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, 2000

                                     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, 2001 was  approximately  $5.2  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, 2001 there were 9,519,972 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 23, 2001
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, 2000 on a Form 10-K.

<PAGE>

                                   INDEX

                                                                    PAGE
                                   PART 1                           ----

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

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

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

Item 4      Submission of Matters to a Vote of Security Holders...   13

                                  PART II

Item 5      Market for Registrant's Common Equity and Related
            Stockholder Matters...................................   14

Item 6      Selected Financial Data...............................   15

Item 7      Management's Discussion and Analysis of Financial
            Condition and Results of Operations...................   16

Item 8      Financial Statements and Supplementary Data...........   22

Item 9      Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure...................   51

                                  PART III

Item 10     Directors and Executive Officers of the Registrant....   52

Item 11     Executive Compensation................................   52

Item 12     Security Ownership of Certain Beneficial Owners
            and Management........................................   52

Item 13     Certain Relationships and Related Transactions........   52

                                  PART IV

Item 14     Exhibits, Financial Statement Schedules and Reports
            on Form 8-K...........................................   53

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 insurance services and products. The Company provides its range of
services and products to insurance  and  reinsurance  companies,  insurance
agents,  and  insureds.  The Company is active  primarily  in the  workers'
compensation,  occupational  accident  and health,  and  property  casualty
insurance markets through its subsidiaries  located in London,  Bermuda and
the United States.


THE COMPANY'S OPERATIONS

The  Company  now has three  main  business  segments;  Brokerage,  Program
Business,  and  Insurance.  In  early  2001,  following  a  review  of  its
operations,  the Company decided to discontinue its loss-making reinsurance
and underwriting management segments. Each business segment consists of one
or more  separate  companies  and the results of each  segment  reflect all
fees,  income,  and direct expenses for the companies in that segment.  For
example,  revenues for the insurance  segment  include all of the insurance
company's income including  premiums,  policy issuance fees, and investment
income.

BROKERAGE

The Company's brokerage segment consists of subsidiaries that receive a fee
or commission  for brokering  insurance and  reinsurance  contracts.  These
subsidiaries  specialize in placing  insurance and reinsurance  business in
workers'  compensation,  accident and health, and specialty casualty lines.
The  Company  generates  fees  and  commission-based   revenues  from  this
business.  The  brokerage  segment  generated  revenues of $11.2 million in
2000, $24.9 million in 1999 and $27.1 million in 1998. Price competition in
the U.S.  market  and the  withdrawal  of a number of  reinsurers  from the
market  led  to  a  continued  reduction  in  revenues  for  the  brokerage
operations in 2000. In addition, the segment has been adversely affected by
the disruption caused by widespread  reinsurance  market disputes and legal
proceedings including those involving the Company.

PROGRAM BUSINESS

The Company's program business segment consists of subsidiaries that market
insurance  products and manage insurance programs developed by the Company.
These programs  transfer risk from an insured to insurers and ultimately to
reinsurers  primarily in the workers'  compensation  market.  The segment's
subsidiaries  are integrated to provide a range of business  production and
administrative  services to insurers. The program business segment services
are provided to unaffiliated  primary insurers and a Company-owned  primary
insurer.  This  segment  primarily  consists  of  managing  general  agency
("MGA"), program management, third party claims administration ("TPA"), and
loss control and premium  audit  companies.  The program  business  segment
generated  revenues of $15.3 million in 2000,  $22.4  million in 1999,  and
$27.1  million in 1998.  This  decrease in revenues  was due to reduced fee
margins on programs and a reduction in program  business volume as a result
of management's decision to impose more selective  underwriting  conditions
on continuing programs.

The Company's  MGA  subsidiaries  are  responsible  for marketing  programs
through a network of retail and wholesale  insurance agents.  The MGA's are
also responsible for underwriting,  policy issuance,  policy servicing, and
administration  of the business bound.  The Company's MGA network  includes
offices in Boca Raton, Florida; Dallas, Texas; and New York, New York.

INSURANCE

The Company's  insurance segment consists of a New York domiciled  insurer,
Realm National  Insurance  Company ("Realm  National").  Realm National was
acquired by the Company in September 1996 and earns net premiums and policy
issuance fees. The insurance segment generated revenues of $23.5 million in
2000,  $12.6 million in 1999,  and $11.1 million in 1998.  This increase in
revenues reflects a reduced amount of reinsurance purchased and increase in
premium  volume  written  and earned.

Realm National had shareholders'  equity of approximately  $17.8 million at
December 31, 2000 (1999--$21.8 million,  1998--$22.5 million), net premiums
earned of approximately  $18.5 million for the year ended December 31, 2000
(1999--$9.5 million,  1998--$7.7 million).  For the year ended December 31,
2000,   Realm   National's   gross  premiums  written  were  $61.4  million
(1999--$47.2 million, 1998--$48.6 million); net premiums written were $22.2
million (1999--$8.9 million,  1998--$9.7  million),  of which $16.1 million
(1999--$7.9   million,   1998--$8.2   million)  were  related  to  workers'
compensation  insurance and $6.1 million  (1999--$1.0  million,  1998--$1.5
million)  were related to property  insurance.  Realm  National is rated B+
(Very Good) by A.M. Best Company.

DISCONTINUED OPERATIONS

Following a review of its operations,  the Company decided on March 6, 2001
to discontinue its  loss-making  reinsurance  and  underwriting  management
segments and put these segments into run-off.

The Company's  reinsurance segment consists of its reinsurance  subsidiary,
Comp Indemnity  Reinsurance  Company  Limited  ("CIRCL").  CIRCL  primarily
reinsured  workers'  compensation and property and general liability risks.
Management had determined in early 1999 to cease  underwriting new programs
in the  reinsurance  segment  due to  unfavourable  results,  and for  this
reason, a number of existing  contracts were not renewed for the 1999 year.
During 2000, further losses were realized in this segment, primarily due to
a  strengthening  of reserves on  discontinued  programs,  together with an
increase of $2.5 million in provisions against reinsurance recoveries.  Due
to the  history of  operating  losses for the  segment,  together  with the
cessation of the writing of new programs, the Company decided to completely
discontinue the segment and place the operation into run-off.

The reinsurance  segment  generated  revenues of $1.7 million in 2000, $3.1
million in 1999 and $10.9 million in 1998.  For the year ended December 31,
2000, CIRCL's gross premiums assumed were $0.3 million (1999--$3.0 million,
1998--$11.8 million), of which $0.2 million (1999--$2.7 million, 1998--$6.9
million) were related to workers'  compensation  insurance and $0.1 million
(1999--$0.3  million,  1998--$4.9  million)  were  related to property  and
general  liability  insurance.  Net  premiums  assumed  were  $0.4  million
(1999--$1.1 million, 1998--$7.7 million).

The  Company's  underwriting  management  segment is comprised of companies
that primarily  underwrote and administered  reinsurance business on behalf
of independent  reinsurance companies.  The underwriting management segment
earned  fees  for  providing  underwriting  and  associated  administrative
services   relating  to  the  business   underwritten.   Since  1999,   the
underwriting  management segment has experienced a significant reduction in
business written,  which has led to decreasing revenues over the period. In
view of the  reduction in revenues,  the  resulting  loss,  and the ongoing
business prospects for the segment,  the Company decided to discontinue the
segment and place the  operation in run-off.  The  underwriting  management
segment  generated  revenues of $1.6 million in 2000, $4.1 million in 1999,
and $3.6 million in 1998.

As a result of the  planned  run-off  of  operations  for the  underwriting
management  and  reinsurance   segments,   the  operating  results  of  the
underwriting  management  and  reinsurance  segments  in  the  accompanying
financial statements have been reported as discontinued  operations for all
periods  presented,  and,  accordingly,  the operating  results for periods
prior to 2000 have been restated.

MARKETING

The Company's marketing  strategies vary by business segment. The Company's
program  business  segment markets its workers'  compensation  programs and
other specialty lines to retail and wholesale  insurance agents in the U.S.
through  its MGA's.  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 a
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  provide  certain  incentives  for the
achievement of the Company's  objectives.  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 and  commercial
customers.  The Company's  insurance segment markets its insurance products
through the Company's own MGA network and to independent  insurance  agents
through  unaffiliated  agent  networks.  The  Company's  brokerage  segment
markets its services  directly to insurance and reinsurance  companies,  as
well as to insurance agents.

COMPETITION

The business of providing  insurance  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  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  that  the key  factors  in  competing
effectively 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  conditions.  The Company believes
that its  services  and products  are  competitively  priced,  and that its
combination  of  services  and  products  enables  it to  develop  tailored
programs and be a competitive  provider of insurance services and products.
However, in periods of soft insurance market conditions,  as has existed in
recent  years,  the  Company's  various  business  segments  are subject to
additional  competitive pressure in generating premium volume. In addition,
the fees that they  charge  for  their  services  come  under  pressure  as
insurers and reinsurers seek to reduce their costs.

Realm  National is rated B+ (Very Good) by A.M.  Best  Company.  In certain
circumstances,  Realm  National  may be at a  competitive  disadvantage  to
insurers with higher ratings.  However,  the Company's MGA's also represent
insurers with higher ratings from A.M. Best Company,  thereby  allowing the
Company's MGA's to remain competitive in circumstances where Realm National
is not selected as the insurer due to its rating.

EMPLOYEES

As of December 31, 2000, the Company had 270 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  relationships  with its employees are good. None
of the Company's employees is represented by a union.

REGULATION

The  Company's   subsidiaries   that  are  engaged  in  the  insurance  and
discontinued reinsurance segments (Realm National and CIRCL,  respectively)
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 and policy  forms for many lines of
insurance; standards of solvency and minimum amounts of capital and surplus
that  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;  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 guaranty
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  in 1998,  1999  and 2000  were
immaterial in relation to the Company's  consolidated financial statements.
The cost of most of these assessments is recoverable  through future policy
surcharges and premium tax deductions.

Realm National also is required to  participate  in various  state-mandated
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
1998,  1999,  and  2000  were  immaterial  in  relation  to  the  Company's
consolidated financial statements.

Realm  National  also  is  subject  to  various  statutory  and  regulatory
restrictions,  generally  applicable to each insurance company in its state
of domicile,  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 laws of the State of New York (the "New York Insurance  Law")
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
cash dividends to its shareholders.

The National Association of Insurance  Commissioners ("NAIC") has adopted a
methodology for assessing the adequacy of statutory surplus of property and
casualty insurers that includes a risk-based capital requirement. Insurance
companies  are  required  to  calculate  and  report  information  under  a
risk-based  formula that 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
monitor the adequacy of an insurer's capital.  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  subsidiary
exceeds  levels that would trigger  regulatory  attention.  At December 31,
2000, Realm National's RBC ratio was approximately 288%  (1999--416%),  and
the threshold requiring minimum regulatory involvement was 144%. Therefore,
the Company's  capital exceeded 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.  At December 31, 2000, Realm National had six ratios outside
the normal ranges,  however  management  believes that they will be able to
satisfy any concerns raised by the regulators.

Realm  National is organized  under  New York  Insurance  Law. The New York
Insurance  Law 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  company,  or  any  person  controlling  a  domestic
insurance company,  must seek approval and 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 New York Insurance Law, 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 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.

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   insurance  company  admitted  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  intends,   when  appropriate,   to  eventually  expand  Realm
National's  licenses and business to  additional  states in which it is not
currently  licensed.  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 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
discontinued 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; or (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. At
December  31,  2000,  CIRCL was  required to  maintain a minimum  statutory
capital and surplus of $1.3  million  (1999 - $2.0  million).  At that date
statutory  capital and surplus was $0.8 million  (1999 - $2.9  million) and
the requirement was therefore not met.  Subsequent to year end, the Company
contributed  an  additional  $0.6 million to CIRCL to enable it to meet its
minimum statutory capital and surplus requirements.

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
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.  At December 31,
2000,  CIRCL was  required  to maintain  relevant  assets of at least $17.2
million  (1999  -  $23.0  million).  At  that  date  relevant  assets  were
approximately  $23.7 million (1999 -$33.5  million) and the requirement was
therefore met.

A Bermuda-registered  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 is given
in writing to the Minister 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; or 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  MGA's.  MGA's
produce,  underwrite,  administer  business  produced and manage  claims on
behalf of insurance  companies in certain  states,  and they are subject to
regulation under state laws regarding licensure, fiduciary obligations with
respect to premium, and the general management of the insurers' business.

The  activities of Stirling  Cooke Brown  Insurance  Brokers  Limited as an
insurance  broker in the UK  require  it to be  authorized  by the  General
Insurance Standards 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 supply  reports to the  Council,  and that it conduct  its  business  in
accordance with the conduct of business rules published by the Council.

OUTSTANDING LOSSES AND LOSS EXPENSES

Both Realm National and CIRCL maintain loss reserves to reflect anticipated
future claims and claims expense payments. The Company establishes reserves
for losses and loss adjustment  expenses  related to reported claims 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  Company and its  independent  actuaries
estimate claims and claims  expenses  arising for losses that have occurred
but not yet been  reported  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  following  table sets forth a  reconciliation  of beginning and ending
reserves for losses and loss adjustment expenses:

<TABLE>
<CAPTION>
                                 RECONCILIATION OF OUTSTANDING LOSSES AND LOSS EXPENSES
                                            FOR THE YEARS ENDED DECEMBER 31,
                                                1998                     1999                    2000
                                               ------                   ------                  ------
                                      CONTINUING  DISCONTINUED CONTINUING  DISCONTINUED CONTINUING  DISCONTINUED
                                      OPERATIONS   OPERATIONS  OPERATIONS   OPERATIONS  OPERATIONS   OPERATIONS
<S>                                       <C>        <C>         <C>          <C>         <C>         <C>
Balance beginning of year.............    $14,969    $21,307     $30,789      $35,328     $59,421     $33,714
Less outstanding losses recoverable...    (12,869)   (10,203)    (27,048)     (21,098)    (53,050)    (20,217)
                                          -------    -------     -------      -------     ------      -------
Net balance                                 2,100     11,104       3,741       14,230       6,371      13,497
                                          -------    -------     -------      -------     ------      -------
Incurred related to:
          Current year................      4,811      7,767       6,289        2,407      13,617         177
          Prior years.................        (21)     4,714         676        2,998       3,543       6,056
                                          -------    ------      ------       ------      ------      ------
          Total incurred..............      4,790     12,481       6,965        5,405      17,160       6,233
                                          -------    -------     -------      -------     ------      -------
Paid related to:
          Current year................      1,688      1,378       2,528          302       4,308          --
          Prior years.................      1,461      7,977       1,807        5,836       2,260       3,409
                                          -------    -------     -------      -------     ------      -------
          Total paid..................      3,149      9,355       4,335        6,138       6,568       3,409
                                          -------    -------     -------      -------     ------      -------
Net balance                                 3,741     14,230       6,371       13,497      16,963      16,321
Plus outstanding losses recoverable...     27,048     21,098      53,050       20,217      62,857      18,362
                                          -------    -------     -------      -------     ------      -------
          Balance at end of year......    $30,789    $35,328     $59,421      $33,714     $79,820     $34,683
                                          =======    =======     =======      =======     =======     =======
</TABLE>

The adverse development during 2000 on prior years in continuing operations
primarily  reflects the  strengthening  of loss  reserves at the  Company's
U.S.-based insurance carrier.

The  adverse  development  during  1998,  1999 and  2000 on prior  years in
discontinued  operations  primarily reflects the increase in provisions for
doubtful  reinsurance  recoveries of $2.5 million in 1998,  $2.1 million in
1999 and $2.4 million in 2000 as  discussed  in Note 9 to the  Consolidated
Financial  Statements,  as well as an increase in claims  frequency  on one
particular  program that covers  bodily  injury and  property  risks in the
construction  industry. The provision is included in the balance sheet as a
component of paid and outstanding losses  recoverable from reinsurers.  The
provision is an estimate and amounts not  collectible  from  reinsurers may
ultimately be significantly greater or less than the provision established.

The Company's underwriting loss ratio (i.e. the ratio of net losses and net
loss expenses to net premium earned) for 2000 for continuing operations was
92.8% (1999--73.7%).

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 an estimate and the losses
may  ultimately  be  significantly  greater  or  less  than  the  provision
established.  The Company has limited historical loss experience  available
to serve as a basis for the  estimation of ultimate  losses.  The Company's
exposure to the effect of future  movements  in its loss  reserves has been
increased by the reduction in the level of  reinsurance  purchased by Realm
National on its programs.

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

<TABLE>
<CAPTION>
                  RECONCILIATION OF SAP AND GAAP RESERVES

                                                                       FOR THE YEARS ENDED
                                                                         DECEMBER 31,
                                                       1998                    1999                    2000
                                                      ------                  ------                  ------
                                             CONTINUING DISCONTINUED  CONTINUING DISCONTINUED CONTINUING  DISCONTINUED
                                             OPERATIONS  OPERATIONS   OPERATIONS  OPERATIONS  OPERATIONS   OPERATIONS
                                                                     (DOLLARS IN THOUSANDS)
<S>                                            <C>         <C>          <C>         <C>        <C>         <C>
Reserves for losses and loss adjustment
      expenses, end of year SAP.............   $ 3,794     $14,230      $ 4,765     $13,497    $ 14,877    $16,321
Gross-up for ceded reinsurance reserves.....    27,048      21,098       53,050      20,217      62,857     18,362
Provision for salvage receivable not
      included on a SAP basis...............       (30)         --          (31)         --          --         --
Provision for uncollectible reinsurance.....        --          --        1,637          --       1,637         --
Reclassification of other liabilities.......        --          --           --          --         449         --
Provision for loss portfolio transfer not
      included in SAP reserves..............       (23)         --           --          --          --         --
                                               -------     -------      -------     -------    --------    -------

Reserves for losses and loss adjustment
      expenses, end of year GAAP............   $30,789     $35,328      $59,421     $33,714    $79,820     $34,683
                                               =======     =======      =======     =======    =======     =======
</TABLE>

The following table presents the  development of the Company's  ongoing net
reserves  for 1997  through  2000.  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
four years' movement in the Company's reserves. It should be noted that the
following table presents an analysis of loss and loss expense  development.
Therefore,  each  amount in the table  includes  the  effects of changes in
reserves for all prior years.

<TABLE>
<CAPTION>

               ANALYSIS OF LOSS AND LOSS EXPENSE DEVELOPMENT
                  (NET OF OUTSTANDING LOSSES RECOVERABLE)

CONTINUING OPERATIONS                                               FOR THE YEARS ENDED
                                                                    -------------------
                                                                        DECEMBER 31,
                                                                        ------------
                                                     1996        1997        1998       1999      2000
                                                   --------    --------    --------   --------  --------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                <C>         <C>         <C>        <C>        <C>
    Gross reserve for losses and loss
      adjustment expenses.....................     $14,371     $ 14,968    $30,789    $ 59,421   $ 79,820
    Less outstanding losses recoverable.......     (12,610)     (12,869    (27,048)    (53,050)   (62,857)
                                                  --------     --------    -------    --------   --------
    Net reserve for losses and loss adjustment
      expenses................................       1,761        2,099      3,741       6,371     16,963
    Reserve re-estimated as of:
                 One year later...............       1,486        2,077      4,417       8,272         --
                 Two years later..............       1,278        2,814      4,509          --         --
                 Three years later............       1,268        2,455         --          --         --
                 Four years later.............       1,265           --         --          --         --
                                                  --------     --------    -------    --------   --------
    Cumulative deficiency.......................       496         (356)      (768)     (1,901)        --
                                                  --------     --------    -------    --------   --------

    Percentage                                      28.2%        (17.0%)    (20.5%)     (29.8%)        --
                                                  --------     --------    -------    --------   --------

    Cumulative amount of reserve paid through:
                 One year later.................       955        1,461      1,547       5,570         --
                 Two years later................     1,095        1,980      2,190          --         --
                 Three years later..............     1,263        2,249         --          --         --
                 Four years later...............     1,265           --         --          --         --
</TABLE>

The  increase in reserves  one year later,  two years later and three years
later on 1997, 1998 and 1999 reserves reflects  primarily the strengthening
of loss reserves at the Company's U.S.-based  insurance carrier.

