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                                 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, 1997

                                      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 20, 1998 was
approximately $134.3 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 20, 1998 there were 9,863,372 outstanding Ordinary Shares, the
only class of the registrant's common stock outstanding, of $0.25 par value.

                      DOCUMENTS INCORPORATED BY REFERENCE

  Certain portions of the registrant's Proxy Statement relating to its Annual
General Meeting of Shareholders scheduled to be held on May 28, 1998 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, 1997 on a Form 10-K.

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<PAGE>

                                     INDEX

<TABLE>
<CAPTION>
                                                                                                PAGE
                                            PART 1                                              ----
<S>      <C>                                                                                    <C>
Item 1   Business..............................................................................   1
Item 2   Properties............................................................................  10
Item 3   Legal Proceedings.....................................................................  11
Item 4   Submission of Matters to a Vote of Security Holders...................................  11
<CAPTION>
                                           PART II
<S>      <C>                                                                                    <C>
Item 5   Market for Registrant's Common Equity and Related Stockholder Matters.................  12
Item 6   Selected Financial Data...............................................................  13
Item 7   Management's Discussion and Analysis of Financial Condition and Results of Operations.  14
Item 8   Financial Statements and Supplementary Data...........................................  19
Item 9   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..  46
<CAPTION>
                                           PART III
<S>      <C>                                                                                    <C>
Item 10  Directors and Executive Officers of the Registrant....................................  46
Item 11  Executive Compensation................................................................  46
Item 12  Security Ownership of Certain Beneficial Owners and Management........................  46
Item 13  Certain Relationships and Related Transactions........................................  46
<CAPTION>
                                           PART IV
<S>      <C>                                                                                    <C>
Item 14  Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................  47
</TABLE>

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

                                    PART 1

ITEM 1--BUSINESS

THE COMPANY

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

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

  Beginning in 1992, the Company identified a number of opportunities and
undertook certain strategic initiatives to enhance its growth prospects. To
further these plans, the Company acquired Realm Investments Ltd. in January
1996. Realm Investments Ltd., a Bermuda company, acted as a holding company
for a number of Bermuda and United States subsidiaries involved in the
insurance industry. The Company has expanded its businesses and services to
include managing general agency services, insurance underwriting, underwriting
management, claims administration, loss and safety control and premium
auditing, enabling it to diversify its revenues and increase its overall
control of the risk transfer process.

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

  In December 1997, the Company and certain selling shareholders consummated
an Initial Public Offering of 3,421,250 Ordinary Shares. Of these shares,
1,375,000 were sold by the Company and 2,046,250 were sold by the selling
shareholders. The net proceeds received by the Company of $26.8 million will
be used primarily to provide additional capital to Realm National in order to
facilitate that company's plans to expand its underwriting activities.

  The Company derives its revenues principally from: (i) risk management fees
earned from non-risk bearing services; (ii) net premium earned from providing
insurance and reinsurance coverage; and (iii) net investment income.

  In 1997, the Company's risk management fees accounted for 69.9% of total
revenues. The Company's risk management fees are generated from brokerage
activities, managing general agency services, underwriting management
services, captive management and program design and administration services,
loss and safety control services, claims administration and policy issuance.

  Net premiums earned accounted for 18.0% of total revenues in 1997. The
Company's net premiums earned were generated by Comp Indemnity Reinsurance
Company Limited, the Company's Bermuda-based reinsurance subsidiary ("CIRCL"),
and Realm National, its New York-based primary insurance carrier.

                                       1
<PAGE>

  Net investment income accounted for 8.9% of total revenues in 1997. The
Company earns investment income on both its investment portfolio and on cash
held in fiduciary accounts. Cash held in fiduciary accounts relates to
premiums collected pending the remittance of such funds to the insurance
company or underwriter.

INSURANCE SERVICES

  The Company's principal source of profits is risk management fees received
for the various insurance services it provides to its clients. The services
offered to clients include the following:

  INSURANCE AND REINSURANCE BROKERING

  The Company's insurance and reinsurance brokering subsidiaries act as
brokers for the placement of risks for alternative and traditional workers
compensation, accident, health and specialty casualty lines.

  The Company, through its original operating subsidiary, Stirling Cooke Brown
Insurance Brokers Limited, began operating in 1989 as an insurance broker in
London specialising in the placement of alternatives to traditional workers'
compensation insurance and the arrangement of assorted reinsurance programs.
The Company now owns insurance and reinsurance brokering subsidiaries based in
London, Bermuda and New York. These companies specialise in placing insurance
and reinsurance business in alternative and traditional workers' compensation,
accident, health and specialty casualty lines. The Company generates fees and
commission-based revenues from this business. The Company's brokering
operations generated revenues of $24.0 million in 1997, $20.1 million in 1996
and $17.1 million in 1995.

  MANAGING GENERAL AGENCY SERVICES

  The Company's Managing General Agency ("MGA") subsidiaries are authorised to
market products, underwrite risks, issue policies, administer claims and
accept associated premiums on behalf of various independent and group owned
primary insurance carriers.

  The Company has in recent years expanded its MGA network to include offices
in: Dallas, Texas; Sarasota, Ft. Lauderdale and Orlando in Florida; New York
City, New York and Montgomery, Alabama. The Company's MGA's earn fees and
commissions for providing services. The MGAs generated revenues of $11.4
million in 1997 and $6.0 million in 1996.

  UNDERWRITING MANAGEMENT SERVICES

  The Company owns a number of Managing General Underwriters ("MGUs") based in
Bermuda and the United States who are authorised to underwrite and administer
reinsurance business on behalf of a number of independent reinsurance
companies. The MGUs earn fees for providing these underwriting and associated
services relating to the business underwritten. The MGUs generated revenues of
$4.0 million in 1997 and $4.0 million in 1996.

  PROGRAM DESIGN AND ADMINISTRATION AND CAPTIVE MANAGEMENT SERVICES

  The Company designs and markets comprehensive programs to transfer risk from
an insured to insurers and ultimately to reinsurers in the workers'
compensation market as well as for other specialty casualty lines. These
programs enable the Company to provide a range of risk management services and
products for clients, while also maximising the Company's revenues at each
stage of the risk transfer process. The Company earns fees for designing,
administrating and placing these programs. Revenues in respect of these
services were $2.9 million in 1997 and $1.6 million in 1996.

  LOSS CONTROL, CLAIMS ADMINISTRATION AND PREMIUM AUDITING SERVICES

  The Company provides claims administration, loss and safety control and
premium audit services to independent and group owned insurance companies.
These services are provided by North American Risk, Inc., which was
established in July 1996. Fees earned by North American Risk, Inc. contributed
$2.6 million to revenues in 1997 and $2.0 million to revenues in 1996.

                                       2
<PAGE>

  PRIMARY INSURANCE CARRIER

  The Company currently uses independent primary insurance carriers, primarily
Clarendon National Insurance ("Clarendon") and Legion Insurance Company
("Legion"), in connection with most of its existing workers' compensation
business, and expects these arrangements to continue for much of this existing
business. However, following the acquisition of Realm National in September
1996, the Company has started to act as an issuing carrier for a portion of
its new business opportunities and receives a combination of policy issuance
fees (typically 7% of the insured's gross premiums) and/or net premiums
earned. Furthermore, Realm National provides the Company with the opportunity
to generate business and receive premiums and fees from sources outside the
Company's MGA network as non-affiliated MGAs place business with Realm
National. The Company expects that the revenues to be generated through the
integration of Realm National into the Company's existing businesses will be
an important component of future earnings growth.

  Realm National had shareholder's equity of approximately $21.5 million at
December 31, 1997 (1996--$21.3 million), net premiums earned of approximately
$2.9 million for the year ended December 31, 1997 (1996--$0.8 million) and a
B+ (Very Good) rating from A.M. Best Company. Prior to its acquisition by the
Company, Realm National primarily wrote property and casualty insurance in a
limited number of states. For the year ended December 31, 1997, Realm
National's gross premiums written were $21.7 million (September 5, 1996, date
of acquisition, to December 31, 1996--$4.0 million); net premiums written were
$4.0 million (1996--$0.8 million), of which $1.7 million (1996--$0.8 million)
were related to property insurance and $2.3 million (1996--$0.0) were related
to workers' compensation insurance. The Company is in the process of expanding
Realm National's business to include workers' compensation and other specialty
casualty insurance lines in each of the 19 states in which Realm National is
currently licensed to provide property and casualty insurance. The Company
intends to eventually license Realm National in substantially all of the
remaining states and the District of Columbia. In order to obtain a license in
a given state, Realm National must complete an application and demonstrate
compliance with state licensing requirements. The applicable insurance
regulatory authority reviews the application, which review may take from three
months to two or more years. If all the requirements are met, a license is
issued.

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

  REINSURANCE COMPANY

  The Company has a Bermuda-based reinsurance company, CIRCL, which reinsures
a portion of the underwriting risk on business provided to or by the Company
and receives a reinsurance premium to cover that risk. CIRCL accepts a portion
of the reinsurance risk from insurance carriers on programs managed by the
Company, and then purchases reinsurance protection to minimise its risk. CIRCL
primarily reinsures workers' compensation, and associated property and general
liability risks. For the year ended December 31, 1997, CIRCL's gross premiums
assumed were $14.1 million (1996--$12.5 million), of which $13.1 million
(1996--$9.5 million) were related to workers' compensation insurance and $1.0
million (1996--$3.0 million) were related to property and general liability
insurance. Net premiums assumed were $9.2 million (1996--$9.3 million).

MARKETING

  The Company markets and originates business at various stages in the risk
transfer process, through its MGAs, Realm National and its insurance and
reinsurance brokering activities.

                                       3
<PAGE>

  MANAGING GENERAL AGENCY NETWORK

  The Company markets its workers' compensation products and other specialty
lines to retail agents in the U.S. through its Company-owned MGAs. Individual
MGA offices market their services and products through sales representatives,
targeted direct mail, local and regional advertising, seminars, and trade and
industry conventions. The Company advertises in U.S. and international trade
journals, and has also contributed articles to a quarterly trade magazine
circulated to agents and policyholders. Additionally, the Company participates
as an exhibitor in the annual Risk and Insurance Management Society
conventions.

  Given its general reliance on retail agents as an important source of
business production, the Company places emphasis on building and maintaining
relationships with individual retail agents, and on expanding its network of
retail producers. To encourage loyalty from the retail agents to the Company's
MGAs, the Company seeks to provide a high level of service, offer insurance
products that satisfy the needs of clients and reward increased levels of
production through incentive compensation schedules. The Company believes that
it has successfully developed a reputation for providing quality service,
cost-effective products and strong marketing support which has enabled it to
develop strong relationships with its retail agents and commercial customers.

  PRIMARY INSURANCE CARRIERS

  The Company's MGAs market insurance products on behalf of both Realm
National and independent primary insurance carriers, primarily Clarendon and
Legion. In 1997, fees received from Clarendon accounted for approximately 51%
of the Company's total revenues, while fees received from Legion accounted for
less than 10% of the Company's total revenues. In addition, Realm National's
insurance products are marketed to independent agents and other procurers of
insurance through other unaffiliated MGA networks. The Company expects Realm's
marketing efforts to increase as it becomes licensed in additional states.

  INSURANCE AND REINSURANCE BROKERING

  The Company markets its insurance and reinsurance brokering capabilities in
a number of specialty insurance markets, both alternative and traditional. The
Company focuses its insurance brokering marketing efforts on wholesale and
retail agents, and its reinsurance brokering marketing efforts on a number of
primary insurance and reinsurance companies.

COMPETITION

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

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

EMPLOYEES

  As of December 31, 1997, the Company had 291 employees. The service nature
of the Company's business makes its employees an important corporate asset.
While the market for qualified personnel is extremely competitive, the Company
believes that its relationship with its employees is good. None of the
Company's employees are represented by a union.

                                       4
<PAGE>

REGULATION

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

  Most states require property and casualty insurers licensed to transact
insurance in the state to become members of insolvency funds or associations
which generally protect policyholders against the insolvency of such insurers.
Members of the fund or association must contribute to the payment of certain
claims made against insolvent insurers. Maximum contributions required by law
in any one year vary between 1% and 2% of annual premiums written by a member
in that state. Assessments from insolvency funds paid by Realm National were
immaterial in 1995, 1996 and 1997. The cost of most of these assessments is
recoverable through future policy surcharges and premium tax deductions.

  Realm National is also required to participate in various mandatory
insurance facilities or in funding mandatory pools, which are generally
designed to provide insurance coverage for consumers who are unable to obtain
insurance in the voluntary insurance market. One such pool is the multi-state
workers' compensation pool operated by the National Council on Compensation
Insurance. These pools typically require all companies writing applicable
lines of insurance in the state for which the pool has been established to
fund deficiencies experienced by the pool based upon each company's relative
premium writings in that state, with any excess funding typically distributed
to the participating companies on the same basis. Total assessments incurred
by Realm National from all such facilities for 1995, 1996, and 1997 were
immaterial.

  Realm National is subject to various state statutory and regulatory
restrictions, generally applicable to each insurance company in its state of
incorporation, which limit the amount of dividends or distributions payable by
an insurance company to its shareholders. By agreement with the New York
Department of Insurance, Realm National is restricted from declaring dividends
for a two year period from September 5, 1996, the date upon which its
acquisition by the Company was completed. The restrictions are generally based
on certain levels of surplus, investment income, and operating income, as
determined under statutory accounting practices.

