INDEX TO FINANCIAL STATEMENTS
                                       of
                        American International Speciality
                            Lines Insurance Company
<TABLE>
<CAPTION>
<S>                                                                         <C>
Financial Statements
     Report of Pricewaterhouse Coopers LLP..................................F-1
     Statement of Admitted Assets, Liabilities, Capital and Surplus
     (Statutory Basis) as of December 31, 1999 and December 31, 1998........F-2
     Statements of Income and Capital and Surplus Account (Statutory Basis)
     for Years Ended December 31, 1999, 1998 and 1997.......................F-3
     Statement of Cash Flow (Statutory Basis) for Years Ended December
     31, 1999, 1998 and 1997................................................F-4
     Notes to Financial Statements..........................................F-5

                                       10
</TABLE>
<PAGE>

                       Report of Independent Accountants

To the Board of Directors and Stockholders of American International Specialty
Lines Insurance Company:

We have audited the  accompanying  statements of admitted  assets,  liabilities,
capital and surplus (statutory basis) of American International  Specialty Lines
Insurance  Company (the  "Company") as of December 31, 1999 and 1998 and related
statements of income and capital and surplus  account,  and cash flow (statutory
basis) for each of the three years in the period ended December 31, 1999.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits of the accompanying statutory basis financial statements
in accordance  with  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.

As  described  more fully in Note 1 to the  financial  statements,  the  Company
prepared these financial  statements  using accounting  practices  prescribed or
permitted  by  the  State  of  Alaska   Department   of  Commerce  and  Economic
Development,  Division of  Insurance,  which  practices  differ  from  generally
accepted accounting  principles.  The effects on the financial statements of the
variances  between the  statutory  basis of accounting  and  generally  accepted
accounting principles,  although not reasonably determinable, are presumed to be
material.

In our opinion,  because of the effects of the matter discussed in the preceding
paragraph,  the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of American  International  Specialty Lines Insurance Company as of December 31,
1999 and 1998,  or the results of its  operations  or its cash flows for each of
the three years in the period ended December 31, 1999.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the admitted assets, liabilities,  capital and surplus of
American International Specialty Lines Insurance Company as of December 31, 1999
and 1998,  and the results of its  operations  and its cash flow for each of the
three years in the period ended  December 31, 1999,  on the basis of  accounting
described in Note 1.



March 24, 2000

                                      F-1
<PAGE>
<TABLE>

                   AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY
                Statement of Admitted Assets, Liabilities, Capital and Surplus
                                        (Statutory Basis)
                                      As of December 31,

<CAPTION>


                                                                                    1999                1998
                     Admitted Assets
<S>                                                                                 <C>                 <C>

Bonds, at amortized cost (market value: 1999-$506,417,538;                          $507,687,764        $425,547,936
      1998-$457,460,832)
Short-term investments, at amortized cost (approximates market value)                    121,861             730,631
Other invested assets, at market value (cost: 1999-$1,154,959; 1998-$39,377,985)       1,149,805          39,376,538
Cash                                                                                  27,821,345           3,622,642
                                                                                    -----------------------------------
     Total invested assets and cash                                                  536,780,775         469,277,747
Agents' balances or uncollected premiums:
     Premiums in course of collection (including ceded reinsurance balances          (61,340,356)         48,788,446
     payable of, 1999-$316,802,723; 1998-$121,410,080)
     Premiums and installments booked but deferred and not yet due                   342,757,653          38,185,589
     (including ceded reinsurance balances payable of, 1999-$1,145,676;
            1998-$100,379,896)
Reinsurance recoverable on loss payments                                              56,103,025          47,014,930
Interest and dividends due and accrued                                                 7,955,407           7,293,968
Federal income tax recoverable                                                                 0           3,294,852
Receivable from parent, subsidiaries and affiliates                                   15,587,336           6,911,531
Loss funds on deposit                                                                  5,686,063           5,622,057
Drafts outstanding                                                                     5,822,606                   0
                                                                                    -----------------------------------
     Total admitted assets                                                          $909,352,509        $626,389,120
                                                                                    ===================================

