<PAGE>

================================================================================
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549
                                   FORM 10-K

(Mark One)
   [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                             EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 1998

                                      OR

   [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

             For the transition period from              to
                                            ------------    -----------

                       COMMISSION FILE NUMBER 000-23427

                     STIRLING COOKE BROWN HOLDINGS LIMITED
            (Exact name of registrant as specified in its charter)

                          BERMUDA                        NOT APPLICABLE
               (STATE OR OTHER JURISDICTION OF           (IRS EMPLOYER
               INCORPORATION OR ORGANIZATION)         IDENTIFICATION NUMBER)

     VICTORIA HALL, 3RD FLOOR, 11 VICTORIA STREET, HAMILTON HM 11, BERMUDA
                   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                       TELEPHONE NUMBER: (441) 295-7556
             (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

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

                              TITLE OF EACH CLASS
                              -------------------
                  Ordinary Shares, Par Value $0.25 per share

     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 registrant's knowledge, in definitive proxy or information statements 
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. NOT APPLICABLE.

     The aggregate market value of the shares of all classes of voting stock of 
the registrant held by non-affiliates of the registrant on March 15, 1999 was 
approximately $59.8 million computed upon the basis of the closing sales price 
of the Ordinary Shares on the Nasdaq National Market on that date. For purposes 
of this computation, shares held by directors and officers of the registrant
have been excluded. Such exclusion is not intended, nor shall it be deemed to be
an admission that such persons are affiliates of the registrant.

     As of March 15, 1999 there were 9,776,372 outstanding Ordinary Shares, the
only class of the registrant's common stock outstanding, of $0.25 par value.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Certain portions of the registrant's Proxy Statement relating to its Annual
General Meeting of Shareholders scheduled to be held on May 27, 1999 are 
incorporated by reference into Part III of this Form 10-K.

     Although Stirling Cooke Brown Holdings Limited is a "foreign private 
issuer" within the meaning of Rule 3b-4 under the Securities Exchange Act of 
1934, as amended, it is voluntarily electing to file its Annual Report for the 
year ended December 31, 1998 on a Form 10-K.

================================================================================
<PAGE>

                                     INDEX
 
<TABLE>
<CAPTION>
                                    PART I                                                                                 Page
                                                                                                                           ----
<S>      <C>                                                                                                                <C> 
Item 1   Business........................................................................................................    1

Item 2   Properties......................................................................................................   10

Item 3   Legal Proceedings...............................................................................................   10

Item 4   Submission of Matters to a Vote of Security Holders.............................................................   11

                                     PART II
Item 5   Market for Registrant's Common Equity and Related Stockholder Matters...........................................   13

Item 6   Selected Financial Data.........................................................................................   14

Item 7   Management's Discussion and Analysis of Financial Condition and Results of Operations...........................   14

Item 8   Financial Statements and Supplementary Data.....................................................................   21

Item 9   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................   47

                                   PART III
Item 10  Directors and Executive Officers of the Registrant..............................................................   47

Item 11  Executive Compensation..........................................................................................   47

Item 12  Security Ownership of Certain Beneficial Owners and Management..................................................   47

Item 13  Certain Relationships and Related Transactions..................................................................   47

                                    PART IV
Item 14  Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................................   48
</TABLE> 

Note: All dollar amounts are in U.S. dollars, unless otherwise specifically
      noted.
<PAGE>
 
                                    PART 1

ITEM 1--BUSINESS

THE COMPANY

     Stirling Cooke Brown Holdings Limited (the "Company") is a Bermuda holding
company incorporated on December 12, 1995 which, through its subsidiaries,
provides risk management services and products. The Company provides its range
of services to independent insurance carriers and reinsurance companies as well
as directly to the insureds. The Company arranges reinsurance for its products
as well as for those offered by independent U.S.-based insurance carriers active
in the workers compensation, occupational accident and health and casualty
insurance markets.

     The Company, through its original operating subsidiary, Stirling Cooke 
Brown Insurance Brokers Limited, began operations in 1989 as an insurance broker
in London specializing in the placement of alternatives to traditional workers'
compensation insurance and the arrangement of associated reinsurance programs.
The Company soon began to develop and market its own innovative services and
products designed for employers seeking cost effective methods of alleviating
onerous insurance costs.

     Beginning in 1992, the Company identified a number of opportunities and
undertook certain strategic initiatives to enhance its growth prospects. To
further these plans, the Company acquired Realm Investments Ltd. in January
1996. Realm Investments Ltd., a Bermuda company, acted as a holding company for
a number of Bermuda and United States subsidiaries involved in the insurance
industry. The Company has expanded to include a number of business segments
including brokerage, program business, underwriting management, insurance and
reinsurance located in Bermuda, the United Kingdom and the United States.
Through these segments, the Company is able to diversify its revenues and
increase its overall control of the risk transfer process. Refer to Note 15 to
the consolidated financial statements for further segmental and geographical
information.

     Immediately after the acquisition of Realm Investments Ltd. in January 
1996, certain investment funds affiliated with The Goldman Sachs Group, L.P.
made an equity investment in the Company. The Company used the proceeds from
this investment to acquire, and provide additional capital for, Realm National
Insurance Company Limited ("Realm National") in September 1996. The Company is
integrating Realm National's insurance underwriting capabilities with the
Company's risk management services and will seek to earn additional income
through a combination of policy issuance fees and net premiums earned associated
with the underwriting function while retaining a minimum amount of risk.

     In December 1997, the Company and certain selling shareholders consummated
an Initial Public Offering of 3,421,250 Ordinary Shares. Of these shares,
1,375,000 were sold by the Company and 2,046,250 were sold by the selling
shareholders. Net proceeds of $26.8 million were received by the Company upon
consummation of the Initial Public Offering.

THE COMPANY'S OPERATIONS

     The Company's five main business segments are Brokerage, Program Business,
Underwriting Management, Insurance and Reinsurance.  As each segment comprises
separate companies, the results of each segment reflect all fees and income for
the companies in that segment.  For example, revenues for the insurance segment
which is comprised of Realm National include all of Realm National's income
including premiums, policy issuance fees and interest income.

                                       1
<PAGE>
 
     BROKERAGE

     The Company's brokerage segment comprises insurance and reinsurance 
brokering subsidiaries based in London, Bermuda and New York that for a fee or
commission, place contracts which transfer risk and associated premium from one
company to another. These subsidiaries specialize in placing insurance and
reinsurance business in alternative and traditional workers' compensation,
accident, health and specialty casualty lines. The Company generates fees and
commission-based revenues from this business. The brokerage segment generated
revenues of $27.1 million in 1998, $23.4 million in 1997 and $19.2 million in
1996.

     The Company, through its original operating subsidiary, Stirling Cooke 
Brown Insurance Brokers Limited, began operating in 1989 as an insurance broker
in London specialising in the placement of alternatives to traditional workers'
compensation insurance and the arrangement of assorted reinsurance programs. The
Company now owns insurance and reinsurance brokering subsidiaries based in
London, Bermuda and New York.
   
     PROGRAM BUSINESS

     The Company's program business segment comprises subsidiaries that market 
and manage insurance products and programs developed by the Company. Through
these programs, the segment is able to transfer risk from an insured to insurers
and ultimately to reinsurers in the workers' compensation market as well as for
other specialty casualty lines. The segment's subsidiaries are integrated in
such a manner so that the Company can offer complete business production and
administration to reinsurers. The program business segment services are provided
through various independent and group owned primary insurance carriers. This
segment primarily includes managing general agents, program management, claims
administration and loss control and premium audit companies. The program
business segment generated revenues of $27.1 million in 1998, $19.8 million in
1997 and $11.9 million in 1996.

     The program managers are responsible for design, management and placement 
of a program. The program manager oversees the program and coordinates with
reinsurers on all aspects of the program. The Company's Managing General Agency
("MGA") subsidiaries are responsible for marketing the program through their
agency network. The MGA's are also responsible for underwriting the business,
policy issuance, and administration of the business bound. The Company has in
recent years expanded its MGA network to include offices in: Dallas, Texas;
Sarasota, Ft. Lauderdale and Orlando in Florida; New York City, New York and
Montgomery, Alabama. The programs also use the services of a claims
administration, loss control and premium audit company to provide these
services.

     UNDERWRITING MANAGEMENT

     The Company's underwriting management segment comprises two Managing
General Underwriters ("MGUs") based in Bermuda who are authorized to underwrite
and administer reinsurance business on behalf of various independent insurance
and reinsurance companies. The MGUs earn fees for providing these underwriting
and associated administration services relating to the business underwritten.
The underwriting management segment generated revenues of $3.6 million in 1998,
$4.2 million in 1997, and $4.3 million in 1996.

     INSURANCE

     The Company's insurance segment comprises Realm National. The Company
currently uses independent primary insurance carriers, primarily Clarendon
National Insurance Company ("Clarendon") and Legion Insurance Company
("Legion"), in connection with most of its existing workers' compensation
business, and expects these arrangements to continue for much of this existing
business. However, following the acquisition of Realm National in September
1996, the Company started to act as an issuing carrier for a portion of its new
business opportunities and receives a combination of policy issuance fees and/or
net premiums earned in respect of this business. Realm National provides the
Company with the opportunity to generate business and receive premiums and fees
from sources outside the Company's MGA network, as non-affiliated MGAs place
business with Realm National. The Company expects that the revenues generated
through the continuing integration of Realm National into the

                                       2
<PAGE>
 
Company's existing businesses will be an important component of future earnings
growth. The insurance segment generated revenues of $11.1 million in 1998, $5.4
million in 1997 and $1.4 million in 1996.

     Realm National had shareholder's equity of approximately $22.5 million at
December 31, 1998 (1997--$21.5 million), net premiums earned of approximately
$7.7 million for the year ended December 31, 1998 (1997--$2.9 million) and a B+
(Very Good) rating from A.M. Best Company. Prior to its acquisition by the
Company, Realm National primarily wrote property and casualty insurance in a
limited number of states. For the year ended December 31, 1998, Realm National's
gross premiums written were $48.6 million (1997--$21.7 million); net premiums
written were $9.7 million (1997--$4.0 million), of which $8.2 million (1997--
$2.3 million) were related to workers' compensation insurance and $1.5 million
(1997--$1.7 million) were related to property insurance.

     REINSURANCE

     The Company's reinsurance segment comprises Comp Indemnity Reinsurance 
Company Limited (CIRCL). CIRCL reinsures a portion of the underwriting risk on
business provided to or by the Company and receives a reinsurance premium to
cover that risk. CIRCL accepts a portion of the reinsurance risk from insurance
carriers on programs managed by the Company, and then purchases reinsurance
protection to reduce its risk. CIRCL primarily reinsures workers' compensation,
and associated property and general liability risks. The reinsurance segment
generated revenues of $10.9 million in 1998, $9.4 million in 1997 and $8.2
million in 1996.

     For the year ended December 31, 1998, CIRCL's gross premiums assumed were
$11.8 million (1997--$14.1 million), of which $6.9 million (1997--$13.1 million)
were related to workers' compensation insurance and $4.9 million (1997--$1.0
million) were related to property and general liability insurance. Net premiums
assumed were $7.7 million (1997--$9.2 million).  During the course of the year,
the Company's management evaluated CIRCL's underwriting results, and as a result
of unfavorable results, reduced CIRCL's underwriting.  Management decided in
early 1999 to cease underwriting any new programs in CIRCL and a number of
existing contracts were not renewed for the 1999 year.  Those renewed will be
allowed to run until they expire at December 31, 1999.  Because some contracts
were not renewed by CIRCL during 1999, revenues should decrease accordingly.


MARKETING

     The Company's marketing strategies vary by business segment.  Marketing by 
the Brokering and Underwriting Management segments is focused on insurance and
reinsurance companies while marketing by the Program Business and Insurance
segments is focused on independent and wholesale insurance agents. The Company
advertises in U.S. and international trade journals, and has also contributed
articles to a quarterly trade magazine circulated to agents and policyholders.
Additionally, the Company participates as an exhibitor in the annual Risk and
Insurance Management Society conventions.

     The Insurance and Underwriting Management segments market to a number of
specialty insurance markets and focus their marketing efforts on a number of
insurance and reinsurance companies.
 
     The Company's Insurance segment which comprises Realm National markets its
insurance products to independent agents and other procurers of insurance
through unaffiliated networks and to a lesser extent through the Company's
program business segment.  The Company expects Realm National's marketing
efforts to increase as it becomes licensed in additional states.

     The Company's Program Business segment markets its workers' compensation
programs and other specialty lines to retail agents in the U.S. through its
MGAs. Individual MGA offices market their services and products through sales
representatives, targeted direct mail, local and regional advertising, seminars,
and trade and industry conventions.  Given its general reliance on retail agents
as an important source of business production, special emphasis is placed on
building and maintaining relationships with individual retail agents, and on
expanding its network of retail producers. To encourage loyalty from the retail
agents, the Company seeks to provide a high level of service, offer insurance
products that satisfy the needs of clients and reward increased levels of
production 
 
                                       3
<PAGE>
 
through incentive compensation schedules. The Company believes that it has
successfully developed a reputation for providing quality service, cost-
effective products and strong marketing support which has enabled it to develop
strong relationships with its retail agents, commercial customers, insurers and
reinsurers.

COMPETITION

     The business of providing risk management services and products to the
workers' compensation and property and casualty insurance markets is highly
competitive. The Company competes with providers of traditional insurance
coverage and with other providers of alternative market services (including
domestic and foreign insurance companies, reinsurers, insurance brokers, captive
insurance companies, rent-a-captives, self-insurance plans, risk retention
groups, state funds, assigned risk pools and other risk-financing mechanisms).
The Company believes the key factors to effectively compete in the risk
management market are price, the ability to tailor programs to the needs of the
insured and the ability to rapidly develop new solutions to address changing
market needs. The Company believes that its services and products are
competitively priced, and that its combination of services and products enables
it to rapidly develop tailored programs and act as a competitive single source
provider of risk management services and products.

     Realm National is rated B+ (Very Good) by A.M. Best Company and in certain
circumstances may be at a competitive disadvantage to insurance carriers with
higher ratings. The Company's MGAs also represent carriers with higher ratings
from A.M. Best Company, ensuring that the Company's MGAs are not negatively
impacted in circumstances where Realm National is not selected as the insurance
carrier due to its rating.

EMPLOYEES

     As of December 31, 1998, the Company had 356 employees. The service nature
of the Company's business makes its employees an important corporate asset.
While the market for qualified personnel is extremely competitive, the Company
believes that its relationship with its employees is good. None of the Company's
employees is represented by a union.

REGULATION

     The Company's subsidiaries that are engaged in the insurance and
reinsurance segments (Realm National and CIRCL) are subject to regulation by
government agencies in the states and foreign jurisdictions in which they do
business. The nature and extent of such regulation vary from jurisdiction to
jurisdiction, but typically involve prior approval of the acquisition of control
of an insurance company or of any company controlling an insurance company;
regulation of certain transactions entered into by an insurance company with any
of its affiliates; approval of premium rates, forms and policies used for many
lines of insurance; standards of solvency and minimum amounts of capital and
surplus which must be maintained; establishment of reserves required to be
maintained for unearned premium, losses and loss expense or for other purposes;
limitations on types and amounts of investments; restrictions on the size of
risks which may be insured by a single company; licensing of insurers and
agents; deposits of securities for the benefit of policyholders; and the filing
of periodic reports with respect to financial condition and other matters. 

     Most states require property and casualty insurers licensed to transact
insurance in the state to become members of insolvency funds or associations
which generally protect policyholders against the insolvency of such insurers.
Members of the fund or association must contribute to the payment of certain
claims made against insolvent insurers. Maximum contributions required by law in
any one year vary between 1% and 2% of annual premiums written by a member in
that state. Assessments from insolvency funds paid by Realm National were
immaterial in 1996, 1997 and 1998. The cost of most of these assessments is
recoverable through future policy surcharges and premium tax deductions.

                                       4
<PAGE>
 
     Realm National is also required to participate in various mandatory
insurance facilities or in funding mandatory pools, which are generally designed
to provide insurance coverage for consumers who are unable to obtain insurance
in the voluntary insurance market. One such pool is the multi-state workers'
compensation pool operated by the National Council on Compensation Insurance.
These pools typically require all companies writing applicable lines of
insurance in the state for which the pool has been established to fund
deficiencies experienced by the pool based upon each company's relative premium
writings in that state, with any excess funding typically distributed to the
participating companies on the same basis. Total assessments incurred by Realm
National from all such facilities for 1996, 1997, and 1998 were immaterial.

     Realm National is subject to various state statutory and regulatory
restrictions, generally applicable to each insurance company in its state of
incorporation, which limit the amount of dividends or distributions payable by
an insurance company to its shareholders. The restrictions are generally based
on certain levels of surplus, investment income, and operating income, as
determined under statutory accounting practices.

     The insurance code of New York regulates the distribution of dividends and
other payments to the Company by Realm National. Under the applicable New York
statute, unless prior regulatory approval is obtained, an insurer may not
declare or distribute any dividend to shareholders which, together with all
dividends declared or distributed by it during the preceding twelve months,
exceeds the lesser of (i) 10% of its surplus to policyholders as shown by its
last statement on file with the New York Department of Insurance, or (ii) 100%
of adjusted net investment income during such period. Such restrictions or any
additional subsequently imposed restrictions may in the future affect the
Company's ability to pay principal and interest on its debt, expenses, and any
cash dividends to its shareholders. Future dividends from the Company's
subsidiaries may also be limited by business considerations.

     The National Association of Insurance Commissioners has adopted a
methodology for assessing the adequacy of statutory surplus of property and
casualty insurers which includes a risk-based capital requirement. Insurance
companies are required to calculate and report information under a risk-based
formula which attempts to measure statutory capital and surplus needs based on
the risks in a company's mix of products and investment portfolio. The formula
is designed to allow state insurance regulators to identify potential weakly
capitalized companies. Under the formula, a company determines its "risk-based
capital" ("RBC") by taking into account certain risks related to the insurer's
assets (including risks related to its investment portfolio and ceded
reinsurance) and the insurer's liabilities (including underwriting risks related
to the nature and experience of its insurance business). The RBC rules provide
for different levels of regulatory attention depending on the ratio of a
company's total adjusted capital to its "authorized control level" of RBC. Under
the formula, a higher ratio reflects a greater adequacy of capital. Based on
calculations made by the Company, the RBC level for the Company's insurance
subsidiaries exceeds levels that would trigger regulatory attention. At December
31, 1998, Realm National's RBC ratio was approximately 703% (1997--1,624%), and
the threshold requiring minimum regulatory involvement was 200%. Therefore, the
Company's capital exceeds all requirements of the Risk-Based Capital Model Act.
The NAIC has also developed an Insurance Regulatory Information System ("IRIS")
to assist state insurance departments in their oversight of the financial
condition of insurance companies operating in their respective states. IRIS
identifies 11 industry ratios and specifies "usual values" for each ratio.
Departure from the usual values in four or more ratios generally leads to
inquiries from individual state insurance commissioners. Management believes
Realm National's IRIS ratios are such as to not attract such regulatory
attention.

     In addition to the oversight of the Company's insurance subsidiaries, the
Company, as the ultimate parent of a New York domiciled insurer (Realm
National), is also subject to regulation under the New York Insurance Holding
Company System Regulatory Act (the "Holding Company Act"). The Holding Company
Act contains certain reporting requirements including those requiring the
Company, as the ultimate parent company, to file information relating to its
capital structure, ownership, and financial condition and general business
operations of its insurance subsidiaries. The Holding Company Act contains
special reporting and prior approval requirements with respect to transactions
among affiliates.

     Realm National is organized under the insurance laws of the State of New
York (the "Insurance Code of New York"). The Insurance Code of New York provides
that the acquisition or change of "control" of a domestic insurer, or any person
who controls a domestic insurer, cannot be consummated without the prior
approval of the relevant insurance regulatory authority. A person seeking to
acquire control, directly or indirectly, of a domestic insurance

                                       5
<PAGE>
 
company, or any person controlling a domestic insurance company, must generally
file with the relevant insurance regulatory authority an application for change
of control (commonly known as a "Form A") containing certain information
required by statute and published regulations and provide a copy of such Form A
to the domestic insurer. Under the Insurance Code of New York, control is
presumed to exist if any person, directly or indirectly, owns, controls, holds
with power to vote or holds proxies representing ten percent or more of the
voting securities of any other person.

     In addition, many state insurance regulatory laws contain provisions that
require pre-notification to state agencies of a change in control of a non-
domestic admitted insurance company in that state. While such pre-notification
statutes do not authorize the state agency to disapprove the change of control,
such statutes do authorize issuance of a cease and desist order with respect to
the non-domestic admitted insurer if certain conditions exist such as undue
market concentration.

