Stock
in connection with its acquisition of AFS. The Company determined the value of
the $0.625 Special Stock at the issuance date to be $500. The $0.625 Special
Stock pays quarterly dividends at an annual rate of $0.625 per share. The
Company paid $31 in special stock dividends in 2000 and 1999. On or after
August 15, 2000, but prior to August 15, 2002, the Company, at its option, may
redeem in whole or in part the $0.625 Special Stock at a price of $15.00 per
share. On August 15, 2002, the Company must redeem any remaining shares at a
rate of $10.00 per share. On or after August 15, 2000, but prior to August 15,
2002, holders of the shares have the right to convert each share of the $0.625
Special Stock into 1.25 shares, or a total of 62,500 shares, of the Company's
common stock.

    On December 1, 1997, the Company issued 220,000 shares of Cumulative,
Convertible, Redeemable, Nonvoting Special Preferred Stock ("Special Stock") in
connection with an acquisition. The Company determined the value of the Special
Stock at the issuance date to be $2,200. The Special Stock pays quarterly
dividends at an annual rate of $0.62 per share. The Company paid $137 in special
stock dividends in 2000 and 1999. On or after August 15, 2000, but prior to
August 15, 2002, the Company, at its option, may redeem in whole or in part the
Special Stock at a price of $15.00 per share. On August 15, 2002, the Company
must redeem any remaining shares at a rate of $10.00 per share. On or after
August 15, 2000, but prior to August 15, 2002, holders of the shares have the
right to convert each share of the Special Stock into 1.25 shares, or a total of
275,000 shares, of the Company's common stock.

    DIVIDEND RESTRICTIONS

    The Company is a legal entity separate and distinct from its subsidiaries.
As a holding company, the primary sources of cash needed to meet its
obligations, including principal and interest payments on outstanding debt, are
dividends and other permitted payments, including management fees, from its
subsidiaries and affiliates.

    The South Carolina Insurance Holding Company Regulatory Act provides that,
without prior approval of the Commissioner of Insurance of the State of South
Carolina, dividends within any 12-month period may not exceed the greater of
(i) 10% of a domestic insurer's surplus as regarding policyholders as shown in
the insurer's most recent annual statement or (ii) a domestic insurer's net
income, not including realized capital gains or losses as shown in the insurer's
most recent annual statement. Furthermore, dividends may only be paid out of
positive earned surplus unless approved by the Commissioner. As of December 31,
2000, SCIC had an accumulated deficit.

    The North Carolina Insurance Holding Company System Regulatory Act provides
that, without prior approval of the Commissioner of Insurance of the State of
North Carolina, dividends within any 12-month period may not exceed the lessor
of (i) 10% of a domestic insurer's surplus as regarding policyholders as of the
preceding December 31 or (ii) the net income, not including realized capital
gains, for the 12-month period ending the preceding December 31. For 2001, no
dividends are available from Universal to the Company.

    Covenants of the Company's Credit Facility do not permit the Company to
declare dividends to its common stockholders.

                                       56
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 10 EARNINGS PER SHARE

    The following table shows the computation of the Company's loss per share:

<TABLE>
<CAPTION>
                                                INCOME         SHARES        SHARE
                                              (NUMERATOR)   (DENOMINATOR)    AMOUNT
                                              -----------   -------------   --------
<S>                                           <C>           <C>             <C>
For the year ended 2000:
Net loss....................................    $(15,361)
                                                --------
Less: Preferred stock dividends.............        (168)
Basic and diluted EPS:
  Income available to common stockholders...    $(15,529)     7,831,581      $(1.98)
                                                ========      =========      ======
For the year ended 1999:
Net loss....................................    $ (7,536)
Less: Preferred stock dividends.............        (168)
                                                --------
Basic and diluted EPS:
  Income available to common stockholders...    $ (7,704)     7,774,361      $(0.99)
                                                ========      =========      ======
For the year ended 1998:
Net loss....................................    $ (2,894)
Less: Preferred stock dividends.............        (160)
                                                --------
Basic and diluted EPS:
  Income available to common stockholders...    $ (3,054)     7,763,252      $(0.39)
                                                ========      =========      ======
</TABLE>

    At December 31, 2000, 1999 and 1998, all common stock equivalents were
anti-dilutive.

NOTE 11 STATUTORY REPORTING

    The Company's insurance subsidiaries' assets, liabilities and results of
operations have been reported in accordance with GAAP, which varies from
statutory accounting practices ("SAP") prescribed or permitted by insurance
regulatory authorities. Prescribed statutory accounting practices are found in a
variety of publications of the National Association of Insurance Commissioners
("NAIC"), state laws and regulations, as well as through general practices. The
principal differences between SAP and GAAP, are that under SAP: (1) certain
assets that are not admitted assets are eliminated from the balance sheet,
(2) acquisition costs for policies are expensed as incurred, while they may be
deferred and amortized over the estimated life of the policies under GAAP,
(3) no provision is made for deferred income taxes, (4) the gain on the
sale-leaseback of property is not deferred and (5) valuation allowances are
established against investments. Each of the Company's insurance subsidiaries
must file with applicable state insurance regulatory authorities an "Annual
Statement" which reports, among other items, net (loss) income and shareholders'
equity (called "surplus as regards policyholders" in statutory reporting).

                                       57
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 11 STATUTORY REPORTING (CONTINUED)
    A reconciliation between the GAAP net loss and the statutory net loss of the
insurance subsidiaries is as follows for the year ended December 31:

<TABLE>
<CAPTION>
                                                     2000       1999       1998
                                                   --------   --------   --------
<S>                                                <C>        <C>        <C>
GAAP net loss....................................  $(15,361)  $(7,536)   $(2,894)
Increase (decrease) due to:
  Deferral of gain on sale of property...........     1,892        --         --
  Realized gain on liquidation of subsidiary.....      (893)       --         --
  Equity in earnings of unconsolidated
    subsidiary...................................       (66)       --         --
  GAAP-only items and other non-statutory
    subsidiaries.................................     1,982     4,673       (848)
  Excess of SAP over GAAP gain on sale of
    subsidiary...................................        --       663         --
  Decrease (increase) in deferred policy
    acquisition costs............................       973     1,099       (892)
  Decrease (increase) in salvage/subrogation
    recoverable..................................       369      (278)      (246)
  Other, net.....................................        21       (20)      (685)
                                                   --------   -------    -------
Statutory net loss...............................  $(11,083)  $(1,399)   $(5,565)
                                                   ========   =======    =======
</TABLE>

    A reconciliation between GAAP shareholders' equity and surplus as regards
policyholders, at December 31, is as follows:

<TABLE>
<CAPTION>
                                                              2000       1999
                                                            --------   --------
<S>                                                         <C>        <C>
GAAP shareholders' equity.................................  $11,992    $26,557
Increase (decrease) due to:
  Deferred gain on sale of property.......................    1,892         --
  Deferred policy acquisition costs.......................     (400)    (1,373)
  GAAP-only items and other non-statutory companies'
    shareholders' equity..................................    5,132      3,742
  Adjustments to premiums and loss reserves...............     (539)      (908)
  Assets nonadmitted for statutory surplus................     (415)    (1,504)
                                                            -------    -------
Surplus as regards policyholders..........................  $17,662    $26,514
                                                            =======    =======
</TABLE>

    Since before the Company's acquisition of UIC in 1997, UIC has operated, and
continues to operate, under the Regulatory Action Division (the "RAD") of the
North Carolina Department of Insurance (the "NCDOI"). Under the requirements of
the RAD, UIC is required to submit monthly financial statements to the NCDOI.

    In 1998, the NAIC adopted the Codification of Statutory Accounting
Principles ("Codification") as the NAIC support basis of accounting. Although
the NAIC has stated that the adoption date for the Codification is January 1,
2001, the implementation date is dependent upon an insurer's state of domicile.
Accordingly, the Company's adoption of the Codification is dependent upon
actions of the SCDOI and the South Carolina State Legislature, but is expected
to be effective January 1, 2001.

                                       58
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 11 STATUTORY REPORTING (CONTINUED)
    Significant changes to the Company's statutory accounting and reporting
resulting from Codification include the following:

    - The due date for premiums is governed by the effective date of the
      underlying contract and not the agent and Company's contractual
      relationship;

    - The Codification requires the recognition of deferred tax balances, as
      defined by the Codification;

    - Electronic data processing equipment and software are considered admitted
      assets with depreciable lives not to exceed 3 years;

    - Impairment losses are required to be recorded as realized losses;

    - Amounts received on deposit-type contracts will be reported directly to
      policy reserves and not recorded as income; and

    - The Codification requires the recording of premium revenue beginning with
      the effective date of coverage, except for workers compensation, and the
      recognition of a premium deficiency reserve, if necessary. However, South
      Carolina statute does not require the estimation of premium deficiencies.

    Management has evaluated the impact of the Codification and does not believe
it will have a material effect on the financial statements of the Company's
statutory subsidiaries.

NOTE 12 BENEFIT AND STOCK OPTION PLANS

    STOCK OPTIONS AND STOCK OPTION PLANS

    During the first quarter of 1998, the Company granted warrants to purchase
up to 57,971 shares of common stock in connection with its Credit Facility.

    The Company currently has three plans under which stock options and
incentive stock may be granted to employees, non-employee directors, consultants
and active independent agents of the Company. Under the plans for employees,
independent agents, and non-employee directors, the options expire ten years
from the date of grant. Each plan is administered by a committee appointed by
the Board of Directors.