                     Liabilities



Unpaid losses                                                                       $174,862,924        $186,943,712
Unpaid loss adjustment expenses                                                       34,047,726          35,010,432
Reinsurance payable on paid loss and loss adjustment expenses                         27,835,495          28,464,421
Unearned premiums                                                                    140,024,796         104,710,777
Funds held under reinsurance treaties                                                252,560,723               4,231
Provision for reinsurance                                                              9,825,207           9,639,712
Drafts outstanding                                                                             0          18,161,275
Federal income tax expense                                                                90,339                   0
Excess of statutory reserves over statement reserves                                     303,000                   0
Other liabilities                                                                      1,463,453           2,574,715
                                                                                    -----------------------------------

     Total liabilities                                                               641,013,663         385,509,275
                                                                                    -----------------------------------
                     Capital and Surplus

Common capital stock, $33.35 par value, 150,000 shares
     authorized, issued and outstanding                                                5,002,500           5,002,500
Capital in excess of par value                                                        98,377,500          98,377,500
Unassigned surplus                                                                   164,958,846         137,499,845
                                                                                    -----------------------------------
     Total capital and surplus                                                       268,338,846         240,879,845
                                                                                    -----------------------------------
     Total liabilities, capital and surplus                                         $909,352,509        $626,389,120
                                                                                    ===================================

</TABLE>


                               See Notes to Financial Statements
                                              F-2
<PAGE>
<TABLE>
<CAPTION>

             AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY
               Statement of Income and Capital and Surplus Account
                                (Statutory Basis)
                        For the Years Ended December 31,



                                                                                    1999           1998           1997
    <S>                                                                             <C>            <C>            <C>

    Underwriting income:
    Premiums earned                                                                 $ 91,627,505   $101,205,883   $ 92,589,846
                                                                               ----------------------------------------------------

    Deductions:
    Losses incurred                                                                   54,688,920     75,094,310     65,849,794
    Loss adjustment expenses incurred                                                 18,655,500      8,460,105     11,326,894
    Other underwriting expenses incurred                                              13,044,889     12,342,886     14,177,114
                                                                               ----------------------------------------------------

    Total underwriting deductions                                                     86,389,309     95,897,301     91,353,802
                                                                               ----------------------------------------------------

    Net underwriting gain                                                              5,238,196      5,308,582      1,236,044
                                                                               ----------------------------------------------------

    Investment income:
    Net investment income earned                                                      26,885,580     23,980,761     23,736,924
    Net realized capital gains                                                           300,493        310,286      3,423,103
                                                                               ----------------------------------------------------

    Net investment gain                                                               27,186,073     24,291,047     27,160,027
                                                                               ----------------------------------------------------

    Income before federal income taxes                                                32,424,269     29,599,629     28,396,071
    Federal income tax provision                                                       3,183,839      3,108,856      4,098,713
                                                                               ----------------------------------------------------

    Net income                                                                      $ 29,240,430   $ 26,490,773   $ 24,297,358
                                                                               ====================================================



                     Capital and Surplus Account


    Total capital and surplus, December 31,
      previous year                                                                 $240,879,845   $212,200,853   $192,349,335
                                                                               ----------------------------------------------------

    Gains and (losses) in surplus:
    Net income                                                                        29,240,430     26,490,773     24,297,358
    Change in non-admitted assets                                                     (1,292,934)     3,749,840     (4,689,758)
    Change in provision for reinsurance                                                 (185,495)    (1,561,621)       243,918
    Change in excess of statutory reserves over statement reserves                      (303,000)             0              0

    Change in surplus as regards policyholders
      for the year                                                                    27,459,001     28,678,992     19,851,518
                                                                               ----------------------------------------------------

    Total capital and surplus, December 31,
      current year                                                                  $268,338,846   $240,879,845   $212,200,853
                                                                               ====================================================

</TABLE>

                                      F-3
                        See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>

           AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY
                             Statement of Cash Flow
                                (Statutory Basis)
                        For the Years Ended December 31,


<S>                                                                                 <C>            <C>            <C>
                                                                                    1999           1998           1997

    Premiums collected (net of reinsurance)                                         $(68,790,964)  $128,512,329   $ 75,172,363
    Loss and loss adjustment expenses paid
    (net of salvage, subrogation and reinsurance)                                    114,266,195     81,613,422     75,092,150
    Underwriting expenses paid                                                        14,909,008     11,524,883     12,928,861
                                                                             -----------------------------------------------------
    Net cash flows from underwriting                                                (197,966,167)    35,374,024    (12,848,648)
                                                                             -----------------------------------------------------