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

  The National Association of Insurance Commissioners has adopted a
methodology for assessing the adequacy of statutory surplus of property and
casualty insurers which includes a risk-based capital requirement. Insurance
companies are required to calculate and report information under a risk-based
formula which attempts to measure statutory capital and surplus needs based on
the risks in a company's mix of products and investment portfolio. The formula
is designed to allow state insurance regulators to identify potential weakly
capitalised

                                       5
<PAGE>

companies. Under the formula, a company determines its "risk-based capital"
("RBC") by taking into account certain risks related to the insurer's assets
(including risks related to its investment portfolio and ceded reinsurance)
and the insurer's liabilities (including underwriting risks related to the
nature and experience of its insurance business). The RBC rules provide for
different levels of regulatory attention depending on the ratio of a company's
total adjusted capital to its "authorised control level" of RBC. Under the
formula, a higher ratio reflects a greater adequacy of capital. Based on
calculations made by the Company, the RBC level for the Company's insurance
subsidiaries exceeds levels that would trigger regulatory attention. At
December 31, 1997, Realm National's RBC ratio was approximately 1,624% (1996--
1,908%), and the threshold requiring minimum regulatory involvement was 200%.
Therefore, the Company's capital exceeds all requirements of the Risk-Based
Capital Model Act. The NAIC has also developed an Insurance Regulatory
Information System ("IRIS") to assist state insurance departments in their
oversight of the financial condition of insurance companies operating in their
respective states. IRIS identifies 11 industry ratios and specifies "usual
values" for each ratio. Departure from the usual values in four or more ratios
generally leads to inquiries from individual state insurance commissioners.
Management believes Realm National's IRIS ratios are such as to not attract
such regulatory attention.

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

  Realm National is organized under the insurance laws of the State of New
York (the "Insurance Code of New York"). The Insurance Code of New York
provides that the acquisition or change of "control" of a domestic insurer, or
any person who controls a domestic insurer, cannot be consummated without the
prior approval of the relevant insurance regulatory authority. A person
seeking to acquire control, directly or indirectly, of a domestic insurance
company, or any person controlling a domestic insurance company, must
generally file with a relevant insurance regulatory authority an application
for change of control (commonly known as a "Form A") containing certain
information required by statute and published regulations and provide a copy
of such Form A to the domestic insurer. Under the Insurance Code of New York,
control is presumed to exist if any person, directly or indirectly, owns,
controls, holds with power to vote or holds proxies representing ten percent
or more of the voting securities of any other person.

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

  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, an
insurance 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.

                                       6
<PAGE>

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

  The Insurance Act provides a minimum liquidity ratio for general business.
An insurer engaged in general business is required to maintain the value of
its relevant assets at not less than 75% of the amount of its relevant
liabilities. Relevant assets include cash and time deposits, quoted
investments, unquoted bonds and debentures, first liens on real estate,
investment income due and accrued, accounts and premiums receivable,
reinsurance balances receivable and funds held by ceding reinsurers. There are
certain categories of assets which, unless specifically permitted by the
Minister, do not automatically qualify as relevant assets such as unquoted
equity securities, investments in and advances to affiliates, real estate and
collateral loans. The relevant liabilities are total general business
insurance reserves and total other liabilities less deferred income tax and
sundry liabilities (by interpretation, those not specifically defined),
letters of credit and guarantees.

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

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

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

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

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

                                       7
<PAGE>

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

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

OUTSTANDING LOSSES AND LOSS EXPENSES

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

  The following table sets forth a reconciliation of beginning and ending
reserves for losses and loss adjustment expenses:

            RECONCILIATION OF OUTSTANDING LOSSES AND LOSS EXPENSES

<TABLE>
<CAPTION>
                                                                FOR THE YEARS
                                                                ENDED DECEMBER
                                                                     31,
                                                               ----------------
                                                                1996     1997
                                                               ------- --------
                                                                 (DOLLARS IN
                                                                  THOUSANDS)
      <S>                                                      <C>     <C>
      Balance beginning of year............................... $   --  $ 24,301
      Less outstanding losses recoverable.....................     --   (16,588)
      Net balance for CIRCL, at acquisition...................   1,270      --
      Net balance for Realm National, at acquisition..........   1,687      --
                                                               ------- --------
      Net balance.............................................   2,957    7,713
                                                               ------- --------
      Incurred related to:
        Current year..........................................   6,515   10,174
        Prior years...........................................     250      777
                                                               ------- --------
          Total incurred......................................   6,765   10,951
                                                               ------- --------
      Paid related to:
        Current year..........................................   1,334    3,560
        Prior years...........................................     675    3,449
                                                               ------- --------
          Total paid..........................................   2,009    7,009
                                                               ------- --------
      Net balance.............................................   7,713   11,655
      Plus outstanding losses recoverable.....................  16,588   24,621
                                                               ------- --------
      Balance at end of year.................................. $24,301 $ 36,276
                                                               ======= ========
</TABLE>

                                       8
<PAGE>

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

  The Company's underwriting loss ratio (i.e. the ratio of net losses and net
loss expenses to net assumed premium earned) for 1997 was 92.9% (1996--77.3%).

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

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

                    RECONCILIATION OF SAP AND GAAP RESERVES

<TABLE>
<CAPTION>
                                                               FOR THE YEARS
                                                              ENDED DECEMBER
                                                                    31,
                                                              ----------------
                                                               1996     1997
                                                              -------  -------
                                                                (DOLLARS IN
                                                                THOUSANDS)
      <S>                                                     <C>      <C>
      Reserves for losses and loss adjustment expenses, end
       of year SAP........................................... $ 7,843  $11,806
      Gross-up for ceded reinsurance reserves................  16,588   24,621
      Provision for salvage receivable not included on a SAP
       basis.................................................     (29)    (128)
      Provision for loss portfolio transfer not included in
       SAP reserves..........................................    (101)     (23)
                                                              -------  -------
      Reserves for losses and loss adjustment expenses, end
       of year GAAP.......................................... $24,301  $36,276
                                                              =======  =======
</TABLE>

  The following table presents the development of the Company's ongoing net
reserves for 1996 through 1997. 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 one year's movement in the Company's
reserves. It should be noted that the following table presents a "run-off" of
balance sheet reserves rather than accident or policy year loss development.
Therefore, each amount in the table includes the effects of changes in
reserves for all prior years.

                                       9
<PAGE>

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

<TABLE>
<CAPTION>
                                                              FOR THE YEARS
                                                             ENDED DECEMBER
                                                                   31,
                                                            ------------------
                                                              1996      1997
                                                            --------  --------
                                                               (DOLLARS IN
                                                               THOUSANDS)
      <S>                                                   <C>       <C>
      Gross reserve for losses and loss adjustment
       expenses...........................................  $ 24,301  $ 36,276
      Less outstanding losses recoverable.................   (16,588)  (24,621)
                                                            --------  --------
      Net reserve for losses and loss adjustment expenses.     7,713    11,655
      Reserve re-estimated as of:
        One year later....................................  $  8,490
                                                            --------
      Cumulative deficiency...............................      (777)
                                                            --------
      Percentage..........................................        10%
                                                            --------
      Cumulative amount of reserve paid through:
        One year later....................................  $  3,449
                                                            ========
</TABLE>

NOTE ON FORWARD-LOOKING STATEMENTS

  The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. The Company's Form 10-K for the year
ended December 31, 1997, the Company's 1997 Annual Report, any Form 10-Q or
Form 8-K of the Company, or any oral or written statements made by or on
behalf of the Company, may include forward-looking statements which reflect
the Company's current views with respect to future events and financial
performance. These forward-looking statements are identified by their use of
such terms and phrases as "intends," "intend," "intended," "goal," "estimate,"
"estimates," "expects," "expect," "expected," "project," "projects,"
"projected," "projections," "plans," "anticipates," "anticipated," "should,"
"designed to," "foreseeable future," "believe," "believes" and "scheduled" and
similar expressions. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date the
statement was made. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.

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

ITEM 2--PROPERTIES

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

<TABLE>
<CAPTION>
                                                 APPROXIMATE
           PROPERTY                              SQUARE FEET  LEASE EXPIRATION
           --------                              -----------  ----------------
      <S>                                        <C>         <C>
      Hamilton, Bermuda.........................   10,307    June 20, 2006
      London, England...........................   12,500    August 10, 2009
      Dallas, Texas.............................   14,700    September 30, 2003
      New York, New York........................    7,900    October 3, 2003
      Sarasota, Florida.........................    8,300    June 14, 1998
      Orlando, Florida..........................    3,400    June 30, 1999
      Fort Lauderdale, Florida..................   11,100    January 1, 2000
</TABLE>

                                      10
<PAGE>

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

ITEM 3--LEGAL PROCEEDINGS

  The Company is subject to litigation and arbitration in the ordinary course
of its business.

  While any proceeding contains an element of uncertainty, management
presently believes the outcome of currently pending proceedings will not have
a material adverse effect on the Company.

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

  No matters were submitted to a vote of shareholders during the fourth
quarter of the fiscal year 1997.

                     EXECUTIVE OFFICERS OF THE REGISTRANT

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

<TABLE>
<CAPTION>
      NAME                 AGE                     POSITION
      ----                 ---                     --------
      <C>                  <C> <S>
      Nicholas Mark Cooke.  40 Chairman, President, Chief Executive Officer and
                               Director (1)
      Nicholas Brown......  39 Managing Director of Stirling Cooke Brown
                               Insurance Brokers Limited and Stirling Cooke
                               Brown Reinsurance Brokers Limited; Director (2)
      George W. Jones.....  43 Chief Financial Officer and Director (3)
</TABLE>
--------

(1) Term expires at annual shareholders meeting in 2000.
(2) Term expires at annual shareholders meeting in 1999.
(3) Term expires at annual shareholders meeting in 1998.

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

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

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

                                      11
<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 20, 1998, the approximate
number of holders of the Company's Ordinary Shares was 300.

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

<TABLE>
<CAPTION>
                                                                  HIGH     LOW
                                                                 ------- -------
      <S>                                                        <C>     <C>
      November 26, 1997--December 31, 1997...................... $25 1/2 $23 3/8
</TABLE>

  The closing market price of the Ordinary Shares on March 20, 1998 was $26
3/8.

  During 1996 and 1997 the Company did not pay any dividends. A dividend of
$.03 per Ordinary Share was declared on March 13, 1998 and will be paid on
March 30, 1998 to record holders at March 23, 1998. The declaration and
payment of future dividends is at the discretion of the Company's Board of
Directors and will depend upon, among other things, future earnings, capital
requirements, the general financial condition of the Company, general business
conditions and other factors. The Company's ability to pay dividends is
restricted due to certain insurance regulations. See "Management Discussion
and Analysis of Financial Condition and Results of Operations" and Note 18 to
the Consolidated Financial Statements.

  On May 16, 1997 the Company sold 8,000 Ordinary Shares to David M. Tarsh, an
existing shareholder of the Company, for an aggregate consideration of
$43,000. Such sale was exempt from registration under the Securities Act of
1933, as amended (the "Securities Act") pursuant to Section 4(2) thereof.

  On June 30, 1997 the Company sold 8,000 Ordinary Shares to Paul Murray, an
existing shareholder of the Company, for an aggregate consideration of
$43,000. Such sale was exempt from registration under the Securities Act
pursuant to Section 4(2) thereof.

  On June 30, 1997 the Company increased its authorized share capital to
20,000,000 Ordinary Shares of par value $0.25 each and effected a four-for-one
stock split, whereby each of the Company's Ordinary Shares of par value $1.00
each was divided into four Ordinary Shares of par value $0.25 each. Unless
otherwise specifically set forth to the contrary, all share and per share
amounts have been adjusted to reflect this stock split.

                                      12
<PAGE>

ITEM 6--SELECTED FINANCIAL DATA

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

<TABLE>
<CAPTION>
                                AS OF OR FOR THE YEARS ENDED DECEMBER 31,
                          ------------------------------------------------------
                             1993       1994       1995       1996(1)    1997
                          ---------- ---------- ---------- ---------- ----------
                            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE
                                                  DATA)
<S>                       <C>        <C>        <C>        <C>        <C>
INCOME STATEMENT DATA:
Revenues
  Brokerage fees and
   commissions..........  $   10,283 $   11,670 $   17,084 $   20,117 $   23,965
  Managing general
   agency fees..........           0          0          0      6,016     11,391
  Underwriting
   management fees......           0          0          0      4,045      4,022
  Program and captive
   management fees......           0          0          0      1,625      2,876
  Loss control and audit
   fees.................           0          0          0      2,039      2,627
  Policy issuance fees..           0          0          0        219        783
                          ---------- ---------- ---------- ---------- ----------
    Total risk
     management fees....      10,283     11,670     17,084     34,061     45,664
  Net premiums earned...           0          0          0      8,754     11,790
  Net investment income.         514        703      1,964      3,405      5,782
  Other income..........           0          0          0        841      2,074
                          ---------- ---------- ---------- ---------- ----------
    Total revenues......      10,797     12,373     19,048     47,061     65,310
                          ---------- ---------- ---------- ---------- ----------
Expenses
  Net losses and loss
   expenses incurred....           0          0          0      6,765     10,951
  Acquisition costs.....           0          0          0      1,837      1,344
  Salaries and benefits.       3,658      4,454      6,066     13,106     18,503
  General and
   administration
   expenses.............       3,602      3,788      5,828     13,154     18,594
                          ---------- ---------- ---------- ---------- ----------
    Total expenses......       7,260      8,242     11,894     34,862     49,392
                          ---------- ---------- ---------- ---------- ----------
  Income Before
   Taxation.............       3,537      4,131      7,154     12,199     15,918
  Taxation..............       1,419      1,298      2,560      2,281      2,925
                          ---------- ---------- ---------- ---------- ----------
    Net Income..........  $    2,118 $    2,833 $    4,594 $    9,918 $   12,993
                          ========== ========== ========== ========== ==========
Net Income per share(2).  $     0.49 $     0.66 $     1.07 $     1.22 $     1.55
Net Income per share
 assuming dilution(2)...  $     0.49 $     0.66 $     1.07 $     1.19 $     1.53
Dividends per Ordinary
 Share..................  $     0.28 $     0.19 $     0.53 $     0.00 $     0.00
Weighted average number
 of ordinary shares
 outstanding............   4,288,908  4,288,908  4,288,908  8,100,782  8,383,482
Weighted average number
 of ordinary shares
 outstanding assuming
 dilution...............   4,288,908  4,288,908  4,304,098  8,306,610  8,515,473
BALANCE SHEET DATA:
Cash and marketable
 securities.............  $      368 $      428 $      688 $   38,221 $   71,667
Total assets(3).........      15,576     61,914    103,273    235,084    406,330
Long term debt..........           0          0          0          0          0
Ordinary Shares subject
 to redemption(4).......           0          0          0     14,457          0
Total shareholders'
 equity.................       2,532      4,596      7,055     29,001     83,103
</TABLE>
--------
(1) Includes the operations of Realm Investments Limited from its January 1996
    acquisition by the Company. Realm National from its September 1996
    acquisition by the Company and the operations of North American Risk, Inc.
    from its July 1996 acquisition by the Company. All of such acquisitions
    were accounted for as purchases. See "Management's Discussion and Analysis
    of Financial Condition and Results of Operations".
(2) Net income per share is calculated by dividing income available to
    ordinary shareholders by the weighted average number of Ordinary Shares
    outstanding. The Ordinary Shares which were subject to redemption are
    included in the computation of the weighted average number of outstanding
    Ordinary Shares since they have identical rights. Shares held in treasury
    are not considered outstanding for purposes of the computation. Income per
    Ordinary Share assuming dilution is computed by dividing income available
    to ordinary shareholders by the weighted average number of Ordinary Shares
    and potentially dilutive securities such as stock options. The dilutive
    effect of options are reflected in the computation by application of the
    treasury stock method.
(3) Total assets comprise corporate assets together with cash held and
    insurance balances receivable in a fiduciary capacity. See Note 5 to the
    Consolidated Financial Statements.
(4) The Ordinary Shares subject to redemption were reclassified to
    shareholders' equity upon consummation of the Initial Public Offering
    since those shares were no longer redeemable.