     The Company is in the process of expanding Realm National's business to
include workers' compensation and other specialty casualty insurance lines in
each of the 20 states in which Realm National is currently licensed to provide
property and casualty insurance. The Company intends to eventually license Realm
National in substantially all of the remaining states and the District of
Columbia. In order to obtain a license in a given state, Realm National must
complete an application and demonstrate compliance with state licensing
requirements. The applicable insurance regulatory authority reviews the
application, which review may take from three months to two or more years. If
all the requirements are met, a license is issued.

     In determining whether to issue a license to do business in a state, the
state's insurance regulatory agency is required by statute or regulation to
consider a number of factors, largely for the purpose of protecting
policyholders within the state. Typically, the application process will involve
a review of the applicant's recent audited and statutory financial statements,
and in many states one or more years of operating projections, to assess the
financial strength of the applicant; biographical information concerning the
experience and fitness of directors, officers and major shareholders; reports of
recent examinations as to the applicant's compliance record, finances and market
practices in its state of domicile; proposed policy forms and rate schedules;
and the applicant's experience in underwriting the line or lines of business to
be offered.

     As a holding company, the Company is not subject to Bermuda insurance
regulations. However, the Bermuda Insurance Act 1978, as amended (the
"Insurance Act"), which regulates the insurance business of CIRCL, a
reinsurance subsidiary of the Company, provides that no person shall carry on
insurance business in or from within Bermuda unless registered as an insurer
under the Insurance Act by the Minister of Finance (the "Minister"). The
registration of an applicant as an insurer is subject to its compliance with the
terms of its registration and such other conditions as the Minister may impose
from time to time.

     In general, the regulation of insurers in Bermuda relies heavily upon
auditors, loss reserve specialists, directors, and managers, who must certify
that an insurer meets minimum capital and solvency requirements. Every
registered insurer must appoint a government approved auditor who will annually
audit and report on the Statutory Financial Statements and the Statutory
Financial Return of the insurer.

     CIRCL is registered as a Class 3 insurer and, as such: (i) is required to
maintain a minimum statutory capital and surplus equal to the greatest of: (a)
$1 million; (b) 20% of the first $6 million of its net premiums written plus 15%
of its net premiums written over $6 million; and (c) 15% of its net outstanding
losses and loss expenses; (ii) is limited in declaring or paying any dividends
during any financial year with respect to a specified minimum solvency margin or
minimum liquidity ratio or if the declaration or payment of such dividends would
cause it to fail to meet such margin or ratio; (iii) is prohibited, without the
approval of the Minister, from reducing by 15% or more its total statutory
capital, as set out in its previous year's financial statements; and (iv) is
required to report its failure to meet its minimum solvency margin to the
Minister within 30 days after becoming aware of such failure or having reason to
believe that such failure has occurred. CIRCL is also required to obtain an
annual loss reserve opinion issued by a government approved loss reserve
specialist.

     The Insurance Act provides a minimum liquidity ratio for general business.
An insurer engaged in general business is required to maintain the value of its
relevant assets at not less than 75% of the amount of its relevant

                                       6
<PAGE>
 
liabilities. Relevant assets include cash and time deposits, quoted investments,
unquoted bonds and debentures, first liens on real estate, investment income due
and accrued, accounts and premiums receivable, reinsurance balances receivable
and funds held by ceding reinsurers. There are certain categories of assets
which, unless specifically permitted by the Minister, do not automatically
qualify as relevant assets such as unquoted equity securities, investments in
and advances to affiliates, real estate and collateral loans. The relevant
liabilities are total general business insurance reserves and total other
liabilities less deferred income tax and sundry liabilities (by interpretation,
those not specifically defined), letters of credit and guarantees.

     An insurer is required to maintain a principal office in Bermuda and to
appoint and maintain a principal representative in Bermuda to oversee the
business of the insurer and to report to the Minister and the Bermuda Registrar
of Companies in respect of certain events. Unless the approval of the Minister
is obtained, an insurer may not terminate the appointment of its principal
representative, and the principal representative may not cease to act as such,
unless 30 days' notice in writing to the Minister is given of the intention to
do so. Within 30 days of the principal representative's knowing or having reason
to believe that the insurer the representative represents is likely to become
insolvent or that an "event" has occurred, the principal representative must
provide a written report to the Minister setting out all the particulars of the
case that are available to the representative. Examples of such an "event"
include failure by the insurer to comply substantially with a condition imposed
upon the insurer by the Minister relating to a solvency margin or a liquidity or
other ratio.

     The Minister may appoint an inspector with extensive powers to investigate
the affairs of an insurer if the Minister believes that an investigation is
required in the interest of the insurer's policyholders or persons who may
become policyholders. In order to verify or supplement information otherwise
provided to him, the Minister may direct an insurer to produce documents or
information relating to matters connected with the insurer's business.

     If it appears to the Minister that there is a risk of the insurer becoming
insolvent, the Minister may direct the insurer not to take on any new insurance
business; not to vary any insurance contract if the effect would be to increase
the insurer's liabilities; not to make certain investments; to realize certain
investments; to maintain in Bermuda, or transfer to the custody of a Bermuda
bank, certain assets; and to limit its premium income.

     The Bermuda Government actively encourages foreign investment in
"exempted" entities like CIRCL that are based in Bermuda but do not operate in
competition with local businesses. As well as having no restrictions on the
degree of foreign ownership, CIRCL is exempted from taxes on its income until
March 28, 2016 and is not subject to tax on its dividends or to any foreign
exchange controls in Bermuda. In addition, there currently is no capital gains
tax in Bermuda, and profits can be accumulated by CIRCL, as required, without
limitation.

     Certain of the Company's subsidiaries are also subject to regulation as
insurance intermediaries. Under the applicable regulations, the intermediary is
responsible as a fiduciary for funds received for the account of the parties to
the insurance or reinsurance transaction and is required to hold such funds in
appropriate bank accounts subject to restriction on withdrawals and prohibitions
on commingling.

     The Company's insurance intermediaries include several MGAs. MGAs produce,
underwrite, and manage claims or negotiate reinsurance for a specific portion of
an insurance company's business in certain states, and they are subject to
regulation under state laws regarding licensure, fiduciary obligations with
respect to premium and concerning the general management of the insurer's
business.

     The activities of Stirling Cooke Brown Insurance Brokers Limited as an
insurance broker in the UK require it to be authorized under the Insurance
Brokers (Registration) Act of 1977 by the Insurance Brokers Registration Council
(the "Council"). Authorization by this body involves continuing compliance
with rules made by the Council, which require, among other things, that the
Company maintain a minimum level of working capital, that it allocate not more
than a specified level of its business to any particular insurance company or
group of insurance companies, that it supply reports to the Council, and that it
conduct its business in accordance with the conduct of business rules published
by the Council. It is a condition to the authorization from the Council that a
majority of the directors of Stirling Cooke Brown Insurance Brokers Limited are
and remain registered as insurance brokers in the UK.

                                       7
<PAGE>
 
OUTSTANDING LOSSES AND LOSS EXPENSES

     Both Realm National and CIRCL maintain loss reserves to reflect anticipated
future claims and claims expense payments. CIRCL was acquired in January 1996
and Realm National was acquired in September 1996. The Company establishes
reserves for losses and loss adjustment expenses related to claims which have
been reported on the basis of the evaluations of independent claims adjusters
and the Company's own claims staff. In addition, reserves are established for
losses which have occurred but have not yet been reported and for adverse
development of reserves on reported losses. The estimate of claims and claims
expenses arising for accidents which have occurred but not yet been reported is
based upon the Company's and the insurance industry's experience together with
statistical information with respect to the probable number and nature of such
claims. The Company engages independent actuaries to assist in this process.

     The following table sets forth a reconciliation of beginning and ending
reserves for losses and loss adjustment expenses:
     
            RECONCILIATION OF OUTSTANDING LOSSES AND LOSS EXPENSES

<TABLE>
<CAPTION>
                                                          For the Years Ended December 31,
                                                          1996        1997          1998
                                                        ---------  -----------  ------------
                                                               (dollars in thousands)
<S>                                                     <C>        <C>          <C>
  Balance beginning of year...........................    $    --    $ 24,301      $ 36,276
  Less outstanding losses recoverable.................         --     (16,588)      (23,072)
  Net balance for CIRCL, at acquisition...............      1,270          --            --
  Net balance for Realm National, at acquisition......      1,687          --            --
                                                          -------    --------      --------
  Net balance.........................................      2,957       7,713        13,204
                                                          -------    --------      --------
  Incurred related to:
        Current year..................................      6,515      10,174        12,578
        Prior years...................................        250         777         4,693
                                                          -------    --------      --------
        Total incurred................................      6,765      10,951        17,271
                                                          -------    --------      --------
  Paid related to:
        Current year..................................      1,334       2,011         3,066
        Prior years...................................        675       3,449         9,438
                                                          -------    --------      --------
           Total paid.................................      2,009       5,460        12,504
                                                          -------    --------      --------
  Net balance.........................................      7,713      13,204        17,971
  Plus outstanding losses recoverable.................     16,588      23,072        48,146
                                                          -------    --------      --------
        Balance at end of year........................    $24,301    $ 36,276      $ 66,117
                                                          =======    ========      ========
</TABLE>
                                                                                
     The adverse development during 1998 on prior years reflects primarily an
increase in claims frequency on one particular program that covers bodily injury
and property risks in the construction industry, and the provision for doubtful
recoveries of $2.5 million. This provision is included in the balance sheet as a
component of paid and outstanding losses recoverable from reinsurers.  The
provision is necessarily an estimate and amounts not collectible from reinsurers
may ultimately be significantly greater or lesser than the provision
established.  It is reasonably possible that management will revise this
estimate significantly in the near term.  Any subsequent differences arising
will be recorded in the period in which they occur.

     The adverse development during 1997 on prior years primarily represents an
increase in claims frequency on one particular program that covers bodily injury
and property risks in the construction industry.

     The Company's underwriting loss ratio (i.e. the ratio of net losses and net
loss expenses to net assumed premium earned) for 1998 was 97.2% (1997--92.9%).

     The Company believes that the provision for outstanding losses and loss
expenses is adequate to cover the ultimate net cost of losses and loss expenses
incurred; however, such a provision is necessarily an estimate and may
ultimately be settled for a significantly greater or lesser amount. The Company
has limited historical loss experience available to serve as a reliable basis
for the estimation of ultimate losses. It is at least reasonably possible that
management will revise the estimate of outstanding losses and loss expenses
significantly in the near term. Any subsequent differences arising are recorded
in the period in which they are determined.

                                       8

<PAGE>
 
     The previous table represents a reconciliation of reserves in accordance
with generally accepted accounting principals ("GAAP"). The following table
reconciles the difference between the Company's portion of these reserves and
those contained in regulatory filings made by the Company's subsidiaries in
accordance with statutory accounting practices ("SAP").

                    RECONCILIATION OF SAP AND GAAP RESERVES

<TABLE>
<CAPTION>
                                                                                        FOR THE YEARS ENDED
                                                                                            DECEMBER 31,
                                                                              ----------------------------------------
                                                                                  1996          1997          1998
                                                                              ------------  -------------  -----------
                                                                                      (DOLLARS IN THOUSANDS)
<S>                                                                           <C>           <C>            <C>
   Reserves for losses and loss adjustment expenses, end of year
       SAP..................................................................      $ 7,843       $ 13,355      $18,024
   Gross-up for ceded reinsurance reserves..................................       16,588         23,072       48,146
   Provision for salvage receivable not included on a SAP basis.............          (29)          (128)         (30)
   Provision for loss portfolio transfer not included in SAP
       reserves.............................................................         (101)           (23)         (23)
                                                                                  -------       --------      -------
   Reserves for losses and loss adjustment expenses, end of year
       GAAP.................................................................      $24,301       $ 36,276      $66,117
                                                                                  ========       =======      =======
</TABLE>
                                                                                
     The following table presents the development of the Company's ongoing net
reserves for 1996 through 1998. The top line of the table shows the estimated
reserve for unpaid losses and loss adjustment expenses recorded at the balance
sheet date for each of the indicated years. This amount represents the estimated
amount of losses and loss adjustment expenses for claims that are unpaid at the
balance sheet date, including losses that have been incurred but not yet
reported to the Company. The table also shows the re-estimated amount of the
previously recorded reserve based on experience as of the end of each succeeding
year. The estimate changes as more information becomes known about the frequency
and severity of claims for individual years. The "Cumulative Deficiency"
represents the aggregate change in the estimates over all prior years. The
Company's insurance entities were both purchased in 1996 so, accordingly, there
has only been two years' movement in the Company's reserves. It should be noted
that the following table presents a "run-off" of balance sheet reserves rather
than accident or policy year loss development. Therefore, each amount in the
table includes the effects of changes in reserves for all prior years.

                 ANALYSIS OF LOSS AND LOSS EXPENSE DEVELOPMENT
                       (NET OF REINSURANCE RECOVERABLE)

<TABLE>
<CAPTION>
                                                                                   FOR THE YEARS ENDED
                                                                                       DECEMBER 31,
                                                                      ----------------------------------------------
                                                                           1996             1997            1998
                                                                      ---------------  ---------------  ------------
                                                                                 (DOLLARS IN THOUSANDS)
<S>                                                                   <C>              <C>              <C>
      Gross reserve for losses and loss adjustment expenses.........       $ 24,301         $ 36,276       $ 66,117
      Less outstanding losses recoverable...........................        (16,588)         (23,072)       (48,146)
                                                                           --------         --------       --------
      Net reserve for losses and loss adjustment expenses...........          7,713           13,204         17,971
      Reserve re-estimated as of:
         One year later.............................................          8,490           17,897               
         Two years later............................................         11,830                                
                                                                           --------         --------                
      Cumulative deficiency.........................................         (4,117)          (4,693)              
                                                                           --------         --------               
 
      Percentage....................................................          (53.4%)          (35.5%)             
                                                                           --------         --------                
 
      Cumulative amount of reserve paid through:
         One year later.............................................          3,449            9,438               
         Two years later............................................          7,669                                
</TABLE>
                                                                                
     The increase in reserves one year later and two years later on 1996 and
1997 reserves reflects primarily an increase in claims frequency on one
particular program that covers bodily injury and property risks in the

                                       9

<PAGE>
 
construction industry, and the provision for doubtful recoveries of $2.5 million
discussed in Note 8 to the consolidated financial statements.

NOTE ON FORWARD-LOOKING STATEMENTS

     The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. The Company's Form 10-K for the year
ended December 31, 1998, the Company's 1998 Annual Report, any Form 10-Q or Form
8-K of the Company, or any oral or written statements made by or on behalf of
the Company, may include forward-looking statements which reflect the Company's
current views with respect to future events and financial performance. These
forward-looking statements are identified by their use of such terms and phrases
as "intends," "intend," "intended," "goal," "estimate," "estimates," "expects,"
"expect," "expected," "project," "projects," "projected," "projections,"
"plans," "anticipates," "anticipated," "should," "designed to," "foreseeable
future," "believe," "believes" and "scheduled" and similar expressions. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date the statement was made. The Company undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.

     Reference is made to the cautionary statements contained in Exhibit 99 to
this Form 10-K for a discussion of the factors that may cause actual results to
differ from the results discussed in these forward-looking statements.


ITEM 2--PROPERTIES

     The Company's principal executive offices are located in Hamilton, Bermuda.
This facility currently serves as the headquarters for senior management, the
financial and administrative departments and the Company's Bermuda subsidiaries.
The following table sets forth additional information concerning the Company's
facilities:

<TABLE>
<CAPTION>
                                         APPROXIMATE
               PROPERTY                  SQUARE FEET      LEASE EXPIRATION
        ---------------------            -----------      ----------------
      <S>                                <C>              <C>
      Hamilton, Bermuda................     10,307        June 20, 2006
      London, England..................     12,500        August 10, 2009
      Dallas, Texas....................     27,200        August 31, 2003
      New York, New York...............      7,900        October 3, 2003
      Sarasota, Florida................     12,350        June 28, 2008
      Orlando, Florida.................      6,700        June 30, 2002
      Fort Lauderdale, Florida.........     11,100        January 1, 2000
      Montgomery, Alabama..............      5,000        June 30, 1999
      Southington, Connecticut.........      2,500        January 1, 2003
      Dallas, Texas....................     10,500        May 31, 2001
</TABLE>

     All of the Company's facilities are leased. Aggregate lease payments for
1998 were $2.2 million (1997 - $1.9 million). The Company anticipates that it
will be able to extend these leases as they expire or, if necessary or
desirable, locate substitute facilities on acceptable terms.


ITEM 3--LEGAL PROCEEDINGS

     (a) There currently are pending several arbitration proceedings in England
between reinsurers and their ceding insurers relating to reinsurance
transactions involving the personal accident excess of loss market ("LMX") for
the years 1993, 1994, 1995 and 1996. Although, with one exception, neither the
Company nor its subsidiaries are a party to any of these arbitrations, certain
of the Company's subsidiaries acted as a reinsurance broker for ceding companies
that are parties to certain of the arbitrations. The exception entails a
subsidiary that is directly involved in an arbitration because it assumed the
position of one of the reinsureds by way of portfolio transfer.

     The reinsurers have alleged that they sustained losses due to a spiral in
the LMX market which was not disclosed to them by the ceding insurers or their
reinsurance brokers. As a consequence, these reinsurers have

                                      10
<PAGE>
 
asserted that they are no longer obliged to honor their reinsurance agreements
and have ceased paying claims. If one or more reinsurers prevail in the pending
arbitration, it is possible that one or more ceding insurers that are
reinsurance brokerage clients of the Company's subsidiaries or for whom a
subsidiary performs the role of underwriting manager, may assert a claim against
a subsidiary and in the case of the one exception the subsidiary would be unable
to recover under certain contracts of reinsurance.

     During 1998 certain of the reinsurers and reinsureds filed a total of 7
writs in the English courts (which are the equivalent of a complaint in U.S.
jurisdictions) against the Company or certain of its subsidiaries to toll the
statute of limitations. Some of these writs were issued pending the outcome of
related arbitrations. None of these writs specified an amount of damages sought.
In most cases, the Company or the relevent subsidiaries have negotiated
standstill agreements with the reinsurer or reinsured to toll the statute of
limitations.

     The primary factual allegation by the reinsurers is that, although they
believed they reinsured the subject risks only at high excess levels, the LMX
spiral caused their high excess positions to not equate with their expectation
of remoteness from the incidence of risk. As to the Company or its subsidiaries,
the reinsurers and reinsureds have alleged in their writs that the Company or
its subsidiary was negligent, misrepresented, or failed to disclose the
potential effect of the spiral on the reinsurers' exposure to risk.

     The Company does not yet have sufficient information to determine whether
any claims ultimately will be prosecuted against the Company or its subsidiaries
or whether any such claims ultimately will result in payment of any liability or
settlement by the Company or its subsidiaries.

     The Company understands that the parties to the arbitration and court
proceedings and other participants in these markets currently are attempting to
achieve a business solution that could involve a financial contribution by
participants in the market. Although no assurances can be given as to the
outcome of the pending proceedings and their effect on the Company, the Company
believes, based on the information presently available to it, that any such
effect should not materially adversely affect the Company's financial condition.

     (b) The Company is subject to other litigation and arbitration in the
ordinary course of its business. While any of these proceedings contains an
element of uncertainty, management presently believes the outcome of these
currently pending proceedings will not have a material adverse effect on the
Company.

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

     No matters were submitted to a vote of shareholders during the fourth
quarter of the fiscal year 1998.


                     EXECUTIVE OFFICERS OF THE REGISTRANT

     The following sets forth certain information regarding the Executive
Officers of the Company.

<TABLE>
<CAPTION>
NAME                                    AGE                           POSITION
-------------------------------------  -----  --------------------------------------------------------
<S>                                    <C>    <C>
      Nicholas Mark Cooke............     41  Chairman, President, Chief Executive Officer and
                                              Director (1)
      Nicholas Brown.................     40  Managing Director of Stirling Cooke Brown Insurance
                                              Brokers Limited and Stirling Cooke Brown Reinsurance
                                              Brokers Limited; Director (2)
      George W. Jones................     44  Chief Financial Officer and Director (3)
</TABLE>

(1) Term expires at annual shareholders meeting in 2000.

(2) Term expires at annual shareholders meeting in 1999.

(3) Term expires at annual shareholders meeting in 2001.

                                      11

<PAGE>
 
     NICHOLAS MARK COOKE has been Chief Executive Officer of the Company or its
predecessors since 1990 and Chairman, President and Director of the Company
since it began operations in January 1996. Prior to 1990, Mr. Cooke was a
director of two Lloyds brokers and has had continuous employment in the
insurance and reinsurance industry in the London market since 1976.

     NICHOLAS BROWN has been a Director of the Company since it began operations
in January 1996. Mr. Brown has been a Director and the Managing Director of
Stirling Cooke Brown Insurance Brokers Limited and of Stirling Cooke Brown
Reinsurance Brokers Limited, U.K. subsidiaries of the Company since 1992. Prior
to 1992, Mr. Brown was a director of a Lloyds broker and has had continuous
employment in the insurance and reinsurance industry in the London market since
1977.