    Investment income collected (net of investment expenses paid)                     26,105,007     23,702,715     24,030,469
    Increase in net funds held under reinsurance treaties                            252,556,492              0              0
    Other income (expenses)                                                                    0              0     (1,266,850)
    Federal income taxes paid                                                            201,352     (5,513,673)    (5,035,160)
                                                                             -----------------------------------------------------
    Net cash flows from operations                                                    80,896,684     53,563,066      4,879,811
                                                                             -----------------------------------------------------

    Proceeds from investments sold, matured or repaid:
     Bonds                                                                            14,894,030     12,022,873     79,455,746
     Other invested assets                                                            76,900,000     42,770,000     81,574,000
                                                                             -----------------------------------------------------
    Total investment proceeds                                                         91,794,030     54,792,873    161,029,746

    Cost of investments acquired (long-term only):
     Bonds                                                                            96,433,013     44,686,991     59,405,759
     Other invested assets                                                            38,858,184     82,059,866     80,925,718
                                                                             -----------------------------------------------------
    Total investments acquired                                                       135,291,197    126,746,857    140,331,477
                                                                             -----------------------------------------------------
    Net cash from investments                                                        (43,497,167)   (71,953,984)    20,698,269

    Other cash provided:
      Net  transfers from affiliates                                                          0               0     15,868,276
      Other cash provided                                                               752,857      41,242,873        588,761
                                                                             -----------------------------------------------------
    Total other cash provided                                                           752,857      41,242,873     16,457,037
    Other cash applied:                                                      ------------------------------------------------------
       Net transfers to affiliates                                                    8,675,823      22,722,799              0
       Other applications                                                             5,886,612         987,316     43,461,704
                                                                             -----------------------------------------------------
    Total other cash applied                                                         14,562,435      23,710,115     43,461,704
                                                                             -----------------------------------------------------
    Net cash from financing and miscellaneous sources                               (13,809,578)     17,532,758    (27,004,667)
                                                                             -----------------------------------------------------


    Net change in cash and short-term investments                                    23,589,939        (858,160)    (1,426,587)

                                          RECONCILIATION

    Cash and short-term investments:

     Beginning of year                                                                4,353,267       5,211,433      6,638,020

                                                                             -----------------------------------------------------
     End of year                                                                    $27,943,206      $4,353,273   $  5,211,433
                                                                             =====================================================
</TABLE>


                                      F-4
                        See Notes to Financial Statements
<PAGE>


                         Notes to Financial Statements


1.   Summary of Significant Accounting Policies:

     (A) Organization

     American International Specialty Lines Insurance Company (the "Company") is
     owned by the following wholly owned subsidiaries of American  International
     Group,  Inc.  (the  "Parent"):  National  Union Fire  Insurance  Company of
     Pittsburgh,  PA. (70%); The Insurance  Company of the State of Pennsylvania
     (20%);  and Birmingham Fire Insurance  Company of Pennsylvania  (10%).  The
     Company has  significant  transactions  with the Parent and affiliates (see
     Notes 3 and 4).  The  Company is  predominantly  a writer of  property  and
     casualty excess and surplus lines.

     (B) Basis of Presentation

     The accompanying  financial statements were prepared in conformity with the
     statutory  accounting  practices  (SAP)  of  the  National  Association  of
     Insurance  Commissioners (NAIC) and as prescribed or permitted by the State
     of Alaska  Department  of Commerce  and Economic  Development,  Division of
     Insurance,  which  is  a  comprehensive  basis  of  accounting  other  than
     generally  accepted  accounting  principles  (GAAP).  SAP varies in certain
     respects from GAAP. Under GAAP: (1) costs incidental to acquiring  business
     related  to  premiums  written  and costs  allowed by  assuming  reinsurers
     related to  premiums  ceded are  deferred  and  amortized  over the periods
     covered by the underlying policies or reinsurance agreements; (2) provision
     is made for deferred income taxes relating to temporary differences between
     financial  reporting and taxable income; (3) provision is made for deferred
     income  taxes  relating to  unrealized  appreciation  on  investments;  (4)
     adjustments  relating to the  difference  between the amount  recorded  for
     financial  statement purposes and the amount  subsequently filed on the tax
     return are charged or credited  directly to income as opposed to unassigned
     surplus;  (5) non-admitted assets and statutory basis reserves are restored
     to surplus;  (6) the reserve for losses and loss  expenses  and reserve for
     unearned  premiums are presented gross of ceded reinsurance by establishing
     a reinsurance  asset;  and (7) debt  securities  deemed to be available for
     sale are reported at fair value,  and the difference  between cost and fair
     value is reflected  net of related  deferred  income  taxes,  as a separate
     component  of  accumulated  other  comprehensive  income  in  shareholders'
     equity.