                                      13
<PAGE>

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

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

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

  Stirling Cooke Brown Holdings (UK) Limited was the predecessor entity of the
Company. Accordingly, the consolidated financial statements of the Company for
the year ended December 31, 1995 are those of Stirling Cooke Brown Holdings
(UK) Limited.

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

Results of Operations For the Years Ended December 31, 1995, 1996 and 1997.

Revenues

  Total revenues increased $18.2 million, or 38.8%, to $65.3 million in 1997,
from $47.1 million in 1996 which in turn was a 147% increase over 1995.
Comparisons with 1995 are not considered meaningful as the figures do not
reflect the results of the Realm Investments Ltd. group which was acquired at
the beginning of 1996.

        The components of the Company's revenues are illustrated below:

<TABLE>
<CAPTION>
                                     FOR THE YEARS ENDED DECEMBER 31
                         --------------------------------------------------------
                                1995               1996               1997
                         ------------------ ------------------ ------------------
                          TOTAL  % OF TOTAL  TOTAL  % OF TOTAL  TOTAL  % OF TOTAL
                         ------- ---------- ------- ---------- ------- ----------
                                          (DOLLARS IN THOUSANDS)
<S>                      <C>     <C>        <C>     <C>        <C>     <C>
Risk management fees.... $17,084    89.7%   $34,061    72.4%   $45,664    69.9%
Net premiums earned.....       0     0.0      8,754    18.6     11,790    18.0
Net investment income...   1,964    10.3      3,405     7.2      5,782     8.9
Other income............       0     0.0        841     1.8      2,074     3.2
                         -------   -----    -------   -----    -------   -----
    Total revenues...... $19,048   100.0%   $47,061   100.0%   $65,310   100.0%
                         =======   =====    =======   =====    =======   =====
</TABLE>

  The increase in 1997 revenues over 1996 revenues consisted primarily of an
$11.6 million increase in risk management fees due to increased business
volume by the Company's brokering subsidiaries, increased managing general
agency fees as a result of a greater penetration of existing markets by the
Company's managing

                                      14
<PAGE>

general agency network, increased program administrative fees, and additional
risk management fees generated from the provision of loss control, claims
administration and premium auditing services. The Company's wholly owned
subsidiary, Realm National, earns risk management fees in the form of policy
issuance fees; these contributed $0.8 million to revenues in 1997 and $0.2
million in 1996. Net premiums earned increased $3.0 million over 1996
primarily as a result of 1997 being the first full year of Realm National's
results being consolidated and the increased business this operation generated
for the Company. Net investment income in 1997 increased $2.4 million over
1996, reflecting an increase in the Company's average balances of cash,
including cash held in fiduciary accounts, and marketable securities during
the year. This was primarily as a result of increased cash flow from the
Company's operations and greater retained earnings. The Company also benefited
from investment income from the proceeds of the Initial Public Offering
completed at the beginning of December 1997. Other income in 1997 comprised
primarily $1.3 million in respect of the Company's equity share in the net
income of affiliates compared to $0.3 million in 1996 and $0.5 million in 1997
in respect of gains arising from the disposal of subsidiary companies compared
to no such gains in 1996.

  Risk management fees as a percent of total revenues decreased to 69.9% in
1997 from 72.4% in 1996 and 89.7% in 1995, while net premiums earned as a
percent of total revenues decreased to 18.0% in 1997 from 18.6% in 1996 and
increased from 0% in 1995. The Company expects risk management fees as a
percent of total revenues to decrease in future periods and net premiums
earned to increase as a percent of total revenues as Realm National becomes
licensed to write insurance in additional states and increases its business
volume. The anticipated trend will be partially offset by an increase in risk
management fees associated with the new business expected to be produced
through Realm National.

  The components of the Company's risk management fees are illustrated below:

<TABLE>
<CAPTION>
                                     FOR THE YEARS ENDED DECEMBER 31
                         --------------------------------------------------------
                                1995               1996               1997
                         ------------------ ------------------ ------------------
                          TOTAL  % OF TOTAL  TOTAL  % OF TOTAL  TOTAL  % OF TOTAL
                         ------- ---------- ------- ---------- ------- ----------
                                          (DOLLARS IN THOUSANDS)
<S>                      <C>     <C>        <C>     <C>        <C>     <C>
Brokerage fees and
 commissions............ $17,084   100.0%   $20,117    59.0%   $23,965    52.5%
Managing general agency
 fees...................       0     0.0      6,016    17.7     11,391    24.9
Underwriting management
 fees...................       0     0.0      4,045    11.9      4,022     8.8
Program and captive
 management fees........       0     0.0      1,625     4.8      2,876     6.3
Loss control and audit
 fees...................       0     0.0      2,039     6.0      2,627     5.8
Policy issuance fees....       0     0.0        219     0.6        783     1.7
                         -------   -----    -------   -----    -------   -----
  Total risk management
   fees................. $17,084   100.0%   $34,061   100.0%   $45,664   100.0%
                         =======   =====    =======   =====    =======   =====
</TABLE>

  Risk management fees increased $11.6 million, or 34.1% to $45.7 million, in
1997 from $34.1 million in 1996. Risk management fees in 1995 included only
brokerage fees and commissions as they do not include the revenues of the
acquired Realm Investments Ltd. group. Managing general agency fees had the
most significant impact on the growth of total risk management fees in 1997,
increasing $5.4 million, primarily as a result of the Company's expansion of
its managing general agency operations in Florida and, to a lesser extent, in
Texas. Brokerage fees and commissions increased $3.8 million in 1997 and $3.0
million in 1996, primarily the result of increased insurance and reinsurance
brokerage activities from the Company's U.K.-based brokerage operations. In
October 1997, the Company sold its U.K.-based international brokerage company
following management's decision to concentrate their efforts on continuing to
build up the Company's core business. Program and captive management fees
increased $1.3 million in 1997 to $2.9 million from $1.6 million in 1996 due
to an increase in business resulting from increased program volumes generated
by the Company's managing general agency network. Fees for claims
administration, safety and loss control services, and premium audit services
provided by North American Risk, Inc. increased $0.6 million in 1997 to $2.6
million from $2.0 million in 1996. The Company's policy issuance fees through
Realm National increased $0.6 million in 1997 to $0.8 million from $0.2
million in 1996.

                                      15
<PAGE>

  Brokerage fees and commissions represented 52.5% of risk management fees in
1997 compared to 59.0% in 1996 and 100% in 1995. This decrease was primarily a
result of the Company's strategy to further expand and diversify its risk
management business through its managing general agency operations and other
service-providing subsidiaries. As a result, managing general agency fees
comprised 24.9% of risk management fees in 1997 compared to 17.7% in 1996.
Loss control, claims administration and audit fees comprised 5.8% of risk
management fees in 1997 compared to 6.0% in 1996. Policy issuance fees
comprised 1.7% of risk management fees in 1997 compared to 0.6% in 1996. It is
anticipated that these fees will increase significantly as a percentage of
risk management fees as Realm National expands its activities.

 Expenses

        The components of the Company's expenses are illustrated below:

<TABLE>
<CAPTION>
                                                          FOR THE YEARS ENDED
                                                              DECEMBER 31
                                                        -----------------------
                                                         1995    1996    1997
                                                        ------- ------- -------
                                                        (THOUSANDS OF DOLLARS)
      <S>                                               <C>     <C>     <C>
      Net losses and loss expenses incurred............ $     0 $ 6,765 $10,951
      Insurance premium acquisition costs..............       0   1,837   1,344
                                                        ------- ------- -------
          Total insurance costs........................       0   8,602  12,295
                                                        ------- ------- -------
      Salaries and benefits............................   6,066  13,106  18,503
      General and administration expenses..............   5,828  13,154  18,594
                                                        ------- ------- -------
          Total operating expenses.....................  11,894  26,260  37,097
                                                        ------- ------- -------
            Total expenses............................. $11,894 $34,862 $49,392
                                                        ======= ======= =======
</TABLE>

  Total expenses increased $14.5 million, or 41.7%, to $49.4 million, in 1997
from $34.9 million in 1996 and $11.9 million in 1995. Total insurance costs,
which includes net losses and loss expenses incurred and insurance premium
acquisition costs, increased $3.7 million to $12.3 million in 1997 from $8.6
million in 1996. The increase in total insurance costs from 1996 to 1997 was
primarily a result of the increase in net premiums earned during those periods
and adverse loss development on one particular program that covers bodily
injury and property risks in the construction industry. Total operating
expenses increased $10.8 million, or 41.3%, to $37.1 million in 1997 from
$26.3 million in 1996 and $11.9 million in 1995. Salaries and benefits, the
largest component of operating expenses, increased $5.4 million to $18.5
million in 1997 from $13.1 million in 1996 while other general and
administration expenses increased $5.4 million, to $18.6 million, in 1997 from
$13.2 million in 1996. These increases are primarily the result of the general
expansion of the Company's business during 1997 as reflected in the Company's
growth in revenues. The Company has expanded, and continues to actively seek
opportunities to expand, its operations in order to strengthen its control
over the production sources of its business and to broaden the services it
provides to clients.

 Income

  Income before taxation increased $3.7 million, or 30.5%, to $15.9 million in
1997 from $12.2 million in 1996 which in turn was an increase of $5.0 million
from $7.2 million in 1995. Excluding gains arising from the disposal of loss
making subsidiaries during 1997, income before taxation increased $3.2
million, or 26.6%, to $15.4 million in 1997 from $12.2 million in 1996. Net
income increased $3.1 million, or 31.0%, to $13.0 million in 1997 from $9.9
million in 1996 which in turn was an increase of $5.3 million from $4.6
million in 1995.

  Provision for income taxes increased $0.6 million to $2.9 million in 1997
compared to $2.3 million in 1996, representing effective tax rates of 18.4%
and 18.7%, respectively. The 1995 tax provision of $2.6 million represented an
effective tax rate of 35.8% which reflects the fact that the subsidiaries of
Realm Investments Ltd. are not included in the 1995 results. This decrease in
the effective tax rate between 1997 and 1996 was due to the relative increase
in profits from the Company's Bermuda subsidiaries, together with a decrease
in corporate income tax rates in the U.K. from 33% to 31%.

                                      16
<PAGE>

         The components of the Company's income are illustrated below:

<TABLE>
<CAPTION>
                                                        FOR THE YEARS ENDED
                                                            DECEMBER 31
                                                       ------------------------
                                                        1995    1996     1997
                                                       ------  -------  -------
                                                       (THOUSANDS OF DOLLARS)
      <S>                                              <C>     <C>      <C>
      Risk management companies....................... $7,154  $11,947  $15,390
      Underwriting companies..........................      0      252      528
                                                       ------  -------  -------
      Income before taxation..........................  7,154   12,199   15,918
      Taxation........................................  2,560    2,281    2,925
                                                       ------  -------  -------
      Net income...................................... $4,594  $ 9,918  $12,993
                                                       ------  -------  -------
      Effective tax rate..............................   35.8%    18.7%    18.4%
</TABLE>

  The Company's two business segments are risk management companies, which
comprise those companies that do not retain any underwriting risk, and
underwriting companies, which comprise those companies that do retain a degree
of risk. Underwriting companies include income from risk management fees
earned by them in the form of policy issuance fees. Investment income has been
allocated to the appropriate segment.

  Diluted earnings per share increased to $1.53, in 1997 from $1.19 in 1996
and $1.07 in 1995. Excluding the profit on disposal of subsidiaries during
1997, diluted earnings per share increased to $1.47 in that year.

  Basic earnings per share increased to $1.55 in 1997 from $1.22 in 1996 and
$1.07 in 1995. Excluding the profit on disposal of subsidiaries during 1997,
basic earnings per share increased to $1.49 in that year.

Liquidity and Capital Resources

  Following the completion of the Initial Public Offering of its shares, the
Company received net proceeds of $26.8 million in December 1997. The funds are
being held by the Company's Bermudian holding company until required primarily
to further capitalise Realm National to facilitate the planned expansion of
its business.

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

  During 1997, the Company's operating activities generated $8.1 million of
net cash, compared to generating $14.8 million of net cash during 1996 and
$3.2 million in 1995. The cash generated from operating activities varies
according to the timing of collections and payments of insurance and
reinsurance balances. The Company expects its operations will continue to
generate positive cash flow for 1998. During 1997, the Company used $1.2
million of cash to acquire a book of insurance business for one of its MGA's
and $1.8 million to repurchase certain of its ordinary shares.