    The 1996 Stock Option Plan for Employees (the "Employee Plan") became
effective on November 1, 1995. The Employee Plan reserved 2,500,000 shares of
the Company's common stock for

                                       59
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 12 BENEFIT AND STOCK OPTION PLANS (CONTINUED)
issuance under the plan as options and incentive stock to employees and
consultants of the Company. Activity in the Employee Plan is summarized as
follows:

<TABLE>
<CAPTION>
                                                2000        1999        1998
                                              ---------   ---------   ---------
<S>                                           <C>         <C>         <C>
Shares under options outstanding, beginning
  of year...................................  1,306,559   1,053,480     766,215
Granted during the year.....................         --     333,295     776,112
Exercised during the year...................         --          --     (19,446)
Canceled or expired during the year.........   (630,302)    (80,216)   (469,401)
                                              ---------   ---------   ---------
Shares under options outstanding, end of
  year......................................    676,257   1,306,559   1,053,480
                                              =========   =========   =========
Shares under options exercisable, end of
  year......................................    601,581     831,187     472,199
                                              =========   =========   =========
</TABLE>

    All grants made under the Employee Plan have exercise prices no lower than
the market price at the date of grant. At December 31, 2000, 1,636,869 shares of
the Company's common stock have been reserved for future grants. Following is a
summary of options outstanding and exercisable by price range as of
December 31, 2000:

<TABLE>
<CAPTION>
                             OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                        -----------------------------   ---------------------------------------------
                                         WEIGHTED-
                                          AVERAGE
                                         REMAINING        WEIGHTED-                      WEIGHTED-
      RANGE OF                          CONTRACTUAL        AVERAGE                        AVERAGE
   EXERCISE PRICES      OUTSTANDING   LIFE (IN YEARS)   EXERCISE PRICE   EXERCISABLE   EXERCISE PRICE
---------------------   -----------   ---------------   --------------   -----------   --------------
<S>                     <C>           <C>               <C>              <C>           <C>
$ 3.38-$4.40              193,667           2.9             $ 3.41         141,866         $ 3.41
$ 4.40-$6.60               18,625           3.5               5.07          12,417           5.07
$ 6.60-$8.80              237,204           2.0               7.44         220,537           7.39
$ 8.80-$11.00             218,210           1.6               9.31         218,210           9.31
$11.00-$13.20               1,025           0.2              12.00           1,025          12.00
$13.20-$17.60               3,763           0.1              16.00           3,763          16.00
$17.60-$22.00               3,763           0.1              22.00           3,763          22.00
                          -------           ---             ------         -------         ------
                          676,257           2.1             $ 6.96         601,581         $ 7.25
                          =======           ===             ======         =======         ======
</TABLE>

    The 1995 Stock Option Plan for Non-Employee Directors (the "Director Plan")
became effective June 15, 1995, with 250,000 shares of the Company's common
stock reserved for grants. Under the Directors Plan, all non-employee directors
holding office on June 15 of each year are granted 1,250 options to purchase the
Company's common stock. The exercise price of the options is the market value on
the date of grant. On June 15, 1998, 1999 and 2000, 12,500, 12,500 and 8,750
shares were granted, respectively, at exercise prices of $7.00, $4.75 and $1.09,
respectively.

                                       60
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 12 BENEFIT AND STOCK OPTION PLANS (CONTINUED)
    The 1995 Stock Option Plan for Independent Agents (the "Agent Plan") became
effective December 21, 1995, with 125,000 common shares of the Company's stock
reserved for grants. Activity in the Agent Plan is summarized as follows:

<TABLE>
<CAPTION>
                                                       2000       1999       1998
                                                     --------   --------   --------
<S>                                                  <C>        <C>        <C>
Shares under options outstanding, beginning of
  year.............................................   49,325     36,205     36,516
Granted during the year............................    3,950     13,120      9,400
Exercised during the year..........................     (300)        --         --
Canceled or expired during the year................  (15,300)        --     (9,711)
                                                     -------     ------     ------
Shares under options outstanding, end of year......   37,675     49,325     36,205
                                                     =======     ======     ======
</TABLE>

    Options granted during 1998, 1999, and 2000 were granted at average exercise
prices of $6.97, $4.68, and $1.83, respectively. At December 31, 2000, 120,451
shares of the Company's common stock have been reserved for future grants.

    The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for its three stock option plans. Had compensation costs for the
Company's stock option plans been determined based on the fair value at the
grant date for awards in 2000, 1999 and 1998 consistent with the provisions of
SFAS No. 123, the Company's net loss and loss per share would have been as
indicated below:

<TABLE>
<CAPTION>
                                                     2000       1999       1998
                                                   --------   --------   --------
<S>                                                <C>        <C>        <C>
Net loss -- as reported..........................  $(15,361)  $(7,536)   $(2,894)
Net loss -- pro forma............................   (15,367)   (8,053)    (3,432)
Basic and diluted loss per share -- as
  reported.......................................     (1.98)    (0.99)     (0.39)
Basic and diluted loss per share -- pro forma....     (1.98)    (1.04)     (0.46)
                                                   ========   =======    =======
</TABLE>

    The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:

<TABLE>
<CAPTION>
                                                             2000
                                         --------------------------------------------
                                         EMPLOYEE PLAN   DIRECTORS PLAN   AGENTS PLAN
                                         -------------   --------------   -----------
<S>                                      <C>             <C>              <C>
Expected Dividend Yield................        0%                  0%             0%
Expected Stock Price Volatility........        --               7.65%          7.65%
Risk-Free Interest Rate................        --               6.26%          6.75%
Expected Life of Options...............        --          7.54 years     3.08 years
                                               ==          ==========     ==========
</TABLE>

<TABLE>
<CAPTION>
                                                             1999
                                         --------------------------------------------
                                         EMPLOYEE PLAN   DIRECTORS PLAN   AGENTS PLAN
                                         -------------   --------------   -----------
<S>                                      <C>             <C>              <C>
Expected Dividend Yield................            0%             0%             0%
Expected Stock Price Volatility........        71.62%         71.62%         71.62%
Risk-Free Interest Rate................         5.75%          6.00%          5.78%
Expected Life of Options...............    2.71 years       10 years        5 years
                                           ==========       ========        =======
</TABLE>

                                       61
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 12 BENEFIT AND STOCK OPTION PLANS (CONTINUED)
    OTHER BENEFIT PLANS

    The Company sponsors the South Carolina Insurance Company Employees'
Profit-Sharing and Savings Plan (the "Plan"), which provides both a
profit-sharing and a 401(k) element for the employees of the Company, its
subsidiaries and affiliates. As of December 31, 2000, the amount of assets
available in the Plan, based on information currently available, was $11,155.

    The profit-sharing element of the Plan covers all full-time employees who
have met minimum eligibility requirements. There were no contributions to this
part of the Plan in 2000.

    Under the 401(k) element of the Plan, employees may elect to have a portion
of their salary withheld from pre-tax wages for investment in the Plan, subject
to limitations imposed by IRS regulations. The Company matches 50% of the first
6% of the employee's contribution to the Plan. The Company's contributions to
the Plan on behalf of the participating employees was $310, $271, and $68 in
2000, 1999 and 1998 respectively.

    The Company currently provides certain health care and life insurance
benefits for certain retired employees. The projected future cost of providing
post-retirement benefits is reflected as an expense as employees render services
instead of when the benefits are paid. The net transition obligation is being
recorded as a charge against income on a prospective basis as part of the future
annual benefit cost. Post-retirement benefit expense was approximately $100 in
2000, $115 in 1999, and $90 in 1998.

<TABLE>
<CAPTION>
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Benefit obligation, beginning of year.......................   $ 922      $ 722
  Service cost..............................................       9          7
  Interest Cost.............................................      64         65
  Plan participants' contributions..........................      27         32
  Actuarial (gain) loss.....................................    (110)       162
  Benefits paid.............................................     (62)       (66)
                                                               -----      -----
Benefit obligation, end of year.............................     850        922
Fair value of plan assets...................................      --         --
                                                               -----      -----
Funded status of plan.......................................     850        922
Unrecognized actuarial loss.................................    (141)      (256)
Unrecognized net transition obligation......................    (376)      (408)
                                                               -----      -----
Net obligation..............................................   $ 333      $ 258
                                                               =====      =====
Weighted-average discount rate..............................    7.50%      7.75%
                                                               =====      =====
</TABLE>

<TABLE>
<CAPTION>
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Components of net periodic benefit cost:
  Service cost..............................................   $   9      $   7
  Interest Cost.............................................      64         65
  Amortization of prior service cost........................      31         31
  Recognition of net actuarial (gain) loss..................      (4)        12
                                                               -----      -----
                                                               $ 100      $ 115
                                                               =====      =====
</TABLE>

                                       62
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 12 BENEFIT AND STOCK OPTION PLANS (CONTINUED)
    The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) was 5.5% for 2000, 6%
for 1999, and 7% for 1998 and is assumed to decrease to a 5% ultimate trend (5%
in 1999 and 1998) with a duration to ultimate trend of one year (two years in
1999 and three years in 1998). The health care cost trend rate assumption has an
effect on the amounts reported. For example, increasing the assumed health care
cost trend rates by one percentage point each year would increase the
post-retirement benefit obligation as of December 31, 2000 by $2.

NOTE 13 SEGMENT REPORTING

    Reportable segments are determined based on management's internal reporting
approach, which is based on product line and complementary coverages. The
reportable segments are comprised of Automobile, Flood, Commercial, Adjusting
Services and All Other. The Automobile segment includes the personal lines
components of UIC's retained risk nonstandard automobile operations, the runoff
operations of the Nashville and South Carolina automobile operations, and the
fee-based NC Facility, SC Facility and SCAAIP operations. The Flood segment
contains all flood operations including the National Flood Insurance Program,
flood zone determinations, excess flood and flood compliance tracking, as well
as the runoff of the complementary homeowners product line. The Commercial
segment includes all commercial operations, as well as the commercial automobile
activity for the NC Facility and SC Facility. The Adjusting Services segment
contains the catastrophe insurance claims handling for hurricanes, tornadoes,
hailstorms, earthquakes and floods; catastrophe claims supervision; and ordinary
claims adjusting for both the Company and external insurance companies. The All
Other segment includes other runoff operations of the Company, including
worker's compensation, environmental and general liability. While the majority
of revenues and expenses are captured directly by each reportable segment, the
Company does have shared other income and other expenses. Shared other income
comprised approximately 35% and 36% of total other income in fiscal 2000 and
1999, respectively, and shared other expenses comprised approximately 2% and 8%
of total other expenses in fiscal 2000 and 1999, respectively. These shared
amounts were allocated on a basis proportionate with

                                       63
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 13 SEGMENT REPORTING (CONTINUED)
each reportable segment's total net loss and LAE and unearned premium reserves.
The results of the reportable segments are included in the following table:

<TABLE>
<CAPTION>
                                                           FOR THE YEAR ENDED DECEMBER 31, 2000
                                           ---------------------------------------------------------------------
                                                                                ADJUSTING
                                           AUTOMOBILE    FLOOD     COMMERCIAL   SERVICES    ALL OTHER    TOTAL
                                           ----------   --------   ----------   ---------   ---------   --------
<S>                                        <C>          <C>        <C>          <C>         <C>         <C>
REVENUES:
Commission and service income............   $ 11,194    $14,791     $   654      $ 9,249     $     2    $ 35,890
Property and casualty premiums earned....     21,934         45       3,040           --         118      25,137
All other income.........................      5,128         52         175        2,094       1,646       9,095
                                            --------    -------     -------      -------     -------    --------
  Total revenues.........................     38,256     14,888       3,869       11,343       1,766      70,122
                                            --------    -------     -------      -------     -------    --------
EXPENSES:
Losses and loss adjustment expenses......     20,665        402       1,567          518       1,293      24,445
Special items............................      8,138         --          --           --          --       8,138
All other expenses.......................     24,698     14,628       2,549        9,057       1,968      52,900
                                            --------    -------     -------      -------     -------    --------
  Total expenses.........................     53,501     15,030       4,116        9,575       3,261      85,483
                                            --------    -------     -------      -------     -------    --------
(LOSS) INCOME FROM OPERATIONS BEFORE
  PROVISION FOR INCOME TAXES.............    (15,245)      (142)       (247)       1,768      (1,495)    (15,361)
Provision for income taxes...............         --         --          --           --          --          --
                                            --------    -------     -------      -------     -------    --------
NET (LOSS) INCOME........................   $(15,245)   $  (142)    $  (247)     $ 1,768     $(1,495)   $(15,361)
                                            ========    =======     =======      =======     =======    ========
</TABLE>

<TABLE>
<CAPTION>
                                                                  AS OF DECEMBER 31, 2000
                                           ---------------------------------------------------------------------
                                                                                ADJUSTING
                                           AUTOMOBILE    FLOOD     COMMERCIAL   SERVICES    ALL OTHER    TOTAL
                                           ----------   --------   ----------   ---------   ---------   --------
<S>                                        <C>          <C>        <C>          <C>         <C>         <C>
TOTAL ASSETS.............................   $ 93,108    $36,236     $ 9,418      $27,607     $ 4,297    $170,666
                                            ========    =======     =======      =======     =======    ========
LIABILITIES:
  Losses and loss adjustment expenses....   $ 55,572    $ 1,061     $ 4,074      $    --     $25,126    $ 85,833
  Unearned premiums......................     16,522     22,741       6,483           --         307      46,053
  All other liabilities..................     13,141      5,114       1,329        3,897         607      24,088
                                            --------    -------     -------      -------     -------    --------
    Total liabilities....................   $ 85,235    $28,916     $11,886      $ 3,897     $26,040    $155,974
                                            ========    =======     =======      =======     =======    ========
</TABLE>

                                       64
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 13 SEGMENT REPORTING (CONTINUED)

<TABLE>
<CAPTION>
                                                           FOR THE YEAR ENDED DECEMBER 31, 1999
                                           ---------------------------------------------------------------------
                                                                                ADJUSTING
                                           AUTOMOBILE    FLOOD     COMMERCIAL   SERVICES    ALL OTHER    TOTAL
                                           ----------   --------   ----------   ---------   ---------   --------
<S>                                        <C>          <C>        <C>          <C>         <C>         <C>
REVENUES:
Commission and service income............   $ 25,303    $15,031     $ 1,079      $ 4,239     $    --    $ 45,652
Property and casualty premiums earned....     49,984         27       3,172           --         161      53,344
All other income.........................      6,106         38         290          875       2,028       9,337
                                            --------    -------     -------      -------     -------    --------
  Total revenues.........................     81,393     15,096       4,541        5,114       2,189     108,333
                                            --------    -------     -------      -------     -------    --------
EXPENSES:
Losses and loss adjustment expenses......     47,756        176       1,504          205      (3,631)     46,010
All other expenses.......................     46,378     13,853       2,427        3,596       3,568      69,822
                                            --------    -------     -------      -------     -------    --------
    Total expenses.......................     94,134     14,029       3,931        3,801         (63)    115,832
                                            --------    -------     -------      -------     -------    --------
(LOSS) INCOME FROM OPERATIONS BEFORE
  PROVISION FOR INCOME TAXES.............    (12,741)     1,067         610        1,313       2,252      (7,499)
Provision for income taxes...............        (20)        (1)         (2)          (1)        (13)        (37)
                                            --------    -------     -------      -------     -------    --------
NET (LOSS) INCOME........................   $(12,761)   $ 1,066     $   608      $ 1,312     $ 2,239    $ (7,536)
                                            ========    =======     =======      =======     =======    ========
</TABLE>

<TABLE>
<CAPTION>
                                                                  AS OF DECEMBER 31, 1999
                                           ---------------------------------------------------------------------
                                                                                ADJUSTING
                                           AUTOMOBILE    FLOOD     COMMERCIAL   SERVICES    ALL OTHER    TOTAL
                                           ----------   --------   ----------   ---------   ---------   --------
<S>                                        <C>          <C>        <C>          <C>         <C>         <C>
TOTAL ASSETS.............................   $191,441    $35,506     $10,679      $12,029     $ 5,148    $254,803
                                            ========    =======     =======      =======     =======    ========
LIABILITIES:
  Losses and loss adjustment expenses....   $ 68,068    $12,392     $ 2,419      $    --     $30,971    $113,850
  Unearned premiums......................     33,436     23,121       5,954           --           9      62,520
  All other liabilities..................     36,948      6,853       2,061        2,321         993      49,176
                                            --------    -------     -------      -------     -------    --------
    Total liabilities....................   $138,452    $42,366     $10,434      $ 2,321     $31,973    $225,546
                                            ========    =======     =======      =======     =======    ========
</TABLE>

                                       65
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 13 SEGMENT REPORTING (CONTINUED)

<TABLE>
<CAPTION>
                                                           FOR THE YEAR ENDED DECEMBER 31, 1998
                                           ---------------------------------------------------------------------
                                                                                ADJUSTING
                                           AUTOMOBILE    FLOOD     COMMERCIAL   SERVICES    ALL OTHER    TOTAL
                                           ----------   --------   ----------   ---------   ---------   --------
<S>                                        <C>          <C>        <C>          <C>         <C>         <C>
REVENUES:
Commission and service income............   $ 30,960    $14,843     $ 1,893      $ 1,615     $   (13)   $ 49,298
Property and casualty premiums earned....     18,337        (34)      3,976           --         483      22,762
All other income.........................      5,991         14         655           --       2,697       9,357
                                            --------    -------     -------      -------     -------    --------
    Total revenues.......................     55,288     14,823       6,524        1,615       3,167      81,417
                                            --------    -------     -------      -------     -------    --------
EXPENSES:
Losses and loss adjustment expenses......     20,759        837       2,249           --       1,424      25,269
All other expenses.......................     35,290     14,319       6,394        1,233       1,290      58,526
                                            --------    -------     -------      -------     -------    --------
    Total expenses.......................     56,049     15,156       8,643        1,233       2,714      83,795
                                            --------    -------     -------      -------     -------    --------
(LOSS) INCOME FROM OPERATIONS BEFORE
  (PROVISION) BENEFIT FOR INCOME TAXES
  AND EFFECT OF CHANGE IN ACCOUNTING
  PRINCIPLE..............................       (761)      (333)     (2,119)         382         453      (2,378)
(Provision) benefit for income taxes.....        (53)       (25)         29           --         134          85
                                            --------    -------     -------      -------     -------    --------
(LOSS) INCOME FROM OPERATIONS BEFORE
  EFFECT OF CHANGE IN ACCOUNTING
  PRINCIPLE..............................       (814)      (358)     (2,090)         382         587      (2,293)
Effect of change in accounting
  principle..............................         --         --          --           --        (601)       (601)
                                            --------    -------     -------      -------     -------    --------
NET (LOSS) INCOME........................   $   (814)   $  (358)    $(2,090)     $   382     $   (14)   $ (2,894)
                                            ========    =======     =======      =======     =======    ========
</TABLE>

<TABLE>
<CAPTION>
                                                                  AS OF DECEMBER 31, 1998
                                           ---------------------------------------------------------------------
                                                                                ADJUSTING
                                           AUTOMOBILE    FLOOD     COMMERCIAL   SERVICES    ALL OTHER    TOTAL
                                           ----------   --------   ----------   ---------   ---------   --------
<S>                                        <C>          <C>        <C>          <C>         <C>         <C>
TOTAL ASSETS.............................   $200,709    $53,811     $23,684      $ 5,862     $11,497    $295,563
                                            ========    =======     =======      =======     =======    ========
LIABILITIES:
  Losses and loss adjustment expenses....   $ 73,782    $ 8,127     $ 1,772      $    --     $36,295    $119,976
  Unearned premiums......................     41,707     22,689       7,974           --         168      72,538
  All other liabilities..................     43,977     11,791       5,189        1,285       2,519      64,761
                                            --------    -------     -------      -------     -------    --------
    Total liabilities....................   $159,466    $42,607     $14,935      $ 1,285     $38,982    $257,275
                                            ========    =======     =======      =======     =======    ========
</TABLE>

NOTE 14 REINSURANCE

    The Company's property and casualty insurance operations include a retained
risk component and a servicing carrier component. A significant percentage of
the risk business is ceded through several reinsurance programs including
pro-rata and excess of loss. In its servicing carrier operation, premiums

                                       66
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 14 REINSURANCE (CONTINUED)
are ceded entirely to the applicable state's reinsurance facility or to the
NFIP. A reconciliation of direct to net premiums, on both a written and an
earned basis is as follows:

<TABLE>
<CAPTION>
                                          2000                    1999                    1998
                                  ---------------------   ---------------------   ---------------------
                                   WRITTEN     EARNED      WRITTEN     EARNED      WRITTEN     EARNED
                                  ---------   ---------   ---------   ---------   ---------   ---------
<S>                               <C>         <C>         <C>         <C>         <C>         <C>
Direct.........................   $ 125,018   $ 141,243   $ 168,606   $ 177,749   $ 181,574   $ 163,485
Assumed........................       1,185       1,426       4,863       5,233       9,831       6,920
Ceded..........................    (101,806)   (117,532)   (127,248)   (129,638)   (159,179)   (147,643)
                                  ---------   ---------   ---------   ---------   ---------   ---------
Net............................   $  24,397   $  25,137   $  46,221   $  53,344   $  32,226   $  22,762
                                  =========   =========   =========   =========   =========   =========
</TABLE>

    Reinsurance contracts do not relieve the Company of its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to the Company. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of the reinsurer to
minimize its exposure to significant losses from reinsurer insolvency. Amounts
due from reinsurance companies for unearned premiums, unpaid losses and LAE, and
paid losses and LAE are as follows:

<TABLE>
<CAPTION>
                                                              2000       1999
                                                            --------   --------
<S>                                                         <C>        <C>
Unearned premiums.........................................  $40,997    $56,724
Unpaid losses and LAE.....................................   50,012     74,017
Paid losses and LAE.......................................   14,031     18,528
                                                            =======    =======
</TABLE>