     GEORGE W. JONES has been Chief Financial Officer and a Director of the
Company since it began operations in January 1996, and was Chief Financial
Officer and a Director of Stirling Cooke Brown Holdings (U.K.) Limited since
1992 and its subsidiaries since 1988.

                                      12
<PAGE>
 
                                    PART II

ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

     The Company's Ordinary Shares, $0.25 par value, have been quoted on the
Nasdaq National Market under the symbol "SCBHF" since November 26, 1997. The
Ordinary Shares were listed in connection with the Company's Initial Public
Offering completed in December 1997. As of March 15, 1999, the approximate
number of holders of the Company's Ordinary Shares was 800.

     The following table sets forth the high and low closing sale prices per
share of the Company's Ordinary Shares for the period from November 26, 1997
through the year ended December 31, 1998:

<TABLE>
<CAPTION>
                                                            HIGH      LOW
                                                          --------  --------
<S>                                                       <C>       <C>
November 26, 1997 -- December 31, 1997................    $25 1/2   $23 3/8
Year ended December 31, 1998
     First Quarter....................................    $27 3/4   $23 5/16
     Second Quarter...................................    $30       $25 1/4
     Third Quarter....................................    $27 7/8   $11 5/8
     Fourth Quarter...................................    $20       $11 1/8
 
</TABLE>

     The closing market price of the Ordinary Shares on March 15, 1999 was
$11 3/4.

     During 1998, the Company paid dividends of $0.12 per Ordinary Share.
Dividends are paid quarterly. During 1997, the Company did not pay any
dividends. A dividend of $0.03 per Ordinary Share was declared on March 8, 1999
and will be paid on March 30, 1999 to record holders at March 19, 1999. The
declaration and payment of future dividends is at the discretion of the
Company's Board of Directors and will depend upon, among other things, future
earnings, capital requirements, the general financial condition of the Company,
general business conditions and other factors. The Company's ability to pay
dividends is restricted due to certain insurance regulations. See "Management
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 17 to the Consolidated Financial Statements.

     In October 1998, the Company purchased a further 47,000 Ordinary Shares on
the open market for a total cost of $567,000. These shares were recorded as
treasury stock at cost.

     Subsequent to the year end, the Company has purchased a further 346,400
Ordinary Shares on the open market at a total cost of $4,306,000.

     Under current Bermuda law, there is no income tax, withholding tax, capital
gains or capital transfer tax on the Company or its Shareholders.

                                      13
<PAGE>
 
ITEM 6--SELECTED FINANCIAL DATA

     The selected consolidated financial data below should be read in
conjunction with the Consolidated Financial Statements and the notes thereto
presented under Item 8.

<TABLE>
<CAPTION>
                                                                  AS OF OR FOR THE YEARS ENDED DECEMBER 31,
                                                  --------------------------------------------------------------------------
                                                      1994          1995           1996(1)           1997          1998
                                                  ------------  -------------  ----------------  ------------  -------------
                                                           (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                               <C>           <C>            <C>               <C>           <C>
INCOME STATEMENT DATA:
Revenues........................................    $   12,373     $   19,048     $   47,061       $   65,310     $   85,093

Income Before Taxation..........................         4,131          7,154         12,199           15,918         19,808
Taxation........................................         1,298          2,560          2,281            2,925          3,790
Net income......................................    $    2,833     $    4,594     $    9,918       $   12,993     $   16,018
 
BASIC EARNINGS PER SHARE
Net Income per share(2).........................    $     0.66     $     1.07     $     1.22       $     1.55     $     1.63
Weighted average number of ordinary
 shares outstanding.............................     4,288,908      4,288,908      8,100,782        8,383,482      9,814,101
DILUTED EARNINGS PER SHARE
Net Income per share assuming dilution(2).......    $     0.66     $     1.07     $     1.19       $     1.53     $     1.63
Weighted average number of ordinary
 shares outstanding assuming dilution...........     4,288,908      4,304,098      8,306,610        8,515,473      9,840,159
 
Dividends per Ordinary Share....................    $     0.19     $     0.53     $     0.00       $     0.00     $     0.12
 
BALANCE SHEET DATA:
Total assets(3).................................    $   61,914     $  103,273     $  235,084       $  406,330     $  649,641
Long term debt..................................             0              0              0                0              0
Ordinary Shares subject to redemption(4)........             0              0         14,457                0              0
Total shareholders' equity......................    $    4,596     $    7,055     $   29,001       $   83,103     $   97,632
</TABLE>

(1)  Includes the operations of Realm Investments Limited from its January 1996
     acquisition by the Company. Realm National from its September 1996
     acquisition by the Company and the operations of North American Risk, Inc.
     from its July 1996 acquisition by the Company. All of such acquisitions
     were accounted for as purchases. See "Management's Discussion and Analysis
     of Financial Condition and Results of Operations".
(2)  See Note 2(k) of Notes to the Consolidated Financial Statements for an
     explanation of the methods used to determine Net Income per share.
(3)  Total assets comprise corporate assets together with cash held and
     insurance balances receivable in a fiduciary capacity. See Note 4 to the
     Consolidated Financial Statements.
(4)  The Ordinary Shares subject to redemption were reclassified to
     shareholders' equity upon consummation of the Initial Public Offering since
     those shares were no longer redeemable.

ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     Stirling Cooke Brown Holdings Limited (the "Company") was incorporated in
Bermuda on December 12, 1995. The Company is a holding company engaged, through
its subsidiaries, in providing insurance services primarily in the United
States, Bermuda and the U.K. The Company's activities include brokerage, program
business, underwriting management, insurance and reinsurance. In January 1996,
the Company acquired all the outstanding common shares of Realm Investments Ltd.
in exchange for 1,999,980 of its newly issued ordinary shares. The Company also
acquired in September 1996 its own United States domiciled insurance company
(Realm National) which, together with the Company's Bermuda based reinsurance
company (CIRCL), writes insurance and reinsurance business. Realm National also
earns policy issuance fees. The Company specializes in the North American
occupational accident and workers' compensation alternative risk transfer
markets.

     The Company did not conduct any business from the date of its incorporation
until January 1996. In January 1996, under the terms of a share purchase
agreement, the Company exchanged 4,000,020 of its newly issued ordinary shares
for 100% of the outstanding share capital of Stirling Cooke Brown Holdings (UK)
Limited. Stirling Cooke Brown Holdings (UK) Limited was incorporated in England
on February 5, 1990 and formerly acted as the

                                      14

<PAGE>
 
ultimate holding company for a number of United Kingdom subsidiaries involved in
the insurance brokering industry.

     Stirling Cooke Brown Holdings (UK) Limited was the predecessor entity of 
the Company. Accordingly, the consolidated financial statements of the Company
for the year ended December 31, 1996 are those of Stirling Cooke Brown Holdings
(UK) Limited.

     The following is a discussion of the Company's results of operations and
financial condition. This discussion and analysis should be read in conjunction
with the consolidated financial statements and the notes thereto presented under
Item 8.

Results of Operations For the Years Ended December 31, 1996, 1997 and 1998.

REVENUES AND NET INCOME

<TABLE>
<CAPTION>
                                                         For the Years Ended December 31,
                                                         --------------------------------
                                                       1996              1997            1998
                                                     --------          --------        --------
                                                                (dollars in thousands)
<S>                                                  <C>              <C>              <C> 
Revenues                                              $47,061          $65,310          $85,093
Expenses                                               34,862           49,392           65,285
                                                      -------          -------          -------
Income before Taxation                                 12,199           15,918           19,808
Taxation                                                2,281            2,925            3,790
                                                      -------          -------          -------
Net Income                                            $ 9,918          $12,993          $16,018
                                                      =======          =======          =======
 
Net Income per Share - Basic                          $  1.22          $  1.55          $  1.63
Net Income per Share assuming dilution                $  1.19          $  1.53          $  1.63
</TABLE>

     Revenues of $85.1 million in 1998 represents a $19.8 million or 30.3%
increase over 1997 revenues of $65.3 million which was in turn a $18.2 million
or 38.8% increase over the 1996 revenues of $47.1 million.  Net income of $16.0
million in 1998 represents a $3.0 million or 23.3% increase over 1997 net income
of $13.0 million which was in turn a $3.1 million or 31.0% increase over the
1996 net income of $9.9 million.

     Basic net income per share increased to $1.63 in 1998 from $1.55 in 1997
(excluding the profit on disposal of subsidiaries during 1997, basic net income
per share was $1.49 during the year) and $1.22 in 1996.  Diluted net income per
share increased to $1.63 in 1998 from $1.53 in 1997 (excluding the profit on
disposal of subsidiaries during 1997, diluted net income per share was $1.47
during the year)  and $1.19 in 1996.


REVENUES AND NET INCOME BY SEGMENT

<TABLE>
<CAPTION>
                                            Segment Revenues                       Segment Net Income (loss)
                                    For the Years Ended December 31,            For the Years Ended December 31,
                                 ---------------------------------------  --------------------------------------------
                                     1996         1997          1998          1996            1997            1998
                                 ------------  -----------  ------------  -------------  ---------------  ------------
                                         (dollars in thousands)                      (dollars in thousands)
<S>                              <C>           <C>          <C>           <C>            <C>              <C>
Brokerage                             $19,219      $23,385      $27,144         $ 5,980          $ 8,591      $11,501
Program Business                       11,912       19,770       27,119           3,091            3,938        5,187
Underwriting Management                 4,276        4,174        3,554           2,790            2,491        1,689
Insurance                               1,426        5,399       11,073              51              471        1,169
Reinsurance                             8,187        9,382       10,905             201               57       (3,357)
Other                                   2,041        3,200        5,798              86              370        3,619
Adjustments & Eliminations                 --           --         (500)             --               --           --
                                      -------      -------      -------         -------          -------  -----------
Total                                 $47,061      $65,310      $85,093         $12,199          $15,918      $19,808
                                      =======      =======      =======         =======          =======  ===========
</TABLE>
                                                                                
                                      15
<PAGE>
 
Brokerage
---------

     Revenues of $27.1 million in 1998 represented an increase of $3.8 million
or 16.1% from revenues of $23.4 million in 1997 which was in turn a $4.2 million
or 21.7% increase from revenues of $19.2 million in 1996.  Despite competitive
pressures in the marketplace, the brokerage operations, primarily based in the
United Kingdom, provided growth throughout the year.

     The brokerage segment's profit of $11.5 million in 1998 represented an
increase of $2.9 million or 33.9% from segment profit of $8.6 million in 1997
which was in turn a $2.6 million or 43.7% increase from segment profit of $6.0
million in 1996.  The segment benefited from increased margins due to volume
efficiencies.


Program Business
----------------

     The Company's program business segment also grew in terms of both revenues
and profits. Revenues of $27.1 million in 1998 represented an increase of $7.3
million or 36.9% from revenues of $19.8 million in 1997 which was in turn a $7.9
million or 66.0% increase from revenues of $11.9 million in 1996. Despite
increasingly competitive market conditions particularly in the latter part of
the year, the Company was able to increase the volume of premiums written
through its program business segment during the year. The increasingly
competitive workers compensation market in which the majority of the Company's
programs compete has resulted in a change in the Company's fee arrangements with
reinsurers which is expected to negatively impact earnings in 1999. The Company
is trying to minimize the effect of these changes in fee structure but it is
expected that while the workers compensation market remains so competitive, the
Company's fees will continue to be under pressure.

     Segment profit of $5.2 million in 1998 represented an increase of $1.2
million or 31.7% from segment profit of $3.9 million in 1997 which was in turn a
$0.8 million or 27.4% increase from segment profit of $3.1 million in 1996.

Underwriting Management
-----------------------

     The Company's underwriting management segment continued to experience
significant competitive pressures during 1998 following the already competitive
market in 1997. Revenues of $3.6 million in 1998 represented a decrease of $0.6
million or 14.9% from revenues of $4.2 million in 1997 which was in turn a $0.1
million or 2.4% decrease from revenues of $4.3 million in 1996. The Company has
not seen any change in market conditions in the early part of 1999 and
consequently expects revenues for this segment to continue to decline until
market conditions improve.

     Segment profit of $1.7 million in 1998 represented a decrease of $0.8
million or 32.2% from segment profit of $2.5 million in 1997 which was in turn a
$0.3 million or 10.7% decrease from segment profit of $2.8 million in 1996.


Insurance
---------

     The Company's insurance segment comprising Realm National experienced
significant growth in 1998 following 1997 which also saw significant growth.
During 1998 Realm National continued its relicensing process to facilitate the
growth of its business during the year and promote the opportunity for growth in
the years ahead. By the end of the year, Realm National was fully licensed in 20
states and partially licensed in 8 states. During 1998, Realm National wrote
business in 15 states compared to 12 states in 1997 and 18 states in 1996.
Revenues of $11.1 million in 1998 represented an increase of $5.7 million or
105.1% from revenues of $5.4 million in 1997 which was in turn a $4.0 million or
278.6% increase from revenues of $1.4 million in 1996 (1996 figures for Realm
National reflect amounts from the Company's acquisition in September of 1996).
A useful indicator of Realm National's growth is the increase in gross written
premiums which were $48.6 million in 1998 which represents a $26.9 million or
123.6% increase from $21.7 million in 1997 which represented a $17.7 million or
442.4% increase from $4.0 million in 1996. Net premiums earned increased to $7.7
million in 1998 which represents a $4.8 million

                                      16
<PAGE>
 
or 164.2% increase from $2.9 million in 1997 which represented a $2.1 million or
248.8% increase from $0.8 million in 1996. The remainder of the growth in
revenues is due to policy issuance fees and interest income. Policy issuance
fees increased to $2.1 million in 1998 which represents a $1.3 million or 167.8%
increase from $0.8 million in 1997 which represented a $0.6 million or 257.8%
increase from $0.2 million in 1996.

     Market conditions in the workers compensation insurance market in which
Realm National writes the majority of its business grew increasingly competetive
during 1998 and this trend has continued into 1999. While these competitive
market conditions continue they are likely to restrict Realm National's ability
to continue its rate of expansion in its workers compensation book of business
during 1999. Realm National is continuing to seek to expand its volume of
business in other lines of insurance, where market conditions are less
competetive.

     Segment profit of $1.2 million in 1998 represented an increase of $0.7
million or 148.2% from segment profit of $0.5 million in 1997 which was in turn
a $0.4 million or 823.5% increase from segment profit of $0.1 million in 1996.


Reinsurance
-----------

     The Company's reinsurance segment comprising CIRCL experienced limited
growth in revenues in 1998 and 1997. Revenues of $10.9 million in 1998
represented an increase of $1.5 million or 16.2% from revenues of $9.4 million
in 1997 which was in turn a $1.2 million or 14.6% increase from revenues of $8.2
million in 1996. Net premiums earned are the largest component of revenues in
CIRCL. Net premiums earned of $10.1 million in 1998 represented an increase of
$1.2 million or 13.4% from net premiums earned of $8.9 million in 1997 which was
in turn a $1.0 million or 12.0% decrease from net premiums earned of $7.9
million in 1996.

     Segment loss of $3.4 million in 1998 represented a decrease of $3.5 million
from segment profit of $0.1 million in 1997 which was in turn a $0.1 million
decrease from segment profit of $0.2 million in 1996. There were two main
factors leading to the segment loss in 1998, adverse development on one program
and a provision of $2.5 million against reinsurance recoveries. The adverse
development during 1998 reflects primarily an increase in claims frequency on
one particular program that covers bodily injury and property risks in the
construction industry. This program was not renewed by CIRCL in 1999. At
December 31, 1998, the Company was in dispute with certain of its reinsurers in
respect of amounts due under retrocession coverages. The Company has provided
$2.5 million against reinsurance contracts with total recoveries of $13.4
million of which $10.2 million has been reported to date. The provision
represents management's best estimates at this time of a possible shortfall in
recoveries. This provision is included in the balance sheet as a component of
paid losses recoverable from reinsurers. The provision is necessarily an
estimate and amounts not collectible from reinsurers may ultimately be
significantly greater or lesser than the provision established. It is reasonably
possible that management will revise this estimate significantly in the near
term. Any subsequent differences arising will be recorded in the period in which
they occur.

     During the course of the year, the Company's management evaluated CIRCL's
underwriting results and, as a result of unfavorable results, reduced CIRCL's
underwriting. Management decided in early 1999 to cease underwriting any new
programs in CIRCL and a number of existing contracts were not renewed for the
1999 year. Those renewed will be allowed to run until they expire at December
31, 1999. Because some contracts were not renewed by CIRCL during 1999, revenues
should decrease accordingly.


Other
-----

     Other includes primarily the Company's holding companies and other
operating subsidiaries, and income earned in investments in affiliates.
Revenues, consisting primarily of interest earnings, of $5.8 million in 1998
represented an increase of $2.6 million or 81.3% from revenues of $3.2 million
in 1997 which was in turn a $1.2 million or 60.0% increase from revenues of $2.0
million in 1996. The increase in revenues in 1998 as compared to 1997 is
primarily due to interest earnings on proceeds received from the Company's
initial public offering in December, 1997, as well as income earned in
investments in affiliates.

                                      17
<PAGE>
 
     Segment profit of $3.6 million in 1998 represented an increase of $3.2
million from $0.4 million in 1997 which was in turn a $0.3 million increase from
of $0.1 million in 1996. As with revenues, the increase in net income in 1998 as
compared to 1997 is primarily due to interest earnings on proceeds received from
the Company's initial public offering in December, 1997, as well as income
earned on equity investments.


Liquidity and Capital Resources

     At December 31, 1998, the Company held cash and marketable securities of
$97.4 million compared to $71.7 million at December 31, 1997 and $38.2 million
at December 31, 1996. In addition, the Company held cash in fiduciary accounts
relating to insurance client premiums amounting to $63.9 million at December 31,
1998 compared to $60.2 million at December 31, 1997 and $50.2 million at
December 31, 1996. These increased cash balances reflect the growth in the
Company's business activities for 1998 together with the cash held following
completion of the initial public offering. Of the $97.4 million of cash and
marketable securities held by the Company at December 31, 1998 (1997--$71.7
million, 1996--$38.2 million), $58.9 million (1997--$40.9 million, 1996--$35.9
million) were held by subsidiaries whose payment of dividends to the Company was
subject to regulatory restrictions or possible tax liabilities. At December 31,
1998, the Company's investment portfolio (at fair market value) totalled $29.2
million (1997--$21.0 million, 1996--$22.6 million). The portfolio consisted
primarily of U.S. Treasury, short-term cash and A-rated corporate debt
securities.

     During 1998, the Company's operating activities generated $28.7 million of
net cash, compared to generating $8.1 million of net cash during 1997 and $14.8
million in 1996. The cash generated from operating activities varies according
to the timing of collections and payments of insurance and reinsurance balances.
The Company expects its operations will continue to generate positive cash flow
for 1999.

     Shareholders' equity increased by $14.5 million, to $97.6 million, at
December 31, 1998 from $83.1 million at December 31, 1997 due primarily to net
income earned during the year. Shareholders' equity increased by $54.1 million,
to $83.1 million, at December 31, 1997 from $29.0 million at December 31, 1996.
This increase was primarily attributable to the following:

       (i) $26.8 million of net proceeds from the Initial Public Offering
           during the year;

      (ii) a reclassification of Ordinary Shares subject to redemption of
           $14.5 million since these shares are no longer redeemable after
           consummation of the Initial Public Offering; and
  
     (iii) net income of $13.0 million earned during 1997.


     Total assets increased to $649.6 million at December 31, 1998 from $406.3
million at December 31, 1997 and $235.1 million at December 31, 1996,
principally as a result of increased business activity and a significant
increase in client insurance balances outstanding. The Company had no
outstanding debt at December 31, 1996, 1997 and 1998.


Accounting Pronouncements

     In December 1997, the AICPA Accounting Standards Executive Committee issued
Statement of Position (SOP) 97-3. Accounting by Insurance and Other Enterprises
for Insurance-Related Assessments. The accounting guidance of this SOP focuses
on the timing of recognition and measurement of liabilities for insurance-
related assessments. Guidance is also provided on recording assets representing
future recoveries of assessments through premium tax offsets or policy
surcharges. The SOP is effective for fiscal years beginning after December 15,
1998. The Company does not anticipate the statement to have a significant impact
on the Company's financial position or results of operations.

     During 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-5. Reporting on the costs of start-up activities.
The accounting guidance of this SOP requires that the costs of start-up
activities be expensed as incurred and any costs that are carried as an asset
prior to adoption of SOP 98-5 would be written off by reporting a cumulative
effect of a change in accounting principle in the statement of income as of
January 1, 1999. The cumulative effect of a change in accounting principle to be
recorded in the statement of income for the quarter ended March 31, 1999 will be
approximately $495.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". This statement 
is effective for all quarters of fiscal years beginning after June

                                      18
<PAGE>
 
15, 1999. Given the limited number of transactions currently entered into by the
Company that are covered by the Statement, the Company does not anticipate any
significant changes to its current financial reporting.