<TABLE>
<CAPTION>
DISCONTINUED OPERATIONS                                             FOR THE YEARS ENDED
                                                                    -------------------
                                                                        DECEMBER 31,
                                                                        ------------
                                                     1996        1997        1998       1999      2000
                                                   --------    --------    --------   --------  --------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                <C>         <C>         <C>        <C>        <C>
    Gross reserve for losses and loss
       adjustment expenses......................   $ 9,930    $ 21,308     $35,328    $ 33,714   $ 34,683
    Less outstanding losses recoverable.........    (3,978)    (10,203)    (21,098)    (20,217)   (18,362)
                                                  --------     --------    -------    --------   --------
    Net reserve for losses and loss adjustment
       expenses.................................     5,952      11,105      14,230      13,497     16,321
    Reserve re-estimated as of:
                 One year later.................     7,004      15,820      17,228      19,552         --
                 Two years later................    10,552      19,980      23,257          --         --
                 Three years later..............    11,824      25,750          --          --         --
                 Four years later...............    14,900          --          --          --         --
                                                  --------     --------    -------    --------   --------
    Cumulative deficiency.......................    (8,948)    (14,645)     (9,027)     (6,055)        --
                                                  --------     --------    -------    --------   --------

    Percentage                                     (150.3%)    (131.9%)     (63.4%)    (44.9%)         --
                                                  --------     --------    -------    --------   --------

    Cumulative amount of reserve paid through:
                 One year later.................     2,494       7,977       5,836       3,408         --
                 Two years later................     6,574      12,117       8,788          --         --
                 Three years later..............     8,975      14,139          --          --         --
                 Four years later...............    10,599          --          --          --         --
</TABLE>

The increase in net reserves one year later,  two years later,  three years
later and four years later on 1996,  1997, 1998 and 1999 reserves  reflects
primarily an increase in claims  frequency on one  particular  program that
covers bodily injury and property risks in the construction  industry,  and
an increase in provisions for doubtful reinsurance  recoveries discussed in
Note 9 to the consolidated financial statements.

ITEM 2--PROPERTIES

The Company's  head office is located in Hamilton,  Bermuda.  This facility
currently serves as the  headquarters for the financial and  administrative
departments  of the Company and the  Company's  Bermuda  subsidiaries.  The
following table sets forth additional  information concerning the Company's
facilities:

                                    APPROXIMATE
           PROPERTY                 SQUARE FEET     LEASE EXPIRATION
     ---------------------------    -----------   --------------------
     Hamilton, Bermuda..........       5,900      June 20, 2006
     London, England............      12,500      August 10, 2009
     Dallas, Texas..............      14,700      August 31, 2003
     Dallas, Texas..............      10,500      May 31, 2001
     New York, New York.........       7,900      October 31, 2003
     New York, New York.........       2,800      September 14, 2004
     Bradenton, Florida.........      12,350      June 28, 2008
     Boca Raton, Florida........      13,750      January 15, 2005
     Southington, Connecticut...       2,460      August 31, 2011

All of the Company's  facilities are leased.  Aggregate  lease payments for
2000 were $1.9 million (1999 - $2.8 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) The proceedings  which Sphere Drake Insurance  Limited ("Sphere Drake")
caused to be issued on  February  29, 2000 in the London  Commercial  Court
(equivalent to a civil complaint in U.S.  jurisdictions) against two of the
Company's U.K. subsidiaries,  two former officers of those subsidiaries and
others, remain pending.  Sphere Drake alleges, in substance,  that each and
every  contract  placed  with it  through  its  underwriting  agent  by the
Company's U.K.  broker  subsidiary was  commercially  unreasonable.  Sphere
Drake  further  alleges  that  this was  obvious  to the  broker  and that,
accordingly,  the London Commercial Court should infer a conspiracy between
the broker and the  underwriting  agent to defraud  Sphere  Drake,  thereby
allowing it to treat as void from the outset all of the inwards reinsurance
contracts  placed through the  underwriting  agent by the Company's  broker
subsidiary.  These proceedings currently are focused on preparation for the
trial of the action, which is scheduled for October 2001.

It is the opinion of management that the claims described in Sphere Drake's
action  are  without  merit  and the  case is being  and  will be  defended
vigorously.

(b) The Company,  together with one of its London subsidiaries and a former
employee of that subsidiary,  filed a motion to dismiss the claims asserted
against them in the amended complaint in an existing action in the New York
State Supreme Court brought by AXA Reassurance S.A.  ("AXA"),  in which AXA
seeks to void reinsurance contracts entered into in connection with certain
"reinsurance-backed   gap  film  financing"   arrangements  ("Film  Finance
Covers")  brokered by the Company's London  subsidiary.  The Court ruled on
March 8, 2001,  that it would hold the motion in abeyance  pending  further
discovery.  The Company,  its subsidiary and the former employee  currently
are engaged in ongoing discovery proceedings in the action.

The  Company,  together  with one of its London  subsidiaries  and a former
employee of that subsidiary, were named in a third-party complaint filed on
or about  February  20, 2001 in federal  district  court in  California  by
defendant  AXA  Corporate  Solutions  (U.K.)  Ltd.  (allegedly  misnamed in
plaintiff's  complaint as AXA RE UK).  The  third-party  complaint  alleges
fraudulent and/or wrongful  inducement to contract  allegedly  resulting in
exposure to liability for claims under another Film Finance Cover  brokered
by the Company's London subsidiary.  The Company, its London subsidiary and
the former employee are in the process of evaluating  their response to the
third-party  complaint,  including the possibility of moving to dismiss the
complaint.

Two of the Company's  London  subsidiaries,  together with other  unrelated
parties,  have been named in: (i) a complaint in federal  district court in
California;  and, (ii) a third-party complaint in an existing action in the
New York State Supreme Court, each filed on March 16, 2001 by New Hampshire
Insurance  Company.  Each pleading  alleges  identical claims of fraudulent
inducement and negligent  misrepresentation in connection with another Film
Finance  Cover.  The London  subsidiaries  are in the process of evaluating
their  responses to these  complaints,  including the possibility of filing
motions to dismiss.

It is the opinion of management that the claims  described in these actions
are without merit and the cases are being and will be defended vigorously.

(c)  Several  arbitration  proceedings  currently  are  pending  in England
between reinsurers and ceding insurers relating to reinsurance transactions
involving the personal accident excess of loss market in London ("LMX") for
the account years 1993,  1994, 1995 and 1996.  Although neither the Company
nor its  broker  subsidiaries  is a  party  to any of  these  arbitrations,
certain of the Company's  subsidiaries  acted as a  reinsurance  broker for
ceding insurer clients that are parties to certain of the arbitrations.

In addition,  the Company's  reinsurance  subsidiary is party to one of the
LMX  arbitrations.  This  particular  arbitration has been dormant for some
time, and the Company expects it to be terminated shortly.

The reinsurers  generally have alleged that they sustained losses due to an
"artificial"  spiral in the LMX market,  the existence of which, as well as
other  information,  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 suspended payment of claims.

During 1998 and 1999  certain of the  reinsurers  and  reinsureds  that are
parties to the  arbitrations  described  above  issued  proceedings  in the
English courts against one or more of the Company's brokerage  subsidiaries
and one  underwriting  management  subsidiary,  apparently  for the primary
purpose of tolling  the statute of  limitations  pending the outcome of the
arbitration. In one proceeding against the same subsidiaries,  three former
officers of the subsidiaries  were also named. In none of these proceedings
did the  complainant  specify an amount of damages  sought.  If one or more
reinsurers  succeed in avoiding its contracts in the pending  arbitrations,
it is possible that ceding insurer  clients,  on whose behalf the Company's
broker subsidiaries placed the reinsurance,  may seek to pursue a claim for
indemnification or other claims against one or more of those  subsidiaries.
Similarly,  if one or more of the reinsurers fail to avoid its contracts in
the pending  arbitrations,  it also is possible that those  reinsurers  may
seek  to  pursue  some  type  of  claim   against  one  or  more  of  those
subsidiaries.

The Company  understands that awards already have been made in favor of the
reinsurer   in  two   arbitrations.   However,   based  on  the   Company's
understanding  of the  reasons  given by the  arbitration  panels for their
awards in favor of the  reinsurer  in those  cases,  the  Company  does not
believe  there is any valid basis for its ceding  insurer  clients in those
cases to assert a claim against the Company or its broker subsidiaries.

With the exception of: (a) one inactive  proceeding  which the subsidiaries
have been  informed  will be  withdrawn;  and (b) two  related  proceedings
pending  against certain  subsidiaries of the Company,  and certain current
and former officers of these subsidiaries, each of which is in a very early
procedural   stage,   all  judicial   proceedings   against  the  Company's
subsidiaries relating to these matters have been stayed or held in abeyance
pursuant to standstill agreements or court order.

One of the arbitration awards referenced above allowed a reinsurer to avoid
its reinsurance contracts with a Lloyd's syndicate. According to reports in
the London press, that award may have caused the syndicate's liabilities to
increase  beyond the  financial  resources  available  to it and its Names,
requiring  the  syndicate  to avail  itself of the  Lloyd's  Central  Fund.
Thereafter,  Lloyd's  initiated an  investigation of that syndicate and all
"market  participants,"  including the  Company's  U.K.  subsidiaries.  The
Company  is  aware  that the  investigation  is  ongoing,  but has no other
information  as to the  progress  of the  investigation  or when it will be
completed.

The Company understands that substantial progress has been and continues to
be made by various  market  participants  in settling  ongoing  reinsurance
disputes, including many of the market participants that are parties to the
arbitrations and other proceedings described above. The Company understands
that a settlement by certain market  participants  of reinsurance  disputes
arising in the 1994 year of account (the "1994 Year of Account Settlement")
has been executed.

A subsidiary of the Company has been  notified of a potential  claim by one
of the parties to the 1994 Year of Account  Settlement  for the recovery of
costs  arising out of the  settlement as well as for the costs and expenses
incurred by the party in connection with its overall involvement in the LMX
market.  The  Company's  subsidiary  has  denied  any  liability  for  this
potential claim.

Although no  assurances  can be given as to the outcome of the pending U.K.
arbitrations  or pending or potential  arbitration or judicial  proceedings
related to the LMX spiral reinsurance  arbitrations and their effect on the
Company, the Company believes, based on the information presently available
to it, that any such effect  should not have a material  adverse  effect on
the Company's financial condition.

(d) Beginning in late 1998 and 1999, the  reinsurance  markets in which the
Company historically has been involved experienced  considerable disruption
for a variety  of  reasons,  including  but not  limited  to the LMX market
disputes  described  above and other disputes  involving the North American
workers'  compensation  reinsurance  market. The effects of this disruption
have continued up to the present time.

One result of this market disruption has been that certain  reinsurers with
whom the Company's broker  subsidiaries placed business on behalf of ceding
insurer clients  suspended claims payments to those clients,  as well as to
the Company's insurance and reinsurance subsidiaries,  in certain instances
also claiming a right to rescind the reinsurance contracts.  As a result, a
number of  arbitrations  were commenced  between  Company clients and their
reinsurers.  The Company has endeavoured consistently to provide support to
its  clients  in  connection  with  these   proceedings.   In  one  ongoing
arbitration  involving  Realm  National,  that  company  has  succeeded  in
obtaining  $4.8 million in interim  relief from a reinsurer by order of the
arbitration panel pending a final determination of the matters in issue.

In some instances,  disputes or potential  disputes have arisen  concerning
whether   reinsurance   was  properly   placed  by  the  Company's   broker
subsidiaries. In other instances, the Company's ceding insurer clients have
demanded  indemnification  by  the  Company  if  the  client's  reinsurance
contracts ultimately are avoided by its reinsurers.

Although no assurances  can be given as to the effect on the Company of the
various  disputes  in the  worker's  compensation  reinsurance  market,  or
related  arbitrations,  the  Company  believes,  based  on the  information
presently  available to it, that any such effect should not have a material
adverse effect on the Company's financial condition.

(e) 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's financial condition.

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 2000.


               PRINCIPAL EXECUTIVE OFFICERS OF THE REGISTRANT

The following sets forth certain information regarding the Principal
Executive Officers of the Company at March 15, 2001.

       NAME                    AGE                 POSITION
       ----                    ---    ---------------------------------------
       Stephen A. Crane.....   55     President, Chief Executive Officer
                                        and Director (1)
       Len Quick............   58     Chief Operating Officer and Director (2)
       George W. Jones......   46     Chief Financial Officer and Director (3)
       James Lawless, IV....   46     Senior Vice President, General Counsel
                                        and Corporate Secretary


(1) Term as Director expires at Annual General Meeting in 2002.

(2) Term as Director expires at Annual General Meeting in 2003.

(3) Term as Director expires at Annual General Meeting in 2001.

STEPHEN A. CRANE was  appointed as President & Chief  Executive  Officer in
November,  1999.  Prior to joining the  Company,  Mr. Crane served for five
years as President & Chief  Executive  Officer of Gryphon  Holdings Inc., a
specialty property-casualty underwriting organization.

LEN QUICK was appointed as Chief Operating  Officer in July,  1999,  having
previously   served  as  Chief  of  Operations   of  the  Company's   North
American-based subsidiaries from 1997. Between 1994 and 1997, Mr. Quick was
President of the Company's  Dallas based  subsidiary,  North  American Risk
Inc.

GEORGE W.  JONES has been Chief  Financial  Officer  and a Director  of the
Company since it began operations.

JAMES LAWLESS,  IV was appointed as Senior Vice President,  General Counsel
and  Corporate  Secretary  in March 2000.  In the five year period prior to
joining the Company,  Mr.  Lawless  practiced  law in New York with LeBouef
Lamb Green and MacRae, Werner & Kennedy and Battle Fowler LLP.

<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,  2001,  the
approximate number of holders of the Company's ordinary shares was 900.

The  following  table sets forth the high and low  closing  sale prices per
share of the Company's  ordinary  shares on the Nasdaq  National Market for
the calender quarters of 1999 and 2000:

                                                  HIGH       LOW
                                                  ----       ---
Year ended December 31, 1999
         First Quarter.......................    $18 3/4     $7
         Second Quarter......................    $7 1/2      $3 1/4
         Third Quarter.......................    $5 15/16    $1 11/32
         Fourth Quarter......................    $3 7/32     $1 3/8
Year ended December 31, 2000
         First Quarter.......................    $3 11/16    $1 7/8
         Second Quarter......................    $3 1/8      $1 13/16
         Third Quarter.......................    $2 1/4      $1 15/16
         Fourth Quarter......................    $2          $1


     The closing sale price per share of the Company's  ordinary  shares on
the Nasdaq National Market on March 15, 2001 was $1.

     During both 1999 and 2000,  the Company  paid  dividends  of $0.12 per
ordinary  share.  Dividends  are paid  quarterly.  A dividend  of $0.03 per
ordinary  share was declared on March 6, 2001 and will be paid on April 10,
2001 to  shareholders  of record at March 26,  2001.  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 partially restricted due to various insurance  regulations and
tax considerations relating to certain of its subsidiaries. See "Management
Discussion  and Analysis of Financial  Condition and Results of Operations"
and Note 18 to the Consolidated Financial Statements.

     During 1999, the Company purchased 356,400 ordinary shares on the open
market  at a total  cost of  $4,423,000.  These  shares  were  recorded  as
treasury stock at cost.  The Company now holds a total of 443,400  ordinary
shares in treasury at a total cost of $5.7 million.

In November  2000,  the Company  issued  100,000  restricted  shares to Mr.
Stephen A.  Crane.  The  shares  issued  are  subject  to certain  transfer
restrictions  which  lapsed with  respect to 33 1/3% of these shares on the
date of their  issuance.  Restrictions  on the  balance of the shares  will
lapse equally in each of November 2001 and November 2002, contingent on Mr.
Crane's continued employment with the Company.

     Under current Bermuda law, there is no Bermuda income tax, withholding
tax,  captial  gains  or  capital  transfer  tax  on  the  Company  or  its
shareholders   in  respect  of  the   payment  of   dividends   or  capital
transactions.

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,
                                                      ----------------------------------------------------------
                                                        1996         1997(1)     1998        1999          2000
                                                      --------     ----------  --------    --------      --------
                                                        (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                                      <C>       <C>         <C>          <C>           <C>
INCOME STATEMENT DATA:
Revenues......................................           $34,598   $ 51,754    $70,634      $60,560       $ 50,933
Income (loss) from continuing operations
    before taxation...........................             9,208     13,370     21,090       (7,403)       (18,499)
Taxation......................................             2,281      2,925      3,790       (2,583)        (2,523)
Net income (loss) before discontinued segments             6,927     10,445     17,300       (4,820)       (15,976)
Net income (loss) from discontinued segments..             2,991      2,548     (1,282)      (1,590)       (11,029)
Net income (loss) before cumulative effect
   of a change in accounting principle........             9,918     12,993     16,018       (6,410)       (27,005)
Cumulative effect of a change in accounting
   principle (2)..............................                 0          0          0         (307)             0
Net income (loss) from operations.............            $9,918    $12,993    $16,018      $(6,717)      $(27,005)

BASIC EARNINGS PER SHARE
Net income (loss) per share(3)................             $1.22      $1.55      $1.63      $ (0.71)      $  (2.86)
Weighted average number of ordinary
   shares outstanding.........................         8,100,782  8,383,482  9,814,101    9,480,356      9,434,219
DILUTED EARNINGS PER SHARE
Net Income (loss) per share assuming dilution(3)           $1.19      $1.53      $1.63      $ (0.71)       $ (2.86)
Weighted average number of ordinary
   shares outstanding assuming dilution.......         8,306,610  8,515,473  9,840,159    9,480,356      9,434,219

Dividends paid per ordinary share.............             $0.00      $0.00      $0.12        $0.12          $0.12

BALANCE SHEET DATA:
Total assets(4)...............................          $235,084   $406,330   $649,641   $1,011,409     $1,139,007
Long term debt................................                 0          0          0            0              0
Ordinary shares subject to redemption(5)......            14,457          0          0            0              0
Total shareholders' equity....................          $ 29,001   $ 83,103    $97,632      $84,832        $56,879

<FN>
(1)  Includes the  operations of 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(q) of Notes to the Consolidated Financial Statements for an
     explanation  of  the  cumualtive  effect  of a  change  in  accounting
     principle.

(3)  See Note 2(l) of Notes to the Consolidated Financial Statements for an
     explanation of the methods used to determine Net Income per share.

(4)  Total assets  comprise  corporate  assets  together with cash held and
     insurance balances receivable in a fiduciary  capacity.  See Note 4 to
     5 the Consolidated Financial Statements.

(5)  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.
</FN>
</TABLE>
<PAGE>


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

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, 2000, 1999 and 1998.

Net loss from  operations for 2000 was $27.0 million,  compared to 1999 net
loss from operations of $6.7 million and 1998 net income from operations of
$16.0 million. Following a review of its operations, the Company decided to
discontinue  its  loss-making   reinsurance  and  underwriting   management
segments. In light of this decision and following a comprehensive review of
the  value  of all of its  intangible  assets,  the  Company  took a charge
against income in respect of the write-off of a significant  portion of its
goodwill. The write-off of goodwill, together with the annual amortization,
resulted in a total charge against income for the year of $6.7 million, the
majority  of which  related  to the  write-off  of  goodwill  in respect of
discontinued segments. The write-off of goodwill,  together with additional
strengthening of reserves against losses arising from discontinued programs
in the reinsurance segment, resulted in losses from discontinued operations
of $11.0 million for the year,  compared to losses of $1.6 million for 1999
and $1.3 million for 1998.