     (C) Codification

     In  1998,  the  NAIC  adopted  the  Codification  of  Statutory  Accounting
     Principles  guidance,  which will replace the current Accounting  Practices
     and  Procedures   manual  as  the  NAIC's  primary  guidance  on  statutory
     accounting.  The NAIC is now  considering  amendments  to the  Codification
     guidance that would also be effective upon implementation. The Codification
     provides guidance for areas where statutory  accounting has been silent and
     changes current  statutory  accounting in some areas,  e.g. deferred income
     taxes are recorded.

     The  State of Alaska  Department  of  Commerce  and  Economic  Development,
     Division of  Insurance  has adopted the  Codification  guidance,  effective
     January 1, 2001. The Company has not estimated the potential  effect of the
     Codification guidance.  However, the actual effect of adoption could differ
     as changes are made to the  Codification  guidance,  prior to its effective
     date of January 1, 2001.

                                      F-5
<PAGE>

     Significant statutory accounting practices are as follows:

     A.  The  preparation  of  financial   statements  in  conformity  with  the
         accounting  practices  prescribed  or  permitted by the State of Alaska
         Department of Commerce and Economic Development, Division of Insurance,
         requires  management to make estimates and assumptions  that effect the
         reported   amounts  of  assets  and   liabilities  and  disclosures  of
         contingent  assets  and  liabilities  at  the  date  of  the  financial
         statements and the reported  amounts of income and expenses  during the
         period. Actual results could differ from those estimates.

     B.  Investments  are carried at values  designated  by the NAIC.  Bonds are
         carried at amortized  cost,  except  those bonds not in good  standing,
         which are  carried  at  NAIC designated  values.  Investment  income is
         recorded  as earned.  Realized  gains or losses on the  disposition  of
         investments are determined on the basis of specific identification.

     C.  Premiums  written are primarily  earned on a daily  pro-rata basis over
         the terms of the policies to which they relate.  Accordingly,  unearned
         premiums  represent the portion of premiums written which is applicable
         to the  unexpired  terms of policies in force.  Premium  estimates  for
         retrospectively  rated  policies are  recognized  within the periods in
         which the related  losses are  incurred.  Ceded  premiums are amortized
         into income over the contract  period in proportion  to the  protection
         received.

     D.  Certain  assets,   principally  furniture,   equipment,  and  leasehold
         improvements  and certain  overdue  agents'  balances,  are  designated
         "non-admitted assets" and are directly charged to unassigned surplus.

     E.  The  liabilities  for  unpaid  losses  and  loss  adjustment  expenses,
         including incurred but not reported losses, are determined on the basis
         of  claims  adjustors'  evaluations  and  other  estimates,   including
         historical  loss  experience.  The methods of making such estimates and
         for  establishing the resulting  reserves are continually  reviewed and
         updated,  and any  resulting  adjustments  are  recorded in the current
         period. Accordingly, losses and loss adjustment expenses are charged to
         income as incurred.  Amounts  recoverable from reinsurers are estimated
         in a manner  consistent  with the claim  liability  associated with the
         reinsured policy.

     F.  Certain required statutory basis reserves, principally the provision
         for reinsurance, are charged to surplus and reflected as a liability
         of the Company.

     G.  Commissions,  premium taxes,  and certain other  underwriting  expenses
         related  to  premiums  written  are  charged  to income at the time the
         premiums are written and are included in "Other  underwriting  expenses
         incurred."

                                      F-6
<PAGE>

     H.  Unpaid  losses  and loss  adjustment  expenses  have  been  reduced  by
         anticipated  salvage  and  subrogation  in the amount of  approximately
         $2,196,000  and  $1,596,000 at December 31, 1999 and December 31, 1998,
         respectively.

     I.  The Company considers all highly liquid debt securities with
         maturities of twelve months or less to be short-term investments.