  Shareholders' equity increased by $54.1 million, to $83.1 million, at
December 31, 1997 from $29.0 million at December 31, 1996. This increase was
primarily attributable to the following:

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

                                      17
<PAGE>

    (ii) a reclassification of Ordinary Shares subject to redemption of $14.5
  million since these shares are no longer redeemable after consummation of
  the Initial Public Offering; and

    (iii) net income of $13.0 million earned during 1997.

  During 1997, the total number of Ordinary Shares outstanding increased to
9,863,372 from 8,000,000 at December 31, 1996.

  Total assets increased to $406.3 million at December 31, 1997 from $235.1
million at December 31, 1996, principally as a result of increased business
activity. The Company had no outstanding debt at December 31, 1997 and 1996.

Accounting Pronouncements

  In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information." These statements will be effective
for financial statements issued for periods beginning after December 15, 1997.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components within a set of financial statements. This standard
will be adopted in respect of the quarter ended March 31, 1998. Adoption of
the standard will have no material effect on the earnings of the Company. SFAS
No. 131 requires the Company to report financial and descriptive information
about its reportable operating segments. The Company is currently reviewing
the impact of this standard on its financial reporting.

  In December 1997, 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 was issued to reduce diversity in practice and to
improve comparability and disclosure. The SOP is effective for fiscal years
beginning after December 15, 1998. The Company is currently reviewing the
impact of the adoption of this SOP on its consolidated financial statements.

Year 2000

  The Company has conducted a review of its computer systems to identify the
systems that could be affected by the Year 2000 Issue and is developing an
implementation plan to resolve the issue. The Year 2000 Issue is the result of
computer programs being written using two digits rather than four to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations. The
Company presently believes that, with modifications to existing software and
conversions to new software, the Year 2000 Issue will not pose significant
operational problems for the Company's computer systems as so modified and
converted. However, if such modifications and conversions are not completed
timely, the Year 2000 Issue may have a significant impact on the operations of
the Company.

  The Company plans to have formal communications with all of its significant
vendors and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
Issues. However, there can be no guarantee that the systems of other companies
on which the Company's systems rely will be timely converted, or that a
failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company's operating results.

  The total cost to the Company of the Year 2000 issue has not yet been
calculated but is not anticipated to be material to its financial position or
results of operations in any given year.

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

                                      18
<PAGE>

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.

Derivatives

  The Company's functional currency is the U.S. dollar; however, as the
Company operates internationally, it has some exposure to changes in foreign
currency exchange rates. To manage the Company's exposure to these risks, the
Company enters into forward foreign exchange contracts. The Company had a
notional principal amount outstanding of (Pounds)2.0 million and (Pounds)1.0
million, at December 31, 1996 and 1997, respectively, relating to contracts to
buy British Pounds Sterling in the future. Other than for these purposes the
Company does not hold any derivative financial instruments.

ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  Index to Consolidated Financial Statements and Related Notes:

<TABLE>
<CAPTION>
                                                                          PAGE #
                                                                          ------
      <S>                                                                 <C>
      Independent Auditor's Report.......................................    20
      Consolidated Balance Sheets........................................    21
      Consolidated Statements of Income..................................    22
      Consolidated Statements of Changes in Shareholders' Equity.........    23
      Consolidated Statements of Cash Flows..............................    24
      Notes to Consolidated Financial Statements......................... 25-45
</TABLE>

                                      19
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

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

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

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

  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Stirling
Cooke Brown Holdings Limited and subsidiaries as at December 31, 1996 and 1997
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1997, in conformity with United
States generally accepted accounting principles.

/s/ KPMG Peat Marwick

KPMG Peat Marwick
Hamilton, Bermuda
March 16, 1998

                                      20
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

                          CONSOLIDATED BALANCE SHEETS

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

<TABLE>
<CAPTION>
                          ASSETS                               1996      1997
                          ------                             --------  --------
<S>                                                          <C>       <C>
Marketable securities, at fair value (Note 6)
  Debt securities (amortized cost, 1996--$18,982, 1997--
   $14,882)................................................  $ 19,033  $ 14,971
  Equity securities (cost, 1996--$3,295, 1997--$454).......     3,466       486
  Short term investments (amortized cost,1996--$120, 1997--
   $5,579).................................................       120     5,579
                                                             --------  --------
Total marketable securities................................    22,619    21,036
Cash and cash equivalents (Note 4).........................    15,602    50,631
Fiduciary funds-restricted (Notes 4 and 5).................    50,240    60,224
Insurance and reinsurance balances receivable (affiliates,
 1996--$1,814, 1997--$8,118) (Note 4 and 19)...............   103,755   213,332
Outstanding losses recoverable from reinsurers (Notes 9 and
 10).......................................................    16,588    24,621
Deferred acquisition costs.................................       171       579
Deferred reinsurance premiums ceded (Note 9)...............     7,223    12,503
Deferred tax asset (Note 13)...............................       264     1,109
Goodwill (Note 2(i)).......................................     8,124     8,613
Other assets (Note 7)......................................     6,451    10,926
Assets related to deposit liabilities (Note 8).............     4,047     2,756
                                                             --------  --------
    Total assets...........................................  $235,084  $406,330
                                                             ========  ========
<CAPTION>
                        LIABILITIES
                        -----------
<S>                                                          <C>       <C>
Outstanding losses and loss expenses (Note 10).............  $ 24,301  $ 36,276
Unearned premiums..........................................    12,515    19,187
Deferred income............................................     1,793     2,853
Insurance and reinsurance balances payable (affiliates,
 1996--$3,656,1997--$16,187) (Note 19).....................   141,483   251,713
Funds withheld.............................................     1,384     1,314
Accounts payable and accrued liabilities...................     3,927     6,170
Income taxes payable (Note 13).............................     2,176     2,958
Deposit liabilities (Note 8)...............................     4,047     2,756
                                                             --------  --------
    Total liabilities......................................   191,626   323,227
                                                             --------  --------
Ordinary shares subject to redemption (1996--2,000,000,
 1997--0) (Note 11)........................................    14,457       --
                                                             --------  --------
                   SHAREHOLDERS' EQUITY
Share capital
 Authorized 20,000,000 ordinary shares of par value $0.25
 each. Issued and fully paid 6,000,000 and 9,863,372
 ordinary shares (Note 11).................................     1,500     2,466
Additional paid in capital.................................    12,319    54,167
Unrealized gain on marketable securities (Note 6)..........       147        63
Retained earnings..........................................    15,973    27,074
                                                             --------  --------
                                                               29,939    83,770
Less: Ordinary shares in treasury (1996--202,784, 1997--
 40,000) at cost (Note 11).................................      (938)     (667)
                                                             --------  --------
    Total shareholders' equity.............................    29,001    83,103
                                                             --------  --------
    Total liabilities, ordinary shares subject to
     redemption and shareholders' equity...................  $235,084  $406,330
                                                             ========  ========
</TABLE>

          See accompanying notes to consolidated financial statements

                                       21
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

                       CONSOLIDATED STATEMENTS OF INCOME

                  YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
    (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                         1995    1996    1997
                                                        ------- ------- -------
<S>                                                     <C>     <C>     <C>
REVENUES
  Risk management fees (Note 2 (f)).................... $17,084 $34,061 $45,664
  Net premiums earned (Note 9).........................     --    8,754  11,790
  Net investment income (Note 6).......................   1,964   3,405   5,782
  Other income.........................................     --      841   2,074
                                                        ------- ------- -------
    Total revenues.....................................  19,048  47,061  65,310
                                                        ------- ------- -------
EXPENSES
  Net losses and loss expenses incurred (Notes 2(e) and
   10).................................................     --    6,765  10,951
  Acquisition costs....................................     --    1,837   1,344
  Depreciation and amortization of capital assets......     659   1,018   1,199
  Amortization of goodwill.............................     --      423     707
  Salaries and benefits................................   6,066  13,106  18,503
  Other operating expenses.............................   5,169  11,713  16,688
                                                        ------- ------- -------
    Total expenses.....................................  11,894  34,862  49,392
                                                        ------- ------- -------
  Income before taxation...............................   7,154  12,199  15,918
  Taxation (Note 13)...................................   2,560   2,281   2,925
                                                        ------- ------- -------
  Net income........................................... $ 4,594 $ 9,918 $12,993
                                                        ======= ======= =======
  Net income per share (Note 14)....................... $  1.07 $  1.22 $  1.55
                                                        ======= ======= =======
  Net income per share assuming dilution (Note 14)..... $  1.07 $  1.19 $  1.53
                                                        ======= ======= =======
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       22
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

          CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                 YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
   (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                       1995    1996     1997
                                                      ------  -------  -------
<S>                                                   <C>     <C>      <C>
Ordinary shares of par value $0.25 each
  Balance at beginning of year....................... $1,000  $ 1,000  $ 1,500
  Issuance of shares.................................    --       500      344
  Options exercised..................................    --       --       150
  Cancellation of ordinary shares in treasury........    --       --      (100)
  Reclassification of ordinary shares subject to
   redemption........................................    --       --       572
                                                      ------  -------  -------
  Balance at end of year............................. $1,000  $ 1,500  $ 2,466
                                                      ------  -------  -------
Additional paid in capital
  Balance at beginning of year....................... $  --   $   --   $12,319
  Issuance of shares.................................    --    12,319   26,488
  Proceeds from exercise of options in excess of par.    --       --     1,475
  Issuance of shares (conversion of Class A).........    --       --       (72)
  Reclassification of ordinary shares subject to
   redemption........................................    --       --    13,957
                                                      ------  -------  -------
  Balance at end of year............................. $  --   $12,319  $54,167
                                                      ------  -------  -------
Notes receivable
  Balance at beginning of year....................... $  --   $   --   $   --
  Receivable on exercise of options..................    --       --    (1,625)
  Repayment of notes.................................    --       --     1,625
                                                      ------  -------  -------
  Balance at end of year............................. $  --   $   --   $   --
                                                      ------  -------  -------
Unrealized gain on marketable securities
  Balance at beginning of year....................... $  --   $   --   $   147
  Change in unrealized gain..........................    --       147      (84)
                                                      ------  -------  -------
  Balance at end of year............................. $  --   $   147  $    63
                                                      ------  -------  -------
Retained earnings
  Balance at beginning of year....................... $3,596  $ 6,055  $15,973
  Net income.........................................  4,594    9,918   12,993
  Dividends.......................................... (2,135)     --       --
  Cancellation of ordinary shares in treasury........    --       --    (1,892)
                                                      ------  -------  -------
  Balance at end of year............................. $6,055  $15,973  $27,074
                                                      ------  -------  -------
Treasury stock
  Balance at beginning of year....................... $  --   $   --   $  (938)
  Purchase of ordinary shares in treasury............    --      (938)  (1,807)
  Sale of ordinary shares from treasury..............    --       --        86
  Cancellation of ordinary shares in treasury........    --       --     1,992
                                                      ------  -------  -------
  Balance at end of year............................. $  --   $  (938) $  (667)
                                                      ------  -------  -------
  Total shareholders' equity......................... $7,055  $29,001  $83,103
                                                      ======  =======  =======
</TABLE>

  Dividends per share were $0.53, $0 and $0 for the years ended December 31,
1995, 1996 and 1997, respectively.

         See accompanying notes to consolidated financial statements.

                                      23
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
               (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                                    1995     1996      1997
                                                   -------  -------  --------
<S>                                                <C>      <C>      <C>
Operating activities
Net income........................................ $ 4,594  $ 9,918  $ 12,993
Adjustments to reconcile net income to net cash
 provided by operating activities:
 Depreciation and amortization of capital assets..     659    1,018     1,199
 Net gain on sale of subsidiaries.................     --       --       (478)
 Amortization of goodwill.........................     --       423       707
 Amortization of marketable securities............     --       (10)      197
 Net realized gains on sale of marketable
  securities......................................     --       --       (438)
 Equity in income of affiliates...................     --      (282)   (1,266)
Changes in non cash operating assets and
 liabilities:
 Fiduciary funds..................................  (9,883) (18,349)  (13,245)
 Insurance and reinsurance balances receivable.... (30,884) (31,023) (117,197)
 Outstanding losses recoverable from reinsurers...     --    (5,159)   (8,033)
 Deferred acquisition costs.......................     --     1,436      (408)
 Deferred reinsurance premiums ceded..............     --      (762)   (5,281)
 Other assets.....................................    (185)    (942)   (3,620)
 Deferred tax asset...............................     --       141      (801)
 Assets related to deposit liabilities............     --      (579)    1,292
 Outstanding losses and loss expenses.............     --     9,916    11,975
 Unearned premiums................................     --       938     6,672
 Insurance and reinsurance balances payable.......  37,793   47,065   120,887
 Funds withheld...................................     --      (355)      (69)
 Accounts payable and accrued liabilities.........     136      893     2,431
 Income taxes payable.............................     972     (559)      782
 Deferred income..................................     --       522     1,060
 Deposit liabilities..............................     --       579    (1,292)
                                                   -------  -------  --------
   Net cash provided by operating activities......   3,202   14,829     8,067
                                                   -------  -------  --------
Investing activities
 Purchase of capital assets.......................    (807)  (1,446)   (1,619)
 Sale of capital assets...........................     --        58        88
 Purchase of debt securities......................     --   (13,751)     (318)
 Purchase of equity securities....................     --       (39)   (3,977)
 Purchase of short-term investments, net..........     --      (120)   (5,459)
 Proceeds on sale of debt securities..............     --     2,273     4,190
 Proceeds on sale of equity securities............     --        15     7,262
 Purchase of subsidiaries, net of cash acquired...     --      (290)   (1,197)
 Cash received of upon sale of subsidiaries.......     --       --        861
 Investments in affiliates........................     --      (134)     (198)
 Dividends received from affiliates...............     --       --        593
                                                   -------  -------  --------
   Cash (used) provided by investing activities...    (807) (13,434)      226
                                                   -------  -------  --------
Financing activities
 Dividends........................................  (2,135)     --        --
 Net proceeds of subscription to share capital
  subject to redemption...........................     --    14,457       --
 Net proceeds from subscriptions to share
  capital.........................................     --       --     26,832
 Proceeds from exercise of options................     --       --      1,625
 Purchase of ordinary shares in treasury..........     --      (938)   (1,807)
 Sales of ordinary shares in treasury.............     --       --         86
                                                   -------  -------  --------
   Cash (used) provided by financing activities...  (2,135)  13,519    26,736
                                                   -------  -------  --------
Increase in cash and cash equivalents.............     260   14,914    35,029
Cash and cash equivalents at beginning of year.... $   428  $   688  $ 15,602
                                                   -------  -------  --------
Cash and cash equivalents at end of year.......... $   688  $15,602  $ 50,631
                                                   =======  =======  ========
Supplemental disclosure of cash flow information
   Cash paid during the year for income taxes..... $ 1,588  $ 1,928  $  3,755
                                                   =======  =======  ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       24
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       DECEMBER 31, 1995, 1996 AND 1997
     (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE DATA)

1. GENERAL

  Stirling Cooke Brown Holdings Limited (the "Company") was incorporated in
Bermuda on December 12, 1995. The Company is a holding company engaged,
through its subsidiaries, in providing insurance services primarily in the
United States, Bermuda and Europe. The Company's activities include insurance
and reinsurance brokering, underwriting management, risk management, claims
control, loss and safety prevention, third party administration and managed
care services. In January 1996, the Company acquired all the outstanding
common shares of Realm Investments Ltd. in exchange for 1,999,980 of its newly
issued ordinary shares. The Company also acquired, in September 1996, its own
United States domiciled insurance company Realm National Insurance Company
("Realm National") which, together with the Company's Bermuda based
reinsurance company, writes insurance and reinsurance business. The Company
specializes in the North American occupational accident and workers'
compensation alternative risk transfer markets.