     In November 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-7, "Deposit accounting: Accounting for Insurance
and Reinsurance Contracts that do not transfer risk". This SOP provides
accounting guidance for insurance and reinsurance contracts that do not transfer
risk, as determined by the provisions of SFAS 113. The Company is currently
reviewing the impact of this standard on its financial reporting.

     In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". This statement establishes rules for the reporting of comprehensive
income and its components. Comprehensive income consists of net income and
unrealized gains and losses on available for sale investments, and is presented
in the Consolidated Statement of Income and Comprehensive Income. The adoption
of SFAS 130 had no impact on total shareholders' equity. Prior year financial
statements have been reclassified to conform to the SFAS 130 requirements.

     In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS 131 establishes standards for
reporting information about operating segments and related disclosures about
products and services, geographic areas and major customers. This disclosure is
located within Note 15 to the Company's consolidated financial statements.


Year 2000

     The Year 2000 Issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Any of the
Company's programs or non-information systems that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or in miscalculations.

     In 1997, the Company appointed individuals in each of the Company's
geographic regions to review and assess the Company's state of readiness and its
ability to process transactions in the Year 2000. These individuals and the
overall committee that they are a part of are providing guidance to the
operating and support departments, and have and will continue to monitor the
progress of efforts made to address the Year 2000 issue. The Company is
currently implementing its plan and preparing its various computer systems and
selected applications for the Year 2000. This process involves taking inventory,
testing, evaluating and adjusting all known date-sensitive systems and equipment
for Year 2000 compliance. In addition, the Company is reviewing its essential
non-information technology systems for Year 2000 compliance. The Company has
also consulted with various third parties, including, but not limited to,
outside consultants, outside service providers and infrastructure providers to
develop approaches to the Year 2000 issue, to gain insight to problems and to
provide additional perspective on solutions. The Company expects that compliance
work with respect to the internal systems will be substantially completed by the
end of the first quarter of 1999. In 1999, all systems critical to the Company's
core businesses will be retested.

     The individuals in each geographic region report at least quarterly to the
overall committee that they are a part of and update that committee on their
respective region's progress. The latest update is that each geographic region
is proceeding on schedule as planned. In the US and Bermuda, the Company's
internal computer system and software is relatively modern and few costs have
been or are expected to be incurred to bring those systems into compliance. In
the U.K., the Company's internal systems and software were not as modern and the
majority of the Company's Year 2000 costs in upgrading the Company's systems and
software have been incurred in that region. Because of the Year 2000 issue, one
large system in the U.K. was replaced in late 1998.

     The Company continues to assess its external relationships with third
parties. The Company is in the process of communicating with its significant
vendors and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issues. Where deemed necessary by the Company, this process involves onsite
review of the third party's procedures and plans for Year 2000 compliance.
However, there can be no assurance that the systems of third parties, such as
utility companies, regulatory bodies, government entities, insurance related
companies or insurance carriers on which the Company's operations rely, will be
timely converted, or that a failure to convert by another company would not have
a material adverse effect on the

                                      19
<PAGE>
 
Company's operating results. However, management believes that ongoing
communication with and assessment of third parties will minimize these risks.

  The Company's insurance and reinsurance subsidiaries may also have an
underwriting exposure to the Year 2000 phenomenon. Although the subsidiaries
have not received any claims of coverage from insureds based on losses resulting
from Year 2000 issues, there can be no assurance that insureds will be free from
losses of this type or that these subsidiaries will be free from claims made
under their policies.

  The total estimated cost of compliance is $0.8 million. Approximately $0.5
million of the cost is related to reprogramming or replacement of software, and
approximately $0.3 million is related to acquisition of hardware. Costs related
to non-information technology are expected to be immaterial. Approximately $0.5
million of the $0.8 million cost of compliance has been incurred as of the end
of December 31, 1998. All of these costs are being funded through operating cash
flows. Total costs have not had and are not expected to have a material impact
on the Company's financial results.

  Based on the review of the state of readiness of the Company and its risks,
the Company currently anticipates minimal business disruption will occur as a
result of Year 2000 issues. Nonetheless, the Year 2000 issue represents a risk
that cannot be assessed with precision nor controlled with certainty. Possible
consequences of disruptions that could occur given non-compliance include, but
are not limited to, loss of communication links with subsidiaries and insurance
carriers, loss of electric power, inability to process transactions or inability
to engage in similar normal business activities. Furthermore, failure of
significant third parties with which the Company conducts business, including
insurance carriers, to meet Year 2000 compliance could have a materially
detrimental effect on the Company. To date, the Company has not established a
contingency plan for possible Year 2000 issues. Where needed, the Company will
establish contingency plans based on actual testing experience with its systems
and assessment of outside risks.


Inflation

  The Company does not believe its operations have been materially affected by
inflation. The potential adverse impacts of inflation include: (a) a decline in
the market value of the Company's fixed maturity investment portfolio; (b) an
increase in the ultimate cost of settling claims which remain unresolved for a
significant period of time; and (c) an increase in the Company's operating
expenses. However, the Company generally holds its fixed maturity investments to
maturity and currently believes that an acceptable amount is included in the
yield to compensate the Company for the risk of inflation. Any increase in the
cost of settling claims will be offset by increases in investment income earned
and, generally, an increase in operating expenses resulting from inflation
should be matched by similar increases in investment income earned on the
Company's general surplus funds.


ITEM 7A--MARKET RISK

  The Company's investment portfolio is comprised of fixed maturity investments,
equity securities, and short term investments. The Company's exposure to market
risk is primarily limited to changing interest rates, primarily in the United
States, as all fixed maturity investments are denominated in U.S. dollars. The
fair value of the fixed maturity investments as at December 31, 1998 was $17.1
million. A change in interest rates will affect the fair value of the Company's
investments and will lead to fluctuations in "Accumulated Other Comprehensive
Income" on the balance sheet. The Company does not use derivative financial
instruments to manage market risk in its portfolio.

The table below (expressed in millions of U.S. dollars) presents the par value
amounts and related weighted average interest rates by year of maturity for the
Company's U.S. dollar denominated investment portfolio.

<TABLE>
<S>                                <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
                                   1999   2000   2001   2002   2003   2004   2005   2006   2012   2019   2020   Total
                                   ----   ----   ----   ----   ----   ----   ----   ----   ----   ----   ----   -----
Investments Fixed Maturity ($)      1.0    2.4    1.0    0.7    2.5    1.5    4.9    0.3    0.5    0.4    1.3    16.5
Weighted average interest rate      7.7%   6.9%   6.7%   7.5%   5.9%   5.5%   5.5%   6.0%   5.6%   6.3%   6.5%    6.2%
</TABLE>

                                      20
<PAGE>
 
Given the limited value of balances and transactions in foreign currencies, the
Company's exposure to foreign currency movements is considered to be
insignificant

Item 8--Financial Statements and Supplementary Data

  Index to Consolidated Financial Statements and Related Notes:

<TABLE>
<CAPTION>
                                                                             Page #
<S>                                                                          <C>
   Independent Auditor's Report............................................       22
   Consolidated Balance Sheets.............................................       23
   Consolidated Statements of Income and Comprehensive Income..............       24
   Consolidated Statements of Changes in Shareholders' Equity..............       25
   Consolidated Statements of Cash Flows...................................       26
   Notes to Consolidated Financial Statements..............................    27-47
</TABLE>


                                      21
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders of
Stirling Cooke Brown Holdings Limited

  We have audited the consolidated financial statements of Stirling Cooke Brown
Holdings Limited and subsidiaries as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Stirling
Cooke Brown Holdings Limited and subsidiaries as at December 31, 1997 and 1998
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1998, in conformity with United
States generally accepted accounting principles.

/s/ KPMG Peat Marwick

KPMG Peat Marwick
Hamilton, Bermuda
March 5, 1999

                                      22
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

                          CONSOLIDATED BALANCE SHEETS

                          DECEMBER 31, 1997 and 1998
 (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE 
                                     DATA)

<TABLE>
<CAPTION>
                                        ASSETS                                               1997          1998
                                        ------                                           ------------  ------------
<S>                                                                                      <C>           <C>
Marketable securities, at fair value (Note 5)
  Debt securities (amortized cost, 1997--$14,882, 1998--$16,722).......................     $ 14,971      $ 17,057
  Equity securities (cost, 1997--$454, 1998--$2,384)...................................          486         2,536
  Short term investments (amortized cost, 1997--$5,579, 1998--$9,643)..................        5,579         9,643
                                                                                            --------      --------
Total marketable securities............................................................       21,036        29,236
Cash and cash equivalents (Note 3).....................................................       50,631        68,165
Fiduciary funds-restricted (Notes 3 and 4).............................................       60,224        63,895
Insurance and reinsurance balances receivable (affiliates, 1997--$8,118, 1998--$9,994)
 (Notes 3, 4 and 18)...................................................................      211,339       382,417
Paid losses recoverable from reinsurers (Note 8).......................................        3,542         8,916
Outstanding losses recoverable from reinsurers (Notes 8 and 9).........................       23,072        48,146
Deferred acquisition costs.............................................................          579         2,286
Deferred reinsurance premiums ceded (Note 8)...........................................       12,503        18,711
Deferred tax asset (Note 12)...........................................................        1,109         1,755
Goodwill (Note 2(i))...................................................................        8,613         8,775
Other assets (Note 6)..................................................................       10,926        14,026
Assets related to deposit liabilities (Note 7).........................................        2,756         3,313
                                                                                            --------      --------
   Total assets........................................................................     $406,330      $649,641
                                                                                            ========      ========

                                      LIABILITIES
                                      -----------
Outstanding losses and loss expenses (Note 9)..........................................     $ 36,276      $ 66,117
Unearned premiums......................................................................       19,187        25,037
Deferred income........................................................................        2,853         3,992
Insurance and reinsurance balances payable (affiliates, 1997--$16,187, 1998--$957)
 (Notes 3, 4 and 18)...................................................................      251,713       438,456
Funds withheld.........................................................................        1,314         1,359
Accounts payable and accrued liabilities...............................................        6,170        10,719
Income taxes payable (Note 12).........................................................        2,958         3,016
Deposit liabilities (Note 7)...........................................................        2,756         3,313
                                                                                            --------      --------
   Total liabilities...................................................................      323,227       552,009
                                                                                            --------      --------

Contingencies (Note 19)

                                 SHAREHOLDERS' EQUITY
                                 --------------------
Share capital
 Authorized 20,000,000 ordinary shares of par value $0.25 each. Issued and fully paid
 9,863,372 ordinary shares (Note 10)...................................................        2,466         2,466
Additional paid in capital.............................................................       54,167        54,167
Accumulated other comprehensive income.................................................           63           319
Retained earnings......................................................................       27,074        41,914
                                                                                            --------      --------
                                                                                              83,770        98,866
Less: Ordinary shares in treasury (1997--40,000, 1998--87,000) at cost (Note 10).......         (667)       (1,234)
                                                                                            --------      --------
   Total shareholders' equity..........................................................       83,103        97,632
                                                                                            --------      --------
   Total liabilities and shareholders' equity..........................................     $406,330      $649,641
                                                                                            ========      ========
</TABLE>
                                                                                
         See accompanying notes to consolidated financial statements.

                                      23

<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

          CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                 YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
   (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                     1996        1997        1998
                                                                   ---------  ----------  ----------
REVENUES
<S>                                                                <C>        <C>         <C>
  Risk management fees (Note 2 (f))..............................    $34,061    $45,664     $55,580
  Net premiums earned (Note 8)...................................      8,754     11,790      17,774
  Net investment income (Note 5).................................      3,405      5,782       8,771
  Other income...................................................        841      2,074       2,968
                                                                     -------    -------     -------
     Total revenues..............................................     47,061     65,310      85,093
                                                                     -------    -------     -------
EXPENSES
  Net losses and loss expenses incurred (Notes 2(e) and 9).......      6,765     10,951      17,271
  Acquisition costs..............................................      1,837      1,344       3,618
  Depreciation and amortization of capital assets................      1,018      1,199       1,562
  Amortization of goodwill.......................................        423        707         740
  Salaries and benefits..........................................     13,106     18,503      22,805
  Other operating expenses.......................................     11,713     16,688      19,289
                                                                     -------    -------     -------
     Total expenses..............................................     34,862     49,392      65,285
                                                                     -------    -------     -------
Income before taxation...........................................     12,199     15,918      19,808
Taxation (Note 12)...............................................      2,281      2,925       3,790
                                                                     -------    -------     -------
Net income.......................................................    $ 9,918    $12,993     $16,018
                                                                     -------    -------     -------

Other comprehensive income (loss), net of tax:
  Unrealized holding gains arising during
  the year (net of tax of $75, $130 and $130)....................        147        188         314
  Less: reclassification adjustments for realized gains
  included in net income (net of tax of $0, $166 and $1).........         --       (272)        (58)
                                                                     -------    -------      ------
  Other comprehensive income (loss), net of tax..................        147        (84)        256
  Comprehensive income...........................................    $10,065    $12,909     $16,274
                                                                     =======    =======     =======

Net income per share (Note 13)...................................      $1.22      $1.55       $1.63
                                                                     =======    =======     =======
Net income per share assuming dilution (Note 13).................      $1.19      $1.53       $1.63
                                                                     =======    =======     =======
</TABLE>
                                                                                
         See accompanying notes to consolidated financial statements.

                                      24

<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

          CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                 YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
   (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                       1996          1997          1998
                                                                      -------       -------       -------
<S>                                                               <C>           <C>           <C>
Ordinary shares of par value $0.25 each
  Balance at beginning of year..................................      $ 1,000       $ 1,500       $ 2,466
  Issuance of shares............................................          500           344            --
  Options exercised.............................................           --           150            --
  Cancellation of ordinary shares in treasury...................           --          (100)           --
  Reclassification of ordinary shares subject to redemption.....           --           572            --
                                                                      -------       -------       -------
  Balance at end of year........................................      $ 1,500       $ 2,466       $ 2,466
                                                                      -------       -------       -------
Additional paid in capital
  Balance at beginning of year..................................      $    --       $12,319       $54,167
  Issuance of shares............................................       12,319        26,488            --
  Proceeds from exercise of options in excess of par............           --         1,475            --
  Issuance of shares (conversion of Class A)....................           --           (72)           --
  Reclassification of ordinary shares subject to redemption.....           --        13,957            --
                                                                      -------       -------       -------
  Balance at end of year........................................      $12,319       $54,167       $54,167
                                                                      -------       -------       -------
Notes receivable
  Balance at beginning of year..................................      $    --       $    --       $    --
  Receivable on exercise of options.............................           --        (1,625)           --
  Repayment of notes............................................           --         1,625            --
                                                                      -------       -------       -------
  Balance at end of year........................................      $    --       $    --       $    --
                                                                      -------       -------       -------
Accumulated other comprehensive income
  Balance at beginning of year..................................      $    --       $   147       $    63
  Change in unrealized gain.....................................          147           (84)          256
                                                                      -------       -------       -------
  Balance at end of year........................................      $   147       $    63       $   319
                                                                      -------       -------       -------
Retained earnings
  Balance at beginning of year..................................      $ 6,055       $15,973       $27,074
  Net income....................................................        9,918        12,993        16,018
  Dividends.....................................................           --            --        (1,178)
  Cancellation of ordinary shares in treasury...................           --        (1,892)           --
                                                                      -------       -------       -------
  Balance at end of year........................................      $15,973       $27,074       $41,914
                                                                      -------       -------       -------
Treasury stock
  Balance at beginning of year..................................      $    --       $  (938)      $  (667)
  Purchase of ordinary shares in treasury.......................         (938)       (1,807)         (567)
  Sale of ordinary shares from treasury.........................           --            86            --
  Cancellation of ordinary shares in treasury...................           --         1,992            --
                                                                      -------       -------       -------
  Balance at end of year........................................      $  (938)      $  (667)      $(1,234)
                                                                      -------       -------       -------
  Total shareholders' equity....................................      $29,001       $83,103       $97,632
                                                                      =======       =======       =======
</TABLE>

  Dividends per share were $0, $0 and $0.12 for the years ended December 31,
1996, 1997 and 1998, respectively.

         See accompanying notes to consolidated financial statements.

                                      25
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                 YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
               (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                                                                          1996          1997           1998
                                                                                        --------      ---------      ---------
<S>                                                                                   <C>          <C>            <C>
Operating activities
Net income..........................................................................    $  9,918      $  12,993      $  16,018
Adjustments to reconcile net income to net cash provided by operating activities:
  Depreciation and amortization of capital assets...................................       1,018          1,199          1,562
  Net gain on sale of subsidiaries..................................................          --           (478)            --
  Amortization of goodwill..........................................................         423            707            740
  Amortization of marketable securities.............................................         (10)           197             68
  Net realized gains on sale of marketable securities...............................          --           (438)           (59)
  Equity in income of affiliates....................................................        (282)        (1,266)        (2,631)
  Gain on sale of capital assets....................................................          --             --            (67)
Changes in non cash operating assets and liabilities:
  Fiduciary funds...................................................................     (18,349)       (13,245)        (3,671)
  Insurance and reinsurance balances receivable.....................................     (30,292)      (115,935)      (170,926)
  Paid losses recoverable from reinsurers...........................................        (731)        (2,811)        (5,374)
  Outstanding losses recoverable from reinsurers....................................      (5,159)        (6,484)       (25,074)
  Deferred acquisition costs........................................................       1,436           (408)        (1,707)
  Deferred reinsurance premiums ceded...............................................        (762)        (5,281)        (6,208)
  Other assets......................................................................        (942)        (3,620)        (1,405)
  Deferred tax asset................................................................         141           (801)          (710)
  Assets related to deposit liabilities.............................................        (579)         1,292           (557)
  Outstanding losses and loss expenses..............................................       9,916         11,975         29,841
  Unearned premiums.................................................................         938          6,672          5,850
  Insurance and reinsurance balances payable........................................      47,065        120,887        186,743
  Funds withheld....................................................................        (355)           (69)            45
  Accounts payable and accrued liabilities..........................................         893          2,431          4,467
  Income taxes payable..............................................................        (559)           782             58
  Deferred income...................................................................         522          1,060          1,139
  Deposit liabilities...............................................................         579         (1,292)           557
                                                                                        --------      ---------      ---------
    Net cash provided by operating activities.......................................      14,829          8,067         28,699
                                                                                        --------      ---------      ---------
Investing activities
  Purchase of capital assets........................................................      (1,446)        (1,619)        (2,899)
  Sale of capital assets............................................................          58             88            229
  Purchase of debt securities.......................................................     (13,751)          (318)       (12,584)
  Purchase of equity securities.....................................................         (39)        (3,977)        (2,530)
  Purchase of short-term investments, net...........................................        (120)        (5,459)        (4,064)
  Proceeds on sale of debt securities...............................................       2,273          4,190         10,680
  Proceeds on sale of equity securities.............................................          15          7,262            658
  Purchase of subsidiaries, net of cash acquired....................................        (290)        (1,197)        (1,055)
  Cash received upon sale of subsidiaries...........................................          --            861             --
  Investments in affiliates.........................................................        (134)          (198)            --
  Dividends received from affiliates................................................          --            593          2,145
                                                                                        --------      ---------      ---------
    Cash (used) provided by investing activities....................................     (13,434)           226         (9,420)
                                                                                        --------      ---------      ---------
Financing activities
  Dividends.........................................................................          --             --         (1,178)
  Net proceeds of subscription to share capital subject to redemption...............      14,457             --             --
  Net proceeds from subscriptions to share capital..................................          --         26,832             --
  Proceeds from exercise of options.................................................          --          1,625             --
  Purchase of ordinary shares in treasury...........................................        (938)        (1,807)          (567)
  Sales of ordinary shares in treasury..............................................          --             86             --
                                                                                        --------      ---------      ---------
    Cash provided (used) by financing activities....................................      13,519         26,736         (1,745)
                                                                                        --------      ---------      ---------
Increase in cash and cash equivalents...............................................      14,914         35,029         17,534
Cash and cash equivalents at beginning of year......................................    $    688      $  15,602      $  50,631
                                                                                        --------      ---------      ---------
Cash and cash equivalents at end of year............................................    $ 15,602      $  50,631      $  68,165
                                                                                        ========      =========      =========
Supplemental disclosure of cash flow information
    Cash paid during the year for income taxes......................................    $  1,928      $   3,755      $   3,275
                                                                                        ========      =========      =========
</TABLE>
                                                                                
          See accompanying notes to consolidated financial statements.