     J.  Other invested assets consist primarily of shares of an intermediate
         bond mutual fund.  The intermediate bond mutual fund is carried
         principally at market value.


2.   Federal Income Taxes:

     The Company files a  consolidated  U.S.  federal income tax return with the
     Parent  pursuant to a  consolidated  tax sharing  agreement.  The agreement
     provides  that the Parent will not charge the Company a greater  portion of
     the  consolidated tax liability than would have been paid by the Company if
     it had filed a  separate  federal  income  tax  return.  In  addition,  the
     agreement  provides  that the Company will be  reimbursed by the Parent for
     tax benefits  relating to any net losses of the Company  utilized in filing
     the consolidated  return. The "Federal income tax recoverable" and "Federal
     income tax  expense" in the  accompanying  statement  of  admitted  assets,
     liabilities, capital and surplus are due to/from the Parent.

     The U.S.  federal income tax rate  applicable to ordinary income is 35% for
     1999,1998 and 1997.  Actual tax expense on income from  operations  differs
     from the "expected" amount principally as a result of tax-exempt investment
     income,  unearned  premiums and the  discounting  of unpaid losses and loss
     adjustment expenses.

3.   Management Agreement:

     The Company is managed and operated by American International Surplus Lines
     Agency,  Inc.  ("Agency"),  a wholly owned  subsidiary  of the Parent.  The
     management  agreement  provides the Agency with the  authority to conduct a
     significant portion of the business affairs of the Company. As compensation
     for these services,  the management agreement provides that the Company pay
     the  Agency an annual  management  fee of  $100,000  plus  actual  expenses
     incurred on behalf of managing the Company.  The management fee and expense
     reimbursement paid to the Agency was approximately  $6,547,000,  $5,767,000
     and $4,783,000 in 1999, 1998 and 1997, respectively.

4.   Related Party Transactions:

     The Company cedes all agency business written in the State of Alaska to the
     New Hampshire  Insurance Company (a wholly owned subsidiary of the Parent).
     The Company cedes 80% of its surplus lines insurance to National Union Fire
     Insurance Company of Pittsburgh, PA through a  reinsurance  quota share
     agreement.  The Company  also assumes reinsurance from Lexington Insurance
     Company, an affiliate. In recent years the Company also entered into
     accident year aggregate loss ratio and excess agreements with National
     Union Fire Insurance Company of Pittsburgh, PA.

                                      F-7
<PAGE>

5.   Investments:

     The  amortized  cost  and  NAIC  market  values  of  investments  in  fixed
     maturities  carried at December 31, 1999 and  December  31,  1998,  were as
     follows:

     (in thousands)
<TABLE>
<CAPTION>

    ------------------------------------ -------------- ----------------------- ----------------- -------------------
                                                                Gross               Gross               NAIC
                                            Amortized           Unrealized          Unrealized          Market
                                            Cost                Gains               Losses              Value
    ------------------------------------ -------------- ----------------------- ----------------- -------------------
    <S>                                     <C>                 <C>                 <C>                 <C>

    1999
    Fixed maturities:
    States, municipalities
    And political
    Subdivisions                            $507,688            $  9,857            $ 11,127            $506,418
                                            --------            --------             -------            --------

    Total bonds                             $507,688            $  9,857            $ 11,127            $506,418
                                            ========            ========            ========            ========

</TABLE>

     (in thousands)
<TABLE>
<CAPTION>

    ------------------------------------ -------------- ----------------------- ----------------- -------------------
                                                                Gross               Gross               NAIC
                                            Amortized           Unrealized          Unrealized          Market
                                            Cost                Gains               Losses              Value
    ------------------------------------ -------------- ----------------------- ----------------- -------------------
    <S>                                     <C>                 <C>                 <C>                 <C>

    1998
    Fixed maturities:
    States, municipalities
    And political
    Subdivisions                            $425,548            $ 31,977            $     64            $457,461
                                            --------            --------                 ---            --------

    Total bonds                             $425,548            $ 31,977            $     64           $457,461
                                            ========            ========                 ===           ========


</TABLE>


                                      F-8
<PAGE>


     The amortized  cost and NAIC market values of fixed  maturities at December
     31, 1999, by contractual  maturity,  are shown below. Actual maturities may
     differ from contractual  maturities because borrowers may have the right to
     call or prepay  certain  obligations  with or  without  call or  prepayment
     penalties.