                                       67
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 14 REINSURANCE (CONTINUED)
    A summary of the Company's reinsurance recoverable on paid and unpaid losses
and LAE, as well as its prepaid reinsurance premiums at December 31, 2000 is as
follows:

<TABLE>
<CAPTION>
                                                        REINSURANCE     PREPAID
                                                        RECOVERABLE   REINSURANCE
                                                        -----------   -----------
<S>                                                     <C>           <C>
SC Facility...........................................    $17,630       $ 6,028
NC Facility...........................................     27,474         5,891
NFIP..................................................      1,056        22,739
Swiss Reinsurance Corp................................      6,550             0
Erie Insurance Exchange...............................      2,235         3,665
Insurance Corporation of Hannover.....................        698             4
GE Reinsurance Company................................        748             8
Dorinco Reinsurance Company...........................        762             0
Hartford Fire Insurance Company.......................        487             8
First Excess & Reinsurance Company....................        341             0
Gerling Global Reinsurance Company of America.........        236             7
Scandinavian Reinsurance..............................      3,425         2,600
NAC Re................................................        545             0
Nationwide Mutual Insurance Company...................        135             0
Partner Reinsurance Corporation of the U.S............        137             0
Chartwell Reinsurance Company.........................         97             0
Transatlantic Reinsurance Company.....................         79             0
Sydney Reinsurance Corporation........................         58             0
TIG Re................................................         77             0
Vesta Fire Insurance Corporation......................         23             0
National Reinsurance Corporation......................        150             0
All others............................................      1,100            47
                                                          -------       -------
  Totals..............................................    $64,043       $40,997
                                                          =======       =======
</TABLE>

    The Company believes that the balances due from the SC Facility, the NC
Facility and the NFIP are fully collectable due to the governmental agency's
ability to assess policyholders and member companies for deficiencies. The
remaining recoverables due from nonaffiliated reinsurance companies are also
considered fully collectable by the Company.

    With respect to credit concentrations, most of the Company's business
activity is with agents and policyholders located within the southeastern United
States. There are no other material credit concentrations related to premiums
receivable, agents' balances receivable, and premium notes receivable.

NOTE 15 COMMITMENTS AND CONTINGENCIES

    (a) In December 2000, the Company sold its corporate headquarters with a net
book value of $2,589 to its majority shareholder and Chairman of the Board of
Directors for $4,500, resulting in a gain of $1,892 (see Note 3). Expenses
incurred in connection with the sale were $19. Concurrent with this transaction,
the Company leased the property back for a fixed period of three years without
an option for renewal. The gain resulting from this transaction has been
deferred and will be amortized

                                       68
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 15 COMMITMENTS AND CONTINGENCIES (CONTINUED)
into income evenly over the term of the leaseback. Lease expense incurred under
this related party lease amounted to $13 in 2000. Approximate minimum future
lease payments are as follows:

<TABLE>
<S>                                                           <C>
2001........................................................   $  473
2002........................................................      473
2003........................................................      446
                                                               ------
  Total.....................................................   $1,392
                                                               ======
</TABLE>

    The Company and its subsidiaries lease various other office space, computer
equipment and automobiles under several operating leases that expire at various
times. Lease expense amounted to $1,320, $1,451, and $1,543 in 2000, 1999, and
1998 respectively. Approximate minimum future lease payments under these
operating leases at December 31, 2000 are as follows:

<TABLE>
<S>                                                           <C>
2001........................................................   $  896
2002........................................................      671
2003........................................................      474
2004........................................................      142
2005........................................................       80
Thereafter..................................................       --
                                                               ------
  Total.....................................................   $2,263
                                                               ======
</TABLE>

    (b) A contingent liability exists with respect to reinsurance placed with
other companies (See Note 14).

    (c) The Company was served with a complaint dated November 19, 1997 by
Norwest Financial Resources, Inc. ("Norwest") that claimed indemnification from
Premium Service Corporation of Columbia ("Premium") and Seibels, Bruce & Company
("SBC") pursuant to the Asset Purchase Agreement dated as of July 2, 1993 by and
among Premium, SBC and Norwest. The indemnification claim relates to certain
loans of Premium which later were discovered to be incorrectly recorded as
realizable assets. Management is vigorously defending this complaint. This
complaint was filed in the state of South Carolina in the Richland County Court
of Common Pleas.

    (d) On May 1, 1998, the Company completed its acquisition of Graward. In
completing the Final Balance Sheet in accordance with the related purchase
agreement, the Company identified purchase price adjustments totaling
approximately $6,000 that it believes were known to certain of the sellers, but
were not disclosed to the Company during its due diligence process. On
November 29, 2000, the Company reached a settlement with the sellers of Graward
related to certain of these adjustments. In the settlement, the sellers of
Graward agreed to cancel four Subordinated Purchase Notes dated May 1, 1998 in
the aggregate face amount of $2,700 (see Notes 5 and 8). The Company in turn
agreed to dismiss a pending motion and an arbitration demand. Additionally, the
Company agreed to issue to the sellers of Graward warrants to purchase 25,000
shares of its common stock at a price of $3.00 per share and an additional
25,000 shares of its common stock at a price of $7.00 per share. The settlement
of these purchase price disputes resulted in a special items gain of $2,700.

                                       69
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 15 COMMITMENTS AND CONTINGENCIES (CONTINUED)
    (e) On March 1, 2000, the Company received a demand from Generali-U.S.
Branch ("Generali") for arbitration of claims arising under the April 1995
Agency Agreement between Generali and Graward. Effective February 19, 2001, the
Company resolved these arbitration claims. As a result of the settlement, the
remaining liabilities assumed upon the acquisition of Graward recorded in the
amount of $6,527 were discharged in exchange for $1,000 in cash and the issuance
of warrants to purchase 75,000 shares of the Company's common stock at $1.00 per
share and an additional 75,000 shares of the Company's common stock at $2.00 per
share (see Note 1). The resolution and ultimate quantification of these
preacquisition liabilities resulted in a special items gain of $5,527.

    (f) Catawba was served with a complaint dated November 7, 1997 by the
Municipal Association of South Carolina, which claimed it had a potential
deficiency of certain South Carolina municipality taxes. Effective April 10,
2000, the Company settled this complaint for $1,525. After reviewing the related
reserves established for this potential deficiency, the Company recorded a gain
of $902.

    (g) The Company and its subsidiaries are parties to various other lawsuits
generally arising in the normal course of their insurance and ancillary
businesses. The Company does not believe that the eventual outcome of such suits
will have a material effect on the financial condition or results of operations
of the Company.

NOTE 16 RELATED PARTY TRANSACTIONS

    During the fiscal years ended December 31, 2000, 1999 and 1998, the Company
paid a total of $225, $350 and $522, respectively, to SADISCO Corporation
("SADISCO") for salvage and disposal services. Charles H. Powers, chairman of
the Company's Board of Directors and member of the Board of Director's
Compensation Committee, is the owner and operator of SADISCO.

    On December 21, 2000, the Company sold its corporate headquarters to its
majority shareholder and Chairman of the Board of Directors (see Note 3).
Concurrent with this transaction, the Company leased the property back for a
fixed period of three years without an option for renewal.

    During the years ended December 31, 2000 and 1999, the Company paid a total
of $110 and $2 to FHI, Inc. ("FHI"), respectively, for services related to the
settlement of certain outstanding litigation. Kenneth W. Pavia, a member of the
Company's Board of Directors and member of the Board of Director's Compensation
Committee, is the owner of FHI.

                                       70
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 16 RELATED PARTY TRANSACTIONS (CONTINUED)
    The following is a summary of unaudited quarterly information for the years
ended December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                            1ST        2ND        3RD        4TH
                  2000                    QUARTER    QUARTER    QUARTER    QUARTER
----------------------------------------  --------   --------   --------   --------
<S>                                       <C>        <C>        <C>        <C>
Commission and service income...........  $11,353    $  7,914    $8,818    $ 7,805
Premiums earned.........................    4,464       4,299     9,956      6,418
Net investment income...................      753         604       611        692
Other interest income...................      279         281       315      1,092
Net realized (loss) gain................     (103)       (123)       --          1
Policy fees and other income............    1,444       1,168     1,251        830
Special items...........................       --      16,421        --     (8,283)
Net (loss) income.......................   (2,913)    (21,585)      228      8,909
                                          =======    ========    ======    =======
Basic (loss) income per share...........  $ (0.37)   $  (2.76)   $ 0.02    $  1.13
Diluted (loss) income per share.........    (0.37)      (2.76)     0.02       1.13
                                          =======    ========    ======    =======
</TABLE>

    During the first and second quarters of 2000, commission and service income
continued a decline that began in the fourth quarter of 1998 and continued
throughout 1999 due to decreases in written premium for the SC Facility. The SC
Facility began its planned runoff effective March 1, 1999, at which time no new
business was accepted into the SC Facility. Effective October 1, 1999, voluntary
renewals were no longer accepted by the SC Facility. However, servicing carriers
can still cede renewals to the SC Facility until March 1, 2002, at which time
final runoff of the SC Facility will commence. Commission and service income
showed a sizable increase during the third quarter of 2000 primarily due to
normal cyclical fluctuations of the Company's underwriting operations for the
NFIP. However, as there was very little hurricane-related claims activity for
the 2000 season, commission and service income decreased during the fourth
quarter of 2000.

    Premiums earned shows marked overall quarterly reductions when compared to
the quarterly results of 1999. This is attributable to the 75% quota share
reinsurance agreement the Company placed on its retained risk automobile
operations in December 1999. Through June 30, 2000, the Company ceded 75% of its
written and earned premium to reinsurers under the agreement. Effective July 1,
2000, and coinciding with the discontinuation of the Company's Nashville and
South Carolina automobile operations, this agreement was cancelled for all
retained risk automobile operations except those of UIC, who continued
operations under the agreement. This accounts for the increase in earned
premiums between the second and third quarters of 2000. The decrease in earned
premiums for the fourth quarter of 2000 is directly attributable to the runoff
of the Company's Nashville and South Carolina automobile operations.

    Other interest income increased in the fourth quarter of 2000 due to the
payment of approximately $800 by the SC Facility of time value of money
consideration on recoupment premiums the Company writes for the SC Facility.
This activity is calculated by the SC Facility and communicated to its servicing
carriers on an irregular basis. The Company records all normal interest income
on a monthly basis from the SC Facility.