                                      26
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       DECEMBER 31, 1996, 1997 AND 1998
 (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
                                     DATA)


1. GENERAL

  Stirling Cooke Brown Holdings Limited (the "Company") was incorporated in
Bermuda on December 12, 1995. The Company is a holding company which, through
its subsidiaries, provides risk management services and products. The Company
provides its range of services to independent insurance carriers and reinsurance
companies as well as directly to the insureds. The Company arranges reinsurance
for its products as well as for those offered by independent U.S.-based
insurance carriers active in the workers compensation, occupational accident and
health and casualty insurance markets. In January 1996, the Company acquired all
the outstanding common shares of Realm Investments Ltd. in exchange for
1,999,980 of its newly issued ordinary shares. The Company also acquired, in
September 1996, its own United States domiciled insurance company Realm National
Insurance Company ("Realm National") which, together with the Company's Bermuda
based reinsurance company, writes insurance and reinsurance business. The
Company specializes in the North American occupational accident and workers'
compensation alternative risk transfer markets.

  The Company did not conduct any business from the date of its incorporation
until January 1996. In January 1996, under the terms of a share purchase
agreement, the Company exchanged 4,000,020 of its newly issued ordinary shares
for 100% of the outstanding share capital of Stirling Cooke Brown Holdings (UK)
Limited. Stirling Cooke Brown Holdings (UK) Limited was incorporated in England
on February 5, 1990 and formerly acted as the ultimate holding company for a
number of United Kingdom subsidiaries involved in the insurance brokering
industry.

  On December 2, 1997, the Company and certain Selling Shareholders consummated
an initial public offering of 3,421,250 ordinary shares. Of these shares,
1,375,000 were sold by the Company and 2,046,250 were sold by Selling
Shareholders. Net proceeds of $26,832 were received by the Company upon
consummation of the initial public offering.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  The accompanying consolidated financial statements are prepared in accordance
with United States generally accepted accounting principles which require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The following are the significant accounting policies
adopted by the Company:

 a) Basis of presentation

  These consolidated financial statements include the financial statements of
the Company and all of its majority owned subsidiaries (collectively referred to
as the "Company"). All significant intercompany balances and transactions have
been eliminated on consolidation. The results of a number of subsidiaries have
been included from the dates of their acquisition.

 b) Marketable securities

  Marketable securities comprise investments in debt and equity securities and
short term investments. All investments are classified as available for sale and
are carried at fair value. The difference between fair value and amortized
cost/cost is recorded as accumulated other comprehensive income as a separate
component of shareholders' equity, net of applicable deferred income taxes. Bond
discounts and premiums are amortized over the remaining term of the securities.
Such amortization is included as a component of net investment income in the
consolidated statements of income. Realized gains and losses are determined

                                      27
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


on the basis of specific identification. Investment income is recorded as earned
and accrued to the balance sheet date.


 c) Premiums written, assumed and ceded

  Premiums written and assumed are recorded on the accruals basis and included
in income on a pro-rata basis over the life of the policies or reinsurance
agreements to which they relate, with the unearned portion deferred in the
consolidated balance sheets. Adjustment premiums arising from premium audits are
recorded in the period in which they are determined. Reinsurance premiums ceded
are similarly pro-rated over the terms of the reinsurance contract with the
unearned portion being deferred in the consolidated balance sheets as deferred
reinsurance premiums ceded.


 d) Acquisition costs

  Acquisition costs associated with the acquisition of new or renewal business,
including commissions and brokerage, are deferred and amortized to income over
the periods in which the premiums are earned. The method followed in determining
the deferred acquisition expenses limits the amount of the deferral to its
realizable value by giving consideration to losses and expenses expected to be
incurred as premiums are earned. Future investment income is anticipated in
determining whether a premium deficiency exists.


 e) Losses and loss expenses

  Losses and related loss adjustment expenses are charged to income as they are
incurred and are net of losses recovered and recoverable of $6,775, $16,866 and
$44,312 for the years ended December 31, 1996, 1997 and 1998 respectively.
Amounts recoverable from reinsurers are estimated in a manner consistent with
the underlying liability associated with the reinsured policy. Outstanding
losses recoverable are shown separately on the consolidated balance sheets.

  Reserves are established for losses and loss expenses relating to claims which
have been reported. In addition, reserves are established, in consultation with
the Company's independent actuaries, for losses which have occurred but have not
yet been reported to the Company and for adverse development of reserves on
reported losses. Management believes that the resulting provision for
outstanding losses and loss expenses is adequate to cover the ultimate net cost
of losses and loss expenses incurred; however, such a provision is necessarily
an estimate and may ultimately be settled for a significantly greater or lesser
amount. The Company has limited historical loss experience available to serve as
a reliable basis for the estimation of ultimate losses. It is at least
reasonably possible that management will revise the estimate of outstanding
losses and loss expenses significantly in the near term. Any subsequent
differences arising are recorded in the period in which they are determined.


 f) Risk management fees
<TABLE>
<CAPTION>
                                                             For the Years Ended
                                                       -------------------------------
                                                                December 31,
                                                       -------------------------------
                                                         1996       1997       1998
                                                       ---------  ---------  ---------
<S>                                                    <C>        <C>        <C>
      Brokerage fees and commissions.................    $20,117    $23,965    $26,968
      Managing general agency fees...................      6,016     11,391     14,743
      Underwriting management fees...................      4,045      4,022      3,357
      Program and captive management fees............      1,625      2,876      3,908
      Loss control and audit fees....................      2,039      2,627      4,508
      Policy issuance fees...........................        219        783      2,096
                                                         -------    -------    -------
            Total risk management fees...............    $34,061    $45,664    $55,580
                                                         =======    =======    =======
</TABLE>

                                      28
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     (i) Brokerage fees and commissions are recorded and earned as premiums are
  billed since substantially all placement services have been provided at that
  time. Any subsequent adjustments, including adjustments due to policy
  cancellations, premium rate adjustments and profit commissions are recognized
  in risk management fees when advised by the client.

     (ii) Managing general agency fees are included within Program Business
  revenue, and are reported net of commission expense to agents and are
  initially recorded as of the effective date of the related insurance policy.
  Fee income on installment premiums is recognized periodically when the
  installment is billed. Such fees are recognized in income over the period that
  services are performed in accordance with the Company's contractual
  obligations, typically ranging up to five years, based on the Company's
  estimation of expected claims handling requirements in each accounting period.
  Such estimation is based upon the Company's claims handling experience over
  recent years. Any subsequent adjustments, including adjustments due to policy
  cancellation and premium adjustments, are recorded when advised by the client
  or agent. The portion that will be earned in the future is deferred and
  reported as deferred income in the consolidated balance sheets.

     (iii) Underwriting management fees are initially recorded when premium is
  billed in accordance with terms of trade. Fee income on installment premiums
  is recognized periodically when the installment is billed. Fees are recognized
  in income over the period that services are performed in accordance with the
  Company's contractual obligations. Such fees are recognized in income over the
  period that contractual services are performed, typically up to five years,
  based on the Company's estimation of expected claims handling requirements in
  each accounting period. Such estimation is based upon the Company's claims
  handling experience over recent years. Any subsequent adjustments, including
  adjustments due to policy cancellations, and premium adjustments are recorded
  when advised by the client or agent. The portion of recorded management fees
  that will be earned in the future is deferred and reported as deferred income
  in the consolidated balance sheets.

     (iv) Program and captive management fees are included within Program
  Business revenue, and are initially recorded as of the effective date of the
  insurance policy or, in the case of installment premiums, when the installment
  is billed and are recognized in income over the period of the underlying
  policy (which is typically one year) in proportion to the level of services
  provided in accordance with the Company's contractual obligations. Any
  subsequent adjustments are recognized in income when advised by the client or
  agent. The portion of recorded management fees that will be earned in the
  future is deferred and reported as deferred income in the consolidated balance
  sheets.

     (v) Loss control and audit fees are included within Program Business
  revenue, and comprise claims administration handling, loss and safety control
  fees and premium audit fees. Such fees are recorded as the fees are billed and
  are recognized in income over the period that services are performed in
  accordance with the Company's contractual obligations, typically ranging up to
  five years depending on the type of service provided, based on the Company's
  estimation of expected claims handling requirements in each accounting period.
  Such estimation is based upon the Company's claims handling experience over
  recent years. The proportion that will be earned in the future is deferred and
  reported as deferred income in the consolidated balance sheets.

     (vi) Policy issuance fees are recorded as the premium is written and earned
  over the applicable policy period. The unearned portion is included in
  deferred income in the consolidated balance sheet.


 g) Cash and cash equivalents

  The Company considers time deposits with original maturity dates of three
months or less to be equivalent to cash. Fiduciary funds are restricted from use
and are not considered cash equivalents.

                                      29
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


h) Investments in affiliates

  The Company's investments in affiliated companies which are not majority owned
or controlled are accounted for using the equity method if the Company is able
to exert significant influence upon such companies. Other investments in
affiliates are carried at cost. Investments in affiliates of $1,350 and $1,982
for the years ended December 31, 1997 and 1998, respectively, are recorded in
other assets. The Company's equity share in the net income of affiliates, for
the years ended December 31, 1996, 1997 and 1998 of $282, $1,266 and $2,631
respectively, is included in other income. Dividends received from affiliated
companies of $0, $593 and $2,145 during 1996, 1997 and 1998, respectively, are
recorded as a reduction in the carrying value of the investment.

i) Goodwill

  Goodwill in the amount of $8,613 and $8,775 at December 31, 1997, and 1998,
respectively, represents the excess of purchase price over fair value of net
assets acquired. Goodwill is amortized on a straight-line basis over the
expected periods to be benefited, generally 5 to 20 years. Accumulated
amortization at December 31, 1997 and 1998 is $1,130 and $1,870, respectively.
The Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.

j) Capital assets and depreciation

  Capital assets are stated at cost less accumulated depreciation. Depreciation
is calculated using the straight-line method over four to five years, which is
the estimated useful lives of the related assets.

k) Earnings per share

  Earnings per share have been calculated in accordance with Statement of
Financial Accounting Standards No. 128. Net income per share is calculated by
dividing income available to ordinary shareholders by the weighted average
number of ordinary shares outstanding. The ordinary shares which were subject to
redemption are included in the computation of the weighted average number of
outstanding ordinary shares since they have identical rights.  Shares held in
treasury are not considered outstanding for purposes of the computation. Net
income per share assuming dilution is computed by dividing income available to
ordinary shareholders by the weighted average number of ordinary shares and
potentially dilutive securities such as stock options. The dilutive effect of
options are reflected in the computation by application of the treasury stock
method.

In accordance with SEC Staff Accounting Bulletin 98, ordinary shares which were
issued in connection with the conversion of 25 class "A" non-voting shares are
considered outstanding for all periods presented for purposes of both basic and
diluted presentations.

l) Income taxes

  Under the asset and liability method used by the Company, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
temporary differences between the consolidated financial statements carrying
amounts of existing assets and liabilities and their respective tax bases. A
valuation allowance is provided for a portion or all of the deferred tax assets
when it is more likely than not that such portion or all such deferred assets
will not be realized.

                                      30
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

m) Foreign exchange

  The United States Dollar is the Company's functional currency. Foreign
currency monetary assets and liabilities are translated at exchange rates in
effect at the balance sheet date. Fixed assets and deferred income are
translated at their historical exchange rates. Foreign currency revenues and
expenses are translated at exchange rates in effect at the date of the
transaction. Net exchange gains of $559, $311 and $223 are included in other
income for the years ended December 31, 1996, 1997 and 1998, respectively.


n) Derivative financial instruments

  The Company is party to certain derivative financial instruments, being
forward foreign exchange contracts which are used to manage foreign currency
exposures on non-U.S. dollar denominated assets and liabilities. The Company
does not engage in derivatives for any other purpose. Forward foreign exchange
contracts are recorded at their fair value. The fair values of open contracts at
the balance sheet dates are based on the quoted market prices of forward
contracts with similar maturities. Changes in fair values are recognized in
other income as appropriate in the period in which the changes occur. Amounts
receivable or payable on open positions are recorded in other assets or accounts
payable and accrued liabilities as appropriate. See Note 14(c).


o) Stock compensation plans

  As permitted by FASB Statement No. 123, "Accounting for Stock-Based
Compensation", the Company has elected to continue to account for stock option
grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and, accordingly, recognizes compensation expense for stock option
grants to the extent that the fair value of the stock exceeds the exercise price
of the option at the measurement date. Any resulting compensation expense is
recorded over the shorter of the vesting or service period.


p) Accounting pronouncements

  In December 1997, the AICPA Accounting Standards Executive Committee issued
Statement of Position (SOP) 97-3. "Accounting by Insurance and Other Enterprises
for Insurance-Related Assessments." The accounting guidance of this SOP focuses
on the timing of recognition and measurement of liabilities for insurance-
related assessments.  Guidance is also provided on recording assets representing
future recoveries of assessments through premium tax offsets or policy
surcharges.  The SOP is effective for fiscal years beginning after December 15,
1998.  The Company does not anticipate the statement to have a significant
impact on the Company's financial position or results of operations.

  During 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-5. "Reporting on the costs of start-up
activities." The accounting guidance of this SOP requires that the costs of
start-up activities be expensed as incurred and any costs that are carried as an
asset prior to adoption of SOP 98-5 would be written off by reporting a
cumulative effect of a change in accounting principle in the statement of income
as of January 1, 1999. The cumulative effect of a change in accounting principle
to be recorded in the statement of income for the quarter ended March 31, 1999
will be approximately $495.

  In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". This statement
is effective for all quarters of fiscal years beginning after June 15, 1999.
Given the limited number of transactions currently entered into by the

                                      31
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
 
Company that are covered by the Statement, the Company does not anticipate any
significant changes to its current financial reporting.

  In November 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-7. "Deposit accounting: Accounting for Insurance
and Reinsurance Contracts that do not transfer risk." This SOP provides
accounting guidance for insurance and reinsurance contracts that do not transfer
risk, as determined by the provisions of SFAS 113. The Company is currently
reviewing the impact of this standard on its financial reporting.

  In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income".
This statement establishes rules for the reporting of comprehensive income and
its components. Comprehensive income consists of net income and unrealized gains
and losses on available for sale investments, and is presented in the
Consolidated Statement of Income and Comprehensive Income. The adoption of SFAS
130 had no impact on total shareholders' equity. Prior year financial statements
have been reclassified to conform to the SFAS 130 requirements.

  In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS 131 establishes standards for
reporting information about operating segments and related disclosures about
products and services, geographic areas and major customers. This disclosure is
located within Note 15.


3. LETTERS OF CREDIT AND ASSETS HELD IN TRUST

  In the normal course of reinsurance operations the Company's bankers have
issued letters of credit totalling $12,226 and $13,141 at December 31, 1997 and
1998, respectively in favor of ceding insurance companies. At December 31, 1997
and 1998, $12,226 and $13,141, respectively, of cash and cash equivalents were
pledged as collateral for these letters of credit.

  One of the Company's subsidiaries is registered with the Society of Lloyd's as
a registered Lloyd's Broker. As required by Lloyd's Brokers Byelaw (No. 5 of
1988), the subsidiary has entered into a trust deed under which all insurance
broking account assets are subject to a floating lien held in trust for the
Society of Lloyd's for the benefit of the insurance creditors. Insurance and
reinsurance balances payable covered by the floating lien at December 31, 1997
and 1998, amounted to $95,279 and $139,216, respectively, including relevant
creditors of other subsidiaries. The purpose of the trust deed is to provide
security to the Lloyds Broker's insurance creditors in the event of the Brokers
insolvency by creating a charge over the Broker's insurance transaction assets.
The lien becomes enforceable only in the event the Lloyds Broker becomes
insolvent or breaches Lloyds solvency rules or regulations. The assets which
were subject to this floating lien at December 31, 1997 and 1998 were:

<TABLE>
<CAPTION>
                                                                    1997       1998
                                                                  --------  ---------
<S>                                                               <C>        <C>
               Fiduciary funds.................................   $13,872    $ 22,797
               Insurance and reinsurance balances
                receivable.....................................    83,937     117,753
                                                                  -------    --------
                                                                  $97,809    $140,550
                                                                  =======    ========
</TABLE>
                                                                                

4. FIDUCIARY ASSETS AND LIABILITIES

  In its various capacities as an insurance intermediary, the Company acts as a
conduit for insurance and reinsurance premiums from insureds and other
intermediaries, and after deducting its risk management fee and, where
appropriate, surplus lines taxes and stamping fees, remits the premium to the
respective insurance company or underwriter. Additionally, the Company acts as a
conduit for loss payments. Pending the remittance of such funds to the insurance
company or underwriter in accordance with the applicable insurance contract, the
Company holds collected funds in its own segregated bank accounts and is
entitled to any accrued interest on such funds. The obligation to remit these
funds is recorded as insurance and

                                      32
<PAGE>
                     STERLING COOKE BROWN HOLDINGS LIMITED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

reinsurance balances payable on the Company's balance sheet. The period for
which the Company holds such funds is dependent upon the date the insured remits
the payment of the premium to the Company and the date the Company is required
to forward such payment to the insurer.

5. Marketable securities

  a) The cost/amortized cost and estimated fair value of marketable securities
     held as available for sale are as follows:

<TABLE>
<CAPTION>
                                                                                     1997
                                                                      -----------------------------------
                                                                   COST/      GROSS        GROSS     ESTIMATED
                                                                 ---------  ----------  -----------  ---------
                                                                 AMORTIZED  UNREALIZED  UNREALIZED     FAIR
                                                                 ---------  ----------  -----------  ---------
                                                                   COST       GAINS       LOSSES       VALUE
                                                                 ---------  ----------  -----------  ---------
<S>                                                              <C>        <C>         <C>          <C>
U.S. Treasury securities and obligations of U.S. Government
 agencies......................................................    $ 5,082        $107   $       --    $ 5,189
Foreign government.............................................      1,032           1           20      1,013
Obligations of states and political subdivisions...............         75          --           --         75
Corporate securities...........................................      8,693           2            1      8,694
                                                                   -------        ----  -----------    -------
Debt securities................................................     14,882         110           21     14,971
Equity securities..............................................        454          32           --        486
Short term investments.........................................      5,579          --           --      5,579
                                                                   -------        ----  -----------    -------
     Total.....................................................    $20,915        $142   $       21    $21,036
                                                                   =======        ====  ===========    =======

                                                                                    1998
                                                                      ----------------------------------
                                                                   COST/      GROSS        GROSS     ESTIMATED
                                                                 ---------  ----------  -----------  ---------
                                                                 AMORTIZED  UNREALIZED  UNREALIZED     FAIR
                                                                 ---------  ----------  -----------  ---------
                                                                   COST       GAINS       LOSSES       VALUE
                                                                 ---------  ----------  -----------  ---------
U.S. Treasury securities and obligations Of U.S. Government
 agencies......................................................    $ 5,694        $152   $       --    $ 5,846
Foreign government.............................................         29           1           --         30
Obligations of states and political subdivisions...............      6,897          90           --      6,987
Corporate securities...........................................      4,102          92           --      4,194
                                                                   -------        ----  -----------    -------
Debt securities................................................     16,722         335           --     17,057
Equity securities..............................................      2,384         152           --      2,536
Short term investments.........................................      9,643          --           --      9,643
                                                                   -------        ----  -----------    -------
     Total.....................................................    $28,749        $487   $       --    $29,236
                                                                   =======        ====  ===========    =======
</TABLE>

  A deferred tax liability of $39 and $168 at December 31, 1997 and 1998,
respectively, has been provided against unrealized gains on marketable
securities held as "available for sale" which has been presented net as
accumulated other comprehensive income within shareholders' equity.


  b) The amortized cost and estimated fair value of debt securities by
contractual maturity are shown in the following table. Actual maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                              1998
                                                      --------------------
                                                      AMORTIZED  ESTIMATED
                                                      ---------  ---------
                                                        COST     FAIR VALUE
                                                      ---------  ----------
<S>                                                     <C>        <C>
      Due in one year or less.......................    $ 1,105    $ 1,117
      Due after one year through five years.........      6,713      6,880
      Due after five years through ten years........      6,675      6,816
      Due after ten years through twenty years......        540        548
      Due after twenty years........................      1,689      1,696
                                                        -------    -------
                                                        $16,722    $17,057
                                                        =======    =======
</TABLE>

                                      33
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


   c) Proceeds from sales of investments in debt securities during 1997 and 1998
were $4,190 and $10,680, respectively. Proceeds from sales of investments in
equity securities during 1997 and 1998 were $7,262 and $658, respectively. There
was $5 of realized losses and $443 of realized gains during 1997. There was $0
of realized losses and $59 of realized gains during 1998.

   d) At December 31, 1997 and 1998, debt securities having an amortized cost of
$2,925 and $2,878 respectively, were on deposit with government authorities as
required by law.

   e) At December 31, 1997 and 1998, there were no individual investments, other
than investments in U.S. Government securities, which exceeded 10% of
shareholders' equity.

   f) Net investment income by source is as follows:

<TABLE>
<CAPTION>
                                                                   1996       1997       1998
                                                                  ------     ------     ------
<S>                                                               <C>        <C>        <C>
      Debt securities...........................................  $  134     $1,029     $  731
      Equity securities.........................................      67         70         52
      Cash, cash equivalents and short-term investments.........   3,216      4,754      8,068
      Other.....................................................       1          2         16
                                                                  ------     ------     ------
      Total investment income...................................   3,418      5,855      8,867
      Less applicable expenses..................................      13         73         96
                                                                  ------     ------     ------
         Net investment income..................................  $3,405     $5,782     $8,771
                                                                  ======     ======     ======
</TABLE>

6. OTHER ASSETS

 a) Capital assets

   Included within other assets are capital assets as follows:

<TABLE>
<CAPTION>
                                           1997                             1998
                              ------------------------------  --------------------------------
                                      ACCUMULATED   NET BOOK           ACCUMULATED   NET BOOK
                                      ------------  --------           ------------  --------
                               COST   DEPRECIATION   VALUE     COST    DEPRECIATION    VALUE
                              ------  ------------  --------  ------   ------------  --------
<S>                           <C>     <C>           <C>       <C>      <C>           <C>
Furniture and fixtures...     $1,266     $  580     $  686     $1,732       $  875    $  857
Computer equipment.......      3,305      1,664      1,641      4,598        2,409     2,189
Office equipment.........        700        341        359        973          483       490
Motor vehicles...........        950        491        459      1,321          482       839
                              ------     ------     ------     ------       ------    ------
     Total...............     $6,221     $3,076     $3,145     $8,624       $4,249    $4,375
                              ======     ======     ======     ======       ======    ======
</TABLE>


 b) Investment in affiliates

   Included within other assets are investments in affiliates. Summarized
condensed financial information of a Bermuda based underwriting management
company, a 39% owned affiliate, which is accounted for by the equity method, is
as follows:

<TABLE>
<CAPTION>

                                                    1996      1997     1998
                                                   ------    ------   ------
<S>                                                <C>       <C>      <C>
INCOME STATEMENT DATA
  Underwriting management fees...............      $1,191    $3,959   $8,057
  Interest income............................          63        88      195
  Net income.................................         633     3,294    7,250
  Company's share of net income..............      $  247    $1,285   $2,828
                                                   ======    ======   ======
</TABLE>

                                      34
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED
            
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                               -----------------
                                                                 1997      1998
                                                               -------   -------
<S>                                                            <C>       <C>
BALANCE SHEET DATA
Cash and cash equivalents.....................                 $ 1,224   $ 1,785
Fiduciary cash................................                   2,267     5,782
Insurance balances receivable.................                  12,821     4,925
Other assets..................................                      60        85
                                                               -------   -------
     Total assets.............................                 $16,372   $12,577
                                                               -------   ------- 
Insurance balances payable....................                 $13,179   $ 6,835
Deferred income...............................                     496     1,543
Other liabilities.............................                      56       105
Shareholders' equity..........................                   2,641     4,094
                                                               -------   -------
     Total liabilities and shareholders' equity                $16,372   $12,577
                                                               =======   ======= 
     
     Company's share of shareholders' equity..                 $ 1,030   $ 1,597
                                                               =======   =======
</TABLE>
                                                                                
   The Company received dividends from this affiliate of $0, $593 and $2,145
during 1996, 1997 and 1998, respectively.


7. DEPOSIT LIABILITIES AND RELATED ASSETS

   Certain of the Company's reinsurance contracts, referred to as rent-a-captive
programs, do not satisfy the conditions for reinsurance accounting as the
maximum exposure to loss is fully funded by premium, cash and other collateral
and indemnity agreements. Accordingly, these contracts are accounted for as
deposit liabilities. The assets related to these programs represent funds under
management as the insured retains the risks and rewards of ownership. Such
assets are recorded as assets related to deposit liabilities in the consolidated
balance sheets. These assets comprised cash and short-term deposits at December
31, 1997 and 1998. The Company receives a fee based on a percentage of premiums
written and investment income earned for structuring and providing ongoing
management of the programs.

   In addition, deposit liabilities and related assets include $2,459 and $2,687
of deposits received from customers as security for the timely payment of
premiums for workers' compensation insurance at December 31, 1997 and 1998,
respectively. The deposit is restricted from use by the Company, and is the
property of the customer. The deposit is refunded to the customer after the
policy expires or is canceled and all claims related to the insurance policy
have been settled. The interest income earned by these restricted deposit
accounts is the property of the customer, and is therefore excluded from the
Company's operating results.


8. REINSURANCE ASSUMED AND CEDED

   The Company accounts for reinsurance assumed and ceded in accordance with
SFAS 113 "Accounting and Reporting for Reinsurance of Short-Duration and Long-
Duration Contracts". Net premiums earned are the result of the following:
<TABLE>
<CAPTION>
                                                                    1996          1997         1998
                                                                ------------  ------------  -----------
<S>                                                                 <C>           <C>          <C>
      Premiums written........................................      $ 4,009       $21,743      $48,625
      Premiums assumed........................................       12,467        14,115       11,806
      Change in unearned premiums.............................         (938)       (6,672)      (5,850)
                                                                    -------       -------      -------
      Premiums earned.........................................       15,538        29,186       54,581
                                                                    -------       -------      -------
      Premiums ceded..........................................        7,546        22,677       43,015
      Change in deferred reinsurance premiums ceded...........         (762)       (5,281)      (6,208)
                                                                    -------       -------      -------
      Net premiums ceded......................................        6,784        17,396       36,807
                                                                    -------       -------      -------
      Net premiums earned.....................................      $ 8,754       $11,790      $17,774
                                                                    =======       =======      =======
</TABLE>

                                      35
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                                                                
     The Company, in the ordinary course of business, reinsures certain risks
with other companies. Such arrangements serve to enhance the Company's capacity
to write business and limit the Company's maximum loss on large or unusually
hazardous risks.

     Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. 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 reinsurers to
minimize its exposure to significant losses from reinsurer insolvencies. At
December 31, 1998, the Company is in dispute with certain of its reinsurers in
respect of amounts due under retrocessional coverages. Management believes that
approximately $2.5 million (1997 - $0) of paid and outstanding losses
recoverable from reinsurers is uncollectible and has established a provision for
doubtful recoveries accordingly. This provision of $2.5 million against
reinsurance recoveries of $13.4 million represents management's best estimate at
this time of a shortfall in recoveries. This provision is included in the
balance sheet as a component of paid and outstanding losses recoverable from
reinsurers. The provision is necessarily an estimate and amounts not collectible
from reinsurers may ultimately be significantly greater or lesser than the
provision established. It is reasonably possible that management will revise
this estimate significantly in the near term. Any subsequent differences arising
will be recorded in the period in which they occur.

     At December 31, 1998 there was an amount due from one reinsurer that
totaled $17,276. This reinsurer is rated `Superior' by A.M. Best. At December
31, 1997 there were no amounts due from any individual reinsurer in excess of
10% of the Company's shareholders' equity.

     The Company recognizes reinsurance recoveries when the associated loss is
booked.

     Realm National Insurance Company ("Realm National"), a subsidiary of the
Company, has written property and workers compensation business since its
acquisition. Realm National's workers' compensation business is subject to quota
share reinsurance whereby it retains 25% of the first $1,000. Realm National's
retention under the quota share treaty is further protected by common account
excess coverage in excess of $3. Realm National purchases excess loss coverage
on an occurrence basis up to $200,000.

     Realm National has also purchased a standard property reinsurance program
whereby Realm National retains 25% of the first $1,000 on any one risk and
purchased facultative per risk reinsurance for limits above $1,000 to $200,000.
In addition, Realm National's net retained line is further protected by a per
risk excess of loss cover which reduces the maximum loss on any one risk to
$125.

     Comp Indemnity Reinsurance Company Limited ("CIRCL"), a subsidiary of the
Company, assumes various quota shares of workers' compensation, employers'
liability on both a primary and excess basis, bodily injury, difference in
conditions, general liability risks, and property written on a treaty basis.
CIRCL's exposure under the reinsurance contracts assumed is limited in most
instances to $25 and $1,000 per occurrence for workers' compensation and
employers liability, respectively and is subject to an annual aggregate limit
based on various percentages of original gross written premium income. CIRCL
further limits its exposure through the purchase of reinsurance protection for
certain risks covering losses in excess of $1 and $50 per occurrence for
workers' compensation and employers' liability.


9. OUTSTANDING LOSSES AND LOSS EXPENSES

  Outstanding losses and loss expenses relate to the insurance activities of
CIRCL and Realm National.

  The changes in outstanding losses and loss expenses are summarized as follows:

<TABLE>
<CAPTION>
                                                          1996        1997          1998
                                                        ---------  -----------  ------------
<S>                                                       <C>        <C>           <C>
  Balance beginning of year...........................    $ --       $ 24,301      $ 36,276 

</TABLE>

                                      36
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

<TABLE>
<S>                                                  <C>        <C>         <C>
  Less outstanding losses recoverable..............         --     (16,588)    (23,072)
  Net balance for CIRCL, at acquisition............      1,270          --          --
  Net balance for Realm National, at acquisition...      1,687          --          --
                                                       -------    --------    --------
  Net balance......................................      2,957       7,713      13,204
                                                       -------    --------    --------
  Incurred related to:                              
        Current year...............................      6,515      10,174      12,578
        Prior years................................        250         777       4,693
                                                       -------    --------    --------
        Total incurred.............................      6,765      10,951      17,271
                                                       -------    --------    -------- 
  Paid related to:                                
        Current year...............................      1,334       2,011       3,066
        Prior years................................        675       3,449       9,438
                                                       -------    --------    --------
           Total paid..............................      2,009       5,460      12,504
                                                       -------    --------    --------
  Net balance......................................      7,713      13,204      17,971
  Plus outstanding losses recoverable..............     16,588      23,072      48,146
                                                       -------    --------    --------
        Balance at end of year.....................    $24,301    $ 36,276    $ 66,117
                                                       =======    ========    ========
</TABLE>
                                                                                
     The adverse development during 1998 on prior years reflects primarily an
increase in claims frequency on one particular program that covers bodily injury
and property risks in the construction industry, and the provision for doubtful
recoveries of $2,500 discussed in Note 8. The adverse development during 1997 on
prior years primarily represents an increase in claims frequency on one
particular program that covers bodily injury and property risks in the
construction industry.


10. SHARE CAPITAL AND ADDITIONAL PAID IN CAPITAL

     The Company's authorized share capital at December 31, 1997 and 1998
comprised 20,000,000 ordinary shares of par value $0.25 each of which 9,863,372
ordinary shares were issued and fully-paid at that date. The Company's
authorized share capital at December 31, 1996 comprised 8,048,000 ordinary
shares of par value $0.25 each and 25 Class "A" non-voting shares with a par
value of $1 each, of which 8,000,000 ordinary shares and 25 Class "A" non-voting
shares were issued and fully-paid at that date.

     As discussed in Note 1 to the consolidated financial statements, during
1996, the Company issued 1,999,980 shares in exchange for 100% of the share
capital of Realm Investments Ltd. The fair value assigned to the shares issued
was $12,819. The excess of the fair value of the shares issued over par value
was recorded in additional paid in capital. This represents a non-cash financing
and investing activity for the purpose of the statements of cash flows. The
Company also issued 2,000,000 ordinary shares and 25 Class "A" non-voting shares
to a private investor group. Contemporaneously, the private investor group also
acquired additional ordinary shares from existing shareholders on a pro-rata
basis, such that the private investor group's total ownership represented 32.5%
of the total number of issued ordinary share capital at that time.

     The 2,000,000 ordinary shares and related 25 Class "A" shares issued to the
private investor group were subject to a put option whereby, after 2004, the
holders of such shares could request that the Company repurchase the shares for
fair market value at that date. As such shares were subject to redemption at the
option of the holder, the aggregate subscription price was classified outside of
shareholders' equity as at December 31, 1996. The put option expired upon the
consummation by the Company of an Initial Public Offering ("IPO") in December
1997 and accordingly the shares were reclassified into shareholders' equity at
that date.

     Treasury stock is recorded at cost as a deduction from shareholders'
equity. During 1996 the Company repurchased 202,784 of its ordinary shares from
one of its founding shareholders at a price negotiated between the Company and
the shareholder. The shares were held as treasury stock at December 31, 1996.

     In April 1997, the Company purchased a further 213,732 of its ordinary
shares from a founding shareholder for a total cost of $1,141. Such shares were
recorded as treasury stock at cost.

                                      37
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

     In June 1997, the Company reissued 16,000 ordinary shares of its treasury
stock for a total subscription price of $86.

     On June 30, 1997, the remaining 400,516 ordinary shares held in treasury at
that date were cancelled. The excess cost of treasury shares over their par
value was recorded as a deduction from retained earnings.

     On June 30, 1997, the Company increased its authorized share capital to
20,000,000 ordinary shares of par value $0.25 each and effected a four for one
stock split whereby each of the Company's ordinary shares of par value $1.00
each was divided into four ordinary shares of par value $0.25 each.

     On June 30, 1997, the shareholders exercised their options to purchase
600,000 ordinary shares in the Company (see Note 11 to the consolidated
financial statements) at an exercise price of $2.71 per share.
Contemporaneously, 288,888 ordinary shares of par value of $0.25 each were
issued to the holders of the Class "A" shares pursuant to certain anti-
dilution rights, and the Class "A" shares were repurchased by the Company for
nominal consideration. The $72 excess of the par value of the ordinary shares
issued over the original par value of the Class "A" shares was recorded as a
deduction from additional paid in capital. On the same date the Company loaned
the shareholders $1,625, an amount equal to the aggregate exercise price of the
options. Such loans were evidenced by promissory notes, bearing interest at 7%
per annum until maturity in June 1998 or earlier in the event of early
repayment. Included within notes receivable was $325, $866 and $109 due from
Messrs. Cooke, Brown and Jones, respectively. The loans were repaid in full in
December 1997 following the successful completion of the IPO of the Company's
ordinary shares.

     On December 2, 1997, the Company and certain Selling Shareholders
consummated the IPO of 3,421,250 ordinary shares at $22 per share. Of these
shares 1,375,000 were sold by the Company and 2,046,250 were sold by Selling
Shareholders. The Company received net proceeds of $26,832 after deducting
underwriting commissions of $2,117 and expenses of $1,301 relating to the issue.

     In December 1997, under a put and call option originally granted in April
1997, the Company purchased 40,000 ordinary shares for a total cost of $667.
These shares were held as treasury stock at December 31, 1997 and 1998.

     In October 1998, the Company purchased a further 47,000 of its ordinary
shares on the open market for a total cost of $567. These shares were held as
treasury stock at cost at December 31, 1998.

11. STOCK OPTIONS

     Employees have been granted options to purchase Ordinary Shares in the
Company. These options have been issued in two series:

     i) Options issued to Employees--Shareholders

               On June 29, 1995, the Company granted 600,000 options to certain
          employee shareholders. The terms of the options were subsequently
          amended in 1996 to reflect the share exchange factor in the Share
          Purchase Agreement between the Company and Stirling Cooke Brown
          Holdings (UK) Limited discussed in Note 1.

               The options had an exercise price of $2.71 per share, which
          reflected the estimated fair value of the shares at the original grant
          date as updated for the exchange factor. The options were fully vested
          at the grant date and were able to be exercised at any time prior to
          January 23, 2003.

               On June 30, 1997, the shareholders exercised these options and
          purchased 600,000 ordinary shares in the Company at an exercise price
          of $2.71.

                                      38
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

        (ii) Options issued under Equity Incentive Plan

                On November 25, 1997 the Company granted 300,000 options to
     certain employees.

                The options have an exercise price of $22 per share, which
     reflected the estimated fair value of the shares at the grant date. The
     options vest ratably over a three year period and may be exercised at any
     time prior to November 25, 2007. All of these options were outstanding at
     December 31, 1997 and 1998.

     In accordance with the provisions of FASB Statement No. 123, the Company
applies APB Opinion 25 and related interpretations in accounting for its stock
option plans and accordingly, recognizes compensation cost based on the
intrinsic value of the options at the grant date. If the Company had elected to
recognize compensation cost based on the fair value of the options granted at
the grant date as prescribed by SFAS 123, net income and earnings per share
would have been reduced to the pro forma amounts indicated in the table below:

<TABLE>
<CAPTION>
                                                                  1996     1997      1998
                                                                 ------   -------   -------
<S>                                                              <C>      <C>       <C>
      Net income--as reported.................................   $9,918   $12,993   $16,018
      Net income--pro forma...................................   $9,918   $12,926   $14,820
      Net income per share--as reported.......................   $ 1.22   $  1.55   $  1.63
      Net income per share--pro forma.........................   $ 1.22   $  1.54   $  1.51
      Net income per share assuming dilution--as reported.....   $ 1.19   $  1.53   $  1.63
      Net income per share assuming dilution--pro forma.......   $ 1.19   $  1.52   $  1.51
</TABLE>

     These pro forma compensation costs may not be representative of those to be
expected in future years. As the options were granted on November 25, 1997, only
approximately one month's compensation cost was expensed within the pro-forma
net income for the year ended December 31, 1997.

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

<TABLE>
<S>                                             <C>
      Expected dividend yield................     0.55%
      Expected stock price volatility........    30.00%
      Risk-free interest rate................     5.00%
      Expected life of options...............   4 years
</TABLE>

     There were no options granted during 1996 or 1998. The fair value of
options granted during 1997 was $6.59 per share.


12. TAXATION

     Under current Bermuda law, the Company is not required to pay any taxes in
Bermuda on either income or capital gains. The Company has received an
undertaking from the Minister of Finance in Bermuda that in the event of any
such taxes being imposed the Company will be exempted from taxation until the
year 2016.

     Total income tax expense for the years ended December 31, 1996, 1997 and
1998 was allocated as follows:
<TABLE>
<CAPTION>
                                                          1996     1997     1998
                                                         ------   ------   ------
<S>                                                      <C>      <C>      <C>
      Income from continuing operations...............   $2,281   $2,925   $3,790
      Shareholders' equity (for unrealized gains on
        marketable securities)........................       75      (36)     129
                                                         ------   ------   ------
                                                         $2,356   $2,889   $3,919
                                                         ======   ======   ====== 
</TABLE>

                                      39
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Income tax expense attributable to income from continuing operations consists
of:

<TABLE>
<CAPTION>
                                                    CURRENT   DEFERRED   TOTAL
                                                    -------   --------   ------
<S>                                                 <C>       <C>        <C>
             Year ended December 31, 1996
                  U.S. Federal and State.........    $  627    $ (339)   $  288
                  Foreign (U.K.).................    $1,993        --     1,993
                                                     ------    ------    ------
                                                     $2,620    $ (339)   $2,281
                                                     ======    ======    ======
             Year ended December 31, 1997
                  U.S. Federal and State.........    $  934    $ (809)   $  125
                  Foreign (U.K.).................     2,800        --     2,800
                                                     ------    ------    ------
                                                     $3,734    $ (809)   $2,925
                                                     ======    ======    ======
             Year ended December 31, 1998
                  U.S. Federal and State.........    $1,324    $ (753)   $  571
                  Foreign (U.K.).................     3,219        --     3,219
                                                     ------    ------    ------
                                                     $4,543    $ (753)   $3,790
                                                     ======    ======    ======
</TABLE>
     Income tax expense attributable to income from continuing operations was
$2,281, $2,925 and $3,790 for the years ended December 31, 1996, 1997 and 1998
respectively, and differed from the amounts computed by applying the U.S.
federal income tax rate of 34% to income before taxation as a result of the
following:

<TABLE>
<CAPTION>
                                                                   1996       1997       1998
                                                                 --------   --------   --------
<S>                                                              <C>        <C>        <C>
             Computed expected tax expense....................   $ 4,148    $ 5,412    $ 6,888
             Foreign income not subject to US taxes...........    (1,813)    (2,305)    (2,988)
             Income subject to tax at foreign rates...........       (55)      (200)       (99)
             Change in valuation allowance....................       190        (86)      (104)
             Miscellaneous permanent differences..............        56         98         94
             Acquired temporary difference....................      (320)        --         --
             State taxes......................................        75         80         79
             Utilization of acquired net operating losses.....        --        (74)       (80)
                                                                 -------    -------    -------
             Actual tax expense...............................   $ 2,281    $ 2,925    $ 3,790
                                                                 =======    =======    =======
</TABLE>
                                                                                
     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1998, are presented below:

<TABLE>
<CAPTION>
                                                                                     1997      1998
                                                                                    ------    ------
<S>                                                                                 <C>       <C>
             Deferred tax assets:                                                
                 Deferred revenue...............................................    $  687    $1,220
                 Discount on unearned premiums and outstanding loss reserves....       104       459
                 Deferred interest deductions...................................       316       280
                 Other..........................................................       145        --
                 Valuation allowance............................................      (104)       --
                                                                                    ------    ------
                                                                                     1,148     1,959
             Deferred tax liabilities:                                           
                 Unrealized investment gains....................................       (39)     (168)
                 Other..........................................................        --       (36)
                                                                                    ------    ------
                 Net deferred tax asset.........................................    $1,109    $1,755
                                                                                    ======    ======
</TABLE>
                                                                                
     Valuation allowances of $104 and $0 have been established against the
deferred tax asset as of December 31, 1997 and 1998, respectively. There was no
valuation allowance for deferred tax assets as of December 31, 1998, since it is
management's belief that it is more likely than not that the deferred tax assets
will be realized. However, the amount of deferred tax assets could be reduced in
the near term if estimates of taxable income are reduced.