Net loss from continuing  operations before discontinued  segments for 2000
was $16.0  million  compared  to a net loss  continuing  operations  before
discontinued  segments  of  $4.8  million  in  1999  and  net  income  from
continuing  operations  before  discontinued  segments of $17.3  million in
1998. The results for the year for continuing operations were affected by a
number of different factors. The U.S. workers' compensation market in which
the Company conducts most of its business remained a difficult  environment
in which to operate. The Company's  risk-taking  insurance segment recorded
increased underwriting losses for the year, primarily arising from programs
which  are  being  discontinued.  The  program  business  segment  suffered
increased  losses  for the year due to  decreased  revenues  as a result of
reduced fee margins on programs and a reduction in program  business volume
following  management's  decision  to impose  more  selective  underwriting
conditions on continuing  programs.  The brokerage  segment also recorded a
loss for the period  primarily  due to a  significant  decrease in business
being brokered following the substantially  diminished reinsurance capacity
for workers'  compensation  business.  The Company also continued to suffer
from  continuing  costs and  provisions  pertaining to  reinsurance-related
disputes in which the Company  and others  were  involved  during the year,
including certain litigation.

<TABLE>
<CAPTION>

                                             REVENUES AND NET INCOME

                                                                      For the Years Ended December 31,
                                                                ----------------------------------------
                                                                    1998           1999           2000
                                                                    ----           ----           ----
                                                                          (dollars in thousands)
         <S>                                                  <C>              <C>            <C>
         Revenues from continuing operations                  $   70,634       $  60,560      $  50,933
         Expenses from continuing operations                      49,544          67,963         69,432
                                                              ----------       ---------      ---------
         Income (loss) before taxation                            21,090          (7,403)       (18,499)
         Taxation from continuing operations                       3,790          (2,583)        (2,523)
                                                              ----------       ---------      ---------
         Net Income (loss) from continuing
              operations before discontinued
              segments                                            17,300          (4,820)       (15,976)
         Net loss from discontinued segments                      (1,282)         (1,590)       (11,029)
                                                              ----------       ---------      ---------
         Net Income (loss) before cumulative effect  of a
              change in accounting principle                      16,018          (6,410)       (27,005)
         Cumulative effect of a change in accounting
              principle                                               --             307             --
                                                              ----------       ---------      ---------
         Net Income (loss) from operations                    $   16,018       $  (6,717)     $ (27,005)
                                                              ==========       =========      =========

         Net Income (loss) per Share - Basic                  $     1.63       $     (0.71)   $  (2.86)
         Net Income (loss) per Share assuming dilution        $     1.63       $     (0.71)   $  (2.86)
</TABLE>

Revenues from continuing  operations of $50.9 million in 2000 represented a
$9.7 million  decrease versus 1999 revenues from  continuing  operations of
$60.6 million, which were $10.0 million below 1998 revenues from continuing
operations of $70.6 million.  Net loss from  operations of $27.0 million in
2000 compares to a net loss from operations of $6.7 million in 1999 and net
income from  operations of $16.0  million in 1998.  The decline in revenues
from  continuing   operations  in  2000  reflected  the  difficult   market
conditions  in the  brokerage  and program  business  segments,  which were
partially  offset by  increased  premium  volume  written and earned in the
insurance  segment as the insurance segment wrote more business and reduced
the  amount  of  reinsurance  purchased  for its  programs.  Expenses  from
continuing  operations  including  insurance costs of $69.4 million in 2000
represent  a $1.4  million  increase  over 1999  expenses  from  continuing
operations  of $68.0  million,  which  increased  $18.5  million  over 1998
expenses from continuing  operations of $49.5 million.  Insurance costs for
the year 2000 increased to $22.6 million  compared to $10.1 million in 1999
and $6.8 million in 1998. The increase in insurance  costs for the year was
primarily  due to the increase in net premiums  earned but also  reflects a
significant strengthening of reserves in the Company's U.S.-based insurance
carrier.

Expenses from continuing  operations excluding insurance costs for the year
2000 were $46.8  million  versus $57.9 million in 1999 and $42.7 million in
1998.  This decrease in expenses from  continuing  operations  reflects the
benefits of the restructuring program begun in 1999 together with a general
reduction in  administrative  costs as a result of reduced business volume.
This decrease in expenses from continuing  operations was partially  offset
by  continued  costs  and  provisions  pertaining  to   reinsurance-related
disputes in which the Company is involved including certain litigation.

Basic net loss per share was $2.86 in 2000,  as  compared to basic net loss
per share of $0.71 in 1999 and basic net income per share of $1.63 in 1998.
Diluted  net loss per share was $2.86 in 2000,  as  compared to diluted net
loss per share of $0.71 in 1999 and  diluted  net income per share of $1.63
in 1998.

<TABLE>
<CAPTION>
                     REVENUES AND NET INCOME BY SEGMENT

                                         Revenues                         Income (loss) before tax
                              For the Years Ended December 31,        For the Years Ended December 31,
                              --------------------------------        --------------------------------
                                 1998         1999        2000         1998          1999           2000
                                 ----         ----        ----         ----          ----           ----
                                   (dollars in thousands)                  (dollars in thousands)
<S>                              <C>         <C>         <C>           <C>          <C>         <C>
CONTINUING OPERATIONS:
Brokerage                        $27,144     $24,879     $11,190       $11,501      $  2,706    $  (4,838)
Program Business                  27,119      22,444      15,337         5,187        (2,716)      (5,057)
Insurance                         11,073      12,557      23,532         1,169        (2,139)      (5,046)
Other                              5,298         680         874         3,233        (5,749)      (3,558)
                                 -------     -------     -------       -------      --------    ---------
Total                            $70,634     $60,560     $50,933       $21,090      $ (7,898)   $ (18,499)
                                 =======     =======     =======       =======      =========   ==========

DISCONTINUED OPERATIONS:
Underwriting management            3,554       4,123       1,598        2,075          1,812       (4,937)
Reinsurance                       10,905       3,138       1,738       (3,357)        (3,402)      (6,092)
                                 -------     -------     -------       -------      --------    ---------
Total                            $14,459      $7,261      $3,336    $  (1,282)      $ (1,590)   $ (11,029)
                                 =======      ======      ======    ==========      =========   ==========
</TABLE>

Brokerage
---------

The Company's brokerage segment consists of subsidiaries that receive a fee
or commission for brokering insurance and reinsurance contracts.  Brokerage
segment  revenues of $11.2 million in 2000  represented a decrease of $13.7
million from brokerage segment revenues of $24.9 million in 1999, which had
decreased $2.2 million from brokerage  segment revenues of $27.1 million in
1998. This decrease in brokerage  segment revenues was primarily the result
of  reduced  business  being  brokered  due  to  significantly   diminished
reinsurance capacity for workers' compensation business.

The brokerage segment's loss before tax of $4.8 million in 2000 represented
a decrease of $7.5 million from income  before tax of $2.7 million in 1999,
which had decreased $8.8 million from income before tax of $11.5 million in
1998.  The 2000 net loss  reflects  the  decrease  in  revenues  which  was
partially offset by a decrease in brokerage segment expenses.  Expenses for
the segment  continued to be impacted by  significant  costs and provisions
associated with widespread  reinsurance  disputes  involving the Company or
its clients including certain litigation.


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

The Company's program business segment consists of subsidiaries that market
insurance  products  and  administer  programs  developed  by the  Company.
Program  business  revenues of $15.3 million in 2000 represented a decrease
of $7.1 million from program  business  revenues of $22.4  million in 1999,
which had decreased  $4.7 million from program  business  revenues of $27.1
million in 1998.  This  decrease was due to reduced fee margins on programs
and a reduction in program business volume due to management's  decision to
impose more selective underwriting conditions on continuing programs.

The  program  business  segment  loss  before  tax of $5.1  million in 2000
represented an increase in loss before tax of $2.4 million from loss before
tax of $2.7 million in 1999,  which had decreased  $7.9 million from income
before tax of $5.2 million in 1998. The increase in segment losses reflects
the decrease in program fee revenues which was only  partially  offset by a
reduction in operating  costs.  The Company  continued to  restructure  its
program  segment  operations,  which  resulted  in  the  consolidation  and
streamlining  of its  operations  in order to reduce  expenses and increase
efficiencies.


Insurance
---------

The Company's  insurance  segment  consists of its wholly owned  U.S.-based
insurance  company,  Realm National  Insurance  Company.  Insurance segment
revenues of $23.5 million in 2000  represented an increase of $10.9 million
from insurance segment revenues of $12.6 million in 1999, which reflected a
$1.5 million  increase from insurance  segment revenues of $11.1 million in
1998. Gross written premiums were $61.4 million in 2000, which  represented
a $14.2  million  increase  from  $47.2  million  in  1999,  which  in turn
reflected a $1.4 million  decrease from $48.6 million in 1998. Net premiums
earned increased to $18.5 million in 2000, which represented a $9.0 million
increase from $9.5 million in 1999,  which was a $1.8 million increase from
$7.7 million in 1998. The remainder of the growth in revenues was primarily
due to an increase in policy issuance fees.  Policy issuance fees were $3.2
million  in 2000,  which  represented  a $0.7  million  increase  from $2.5
million in 1999,  which was a $0.4  million  increase  from $2.1 million in
1998. The increase in insurance  segment  revenues  reflects an increase in
premium  volume  written and earned as the company  wrote more business and
reduced the amount of reinsurance purchased for its programs.

Loss  before  tax  for  the  insurance  segment  of  $5.0  million  in 2000
represented  an  increase  of $2.9  million  from loss  before  tax of $2.1
million in 1999,  which in turn had  decreased  $3.3  million  from  income
before tax of $1.2 million in 1998.  The increased loss before tax resulted
from a  strengthening  of  reserves  against  losses  incurred  on business
written, primarily in respect of programs which are being discontinued.

Other
-----

Other revenues includes primarily the Company's holding companies and other
non-operating subsidiaries,  as well as income earned or provisions against
investments in non-consolidating affiliates. Other revenues of $0.9 million
in 2000 consisted  primarily of net investment  income,  and represented an
increase of $0.2 million from other revenues of $0.7 million in 1999, which
in turn  reflected a decrease of $4.6 million  from other  revenues of $5.3
million in 1998. Loss before tax for the year was $3.6 million, compared to
a loss  before tax of $5.7  million  in 1999 and income  before tax of $3.2
million in 1998. The loss before tax for the year primarily  reflects costs
in  respect  of  ongoing   operating   expenses  and  a  provision  against
investments in associated companies.

Discontinued operations
-----------------------

Following a review of its  operations,  the Company  decided to discontinue
its loss-making  reinsurance and underwriting management segments. In light
of this decision,  the Company took a charge against income of $5.2 million
to write off goodwill in respect of these operations.

The  Company's  discontinued   underwriting  management  segment  comprised
companies that primarily  underwrote and administered  reinsurance business
on behalf of independent  reinsurance  companies.  Underwriting  management
revenues of $1.6  million in 2000  represented  a decrease of $2.5  million
from  underwriting  management  revenues of $4.1 million in 1999, which had
increased  $0.5  million  from  underwriting  management  revenues  of $3.6
million in 1998.

Underwriting  management  segment  loss before tax of $4.9  million in 2000
represented  a decrease  of $6.7  million  from  income  before tax of $1.8
million in 1999,  which in turn  reflected  a $0.3  million  decrease  from
income  before tax of $2.1  million in 1998.  In view of the  reduction  in
underwriting  management revenues,  the resulting net loss, and the ongoing
business prospects for the segment,  the Company decided to discontinue the
underwriting  management  segment.  The net loss for the year  reflects the
decreased  revenues,  together  with a  write-off  of  associated  goodwill
following the decision to discontinue these operations.

The Company's discontinued reinsurance segment consisted of its reinsurance
subsidiary,  CIRCL.  CIRCL primarily  reinsured  workers'  compensation and
property and general liability risks.  Reinsurance segment revenues of $1.7
million in 2000  represented  a decrease of $1.4 million  from  reinsurance
segment  revenues of $3.1 million in 1999, which in turn had decreased $7.8
million from  reinsurance  segment  revenues of $10.9 million in 1998.  Net
premiums  earned were the  largest  component  of  revenues  in CIRCL.  Net
premiums  earned of $0.9  million in 2000  represented  a decrease  of $1.5
million  from net premiums  earned of $2.4  million in 1999,  which in turn
reflected a $7.7  decrease  from net  premiums  earned of $10.1  million in
1998.

Reinsurance  segment loss before tax of $6.1 million in 2000 represented an
increase in loss before tax of $2.7  million from a loss before tax of $3.4
million in 1999, which in turn was equal to loss before tax of $3.4 million
in 1998.  The  primary  reason for the loss  before  tax during  2000 was a
strengthening  of  reserves  on  discontinued  programs  together  with  an
increase of $2.1  million in  provisions  against  reinsurance  recoveries.
CIRCL has  experienced  substantial  delays in  collection  of  reinsurance
recoverables   from  certain  of  its   reinsurers.   CIRCL  therefore  has
established a provision in the amount of $7.0 million  against  reinsurance
contracts  with  projected  reinsurance  recoverables  of a total  of $27.4
million.  This  provision  has  been  included  in the  balance  sheet as a
component of paid losses recoverable from reinsurers.  The segment loss for
2000 also  reflects  the write off of  associated  goodwill  following  the
decision to discontinue this operation.


Liquidity and Capital Resources
-------------------------------

At December 31, 2000,  the Company held cash and  marketable  securities of
$76.0 million, compared to $84.8 million at December 31, 1999. In addition,
the Company held cash in fiduciary  accounts  relating to insurance  client
premiums amounting to $39.0 million at December 31, 2000, compared to $56.8
million at December 31, 1999.  These  decreased  cash balances  reflect the
slow-down in the  Company's  business  activities  for 2000,  the impact of
delays in receiving outstanding reinsurance recoveries and the net loss for
the year. Of the $76.0 million of cash and  marketable  securities  held by
the Company,  $49.3 million (1999--$54.3 million) were held by subsidiaries
whose  payment of  dividends  to the  Company  was  subject  to  regulatory
restrictions  or possible  tax  liabilities.  At  December  31,  2000,  the
Company's  investment  portfolio  (at fair  market  value)  totalled  $34.6
million  (1999--$34.1  million).  The portfolio consisted primarily of U.S.
Treasury   obligations,   short-term   cash  and  A-rated   corporate  debt
securities.

During the year ended December 31, 2000, the Company's operating activities
used $7.8  million of net cash,  compared to using $4.1 million of net cash
during 1999 and  generating  $28.7 million in 1998. The cash generated from
(used by) operating activities varies according to the Company's net income
(loss) and the timing of  collections  and  payments of the  Company's  own
insurance and reinsurance balances.

The  increase  of $137.8  million in  insurance  and  reinsurance  balances
receivable,  and the corresponding  increase of $135.5 million in insurance
and reinsurance balances payable, primarily reflects the growth in clients'
claims balances recorded in the Company's broking subsidiaries. As a result
of various disputes between insurers and reinsurers on various  reinsurance
contracts,  a number of the  reinsurers  have  suspended  paying claims due
under the contracts.  The Company's  brokerage and underwriting  management
segment  subsidiaries  experienced a significant  growth in client balances
receivable  and payable  recorded at the end of the year,  reflecting  this
accumulation  of claims due from one party to another.  These  balances are
reflected as an asset or  liability,  as the case may be, on the  Company's
balance sheet.

The Company  used $4.4 million  during the year ended  December 31, 1999 to
repurchase 356,400 of its own shares on the open market.

Shareholders'  equity  decreased by $27.9  million,  to $56.9  million,  at
December 31, 2000 from $84.8 million at December 31, 1999, due primarily to
the net loss incurred for the year.

The Company had no outstanding debt at December 31, 1999 and 2000.


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 adopted this standard
effective  January 1, 1999 and it did not have a significant  impact on the
Company's financial position or results of operations.

During 1998, the AICPA Accounting  Standards Executive Committee issued 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
that was recorded in the  statement of income for the first quarter of 1999
was approximately $307 (net of tax of $188).

In November 1998, the AICPA Accounting Standards Executive Committee issued
SOP 98-7,  "Deposit  Accounting:  Accounting for Insurance and  Reinsurance
Contracts That Do Not Transfer  Risk".  This statement is effective for all
quarters of fiscal years  beginning  after June 15, 1999. This SOP provides
accounting  guidance for insurance and  reinsurance  contracts  that do not
transfer risk, as determined by the provisions of SFAS No. 113. The Company
adopted  this  standard  effective  January  1,  1999 and it did not have a
significant  impact on the  Company's  financial  position  or  results  of
operations.

In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133".  This statement  amends SFAS
No. 133 to defer its effective date for one year, to fiscal years beginning
after June 15, 2000. In June 2000, the Financial Accounting Standards Board
issued SFAS No. 138,  "Accounting  for Certain  Derivative  Instruments and
Certain Hedging Activities." This statement is an amendment of SFAS No. 133
with  respect  to  the  accounting  and  reporting  standards  for  certain
derivative instruments and certain hedging activities.  Initial application
of SFAS No.  133,  as  amended,  began on January  1,  2001,  and it is not
expected to have a significant  impact on the Company's  financial position
or results of operations.

Note on Forward-Looking Statements
----------------------------------

The  Private  Securities  Litigation  Reform  Act of 1995  provides a "safe
harbor"  for  forward-looking  statements.  This Form 10-K,  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,"  "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  any  results   expressed  or  implied  by  these
forward-looking statements.


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  at December 31, 2000 was $26.1  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>
<CAPTION>
                       2001   2002   2003   2004   2005   2006   2009   2012   2019   TOTAL
                       ----   ----   ----   ----   ----   ----   ----   ----   ----   -----

<S>                    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
Fixed Maturity
  Investments ($)      4.2    1.8    4.7    9.3    2.7    1.5    1.0    0.5    0.4    26.1
                       ---    ---    ---    ---    ---    ---    ---    ---    ---    ----

Weighted average       6.0%   7.4%   5.7%   5.7%   3.7%   7.3%   5.3%   5.6%   6.3%   5.73%
  interest rate        ----   ----   ----   ----   ----   ----   ----   ----   ----   -----
</TABLE>

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

<PAGE>


ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Index to Consolidated Financial Statements and Related Notes:

                                                                         PAGE #
      Reports of Independent Public Accountants.......................       23
      Consolidated Balance Sheets.....................................       25
      Consolidated Statements of Income and Comprehensive
         Income.......................................................       26
      Consolidated Statements of Changes in Shareholders' Equity......       27
      Consolidated Statements of Cash Flows...........................       28
      Notes to Consolidated Financial Statements......................    29-50

<PAGE>
                  REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

We have audited the  consolidated  balance  sheets of Stirling  Cooke Brown
Holdings Limited and subsidiaries as of December 31, 1999 and 2000, and the
related consolidated statements of income and comprehensive income, changes
in  shareholders'  equity and cash flows for the years  then  ended.  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.  The consolidated
financial   statements  of  Stirling  Cooke  Brown  Holdings   Limited  and
subsidiaries  for the year ended  December  31, 1998 were  audited by other
auditors  whose  report,  dated  March 5, 1999,  expressed  an  unqualified
opinion on those statements.

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

In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all  material  respects,  the  financial  position  of
Stirling Cooke Brown Holdings  Limited and  subsidiaries as of December 31,
1999 and 2000 and the results of their  operations and their cash flows for
the years then ended in conformity  with  accounting  principles  generally
accepted in the United States.

We have also audited the adjustments  described in Note 3 that were applied
to restate the 1998 financial statements.  In our opinion, such adjustments
are appropriate and have been properly applied.