    In December 2000, the Company sold its corporate headquarters to its
majority shareholder and Chairman of the Board of Directors, resulting in a gain
of $1,892. Concurrent with this transaction, the

                                       71
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NOTE 16 RELATED PARTY TRANSACTIONS (CONTINUED)
Company leased the property back for a fixed period of three years without an
option for renewal. The entire gain resulting from this transaction has been
deferred and excluded from the 2000 statements of operations and will be
amortized into income evenly over the term of the leaseback.

    The Company's primary source of policy fees has been its Nashville
operations. Towards the end of 1999, the Company undertook several initiatives
to improve that operation's unfavorable loss and operating expense ratios. These
initiatives included an agent profitability review, more stringent underwriting
guidelines and implementation of underwriting expense cost control measures. The
initiatives had the effect of reducing the operation's premium volume and, as a
result, policy fees began to decline. The Nashville operations were discontinued
at the end of the second quarter of 2000. Therefore, by the end of the fourth
quarter of 2000 policy fees showed a significant decline.

    In June 2000, the Company's Board of Directors approved and the Company
announced a restructuring plan (the "Restructuring Plan") centering on the
discontinuation of its Nashville operations. The Restructuring Plan will be
substantially completed by December 31, 2001 and includes approximately $16,421
in special items charges, including $14,915 of goodwill, $580 of fixed assets
directly associated with the Nashville operation and $183 of deferred financing
costs. The cash requirements of the Restructuring Plan were originally estimated
to be approximately $743 and will be substantially expended by March 31, 2001.
In December 2000, the estimated cost of the restructuring plan was adjusted
downward by $56.

    On November 29, 2000, the Company reached a settlement with the sellers of
Graward related to certain purchase price adjustments. In the settlement, the
sellers of Graward agreed to cancel four Subordinated Purchase Notes dated
May 1, 1998 in the aggregate face amount of $2,700. The Company in turn agreed
to dismiss a pending motion and an arbitration demand. Additionally, the Company
agreed to issue to the sellers of Graward warrants to purchase 25,000 shares of
its common stock at a price of $3.00 per share and an additional 25,000 shares
of its common stock at a price of $7.00 per share. The settlement of these
purchase price disputes resulted in a special items gain of $2,700 recorded in
the fourth quarter of 2000.

    Effective February 19, 2001, the Company reached a settlement with respect
to liabilities assumed upon the acquisition of Graward recorded in the amount of
$6,527 which were discharged in exchange for $1,000 in cash and the issuance of
warrants to purchase 75,000 shares of the Company's common stock at $1.00 per
share and an additional 75,000 shares of the Company's common stock at $2.00 per

                                       72
<PAGE>
NOTE 16 RELATED PARTY TRANSACTIONS (CONTINUED)
share (see Note 15). The resolution and ultimate quantification of these
preacquisition liabilities resulted in a special items gain of $5,527 recorded
in the fourth quarter of 2000.

<TABLE>
<CAPTION>
                                            1ST        2ND        3RD        4TH
                  1999                    QUARTER    QUARTER    QUARTER    QUARTER
----------------------------------------  --------   --------   --------   --------
<S>                                       <C>        <C>        <C>        <C>
Commission and service income...........  $12,425    $ 9,992    $11,595    $11,640
Premiums earned.........................   10,530     12,229     16,003     14,582
Net investment income...................      730        648        686        771
Other interest income...................      358        323        367        337
Net realized gain.......................       --         11        189        138
Policy fees and other income............    1,183        989      1,266      1,341
Net income (loss).......................    1,915     (2,819)         3     (6,635)
                                          =======    =======    =======    =======
Basic income (loss) per share...........  $  0.25    $ (0.36)   $  0.00    $ (0.86)
Diluted income (loss) per share.........     0.25      (0.36)      0.00      (0.86)
                                          =======    =======    =======    =======
</TABLE>

    During the first and second quarters of 1999, commission and service income
continued a decline that began in the fourth quarter of 1998 due to decreases in
written premium for the SC Facility (see above). Commission and service income
showed significant increases in the third and fourth quarters of 1999 over the
second quarter of 1999 due to a significant increase in hurricane-related claims
for the SC Facility, the NC Facility and the NFIP.

    Premiums earned continued the upward trend experienced throughout 1998 for
the first three quarters of 1999 due to the Company's planned growth of its
nonstandard automobile and commercial lines programs. Largely contributing to
this premium growth was a full nine months of operations with its affiliated
Managing General Agent (Graward) in 1999 versus a partial year of operations in
1998. Premiums earned decreased during the fourth quarter of 1999 due to the
Company's shift of focus from overall premium growth to strengthening the
quality of its existing of business. The net losses experienced in the fourth
quarter of 1999 are primarily related to the Company's automobile business. High
loss and expense ratios in the Company's Nashville operations, coupled with an
unsuccessful attempt to consolidate two of the automobile operations, caused
significant losses in both the Nashville and North Carolina operations.
Furthermore, extreme growth and high loss ratios typically associated with a new
book of business caused significant losses in the Company's South Carolina
automobile operations. Several initiatives were undertaken during the fourth
quarter of 1999, all of which were designed to improve existing loss and
underwriting expense ratios. These initiatives included an agent profitability
review, more stringent underwriting guidelines, and implementation of
underwriting expense cost control measures.

    Included in the third quarter net realized gain is the realized gain on the
sale of one of the Company's buildings of $206. During the fourth quarter of
1999, the Company sold one of its insurance company subsidiaries, realizing a
gain of $243.

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

    Inapplicable.

                                       73
<PAGE>
                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS OF THE
  REGISTRANT

<TABLE>
<CAPTION>
NAME                                     AGE      POSITION
----                                   --------   --------
<S>                                    <C>        <C>
Steven M. Armato.....................     49      Vice President of Human Resources of certain
                                                  subsidiaries since 1993. Employed by the Company since
                                                  April 1981.
Michael A. Culbertson................     52      Vice President of certain subsidiaries since December
                                                  1995. Previously held position of Senior Vice President
                                                  of the Company from 1995-1999 and Vice President of
                                                  Claims from June 1993 until June 1995. Employed by the
                                                  Company in various claims capacities since December
                                                  1974.
Wayne A. Fletcher....................     49      Vice President and Director of Business Development for
                                                  certain subsidiaries since 1997. From 1994 to 1997, Mr.
                                                  Fletcher served as President of Bankers Underwriters,
                                                  Inc., a subsidiary of Banker's Insurance Group.
John F. Gibson.......................     50      Director, President and Chief Operating Officer for
                                                  certain subsidiaries since 1994.
Franklin D. Hutchinson...............     64      Vice President of certain subsidiaries since June 1999.
                                                  Employed by the Company since October 1998. From June
                                                  1998 until October 1998, Mr. Hutchinson served as a
                                                  consultant for the South Carolina Department of
                                                  Insurance and from 1979 through May 1998 was employed by
                                                  Unisun Insurance Company.
Stephen T. Harding...................     39      Vice President for certain subsidiaries since April 1998
                                                  after joining the Company in 1996 as South Carolina
                                                  Reinsurance Facility Underwriting and Customer Service
                                                  Manager. Mr. Harding was previously employed by GEICO
                                                  from 1988 to 1996.
S. Melinda Hydrick...................     42      Vice President of certain subsidiaries since March 1999.
                                                  Employed by the Company since November 1988.
Robert J. Kearns.....................     59      Executive Vice President of certain subsidiaries since
                                                  July 2000. Employed by the Company since May 1999. From
                                                  1997 to 1999, Mr. Kearns served as Assistant Vice
                                                  President of Claims for Permanent General Assurance
                                                  Corporation and from 1990 to 1996 served as Vice
                                                  President of Claims for Superior Insurance Company.
Kenneth W. Marter....................     39      Chief Financial Offer of the Company and certain
                                                  subsidiaries since November 2000. Also serves as a
                                                  Director for certain subsidiaries. Treasurer of the
                                                  Company and certain subsidiaries since July 1998. Mr.
                                                  Marter had served as Controller since December 1997 and
                                                  Director of Finance since November 1996. Previously, Mr.
                                                  Marter was Director of Finance with Air South Airlines,
                                                  Inc. from July 1994 to October 1996.
</TABLE>

                                       74
<PAGE>

<TABLE>
<CAPTION>
NAME                                     AGE      POSITION
----                                   --------   --------
<S>                                    <C>        <C>
Matthew P. McClure...................     31      General Counsel and Corporate Secretary of the Company
                                                  and certain subsidiaries since July 1998. Elected Vice
                                                  President in 1999. Also serves as a Director for certain
                                                  subsidiaries. Previously served as Assistant Secretary
                                                  and Legal Counsel since November 1996. Prior to joining
                                                  the Company, Mr. McClure was Manager of Financial
                                                  Planning with Air South Airlines, Inc. from July 1995 to
                                                  May 1996 and employed by the South Carolina Fifth
                                                  Judicial Circuit solicitor from May 1993 to July 1995.
John E. Natili.......................     54      President and Chief Executive Officer of the Company
                                                  since January 2001. President and Chief Executive
                                                  Officer of certain subsidiaries since May 2000.
                                                  Executive Vice President and Chief Operating Officer of
                                                  the Company since May 2000. Mr. Natili joined the
                                                  Company in February of 1999 as vice president of claims.
                                                  Previously, he served as President and Chief Executive
                                                  Officer of Unisun Insurance Company in Charleston, South
                                                  Carolina. Prior to that he was executive vice president
                                                  and chief operating officer after having served since
                                                  1991 in various executive-level positions for that
                                                  company.
Bryan D. Rivers......................     32      Controller of the Company and certain subsidiaries since
                                                  June 1999. Prior to joining the Company, Mr. Rivers was
                                                  employed for eight years by Arthur Andersen LLP in
                                                  Columbia, South Carolina. While with Arthur Andersen
                                                  LLP, Mr. Rivers served as the Company's Audit Senior for
                                                  two years and then as Audit Manager for two years. Mr.
                                                  Rivers is a Certified Public Accountant.
</TABLE>

    Pursuant to Instruction G(3) to Form 10-K, the information relating to
Directors of the Company required by Item 10 is incorporated by reference from
the Company's definitive proxy statement which is to be filed pursuant to
Regulation 14A within 120 days after the end of the Company's fiscal year ended
December 31, 2000.

    For information pertaining to Executive Officers of the Company, as required
by Instruction 3 of Paragraph (b) of Item 401 of Regulation S-K. Refer to the
"Executive Officers of the Registrant" section of Part I of this document.

    Pursuant to Instruction G(3) to Form 10-K, the information relating to
compliance with Section 16(a) required by Item 10 is incorporated to by
reference from the Company's definitive proxy statement which is to be filed
pursuant to Regulation 14A within 120 days after the end of the Company's fiscal
year ended December 31, 2000.