     (in thousands)
<TABLE>
<CAPTION>

    -------------------------------------------------- -------------------- ----------------------
                                                                Amortized           NAIC
                                                                Cost                Market Value
    -------------------------------------------------- -------------------- ----------------------
    <S>                                                         <C>                 <C>

    Due in one year or less                                     $  4,078            $  4,068


    Due after one year through five years                         45,712              45,597

    Due after five years through ten years                       161,703             161,299

    Due after ten years                                          296,195             295,454

    Total                                                       $507,688            $506,418
                                                                ========            ========
</TABLE>

     Proceeds from sales of investments in fixed maturities during 1999, 1998
     and 1997 were $10,109,030,  $40,033,470  and  $71,565,746  respectively.
     Gross  gains of $497,567,  $247,107 and $3,529,895 and gross losses of
     $15,864, $213 and $0 were realized on those sales in 1999, 1998 and 1997,
     respectively.

     Securities  carried at amortized cost of $10,697,637 and  $10,687,625  were
     deposited with  regulatory  authorities as required by law, at December 31,
     1999, and December 31, 1998, respectively.

     Included  in "Net  investment  income  earned" are  investment  expenses of
     $274,240, $217,663 and $282,957 for 1999, 1998 and 1997, respectively.

                                      F-9
<PAGE>


6.   Reinsurance:

     In the ordinary  course of business,  the Company  reinsures  certain risks
     with affiliates and other companies.  Such arrangements  serve to limit the
     Company's  maximum  loss on  catastrophes,  large and  unusually  hazardous
     risks.  To the extent that any  reinsuring  company might be unable to meet
     its   obligations,   the  Company  would  be  liable  for  its   respective
     participation in such defaulted amounts.

     Reserves  for  unearned  premiums  and  paid  and  unpaid  losses  and loss
     adjustment  expenses,  including  those  incurred  but not  reported to the
     Company, have been reduced for reinsurance ceded as follows:

     (in thousands)
<TABLE>
<CAPTION>
    -------------------------------------------------- --------------------- --------------------------------

                                                                Unearned Premium    Paid and Unpaid Losses and
                                                                Reserves            Loss Adjustment Expenses
    -------------------------------------------------- --------------------- --------------------------------
         <S>                                                    <C>                 <C>

         1999
         Affiliates                                             $781,276            $2,160,916
         Non-Affiliates                                           71,107               166,646
                                                                   ----               -------
         Total                                                  $852,383            $2,327,562
                                                                ========            ==========

    -------------------------------------------------- --------------------- --------------------------------
         1998
         Affiliates                                             $589,427            $1,914,582
         Non-Affiliates                                           49,186               137,120
                                                                   ----                -------
         Total                                                  $638,613            $2,051,702
                                                                ========            ==========
</TABLE>

     Net premiums written and earned comprise the following:

     (in thousands)
<TABLE>
<CAPTION>

    -------------------------------------------------- --------------------- -------------------
                                                                Written             Earned
    -------------------------------------------------- --------------------- -------------------
    <S>                                                         <C>                 <C>

    1999
    Direct business                                             $ 1,003,581         $774,663
    Reinsurance assumed
             Affiliates                                              47,988           27,820
             Non-Affiliates                                               0                0
                                                                 ---------------    ------------
    Reinsurance ceded
                Affiliates                                         (835,065)        (643,216)
                Non-Affiliates                                      (89,563)         (67,639)
                                                                        ---          --------

    Net premiums                                                $   126,941         $ 91,628
                                                                   ========         ========

</TABLE>

                                      F-10
<PAGE>


     (in thousands)

<TABLE>
<CAPTION>


    -------------------------------------------------- --------------------- -------------------
                                                                Written             Earned
    -------------------------------------------------- --------------------- -------------------
    <S>                                                         <C>                 <C>

    1998
    Direct business                                             $  790,155           $  651,942
    Reinsurance assumed
             Affiliates                                             26,545               31,046
             Non-Affiliates                                              0                    0
                                                            ---------------       ------------

    Reinsurance ceded
                Affiliates                                        (632,823)            (533,520)
                Non-Affiliates                                     (65,291)             (48,262)
                                                                    ========           ========

    Net Premiums                                                $   118,586           $ 101,206
                                                                    ========           =========
</TABLE>