     The Company has not recognized a deferred tax liability for the
undistributed earnings of its United States subsidiaries. (A 30% tax is
generally imposed in the United States on dividends paid by United States
corporations to non-United States shareholders). The Company does not expect
those unremitted

                                      40
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

earnings to become taxable in the foreseeable future. A deferred tax liability
will be recognized when the Company expects that it will recover those
undistributed earnings in a taxable manner, such as the receipt of dividends.
The deferred tax liability relating to these unremitted earnings which is not
recognized by the Company is approximately $200, $542 and $986 at December 31,
1996, 1997, 1998, respectively.


13. EARNINGS PER SHARE

  Earnings per share have been calculated in accordance with SFAS 128:

<TABLE>
<CAPTION>
                                                                             1996         1997         1998
                                                                          ----------   ----------   ----------
<S>                                                                       <C>          <C>          <C>
      Net Income.......................................................   $    9,918   $   12,993   $   16,018
                                                                          ----------   ----------   ----------
      Weighted average number of ordinary shares outstanding...........    8,100,782    8,383,482    9,814,101
                                                                          ----------   ----------   ----------
      Net income per share.............................................   $     1.22   $     1.55   $     1.63
                                                                          ==========   ==========   ==========
      Income available to ordinary shareholders........................   $    9,918   $   12,993   $   16,018
                                                                          ----------   ----------   ----------
      Weighted average number of ordinary shares outstanding...........    8,100,782    8,383,482    9,814,101
      Plus: incremental shares from assumed exercise of options........      205,828      131,991       26,058
                                                                          ----------   ----------   ----------
      Adjusted weighted average number of ordinary shares outstanding..    8,306,610    8,515,473    9,840,159
                                                                          ----------   ----------   ----------
      Net income per share assuming dilution...........................   $     1.19   $     1.53   $     1.63
                                                                          ==========   ==========   ==========
</TABLE>

  See Notes 10 and 11 to the consolidated financial statements for further
discussion of share capital and share option transactions.


14. FINANCIAL INSTRUMENTS

 a) Fair value

     The carrying values of all financial instruments, as defined by SFAS 107
and as recorded in the consolidated balance sheets approximate their fair value.
The Company does not have any significant off-balance sheet financial
instruments. The following methods and assumptions were used by the Company in
estimating fair values:

     Cash and cash equivalents and fiduciary funds: The fair values for these
instruments approximate their carrying amounts because of the short maturity of
such instruments.

     Marketable securities: The fair values of debt and equity securities are
based on quoted market prices and dealer quotes at the consolidated balance
sheet dates.

     Deposit liabilities and related assets: Underlying assets comprise mainly
cash and deposits. The fair values of these assets and related liabilities
approximate their carrying value due to the short maturity of these instruments.

     Forward foreign exchange contracts: The fair values of such contracts are
based on quoted forward rates available for the remaining duration of the
contracts at the balance sheet dates.

     Other assets and liabilities: The fair values of all other financial
instruments, as defined by SFAS 107, approximate their carrying values due to
their short-term nature.

     The estimates of fair values presented herein are subjective in nature and
are not necessarily indicative of the amounts that the Company would actually
realize in a current market exchange. Any differences

                                      41
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


would not be expected to be material. Certain instruments such as prepaid
expenses, other assets, goodwill and deferred expenses, deferred fee income,
outstanding losses recoverable from reinsurers, and outstanding losses and loss
expenses are excluded from fair value disclosure. Thus the total fair value
amounts cannot be aggregated to determine the underlying economic value of the
Company.


 b) Concentrations of credit risk and provision for doubtful accounts

     The Company's financial instruments exposed to possible concentrations of
credit risk consist primarily of its cash and cash equivalents, paid and
outstanding losses recoverable from reinsurers and insurance and reinsurance
balances receivable.

     The Company maintains a substantial portion of its cash and cash
equivalents in two financial institutions which the Company considers of high
credit quality.

     Concentrations of credit risk with respect to other financial instruments
are to some extent limited due to the number of reinsurers, agents and customers
comprising the Company's receivable base. At December 31, 1998 there was an
amount due from one reinsurer that totals $17,276 as discussed in Note 8. As at
December 31, 1998, management believes that approximately $2,500 (1997 - $Nil)
of paid and outstanding losses recoverable from reinsurers is uncollectible and
has established a provision for doubtful accounts accordingly, as discussed in
Note 8.


 c) Forward foreign exchange contracts

     The Company's functional currency is the U.S. dollar; however, as the
Company operates internationally, it has exposure to changes in foreign currency
exchange rates. These exposures include net cash inflows on non-U.S. dollar
denominated transactions.

     To manage the Company's exposure to these risks, the Company enters into
forward foreign exchange contracts in the currencies to which the Company is
exposed. These contracts generally involve the exchange of one currency for
another at some future date. The Company had a notional principal amount
outstanding of (Pounds)1,000 and (Pounds)Nil at December 31, 1997 and 1998,
respectively, relating to contracts to buy British Pounds Sterling in the
future. Net unrealized gains on the forward exchange contracts for the year
ended December 31, 1997 and 1998 amounted to $83 and $Nil, respectively and have
been accrued in other income and included in other assets in the consolidated
balance sheets. A net realized gain (loss) of $465, $(22) and $182 is included
in other income in the consolidated statements of income in respect of such
contracts during the years ended December 31, 1996, 1997 and 1998, respectively.


15. SEGMENTAL INFORMATION

  (a) The Company has five main business segments; Brokerage, Program Business,
Underwriting Management, Insurance, and Reinsurance. Brokerage companies design
and arrange, for a fee or commission, insurance and reinsurance contracts which
transfer risk and associated premium from one company to another. Program
Business companies market and manage insurance products and programs developed
by the Company on behalf of reinsurers. Underwriting Management companies
underwrite and administer reinsurance business on behalf of a number of
independent reinsurance companies. The insurance and reinsurance segments
represent companies that retain risks and their revenues include premiums earned
on insurance polices, investment income and policy issuance fees. Other includes
the Company's holding companies, group services companies, and income earned
from investments in affiliated companies (1996 - $282, 1997 - $1,266, 1998-
$2,631). Intercompany transactions are recorded under normal terms of trade.
Adjustments and eliminations to revenue are in respect of intersegment revenues
that are eliminated at the consolidated level. Adjustments and eliminations to
assets are primarily in respect of intersegment insurance balances receivable
that are eliminated at the consolidated level.

                                      42
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

<TABLE>
<CAPTION>
                                                                                                           Adj. and
                                             Program   Underwriting                                       ----------
                            Brokerage       Business    Management    Insurance  Reinsurance      Other  eliminations       Total
                            ---------       --------   ------------   ---------  -----------      -----  ------------       -----
<S>                         <C>             <C>        <C>            <C>        <C>             <C>     <C>              <C>
DECEMBER 31, 1996
 Revenues                      19,219         11,912         4,276        1,426        8,187      2,041            --      47,061
 Income before tax              5,980          3,091         2,790           51          201         86            --      12,199
 Assets                       138,297         15,282        32,736       45,423       22,798      9,676       (29,128)    235,084

DECEMBER 31, 1997
 Revenues                      23,385         19,770         4,174        5,399        9,382      3,200            --      65,310
 Income (loss) before tax       8,591          3,938         2,491          471           57        370            --      15,918
 Assets                       249,334         22,465        32,038       58,306       40,452     35,029       (31,294)    406,330

DECEMBER 31, 1998
 Revenues                      27,144         27,119         3,554       11,073       10,905      5,798          (500)     85,093
 Income (loss) before tax      11,501          5,187         1,689        1,169       (3,357)     3,619            --      19,808
 Assets                       462,420         35,015        38,179       94,843       58,761     47,123       (86,700)    649,641
</TABLE>

     (b)  Summarized financial information by geographic location of subsidiary
for the years ended December 31, 1996, 1997 and 1998 is as follows:

   <TABLE>
   <CAPTION>
                                                                                       Adjustments &
                                            Bermuda           U.K.          U.S.A.     eliminations  Consolidated
                                            -------          ------         ------     ------------- ------------
   <S>                                      <C>              <C>            <C>        <C>           <C>
   REVENUES FOR THE YEAR ENDED
     December 31, 1996                       16,436          19,284         11,534          (193)        47,061
     December 31, 1997                       21,326          22,459         22,262          (737)        65,310
     December 31, 1998                       27,485          23,632         34,713          (737)        85,093

   IDENTIFIABLE ASSETS AT THE YEAR ENDED
     December 31, 1996                       68,306         139,494          60,825      (33,541)       235,084
     December 31, 1997                      119,066         250,668          85,006      (48,410)       406,330
     December 31, 1998                      178,489         477,639         127,851     (134,338)       649,641
     </TABLE>

     (c)  The Company's Program Business companies market and manage insurance
products and programs developed by the Company on behalf of independent
insurance carriers. In addition, the Company, through its brokerage operations
and managing general underwriters provide additional business and services to
certain of these independent insurance carriers in respect of these products and
other insurance and reinsurance policies. For the year ended December 31, 1996,
1997 and 1998 revenues received from one independent insurance carrier
approximately accounted for the following percentage of total revenues.

      <TABLE>
      <CAPTION>
                                                Program     Underwriting
                                               ---------    ------------
                                Brokerage       Business     Management     Insurance    Reinsurance   Other     Total
                                ---------      ---------     ----------     ---------    -----------   -----     ------
<S>                             <C>            <C>          <C>             <C>          <C>           <C>       <C>
      December 31, 1996               28%            71%            82%            0%            93%     26%        55%
      December 31, 1997               22%            79%            89%            0%            83%     30%        51%
      December 31, 1998               19%            71%            94%            0%            74%     11%        43%
      </TABLE>

     The loss of this carrier could have a material adverse effect on the
Company. However, the Company believes that the availability of alternative
underwriting capacity at Realm National and other independent insurance carriers
would reduce the impact of such a loss.

16. COMMITMENTS

     Future minimum lease payments under non-cancelable operating leases as at
December 31, 1998 are as follows:

                     <TABLE>
                     <CAPTION> 
                     <S>                          <C>
                     1999....................     $2,452
                     2000....................      2,142
                     2001....................      2,050
                     2002....................      1,737
                     </TABLE> 

                                      43
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

                      <TABLE> 
                      <CAPTION> 
                      <S>                         <C> 
                      2003......................   1,467
                      2004 and thereafter.......   4,673
                                                  ------
                                                  14,521
                                                  ------
                      </TABLE>
                                                                                
     Total rental expense for the years ended December 31, 1996, 1997 and 1998,
was $1,319, $1,894, and $2,191, respectively.

     Certain lease commitments are subject to annual adjustment under escalation
clauses, for real estate taxes and the landlord's operating expenses. Such
adjustments will not be material to the Company.


17.  STATUTORY SURPLUS AND DIVIDEND RESTRICTIONS

     The Company's ability to pay dividends is subject to certain restrictions
     including the following:

          a)   The Company is subject to a 30% withholding tax on certain
     dividends and interest received from its United States subsidiaries.

          b)   Under New York law, Realm National may pay cash dividends only
     from earned surplus determined on a statutory basis. Further, Realm
     National is restricted (on the basis of the lower of 10% of statutory
     surplus at the end of the preceding twelve month period or 100% of the
     adjusted net investment income for the preceding twelve month period) as to
     the amount of dividends it may declare or pay in any twelve month period
     without the approval of the Insurance Department of the State of New York.

          Realm National did not have any earned surplus available for the
     payment of dividends in 1997 and 1998 due to its statutory-basis
     accumulated deficit. Additionally, $21 and $21 of statutory surplus has
     been segregated as special funds as of December 31, 1997 and 1998 and will
     not become available for dividend payments until earned.

          Realm National's total capital and surplus and net income determined
     on a New York statutory basis are as follows:

             <TABLE>
             <CAPTION>
                                                            1997       1998
                                                           -------    -------
             <S>                                           <C>        <C>
             Total capital and surplus at December 31....  $18,991    $18,889
             Net income for year ended December 31.......  $   370    $   663
             </TABLE>

          By agreement with the Insurance Department of the State of New York,
     Realm National was restricted from declaring dividends for a two year
     period from September 5, 1996 the date upon which its acquisition by the
     Company was completed.

          c)   The NAIC has a model law which establishes certain minimum risk-
     based capital ("RBC") requirements for property-casualty insurance
     companies. The RBC calculation serves as a benchmark for the regulation of
     insurance companies by state insurance regulators. The calculation
     specifies various formulas and weighting factors that are applied to
     financial balances or various levels of activity based on the perceived
     degree of risk and are set forth in the RBC requirements. The capital of
     Realm National as of December 31, 1997 and 1998 exceeded the amount
     calculated using the RBC requirements.

          d)   The Company's Bermuda reinsurance subsidiary, CIRCL, is required
     by its license to maintain capital and surplus greater than a minimum
     statutory amount determined as the greater of a percentage of outstanding
     losses and loss expenses (net of reinsurance recoverable) or a given
     fraction of net written premiums. At December 31, 1997 and 1998,
     respectively, CIRCL was required to maintain a

                                      44
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

  minimum statutory capital and surplus of $1,680 and $2,135. Accordingly,
  approximately $1,664 of contributed surplus and retained earnings is
  restricted from distribution.

     CIRCL's total surplus and net loss determined on a Bermuda statutory basis
  is as follows:
  
      <TABLE>
      <CAPTION>
                                                                  1997       1998
                                                                --------    --------
      <S>                                                        <C>        <C>
      Total surplus at December 31...........................    $2,261     $ 2,304
      Net loss for year ended December 31....................    $  (85)    $(3,558)
</TABLE>

     CIRCL is also required to maintain a minimum liquidity ratio whereby the
  value of its relevant assets are not less than 75% of the amount of its
  relevant liabilities. Certain categories of assets do not qualify as relevant
  assets under the statute. At December 31, 1997 and 1998, respectively, CIRCL
  was required to maintain relevant assets of at least $17,900 and $25,000. At
  that date relevant assets were approximately $23,900 and $35,600 and the
  minimum liquidity ratio was therefore met.

18.  RELATED PARTY TRANSACTIONS

     a)   Amounts due from/to affiliates are interest free and unsecured with no
fixed terms of repayment.

     b)   Goldman, Sachs & Co. acted as a co-managing underwriter for the
Company's IPO completed in December 1997, from which the underwriters received
aggregate underwriting discounts of $5.3 million from the Company and selling
shareholders.

     Goldman, Sachs & Co. or certain of their affiliates maintain certain
contractual relationships with the Company and have provided investment banking
services to the Company. Goldman, Sachs & Co. also provide investment management
services to Realm National pursuant to a Corporate Account Agreement dated
December 24, 1996 and received customary fees and expenses of approximately $20
during 1998 (1997 - $52) for such services.

19.  CONTINGENCIES

     (a)  There currently are pending several arbitration proceedings in England
between reinsurers and their ceding insurers relating to reinsurance
transactions involving the personal accident excess of loss market ("LMX") for
the years 1993, 1994, 1995 and 1996. Although, with one exception, neither the
Company nor its subsidiaries are a party to any of these arbitrations, certain
of the Company's subsidiaries acted as a reinsurance broker for ceding companies
that are parties to certain of the arbitrations. The exception entails a
subsidiary that is directly involved in an arbitration because it assumed the
position of one of the reinsureds by way of portfolio transfer.

     The reinsurers have alleged that they sustained losses due to a spiral in
the LMX market which was not disclosed to them by the ceding insurers or their
reinsurance brokers. As a consequence, these reinsurers have asserted that they
are no longer obliged to honor their reinsurance agreements and have ceased
paying claims. If one or more reinsurers prevail in the pending arbitration, it
is possible that one or more ceding insurers that are reinsurance brokerage
clients of the Company's subsidiaries or for whom a subsidiary performs the role
of underwriting manager, may assert a claim against a subsidiary and in the case
of the one exception the subsidiary would be unable to recover under certain
contracts of reinsurance.

     During 1998 certain of the reinsurers and reinsureds filed a total of 7
writs in the English courts (which are the equivalent of a complaint in U.S.
jurisdictions) against the Company or certain of subsidiaries to toll the
statute of limitations. Some of these writs were issued pending the outcome of
related arbitrations. None of these writs specified an amount of damages sought.
In most cases, the Company or the relevent subsidiaries have negotiated
standstill agreements with the reinsurer or reinsured to toll the statute of 
limitations.

                                      45
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


     The primary factual allegation by the reinsurers is that, although they
believed they reinsured the subject risks only at high excess levels, the LMX
spiral caused their high excess positions to not equate with their expectation
of remoteness from the incidence of risk. As to the Company or its subsidiaries,
the reinsurers and reinsureds have alleged in their writs that the Company or
its subsidiary was negligent, misrepresented, or failed to disclose the
potential effect of the spiral on the reinsurers' exposure to risk.

     The Company does not yet have sufficient information to determine whether
any claims ultimately will be prosecuted against the Company or its subsidiaries
or whether any such claims ultimately will result in payment of any liability or
settlement by the Company or its subsidiaries.

     The Company understands that the parties to the arbitration and court
proceedings and other participants in these markets currently are attempting to
achieve a business solution that could involve a financial contribution by
participants in the market. Although no assurances can be given as to the
outcome of the pending proceedings and their effect on the Company, the Company
believes, based on the information presently available to it, that any such
effect should not materially adversely affect the Company's financial condition.

     (b)  The Company is subject to other litigation and arbitration in the
ordinary course of its business. While any of these proceedings contains an
element of uncertainty, management presently believes the outcome of these
currently pending proceedings will not have a material adverse effect on the
Company.

20.  QUARTERLY FINANCIAL DATA--UNAUDITED

<TABLE>
<CAPTION>
                                                      FIRST      SECOND      THIRD     FOURTH
                                                     -------     -------    -------    -------
                                                     QUARTER     QUARTER    QUARTER    QUARTER
                                                     -------     -------    -------    -------
YEAR ENDED DECEMBER 31, 1997                                                          (i)
                                                                                      ---
<S>                                                  <C>         <C>        <C>        <C>
     Total revenues...............................    $14,345    $16,645    $17,019    $17,301
     Net income...................................      2,820      3,172      3,590      3,411
     Net income per share.........................       0.35       0.40       0.42       0.38
     Net income per share assuming dilution.......    $  0.34    $  0.39    $  0.42    $  0.38

YEAR ENDED DECEMBER 31, 1998                                                          (ii)
                                                                                      ----
     Total revenues (iii).........................    $19,989    $22,245    $20,925    $21,934
     Net income...................................      3,987      4,025      4,129      3,877
     Net income per share.........................       0.41       0.41       0.42       0.40
     Net income per share assuming dilution.......    $  0.40    $  0.41    $  0.42    $  0.40
</TABLE>

     (i)   Total revenues and net income includes $478 net gain on the sale of
subsidiaries during the fourth quarter of 1997.

     (ii)  As discussed in Note 8, the Company recorded a provision of $2,500
against paid and outstanding losses recoverable from reinsurers during the
fourth quarter of 1998.

     (iii) Quarterly revenues have been reclassified to conform to the year end
presentation.

                                      46
<PAGE>
 
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND         
        FINANCIAL DISCLOSURE 

     There have been no changes in, nor any disagreements with, accountants on
accounting and financial disclosure within the three years ending December 31,
1998.

                                   PART III

ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Certain of the information required by this item is included in Part 1 of
this Form 10-K.

     The remainder of this item is omitted because the information will be
contained in a definitive proxy statement, which involves the election of
directors, to be filed with the Securities and Exchange Commission not later
than 120 days after December 31, 1998. Such information is hereby incorporated
by reference.

ITEM 11--EXECUTIVE COMPENSATION

     This item is omitted because the information will be contained in a
definitive proxy statement, which involves the election of directors, to be
filed with the Securities and Exchange Commission not later than 120 days after
December 31, 1998. Such information is hereby incorporated by reference.

ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     This item is omitted because the information will be contained in a
definitive proxy statement, which involves the election of directors, to be
filed with the Securities and Exchange Commission not later than 120 days after
December 31, 1998. Such information is hereby incorporated by reference.

ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     This item is omitted because the information will be contained in a
definitive proxy statement, which involves the election of directors, to be
filed with the Securities and Exchange Commission not later than 120 days after
December 31, 1998. Such information is hereby incorporated by reference.