/s/ Arthur Andersen LLP

Arthur Andersen LLP
New York, New York
March 13, 2001


<PAGE>


                        INDEPENDENT AUDITORS' REPORT

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

We have audited the  consolidated  statements  of income and  comprehensive
income,  changes in  shareholders'  equity and cash flows of Stirling Cooke
Holdings  Limited and  subsidiaires  for the year ended  December 31, 1998,
before the  restatement  described in Note 3 to the  financial  statements.
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 audit.

We conducted our audit 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  audit
provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements (before restatement)
referred to above present fairly, in all material respects,  the results of
operations  and cash flows of  Stirling  Cooke Brown  Holdings  Limited and
subsidiaries  for the year ended  December 31,  1998,  in  conformity  with
United States generally accepted accounting principles.

/S/ KPMG

KPMG
Hamilton, Bermuda
March 5, 1999


<PAGE>
<TABLE>
<CAPTION>

                                STIRLING COOKE BROWN HOLDINGS LIMITED

                                    CONSOLIDATED BALANCE SHEETS

                                    DECEMBER 31, 1999 AND 2000
                (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE DATA)

                                          ASSETS                                       1999         2000
                                          ------                                     --------     --------
<S>                                                                               <C>           <C>
Marketable securities, at fair value (Note 6)
  Debt securities (amortized cost, 1999--$29,555, 2000--$26,166).................     $28,802      $26,091
  Equity securities (cost, 1999--$3,340, 2000--$2,567)...........................       4,051        2,636
  Short term investments (amortized cost, 1999--$1,256, 2000--$5,887)............       1,256        5,887
                                                                                   ----------   ----------
Total marketable securities......................................................      34,109       34,614
Cash and cash equivalents (Note 4)...............................................      50,706       41,358
Fiduciary funds-restricted (Notes 4 and 5).......................................      56,829       39,015
Insurance and reinsurance balances receivable (Notes  4 and 5)...................     734,868      872,666
Paid losses recoverable from reinsurers (Note 9) ................................      13,293       26,254
Outstanding losses recoverable from reinsurers (Notes 9 and 10)..................      73,267       81,219
Deferred acquisition costs.......................................................       1,745        2,033
Deferred reinsurance premiums ceded (Note 9).....................................      16,144       13,088
Deferred tax asset (Note 13).....................................................       3,315        5,783
Goodwill (Note 2(j)).............................................................       8,664        1,969
Other assets (Note 7)............................................................      12,352       16,060
Income taxes receivable (Note 13) ...............................................       2,600        1,113
Assets related to deposit liabilities (Note 8)...................................       3,517        3,835
                                                                                   ----------   ----------
          Total assets...........................................................  $1,011,409   $1,139,007
                                                                                   ==========   ==========


<CAPTION>
                                    LIABILITIES
                                    -----------
<S>                                                                                <C>          <C>
Outstanding losses and loss expenses (Note 10)...................................     $93,135     $114,503
Unearned premiums................................................................      20,959       21,087
Deferred income..................................................................       4,695        2,970
Insurance and reinsurance balances payable (Note 5) .............................     774,888      910,437
Funds withheld...................................................................       9,580        1,565
Accounts payable and accrued liabilities.........................................      19,803       27,731
Deposit liabilities (Note 8).....................................................       3,517        3,835
                                                                                   ----------   ----------
          Total liabilities......................................................     926,577    1,082,128
                                                                                   ----------   ----------

Commitments and Contingencies (Notes 17 and 20)

<CAPTION>
                                   SHAREHOLDERS' EQUITY
                                   --------------------
<S>                                                                                <C>          <C>
Share capital
   Authorized 20,000,000 ordinary shares of par value $0.25 each. Issued
   and fully paid 9,963,372 ordinary shares (1999--9,863,372) (Note 11)..........       2,466        2,466
Additional paid in capital.......................................................      54,167       54,167
Accumulated other comprehensive (loss)...........................................        (211)         (29)
Retained earnings................................................................      34,067        5,932
                                                                                   ----------   ----------
                                                                                       90,489       62,536
Less: Ordinary shares in treasury (1999--443,400, 2000--443,400) at cost
  (Note 11)......................................................................      (5,657)      (5,657)
                                                                                   ----------   ----------
          Total shareholders' equity.............................................      84,832       56,879
                                                                                   ----------   ----------
          Total liabilities and shareholders' equity.............................  $1,011,409   $1,139,007
                                                                                   ==========   ==========

                          The accompanying notes are an integral part of these statements
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                   STIRLING COOKE BROWN HOLDINGS LIMITED

         CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
  (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE DATA)

                                                                        1998       1999       2000
                                                                      --------   --------   --------
                                                                     (restated) (restated)
<S>                                                                 <C>         <C>        <C>
REVENUES
     Risk management fees (Note 2 (g))............................     $52,222   $47,111    $26,965
     Net premiums earned (Note 9).................................       7,717     9,451     18,494
     Net investment income (Note 6)...............................       7,727     5,753      6,142
     Other income (loss) (Note 2(i))..............................       2,968    (1,755)      (668)
                                                                    ----------  ---------  ---------
          Total revenues..........................................      70,634    60,560     50,933
                                                                    ----------  ---------  ---------
EXPENSES
     Net losses and loss expenses incurred (Notes 2(f) and 10)....       4,790     6,965     17,160
     Acquisition costs............................................       2,051     3,141      5,454
     Depreciation and amortization of capital assets..............       1,483     1,594      1,442
     Amortization and write-down of goodwill......................         740       847      1,443
     Salaries and benefits........................................      21,957    25,450     19,688
     Other operating expenses.....................................      18,523    29,966     24,245
                                                                    ----------  ---------  ---------
          Total expenses..........................................      49,544    67,963     69,432
                                                                    ----------  ---------  ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXATION..........      21,090    (7,403)   (18,499)
     Taxation (Note 13)...........................................       3,790    (2,583)    (2,523)
                                                                    ----------  ---------  ---------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE DISCONTINUED
     SEGMENTS.....................................................      17,300    (4,820)   (15,976)
Discontinued segments:
     Net loss from operations of discontinued segments............      (1,282)   (1,590)    (5,788)
     Net loss resulting from discontinuance of segments...........           -         -     (5,241)
                                                                    ----------  ---------  ---------
     Total net loss from discontinued segments....................      (1,282)   (1,590)   (11,029)
                                                                    ----------  ---------  ---------

NET INCOME (LOSS) FROM OPERATIONS BEFORE CUMULATIVE EFFECT
     OF A CHANGE IN ACCOUNTING PRINCIPLE..........................      16,018    (6,410)   (27,005)
     Cumulative effect of a change in accounting
     principle, net of tax (Note 2(q)) ...........................           -      (307)         -
                                                                    ----------  ---------  ---------

NET INCOME (LOSS) FROM OPERATIONS.................................  $   16,018  $ (6,717) $ (27,005)
                                                                    ----------  ---------  ---------

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
     Unrealized holding gains  (losses) arising during
     the year (net of tax of $130, $168 and $111).................         314      (716)       682
     Less: reclassification adjustments for realized (gains) losses
     included in net income (net of tax of $1, ($169) and $257)...         (58)      186       (500)
                                                                    ----------  ---------  ---------
     Other comprehensive income (loss), net of tax ...............         256      (530)       182
     Comprehensive income (loss)..................................  $   16,274  $ (7,247)  $(26,823)
                                                                    ==========  ========  ==========

NET INCOME (LOSS) PER SHARE (NOTE 14)
     Income (loss) from continuing operations.....................  $     1.76  $   (0.51) $   (1.69)
     Loss from discontinued segments..............................       (0.13)     (0.17)     (1.17)
     Cumulative effect of a change in accounting principle........           -      (0.03)        -
                                                                    ----------  ---------  ---------
     Net income (loss) per share..................................  $     1.63  $   (0.71) $   (2.86)
                                                                    ==========  =========  ==========

NET INCOME (LOSS) PER SHARE ASSUMING DILUTION (NOTE 14)
     Income (loss) from continuing operations.....................  $     1.76  $   (0.51) $   (1.69)
     Loss from discontinued segments..............................       (0.13)     (0.17)     (1.17)
     Cumulative effect of a change in accounting principle........           -      (0.03)        -
                                                                    ----------  ---------  ---------
     Net income (loss) per share..................................  $     1.63  $   (0.71) $   (2.86)
                                                                    ==========  =========  ==========
                          The accompanying notes are an integral part of these statements
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                   STIRLING COOKE BROWN HOLDINGS LIMITED

         CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
  (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE DATA)

                                                                    1998        1999      2000
                                                                  ---------  ----------  -------
<S>                                                               <C>         <C>        <C>
Ordinary shares of par value $0.25 each
     Balance at beginning of year................................ $   2,466   $  2,466   $ 2,466
                                                                  ---------   --------   -------
     Balance at end of year...................................... $   2,466   $  2,466   $ 2,466
                                                                  ---------   --------   -------
Additional paid in capital
     Balance at beginning of year................................ $  54,167   $ 54,167   $54,167
                                                                  ---------   --------   -------
     Balance at end of year...................................... $  54,167   $ 54,167   $54,167
                                                                  ---------   --------   -------
Accumulated other comprehensive income (loss)
     Balance at beginning of year................................ $      63   $    319   $  (211)
     Change in unrealized gain (loss)............................       256       (530)      182
                                                                  ---------   ---------  -------
     Balance at end of year...................................... $     319   $   (211)  $   (29)
                                                                  ---------   ---------  --------
Retained earnings
     Balance at beginning of year................................ $  27,074   $ 41,914   $34,067
     Net income (loss)...........................................    16,018     (6,717)  (27,005)
     Dividends...................................................    (1,178)    (1,130)   (1,130)
                                                                  ---------   --------   -------
     Balance at end of year...................................... $  41,914   $ 34,067   $ 5,932
                                                                  ---------   --------   -------
Treasury stock
     Balance at beginning of year................................ $    (667)  $ (1,234)  $(5,657)
     Purchase of ordinary shares in treasury.....................      (567)    (4,423)       --
                                                                  ---------   --------   -------
     Balance at end of year...................................... $  (1,234)  $ (5,657)  $(5,657)
                                                                  ---------   --------   -------
     Total shareholders' equity.................................. $  97,632   $ 84,832   $56,879
                                                                  =========   ========-  =======

     Dividends paid per share were $0.12, $0.12 and $0.12 for the years ended
December 31, 1998, 1999 and 2000, respectively.

      The accompanying notes are an integral part of these statements
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                   STIRLING COOKE BROWN HOLDINGS LIMITED

                   CONSOLIDATED STATEMENTS OF CASH FLOWS

                YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
             (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

                                                                       1998       1999       2000
                                                                     --------  ---------   -------

<S>                                                                   <C>       <C>       <C>
Operating activities
Net income (loss)                                                     $16,018   $(6,717)  $(27,005)
Adjustments to reconcile net income to net cash provided by
operating activities:
    Depreciation and amortization of capital assets................     1,562     1,674      1,503
    Amortization and write-down of goodwill........................       740       847      6,695
    Amortization of marketable securities..........................        68       104         93
    Net realized (gains)/losses on sale of marketable securities...       (59)      355       (757)
    (Equity in income)/writedown  of affiliates....................    (2,631)    2,018        --
    (Gains)/losses on sale of capital assets.......................       (67)      120        184
Changes in non-cash operating assets and liabilities:
    Fiduciary funds................................................    (3,671)    7,066     17,814
    Insurance and reinsurance balances receivable..................  (170,926) (352,451)  (137,798)
    Paid losses recoverable from reinsurers........................    (5,374)   (4,377)   (12,961)
    Outstanding losses recoverable from reinsurers.................   (25,074)  (25,121)    (7,951)
    Deferred acquisition costs.....................................    (1,707)      541       (288)
    Deferred reinsurance premiums ceded............................    (6,208)    2,567      3,056
    Other assets...................................................    (1,405)     (955)    (4,785)
    Income taxes receivable........................................       --     (2,600)     1,487
    Deferred tax asset.............................................      (710)   (1,565)    (2,314)
    Assets related to deposit liabilities..........................      (557)     (203)      (319)
    Outstanding losses and loss expenses...........................    29,841    27,018     21,369
    Unearned premiums..............................................     5,850    (4,078)       127
    Insurance and reinsurance balances payable.....................   186,743   336,432    135,548
    Funds withheld.................................................        45     8,221     (8,015)
    Accounts payable and accrued liabilities.......................     4,467     9,084      7,929
    Income taxes payable...........................................        58    (3,016)        --
    Deferred income................................................     1,139       703     (1,725)
    Deposit liabilities............................................       557       203        319
                                                                     --------  --------   --------
        Net cash provided (used by) by operating activities........    28,699    (4,130)    (7,794)
                                                                     --------  --------   --------
Investing activities
    Purchase of capital assets.....................................    (2,899)   (2,265)    (1,072)
    Sale of capital assets.........................................       229     1,083        461
    Purchase of debt securities....................................   (12,584)  (24,509)       (58)
    Purchase of equity securities..................................    (2,530)   (3,555)    (2,102)
    Purchase of short-term investments, net........................    (4,064)    8,387     (4,631)
    Proceeds on sale of debt securities............................    10,680    11,469      3,319
    Proceeds on sale of equity securities..........................       658     2,349      3,659
    Purchase of subsidiaries, net of cash acquired.................    (1,055)     (735)       --
    Dividends received from affiliates.............................     2,145        --        --
                                                                     --------  --------   --------
        Net cash used by investing activities......................    (9,420)   (7,776)      (424)
                                                                     --------  --------   --------
Financing activities
    Dividends......................................................    (1,178)   (1,130)    (1,130)
    Purchase of ordinary shares in treasury........................      (567)   (4,423)       --
                                                                     --------  --------   --------
        Net cash used by financing activities......................    (1,745)   (5,553)    (1,130)
                                                                     --------  --------   --------
Increase (decrease) in cash and cash equivalents...................    17,534   (17,459)    (9,348)
Cash and cash equivalents at beginning of year.....................   $50,631   $68,165    $50,706
                                                                     --------  --------   --------
Cash and cash equivalents at end of year...........................   $68,165   $50,706    $41,358
                                                                     ========  ========   ========
Supplemental disclosure of cash flow information
        Cash paid (received) during the year for income taxes......   $ 3,275   $ 1,959    $(1,563)
                                                                     ========  ========   ========

                          The accompanying notes are an integral part of these statements
</TABLE>

<PAGE>
                   STIRLING COOKE BROWN HOLDINGS LIMITED
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      DECEMBER 31, 1998, 1999 AND 2000
             (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS,
                     EXCEPT SHARE AND PER SHARE DATA)

1. GENERAL

Stirling Cooke Brown Holdings Limited  ("Stirling  Cooke") was incorporated
in Bermuda on December 12, 1995. Stirling Cooke is a holding company which,
through  its  subsidiaries,   provides  insurance  services  and  products.
Stirling Cooke provides its range of services and products to insurance and
reinsurance  companies,  insurance agents, and insureds.  Stirling Cooke is
active  primarily in the workers  compensation,  occupational  accident and
health and  property/casualty  insurance  markets through its  subsidiaries
based in London,  Bermuda and the United States. In January 1996,  Stirling
Cooke acquired all the outstanding  common shares of Realm Investments Ltd.
in exchange for  1,999,980 of its newly issued  ordinary  shares.  Stirling
Cooke also acquired,  in September  1996,  its own United States  domiciled
insurance company Realm National Insurance Company ("Realm National") which
writes  insurance  business  in  the  workers  compensation,   occupational
accident and health and property/casualty insurance markets.

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

In early 2001, following a review of its operations, the Company decided to
discontinue  its  loss-making   reinsurance  and  underwriting   management
segments, as discussed in Note 3.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The  accompanying   consolidated   financial  statements  are  prepared  in
accordance  with  accounting  principles  generally  accepted in the United
States.  The following are the significant  accounting  policies adopted by
Stirling Cooke:

   a) Basis of presentation

These consolidated financial statements include the financial statements of
Stirling  Cooke 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) Use of estimates

The  preparation  of financial  statements  in conformity  with  accounting
principles  generally accepted in the United States requires  management to
make  estimates and  assumptions  for those  transactions  that are not yet
complete or for which the ultimate effects cannot be precisely  determined.
Such estimates and  assumptions  affect the reported  amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the  financial  statements  and the  reported  amounts of  revenues  and
expenses  during the  reporting  period.  Actual  results could differ from
those estimates.

   c) Marketable securities

Marketable  securities  comprise  investments in debt and equity securities
and short term investments. All investments are classified as available for
sale in accordance with SFAS 115,  "Accounting  for Certain  Investments in
Debt and Equity Securities".  Accordingly,  these securities are carried at
fair value,  with the  difference  between fair value and cost or amortized
cost being 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 on the basis of specific  identification.  Investment income
is recorded as earned and accrued to the balance sheet date.

   d) Premiums written, assumed and ceded

Premiums  written and assumed are recorded on an accrual 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.

   e) Acquisition costs

Acquisition  costs  associated  with  the  acquisition  of new  or  renewal
business, including commissions,  premium taxes and brokerage, are deferred
and amortized to expense 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 also  anticipated  in  determining  whether a
premium deficiency exists.

   f) 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 $44,312,
$53,863 and $50,040 for the years ended  December 31,  1998,  1999 and 2000
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.

The Company  establishes  reserves for losses and loss adjustment  expenses
related to reported  claims 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
Company's independent actuaries estimate claims and claims expenses arising
for losses  that have  occurred  but not yet been  reported  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 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 an estimate and may
ultimately be significantly greater or less than the provision established.
The Company has limited historical loss experience  available to serve as a
basis for the estimation of ultimate losses. It is possible that management
will revise the  estimate of  outstanding  losses and loss  expenses in the
future.

   g) Recognition of risk management fees
                                                         FOR THE YEARS ENDED
                                                         -------------------
                                                            DECEMBER 31,
                                                            ------------
                                                       1998      1999      2000
                                                    --------- --------- -------
     Brokerage fees and commissions.............. $ 26,968    $24,577  $  8,920
     Managing general agency fees................   14,743     10,164     8,974
     Program and captive management fees.........    3,908      2,298       483
     Loss control and audit fees.................    4,508      7,577     5,358
     Policy issuance fees........................    2,095      2,495     3,230
                                                  --------    -------  --------
                    Total risk management fees... $ 52,222    $47,111  $ 26,965
                                                  ========    =======  ========

     Underwriting management fees from
             discontinued segment................ $  3,357    $ 3,900  $  1,281
                                                  ========    =======  ========


          (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 segment revenue and are reported net of commission expense to
     agents and are  initially  recorded  as of the  effective  date of the
     related  insurance policy and are recognized in income over the period
     of the  underlying  policy  (which is  typically  one year).  Fees for
     claims handling services 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 industry  standards.
     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)  Program and captive  management  fees are included  within
     program business segment 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 earned 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.

          (iv) Loss  control  and audit fees are  included  within  program
     business segment 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 industry standards.  The proportion that will
     be earned in the future is deferred and reported as deferred income in
     the consolidated balance sheets.