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

  Stirling Cooke Brown Holdings (UK) Limited was the predecessor entity of the
Company. Accordingly, the consolidated financial statements of the Company for
the year ended December 31, 1995 are those of Stirling Cooke Brown Holdings
(UK) Limited.

  On December 2, 1997, the Company and certain Selling Shareholders
consummated an initial public offering of 3,421,250 ordinary shares. Of these
shares, 1,375,000 were sold by the Company and 2,046,250 were sold by Selling
Shareholders. The net proceeds received by the Company of $26,832 will be used
primarily to provide additional capital to Realm National to facilitate that
company's plans to expand its underwriting activities.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

 a) Basis of presentation

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

 b) Marketable securities

  Marketable securities comprise investments in debt and equity securities and
short term investments. All investments are classified as available for sale
and are carried at fair value. The difference between fair value and cost is
included as a separate component of shareholders' equity, net of applicable
deferred income taxes.

                                      25
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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.

 c) Premiums written, assumed and ceded

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

 d) Acquisition costs

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

 e) Losses and loss expenses

  Losses and related loss adjustment expenses are charged to income as they
are incurred and are net of losses recovered and recoverable of $0, $6,775 and
$16,866 for the years ended December 31, 1995, 1996 and 1997 respectively.
Amounts recoverable from reinsurers are estimated in a manner consistent with
the underlying liability associated with the reinsured policy. Outstanding
losses recoverable are shown separately on the consolidated balance sheets.

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

 f) Risk management fees

  The components of the Company's risk management fees are as follows:

<TABLE>
<CAPTION>
                                                          FOR THE YEARS ENDED
                                                             DECEMBER 31,
                                                        -----------------------
                                                         1995    1996    1997
                                                        ------- ------- -------
      <S>                                               <C>     <C>     <C>
      Brokerage fees and commissions................... $17,084 $20,117 $23,965
      Managing general agency fees.....................     --    6,016  11,391
      Underwriting management fees.....................     --    4,045   4,022
      Program and captive management fees..............     --    1,625   2,876
      Loss control and audit fees......................     --    2,039   2,627
      Policy issuance fees.............................     --      219     783
                                                        ------- ------- -------
          Total risk management fees................... $17,084 $34,061 $45,664
                                                        ======= ======= =======
</TABLE>


                                      26
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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

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

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

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

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

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

 g) Cash and cash equivalents

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

 h) Investments in affiliates

  The Company's investments in affiliated companies which are not majority
owned or controlled are accounted for using the equity method if the Company
is able to exert significant influence upon such affiliated

                                      27
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

companies. Other investments in affiliates are carried at cost. Investments in
affiliates of $526 and $1,350 for the years ended December 31, 1996 and 1997,
respectively, are recorded in other assets. The Company's equity share in the
net income of affiliates, for the years ended December 31, 1995, 1996 and 1997
of $0, $282 and $1,266, respectively, is included in other income. Dividends
received from affiliated companies of $0, $0 and $593 during 1995, 1996 and
1997, respectively, are recorded as a reduction in the carrying value of the
investment.

 i) Goodwill

  Goodwill in the amount of $8,124 and $8,613 at December 31, 1996, and 1997,
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, 1996 and 1997 is $423 and $1,130, respectively.
The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash
flows of the acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds. The assessment
of the recoverability of goodwill will be impacted if estimated future
operating cash flows are not achieved.

 j) Capital assets and depreciation

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

 k) Earnings per share

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

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

 l) Income taxes

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

 m) Foreign exchange

  The United States Dollar is the Company's functional currency. Foreign
currency monetary assets and liabilities are translated at exchange rates in
effect at the balance sheet date. Fixed assets and deferred income are
translated at their historical exchange rates. Foreign currency revenues and
expenses are translated at the

                                      28
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

exchange rates in effect at the date of the transaction. Net exchange gains of
$0, $559 and $311 are included in other income for the years ended December
31, 1995, 1996 and 1997, respectively.

 n) Derivative financial instruments

  The Company is party to certain derivative financial instruments, being
forward foreign exchange contracts which are used to manage foreign currency
exposures on non-U.S. dollar denominated assets and liabilities. The Company
does not engage in derivatives for any other purpose. Forward foreign exchange
contracts are recorded at their fair value. The fair values of open contracts
at the balance sheet dates are based on the quoted market prices of forward
contracts with similar maturities. Changes in fair values are recognized in
other income as appropriate in the period in which the changes occur. Amounts
receivable or payable on open positions are recorded in other assets or
accounts payable and accrued liabilities as appropriate. See Note 15(c).

 o) Stock compensation plans

  The Company adopted FASB Statement No. 123, "Accounting for Stock-Based
Compensation", on January 1, 1996. As permitted by the statement, the Company
has elected to continue to account for stock option grants in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees", and,
accordingly, recognizes compensation expense for stock option grants to the
extent that the fair value of the stock exceeds the exercise price of the
option at the measurement date. Any resulting compensation expense is recorded
over the shorter of the vesting or service period.

 p) Accounting pronouncements

  In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information." These statements will be effective
for financial statements issued for periods beginning after December 15, 1997.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components within a set of financial statements. This standard
will be adopted in respect of the quarter ended March 31, 1998. Adoption of
the standard will have no material effect on the earnings of the Company. SFAS
No. 131 requires the Company to report financial and descriptive information
about its reportable operating segments. The Company is currently reviewing
the impact of this standard on its financial reporting.

  In December 1997, 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 was issued to reduce diversity in practice and to
improve comparability and disclosure. The SOP is effective for fiscal years
beginning after December 15, 1998. The Company is currently reviewing the
impact of the adoption of this new SOP on its consolidated financial
statements.

3. ACQUISITIONS

  In January 1996, the Company acquired all of the outstanding ordinary shares
of Realm Investments Ltd. in exchange for 1,999,980 newly issued ordinary
shares of the Company. The fair value assigned to the shares issued was
$12,819. Realm Investments Ltd. was incorporated in Bermuda on September 1,
1993 and acted as the holding company for a number of Bermuda and United
States subsidiaries involved in the insurance industry. Realm Investments Ltd.
was affiliated with the Company through common ownership and directors.

                                      29
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


  On September 5, 1996, the Company completed the acquisition of 100% of the
outstanding share capital of Lloyd's New York Insurance Company which
subsequently changed its name to Realm National Insurance Company ("Realm
National"). The total purchase price of $8,986 comprised a cash payment to the
former owners of $8,783 and legal and other costs associated with the
acquisition of $203. Realm National formerly provided property, marine and
agricultural coverages. In 1997, Realm National began writing insurance
policies in connection with the Company's workers' compensation programs. In
connection with the acquisition, the former owners and the Company entered
into a reserve indemnity agreement to guarantee the outstanding loss reserves
as of June 30, 1996. In 1997 this agreement was terminated for a total
consideration paid to the seller by the Company of $175. Other operating
expenses include $114 and $61 in 1996 and 1997, respectively in relation to
the guarantee.

  During 1996, the Company incorporated a new subsidiary, North American Risk,
Inc., which effective July 1, 1996, acquired the assets and liabilities of
North American Risk Limited (a limited partnership) ("NAR") for a total cash
cost of $94.

  The acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the purchase prices have been allocated to the
assets acquired and the liabilities assumed based on the estimated fair values
at the dates of acquisition. The excess of purchase price over the estimated
fair values of the net assets acquired has been recorded as goodwill, which is
being amortized on a straight line basis over 20 years, 15 years and 5 years
for Realm Investments Ltd., Realm National and NAR, respectively.

  The estimated fair values of assets acquired and liabilities assumed are
summarized as follows:

<TABLE>
<CAPTION>
                                                      REALM     REALM
                                                   INVESTMENTS NATIONAL   NAR
                                                   ----------- --------  -----
      <S>                                          <C>         <C>       <C>
      Cash........................................  $  6,893   $  1,621  $ 276
      Marketable securities.......................       --      10,764    --
      Fiduciary funds-restricted..................     7,846        --     --
      Insurance balances receivable...............    18,378      2,485    270
      Outstanding losses recoverable from
       reinsurers.................................     2,286     10,623    --
      Deferred acquisition expenses...............     1,582         26    --
      Deferred reinsurance premiums ceded.........       600      5,861    --
      Other assets and prepayments................       642        112     12
      Deferred tax asset..........................        55        426    --
      Assets related to deposit liabilities.......     3,468        --     --
      Capital assets..............................       623         52     94
      Intangible assets...........................     7,698        766     83
      Outstanding losses and loss expenses........    (2,076)   (12,309)   --
      Unearned premiums...........................    (4,090)    (7,487)   --
      Deferred income.............................    (1,012)       --     --
      Insurance and reinsurance balances payable..   (25,320)    (1,927)  (445)
      Funds withheld..............................       --      (1,739)   --
      Deposit liabilities.........................    (3,468)       --     --
      Other liabilities...........................    (1,286)      (288)  (196)
                                                    --------   --------  -----
                                                    $ 12,819   $  8,986  $  94
                                                    ========   ========  =====
</TABLE>

  Operating results of Realm Investments Ltd., Realm National, and NAR are
included in the Company's consolidated results of operations from the
effective dates of the acquisitions which were January 1, 1996, September 5,
1996, and July 1, 1996, respectively.

                                      30
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


4. CONTINGENT LIABILITIES

  In the normal course of reinsurance operations the Company's bankers have
issued letters of credit totalling $7,015 and $12,226 at December 31, 1996 and
1997, respectively in favor of the ceding insurance companies. At December 31,
1996 and 1997, $7,015 and $12,226 of cash and cash equivalents were pledged as
collateral for these letters of credit, respectively.

  One of the Company's subsidiaries is registered with the Society of Lloyd's
as a registered Lloyd's Broker. As required by Lloyd's Brokers Byelaw (No. 5
of 1988), the subsidiary has entered into a trust deed under which all
insurance broking account assets are subject to a floating lien held in trust
for the Society of Lloyd's for the benefit of the insurance creditors.
Insurance and reinsurance balances payable covered by the floating lien at
December 31, 1996 and 1997, amounted to $80,070 and $95,279, respectively,
including relevant creditors of other subsidiaries. The purpose of the trust
deed is to provide security to the Lloyds Broker's insurance creditors in the
event of the Brokers insolvency by creating a charge over the Broker's
insurance transaction assets. The lien becomes enforceable only in the event
the Lloyds Broker becomes insolvent or breaches Lloyds solvency rules or
regulations. The assets which were subject to this floating lien at December
31, 1996 and 1997 were:

<TABLE>
<CAPTION>
                                          1996    1997
                                         ------- -------
            <S>                          <C>     <C>
            Fiduciary funds............. $13,925 $13,872
            Insurance and reinsurance
             balances receivable........  67,749  83,937
                                         ------- -------
                                         $81,674 $97,809
                                         ======= =======
</TABLE>

  These amounts were derived from the financial statements of the Lloyds
Broker. The lien had no impact on the Broker's operating statements or cash
flows during the periods.

5. FIDUCIARY FUNDS

  In its various capacities as an insurance intermediary, the Company collects
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. 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.

                                      31
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


6. MARKETABLE SECURITIES

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

<TABLE>
<CAPTION>
                                                        1996
                                      -----------------------------------------
                                        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............................  $ 6,963     $ 75       $--      $ 7,038
Foreign government...................    1,063        1          3       1,061
Obligations of states and political
 subdivisions........................    1,090      --         --        1,090
Corporate securities.................    9,866      --          22       9,844
                                       -------     ----       ----     -------
Debt securities......................   18,982       76         25      19,033
Equity securities....................    3,295      236         65       3,466
Short term investments...............      120      --         --          120
                                       -------     ----       ----     -------
    Total............................  $22,397     $312       $ 90     $22,619
                                       =======     ====       ====     =======
<CAPTION>
                                                        1997
                                      -----------------------------------------
                                        COST/     GROSS      GROSS    ESTIMATED
                                      AMORTIZED UNREALIZED UNREALIZED   FAIR
                                        COST      GAINS      LOSSES     VALUE
                                      --------- ---------- ---------- ---------
<S>                                   <C>       <C>        <C>        <C>
U.S. Treasury securities and
 obligations of U.S. Government
 agencies............................  $ 5,082     $107       $--      $ 5,189
Foreign government...................    1,032        1         20       1,013
Obligations of states and political
 subdivisions........................       75      --         --           75
Corporate securities.................    8,693        2          1       8,694
                                       -------     ----       ----     -------
Debt securities......................   14,882      110         21      14,971
Equity securities....................      454       32        --          486
Short term investments...............    5,579      --         --        5,579
                                       -------     ----       ----     -------
    Total............................  $20,915     $142       $ 21     $21,036
                                       =======     ====       ====     =======
</TABLE>

  A deferred tax liability of $75 and $39 at December 31, 1996 and 1997,
respectively, has been provided against unrealized gains on marketable
securities held as "available for sale" which has been presented net as a
separate component of shareholders' equity.