ITEM 11. EXECUTIVE COMPENSATION

    Pursuant to Instruction G(3) to Form 10-K, the information required by Item
11 is incorporated by reference for the Company's definitive proxy statement
which is to be filed pursuant to Regulation 14A within 120 days after the end of
the Company's fiscal year ended December 31, 2000.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    Pursuant to Instruction G(3) to Form 10-K, the information required by Item
12 is incorporated by reference from the company's definitive proxy statement
which is to be filed pursuant to Regulation 14A within 120 days after the end of
the Company's fiscal year ended December 31, 2000.

                                       75
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Pursuant to Instruction G(3) to Form 10-K, the information required by Item
13 is incorporated by reference from the Company's definitive proxy statement
which is to be filed pursuant to Regulation 14A within 120 days after the end of
the Company's fiscal year ended December 31, 2000.

                                    PART IV

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

(A)(1) AND (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULES

    The following consolidated financial statements of The Seibels Bruce
Group, Inc. and subsidiaries are included in Item 8:

    Report of Independent Public Accountants--Arthur Andersen LLP

    Consolidated Balance Sheets--As of December 31, 2000 and 1999.

    Consolidated Statements of Operations--For the years ended December 31,
    2000, 1999 and 1998.

    Consolidated Statements of Changes in Shareholders' Equity--For the years
    ended December 31, 2000, 1999 and 1998.

    Consolidated Statements of Cash Flows--For the years ended December 31,
    2000, 1999 and 1998.

    The Notes to Consolidated Financial Statements included in Item 8 pertain
both to the consolidated financial statements listed above and the condensed
financial information of the Registrant included in Schedule II under Item
14(d).

    The following financial statement schedules are included in item 14(d):

    Schedule I--Summary of Investments Other than Investments in Related Parties

    Schedule II--Condensed Financial Information of Registrant

    Schedule III--Supplementary Insurance Information

    Schedule IV--Reinsurance

    Schedule V--Valuation and Qualifying Accounts

    Schedule VI--Supplemental Information Concerning Property/Casualty Insurance
    Operations

    All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions or
are inapplicable and therefore have been omitted.

                                       76
<PAGE>
(A)(3) LIST OF EXHIBITS

<TABLE>
<S>        <C>
3.1        Articles of Incorporation of the Registrant, as restated,
           dated February 12, 1999, incorporated herein by reference to
           the Annual Report on Form 10-K, Exhibit 3.1, for the year
           ended December 31, 1998.

3.2        By-laws of the Registrant, as amended and restated, dated
           February 4, 1999, incorporated herein by reference to the
           Annual Report on Form 10-K, Exhibit 3.2, for the year ended
           December 31, 1998.

4.1        The rights of the Company's equity security holders are
           defined in the Company's Articles of Incorporation, as
           restated, dated February 12, 1999, incorporated herein by
           reference to the Annual Report on Form 10- K, Exhibit 3.1,
           for the year ended December 31, 1999. See Exhibit 3.1.

4.2        Form of the certificate of the Company's Common Stock, par
           value $1.00 per share, incorporated herein by reference to
           the Registrant's Registration Statement on Form S-2 (File
           No. 333-24081).

10.1       South Carolina Insurance Company Employee's Profit Sharing
           and Savings Plan, dated June 30, 1992, as amended January 4,
           1993, incorporated herein by reference to the Annual Report
           on Form 10-K(10)(9)-9, for the year ended December 31, 1992.
           Amendments dated June 2, 1993, April 21, 1994, July 1, 1994,
           July 1, 1995, July 1, 1996 and September 26, 1997,
           incorporated herein by reference to the Annual Report on
           Form 10-K, Exhibit 10.1, for the year ended December 31,
           1997. Amendment dated March 16, 1998, incorporated herein by
           reference to the Annual Report on Form 10-K, Exhibit 10.1,
           for the year ended December 31, 1998. Amendments dated April
           16, 1999 and September 1, 2000.

10.2       Stock Purchase Agreement, dated January 29, 1996, by and
           between the Registrant and Charles H. Powers and Walker S.
           Powers, and amendment thereto, incorporated herein by
           reference to submission DEF 14-A, filing date May 10, 1996,
           file number 000-08804, accession number
           0001005150-96-000127, accepted May 9, 1996.

10.3       Stock Option Agreement, dated January 30, 1996, by and
           between the Registrant and Charles H. Powers, Walker S.
           Powers and Rex and Jane Huggins, incorporated herein by
           reference to submission DEF 14-A, filing date May 10, 1996,
           file number 000-008804, accession number
           0001005150-96-00127, accepted May 9, 1996.

10.4       Stock Purchase Agreement, dated March 28, 1996, by and
           between the Registrant and Fred C. Avent, Frank H. Avent and
           PepsiCo of Florence, incorporated herein by reference to
           submission Form S-2, filing date October 15, 1996, file
           number 333-14123, accession number 0000276380-96-00017,
           accepted October 15, 1996.

10.5       Stock Purchase Agreement, dated March 28, 1996, by and
           between Registrant and Junius DeLeon Finklea, Joseph K.
           Newsom, Sr., Mark J. Ross, Larry M. Brice, J. Howard Stokes,
           Winston W. Godwin, IRA and Peter D. and Vera C. Hyman,
           incorporated herein by reference to submission Form S-2,
           filing date October 15, 1996, file number 333-14123,
           accession number 0000276380-96-00017, accepted October 15,
           1996.

10.6       Stock Option Purchase Agreement, dated November 20, 1997, by
           and between the Registrant; Charles H. Powers, Walker S.
           Powers and Rex and Jane Huggins; and High Ridge Capital LLC,
           incorporated herein by reference to the Annual Report on
           Form 10-K, Exhibit 10.6, for the year ended December 31,
           1997.
</TABLE>

                                       77
<PAGE>
<TABLE>
<S>        <C>
10.7       Stock Option Purchase Agreement, dated November 20, 1997, by
           and between the Registrant; Charles H. Powers, Walker S.
           Powers and Rex and Jane Huggins; and High Ridge Capital
           Partners Limited Partnership, incorporated herein by
           reference to the Annual Report on Form 10-K, Exhibit 10.7,
           for the year ended December 31, 1997.

10.8       The Seibels Bruce Group, Inc. 1996 Stock Option Plan for
           Employees, dated November 1, 1995, incorporated herein by
           reference to submission DEF 14-A, filing date May 10, 1996,
           file number 000-08804, accession number
           0001005150-96-000127, accepted May 9, 1996, as amended by
           the Amendment thereto, effective October 8, 1998,
           incorporated herein by reference to submission Form S-8,
           filing date October 9, 1998, file number 333-65537,
           accession number 0001047469-98-036917, accepted October 9,
           1998.

10.9       The Seibels Bruce Group, Inc. 1995 Stock Option Plan for
           Independent Agents, dated June 14, 1996, incorporated herein
           by reference to submission DEF 14-A, filing date May 10,
           1996, file number 000-08804, accession number
           0001005150-96-000127, accepted May 9, 1996.

10.10      The Seibels Bruce Group, Inc. 1995 Stock Option Plan for
           Non- Employee Directors, dated June 14, 1996, incorporated
           herein by reference to submission DEF 14-A, filing date
           May 10, 1996, file number 000-08804, accession number
           0001005150-96-000127, accepted May 9, 1996. Amendment dated
           November 11, 1999. Amendment thereto incorporated herein by
           reference to submission DEF 14-A, filing date April 5, 2000,
           file number 000-08804, accession number
           0000912057-00-016186.

10.11      Agreement, dated October 1, 1994, by and between Catawba
           Insurance Company and the SC Facility, incorporated herein
           by reference to the Annual Report on Form 10-K, Exhibit
           10.12, for the year ended December 31, 1996.

10.12      Managing General Agent Agreement, dated January 1, 1996, by
           and between Seibels, Bruce & Company and Agency Specialty of
           Kentucky, Inc. and Generali -- US Branch, incorporated
           herein by reference to the Annual Report, Exhibit 10.13, for
           the year ended December 31, 1996. (Portions of this exhibit
           have been omitted pursuant to a request for confidential
           treatment.)

10.13      Termination Agreement, dated August 27, 1997, by and between
           Seibels Bruce & Company and Agency Specialty of Kentucky,
           Inc. and Generali -- US Branch, incorporated herein by
           reference to the Annual Report on Form 10-K, Exhibit 10.13,
           for the year ended December 31, 1997.

10.14      Arrangement, dated October 1, 1996, by and between Catawba
           Insurance Company, Kentucky Insurance Company and South
           Carolina Insurance Company and The United States of America
           Federal Emergency Management Agency, incorporated herein by
           reference to the Annual Report, Exhibit 10.14, for the year
           ended December 31, 1996.

10.15      Joint Underwriting Association contract, dated October 13,
           1998, by and between South Carolina Insurance Company and
           the South Carolina Associated Auto Insurers Plan,
           incorporated herein by reference to the Annual Report on
           Form 10-K, Exhibit 10.15, for the year ended December 31,
           1998.

21.1       Subsidiaries of the Registrant.

23.1       Consent of Arthur Andersen LLP.

28.1       Schedule P of Annual Report on Form 10-K/405 for the fiscal
           year ended December 31, 2000, incorporated herein by
           reference to Form SE, dated March 30, 2001.
</TABLE>

                                       78
<PAGE>
(B) REPORTS ON FORM 8-K.

(i) Form 8-K filed with the Securities and Exchange Commission on November 14,
    2000 to report the delisting of the Company's common stock from the Nasdaq
    National Market effective with the close of business on November 13, 2000.

(ii) Form 8-K filed with the Securities and Exchange Commission on November 29,
    2000, to report a settlement with the sellers of Graward General Companies,
    Inc. related to an acquisition dispute.

(C) AND (D) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

    The applicable exhibits and financial statement schedules are included
immediately after the signature pages.

    For the purpose of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statements on Form S-8
Numbers 333-65537, 333-14135, 333-15457, 2-70057, 2-83595, 33-34973, 33-43618,
33-43601, and 2-48782, as amended.

    Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable.

    In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

                                       79
<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.