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

          (vi)  Underwriting  management  fees are  initially  recorded and
     earned when the premium is billed in  accordance  with terms of trade.
     Fee income for claims  handling  services is 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 fees that will be earned
     in the future is  deferred  and  reported  as  deferred  income in the
     consolidated balance sheets.

   h) 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.

   i) Investments in affiliates

The Company's  investments  in affiliated  companies  that 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
$198 and $248 as of December 31, 1999 and 2000, respectively,  are recorded
in  other  assets.  The  Company's  equity  share  in  the  net  income  of
affiliates, for the years ended December 31, 1998, 1999 and 2000 of $2,631,
$Nil and $Nil respectively.  In addition,  for 1999, the Company recorded a
write-down  of $2,018 in Other income (loss) to recognize a decrease in the
value  of  several  of  their  equity  holdings.  Dividends  received  from
affiliated  companies of $2,145, $ Nil and $Nil during 1998, 1999 and 2000,
respectively,  are  recorded as a reduction  in the  carrying  value of the
investment.

   j) Goodwill

Goodwill  in the  amounts of $8,664 and $1,969 at December  31,  1999,  and
2000, 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,  1999  and  2000  was  $2,717  and  $9,399,
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.
Following a review of its  operations,  the Company  decided to discontinue
its loss-making  reinsurance and underwriting management segments. In light
of this decision and following a  comprehensive  review of the value of all
of its  intangible  assets,  the Company  took a charge  against  income in
respect of the  write-off of a  significant  portion of its  goodwill.  The
write-off of goodwill, together with the annual amortization, resulted in a
total charge  against income for the year of $6,695 , the majority of which
was  related to the  write-off  of  goodwill  in  respect  of  discontinued
segments.

   k) 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 are the estimated useful lives of the related assets.

   l) Earnings per share

Earnings per share have been  calculated  in accordance  with  Statement of
Financial  Accounting Standards ("SFAS") No. 128, "Earnings per Share". Net
income per share is  calculated  by dividing  income  available to ordinary
shareholders by the weighted average number of ordinary shares outstanding.
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  is  reflected  in  the  computation  by
application of the treasury stock method.

   m) Income taxes

Under the asset and  liability  method  used by the  Company as outlined in
SFAS No.  109,  "Accounting  for  Income  Taxes",  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.

   n) 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  (losses) of $223,  ($117) and ($392) were
recorded  for  the  years  ended   December   31,  1998,   1999  and  2000,
respectively.

   o) Derivative financial instruments

During  the  year,  the  Company  was a party to  transactions  in  certain
derivative financial  instruments,  specifically,  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. The Company's policy on such derivatives
is that  forward  foreign  exchange  contracts  are  recorded at their fair
value, and the fair values of open contracts 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 15(c).

   p) Stock compensation plans

As permitted by SFAS 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.

   q) 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 adopted this standard
effective  January 1, 1999 and it did not have a significant  impact on the
Company's financial position or results of operations.

During 1998, the AICPA Accounting  Standards Executive Committee issued 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
that was recorded in the  statement of income for the first quarter of 1999
was approximately $307 (net of tax of $188).

In November 1998, the AICPA Accounting Standards Executive Committee issued
SOP 98-7,  "Deposit  Accounting:  Accounting for Insurance and  Reinsurance
Contracts That Do Not Transfer  Risk".  This statement is effective for all
quarters of fiscal years  beginning  after June 15, 1999. This SOP provides
accounting  guidance for insurance and  reinsurance  contracts  that do not
transfer risk, as determined by the provisions of SFAS No. 113. The Company
adopted  this  standard  effective  January  1,  1999 and it did not have a
significant  impact on the  Company's  financial  position  or  results  of
operations.

In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133".  This statement  amends SFAS
No. 133 to defer its effective date for one year, to fiscal years beginning
after June 15, 2000. In June 2000, the Financial Accounting Standards Board
issued SFAS No. 138,  "Accounting  for Certain  Derivative  Instruments and
Certain Hedging Activities." This statement is an amendment of SFAS No. 133
with  respect  to  the  accounting  and  reporting  standards  for  certain
derivative instruments and certain hedging activities.  Initial application
of SFAS No.  133,  as  amended,  began on January  1,  2001,  and it is not
expected to have a significant  impact on the Company's  financial position
or results of operations.

   r) Reclassifications

Certain  amounts in 1999 and 1998 have been  reclassified to conform to the
current year  presentation.  These  reclassifications  had no impact on net
income or shareholders' equity.


3. DISCONTINUED OPERATIONS

Following a review of its operations,  on March 6, 2001 the Company decided
to discontinue its  loss-making  reinsurance  and  underwriting  management
segments and put these segments into run-off.

The Company's  reinsurance segment consists of its reinsurance  subsidiary,
Comp Indemnity  Reinsurance  Company  Limited  ("CIRCL").  CIRCL  primarily
reinsured  workers'  compensation and property and general liability risks.
Management had determined in early 1999 to cease  underwriting new programs
in the  reinsurance  segment  due to  unfavourable  results,  and for  this
reason, a number of exisiting contracts were not renewed for the 1999 year.
During 2000, further losses were realized in this segment, primarily due to
a  strengthening  of reserves on  discontinued  programs  together  with an
increase in provisions against reinsurance  recoveries.  Due to the history
of operating losses for the segment, together with the cessation of writing
new programs, the Company decided to completely discontinue the segment and
place the operation into run-off.  At year end,  reinsurance segment assets
were  primarily  cash  and  cash  equivalents,  insurance  and  reinsurance
balances  receivable  and  paid and  outstanding  losses  recoverable  from
reinsurers.  Segment  liabilities were primarily  insurance and reinsurance
balances payable, and outstanding losses and loss expenses.

The Company's  underwriting  management segment is comprised companies that
primarily  underwrote and  administered  reinsurance  business on behalf of
independent reinsurance companies.  Since 1999, the underwriting management
segment has experienced a significant reduction in business written,  which
has led to decreasing revenues over the period. In view of the reduction in
revenues,  the resulting loss, and the ongoing  business  prospects for the
segment,  the  Company  decided to  discontinue  the  segment and place the
operation into run-off. At year end, underwriting management segment assets
were primarily  cash and cash  equivalents,  and insurance and  reinsurance
balances  receivable.  Segment  liabilities  were  primarily  insurance and
reinsurance balances payable.

As a result of the  planned  run-off  of  operations  for the  underwriting
management  and   reinsurance   segments  the  operating   results  of  the
underwriting  management  and  reinsurance  segments  in  the  accompanying
financial statements have been reported as discontinued  operations for all
periods  presented,  and,  accordingly,  the operating  results for periods
prior to 2000 have been restated.


4. LETTERS OF CREDIT AND ASSETS HELD IN TRUST

In the normal course of insurance and reinsurance  operations the Company's
bankers  have  issued  letters of credit  totalling  $18,604 and $13,360 at
December  31,  1999 and 2000,  respectively  in favor of  ceding  insurance
companies.   At  December   31,  1999  and  2000,   $18,604  and   $13,360,
respectively,  of cash and cash  equivalents were pledged as collateral for
these letters of credit.

One of the  Company's  subsidiaries  was  registered  with the  Society  of
Lloyd's as a registered  Lloyd's Broker.  Until July 3, 2000,as required by
Lloyd's Brokers Byelaw (No. 5 of 1988), the subsidiary entered into a trust
deed under which all  insurance  broking  account  assets were subject to a
floating  lien held in trust for the  Society of Lloyd's for the benefit of
the insurance creditors.  With effect from July 3, 2000, in common with all
Lloyd's  Brokers,  the security held under the trust deed was released as a
result of  changes  to  Lloyd's  Distribution  Policy  enacted  by  Lloyd's
Regulatory Bulletin dated May 31, 2000.


5. 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  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.

Insurance balances receivable of $872,666 (1999 -- $734,868) and payable of
$910,437  (1999 --  $774,888)  primarily  consist  of  clients'  claims and
premiums   balances   recorded  by  the  Company  in  its  capacity  as  an
intermediary.  As  a  result  of  various  disputes  between  insurers  and
reinsurers on various  reinsurance  contracts,  a number of the  reinsurers
have  suspended  paying  claims  due under  the  contracts.  The  Company's
brokerage and discontinued  underwriting  management  segment  subsidiaries
have  experienced  a  significant  growth in  claims  due from one party to
another.  These  balances are  reflected  as an asset and  liability of the
Company in its role as an intermediary.

6. MARKETABLE SECURITIES

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


<TABLE>
<CAPTION>

                                                                          December 31, 1999
                                                                ----------------------------------
                                                            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..................................   $  8,996     $    25     $   149     $ 8,872
Foreign government......................................         30         --          --           30
Obligations of states and political subdivisions........      7,687         --          191       7,496
Corporate securities....................................     12,842         107         545      12,404
                                                           --------     -------     --------    -------
Debt securities.........................................     29,555         132         885      28,802
Equity securities.......................................      3,340         887         176       4,051
Short term investments..................................      1,256         --          --        1,256
                                                           --------     -------     -------     -------
          Total.........................................   $ 34,151     $ 1,019     $ 1,061     $34,109
                                                           ========     =======     ========    =======
</TABLE>


<TABLE>
<CAPTION>

                                                                                       December 31, 2000
                                                                        --------------------------------------------
                                                                       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  ...................................................      $  8,010     $    69      $     2       $ 8,077
Foreign government..............................................            30          --           --            30
Obligations of states and political subdivisions................         6,624          37            9         6,652
Corporate securities............................................        11,502          22          192        11,332
                                                                      --------     -------     --------       -------
Debt securities.................................................        26,166         128          203        26,091
Equity securities...............................................         2,567         117           48         2,636
Short term investments..........................................         5,887          --           --         5,887
                                                                      --------     -------      -------       -------
          Total.................................................      $ 34,620     $   245      $   251       $34,614
                                                                      ========     =======     ========       =======
</TABLE>

Deferred  tax  liabilities  of $169 and $24 at December  31, 1999 and 2000,
respectively,  have been provided  against  unrealized  gains on marketable
securities  held as "available for sale",  which have 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.



                                                  December 31, 2000
                                               ------------------------
                                               AMORTIZED     ESTIMATED
                                               ---------     ---------
                                                 COST        FAIR VALUE
                                                 ----        ----------
     Due in one year or less.................. $ 4,208        $  4,209
     Due after one year through five years....  19,990          19,894
     Due after five years through ten years...   1,011           1,030
     Due after ten years through twenty years.     957             958
                                               -------         -------
                                               $26,166        $ 26,091

   c) Proceeds from sales of investments in debt securities during 1999 and
2000  were  $11,469  and  $3,319,  respectively.  Proceeds  from  sales  of
investments  in equity  securities  during  1999 and 2000 were  $2,349  and
$3,659,  respectively.  There  was  $587 of  realized  losses  and  $232 of
realized  gains during 1999.  There was $27 of realized  losses and $784 of
realized gains during 2000.

   d) At December 31, 1999 and 2000,  debt  securities  having an amortized
cost of $3,971 and $1,630,  respectively,  were on deposit with  government
authorities as required by law.

   e) At December 31, 1999 and 2000, 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, including realized gains and losses,
is as follows:

<TABLE>
<CAPTION>
                                                  1998                      1999                      2000
                                                  ----                      ----                      ----
                                        Continuing  Discontinued  Continuing  Discontinued  Continuing  Discontinued
                                        operations   operations    operations  operations   operations   operations

       <S>                                <C>         <C>          <C>          <C>          <C>          <C>
       Debt securities..................  $  731      $     --     $  1,488     $    --      $  1,438     $    --
       Equity securities................      52            --         (166)         --           955          --
       Cash, cash equivalents and          7,024         1,044        4,576         961         3,728       1,201
          short-term investments........
       Other        ....................      16            --           13          --            91          --
                                        --------      --------     --------    --------      --------     -------
       Total investment income..........   7,823         1,044        5,911         961         6,212       1,201
       Less applicable expenses.........      96            --          158          --            70          --
                                        --------      --------     --------    --------      --------     -------
           Net investment income........  $7,727      $  1,044     $  5,753     $   961        $6,142     $ 1,201
                                        ========      ========     ========     =======     =========     =======

</TABLE>

7. CAPITAL ASSETS

Included within other assets are capital assets as follows:

<TABLE>
<CAPTION>

                                         1999                               2000
                                        ------                              ----
                                     ACCUMULATED   NET BOOK              ACCUMULATED    NET BOOK
                                     -----------   --------              -----------    --------
                            COST    DEPRECIATION     VALUE       COST   DEPRECIATION      VALUE
                            ----    ------------     -----       ----   ------------      -----
<S>                        <C>       <C>            <C>         <C>         <C>          <C>
Furniture and fixtures...  $1,845    $  1,026       $  819      $2,052      $1,239       $   813
Computer equipment.......   3,789       1,917        1,872       3,933       2,507         1,426
Office equipment.........     964         522          442         828         609           219
Motor vehicles...........     849         217          632         453         281           172
                           ------      ------       ------      ------      ------       -------
          Total..........  $7,447    $  3,682       $3,765      $7,266      $4,636       $ 2,630
                           ======    ========       ======      ======      ======       =======

</TABLE>

8. 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, 1999 and 2000. 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 $2,980 and
$2,629 of deposits  received  from  customers  as  security  for the timely
payment of premiums  for  workers'  compensation  insurance at December 31,
1999 and 2000,  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.


9. 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>
                                               1998                      1999                       2000
                                               ----                      ----                       ----
                                     CONTINUING  DISCONTINUED  CONTINUING   DISCONTINUED  CONTINUING  DISCONTINUED
                                     OPERATIONS   OPERATIONS   OPERATIONS    OPERATIONS   OPERATIONS   OPERATIONS
                                     ----------   ----------   ----------    ----------   ----------   ----------
    <S>                                <C>          <C>         <C>           <C>          <C>          <C>
    Premiums written.................  $48,625      $    --     $47,216       $    --      $61,395      $    --
    Premiums assumed.................       --       11,806          --         2,952           --          321
    Change in unearned premiums......   (9,099)       3,249       2,640         1,749       (1,082)         851
                                       --------     -------     -------       -------      --------     -------
    Premiums earned..................   39,526       15,055      49,856         4,701       60,313        1,172
                                       -------      -------     -------       -------      -------      -------
    Premiums ceded...................   38,949        4,066      38,308         1,832       39,182         (100)
    Change in deferred reinsurance
        premiums ceded...............   (7,140)         932       2,097           470        2,637          419
                                       --------     -------     -------       -------      -------      -------
    Net premiums ceded...............   31,809        4,998      40,405         2,302       41,819          319
                                        -------     -------     -------       -------      -------      -------
    Net premiums earned..............   $ 7,717     $10,057     $ 9,451       $ 2,399      $18,494      $   853
                                        =======     =======     =======       =======      =======      =======
</TABLE>

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
more hazardous classes of 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 to
minimize its exposure to significant  losses from  reinsurer  insolvencies.
The Company has experienced substantial delays in collection of reinsurance
recoverables from certain of its reinsurers.  Realm National,  a subsidiary
of the Company, has commenced  arbitration against two of these reinsurers.
Management  believes  that  approximately  $6,742  and  $9,342  of paid and
outstanding   losses   recoverable   from  reinsurers  for  1999  and  2000
respectively  may prove  uncollectible  and has established a provision for
doubtful  recoveries  accordingly.  This  provision  of $6,742 for 1999 and
$9,342  for 2000  against  reinsurance  recoveries  of  $32,346 in 1999 and
$34,964 in 2000  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 an estimate and amounts not  collectible  from  reinsurers may
ultimately   be   significantly   greater  or  lesser  than  the  provision
established.  It is possible that  management  will revise this estimate in
the future.  Any  subsequent  differences  arising  will be recorded in the
period in which they occur.

At December  31, 1999 there were  amounts  due from three  reinsurers  that
totaled  $52,039,  each in  excess  of 10% of the  Company's  shareholders'
equity.  At December 31, 2000 there were amounts due from seven  reinsurers
that totaled $82,383, each in excess of 10% of the Company's  shareholders'
equity. These reinsurers are rated `Superior' by A.M. Best.

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

Realm National writes property,  general liability and workers compensation
business.  Workers Compensation  comprises the largest portion of the Realm
National's  written premium,  which is produced mainly through two separate
programs.

With  respect to 1999 and prior  years,  one of the programs was subject to
quota share  reinsurance  whereby Realm National  retained 25% of the first
$1,000  on any  one  risk  and  purchased  excess  of loss  per  occurrence
reinsurance  for  limits  above  $1,000.  A  portion  of  Realm  National's
retention under its quota share treaties was further  protected through the
use of common  account  excess  coverage that reduced Realm  National's net
retention to under $20. In addition,  Realm  National  purchased  excess of
loss  reinsurance  above the quota  share  treaty  with  limits of at least
$100,000.  For the year  2000,  Realm  National  purchased  excess  of loss
reinsurance  above $250. The excess of Loss limit is $50,000.  In addition,
Realm National  purchased an 80%  reinsurance  cover to further protect the
$250 net retention that reduced Realm National's net retention to $50.

With respect to its other main workers'  compensation  program for 1999 and
prior,  the business was subject to quota share  reinsurance  whereby Realm
National  retained  25% of the first  $1,000 on any one risk and  purchased
excess of loss per  occurrence  reinsurance  for  limits  above  $1,000.  A
portion of Realm  National's  retention  under its quota share treaties was
further  protected by excess  coverage  that reduced Realm  National's  net
retention to under $3. In addition, Realm National purchased excess of loss
reinsurance above the quota share treaty with limits of $100,000 or higher.
For the year 2000 Realm National purchased excess of loss reinsurance above
$1,000 up to limits of $50,000. In addition, Realm National purchased a 75%
reinsurance cover to further protect part of the $1,000 net retention.

Realm  National  writes  property  business  risk and  purchased a property
reinsurance  program  related to 2000 and prior years where it retained 25%
of the first $1,000 on any one risk and purchased  facultative  reinsurance
for limits above $1,000.  In addition,  Realm  National's net retention was
further protected with excess catastrophe limits to $10,000.

With respect to its general  liability risks prior to 2000,  Realm National
purchased a reinsurance  program  whereby it retained 25% of the first $300
on any one risk and purchased  facultative  per-risk excess reinsurance for
limits above $300. In 2000, Realm National  retained the first $300 for any
one loss and  purchased an excess-of-loss treaty  providing  limits of $700
excess of $300.

Due to the lack of available cost-effective  reinsurance during 2000, Realm
National  decreased the level of  reinsurance it purchased on its programs,
resulting in a greater  retention of premium but also a greater exposure to
the underwriting risk on those programs.

Comp Indemnity  Reinsurance Company Limited ("CIRCL"),  a subsidiary of the
Company,  assumed various quota share reinsurance of workers'  compensation
and  employers'  liability  on both a primary  and  excess  basis.  CIRCL's
exposure  under  the  reinsurance  contracts  assumed  is  limited  in most
instances to between $25 to $300 for workers'  compensation  and $1,000 per
occurrence for employers'  liability and in some instances is subject to an
annual  aggregate  limit based on various  percentages  of  original  gross
written  premium  income.  CIRCL further  limited its exposure  through the
purchase of reinsurance  protection  for certain risks  covering  losses in
excess of $1 to $3 for workers'  compensation  and $50 per  occurrence  for
employers' liability.

CIRCL also assumed  bodily injury,  difference in conditions,  and property
risks through a general liability treaty covering risks in the construction
industry.  CIRCL's  exposure  under the  reinsurance  contracts  assumed is
limited in most instances to $250 per occurrence. In most instances,  CIRCL
limited this exposure  through the purchase of reinsurance  covering losses
in excess of $63 per occurrence.  In addition,  CIRCL  purchased  aggregate
reinsurance  with limits  based on various  percentages  of original  gross
written premium income.

Management  decided in early 1999 to cease underwriting any new programs in
CIRCL due to unfavourable  results, and a number of existing contracts were
not  renewed for the 1999 year.  In early  2001,  following a review of its
operations,  the Company decided to completely  discontinue its loss-making
reinsurance segment, as discussed in Note 3.