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

<TABLE>
<CAPTION>
                                                                    1997
                                                             -------------------
                                                                       ESTIMATED
                                                             AMORTIZED   FAIR
                                                               COST      VALUE
                                                             --------- ---------
      <S>                                                    <C>       <C>
      Due in one year or less...............................  $10,114   $10,096
      Due after one year through five years.................    4,744     4,850
      Due after five years through ten years................       24        25
                                                              -------   -------
                                                              $14,882   $14,971
                                                              =======   =======
</TABLE>

                                      32
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


  c) Proceeds from sales of investments in debt securities during 1996 and
1997 were $2,273 and $4,190, respectively. Proceeds from sales of investments
in equity securities during 1996 and 1997 were $15 and $7,262, respectively.
There were no realized gains or losses on the sale of marketable securities
during 1996. There was $5 of realized losses and $443 of realized gains during
1997.

  d) At December 31, 1996 and 1997, debt securities having an amortized cost
of $2,563 and $2,925, respectively, were on deposit with government
authorities as required by law.

  e) At December 31, 1996 and 1997, there were no individual investments,
other than investments in U.S. Government securities, which exceeded 10% of
shareholders' equity.

  f) Net investment income by source is as follows:

<TABLE>
<CAPTION>
                                                             1995   1996   1997
                                                            ------ ------ ------
      <S>                                                   <C>    <C>    <C>
      Debt securities...................................... $  --  $  134 $1,029
      Common stock.........................................    --      67     70
      Cash, cash equivalents and short-term investments....  1,964  3,216  4,754
        Other..............................................    --       1      2
                                                            ------ ------ ------
      Total investment income..............................  1,964  3,418  5,855
      Less applicable expenses.............................    --      13     73
                                                            ------ ------ ------
        Net investment income.............................. $1,964 $3,405 $5,782
                                                            ====== ====== ======
</TABLE>

7. OTHER ASSETS

 a) Capital assets

  Included within other assets are capital assets as follows:

<TABLE>
<CAPTION>
                                                                1996
                                                    ----------------------------
                                                           ACCUMULATED  NET BOOK
                                                     COST  DEPRECIATION  VALUE
                                                    ------ ------------ --------
<S>                                                 <C>    <C>          <C>
Furniture and fixtures............................. $1,217    $  502     $  715
Computer equipment.................................  2,542     1,229      1,313
Office equipment...................................    649       256        393
Motor vehicles.....................................  1,092       500        592
                                                    ------    ------     ------
    Total.......................................... $5,500    $2,487     $3,013
                                                    ======    ======     ======
<CAPTION>
                                                                1997
                                                    ----------------------------
                                                           ACCUMULATED  NET BOOK
                                                     COST  DEPRECIATION  VALUE
                                                    ------ ------------ --------
<S>                                                 <C>    <C>          <C>
Furniture and fixtures............................. $1,266    $  580     $  686
Computer equipment.................................  3,305     1,664      1,641
Office equipment...................................    700       341        359
Motor vehicles.....................................    950       491        459
                                                    ------    ------     ------
    Total.......................................... $6,221    $3,076     $3,145
                                                    ======    ======     ======
</TABLE>

                                      33
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


 b) Investment in affiliates

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

<TABLE>
<CAPTION>
                                                               PERIOD FROM
                                                           SEPTEMBER 12, 1995
                                                                (DATE OF
                                                            INCORPORATION) TO
                                                            DECEMBER 31, 1995
                                                             AND YEARS ENDED
                                                            DECEMBER 31, 1996
                                                                AND 1997
                                                           --------------------
                                                           1995   1996   1997
                                                           ----  ------ -------
<S>                                                        <C>   <C>    <C>
INCOME STATEMENT DATA
  Underwriting management fees............................ $  9  $1,191 $ 3,959
  Interest income.........................................  --       63      88
  Net (loss) income.......................................  (55)    633   3,294
  Company's share of net (loss) income.................... $(21) $  247 $ 1,285
                                                           ====  ====== =======
<CAPTION>
                                                                  DECEMBER 31,
                                                                 --------------
                                                                  1996   1997
                                                                 ------ -------
<S>                                                        <C>   <C>    <C>
BALANCE SHEET DATA
Cash and cash equivalents......................................  $  664 $ 1,224
Fiduciary cash.................................................   3,738   2,267
Insurance balances receivable..................................   4,710  12,821
Other assets...................................................      90      60
                                                                 ------ -------
    Total assets...............................................  $9,202 $16,372
                                                                 ------ -------
Insurance balances payable.....................................  $8,181 $13,179
Deferred income................................................     122     496
Other liabilities..............................................     165      56
Shareholders' equity...........................................     734   2,641
                                                                 ------ -------
    Total liabilities and shareholders' equity.................  $9,202 $16,372
                                                                 ------ -------
    Company's share of shareholders' equity....................  $  286 $ 1,030
                                                                 ====== =======
</TABLE>

  The Company received dividends from this affiliate of $0, $0, and $593
during 1995, 1996 and 1997, respectively.

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, 1996 and 1997. 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 $2,216 and
$2,459 of deposits received from customers as security for the timely payment
of premiums for workers' compensation insurance at December 31, 1996 and 1997,
respectively. The deposit is restricted from use by the Company, and is the
property of the

                                      34
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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>
                                                           1995  1996    1997
                                                           ---- ------  -------
      <S>                                                  <C>  <C>     <C>
      Premiums written.................................... $--  $4,009  $21,743
      Premiums assumed....................................  --  12,467   14,115
      Change in unearned premiums.........................  --    (938)  (6,672)
                                                           ---- ------  -------
      Premiums earned.....................................  --  15,538   29,186
                                                           ---- ------  -------
      Premiums ceded......................................  --   7,546   22,677
      Change in deferred reinsurance premiums ceded.......  --    (762)  (5,281)
                                                           ---- ------  -------
      Net premiums ceded..................................  --   6,784   17,396
                                                           ---- ------  -------
      Net premiums earned................................. $--  $8,754  $11,790
                                                           ==== ======  =======
</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
unusually hazardous risks.

  Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result
in losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. At December 31, 1996 and 1997 there were no allowances
for uncollectible amounts. The Company evaluates the financial condition of
its reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of the reinsurers
to minimize its exposure to significant losses from reinsurer insolvencies.

  At December 31, 1996 and December 31, 1997, there were no amounts due from
any individual reinsurer in excess of 10% of the Company's shareholders'
equity.

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

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

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

  Comp Indemnity Reinsurance Company ("CIRCL"), a subsidiary of Realm
Investments Ltd., assumes various quota shares of workers' compensation,
employers' liability on both a primary and excess basis, bodily injury,
difference in conditions, general liability risks, and property written on a
treaty basis. CIRCL's exposure under the reinsurance contracts assumed is
limited in most instances to $250 and $1,000 per occurrence for workers'
compensation and employers liability, respectively and is subject to an annual
aggregate limit based on

                                      35
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

various percentages of original gross written premium income. CIRCL further
limits its exposure through the purchase of reinsurance protection for certain
risks covering losses in excess of $10 and $50 per occurrence for workers'
compensation and employers' liability.

10. OUTSTANDING LOSSES AND LOSS EXPENSES

  Outstanding losses and loss expenses relate to the insurance activities of
CIRCL and Realm National, which were acquired in January 1996 and September
1996, respectively.

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

<TABLE>
<CAPTION>
                                                                 1996    1997
                                                                ------- -------
   <S>                                                          <C>     <C>
   Balance beginning of year................................... $   --  $24,301
   Less outstanding losses recoverable.........................     --  (16,588)
   Net balance for CIRCL, at acquisition.......................   1,270     --
   Net balance for Realm National, at acquisition..............   1,687     --
                                                                ------- -------
   Net balance.................................................   2,957   7,713
                                                                ------- -------
   Incurred related to:
       Current year............................................   6,515  10,174
       Prior years.............................................     250     777
                                                                ------- -------
       Total incurred..........................................   6,765  10,951
                                                                ------- -------
   Paid related to:
       Current year............................................   1,334   3,560
       Prior years.............................................     675   3,449
                                                                ------- -------
         Total paid............................................   2,009   7,009
                                                                ------- -------
   Net balance.................................................   7,713  11,655
   Plus outstanding losses recoverable.........................  16,588  24,621
                                                                ------- -------
       Balance at end of year.................................. $24,301 $36,276
                                                                ======= =======
</TABLE>

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

11. SHARE CAPITAL AND ADDITIONAL PAID IN CAPITAL

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

  As discussed in Notes 1 and 3 to the consolidated financial statements,
during 1996, the Company issued 1,999,980 shares in exchange for 100% of the
share capital of Realm Investments Ltd. The fair value assigned to the shares
issued was $12,819. The excess of the fair value of the shares issued over par
value was recorded in additional paid in capital. This represents a non-cash
financing and investing activity for the purpose of the statements of cash
flows. The Company also issued 2,000,000 ordinary shares and 25 Class "A" non-
voting shares to a private investor group. Contemporaneously, the private
investor group also acquired additional ordinary shares from existing
shareholders on a pro-rata basis, such that the private investor group's total
ownership represented 32.5% of the total number of issued ordinary share
capital at that time.

                                      36
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


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

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

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

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

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

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

  On June 30, 1997, the shareholders exercised their options to purchase
600,000 ordinary shares in the Company (see Note 12 to the consolidated
financial statements) at an exercise price of $2.71 per share.
Contemporaneously, 288,888 ordinary shares of par value of $0.25 each were
issued to the holders of the Class "A" shares pursuant to certain anti-
dilution rights, and the Class "A" shares were repurchased by the Company for
nominal consideration. The $72 excess of the par value of the ordinary shares
issued over the original par value of the Class "A" shares was recorded as a
deduction from additional paid in capital. On the same date the Company loaned
the shareholders $1,625, an amount equal to the aggregate exercise price of
the options. Such loans were evidenced by promissory notes, bearing interest
at 7% per annum until maturity in June 1998 or earlier in the event of early
repayment. Included within notes receivable was $325, $866 and $109 due from
Messrs. Cooke, Brown and Jones, respectively. The loans were repaid in full in
December 1997 following the successful completion of the IPO of the Company's
ordinary shares.

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

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

12. STOCK OPTIONS

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

                                      37
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


  i) Options issued to Employees--Shareholders

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

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

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

  (ii) Options issued under Equity Incentive Plan

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

      The options have an exercise price of $22.00 per share, which
    reflected the estimated fair value of the shares at the grant date. The
    options vest ratably over a three year period and may be exercised at
    any time prior to November 25, 2007.

      All of these options were outstanding at December 31, 1997 and none
    had vested at December 31, 1997.

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

<TABLE>
<CAPTION>
                                                           1995   1996   1997
                                                          ------ ------ -------
      <S>                                                 <C>    <C>    <C>
      Net income--as reported............................ $4,594 $9,918 $12,993
      Net income--pro forma.............................. $4,336 $9,918 $12,926
      Net income per share--as reported.................. $ 1.07 $ 1.22 $  1.55
      Net income per share--pro forma.................... $ 1.01 $ 1.22 $  1.54
      Net income per share assuming dilution--as
       reported.......................................... $ 1.07 $ 1.19 $  1.53
      Net income per share assuming dilution--pro forma.. $ 1.01 $ 1.19 $  1.52
</TABLE>

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

  The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions
used in 1997:

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

  The fair value of the options granted during 1997 was $6.59 per share
(1995--$0.43 per share, 1996--$0)

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.

                                      38
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


  Total income tax expense for the years ended December 31, 1995, 1996 and
1997 was allocated as follows:

<TABLE>
<CAPTION>
                                                           1995   1996   1997
                                                          ------ ------ ------
      <S>                                                 <C>    <C>    <C>
      Income from continuing operations.................. $2,560 $2,281 $2,925
      Shareholders' equity (for unrealized gains on
       marketable securities)............................    --      75    (36)
                                                          ------ ------ ------
                                                          $2,560 $2,356 $2,889
                                                          ====== ====== ======
</TABLE>

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

<TABLE>
<CAPTION>
                                                        CURRENT DEFERRED TOTAL
                                                        ------- -------- ------
      <S>                                               <C>     <C>      <C>
      Year ended December 31, 1995
        U.S. Federal and State......................... $  --    $  --   $  --
        Foreign (U.K.)................................. $2,560      --    2,560
                                                        ------   ------  ------
                                                        $2,560   $  --   $2,560
                                                        ======   ======  ======
      Year ended December 31, 1996
        U.S. Federal and State......................... $  627   $( 339) $  288
        Foreign (U.K.)................................. $1,993      --    1,993
                                                        ------   ------  ------
                                                        $2,620   $( 339) $2,281
                                                        ======   ======  ======
      Year ended December 31, 1997
        U.S. Federal and State......................... $  934   $ (809) $  125
        Foreign (U.K.).................................  2,800      --    2,800
                                                        ------   ------  ------
                                                        $3,734   $ (809) $2,925
                                                        ======   ======  ======
</TABLE>

  Income tax expense attributable to income from continuing operations was
$2,560, $2,281 and $2,925 for the years ended December 31, 1995, 1996 and 1997
respectively, and differed from the amounts computed by applying the U.S.
federal income tax rate of 34% to income before taxation as a result of the
following:

<TABLE>
<CAPTION>
                                                           1995   1996    1997
                                                          ------ ------  ------
      <S>                                                 <C>    <C>     <C>
      Computed expected tax expense...................... $2,432 $4,148  $5,412
      Foreign income not subject to US taxes.............    --  (1,813) (2,305)
      Income subject to tax at foreign rates.............    128    (55)   (200)
      Change in valuation allowance......................    --     190     (86)
      Miscellaneous permanent differences................    --      56      98
      Acquired temporary difference......................    --    (320)    --
      State taxes........................................    --      75      80
      Utilization of acquired net operating losses.......    --     --      (74)
                                                          ------ ------  ------
      Actual tax expense................................. $2,560 $2,281  $2,925
                                                          ====== ======  ======
</TABLE>

  At December 31, 1996, the Company established a valuation allowance relating
to acquired deferred tax benefits. The realization of the tax benefits
attributable to these acquired temporary differences will be applied to reduce
(i) goodwill related to the acquisition, (ii) other acquired intangibles and
(iii) income from other continuing operations.