                                      47
<PAGE>
 
                                    PART IV

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

     (A)  EXHIBITS

<TABLE>
<CAPTION>
   Exhibit No.                             Description
--------------    --------------------------------------------------------------
<S>               <C>
      3.l         Memorandum of Association of the Company (1)

      3.2         Bye-Laws of the Company (1)

      4.1         Shareholders' Agreement, dated as of January 24, 1996, among
                  the Management Shareholders (as defined therein), Bridge
                  Street Fund 1995, L.P., Goldman Sachs & Co. Verwaltungs GmbH
                  (for GS Capital Partners II German Civil Law Partnership), GS
                  Capital Partners II, L.P., GS Capital Partners Offshore, L.P.,
                  Stone Street Fund 1995, L.P. and the Company (1)

      4.2         Registration Rights Agreement, dated January 24, 1996, between
                  the Company, the Management Shareholders (as defined therein)
                  and the Investors (as defined therein) (1)

     10.1         Stirling Cooke Brown Holdings Limited 1997 Equity Incentive
                  Plan (1)*

     10.2         Employment Agreement dated September 1, 1997 between Realm
                  Investments Ltd. and Nicholas Mark Cooke (1)*

     10.3         Employment Agreement dated September 1, 1997 between Stirling
                  Cooke Brown Holdings Limited and Nicholas Brown (1)*

     10.4         Employment Agreement dated September 1, 1997 between Stirling
                  Cooke Brown Holdings Limited and George W. Jones (l)*

     10.5         Agency Agreement dated as of June 1, 1995 between Clarendon
                  National Insurance Company and Stirling Cooke Insurance
                  Services, Inc. (1)

     10.6         Amendment Number One to Agency Agreement dated as of June 1,
                  1995 between Clarendon National Insurance Company and Stirling
                  Cooke Insurance Services, Inc. (1)

     10.7         Amendment Number Two to Agency Agreement dated as of June 1,
                  1995 between Clarendon National Insurance Company and Stirling
                  Cooke Insurance Services, Inc. (1)

     10.8         Addendum dated April 1, 1997 to Agency Agreement dated as of
                  June 1, 1995 between Clarendon National Insurance Company and
                  Stirling Cooke Insurance Services, Inc. (1)

     10.9         Agency Agreement dated as of October 1, 1995 between Clarendon
                  National Insurance Company and Stirling Cooke Texas, Inc. (1)

     10.10        Management Agreement dated as of August 1, 1995 between Legion
                  Insurance Company and Stirling Cooke Insurance Services, Inc.
                  (1)

     11.          Statement Re Computation of Per Share Earnings

     21.          Subsidiaries of the Company (1)

     99.          Forward-Looking Information
</TABLE>

(1) Incorporated by reference from Registration Statement on Form S-1 (No. 333-
    32995) of Stirling Cooke Brown Holdings Limited.

 *Management Compensation

                                      48
<PAGE>
 
     (B)  REPORTS ON FORM 8-K.

          The Company filed a Form 8-K on October 7, 1998 to report a press
          release announcing that the Company had authorized a subsidiary of the
          Company to repurchase up to 250,000 of the Company's Ordinary Shares.

          The Company filed a Form 8-K on November 9, 1998 to report a press
          release announcing the Company's results for the 3rd quarter ended
          September 30, 1998.
 
     (C)  FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

          1.   Financial Statements

                 Included in Part II--Item 8 of this report.

          2.   Index to Financial Statement Schedules

                 Included in Part IV of this report:

<TABLE>
<CAPTION>
                                                                                                           SCHEDULE
                                                                                                           --------
                                                                                                            NUMBER    PAGE
                                                                                                            ------    -----
                 <S>                                                                                       <C>        <C>
                 Report of Independent Accountants on financial statement schedules included
                   in Form 10-K.                                                                                         50
                 Schedule of Investments excluding Investments in Related Parties as of
                   December 31, 1998                                                                             I       51
                 Condensed Financial Information of Registrant as of and for the years ended
                   December 31, 1996, 1997 and 1998                                                             II      52-54
                 Supplementary Insurance Information as of and for the years ended December
                   31, 1996, 1997 and 1998                                                                     III       55
                 Reinsurance for the years ended December 31, 1996, 1997 and 1998                               IV       56
                 Valuation and Qualifying Accounts for the years ended December 31, 1996, 1997
                   and 1998                                                                                      V       57
                 Supplemental Information concerning Property-Casualty Insurance Operations for
                   the years ended December 31, 1996, 1997 and 1998                                             VI       58
                 </TABLE>

                                      49
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders of
Stirling Cooke Brown Holdings Limited

     Under date of March 5, 1999, we reported on the consolidated balance sheets
of Stirling Cooke Brown Holdings Limited and subsidiaries as of December 31,
1997 and 1998, and the related consolidated statements of income and
comprehensive income, retained earnings, and cash flows for each of the years in
the three-year period ended December 31, 1998, which are included in item 8 of
this Annual Report on Form 10-K for the year ended December 31, 1998. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related financial statement schedules listed in
the accompanying index. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our audits.

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

/s/ KPMG Peat Marwick
KPMG Peat Marwick
Hamilton, Bermuda
March 5, 1999

                                      50

<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED
        SCHEDULE OF INVESTMENTS EXCLUDING INVESTMENTS IN RELATED PARTIES
                                   SCHEDULE I

<TABLE>
<CAPTION>
                                                                                         AMOUNT AT WHICH
                                                                                        -----------------
                                                                                          SHOWN IN THE
                                                                                        -----------------
                                                                               FAIR       BALANCE SHEET
                                                                             ---------  -----------------
                                                                    COST       VALUE    DECEMBER 31, 1998
                                                                  ---------  ---------  -----------------
<S>                                                               <C>        <C>        <C>
Fixed maturities
Bonds:
  United States Government and government agencies and
    authorities.................................................    $ 5,694    $ 5,846        $ 5,846
  States, municipalities and political subdivisions.............         29         30             30
  Foreign governments...........................................      6,897      6,987          6,987
  All other corporate bonds.....................................      4,102      4,194          4,194
                                                                    -------    -------        -------
                                                                                           
     Total fixed maturities.....................................     16,722     17,057         17,057
Equity securities                                                                          
 Common stocks:                                                                            
  Industrial, miscellaneous and all other.......................      2,056      2,168          2,168
Nonredeemable preferred stocks..................................        328        368            368
                                                                    -------    -------        -------
                                                                                           
     Total equity securities....................................      2,384      2,536          2,536
Short-term investments..........................................      9,643      9,643          9,643
                                                                    -------    -------        -------
                                                                                           
     Total investments..........................................    $28,749    $29,236        $29,236
</TABLE>

                                      51
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                PARENT COMPANY ONLY BALANCE SHEETS--SCHEDULE II

                           DECEMBER 31, 1997 AND 1998
 (Expressed in thousands of United States Dollars, except share and per share 
                                     data)

<TABLE>
<CAPTION>
                                                                                            1997      1998
                                                                                           -------   -------
<S>                                                                                        <C>       <C>
Assets
  Cash and cash equivalents............................................................    $27,803   $28,007
  Due from subsidiaries................................................................     11,238    15,569
  Investments in subsidiaries..........................................................     44,908    49,786
  Other assets.........................................................................        295       427
  Marketable securities................................................................         --     4,092
                                                                                           -------   -------
     Total Assets......................................................................    $84,244   $97,881

Liabilities
  Accounts payable and accrued liabilities.............................................    $ 1,141   $   249
                                                                                           -------   -------
     Total Liabilities.................................................................      1,141       249
                                                                                           -------   -------
Shareholders' equity
  Share capital
    Authorized 20,000,000 ordinary shares of par value $0.25 each issued and fully
     paid 9,863,372 ordinary shares....................................................      2,466     2,466
  Additional paid in capital...........................................................     54,167    54,167
  Accumulated other comprehensive income...............................................         63       319
  Retained earnings....................................................................     27,074    41,914
                                                                                           -------   -------
                                                                                            83,770    98,866
  Less: ordinary shares in treasury (1997--40,000, 1998--87,000) at cost...............       (667)   (1,234)
                                                                                           -------   -------
     Total shareholders' equity........................................................     83,103    97,632
                                                                                           -------   -------
Total Liabilities and Shareholders' equity.............................................    $84,244   $97,881
                                                                                           =======   =======
</TABLE>

                                      52
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

 PARENT COMPANY ONLY STATEMENTS OF INCOME AND COMPREHENSIVE INCOME--SCHEDULE II

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
  (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
                                     DATA)

<TABLE>
<CAPTION>
                                                                1996      1997      1998
                                                               -------   -------   -------
<S>                                                            <C>       <C>       <C>
REVENUES
  Net investment income.....................................   $   489   $   139   $ 1,920
  Other income..............................................       465        --        --
                                                               -------   -------   -------
Total Revenues..............................................       954       139     1,920
EXPENSES
  Salaries and benefits.....................................        --       395       184
  Other operating expenses..................................       432       683     1,015
                                                               -------   -------   -------
Total Expenses..............................................       432     1,078     1,199
NET INCOME (LOSS) BEFORE EQUITY IN INCOME OF SUBSIDIARIES...       522      (939)      721
Equity in income of subsidiaries............................     9,396    13,932    15,297
                                                               -------   -------   -------
NET INCOME..................................................   $ 9,918   $12,993   $16,018
                                                               -------   -------   -------
 
Other comprehensive income (loss), net of tax:
  Unrealized holding gains arising during
  the year (net of tax of $75, $130 and $130)                      147       188       314
  Less: reclassification adjustments for realized gains
  included in net income (net of tax of $0, $166 and $1)            --      (272)      (58)
                                                               -------   -------   -------
  Other comprehensive income (loss), net of tax                    147       (84)      256
  Comprehensive income                                         $10,065   $12,909   $16,274
                                                               =======   =======   =======
</TABLE>

                                      53
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

           PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS--SCHEDULE II

                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
  (Expressed in thousands of United States Dollars, except share and per share
                                     data)

<TABLE>
<CAPTION>
                                                                                1996          1997          1998
                                                                              --------      --------      --------
<S>                                                                           <C>           <C>           <C>
OPERATING ACTIVITIES
  Net income..............................................................    $  9,918      $ 12,993      $ 16,018
Items not effecting cash
  Amortization of goodwill................................................         373           373           373
  Amortization of marketable securities...................................           0             0            (8)
  Depreciation and amortization of capital assets.........................           0             0             2
  Equity in income of subsidiaries........................................      (9,396)      (13,932)      (15,297)
  Gain on sale of marketable securities...................................           0             0           (55)
  Changes in non cash operating assets and liabilities
    Other assets..........................................................           0          (258)         (134)
    Accounts payable and accrued liabilities..............................          16         1,125          (892)
    Due to subsidiaries...................................................         193          (193)            0
                                                                              --------      --------      --------
     Net cash provided by operating activities............................       1,104           108             7
                                                                              --------      --------      --------
INVESTING ACTIVITIES
  Purchase of capital assets..............................................           0           (37)            0
  Investments in subsidiaries.............................................      (8,965)         (274)          960
  Due from subsidiaries...................................................      (5,638)       (5,600)       (4,331)
  Dividends received from subsidiaries....................................           0         6,850         9,250
  Purchase of debt securities.............................................           0             0        (3,992)
  Purchase of equity securities...........................................           0             0          (503)
  Proceeds on sale of equity securities...................................           0             0           558
                                                                              --------      --------      --------
     Cash (used) provided by investing activities.........................     (14,603)          939         1,942
                                                                              --------      --------      --------
FINANCING ACTIVITIES
  Dividends...............................................................           0             0        (1,178)
  Net proceeds of subscription to share capital subject to redemption.....      14,457             0             0
  Net proceeds from subscription to share capital.........................           0        26,832             0
  Proceeds from exercise of options.......................................           0         1,625             0
  Purchase of ordinary shares in treasury.................................        (938)       (1,807)         (567)
  Sales of ordinary shares in treasury....................................           0            86             0
                                                                              --------      --------      --------
     Cash provided (used) by financing activities.........................      13,519        26,736        (1,745)
                                                                              --------      --------      --------
INCREASE IN CASH AND CASH EQUIVALENTS.....................................          20        27,783           204
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................           0            20        27,803
                                                                              --------      --------      --------
CASH AND CASH EQUIVALENTS FROM END OF YEAR................................    $     20      $ 27,803      $ 28,007
                                                                              ========      ========      ========
</TABLE>
                                                                                
All dividends received were from consolidated subsidiaries.

                                      54
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

               SUPPLEMENTARY INSURANCE INFORMATION--SCHEDULE III
               (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                          FUTURE         
                                          ------ 
                                          POLICY 
                                          ------ 
                                         BENEFITS,         OTHER                        BENEFITS,  AMORTIZATION
                                         --------          -----                        ---------  ------------
                              DEFERRED    LOSSES,          POLICY                        CLAIMS,    OF DEFERRED
                              --------    -------          ------                        -------    -----------
                               POLICY     CLAIMS           CLAIMS              NET      LOSSES AND    POLICY       OTHER
                               ------     ------           ------              ---      ----------    ------       -----
                             ACQUISITION AND LOSS UNEARNED   AND    PREMIUM INVESTMENT  SETTLEMENT  ACQUISITION  OPERATING  PREMIUMS
                             ----------- -------- --------   ---    ------- ----------  ----------  -----------  ---------  --------
                                COSTS    EXPENSES PREMIUMS BENEFITS REVENUE   INCOME     EXPENSES      COSTS      EXPENSES  WRITTEN
                                -----    -------- -------- -------- -------   ------     --------      -----      --------  -------
<S>                          <C>         <C>      <C>      <C>      <C>     <C>         <C>        <C>           <C>        <C>
Year ended December 31, 1996
 Insurance..................   $   77    $14,371  $ 7,003     $0    $   838   $  370      $   630      $  237      $   508  $   799
 Reinsurance................       94      9,930    5,512      0      7,916      271        6,135       1,600          251    8,131
 Brokerage..................        0          0        0      0          0    1,773            0           0       13,239        0
 Program Business...........        0          0        0      0          0      255            0           0        8,821        0
 Underwriting Management....        0          0        0      0          0      232            0           0        1,486        0
 Other......................        0          0        0      0          0      504            0           0        1,955        0
                               ------    -------  -------     --    -------   ------      -------      ------      -------  -------
                               $  171    $24,301  $12,515     $0    $ 8,754   $3,405      $ 6,765      $1,837      $26,260  $ 8,930
Year ended December 31, 1997
 Insurance..................   $  343    $14,969  $13,338     $0    $ 2,921   $1,696      $ 2,426      $  840      $ 1,662  $ 3,988
 Reinsurance................      236     21,307    5,849      0      8,869      517        8,525         504          296    9,193
 Brokerage..................        0          0        0      0          0    2,531            0           0       14,794        0
 Program Business...........        0          0        0      0          0      740            0           0       15,832        0
 Underwriting Management....        0          0        0      0          0      152            0           0        1,684        0
 Other......................        0          0        0      0          0      146            0           0        2,829        0
                               ------    -------  -------     --    -------   ------      -------      ------      -------  -------
                               $  579    $36,276  $19,187     $0    $11,790   $5,782      $10,951      $1,344      $37,097  $13,181
Year ended December 31, 1998
 Insurance..................   $1,848    $30,788  $22,477     $0    $ 7,716   $1,261      $ 4,790      $2,052      $ 3,062  $ 9,676
 Reinsurance................      438     35,329    2,560      0     10,058      847       12,481       1,566          215    7,740
 Brokerage..................        0          0        0      0          0    3,336            0           0       15,643        0
 Program Business...........        0          0        0      0          0      777            0           0       21,932        0
 Underwriting Management....        0          0        0      0          0      197            0           0        1,865        0
 Other......................        0          0        0      0          0    2,353            0           0        1,679        0
                               ------    -------  -------     --    -------   ------      -------      ------      -------  -------
                               $2,286    $66,117  $25,037     $0    $17,774   $8,771      $17,271      $3,618      $44,396  $17,416
</TABLE>

                                      55
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

                           REINSURANCE--SCHEDULE IV
               (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                                            
                                                            ASSUMED              PERCENTAGE
                                               CEDED TO      FROM                OF AMOUNT
                                      GROSS      OTHER       OTHER       NET      ASSUMED
                                     AMOUNT    COMPANIES   COMPANIES   AMOUNT     TO NET
                                     -------   ---------   ---------   -------   ----------                     
<S>                                  <C>       <C>         <C>         <C>       <C>
Year ended December 31, 1996.....    $ 4,493    $ 6,784     $11,045    $ 8,754      126%
Year ended December 31, 1997.....    $15,408    $17,396     $13,778    $11,790      117%
Year ended December 31, 1998.....    $39,526    $36,807     $15,055    $17,774       85%
</TABLE>

                                      56
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

                 VALUATION AND QUALIFYING ACCOUNTS--SCHEDULE V
               (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

<TABLE>
<CAPTION>


                                                                            CHARGED TO
                                                                            ----------
                                         BALANCE AT       CHARGED TO          OTHER
                                         ----------       ----------          -----
                                         BEGINNING        COSTS AND          ACCOUNTS-       DEDUCTIONS-     BALANCE AT
                                         ---------        ---------          ---------       -----------     ----------
                                         OF PERIOD        EXPENSES           DESCRIBE         DESCRIBE      END OF PERIOD
                                         ---------        --------           --------         --------      -------------
        DESCRIPTION
<S>                                      <C>              <C>               <C>              <C>             <C> 
Year ended December 31, 1996      
   Allowance for Doubtful Accounts       $      --        $       --        $     --         $     --        $     --
Year ended December 31, 1997      
   Allowance for Doubtful Accounts       $      --        $       --        $     --         $     --        $     --
Year ended December 31, 1998       
   Allowance for Doubtful Accounts       $      --        $   $2,500        $     --         $     --        $  2,500
</TABLE>

                                      57
<PAGE>
 
                     STIRLING COOKE BROWN HOLDINGS LIMITED

                      SUPPLEMENTARY INSURANCE INFORMATION
         CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS--SCHEDULE VI
               (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                 RESERVE FOR                                     LOSSES AND LOSS     AMORTIZATION
                                 -----------                                   ADJUSTMENT EXPENSES   ------------
                                 LOSSES AND                                    INCURRED RELATED TO    OF DEFERRED PAID LOSSES
                                 ----------                                                          ----------- -----------
                      DEFERRED      LOSS     DISCOUNT,                     NET       (1)               POLICY     AND LOSS
                      --------      ----     ---------                     ---       ---               ------     --------
                     ACQUISITION ADJUSTMENT   IF ANY,  UNEARNED  EARNED INVESTMENT CURRENT    (2)    ACQUISITION ADJUSTMENT PREMIUMS
                     ----------- ----------   -------  --------  ------ ---------- -------    ---    ----------- ---------- --------
                        COSTS     EXPENSES   DEDUCTED  PREMIUMS PREMIUMS  INCOME    YEAR   PRIOR YEAR    COSTS    EXPENSES  WRITTEN
                        -----     --------   --------  -------- --------  ------    ----   ----------    -----    --------  -------
<S>                  <C>         <C>         <C>       <C>      <C>      <C>       <C>     <C>       <C>         <C>        <C>
Year ended
December 31, 1996
 Property/Casualty
 entities............  $  171      $24,301     $ --     $12,515  $ 8,754  $  641   $ 6,515   $  250     $1,837     $ 2,009  $ 8,930

Year ended
December 31, 1997
 Property/Casualty 
 entities............  $  579      $36,276     $ --     $19,187  $11,790  $2,213   $10,174   $  777     $1,344     $ 5,460  $13,181
 
Year ended 
December 31, 1998
 Property/Casualty 
 entities............  $2,286      $66,117     $ --     $25,037  $17,774  $2,108   $12,578   $4,693     $3,618     $12,504  $17,416
</TABLE>

                                      58
<PAGE>
 
                                   SIGNATURES

     PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN HAMILTON, BERMUDA,
ON THE 26TH DAY OF MARCH, 1999.


                                  STIRLING COOKE BROWN HOLDINGS LIMITED

                                            /s/   George W. Jones
                                  By
                                                 George W. Jones
                                       Chief Financial Officer and Director

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW AS OF THIS 26TH DAY OF MARCH, 1999, BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED:

<TABLE>
<CAPTION>
           Signature                                    Title
--------------------------------  ------------------------------------------------
<S>                               <C>

 
/s/   NICHOLAS MARK COOKE         Chairman, President, Chief Executive Officer and
                                  Director (Principal Executive Officer)
 Nicholas Mark Cooke
 
 
/s/   GEORGE W. JONES             Chief Financial Officer and Director (Principal
                                  Financial and Accounting Officer)
 George W. Jones
 
 
/s/   NICHOLAS BROWN              Director
 
 Nicholas Brown
 
 
/s/   REUBEN JEFFERY III          Director
 
 Reuben Jeffery III
</TABLE>

                                      59