10. OUTSTANDING LOSSES AND LOSS EXPENSES

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

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

<TABLE>
<CAPTION>
                                                   1998                     1999                       2000
                                                   ----                     ----                       ----
                                         Continuing  Discontinued  Continuing  Discontinued  Continuing  Discontinued
                                         operations   operations   operations   operations   operations   operations
                                         ----------   ----------   ----------   ----------   ----------   ----------
   <S>                                     <C>          <C>         <C>          <C>          <C>          <C>
   Balance beginning of year.....          $14,969      $21,307     $30,789      $35,328      $59,421      $33,714
   Less outstanding losses recoverable...  (12,869)     (10,203)    (27,048)     (21,098)     (53,050      (20,217)
                                           -------     --------    --------     --------      -------     --------
   Net balance...........................    2,100       11,104       3,741       14,230        6,371       13,497
                                           -------     --------      ------       ------       ------       ------
   Incurred related to:
        Current year.....................    4,811        7,767       6,289        2,407       13,617          177
        Prior years......................      (21)       4,714         676        2,998        3,543        6,056
                                           -------     --------      ------       ------       ------       ------
        Total incurred...................    4,790       12,481       6,965        5,405       17,160        6,233
                                           -------     --------      ------       ------       ------       ------
   Paid related to:
        Current year.....................    1,688        1,378       2,528          302        4,308           --
        Prior years......................    1,461        7,977       1,807        5,836        2,260        3,409
                                           -------     --------      ------       ------       ------       ------
             Total paid..................    3,149        9,355       4,335        6,138        6,568        3,409
                                           -------     --------      ------       ------       ------       ------
   Net balance...........................    3,741       14,230       6,371       13,497       16,963       16,321
   Plus outstanding losses recoverable...   27,048       21,098      53,050       20,217       62,857       18,362
                                           -------     --------      ------       ------       ------       ------
        Balance at end of year...........  $30,789      $35,328     $59,421      $33,714      $79,820      $34,683
                                           =======     ========     =======      =======      =======      =======
</TABLE>

The adverse development during 2000 on prior years in continuing operations
primarily  reflects the  strengthening  of loss  reserves at the  Company's
U.S.-based insurance carrier.

The  adverse  development  during  1998,  1999 and  2000 on prior  years in
discontinued  operations  primarily reflects the increase in provisions for
doubtful  reinsurance  recoveries of $2.5 million in 1998,  $2.1 million in
1999  and  $2.4  million  in 2000,  as  discussed  in Note 9, as well as an
increase in claims  frequency on one particular  program that covers bodily
injury and property risks in the construction industry.


11. SHARE CAPITAL AND ADDITIONAL PAID IN CAPITAL

The  Company's  authorized  share  capital at  December  31,  1999 and 2000
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 December 31, 1999
and  9,963,372  ordinary  shares were issued and paid at December 31, 2000.
Outstanding  shares  at  December  31,  1999 and 2000  were  9,419,972  and
9,519,972,  respectively, which were net of 443,400 treasury shares at each
date.

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, 1999 and
2000.

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, 1999 and 2000.

In the first quarter of 1999,  the Company  purchased a further  356,400 of
its  ordinary  shares on the open market for a total cost of $4,423.  These
shares were held as treasury stock at cost at December 31, 1999 and 2000.

Effective  November,  2000, the Company issued 100,000 restricted shares to
Mr.  Stephen A. Crane.  The shares  issued are subject to certain  transfer
restrictions  which  lapsed with  respect to 33 1/3% of these shares on the
date of their  issuance.  Restrictions  on the  balance of the shares  will
lapse equally in each of November 2001 and November 2002, contingent on Mr.
Crane's continued employment with the Company.

12. STOCK OPTIONS

Employees  and  directors  have been granted  options to purchase  Ordinary
Shares in the Company. These options have been issued as follows:

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. At December 31, 1999 and 2000, 186,750 and
140,850 of these options remained  outstanding.  The balance of the options
were forfeited.

          On  October  26,  1999 the  Company  granted  285,000  options to
          certain  officers  and  directors.  The options  have an exercise
          price of $2.31 per share, which reflected the market price of the
          shares on that date.  The options  vest ratably over a three-year
          period and may be  exercised  at any time  prior to  October  26,
          2009. All of these options were outstanding at December 31, 2000.

          On March 7,  2000,  the  Company  granted  25,000  options  to an
          officer.  The options have an exercise price of $3.25 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 March 7, 2010. All of these
          options remained outstanding at December 31, 2000.

          On May 25, 2000,  the Company  granted  30,000 options to certain
          non-executive  directors.  The options have an exercise  price of
          $2.50 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
          August 8, 2010.  All of these  options  remained  outstanding  at
          December 31, 2000.

          On August 8, 2000, the Company granted 357,500 options to certain
          employees.  The  options  have an  exercise  price of $2.0625 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 August 8,  2010.  At
          December 31, 2000, 337,500 of these options remained outstanding.
          The balance of the options were forfeited.

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
(loss) and  earnings  (loss) per share would have been  adjusted to the pro
forma amounts indicated in the table below:

<TABLE>
<CAPTION>
                                                                        1998       1999       2000
                                                                        ----       ----       ----
     <S>                                                               <C>       <C>       <C>
      Net income (loss)--as reported..............................     $16,018   $(6,717)  $(27,005)
      Net income (loss)--pro forma.................................    $14,820   $(6,606)  $(27,170)
      Net income (loss) per share--as reported.....................     $ 1.63    $(0.71)    $(2.86)
      Net income (loss) per share--pro forma.......................     $ 1.51    $(0.70)    $(2.88)
      Net income (loss) per share assuming dilution--as reported...     $ 1.63    $(0.71)    $(2.86)
      Net income (loss) per share assuming dilution--pro forma.....     $ 1.51    $(0.70)    $(2.88)
</TABLE>


These pro forma compensation costs may not be representative of those to be
expected  in  future  years  due to the  timing  of  option  issuances  and
pro-ration of the corresponding compensation costs.

The  weighted  average  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:

                                                   1999           2000
                                                --------     ----------
            Expected dividend yield..........       4.5%       3.7-5.8%
            Expected stock price volatility..     87.46%            92%
            Risk-free interest rate..........      6.72%     6.07-6.64%
            Expected life of options.........   10 years       10 years

The weighted  average fair value of options  granted  during 2000 was $1.09
per  share.  The fair value of options  granted  during  1999 was $1.25 per
share. There were no options granted during 1998. The fair value of options
granted during 1997 was $6.59 per share.


13. 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  (benefit)  attributable to income from continuing
operations  for the  years  ended  December  31,  1998,  1999  and 2000 was
allocated as follows:

<TABLE>
<CAPTION>
                                                                           1998      1999      2000
                                                                         --------  --------   ------
            <S>                                                           <C>      <C>       <C>
            Taxation on income (loss) from continuing operations........  $3,790   $(2,583)  $(2,523)

            Tax effect of change in accounting method (Note 2(q)).......      --      (188)       --
                                                                          ------   --------  --------
                                                                          $3,790   $(2,771)  $(2,523)
                                                                          ======   ========  ========
</TABLE>


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

                                           CURRENT       DEFERRED     TOTAL
                                           -------       --------     -----
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
                                           =======      =========    =======
Year ended December 31, 1999
     U.S. Federal and State..............  $(1,377)     $ (1,432)    $(2,621)
     Foreign (U.K.)......................       38            --          38
                                           -------      ---------    -------
                                           $(1,339)     $ (1,432)    $(2,583)
                                           ========     =========    =======
Year ended December 31, 2000
     U.S. Federal and State..............  $  (327)     $ (2,318)    $(2,645)
     Foreign (U.K.)......................      122            --         122
                                           --------     ---------    -------
                                           $  (205)     $ (2,318)    $(2,523)
                                           ========     =========    =======

Income  tax  expense  (benefit)  attributable  to  income  from  continuing
operations  and  change in  accounting  method  was  $3,790,  ($2,771)  and
($2,523) for the years ended December 31, 1998, 1999 and 2000 respectively,
and differed from the amounts  computed by applying the U.S. federal income
tax rate of 34% and U.S.  state tax at an effective rate of 1.74% to income
before taxation as a result of the following:

<TABLE>
<CAPTION>
                                                                           1998        1999        2000
                                                                           ----        ----        ----
            <S>                                                        <C>           <C>        <C>
            Computed expected tax expense (benefit)...............     $  6,888      $(3,226)   $(10,040)
            Foreign income not subject to US taxes................       (2,988)         420       5,933
            Foreign income subject to tax at foreign rates........          (99)           3           0
            Change in valuation allowance........................          (104)          --       1,800
            Miscellaneous permanent differences...................           94           21         (36)
            Deferred U.S. interest withholding tax...............            --          351           0
            State taxes...........................................           79         (340)       (180)
            Utilization of acquired net operating losses..........          (80)          (0)         (0)
                                                                       ---------     --------    --------
            Actual tax expense (benefit).........................      $   3,790     $(2,771)   $ (2,523)
                                                                       =========     ========   =========
</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, 1999 and 2000, are presented below:

<TABLE>
<CAPTION>
                                                                                       1999      2000
                                                                                       ----      ----
            <S>                                                                       <C>       <C>
            Deferred tax assets:
                 Deferred revenue.................................................    $1,114    $  712
                 Discount on unearned premiums and outstanding loss reserves......       540     1,350
                 Deferred interest deductions.....................................        67        67
                 U.K. net operating loss carryforward.............................         0     1,800
                 Allowance for doubtful accounts..................................     1,636     1,714
                 Restructuring reserve............................................       229       164
                 U.S. federal and state net operating loss carryforward...........       150     2,173
                 U.S. minimum tax credit carryforward.............................         0       152
                 Other............................................................        60        60
                                                                                      ------    ------
                                                                                       3,796     8,040
            Deferred tax liabilities:
                 Deferred policy acquisition costs................................      (287)     (411)
                 Unrealized investment gains......................................      (169)      (28)
                 Other............................................................       (25)      (18)
                                                                                      ------    ------
                 Net deferred tax asset...........................................    $3,315    $5,783
            Less valuation allowance .............................................         0    (1,800)
                                                                                      ------    ------
                 Adjusted net deferred tax asset..................................    $3,315    $5,783
                                                                                      ======    ======

</TABLE>


A valuation  allowance  of $1,800 has been  recorded in 2000 ($Nil in 1999)
against  the tax effect of losses in  connection  with the  Company's  U.K.
operations. With respect to U.S. taxation, there was no valuation allowance
for  deferred  tax assets as of December  31, 1999 or 2000,  as  management
believes  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.  U.S. federal and
state tax loss  carryforwards  in the  amount of  approximately  $6,400 are
available to offset future U.S. federal and state taxable income.

As of December 31, 1998 and 1999 the Company had 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).  As of December  31,  2000 the Company had no  undistributed
earnings of its U.S. subsidiaries on a consolidated basis. The deferred tax
liability relating to these unremitted earnings, which is not recognized by
the Company,  is approximately  $986, $2,442 and $Nil at December 31, 1998,
1999, and 2000, respectively.


14. EARNINGS PER SHARE

Earnings per share have been calculated in accordance with SFAS 128:
<TABLE>
<CAPTION>

                                                                         1998         1999        2000
                                                                         ----         ----        ----
            <S>                                                      <C>          <C>          <C>
            Net Income (Loss).....................................   $  16,018    $  (6,717)   $ (27,005)
                                                                       -------    ---------    ---------
            Weighted average number of ordinary shares
               outstanding........................................   9,814,101    9,480,356    9,434,219
                                                                     ---------    ---------    ---------
            Net income (loss) per share...........................      $ 1.63    ($   0.71)   ($   2.86)
                                                                     =========    =========    =========
            Income (loss) available to ordinary shareholders......     $16,018    ( $ 6,717)   ($ 27,005)
                                                                     ---------    ---------    ---------
            Weighted average number of ordinary shares
               outstanding........................................   9,814,101    9,480,356    9,434,219
            Plus: incremental shares from assumed exercise of
               options............................................      26,058           --           --
                                                                     ---------    ---------    ---------
            Adjusted weighted average number of ordinary
               shares outstanding.................................   9,840,159    9,480,356    9,434,219
                                                                     ---------    ---------    ---------
            Net income (loss) per share assuming dilution.........   $    1.63    $   (0.71)   $   (2.86)
                                                                     =========    =========    =========
</TABLE>

Potential  shares that are issued during a year are normally  considered as
outstanding  throughout  the year for  purposes of  calculating  net income
(loss) per share assuming dilution unless a net loss is incurred,  in which
case the shares are  considered  anti-dilutive  and are therefore  excluded
from the calculation. Due to losses in both continuing operations and total
operations  during 2000, the  anti-dilutive  effect of the restricted share
issuance  described  in Note 11 is  excluded  from the  calculation  of net
income (loss) per share assuming dilution.

See Notes 11 and 12 to the  consolidated  financial  statements for further
discussion of share capital and share option transactions.


15. 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 carrying values for
cash and cash  equivalents  and fiduciary  funds  approximated  fair market
values due to the short-term maturities of these 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 are comprised
mainly of cash and deposits.  The carrying  values for deposit  liabilities
and related  assets  approximated  fair market values due to the short-term
maturities of these instruments.

    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 would not be
expected to be material.  Certain amounts 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, 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, 1999
there were amounts due from three reinsurers that totaled  $52,039,  and at
December 31, 2000 there were amounts due from seven reinsurers that totaled
$82,383, as discussed in Note 9. At December 31, 1999 and 2000,  management
believes  that  approximately  $6,742  and  $9,342 of paid and  outstanding
losses  recoverable  from  reinsurers  may  prove   uncollectible  and  has
established a provision for doubtful accounts accordingly,  as discussed in
Note 9.

    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 no notional  principal
amounts  outstanding  at December  31, 1999  relating to  contracts  to buy
British  Pounds  Sterling  in the  future.  The  Company  had one  notional
principal amount outstanding at December 31, 2000, relating to contracts to
buy British  Pounds  Sterling in the future  which had a cost of $2,305,  a
fair value of $2,230, and an unrealized net loss of $70. Net realized gains
(losses) of $182,  $Nil and ($132) have been  recorded in the  consolidated
statements  of income in respect of such  contracts  during the years ended
December 31, 1998, 1999 and 2000, respectively.


16. SEGMENTAL INFORMATION

     (a) The Company has three  continuing  business  segments;  Brokerage,
Program   Business,   and  Insurance.   The  brokerage   segment  comprises
subsidiaries  that receive a fee or commission for brokering  insurance and
reinsurance contracts.  The program business segment comprises subsidiaries
that  market  insurance  products  and  manage  programs  developed  by the
Company.  The insurance  segment  represents a company that underwrites and
retains, subject to its own reinsurance,  certain insurance and reinsurance
risks,  and its 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  (1998 - $2,631,  1999 - $ Nil, 2000 -
$Nil).  In early 2001,  following a review of its  operations,  the Company
decided  to  discontinue  its  loss-making   reinsurance  and  underwriting
management segments, as discussed in Note 3. Intercompany  transactions are
recorded  under  normal terms of trade.  Adjustments  and  eliminations  to
revenue are in respect of  intersegmental  revenues that are  eliminated at
the  consolidated  level.   Adjustments  and  eliminations  to  assets  are
primarily in respect of intersegmental  insurance balances  receivable that
are eliminated at the consolidated level.

<TABLE>
<CAPTION>
                                      DECEMBER 31, 1998                 DECEMBER 31, 1999                DECEMBER 31, 2000
                                           Income                            Income                           Income
                                           (loss)                            (loss)                           (loss)
                              Revenues   before tax   Assets    Revenues   before tax   Assets    Revenues   before tax   Assets
                              --------   ----------   ------    --------   ----------   ------    --------   ----------   ------
<S>                            <C>        <C>       <C>         <C>         <C>       <C>         <C>       <C>         <C>
CONTINUING OPERATIONS:
Brokerage                      $27,144    $11,501   $462,420    $24,879     $2,706    $787,818    $11,190   $(4,838)    $962,071
Program business                27,119      5,187     35,015     22,444    (2,716)      34,927     15,337    (5,057)      29,201
Insurance                       11,073      1,169     94,843     12,557    (2,139)     112,916     23,532    (5,046)     130,621
Other                            5,798      3,233     47,123        680    (5,749)      35,199        874    (3,558)      30,578
Adjustments & eliminations       (500)         --         --         --         --          --         --         --          --
                              --------     ------    -------    -------     ------     -------     ------    -------    --------
   Total from Continuing
       Operations               70,634     21,090    639,401     60,560    (7,898)     970,860     50,933   (18,499)   1,152,471

DISCONTINUED OPERATIONS:
Underwriting management          3,554      2,075     38,179      4,123      1,812      88,975      1,598    (4,937)      88,567
Reinsurance                     10,905      (3,357)   58,761      3,138    (3,402)      54,758      1,738    (6,092)      64,431
                                ------      -------   ------      -----    -------      ------      -----    -------      ------
   Total from Discontinued
       Operations               14,459      (1,282)   96,940      7,261    (1,590)     143,733      3,336   (11,029)     152,998
Adjustments & eliminations          --         --    (86,700)        --        --     (103,184)        --        --     (166,462)
                                ------     ------   --------     ------     ------   ---------     ------    -------   ---------
   Total from all operations   $85,093    $19,808   $649,641    $67,821   $(9,488)   $1,011,409   $54,269   $(29,528) $1,139,007
                               =======    =======   ========    =======   ========   ==========   =======  =========  ==========
</TABLE>



    (b)  Summarized   financial   information  by  geographic  location  of
subsidiary  for the years  ended  December  31,  1998,  1999 and 2000 is as
follows:

<TABLE>
<CAPTION>
REVENUES FOR THE                        Continuing operations                   Discontinued
YEAR ENDED                              ---------------------                   ------------
                                                       Adjustments               operations -
                                                       ------------              ------------
                        Bermuda     U.K      U.S.A.         &           Total      Bermuda     Consolidated
                        -------     ---      ------    Eliminations     -----      -------     ------------
                                                       ------------
  <S>                   <C>       <C>        <C>           <C>         <C>         <C>            <C>
   December 31, 1998    $13,026   23,632     34,713        (737)       70,634      14,459         $85,093
   December 31, 1999     $6,094   20,295     34,582        (411)       60,560       7,261         $67,821
   December 31, 2000     $2,296    8,031     40,606          --        50,933       3,336         $54,269
</TABLE>


<TABLE>
<CAPTION>
                                                                   Discontinued    Adjustments
                                                                   ------------    -----------
IDENTIFIABLE ASSETS                 Continuing operations          operations -         &
AT THE YEAR ENDED                   ---------------------          ------------         -
                         Bermuda     U.K      U.S.A.      Total      Bermuda      eliminations   Consolidated
                         -------     ---      ------      -----      -------      ------------   ------------
   <S>                   <C>       <C>       <C>         <C>          <C>           <C>           <C>
   December 31, 1998     $81,549   477,639   127,851     687,039      96,940        (134,338)     $  649,641
   December 31, 1999     $90,931   793,641   151,671   1,036,243     146,061        (170,895)     $1,011,409
   December 31, 2000     $91,404   934,028   153,884   1,179,316     148,262        (188,571)     $1,139,007

</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,  provides additional business and services to certain
of these  independent  insurance  carriers in respect of these products and
other insurance and reinsurance policies.  For the years ended December 31,
1998,  1999 and 2000  revenues  received  from  one  independent  insurance
carrier  approximately  accounted  for the  following  percentage  of total
revenues.

<TABLE>
<CAPTION>
                                                               December 31,
                                                   1998           1999          2000
                                                   ----           ----          ----
             <S>                                    <C>            <C>           <C>
             CONTINUING OPERATIONS:
             Brokerage                              19%            19%           14%
             Program business                       71%            70%           74%
             Insurance                              0%              0%           17%
             Other                                  11%             0%            0%
                                                    ---             --            --
                Total for continuing operations     35%            34%           33%


             DISCONTINUED OPERATIONS:
             Underwriting management                94%            91%           100%
             Reinsurance                            74%            72%           74%
                                                    ---            ---           ---
                Total for Discontinued Operations   79%            83%           85%
                                                    ---            ---           ---
                Total for all operations            43%            39%           37%

</TABLE>

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

17. COMMITMENTS

Future  minimum lease  payments  under  non-cancelable  operating  property
leases as at December 31, 2000 are as follows:

                              2001..................     $2,671
                              2002..................      2,264
                              2003..................      1,962
                              2004..................      1,471
                              2005..................      1,088
                              2006 and thereafter...      3,526
                                                          -----
                                                        $12,982
                                                        -------

Total rental expense for continuing operations for the years ended December
31, 1998,  1999 and 2000,  was $2,065,  $3,089,  and $1,854,  respectively.
Total  rental  expense  for  discontinued  operations  for the years  ended
December 31, 1998, 1999 and 2000, was $126, $114, and $117, 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.