                                      39
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


  The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred liabilities at December 31,
1996 and 1997, are presented below:

<TABLE>
<CAPTION>
                                                                 1996    1997
                                                                 -----  ------
      <S>                                                        <C>    <C>
      Deferred tax assets:
        Deferred revenue........................................ $ 339  $  687
        Discount on unearned premiums and outstanding loss
         reserves...............................................   190     104
        Deferred interest deductions............................   --      316
        Other...................................................   --      145
        Valuation allowance.....................................  (190)   (104)
                                                                 -----  ------
                                                                   339   1,148
      Deferred tax liabilities:
        Unrealized investment gains.............................   (75)    (39)
                                                                 -----  ------
        Net deferred tax asset.................................. $ 264  $1,109
                                                                 =====  ======
</TABLE>

  Valuation allowances of $190 and $104 have been established against the
deferred tax asset as of December 31, 1996 and 1997, respectively. The
ultimate realization of this deferred tax asset depends on the ability of the
Company and its subsidiaries to generate sufficient taxable income during the
periods in which those temporary differences become deductible.

  The Company has not recognized a deferred tax liability for the
undistributed earnings of its United States subsidiaries. (A 30% tax is
generally imposed in the United States on dividends paid by United States
corporations to non-United States shareholders). The Company does not expect
those unremitted earnings to become taxable in the foreseeable future. A
deferred tax liability will be recognized when the Company expects that it
will recover those undistributed earnings in a taxable manner, such as the
receipt of dividends. The deferred tax liability relating to these unremitted
earnings which is not recognized by the Company is approximately $0, $200 and
$542 at December 31, 1995, 1996, 1997, respectively.

14. EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                    1995      1996      1997
                                                  --------- --------- ---------
      <S>                                         <C>       <C>       <C>
      Net Income................................. $   4,594 $   9,918 $  12,993
                                                  --------- --------- ---------
      Weighted average number of ordinary shares
       outstanding............................... 4,288,908 8,100,782 8,383,482
                                                  --------- --------- ---------
      Net income per share....................... $    1.07 $    1.22 $    1.55
                                                  ========= ========= =========
      Income available to ordinary shareholders.. $   4,594 $   9,918 $  12,993
                                                  --------- --------- ---------
      Weighted average number of ordinary shares
       outstanding............................... 4,288,908 8,100,782 8,383,482
      Plus: incremental shares from assumed
       exercise of options.......................    15,190   205,828   131,991
                                                  --------- --------- ---------
      Adjusted weighted average number of
       ordinary shares outstanding............... 4,304,098 8,306,610 8,515,473
                                                  --------- --------- ---------
      Net income per share assuming dilution..... $    1.07 $    1.19 $    1.53
                                                  ========= ========= =========
</TABLE>
   See Notes 11 and 12 to the consolidated financial statements for further
discussion of share capital and share option transactions.

                                      40
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


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 fair values for these
instruments approximate their carrying amounts because of the short maturity
of such instruments.

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

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

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

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

  The estimates of fair values presented herein are subjective in nature and
are not necessarily indicative of the amounts that the Company would actually
realize in a current market exchange. Any differences would not be expected to
be material. Certain instruments such as prepaid expenses, other assets,
goodwill and deferred expenses, deferred fee income 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 allowance 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 limited due to the large number of reinsurers, agents and customers
comprising the Company's receivable base. Management does not anticipate
significant credit losses from such financial instruments. As at December 31,
1996 and 1997, there were no significant allowances for doubtful accounts.

 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.

                                      41
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


  To manage the Company's exposure to these risks, the Company enters into
forward foreign exchange contracts in the currencies to which the Company is
exposed. These contracts generally involve the exchange of one currency for
another at some future date. The Company had a notional principal amount
outstanding of (Pounds)2,000 and (Pounds)1,000, at December 31, 1996 and 1997,
respectively, relating to contracts to buy British Pounds Sterling in the
future. There were no significant unrealized gains or losses on forward
exchange contracts for the year ended December 31, 1995. Net unrealized gains
on the forward exchange contracts for the year ended December 31, 1996 and
1997 amounted to $170 and $83, respectively and have been accrued in other
income and included in other assets in the consolidated balance sheets. A net
realized gain (loss) of $0, $465 and $(22) is included in other income in the
consolidated statements of income in respect of such contracts during the
years ended December 31, 1995, 1996 and 1997, respectively.

16. SEGMENTAL INFORMATION

  a) The Company's two business segments are risk management companies, which
comprise those companies that do not retain any underwriting risk, and
underwriting companies, which comprise those companies that do retain a degree
of risk. Underwriting companies include revenues from net premiums earned and
risk management fees earned in the form of policy issuance fees. Investment
income has been allocated to the appropriate segment.

<TABLE>
<CAPTION>
                                  INCOME BEFORE  ASSETS AT  DEPRECIATION AND   CAPITAL
                         REVENUES   TAXATION    DECEMBER 31 AMORTIZATION(I)  EXPENDITURES
                         -------- ------------- ----------- ---------------- ------------
<S>                      <C>      <C>           <C>         <C>              <C>
YEAR ENDED DECEMBER 31,
 1995
  Risk management
   companies............ $ 19,048   $  7,154     $ 103,273      $   659        $   807
  Underwriting
   companies(ii)........      --         --            --           --             --
  Adjustments and
   eliminations.........      --         --            --           --             --
                         --------   --------     ---------      -------        -------
    Total Consolidated.. $ 19,048   $  7,154     $ 103,273      $   659        $   807
                         ========   ========     =========      =======        =======
YEAR ENDED DECEMBER 31,
 1996
  Risk management
   companies............ $ 37,448   $ 11,947     $ 167,278      $ 1,415        $ 1,445
  Underwriting
   companies(ii)........    9,613        252        68,209           26              1
  Adjustments and
   eliminations.........      --         --           (403)         --             --
                         --------   --------     ---------      -------        -------
    Total Consolidated.. $ 47,061   $ 12,199     $ 235,084      $ 1,441        $ 1,446
                         ========   ========     =========      =======        =======
YEAR ENDED DECEMBER 31,
 1997
  Risk management
   companies............ $ 50,529   $ 15,390     $ 314,035      $ 1,823        $ 1,524
  Underwriting
   companies(ii)........   14,781        528        98,526           83             95
  Adjustments and
   eliminations.........      --         --         (6,231)         --             --
                         --------   --------     ---------      -------        -------
    Total Consolidated.. $ 65,310   $ 15,918     $ 406,330      $ 1,906        $ 1,619
                         ========   ========     =========      =======        =======
</TABLE>
--------
(i) Includes amortization of goodwill and depreciation of capital assets.
(ii) Underwriting includes all of the revenues and assets of the Company's
     risk taking subsidiaries including policy issuance fees.

  The revenue of each industry segment is comprised of revenues from
unaffiliated customers. Interest income is included in revenue if the asset on
which the interest is earned is included among the segment's identifiable
assets.

                                      42
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


  b) Summarized financial information by geographic location of subsidiary for
the years ended December 31, 1995, 1996 and 1997 is as follows:

<TABLE>
<CAPTION>
                                                      ADJUSTMENTS
                                      U.K. &              AND
                            BERMUDA   EUROPE  U.S.A.  ELIMINATIONS CONSOLIDATED
                            -------- -------- ------- ------------ ------------
   <S>                      <C>      <C>      <C>     <C>          <C>
   YEAR ENDED DECEMBER 31,
    1995
     Revenues.............. $  1,197 $ 17,851     --         --      $ 19,048
                            ======== ======== =======   ========     ========
     Income before
      taxation............. $     88 $  7,066     --         --      $  7,154
                            ======== ======== =======   ========     ========
     Identifiable assets... $  8,439 $111,488     --    $(16,654)    $103,273
                            ======== ======== =======   ========     ========
   YEAR ENDED DECEMBER 31,
    1996
     Revenues.............. $ 16,336 $ 19,191 $11,534        --      $ 47,061
                            ======== ======== =======   ========     ========
     Income before
      taxation............. $  5,227 $  5,928 $ 1,044        --      $ 12,199
                            ======== ======== =======   ========     ========
     Identifiable assets... $ 68,306 $139,494 $60,825   $(33,541)    $235,084
                            ======== ======== =======   ========     ========
   YEAR ENDED DECEMBER 31,
    1997
     Revenues.............. $ 20,926 $ 22,122 $22,262        --      $ 65,310
                            ======== ======== =======   ========     ========
     Income before
      taxation............. $  6,393 $  8,476 $ 1,049        --      $ 15,918
                            ======== ======== =======   ========     ========
     Identifiable assets... $119,066 $250,668 $85,006   $(48,410)    $406,330
                            ======== ======== =======   ========     ========
</TABLE>

  Income before taxation is total revenues less operating expenses.

  Identifiable assets by geographic segment are those assets that are used in
the Company's operations in each segment.

  c) The Company's managing general agencies market insurance products and
programs developed by the Company on behalf of independent insurance carriers.
In addition, the Company through its brokering and reinsurance brokering
operations, managing general underwriters, claims and loss control servicing
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 year ended December 31, 1996 and
1997 fees received from one independent insurance carrier accounted for
approximately 55% and 51%, respectively, of the Company's total revenues.
Although the loss of this carrier could have a material adverse effect on the
Company, the Company believes that Realm National and other independent
insurance carriers have sufficient underwriting capacity to reduce the impact
of such a loss.

17. COMMITMENTS

  Future minimum lease payments under non-cancelable operating leases as at
December 31, 1997 are as follows:

<TABLE>
             <S>                               <C>
             1998............................. $ 2,484
             1999.............................   2,220
             2000.............................   2,065
             2001.............................   1,783
             2002.............................   1,557
             2003 and thereafter..............   5,875
                                               -------
                                               $15,984
                                               =======
</TABLE>

                                      43
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


  Total rental expense for the years ended December 31, 1995, 1996 and 1997,
was $612, $1,319 and $1,894, 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 1996 and 1997 due to its statutory-basis accumulated
  deficit. Additionally, $101 and $21 of statutory surplus has been
  segregated as special funds as of December 31, 1996 and 1997 and will not
  become available for dividend payments until earned.

    Realm National's total surplus and net income determined on a United
  States statutory basis are as follows:

<TABLE>
<CAPTION>
                                                                 1996    1997
                                                                ------- -------
      <S>                                                       <C>     <C>
      Total surplus at December 31,............................ $19,924 $18,991
      Net income for year ended December 31,................... $   154 $   370
</TABLE>

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

    c) The NAIC has a model law which establishes certain minimum risk-based
  capital ("RBC") requirements for property-casualty insurance companies. The
  RBC calculation serves as a benchmark for the regulation of insurance
  companies by state insurance regulators. The calculation specifies various
  formulas and weighting factors that are applied to financial balances or
  various levels of activity based on the perceived degree of risk and are
  set forth in the RBC requirements. The capital of Realm National as of
  December 31, 1996 and 1997 exceeded the amount calculated using the RBC
  requirements.

    d) Realm National is licensed by the Insurance Department of the State of
  New York (the "Department") to write Special Risk insurance. Special Risk
  business represents business that is sold at rates that are not subject to
  prior approval of the Department. The Department's rules and regulations
  limit the amount of Special Risk business that a company may write based on
  the aggregate writings of the company. In 1994, Realm National disposed of
  its agricultural and ocean marine books of business as a condition
  precedent to the sale of Realm National to a prospective buyer. As a
  result, Realm National was no longer in compliance with the Department's
  limitation on Special Risk premium writings. Realm National has received a
  waiver of such limitations from the Department through September 5, 1997.
  Realm National's license has been renewed through August of 1998.

    e) The Company's Bermuda insurance 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

                                      44
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  premiums. At December 31, 1996 and 1997, respectively, CIRCL was required
  to maintain a minimum statutory capital and surplus of $1,520 and $1,680.
  Accordingly, approximately $680 of contributed surplus and retained
  earnings is restricted from distribution.

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

<TABLE>
<CAPTION>
                                                                  1996   1997
                                                                 ------ ------
      <S>                                                        <C>    <C>
      Total surplus at December 31.............................. $2,319 $2,261
      Net income (loss) for year ended December 31.............. $1,688 $  (85)
</TABLE>

    CIRCL is also required to maintain a minimum liquidity ratio whereby the
  value of its relevant assets are not less than 75% of the amount of its
  relevant liabilities. Certain categories of assets do not qualify as
  relevant assets under the statute. At December 31, 1996 and 1997,
  respectively, CIRCL was required to maintain relevant assets of at least
  $9,412 and $17,900. At that date relevant assets were approximately $14,932
  and $23,900 and the minimum liquidity ratio was therefore met.

19. RELATED PARTY TRANSACTIONS

  a) As set out in Note 3, in January 1996 the Company acquired Realm
Investments Ltd. Prior to the acquisition, the Company earned brokerage fees
from its business dealings with Realm Investments Ltd.

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

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

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

20. LITIGATION

  The Company is subject to litigation and arbitration in the ordinary course
of business.

  While any proceeding contains an element of uncertainty, management
presently believes the outcome of currently pending proceedings will not have
a material adverse effect on the Company.