     (in thousands)

<TABLE>
<CAPTION>


    -------------------------------------------------- --------------------- -------------------
                                                                Written             Earned
    -------------------------------------------------- --------------------- -------------------

    <S>                                                         <C>                 <C>

    1997
    Direct business                                             $  663,123           $  644,974
    Reinsurance assumed
             Affiliates                                             31,963               26,398
             Non-Affiliates                                              0                    0
                                                              ---------------      ------------

    Reinsurance ceded
                Affiliates                                        (556,321)            (531,213)
                Non-Affiliates                                     (36,770)             (47,569)
                                                                   ========             ========

    Net Premiums                                                   $101,995            $ 92,590
                                                                   ========            =========
</TABLE>


     For  the  years  ended  December  31,  1999,  1998  and  1997,  reinsurance
     recoveries,  which  reduced loss and loss  expenses  incurred,  amounted to
     $772,601,861, $683,127,314 and $596,374,228 respectively.

                                      F-11

<PAGE>

     The following unsecured reinsurance recoverables exceeded 3% of the capital
and surplus of the Company at December 31, 1999:

     (in thousands)
<TABLE>
<CAPTION>

    -------------------------------------------------- ------------------------ ----------------
    Reinsurer                                                                       Amount
    -------------------------------------------------- ------------------------ ----------------
    <S>                                                                             <C>

    Affiliates                                                                        2,616,578
    General Reinsurance Company                                                          46,481
    American Re-Insurance Company                                                        19,213
    Swiss Reinsurance America Corporation                                                17,612
    Employers Reinsurance Corporation                                                    11,786
    Lloyd's Underwriter                                                                   8,243
    Oddyssey Reinsurance Company                                                          8,102
    Total                                                                            $2,728,015
                                                                                     ==========

</TABLE>


7.   Dividend Restriction:

     Under  Alaska  law,  the Company  may pay cash  dividends  only from earned
     surplus determined on a statutory basis. Further, the Company is restricted
     (on the basis of the lower of 10% of the Company's statutory surplus at the
     end of the  preceding  twelve-month  period  or 100% of the  Company's  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
     prior  approval of the State of Alaska  Department of Commerce and Economic
     Development,  Division of Insurance.  The maximum  dividend payable without
     prior approval at December 31, 1999, amounted to approximately $26,833,885.


8.   Pension Plans and Deferred Compensation:

     The  Company's  employees  participate  in benefit  plans  sponsored by the
     Parent,  including a  noncontributory  defined  benefit pension plan, and a
     voluntary  savings plan (a 401(k)  plan) which  provides  certain  matching
     contributions.  These  plans  cover  substantially  all  of  the  Company's
     employees.  The Parent's plans do not separately identify plan benefits and
     plan assets attributable to employees of participating companies.

     Some of the Company's  officers and key employees are  participants  in the
     Parent's Stock Option Plan.

                                      F-12
<PAGE>


9.   Contingency:

     The Company,  in common with the insurance industry in general,  is subject
     to litigation,  including claims for punitive damages, in the normal course
     of its  business.  The Company does not believe that such  litigation  will
     have a material adverse affect on its financial condition.

     The Company has no known exposure to asbestos or environmental claims.

10.  Liability for Unpaid Claims and Claim Adjustment Expenses:

     Activity in the liability for unpaid claims and claim  adjustment  expenses
is summarized as follows:

     (in thousands)

<TABLE>
<CAPTION>

     -------------------------------------- --------------------- ---------------- ---------------
                                            1999                1998                1997
     -------------------------------------- --------------------- ---------------- ---------------
     <S>                                    <C>                 <C>                 <C>

     Net Balance at January 1               $221,953            $218,679            $201,994
     Incurred related to:
          Current year                        73,305              83,607              77,740
          Prior years                             41                 (53)               (563)
                                                  --                 ----              -----
     Total incurred                           73,346              83,554              77,177
                                              ------              ------              ------

     Paid related to:
          Current year                        12,999              10,257               7,517
          Prior years                         73,389              70,023              52,975
                                              ------              ------              ------
     Total paid                               86,388              80,280              60,492
                                              ------              ------              ------

     Net Balance at December 31             $208,911            $221,953            $218,679
                                            ========            ========            ========
                                      F-13
</TABLE>