18. 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 1999  and  2000  due to its  statutory-basis
    accumulated deficit.

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

                                                           1999      2000
                                                           ----      ----
      Total capital and surplus at December 31,.......  $ 17,177   $14,116
      Net income (loss) for year ended December 31,...  $    219   $(4,167)

        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, 1999 and 2000 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, 1999 and
    2000, respectively,  CIRCL was required to maintain a minimum statutory
    capital and surplus of $2,024 and $1,272.  Accordingly,  a further $520
    of capital was required to be  contributed  to CIRCL at the end of 2000
    to meet the minimum statutory requirements. Subsequent to the year end,
    the Company  contributed $600 to CIRCL to enable it to meet its minimum
    statutory requirements.

    CIRCL's  total surplus and net loss  determined on a Bermuda  statutory
    basis is as follows:

                                                           1999      2000
                                                           ----      ----
       Total surplus at December 31......................$ 2,857   $   752
       Net loss for year ended December 31...............$(5,227)  $(5,641)

    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, 1999 and 2000,
    respectively,  CIRCL was  required  to maintain  relevant  assets of at
    least  $23,000  and  $17,234.   At  that  date  relevant   assets  were
    approximately  $33,500 and $23,718 and the minimum  liquidity ratio was
    therefore met.


19. RELATED PARTY TRANSACTIONS

Goldman,  Sachs & Co.  or  certain  of its  affiliates  maintained  certain
contractual  relationships with the Company and provided investment banking
services to the  Company.  Goldman,  Sachs & Co. also  provided  investment
management  services to Realm  National  pursuant  to a  Corporate  Account
Agreement dated December 24, 1996 and received  customary fees and expenses
of approximately $32 during 1999 and $35 during 2000 for such services.


20. CONTINGENCIES

(a) The proceedings  which Sphere Drake Insurance  Limited ("Sphere Drake")
caused to be issued on  February  29, 2000 in the London  Commercial  Court
(equivalent to a civil complaint in U.S.  jurisdictions) against two of the
Company's U.K. subsidiaries,  two former officers of those subsidiaries and
others, remain pending.  Sphere Drake alleges, in substance,  that each and
every  contract  placed  with it  through  its  underwriting  agent  by the
Company's U.K.  broker  subsidiary was  commercially  unreasonable.  Sphere
Drake  further  alleges  that  this was  obvious  to the  broker  and that,
accordingly,  the London Commercial Court should infer a conspiracy between
the broker and the  underwriting  agent to defraud  Sphere  Drake,  thereby
allowing it to treat as void from the outset all of the inwards reinsurance
contracts  placed through the  underwriting  agent by the Company's  broker
subsidiary.  These proceedings currently are focused on preparation for the
trial of the action, which is scheduled for October 2001.

It is the opinion of management that the claims described in Sphere Drake's
action  are  without  merit  and the  case is being  and  will be  defended
vigorously.

(b) The Company,  together with one of its London subsidiaries and a former
employee of that subsidiary,  filed a motion to dismiss the claims asserted
against them in the amended complaint in an existing action in the New York
State Supreme Court brought by AXA Reassurance S.A.  ("AXA"),  in which AXA
seeks to void reinsurance contracts entered into in connection with certain
"reinsurance-backed   gap  film  financing"   arrangements  ("Film  Finance
Covers")  brokered by the Company's London  subsidiary.  The Court ruled on
March 8, 2001,  that it would hold the motion in abeyance  pending  further
discovery.  The Company,  its subsidiary and the former employee  currently
are engaged in ongoing discovery proceedings in the action.

The  Company,  together  with one of its London  subsidiaries  and a former
employee of that subsidiary, were named in a third-party complaint filed on
or about  February  20, 2001 in federal  district  court in  California  by
defendant  AXA  Corporate  Solutions  (U.K.)  Ltd.  (allegedly  misnamed in
plaintiff's  complaint as AXA RE UK).  The  third-party  complaint  alleges
fraudulent and/or wrongful  inducement to contract  allegedly  resulting in
exposure to liability for claims under another Film Finance Cover  brokered
by the Company's London subsidiary.  The Company, its London subsidiary and
the former employee are in the process of evaluating  their response to the
third-party  complaint,  including the possibility of moving to dismiss the
complaint.

Two of the Company's  London  subsidiaries,  together with other  unrelated
parties,  have been named in: (i) a complaint in federal  district court in
California;  and, (ii) a third-party complaint in an existing action in the
New York State Supreme Court, each filed on March 16, 2001 by New Hampshire
Insurance  Company.  Each pleading  alleges  identical claims of fraudulent
inducement and negligent  misrepresentation in connection with another Film
Finance  Cover.  The London  subsidiaries  are in the process of evaluating
their  responses to these  complaints,  including the possibility of filing
motions to dismiss.

It is the opinion of management that the claims  described in these actions
are without merit and the cases are being and will be defended vigorously.

(c)  Several  arbitration  proceedings  currently  are  pending  in England
between reinsurers and ceding insurers relating to reinsurance transactions
involving the personal accident excess of loss market in London ("LMX") for
the account years 1993,  1994, 1995 and 1996.  Although neither the Company
nor its  broker  subsidiaries  is a  party  to any of  these  arbitrations,
certain of the Company's  subsidiaries  acted as a  reinsurance  broker for
ceding insurer clients that are parties to certain of the arbitrations.

In addition,  the Company's  reinsurance  subsidiary is party to one of the
LMX  arbitrations.  This  particular  arbitration has been dormant for some
time, and the Company expects it to be terminated shortly.

The reinsurers  generally have alleged that they sustained losses due to an
"artificial"  spiral in the LMX market,  the existence of which, as well as
other  information,  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 suspended payment of claims.

During 1998 and 1999  certain of the  reinsurers  and  reinsureds  that are
parties to the  arbitrations  described  above  issued  proceedings  in the
English courts against one or more of the Company's brokerage  subsidiaries
and one  underwriting  management  subsidiary,  apparently  for the primary
purpose of tolling  the statute of  limitations  pending the outcome of the
arbitration. In one proceeding against the same subsidiaries,  three former
officers of the subsidiaries  were also named. In none of these proceedings
did the  complainant  specify an amount of damages  sought.  If one or more
reinsurers  succeed in avoiding its contracts in the pending  arbitrations,
it is possible that ceding insurer  clients,  on whose behalf the Company's
broker subsidiaries placed the reinsurance,  may seek to pursue a claim for
indemnification or other claims against one or more of those  subsidiaries.
Similarly,  if one or more of the reinsurers fail to avoid its contracts in
the pending  arbitrations,  it also is possible that those  reinsurers  may
seek  to  pursue  some  type  of  claim   against  one  or  more  of  those
subsidiaries.

The Company  understands that awards already have been made in favor of the
reinsurer   in  two   arbitrations.   However,   based  on  the   Company's
understanding  of the  reasons  given by the  arbitration  panels for their
awards in favor of the  reinsurer  in those  cases,  the  Company  does not
believe  there is any valid basis for its ceding  insurer  clients in those
cases to assert a claim against the Company or its broker subsidiaries.

With the exception of: (a) one inactive  proceeding  which the subsidiaries
have been  informed  will be  withdrawn;  and (b) two  related  proceedings
pending  against certain  subsidiaries of the Company,  and certain current
and former officers of these subsidiaries, each of which is in a very early
procedural   stage,   all  judicial   proceedings   against  the  Company's
subsidiaries relating to these matters have been stayed or held in abeyance
pursuant to standstill agreements or court order.

One of the arbitration awards referenced above allowed a reinsurer to avoid
its reinsurance contracts with a Lloyd's syndicate. According to reports in
the London press, that award may have caused the syndicate's liabilities to
increase  beyond the  financial  resources  available  to it and its Names,
requiring  the  syndicate  to avail  itself of the  Lloyd's  Central  Fund.
Thereafter,  Lloyd's  initiated an  investigation of that syndicate and all
"market  participants,"  including the  Company's  U.K.  subsidiaries.  The
Company  is  aware  that the  investigation  is  ongoing,  but has no other
information  as to the  progress  of the  investigation  or when it will be
completed.

The Company understands that substantial progress has been and continues to
be made by various  market  participants  in settling  ongoing  reinsurance
disputes, including many of the market participants that are parties to the
arbitrations and other proceedings described above. The Company understands
that a settlement by certain market  participants  of reinsurance  disputes
arising in the 1994 year of account (the "1994 Year of Account Settlement")
has been executed.

A subsidiary of the Company has been  notified of a potential  claim by one
of the parties to the 1994 Year of Account  Settlement  for the recovery of
costs  arising out of the  settlement as well as for the costs and expenses
incurred by the party in connection with its overall involvement in the LMX
market.  The  Company's  subsidiary  has  denied  any  liability  for  this
potential claim.

Although no  assurances  can be given as to the outcome of the pending U.K.
arbitrations  or pending or potential  arbitration or judicial  proceedings
related to the LMX spiral reinsurance  arbitrations and their effect on the
Company, the Company believes, based on the information presently available
to it, that any such effect  should not have a material  adverse  effect on
the Company's financial condition.

(d) Beginning in late 1998 and 1999, the  reinsurance  markets in which the
Company historically has been involved experienced  considerable disruption
for a variety  of  reasons,  including  but not  limited  to the LMX market
disputes  described  above and other disputes  involving the North American
workers'  compensation  reinsurance  market. The effects of this disruption
have continued up to the present time.

    One result of this market  disruption has been that certain  reinsurers
with whom the Company's  broker  subsidiaries  placed business on behalf of
ceding insurer clients suspended claims payments to those clients,  as well
as to the Company's  insurance  and  reinsurance  subsidiaries,  in certain
instances also claiming a right to rescind the reinsurance contracts.  As a
result, a number of arbitrations were commenced between Company clients and
their  reinsurers.  The Company  has  endeavoured  consistently  to provide
support to its clients in connection with these proceedings. In one ongoing
arbitration  involving  Realm  National,  that  company  has  succeeded  in
obtaining  $4.8 million in interim  relief from a reinsurer by order of the
arbitration panel pending a final determination of the matters in issue.

In some instances,  disputes or potential  disputes have arisen  concerning
whether   reinsurance   was  properly   placed  by  the  Company's   broker
subsidiaries. In other instances, the Company's ceding insurer clients have
demanded  indemnification  by  the  Company  if  the  client's  reinsurance
contracts ultimately are avoided by its reinsurers.

Although no assurances  can be given as to the effect on the Company of the
various  disputes  in the  worker's  compensation  reinsurance  market,  or
related  arbitrations,  the  Company  believes,  based  on the  information
presently  available to it, that any such effect should not have a material
adverse effect on the Company's financial condition.

(e) 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's financial condition.

21. QUARTERLY FINANCIAL DATA--UNAUDITED
<TABLE>
<CAPTION>
                                                       FIRST       SECOND      THIRD      FOURTH
                                                       -----       ------      -----      ------
                                                      QUARTER     QUARTER     QUARTER     QUARTER
                                                      -------     -------     -------     -------
                                                        (I)         (I)         (I)         (I)
                                                        ---         ---         ---         ---
<S>                                                  <C>        <C>          <C>          <C>
YEAR ENDED DECEMBER 31, 1999
     Total revenues from continuing operations...... $ 19,929   $ 18,834     $13,207      $8,590
     Net income (loss)..............................    3,631        978      (2,572)     (8,754)
     Net income (loss) per share....................    0.38        0.10       (0.27)      (0.92)
     Net income (loss) per share assuming dilution.. $  0.38    $   0.10     $ (0.27)    $ (0.92)
YEAR ENDED DECEMBER 31, 2000
     Total revenues from continuing operations...... $ 15,285   $ 10,000     $13,546     $12,102
     Net income (loss)..............................   (1,022)    (2,206)     (2,556)    (21,221)
     Net income (loss) per share....................   (0.11)      (0.23)      (0.27)      (2.25)
     Net income (loss) per share assuming dilution.. $ (0.11)   $  (0.23)    $ (0.27)    $ (2.25)

</TABLE>

<PAGE>

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

On  April  29,  1999,  the  Company  engaged  Arthur  Andersen  LLP  as its
independent accountant. The Company's independent accountant for the fiscal
year ended December 31, 1998 was KPMG ("KPMG").

During the Company's  fiscal years ended December 31, 1997 and 1998 and the
interim  period  subsequent  to the fiscal year ended  December  31,  1998,
neither the Company nor any person on the Company's behalf consulted Arthur
Andersen LLP, regarding either:

     (i)  the   application   of  accounting   principles  to  a  specified
          transaction,  either completed or proposed,  or the type of audit
          opinion  that  might  be  rendered  on  the  Company's  financial
          statements;  and no written or oral  advice was  provided  to the
          Company,  that Arthur  Andersen  LLP  concluded  was an important
          factor  considered  by the  Company in  reaching a decision as to
          accounting, auditing, or financial reporting issues; or
    (ii)  any matter that was the subject of a disagreement or a reportable
          event, as those items are defined under  Regulationss.229.304 (17
          C. F. R.ss.229.304)

On April  20,  1999,  KPMG  notified  the  Company  that it would  not seek
re-election  as auditors to the  Company  for the year ended  December  31,
1999.

KPMG's reports on the Company's financial statements for each of the fiscal
years ended  December 31, 1997 and 1998 did not contain an adverse  opinion
or a  disclaimer  of  opinion  and were not  qualified  or  modified  as to
uncertainty, audit scope, or accounting principles.

During the Company's fiscal years ended December 31, 1997 and 1998, and the
subsequent  interim  period  preceding  KPMG's  declination,  there were no
disagreements  between  the  Company  and KPMG on any matter of  accounting
principles or practices,  financial statement disclosure, or auditing scope
or procedure which, if not resolved to the satisfaction of KPMG, would have
caused KPMG to make a reference to the subject  matter of  disagreement  in
connection with KPMG's report.

During the Company's  fiscal years ended December 31, 1997 and 1998 and the
subsequent interim period preceding KPMG's declination:

     (a)  KPMG  did not  advise  the  Company  that the  internal  controls
          necessary   for  the  Company  to  develop   reliable   financial
          statements do not exist;
     (b)  KPMG did not  advise the  Company  that  information  has come to
          KPMG's  attention that has led it to no longer be able to rely on
          management's representations, or that has made it unwilling to be
          associated with the financial statements prepared by management;
     (c)  (1)  KPMG  did not  advise  the  Company  of the  need to  expand
          significantly  the scope of its audit,  or that  information  had
          come to KPMG's  attention  during  such  period  that if  further
          investigated   may  (i)   materially   impact  the   fairness  or
          reliability  of either a  previously  issued  audit report or the
          underlying  financial  statements,  or the  financial  statements
          issued or to be issued covering the fiscal periods  subsequent to
          the date of the most recent  financial  statements  covered by an
          audit  report  (including  information  that may  prevent it from
          rendering  an  unqualified   audit  report  on  those   financial
          statements),  or  (ii)  cause  it  to be  unwilling  to  rely  on
          management's   representations   or  be   associated   with   the
          registrant's financial statements; and (2) KPMG did not so expand
          the scope of its audit or conduct such further investigation;
     (d)  (1) KPMG did not advise the Company that  information has come to
          KPMG's  attention  that it has concluded  materially  impacts the
          fairness or reliability  of either (i) a previously  issued audit
          report  or the  underlying  financial  statements,  or  (ii)  the
          financial  statements  issued or to be issued covering the fiscal
          period  subsequent  to the  date  of the  most  recent  financial
          statements  covered  by an audit  report  (including  information
          that,  unless resolved to the  accountant's  satisfaction,  would
          prevent it from  rendering an  unqualified  audit report on those
          financial  statements),  and (2) KPMG did not advise the  Company
          that due to KPMG's  declination to seek  re-election,  or for any
          other reason,  accounting issues have not been resolved to KPMG's
          satisfaction prior to declination to seek re-election.


                                  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, 2000.  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,  2000.  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,  2000.  Such  information  is hereby  incorporated  by
reference.


ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain of the  information  required  by this item is  included in Part 2,
Item 8 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, 2000.  Such  information  is hereby
incorporated by reference.


                                  PART IV

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

     (A) EXHIBITS

      EXHIBIT NO.                         DESCRIPTION
      -----------    ---------------------------------------------------------
           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)*

           10.4      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)

           11.       Statement Re Computation of Per Share Earnings

           16.       Letter of KPMG regarding change in certifying
                     accountant (2)

           21.       Subsidiaries of the Company

           99.       Forward-Looking Information

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

(2)  Incorporated  by reference  from the Company's Form 8-K filed on April
     28, 1999.


     (B) REPORTS ON FORM 8-K.

          None.

     (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>
               Reports of Independent Accountants on financial statement schedules included
                  in Form 10-K.                                                                                55
               Schedule of Investments excluding Investments in Related Parties as of
                  December 31, 2000                                                                   I        57
               Condensed Financial Information of Registrant as of and for the years ended
                  December 31, 1998, 1999 and 2000                                                   II     58-60
               Supplementary Insurance Information as of and for the years ended December
                  31, 1998, 1999 and 2000                                                           III        61
               Reinsurance for the years ended December 31, 1998, 1999 and 2000                      IV        62
               Valuation and Qualifying Accounts for the years ended December 31, 1998, 1999
                  and 2000                                                                            V        63
               Supplmental Information concerning Property-Casualty Insurance Operations for
                  the years ended December 31, 1998, 1999 and 2000                                   VI        64

</TABLE>

<PAGE>

                 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

Under date of March 13,  2001,  we  reported  on the  consolidated  balance
sheets of Stirling  Cooke Brown  Holdings  Limited and  subsidiaries  as of
December  31, 1999 and 2000,  and the related  consolidated  statements  of
income and comprehensive  income,  changes in shareholders' equity and cash
flows for the years then ended.  These  consolidated  financial  statements
referred to above are included in Item 8 of this Annual Report on Form 10-K
for the years ended  December  31, 1999 and 2000.  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.

The  consolidated  financial  statements of Stirling  Cooke Brown  Holdings
Limited and  subsidiaries as of December 31, 1998 were reported on by other
auditors whose report is dated March 5, 1999. Those consolidated  financial
statements  referred  to above are also  included  in Item 8 of this Annual
Report on Form 10-K for the year ended  December  31, 2000.  In  connection
with their audits of the aforementioned  consolidated financial statements,
they also audited the related financial  statement  schedules listed in the
accompanying index.

In our  opinion,  the 1999  and  2000  amounts  included  in the  financial
statement  schedules  fairly state in all material  respects the  financial
data  required to be set forth  therein in relation to the basic  financial
statements taken as a whole.

We have also audited the  adjustments  described in Note 3 to the financial
statements,  which  are  included  in item 8 of this Form 10-K for the year
ended  December 31, 2000,  that were applied to restate the 1998  financial
statements.  In our opinion, such adjustments are appropriate and have been
properly applied.