21. QUARTERLY FINANCIAL DATA--UNAUDITED

<TABLE>
<CAPTION>
                                               FIRST  SECOND   THIRD    FOURTH
                                              QUARTER QUARTER QUARTER QUARTER(I)
                                              ------- ------- ------- ----------
<S>                                           <C>     <C>     <C>     <C>
YEAR ENDED DECEMBER 31, 1996
  Total revenues............................. $ 9,877 $10,675 $13,350  $13,159
  Net income.................................   2,630   2,330   3,162    1,796
  Net income per share.......................    0.34    0.28    0.38     0.22
  Net income per share assuming dilution..... $  0.33 $  0.27 $  0.37  $  0.22
YEAR ENDED DECEMBER 31, 1997
  Total revenues............................. $14,345 $16,645 $17,019  $17,301
  Net income.................................   2,820   3,172   3,590    3,411
  Net income per share.......................    0.35    0.40    0.42     0.38
  Net income per share assuming dilution..... $  0.34 $  0.39 $  0.42  $  0.38
</TABLE>

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

                                      45
<PAGE>

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

  There have been no changes in, nor any disagreements with, accountants on
accounting and financial disclosure within the three years ending December 31,
1997.

                                   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, 1997. 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, 1997. 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, 1997. Such information is hereby incorporated by reference.

ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  This item is omitted because the information will be contained in a
definitive proxy statement, which involves the election of directors, to be
filed with the Securities and Exchange Commission not later than 120 days
after December 31, 1997. Such information is hereby incorporated by reference.

                                      46
<PAGE>

                                    PART IV

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

  (A) EXHIBITS

<TABLE>
<CAPTION>
     EXHIBIT NO.                        DESCRIPTION
     -----------                        -----------
     <C>         <S>                                                        <C>
      3.l        Memorandum of Association of the Company (1)
      3.2        Bye-Laws of the Company (1)
      4.1        Shareholders' Agreement, dated as of January 24, 1996,
                 among the Management Shareholders (as defined therein),
                 Bridge Street Fund 1995, L.P., Goldman Sachs & Co.
                 Verwaltungs GmbH (for GS Capital Partners II German
                 Civil Law Partnership), GS Capital Partners II, L.P., GS
                 Capital Partners Offshore, L.P., Stone Street Fund 1995,
                 L.P. and the Company (1)
      4.2        Registration Rights Agreement, dated January 24, 1996,
                 between the Company, the Management Shareholders (as
                 defined therein) and the Investors (as defined therein)
                 (1)
     10.1        Stirling Cooke Brown Holdings Limited 1997 Equity
                 Incentive Plan (1)*
     10.2        Employment Agreement dated September 1, 1997 between
                 Realm Investments Ltd. and Nicholas Mark Cooke (1)*
     10.3        Employment Agreement dated September 1, 1997 between
                 Stirling Cooke Brown Holdings Limited and Nicholas Brown
                 (1)*
     10.4        Employment Agreement dated September 1, 1997 between
                 Stirling Cooke Brown Holdings Limited and George W.
                 Jones (l)*
     10.5        Agency Agreement dated as of June 1, 1995 between
                 Clarendon National Insurance Company and Stirling Cooke
                 Insurance Services, Inc. (1)
     10.6        Amendment Number One to Agency Agreement dated as of
                 June 1, 1995 between Clarendon National Insurance
                 Company and Stirling Cooke Insurance Services, Inc. (1)
     10.7        Amendment Number Two to Agency Agreement dated as of
                 June 1, 1995 between Clarendon National Insurance
                 Company and Stirling Cooke Insurance Services, Inc. (1)
     10.8        Addendum dated April 1, 1997 to Agency Agreement dated
                 as of June 1, 1995 between Clarendon National Insurance
                 Company and Stirling Cooke Insurance Services, Inc. (1)
     10.9        Agency Agreement dated as of October 1, 1995 between
                 Clarendon National Insurance Company and Stirling Cooke
                 Texas, Inc. (1)
     10.10       Management Agreement dated as of August 1, 1995 between
                 Legion Insurance Company and Stirling Cooke Insurance
                 Services, Inc. (1)
     11.         Statement Re Computation of Per Share Earnings
     21.         Subsidiaries of the Company (1)
     99.         Forward-Looking Information
</TABLE>
--------
(1) Incorporated by reference from Registration Statement on Form S-1 (No.
    333-32995) of Stirling Cooke Brown Holdings Limited.
*Management Compensation

                                      47
<PAGE>


  (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. Financial Statement Schedules

      Included in Part IV of this report:

<TABLE>
<CAPTION>
                                                                 SCHEDULE
                                                                  NUMBER  PAGE
                                                                 -------- -----
       <S>                                                       <C>      <C>
       Report of Independent Accountants on financial statement
        schedules included in Form 10-K.                                     49
       Schedule of Investments excluding Investments in Related
        Parties as of December 31, 1997                              I       50
       Condensed Financial Information of Registrant as of and
        for the years ended December 31, 1995, 1996 and 1997        II    51-53
       Supplementary Insurance Information as of and for the
        years ended December 31, 1996 and 1997                     III       54
       Reinsurance for the years ended December 31, 1996 and
        1997                                                        IV       55
</TABLE>

  Other schedules have been omitted as they are not applicable to the Company,
or the required information has been included in the financial statements and
related notes.

                                       48
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

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

  Under date of March 16, 1998, we reported on the consolidated balance sheets
of Stirling Cooke Brown Holdings Limited and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of income, retained
earnings, and cash flows for each of the years in the three-year period ended
December 31, 1997, which are included in item 8 of this Annual Report on Form
10-K for the year ended December 31, 1997. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related financial statement schedules listed in the accompanying index. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.

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

/s/ KPMG Peat Marwick
KPMG Peat Marwick
Hamilton, Bermuda
March 16, 1998

                                      49
<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, 1997
                                              ------- ------- -----------------
<S>                                           <C>     <C>     <C>
Fixed maturities
 Bonds:
  United States Government and government
   agencies and authorities.................. $ 5,082 $ 5,189      $ 5,189
  States, municipalities and political
   subdivisions..............................   1,032   1,013        1,013
  Foreign governments........................      75      75           75
  All other corporate bonds..................   8,693   8,694        8,694
                                              ------- -------      -------
    Total fixed maturities...................  14,882  14,971       14,971
Equity securities
 Common stocks:
  Industrial, miscellaneous and all other....      16      23           23
Nonredeemable preferred stocks...............     438     463          463
                                              ------- -------      -------
    Total equity securities..................     454     486          486
Short-term investments.......................   5,579   5,579        5,579
                                              ------- -------      -------
    Total investments........................ $20,915 $21,036      $21,036
                                              ======= =======      =======
</TABLE>

                                       50
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                PARENT COMPANY ONLY BALANCE SHEETS--SCHEDULE II

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

<TABLE>
<CAPTION>
                                                                1996     1997
                                                               -------  -------
<S>                                                            <C>      <C>
Assets
  Cash and cash equivalents..................................  $    20  $27,803
  Due from subsidiaries......................................    5,638   11,238
  Investments in subsidiaries................................   38,009   44,908
  Other assets...............................................      --       295
                                                               -------  -------
    Total Assets.............................................  $43,667  $84,244
                                                               =======  =======
Liabilities
  Accounts payable and accrued liabilities...................  $    16  $ 1,141
  Due to subsidiaries........................................      193      --
                                                               -------  -------
    Total Liabilities........................................      209    1,141
                                                               -------  -------
Ordinary Shares subject to redemption........................   14,457      --
Shareholders' equity
  Share capital
   Authorized 20,000,000 ordinary shares of par value $0.25
    each issued and fully paid 6,000,000 and 9,863,372
    ordinary shares..........................................    1,500    2,466
  Additional paid in capital.................................   12,319   54,167
  Equity in unrealized gain on marketable securities of
   subsidiaries..............................................      147       63
  Retained earnings..........................................   15,973   27,074
                                                               -------  -------
                                                                29,939   83,770
  Less: ordinary shares in treasury (1996--202,784, 1997--
   40,000) at cost...........................................     (938)    (667)
                                                               -------  -------
    Total shareholders' equity...............................   29,001   83,103
                                                               -------  -------
Total Liabilities, Ordinary shares subject to redemption, and
 Shareholders' equity........................................  $43,667  $84,244
                                                               =======  =======
</TABLE>

                                       51
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

             PARENT COMPANY ONLY STATEMENTS OF INCOME--SCHEDULE II

                  YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
  (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
                                     DATA)

<TABLE>
<CAPTION>
                                                          1995   1996   1997
                                                         ------ ------ -------
<S>                                                      <C>    <C>    <C>
REVENUES
  Net investment income................................. $  --  $  489 $   139
  Other income..........................................    --     465     --
                                                         ------ ------ -------
Total Revenues..........................................      0    954     139
EXPENSES
  Salaries and benefits.................................    --     --      395
  Other operating expenses..............................    --     432     683
                                                         ------ ------ -------
Total Expenses..........................................      0    432   1,078
NET INCOME (LOSS) BEFORE EQUITY IN INCOME OF
 SUBSIDIARIES...........................................      0    522    (939)
Equity in income of subsidiaries........................  4,594  9,396  13,932
                                                         ------ ------ -------
NET INCOME.............................................. $4,594 $9,918 $12,993
                                                         ====== ====== =======
</TABLE>

                                       52
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

           PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS--SCHEDULE II

                  YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
  (Expressed in thousands of United States Dollars, except share and per share
                                     data)

<TABLE>
<CAPTION>
                                                    1995      1996      1997
                                                   -------  --------  --------
<S>                                                <C>      <C>       <C>
OPERATING ACTIVITIES
  Net income...................................... $ 4,594  $  9,918  $ 12,993
Items not effecting cash
  Amortization of goodwill........................       0       373       373
  Equity in income of subsidiaries................  (4,594)   (9,396)  (13,932)
  Changes in non cash operating assets and
   liabilities
   Other assets...................................       0         0      (258)
   Accounts payable and accrued liabilities.......       0        16     1,125
   Due to subsidiaries............................       0       193      (193)
                                                   -------  --------  --------
    Net cash provided by operating activities.....       0     1,104       108
                                                   -------  --------  --------
INVESTING ACTIVITIES
  Purchase of capital assets......................       0         0       (37)
  Investments in subsidiaries.....................       0    (8,965)     (274)
  Due from subsidiaries...........................       0    (5,638)   (5,600)
  Dividends received from subsidiaries............   2,135         0     6,850
                                                   -------  --------  --------
    Cash provided (used) by investing activities..   2,135   (14,603)      939
                                                   -------  --------  --------
FINANCING ACTIVITIES
  Dividends.......................................  (2,135)        0         0
  Net proceeds of subscription to share capital
   subject to redemption..........................       0    14,457         0
  Net proceeds from subscription to share capital.       0         0    26,832
  Proceeds from exercise of options...............       0         0     1,625
  Purchase of ordinary shares in treasury.........       0      (938)   (1,807)
  Sales of ordinary shares in treasury............       0         0        86
                                                   -------  --------  --------
    Cash (used) provided by financing activities..  (2,135)   13,519    26,736
                                                   -------  --------  --------
INCREASE IN CASH AND CASH EQUIVALENTS.............       0        20    27,783
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....       0         0        20
                                                   -------  --------  --------
CASH AND CASH EQUIVALENTS FROM END OF YEAR........ $     0  $     20  $ 27,803
                                                   =======  ========  ========
</TABLE>

All dividends received were from consolidated subsidiaries.

                                       53
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

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

<TABLE>
<CAPTION>
                               FUTURE
                               POLICY
                              BENEFITS,           OTHER                      BENEFITS,  AMORTIZATION
                   DEFERRED    LOSSES,            POLICY                      CLAIMS,   OF DEFERRED
                    POLICY     CLAIMS             CLAIMS             NET     LOSSES AND    POLICY      OTHER
                  ACQUISITION AND LOSS  UNEARNED   AND    PREMIUM INVESTMENT SETTLEMENT ACQUISITION  OPERATING PREMIUMS
                     COSTS    EXPENSES  PREMIUMS BENEFITS REVENUE   INCOME    EXPENSES     COSTS     EXPENSES  WRITTEN
                  ----------- --------- -------- -------- ------- ---------- ---------- ------------ --------- --------
<S>               <C>         <C>       <C>      <C>      <C>     <C>        <C>        <C>          <C>       <C>
Year ended
 December 31,
 1997
 Underwriting....    $579      $36,276  $19,187    $ 0    $11,790   $2,208    $10,951      $1,344     $ 1,958  $13,181
 Risk/Management.       0            0        0      0          0    3,574          0           0      35,139        0
                     ----      -------  -------    ---    -------   ------    -------      ------     -------  -------
                     $579      $36,276  $19,187    $ 0    $11,790   $5,782    $10,951      $1,344     $37,097  $13,181
Year ended
 December 31,
 1996
 Underwriting....    $171      $24,301  $12,515    $ 0    $ 8,754   $  640    $ 6,765      $1,837     $   760  $ 8,930
 Risk/Management.       0            0        0      0          0    2,765          0           0      25,500        0
                     ----      -------  -------    ---    -------   ------    -------      ------     -------  -------
                     $171      $24,301  $12,515    $ 0    $ 8,754   $3,405    $ 6,765      $1,837     $26,260  $ 8,930
</TABLE>

                                       54
<PAGE>

                     STIRLING COOKE BROWN HOLDINGS LIMITED

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

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

                                       55
<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 31ST DAY OF MARCH, 1998.

                                          Stirling Cooke Brown Holdings
                                           Limited

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

  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW AS OF THIS 31ST DAY OF MARCH, 1998, BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED:

<TABLE>
<CAPTION>
                 SIGNATURE                                     TITLE
                 ---------                                     -----


<S>                                         <C>
        /s/ Nicholas Mark Cooke             Chairman, President, Chief Executive
___________________________________________   Officer and Director (Principal Executive
            Nicholas Mark Cooke               Officer)

          /s/ George W. Jones               Chief Financial Officer and Director
___________________________________________   (Principal Financial and Accounting
              George W. Jones                 Officer)

          /s/ Nicholas Brown                Director
___________________________________________
              Nicholas Brown

         /s/ Warren W. Cabral               Director
___________________________________________
             Warren W. Cabral

        /s/ Reuben Jeffery III              Director
___________________________________________
            Reuben Jeffery III

           /s/ Sanjay Patel                 Director
___________________________________________
               Sanjay Patel

</TABLE>

                                      56