<TABLE>
<S>                                                    <C>  <C>
                                                       THE SEIBELS BRUCE GROUP, INC.
                                                       (Registrant)
</TABLE>

    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>
<S>                                    <C>  <C>
Date: March 29, 2001                   By   /s/ CHARLES H. POWERS
                                            --------------------------------------------------------
                                            Charles H. Powers
                                            CHAIRMAN OF THE BOARD AND DIRECTOR

Date: March 29, 2001                   By   /s/ JOHN E. NATILI
                                            --------------------------------------------------------
                                            John E. Natili
                                            PRESIDENT AND CEO

Date: March 29, 2001                   By   /s/ FRANK H. AVENT
                                            --------------------------------------------------------
                                            Frank H. Avent
                                            DIRECTOR

Date: March 29, 2001                   By   /s/ A. CRAWFORD CLARKSON, JR.
                                            --------------------------------------------------------
                                            A. Crawford Clarkson, Jr.
                                            DIRECTOR

Date: March 29, 2001                   By   /s/ CLAUDE E. MCCAIN
                                            --------------------------------------------------------
                                            Claude E. McCain
                                            DIRECTOR

Date: March 29, 2001                   By   /s/ KENNETH W. PAVIA
                                            --------------------------------------------------------
                                            Kenneth W. Pavia
                                            DIRECTOR

Date: March 29, 2001                   By   /s/ JOHN P. SEIBELS
                                            --------------------------------------------------------
                                            John P. Seibels
                                            DIRECTOR

Date: March 29, 2001                   By   /s/ GEORGE R.P. WALKER, JR.
                                            --------------------------------------------------------
                                            George R.P. Walker, Jr.
                                            DIRECTOR

Date: March 29, 2001                   By   /s/ BRYAN D. RIVERS
                                            --------------------------------------------------------
                                            Bryan D. Rivers
                                            CONTROLLER (PRINCIPAL ACCOUNTING OFFICER)
</TABLE>

                                       80
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
           SCHEDULE I--SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS
                               IN RELATED PARTIES
                            AS OF DECEMBER 31, 2000
                          (DOLLARS SHOWN IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                     BALANCE
                                                              AMORTIZED    MARKET     SHEET
                                                                COST       VALUE      VALUE
                                                              ---------   --------   --------
<S>                                                           <C>         <C>        <C>
ITEM 7. DEBT SECURITIES*
Bonds:
  U.S. Government and government agencies and authorities...   $14,852    $15,009    $15,009
  State, municipalities and political subdivisions..........       375        383        383
  Corporate bonds...........................................    16,369     16,598     16,598
                                                               -------    -------    -------
                                                                31,596     31,990     31,990
CASH AND SHORT-TERM INVESTMENTS.............................    10,410     10,410     10,410
                                                               -------    -------    -------
                                                               $42,006    $42,400    $42,400
                                                               =======    =======    =======
</TABLE>

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

* Debt securities are classified as debt securities available for sale and are
  valued at market.

                                       81
<PAGE>
           SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                 THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY)
                                 BALANCE SHEETS
                               AS OF DECEMBER 31,
                          (DOLLARS SHOWN IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
ASSETS
Cash and short-term investments.............................  $     --   $    127
Investment in subsidiary companies*.........................    22,912     39,591
Other investments...........................................     1,317      1,317
Property and equipment, net.................................       285        498
Intercompany receivables*...................................     1,110      1,605
Other assets................................................       333        843
                                                              --------   --------
    Total assets............................................  $ 25,957   $ 43,981
                                                              ========   ========
LIABILITIES
Book overdraft..............................................  $     11   $     --
Payable to Generali--U.S. Branch............................     1,000         --
Notes payable...............................................    10,159     12,286
Intercompany payable*.......................................        --      2,247
Other liabilities...........................................        95        191
                                                              --------   --------
    Total liabilities.......................................    11,265     14,724
                                                              --------   --------
COMMITMENTS AND CONTINGENCIES
SPECIAL STOCK, no par value, authorized 5,000,000 shares
  Issued and outstanding 220,000 shares of cumulative $0.62,
  convertible, redeemable, nonvoting, special preferred
  stock, redemption value $2,200............................     2,200      2,200
Issued and outstanding 50,000 shares of cumulative $0.625,
  convertible, redeemable, nonvoting, special preferred
  stock, redemption value $500..............................       500        500
                                                              --------   --------
    Total special stock.....................................     2,700      2,700
                                                              --------   --------
SHAREHOLDERS' EQUITY
Common stock, $1 par value, authorized 17,500,000 shares in
  2000 and 1999, issued and outstanding 7,831,690 and
  7,831,398 shares in 2000 and 1999, respectively...........     7,832      7,831
Additional paid-in-capital..................................    61,989     61,988
Accumulated other comprehensive income......................       357       (605)
Accumulated deficit.........................................   (58,186)   (42,657)
                                                              --------   --------
    Total shareholders' equity..............................    11,992     26,557
                                                              --------   --------
    Total liabilities and shareholders' equity..............  $ 25,957   $ 43,981
                                                              ========   ========
</TABLE>

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

* Eliminated in consolidation.

   The accompanying notes are an integral part of these financial statements.

                                       82
<PAGE>
     SCHEDULE II (CONTINUED)--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                 THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY)
                            STATEMENTS OF OPERATIONS
                        FOR THE YEAR ENDED DECEMBER 31,
(DOLLARS AND WEIGHTED AVERAGE SHARES OUTSTANDING SHOWN IN THOUSANDS, EXCEPT PER
                                 SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                2000       1999       1998
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Revenues:
  Management fees*..........................................  $  2,985   $ 2,268    $ 1,253
  Other.....................................................        14        44        590
                                                              --------   -------    -------
    Total revenues..........................................     2,999     2,312      1,843
                                                              --------   -------    -------
Expenses:
  Interest..................................................     1,191     1,100        865
  Other.....................................................     2,070     1,124      1,058
                                                              --------   -------    -------
    Total expenses..........................................     3,261     2,224      1,923
                                                              --------   -------    -------
(Loss) income before tax benefit and equity in undistributed
  loss of subsidiaries......................................      (262)       88        (80)
Tax benefit.................................................       105       587         85
                                                              --------   -------    -------
(Loss) income before equity in undistributed loss of
  subsidiaries..............................................      (157)      675          5
Equity in undistributed loss of subsidiaries*...............   (15,204)   (8,211)    (2,899)
                                                              --------   -------    -------
Net loss....................................................  $(15,361)  $(7,536)   $(2,894)
                                                              ========   =======    =======
Basic loss per share:
  Net loss..................................................  $  (1.98)  $ (0.99)   $ (0.39)
  Weighted average shares outstanding.......................     7,832     7,774      7,763
                                                              ========   =======    =======
Diluted loss per share:
  Net loss..................................................  $  (1.98)  $ (0.99)   $ (0.39)
  Weighted average shares outstanding.......................     7,832     7,774      7,763
                                                              ========   =======    =======
</TABLE>

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

* Eliminated in consolidation.

   The accompanying notes are an integral part of these financial statements.

                                       83
<PAGE>
     SCHEDULE II (CONTINUED)--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                 THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY)
                 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                        FOR THE YEAR ENDED DECEMBER 31,
                          (DOLLARS SHOWN IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                2000       1999       1998
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Common stock:
  Beginning of year.........................................  $  7,831   $  7,773   $  7,731
  Stock issued under stock option plans.....................         1         58         42
                                                              --------   --------   --------
  End of year...............................................  $  7,832   $  7,831   $  7,773
                                                              --------   --------   --------
Additional paid-in-capital:
  Beginning of year.........................................  $ 61,988   $ 61,861   $ 61,665
  Stock issued under stock option plans.....................         1        127        196
                                                              --------   --------   --------
  End of year...............................................  $ 61,989   $ 61,988   $ 61,861
                                                              --------   --------   --------
Accumulated other comprehensive income:
  Beginning of year.........................................  $   (605)  $    907   $     47
  Change during the year....................................       962     (1,512)       860
                                                              --------   --------   --------
  End of year...............................................  $    357   $   (605)  $    907
                                                              --------   --------   --------
Accumulated deficit:
  Beginning of year.........................................  $(42,657)  $(34,953)  $(31,899)
  Net loss..................................................   (15,361)    (7,536)    (2,894)
  Dividends on special stock................................      (168)      (168)      (160)
                                                              --------   --------   --------
  End of year...............................................  $(58,186)  $(42,657)  $(34,953)
                                                              --------   --------   --------
    Total shareholders' equity..............................  $ 11,992   $ 26,557   $ 35,588
                                                              ========   ========   ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       84
<PAGE>
     SCHEDULE II (CONTINUED)--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                 THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY)
                            STATEMENTS OF CASH FLOWS
                        FOR THE YEAR ENDED DECEMBER 31,
                          (DOLLARS SHOWN IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                2000       1999       1998
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
  Net loss..................................................  $(15,361)  $(7,536)   $ (2,894)
    Adjustments to reconcile net loss to net cash provided
      by (used in) operating activities:
      Equity in undistributed loss of subsidiaries, net.....    15,078     8,154       2,507
      Depreciation and amortization.........................       336       245          62
      Net realized loss (gain) on sale of property and
        equipment...........................................         1       (11)         (4)
      Changes in assets and liabilities.....................     2,112     5,579      (2,445)
                                                              --------   -------    --------
      Net cash provided by (used in) operating activities...     2,166     6,431      (2,774)
                                                              --------   -------    --------
Cash flows from investing activities:
  Proceeds from property and equipment sold.................        --        12           4
  Purchases of property and equipment.......................        --      (420)       (124)
  Purchases of investments..................................        --        --        (300)
  Cost of/additional investment in subsidiaries.............        --    (5,044)     (9,812)
                                                              --------   -------    --------
    Net cash used in investing activities...................        --    (5,452)    (10,232)
                                                              --------   -------    --------
Cash flows from financing activities:
  Issuance of capital stock.................................         2       185         238
  Net (repayment) proceeds from issuance of debt............    (2,127)   (1,264)     13,060
  Dividends paid............................................      (168)     (168)       (160)
                                                              --------   -------    --------
    Net cash (used in) provided by financing activities.....    (2,293)   (1,247)     13,138
                                                              --------   -------    --------
Net (decrease) increase in cash and short-term
  investments...............................................      (127)     (268)        132
Cash and short-term-investments, beginning of year..........       127       395         263
Cash and short-term-investments, end of year................  $     --   $   127    $    395
                                                              ========   =======    ========
Supplemental cash flow information:
  Interest paid.............................................  $  1,077   $ 1,076    $    922
  Income taxes paid.........................................        --        --          39
                                                              ========   =======    ========
Non-cash financing activities:
  Acquisitions:
    Cash paid, net of cash acquired.........................  $     --   $    --    $ (5,598)
    Issuance of debt........................................        --        --      (2,700)
    Preferred stock issued..................................        --        --        (500)
    Assets acquired.........................................        --        --      17,563
    Liabilities assumed.....................................        --        --     (27,247)
                                                              --------   -------    --------
    Goodwill................................................  $     --   $    --    $(18,482)
                                                              ========   =======    ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       85
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
               SCHEDULE III--SUPPLEMENTARY INSURANCE INFORMATION
                          (DOLLARS SHOWN IN THOUSANDS)
<TABLE>
<CAPTION>
                                                         FUTURE POLICY                                 NET
                                            DEFERRED       BENEFITS,                               INVESTMENT      BENEFITS,
                                             POLICY      CLAIMS, LOSSES                             INCOME(1)    CLAIMS, LOSSES
                                           ACQUISITION      AND LOSS       UNEARNED     PREMIUM     AND OTHER    AND SETTLEMENT
                                              COSTS         EXPENSES       PREMIUMS     REVENUE      INCOME         EXPENSES
                                           -----------   --------------   ----------   ---------   -----------   --------------
<S>                                        <C>           <C>              <C>          <C>         <C>           <C>
YEAR ENDED DECEMBER 31, 2000:
Property and casualty insurance..........    $  400         $ 85,833       $46,053      $25,137      $3,685         $24,445
Credit life insurance....................        --               --            --           --         342              --
Commission and service activities........        --               --            --           --       3,562              --
Other....................................        --               --            --           --       1,731              --
                                             ------         --------       -------      -------      ------         -------
    Total................................    $  400         $ 85,833       $46,053      $25,137      $9,320         $24,445
                                             ======         ========       =======      =======      ======         =======
YEAR ENDED DECEMBER 31, 1999:
Property and casualty insurance..........    $1,373         $113,850       $62,520      $53,344      $3,287         $46,010
Credit life insurance....................        --               31            --           --         170              --
Commission and service activities........        --               --            --           --       3,059              --
Other....................................        --               --            --           --       2,483              --
                                             ------         --------       -------      -------      ------         -------
    Total................................    $1,373         $113,881       $62,520      $53,344      $8,999         $46,010
                                             ======         ========       =======      =======      ======         =======
YEAR ENDED DECEMBER 31, 1998:
Property and casualty insurance..........    $2,472         $119,976       $72,538      $22,762      $3,362         $25,269
Credit life insurance....................        --               68            22           13         278             (46)
Commission and service activities........        --               --            --           --       3,283              --
Other....................................        --               --            --           --       2,367              --
                                             ------         --------       -------      -------      ------         -------
    Total................................    $2,472         $120,044       $72,560      $22,775      $9,290         $25,223
                                             ======         ========       =======      =======      ======         =======