/s/ Arthur Andersen LLP

Arthur Andersen LLP
New York, New York
March 13, 2001




<PAGE>


                        INDEPENDENT AUDITORS' REPORT

The Board of Directors of
Stirling Cooke Brown Holdings Limited

Under date of March 5, 1999, we reported on the consolidated  statements of
income and comprehensive  income,  changes in shareholders' equity and cash
flows of Stirling Cooke Brown  Holdings  Limited and  subsidiaries  for the
year ended December 31, 1998, before the restatement described in Note 3 to
the  financial  statements,  which are included in item 8 of this Form 10-K
for the year ended  December 31, 2000. In connection  with our audit of the
aforementioned  consolidated  financial  statements,  we also  audited  the
related financial statement schedules for the year ended December 31, 1998,
before the  restatement  described in Note 3 to the  financial  statements.
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 audit.

In  our  opinion,   the  1998   financial   statement   schedules   (before
restatement),  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

KPMG
Hamilton, Bermuda
March 5, 1999


<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, 2000
                                                                       ----      -----    -----------------
<S>                                                                   <C>       <C>           <C>
Fixed maturities
   Bonds:
     United States Government and government agencies and
        authorities..............................................     $8,010    $8,077        $   8,077
     States, municipalities and political subdivisions...........      6,624     6,652            6,652
     Foreign governments.........................................         30        30               30
     All other corporate bonds...................................     11,502    11,332           11,332
                                                                      ------    ------        ---------

          Total fixed maturities.................................     26,166    26,091           26,091
Equity securities
   Common stocks:
   Industrial, miscellaneous and other...........................      2,567     2,636            2,636
                                                                      ------    ------        ---------

          Total equity securities................................      2,567     2,636            2,636
Short-term investments...........................................      5,887     5,887            5,887
                                                                      ------    ------        ---------

          Total investments......................................    $34,620   $34,614        $  34,614
                                                                     =======   =======        =========
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
                                       STIRLING COOKE BROWN HOLDINGS LIMITED

                                   CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                  PARENT COMPANY ONLY BALANCE SHEETS--SCHEDULE II

                                             DECEMBER 31, 1999 AND 2000
                 (Expressed in thousands of United States Dollars, except share and per share data)


                                                                                                 1999       2000
                                                                                                 ----       ----
<S>                                                                                            <C>        <C>
Assets
     Cash and cash equivalents............................................................     $14,495    $ 5,486
     Due from subsidiaries................................................................      23,812     29,972
     Investments in subsidiaries..........................................................      34,143      7,529
     Other assets.........................................................................         497        322
     Marketable securities................................................................      12,606     14,065

                                                                                               -------    -------
          Total Assets....................................................................     $85,553    $57,374
                                                                                               =======    =======
Liabilities
     Accounts payable and accrued liabilities.............................................     $   721    $   495

                                                                                               -------    -------
          Total Liabilities...............................................................         721        495

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

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 loss.................................................        (211)       (29)
     Retained earnings....................................................................      34,067      5,932

                                                                                               -------    -------
                                                                                                90,489     62,536
     Less: ordinary shares in treasury (1999--443,400, 2000--443,400) at cost.............      (5,657)    (5,657)

                                                                                               -------    -------
          Total shareholders' equity......................................................      84,832     56,879

                                                                                               -------    -------
Total Liabilities and Shareholders' equity................................................     $85,553    $57,374
                                                                                               =======    =======
</TABLE>
<PAGE>



<TABLE>
<CAPTION>
                                       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, 1998, 1999 AND
                               2000 (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS,
                                          EXCEPT SHARE AND PER SHARE DATA)

                                                                           1998          1999         2000
                                                                           ----          ----         ----
<S>                                                                     <C>           <C>          <C>
REVENUES
     Net investment income...........................................   $   1,920     $  1,717     $   1,370
                                                                        ---------     --------     ---------
Total Revenues.......................................................       1,920        1,717         1,370
EXPENSES
     Salaries and benefits...........................................         184          536           746
     Other operating expenses........................................       1,015        3,178         7,230
                                                                        ---------     --------     ---------


Total Expenses.......................................................       1,199        3,714         7,976
NET INCOME (LOSS) BEFORE EQUITY IN INCOME (LOSS) OF SUBSIDIARIES ....         721       (1,997)       (6,606)
Equity in income (loss) of subsidiaries..............................      15,297       (4,720)      (20,399)
                                                                        ---------     ---------    ---------


NET INCOME (LOSS)....................................................   $  16,018     $ (6,717)    $ (27,005)
                                                                        ---------     ---------    ---------

Other comprehensive income (loss), net of tax:
   Unrealized holding gains (losses) arising during
        the year (net of tax of $130, $168 and $111)                          314         (716)          682
   Less: reclassification adjustments for realized gains (losses)
        included in net income (net of tax of $1 ($169) and $257)             (58)         186          (500)
                                                                        ---------     --------     ---------
   Other comprehensive income (loss), net of tax                              256         (530)          182
                                                                        ---------     --------     ---------
   Comprehensive income (loss)                                            $16,274     $ (7,247)    $ (26,823)
                                                                        =========     ========     =========

</TABLE>

<PAGE>


<TABLE>
<CAPTION>
                                 STIRLING COOKE BROWN HOLDINGS LIMITED

                             CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                       PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS--SCHEDULE II

                                YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
                          (Expressed in thousands of United States Dollars,
                                   except share and per share data)

                                                                         1998         1999          2000
                                                                         ----         ----          ----
<S>                                                                    <C>          <C>          <C>
OPERATING ACTIVITIES
     Net income (loss)................................................ $ 16,018     $ (6,717)    $(27,005)
Items not effecting cash
     Amortization and write-off of goodwill...........................      373          373        5,977
     Amortization of marketable securities............................       (8)          10            8
     Depreciation and amortization of capital assets..................        2           10           10
     Equity in (income) loss of subsidiaries..........................  (15,297)       4,720       20,399
     Gain on sale of marketable securities............................      (55)        (143)           0
     Changes in non cash operating assets and liabilities
        Other assets..................................................     (134)         (80)         165
        Accounts payable and accrued liabilities......................     (892)         472         (226)
        Due to subsidiaries...........................................        0            0            0
                                                                       --------     --------     --------

          Net cash provided (used) by operating activities............        7       (1,355)        (672)

INVESTING ACTIVITIES
     Purchase of capital assets.......................................        0            0            0
     Investments in subsidiaries......................................      960           15            6
     Due from subsidiaries............................................   (4,331)      (3,606)      (6,213)
     Dividends received from subsidiaries.............................    9,250        6,000            0
     Purchase of debt securities......................................   (3,992)     (11,156)           0
     Purchase of equity securities....................................     (503)      (1,000)      (2,000)
     Proceeds on sale of debt securities..............................        0        2,190        1,000
     Proceeds on sale of equity securities............................      558          953            0
                                                                       --------     --------     --------

          Cash provided (used) by investing activities................    1,942       (6,604)      (7,207)

FINANCING ACTIVITIES
     Dividends........................................................   (1,178)      (1,130)      (1,130)
     Net proceeds from subscription to share capital..................        0            0            0
     Proceeds from exercise of options................................        0            0            0
     Purchase of ordinary shares in treasury..........................     (567)      (4,423)           0
     Sales of ordinary shares in treasury.............................        0            0            0
                                                                       --------     --------     --------

          Cash used by financing activities...........................   (1,745)      (5,553)      (1,130)
                                                                       --------     --------     --------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................      204      (13,512)      (9,009)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........................   27,803       28,007       14,495
                                                                       --------     --------     --------

CASH AND CASH EQUIVALENTS AT END OF YEAR.............................. $ 28,007     $ 14,495     $  5,486
                                                                       ========     ========     ========

All dividends received were from consolidated subsidiaries.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                                                STIRLING COOKE BROWN HOLDINGS LIMITED

                                          SUPPLEMENTARY INSURANCE INFORMATION--SCHEDULE III

                                            YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
                                          (Expressed in thousands of United States Dollars,
                                                  except share and per share data)

                                            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, 1998
  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
  Insurance.................      1,848    30,788     22,477         0    7,716    1,261    4,790       2,052       3,062      9,676
  Other.....................          0         0          0         0        0    2,353        0           0       1,679          0
                               --------  --------   --------   -------  -------  -------  -------    --------     -------    -------
     Total continuing
operations..................      1,848    30,788     22,477         0    7,716    7,727    4,790       2,052      42,316      9,676

  Underwriting Management...          0         0          0         0        0      197        0           0       1,865          0
  Reinsurance...............        438    35,329      2,560         0   10,058      847   12,481       1,566         215      7,740
                               --------  --------   --------   -------  -------  -------  -------    --------     -------    -------
     Total discontinued
        operations..........        438    35,329      2,560         0   10,058    1,044   12,481       1,566       2,080      7,740
                               --------  --------   --------   -------  -------  -------  -------    --------     -------    -------
     Total all operations...   $  2,286  $ 66,117   $ 25,037   $     0  $17,774  $ 8,771  $17,271    $  3,618     $44,396    $17,416
                               ========  ========   ========   =======  =======  =======  =======    ========     =======    =======

YEAR ENDED DECEMBER 31, 1999
  Brokerage.................   $      0  $      0   $      0   $     0  $     0  $ 2,573  $     0    $      0     $22,173    $     0
  Program Business..........          0         0          0         0        0      424        0           0      25,160          0
  Insurance.................      1,723    59,422     20,108         0    9,451      558    6,965       3,141       4,590      8,907
  Other.....................          0         0          0         0        0    2,197        0           0       6,063          0
                               --------  --------   --------   -------  -------  -------  -------    --------     -------    -------
     Total continuing
        operations..........      1,723    59,422     20,108         0    9,451    5,752    6,965       3,141      57,986      8,907

  Underwriting Management...          0         0          0         0        0      223        0           0       2,677          0
  Reinsurance...............         22    33,713        851         0    2,399      739    5,405         719         416      1,121
                               --------  --------   --------   -------  -------  -------  -------    --------     -------    -------
     Total discontinued
        operations..........         22    33,713        851         0    2,399      962    5,405         719       3,093      1,121
                               --------  --------   --------   -------  -------  -------  -------    --------     -------    -------

     Total all operations      $  1,745  $ 93,135   $ 20,959   $     0  $11,850  $ 6,714  $12,370    $  3,860     $61,079    $10,028
                               ========  ========   ========   =======  =======  =======  =======    ========     =======    =======

YEAR ENDED DECEMBER 31, 2000
  Brokerage.................   $      0  $      0   $      0   $     0  $     0  $ 2,377  $     0    $      0      16,027    $     0
  Program Business..........          0         0          0         0        0      539        0           0      20,395          0
  Insurance.................      2,033    79,820     21,087         0   18,494    1,788   17,160       5,454       5,964     61,396
  Other.....................          0         0          0         0        0    1,438        0           0       4,432          0
                               --------  --------   --------   -------  -------  -------  -------    --------     -------    -------
     Total continuing
       operations...........      2,033    79,820     21,087         0   18,494    6,142   17,160       5,454      46,818     61,396

  Underwriting Management...          0         0          0         0        0      316        0           0       6,534          0
  Reinsurance...............          0    34,683          0         0      853      885    6,233         129       1,468        321
                               --------  --------   --------   -------  -------  -------  -------   ---------     -------    -------
     Total discontinued
       operations...........          0    34,683          0         0      853    1,201    6,233         129       8,002        321
                               --------  --------   --------   -------  -------  -------  -------   ---------     -------    -------
        Total all operations   $  2,033  $114,503   $ 21,087   $     0  $19,347  $ 7,343  $23,393   $   5,583     $54,820    $61,717
                               ========  ========   ========   =======  =======  =======  =======   =========     =======    =======
</TABLE>



<PAGE>


<TABLE>
<CAPTION>

                                   STIRLING COOKE BROWN HOLDINGS LIMITED

                                         REINSURANCE--SCHEDULE IV

                                  YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
                              (Expressed in thousands of United States Dollars,
                                     except share and per share data)

                                                                                            PERCENTAGE
                                                                                            ----------
                                                                                             OF GROSS
                                                                                             --------
                                          GROSS       GROSS         GROSS        NET         PREMIUMS
                                          -----       -----         -----        ---         --------
                                        PREMIUMS     PREMIUMS     PREMIUMS     PREMIUMS     ASSUMED TO
                                        --------     --------     --------     --------     ----------
                                         WRITTEN      CEDED        ASSUMED      EARNED     NET PREMIUMS
                                         -------      -----        -------      ------     ------------
                                                                                              EARNED
                                                                                              ------
<S>                                     <C>          <C>          <C>          <C>             <C>
Year ended December 31, 1998
     Continuing operations.........     $  39,526    $ 31,809     $      0     $    7,717        0%
     Discontinued operations.......             0       4,998       15,055         10,057      150%
                                        ---------    --------     --------     ----------      ----
         Total for all operations..     $  39,526    $ 36,807     $ 15,055     $   17,774       85%
                                        =========    ========     ========     ==========

Year ended December 31, 1999
     Continuing operations.........     $  49,856    $ 40,405     $      0     $    9,451        0%
     Discontinued operations.......             0       2,302        4,701          2,399      196%
                                        ---------    --------     --------     ----------      ----
         Total for all operations..     $  49,856    $ 42,707     $  4,701     $   11,850       40%
                                        =========    ========     ========     ==========

Year ended December 31, 2000
     Continuing operations.........     $  60,313    $ 41,819     $      0     $   18,494        0%
     Discontinued operations.......             0         319        1,172            853      137%
                                        ---------    --------     --------     ----------      ----
         Total for all operations..     $  60,313    $ 42,138     $  1,172     $   19,347        6%
                                        =========    ========     ========     ==========
</TABLE>




<PAGE>

<TABLE>
<CAPTION>

                   STIRLING COOKE BROWN HOLDINGS LIMITED

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


                                           BALANCE AT    CHARGED TO    CHARGED TO
                                           ----------    ----------    ----------
                                            BEGINNING     COSTS AND       OTHER                      BALANCE AT
                                            ---------     ---------       -----                      ----------
                 DESCRIPION                 OF PERIOD     EXPENSES      ACCOUNTS    DEDUCTIONS     END OF PERIOD
                                            ---------   ------------    --------    ----------     -------------
<S>                                          <C>          <C>             <C>         <C>              <C>
Year ended December 31, 1998
   Allowance for Doubtful Accounts
         Continuing operations               $  --        $    --         $   --      $    --          $    --
         Discontinued operations                --          2,500             --           --            2,500
                                             ------       -------         ------      -------          -------
         Total operations                    $  --        $ 2,500         $   --      $    --          $ 2,500

Year ended December 31, 1999
   Allowance for Doubtful Accounts
         Continuing operations               $  --        $ 2,182         $   --      $    --          $ 2,182
         Discontinued operations              2,500         2,060             --           --            4,560
                                             ------       -------         ------      -------          -------
         Total operations                    $2,500       $ 4,242         $   --      $    --          $ 6,742

Year ended December 31, 2000
   Allowance for Doubtful Accounts
         Continuing operations               $2,182       $   200         $   --      $    --          $ 2,382
         Discontinued operations              4,560         2,400             --           --            6,960
                                             ------       -------         ------      -------          -------
         Total operations                    $6,742       $ 2,600         $   --      $    --          $ 9,342

</TABLE>

<PAGE>


<TABLE>
<CAPTION>
                         STIRLING COOKE BROWN HOLDINGS LIMITED

                          SUPPLEMENTARY INSURANCE INFORMATION
            CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS--SCHEDULE VI

                        YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
                    (Expressed in thousands of United States Dollars,
                           except share and per share data)


                                                  RESERVE
                                                  -------
                                                FOR LOSSES
                                                ----------
                                   DEFERRED      AND LOSS    DISCOUNT,                            NET
                                   --------      --------    ---------                            ---
                                 ACQUISITION    ADJUSTMENT    IF ANY,    UNEARNED    EARNED    INVESTMENT
                                 -----------    ----------    -------    --------    ------    ----------
                                    COSTS        EXPENSES    DEDUCTED    PREMIUMS   PREMIUMS     INCOME
                                    -----        --------    --------    --------   --------     ------
<S>                               <C>           <C>           <C>        <C>        <C>        <C>
Year ended December 31, 1998
  Property/Casualty entities
    Continuing ........           $  1,848      $ 30,788      $    --    $ 22,477   $  7,716   $  1,261
    Discontinued ......                438        35,329           --       2,560     10,058        847
                                  --------      --------      -------    --------   --------   --------
    All ...............           $  2,286      $ 66,117      $    --    $ 25,037   $ 17,774   $  2,108

Year ended December 31, 1999
  Property/Casualty entities
    Continuing ........           $  1,723      $ 59,422      $    --    $ 20,108   $  9,451   $    558
    Discontinued ......                 22        33,713           --         851      2,399        739
                                  --------      --------      -------    --------   --------   --------
    All ...............           $  1,745      $ 93,135      $    --    $ 20,959   $ 11,850   $  1,297

Year ended December 31, 2000
  Property/Casualty entities
    Continuing ........           $  2,033      $ 79,820      $    --    $ 21,087   $ 18,494   $  1,788
    Discontinued ......                 --        34,683           --        --          853        885
                                  --------      --------      -------    --------   --------   --------
    All ...............           $  2,033      $114,503      $    --    $ 21,087   $ 19,347   $  2,673

</TABLE>

<TABLE>
<CAPTION>

                                   LOSSES AND LOSS
                                 ADJUSTMENT EXPENSES
                                 INCURRED RELATED TO
                                                           AMORTIZATION       PAID
                                                           ------------       ----
                                                            OF DEFERRED      LOSSES
                                                            -----------      ------
                                                              POLICY        AND LOSS
                                                              ------        --------
                                   CURRENT                  ACQUISITION    ADJUSTMENT      PREMIUM
                                   -------                  -----------    ----------      -------
                                    YEAR       PRIOR YEAR      COSTS        EXPENSES       WRITTEN
                                    ----       ----------      -----        --------       -------
<S>                               <C>           <C>           <C>           <C>           <C>
Year ended December 31, 1998
  Property/Casualty entities
    Continuing ........           $  4,811      $    (21)     $  2,052      $  3,149      $  9,676
    Discontinued ......              7,767         4,714         1,566         9,355         7,740
                                  --------      --------      --------      --------      --------
    All ...............           $ 12,578      $  4,693      $  3,618      $ 12,504      $ 17,416

Year ended December 31, 1999
  Property/Casualty entities
    Continuing ........           $  6,289      $    676      $  3,141      $  4,335      $  8,907
    Discontinued ......              2,407         2,998           719         6,138         1,121
                                  --------      --------      --------      --------      --------
    All ...............           $  8,696      $  3,674      $  3,860      $ 10,473      $ 10,028

Year ended December 31, 2000
  Property/Casualty entities
    Continuing ........           $ 13,617      $  3,543      $  5,454      $  6,568      $ 61,396
    Discontinued ......                177         6,056           129         3,408           321
                                  --------      --------      --------      --------      --------
    All ...............           $ 13,794      $  9,599      $  5,583      $  9,976      $ 61,717

</TABLE>



<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 30TH DAY OF MARCH, 2001.

                                     STIRLING COOKE BROWN HOLDINGS LIMITED


                                     By      /S/ GEORGE W. JONES
                                       ---------------------------------------
                                                    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 30TH DAY OF MARCH,  2000,  BY
THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:


           SIGNATURE                                    TITLE
  -----------------------------  ----------------------------------------------

       /S/ STEPHEN A. CRANE      President, Chief Executive Officer and
                                 Director (Principal Executive Officer)
         Stephen A. Crane


       /S/ GEORGE W. JONES       Chief Financial Officer and Director (Principal
                                 Financial and Accounting Officer)
          George W. Jones


          /S/ LEN QUICK          Chief Operating Officer and Director

            Len Quick


        /S/REUBEN JEFFERY III    Director

        Reuben Jeffery III


     /S/ NICHOLAS MARK COOKE     Director

        Nicholas Mark Cooke


         /S/ JEAN DE POURTALES   Director

         Jean de Pourtales