<CAPTION>

                                            AMORTIZATION OF       OTHER
                                            DEFERRED POLICY     OPERATING    PREMIUMS
                                           ACQUISITION COSTS   EXPENSES(1)    WRITTEN
                                           -----------------   -----------   ---------
<S>                                        <C>                 <C>           <C>
YEAR ENDED DECEMBER 31, 2000:
Property and casualty insurance..........       $25,003          $ 7,397      $24,397
                                                                              =======
Credit life insurance....................            --               --
Commission and service activities........            --           14,408
Other....................................            --            4,656
                                                -------          -------
    Total................................       $25,003          $26,461
                                                =======          =======
YEAR ENDED DECEMBER 31, 1999:
Property and casualty insurance..........       $33,721          $15,637      $46,221
                                                                              =======
Credit life insurance....................            --               --
Commission and service activities........            --           10,201
Other....................................            --            9,047
                                                -------          -------
    Total................................       $33,721          $34,885
                                                =======          =======
YEAR ENDED DECEMBER 31, 1998:
Property and casualty insurance..........       $10,222          $29,081      $32,226
                                                                              =======
Credit life insurance....................            15               54
Commission and service activities........            --            8,240
Other....................................            --            9,448
                                                -------          -------
    Total................................       $10,237          $46,823
                                                =======          =======
</TABLE>

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

(1) Allocations of net investment income and other operating expenses are based
    on a number of assumptions and estimates. Results would change if different
    methods were applied.

                                       86
<PAGE>
                 THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES

                            SCHEDULE IV--REINSURANCE

                          (DOLLARS SHOWN IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                          PERCENTAGE
                                                    CEDED TO     ASSUMED                  OF AMOUNT
                                          GROSS       OTHER     FROM OTHER                ASSUMED TO
                                         AMOUNT*    COMPANIES   COMPANIES    NET AMOUNT   NET AMOUNT
                                         --------   ---------   ----------   ----------   ----------
<S>                                      <C>        <C>         <C>          <C>          <C>
YEAR ENDED DECEMBER 31, 2000:
Credit life insurance in force.........  $     --   $     --      $   --      $    --         0.0%
                                         ========   ========      ======      =======        ====
  Premiums earned:
  Property/casualty insurance..........  $141,243   $117,532      $1,426      $25,137         5.7%
  Credit life insurance................        --         --          --           --          --
  Accident/health insurance............        --         --          --           --          --
                                         --------   --------      ------      -------        ====
    Total..............................  $141,243   $117,532      $1,426      $25,137
                                         ========   ========      ======      =======
YEAR ENDED DECEMBER 31, 1999:
Credit life insurance in force.........  $    203   $     --      $   --      $   203         0.0%
                                         ========   ========      ======      =======        ====
  Premiums earned:
  Property/casualty insurance..........  $177,749   $129,638      $5,233      $53,344         9.8%
  Credit life insurance................        --         --          --           --          --
  Accident/health insurance............        --         --          --           --          --
                                         --------   --------      ------      -------        ====
    Total..............................  $177,749   $129,638      $5,233      $53,344
                                         ========   ========      ======      =======
YEAR ENDED DECEMBER 31, 1998:
Credit life insurance in force.........  $    489   $     --      $   --      $   489         0.0%
                                         ========   ========      ======      =======        ====
  Premiums earned:
  Property/casualty insurance..........  $163,485   $147,643      $6,920      $22,762        30.4%
  Credit life insurance................        13         --          --           13          --
  Accident/health insurance............        --         --          --           --          --
                                         --------   --------      ------      -------        ====
    Total..............................  $163,498   $147,643      $6,920      $22,775
                                         ========   ========      ======      =======
</TABLE>

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

* Includes amount written as designated carrier for two state sponsored
  automobile facilities, a homeowners residual market and the WYO National Flood
  Insurance Program.

                                       87
<PAGE>
                         THE SEIBELS BRUCE GROUP, INC.

                 SCHEDULE V--VALUATION AND QUALIFYING ACCOUNTS

                          (DOLLARS SHOWN IN THOUSANDS)

<TABLE>
<CAPTION>
                                                      BALANCE AT                             BALANCE AT
                                                     BEGINNING OF                              END OF
                                                         YEAR       ADDITIONS   DEDUCTIONS      YEAR
                                                     ------------   ---------   ----------   ----------
<S>                                                  <C>            <C>         <C>          <C>
YEAR ENDED DECEMBER 31, 2000
Allowance for uncollectable:
  Agents' balances receivable......................     $4,247       $ 1,128     $   (595)     $4,780
  Other receivables................................         --            --           --          --
  Premium notes receivable.........................        393             7           --         400
  Restructuring accrual............................         --        16,365      (16,089)        276
                                                        ======       =======     ========      ======
YEAR ENDED DECEMBER 31, 1999
Allowance for uncollectable:
  Agents' balances receivable......................     $2,694       $ 2,789     $ (1,236)     $4,247
  Other receivables................................         --            --           --          --
  Premium notes receivable.........................        241           152           --         393
                                                        ======       =======     ========      ======
YEAR ENDED DECEMBER 31, 1998
Allowance for uncollectable:
  Agents' balances receivable......................     $  957       $ 2,885*    $ (1,148)     $2,694
  Other receivables................................         63            --          (63)         --
  Premium notes receivable.........................        301            15          (75)        241
                                                        ======       =======     ========      ======
</TABLE>

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

* Includes $1,889 acquired with the purchase of Graward.

                                       88
<PAGE>
                         THE SEIBELS BRUCE GROUP, INC.
                SCHEDULE VI--SUPPLEMENTAL INFORMATION CONCERNING
                     PROPERTY/CASUALTY INSURANCE OPERATIONS
                          (DOLLARS SHOWN IN THOUSANDS)
<TABLE>
<CAPTION>

                                                RESERVES FOR    DISCOUNT, IF                                NET
                                  DEFERRED     UNPAID CLAIMS        ANY,                                INVESTMENT
                                   POLICY        AND CLAIM        DEDUCTED                              INCOME AND
                                 ACQUISITION    ADJUSTMENTS          IN         UNEARNED     EARNED        OTHER
                                    COSTS         EXPENSES       COLUMN C*      PREMIUMS    PREMIUMS      INCOME
                                 -----------   --------------   ------------   ----------   ---------   -----------
<S>                              <C>           <C>              <C>            <C>          <C>         <C>
Year Ended December 31, 2000...    $  400         $ 85,833         $   --       $46,053      $25,137      $3,685
                                   ======         ========         ======       =======      =======      ======
Year Ended December 31, 1999...    $1,373         $113,850         $   --       $62,520      $53,344      $3,287
                                   ======         ========         ======       =======      =======      ======
Year Ended December 31, 1998...    $2,472         $119,976         $   --       $72,538      $26,762      $3,362
                                   ======         ========         ======       =======      =======      ======

<CAPTION>
                                     CLAIMS AND
                                        CLAIM
                                     ADJUSTMENTS
                                      EXPENSES
                                      INCURRED         AMORTIZATION
                                     RELATED TO:       OF DEFERRED    PAID CLAIMS
                                 -------------------      POLICY       AND CLAIM
                                 CURRENT     PRIOR     ACQUISITION    ADJUSTMENTS   PREMIUMS
                                   YEAR      YEARS        COSTS        EXPENSES      WRITTEN
                                 --------   --------   ------------   -----------   ---------
<S>                              <C>        <C>        <C>            <C>           <C>
Year Ended December 31, 2000...  $22,090    $ 2,355      $25,003        $28,457      $24,397
                                 =======    =======      =======        =======      =======
Year Ended December 31, 1999...  $47,250    $(1,240)     $33,721        $42,499      $46,221
                                 =======    =======      =======        =======      =======
Year Ended December 31, 1998...  $24,450    $   819      $10,222        $28,101      $32,226
                                 =======    =======      =======        =======      =======
</TABLE>

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

* The Company does not discount loss and LAE reserves.

                                       89